Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The purpose of this discussion and analysis is to focus on significant changes in the financial condition of Red River Bancshares, Inc. on a consolidated basis from December 31, 2020 through June 30, 2021, and on our results of operations for the three and six months ended June 30, 2021 and June 30, 2020. This discussion and analysis should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended December 31, 2020, included in our Annual Report on Form 10-K for the year ended December 31, 2020, and information presented elsewhere in this Quarterly Report on Form 10-Q, particularly the unaudited consolidated financial statements and related notes appearing in Item 1.
The following discussion contains forward-looking statements that reflect our current views with respect to, among other things, future events and our financial performance. We caution that assumptions, expectations, projections, intentions, or beliefs about future events may, and often do, vary from actual results and the differences can be material. See “Cautionary Note Regarding Forward-Looking Statements” and "Part II - Item 1A. Risk Factors" in this Quarterly Report on Form 10-Q. Also, see risk factors and other cautionary statements described in "Part I - Item 1A. Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2020. We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.
CORPORATE SUMMARY
Red River Bancshares, Inc. is the bank holding company for Red River Bank, a Louisiana state-chartered bank established in 1999 that provides a fully integrated suite of banking products and services tailored to the needs of our commercial and retail customers. Red River Bank operates from a network of 26 banking centers throughout Louisiana and one combined loan and deposit production office in Lafayette, Louisiana. Banking centers are located in the following Louisiana markets: Central, which includes the Alexandria MSA; Northwest, which includes the Shreveport-Bossier City MSA; Capital, which includes the Baton Rouge MSA; Southwest, which includes the Lake Charles MSA; and the Northshore, which includes Covington.
Our priority is to drive shareholder value through the establishment of a market-leading commercial banking franchise based in Louisiana. We provide our services through relationship-oriented bankers who are committed to their customers and the communities in which we offer our products and services. Our strategy is to expand geographically through the establishment of de novo banking centers in new markets and, to a lesser extent, through the acquisition of financial institutions with customer-oriented, compatible philosophies and in desirable geographic areas.
SECOND QUARTER 2021 OVERVIEW
The second quarter of 2021 included record-high quarterly net income, a continued high level of liquidity, the completion of the issuance of SBA PPP2 loans, and an executive management change. Economic activity in Louisiana improved due to the removal of most Louisiana COVID-19 pandemic restrictions, the wide-spread availability of COVID-19 vaccines, and the continuing effects of government stimulus funds.
COVID-19 Update
Due to the COVID-19 pandemic and executive orders by the governor of Louisiana, the residents, businesses, and non-profit organizations of Louisiana have been subject to the following limitations since March 2021:
•Effective March 3, 2021, Louisiana moved to modified Phase Three restriction status. Most non-essential businesses and places of worship were permitted to operate at 75% occupancy. A few classes of businesses were permitted to operate at 50% occupancy, and other businesses, including amusement parks and music halls, remained closed.
•Effective March 31, 2021, certain Phase Three restrictions were lifted. Most non-essential businesses, including restaurants, were allowed to operate at 100% capacity. The statewide mask mandate remained in place.
•Effective April 28, 2021, the statewide mask mandate was lifted. A few classes of businesses remain restricted to 75% occupancy, including theaters, athletic event venues, and conference centers.
•On May 26, 2021, remaining limits on occupancy restrictions for businesses were lifted.
•In the first quarter of 2021, COVID-19 vaccinations became widely available. As of June 30, 2021, approximately 34.6% of Louisiana's population was fully vaccinated.
•Effective August 4, 2021, a temporary statewide indoor mask mandate was instated until at least September 1, 2021, due to the recent rise in COVID-19 cases and hospitalizations across Louisiana.
As an essential business and to support our customers, Red River Bank has provided full banking services throughout the pandemic.
Second Quarter 2021 Financial and Operational Highlights
•Net income for the second quarter of 2021 was $8.2 million, or $1.13 diluted EPS, an increase of $1.4 million, or 20.2%, compared to $6.9 million, or $0.93 diluted EPS, for the second quarter of 2020. Net income for the six months ended June 30, 2021, was $16.3 million, or $2.22 diluted EPS, an increase of $2.7 million, or 19.9%, compared to $13.6 million, or $1.85 diluted EPS, for the six months ended June 30, 2020.
•For the second quarter of 2021, the quarterly return on assets was 1.15%, and the quarterly return on equity was 11.41%.
•Assets were $2.88 billion as of June 30, 2021, a $57.8 million, or 2.0%, increase from March 31, 2021, and a $235.8 million, or 8.9%, increase from December 31, 2020. Asset growth in 2021 was driven by an increase in deposits.
•Red River Bank is participating in the SBA PPP. In the second quarter of 2021, forgiveness of PPP1 loans exceeded the issuance of PPP2 loans which resulted in a $36.4 million decrease in PPP loans. As of June 30, 2021, PPP loans were $83.0 million, net of $2.9 million of deferred income, or 5.2% of loans HFI. PPP1 loan forgiveness was lower in the second quarter of 2021 than in the first quarter of 2021 which resulted in a decrease in PPP loan income. PPP loan income for the second quarter of 2021 was $1.1 million, which was $1.1 million lower than the prior quarter.
•As of June 30, 2021, non-PPP loans HFI (non-GAAP) were $1.52 billion, an increase of $34.7 million, or 2.3%, from March 31, 2021, and an increase of $47.4 million, or 3.2%, from December 31, 2020, due to new loan activity in our newer markets. For additional information on non-GAAP financial measures, see " - Non-GAAP Financial Measures" in this Quarterly Report on Form 10-Q.
•Loans HFI decreased $1.7 million in the second quarter of 2021 to $1.60 billion as of June 30, 2021, due to PPP loan forgiveness payments outpacing non-PPP loan activity.
•The net interest margin FTE for the second quarter of 2021 was 2.54%, compared to 2.76% for the prior quarter and 3.12% for the second quarter of 2020. The net interest margin for the first and second quarters of 2021 was negatively impacted by a high level of low-yielding short-term liquid assets, combined with less PPP loan income compared to the respective prior quarters. The high level of low-yielding short-term liquid assets had a 70 bp dilutive impact to the net interest margin FTE in the second quarter of 2021.
•Nonperforming assets decreased $518,000 in the second quarter and were $3.1 million, or 0.11% of assets as of June 30, 2021. As of June 30, 2021, the allowance for loan losses was $19.5 million, or 1.22% of loans HFI and 1.28% of non-PPP loans HFI (non-GAAP). Due to favorable asset quality metrics and the allowance for loan losses balance, the provision for loan losses for the second quarter of 2021 was $150,000, compared to $1.5 million for the prior quarter. The provision for loan losses was $1.5 million for the second quarter of 2020. For additional information on non-GAAP financial measures, see " - Non-GAAP Financial Measures" in this Quarterly Report on Form 10-Q.
•Mortgage loan income for the second quarter of 2021 was $2.4 million, an 18.2% decrease from the prior quarter and a 21.1% increase from the second quarter of 2020. Mortgage loan activity and income decreased in the second quarter of 2021 compared to the prior quarter due to reduced mortgage loan demand.
•We paid a quarterly cash dividend of $0.07 per common share during the second quarter of 2021.
•In accordance with the stock repurchase program implemented in the third quarter of 2020, we repurchased 21,653 shares of common stock in the second quarter of 2021 at an aggregate cost of $1.2 million.
•Founding executive management member and Executive Vice President Tammi Salazar was appointed Chief Operating Officer of Red River Bank.
•In the second quarter of 2021, we invested in the JAM FINTOP Banktech, L.P. fund to strategically develop technology systems as we expand the Bank's digital offerings.
•We selected and began implementing a new loan processing system. The system is expected to improve the efficiency of loan processing over the entire loan lifecycle, minimize loan processing costs, and provide customers with an online, digital loan application system.
•In early July 2021, we opened a new banking center in Lake Charles, Louisiana.
•In our Acadiana market, we continued to operate a loan and deposit production office in Lafayette, Louisiana, while a new, full-service banking center location that we purchased in 2020 is under renovation. We expect this banking center to open in late 2021.
The following tables contain selected financial information regarding our financial position and performance as of and for the periods indicated.
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As of
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Change from
December 31, 2020 to June 30, 2021
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(dollars in thousands)
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June 30,
2021
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December 31,
2020
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$ Change
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% Change
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Selected Period End Balance Sheet Data:
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Total assets
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$
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2,878,476
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$
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2,642,634
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$
|
235,842
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8.9
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%
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Interest-bearing deposits in other banks
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633,744
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|
417,664
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|
|
216,080
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|
|
51.7
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%
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Securities available-for-sale
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512,012
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|
498,206
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|
13,806
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2.8
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%
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Loans held for investment
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1,600,388
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1,588,446
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11,942
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0.8
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%
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Total deposits
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2,569,599
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2,340,360
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229,239
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9.8
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%
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Total stockholders’ equity
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292,924
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285,478
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|
7,446
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2.6
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%
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As of and for the
Three Months Ended
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As of and for the
Six Months Ended
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(dollars in thousands, except per share data)
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June 30,
|
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March 31,
|
|
June 30,
|
|
June 30,
|
|
June 30,
|
2021
|
|
2021
|
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2020
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|
2021
|
|
2020
|
Net Income
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$
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8,239
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$
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8,065
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$
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6,854
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$
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16,304
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$
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13,599
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Per Common Share Data:
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Earnings per share, basic
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$
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1.13
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|
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$
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1.10
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|
|
$
|
0.94
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|
|
$
|
2.23
|
|
|
$
|
1.86
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|
Earnings per share, diluted
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$
|
1.13
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|
|
$
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1.10
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|
|
$
|
0.93
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|
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$
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2.22
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|
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$
|
1.85
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Book value per share
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$
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40.21
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$
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38.99
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$
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37.03
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$
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40.21
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$
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37.03
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Tangible book value per share(1,2)
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$
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40.00
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$
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38.78
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$
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36.81
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$
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40.00
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|
|
$
|
36.81
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Cash dividends per share
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$
|
0.07
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|
|
$
|
0.07
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|
|
$
|
0.06
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|
|
$
|
0.14
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|
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$
|
0.12
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Shares outstanding
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7,284,994
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|
|
7,306,747
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|
|
7,322,532
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|
7,284,994
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|
|
7,322,532
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Weighted average shares outstanding, basic
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7,300,040
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|
|
7,317,995
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|
|
7,322,532
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|
|
7,308,968
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|
|
7,317,906
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Weighted average shares outstanding, diluted
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7,319,351
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|
|
7,337,151
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|
|
7,348,772
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|
|
7,328,510
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7,350,910
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Summary Performance Ratios:
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Return on average assets
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1.15
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%
|
|
1.20
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%
|
|
1.20
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%
|
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1.18
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%
|
|
1.27
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%
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Return on average equity
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11.41
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%
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|
11.36
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%
|
|
10.30
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%
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|
11.38
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%
|
|
10.41
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%
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Net interest margin
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2.48
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%
|
|
2.69
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%
|
|
3.07
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%
|
|
2.58
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%
|
|
3.20
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%
|
Net interest margin FTE(3)
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2.54
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%
|
|
2.76
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%
|
|
3.12
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%
|
|
2.64
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%
|
|
3.26
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%
|
Efficiency ratio(4)
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56.62
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%
|
|
54.02
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%
|
|
56.50
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%
|
|
55.30
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%
|
|
56.93
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%
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Loans HFI to deposits ratio
|
62.28
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%
|
|
63.69
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%
|
|
78.06
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%
|
|
62.28
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%
|
|
78.06
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%
|
Noninterest-bearing deposits to deposits ratio
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40.14
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%
|
|
40.37
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%
|
|
41.48
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%
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|
40.14
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%
|
|
41.48
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%
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Noninterest income to average assets
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0.90
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%
|
|
1.01
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%
|
|
1.02
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%
|
|
0.95
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%
|
|
0.99
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%
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Operating expense to average assets
|
1.88
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%
|
|
1.96
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%
|
|
2.26
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%
|
|
1.92
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%
|
|
2.33
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%
|
|
|
|
|
|
|
|
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|
|
Summary Credit Quality Ratios:
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|
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Nonperforming assets to total assets
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0.11
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%
|
|
0.13
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%
|
|
0.18
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%
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|
0.11
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%
|
|
0.18
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%
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Nonperforming loans to loans HFI
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0.13
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%
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|
0.18
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%
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|
0.21
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%
|
|
0.13
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%
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|
0.21
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%
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Allowance for loan losses to loans HFI
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1.22
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%
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|
1.21
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%
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|
0.92
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%
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|
1.22
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%
|
|
0.92
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%
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Net charge-offs to average loans
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0.01
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%
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|
0.00
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%
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|
0.06
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%
|
|
0.01
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%
|
|
0.07
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%
|
|
|
|
|
|
|
|
|
|
|
Capital Ratios:
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|
|
|
|
|
|
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Total stockholders’ equity to total assets
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10.18
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%
|
|
10.10
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%
|
|
11.48
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%
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|
10.18
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%
|
|
11.48
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%
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Tangible common equity to tangible assets(1,5)
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10.13
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%
|
|
10.05
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%
|
|
11.42
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%
|
|
10.13
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%
|
|
11.42
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%
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Total risk-based capital to risk-weighted assets
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19.10
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%
|
|
18.87
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%
|
|
18.22
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%
|
|
19.10
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%
|
|
18.22
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%
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Tier 1 risk-based capital to risk-weighted assets
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17.90
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%
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|
17.66
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%
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|
17.25
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%
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|
17.90
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%
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|
17.25
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%
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Common equity Tier 1 capital to risk-weighted assets
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17.90
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%
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|
17.66
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%
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|
17.25
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%
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|
17.90
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%
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|
17.25
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%
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Tier 1 risk-based capital to average assets
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10.13
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%
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|
10.43
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%
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|
11.52
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%
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|
10.13
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%
|
|
11.52
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%
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(1)Non-GAAP financial measure. Calculations of this measure and reconciliations to GAAP are included in " - Non-GAAP Financial Measures" in this Quarterly Report on Form 10-Q. This measure has not been audited.
(2)We calculate tangible book value per common share as total stockholders’ equity, less intangible assets, divided by the outstanding number of shares of our common stock at the end of the relevant period.
(3)Net interest margin FTE includes an FTE adjustment using a 21% federal income tax rate on tax-exempt securities and tax-exempt loans.
(4)Efficiency ratio represents operating expenses divided by the sum of net interest income and noninterest income.
(5)We calculate tangible common equity as total stockholders’ equity, less intangible assets, net of accumulated amortization, and we calculate tangible assets as total assets, less intangible assets, net of accumulated amortization.
RESULTS OF OPERATIONS
Net income for the second quarter of 2021 was $8.2 million, or $1.13 diluted EPS, an increase of $1.4 million, or 20.2%, compared to $6.9 million, or $0.93 diluted EPS, in the second quarter of 2020. The increase in net income was due to a $1.4 million decrease in the provision for loan losses, a $580,000 increase in noninterest income, and a $291,000 increase in net interest income, partially offset by a $523,000 increase in operating expenses and a $338,000 increase in income tax expense. The return on assets for the second quarter of 2021 was 1.15%, compared to 1.20% for the second quarter of 2020. The return on equity was 11.41% for the second quarter of 2021 and 10.30% for the second quarter of
2020. Our efficiency ratio for the second quarter of 2021 was 56.62%, compared to 56.50% for the second quarter of 2020.
Net income for the six months ended June 30, 2021, was $16.3 million, or $2.22 diluted EPS, an increase of $2.7 million, or 19.9%, compared to $13.6 million, or $1.85 diluted EPS, for the six months ended June 30, 2020. The increase in net income was due to a $2.6 million increase in noninterest income, a $1.8 million increase in net interest income, and a $428,000 decrease in the provision for loan losses, partially offset by a $1.7 million increase in operating expenses and a $405,000 increase in income tax expense. The return on assets for the six months ended June 30, 2021, was 1.18%, compared to 1.27% for the same period in the prior year. The return on equity was 11.38% for the six months ended June 30, 2021, and 10.41% for the six months ended June 30, 2020. Our efficiency ratio for the six months ended June 30, 2021, was 55.30%, compared to 56.93% for the six months ended June 30, 2020.
Net Interest Income and Net Interest Margin
Our operating results depend primarily on our net interest income. Fluctuations in market interest rates impact the yield on interest-earning assets and the rate paid on interest-bearing liabilities. Changes in the amount and type of interest-earning assets and interest-bearing liabilities impact our net interest income. To evaluate net interest income, we measure and monitor: (1) yields on loans and other interest-earning assets; (2) the cost of deposits and other funding sources; (3) net interest spread; and (4) net interest margin. Since noninterest-bearing sources of funds, such as noninterest-bearing deposits and stockholders’ equity, also fund interest-earning assets, net interest margin includes the benefit of these noninterest-bearing funding sources.
Since March 2020, we have been in a low interest rate environment that has impacted both the net interest income and net interest margin FTE. In March 2020, the target federal funds rate decreased 150 bps to 0.25% and has remained at this rate through June 30, 2021. The average effective federal funds rate for the second quarter of 2020 was 0.06%. The average effective federal funds rate for the second quarter of 2021 was 0.07%. The lower interest rate environment impacted yields on new, renewing, and floating rate loans, short-term liquid assets, and securities.
For the second quarter of 2021, deposit growth resulted in additional liquidity which was deployed primarily into interest-bearing deposits in other banks, as well as securities and non-PPP loans. This level of liquidity had a 70 bp dilutive impact to the net interest margin FTE in the second quarter of 2021. For the third quarter of 2021, we expect the net interest margin FTE to be consistent with the second quarter of 2021.
Second Quarter of 2021
Net interest income for the second quarter of 2021 totaled $17.2 million, a $291,000, or 1.7%, increase from $17.0 million for the second quarter of 2020. Net interest income increased due to a $670,000 decrease in interest expense, partially offset by a $379,000 decrease in interest and dividend income.
Interest expense decreased as deposits continued to price downward as we adjusted rates on interest-bearing deposits over the past 15 months. This decrease was partially offset by higher interest-bearing deposit balances. For the second quarter of 2021, average interest-bearing deposits increased $365.6 million, or 31.2%, compared to the second quarter of 2020.
Interest and dividend income decreased primarily due to a $634,000 decrease in non-PPP loan income driven mainly by the lower rate environment, partially offset by an increase in the average balance of non-PPP loans. Interest and dividend income also decreased as a result of a $91,000 decrease in PPP loan income due to a lower balance of PPP loans compared to the second quarter of 2020. These decreases were partially offset by a $262,000 increase in interest income for total securities and an $85,000 increase in interest income on short-term liquid assets. The increase in interest income for total securities was due to a $143.0 million, or 38.0%, growth in average total securities compared to the second quarter of 2020, partially offset by a decrease in the yield. Due to this growth, average total securities were 18.8% of average earning assets for the second quarter of 2021. The increase in interest income on short-term liquid assets was primarily due to a $418.3 million, or 209.8%, growth in average short-term liquid assets when compared to the second quarter of 2020.
Net interest margin FTE decreased 58 bps to 2.54% for the second quarter of 2021, from 3.12% for the second quarter of 2020, primarily due to the higher level of low-yielding short-term liquid assets maintained in the second quarter of 2021 and the Federal Reserve lowering interest rates 150 bps in March 2020. Because deposit growth exceeded loan growth during the last 12 months, excess liquidity was deployed primarily into interest-bearing deposits in other banks and also into securities. For the second quarter of 2021, average short-term liquid assets were $418.3 million, or 209.8%, higher than the second quarter of 2020 and were 22.4% of average earning assets. For the second quarter of 2021, the yield on taxable securities decreased 45 bps to 1.38%, compared to 1.83% for the second quarter of 2020. The yield on tax-exempt securities decreased 32 bps to 2.07%, compared to 2.39% for the same period prior year. The decrease in yield, for both taxable and tax-exempt securities, was due to the securities purchased during the last 12 months having lower yields than the portfolio yield as of June 30, 2020, as a result of the low rate environment. The yield on loans decreased 21 bps to 4.00% for the second quarter of 2021, compared to the same period prior year, due to the impact of the lower interest rate environment on new, renewed, and floating rate loans, partially offset by the yield on PPP loans. As of June
30, 2021, floating rate loans were 16.5% of loans HFI. The resulting yield on interest-earning assets was 2.68% for the second quarter of 2021, a decrease of 77 bps, compared to 3.45% for the second quarter of 2020. The cost of deposits was 0.22% for the second quarter of 2021, a decrease of 19 bps, compared to 0.41% for the second quarter of 2020. The cost of deposits was lower for the second quarter of 2021 due to average noninterest-bearing deposits increasing $205.3 million, or 25.1%, combined with a 34 bp decrease in the rate on interest-bearing deposits for the same period as a result of our adjustments to deposit rates.
The following table presents average balance sheet information, interest income, interest expense, and the corresponding average yields earned and rates paid for the three months ended June 30, 2021 and 2020:
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For the Three Months Ended June 30,
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2021
|
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2020
|
(dollars in thousands)
|
Average
Balance
Outstanding
|
|
Interest
Earned/
Interest
Paid
|
|
Average
Yield/
Rate
|
|
Average
Balance
Outstanding
|
|
Interest
Earned/
Interest
Paid
|
|
Average
Yield/
Rate
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
Loans(1,2)
|
$
|
1,617,267
|
|
|
$
|
16,351
|
|
|
4.00
|
%
|
|
$
|
1,606,436
|
|
|
$
|
17,076
|
|
|
4.21
|
%
|
Securities - taxable
|
319,026
|
|
|
1,102
|
|
|
1.38
|
%
|
|
266,139
|
|
|
1,217
|
|
|
1.83
|
%
|
Securities - tax-exempt
|
200,132
|
|
|
1,036
|
|
|
2.07
|
%
|
|
110,026
|
|
|
659
|
|
|
2.39
|
%
|
Federal funds sold
|
82,723
|
|
|
25
|
|
|
0.12
|
%
|
|
81,253
|
|
|
37
|
|
|
0.18
|
%
|
Interest-bearing balances due from banks
|
534,934
|
|
|
129
|
|
|
0.10
|
%
|
|
118,090
|
|
|
32
|
|
|
0.11
|
%
|
Nonmarketable equity securities
|
3,448
|
|
|
1
|
|
|
0.10
|
%
|
|
3,116
|
|
|
2
|
|
|
0.31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
2,757,530
|
|
|
$
|
18,644
|
|
|
2.68
|
%
|
|
2,185,060
|
|
|
$
|
19,023
|
|
|
3.45
|
%
|
Allowance for loan losses
|
(19,437)
|
|
|
|
|
|
|
(14,494)
|
|
|
|
|
|
Noninterest earning assets
|
131,101
|
|
|
|
|
|
|
124,625
|
|
|
|
|
|
Total assets
|
$
|
2,869,194
|
|
|
|
|
|
|
$
|
2,295,191
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing transaction deposits
|
$
|
1,195,766
|
|
|
$
|
375
|
|
|
0.13
|
%
|
|
$
|
838,802
|
|
|
$
|
611
|
|
|
0.29
|
%
|
Time deposits
|
341,941
|
|
|
1,022
|
|
|
1.20
|
%
|
|
333,285
|
|
|
1,440
|
|
|
1.74
|
%
|
Total interest-bearing deposits
|
1,537,707
|
|
|
1,397
|
|
|
0.36
|
%
|
|
1,172,087
|
|
|
2,051
|
|
|
0.70
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Other borrowings
|
—
|
|
|
—
|
|
|
—
|
%
|
|
18,681
|
|
|
16
|
|
|
0.35
|
%
|
Total interest-bearing liabilities
|
1,537,707
|
|
|
$
|
1,397
|
|
|
0.36
|
%
|
|
1,190,768
|
|
|
$
|
2,067
|
|
|
0.70
|
%
|
Noninterest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits
|
1,023,828
|
|
|
|
|
|
|
818,528
|
|
|
|
|
|
Accrued interest and other liabilities
|
17,235
|
|
|
|
|
|
|
18,155
|
|
|
|
|
|
Total noninterest-bearing liabilities
|
1,041,063
|
|
|
|
|
|
|
836,683
|
|
|
|
|
|
Stockholders’ equity
|
290,424
|
|
|
|
|
|
|
267,740
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
$
|
2,869,194
|
|
|
|
|
|
|
$
|
2,295,191
|
|
|
|
|
|
Net interest income
|
|
|
$
|
17,247
|
|
|
|
|
|
|
$
|
16,956
|
|
|
|
Net interest spread
|
|
|
|
|
2.32
|
%
|
|
|
|
|
|
2.75
|
%
|
Net interest margin
|
|
|
|
|
2.48
|
%
|
|
|
|
|
|
3.07
|
%
|
Net interest margin FTE(3)
|
|
|
|
|
2.54
|
%
|
|
|
|
|
|
3.12
|
%
|
Cost of deposits
|
|
|
|
|
0.22
|
%
|
|
|
|
|
|
0.41
|
%
|
Cost of funds
|
|
|
|
|
0.20
|
%
|
|
|
|
|
|
0.38
|
%
|
(1)Includes average outstanding balances of loans HFS of $10.0 million and $11.2 million for the three months ended June 30, 2021 and 2020, respectively.
(2)Nonaccrual loans are included as loans carrying a zero yield.
(3)Net interest margin FTE includes an FTE adjustment using a 21% federal income tax rate on tax-exempt securities and tax-exempt loans.
In the second quarter of 2021, Red River Bank had $109.2 million of average PPP loans, net of deferred income, outstanding at an interest rate of 1.0%. PPP origination fees were $9.8 million, or 3.76%, of originated PPP loans and are being recorded to interest income over the 24- or 60-month loan term, for PPP1 and PPP2, respectively, or until the loans are forgiven by the SBA. When PPP loan forgiveness payments are received in full, the remaining portion of origination fees are recorded to income. Through June 30, 2021, we had received $174.9 million in SBA forgiveness and borrower payments on 91.2% of the 1,384 PPP1 loans originated. For the second quarter of 2021, PPP loan interest and fees totaled $1.1 million, resulting in a 3.89% yield.
Excluding PPP loan income, net interest income (non-GAAP) for the second quarter of 2021 was $16.2 million which was $382,000, or 2.4%, lower than the second quarter of 2020. Also, with PPP loans excluded for the second quarter of 2021, the yield on non-PPP loans (non-GAAP) was 4.01%, and the net interest margin FTE (non-GAAP) was 2.48%. For the second quarter of 2021, PPP loans had a one bp dilutive impact to the yield on loans and a six bp accretive impact to the net interest margin FTE. For additional information on non-GAAP financial measures, see " - Non-GAAP Financial Measures" in this Quarterly Report on Form 10-Q.
The following table presents interest income for total loans, PPP loans, total non-PPP loans (non-GAAP), and net interest ratios excluding PPP loans (non-GAAP) for the three months ended June 30, 2021 and 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
2021
|
|
2020
|
(dollars in thousands)
|
Average
Balance
Outstanding
|
|
Interest/Fee
Earned
|
|
Average
Yield
|
|
Average
Balance
Outstanding
|
|
Interest/Fee
Earned
|
|
Average
Yield
|
Loans(1,2)
|
$
|
1,617,267
|
|
|
$
|
16,351
|
|
|
4.00
|
%
|
|
$
|
1,606,436
|
|
|
$
|
17,076
|
|
|
4.21
|
%
|
Less: PPP loans, net
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
109,182
|
|
|
|
|
|
|
154,400
|
|
|
|
|
|
Interest
|
|
|
284
|
|
|
|
|
|
|
423
|
|
|
|
Fees
|
|
|
778
|
|
|
|
|
|
|
730
|
|
|
|
Total PPP loans, net
|
109,182
|
|
|
1,062
|
|
|
3.89
|
%
|
|
154,400
|
|
|
1,153
|
|
|
2.99
|
%
|
Non-PPP loans (non-GAAP)(4)
|
$
|
1,508,085
|
|
|
$
|
15,289
|
|
|
4.01
|
%
|
|
$
|
1,452,036
|
|
|
$
|
15,923
|
|
|
4.34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios excluding PPP loans, net (non-GAAP)(4)
|
|
|
|
|
|
|
|
|
|
|
Net interest spread
|
|
|
|
|
2.27
|
%
|
|
|
|
|
|
2.79
|
%
|
Net interest margin
|
|
|
|
|
2.42
|
%
|
|
|
|
|
|
3.08
|
%
|
Net interest margin FTE(3)
|
|
|
|
|
2.48
|
%
|
|
|
|
|
|
3.13
|
%
|
(1)Includes average outstanding balances of loans HFS of $10.0 million and $11.2 million for the three months ended June 30, 2021 and 2020, respectively.
(2)Nonaccrual loans are included as loans carrying a zero yield.
(3)Net interest margin FTE includes an FTE adjustment using a 21% federal income tax rate on tax-exempt securities and tax-exempt loans.
(4)Non-GAAP financial measure. See also " - Non-GAAP Financial Measures" in this Quarterly Report on Form 10-Q.
Six Months Ended June 30, 2021
Net interest income for the six months ended June 30, 2021 totaled $34.8 million, a $1.8 million, or 5.4%, increase from $33.0 million for the six months ended June 30, 2020. Net interest income increased due to a $1.6 million decrease in interest expense and a $219,000 increase in interest and dividend income.
Interest expense decreased as deposits continued to price downward as we adjusted rates on interest-bearing deposits over the past 15 months. This decrease was partially offset by higher interest-bearing deposit balances. For the six months ended June 30, 2021, average interest-bearing deposits increased $350.0 million, or 30.4%, compared to the six months ended June 30, 2020.
Interest and dividend income increased primarily due to a $2.0 million increase in PPP loan income and an $882,000 increase in tax-exempt securities income. PPP loan income increased primarily due to the forgiveness of PPP loans by the SBA and the resulting acceleration of loan origination fees. Tax-exempt securities income increased due to a $99.3 million, or 100.9%, growth in average tax-exempt securities compared to the first six months of 2020, partially offset by a decrease in the yield. These increases were partially offset by a $2.1 million decrease in non-PPP loan income and a $522,000 decrease in taxable securities income, both driven mainly by the lower rate environment.
Net interest margin FTE decreased 62 bps to 2.64% for the six months ended June 30, 2021, from 3.26% for the six months ended June 30, 2020, mainly due to a higher level of low-yielding short-term liquid assets maintained during the six months ended June 30, 2021, and the Federal Reserve lowering interest rates 150 bps in March 2020. Because deposit growth exceeded loan growth during the last 12 months, excess liquidity was deployed primarily into interest-bearing deposits in other banks and also into securities. For the six months ended June 30, 2021, average short-term liquid assets were $424.9 million, or 289.9%, higher than the six months ended June 30, 2020 and were 21.3% of average earning assets. The yield on interest-bearing balances due from banks decreased 44 bps and the yield on federal funds sold decreased 39 bps due to the Federal Reserve lowering interest rates in March 2020. The yield on loans decreased 19 bps to 4.16% for the six months ended June 30, 2021, compared to the same period prior year, due to the impact of the lower interest rate environment on new, renewed, and floating rate loans, partially offset by the yield on PPP loans. As of June 30, 2021, floating rate loans were 16.5% of loans HFI. For the six months ended June 30, 2021, the yield on taxable securities decreased 60 bps to 1.28%, compared to 1.88% for the six months ended June 30, 2020. The yield on
tax-exempt securities decreased 31 bps to 2.09%, compared to 2.40% for the same period prior year. The decrease in yield, for both taxable and tax-exempt securities, was due to the securities purchased during the last 12 months having lower yields than the portfolio yield as of June 30, 2020, as a result of the low rate environment. The resulting yield on interest-earning assets was 2.81% for the six months ended June 30, 2021, a decrease of 84 bps, compared to 3.65% for the six months ended June 30, 2020. The cost of deposits was 0.24% for the six months ended June 30, 2021, a decrease of 25 bps, compared to 0.49% for the six months ended June 30, 2020. The cost of deposits was lower for the six months ended June 30, 2021 due to average noninterest-bearing deposits increasing $286.0 million, or 40.6%, combined with a 39 bp decrease in the rate on interest-bearing deposits for the same period as a result of our adjustments to deposit rates.
The following table presents average balance sheet information, interest income, interest expense, and the corresponding average yields earned and rates paid for the six months ended June 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
2021
|
|
2020
|
(dollars in thousands)
|
Average
Balance
Outstanding
|
|
Interest
Earned/
Interest
Paid
|
|
Average
Yield/
Rate
|
|
Average
Balance
Outstanding
|
|
Interest
Earned/
Interest
Paid
|
|
Average
Yield/
Rate
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
Loans(1,2)
|
$
|
1,606,094
|
|
|
$
|
33,517
|
|
|
4.16
|
%
|
|
$
|
1,528,216
|
|
|
$
|
33,542
|
|
|
4.35
|
%
|
Securities - taxable
|
307,329
|
|
|
1,963
|
|
|
1.28
|
%
|
|
264,278
|
|
|
2,485
|
|
|
1.88
|
%
|
Securities - tax-exempt
|
197,782
|
|
|
2,064
|
|
|
2.09
|
%
|
|
98,458
|
|
|
1,182
|
|
|
2.40
|
%
|
Federal funds sold
|
80,118
|
|
|
47
|
|
|
0.12
|
%
|
|
57,642
|
|
|
150
|
|
|
0.51
|
%
|
Interest-bearing balances due from banks
|
491,342
|
|
|
229
|
|
|
0.09
|
%
|
|
88,923
|
|
|
238
|
|
|
0.53
|
%
|
Nonmarketable equity securities
|
3,447
|
|
|
2
|
|
|
0.11
|
%
|
|
2,233
|
|
|
6
|
|
|
0.54
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
$
|
2,686,112
|
|
|
$
|
37,822
|
|
|
2.81
|
%
|
|
$
|
2,039,750
|
|
|
$
|
37,603
|
|
|
3.65
|
%
|
Allowance for loan losses
|
(19,055)
|
|
|
|
|
|
|
(14,286)
|
|
|
|
|
|
Noninterest earning assets
|
132,234
|
|
|
|
|
|
|
119,935
|
|
|
|
|
|
Total assets
|
$
|
2,799,291
|
|
|
|
|
|
|
$
|
2,145,399
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing transaction deposits
|
$
|
1,160,251
|
|
|
$
|
853
|
|
|
0.15
|
%
|
|
$
|
817,096
|
|
|
$
|
1,597
|
|
|
0.39
|
%
|
Time deposits
|
341,326
|
|
|
2,131
|
|
|
1.26
|
%
|
|
334,457
|
|
|
2,946
|
|
|
1.77
|
%
|
Total interest-bearing deposits
|
1,501,577
|
|
|
2,984
|
|
|
0.40
|
%
|
|
1,151,553
|
|
|
4,543
|
|
|
0.79
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Other borrowings
|
—
|
|
|
—
|
|
|
—
|
%
|
|
9,381
|
|
|
16
|
|
|
0.35
|
%
|
Total interest-bearing liabilities
|
1,501,577
|
|
|
$
|
2,984
|
|
|
0.40
|
%
|
|
1,160,934
|
|
|
$
|
4,559
|
|
|
0.79
|
%
|
Noninterest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits
|
990,406
|
|
|
|
|
|
|
704,449
|
|
|
|
|
|
Accrued interest and other liabilities
|
17,708
|
|
|
|
|
|
|
17,369
|
|
|
|
|
|
Total noninterest-bearing liabilities
|
1,008,114
|
|
|
|
|
|
|
721,818
|
|
|
|
|
|
Stockholders’ equity
|
289,600
|
|
|
|
|
|
|
262,647
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
$
|
2,799,291
|
|
|
|
|
|
|
$
|
2,145,399
|
|
|
|
|
|
Net interest income
|
|
|
$
|
34,838
|
|
|
|
|
|
|
$
|
33,044
|
|
|
|
Net interest spread
|
|
|
|
|
2.41
|
%
|
|
|
|
|
|
2.86
|
%
|
Net interest margin
|
|
|
|
|
2.58
|
%
|
|
|
|
|
|
3.20
|
%
|
Net interest margin FTE(3)
|
|
|
|
|
2.64
|
%
|
|
|
|
|
|
3.26
|
%
|
Cost of deposits
|
|
|
|
|
0.24
|
%
|
|
|
|
|
|
0.49
|
%
|
Cost of funds
|
|
|
|
|
0.22
|
%
|
|
|
|
|
|
0.45
|
%
|
(1)Includes average outstanding balances of loans HFS of $10.5 million and $7.7 million for the six months ended June 30, 2021 and 2020, respectively.
(2)Nonaccrual loans are included as loans carrying a zero yield.
(3)Net interest margin FTE includes an FTE adjustment using a 21% federal income tax rate on tax-exempt securities and tax-exempt loans.
Excluding PPP loan income, net interest income (non-GAAP) for the six months ended June 30, 2021, was $31.6 million, which was $248,000, or 0.8%, lower than the six months ended June 30, 2020. Also, with PPP loans excluded for the six months ended June 30, 2021, the yield on non-PPP loans (non-GAAP) was 4.03%, and the net interest margin FTE (non-GAAP) was 2.50%. For the six months ended June 30, 2021, PPP loans had an 13 bp accretive impact to the yield on loans and a 14 bp accretive impact to the net interest margin FTE. For additional information on non-GAAP financial measures, see " - Non-GAAP Financial Measures" in this Quarterly Report on Form 10-Q.
The following table presents interest income for total loans, PPP loans, total non-PPP loans (non-GAAP), and net interest ratios excluding PPP loans (non-GAAP) for the six months ended June 30, 2021 and 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
2021
|
|
2020
|
(dollars in thousands)
|
Average
Balance
Outstanding
|
|
Interest/Fee
Earned
|
|
Average
Yield
|
|
Average
Balance
Outstanding
|
|
Interest/Fee
Earned
|
|
Average
Yield
|
Loans(1,2)
|
$
|
1,606,094
|
|
|
$
|
33,517
|
|
|
4.16
|
%
|
|
$
|
1,528,216
|
|
|
$
|
33,542
|
|
|
4.35
|
%
|
Less: PPP loans, net
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
108,761
|
|
|
|
|
|
|
77,200
|
|
|
|
|
|
Interest
|
|
|
568
|
|
|
|
|
|
|
423
|
|
|
|
Fees
|
|
|
2,627
|
|
|
|
|
|
|
730
|
|
|
|
Total PPP loans, net
|
108,761
|
|
|
3,195
|
|
|
5.92
|
%
|
|
77,200
|
|
|
1,153
|
|
|
2.99
|
%
|
Non-PPP loans (non-GAAP)(4)
|
$
|
1,497,333
|
|
|
$
|
30,322
|
|
|
4.03
|
%
|
|
$
|
1,451,016
|
|
|
$
|
32,389
|
|
|
4.42
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios excluding PPP loans, net (non-GAAP)(4)
|
|
|
|
|
|
|
|
|
|
|
Net interest spread
|
|
|
|
|
2.28
|
%
|
|
|
|
|
|
2.89
|
%
|
Net interest margin
|
|
|
|
|
2.44
|
%
|
|
|
|
|
|
3.21
|
%
|
Net interest margin FTE(3)
|
|
|
|
|
2.50
|
%
|
|
|
|
|
|
3.27
|
%
|
(1)Includes average outstanding balances of loans HFS of $10.5 million and $7.7 million for the six months ended June 30, 2021 and 2020, respectively.
(2)Nonaccrual loans are included as loans carrying a zero yield.
(3)Net interest margin FTE includes an FTE adjustment using a 21% federal income tax rate on tax-exempt securities and tax-exempt loans.
(4)Non-GAAP financial measure. See also " - Non-GAAP Financial Measures" in this Quarterly Report on Form 10-Q.
Rate/Volume Analysis
Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates. The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. It distinguishes between the changes related to outstanding balances and those due to changes in interest rates. The change in interest attributable to rate has been determined by applying the change in rate between periods to average balances outstanding in the earlier period. The change in interest due to volume has been determined by applying the rate from the earlier period to the change in average balances outstanding between periods. For purposes of this table, changes attributable to both rate and volume that cannot be segregated have been allocated to rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
For the Six Months Ended
|
|
June 30, 2021 vs 2020
|
|
June 30, 2021 vs 2020
|
|
Increase (Decrease)
Due to Change in
|
|
Total
Increase
|
|
Increase (Decrease)
Due to Change in
|
|
Total
Increase
|
(in thousands)
|
Volume
|
|
Rate
|
|
(Decrease)
|
|
Volume
|
|
Rate
|
|
(Decrease)
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
$
|
467
|
|
|
$
|
(1,192)
|
|
|
$
|
(725)
|
|
|
$
|
2,931
|
|
|
$
|
(2,956)
|
|
|
$
|
(25)
|
|
Securities - taxable
|
242
|
|
|
(357)
|
|
|
(115)
|
|
|
405
|
|
|
(927)
|
|
|
(522)
|
|
Securities - tax-exempt
|
539
|
|
|
(162)
|
|
|
377
|
|
|
1,193
|
|
|
(311)
|
|
|
882
|
|
Federal funds sold
|
1
|
|
|
(13)
|
|
|
(12)
|
|
|
58
|
|
|
(161)
|
|
|
(103)
|
|
Interest-bearing balances due from banks
|
97
|
|
|
—
|
|
|
97
|
|
|
1,005
|
|
|
(1,014)
|
|
|
(9)
|
|
Nonmarketable equity securities
|
—
|
|
|
(1)
|
|
|
(1)
|
|
|
3
|
|
|
(7)
|
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
$
|
1,346
|
|
|
$
|
(1,725)
|
|
|
$
|
(379)
|
|
|
$
|
5,595
|
|
|
$
|
(5,376)
|
|
|
$
|
219
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing transaction deposits
|
$
|
288
|
|
|
$
|
(524)
|
|
|
$
|
(236)
|
|
|
$
|
716
|
|
|
$
|
(1,460)
|
|
|
$
|
(744)
|
|
Time deposits
|
38
|
|
|
(456)
|
|
|
(418)
|
|
|
62
|
|
|
(877)
|
|
|
(815)
|
|
Total interest-bearing deposits
|
326
|
|
|
(980)
|
|
|
(654)
|
|
|
778
|
|
|
(2,337)
|
|
|
(1,559)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other borrowings
|
(16)
|
|
|
—
|
|
|
(16)
|
|
|
(16)
|
|
|
—
|
|
|
(16)
|
|
Total interest-bearing liabilities
|
$
|
310
|
|
|
$
|
(980)
|
|
|
$
|
(670)
|
|
|
$
|
762
|
|
|
$
|
(2,337)
|
|
|
$
|
(1,575)
|
|
Increase (decrease) in net interest income
|
$
|
1,036
|
|
|
$
|
(745)
|
|
|
$
|
291
|
|
|
$
|
4,833
|
|
|
$
|
(3,039)
|
|
|
$
|
1,794
|
|
Provision for Loan Losses
The provision for loan losses is a charge to income necessary to maintain the allowance for loan losses at a level considered appropriate by management. Factors impacting the provision include loan portfolio growth, changes in the quality and composition of the loan portfolio, the level of nonperforming loans, delinquency and charge-off trends, and current economic conditions.
The provision expense for the second quarter of 2021 was $150,000, a decrease of $1.4 million, or 90.2%, from $1.5 million for the second quarter of 2020. The provision for loan losses for the six months ended June 30, 2021, was $1.6 million, a decrease of $428,000, or 21.1%, from $2.0 million for the six months ended June 30, 2020. The decrease in provision expense for both the three- and six-month periods was attributed to continued, favorable asset quality metrics and the allowance for loan losses balance compared with a higher provision for loan losses in the same periods of 2020 due to the anticipated adverse effects of the COVID-19 pandemic. With the removal of most pandemic restrictions on businesses in Louisiana and the wide-spread availability of vaccines, the business climate of Louisiana continues to stabilize. We will continue to evaluate future provision needs in relation to non-PPP loan growth and trends in asset quality.
Noninterest Income
Our primary sources of noninterest income are fees related to the sale of mortgage loans, service charges on deposit accounts, debit card fees, brokerage income from advisory services, and other loan and deposit fees.
Noninterest income increased $580,000 to $6.4 million for the second quarter of 2021 compared to $5.8 million for the second quarter of 2020. The increase in noninterest income was due to higher service charges on deposit accounts, higher brokerage income, higher mortgage loan income, and higher net debit card income. These increases were partially offset by a lower gain on sale and call of securities and lower loan and deposit fee income.
Noninterest income increased $2.6 million to $13.2 million for the six months ended June 30, 2021, compared to $10.6 million for the six months ended June 30, 2020. The increase in noninterest income was due to higher mortgage loan income, higher net debit card income, higher brokerage income, and higher service charges on deposit accounts. These increases were partially offset by a lower gain on sale and call of securities.
The table below presents, for the periods indicated, the major categories of noninterest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
For the Six Months Ended
|
|
June 30,
|
|
June 30,
|
(dollars in thousands)
|
2021
|
|
2020
|
|
Increase (Decrease)
|
|
2021
|
|
2020
|
|
Increase (Decrease)
|
Noninterest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts
|
$
|
1,140
|
|
|
$
|
718
|
|
|
$
|
422
|
|
|
58.8
|
%
|
|
$
|
2,199
|
|
|
$
|
1,946
|
|
|
$
|
253
|
|
|
13.0
|
%
|
Debit card income, net
|
1,204
|
|
|
896
|
|
|
308
|
|
|
34.4
|
%
|
|
2,250
|
|
|
1,651
|
|
|
599
|
|
|
36.3
|
%
|
Mortgage loan income
|
2,357
|
|
|
1,947
|
|
|
410
|
|
|
21.1
|
%
|
|
5,239
|
|
|
2,835
|
|
|
2,404
|
|
|
84.8
|
%
|
Brokerage income
|
806
|
|
|
395
|
|
|
411
|
|
|
104.1
|
%
|
|
1,640
|
|
|
1,139
|
|
|
501
|
|
|
44.0
|
%
|
Loan and deposit income
|
395
|
|
|
627
|
|
|
(232)
|
|
|
(37.0)
|
%
|
|
868
|
|
|
927
|
|
|
(59)
|
|
|
(6.4)
|
%
|
Bank-owned life insurance income
|
164
|
|
|
144
|
|
|
20
|
|
|
13.9
|
%
|
|
297
|
|
|
287
|
|
|
10
|
|
|
3.5
|
%
|
Gain (Loss) on equity securities
|
11
|
|
|
33
|
|
|
(22)
|
|
|
(66.7)
|
%
|
|
(59)
|
|
|
96
|
|
|
(155)
|
|
|
(161.5)
|
%
|
Gain (Loss) on sale and call of securities
|
34
|
|
|
840
|
|
|
(806)
|
|
|
(96.0)
|
%
|
|
193
|
|
|
1,223
|
|
|
(1,030)
|
|
|
(84.2)
|
%
|
SBIC income
|
239
|
|
|
190
|
|
|
49
|
|
|
25.8
|
%
|
|
480
|
|
|
368
|
|
|
112
|
|
|
30.4
|
%
|
Other income
|
53
|
|
|
33
|
|
|
20
|
|
|
60.6
|
%
|
|
71
|
|
|
82
|
|
|
(11)
|
|
|
(13.4)
|
%
|
Total noninterest income
|
$
|
6,403
|
|
|
$
|
5,823
|
|
|
$
|
580
|
|
|
10.0
|
%
|
|
$
|
13,178
|
|
|
$
|
10,554
|
|
|
$
|
2,624
|
|
|
24.9
|
%
|
Mortgage loan income increased $410,000 and $2.4 million for the three and six months ended June 30, 2021, respectively, when compared to the same periods in 2020. These increases were due to higher mortgage loan demand in 2021. Mortgage loan activity for the six months ended June 30, 2021, benefited from a lower mortgage interest rate environment for the entire period, whereas 2020 mortgage loan activity was impacted by COVID-19 pandemic challenges.
Debit card income, net, increased $308,000 and $599,000 for the three and six months ended June 30, 2021, respectively, when compared to the same periods in 2020. These increases were due to increases in the number of debit card transactions.
Brokerage income increased $411,000 and $501,000 for the three and six months ended June 30, 2021, respectively, when compared to the same periods in 2020. These increases were due to the addition of new brokerage clients and accounts in the past year, as well as higher assets under management. Brokerage income for the second quarter of 2020 was negatively impacted by a reduction in revenue resulting from an investment broker-dealer partner conversion. Assets under management were $735.1 million as of June 30, 2021 and $590.5 million as of June 30, 2020.
Service charges on deposit accounts increased $422,000 and $253,000 for the three and six months ended June 30, 2021, respectively, when compared to the same periods in 2020. These increases were due to higher customer transaction activity in 2021 as the economy reopened and customer spending habits returned to pre-COVID-19 levels. In addition, the three and six months ended June 30, 2020, were impacted by approximately $168,000 in reduced deposit fees due to temporary fee reductions in the second quarter of 2020 in response to the COVID-19 pandemic.
For the three and six months ended June 30, 2021, the gain on sale and call of securities was $34,000 and $193,000, respectively. These gains were a result of portfolio restructuring transactions to improve the structure and yield of the portfolio. For the three and six months ended June 30, 2020, the gain on sale and call of securities was $840,000 and $1.2 million, respectively. The 2020 gains were a result of proactive portfolio restructuring transactions that occurred in the first and second quarters of 2020 in response to the changed and lower interest rate environment.
Loan and deposit income decreased $232,000 for the second quarter of 2021, compared to the same quarter prior year. This decrease was primarily related to $230,000 of nonrecurring commercial real estate loan fees in the second quarter of 2020.
Operating Expenses
Operating expenses are composed of all employee expenses and costs associated with operating our facilities, obtaining and retaining customer relationships, and providing services.
Operating expenses increased $523,000 to $13.4 million for the second quarter of 2021, compared to $12.9 million for the second quarter of 2020. The increase in operating expenses was mainly due to higher personnel expenses and higher technology expenses, partially offset by lower legal and professional expenses.
Operating expenses increased $1.7 million to $26.6 million for the six months ended June 30, 2021, compared to $24.8 million for the six months ended June 30, 2020. The increase in operating expenses was a result of higher personnel, regulatory assessment, other operating, technology, occupancy and equipment and other taxes. These increases were partially offset by lower legal and professional expenses.
The following table presents, for the periods indicated, the major categories of operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
For the Six Months Ended
|
|
June 30,
|
|
June 30,
|
(dollars in thousands)
|
2021
|
|
2020
|
|
Increase (Decrease)
|
|
2021
|
|
2020
|
|
Increase (Decrease)
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel expenses
|
$
|
8,110
|
|
|
$
|
7,646
|
|
|
$
|
464
|
|
|
6.1
|
%
|
|
$
|
16,131
|
|
|
$
|
14,995
|
|
|
$
|
1,136
|
|
|
7.6
|
%
|
Non-staff expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Occupancy and equipment expenses
|
1,329
|
|
|
1,235
|
|
|
94
|
|
|
7.6
|
%
|
|
2,608
|
|
|
2,419
|
|
|
189
|
|
|
7.8
|
%
|
Technology expenses
|
744
|
|
|
615
|
|
|
129
|
|
|
21.0
|
%
|
|
1,408
|
|
|
1,202
|
|
|
206
|
|
|
17.1
|
%
|
Advertising
|
226
|
|
|
215
|
|
|
11
|
|
|
5.1
|
%
|
|
409
|
|
|
476
|
|
|
(67)
|
|
|
(14.1)
|
%
|
Other business development expenses
|
307
|
|
|
256
|
|
|
51
|
|
|
19.9
|
%
|
|
607
|
|
|
551
|
|
|
56
|
|
|
10.2
|
%
|
Data processing expense
|
532
|
|
|
471
|
|
|
61
|
|
|
13.0
|
%
|
|
917
|
|
|
921
|
|
|
(4)
|
|
|
(0.4)
|
%
|
Other taxes
|
532
|
|
|
438
|
|
|
94
|
|
|
21.5
|
%
|
|
1,057
|
|
|
875
|
|
|
182
|
|
|
20.8
|
%
|
Loan and deposit expenses
|
193
|
|
|
273
|
|
|
(80)
|
|
|
(29.3)
|
%
|
|
448
|
|
|
519
|
|
|
(71)
|
|
|
(13.7)
|
%
|
Legal and professional expenses
|
368
|
|
|
605
|
|
|
(237)
|
|
|
(39.2)
|
%
|
|
737
|
|
|
1,100
|
|
|
(363)
|
|
|
(33.0)
|
%
|
Regulatory assessment expenses
|
213
|
|
|
139
|
|
|
74
|
|
|
53.2
|
%
|
|
414
|
|
|
164
|
|
|
250
|
|
|
152.4
|
%
|
Other operating expenses
|
838
|
|
|
976
|
|
|
(138)
|
|
|
(14.1)
|
%
|
|
1,819
|
|
|
1,597
|
|
|
222
|
|
|
13.9
|
%
|
Total operating expenses
|
$
|
13,392
|
|
|
$
|
12,869
|
|
|
$
|
523
|
|
|
4.1
|
%
|
|
$
|
26,555
|
|
|
$
|
24,819
|
|
|
$
|
1,736
|
|
|
7.0
|
%
|
Personnel expenses are the largest component of operating expenses and include payroll expenses, incentive compensation, benefit plans, health insurance, and payroll taxes. Personnel expenses increased $464,000 and $1.1 million for the three and six months ended June 30, 2021, respectively, when compared to the same periods in 2020. As of June 30, 2021 and 2020, we had 342 and 334 full-time equivalent employees, respectively. The increase in personnel for both periods was primarily related to additional staff resulting from our expansion in the Southwest and Acadiana markets. Also, commission compensation increased for the three and six months ended June 30, 2021, compared to the same periods in 2020, primarily due to higher mortgage loan activity and brokerage income.
Technology expenses increased $129,000 and $206,000 for the three and six months ended June 30, 2021, respectively, when compared to the same periods in 2020. The increase in both periods was attributed to new computer hardware and communication systems related to business continuity planning and to support the expansion in the Southwest and Acadiana markets, the implementation of a new loan processing system, and additional technology support services.
Regulatory assessment expenses increased $250,000 for the six months ended June 30, 2021, compared to the same period prior year. The Bank was notified by the FDIC that it did not have an FDIC insurance assessment for the first quarter of 2020; however, it would have an assessment starting in the second quarter of 2020. Since the second quarter of 2020, the FDIC insurance assessment has increased as a result of increasing deposit account balances. Therefore, the FDIC insurance assessment expense for the six months ended June 30, 2021, was $365,000, compared to $113,000 for the same period prior year.
Other operating expenses increased $222,000 for the six months ended June 30, 2021, compared to the same period prior year. This increase was primarily a result of a $311,000 nonrecurring expense reduction related to the dissolution of an acquired subsidiary in the first quarter of 2020.
Occupancy and equipment expenses increased $189,000 for the six months ended June 30, 2021, compared to the same period prior year. This increase was primarily a result of our recent expansion in our Southwest and Acadiana markets.
Other taxes increased $182,000 for the six months ended June 30, 2021, compared to the same period prior year. This increase was due to a $180,000 increase in State of Louisiana bank stock tax resulting from higher deposit account balances and higher net income for the applicable tax years.
Legal and professional expenses decreased $237,000 and $363,000 for the three and six months ended June 30, 2021, respectively, when compared to the same periods in 2020. The decrease in both periods was due to lower attorney fees due to the completion of various legal matters in late 2020.
Income Tax Expense
The amount of income tax expense is influenced by the amounts of our pre-tax income, tax-exempt income, and other nondeductible expenses. Deferred tax assets and liabilities are reflected at currently enacted income tax rates in effect for the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.
Our effective income tax rates have differed from the U.S. statutory rate due to the effect of tax-exempt income from loans, securities, and life insurance policies, and the income tax effects associated with stock-based compensation.
For the quarters ended June 30, 2021 and 2020, income tax expense totaled $1.9 million and $1.5 million, respectively. The increase in income tax expense was primarily due to the increase in pre-tax income. Our effective income tax rates for the quarters ended June 30, 2021 and 2020, were 18.5% and 18.3%, respectively.
For the six months ended June 30, 2021 and 2020, income tax expense totaled $3.6 million and $3.2 million, respectively. Our effective income tax rates for the six months ended June 30, 2021 and 2020, were 17.9% and 18.8%, respectively.
FINANCIAL CONDITION
General
As of June 30, 2021, total assets were $2.88 billion which was $235.8 million, or 8.9%, higher than total assets of $2.64 billion as of December 31, 2020. Within total assets, compared to December 31, 2020, interest-bearing deposits in other banks increased by $216.1 million, securities AFS increased by $13.8 million, and loans HFI increased by $11.9 million. For liabilities, compared to December 31, 2020, interest-bearing deposits increased by $141.4 million to $1.54 billion, and noninterest-bearing deposits increased by $87.9 million to $1.03 billion. As of June 30, 2021, the loans HFI to deposits ratio was 62.28%, compared to 67.87% as of December 31, 2020, and the noninterest-bearing deposits to total deposits ratio was 40.14%, compared to 40.32% as of December 31, 2020. Stockholders' equity increased $7.4 million in the first half of 2021 to $292.9 million as of June 30, 2021.
Interest-bearing Deposits in Other Banks
Interest-bearing deposits in other banks is the second largest component of earning assets. As of June 30, 2021, interest-bearing deposits in other banks was 22.0% of total assets. Historically, interest-bearing deposits in other banks were a much smaller portion of our total assets. Excess liquidity that is not being deployed into loans or securities is placed in these accounts. Since March 31, 2020, the last quarter ended before the effects of the COVID-19 pandemic fully took place, interest-bearing deposits in other banks increased $585.1 million, or 1,203.9%. Interest-bearing deposits in other banks increased $216.1 million, or 51.7%, since December 31, 2020. These increases have been driven by an increase in customer deposits since the beginning of the COVID-19 pandemic due to customers receiving funds from various government stimulus programs, customers depositing the proceeds from PPP loans, and customers maintaining larger deposit balances.
Securities
Our securities portfolio is the third largest component of earning assets and provides a significant source of revenue. As of June 30, 2021, our securities portfolio was 17.9% of total assets. It is designed primarily to provide and maintain liquidity, generate a favorable return on investments without incurring unnecessary interest rate and credit risk, and complement our lending activities. We may invest in various types of liquid assets that are permissible under governing regulations and approved by our investment policy, which include U.S. Treasury obligations, U.S. government agency obligations, certificates of deposit of insured domestic banks, mortgage-backed and mortgage-related securities, corporate notes having an investment rating of "A" or better, municipal bonds, and certain equity securities.
Securities AFS were $512.0 million as of June 30, 2021, an increase of $13.8 million, or 2.8%, from $498.2 million as of December 31, 2020. Investment activity for the six months ended June 30, 2021, included $188.6 million of securities purchased, partially offset by $111.5 million in sales and $54.6 million in maturities, principal repayments, and calls. The net unrealized gain of the securities AFS portfolio decreased $7.4 million for the six months ended June 30, 2021. This decrease is attributed to an increase in market rates which resulted in lower prices on securities and, therefore, an overall lower market value of the portfolio.
The carrying values of our securities AFS are adjusted for unrealized gain or loss, and any unrealized gain or loss is reported on an after-tax basis as a component of accumulated other comprehensive income (loss) in stockholders’ equity.
As of June 30, 2021, the net unrealized gain of the securities AFS portfolio was $1.3 million, compared to a net unrealized gain of $8.8 million as of December 31, 2020.
During the six months ended June 30, 2021, we sold $111.5 million of securities AFS as part of restructuring transactions. A large portion of the securities sold were mortgage-backed securities which had accelerated prepayment speeds and were owned at higher book prices. Due to these accelerated prepayment speeds, the yields had declined. We reinvested the proceeds into securities with improved structure which rebalanced the cash flows for the portfolio, reduced amortization expense for the mortgage-backed sector, reduced extension risk, and improved the portfolio yield.
During the six months ended June 30, 2021, due to the low interest rate environment, we reallocated $87.5 million from overnight funds yielding 0.09% for the six months ended June 30, 2021, to higher yielding securities. Although this reallocation has slightly reduced the overall securities AFS portfolio yield, we expect it to improve future interest income by moving these funds from overnight funds to a higher yielding investment.
The securities AFS portfolio tax-equivalent yield was 1.81% for the six months ended June 30, 2021, compared to 2.20% for the six months ended June 30, 2020. The decrease in yield for the six months ended June 30, 2021, compared to the same period for 2020, was due to purchasing a significant amount of securities over the past year with lower yields than the portfolio yield as of June 30, 2020, as a result of the lower rate environment.
Equity securities, consisting of a mutual fund, are carried at fair value on the consolidated balance sheets with periodic changes in value recorded through the consolidated statements of income. The fair value of our equity securities was $4.0 million as of June 30, 2021, with a recognized loss of $59,000 for the six months ended June 30, 2021, compared to a fair value of $4.0 million as of December 31, 2020, with a recognized gain of $85,000 for the year ended December 31, 2020. There were no purchases or sales of equity securities for the six months ended June 30, 2021.
The following tables summarize the amortized cost and estimated fair value of our securities by type as of the dates indicated. As of June 30, 2021, other than securities issued by U.S. government agencies or government-sponsored enterprises, our securities portfolio did not contain securities of any one issuer with an aggregate book value in excess of 10.0% of our stockholders’ equity.
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
(in thousands)
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
Securities AFS:
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
$
|
296,205
|
|
|
$
|
1,913
|
|
|
$
|
(4,340)
|
|
|
$
|
293,778
|
|
Municipal bonds
|
207,413
|
|
|
4,142
|
|
|
(504)
|
|
|
211,051
|
|
U.S. agency securities
|
7,055
|
|
|
153
|
|
|
(25)
|
|
|
7,183
|
|
|
|
|
|
|
|
|
|
Total Securities AFS
|
$
|
510,673
|
|
|
$
|
6,208
|
|
|
$
|
(4,869)
|
|
|
$
|
512,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
(in thousands)
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
Securities AFS:
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
$
|
271,709
|
|
|
$
|
3,450
|
|
|
$
|
(332)
|
|
|
$
|
274,827
|
|
Municipal bonds
|
207,834
|
|
|
5,498
|
|
|
(51)
|
|
|
213,281
|
|
U.S. agency securities
|
9,902
|
|
|
200
|
|
|
(4)
|
|
|
10,098
|
|
|
|
|
|
|
|
|
|
Total Securities AFS
|
$
|
489,445
|
|
|
$
|
9,148
|
|
|
$
|
(387)
|
|
|
$
|
498,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows the fair value of securities AFS which mature during each of the periods indicated. The contractual maturity of a mortgage-backed security is the date at which the last underlying mortgage matures.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Maturity as of June 30, 2021
|
|
Within
One Year
|
|
After One Year
but Within
Five Years
|
|
After Five Years
but Within
Ten Years
|
|
After
Ten Years
|
|
Total
|
(dollars in thousands)
|
Amount
|
|
Yield(1)
|
|
Amount
|
|
Yield(1)
|
|
Amount
|
|
Yield(1)
|
|
Amount
|
|
Yield(1)
|
|
Amount
|
|
Yield(1)
|
Securities AFS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
$
|
5
|
|
|
0.58
|
%
|
|
$
|
1,776
|
|
|
1.68
|
%
|
|
$
|
22,903
|
|
|
1.88
|
%
|
|
$
|
269,094
|
|
|
1.37
|
%
|
|
$
|
293,778
|
|
|
1.41
|
%
|
Municipal bonds
|
4,072
|
|
|
1.46
|
%
|
|
26,650
|
|
|
1.84
|
%
|
|
13,962
|
|
|
3.00
|
%
|
|
166,367
|
|
|
2.65
|
%
|
|
211,051
|
|
|
2.55
|
%
|
U.S. agency securities
|
—
|
|
|
—
|
%
|
|
2,332
|
|
|
2.51
|
%
|
|
4,851
|
|
|
1.78
|
%
|
|
—
|
|
|
—
|
%
|
|
7,183
|
|
|
2.01
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Securities AFS
|
$
|
4,077
|
|
|
1.46
|
%
|
|
$
|
30,758
|
|
|
1.88
|
%
|
|
$
|
41,716
|
|
|
2.24
|
%
|
|
$
|
435,461
|
|
|
1.85
|
%
|
|
$
|
512,012
|
|
|
1.88
|
%
|
(1)Tax equivalent projected book yield as of June 30, 2021.
Loan Portfolio
Our loan portfolio is our largest category of earning assets, and interest income earned on our loan portfolio is our primary source of income. We maintain a diversified loan portfolio with a focus on commercial real estate, one-to-four family residential, and commercial and industrial loans. As of June 30, 2021, loans HFI were $1.60 billion, an increase of $11.9 million, or 0.8%, compared to $1.59 billion as of December 31, 2020.
Red River Bank is participating in the SBA PPP. Through June 30, 2021, we had received $174.9 million in SBA forgiveness and borrower payments on 91.2% of the 1,384 PPP1 loans originated. As of June 30, 2021, PPP1 loans totaled $27.2 million, net of $376,000 of deferred income. Through July 31, 2021, we had received $194.1 million in SBA forgiveness and borrower payments on 99.2% of the 1,384 PPP1 loans originated. During the second quarter of 2021, we concluded the PPP2 loan originations. In all, we originated 488 PPP2 loans totaling $58.3 million with an average size of $119,000. PPP2 origination fees totaled $2.7 million, or 4.65% of originated PPP2 loans. As of June 30, 2021, PPP2 loans totaled $55.8 million, net of $2.5 million of deferred income.
As of June 30, 2021, loans HFI excluding $83.0 million of PPP loans (non-GAAP), net of $2.9 million of deferred income, were $1.52 billion, an increase of $47.4 million, or 3.2%, from December 31, 2020. For calculations and reconciliations to GAAP of non-GAAP financial measures, see " - Non-GAAP Financial Measures" in this Quarterly Report on Form 10-Q.
Loans HFI by category, non-PPP loans HFI (non-GAAP), and loans HFS are summarized below as of the dates indicated:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
|
|
|
|
|
(dollars in thousands)
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
$
|
578,005
|
|
|
36.1
|
%
|
|
$
|
556,769
|
|
|
35.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
462,611
|
|
|
28.9
|
%
|
|
442,889
|
|
|
27.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development
|
101,073
|
|
|
6.3
|
%
|
|
127,321
|
|
|
8.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
280,004
|
|
|
17.5
|
%
|
|
250,428
|
|
|
15.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
SBA PPP, net of deferred income
|
82,972
|
|
|
5.2
|
%
|
|
118,447
|
|
|
7.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt
|
73,289
|
|
|
4.6
|
%
|
|
68,666
|
|
|
4.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
22,434
|
|
|
1.4
|
%
|
|
23,926
|
|
|
1.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans HFI
|
$
|
1,600,388
|
|
|
100.0
|
%
|
|
$
|
1,588,446
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-PPP loans HFI (non-GAAP)(1)
|
$
|
1,517,416
|
|
|
|
|
$
|
1,469,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans HFS
|
$
|
12,291
|
|
|
|
|
$
|
29,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Non-GAAP financial measure. Calculations of this measure and reconciliations to GAAP are included in " - Non-GAAP Financial Measures" in this Quarterly Report on Form 10-Q.
During 2020, we began granting loan payment deferments for requesting borrowers impacted by pandemic-related economic shutdowns. As of June 30, 2021, active deferrals, all of which were in the hospitality services sector, totaled $8.1 million, or 0.5% of non-PPP loans HFI (non-GAAP), and were deferrals of principal payments only. For calculations and reconciliations to GAAP of non-GAAP financial measures, see " - Non-GAAP Financial Measures" in this Quarterly Report on Form 10-Q.
In accordance with interagency regulatory guidance issued in March 2020, and revised in April 2020, these short-term deferrals are not deemed to be TDRs to the extent they meet the terms of such guidance.
Industry and Other Portfolio Sectors
The following table shows non-PPP loans HFI (non-GAAP) in certain sectors within our portfolio that could have a heightened overall level of risk due to pandemic-related macroeconomic conditions as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
December 31, 2020
|
|
Loans
|
|
Loans
|
(dollars in thousands)
|
Amount
|
|
Percent of Non-PPP Loans HFI (non-GAAP)
|
|
Amount
|
|
Percent of Non-PPP Loans HFI (non-GAAP)
|
Hospitality services:
|
|
|
|
|
|
|
|
Hotels and other overnight lodging
|
$
|
26,356
|
|
|
1.7
|
%
|
|
$
|
26,722
|
|
|
1.9
|
%
|
Restaurants - full service
|
13,947
|
|
|
0.9
|
%
|
|
11,901
|
|
|
0.8
|
%
|
Restaurants - limited service
|
16,442
|
|
|
1.1
|
%
|
|
12,467
|
|
|
0.8
|
%
|
Other
|
6,536
|
|
|
0.5
|
%
|
|
7,194
|
|
|
0.5
|
%
|
Total hospitality services
|
$
|
63,281
|
|
|
4.2
|
%
|
|
$
|
58,284
|
|
|
4.0
|
%
|
|
|
|
|
|
|
|
|
Retail trade (excluding automobile dealers)
|
$
|
20,632
|
|
|
1.4
|
%
|
|
$
|
21,120
|
|
|
1.4
|
%
|
|
|
|
|
|
|
|
|
Energy
|
$
|
30,061
|
|
|
2.0
|
%
|
|
$
|
20,351
|
|
|
1.3
|
%
|
The following table shows non-PPP loans HFI (non-GAAP) in other non-industry specific areas that we believe may be affected by the pandemic:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
(dollars in thousands)
|
Amount
|
|
Percent of Non-PPP Loans HFI (non-GAAP)
|
Loans collateralized by non-owner occupied properties leased to retail establishments
|
$
|
42,465
|
|
|
2.8
|
%
|
|
|
|
|
Credit card loans:
|
|
|
|
Commercial
|
$
|
2,010
|
|
|
0.1
|
%
|
Consumer
|
983
|
|
|
0.1
|
%
|
Total credit card loans
|
$
|
2,993
|
|
|
0.2
|
%
|
Our health care loans are made up of a diversified portfolio of health care providers. As of June 30, 2021, health care credits were $144.0 million, or 9.5% of non-PPP loans HFI (non-GAAP), compared to $149.4 million, or 10.2% of non-PPP loans HFI (non-GAAP) as of December 31, 2020. The average health care loan size was $307,000 as of June 30, 2021, and $305,000 as of December 31, 2020. Within the health care sector, nursing and residential care loans were 4.2% of non-PPP loans HFI (non-GAAP) as of June 30, 2021, and 4.4% as of December 31, 2020. Loans to physician and dental practices were 5.2% of non-PPP loans HFI (non-GAAP) as of June 30, 2021, and 5.7% as of December 31, 2020. As of June 30, 2021, the health care sector had no active deferrals.
None of the markets in which we directly operate are characterized by a high degree of tourism-driven hospitality services. Likewise, our geographic footprint is not closely aligned with the bulk of Louisiana’s energy-concentrated local economies. We believe this provides our portfolio with some degree of insulation against the current stress in both of those segments.
The following table summarizes non-PPP loans HFI (non-GAAP) by market of origin:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
(dollars in thousands)
|
Amount
|
|
Percent of Non-PPP Loans HFI (non-GAAP)
|
Central
|
$
|
606,669
|
|
|
40.0
|
%
|
Capital
|
427,369
|
|
|
28.2
|
%
|
Northwest
|
324,688
|
|
|
21.4
|
%
|
Southwest
|
87,273
|
|
|
5.7
|
%
|
Northshore
|
62,646
|
|
|
4.1
|
%
|
Acadiana
|
8,771
|
|
|
0.6
|
%
|
Total non-PPP loans HFI
|
$
|
1,517,416
|
|
|
100.0
|
%
|
For additional information on non-GAAP financial measures, see " - Non-GAAP Financial Measures" in this Quarterly Report on Form 10-Q.
LIBOR
In July 2017, the United Kingdom Financial Conduct Authority, the authority that regulates London Interbank Offered Rate ("LIBOR"), announced its intent to stop compelling banks to submit rates for the calculation of LIBOR after 2021. Subsequently, on March 5, 2021, it was announced that certain U.S. Dollar LIBOR rates would cease to be published after June 30, 2023. As of June 30, 2021, 6.2% of our non-PPP loans HFI (non-GAAP) were LIBOR-based with a setting that expires June 30, 2023. Alternative rate language is present in each credit agreement with a LIBOR-based rate. We do not anticipate any issue with transitioning each loan to a non-LIBOR-based rate.
Nonperforming Assets
NPAs consist of nonperforming loans and property acquired through foreclosures or repossession. Nonperforming loans include loans that are contractually past due 90 days or more and loans that are on nonaccrual status. Loans are considered past due when principal and interest payments have not been received as of the date such payments are due.
Asset quality is managed through disciplined underwriting policies, continual monitoring of loan performance, and focused management of NPAs. There can be no assurance, however, that the loan portfolio will not become subject to losses due to declines in economic conditions, deterioration in the financial condition of our borrowers, or a decline in the value of collateral.
NPAs totaled $3.1 million as of June 30, 2021, down $1.1 million, or 26.6%, from $4.2 million as of December 31, 2020, primarily due to the decrease of nonaccrual loans, partially offset by foreclosed assets added in 2021. The ratio of NPAs to total assets improved to 0.11% as of June 30, 2021, from 0.16% as of December 31, 2020.
Nonperforming loan and asset information is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
June 30, 2021
|
|
December 31, 2020
|
Nonperforming loans:
|
|
|
|
Nonaccrual loans
|
$
|
2,026
|
|
|
$
|
3,307
|
|
Accruing loans 90 or more days past due
|
1
|
|
|
3
|
|
Total nonperforming loans
|
2,027
|
|
|
3,310
|
|
Foreclosed assets:
|
|
|
|
Real estate
|
1,059
|
|
|
896
|
|
|
|
|
|
Total foreclosed assets
|
1,059
|
|
|
896
|
|
Total NPAs
|
$
|
3,086
|
|
|
$
|
4,206
|
|
|
|
|
|
Troubled debt restructurings:(1,2)
|
|
|
|
Nonaccrual loans
|
$
|
—
|
|
|
$
|
1,217
|
|
|
|
|
|
Performing loans
|
2,078
|
|
|
1,454
|
|
Total TDRs
|
$
|
2,078
|
|
|
$
|
2,671
|
|
|
|
|
|
Nonperforming loans to loans HFI(1)
|
0.13
|
%
|
|
0.21
|
%
|
Nonperforming loans to non-PPP loans HFI (non-GAAP)(1,3)
|
0.13
|
%
|
|
0.23
|
%
|
NPAs to total assets
|
0.11
|
%
|
|
0.16
|
%
|
(1)Troubled debt restructurings – nonaccrual and accruing loans 90 or more days past due are included in the respective components of nonperforming loans.
(2)In accordance with interagency regulatory guidance issued in March 2020, and revised in April 2020, COVID-19 pandemic-related short-term deferrals are not deemed to be TDRs to the extent they meet the terms of such guidance.
(3)Non-GAAP financial measure. For calculations and reconciliations to GAAP of non-GAAP financial measures, see " - Non-GAAP Financial Measures" in this Quarterly Report on Form 10-Q.
Nonaccrual loans are summarized below by category:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
June 30, 2021
|
|
December 31, 2020
|
Real estate:
|
|
|
|
Commercial real estate
|
$
|
747
|
|
|
$
|
1,846
|
|
One-to-four family residential
|
231
|
|
|
574
|
|
Construction and development
|
249
|
|
|
—
|
|
Commercial and industrial
|
799
|
|
|
882
|
|
SBA PPP, net of deferred income
|
—
|
|
|
—
|
|
Tax-exempt
|
—
|
|
|
—
|
|
Consumer
|
—
|
|
|
5
|
|
Total nonaccrual loans
|
$
|
2,026
|
|
|
$
|
3,307
|
|
Potential Problem Loans
From a credit risk standpoint, we classify loans in one of five categories: pass, special mention, substandard, doubtful, or loss. Loan classifications reflect a judgment about the risk of default and loss associated with the loans. Classifications are reviewed periodically and adjusted to reflect the degree of risk and loss believed to be inherent in each loan. The methodology is structured so that specific reserve allocations are increased in accordance with deterioration in credit quality (and a corresponding increase in risk and loss) or decreased in accordance with improvement in credit quality (and a corresponding decrease in risk and loss).
Loans classified as pass are of satisfactory quality and do not require a more severe classification.
Loans classified as special mention have potential weaknesses that deserve management’s close attention. If these weaknesses are not corrected, repayment possibilities for the loan may deteriorate. However, the loss potential does not warrant substandard classification.
Loans classified as substandard have well defined weaknesses which jeopardize normal repayment of principal and interest. Prompt corrective action is required to reduce exposure and to assure adequate remedial actions are taken by the borrower. If these weaknesses do not improve, loss is possible.
Loans classified as doubtful have well defined weaknesses that make full collection improbable.
Loans classified as loss are considered uncollectible and charged-off to the allowance for loan losses.
As of June 30, 2021, loans classified as pass were 99.3% of loans HFI, and loans classified as special mention and substandard were 0.2% and 0.5%, respectively, of loans HFI. There were no loans as of June 30, 2021, classified as doubtful or loss. As of December 31, 2020, loans classified as pass were 99.2% of loans HFI, and loans classified as special mention and substandard were 0.1% and 0.7%, respectively, of loans HFI. There were no loans as of December 31, 2020, classified as doubtful or loss.
Allowance for Loan Losses
The allowance for loan losses provides for known and inherent losses in the loan portfolio based upon management's best assessment of the loan portfolio at each balance sheet date. It is maintained at a level estimated to be adequate to absorb potential losses through periodic changes to loan losses.
In connection with the review of the loan portfolio, risk elements attributable to particular loan types or categories are considered in assessing the quality of individual loans. Some of the risk elements considered include:
• for commercial real estate loans, the debt service coverage ratio (income from the business in excess of operating expenses compared to loan repayment requirements); operating results of the owner in the case of owner occupied properties; the loan-to-value ratio; the age and condition of the collateral; and the volatility of income, property value, and future operating results typical of properties of that type;
• for one-to-four family residential mortgage loans, the borrower’s ability to repay the loan, including a consideration of the debt to income ratio and employment and income stability; the loan-to-value ratio; and the age, condition, and marketability of the collateral;
• for construction and development loans, the perceived feasibility of the project including the ability to sell developed lots or improvements constructed for resale or the ability to lease property constructed for lease; the quality and nature of contracts for presale or prelease, if any; experience and ability of the developer; and the loan-to-value ratio; and
• for commercial and industrial loans, the debt service coverage ratio; the operating results of the commercial, industrial, or professional enterprise; the borrower’s business, professional, and financial ability and expertise; the specific risks and volatility of income and operating results typical for businesses in that category; the value, nature, and marketability of collateral; and the financial resources of the guarantor(s), if any.
When effective, the CECL allowance model, prescribed by ASU No. 2016-13, will require measurement of expected credit losses based on historical experience, current conditions, and reasonable and supportable forecasts. This model will replace the existing incurred loss model. As an SEC registrant with smaller reporting company filing status as determined on June 30, 2019, CECL is effective for us on January 1, 2023. Refer to "Item 1. Financial Statements - Note 1 - Summary of Significant Accounting Policies - Recent Accounting Pronouncements" in this report for more information on ASU No. 2016-13.
As of June 30, 2021, the allowance for loan losses was $19.5 million, or 1.22% of loans HFI, and 1.28% of non-PPP loans HFI (non-GAAP). As of December 31, 2020, the allowance for loan losses totaled $18.0 million, or 1.13% of loans HFI, and 1.22% of non-PPP loans HFI (non-GAAP). The $1.5 million increase in the allowance for loan losses for the six months ended June 30, 2021, was due to the provision for loan loss expense. For calculations and reconciliations to GAAP of non-GAAP financial measures, see " - Non-GAAP Financial Measures" in this Quarterly Report on Form 10-Q.
The provision for loan losses for the six months ended June 30, 2021, was $1.6 million, a decrease of $428,000, or 21.1%, from $2.0 million for the six months ended June 30, 2020. The decrease in the provision for loan losses was due to continued, favorable asset quality metrics and the allowance for loan losses balance compared with a higher provision for loan losses in the same periods of 2020 due to the anticipated adverse effects of the COVID-19 pandemic. With the removal of most pandemic restrictions on businesses in Louisiana and the widespread availability of vaccines, the business climate of Louisiana continues to stabilize. We will continue to evaluate future provision needs in relation to non-PPP loan growth and trends in asset quality.
The following table displays activity in the allowance for loan losses for the periods shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
(dollars in thousands)
|
2021
|
|
|
|
2020
|
Loans HFI
|
$
|
1,600,388
|
|
|
|
|
$
|
1,615,298
|
|
Non-PPP Loans HFI (non-GAAP)(1)
|
$
|
1,517,416
|
|
|
|
|
$
|
1,422,643
|
|
Average loans
|
$
|
1,606,094
|
|
|
|
|
$
|
1,528,216
|
|
|
|
|
|
|
|
Allowance for loan losses at beginning of period
|
$
|
17,951
|
|
|
|
|
$
|
13,937
|
|
Provision for loan losses
|
1,600
|
|
|
|
|
2,028
|
|
Charge-offs:
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
One-to-four family residential
|
(10)
|
|
|
|
|
—
|
|
Construction and development
|
—
|
|
|
|
|
(14)
|
|
Commercial and industrial
|
(40)
|
|
|
|
|
(1,058)
|
|
Consumer
|
(163)
|
|
|
|
|
(146)
|
|
Total charge-offs
|
(213)
|
|
|
|
|
(1,218)
|
|
Recoveries:
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
One-to-four family residential
|
7
|
|
|
|
|
5
|
|
Construction and development
|
1
|
|
|
|
|
—
|
|
Commercial and industrial
|
13
|
|
|
|
|
50
|
|
Consumer
|
101
|
|
|
|
|
80
|
|
Total recoveries
|
122
|
|
|
|
|
135
|
|
Net (charge-offs)/recoveries
|
(91)
|
|
|
|
|
(1,083)
|
|
Allowance for loan losses at end of period
|
$
|
19,460
|
|
|
|
|
$
|
14,882
|
|
|
|
|
|
|
|
Allowance for loan losses to loans HFI
|
1.22
|
%
|
|
|
|
0.92
|
%
|
Allowance for loan losses to non-PPP loans HFI (non-GAAP)(1)
|
1.28
|
%
|
|
|
|
1.05
|
%
|
Net charge-offs to average loans
|
0.01
|
%
|
|
|
|
0.07
|
%
|
(1)Non-GAAP financial measure. Calculations of this measure and reconciliations to GAAP are included in " - Non-GAAP Financial Measures" in this Quarterly Report on Form 10-Q.
We believe the allowance for loan losses was adequate to provide for known and inherent losses in the portfolio at all times shown above. Future provisions for loan losses are subject to ongoing evaluations of the factors and loan portfolio risks described above, including economic pressures related to COVID-19 and natural disasters affecting the state of Louisiana. A decline in market area economic conditions, deterioration of asset quality, or growth in portfolio size could cause the allowance to become inadequate, and material additional provisions for loan losses could be required.
Deposits
Deposits are the primary funding source for loans and investments. We offer a variety of deposit products designed to attract and retain consumer, commercial, and public entity customers. These products consist of noninterest and interest-bearing checking accounts, savings accounts, money market accounts, and time deposit accounts. Deposits are gathered from individuals, partnerships, corporations, and public entities located primarily in our market areas. We do not have any internet-sourced or brokered deposits.
Total deposits increased $229.2 million, or 9.8%, to $2.57 billion as of June 30, 2021, from $2.34 billion as of December 31, 2020. Noninterest-bearing deposits increased by $87.9 million, or 9.3%, to $1.03 billion as of June 30, 2021. Noninterest-bearing deposits as a percentage of total deposits were 40.14% as of June 30, 2021, compared to 40.32% as of December 31, 2020. Interest-bearing deposits increased by $141.4 million, or 10.1%, to $1.54 billion as of June 30, 2021, with the largest increase in money market accounts. The increase in deposits was a result of customers receiving funds from government stimulus programs, customers depositing the proceeds from their PPP2 loans, and customers maintaining larger deposit balances.
The following table presents our deposits by account type as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
Change from
December 31, 2020 to June 30, 2021
|
(dollars in thousands)
|
Balance
|
|
% of Total
|
|
Balance
|
|
% of Total
|
|
$ Change
|
|
% Change
|
Noninterest-bearing deposits
|
$
|
1,031,486
|
|
|
40.1
|
%
|
|
$
|
943,615
|
|
|
40.3
|
%
|
|
$
|
87,871
|
|
|
9.3
|
%
|
Interest-bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
NOW accounts
|
383,753
|
|
|
15.0
|
%
|
|
402,572
|
|
|
17.2
|
%
|
|
(18,819)
|
|
|
(4.7)
|
%
|
Money market accounts
|
637,845
|
|
|
24.8
|
%
|
|
506,902
|
|
|
21.7
|
%
|
|
130,943
|
|
|
25.8
|
%
|
Savings accounts
|
173,428
|
|
|
6.7
|
%
|
|
146,264
|
|
|
6.2
|
%
|
|
27,164
|
|
|
18.6
|
%
|
Time deposits < $100,000
|
110,105
|
|
|
4.3
|
%
|
|
108,982
|
|
|
4.7
|
%
|
|
1,123
|
|
|
1.0
|
%
|
Time deposits $100,000 to $250,000
|
137,879
|
|
|
5.4
|
%
|
|
138,683
|
|
|
5.9
|
%
|
|
(804)
|
|
|
(0.6)
|
%
|
Time deposits > $250,000
|
95,103
|
|
|
3.7
|
%
|
|
93,342
|
|
|
4.0
|
%
|
|
1,761
|
|
|
1.9
|
%
|
Total interest-bearing deposits
|
$
|
1,538,113
|
|
|
59.9
|
%
|
|
$
|
1,396,745
|
|
|
59.7
|
%
|
|
$
|
141,368
|
|
|
10.1
|
%
|
Total deposits
|
$
|
2,569,599
|
|
|
100.0
|
%
|
|
$
|
2,340,360
|
|
|
100.0
|
%
|
|
$
|
229,239
|
|
|
9.8
|
%
|
The following table presents deposits by customer type as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
Change from
December 31, 2020 to June 30, 2021
|
(dollars in thousands)
|
Balance
|
|
% of Total
|
|
Balance
|
|
% of Total
|
|
$ Change
|
|
% Change
|
Consumer
|
$
|
1,241,006
|
|
|
48.3
|
%
|
|
$
|
1,091,268
|
|
|
46.6
|
%
|
|
$
|
149,738
|
|
|
13.7
|
%
|
Commercial
|
1,167,949
|
|
|
45.5
|
%
|
|
1,054,736
|
|
|
45.1
|
%
|
|
113,213
|
|
|
10.7
|
%
|
Public
|
160,644
|
|
|
6.2
|
%
|
|
194,356
|
|
|
8.3
|
%
|
|
(33,712)
|
|
|
(17.3)
|
%
|
Total deposits
|
$
|
2,569,599
|
|
|
100.0
|
%
|
|
$
|
2,340,360
|
|
|
100.0
|
%
|
|
$
|
229,239
|
|
|
9.8
|
%
|
The maturity distribution of our time deposits of $100,000 or more are summarized below:
|
|
|
|
|
|
(in thousands)
|
June 30, 2021
|
Three months or less
|
$
|
46,484
|
|
Over three months through six months
|
43,430
|
|
Over six months through 12 months
|
73,321
|
|
Over 12 months through three years
|
50,153
|
|
Over three years
|
19,594
|
|
Total
|
$
|
232,982
|
|
Borrowings
Although deposits are our primary source of funds, we may, from time to time, utilize borrowings as a cost-effective source of funds when such borrowings can then be invested at a positive interest rate spread for additional capacity to fund loan demand or to meet our liquidity needs. We had no outstanding borrowings as of June 30, 2021 or December 31, 2020.
Equity and Regulatory Capital Requirements
Total stockholders’ equity as of June 30, 2021, was $292.9 million, compared to $285.5 million as of December 31, 2020, an increase of $7.4 million, or 2.6%. This increase was attributable to $16.3 million of net income for the six months ended June 30, 2021, and $203,000 of stock compensation, partially offset by a $5.9 million, net of tax, market adjustment to accumulated other comprehensive income related to securities AFS, $2.2 million for the repurchase of shares, and $1.0 million in cash dividends.
On August 27, 2020, our Board of Directors approved a stock repurchase program. The repurchase program authorizes us to purchase up to $3.0 million of our outstanding shares of common stock through August 27, 2021. Repurchases may be made from time to time in the open market at prevailing prices and based on market conditions, or in privately negotiated transactions. For the three months ended June 30, 2021, we repurchased 21,653 shares of our common stock at an aggregate cost of $1.2 million. For the six months ended June 30, 2021, we repurchased 41,314, shares of our common stock at an aggregate cost of $2.2 million. As of June 30, 2021, we had $701,000 available for repurchasing our common stock under this program.
As part of the directive under the Economic Growth Act, on September 17, 2019, the FDIC and other federal bank regulatory agencies approved the CBLR framework. This optional framework became effective January 1, 2020, and is available as an alternative to the Basel III risk-based capital framework. The CBLR framework provides for a simple measure of capital adequacy for certain community banking organizations. Specifically, depository institutions and depository institution holding companies that have less than $10.0 billion in total consolidated assets and meet other qualifying criteria, including a Tier 1 leverage ratio of greater than 9.00% (subsequently temporarily reduced to 8.00% for 2020 and 8.50% for 2021 as a COVID-19 relief measure), are considered qualifying community banking organizations and are eligible to opt into the CBLR framework and replace the applicable Basel III risk-based capital requirements.
As of June 30, 2021, the Company and the Bank qualify for the CBLR framework. Management does not intend to utilize the CBLR framework.
LIQUIDITY AND ASSET-LIABILITY MANAGEMENT
Liquidity
Liquidity involves our ability to raise funds to support asset growth and potential acquisitions or to reduce assets to meet deposit withdrawals and other payment obligations, to maintain reserve requirements, and otherwise to operate on an ongoing basis and manage unexpected events. For the six months ended June 30, 2021, and the year ended December 31, 2020, liquidity needs were primarily met by core deposits, security and loan maturities, and cash flows from amortizing security and loan portfolios. While maturities and scheduled amortization of loans are predictable sources of funds, deposit outflows, mortgage prepayments, and prepayments on amortizing securities are greatly influenced by market interest rates, economic conditions, and the competitive environment in which we operate, and therefore, these cash flows are monitored regularly.
Our most liquid assets are cash and short-term investments that include both interest-earning demand deposits and securities AFS. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period. Access to purchased funds from correspondent banks and overnight advances from the FHLB and the Federal Reserve Bank of Atlanta are also available. Purchased funds from correspondent banks and overnight advances have been utilized on occasion to meet funding obligations, although we do not generally rely on these external funding sources.
Our primary source of funds is deposits, and our primary use of funds is the funding of loans. We invest excess deposits in interest-earning deposits at other banks or at the Federal Reserve, federal funds sold, securities, or other short-term liquid investments until the deposits are needed to fund loan growth or other obligations. Our average deposits increased $473.4 million, or 23.4%, for the six months ended June 30, 2021, compared to the average deposits for the twelve months ended December 31, 2020. The increase in average total deposits was due to customers receiving funds from various government stimulus programs, customers depositing the proceeds from their PPP2 loans, and customers maintaining larger deposit balances. Our average total loans increased $18.7 million, or 1.2%, for the six months ended June 30, 2021, compared to average total loans for the twelve months ended December 31, 2020.
As of June 30, 2021, we had cash and cash equivalents of $667.5 million compared to $447.2 million as of December 31, 2020. The increase of $220.3 million, or 49.3%, was a result of deposit growth creating additional liquidity, which was primarily deployed into interest-bearing deposits in other banks.
Our securities portfolio is another alternative source for meeting liquidity needs. Securities generate cash flow through principal payments and maturities, and they generally have readily available markets that allow for their conversion to cash. As of June 30, 2021, securities AFS totaled $512.0 million compared to $498.2 million as of December 31, 2020. However, certain investments within our securities portfolio are also used to secure specific deposit types, such as for public entities, which impacts their liquidity. As of June 30, 2021, securities with a carrying value of $114.3 million, or 22.3% of the securities AFS portfolio, were pledged to secure public entity deposits as compared to securities with a carrying value of $105.1 million, or 21.1% of the securities AFS portfolio, similarly pledged as of December 31, 2020. This increase of $8.1 million, or 7.7%, was primarily due to an increase in several public entity deposit accounts that occurred during the first half of the year. Public entity account balances generally fluctuate throughout the year.
Other sources available for meeting liquidity needs include federal funds lines, FHLB advances, repurchase agreements, and other lines of credit. We maintain four federal funds lines of credit with commercial banks that provided for the availability to borrow up to an aggregate of $95.0 million in federal funds as of June 30, 2021 and December 31, 2020. FHLB advances may also be used to meet short-term liquidity needs, particularly if the prevailing interest rate on an FHLB advance compares favorably to the rates that would be required to attract the necessary deposits. As of June 30, 2021 and December 31, 2020, our net borrowing capacity from the FHLB was $635.6 million and $510.8 million, respectively. We also maintain an additional $6.0 million revolving line of credit at one of our correspondent banks. As of June 30, 2021 and December 31, 2020, we had total borrowing capacity of $736.6 million and $611.8 million, respectively, through these combined funding sources. We had no outstanding balances from any of these funding sources as of June 30, 2021 or December 31, 2020.
Commitments to Extend Credit
In the normal course of business, we enter into certain financial instruments, such as commitments to extend credit and letters of credit, to meet the financing needs of our customers. These commitments involve elements of credit risk, interest rate risk, and liquidity risk. Some instruments may not be reflected in the accompanying consolidated financial statements until they are funded, although they expose us to varying degrees of credit risk and interest rate risk in much the same way as funded loans.
Commitments to extend credit are agreements to lend to customers if all conditions of the commitment are met. These commitments include revolving and nonrevolving credit lines and are primarily issued for commercial purposes. Commitments to extend credit generally have fixed expiration dates or other termination clauses. Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions.
As of June 30, 2021, we had $315.5 million in unfunded loan commitments and $12.0 million in commitments associated with outstanding standby letters of credit. We have monitored the requests for extensions of credit under these lines and have not identified any requests outside of the normal course of business that appear to be attributable to COVID-19 hardships. As of December 31, 2020, we had $283.3 million in unfunded loan commitments and $10.5 million in commitments associated with outstanding standby letters of credit. As commitments associated with letters of credit and commitments to extend credit may expire unused, the total outstanding commitments may not necessarily reflect the actual future cash funding requirements.
Investment Commitments
The Company is party to various investment commitments in the normal course of business. The Company's exposure is represented by the contractual amount of these commitments.
In 2014, the Company committed to an investment into an SBIC limited partnership. As of June 30, 2021, there was a $226,000 outstanding commitment to this partnership.
In 2020, the Company committed to an additional investment into an SBIC limited partnership. As of June 30, 2021, there was a $5.0 million outstanding commitment to this partnership.
In the second quarter of 2021, the Company committed to an investment into a bank technology limited partnership. As of June 30, 2021, there was a $960,000 outstanding commitment to this partnership.
Interest Rate Sensitivity and Market Risk
As a financial institution, our primary component of market risk is interest rate volatility. Our asset-liability management policies provide management with guidelines for effective funds management, and we have established a measurement system for monitoring our net interest rate sensitivity position. We have historically managed our rate sensitivity position within our established policy guidelines.
Our exposure to interest rate risk is managed by Red River Bank’s Asset-Liability Management Committee. The committee formulates strategies based on appropriate levels of interest rate risk and monitors the results of those strategies. In determining the appropriate level of interest rate risk, the committee considers the impact on both earnings and capital given the current outlook on interest rates, regional economies, liquidity, business strategies, and other related factors.
In conjunction with our interest rate risk management process, on a quarterly basis, we run various simulation models including a static balance sheet and dynamic growth balance sheet. These models test the impact on net interest income and fair value of equity from changes in market interest rates under various scenarios. Under the static and dynamic growth models, rates are shocked instantaneously and ramped rates change over a 12-month and 24-month horizon based upon parallel yield curve shifts. Parallel shock scenarios assume instantaneous parallel movements in the yield curve compared to a flat yield curve scenario. Our nonparallel rate shock model involves analysis of interest income and expense under various changes in the shape of the yield curve.
Bank policy regarding interest rate risk simulations performed by our risk model currently specifies that for instantaneous parallel shifts of the yield curve, estimated net interest income at risk for the subsequent one-year period should not decline by more than 10.0% for a 100 bp shift and 15.0% for a 200 bp shift. Bank policy regarding economic value at risk simulations performed by our risk model currently specifies that for instantaneous parallel shifts of the yield curve, estimated fair value of equity for the subsequent one-year period should not decline by more than 20.0% for a 100 bp shift and 25.0% for a 200 bp shift.
The following table shows the impact of an instantaneous and parallel change in rates, at the levels indicated, and summarizes the simulated change in net interest income and fair value of equity over a 12-month horizon as of the dates indicated.
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As of June 30, 2021
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As of December 31, 2020
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|
% Change in
Net Interest
Income
|
|
% Change in
Fair Value
of Equity
|
|
% Change in
Net Interest
Income
|
|
% Change in
Fair Value
of Equity
|
Change in Interest Rates (Bps)
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|
|
|
|
|
|
|
+300
|
41.9
|
%
|
|
20.4
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%
|
|
36.6
|
%
|
|
27.5
|
%
|
+200
|
27.9
|
%
|
|
16.0
|
%
|
|
25.2
|
%
|
|
22.3
|
%
|
+100
|
14.1
|
%
|
|
9.8
|
%
|
|
13.4
|
%
|
|
14.5
|
%
|
Base
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
-100
|
(1.2)
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%
|
|
(19.9)
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%
|
|
(1.6)
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%
|
|
(18.0)
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%
|
-200
|
(3.0)
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%
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|
(25.0)
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%
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|
(1.6)
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%
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|
(15.6)
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%
|
The results above, as of June 30, 2021 and December 31, 2020, demonstrate that our balance sheet is asset sensitive, which means our assets have the opportunity to reprice at a faster pace than our liabilities, over the 12-month horizon. We have also observed that, historically, our deposit interest rates have adjusted more slowly than the change in the federal funds rate. This assumption is incorporated into our risk model and is generally not reflected in a gap analysis, which is the process by which we measure the repricing gap between interest rate-sensitive assets versus interest rate-sensitive liabilities.
The percentage of change in the fair value of equity in the down 100 bp scenario is near the policy threshold and at the policy threshold in the down 200 bp scenario as of June 30, 2021. These values will be reported at the next quarterly Asset-Liability Committee meeting, and these metrics will be monitored closely over the next several quarters to determine whether further action is needed.
The impact of our floating rate loans and floating rate transaction deposits are also reflected in the results shown in the above table. As of June 30, 2021, floating rate loans were 16.5% of the loans HFI, and floating rate transaction deposits were 5.9% of interest-bearing transaction deposits.
The assumptions incorporated into the model are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model’s simulated results due to timing, magnitude, and frequency of interest rate changes, as well as changes in market conditions and the application and timing of various management strategies and the slope of the yield curve.
NON-GAAP FINANCIAL MEASURES
Our accounting and reporting policies conform to GAAP and the prevailing practices in the banking industry. Certain financial measures used by management to evaluate our operating performance are discussed in this report as supplemental non-GAAP performance measures. In accordance with the SEC’s rules, we classify a financial measure as being a non-GAAP financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts, that are included or excluded, as the case may be, in the most directly comparable measure calculated and presented in accordance with GAAP as in effect from time to time in the U.S.
Management and the board of directors review tangible book value per share, tangible common equity to tangible assets, and PPP-adjusted metrics as part of managing operating performance. However, these non-GAAP financial measures that we discuss in this report should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the manner in which we calculate the non-GAAP financial measures that are discussed in this report may differ from that of other companies reporting measures with similar names. It is important to understand how such other banking organizations calculate and name their financial measures similar to the non-GAAP financial measures discussed in this report when comparing such non-GAAP financial measures.
Tangible Assets, Tangible Equity, and Tangible Book Value
Tangible Book Value Per Common Share. Tangible book value per common share is a non-GAAP measure commonly used by investors, financial analysts, and investment bankers to evaluate financial institutions. We believe that this measure is important to many investors in the marketplace who are interested in changes from period to period in book value per common share exclusive of changes in intangible assets. We calculate tangible book value per common share as total stockholders’ equity, less intangible assets, divided by the outstanding number of shares of our common stock at the end of the relevant period. Intangible assets have the effect of increasing total book value while not increasing tangible
book value. The most directly comparable GAAP financial measure for tangible book value per common share is book value per common share.
Tangible Common Equity to Tangible Assets. Tangible common equity to tangible assets is a non-GAAP measure generally used by investors, financial analysts, and investment bankers to evaluate financial institutions. We believe that this measure is important to many investors in the marketplace who are interested in the relative changes from period to period of tangible common equity to tangible assets, each exclusive of changes in intangible assets. Intangible assets have the effect of increasing both total stockholders’ equity and assets while not increasing our tangible common equity or tangible assets. We calculate tangible common equity as total stockholders’ equity less intangible assets, and we calculate tangible assets as total assets less intangible assets. The most directly comparable GAAP financial measure for tangible common equity to tangible assets is total common stockholders’ equity to total assets.
As a result of previous acquisitions, we have a small amount of intangible assets. As of June 30, 2021, total intangible assets were $1.5 million, which is less than 1.0% of total assets.
The following table reconciles, as of the dates set forth below, stockholders’ equity to tangible common equity, and assets to tangible assets, and presents related resulting ratios.
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June 30,
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March 31,
|
|
June 30,
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|
|
(dollars in thousands, except per share data)
|
2021
|
|
2021
|
|
2020
|
|
|
Tangible common equity
|
|
|
|
|
|
|
|
Total stockholders' equity
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$
|
292,924
|
|
|
$
|
284,911
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|
|
$
|
271,117
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|
|
Adjustments:
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|
|
|
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|
|
Intangible assets
|
(1,546)
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|
|
(1,546)
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|
|
(1,546)
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|
|
Total tangible common equity (non-GAAP)
|
$
|
291,378
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$
|
283,365
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|
|
$
|
269,571
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|
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Common shares outstanding
|
7,284,994
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|
|
7,306,747
|
|
|
7,322,532
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|
Book value per common share
|
$
|
40.21
|
|
|
$
|
38.99
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|
|
$
|
37.03
|
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|
Tangible book value per common share (non-GAAP)
|
$
|
40.00
|
|
|
$
|
38.78
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|
|
$
|
36.81
|
|
|
|
|
|
|
|
|
|
|
|
Tangible assets
|
|
|
|
|
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|
|
Total assets
|
$
|
2,878,476
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|
|
$
|
2,820,672
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|
|
$
|
2,361,866
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|
|
Adjustments:
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Intangible assets
|
(1,546)
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|
|
(1,546)
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|
|
(1,546)
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|
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Total tangible assets (non-GAAP)
|
$
|
2,876,930
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|
|
$
|
2,819,126
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|
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$
|
2,360,320
|
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|
|
Total stockholder's equity to assets
|
10.18
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%
|
|
10.10
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%
|
|
11.48
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%
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|
|
Tangible common equity to tangible assets (non-GAAP)
|
10.13
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%
|
|
10.05
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%
|
|
11.42
|
%
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PPP-Adjusted Metrics
In the second quarter of 2020, Red River Bank originated 1,384 PPP1 loans totaling $199.0 million. With the passing of the Economic Aid Act in December of 2020, Red River Bank issued a minor amount of additional PPP1 loans and new PPP2 loans in the first six months of 2021. As of June 30, 2021, we had received $174.9 million in SBA forgiveness and borrower payments on 91.2% of the 1,384 PPP1 loans originated, and we had originated 488 PPP2 loans totaling $58.3 million. As of June 30, 2021, unamortized PPP origination fees were $2.9 million, resulting in $83.0 million of PPP loans, net of deferred income, or 5.2% of loans HFI.
PPP loans were implemented as a response to the COVID-19 pandemic and have characteristics that are different than the rest of our loan portfolio, including being short-term in nature (24 months or less for most PPP1 loans and 60 months or less for PPP2 loans and the additional PPP1 loans, depending on loan forgiveness timing), having a lower than market interest rate, and only being originated during specified time periods during the COVID-19 pandemic. Because of these factors, management believes that PPP-adjusted metrics provide a more accurate portrayal of certain aspects of the Company's financial condition and performance. Accordingly, we believe it is important to investors to see certain of our metrics with PPP loans excluded. The most directly comparable GAAP financial measure for PPP-adjusted metrics is total loans HFI.
The following table reconciles, as of the dates set forth below, non-PPP loans to total loans HFI and presents certain ratios using non-PPP loans:
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|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
|
|
June 30,
|
(dollars in thousands)
|
2021
|
|
2020
|
|
|
|
2020
|
Non-PPP loans HFI
|
|
|
|
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|
|
Loans HFI
|
$
|
1,600,388
|
|
|
$
|
1,588,446
|
|
|
|
|
$
|
1,615,298
|
|
Adjustments:
|
|
|
|
|
|
|
|
PPP loans, net
|
(82,972)
|
|
|
(118,447)
|
|
|
|
|
(192,655)
|
|
Non-PPP loans HFI (non-GAAP)
|
$
|
1,517,416
|
|
|
$
|
1,469,999
|
|
|
|
|
$
|
1,422,643
|
|
|
|
|
|
|
|
|
|
Assets excluding PPP loans, net
|
|
|
|
|
|
|
|
Assets
|
$
|
2,878,476
|
|
|
$
|
2,642,634
|
|
|
|
|
$
|
2,361,866
|
|
Adjustments:
|
|
|
|
|
|
|
|
PPP loans, net
|
(82,972)
|
|
|
(118,447)
|
|
|
|
|
(192,655)
|
|
Assets excluding PPP loans, net (non-GAAP)
|
$
|
2,795,504
|
|
|
$
|
2,524,187
|
|
|
|
|
$
|
2,169,211
|
|
|
|
|
|
|
|
|
|
Deposits
|
$
|
2,569,599
|
|
|
$
|
2,340,360
|
|
|
|
|
$
|
2,069,322
|
|
Allowance for loan losses
|
$
|
19,460
|
|
|
$
|
17,951
|
|
|
|
|
$
|
14,882
|
|
Nonperforming loans
|
$
|
2,027
|
|
|
$
|
3,310
|
|
|
|
|
$
|
3,442
|
|
|
|
|
|
|
|
|
|
Loans HFI to deposits ratio
|
62.28
|
%
|
|
67.87
|
%
|
|
|
|
78.06
|
%
|
Non-PPP loans HFI to deposits ratio (non-GAAP)
|
59.05
|
%
|
|
62.81
|
%
|
|
|
|
68.75
|
%
|
|
|
|
|
|
|
|
|
Allowance for loan losses to loans HFI
|
1.22
|
%
|
|
1.13
|
%
|
|
|
|
0.92
|
%
|
Allowance for loan losses to non-PPP loans HFI (non-GAAP)
|
1.28
|
%
|
|
1.22
|
%
|
|
|
|
1.05
|
%
|
|
|
|
|
|
|
|
|
Nonperforming loans to loans HFI
|
0.13
|
%
|
|
0.21
|
%
|
|
|
|
0.21
|
%
|
Nonperforming loans to non-PPP loans HFI
|
0.13
|
%
|
|
0.23
|
%
|
|
|
|
0.24
|
%
|
CRITICAL ACCOUNTING ESTIMATES
There were no material changes or developments during the reporting period with respect to methodologies that we use when developing critical accounting estimates as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.
Our consolidated financial statements are prepared in accordance with GAAP and with general practices within the financial services industry. Application of these principles requires management to make estimates and assumptions about future events that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under current circumstances. We evaluate our estimates on an ongoing basis. Use of alternative assumptions may have resulted in significantly different estimates. Actual results may differ from these estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
See "Item 1. Financial Statements – Note 1. Summary of Significant Accounting Policies – Recent Accounting Pronouncements."