UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
or
EXCHANGE ACT OF 1934 For the transition period from ___________ to __________.
Commission File Number
Summit Financial Group, Inc.
(Exact name of registrant as specified in its charter)
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| (State or other jurisdiction of | (IRS Employer |
| incorporation or organization) | Identification No.) |
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| (Address of principal executive offices) | (Zip Code) |
(
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities and 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 ☐
Smaller reporting 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
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 the number of shares outstanding of each of the issuer’s classes of Common Stock as of the latest practicable date.
Common Stock, $2.50 par value
| Page |
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| Item 1. |
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| Consolidated balance sheets September 30, 2022 (unaudited) and December 31, 2021 |
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| Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 3. |
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| Item 4. |
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| PART II. |
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| Item 1. |
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| Item 1A. |
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| Item 2. |
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| Item 3. |
Defaults upon Senior Securities |
None |
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| Item 4. |
Mine Safety Disclosures |
None |
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| Item 5. |
Other Information |
None |
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| Item 6. |
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Consolidated Balance Sheets (unaudited)
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Dollars in thousands (except per share amounts) | (unaudited) | (*) | ||||||
| ASSETS | ||||||||
| Cash and due from banks | $ | $ | ||||||
| Interest bearing deposits with other banks | ||||||||
| Cash and cash equivalents | ||||||||
| Debt securities available for sale (at fair value) | ||||||||
| Debt securities held to maturity (at amortized cost; estimated fair value - $ - 2022, $ - 2021) | ||||||||
| Less: allowance for credit losses | ||||||||
| Debt securities held to maturity, net | ||||||||
| Equity investments (at fair value) | ||||||||
| Other investments | ||||||||
| Loans held for sale | ||||||||
| Loans, net of unearned fees | ||||||||
| Less: allowance for credit losses | ( | ) | ( | ) | ||||
| Loans, net | ||||||||
| Property held for sale | ||||||||
| Premises and equipment, net | ||||||||
| Accrued interest and fees receivable | ||||||||
| Goodwill and other intangible assets, net | ||||||||
| Cash surrender value of life insurance policies and annuities | ||||||||
| Derivative financial instruments | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Liabilities | ||||||||
| Deposits | ||||||||
| Non-interest bearing | $ | $ | ||||||
| Interest bearing | ||||||||
| Total deposits | ||||||||
| Short-term borrowings | ||||||||
| Long-term borrowings | ||||||||
| Subordinated debentures, net | ||||||||
| Subordinated debentures owed to unconsolidated subsidiary trusts | ||||||||
| Other liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Shareholders' Equity | ||||||||
| Preferred stock, $ par value, authorized shares; issued: 2022 and 2021- | ||||||||
| Common stock and related surplus, $ par value; authorized shares; issued: 2022 - shares and 2021 - shares; outstanding: 2022 - shares and 2021 - | ||||||||
| Unallocated common stock held by Employee Stock Ownership Plan - 2022 - shares and 2021 - shares | ( | ) | ( | ) | ||||
| Retained earnings | ||||||||
| Accumulated other comprehensive (loss) income | ( | ) | ||||||
| Total shareholders' equity | ||||||||
| Total liabilities and shareholders' equity | $ | $ | ||||||
(*) - Derived from audited consolidated financial statements
See Notes to Consolidated Financial Statements
Consolidated Statements of Income (unaudited)
| For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
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| Dollars in thousands (except per share amounts) |
2022 |
2021 |
2022 |
2021 |
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| Interest income |
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| Loans, including fees |
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| Taxable |
$ | $ | $ | $ | ||||||||||||
| Tax-exempt |
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| Securities |
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| Taxable |
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| Tax-exempt |
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| Interest on interest bearing deposits with other banks |
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| Total interest income |
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| Interest expense |
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| Deposits |
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| Short-term borrowings |
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| Long-term borrowings and subordinated debentures |
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| Total interest expense |
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| Net interest income |
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| Provision for credit losses |
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| Net interest income after provision for credit losses |
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| Noninterest income |
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| Trust and wealth management fees |
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| Mortgage origination revenue |
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| Service charges on deposit accounts |
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| Bank card revenue |
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| Realized (losses) gains on debt securities available for sale, net |
( |
) | ( |
) | ( |
) | ||||||||||
| Gain (loss) on equity investments |
( |
) | ||||||||||||||
| Bank owned life insurance and annuities income |
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| Other |
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| Total noninterest income |
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| Noninterest expenses |
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| Salaries, commissions and employee benefits |
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| Net occupancy expense |
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| Equipment expense |
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| Professional fees |
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| Advertising and public relations |
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| Amortization of intangibles |
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| FDIC premiums |
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| Bank card expense |
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| Foreclosed properties expense, net of (gains)/losses |
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| Acquisition-related expenses |
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| Other |
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| Total noninterest expenses |
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| Income before income tax expense |
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| Income tax expense |
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| Net income |
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| Preferred stock dividends |
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| Net income applicable to common shares |
$ | $ | $ | $ | ||||||||||||
| Basic earnings per common share |
$ | $ | $ | $ | ||||||||||||
| Diluted earnings per common share |
$ | $ | $ | $ | ||||||||||||
See Notes to Consolidated Financial Statements
Consolidated Statements of Comprehensive Income (unaudited)
| For the Three Months Ended | ||||||||
| September 30, | ||||||||
| Dollars in thousands | 2022 | 2021 | ||||||
| Net income | $ | $ | ||||||
| Other comprehensive (loss) income: | ||||||||
| Net unrealized gain on cashflow hedges of: | ||||||||
| 2022 - $, net of deferred taxes of $; 2021 - $, net of deferred taxes of $ | ||||||||
| Net unrealized gain on fair value hedge of debt securities available for sale of: | ||||||||
| 2022 - $, net of deferred taxes of $ | ||||||||
| Net unrealized loss on debt securities available for sale of: | ||||||||
| 2022 - $ net of deferred taxes of $ and reclassification adjustment for net realized losses included in net income of $, net of tax of $; 2021 - $, net of deferred taxes of $ and reclassification adjustment for net realized losses included in net income of $, net of tax of $ | ( | ) | ( | ) | ||||
| Total other comprehensive loss | ( | ) | ( | ) | ||||
| Total comprehensive income | $ | $ | ||||||
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| Dollars in thousands | 2022 | 2021 | ||||||
| Net income | $ | $ | ||||||
| Other comprehensive (loss) income: | ||||||||
| Net unrealized gain on cashflow hedges of: | ||||||||
| 2022 - $, net of deferred taxes of $; 2021 - $, net of deferred taxes of $ | ||||||||
| Net unrealized gain on fair value hedge of debt securities available for sale of: | ||||||||
| 2022 - $, net of deferred taxes of $ | ||||||||
| Net unrealized loss on debt securities available for sale of: | ||||||||
| 2022 - $, net of deferred taxes of $ and reclassification adjustment for net realized losses included in net income of $, net of tax of $; 2021 - $, net of deferred taxes of $ and reclassification adjustment for net realized gains included in net income of $, net of tax of $ | ( | ) | ( | ) | ||||
| Total other comprehensive loss | ( | ) | ( | ) | ||||
| Total comprehensive income | $ | $ | ||||||
See Notes to Consolidated Financial Statements
Consolidated Statements of Shareholders’ Equity (unaudited)
| Accumulated | ||||||||||||||||||||||||
| Preferred | Common | Unallocated | Other | Total | ||||||||||||||||||||
| Stock and | Stock and | Common | Compre- | Share- | ||||||||||||||||||||
| Related | Related | Stock Held | Retained | hensive | holders' | |||||||||||||||||||
| Dollars in thousands (except per share amounts) | Surplus | Surplus | by ESOP | Earnings | (Loss) Income | Equity | ||||||||||||||||||
| Balance June 30, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||
| Three Months Ended September 30, 2022 | ||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||||||
| Exercise of SARs - 4,428 shares | ||||||||||||||||||||||||
| Share-based compensation expense | ||||||||||||||||||||||||
| Unallocated ESOP shares committed to be released - shares | ||||||||||||||||||||||||
| Common stock issuances from reinvested dividends - shares | ||||||||||||||||||||||||
| Preferred stock cash dividends declared | ( | ) | ( | ) | ||||||||||||||||||||
| Common stock cash dividends declared ($ per share) | ( | ) | ( | ) | ||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||
| Balance June 30, 2021 | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||
| Three Months Ended September 30, 2021 | ||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||||||
| Exercise of stock options - shares | ||||||||||||||||||||||||
| Share-based compensation expense | ||||||||||||||||||||||||
| Unallocated ESOP shares committed to be released - shares | ||||||||||||||||||||||||
| Common stock issuances from reinvested dividends - shares | ||||||||||||||||||||||||
| Preferred stock cash dividends declared | ( | ) | ( | ) | ||||||||||||||||||||
| Common stock cash dividends declared ($ per share) | ( | ) | ( | ) | ||||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||
See Notes to Consolidated Financial Statements
Consolidated Statements of Shareholders’ Equity (unaudited)
| Accumulated | ||||||||||||||||||||||||
| Preferred | Common | Unallocated | Other | Total | ||||||||||||||||||||
| Stock and | Stock and | Common | Compre- | Share- | ||||||||||||||||||||
| Related | Related | Stock Held | Retained | hensive | holders' | |||||||||||||||||||
| Dollars in thousands (except per share amounts) | Surplus | Surplus | by ESOP | Earnings | (Loss) Income | Equity | ||||||||||||||||||
| Balance December 31, 2021 | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||
| Nine Months Ended September 30, 2022 | ||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||||||
| Exercise of SARs - shares | ||||||||||||||||||||||||
| Vesting of RSUs - shares | ||||||||||||||||||||||||
| Share-based compensation expense | ||||||||||||||||||||||||
| Unallocated ESOP shares committed to be released - shares | ||||||||||||||||||||||||
| Common stock issuances from reinvested dividends - shares | ||||||||||||||||||||||||
| Preferred stock cash dividends declared | ( | ) | ( | ) | ||||||||||||||||||||
| Common stock cash dividends declared ($ per share) | ( | ) | ( | ) | ||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||
| Balance December 31, 2020 | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||
| Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||||||
| Exercise of stock options and SARs - shares | ||||||||||||||||||||||||
| Vesting of RSUs - shares | ||||||||||||||||||||||||
| Share-based compensation expense | ||||||||||||||||||||||||
| Issuance of shares of preferred stock, net of issuance costs | ||||||||||||||||||||||||
| Unallocated ESOP shares committed to be released - shares | ||||||||||||||||||||||||
| Common stock issuances from reinvested dividends - shares | ||||||||||||||||||||||||
| Preferred stock cash dividend declared | ( | ) | ( | ) | ||||||||||||||||||||
| Common stock cash dividends declared ($ per share) | ( | ) | ( | ) | ||||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||
See Notes to Consolidated Financial Statements
Consolidated Statements of Cash Flows (unaudited)
| Nine Months Ended | ||||||||
| September 30, | September 30, | |||||||
| Dollars in thousands | 2022 | 2021 | ||||||
| Cash Flows from Operating Activities | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation | ||||||||
| Provision for credit losses | ||||||||
| Share-based compensation expense | ||||||||
| Deferred income tax expense | ||||||||
| Loans originated for sale | ( | ) | ( | ) | ||||
| Proceeds from sale of loans | ||||||||
| Gains on loans held for sale | ( | ) | ( | ) | ||||
| Realized losses (gains) on debt securities, net | ( | ) | ||||||
| Loss on equity investments | ||||||||
| Loss on disposal of assets | ||||||||
| Write-downs of foreclosed properties | ||||||||
| Amortization of securities premiums, net | ||||||||
| Accretion related to acquisition adjustments, net | ( | ) | ( | ) | ||||
| Amortization of intangibles | ||||||||
| Earnings on bank owned life insurance and annuities | ( | ) | ( | ) | ||||
| (Increase) decrease in accrued interest receivable | ( | ) | ||||||
| Decrease (increase) in other assets | ( | ) | ||||||
| Increase in other liabilities | ||||||||
| Net cash provided by operating activities | ||||||||
| Cash Flows from Investing Activities | ||||||||
| Proceeds from maturities and calls of debt securities available for sale | ||||||||
| Proceeds from sales of debt securities available for sale | ||||||||
| Principal payments received on debt securities available for sale | ||||||||
| Purchases of debt securities available for sale | ( | ) | ( | ) | ||||
| Purchase of equity investments | ( | ) | ||||||
| Purchases of other investments | ( | ) | ( | ) | ||||
| Proceeds from redemptions of other investments | ||||||||
| Net loan originations | ( | ) | ( | ) | ||||
| Purchases of premises and equipment | ( | ) | ( | ) | ||||
| Proceeds from disposal of premises and equipment | ||||||||
| Improvements to property held for sale | ( | ) | ||||||
| Proceeds from sales of repossessed assets & property held for sale | ||||||||
| Purchase of life insurance contracts and annuities | ( | ) | ||||||
| Cash and cash equivalents from acquisitions, net of cash consideration paid 2021 - $ | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Net increase in demand deposit, NOW and savings accounts | ||||||||
| Net decrease in time deposits | ( | ) | ( | ) | ||||
| Net increase in short-term borrowings | ||||||||
| Repayment of long-term borrowings | ( | ) | ( | ) | ||||
| Proceeds from issuance of common stock | ||||||||
| Proceeds from issuance of preferred stock, net of issuance costs | ||||||||
| Exercise of stock options | ||||||||
| Dividends paid on common stock | ( | ) | ( | ) | ||||
| Dividends paid on preferred stock | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| (Decrease) increase in cash and cash equivalents | ( | ) | ||||||
continued
See Notes to Consolidated Financial Statements
Consolidated Statements of Cash Flows (unaudited)(continued)
| Nine Months Ended |
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| September 30, |
September 30, |
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| Dollars in thousands |
2022 |
2021 |
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| Cash and cash equivalents: |
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| Beginning |
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| Ending |
$ | $ | ||||||
| Supplemental Disclosures of Cash Flow Information |
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| Cash payments for: |
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| Interest |
$ | $ | ||||||
| Income taxes |
$ | $ | ||||||
| Supplemental Disclosures of Noncash Investing and Financing Activities |
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| Real property and other assets acquired in settlement of loans |
$ | $ | ||||||
| Right of use assets obtained in exchange for lease obligations |
$ | $ | ||||||
| Supplemental Disclosures of Noncash Transactions Included in Acquisition |
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| Assets acquired |
$ | $ | ||||||
| Liabilities assumed |
$ | $ | ||||||
See Notes to Consolidated Financial Statements
We, Summit Financial Group, Inc. and subsidiary, prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America for interim financial information and with instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for annual year end financial statements. In our opinion, all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature.
The presentation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from these estimates. You should carefully consider each risk factor discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021.
The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the full year. The consolidated financial statements and notes included herein should be read in conjunction with our 2021 audited financial statements and Annual Report on Form 10-K.
NOTE 2. SIGNIFICANT NEW AUTHORITATIVE ACCOUNTING GUIDANCE
Recently Adopted
In October 2020, the FASB issued ASU 2020-08 Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable fees and Other Costs which clarifies that an entity should reevaluate whether a callable debt security is within the scope of ASC paragraph 310-20-35-33 for each reporting period. For public business entities, the ASU is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Early adoption is not permitted. All entities should apply ASU No. 2020-08 on a prospective basis as of the beginning of the period of adoption for existing or newly purchased callable debt securities. The adoption of ASU 2020-08 did not have a material impact on our consolidated financial statements.
Pending Adoption
In March 2020, the Financial Accounting Standards Board (FASB) issued ASU 2020-04 Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. At this time, we do not anticipate any material adverse impact to our business operation or financial results during the period of transition.
In October 2021, the FASB issued ASU 2021-08 Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The ASU requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. The amendments improve comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. The ASU is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2022. Entities should apply the amendments prospectively and early adoption is permitted. We do not expect the adoption of ASU 2021-08 to have a material impact on our consolidated financial statements.
In March 2022, the Financial Accounting Standards Board (FASB) issued ASU No. 2022-01, Derivatives and Hedging (Topic 815), Fair Value Hedging—Portfolio Layer Method. ASU 2022-01 clarifies the guidance in ASC 815 on fair value hedge accounting of interest rate risk for portfolios of financial assets and is intended to better align hedge accounting with an organization’s risk management strategies. In 2017, FASB issued ASU 2017-12 to better align the economic results of risk management activities with hedge accounting. One of the major provisions of that standard was the addition of the last-of-layer hedging method. For a closed portfolio of fixed-rate prepayable financial assets or one or more beneficial interests secured by a portfolio of prepayable financial instruments, such as mortgages or mortgage-backed securities, the last-of-layer method allows an entity to hedge its exposure to fair value changes due to changes in interest rates for a portion of the portfolio that is not expected to be affected by prepayments, defaults, and other events affecting the timing and amount of cash flows. ASU 2022-01 renames that method the portfolio layer method. For public business entities, ASU 2022-01 is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. We do not expect the adoption of ASU 2022-01 to have a material impact on our consolidated financial statements.
In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings in ASC Subtopic 310-40, Receivables - Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Additionally, ASU 2022-02 requires entities to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of ASC Subtopic 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost. ASU 2022-02 will be effective for us on January 1, 2023 though early adoption is permitted. The adoption of ASU 2022-02 is not expected to have a significant impact on our financial statements.
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The ASU is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted. We do not expect the adoption of ASU 2022-03 to have a material impact on our consolidated financial statements.
NOTE 3. FAIR VALUE MEASUREMENTS
The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis.
| Balance at | Fair Value Measurements Using: | |||||||||||||||
| Dollars in thousands | September 30, 2022 | Level 1 | Level 2 | Level 3 | ||||||||||||
| Debt securities available for sale | ||||||||||||||||
| U.S. Government sponsored agencies and corporations | $ | $ | $ | $ | ||||||||||||
| Residential mortgage-backed securities: | ||||||||||||||||
| Government sponsored agencies | ||||||||||||||||
| Nongovernment sponsored entities | ||||||||||||||||
| State and political subdivisions | ||||||||||||||||
| Corporate debt securities | ||||||||||||||||
| Asset-backed securities | ||||||||||||||||
| Tax-exempt state and political subdivisions | ||||||||||||||||
| Total debt securities available for sale | $ | $ | $ | $ | ||||||||||||
| Derivative financial assets | ||||||||||||||||
| Interest rate caps | $ | $ | $ | $ | ||||||||||||
| Interest rate swaps | ||||||||||||||||
| Balance at | Fair Value Measurements Using: | |||||||||||||||
| Dollars in thousands | December 31, 2021 | Level 1 | Level 2 | Level 3 | ||||||||||||
| Debt securities available for sale | ||||||||||||||||
| U.S. Government sponsored agencies and corporations | $ | $ | $ | $ | ||||||||||||
| Residential mortgage-backed securities: | ||||||||||||||||
| Government sponsored agencies | ||||||||||||||||
| Nongovernment sponsored entities | ||||||||||||||||
| State and political subdivisions | ||||||||||||||||
| Corporate debt securities | ||||||||||||||||
| Asset-backed securities | ||||||||||||||||
| Tax-exempt state and political subdivisions | ||||||||||||||||
| Total debt securities available for sale | $ | $ | $ | $ | ||||||||||||
| Derivative financial assets | ||||||||||||||||
| Interest rate caps | $ | $ | $ | $ | ||||||||||||
| Derivative financial liabilities | ||||||||||||||||
| Interest rate swaps | $ | $ | $ | $ | ||||||||||||
We may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis are included in the table below.
| Balance at | Fair Value Measurements Using: | |||||||||||||||
| Dollars in thousands | September 30, 2022 | Level 1 | Level 2 | Level 3 | ||||||||||||
| Residential mortgage loans held for sale | $ | $ | $ | $ | ||||||||||||
| Collateral-dependent loans with an ACLL | ||||||||||||||||
| Commercial real estate | $ | $ | $ | $ | ||||||||||||
| Construction and development | ||||||||||||||||
| Residential real estate | ||||||||||||||||
| Total collateral-dependent loans with an ACLL | $ | $ | $ | $ | ||||||||||||
| Property held for sale | ||||||||||||||||
| Commercial real estate | $ | $ | $ | $ | ||||||||||||
| Construction and development | ||||||||||||||||
| Residential real estate | ||||||||||||||||
| Total property held for sale | $ | $ | $ | $ | ||||||||||||
| Balance at | Fair Value Measurements Using: | |||||||||||||||
| Dollars in thousands | December 31, 2021 | Level 1 | Level 2 | Level 3 | ||||||||||||
| Residential mortgage loans held for sale | $ | $ | $ | $ | ||||||||||||
| Collateral-dependent loans with an ACLL | ||||||||||||||||
| Commercial real estate | $ | $ | $ | $ | ||||||||||||
| Construction and development | ||||||||||||||||
| Residential real estate | ||||||||||||||||
| Total collateral-dependent loans with an ACLL | $ | $ | $ | $ | ||||||||||||
| Property held for sale | ||||||||||||||||
| Commercial real estate | $ | $ | $ | $ | ||||||||||||
| Construction and development | ||||||||||||||||
| Residential real estate | ||||||||||||||||
| Total property held for sale | $ | $ | $ | $ | ||||||||||||
The carrying values and estimated fair values of our financial instruments are summarized below:
| September 30, 2022 | Fair Value Measurements Using: | |||||||||||||||||||
| Estimated | ||||||||||||||||||||
| Carrying | Fair | |||||||||||||||||||
| Dollars in thousands | Value | Value | Level 1 | Level 2 | Level 3 | |||||||||||||||
| Financial assets | ||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | |||||||||||||||
| Debt securities available for sale | ||||||||||||||||||||
| Debt securities held to maturity | ||||||||||||||||||||
| Equity investments | ||||||||||||||||||||
| Other investments | ||||||||||||||||||||
| Loans held for sale | ||||||||||||||||||||
| Loans, net | ||||||||||||||||||||
| Accrued interest receivable | ||||||||||||||||||||
| Cash surrender value of life insurance policies and annuities | ||||||||||||||||||||
| Derivative financial assets | ||||||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
| Financial liabilities | ||||||||||||||||||||
| Deposits | $ | $ | $ | $ | $ | |||||||||||||||
| Short-term borrowings | ||||||||||||||||||||
| Long-term borrowings | ||||||||||||||||||||
| Subordinated debentures | ||||||||||||||||||||
| Subordinated debentures owed to unconsolidated subsidiary trusts | ||||||||||||||||||||
| Accrued interest payable | ||||||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
| December 31, 2021 | Fair Value Measurements Using: | |||||||||||||||||||
| Estimated | ||||||||||||||||||||
| Carrying | Fair | |||||||||||||||||||
| Dollars in thousands | Value | Value | Level 1 | Level 2 | Level 3 | |||||||||||||||
| Financial assets | ||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | |||||||||||||||
| Debt securities available for sale | ||||||||||||||||||||
| Debt securities held to maturity | ||||||||||||||||||||
| Equity investments | ||||||||||||||||||||
| Other investments | ||||||||||||||||||||
| Loans held for sale, net | ||||||||||||||||||||
| Loans, net | ||||||||||||||||||||
| Accrued interest receivable | ||||||||||||||||||||
| Cash surrender value of life insurance policies and annuities | ||||||||||||||||||||
| Derivative financial assets | ||||||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
| Financial liabilities | ||||||||||||||||||||
| Deposits | $ | $ | $ | $ | $ | |||||||||||||||
| Short-term borrowings | ||||||||||||||||||||
| Long-term borrowings | ||||||||||||||||||||
| Subordinated debentures | ||||||||||||||||||||
| Subordinated debentures owed to unconsolidated subsidiary trusts | ||||||||||||||||||||
| Accrued interest payable | ||||||||||||||||||||
| Derivative financial liabilities | ||||||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
The computations of basic and diluted earnings per share follow:
| For the Three Months Ended September 30, | ||||||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||||||
| Common | Common | |||||||||||||||||||||||
| Net Income | Shares | Per | Net Income | Shares | Per | |||||||||||||||||||
| Dollars in thousands,except per share amounts | (Numerator) | (Denominator) | Share | (Numerator) | (Denominator) | Share | ||||||||||||||||||
| Net income | $ | $ | ||||||||||||||||||||||
| Less preferred stock dividends | ( | ) | ( | ) | ||||||||||||||||||||
| Basic earnings per share | $ | $ | $ | $ | ||||||||||||||||||||
| Effect of dilutive securities: | ||||||||||||||||||||||||
| Stock options | — | |||||||||||||||||||||||
| Stock appreciation rights ("SARs") | ||||||||||||||||||||||||
| Restricted stock units ("RSUs") | ||||||||||||||||||||||||
| Diluted earnings per share | $ | $ | $ | $ | ||||||||||||||||||||
| For the Nine Months Ended September 30, | ||||||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||||||
| Common | Common | |||||||||||||||||||||||
| Net Income | Shares | Per | Net Income | Shares | Per | |||||||||||||||||||
| Dollars in thousands,except per share amounts | (Numerator) | (Denominator) | Share | (Numerator) | (Denominator) | Share | ||||||||||||||||||
| Net income | $ | $ | ||||||||||||||||||||||
| Less preferred stock dividends | ( | ) | ( | ) | ||||||||||||||||||||
| Basic earnings per share | $ | $ | $ | $ | ||||||||||||||||||||
| Effect of dilutive securities: | ||||||||||||||||||||||||
| Stock options | — | |||||||||||||||||||||||
| Stock appreciation rights ("SARs") | ||||||||||||||||||||||||
| Restricted stock units ("RSUs") | ||||||||||||||||||||||||
| Diluted earnings per share | $ | $ | $ | $ | ||||||||||||||||||||
Stock option and SAR grants are disregarded in this computation if they are determined to be anti-dilutive. All stock options were dilutive for thethree and nine months ended September 30, 2021. Our anti-dilutive SARs were
NOTE 5. DEBT SECURITIES
Debt Securities Available for Sale
The amortized cost, unrealized gains, unrealized losses and estimated fair values of debt securities available for sale at September 30, 2022 and December 31, 2021 are summarized as follows:
| September 30, 2022 | ||||||||||||||||
| Amortized | Unrealized | Estimated | ||||||||||||||
| Dollars in thousands | Cost | Gains | Losses | Fair Value | ||||||||||||
| Debt Securities Available for Sale | ||||||||||||||||
| Taxable debt securities | ||||||||||||||||
| U.S. Government sponsored agencies and corporations | $ | $ | $ | $ | ||||||||||||
| Residential mortgage-backed securities: | ||||||||||||||||
| Government-sponsored agencies | ||||||||||||||||
| Nongovernment-sponsored entities | ||||||||||||||||
| State and political subdivisions | ||||||||||||||||
| General obligations | ||||||||||||||||
| Sales tax revenues | ||||||||||||||||
| Various tax revenues | ||||||||||||||||
| Utility revenues | ||||||||||||||||
| Other revenues | ||||||||||||||||
| Corporate debt securities | ||||||||||||||||
| Asset-backed securities | ||||||||||||||||
| Total taxable debt securities | ||||||||||||||||
| Tax-exempt debt securities | ||||||||||||||||
| State and political subdivisions | ||||||||||||||||
| General obligations | ||||||||||||||||
| Water and sewer revenues | ||||||||||||||||
| Lease revenues | ||||||||||||||||
| Various tax revenues | ||||||||||||||||
| Other revenues | ||||||||||||||||
| Total tax-exempt debt securities | ||||||||||||||||
| Total debt securities available for sale | $ | $ | $ | $ | ||||||||||||
| December 31, 2021 | ||||||||||||||||
| Amortized | Unrealized | Estimated | ||||||||||||||
| Dollars in thousands | Cost | Gains | Losses | Fair Value | ||||||||||||
| Debt Securities Available for Sale | ||||||||||||||||
| Taxable debt securities | ||||||||||||||||
| U.S. Government sponsored agencies and corporations | $ | $ | $ | $ | ||||||||||||
| Residential mortgage-backed securities: | ||||||||||||||||
| Government-sponsored agencies | ||||||||||||||||
| Nongovernment-sponsored entities | ||||||||||||||||
| State and political subdivisions | ||||||||||||||||
| General obligations | ||||||||||||||||
| Water and sewer revenues | ||||||||||||||||
| Lease revenues | ||||||||||||||||
| Income tax revenues | ||||||||||||||||
| Sales tax revenues | ||||||||||||||||
| Various tax revenues | ||||||||||||||||
| Utility revenues | ||||||||||||||||
| Other revenues | ||||||||||||||||
| Corporate debt securities | ||||||||||||||||
| Asset-backed securities | ||||||||||||||||
| Total taxable debt securities | ||||||||||||||||
| Tax-exempt debt securities | ||||||||||||||||
| State and political subdivisions | ||||||||||||||||
| General obligations | ||||||||||||||||
| Water and sewer revenues | ||||||||||||||||
| Lease revenues | ||||||||||||||||
| Other revenues | ||||||||||||||||
| Total tax-exempt debt securities | ||||||||||||||||
| Total debt securities available for sale | $ | $ | $ | $ | ||||||||||||
Accrued interest receivable on debt securities available for sale totaled $
The below information is relative to the five states where issuers with the highest volume of state and political subdivision securities held in our available for sale portfolio are located. We own no such securities of any single issuer which we deem to be a concentration.
| September 30, 2022 | ||||||||||||||||
| Amortized | Unrealized | Estimated | ||||||||||||||
| Dollars in thousands | Cost | Gains | Losses | Fair Value | ||||||||||||
| California | $ | $ | $ | $ | ||||||||||||
| Texas | ||||||||||||||||
| Washington | ||||||||||||||||
| Michigan | ||||||||||||||||
| Oregon | ||||||||||||||||
Management performs pre-purchase and ongoing analysis to confirm that all investment securities meet applicable credit quality standards.
The maturities, amortized cost and estimated fair values of debt securities available for sale at September 30, 2022, are summarized as follows:
| Amortized | Estimated | |||||||
| Dollars in thousands | Cost | Fair Value | ||||||
| Due in one year or less | $ | $ | ||||||
| Due from one to five years | ||||||||
| Due from five to ten years | ||||||||
| Due after ten years | ||||||||
| Total | $ | $ | ||||||
The proceeds from sales, calls and maturities of debt securities available for sale, including principal payments received on mortgage-backed obligations, and the related gross gains and losses realized, for the nine months ended September 30, 2022 and 2021 are as follows:
| Proceeds from | Gross realized | |||||||||||||||||||
| Calls and | Principal | |||||||||||||||||||
| Dollars in thousands | Sales | Maturities | Payments | Gains | Losses | |||||||||||||||
| For the Nine Months Ended | ||||||||||||||||||||
| September 30, | ||||||||||||||||||||
| 2022 | $ | $ | $ | $ | $ | |||||||||||||||
| 2021 | $ | $ | $ | $ | $ | |||||||||||||||
Provided below is a summary of debt securities available for sale which were in an unrealized loss position at September 30, 2022 and December 31, 2021.
| September 30, 2022 | ||||||||||||||||||||||||||||
| Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||||||
| # of securities | Estimated | Unrealized | Estimated | Unrealized | Estimated | Unrealized | ||||||||||||||||||||||
| Dollars in thousands | in loss position | Fair Value | Loss | Fair Value | Loss | Fair Value | Loss | |||||||||||||||||||||
| Taxable debt securities | ||||||||||||||||||||||||||||
| U.S. Government sponsored agencies and corporations | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| Residential mortgage-backed securities: | ||||||||||||||||||||||||||||
| Government-sponsored agencies | ||||||||||||||||||||||||||||
| Nongovernment-sponsored entities | ||||||||||||||||||||||||||||
| State and political subdivisions: | ||||||||||||||||||||||||||||
| General obligations | ||||||||||||||||||||||||||||
| Sales tax revenues | ||||||||||||||||||||||||||||
| Various tax revenues | ||||||||||||||||||||||||||||
| Utility revenues | ||||||||||||||||||||||||||||
| Other revenues | ||||||||||||||||||||||||||||
| Corporate debt securities | ||||||||||||||||||||||||||||
| Asset-backed securities | ||||||||||||||||||||||||||||
| Tax-exempt debt securities | ||||||||||||||||||||||||||||
| State and political subdivisions: | ||||||||||||||||||||||||||||
| General obligations | ||||||||||||||||||||||||||||
| Water and sewer revenues | ||||||||||||||||||||||||||||
| Lease revenues | ||||||||||||||||||||||||||||
| Various tax revenues | ||||||||||||||||||||||||||||
| Other revenues | ||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| December 31, 2021 | ||||||||||||||||||||||||||||
| Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||||||
| # of securities | Estimated | Unrealized | Estimated | Unrealized | Estimated | Unrealized | ||||||||||||||||||||||
| Dollars in thousands | in loss position | Fair Value | Loss | Fair Value | Loss | Fair Value | Loss | |||||||||||||||||||||
| Taxable debt securities | ||||||||||||||||||||||||||||
| U.S. Government sponsored agencies and corporations | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| Residential mortgage-backed securities: | ||||||||||||||||||||||||||||
| Government-sponsored agencies | ||||||||||||||||||||||||||||
| Nongovernment-sponsored entities | ||||||||||||||||||||||||||||
| State and political subdivisions: | ||||||||||||||||||||||||||||
| General obligations | ||||||||||||||||||||||||||||
| Lease revenues | ||||||||||||||||||||||||||||
| Income tax revenues | ||||||||||||||||||||||||||||
| Sales tax revenues | ||||||||||||||||||||||||||||
| Various tax revenues | ||||||||||||||||||||||||||||
| Utility revenues | ||||||||||||||||||||||||||||
| Other revenues | ||||||||||||||||||||||||||||
| Corporate debt securities | ||||||||||||||||||||||||||||
| Asset-backed securities | ||||||||||||||||||||||||||||
| Tax-exempt debt securities | ||||||||||||||||||||||||||||
| State and political subdivisions: | ||||||||||||||||||||||||||||
| General obligations | ||||||||||||||||||||||||||||
| Water and sewer revenues | ||||||||||||||||||||||||||||
| Lease revenues | ||||||||||||||||||||||||||||
| Other revenues | ||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
We do not intend to sell the above securities, and it is more likely than not that we will not be required to sell these securities before recovery of their amortized cost bases. We believe that this decline in value is primarily attributable to changes in market interest rates, and in some cases limited market liquidity and is not due to credit quality, as none of these securities are in default and all carry above investment grade ratings. Accordingly, no allowance for credit losses has been recognized relative to these securities.
Debt Securities Held to Maturity
The amortized cost, unrealized gains, unrealized losses and estimated fair values of debt securities held to maturity at September 30, 2022 and December 31, 2021 are summarized as follows:
| September 30, 2022 | ||||||||||||||||
| Amortized | Unrealized | Estimated | ||||||||||||||
| Dollars in thousands | Cost | Gains | Losses | Fair Value | ||||||||||||
| Debt Securities Held to Maturity | ||||||||||||||||
| Tax-exempt debt securities | ||||||||||||||||
| State and political subdivisions: | ||||||||||||||||
| General obligations | $ | $ | $ | $ | ||||||||||||
| Water and sewer revenues | ||||||||||||||||
| Lease revenues | ||||||||||||||||
| Sales tax revenues | ||||||||||||||||
| Various tax revenues | ||||||||||||||||
| Other revenues | ||||||||||||||||
| Total debt securities held to maturity | $ | $ | $ | $ | ||||||||||||
| December 31, 2021 | ||||||||||||||||
| Amortized | Unrealized | Estimated | ||||||||||||||
| Dollars in thousands | Cost | Gains | Losses | Fair Value | ||||||||||||
| Debt Securities Held to Maturity | ||||||||||||||||
| Tax-exempt debt securities | ||||||||||||||||
| State and political subdivisions: | ||||||||||||||||
| General obligations | $ | $ | $ | $ | ||||||||||||
| Water and sewer revenues | ||||||||||||||||
| Lease revenues | ||||||||||||||||
| Sales tax revenues | ||||||||||||||||
| Other revenues | ||||||||||||||||
| Total debt securities held to maturity | $ | $ | $ | $ | ||||||||||||
Accrued interest receivable on debt securities held to maturity totaled $
The below information is relative to the states where issuers with the highest volume of state and political subdivision securities held in our held to maturity portfolio are located. We own no such securities of any single issuer which we deem to be a concentration.
| September 30, 2022 | ||||||||||||||||
| Amortized | Unrealized | Estimated | ||||||||||||||
| Dollars in thousands | Cost | Gains | Losses | Fair Value | ||||||||||||
| Texas | $ | $ | $ | $ | ||||||||||||
| California | ||||||||||||||||
| Pennsylvania | ||||||||||||||||
| Florida | ||||||||||||||||
| Michigan | ||||||||||||||||
The following table displays the amortized cost of held to maturity debt securities by credit rating at September 30, 2022 and December 31, 2021.
| September 30, 2022 | ||||||||||||||||||||
| Dollars in thousands | AAA | AA | A | BBB | Below Investment Grade | |||||||||||||||
| Tax-exempt state and political subdivisions | $ | $ | $ | $ | $ | |||||||||||||||
| December 31, 2021 | ||||||||||||||||||||
| Dollars in thousands | AAA | AA | A | BBB | Below Investment Grade | |||||||||||||||
| Tax-exempt state and political subdivisions | $ | $ | $ | $ | $ | |||||||||||||||
We owned
The maturities, amortized cost and estimated fair values of held to maturity debt securities at September 30, 2022, are summarized as follows:
| Amortized | Estimated | |||||||
| Dollars in thousands | Cost | Fair Value | ||||||
| Due in one year or less | $ | $ | ||||||
| Due from one to five years | ||||||||
| Due from five to ten years | ||||||||
| Due after ten years | ||||||||
| Total | $ | $ | ||||||
There were
At September 30, 2022,
NOTE 6. LOANS AND ALLOWANCE FOR CREDIT LOSSES ON LOANS (ACLL)
Loans
The following table presents the amortized cost of loans held for investment:
| September 30, | December 31, | |||||||
| Dollars in thousands | 2022 | 2021 | ||||||
| Commercial | $ | $ | ||||||
| Commercial real estate - owner occupied | ||||||||
| Professional & medical | ||||||||
| Retail | ||||||||
| Other | ||||||||
| Commercial real estate - non-owner occupied | ||||||||
| Hotels & motels | ||||||||
| Mini-storage | ||||||||
| Multifamily | ||||||||
| Retail | ||||||||
| Other | ||||||||
| Construction and development | ||||||||
| Land & land development | ||||||||
| Construction | ||||||||
| Residential 1-4 family real estate | ||||||||
| Personal residence | ||||||||
| Rental - small loan | ||||||||
| Rental - large loan | ||||||||
| Home equity | ||||||||
| Mortgage warehouse lines | ||||||||
| Consumer | ||||||||
| Other | ||||||||
| Credit cards | ||||||||
| Overdrafts | ||||||||
| Total loans, net of unearned fees | ||||||||
| Less allowance for credit losses - loans | ||||||||
| Loans, net | $ | $ | ||||||
Accrued interest and fees receivable on loans totaled $
The following table presents the contractual aging of the amortized cost basis of past due loans by class as of September 30, 2022 and December 31, 2021.
| At September 30, 2022 | ||||||||||||||||||||||||
| Past Due | 90 days or more and | |||||||||||||||||||||||
| Dollars in thousands | 30-59 days | 60-89 days | 90 days or more | Total | Current | Accruing | ||||||||||||||||||
| Commercial | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Commercial real estate - owner occupied | ||||||||||||||||||||||||
| Professional & medical | ||||||||||||||||||||||||
| Retail | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Commercial real estate - non-owner occupied | ||||||||||||||||||||||||
| Hotels & motels | ||||||||||||||||||||||||
| Mini-storage | ||||||||||||||||||||||||
| Multifamily | ||||||||||||||||||||||||
| Retail | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Construction and development | ||||||||||||||||||||||||
| Land & land development | ||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||
| Residential 1-4 family real estate | ||||||||||||||||||||||||
| Personal residence | ||||||||||||||||||||||||
| Rental - small loan | ||||||||||||||||||||||||
| Rental - large loan | ||||||||||||||||||||||||
| Home equity | ||||||||||||||||||||||||
| Mortgage warehouse lines | ||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Credit cards | ||||||||||||||||||||||||
| Overdrafts | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| December 31, 2021 | ||||||||||||||||||||||||
| Past Due | 90 days or more and | |||||||||||||||||||||||
| Dollars in thousands | 30-59 days | 60-89 days | 90 days or more | Total | Current | Accruing | ||||||||||||||||||
| Commercial | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Commercial real estate - owner occupied | ||||||||||||||||||||||||
| Professional & medical | ||||||||||||||||||||||||
| Retail | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Commercial real estate - non-owner occupied | ||||||||||||||||||||||||
| Hotels & motels | ||||||||||||||||||||||||
| Mini-storage | ||||||||||||||||||||||||
| Multifamily | ||||||||||||||||||||||||
| Retail | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Construction and development | ||||||||||||||||||||||||
| Land & land development | ||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||
| Residential 1-4 family real estate | ||||||||||||||||||||||||
| Personal residence | ||||||||||||||||||||||||
| Rental - small loan | ||||||||||||||||||||||||
| Rental - large loan | ||||||||||||||||||||||||
| Home equity | ||||||||||||||||||||||||
| Mortgage warehouse lines | ||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Credit cards | ||||||||||||||||||||||||
| Overdrafts | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
The following table presents the nonaccrual loans included in the net balance of loans at September 30, 2022 and December 31, 2021.
| September 30, | December 31, | |||||||||||||||
| 2022 | 2021 | |||||||||||||||
| Nonaccrual | Nonaccrual | |||||||||||||||
| with No | with No | |||||||||||||||
| Allowance for | Allowance for | |||||||||||||||
| Credit Losses | Credit Losses | |||||||||||||||
| Dollars in thousands | Nonaccrual | - Loans | Nonaccrual | - Loans | ||||||||||||
| Commercial | $ | $ | $ | $ | ||||||||||||
| Commercial real estate - owner occupied | ||||||||||||||||
| Professional & medical | ||||||||||||||||
| Retail | ||||||||||||||||
| Other | ||||||||||||||||
| Commercial real estate - non-owner occupied | ||||||||||||||||
| Hotels & motels | ||||||||||||||||
| Mini-storage | ||||||||||||||||
| Multifamily | ||||||||||||||||
| Retail | ||||||||||||||||
| Other | ||||||||||||||||
| Construction and development | ||||||||||||||||
| Land & land development | ||||||||||||||||
| Construction | ||||||||||||||||
| Residential 1-4 family real estate | ||||||||||||||||
| Personal residence | ||||||||||||||||
| Rental - small loan | ||||||||||||||||
| Rental - large loan | ||||||||||||||||
| Home equity | ||||||||||||||||
| Mortgage warehouse lines | ||||||||||||||||
| Consumer | ||||||||||||||||
| Other | ||||||||||||||||
| Credit cards | ||||||||||||||||
| Overdrafts | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
At September 30, 2022, we had troubled debt restructurings ("TDRs") of $
The following table presents by class the TDRs that were restructured during the three and nine months ended September 30, 2022 and September 30, 2021. Generally, the modifications were extensions of term, modifying the payment terms from principal and interest to interest only for an extended period, or reduction in interest rate. TDRs are evaluated individually for allowance for credit loss purposes if the loan balance exceeds $
| For the Three Months Ended | For the Three Months Ended | |||||||||||||||||||||||
| September 30, 2022 | September 30, 2021 | |||||||||||||||||||||||
| Pre- | Post- | Pre- | Post- | |||||||||||||||||||||
| modification | modification | modification | modification | |||||||||||||||||||||
| Number of | Recorded | Recorded | Number of | Recorded | Recorded | |||||||||||||||||||
| Dollars in thousands | Modifications | Investment | Investment | Modifications | Investment | Investment | ||||||||||||||||||
| Residential 1-4 family real estate | ||||||||||||||||||||||||
| Personal residence | $ | $ | $ | $ | ||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||||||
| For the Nine Months Ended | For the Nine Months Ended | |||||||||||||||||||||||
| September 30, 2022 | September 30, 2021 | |||||||||||||||||||||||
| Pre- | Post- | Pre- | Post- | |||||||||||||||||||||
| modification | modification | modification | modification | |||||||||||||||||||||
| Number of | Recorded | Recorded | Number of | Recorded | Recorded | |||||||||||||||||||
| Dollars in thousands | Modifications | Investment | Investment | Modifications | Investment | Investment | ||||||||||||||||||
| Residential 1-4 family real estate | ||||||||||||||||||||||||
| Personal residence | $ | $ | $ | $ | ||||||||||||||||||||
| Home equity | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||||||
The following tables present defaults during the stated period of TDRs that were restructured during the prior 12 months. For purposes of these tables, a default is considered as either the loan was past due 30 days or more at any time during the period, or the loan was fully or partially charged off during the period.
| For the Three Months Ended | For the Three Months Ended | |||||||||||||||
| September 30, 2022 | September 30, 2021 | |||||||||||||||
| Number | Recorded | Number | Recorded | |||||||||||||
| of | Investment | of | Investment | |||||||||||||
| Dollars in thousands | Defaults | at Default Date | Defaults | at Default Date | ||||||||||||
| Residential 1-4 family real estate | ||||||||||||||||
| Personal residence | $ | $ | ||||||||||||||
| Home equity | ||||||||||||||||
| Consumer | ||||||||||||||||
| Total | $ | $ | ||||||||||||||
| For the Nine Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, 2022 | September 30, 2021 | |||||||||||||||
| Number | Recorded | Number | Recorded | |||||||||||||
| of | Investment | of | Investment | |||||||||||||
| Dollars in thousands | Defaults | at Default Date | Defaults | at Default Date | ||||||||||||
| Residential 1-4 family real estate | ||||||||||||||||
| Personal residence | $ | $ | ||||||||||||||
| Home equity | ||||||||||||||||
| Consumer | ||||||||||||||||
| Total | $ | $ | ||||||||||||||
Credit Quality Indicators: We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. We analyze loans individually by classifying the loans as to credit risk. We internally grade all commercial loans at the time of loan origination. In addition, we perform an annual loan review on all non-homogenous commercial loan relationships with an aggregate exposure of $
Pass: Loans graded as Pass are loans to borrowers of acceptable credit quality and risk. They are higher quality loans that do not fit any of the other categories described below.
Special Mention: Commercial loans categorized as Special Mention are potentially weak. The credit risk may be relatively minor yet represent a risk given certain specific circumstances. If the potential weaknesses are not monitored or mitigated, the asset may weaken or inadequately protect our position in the future.
Substandard: Commercial loans categorized as Substandard are inadequately protected by the borrower’s ability to repay, equity and/or the collateral pledged to secure the loan. These loans have identified weaknesses that could hinder normal repayment or collection of the debt. These loans are characterized by the distinct possibility that we will sustain some loss if the identified weaknesses are not mitigated.
Doubtful: Commercial loans categorized as Doubtful have all the weaknesses inherent in those loans classified as Substandard, with the added elements that the full collection of the loan is improbable and the possibility of loss is high.
Loss: Loans classified as loss are considered to be non-collectible and of such little value that their continuance as a bankable asset is not warranted. This does not mean that the loan has absolutely no recovery value, but rather it is neither practical nor desirable to defer writing off the loan, even though partial recovery may be obtained in the future.
Management considers the guidance in ASC 310-20 when determining whether a modification, extension, or renewal of loan constitutes a current period origination. Generally, current period renewals of credit are reunderwritten at the point of renewal and considered current period originations for purposes of the table below. As of September 30, 2022 and December 31, 2021, based on the most recent analysis performed, the risk category of loans based on year of origination is as follows:
| September 30, 2022 | ||||||||||||||||||||||||||||||||||||||
| Revolvi- | Revolving- | |||||||||||||||||||||||||||||||||||||
| Dollars in thousands | Risk Rating | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | ng | Term | Total | ||||||||||||||||||||||||||||
| Commercial | Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Commercial | ||||||||||||||||||||||||||||||||||||||
| Commercial Real Estate - Owner Occupied | ||||||||||||||||||||||||||||||||||||||
| Professional & medical | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Professional & Medical | ||||||||||||||||||||||||||||||||||||||
| Retail | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Retail | ||||||||||||||||||||||||||||||||||||||
| Other | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Other | ||||||||||||||||||||||||||||||||||||||
| Total Commercial Real Estate - Owner Occupied | ||||||||||||||||||||||||||||||||||||||
| Commercial Real Estate - Non-Owner Occupied | ||||||||||||||||||||||||||||||||||||||
| Hotels & motels | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Hotels & Motels | ||||||||||||||||||||||||||||||||||||||
| Mini-storage | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Mini-storage | ||||||||||||||||||||||||||||||||||||||
| Multifamily | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Multifamily | ||||||||||||||||||||||||||||||||||||||
| September 30, 2022 | ||||||||||||||||||||||||||||||||||||||
| Revolvi- | Revolving- | |||||||||||||||||||||||||||||||||||||
| Dollars in thousands | Risk Rating | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | ng | Term | Total | ||||||||||||||||||||||||||||
| Retail | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Retail | ||||||||||||||||||||||||||||||||||||||
| Other | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Other | ||||||||||||||||||||||||||||||||||||||
| Total Commercial Real Estate - Non-Owner Occupied | ||||||||||||||||||||||||||||||||||||||
| Construction and Development | ||||||||||||||||||||||||||||||||||||||
| Land & land development | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Land & land development | ||||||||||||||||||||||||||||||||||||||
| Construction | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Construction | ||||||||||||||||||||||||||||||||||||||
| Total Construction and Development | ||||||||||||||||||||||||||||||||||||||
| Residential 1-4 Family Real Estate | ||||||||||||||||||||||||||||||||||||||
| Personal residence | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Personal Residence | ||||||||||||||||||||||||||||||||||||||
| Rental - small loan | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Rental - Small Loan | ||||||||||||||||||||||||||||||||||||||
| Rental - large loan | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Rental - Large Loan | ||||||||||||||||||||||||||||||||||||||
| Home equity | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Home Equity | ||||||||||||||||||||||||||||||||||||||
| Total Residential 1-4 Family Real Estate | ||||||||||||||||||||||||||||||||||||||
| September 30, 2022 | ||||||||||||||||||||||||||||||||||||||
| Revolvi- | Revolving- | |||||||||||||||||||||||||||||||||||||
| Dollars in thousands | Risk Rating | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | ng | Term | Total | ||||||||||||||||||||||||||||
| Mortgage warehouse lines | Pass | |||||||||||||||||||||||||||||||||||||
| Total Mortgage Warehouse Lines | ||||||||||||||||||||||||||||||||||||||
| Consumer | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Consumer | ||||||||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||||||||
| Credit cards | Pass | |||||||||||||||||||||||||||||||||||||
| Total Credit Cards | ||||||||||||||||||||||||||||||||||||||
| Overdrafts | Pass | |||||||||||||||||||||||||||||||||||||
| Total Overdrafts | ||||||||||||||||||||||||||||||||||||||
| Total Other | ||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| December 31, 2021 | ||||||||||||||||||||||||||||||||||||||
| Revolvi- | Revolving- | |||||||||||||||||||||||||||||||||||||
| Dollars in thousands | Risk Rating | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | ng | Term | Total | ||||||||||||||||||||||||||||
| Commercial | Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Commercial | ||||||||||||||||||||||||||||||||||||||
| Commercial Real Estate - Owner Occupied | ||||||||||||||||||||||||||||||||||||||
| Professional & medical | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Professional & Medical | ||||||||||||||||||||||||||||||||||||||
| Retail | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Retail | ||||||||||||||||||||||||||||||||||||||
| Other | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Other | ||||||||||||||||||||||||||||||||||||||
| Total Commercial Real Estate - Owner Occupied | ||||||||||||||||||||||||||||||||||||||
| December 31, 2021 | ||||||||||||||||||||||||||||||||||||||
| Revolvi- | Revolving- | |||||||||||||||||||||||||||||||||||||
| Dollars in thousands | Risk Rating | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | ng | Term | Total | ||||||||||||||||||||||||||||
| Commercial Real Estate - Non-Owner Occupied | ||||||||||||||||||||||||||||||||||||||
| Hotels & motels | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Hotels & Motels | ||||||||||||||||||||||||||||||||||||||
| Mini-storage | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Mini-storage | ||||||||||||||||||||||||||||||||||||||
| Multifamily | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Multifamily | ||||||||||||||||||||||||||||||||||||||
| Retail | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Retail | ||||||||||||||||||||||||||||||||||||||
| Other | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Other | ||||||||||||||||||||||||||||||||||||||
| Total Commercial Real Estate - Non-Owner Occupied | ||||||||||||||||||||||||||||||||||||||
| Construction and Development | ||||||||||||||||||||||||||||||||||||||
| Land & land development | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Land & land development | ||||||||||||||||||||||||||||||||||||||
| Construction | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Construction | ||||||||||||||||||||||||||||||||||||||
| Total Construction and Development | ||||||||||||||||||||||||||||||||||||||
| Residential 1-4 Family Real Estate | ||||||||||||||||||||||||||||||||||||||
| Personal residence | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Personal Residence | ||||||||||||||||||||||||||||||||||||||
| December 31, 2021 | ||||||||||||||||||||||||||||||||||||||
| Revolvi- | Revolving- | |||||||||||||||||||||||||||||||||||||
| Dollars in thousands | Risk Rating | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | ng | Term | Total | ||||||||||||||||||||||||||||
| Rental - small loan | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Rental - Small Loan | ||||||||||||||||||||||||||||||||||||||
| Rental - large loan | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Rental - Large Loan | ||||||||||||||||||||||||||||||||||||||
| Home equity | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Home Equity | ||||||||||||||||||||||||||||||||||||||
| Total Residential 1-4 Family Real Estate | ||||||||||||||||||||||||||||||||||||||
| Mortgage warehouse lines | Pass | |||||||||||||||||||||||||||||||||||||
| Total Mortgage Warehouse Lines | ||||||||||||||||||||||||||||||||||||||
| Consumer | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Consumer | ||||||||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||||||||
| Credit cards | Pass | |||||||||||||||||||||||||||||||||||||
| Total Credit Cards | ||||||||||||||||||||||||||||||||||||||
| Overdrafts | Pass | |||||||||||||||||||||||||||||||||||||
| Total Overdrafts | ||||||||||||||||||||||||||||||||||||||
| Total Other | ||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Allowance for Credit Losses - Loans
The following tables presents the activity in the ACLL by portfolio segment during the three and nine months ended September 30, 2022 and 2021 and the twelve months ended December 31, 2021:
| For the Three Months Ended September 30, 2022 | ||||||||||||||||||||
| Allowance for Credit Losses - Loans | ||||||||||||||||||||
| Provision | ||||||||||||||||||||
| for | ||||||||||||||||||||
| Credit | ||||||||||||||||||||
| Beginning | Losses - | Charge- | Ending | |||||||||||||||||
| Dollars in thousands | Balance | Loans | offs | Recoveries | Balance | |||||||||||||||
| Commercial | $ | $ | $ | ( | ) | $ | $ | |||||||||||||
| Commercial real estate - owner occupied | ||||||||||||||||||||
| Professional & medical | ( | ) | ||||||||||||||||||
| Retail | ( | ) | ||||||||||||||||||
| Other | ( | ) | ||||||||||||||||||
| Commercial real estate - non-owner occupied | ||||||||||||||||||||
| Hotels & motels | ||||||||||||||||||||
| Mini-storage | ( | ) | ||||||||||||||||||
| Multifamily | ( | ) | ||||||||||||||||||
| Retail | ( | ) | ||||||||||||||||||
| Other | ||||||||||||||||||||
| Construction and development | ||||||||||||||||||||
| Land & land development | ( | ) | ||||||||||||||||||
| Construction | ||||||||||||||||||||
| Residential 1-4 family real estate | ||||||||||||||||||||
| Personal residence | ( | ) | ||||||||||||||||||
| Rental - small loan | ( | ) | ( | ) | ||||||||||||||||
| Rental - large loan | ||||||||||||||||||||
| Home equity | ||||||||||||||||||||
| Mortgage warehouse lines | ||||||||||||||||||||
| Consumer | ( | ) | ( | ) | ||||||||||||||||
| Other | ||||||||||||||||||||
| Credit cards | ( | ) | ( | ) | ||||||||||||||||
| Overdrafts | ( | ) | ||||||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | $ | |||||||||||||
| For the Three Months Ended September 30, 2021 | ||||||||||||||||||||||||
| Allowance for Credit Losses - Loans | ||||||||||||||||||||||||
| Provision | ||||||||||||||||||||||||
| for | Adjustment | |||||||||||||||||||||||
| Credit | for PCD | |||||||||||||||||||||||
| Beginning | Losses - | Acquired | Charge- | Ending | ||||||||||||||||||||
| Dollars in thousands | Balance | Loans | Loans | offs | Recoveries | Balance | ||||||||||||||||||
| Commercial | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Commercial real estate - owner occupied | ||||||||||||||||||||||||
| Professional & medical | ( | ) | ||||||||||||||||||||||
| Retail | ( | ) | ||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Commercial real estate - non-owner occupied | ||||||||||||||||||||||||
| Hotels & motels | ||||||||||||||||||||||||
| Mini-storage | ||||||||||||||||||||||||
| Multifamily | ( | ) | ||||||||||||||||||||||
| Retail | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Construction and development | ||||||||||||||||||||||||
| Land & land development | ( | ) | ||||||||||||||||||||||
| Construction | ( | ) | ||||||||||||||||||||||
| Residential 1-4 family real estate | ||||||||||||||||||||||||
| Personal residence | ( | ) | ( | ) | ||||||||||||||||||||
| Rental - small loan | ||||||||||||||||||||||||
| Rental - large loan | ( | ) | ||||||||||||||||||||||
| Home equity | ( | ) | ||||||||||||||||||||||
| Mortgage warehouse lines | ||||||||||||||||||||||||
| Consumer | ( | ) | ( | ) | ||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Credit cards | ( | ) | ||||||||||||||||||||||
| Overdrafts | ( | ) | ||||||||||||||||||||||
| Total | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ||||||||||||||
| For the Nine Months Ended September 30, 2022 | ||||||||||||||||||||
| Allowance for Credit Losses - Loans | ||||||||||||||||||||
| Provision | ||||||||||||||||||||
| for | ||||||||||||||||||||
| Credit | ||||||||||||||||||||
| Beginning | Losses - | Charge- | Ending | |||||||||||||||||
| Dollars in thousands | Balance | Loans | offs | Recoveries | Balance | |||||||||||||||
| Commercial | $ | $ | $ | ( | ) | $ | $ | |||||||||||||
| Commercial real estate - owner occupied | ||||||||||||||||||||
| Professional & medical | ( | ) | ||||||||||||||||||
| Retail | ( | ) | ||||||||||||||||||
| Other | ( | ) | ||||||||||||||||||
| Commercial real estate - non-owner occupied | ||||||||||||||||||||
| Hotels & motels | ( | ) | ||||||||||||||||||
| Mini-storage | ( | ) | ||||||||||||||||||
| Multifamily | ||||||||||||||||||||
| Retail | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Construction and development | ||||||||||||||||||||
| Land & land development | ( | ) | ||||||||||||||||||
| Construction | ||||||||||||||||||||
| Residential 1-4 family real estate | ||||||||||||||||||||
| Personal residence | ( | ) | ( | ) | ||||||||||||||||
| Rental - small loan | ( | ) | ( | ) | ||||||||||||||||
| Rental - large loan | ||||||||||||||||||||
| Home equity | ( | ) | ( | ) | ||||||||||||||||
| Mortgage warehouse lines | ||||||||||||||||||||
| Consumer | ( | ) | ||||||||||||||||||
| Other | ||||||||||||||||||||
| Credit cards | ( | ) | ||||||||||||||||||
| Overdrafts | ( | ) | ||||||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | $ | |||||||||||||
| For the Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||
| Allowance for Credit Losses - Loans | ||||||||||||||||||||||||
| Provision | ||||||||||||||||||||||||
| for | Adjustment | |||||||||||||||||||||||
| Credit | for PCD | |||||||||||||||||||||||
| Beginning | Losses - | Acquired | Charge- | Ending | ||||||||||||||||||||
| Dollars in thousands | Balance | Loans | Loans | offs | Recoveries | Balance | ||||||||||||||||||
| Commercial | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||
| Commercial real estate - owner occupied | ||||||||||||||||||||||||
| Professional & medical | ( | ) | ( | ) | ||||||||||||||||||||
| Retail | ( | ) | ||||||||||||||||||||||
| Other | ( | ) | ||||||||||||||||||||||
| Commercial real estate - non-owner occupied | ||||||||||||||||||||||||
| Hotels & motels | ||||||||||||||||||||||||
| Mini-storage | ( | ) | ||||||||||||||||||||||
| Multifamily | ( | ) | ||||||||||||||||||||||
| Retail | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Construction and development | ||||||||||||||||||||||||
| Land & land development | ( | ) | ||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||
| Residential 1-4 family real estate | ||||||||||||||||||||||||
| Personal residence | ( | ) | ( | ) | ||||||||||||||||||||
| Rental - small loan | ( | ) | ||||||||||||||||||||||
| Rental - large loan | ( | ) | ||||||||||||||||||||||
| Home equity | ( | ) | ( | ) | ||||||||||||||||||||
| Mortgage warehouse lines | ||||||||||||||||||||||||
| Consumer | ( | ) | ( | ) | ||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Credit cards | ( | ) | ||||||||||||||||||||||
| Overdraftss | ( | ) | ||||||||||||||||||||||
| Total | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||
| For the Twelve Months Ended December 31, 2021 | ||||||||||||||||||||||||
| Allowance for Credit Losses - Loans | ||||||||||||||||||||||||
| Provision | ||||||||||||||||||||||||
| for | Adjustment | |||||||||||||||||||||||
| Credit | for PCD | |||||||||||||||||||||||
| Beginning | Losses - | Acquired | Charge- | Ending | ||||||||||||||||||||
| Dollars in thousands | Balance | Loans | Loans | offs | Recoveries | Balance | ||||||||||||||||||
| Commercial | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||
| Commercial real estate - owner occupied | ||||||||||||||||||||||||
| Professional & medical | ( | ) | ||||||||||||||||||||||
| Retail | ( | ) | ||||||||||||||||||||||
| Other | ( | ) | ||||||||||||||||||||||
| Commercial real estate - non-owner occupied | ||||||||||||||||||||||||
| Hotels & motels | ||||||||||||||||||||||||
| Mini-storage | ( | ) | ||||||||||||||||||||||
| Multifamily | ||||||||||||||||||||||||
| Retail | ||||||||||||||||||||||||
| Other | ( | ) | ||||||||||||||||||||||
| Construction and development | ||||||||||||||||||||||||
| Land & land development | ( | ) | ||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||
| Residential 1-4 family real estate | ||||||||||||||||||||||||
| Personal residence | ( | ) | ( | ) | ||||||||||||||||||||
| Rental - small loan | ( | ) | ||||||||||||||||||||||
| Rental - large loan | ( | ) | ||||||||||||||||||||||
| Home equity | ( | ) | ( | ) | ||||||||||||||||||||
| Mortgage warehouse lines | ||||||||||||||||||||||||
| Consumer | ( | ) | ( | ) | ||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Credit cards | ( | ) | ||||||||||||||||||||||
| Overdrafts | ( | ) | ||||||||||||||||||||||
| Total | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||
The following tables presents, as of September 30, 2022 and December 31, 2021 segregated by loan portfolio segment, details of the loan portfolio and the ACLL calculated in accordance with our credit loss accounting methodology for loans.
| September 30, 2022 | ||||||||||||||||||||||||
| Loan Balances | Allowance for Credit Losses - Loans | |||||||||||||||||||||||
| Dollars in thousands | Loans Individually Evaluated | Loans Collectively Evaluated (1) | Total | Loans Individually Evaluated | Loans Collectively Evaluated | Total | ||||||||||||||||||
| Commercial | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Commercial real estate - owner occupied | ||||||||||||||||||||||||
| Professional & medical | ||||||||||||||||||||||||
| Retail | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Commercial real estate - non-owner occupied | ||||||||||||||||||||||||
| Hotels & motels | ||||||||||||||||||||||||
| Mini-storage | ||||||||||||||||||||||||
| Multifamily | ||||||||||||||||||||||||
| Retail | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Construction and development | ||||||||||||||||||||||||
| Land & land development | ||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||
| Residential 1-4 family real estate | ||||||||||||||||||||||||
| Personal residence | ||||||||||||||||||||||||
| Rental - small loan | ||||||||||||||||||||||||
| Rental - large loan | ||||||||||||||||||||||||
| Home equity | ||||||||||||||||||||||||
| Mortgage warehouse lines | ||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Credit cards | ||||||||||||||||||||||||
| Overdrafts | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
(1) Included in the loans collectively evaluated are $
| December 31, 2021 | ||||||||||||||||||||||||
| Loan Balances | Allowance for Credit Losses - Loans | |||||||||||||||||||||||
| Dollars in thousands | Loans Individually Evaluated | Loans Collectively Evaluated (1) | Total | Loans Individually Evaluated | Loans Collectively Evaluated | Total | ||||||||||||||||||
| Commercial | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Commercial real estate - owner occupied | ||||||||||||||||||||||||
| Professional & medical | ||||||||||||||||||||||||
| Retail | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Commercial real estate - non-owner occupied | ||||||||||||||||||||||||
| Hotels & motels | ||||||||||||||||||||||||
| Mini-storage | ||||||||||||||||||||||||
| Multifamily | ||||||||||||||||||||||||
| Retail | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Construction and development | ||||||||||||||||||||||||
| Land & land development | ||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||
| Residential 1-4 family real estate | ||||||||||||||||||||||||
| Personal residence | ||||||||||||||||||||||||
| Rental - small loan | ||||||||||||||||||||||||
| Rental - large loan | ||||||||||||||||||||||||
| Home equity | ||||||||||||||||||||||||
| Mortgage warehouse lines | ||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Credit cards | ||||||||||||||||||||||||
| Overdrafts | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
(1) Included in the loans collectively evaluated are $
The following tables presents the amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses, and the related ACLL allocated to those loans:
| September 30, 2022 | ||||||||||||||||
| Real Estate | Allowance for | |||||||||||||||
| Secured | Non-Real Estate | Credit Losses | ||||||||||||||
| Dollars in thousands | Loans | Secured Loans | Total Loans | - Loans | ||||||||||||
| Commercial | $ | $ | $ | $ | ||||||||||||
| Commercial real estate - owner occupied | ||||||||||||||||
| Professional & medical | ||||||||||||||||
| Retail | ||||||||||||||||
| Other | ||||||||||||||||
| Commercial real estate - non-owner occupied | ||||||||||||||||
| Hotels & motels | ||||||||||||||||
| Mini-storage | ||||||||||||||||
| Multifamily | ||||||||||||||||
| Retail | ||||||||||||||||
| Other | ||||||||||||||||
| Construction and development | ||||||||||||||||
| Land & land development | ||||||||||||||||
| Construction | ||||||||||||||||
| Residential 1-4 family real estate | ||||||||||||||||
| Personal residence | ||||||||||||||||
| Rental - small loan | ||||||||||||||||
| Rental - large loan | ||||||||||||||||
| Home equity | ||||||||||||||||
| Consumer | ||||||||||||||||
| Other | ||||||||||||||||
| Credit cards | ||||||||||||||||
| Overdrafts | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| December 31, 2021 | ||||||||||||||||
| Real Estate | Allowance for | |||||||||||||||
| Secured | Non-Real Estate | Credit Losses | ||||||||||||||
| Dollars in thousands | Loans | Secured Loans | Total Loans | - Loans | ||||||||||||
| Commercial | $ | $ | $ | $ | ||||||||||||
| Commercial real estate - owner occupied | ||||||||||||||||
| Professional & medical | ||||||||||||||||
| Retail | ||||||||||||||||
| Other | ||||||||||||||||
| Commercial real estate - non-owner occupied | ||||||||||||||||
| Hotels & motels | ||||||||||||||||
| Mini-storage | ||||||||||||||||
| Multifamily | ||||||||||||||||
| Retail | ||||||||||||||||
| Other | ||||||||||||||||
| Construction and development | ||||||||||||||||
| Land & land development | ||||||||||||||||
| Construction | ||||||||||||||||
| Residential 1-4 family real estate | ||||||||||||||||
| Personal residence | ||||||||||||||||
| Rental - small loan | ||||||||||||||||
| Rental - large loan | ||||||||||||||||
| Home equity | ||||||||||||||||
| Consumer | ||||||||||||||||
| Other | ||||||||||||||||
| Credit cards | ||||||||||||||||
| Overdrafts | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
NOTE 7. GOODWILL AND OTHER INTANGIBLE ASSETS
In accordance with ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, during third quarter 2022, we performed the qualitative assessment of goodwill and determined that the fair value was more likely than not greater than its carrying value. In performing the qualitative assessment, we considered certain events, and circumstances such as macroeconomic conditions, industry and market considerations, overall financial performance and cost factors when evaluating whether it is more likely than not that the fair value is less than the carrying value. No indicators of impairment were noted as of September 30, 2022.
The following tables present our goodwill activity for the nine months ending September 30, 2022 and the balance of other intangible assets at September 30, 2022 and December 31, 2021.
| Dollars in thousands | Goodwill Activity | |||
| Balance, January 1, 2022 | $ | |||
| Reclassifications from goodwill | ||||
| Acquired goodwill | ||||
| Balance, September 30, 2022 | $ | |||
| Other Intangible Assets | ||||||||
| Dollars in thousands | September 30, 2022 | December 31, 2021 | ||||||
| Identifiable intangible assets | ||||||||
| Gross carrying amount | $ | $ | ||||||
| Less: accumulated amortization | ||||||||
| Net carrying amount | $ | $ | ||||||
We recorded amortization expense of $
Amortization relative to our identifiable intangible assets is expected to approximate the following during the next five years and thereafter:
| Core Deposit | ||||
| Dollars in thousands | Intangible | |||
| Three month period ending December 31, 2022 | $ | |||
| Year ending December 31, 2023 | ||||
| Year ending December 31, 2024 | ||||
| Year ending December 31, 2025 | ||||
| Year ending December 31, 2026 | ||||
| Thereafter | ||||
NOTE 8. DEPOSITS
The following is a summary of interest bearing deposits by type as of September 30, 2022 and December 31, 2021:
| September 30, | December 31, | |||||||
| Dollars in thousands | 2022 | 2021 | ||||||
| Demand deposits, interest bearing | $ | $ | ||||||
| Savings deposits | ||||||||
| Time deposits | ||||||||
| Total | $ | $ | ||||||
Included in time deposits are deposits acquired through a third party (“brokered deposits”) totaling $
A summary of the scheduled maturities for all time deposits as of September 30, 2022 is as follows:
| Dollars in thousands | ||||
| Three month period ending December 31, 2022 | $ | |||
| Year ending December 31, 2023 | ||||
| Year ending December 31, 2024 | ||||
| Year ending December 31, 2025 | ||||
| Year ending December 31, 2026 | ||||
| Thereafter | ||||
| Total | $ |
The aggregate amount of time deposits in denominations that meet or exceed the FDIC insurance limit of $250,000 totaled $
NOTE 9. BORROWED FUNDS
Short-term borrowings: Federal funds purchased mature the next business day and totaled $
| Nine Months Ended September 30, | ||||||||
| Dollars in thousands | 2022 | 2021 | ||||||
| Balance at September 30 | $ | $ | ||||||
| Average balance outstanding for the period | ||||||||
| Maximum balance outstanding at any month end during period | ||||||||
| Weighted average interest rate for the period | % | % | ||||||
| Weighted average interest rate for balances outstanding at September 30 | % | % | ||||||
| Dollars in thousands | Year Ended December 31, 2021 | |||
| Balance at December 31 | $ | |||
| Average balance outstanding for the period | ||||
| Maximum balance outstanding at any month end during period | ||||
| Weighted average interest rate for the period | % | |||
| Weighted average interest rate for balances outstanding at December 31 | % | |||
Long-term borrowings: Our long-term borrowings of $
Subordinated debentures: We issued $
We issued $
Subordinated debentures owed to unconsolidated subsidiary trusts: We have statutory business trusts that were formed for the purpose of issuing mandatorily redeemable securities (the “capital securities”) for which we are obligated to third party investors and investing the proceeds from the sale of the capital securities in our junior subordinated debentures (the “debentures”). The debentures held by the trusts are their sole assets. These subordinated debentures totaled $
The capital securities held by SFG Capital Trust I, SFG Capital Trust II, and SFG Capital Trust III qualify as Tier 1 capital under Federal Reserve Board guidelines. In accordance with these Guidelines, trust preferred securities generally are limited to
A summary of the maturities of all long-term borrowings and subordinated debentures for the next five years and thereafter is as follows:
| Subordinated | |||||||||||||
| debentures owed | |||||||||||||
| Long-term | Subordinated | to unconsolidated | |||||||||||
| Dollars in thousands | borrowings | debentures | subsidiary trusts | ||||||||||
| Year Ending December 31, | 2022 | $ | $ | $ | |||||||||
| 2023 | |||||||||||||
| 2024 | |||||||||||||
| 2025 | |||||||||||||
| 2026 | |||||||||||||
| Thereafter | |||||||||||||
| $ | $ | $ | |||||||||||
NOTE 10. SHARE-BASED COMPENSATION
Under the 2014 Long-Term Incentive Plan (“2014 LTIP”), stock options, SARs and RSUs have generally been granted with an exercise price equal to the fair value of Summit's common stock on the grant date. We periodically grant employee stock options to individual employees.
There were
The fair value of our employee stock options and SARs granted under the Plans is estimated at the date of grant using the Black-Scholes option-pricing model. This model requires the input of highly subjective assumptions, changes to which can materially affect the fair value estimate. Additionally, there may be other factors that would otherwise have a significant effect on the value of employee stock options and SARs granted but are not considered by the model. Because our employee stock options and SARs have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options and SARs at the time of grant. The assumptions used to value SARs granted in 2021 are as follows:
| 2021 grant with 7 year expiration | 2021 grant with 5 year expiration | |||||||
| Risk-free interest rate | % | % | ||||||
| Expected dividend yield | % | % | ||||||
| Expected common stock volatility | % | % | ||||||
| Expected life (in years) | ||||||||
A summary of our SAR and stock option activity during the first nine months of 2022 and 2021 is as follows:
| For the Nine Months Ended September 30, 2022 | ||||||||||||||||
| Aggregate | Remaining | Weighted- | ||||||||||||||
| Intrinsic Value | Contractual | Average | ||||||||||||||
| Options/SARs | (in thousands) | Term (Yrs.) | Exercise Price | |||||||||||||
| Outstanding, January 1 | $ | |||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ( | ) | ||||||||||||||
| Forfeited | ||||||||||||||||
| Expired | ||||||||||||||||
| Outstanding, September 30 | $ | $ | ||||||||||||||
| Exercisable, September 30 | $ | $ | ||||||||||||||
| For the Nine Months Ended September 30, 2021 | ||||||||||||||||
| Aggregate | Remaining | Weighted- | ||||||||||||||
| Intrinsic Value | Contractual | Average | ||||||||||||||
| Options/SARs | (in thousands) | Term (Yrs.) | Exercise Price | |||||||||||||
| Outstanding, January 1 | $ | |||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ( | ) | ||||||||||||||
| Forfeited | ||||||||||||||||
| Expired | ||||||||||||||||
| Outstanding, September 30 | $ | $ | ||||||||||||||
| Exercisable, September 30 | $ | $ | ||||||||||||||
Grants of RSUs include time-based vesting conditions that generally vest ratably over a period of
| RSUs | Weighted Average Grant Date Fair Value | |||||||
| Nonvested, December 31, 2021 | $ | |||||||
| Granted | ||||||||
| Forfeited | ( | ) | ||||||
| Vested | ( | ) | ||||||
| Nonvested, September 30, 2022 | $ | |||||||
| RSUs | Weighted Average Grant Date Fair Value | |||||||
| Nonvested, December 31, 2020 | $ | |||||||
| Granted | ||||||||
| Forfeited | ||||||||
| Vested | ( | ) | ||||||
| Nonvested, September 30, 2021 | $ | |||||||
We recognize compensation expense based on the estimated number of stock awards expected to actually vest, exclusive of the awards expected to be forfeited. During the first nine months of 2022 and 2021, total stock compensation expense for all share-based arrangements was $
NOTE 11. COMMITMENTS AND CONTINGENCIES
Off-Balance Sheet Arrangements
We are a party to certain financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of our customers. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the statement of financial position. The contract amounts of these instruments reflect the extent of involvement that we have in this class of financial instruments.
Many of our lending relationships contain both funded and unfunded elements. The funded portion is reflected on our balance sheet. The unfunded portion of these commitments is not recorded on our balance sheet until a draw is made under the loan facility. Since many of the commitments to extend credit may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash flow requirements.
A summary of the total unfunded, or off-balance sheet, credit extension commitments follows:
| September 30, | ||||
| Dollars in thousands | 2022 | |||
| Commitments to extend credit: | ||||
| Revolving home equity and credit card lines | $ | |||
| Construction loans | ||||
| Other loans | ||||
| Standby letters of credit | ||||
| Total | $ | |||
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. We evaluate each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if we deem necessary upon extension of credit, is based on our credit evaluation. Collateral held varies but may include accounts receivable, inventory, equipment or real estate.
Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party.
Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments.
Allowance For Credit Losses - Off-Balance-Sheet Credit Exposures
The provision for credit losses on unfunded commitments was $(
Litigation
We are not a party to litigation except for matters that arise in the normal course of business. While it is impossible to ascertain the ultimate resolution or range of financial liability, if any, with respect to these contingent matters, in the opinion of management, after consultation with legal counsel, the outcome of these matters will not have a significant adverse effect on the consolidated financial statements.
NOTE 12. PREFERRED STOCK
In April 2021, we sold through a private placement
NOTE 13. REGULATORY MATTERS
Our bank subsidiary, Summit Community Bank, Inc. (“Summit Community”), is subject to various regulatory capital requirements administered by the banking regulatory agencies. Under the capital adequacy guidelines and the regulatory framework for prompt corrective action, Summit Community must meet specific capital guidelines that involve quantitative measures of its assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Our bank subsidiary’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require Summit Community to maintain minimum amounts and ratios of Common Equity Tier 1("CET1"), Total capital and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). We believe, as of September 30, 2022, that our bank subsidiary met all capital adequacy requirements to which they were subject.
The most recent notifications from the banking regulatory agencies categorized Summit Community as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, Summit Community must maintain minimum CET1, Total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table below.
In December 2018, the federal bank regulatory agencies approved a final rule modifying their regulatory capital rules to provide an option to phase-in over a period of three years the day-one regulatory capital effects of the implementation of ASC 326. In March 2020, those agencies approved a final rule providing an option to delay the estimated impact on regulatory capital. We elected this optional phase-in period upon adoption of ASC 326 on January 1, 2020 and elected to delay the estimated impact. The initial impact of adoption as well as 25% of the quarterly increases in the allowance for credit losses subsequent to adoption (collectively the “transition adjustments”) will be delayed for two years. After two years, the cumulative amount of the transition adjustments will become fixed and will be phased out of the regulatory capital calculations evenly over a three year period, with 75% recognized in year three, 50% recognized in year four, and 25% recognized in year five. After five years, the temporary regulatory capital benefits will be fully reversed.
The following tables present Summit's, as well as Summit Community's, actual and required minimum regulatory capital amounts and ratios as of September 30, 2022 and December 31, 2021.
Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended.
| Actual | Minimum Required Capital - Basel III | Minimum Required To Be Well Capitalized | ||||||||||||||||||||||
| Dollars in thousands | Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||
| As of September 30, 2022 | ||||||||||||||||||||||||
| CET1 (to risk weighted assets) | ||||||||||||||||||||||||
| Summit | $ | % | $ | % | N/A | N/A | ||||||||||||||||||
| Summit Community | % | % | % | |||||||||||||||||||||
| Tier I Capital (to risk weighted assets) | ||||||||||||||||||||||||
| Summit | % | % | N/A | N/A | ||||||||||||||||||||
| Summit Community | % | % | % | |||||||||||||||||||||
| Total Capital (to risk weighted assets) | ||||||||||||||||||||||||
| Summit | % | % | N/A | N/A | ||||||||||||||||||||
| Summit Community | % | % | % | |||||||||||||||||||||
| Tier I Capital (to average assets) | ||||||||||||||||||||||||
| Summit | % | % | N/A | N/A | ||||||||||||||||||||
| Summit Community | % | % | % | |||||||||||||||||||||
| Actual | Minimum Required Capital - Basel III | Minimum Required To Be Well Capitalized | ||||||||||||||||||||||
| Dollars in thousands | Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||
| As of December 31, 2021 | ||||||||||||||||||||||||
| CET1 (to risk weighted assets) | ||||||||||||||||||||||||
| Summit | % | % | N/A | N/A | ||||||||||||||||||||
| Summit Community | % | % | % | |||||||||||||||||||||
| Tier I Capital (to risk weighted assets) | ||||||||||||||||||||||||
| Summit | % | % | N/A | N/A | ||||||||||||||||||||
| Summit Community | % | % | % | |||||||||||||||||||||
| Total Capital (to risk weighted assets) | ||||||||||||||||||||||||
| Summit | % | % | N/A | N/A | ||||||||||||||||||||
| Summit Community | % | % | % | |||||||||||||||||||||
| Tier I Capital (to average assets) | ||||||||||||||||||||||||
| Summit | % | % | N/A | N/A | ||||||||||||||||||||
| Summit Community | % | % | % | |||||||||||||||||||||
NOTE 14. DERIVATIVE FINANCIAL INSTRUMENTS
Cash flow hedges
We have entered into pay-fixed/receive LIBOR interest rate swaps as follows:
| • | A $ |
| • | A $ |
In addition, we have entered into interest rate caps as follows:
| • | A $ |
| • | A $ |
Fair value hedges
We have entered into pay fixed/receive variable interest rate swaps to hedge fair value variability of two commercial fixed rate loans with the same principal, amortization, and maturity terms of the underlying loans, which are designated as fair value hedges with a total original notional amount of $
We have also entered into a pay fixed/receive variable interest rate swap to hedge the fair value variability of certain available for sale taxable muncipal securities, which is designated as a fair value hedge with a total original notional amount of $
A summary of our derivative financial instruments as of September 30, 2022 and December 31, 2021 follows:
| September 30, 2022 | ||||||||||||||||
| Derivative Fair Value | Net Ineffective | |||||||||||||||
| Dollars in thousands | Notional Amount | Asset | Liability | Hedge Gains/(Losses) | ||||||||||||
| CASH FLOW HEDGES | ||||||||||||||||
| Pay-fixed/receive-variable interest rate swaps | ||||||||||||||||
| Short term borrowings | $ | $ | $ | $ | ||||||||||||
| Interest rate cap hedging: | ||||||||||||||||
| Short term borrowings | $ | $ | $ | $ | ||||||||||||
| Indexed interest bearing demand deposit accounts | ||||||||||||||||
| FAIR VALUE HEDGES | ||||||||||||||||
| Pay-fixed/receive-variable interest rate swaps | ||||||||||||||||
| Commercial real estate loans | $ | $ | $ | $ | ||||||||||||
| Available for sale taxable municipal securities | ( | ) | ||||||||||||||
| December 31, 2021 | ||||||||||||||||
| Derivative Fair Value | Net Ineffective | |||||||||||||||
| Dollars in thousands | Notional Amount | Asset | Liability | Hedge Gains/(Losses) | ||||||||||||
| CASH FLOW HEDGES | ||||||||||||||||
| Pay-fixed/receive-variable interest rate swaps | ||||||||||||||||
| Short term borrowings | $ | $ | $ | $ | ||||||||||||
| Interest rate cap hedging: | ||||||||||||||||
| Short term borrowings | $ | $ | $ | $ | ||||||||||||
| Indexed interest bearing demand deposit accounts | ||||||||||||||||
| FAIR VALUE HEDGES | ||||||||||||||||
| Pay-fixed/receive-variable interest rate swaps | ||||||||||||||||
| Commercial real estate loans | $ | $ | $ | $ | ||||||||||||
| Available for sale taxable municipal securities | ||||||||||||||||
Loan commitments: ASC Topic 815, Derivatives and Hedging, requires that commitments to make mortgage loans should be accounted for as derivatives if the loans are to be held for sale, because the commitment represents a written option and accordingly is recorded at the fair value of the option liability.
NOTE 15. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
The following is changes in accumulated other comprehensive (loss) income by component, net of tax, for the three and nine months ending September 30, 2022 and 2021.
| For the Three Months Ended September 30, 2022 | ||||||||||||||||||||||||
| Dollars in thousands | Gains and (Losses) on Pension Plan | Gains and (Losses) on Other Post-Retirement Benefits | Gains and (Losses) on Cash Flow Hedges | Unrealized Gains/(Losses) on Debt Securities Available for Sale | Unrealized Gains on Securities Fair Value Hedge | Total | ||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||
| Other comprehensive (loss) income before reclassification | ( | ) | ( | ) | ||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive (loss) income, net of tax | ||||||||||||||||||||||||
| Net current period other comprehensive (loss) income | ( | ) | ( | ) | ||||||||||||||||||||
| Ending balance | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||
| For the Three Months Ended September 30, 2021 | ||||||||||||||||||||
| Dollars in thousands | Gains and (Losses) on Pension Plan | Gains and (Losses) on Other Post-Retirement Benefits | Gains and (Losses) on Cash Flow Hedges | Unrealized Gains/(Losses) on Debt Securities Available for Sale | Total | |||||||||||||||
| Beginning balance | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||
| Other comprehensive (loss) income before reclassification | ( | ) | ( | ) | ||||||||||||||||
| Amounts reclassified from accumulated other comprehensive (loss) income, net of tax | ||||||||||||||||||||
| Net current period other comprehensive (loss) income | ( | ) | ( | ) | ||||||||||||||||
| Ending balance | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||
| For the Nine Months Ended September 30, 2022 | ||||||||||||||||||||||||
| Dollars in thousands | Gains and (Losses) on Pension Plan | Gains and (Losses) on Other Post-Retirement Benefits | Gains and (Losses) on Cash Flow Hedges | Unrealized Gains/(Losses) on Debt Securities Available for Sale | Unrealized Gains on Securities Fair Value Hedge | Total | ||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||
| Other comprehensive (loss) income before reclassification | ( | ) | ( | ) | ||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive (loss) income, net of tax | ||||||||||||||||||||||||
| Net current period other comprehensive (loss) income | ( | ) | ( | ) | ||||||||||||||||||||
| Ending balance | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||
| For the Nine Months Ended September 30, 2021 | ||||||||||||||||||||
| Dollars in thousands | Gains and (Losses) on Pension Plan | Gains and (Losses) on Other Post-Retirement Benefits | Gains and (Losses) on Cash Flow Hedges | Unrealized Gains/(Losses) on Debt Securities Available for Sale | Total | |||||||||||||||
| Beginning balance | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||
| Other comprehensive income (loss) before reclassification | ( | ) | ||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive (loss) income, net of tax | ( | ) | ( | ) | ||||||||||||||||
| Net current period other comprehensive (loss) income | ( | ) | ( | ) | ||||||||||||||||
| Ending balance | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||
NOTE 16. INCOME TAXES
Our income tax expense for the three and nine months ended September 30, 2022 and September 30, 2021 totaled $
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Percent | Percent | Percent | Percent | |||||||||||||
| Applicable statutory rate | % | % | % | % | ||||||||||||
| Increase (decrease) in rate resulting from: | ||||||||||||||||
| Tax-exempt interest and dividends, net | ( | )% | ( | )% | ( | )% | ( | )% | ||||||||
| State income taxes, net of Federal income tax benefit | % | % | % | % | ||||||||||||
| Low-income housing and rehabilitation tax credits | ( | )% | ( | )% | ( | )% | ( | )% | ||||||||
| Other, net | % | ( | )% | % | ( | )% | ||||||||||
| Effective income tax rate | % | % | % | % | ||||||||||||
The components of applicable income tax expense for the three and nine months ended September 30, 2022 and 2021 are as follows:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| Dollars in thousands | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Current | ||||||||||||||||
| Federal | $ | $ | $ | $ | ||||||||||||
| State | ||||||||||||||||
| Deferred | ||||||||||||||||
| Federal | ( | ) | ||||||||||||||
| State | ( | ) | ||||||||||||||
| ( | ) | |||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
NOTE 17. REVENUE FROM CONTRACTS WITH CUSTOMERS
Interest income, loan fees, realized securities gains and losses, bank owned life insurance income and mortgage banking revenue are not in the scope of ASC Topic 606, Revenue from Contracts with Customers. With the exception of gains or losses on sales of foreclosed properties, all of our revenue from contracts with customers in the scope of ASC 606 is recognized within Noninterest Income in the Consolidated Statements of Income. Incremental costs of obtaining a contract are expensed when incurred when the amortization period is one year or less.
The following table illustrates our total non-interest income segregated by revenues within the scope of ASC Topic 606 and those which are within the scope of other ASC Topics:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| Dollars in thousands | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Service fees on deposit accounts | $ | $ | $ | $ | ||||||||||||
| Bank card revenue | ||||||||||||||||
| Trust and wealth management fees | ||||||||||||||||
| Other | ||||||||||||||||
| Net revenue from contracts with customers | ||||||||||||||||
| Non-interest income within the scope of other ASC topics | ||||||||||||||||
| Total noninterest income | $ | $ | $ | $ | ||||||||||||
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
INTRODUCTION
The following discussion and analysis focuses on significant changes in our financial condition and results of operations of Summit Financial Group, Inc. (“Company” or “Summit”) and its operating subsidiary, Summit Community Bank (“Summit Community”), for the periods indicated. This discussion and analysis should be read in conjunction with our 2021 audited consolidated financial statements and Annual Report on Form 10-K.
The Private Securities Litigation Act of 1995 indicates that the disclosure of forward-looking information is desirable for investors and encourages such disclosure by providing a safe harbor for forward-looking statements by us. This Quarterly Report on Form 10-Q contains comments or information that constitute forward-looking statements (within the meaning of the Private Securities Litigation Act of 1995) that are based on current expectations that involve a number of risks and uncertainties. Words such as “expects”, “anticipates”, “believes”, “estimates” and other similar expressions or future or conditional verbs such as “will”, “should”, “would” and “could” are intended to identify such forward-looking statements.
Although we believe the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially. Factors that might cause such a difference include: current and future economic and market conditions, including the effects of declines in housing prices, high unemployment rates, U.S. fiscal debt, budget and tax matters, geopolitical matters, and any slowdown in global economic growth; fiscal and monetary policies of the Federal Reserve; future provisions for credit losses on loans and debt securities; changes in nonperforming assets; changes in interest rates and interest rate relationships; demand for products and services; the degree of competition by traditional and non-traditional competitors; the successful integration of operations of our acquisitions; changes in banking laws and regulations; changes in tax laws; the impact of technological advances; the outcomes of contingencies; trends in customer behavior as well as their ability to repay loans; and changes in the national and local economies. We undertake no obligation to revise these statements following the date of this filing.
OVERVIEW
On July 12, 2021 we acquired four full-service MVB branch banking offices and two MVB drive-up banking locations in southern West Virginia whose results are included in our financial statements from the acquisition dates forward, impacting comparisons to the prior-year periods.
Our primary source of income is net interest income from loans and deposits. Business volumes tend to be influenced by the overall economic factors including market interest rates, business spending, and consumer confidence, as well as competitive conditions within the marketplace.
Primarily due to our 2021 acquisition and organic loan growth, average interest earning assets increased by 11.9% for the first nine months in 2022 compared to the same period of 2021 while our net interest earnings on a tax equivalent basis increased 16.7%. Our tax equivalent net interest margin increased 15 basis points as our yield on interest earning assets increased 37 basis points while our cost of interest bearing funds increased 28 basis points.
CRITICAL ACCOUNTING POLICIES
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America and follow general practices within the financial services industry. Application of these principles requires us to make estimates, assumptions and judgments that affect the amounts reported in our financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions and judgments. Certain policies inherently have a greater reliance on the use of estimates, assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported.
Our most significant accounting policies are presented in the notes to the consolidated financial statements of our 2021 Annual Report on Form 10-K. These policies, along with the other disclosures presented in the financial statement notes and in this financial review, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined.
Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions and estimates underlying those amounts, we have identified the determination of ACL, fair value measurements and accounting for acquired loans to be the accounting areas that require the most subjective or complex judgments and as such could be most subject to revision as new information becomes available. Refer to Note 7 of the Notes to the Consolidated Financial Statements in the 2021 Form 10-K for a discussion of the methodology we employ regarding the ACL.
For additional information regarding critical accounting policies, refer to Critical Accounting Policies section in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 2021 Form 10-K. There have been no significant changes in our application of critical accounting policies since December 31, 2021.
RESULTS OF OPERATIONS
Earnings Summary
Net income applicable to common shares for the three months ended September 30, 2022 was $14.2 million, or $1.11 per diluted share, compared to $12.0 million, or $0.92 per diluted share for the same period of 2021. Net income applicable to common shares for the nine months ended September 30, 2022 was $37.5 million, or $2.92 per diluted share, compared to $32.8 million, or $2.52 per diluted share for the same period of 2021. The increased earnings for the three and nine months ended September 30, 2022 were primarily attributable to increased net interest income due to our growth. Returns on average equity and assets for the first nine months of 2022 were 15.26% and 1.37%, respectively, compared with 14.51% and 1.34% for the same period of 2021.
MVB's results of operations are included in our consolidated results of operations from the date of acquisition, and therefore our 2022 results reflect increased levels of average balances, income and expense as compared to the same periods of 2021 results. At consummation (prior to fair value acquisition adjustments), the MVB branch transaction consisted primarily of $54.4 million loans acquired and $164.0 million deposits assumed.
Net Interest Income
Net interest income is the principal component of our earnings and represents 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 changes in the volume and mix of earning assets and interest bearing liabilities can materially impact net interest income.
Q3 2022 compared to Q2 2022
For the quarter ended September 30, 2022, our net interest income on a fully taxable-equivalent basis increased $3.2 million to $34.4 million compared to $31.2 million for the quarter end June 30, 2022. Our taxable-equivalent earnings on interest earning assets increased $7.0 million, while the cost of interest bearing liabilities increased $3.7 million (see Tables I and II).
For the three months ended September 30, 2022, average interest earning assets increased to $3.56 billion compared to $3.42 billion for the three months ended June 30, 2022, while average interest bearing liabilities increased to $2.84 billion for the three months ended September 30, 2022 from $2.71 billion for the three months ended June 30, 2022.
For the quarter ended September 30, 2022, our net interest margin increased to 3.84%, compared to 3.66% for the linked quarter, as the yields on earning assets increased 57 basis points and the cost of our interest bearing funds increased by 48 basis points. Excluding the impact of accretion and amortization of fair value acquisition accounting adjustments related to the interest earning assets and interest bearing liabilities acquired by merger, Summit's net interest margin was 3.81% and 3.62% for the three months ended September 30, 2022 and June 30, 2022.
Q3 2022 compared to Q3 2021
For the quarter ended September 30, 2022, our net interest income on a fully taxable-equivalent basis increased $6.1 million to $34.4 million compared to $28.3 million for the quarter ended September 30, 2021. Our taxable-equivalent earnings on interest earning assets increased $11.6 million, while the cost of interest bearing liabilities increased $5.5 million (see Tables I and II).
For the three months ended September 30, 2022, average interest earning assets increased 10.1% to $3.56 billion compared to $3.23 billion for the three months ended September 30, 2021, while average interest bearing liabilities increased 11.7% from $2.55 billion for the three months ended September 30, 2021 to $2.84 billion for the three months ended September 30, 2022.
For the quarter ended September 30, 2022, our net interest margin increased to 3.84%, compared to 3.47% for the same period of 2021, as the yields on earning assets increased 95 basis points, while the cost of our interest bearing funds increased by 72 basis points.
Excluding the impact of accretion and amortization of fair value acquisition accounting adjustments related to the interest earning assets and interest bearing liabilities acquired by merger, Summit's net interest margin was 3.41% for the three months ended September 30, 2021.
| Table I - Average Balance Sheet and Net Interest Income Analysis |
||||||||||||||||||||||||||||||||||||
| For the Quarter Ended |
||||||||||||||||||||||||||||||||||||
| September 30, 2022 |
June 30, 2022 |
September 30, 2021 |
||||||||||||||||||||||||||||||||||
| Average |
Earnings/ |
Yield/ |
Average |
Earnings/ |
Yield/ |
Average |
Earnings/ |
Yield/ |
||||||||||||||||||||||||||||
| Dollars in thousands |
Balance |
Expense |
Rate |
Balance |
Expense |
Rate |
Balance |
Expense |
Rate |
|||||||||||||||||||||||||||
| Interest earning assets |
||||||||||||||||||||||||||||||||||||
| Loans, net of unearned fees (1) |
||||||||||||||||||||||||||||||||||||
| Taxable |
$ | 3,018,219 | $ | 38,741 | 5.09 | % | $ | 2,902,370 | $ | 32,721 | 4.52 | % | $ | 2,495,880 | $ | 28,340 | 4.50 | % | ||||||||||||||||||
| Tax-exempt (2) |
4,834 | 54 | 4.43 | % | 5,127 | 57 | 4.46 | % | 7,871 | 96 | 4.84 | % | ||||||||||||||||||||||||
| Securities |
||||||||||||||||||||||||||||||||||||
| Taxable |
283,645 | 2,273 | 3.18 | % | 297,701 | 1,765 | 2.38 | % | 315,082 | 1,432 | 1.80 | % | ||||||||||||||||||||||||
| Tax-exempt (2) |
203,951 | 1,549 | 3.01 | % | 178,043 | 1,249 | 2.81 | % | 166,285 | 1,159 | 2.77 | % | ||||||||||||||||||||||||
| Federal funds sold and interest bearing deposits with other banks |
49,048 | 170 | 1.38 | % | 37,757 | 45 | 0.48 | % | 248,315 | 118 | 0.19 | % | ||||||||||||||||||||||||
| Total interest earning assets |
3,559,697 | 42,787 | 4.77 | % | 3,420,998 | 35,837 | 4.20 | % | 3,233,433 | 31,145 | 3.82 | % | ||||||||||||||||||||||||
| Noninterest earning assets |
||||||||||||||||||||||||||||||||||||
| Cash & due from banks |
17,455 | 16,351 | 20,077 | |||||||||||||||||||||||||||||||||
| Premises and equipment |
54,976 | 55,449 | 55,908 | |||||||||||||||||||||||||||||||||
| Property held for sale |
5,243 | 6,032 | 12,727 | |||||||||||||||||||||||||||||||||
| Intangible assets |
62,705 | 63,058 | 62,944 | |||||||||||||||||||||||||||||||||
| Other assets |
166,166 | 159,756 | 100,304 | |||||||||||||||||||||||||||||||||
| Allowance for credit losses-loans |
(35,381 | ) | (33,232 | ) | (33,911 | ) | ||||||||||||||||||||||||||||||
| Total assets |
$ | 3,830,861 | $ | 3,688,412 | $ | 3,451,482 | ||||||||||||||||||||||||||||||
| Interest bearing liabilities |
||||||||||||||||||||||||||||||||||||
| Interest bearing demand deposits |
$ | 1,454,815 | $ | 4,276 | 1.17 | % | $ | 1,189,324 | $ | 1,274 | 0.43 | % | $ | 1,092,392 | $ | 325 | 0.12 | % | ||||||||||||||||||
| Savings deposits |
611,075 | 1,243 | 0.81 | % | 672,353 | 689 | 0.41 | % | 691,411 | 602 | 0.35 | % | ||||||||||||||||||||||||
| Time deposits |
461,134 | 621 | 0.53 | % | 517,360 | 659 | 0.51 | % | 571,445 | 905 | 0.63 | % | ||||||||||||||||||||||||
| Short-term borrowings |
191,421 | 850 | 1.76 | % | 207,227 | 696 | 1.35 | % | 140,146 | 470 | 1.33 | % | ||||||||||||||||||||||||
| Long-term borrowings, subordinated debentures and capital trust securities |
123,368 | 1,348 | 4.34 | % | 123,263 | 1,280 | 4.17 | % | 49,724 | 543 | 4.33 | % | ||||||||||||||||||||||||
| Total interest bearing liabilities |
2,841,813 | 8,338 | 1.16 | % | 2,709,527 | 4,598 | 0.68 | % | 2,545,118 | 2,845 | 0.44 | % | ||||||||||||||||||||||||
| Noninterest bearing liabilities and shareholders' equity |
||||||||||||||||||||||||||||||||||||
| Demand deposits |
609,424 | 605,724 | 547,627 | |||||||||||||||||||||||||||||||||
| Other liabilities |
41,339 | 41,307 | 38,789 | |||||||||||||||||||||||||||||||||
| Total liabilities |
3,492,576 | 3,356,558 | 3,131,534 | |||||||||||||||||||||||||||||||||
| Shareholders' equity - preferred |
14,920 | 14,920 | 14,920 | |||||||||||||||||||||||||||||||||
| Shareholders' equity - common |
323,365 | 316,934 | 305,028 | |||||||||||||||||||||||||||||||||
| Total liabilities and shareholders' equity |
$ | 3,830,861 | $ | 3,688,412 | $ | 3,451,482 | ||||||||||||||||||||||||||||||
| Net interest earnings |
$ | 34,449 | $ | 31,239 | $ | 28,300 | ||||||||||||||||||||||||||||||
| Net yield on interest earning assets |
3.84 | % | 3.66 | % | 3.47 | % | ||||||||||||||||||||||||||||||
| (1) |
- For purposes of this table, nonaccrual loans are included in average loan balances. |
| (2) |
- Interest income on tax-exempt securities and loans has been adjusted assuming a Federal tax rate of 21% for all periods presented. The tax equivalent adjustment resulted in an increase in interest income of $336,000, $274,000, and $263,000 for the three months ended September 30, 2022, June 30, 2022 and September 30, 2021, respectively. |
| Table II - Changes in Net Interest Income Attributable to Rate and Volume |
||||||||||||||||||||||||
| For the Quarter Ended |
For the Quarter Ended |
|||||||||||||||||||||||
| September 30, 2022 vs. June 30, 2022 |
September 30, 2022 vs. September 30, 2021 |
|||||||||||||||||||||||
| Increase (Decrease) Due to Change in: |
Increase (Decrease) Due to Change in: |
|||||||||||||||||||||||
| Dollars in thousands |
Volume |
Rate |
Net |
Volume |
Rate |
Net |
||||||||||||||||||
| Interest earned on: |
||||||||||||||||||||||||
| Loans |
||||||||||||||||||||||||
| Taxable |
$ | 1,446 | $ | 4,574 | $ | 6,020 | $ | 6,408 | $ | 3,993 | $ | 10,401 | ||||||||||||
| Tax-exempt |
(2 | ) | (1 | ) | (3 | ) | (34 | ) | (8 | ) | (42 | ) | ||||||||||||
| Securities |
||||||||||||||||||||||||
| Taxable |
(85 | ) | 593 | 508 | (156 | ) | 997 | 841 | ||||||||||||||||
| Tax-exempt |
202 | 98 | 300 | 280 | 110 | 390 | ||||||||||||||||||
| Federal funds sold and interest bearing deposits with other banks |
18 | 107 | 125 | (162 | ) | 214 | 52 | |||||||||||||||||
| Total interest earned on interest earning assets |
1,579 | 5,371 | 6,950 | 6,336 | 5,306 | 11,642 | ||||||||||||||||||
| Interest paid on: |
||||||||||||||||||||||||
| Interest bearing demand deposits |
346 | 2,656 | 3,002 | 142 | 3,809 | 3,951 | ||||||||||||||||||
| Savings deposits |
(68 | ) | 622 | 554 | (77 | ) | 718 | 641 | ||||||||||||||||
| Time deposits |
(69 | ) | 31 | (38 | ) | (160 | ) | (124 | ) | (284 | ) | |||||||||||||
| Short-term borrowings |
(56 | ) | 210 | 154 | 202 | 178 | 380 | |||||||||||||||||
| Long-term borrowings, subordinated debentures and capital trust securities |
1 | 67 | 68 | 804 | 1 | 805 | ||||||||||||||||||
| Total interest paid on interest bearing liabilities |
154 | 3,586 | 3,740 | 911 | 4,582 | 5,493 | ||||||||||||||||||
| Net interest income |
$ | 1,425 | $ | 1,785 | $ | 3,210 | $ | 5,425 | $ | 724 | $ | 6,149 | ||||||||||||
| Table III - Average Balance Sheet and Net Interest Income Analysis |
||||||||||||||||||||||||
| For the Nine Months Ended |
||||||||||||||||||||||||
| September 30, 2022 |
September 30, 2021 |
|||||||||||||||||||||||
| Average |
Earnings/ |
Yield/ |
Average |
Earnings/ |
Yield/ |
|||||||||||||||||||
| Dollars in thousands |
Balance |
Expense |
Rate |
Balance |
Expense |
Rate |
||||||||||||||||||
| Interest earning assets |
||||||||||||||||||||||||
| Loans, net of unearned fees (1) |
||||||||||||||||||||||||
| Taxable |
$ | 2,898,380 | $ | 101,640 | 4.69 | % | $ | 2,436,295 | $ | 83,352 | 4.57 | % | ||||||||||||
| Tax-exempt (2) |
5,108 | 170 | 4.45 | % | 10,622 | 377 | 4.75 | % | ||||||||||||||||
| Securities |
||||||||||||||||||||||||
| Taxable |
300,371 | 5,695 | 2.53 | % | 288,999 | 4,079 | 1.89 | % | ||||||||||||||||
| Tax-exempt (2) |
187,575 | 4,021 | 2.87 | % | 153,035 | 3,328 | 2.91 | % | ||||||||||||||||
| Federal funds sold and interest bearing deposits with other banks |
53,142 | 262 | 0.66 | % | 190,154 | 240 | 0.17 | % | ||||||||||||||||
| Total interest earning assets |
3,444,576 | 111,788 | 4.34 | % | 3,079,105 | 91,376 | 3.97 | % | ||||||||||||||||
| Noninterest earning assets |
||||||||||||||||||||||||
| Cash & due from banks |
17,671 | 19,093 | ||||||||||||||||||||||
| Premises and equipment |
55,486 | 54,154 | ||||||||||||||||||||||
| Property held for sale |
6,464 | 13,731 | ||||||||||||||||||||||
| Intangible assets |
63,061 | — | ||||||||||||||||||||||
| Other assets |
153,448 | 157,137 | ||||||||||||||||||||||
| Allowance for credit losses-loans |
(33,705 | ) | (33,765 | ) | ||||||||||||||||||||
| Total assets |
$ | 3,707,001 | $ | 3,289,455 | ||||||||||||||||||||
| Interest bearing liabilities |
||||||||||||||||||||||||
| Interest bearing demand deposits |
$ | 1,260,907 | $ | 6,015 | 0.64 | % | $ | 1,016,569 | $ | 1,090 | 0.14 | % | ||||||||||||
| Savings deposits |
660,855 | 2,505 | 0.51 | % | 666,642 | 1,881 | 0.38 | % | ||||||||||||||||
| Time deposits |
506,654 | 1,969 | 0.52 | % | 572,547 | 3,493 | 0.82 | % | ||||||||||||||||
| Short-term borrowings |
179,813 | 1,918 | 1.43 | % | 140,146 | 1,403 | 1.34 | % | ||||||||||||||||
| Long-term borrowings, subordinated debentures and capital trust securities |
123,279 | 3,867 | 4.19 | % | 49,694 | 1,632 | 4.39 | % | ||||||||||||||||
| Total interest bearing liabilities |
2,731,508 | 16,274 | 0.80 | % | 2,445,598 | 9,499 | 0.52 | % | ||||||||||||||||
| Noninterest bearing liabilities and shareholders' equity |
||||||||||||||||||||||||
| Demand deposits |
600,766 | 501,309 | ||||||||||||||||||||||
| Other liabilities |
41,541 | 37,856 | ||||||||||||||||||||||
| Total liabilities |
3,373,815 | 2,984,763 | ||||||||||||||||||||||
| Shareholders' equity - preferred |
14,920 | 8,780 | ||||||||||||||||||||||
| Shareholders' equity - common |
318,266 | 295,912 | ||||||||||||||||||||||
| Total liabilities and shareholders' equity |
$ | 3,707,001 | $ | 3,289,455 | ||||||||||||||||||||
| Net interest earnings |
$ | 95,514 | $ | 81,877 | ||||||||||||||||||||
| Net yield on interest earning assets |
3.71 | % | 3.56 | % | ||||||||||||||||||||
| (1) |
- For purposes of this table, nonaccrual loans are included in average loan balances. |
| (2) |
- Interest income on tax-exempt securities and loans has been adjusted assuming a Federal tax rate of 21%. The tax equivalent adjustment resulted in an increase in interest income of $881,000 and $778,000 for the nine months ended September 30, 2022 and 2021, respectively. |
| Table IV - Changes in Net Interest Income Attributable to Rate and Volume |
||||||||||||
| For the Nine Months Ended |
||||||||||||
| September 30, 2022 versus September 30, 2021 |
||||||||||||
| Increase (Decrease) Due to Change in: |
||||||||||||
| Dollars in thousands |
Volume |
Rate |
Net |
|||||||||
| Interest earned on: |
||||||||||||
| Loans |
||||||||||||
| Taxable |
$ | 16,158 | $ | 2,130 | $ | 18,288 | ||||||
| Tax-exempt |
(185 | ) | (22 | ) | (207 | ) | ||||||
| Securities |
||||||||||||
| Taxable |
167 | 1,449 | 1,616 | |||||||||
| Tax-exempt |
741 | (48 | ) | 693 | ||||||||
| Federal funds sold and interest bearing deposits with other banks |
(274 | ) | 294 | 20 | ||||||||
| Total interest earned on interest earning assets |
16,607 | 3,803 | 20,410 | |||||||||
| Interest paid on: |
||||||||||||
| Interest bearing demand deposits |
321 | 4,604 | 4,925 | |||||||||
| Savings deposits |
(16 | ) | 640 | 624 | ||||||||
| Time deposits |
(367 | ) | (1,157 | ) | (1,524 | ) | ||||||
| Short-term borrowings |
418 | 97 | 515 | |||||||||
| Long-term borrowings, subordinated debentures and capital trust securities |
2,312 | (77 | ) | 2,235 | ||||||||
| Total interest paid on interest bearing liabilities |
2,668 | 4,107 | 6,775 | |||||||||
| Net interest income |
$ | 13,939 | $ | (304 | ) | $ | 13,635 | |||||
Provision for Credit Losses
Provision for credit losses is determined by management as the amount to be added to the allowance for credit loss accounts for various types of financial instruments including loans, securities and off-balance-sheet credit exposure after net charge-offs have been deducted to bring the allowance to a level which, in management’s best estimate, is necessary to absorb expected credit losses over the lives of the respective financial instruments.
We recorded $1.5 million provision for credit losses for the three months ended September 30, 2022 and $5.5 million and $2.5 million for the nine months ended September 30, 2022 and 2021, respectively. We recorded no provision for credit losses for the three months ended September 30, 2021. The following table summarizes the changes in the various factors that comprise the components of credit loss expense.
| Table V - Provision for Credit Losses |
||||||||||||||||
| For the Three Months Ended |
For the Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| Dollars in thousands |
2022 |
2021 |
2022 |
2021 |
||||||||||||
| Provision for credit losses-loans |
||||||||||||||||
| Due to changes in: |
||||||||||||||||
| Volume, mix and loss experience |
$ | 1,422 | $ | 176 | $ | 5,194 | $ | 4,180 | ||||||||
| Reasonable and supportable economic forecasts & other qualitative adjustments |
573 | — | 614 | (2,301 | ) | |||||||||||
| Individually evaluated credits |
(300 | ) | (2,169 | ) | (680 | ) | (1,842 | ) | ||||||||
| Acquired loans |
— | 793 | — | 793 | ||||||||||||
| Total provision for credit losses - loans |
1,695 | (1,200 | ) | 5,128 | 830 | |||||||||||
| Provision for credit losses-unfunded commitments |
||||||||||||||||
| Due to changes in: |
||||||||||||||||
| Volume, mix and loss experience |
(438 | ) | 1,060 | 629 | 2,103 | |||||||||||
| Reasonable and supportable economic forecasts & other qualitative adjustments |
243 | — | (307 | ) | (573 | ) | ||||||||||
| Individually evaluated credits |
— | — | — | — | ||||||||||||
| Acquired loan commitments |
— | 140 | — | 140 | ||||||||||||
| Total provision for credit losses - unfunded commitments |
(195 | ) | 1,200 | 322 | 1,670 | |||||||||||
| Total provision for credit losses - debt securities |
— | — | — | — | ||||||||||||
| Total provision for credit losses |
$ | 1,500 | $ | — | $ | 5,450 | $ | 2,500 | ||||||||
Noninterest Income
Total noninterest income for the three and nine months ended September 30, 2022 increased 7.0% and decreased 6.8%, respectively, compared to the same periods of 2021. The quarterly increase was principally due to increased service charges on deposit accounts and realized gains on equity investments in 2022. The decrease for the nine months period was primarily due to realized losses on debt securities in 2022 compared to gains in 2021 and lower mortgage origination revenue in 2022 as mortgage refinance opportunities have become more limited which more than offset the higher service charges on deposit accounts. Included in 2022 mortgage origination revenue was $318,000 increase in fair value of mortgage servicing rights during third quarter. Further detail regarding noninterest income is reflected in the following table.
| Table VI - Noninterest Income |
||||||||||||||||
| For the Three Months Ended |
For the Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| Dollars in thousands |
2022 |
2021 |
2022 |
2021 |
||||||||||||
| Trust and wealth management fees |
725 | 718 | 2,228 | 2,039 | ||||||||||||
| Mortgage origination revenue |
538 | 742 | 1,194 | 2,638 | ||||||||||||
| Service charges on deposit accounts |
1,550 | 1,338 | 4,625 | 3,530 | ||||||||||||
| Bank card revenue |
1,639 | 1,509 | 4,748 | 4,369 | ||||||||||||
| Realized (losses) gains on debt securities available for sale, net |
(242 | ) | (68 | ) | (684 | ) | 534 |
|
||||||||
| Gain/(loss) on equity investments |
283 | — | (14 | ) | — | |||||||||||
| Bank owned life insurance and annuities income |
229 | 160 | 843 | 733 | ||||||||||||
| Other |
165 | 168 | 348 | 413 | ||||||||||||
| Total |
$ | 4,887 | $ | 4,567 | $ | 13,288 | $ | 14,256 | ||||||||
Noninterest Expense
Total noninterest expense increased 10.8% and 6.3% for the three and nine months ended September 30, 2022 compared to the same periods of 2021, respectively, primarily due to higher salaries, commissions, and employee benefits that more than offset the lower foreclosed properties expense, acquisition-related expenses and other expenses. Table VII below shows the breakdown of the changes.
Table VII- Noninterest Expense
| For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||||||||||||||||||
| Change |
Change |
|||||||||||||||||||||||||||||||
| Dollars in thousands |
2022 |
$ |
% |
2021 |
2022 |
$ |
% |
2021 |
||||||||||||||||||||||||
| Salaries, commissions, and employee benefits |
$ | 10,189 | $ | 1,444 | 16.5 | % | $ | 8,745 | $ | 29,920 | $ | 4,510 | 17.7 | % | $ | 25,410 | ||||||||||||||||
| Net occupancy expense |
1,301 | 47 | 3.7 | % | 1,254 | 3,801 | 242 | 6.8 | % | 3,559 | ||||||||||||||||||||||
| Equipment expense |
1,851 | (57 | ) | (3.0 | )% | 1,908 | 5,484 | 396 | 7.8 | % | 5,088 | |||||||||||||||||||||
| Professional fees |
372 | (2 | ) | (0.5 | )% | 374 | 1,242 | 102 | 8.9 | % | 1,140 | |||||||||||||||||||||
| Advertising and public relations |
276 | 22 | 8.7 | % | 254 | 613 | 131 | 27.2 | % | 482 | ||||||||||||||||||||||
| Amortization of intangibles |
354 | (36 | ) | (9.2 | )% | 390 | 1,088 | (88 | ) | (7.5 | )% | 1,176 | ||||||||||||||||||||
| FDIC premiums |
292 | (62 | ) | (17.5 | )% | 354 | 872 | (247 | ) | (22.1 | )% | 1,119 | ||||||||||||||||||||
| Bank card expense |
726 | 21 | 3.0 | % | 705 | 2,249 | 285 | 14.5 | % | 1,964 | ||||||||||||||||||||||
| Foreclosed properties expense, net of (gains)/losses |
26 | (344 | ) | (93.0 | )% | 370 | 77 | (1,265 | ) | (94.3 | )% | 1,342 | ||||||||||||||||||||
| Acquisition-related expenses |
— | (273 | ) | (100.0 | )% | 273 | 33 | (1,134 | ) | (97.2 | )% | 1,167 | ||||||||||||||||||||
| Other |
3,834 | 1,118 | 41.2 | % | 2,716 | 8,651 | 286 | 3.4 | % | 8,365 | ||||||||||||||||||||||
| Total |
$ | 19,221 | $ | 1,878 | 10.8 | % | $ | 17,343 | $ | 54,030 | $ | 3,218 | 6.3 | % | $ | 50,812 | ||||||||||||||||
Salaries, commissions, and employee benefits: The increases in these expenses for the three and nine months ended September 30, 2022 compared to the same periods of 2021 are primarily due to general merit raises and the following:
| • |
Higher group health insurance premiums which were $841,000 during third quarter 2022 compared to $544,000 during third quarter 2021 and $2.5 million for the first nine months of 2022 compared to $1.6 million for the comparable period of 2021; and |
| • |
Accrued expenses related to employee bonus plans increased from $821,000 during third quarter 2021 to $1.5 million in third quarter 2022 and from $2.2 million for the nine months ended September 30, 2021 to $4.1 million for the comparable period of 2022. |
Equipment expense: The increase in equipment expenses for the nine months ended September 30 2022 compared to the same period of 2021 is primarily due to depreciation and amortization related to various technological upgrades, both hardware and software, including interactive teller machine upgrades and recent acquisitions.
Foreclosed properties expense, net of (gains)/losses: The decrease in foreclosed properties expense, net of (gains)/losses, for the three and nine months ended September 30, 2022 is primarily due to fewer writedowns of foreclosed properties to their estimated fair values.
Acquisition-related expenses: Acquisition-related expenses decreased during 2022 as no transactions occurred during 2022.
Other: The increase in other expenses for the three and nine months ended September 30, 2022 compared to the same periods of 2021 is largely due to the following:
| • |
Deferred director compensation plan-related income of $296,000 for the nine months ended September 30, 2022 compared to plan-related expense of $498,000 in the comparable period of 2021 and expense of $830,000 during third quarter 2022 compared to $72,000 during third quarter 2021 as a result of the stock market's overall declined performance during 2022. Under the plan, the directors optionally defer their director fees into a "phantom" investment plan whereby the company recognizes expense or benefit relative to the phantom returns or losses of such investments. During Q3 2022, we purchased investments to hedge the changes in the Plan participants’ phantom investments which should serve to significantly reduce period-to-period volatility of the Plan’s impact on our statements of income |
| • |
Fraud and robbery losses were $2,000 and $235,000 for the three and nine months ended September 30, 2022 compared to $36,000 and $169,000 for the three and nine months ended September 30, 2021 |
| • |
During the three months ended September 30, 2022, Virginia franchise tax increased to $214,000 compared to $137,000 for the same period of 2021 and was $533,000 and $335,000 for the nine months ended September 30, 2022 and 2021 primarily due to our balance sheet growth |
| • |
Internet banking expense increased to $341,000 for the three months ended September 30, 2022 compared to $306,000 for the same period of 2021 and was $1.0 million and $881,000 for the nine months ended September 30, 2022 and 2021 due to increased internet banking activity by clients |
Income Taxes
Our income tax expense for the three months ended September 30, 2022 and September 30, 2021 totaled $3.9 million and $3.0 million, respectively. For the nine months ended September 30, 2022 and September 30, 2021, our income tax expense totaled $10.3 million and $8.9 million, respectively. Our effective tax rate (income tax expense as a percentage of income before taxes) for the quarters ended September 30, 2022 and 2021 was 21.1% and 19.8%, respectively and for the nine months ended September 30, 2022 and 2021 was 21.3% and 21.1%. Refer to Note 16 of the accompanying financial statements for further information regarding our income taxes.
FINANCIAL CONDITION
Our total assets were $ 3.89 billion at September 30, 2022 and $ 3.58 billion at December 31, 2021. Table VIII below is a summary of significant changes in our financial position between December 31, 2021 and September 30, 2022.
| Table VIII - Summary of Significant Changes in Financial Position |
||||||||||||
| Dollars in thousands |
Balance at December 31, 2021 |
Increase (Decrease) |
Balance at September 30, 2022 |
|||||||||
| Assets |
||||||||||||
| Cash and cash equivalents |
$ | 78,458 | $ | (32,807 | ) | $ | 45,651 | |||||
| Debt securities available for sale |
401,103 | (17,138 | ) | 383,965 | ||||||||
| Debt securities held to maturity |
98,060 | (1,420 | ) | 96,640 | ||||||||
| Equity investments |
20,202 | 4,916 | 25,118 | |||||||||
| Other investments |
11,304 | 6,801 | 18,105 | |||||||||
| Loans, net |
2,729,093 | 309,284 | 3,038,377 | |||||||||
| Property held for sale |
9,858 | (4,665 | ) | 5,193 | ||||||||
| Premises and equipment |
56,371 | (1,743 | ) | 54,628 | ||||||||
| Accrued interest and fees receivable |
10,578 | 2,664 | 13,242 | |||||||||
| Goodwill and other intangibles |
63,590 | (1,088 | ) | 62,502 | ||||||||
| Cash surrender value of life insurance policies and annuities |
60,613 | 10,603 | 71,216 | |||||||||
| Derivative financial instruments |
11,187 | 30,992 | 42,179 | |||||||||
| Other assets |
26,302 | 4,181 | 30,483 | |||||||||
| Total assets |
$ | 3,576,719 | $ | 310,580 | $ | 3,887,299 | ||||||
| Liabilities |
||||||||||||
| Deposits |
$ | 2,943,089 | $ | 164,983 | $ | 3,108,072 | ||||||
| Short-term borrowings |
140,146 | 133,002 | 273,148 | |||||||||
| Long-term borrowings |
679 | (16 | ) | 663 | ||||||||
| Subordinated debentures |
102,891 | 284 | 103,175 | |||||||||
| Subordinated debentures owed to unconsolidated subsidiary trusts |
19,589 | — | 19,589 | |||||||||
| Other liabilities |
42,852 | (1,874 | ) | 40,978 | ||||||||
| Shareholders' Equity - preferred |
14,920 | — | 14,920 | |||||||||
| Shareholders' Equity - common |
312,553 | 14,201 | 326,754 | |||||||||
| Total liabilities and shareholders' equity |
$ | 3,576,719 | $ | 310,580 | $ | 3,887,299 | ||||||
The following is a discussion of the significant changes in our financial position during the first nine months of 2022:
Cash and cash equivalents: Net decrease of $32.8 million is primarily attributable to increased customer loans.
Debt securities available for sale: The net decrease of $17.1 million in debt securities available for sale is principally attributable to a $53.9 million decrease in the fair value of the portfolio, sales of agencies, municipals and mortgage-backed securities of $61.5 million and principal paydowns on mortgage-backed securities of $29.0 million partially offset by purchases of $131.9 million securities.
Loans: Mortgage warehouse lines of credit declined $33.1 million during the first nine months of 2022 due to a reduction in size of our participation arrangement with a regional bank to fund residential mortgage warehouse lines of medium- and large-sized mortgage originators located throughout the United States. Excluding mortgage warehouse lines of credit, loan growth was $346.9 million during the first nine months of 2022, which included PPP loans declining $10.8 million.
Derivative financial instruments: The 2022 increase in derivative financial instruments is due to the increase in the fair value of our cash flow and interest rate hedges.
Deposits: During the first nine months of 2022, noninterest bearing checking deposits increased $47.2 million and interest bearing checking deposits grew $348.4 million, as we increased new commercial account relationships while brokered CDs increased $18.1 million, savings deposits declined $115.2 million, retail CDs decreased $135.5 million and Direct CDs decreased $0.8 million.
Shareholders' equity - common: Changes in common shareholders' equity are a result of net income, other comprehensive income and common dividends. Refer to the Consolidated Statements of Shareholders' Equity of the accompanying financial statements for further details. Tangible book value per common share (“TBVPCS”) increased $0.62 to $20.69 during the quarter, despite unrealized net losses on debt securities available for sale of $0.95 per common share (net of deferred income taxes) recorded in Other Comprehensive Income (“OCI”), partially offset by increases in the fair values of derivative financial instruments hedging against higher interest rates totaling $0.62 per common share (net of deferred income taxes) also recorded in OCI. Year-to-date for 2022, Summit’s TBVPCS has increased 5.89 percent.
Refer to Notes 5, 6, 8, and 9 of the notes to the accompanying consolidated financial statements for additional information with regard to changes in the composition of our securities, loans, deposits and borrowings between September 30, 2022 and December 31, 2021.
Credit Experience
For purposes of this discussion, nonperforming assets include foreclosed properties, other repossessed assets, and nonperforming loans, which is comprised of loans 90 days or more past due and still accruing interest and nonaccrual loans. Performing TDRs are excluded from nonperforming loans.
The provision for credit losses represents charges to earnings necessary to maintain an adequate allowance to cover an estimate of the full amount of expected credit losses relative to loans. Our determination of the appropriate level of the allowance is based on an ongoing analysis of credit quality and loss potential in the loan portfolio, change in the composition and risk characteristics of the loan portfolio, and the anticipated influence of national and local economic conditions. The adequacy of the allowance for loan losses is reviewed quarterly and adjustments are made as considered necessary.
At September 30, 2022 and December 31, 2021, our allowance for loan credit losses totaled $36.8 million, or 1.19% of total loans and $32.3 million, or 1.17% of total loans. The allowance for loan credit losses is considered adequate to cover an estimate of the full amount of expected credit losses relative to loans.
We incurred net loan charge-offs of $676,000 in first nine months of 2022 (0.03 percent of average loans annualized), compared to $761,000 net loan charge-offs during first nine months of 2021 (0.04 percent of average loans annualized) . Net loan charge-offs totaled $8,000 and $370,000 for the three months ended September 30, 2022 and 2021, respectively.
As illustrated in Table IX below, our non-performing assets have decreased since year end 2021.
| Table IX - Summary of Non-Performing Assets |
||||||||||||
| September 30, |
December 31, |
|||||||||||
| Dollars in thousands |
2022 |
2021 |
2021 |
|||||||||
| Accruing loans past due 90 days or more |
$ | 4 | $ | 2 | $ | 4 | ||||||
| Nonaccrual loans |
||||||||||||
| Commercial |
347 | 459 | 740 | |||||||||
| Commercial real estate |
1,860 | 4,643 | 4,603 | |||||||||
| Commercial construction and development |
— | — | — | |||||||||
| Residential construction and development |
902 | 448 | 1,560 | |||||||||
| Residential real estate |
6,083 | 5,514 | 5,772 | |||||||||
| Consumer |
4 | 47 | 17 | |||||||||
| Other |
— | — | — | |||||||||
| Total nonaccrual loans |
9,196 | 11,111 | 12,692 | |||||||||
| Foreclosed properties |
||||||||||||
| Commercial |
— | — | — | |||||||||
| Commercial real estate |
297 | 2,192 | 1,389 | |||||||||
| Commercial construction and development |
2,332 | 2,925 | 2,332 | |||||||||
| Residential construction and development |
2,293 | 6,711 | 5,561 | |||||||||
| Residential real estate |
271 | 622 | 576 | |||||||||
| Total foreclosed properties |
5,193 | 12,450 | 9,858 | |||||||||
| Repossessed assets |
— | — | — | |||||||||
| Total nonperforming assets |
$ | 14,393 | $ | 23,563 | $ | 22,554 | ||||||
| Total nonperforming loans as a percentage of total loans |
0.30 | % | 0.44 | % | 0.46 | % | ||||||
| Total nonperforming assets as a percentage of total assets |
0.37 | % | 0.67 | % | 0.63 | % | ||||||
| Allowance for credit losses-loans as a percentage of nonperforming loans |
399.46 | % | 291.64 | % | 254.40 | % | ||||||
| Allowance for credit losses-loans as a percentage of period end loans |
1.19 | % | 1.27 | % | 1.17 | % | ||||||
| Total nonaccrual loans as a percentage of total loans |
0.30 | % | 0.44 | % | 0.46 | % | ||||||
| Allowance for credit losses on loans as a percentage of nonaccrual loans |
399.63 | % | 291.66 | % | 254.48 | % | ||||||
The decline in residential construction and development foreclosed properties during 2022 was due to the sale of two residential subdivisions.
Refer to Note 7 of the Notes to the Consolidated Financial Statements in the 2021 Form 10-K for a discussion of the methodology information regarding our past due loans, nonaccrual loans, troubled debt restructurings and information regarding our methodology we employ on a quarterly basis to evaluate the overall adequacy of our allowance for credit losses.
The following table details the activity regarding our foreclosed properties for the three and nine months ended September 30, 2022 and 2021.
| Table X - Foreclosed Property Activity |
||||||||||||||||
| For the Three Months Ended |
For the Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| Dollars in thousands |
2022 |
2021 |
2022 |
2021 |
||||||||||||
| Beginning balance |
$ | 5,319 | $ | 13,170 | $ | 9,858 | $ | 15,588 | ||||||||
| Acquisitions |
6 | 190 | 6 | 532 | ||||||||||||
| Improvements |
17 | — | 17 | — | ||||||||||||
| Disposals |
(149 | ) | (645 | ) | (4,646 | ) | (2,664 | ) | ||||||||
| Writedowns to fair value |
— | (265 | ) | (42 | ) | (1,006 | ) | |||||||||
| Balance June 30 |
$ | 5,193 | $ | 12,450 | $ | 5,193 | $ | 12,450 | ||||||||
At September 30, 2022 and December 31, 2021 we had approximately $5.2 million and $9.9 million in foreclosed properties which were obtained as the result of foreclosure proceedings. Although foreclosed property is recorded at fair value less estimated costs to sell, the prices ultimately realized upon their sale may or may not result in us recognizing additional gains or losses.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity reflects our ability to ensure the availability of adequate funds to meet loan commitments and deposit withdrawals, as well as provide for other transactional requirements. Liquidity is provided primarily by funds invested in cash and due from banks (net of float and reserves), Federal funds sold, non-pledged securities, and available lines of credit with the Federal Home Loan Bank of Pittsburgh (“FHLB”) and Federal Reserve Bank of Richmond, which totaled approximately $1.5 billion or 39.47% of total consolidated assets at September 30, 2022.
Our liquidity strategy is to fund loan growth with deposits and other borrowed funds while maintaining an adequate level of short- and medium-term investments to meet normal daily loan and deposit activity. As a member of the FHLB, we have access to approximately $1.27 billion. As of September 30, 2022 and December 31, 2021, these advances totaled approximately $274 million and $141 million, respectively. At September 30, 2022, we had additional borrowing capacity of $999 million through FHLB programs. We have established a line with the Federal Reserve Bank to be used as a contingency liquidity vehicle. The amount available on this line at September 30, 2022 was approximately $286 million, which is secured by a pledge of certain consumer and our commercial and industrial loan portfolios. We have a $6 million unsecured line of credit with a correspondent bank. Also, we have a $384 million portfolio of available for sale debt securities which can be liquidated to meet liquidity needs.
Liquidity risk represents the risk of loss due to the possibility that funds may not be available to satisfy current or future commitments based on external market issues, customer or creditor perception of financial strength, and events unrelated to Summit such as war, terrorism, pandemic or financial institution market specific issues. The Asset/Liability Management Committee (“ALCO”), comprised of members of senior management and certain members of the Board of Directors, oversees our liquidity risk management process. The ALCO develops and recommends policies and limits governing our liquidity to the Board of Directors for approval with the objective of ensuring that we can obtain cost-effective funding to meet current and future obligations, as well as maintain sufficient levels of on-hand liquidity, under both normal and “stressed” circumstances.
We continuously monitor our liquidity position to ensure that day-to-day as well as anticipated funding needs are met. We are not aware of any trends, commitments, events or uncertainties that have resulted in or are reasonably likely to result in a material change to our liquidity.
One of our continuous goals is maintenance of a strong capital position. Through management of our capital resources, we seek to provide an attractive financial return to our shareholders while retaining sufficient capital to support future growth. Shareholders’ equity at September 30, 2022 totaled $341.7 million compared to $327.5 million at December 31, 2021.
Refer to Note 13 of the notes to the accompanying consolidated financial statements for additional information regarding regulatory restrictions on our capital as well as our subsidiaries’ capital.
CONTRACTUAL CASH OBLIGATIONS
During our normal course of business, we incur contractual cash obligations. The following table summarizes our contractual cash obligations at September 30, 2022.
| Table XI - Contractual Cash Obligations |
||||||||||||||||
| Long |
Capital |
|||||||||||||||
| Term |
Subordinated |
Trust |
Operating |
|||||||||||||
| Dollars in thousands |
Debt |
Debentures |
Securities |
Leases |
||||||||||||
| 2022 |
$ | 5 | $ | — | $ | — | $ | 252 | ||||||||
| 2023 |
22 | — | — | 805 | ||||||||||||
| 2024 |
23 | — | — | 740 | ||||||||||||
| 2025 |
24 | — | — | 664 | ||||||||||||
| 2026 |
589 | — | — | 634 | ||||||||||||
| Thereafter |
— | 105,000 | 19,589 | 2,217 | ||||||||||||
| Total |
$ | 663 | $ | 105,000 | $ | 19,589 | $ | 5,312 | ||||||||
OFF-BALANCE SHEET ARRANGEMENTS
We are involved with some off-balance sheet arrangements that have or are reasonably likely to have an effect on our financial condition, liquidity, or capital. These arrangements at September 30, 2022 are presented in the following table.
| Table XII - Off-Balance Sheet Arrangements |
September 30, |
|||
| Dollars in thousands |
2022 |
|||
| Commitments to extend credit: |
||||
| Revolving home equity and credit card lines |
$ | 104,374 | ||
| Construction loans |
279,861 | |||
| Other loans |
449,459 | |||
| Standby letters of credit |
56,160 | |||
| Total |
$ | 889,854 | ||
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market Risk Management
Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, exchange rates and equity prices. Interest rate risk is our primary market risk and results from timing differences in the repricing of assets, liabilities and off-balance sheet instruments, changes in relationships between rate indices and the potential exercise of imbedded options. The principal objective of asset/liability management is to minimize interest rate risk and our actions in this regard are taken under the guidance of our Asset/Liability Management Committee (“ALCO”), which is comprised of members of senior management and members of the Board of Directors. The ALCO actively formulates the economic assumptions that we use in our financial planning and budgeting process and establishes policies which control and monitor our sources, uses and prices of funds.
Some amount of interest rate risk is inherent and appropriate to the banking business. Our net income is affected by changes in the absolute level of interest rates. Our interest rate risk position is asset sensitive. That is, absent any changes in the volumes of our interest earning assets or interest bearing liabilities, assets are likely to reprice faster than liabilities, resulting in an increase in net income in a rising rate environment. Net income would decrease in a falling interest rate environment. Net income is also subject to changes in the shape of the yield curve. In general, a flattening yield curve would decrease our earnings due to the compression of earning asset yields and funding rates, while a steepening would increase earnings as margins widen.
Several techniques are available to monitor and control the level of interest rate risk. We control interest rate risk principally by matching the maturities of our interest earning assets with similar maturing interest bearing liabilities and by hedging adverse risk exposures with derivative financial instruments such as interest rate swaps and caps. We primarily use earnings simulations modeling to monitor interest rate risk. The earnings simulation model forecasts the effects on net interest income under a variety of interest rate scenarios that incorporate changes in the absolute level of interest rates and changes in the shape of the yield curve. Each increase or decrease in interest rates is assumed to gradually take place over either the next 12 months or the next 24 months (as footnoted in table below), and then remain stable. Assumptions used to project yields and rates for new loans and deposits are derived from historical analysis. Securities portfolio maturities and prepayments are reinvested in like instruments. Mortgage loan prepayment assumptions are developed from industry estimates of prepayment speeds. Noncontractual deposit repricings are modeled on historical patterns.
The following table presents the estimated sensitivity of our net interest income to changes in interest rates, as measured by our earnings simulation model as of September 30, 2022. The sensitivity is measured as a percentage change in net interest income given the stated changes in interest rates (change over 12 months, stable thereafter or change over 24 months, stable thereafter, see footnotes below) compared to net interest income with rates unchanged in the same period. The estimated changes set forth below are dependent on the assumptions discussed above.
| Estimated % Change in |
||||||||
| Net Interest Income over: |
||||||||
| Change in |
0 - 12 Months |
13 - 24 Months |
||||||
| Interest Rates |
Actual |
Actual |
||||||
| Down 100 basis points (1) |
-1.3 | % | 3.1 | % | ||||
| Up 200 basis points (1) |
0.0 | % | 10.8 | % | ||||
| Up 200 basis points (2) |
0.1 | % | 9.4 | % | ||||
| (1) assumes a parallel shift in the yield curve over 12 months, with no change thereafter |
||||
| (2) assumes a parallel shift in the yield curve over 24 months, with no change thereafter |
Item 4. Controls and Procedures
Our management, including the Chief Executive Officer and Chief Financial Officer, has conducted as of September 30, 2022, an evaluation of the effectiveness of disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures as of September 30, 2022 were effective. There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Refer to Note 11 of the Notes to the Consolidated Financial Statements in Part I, Item 1 for information regarding legal proceedings not reportable under this Item.
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In February 2020, the Board of Directors authorized the open market repurchase of up to 750,000 shares of the issued and outstanding shares of Summit's common stock ("February 2020 Repurchase Plan"). The timing and quantity of purchases under this stock repurchase plan are at the discretion of management. The plan may be discontinued, suspended, or restarted at any time at the Company's discretion.
The following table sets forth certain information regarding Summit's purchases of its common stock under the Repurchase Plan and for the benefit of Summits Employee Stock Ownership Plan for the quarter ended September 30, 2022.
| Period |
Total Number of Shares Purchased (a) |
Average Price Paid per Share |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs |
||||||||||||
| July 1, 2022 - July 31, 2022 |
— | $ | — | — | 426,423 | |||||||||||
| August 1, 2022 - August 31, 2022 |
15,000 | 30.01 | — | 426,423 | ||||||||||||
| September 1, 2022 - September 30, 2022 |
— | — | — | 426,423 | ||||||||||||
(a) All shares purchased for the benefit of Summit's Employee Stock Ownership Plan
| Exhibit 3.i |
Amended and Restated Articles of Incorporation of Summit Financial Group, Inc. |
| Exhibit 3.ii |
Articles of Amendment 2009 |
| Exhibit 3.iii |
Articles of Amendment 2011 |
| Exhibit 3.iv |
Amended and Restated Articles of Amendment 2021 |
| Exhibit 3.v |
Amended and Restated By-Laws of Summit Financial Group, Inc. |
| Exhibit 11 |
Statement re: Computation of Earnings per Share – Information contained in Note 4 to the Consolidated Financial Statements on page 13 of this Quarterly Report is incorporated herein by reference. |
| Exhibit 31.1 |
Sarbanes-Oxley Act Section 302 Certification of Chief Executive Officer |
| Exhibit 31.2 |
Sarbanes-Oxley Act Section 302 Certification of Chief Financial Officer |
| Exhibit 32.1 |
Sarbanes-Oxley Act Section 906 Certification of Chief Executive Officer |
| Exhibit 32.2 |
Sarbanes-Oxley Act Section 906 Certification of Chief Financial Officer |
| Exhibit 101 |
Interactive Data File (Inline XBRL) |
| Exhibit 104 |
Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101) |
| Exhibit No. |
Description |
Page Number |
| (3) |
Articles of Incorporation and By-laws: |
|
| (i) Amended and Restated Articles of Incorporation of Summit Financial Group, Inc. |
(a) |
|
| (b) |
||
| (c) |
||
| (d) |
||
| (v) Amended and Restated By-laws of Summit Financial Group, Inc. |
(e) |
|
| 11 |
14 |
|
| 31.1 |
Sarbanes-Oxley Act Section 302 Certification of Chief Executive Officer |
|
| 31.2 |
Sarbanes-Oxley Act Section 302 Certification of Chief Financial Officer |
|
| 32.1* |
Sarbanes-Oxley Act Section 906 Certification of Chief Executive Officer |
|
| 32.2* |
Sarbanes-Oxley Act Section 906 Certification of Chief Financial Officer |
|
| 101** |
Interactive data file (Inline XBRL) |
|
| 104 |
Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101) |
*Furnished, not filed.
** As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.
| (a) |
Incorporated by reference to Exhibit 3.2 of Summit Financial Group, Inc.’s filing on Form 8-K dated April 30, 2021. |
| (b) |
Incorporated by reference to Exhibit 3.1 of Summit Financial Group, Inc.’s filing on Form 8-K dated September 30, 2009. |
| (c) |
Incorporated by reference to Exhibit 3.1 of Summit Financial Group, Inc.’s filing on Form 8-K dated November 3, 2011. |
| (d) |
Incorporated by reference to Exhibit 3.1 of Summit Financial Group, Inc.’s filing on Form 8-K dated April 30, 2021. |
| (e) |
Incorporated by reference to Exhibit 3.1 of Summit Financial Group, Inc.’s filing on Form 8-K dated March 2, 2022. |
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.
| SUMMIT FINANCIAL GROUP, INC. |
|||
| (registrant) |
|||
| By: |
/s/ H. Charles Maddy, III |
||
| H. Charles Maddy, III, |
|||
| President and Chief Executive Officer |
|||
| By: |
/s/ Robert S. Tissue |
||
| Robert S. Tissue, |
|||
| Executive Vice President and Chief Financial Officer |
|||
| By: |
/s/ Julie R. Markwood |
||
| Julie R. Markwood, |
|||
| Executive Vice President and Chief Accounting Officer |
|||
| Date: |
November 4, 2022 |
||