NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Basis of Presentation
General
First Community Bankshares, Inc. (the “Company”), a financial holding company, was founded in 1989 and incorporated under the laws of the Commonwealth of Virginia in 2018. The Company is the successor to First Community Bancshares, Inc., a Nevada corporation, pursuant to an Agreement and Plan of Reincorporation and Merger, the sole purpose of which was to change the Company’s state of incorporation from Nevada to Virginia. The Company’s principal executive office is located at One Community Place, Bluefield, Virginia. The Company provides banking products and services to individual and commercial customers through its wholly owned subsidiary First Community Bank (the “Bank”), a Virginia-chartered banking institution founded in 1874. The Bank operates as First Community Bank in Virginia, West Virginia, and North Carolina and People’s Community Bank, a Division of First Community Bank, in Tennessee. The Bank offers wealth management and investment advice through its Trust Division and wholly owned subsidiary First Community Wealth Management (“FCWM”). Unless the context suggests otherwise, the terms “First Community,” “Company,” “we,” “our,” and “us” refer to First Community Bankshares, Inc. and its subsidiaries as a consolidated entity.
Principles of Consolidation
The Company’s accounting and reporting policies conform with U.S. generally accepted accounting principles (“GAAP”) and prevailing practices in the banking industry. The consolidated financial statements include all accounts of the Company and its wholly owned subsidiaries and eliminate all intercompany balances and transactions. The Company operates in one business segment, Community Banking, which consists of all operations, including commercial and consumer banking, lending activities, and wealth management. Operating results for interim periods are not necessarily indicative of results that may be expected for other interim periods or for the full year. In management’s opinion, the accompanying unaudited interim condensed consolidated financial statements contain all necessary adjustments, including normal recurring accruals, and disclosures for a fair presentation.
These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Form 10-K”), as filed with the Securities and Exchange Commission (the “SEC”) on March 13, 2020. The condensed consolidated balance sheet as of December 31, 2019, has been derived from the audited consolidated financial statements.
Reclassifications
Certain amounts reported in prior years have been reclassified to conform to the current year’s presentation. These reclassifications had no effect on the Company’s results of operations, financial position, or net cash flow.
Use of Estimates
Preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that require the most subjective or complex judgments relate to fair value measurements, investment securities, the allowance for loan losses, goodwill and other intangible assets, and income taxes. A discussion of the Company’s application of critical accounting estimates is included in “Critical Accounting Estimates” in Item 2 of this report.
Significant Accounting Policies
The Company’s significant accounting policies are included in Note 1, “Basis of Presentation and Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in Part II, Item 8 of the Company’s 2019 Form 10-K.
Risks and Uncertainties
Recent COVID-19 Virus Developments –
During the first half of 2020, government reaction to the novel coronavirus (“COVID-19”) pandemic significantly disrupted local, national, and global economies and adversely impacted a broad range of industries, including banking and other financial services.
Company Response to COVID-19 –
As COVID-19 events unfolded during the first half of 2020, the Company implemented various plans, strategies and protocols to protect its employees, maintain services for customers, assure the functional continuity of its operating systems, controls and processes, and mitigate financial risks posed by changing market conditions. In particular, the Company took the following actions, among others:
|
•
|
Implemented its board-approved pandemic business continuity plan
|
|
•
|
Appointed an internal pandemic preparedness task force comprised of the Company’s management to address both operational and financial risks posed by COVID-19
|
|
•
|
Modified branch operations:
|
|
o
|
Branch lobbies remain available, but on a limited appointment-only basis
|
|
o
|
Most transactions conducted via drive-throughs
|
|
o
|
Increased emphasis on digital banking platforms
|
|
•
|
Implemented physical separation of critical operational workforce for Bank and non-Bank financial services subsidiaries
|
|
•
|
Expanded paid time off and health benefits for employees
|
|
•
|
Implemented work from home strategy:
|
|
o
|
The majority of the Company’s non-branch, operational employees (approximately 60% of the Company’s back office workforce) are working remotely
|
|
o
|
Geographically separated work locations of Bank and Company CEO’s and most other executive management team members
|
|
o
|
Suspended work-related travel
|
|
•
|
Implemented a pay differential for employees continuing to work at branch or back office locations which ended May 31, 2020
|
|
•
|
Adopted self-quarantine procedures
|
|
•
|
Implemented enhanced facility cleaning protocols
|
|
•
|
Redeployed staff to critical customer service operations to expedite loan payment deferral requests, Paycheck Protection Program lending efforts, and other operations
|
Potential Effects of COVID-19 –
The adverse impact of COVID-19 to the economy has impaired the Company’s customers’ ability to fulfill their financial obligations to the Company, reducing interest income on loans or increasing loan losses. In keeping with Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus, the Company continues to work with COVID-19 affected borrowers to defer loan payments, interest, and fees. Through June 30, 2020, the Company has modified or deferred payments on a total of 3,097 loans totaling $436.11 million in principal; 1,277 commercial loans totaling $340.00 million in principal, 972 consumer installment loans totaling $12.92 million in principal, 706 consumer mortgages totaling $76.01 million in principal, and 142 home equity loans totaling $7.18 million in principal. Deferred interest and fees for these loans will continue to accrue to income under normal GAAP accounting. However, should eventual credit losses on deferred payments occur, accrued interest income and fees would be reversed, which would negatively impact interest income in future periods. At this time, the Company is unable to project the materiality of any such impact.
The general economic slowdown caused by COVID-19 in local economies in communities served by the Company has affected loan demand and consumption of financial services, generally, reducing interest income, service fees, and the demand for other profitable financial services provided by the Company.
In addition to the general impact of COVID-19, certain provisions of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act, as well as other legislative and regulatory actions may materially impact the Company. The Company is participating in the Paycheck Protection Program (“PPP”), administered by the Small Business Administration (“SBA”), in an attempt to assist its customers. Per the terms of the program, PPP loans have a two-year term, earn interest at 1%, are fully guaranteed by the SBA, and are partially or totally forgivable if administered by the borrower according to guidance provided by the SBA. The Company believes the majority of these loans have the potential to be forgiven by the SBA if administered in accordance with the terms of the program. Through June 30, 2020, the Company processed 758 loans with original principal balances totaling $60.23 million through the PPP.
COVID-19 could cause a sustained decline in the Company’s stock price or the occurrence of an event that could, under certain circumstances, create the impairment of goodwill. In the event the Company deems all or a portion of its goodwill to be impaired, the Company could record a non-cash charge to earnings for the amount of such impairment. Such a charge would have no impact on tangible or regulatory capital.
To date, the Company has identified no material, unmitigated operational or internal control challenges or risks and anticipates no significant challenges to its ability to maintain systems and controls as a result of the actions taken to prevent the spread of COVID-19. In addition, the Company currently faces no material resource constraints arising due to implementation of the business continuity plan.
It is impossible to predict the full extent to which COVID-19 and the resulting measures to prevent its spread will affect the Company’s operations. Although there is a high degree of uncertainty around the magnitude and duration of the economic impact of COVID-19, the Company’s management believes its financial position, including high levels of capital and liquidity, will allow it to successfully endure the negative economic impacts of the crisis.
Recent Accounting Standards
Standards Adopted in 2020
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement.” The amendments remove, modify, and add certain fair value disclosure requirements based on the concepts in the FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued. The update did not have a material effect on the Company’s financial statements.
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting Summary”. This ASU provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. LIBOR (London Inter-bank Offered Rate) and other interbank offered rates are widely used benchmarks or reference rates in the United States and globally. With global capital markets expected to move away from LIBOR and other inter-bank offered rates toward rates that are more observable or transaction based and less susceptible to manipulation, the FASB launched a broad project in late 2018 to address potential accounting challenges expected to arise from the transition. The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. This ASU is effective March 12, 2020 through December 31, 2022. The Company adopted this ASU on March 12, 2020. The update is not expected to have any material effect on the Company’s financial statements.
Standards Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This ASU purportedly requires earlier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. This ASU also requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. It further requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The CARES Act was passed by the United States Congress and signed into law by the President of the United States at the end of March 2020. The CARES Act states that “Notwithstanding any other provision of law, no insured depository institution, bank holding company, or any affiliate thereof shall be required to comply with the Financial Accounting Standards Board Accounting Standards Update No. 2016-13 (“Measurement of Credit Losses on Financial Instruments”), including the current expected credit losses methodology for estimating allowances for credit losses, during the period beginning on March 27, 2020 and ending on the earlier of: (1) the date on which the national emergency concerning the novel coronavirus disease (COVID-19) outbreak declared by the President on March 13, 2020 under the National Emergencies Act (50 U.S.C. 1601 et seq.) terminates; or (2) December 31, 2020. The Company has elected to “not comply with” ASU 2016-13 for the period specified in the CARES Act and any subsequent controlling legislation or regulation. In preparation for expiration of the period specified in the CARES Act, the Company has selected loss estimation methodologies for its allowance for credit losses, performed testing on the chosen methodologies, and determined a qualitative adjustment methodology that aligns with the requirements of the new standard. The Company has also subjected the model to third party validation. Based upon the aforesaid preparatory measures, upon expiration of the period specified in the CARES Act and any subsequent controlling legislation or regulation, the Company anticipates recording a cumulative-effect adjustment to retained earnings of approximately $5.61 million in connection with adoption of the new standard, consisting of tax-effected increases in the allowance for credit losses associated with the Company’s legacy loan portfolio prior to the addition of Highlands Bankshares, Inc. and the portfolio of purchased performing loans associated with Highlands of approximately $2.89 million and $4.44 million, respectively. The Company also anticipates making an approximate $7.04 million adjustment as of January 1, 2020, to the opening balance of the allowance for credit losses associated with the required gross-up of purchased credit deteriorated loans from the Highlands transaction.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes”. This ASU simplifies the accounting for income taxes by removing certain exceptions to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition for deferred tax liabilities for outside basis differences. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued. The update is not expected to have any material effect on the Company’s financial statements.
The Company does not expect other recent accounting standards issued by the FASB or other standards-setting bodies to have a material impact on the consolidated financial statements.
Note 2. Acquisitions
Highlands Bankshares, Inc.
On September 11, 2019, the Company entered into an Agreement and Plan of Merger with Highlands Bankshares, Inc. (“Highlands”) of Abingdon, Virginia. Under the terms of the agreement and plan of merger, each share of Highlands’ common and preferred stock outstanding immediately converted into the right to receive 0.2703 shares of the Company’s stock. The transaction was consummated the close of business December 31, 2019. The transaction combined two traditional Southwestern Virginia community banks who serve the Highlands region in Virginia, North Carolina, and Tennessee. The total purchase price for the transaction was $86.65 million.
The Highlands transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition date. Fair values are preliminary and subject to refinement for up to a year after the closing date of the acquisition.
|
|
As recorded by
|
|
|
Fair Value
|
|
|
|
As recorded by
|
|
(Amounts in thousands)
|
|
Highlands
|
|
|
Adjustments
|
|
|
|
the Company
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
25,879
|
|
|
$
|
-
|
|
|
|
$
|
25,879
|
|
Securities available for sale
|
|
|
53,732
|
|
|
|
-
|
|
|
|
|
53,732
|
|
Loans held for sale
|
|
|
263
|
|
|
|
-
|
|
|
|
|
263
|
|
Loans held for investment, net of allowance and mark
|
|
|
438,896
|
|
|
|
(11,429
|
)
|
( a )
|
|
|
427,467
|
|
Premises and equipment
|
|
|
16,722
|
|
|
|
(2,317
|
)
|
( b )
|
|
|
14,405
|
|
Other real estate
|
|
|
1,963
|
|
|
|
-
|
|
|
|
|
1,963
|
|
Other assets
|
|
|
25,556
|
|
|
|
2,250
|
|
( c )
|
|
|
27,806
|
|
Intangible assets
|
|
|
-
|
|
|
|
4,490
|
|
( d )
|
|
|
4,490
|
|
Total assets
|
|
$
|
563,011
|
|
|
$
|
(7,006
|
)
|
|
|
$
|
556,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing
|
|
$
|
155,714
|
|
|
$
|
-
|
|
|
|
$
|
155,714
|
|
Interest-bearing
|
|
|
346,028
|
|
|
|
1,261
|
|
( e )
|
|
|
347,289
|
|
Total deposits
|
|
|
501,742
|
|
|
|
1,261
|
|
|
|
|
503,003
|
|
Long term debt
|
|
|
40
|
|
|
|
-
|
|
|
|
|
40
|
|
Other liabilities
|
|
|
2,938
|
|
|
|
198
|
|
( f )
|
|
|
3,136
|
|
Total liabilities
|
|
|
504,720
|
|
|
|
1,459
|
|
|
|
|
506,179
|
|
Net identifiable assets acquired over (under) liabilities assumed
|
|
|
58,291
|
|
|
|
(8,465
|
)
|
|
|
|
49,826
|
|
Goodwill
|
|
|
-
|
|
|
|
36,821
|
|
|
|
|
36,821
|
|
Net assets acquired over liabilities assumed
|
|
$
|
58,291
|
|
|
$
|
28,356
|
|
|
|
$
|
86,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consideration:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Community Bankshares, Inc. common
|
|
|
|
|
|
|
|
|
|
|
|
2,792,729
|
|
Purchase price per share of the Company's common stock
|
|
|
|
|
|
|
|
|
|
|
$
|
31.02
|
|
Fair value of Company common stock issued
|
|
|
|
|
|
|
|
|
|
|
|
86,631
|
|
Cash paid for fractional shares
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
Fair Value of total consideration transferred
|
|
|
|
|
|
|
|
|
|
|
$
|
86,647
|
|
Explanation of fair value adjustments:
|
( a ) - Adjustment reflects the fair value adjustments of $(14.70) million based on the Company's evaluation of the acquired loan portfolio and excludes the allowance for loan losses ("ALLL") and deferred loan fees of $3.27 million recorded by Highlands.
|
( b ) - Adjustment reflects the fair value adjustments based on the Company's evaluation of the acquired premises and equipment.
|
( c ) - Adjustment to record the deferred tax asset related to the fair value adjustments.
|
( d ) - Adjustment reflects the recording of the core deposit intangible on the acquired deposit accounts.
|
( e ) - Adjustment reflects the fair value adjustment based on the Company's evaluation of the time deposit portfolio.
|
( f ) - Adjustment reflects the fair value adjustment for death benefits payable of $320 thousand, the fair value adjustment for lease liability of $(37) thousand and the fair value adjustment to the reserve for unfunded commitments of $(85) thousand.
|
Comparative and Pro Forma Financial Information for Acquisitions
As the merger date was the close of business, December 31, 2019, Highlands had no earnings contribution to the June 30, 2019 consolidated statement of income for the Company.
The following table discloses the impact of the merger. The table also presents certain pro forma information as if Highlands had been acquired on January 1, 2019. These results combine the historical results of Highlands in the Company’s consolidated statement of income and, while certain adjustments were made for the estimated impact of certain fair value adjustments and other acquisition-related activity, they are not indicative of what would have occurred had the acquisition taken place on January 1, 2019.
Residual merger-related costs of $1.89 million incurred by the Company during the six months ended June 30, 2020, have been excluded from the proforma information below. There were no residual merger expenses incurred for the second quarter of 2020. No adjustments have been made to the pro formas to eliminate the provision for loan losses for the quarter and year ended June 30, 2019 of Highlands in the amounts of $836,000 and $939,000, respectively. The Company expects to achieve further operating cost savings and other business synergies as a result of the acquisitions which are not reflected in the pro forma amounts below:
|
|
ProForma
|
|
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
(Dollars in thousands)
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Total revenues (net interest income plus noninterest income)
|
|
$
|
33,252
|
|
|
$
|
37,753
|
|
|
$
|
68,483
|
|
|
$
|
74,987
|
|
Net adjusted income available to the common shareholder
|
|
$
|
8,240
|
|
|
$
|
10,943
|
|
|
$
|
17,600
|
|
|
$
|
22,299
|
|
Note 3. Debt Securities
The following tables present the amortized cost and fair value of available-for-sale debt securities, including gross unrealized gains and losses, as of the dates indicated:
|
|
|
June 30, 2020
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency securities
|
|
$
|
597
|
|
|
$
|
-
|
|
|
$
|
(4
|
)
|
|
$
|
593
|
|
Municipal securities
|
|
|
61,722
|
|
|
|
769
|
|
|
|
-
|
|
|
|
62,491
|
|
Mortgage-backed Agency securities
|
|
|
34,195
|
|
|
|
1,088
|
|
|
|
-
|
|
|
|
35,283
|
|
Total
|
|
$
|
96,514
|
|
|
$
|
1,857
|
|
|
$
|
(4
|
)
|
|
$
|
98,367
|
|
|
|
|
December 31, 2019
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency securities
|
|
$
|
5,038
|
|
|
$
|
-
|
|
|
$
|
(4
|
)
|
|
$
|
5,034
|
|
Municipal securities
|
|
|
85,992
|
|
|
|
886
|
|
|
|
-
|
|
|
|
86,878
|
|
Mortgage-backed Agency securities
|
|
|
77,448
|
|
|
|
380
|
|
|
|
(166
|
)
|
|
|
77,662
|
|
Total
|
|
$
|
168,478
|
|
|
$
|
1,266
|
|
|
$
|
(170
|
)
|
|
$
|
169,574
|
|
The following table presents the amortized cost and aggregate fair value of available-for-sale debt securities by contractual maturity, as of the date indicated. Actual maturities could differ from contractual maturities because issuers may have the right to call or prepay obligations with or without penalties.
|
|
June 30, 2020
|
|
|
|
Amortized
|
|
|
|
|
|
(Amounts in thousands)
|
|
Cost
|
|
|
Fair Value
|
|
Available-for-sale debt securities
|
|
|
|
|
|
|
|
|
Due within one year
|
|
$
|
-
|
|
|
$
|
-
|
|
Due after one year but within five years
|
|
|
31,290
|
|
|
|
31,609
|
|
Due after five years but within ten years
|
|
|
31,029
|
|
|
|
31,475
|
|
Due after ten years
|
|
|
-
|
|
|
|
-
|
|
|
|
|
62,319
|
|
|
|
63,084
|
|
Mortgage-backed securities
|
|
|
34,195
|
|
|
|
35,283
|
|
Total debt securities available for sale
|
|
$
|
96,514
|
|
|
$
|
98,367
|
|
The following tables present the fair values and unrealized losses for available-for-sale debt securities in a continuous unrealized loss position for less than 12 months and for 12 months or longer as of the dates indicated:
|
|
June 30, 2020
|
|
|
|
Less than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency securities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
586
|
|
|
$
|
(4
|
)
|
|
$
|
586
|
|
|
$
|
(4
|
)
|
Mortgage-backed Agency securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
586
|
|
|
$
|
(4
|
)
|
|
$
|
586
|
|
|
$
|
(4
|
)
|
|
|
December 31, 2019
|
|
|
|
Less than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency securities
|
|
$
|
975
|
|
|
$
|
(4
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
975
|
|
|
$
|
(4
|
)
|
Mortgage-backed Agency securities
|
|
|
8,020
|
|
|
|
(48
|
)
|
|
|
8,319
|
|
|
|
(118
|
)
|
|
|
16,339
|
|
|
|
(166
|
)
|
Total
|
|
$
|
8,995
|
|
|
$
|
(52
|
)
|
|
$
|
8,319
|
|
|
$
|
(118
|
)
|
|
$
|
17,314
|
|
|
$
|
(170
|
)
|
There was 1 individual debt security in an unrealized loss position as of June 30, 2020, and the depreciation in value was insignificant in relation to value of the debt securities portfolio. There were 17 individual debt securities in an unrealized loss position as of December 31, 2019, and their combined depreciation in value represented 0.10% of the debt securities portfolio.
The Company reviews its investment portfolio quarterly for indications of other-than-temporary impairment (“OTTI”). The initial indicator of OTTI for debt securities is a decline in fair value below book value and the severity and duration of the decline. The credit-related OTTI is recognized as a charge to noninterest income and the noncredit-related OTTI is recognized in other comprehensive income (“OCI”). During the six months ended June 30, 2020 and 2019, the Company incurred no OTTI charges on debt securities. Temporary impairment on debt securities is primarily related to changes in benchmark interest rates, changes in pricing in the credit markets, and other current economic factors.
The following table presents gross realized gains and losses from the sale of available-for-sale debt securities for the periods indicated:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross realized gains
|
|
$
|
-
|
|
|
$
|
67
|
|
|
$
|
419
|
|
|
$
|
67
|
|
Gross realized losses
|
|
|
-
|
|
|
|
(110
|
)
|
|
|
(34
|
)
|
|
|
(110
|
)
|
Net loss on sale of securities
|
|
$
|
-
|
|
|
$
|
(43
|
)
|
|
$
|
385
|
|
|
$
|
(43
|
)
|
The carrying amount of securities pledged for various purposes totaled $33.04 million as of June 30, 2020, and $27.87 million as of December 31, 2019.
Note 4. Loans
The Company groups loans held for investment into three segments (commercial loans, consumer real estate loans, and consumer and other loans) with each segment divided into various classes. Covered loans are those loans acquired in Federal Deposit Insurance Corporation (“FDIC”) assisted transactions that are covered by loss share agreements. Customer overdrafts reclassified as loans totaled $1.41 million as of June 30, 2020, and $2.20 million as of December 31, 2019. Deferred loan fees, net of loan costs, totaled $6.04 million as of June 30, 2020, and $4.60 million as of December 31, 2019. For information about off-balance sheet financing, see Note 15, “Litigation, Commitments, and Contingencies,” to the Condensed Consolidated Financial Statements of this report.
The following table presents loans, net of unearned income, within the non-covered portfolio by loan class, as of the dates indicated:
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
(Amounts in thousands)
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
Non-covered loans held for investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, development, and other land
|
|
$
|
52,585
|
|
|
|
2.46
|
%
|
|
$
|
48,659
|
|
|
|
2.30
|
%
|
Commercial and industrial
|
|
|
184,298
|
|
|
|
8.62
|
%
|
|
|
142,962
|
|
|
|
6.76
|
%
|
Multi-family residential
|
|
|
105,768
|
|
|
|
4.95
|
%
|
|
|
121,840
|
|
|
|
5.76
|
%
|
Single family non-owner occupied
|
|
|
188,389
|
|
|
|
8.82
|
%
|
|
|
163,181
|
|
|
|
7.72
|
%
|
Non-farm, non-residential
|
|
|
723,100
|
|
|
|
33.84
|
%
|
|
|
727,261
|
|
|
|
34.39
|
%
|
Agricultural
|
|
|
10,407
|
|
|
|
0.49
|
%
|
|
|
11,756
|
|
|
|
0.56
|
%
|
Farmland
|
|
|
23,662
|
|
|
|
1.11
|
%
|
|
|
23,155
|
|
|
|
1.10
|
%
|
Total commercial loans
|
|
|
1,288,209
|
|
|
|
60.29
|
%
|
|
|
1,238,814
|
|
|
|
58.59
|
%
|
Consumer real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
99,566
|
|
|
|
4.66
|
%
|
|
|
110,078
|
|
|
|
5.21
|
%
|
Single family owner occupied
|
|
|
603,446
|
|
|
|
28.24
|
%
|
|
|
620,697
|
|
|
|
29.35
|
%
|
Owner occupied construction
|
|
|
15,311
|
|
|
|
0.72
|
%
|
|
|
17,241
|
|
|
|
0.82
|
%
|
Total consumer real estate loans
|
|
|
718,323
|
|
|
|
33.62
|
%
|
|
|
748,016
|
|
|
|
35.38
|
%
|
Consumer and other loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans
|
|
|
114,551
|
|
|
|
5.36
|
%
|
|
|
110,027
|
|
|
|
5.20
|
%
|
Other
|
|
|
4,477
|
|
|
|
0.21
|
%
|
|
|
4,742
|
|
|
|
0.22
|
%
|
Total consumer and other loans
|
|
|
119,028
|
|
|
|
5.57
|
%
|
|
|
114,769
|
|
|
|
5.42
|
%
|
Total non-covered loans
|
|
|
2,125,560
|
|
|
|
99.48
|
%
|
|
|
2,101,599
|
|
|
|
99.39
|
%
|
Total covered loans
|
|
|
11,257
|
|
|
|
0.52
|
%
|
|
|
12,861
|
|
|
|
0.61
|
%
|
Total loans held for investment, net of unearned income
|
|
$
|
2,136,817
|
|
|
|
100.00
|
%
|
|
$
|
2,114,460
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale
|
|
$
|
-
|
|
|
|
|
|
|
$
|
263
|
|
|
|
|
|
Commercial and industrial loan balances grew significantly compared to December 31, 2019. The Company began participating as a Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) lender during the second quarter of 2020. At June 30, 2020, the PPP loans had a current balance of $60.23 million, and were included in commercial and industrial loan balances. Deferred loan origination fees related to the PPP loans, net of deferred loan origination costs, which totaled $2.26 million at June 30, 2020, were also recorded. During the second quarter of 2020, the Company recorded amortization of net deferred loan origination fees of $192 thousand on PPP loans. The remaining net deferred loan origination fees will be amortized over the expected life of the respective loans, or until forgiven by the SBA, and will be recognized in net interest income.
The following table presents the covered loan portfolio, by loan class, as of the dates indicated:
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
Covered loans
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
|
|
|
|
|
|
|
Construction, development, and other land
|
|
$
|
27
|
|
|
$
|
28
|
|
Single family non-owner occupied
|
|
|
191
|
|
|
|
199
|
|
Non-farm, non-residential
|
|
|
1
|
|
|
|
3
|
|
Total commercial loans
|
|
|
219
|
|
|
|
230
|
|
Consumer real estate loans
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
8,512
|
|
|
|
9,853
|
|
Single family owner occupied
|
|
|
2,526
|
|
|
|
2,778
|
|
Total consumer real estate loans
|
|
|
11,038
|
|
|
|
12,631
|
|
Total covered loans
|
|
$
|
11,257
|
|
|
$
|
12,861
|
|
The Company identifies certain purchased loans as impaired when fair values are established at acquisition and groups those purchased credit impaired (“PCI”) loans into loan pools with common risk characteristics. The Company estimates cash flows to be collected on PCI loans and discounts those cash flows at a market rate of interest. Effective January 1, 2020, the Company consolidated the insignificant PCI loans and discounts for Peoples, Waccamaw, and other acquired loans into the core loan portfolio. The only remaining PCI pools are those loans acquired in the Highlands acquisition on December 31, 2019.
The following table presents the recorded investment and contractual unpaid principal balance of PCI loans, by acquisition, as of the dates indicated:
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
(Amounts in thousands)
|
|
Recorded Investment
|
|
|
Unpaid Principal
Balance
|
|
|
Recorded Investment
|
|
|
Unpaid Principal
Balance
|
|
PCI Loans, by acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peoples
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,071
|
|
|
$
|
6,431
|
|
Waccamaw
|
|
|
-
|
|
|
|
-
|
|
|
|
2,708
|
|
|
|
14,277
|
|
Highlands
|
|
|
48,193
|
|
|
|
58,181
|
|
|
|
53,116
|
|
|
|
64,096
|
|
Other acquired
|
|
|
-
|
|
|
|
-
|
|
|
|
352
|
|
|
|
378
|
|
Total PCI Loans
|
|
$
|
48,193
|
|
|
$
|
58,181
|
|
|
$
|
61,247
|
|
|
$
|
85,182
|
|
The following table presents the changes in the accretable yield on PCI loans, by acquisition, during the periods indicated:
|
|
Peoples
|
|
|
Waccamaw
|
|
|
Highlands
|
|
|
Total
|
|
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 1, 2019
|
|
$
|
2,590
|
|
|
$
|
14,639
|
|
|
$
|
-
|
|
|
$
|
17,229
|
|
Accretion
|
|
|
(503
|
)
|
|
|
(2,151
|
)
|
|
|
-
|
|
|
|
(2,654
|
)
|
Reclassifications (to) from nonaccretable difference(1)
|
|
|
11
|
|
|
|
851
|
|
|
|
-
|
|
|
|
862
|
|
Other changes, net
|
|
|
111
|
|
|
|
341
|
|
|
|
-
|
|
|
|
452
|
|
Balance June 30, 2019
|
|
$
|
2,209
|
|
|
$
|
13,680
|
|
|
$
|
-
|
|
|
$
|
15,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 1, 2020
|
|
$
|
1,890
|
|
|
$
|
12,574
|
|
|
$
|
8,152
|
|
|
$
|
22,616
|
|
Accretion
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,334
|
)
|
|
|
(1,334
|
)
|
Reclassifications from nonaccretable difference(1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other changes, net
|
|
|
(1,890
|
)
|
|
|
(12,574
|
)
|
|
|
-
|
|
|
|
(14,464
|
)
|
Balance June 30, 2020
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,818
|
|
|
$
|
6,818
|
|
(1) Represents changes attributable to expected loss assumptions
|
Note 5. Credit Quality
The Company uses a risk grading matrix to assign a risk grade to each loan in its portfolio. Loan risk ratings may be upgraded or downgraded to reflect current information identified during the loan review process. The general characteristics of each risk grade are as follows:
|
●
|
Pass -- This grade is assigned to loans with acceptable credit quality and risk. The Company further segments this grade based on borrower characteristics that include capital strength, earnings stability, liquidity, leverage, and industry conditions.
|
|
●
|
Special Mention -- This grade is assigned to loans that require an above average degree of supervision and attention. These loans have the characteristics of an asset with acceptable credit quality and risk; however, adverse economic or financial conditions exist that create potential weaknesses deserving of management’s close attention. If potential weaknesses are not corrected, the prospect of repayment may worsen.
|
|
●
|
Substandard -- This grade is assigned to loans that have well defined weaknesses that may make payment default, or principal exposure, possible. These loans will likely be dependent on collateral liquidation, secondary repayment sources, or events outside the normal course of business to meet repayment terms.
|
|
●
|
Doubtful -- This grade is assigned to loans that have the weaknesses inherent in substandard loans; however, the weaknesses are so severe that collection or liquidation in full is unlikely based on current facts, conditions, and values. Due to certain specific pending factors, the amount of loss cannot yet be determined.
|
|
●
|
Loss -- This grade is assigned to loans that will be charged off or charged down when payments, including the timing and value of payments, are uncertain. This risk grade does not imply that the asset has no recovery or salvage value, but simply means that it is not practical or desirable to defer writing off, either all or a portion of, the loan balance even though partial recovery may be realized in the future.
|
The following tables present the recorded investment of the loan portfolio, by loan class and credit quality, as of the dates indicated. Losses on covered loans are generally reimbursable by the FDIC at the applicable loss share percentage, 80%; therefore, covered loans are disclosed separately.
|
|
June 30, 2020
|
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
Pass
|
|
|
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Loss
|
|
|
Total
|
|
Non-covered loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, development, and other land
|
|
$
|
35,181
|
|
|
$
|
14,669
|
|
|
$
|
2,735
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
52,585
|
|
Commercial and industrial
|
|
|
153,507
|
|
|
|
22,852
|
|
|
|
7,939
|
|
|
|
-
|
|
|
|
-
|
|
|
|
184,298
|
|
Multi-family residential
|
|
|
80,539
|
|
|
|
21,771
|
|
|
|
3,458
|
|
|
|
-
|
|
|
|
-
|
|
|
|
105,768
|
|
Single family non-owner occupied
|
|
|
138,578
|
|
|
|
35,590
|
|
|
|
14,207
|
|
|
|
14
|
|
|
|
-
|
|
|
|
188,389
|
|
Non-farm, non-residential
|
|
|
474,297
|
|
|
|
207,483
|
|
|
|
41,320
|
|
|
|
-
|
|
|
|
-
|
|
|
|
723,100
|
|
Agricultural
|
|
|
6,650
|
|
|
|
3,443
|
|
|
|
314
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,407
|
|
Farmland
|
|
|
12,933
|
|
|
|
5,452
|
|
|
|
5,277
|
|
|
|
-
|
|
|
|
-
|
|
|
|
23,662
|
|
Consumer real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
94,694
|
|
|
|
1,397
|
|
|
|
3,475
|
|
|
|
-
|
|
|
|
-
|
|
|
|
99,566
|
|
Single family owner occupied
|
|
|
565,016
|
|
|
|
3,245
|
|
|
|
35,185
|
|
|
|
-
|
|
|
|
-
|
|
|
|
603,446
|
|
Owner occupied construction
|
|
|
14,498
|
|
|
|
202
|
|
|
|
611
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,311
|
|
Consumer and other loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans
|
|
|
112,537
|
|
|
|
109
|
|
|
|
1,905
|
|
|
|
-
|
|
|
|
-
|
|
|
|
114,551
|
|
Other
|
|
|
4,477
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,477
|
|
Total non-covered loans
|
|
|
1,692,907
|
|
|
|
316,213
|
|
|
|
116,426
|
|
|
|
14
|
|
|
|
-
|
|
|
|
2,125,560
|
|
Covered loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, development, and other land
|
|
|
-
|
|
|
|
27
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
27
|
|
Single family non-owner occupied
|
|
|
191
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
191
|
|
Non-farm, non-residential
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
Consumer real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
7,803
|
|
|
|
379
|
|
|
|
330
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,512
|
|
Single family owner occupied
|
|
|
1,890
|
|
|
|
272
|
|
|
|
364
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,526
|
|
Total covered loans
|
|
|
9,884
|
|
|
|
678
|
|
|
|
695
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,257
|
|
Total loans
|
|
$
|
1,702,791
|
|
|
$
|
316,891
|
|
|
$
|
117,121
|
|
|
$
|
14
|
|
|
$
|
-
|
|
|
$
|
2,136,817
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
Pass
|
|
|
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Loss
|
|
|
Total
|
|
Non-covered loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, development, and other land
|
|
$
|
45,781
|
|
|
$
|
2,079
|
|
|
$
|
799
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
48,659
|
|
Commercial and industrial
|
|
|
135,651
|
|
|
|
4,327
|
|
|
|
2,984
|
|
|
|
-
|
|
|
|
-
|
|
|
|
142,962
|
|
Multi-family residential
|
|
|
118,045
|
|
|
|
2,468
|
|
|
|
1,327
|
|
|
|
-
|
|
|
|
-
|
|
|
|
121,840
|
|
Single family non-owner occupied
|
|
|
149,916
|
|
|
|
7,489
|
|
|
|
5,776
|
|
|
|
-
|
|
|
|
-
|
|
|
|
163,181
|
|
Non-farm, non-residential
|
|
|
683,481
|
|
|
|
27,160
|
|
|
|
16,620
|
|
|
|
-
|
|
|
|
-
|
|
|
|
727,261
|
|
Agricultural
|
|
|
11,299
|
|
|
|
122
|
|
|
|
335
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,756
|
|
Farmland
|
|
|
17,609
|
|
|
|
4,107
|
|
|
|
1,439
|
|
|
|
-
|
|
|
|
-
|
|
|
|
23,155
|
|
Consumer real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
106,246
|
|
|
|
2,014
|
|
|
|
1,818
|
|
|
|
-
|
|
|
|
-
|
|
|
|
110,078
|
|
Single family owner occupied
|
|
|
580,580
|
|
|
|
17,001
|
|
|
|
23,116
|
|
|
|
-
|
|
|
|
-
|
|
|
|
620,697
|
|
Owner occupied construction
|
|
|
16,341
|
|
|
|
179
|
|
|
|
721
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17,241
|
|
Consumer and other loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans
|
|
|
108,065
|
|
|
|
1,341
|
|
|
|
621
|
|
|
|
-
|
|
|
|
-
|
|
|
|
110,027
|
|
Other
|
|
|
4,742
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,742
|
|
Total non-covered loans
|
|
|
1,977,756
|
|
|
|
68,287
|
|
|
|
55,556
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,101,599
|
|
Covered loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, development, and other land
|
|
|
-
|
|
|
|
28
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
28
|
|
Single family non-owner occupied
|
|
|
199
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
199
|
|
Non-farm, non-residential
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
Consumer real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
7,177
|
|
|
|
2,327
|
|
|
|
349
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,853
|
|
Single family owner occupied
|
|
|
2,111
|
|
|
|
275
|
|
|
|
392
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,778
|
|
Total covered loans
|
|
|
9,487
|
|
|
|
2,630
|
|
|
|
744
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,861
|
|
Total loans
|
|
$
|
1,987,243
|
|
|
$
|
70,917
|
|
|
$
|
56,300
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,114,460
|
|
The Company identifies loans for potential impairment through a variety of means, including, but not limited to, ongoing loan review, renewal processes, delinquency data, market communications, and public information. If the Company determines that it is probable all principal and interest amounts contractually due will not be collected, the loan is generally deemed impaired.
The following table presents the recorded investment, unpaid principal balance, and related allowance for loan losses for impaired loans, excluding PCI loans, as of the dates indicated:
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
Unpaid
|
|
|
|
|
|
|
|
|
|
|
Unpaid
|
|
|
|
|
|
|
|
Recorded
|
|
|
Principal
|
|
|
Related
|
|
|
Recorded
|
|
|
Principal
|
|
|
Related
|
|
(Amounts in thousands)
|
|
Investment
|
|
|
Balance
|
|
|
Allowance
|
|
|
Investment
|
|
|
Balance
|
|
|
Allowance
|
|
Impaired loans with no related allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, development, and other land
|
|
$
|
877
|
|
|
$
|
1,101
|
|
|
$
|
-
|
|
|
$
|
552
|
|
|
$
|
768
|
|
|
$
|
-
|
|
Commercial and industrial
|
|
|
2,890
|
|
|
|
3,458
|
|
|
|
-
|
|
|
|
576
|
|
|
|
599
|
|
|
|
-
|
|
Multi-family residential
|
|
|
341
|
|
|
|
772
|
|
|
|
-
|
|
|
|
1,254
|
|
|
|
1,661
|
|
|
|
-
|
|
Single family non-owner occupied
|
|
|
5,027
|
|
|
|
5,760
|
|
|
|
-
|
|
|
|
2,652
|
|
|
|
3,176
|
|
|
|
-
|
|
Non-farm, non-residential
|
|
|
7,659
|
|
|
|
9,433
|
|
|
|
-
|
|
|
|
4,158
|
|
|
|
4,762
|
|
|
|
-
|
|
Agricultural
|
|
|
261
|
|
|
|
265
|
|
|
|
-
|
|
|
|
158
|
|
|
|
164
|
|
|
|
-
|
|
Farmland
|
|
|
1,815
|
|
|
|
1,907
|
|
|
|
-
|
|
|
|
1,437
|
|
|
|
1,500
|
|
|
|
-
|
|
Consumer real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
1,604
|
|
|
|
1,756
|
|
|
|
-
|
|
|
|
1,372
|
|
|
|
1,477
|
|
|
|
-
|
|
Single family owner occupied
|
|
|
16,717
|
|
|
|
19,858
|
|
|
|
-
|
|
|
|
15,588
|
|
|
|
17,835
|
|
|
|
-
|
|
Owner occupied construction
|
|
|
540
|
|
|
|
548
|
|
|
|
-
|
|
|
|
648
|
|
|
|
648
|
|
|
|
-
|
|
Consumer and other loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans
|
|
|
500
|
|
|
|
507
|
|
|
|
-
|
|
|
|
290
|
|
|
|
294
|
|
|
|
-
|
|
Total impaired loans with no allowance
|
|
|
38,231
|
|
|
|
45,365
|
|
|
|
-
|
|
|
|
28,685
|
|
|
|
32,884
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans with a related allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Multi-family residential
|
|
|
944
|
|
|
|
1,277
|
|
|
|
279
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Single family non-owner occupied
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Non-farm, non-residential
|
|
|
1,798
|
|
|
|
1,982
|
|
|
|
684
|
|
|
|
1,241
|
|
|
|
1,227
|
|
|
|
292
|
|
Farmland
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Consumer real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Single family owner occupied
|
|
|
1,769
|
|
|
|
1,869
|
|
|
|
370
|
|
|
|
1,246
|
|
|
|
1,246
|
|
|
|
353
|
|
Consumer and other loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total impaired loans with an allowance
|
|
|
4,511
|
|
|
|
5,128
|
|
|
|
1,333
|
|
|
|
2,487
|
|
|
|
2,473
|
|
|
|
645
|
|
Total impaired loans(1)
|
|
$
|
42,742
|
|
|
$
|
50,493
|
|
|
$
|
1,333
|
|
|
$
|
31,172
|
|
|
$
|
35,357
|
|
|
$
|
645
|
|
(1)
|
Total impaired loans include loans totaling $33.59 million as of June 30, 2020, and $24.64 million as of December 31, 2019, that do not meet the Company's evaluation threshold for individual impairment and are therefore collectively evaluated for impairment.
|
The following table presents the average recorded investment and interest income recognized on impaired loans, excluding PCI loans, for the periods indicated:
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
(Amounts in thousands)
|
|
Interest Income Recognized
|
|
|
Average
Recorded
Investment
|
|
|
Interest Income Recognized
|
|
|
Average
Recorded
Investment
|
|
|
Interest Income Recognized
|
|
|
Average
Recorded
Investment
|
|
|
Interest Income Recognized
|
|
|
Average
Recorded
Investment
|
|
Impaired loans with no related allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, development, and other land
|
|
$
|
7
|
|
|
$
|
882
|
|
|
$
|
5
|
|
|
$
|
790
|
|
|
$
|
15
|
|
|
$
|
1,091
|
|
|
$
|
12
|
|
|
$
|
795
|
|
Commercial and industrial
|
|
|
60
|
|
|
|
3,191
|
|
|
|
2
|
|
|
|
149
|
|
|
|
89
|
|
|
|
2,610
|
|
|
|
5
|
|
|
|
383
|
|
Multi-family residential
|
|
|
18
|
|
|
|
417
|
|
|
|
7
|
|
|
|
1,269
|
|
|
|
29
|
|
|
|
544
|
|
|
|
16
|
|
|
|
1,444
|
|
Single family non-owner occupied
|
|
|
37
|
|
|
|
5,203
|
|
|
|
28
|
|
|
|
3,237
|
|
|
|
72
|
|
|
|
4,652
|
|
|
|
56
|
|
|
|
3,116
|
|
Non-farm, non-residential
|
|
|
84
|
|
|
|
8,886
|
|
|
|
47
|
|
|
|
5,230
|
|
|
|
127
|
|
|
|
6,780
|
|
|
|
64
|
|
|
|
4,953
|
|
Agricultural
|
|
|
2
|
|
|
|
264
|
|
|
|
-
|
|
|
|
48
|
|
|
|
3
|
|
|
|
235
|
|
|
|
2
|
|
|
|
51
|
|
Farmland
|
|
|
15
|
|
|
|
1,835
|
|
|
|
10
|
|
|
|
1,438
|
|
|
|
36
|
|
|
|
1,698
|
|
|
|
26
|
|
|
|
1,444
|
|
Consumer real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
7
|
|
|
|
1,652
|
|
|
|
7
|
|
|
|
1,484
|
|
|
|
16
|
|
|
|
1,560
|
|
|
|
14
|
|
|
|
1,446
|
|
Single family owner occupied
|
|
|
122
|
|
|
|
17,251
|
|
|
|
154
|
|
|
|
15,838
|
|
|
|
290
|
|
|
|
17,401
|
|
|
|
278
|
|
|
|
15,889
|
|
Owner occupied construction
|
|
|
4
|
|
|
|
534
|
|
|
|
2
|
|
|
|
223
|
|
|
|
10
|
|
|
|
434
|
|
|
|
4
|
|
|
|
222
|
|
Consumer and other loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans
|
|
|
7
|
|
|
|
507
|
|
|
|
3
|
|
|
|
137
|
|
|
|
11
|
|
|
|
455
|
|
|
|
4
|
|
|
|
121
|
|
Total impaired loans with no related allowance
|
|
|
363
|
|
|
|
40,622
|
|
|
|
265
|
|
|
|
29,843
|
|
|
|
698
|
|
|
|
37,460
|
|
|
|
481
|
|
|
|
29,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans with a related allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, development, and other land
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial and industrial
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Multi-family residential
|
|
|
-
|
|
|
|
944
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
943
|
|
|
|
-
|
|
|
|
-
|
|
Single family non-owner occupied
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Non-farm, non-residential
|
|
|
14
|
|
|
|
1,884
|
|
|
|
8
|
|
|
|
553
|
|
|
|
14
|
|
|
|
1,611
|
|
|
|
8
|
|
|
|
277
|
|
Farmland
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Consumer real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Single family owner occupied
|
|
|
11
|
|
|
|
1,777
|
|
|
|
36
|
|
|
|
2,987
|
|
|
|
24
|
|
|
|
1,508
|
|
|
|
65
|
|
|
|
2,639
|
|
Owner occupied construction
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total impaired loans with a related allowance
|
|
|
25
|
|
|
|
4,605
|
|
|
|
44
|
|
|
|
3,540
|
|
|
|
38
|
|
|
|
4,062
|
|
|
|
73
|
|
|
|
2,916
|
|
Total impaired loans
|
|
$
|
388
|
|
|
$
|
45,227
|
|
|
$
|
309
|
|
|
$
|
33,383
|
|
|
$
|
736
|
|
|
$
|
41,522
|
|
|
$
|
554
|
|
|
$
|
32,780
|
|
The Company generally places a loan on nonaccrual status when it is 90 days or more past due. PCI loans are generally not classified as nonaccrual due to the accrual of interest income under the accretion method of accounting. The following table presents nonaccrual loans, by loan class, as of the dates indicated:
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
(Amounts in thousands)
|
|
Non-covered
|
|
|
Covered
|
|
|
Total
|
|
|
Non-covered
|
|
|
Covered
|
|
|
Total
|
|
Commercial loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, development, and other land
|
|
$
|
540
|
|
|
$
|
-
|
|
|
$
|
540
|
|
|
$
|
211
|
|
|
$
|
-
|
|
|
$
|
211
|
|
Commercial and industrial
|
|
|
1,379
|
|
|
|
-
|
|
|
|
1,379
|
|
|
|
530
|
|
|
|
-
|
|
|
|
530
|
|
Multi-family residential
|
|
|
1,205
|
|
|
|
-
|
|
|
|
1,205
|
|
|
|
1,144
|
|
|
|
-
|
|
|
|
1,144
|
|
Single family non-owner occupied
|
|
|
3,071
|
|
|
|
-
|
|
|
|
3,071
|
|
|
|
1,286
|
|
|
|
-
|
|
|
|
1,286
|
|
Non-farm, non-residential
|
|
|
6,556
|
|
|
|
-
|
|
|
|
6,556
|
|
|
|
3,400
|
|
|
|
-
|
|
|
|
3,400
|
|
Agricultural
|
|
|
262
|
|
|
|
-
|
|
|
|
262
|
|
|
|
158
|
|
|
|
-
|
|
|
|
158
|
|
Farmland
|
|
|
1,106
|
|
|
|
-
|
|
|
|
1,106
|
|
|
|
713
|
|
|
|
-
|
|
|
|
713
|
|
Consumer real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
1,069
|
|
|
|
278
|
|
|
|
1,347
|
|
|
|
753
|
|
|
|
220
|
|
|
|
973
|
|
Single family owner occupied
|
|
|
8,521
|
|
|
|
21
|
|
|
|
8,542
|
|
|
|
7,259
|
|
|
|
24
|
|
|
|
7,283
|
|
Owner occupied construction
|
|
|
321
|
|
|
|
-
|
|
|
|
321
|
|
|
|
428
|
|
|
|
-
|
|
|
|
428
|
|
Consumer and other loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans
|
|
|
441
|
|
|
|
-
|
|
|
|
441
|
|
|
|
231
|
|
|
|
-
|
|
|
|
231
|
|
Total nonaccrual loans
|
|
$
|
24,471
|
|
|
$
|
299
|
|
|
$
|
24,770
|
|
|
$
|
16,113
|
|
|
$
|
244
|
|
|
$
|
16,357
|
|
The following tables present the aging of past due loans, by loan class, as of the dates indicated. Nonaccrual loans 30 days or more past due are included in the applicable delinquency category. Loans acquired with credit deterioration, with a discount, continue to accrue interest based on expected cash flows; therefore, PCI loans are not generally considered nonaccrual. Non-covered accruing loans contractually past due 90 days or more totaled $284 thousand as of June 30, 2020, compared to $144 thousand as of December 31, 2019.
|
|
June 30, 2020
|
|
|
|
30 - 59 Days
|
|
|
60 - 89 Days
|
|
|
90+ Days
|
|
|
Total
|
|
|
Current
|
|
|
Total
|
|
(Amounts in thousands)
|
|
Past Due
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Loans
|
|
|
Loans
|
|
Non-covered loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, development, and other land
|
|
$
|
-
|
|
|
$
|
82
|
|
|
$
|
438
|
|
|
$
|
520
|
|
|
$
|
52,065
|
|
|
$
|
52,585
|
|
Commercial and industrial
|
|
|
411
|
|
|
|
1,525
|
|
|
|
387
|
|
|
|
2,323
|
|
|
|
181,975
|
|
|
|
184,298
|
|
Multi-family residential
|
|
|
961
|
|
|
|
595
|
|
|
|
944
|
|
|
|
2,500
|
|
|
|
103,268
|
|
|
|
105,768
|
|
Single family non-owner occupied
|
|
|
976
|
|
|
|
1,114
|
|
|
|
2,315
|
|
|
|
4,405
|
|
|
|
183,984
|
|
|
|
188,389
|
|
Non-farm, non-residential
|
|
|
1,853
|
|
|
|
902
|
|
|
|
4,918
|
|
|
|
7,673
|
|
|
|
715,427
|
|
|
|
723,100
|
|
Agricultural
|
|
|
222
|
|
|
|
13
|
|
|
|
45
|
|
|
|
280
|
|
|
|
10,127
|
|
|
|
10,407
|
|
Farmland
|
|
|
14
|
|
|
|
99
|
|
|
|
1,025
|
|
|
|
1,138
|
|
|
|
22,524
|
|
|
|
23,662
|
|
Consumer real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
294
|
|
|
|
143
|
|
|
|
597
|
|
|
|
1,034
|
|
|
|
98,532
|
|
|
|
99,566
|
|
Single family owner occupied
|
|
|
3,181
|
|
|
|
982
|
|
|
|
3,613
|
|
|
|
7,776
|
|
|
|
595,670
|
|
|
|
603,446
|
|
Owner occupied construction
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,311
|
|
|
|
15,311
|
|
Consumer and other loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans
|
|
|
848
|
|
|
|
105
|
|
|
|
240
|
|
|
|
1,193
|
|
|
|
113,358
|
|
|
|
114,551
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,477
|
|
|
|
4,477
|
|
Total non-covered loans
|
|
|
8,760
|
|
|
|
5,560
|
|
|
|
14,522
|
|
|
|
28,842
|
|
|
|
2,096,718
|
|
|
|
2,125,560
|
|
Covered loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, development, and other land
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
27
|
|
|
|
27
|
|
Single family non-owner occupied
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
191
|
|
|
|
191
|
|
Non-farm, non-residential
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
1
|
|
Consumer real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
62
|
|
|
|
113
|
|
|
|
114
|
|
|
|
289
|
|
|
|
8,223
|
|
|
|
8,512
|
|
Single family owner occupied
|
|
|
21
|
|
|
|
-
|
|
|
|
-
|
|
|
|
21
|
|
|
|
2,505
|
|
|
|
2,526
|
|
Total covered loans
|
|
|
83
|
|
|
|
113
|
|
|
|
114
|
|
|
|
310
|
|
|
|
10,947
|
|
|
|
11,257
|
|
Total loans
|
|
$
|
8,843
|
|
|
$
|
5,673
|
|
|
$
|
14,636
|
|
|
$
|
29,152
|
|
|
$
|
2,107,665
|
|
|
$
|
2,136,817
|
|
|
|
December 31, 2019
|
|
|
|
30 - 59 Days
|
|
|
60 - 89 Days
|
|
|
90+ Days
|
|
|
Total
|
|
|
Current
|
|
|
Total
|
|
(Amounts in thousands)
|
|
Past Due
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Loans
|
|
|
Loans
|
|
Non-covered loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, development, and other land
|
|
$
|
63
|
|
|
$
|
65
|
|
|
$
|
211
|
|
|
$
|
339
|
|
|
$
|
48,320
|
|
|
$
|
48,659
|
|
Commercial and industrial
|
|
|
1,913
|
|
|
|
238
|
|
|
|
507
|
|
|
|
2,658
|
|
|
|
140,304
|
|
|
|
142,962
|
|
Multi-family residential
|
|
|
375
|
|
|
|
-
|
|
|
|
1,144
|
|
|
|
1,519
|
|
|
|
120,321
|
|
|
|
121,840
|
|
Single family non-owner occupied
|
|
|
754
|
|
|
|
267
|
|
|
|
661
|
|
|
|
1,682
|
|
|
|
161,499
|
|
|
|
163,181
|
|
Non-farm, non-residential
|
|
|
917
|
|
|
|
1,949
|
|
|
|
3,027
|
|
|
|
5,893
|
|
|
|
721,368
|
|
|
|
727,261
|
|
Agricultural
|
|
|
86
|
|
|
|
164
|
|
|
|
-
|
|
|
|
250
|
|
|
|
11,506
|
|
|
|
11,756
|
|
Farmland
|
|
|
856
|
|
|
|
349
|
|
|
|
664
|
|
|
|
1,869
|
|
|
|
21,286
|
|
|
|
23,155
|
|
Consumer real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
1,436
|
|
|
|
165
|
|
|
|
503
|
|
|
|
2,104
|
|
|
|
107,974
|
|
|
|
110,078
|
|
Single family owner occupied
|
|
|
7,728
|
|
|
|
2,390
|
|
|
|
3,766
|
|
|
|
13,884
|
|
|
|
606,813
|
|
|
|
620,697
|
|
Owner occupied construction
|
|
|
207
|
|
|
|
-
|
|
|
|
428
|
|
|
|
635
|
|
|
|
16,606
|
|
|
|
17,241
|
|
Consumer and other loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans
|
|
|
1,735
|
|
|
|
439
|
|
|
|
202
|
|
|
|
2,376
|
|
|
|
107,651
|
|
|
|
110,027
|
|
Other
|
|
|
22
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22
|
|
|
|
4,720
|
|
|
|
4,742
|
|
Total non-covered loans
|
|
|
16,092
|
|
|
|
6,026
|
|
|
|
11,113
|
|
|
|
33,231
|
|
|
|
2,068,368
|
|
|
|
2,101,599
|
|
Covered loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, development, and other land
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
28
|
|
|
|
28
|
|
Single family non-owner occupied
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
199
|
|
|
|
199
|
|
Non-farm, non-residential
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
3
|
|
Consumer real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
144
|
|
|
|
28
|
|
|
|
-
|
|
|
|
172
|
|
|
|
9,681
|
|
|
|
9,853
|
|
Single family owner occupied
|
|
|
-
|
|
|
|
50
|
|
|
|
-
|
|
|
|
50
|
|
|
|
2,728
|
|
|
|
2,778
|
|
Total covered loans
|
|
|
144
|
|
|
|
78
|
|
|
|
-
|
|
|
|
222
|
|
|
|
12,639
|
|
|
|
12,861
|
|
Total loans
|
|
$
|
16,236
|
|
|
$
|
6,104
|
|
|
$
|
11,113
|
|
|
$
|
33,453
|
|
|
$
|
2,081,007
|
|
|
$
|
2,114,460
|
|
The Company may make concessions in interest rates, loan terms and/or amortization terms when restructuring loans for borrowers experiencing financial difficulty. Restructured loans in excess of $500 thousand are evaluated for a specific reserve based on either the collateral or net present value method, whichever is most applicable. Restructured loans under $500 thousand are subject to the reserve calculation at the historical loss rate for classified loans. Certain TDRs are classified as nonperforming at the time of restructuring and are returned to performing status after six months of satisfactory payment performance; however, these loans remain identified as impaired until full payment or other satisfaction of the obligation occurs. PCI loans are generally not considered TDRs as long as the loans remain in the assigned loan pool. No covered loans were recorded as TDRs as of June 30, 2020, or December 31, 2019.
The CARES Act included a provision allowing banks to not apply the guidance on accounting for troubled debt restructurings to loan modifications, such as extensions or deferrals, related to COVID-19 made between March 1, 2020 and the earlier of (i) December 31, 2020 or (ii) 60 days after the end of the COVID-19 national emergency. The relief can only be applied to modifications for borrowers that were not more than 30 days past due as of December 31, 2019. The Company elected to adopt this provision of the CARES Act.
Through June 30, 2020, the Company had modified 3,097 loans with principal balances totaling $436.11 million related to COVID-19 relief. Those modifications were generally short-term payment deferrals and are not considered TDRs based on the CARES Act. The Company’s policy is to downgrade commercial loans modified for COVID-19 to Special Mention due to a higher-than-usual level of risk, which caused the significant increase in loans in that rating. Subsequent upgrade or downgrade will be on a case by case basis. The Company will consider upgrading these loans back to pass once the modification period has ended and timely contractual payments resume. Further downgrade would be based on a number of factors, including but not limited to additional modifications, payment performance and current underwriting.
The following table presents loans modified as TDRs, by loan class and accrual status, as of the dates indicated:
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
(Amounts in thousands)
|
|
Nonaccrual(1)
|
|
|
Accruing
|
|
|
Total
|
|
|
Nonaccrual(1)
|
|
|
Accruing
|
|
|
Total
|
|
Commercial loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, development, and other land
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Commercial and industrial
|
|
|
-
|
|
|
|
1,498
|
|
|
|
1,498
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Single family non-owner occupied
|
|
|
543
|
|
|
|
1,279
|
|
|
|
1,822
|
|
|
|
552
|
|
|
|
595
|
|
|
|
1,147
|
|
Non-farm, non-residential
|
|
|
-
|
|
|
|
2,425
|
|
|
|
2,425
|
|
|
|
-
|
|
|
|
307
|
|
|
|
307
|
|
Consumer real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
-
|
|
|
|
83
|
|
|
|
83
|
|
|
|
-
|
|
|
|
115
|
|
|
|
115
|
|
Single family owner occupied
|
|
|
1,748
|
|
|
|
5,886
|
|
|
|
7,634
|
|
|
|
1,790
|
|
|
|
5,305
|
|
|
|
7,095
|
|
Owner occupied construction
|
|
|
-
|
|
|
|
218
|
|
|
|
218
|
|
|
|
-
|
|
|
|
221
|
|
|
|
221
|
|
Consumer and other loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans
|
|
|
-
|
|
|
|
31
|
|
|
|
31
|
|
|
|
-
|
|
|
|
32
|
|
|
|
32
|
|
Total TDRs
|
|
$
|
2,291
|
|
|
$
|
11,420
|
|
|
$
|
13,711
|
|
|
$
|
2,342
|
|
|
$
|
6,575
|
|
|
$
|
8,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses related to TDRs
|
|
|
|
|
|
|
|
|
|
$
|
470
|
|
|
|
|
|
|
|
|
|
|
$
|
353
|
|
(1)
|
Nonaccrual TDRs are included in total nonaccrual loans disclosed in the nonaccrual table above.
|
The following table presents interest income recognized on TDRs for the periods indicated:
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income recognized
|
|
$
|
152
|
|
|
$
|
84
|
|
|
$
|
250
|
|
|
$
|
147
|
|
The following tables present loans modified as TDRs, by type of concession made and loan class, that were restructured during the periods indicated:
|
|
Three Months Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
(Amounts in thousands)
|
|
Total
Contracts
|
|
|
Pre-modification
Recorded Investment
|
|
|
Post-modification
Recorded
Investment(1)
|
|
|
Total
Contracts
|
|
|
Pre-modification
Recorded Investment
|
|
|
Post-modification
Recorded
Investment(1)
|
|
Below market interest rate and extended payment term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single family non-owner occupied
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
80
|
|
|
|
81
|
|
Single family owner occupied
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
185
|
|
|
|
184
|
|
Total below market interest rate and extended payment term
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
265
|
|
|
|
265
|
|
Payment deferral
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
1
|
|
|
|
1,106
|
|
|
|
1,106
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Non-farm, non-residential
|
|
|
2
|
|
|
|
1,538
|
|
|
|
1,538
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Single family owner occupied
|
|
|
1
|
|
|
|
70
|
|
|
|
54
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total principal deferral
|
|
|
4
|
|
|
|
2,714
|
|
|
|
2,698
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
4
|
|
|
$
|
2,714
|
|
|
$
|
2,698
|
|
|
|
2
|
|
|
$
|
265
|
|
|
$
|
265
|
|
(1)
|
Represents the loan balance immediately following modification
|
|
|
Six Months Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
(Amounts in thousands)
|
|
Total
Contracts
|
|
|
Pre-modification
Recorded Investment
|
|
|
Post-modificatio
Recorded
Investment(1)
|
|
|
Total
Contracts
|
|
|
Pre-modification
Recorded
Investment
|
|
|
Post-modification
Recorded
Investment(1)
|
|
Below market interest rate Single family non-owner occupied
|
|
|
1
|
|
|
|
50
|
|
|
|
50
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Total below market interest rate
|
|
|
1
|
|
|
|
50
|
|
|
|
50
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Below market interest rate and extended payment term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single family non-owner occupied
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
454
|
|
|
|
432
|
|
Single family owner occupied
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
489
|
|
|
|
484
|
|
Total below market interest rate and extended payment term
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5
|
|
|
|
943
|
|
|
|
916
|
|
Payment deferral
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, development, and other land
|
|
|
1
|
|
|
|
63
|
|
|
|
63
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial and industrial
|
|
|
2
|
|
|
|
1,708
|
|
|
|
1,708
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Single family non-owner occupied
|
|
|
1
|
|
|
|
529
|
|
|
|
529
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Non-farm, non-residential
|
|
|
3
|
|
|
|
2,115
|
|
|
|
2,115
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Single family owner occupied
|
|
|
3
|
|
|
|
742
|
|
|
|
726
|
|
|
|
1
|
|
|
|
66
|
|
|
|
45
|
|
Home equity lines
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
4
|
|
|
|
3
|
|
Total principal deferral
|
|
|
10
|
|
|
|
5,157
|
|
|
|
5,141
|
|
|
|
2
|
|
|
|
70
|
|
|
|
48
|
|
Total
|
|
|
11
|
|
|
$
|
5,207
|
|
|
$
|
5,191
|
|
|
|
7
|
|
|
$
|
1,013
|
|
|
$
|
964
|
|
(1)
|
Represents the loan balance immediately following modification
|
Payment defaults on loans modified as TDRs restructured within the previous 12 months as of June 30, 2020, were for one loan in the amount of $124 thousand; there were none in 2019.
The following table provides information about other real estate owned (“OREO”), which consists of properties acquired through foreclosure, as of the dates indicated:
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
OREO
|
|
$
|
2,181
|
|
|
$
|
3,969
|
|
Total OREO
|
|
$
|
2,181
|
|
|
$
|
3,969
|
|
|
|
|
|
|
|
|
|
|
OREO secured by residential real estate
|
|
$
|
949
|
|
|
$
|
2,232
|
|
Residential real estate loans in the foreclosure process(1)
|
|
|
2,621
|
|
|
|
1,539
|
|
(1)
|
The recorded investment in consumer mortgage loans collateralized by residential real estate that are in the process of foreclosure according to local requirements of the applicable jurisdiction
|
Note 6. Allowance for Loan Losses
The following tables present the changes in the allowance for loan losses, by loan segment, during the periods indicated. There was no allowance related to PCI loans as of June 30, 2020.
|
|
Three Months Ended June 30, 2020
|
|
(Amounts in thousands)
|
|
Commercial
|
|
|
Consumer Real
Estate
|
|
|
Consumer and
Other
|
|
|
Total
Allowance
|
|
Total allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
12,075
|
|
|
$
|
7,519
|
|
|
$
|
1,543
|
|
|
$
|
21,137
|
|
Provision for (recovery of) loan losses charged to operations
|
|
|
2,618
|
|
|
|
(221
|
)
|
|
|
1,434
|
|
|
|
3,831
|
|
Charge-offs
|
|
|
(878
|
)
|
|
|
(179
|
)
|
|
|
(615
|
)
|
|
|
(1,672
|
)
|
Recoveries
|
|
|
94
|
|
|
|
175
|
|
|
|
193
|
|
|
|
462
|
|
Net charge-offs
|
|
|
(784
|
)
|
|
|
(4
|
)
|
|
|
(422
|
)
|
|
|
(1,210
|
)
|
Ending balance
|
|
$
|
13,909
|
|
|
$
|
7,294
|
|
|
$
|
2,555
|
|
|
$
|
23,758
|
|
|
|
Three Months Ended June 30, 2019
|
|
(Amounts in thousands)
|
|
Commercial
|
|
|
Consumer Real
Estate
|
|
|
Consumer and
Other
|
|
|
Total
Allowance
|
|
Total allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
10,065
|
|
|
$
|
6,856
|
|
|
$
|
1,322
|
|
|
$
|
18,243
|
|
Provision for (Recovery of) loan losses charged to operations
|
|
|
1,263
|
|
|
|
(68
|
)
|
|
|
390
|
|
|
|
1,585
|
|
Charge-offs
|
|
|
(1,514
|
)
|
|
|
(191
|
)
|
|
|
(409
|
)
|
|
|
(2,114
|
)
|
Recoveries
|
|
|
402
|
|
|
|
284
|
|
|
|
140
|
|
|
|
826
|
|
Net (charge-offs) recoveries
|
|
|
(1,112
|
)
|
|
|
93
|
|
|
|
(269
|
)
|
|
|
(1,288
|
)
|
Ending balance
|
|
$
|
10,216
|
|
|
$
|
6,881
|
|
|
$
|
1,443
|
|
|
$
|
18,540
|
|
|
|
Six Months Ended June 30, 2020
|
|
(Amounts in thousands)
|
|
Commercial
|
|
|
Consumer Real
Estate
|
|
|
Consumer and
Other
|
|
|
Total
Allowance
|
|
Total allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
10,235
|
|
|
$
|
6,325
|
|
|
$
|
1,865
|
|
|
$
|
18,425
|
|
Provision for loan losses charged to operations
|
|
|
4,605
|
|
|
|
924
|
|
|
|
1,802
|
|
|
|
7,331
|
|
Charge-offs
|
|
|
(1,146
|
)
|
|
|
(242
|
)
|
|
|
(1,478
|
)
|
|
|
(2,866
|
)
|
Recoveries
|
|
|
215
|
|
|
|
287
|
|
|
|
366
|
|
|
|
868
|
|
Net (charge-offs) recoveries
|
|
|
(931
|
)
|
|
|
45
|
|
|
|
(1,112
|
)
|
|
|
(1,998
|
)
|
Ending balance
|
|
$
|
13,909
|
|
|
$
|
7,294
|
|
|
$
|
2,555
|
|
|
$
|
23,758
|
|
|
|
Six Months Ended June 30, 2019
|
|
(Amounts in thousands)
|
|
Commercial
|
|
|
Consumer Real
Estate
|
|
|
Consumer and
Other
|
|
|
Total
Allowance
|
|
Total allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
10,499
|
|
|
$
|
6,732
|
|
|
$
|
1,036
|
|
|
$
|
18,267
|
|
Provision for loan losses charged to operations
|
|
|
1,157
|
|
|
|
749
|
|
|
|
899
|
|
|
|
2,805
|
|
Charge-offs
|
|
|
(2,006
|
)
|
|
|
(950
|
)
|
|
|
(780
|
)
|
|
|
(3,736
|
)
|
Recoveries
|
|
|
566
|
|
|
|
350
|
|
|
|
288
|
|
|
|
1,204
|
|
Net (charge-offs) recoveries
|
|
|
(1,440
|
)
|
|
|
(600
|
)
|
|
|
(492
|
)
|
|
|
(2,532
|
)
|
Ending balance
|
|
$
|
10,216
|
|
|
$
|
6,881
|
|
|
$
|
1,443
|
|
|
$
|
18,540
|
|
The following tables present the allowance for loan losses and recorded investment in loans evaluated for impairment, excluding PCI loans, by loan class, as of the dates indicated:
|
|
June 30, 2020
|
|
(Amounts in thousands)
|
|
Loans Individually
Evaluated for
Impairment
|
|
|
Allowance for Loans
Individually
Evaluated
|
|
|
Loans Collectively
Evaluated for
Impairment
|
|
|
Allowance for Loans
Collectively
Evaluated
|
|
Commercial loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, development, and other land
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
50,846
|
|
|
$
|
695
|
|
Commercial and industrial
|
|
|
896
|
|
|
|
-
|
|
|
|
180,981
|
|
|
|
934
|
|
Multi-family residential
|
|
|
944
|
|
|
|
279
|
|
|
|
103,189
|
|
|
|
1,162
|
|
Single family non-owner occupied
|
|
|
530
|
|
|
|
-
|
|
|
|
181,314
|
|
|
|
1,706
|
|
Non-farm, non-residential
|
|
|
3,803
|
|
|
|
684
|
|
|
|
700,242
|
|
|
|
8,020
|
|
Agricultural
|
|
|
-
|
|
|
|
-
|
|
|
|
10,380
|
|
|
|
206
|
|
Farmland
|
|
|
-
|
|
|
|
-
|
|
|
|
20,303
|
|
|
|
225
|
|
Total commercial loans
|
|
|
6,173
|
|
|
|
963
|
|
|
|
1,247,255
|
|
|
|
12,948
|
|
Consumer real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
-
|
|
|
|
-
|
|
|
|
106,825
|
|
|
|
752
|
|
Single family owner occupied
|
|
|
2,981
|
|
|
|
370
|
|
|
|
591,999
|
|
|
|
6,033
|
|
Owner occupied construction
|
|
|
-
|
|
|
|
-
|
|
|
|
15,311
|
|
|
|
139
|
|
Total consumer real estate loans
|
|
|
2,981
|
|
|
|
370
|
|
|
|
714,135
|
|
|
|
6,924
|
|
Consumer and other loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans
|
|
|
-
|
|
|
|
-
|
|
|
|
113,603
|
|
|
|
2,553
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
4,477
|
|
|
|
-
|
|
Total consumer and other loans
|
|
|
-
|
|
|
|
-
|
|
|
|
118,080
|
|
|
|
2,553
|
|
Total loans, excluding PCI loans
|
|
$
|
9,154
|
|
|
$
|
1,333
|
|
|
$
|
2,079,470
|
|
|
$
|
22,425
|
|
|
|
December 31, 2019
|
|
(Amounts in thousands)
|
|
Loans Individually
Evaluated for
Impairment
|
|
|
Allowance for Loans
Individually
Evaluated
|
|
|
Loans Collectively
Evaluated for
Impairment
|
|
|
Allowance for Loans
Collectively
Evaluated
|
|
Commercial loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, development, and other land
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
30,334
|
|
|
$
|
245
|
|
Commercial and industrial
|
|
|
-
|
|
|
|
-
|
|
|
|
95,659
|
|
|
|
699
|
|
Multi-family residential
|
|
|
944
|
|
|
|
-
|
|
|
|
98,201
|
|
|
|
969
|
|
Single family non-owner occupied
|
|
|
-
|
|
|
|
-
|
|
|
|
128,520
|
|
|
|
1,323
|
|
Non-farm, non-residential
|
|
|
2,575
|
|
|
|
292
|
|
|
|
591,520
|
|
|
|
6,361
|
|
Agricultural
|
|
|
-
|
|
|
|
-
|
|
|
|
9,458
|
|
|
|
145
|
|
Farmland
|
|
|
-
|
|
|
|
-
|
|
|
|
16,146
|
|
|
|
201
|
|
Total commercial loans
|
|
|
3,519
|
|
|
|
292
|
|
|
|
969,838
|
|
|
|
9,943
|
|
Consumer real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
-
|
|
|
|
-
|
|
|
|
91,999
|
|
|
|
673
|
|
Single family owner occupied
|
|
|
3,016
|
|
|
|
353
|
|
|
|
490,712
|
|
|
|
5,175
|
|
Owner occupied construction
|
|
|
-
|
|
|
|
-
|
|
|
|
16,144
|
|
|
|
124
|
|
Total consumer real estate loans
|
|
|
3,016
|
|
|
|
353
|
|
|
|
598,855
|
|
|
|
5,972
|
|
Consumer and other loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans
|
|
|
-
|
|
|
|
-
|
|
|
|
99,199
|
|
|
|
1,865
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
4,742
|
|
|
|
-
|
|
Total consumer and other loans
|
|
|
-
|
|
|
|
-
|
|
|
|
103,941
|
|
|
|
1,865
|
|
Total loans, excluding PCI loans
|
|
$
|
6,535
|
|
|
$
|
645
|
|
|
$
|
1,672,634
|
|
|
$
|
17,780
|
|
The following table presents the recorded investment in PCI loans and the allowance for loan losses on PCI loans, by loan pool, as of the dates indicated:
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
(Amounts in thousands)
|
|
Recorded
Investment
|
|
|
Allowance for Loan
Pools With
Impairment
|
|
|
Recorded
Investment
|
|
|
Allowance for Loan
Pools With
Impairment
|
|
Commercial loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Waccamaw commercial
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Peoples commercial
|
|
|
-
|
|
|
|
-
|
|
|
|
4,371
|
|
|
|
-
|
|
Highlands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 family, senior-commercial
|
|
|
6,736
|
|
|
|
-
|
|
|
|
4,564
|
|
|
|
-
|
|
Construction & land development
|
|
|
1,766
|
|
|
|
-
|
|
|
|
1,956
|
|
|
|
-
|
|
Farmland and other agricultural
|
|
|
3,386
|
|
|
|
-
|
|
|
|
3,722
|
|
|
|
-
|
|
Multifamily
|
|
|
1,635
|
|
|
|
-
|
|
|
|
1,663
|
|
|
|
-
|
|
Commercial real estate
|
|
|
19,056
|
|
|
|
-
|
|
|
|
21,710
|
|
|
|
-
|
|
Commercial and industrial
|
|
|
2,421
|
|
|
|
-
|
|
|
|
2,829
|
|
|
|
-
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
352
|
|
|
|
-
|
|
Total commercial loans
|
|
|
35,000
|
|
|
|
-
|
|
|
|
41,167
|
|
|
|
-
|
|
Consumer real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Waccamaw serviced home equity lines
|
|
|
-
|
|
|
|
-
|
|
|
|
2,121
|
|
|
|
-
|
|
Waccamaw residential
|
|
|
-
|
|
|
|
-
|
|
|
|
587
|
|
|
|
-
|
|
Highlands:
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
1-4 family, junior and HELOCS
|
|
|
1,253
|
|
|
|
-
|
|
|
|
2,157
|
|
|
|
-
|
|
1-4 family, senior-consumer
|
|
|
10,992
|
|
|
|
-
|
|
|
|
13,174
|
|
|
|
-
|
|
Consumer
|
|
|
948
|
|
|
|
-
|
|
|
|
1,341
|
|
|
|
-
|
|
Peoples residential
|
|
|
-
|
|
|
|
-
|
|
|
|
700
|
|
|
|
-
|
|
Total consumer real estate loans
|
|
|
13,193
|
|
|
|
-
|
|
|
|
20,080
|
|
|
|
-
|
|
Total PCI loans
|
|
$
|
48,193
|
|
|
$
|
-
|
|
|
$
|
61,247
|
|
|
$
|
-
|
|
Management believed the allowance was adequate to absorb probable loan losses inherent in the loan portfolio as of June 30, 2020.
Note 7. FDIC Indemnification Asset
In connection with the FDIC-assisted acquisition of Waccamaw Bank (“Waccamaw”) in 2012, the Company entered into loss share agreements with the FDIC in which the FDIC agrees to cover 80% of most loan and foreclosed real estate losses and reimburse certain expenses incurred in relation to those covered assets. Loss share coverage for commercial loans expired June 30, 2017, with recoveries ending June 30, 2020. Loss share coverage on single family loans will expire June 30, 2022. The Company’s consolidated statements of income include the expense on covered assets net of estimated reimbursements. The following table presents the changes in the FDIC indemnification asset and total covered loans and OREO for the periods indicated:
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
2,433
|
|
|
$
|
4,578
|
|
|
$
|
2,883
|
|
|
$
|
5,108
|
|
Reimbursable expenses to the FDIC
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net amortization
|
|
|
(483
|
)
|
|
|
(516
|
)
|
|
|
(969
|
)
|
|
|
(1,068
|
)
|
(Receipts from) payments to the FDIC
|
|
|
(7
|
)
|
|
|
(42
|
)
|
|
|
29
|
|
|
|
(20
|
)
|
Ending balance
|
|
$
|
1,943
|
|
|
$
|
4,020
|
|
|
$
|
1,943
|
|
|
$
|
4,020
|
|
Note 8. Deposits
The following table presents the components of deposits as of the dates indicated:
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand deposits
|
|
$
|
752,899
|
|
|
$
|
627,868
|
|
Interest-bearing deposits:
|
|
|
|
|
|
|
|
|
Interest-bearing demand deposits
|
|
|
564,417
|
|
|
|
497,470
|
|
Money market accounts
|
|
|
238,957
|
|
|
|
235,712
|
|
Savings deposits
|
|
|
482,532
|
|
|
|
453,240
|
|
Certificates of deposit
|
|
|
326,558
|
|
|
|
372,821
|
|
Individual retirement accounts
|
|
|
132,483
|
|
|
|
142,801
|
|
Total interest-bearing deposits
|
|
|
1,744,947
|
|
|
|
1,702,044
|
|
Total deposits
|
|
$
|
2,497,846
|
|
|
$
|
2,329,912
|
|
Note 9. Leases
Operating leases are recorded as a right of use (“ROU”) asset and operating lease liability. The ROU asset is recorded in other assets, while the lease liability is recorded in other liabilities on the consolidated balance sheet beginning January 1, 2019, when the Company adopted ASU 2016-02, on a prospective basis. The ROU asset represents the right to use an underlying asset during the lease term and the lease liability represents the obligation to make lease payments arising from the lease. The ROU asset and lease liability have been recognized based on the present value of the lease payments using a discount rate that represented our incremental borrowing rate at the lease commencement date or the date of adoption of ASU 2016-02. The lease expense which is comprised of the amortization of the ROU asset and the implicit interest accreted on the lease liability, is recognized on a straight-line basis over the lease term, and is recorded in occupancy expense in the consolidated statements of income.
The Company’s current operating leases relate primarily to bank branches. The Company’s ROU asset was $874 thousand as of June 30, 2020 compared to $917 thousand as of December 31, 2019. The operating lease liability as of June 30, 2020 was $950 compared to $1.01 million as of December 31, 2019. The Company’s total operating leases have remaining terms of 2 – 9 years; compared with 2-10 years as of December 31, 2019. The June 30, 2020 weighted average discount rate of 3.22% did not change from December 31, 2019.
Future minimum lease payments as of the dates indicated are as follows:
Year
|
|
June 30, 2020
|
|
(Amounts in thousands)
|
|
|
|
|
2021
|
|
$
|
154
|
|
2022
|
|
|
148
|
|
2023
|
|
|
119
|
|
2024
|
|
|
119
|
|
2025 and thereafter
|
|
|
520
|
|
Total lease payments
|
|
|
1,060
|
|
Less: Interest
|
|
|
(110
|
)
|
Present value of lease liabilities
|
|
$
|
950
|
|
Year
|
|
December 31, 2019
|
|
(Amounts in thousands)
|
|
|
|
|
2020
|
|
$
|
154
|
|
2021
|
|
|
154
|
|
2022
|
|
|
131
|
|
2023
|
|
|
119
|
|
2024 and thereafter
|
|
|
580
|
|
Total lease payments
|
|
|
1,138
|
|
Less: Interest
|
|
|
(129
|
)
|
Present value of lease liabilities
|
|
$
|
1,009
|
|
Note 10. Borrowings
The following table presents the components of borrowings as of the dates indicated:
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
(Amounts in thousands)
|
|
Balance
|
|
|
Weighted
Average Rate
|
|
|
Balance
|
|
|
Weighted
Average Rate
|
|
Short-term borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail repurchase agreements
|
|
|
1,100
|
|
|
|
0.39
|
%
|
|
$
|
1,601
|
|
|
|
0.14
|
%
|
Total borrowings
|
|
$
|
1,100
|
|
|
|
|
|
|
$
|
1,601
|
|
|
|
|
|
Repurchase agreements are secured by certain securities that remain under the Company’s control during the terms of the agreements.
As of June 30, 2020, the Company had no long-term borrowings.
Unused borrowing capacity with the FHLB totaled $365.67 million, net of FHLB letters of credit of $169.04 million, as of June 30, 2020. As of June 30, 2020, the Company pledged $939.81 million in qualifying loans to secure the FHLB borrowing capacity.
The Company maintains a $15.00 million unsecured, committed line of credit with an unrelated financial institution with an interest rate of one-month LIBOR plus 2.00% that matures in April 2021. There was no outstanding balance on the line as of June 30, 2020 or December 31, 2019.
Note 11. Derivative Instruments and Hedging Activities
Generally, derivative instruments help the Company manage exposure to market risk and meet customer financing needs. Market risk represents the possibility that fluctuations in external factors such as interest rates, market-driven loan rates, prices, or other economic factors will adversely affect economic value or net interest income.
The Company uses interest rate swap contracts to modify its exposure to interest rate risk caused by changes in the LIBOR curve in relation to certain designated fixed rate loans. These instruments are used to convert these fixed rate loans to an effective floating rate. If the LIBOR rate falls below the loan’s stated fixed rate for a given period, the Company will owe the floating rate payer the notional amount times the difference between LIBOR and the stated fixed rate. If LIBOR is above the stated rate for a given period, the Company will receive payments based on the notional amount times the difference between LIBOR and the stated fixed rate. The Company’s interest rate swaps qualify as fair value hedging instruments; therefore, fair value changes in the derivative and hedged item attributable to the hedged risk are recognized in earnings in the same period. The fair value hedges were effective as of June 30 2020. The following table presents the notional, or contractual, amounts and fair values of derivative instruments as of the dates indicated:
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
|
Notional or
|
|
|
Fair Value
|
|
|
Notional or
|
|
|
Fair Value
|
|
(Amounts in thousands)
|
|
Contractual
Amount
|
|
|
Derivative
Assets
|
|
|
Derivative
Liabilities
|
|
|
Contractual
Amount
|
|
|
Derivative
Assets
|
|
|
Derivativ
Liabilities
|
|
Derivatives designated as hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
17,052
|
|
|
$
|
-
|
|
|
$
|
1,322
|
|
|
$
|
17,432
|
|
|
$
|
-
|
|
|
$
|
510
|
|
Total derivatives
|
|
$
|
17,052
|
|
|
$
|
-
|
|
|
$
|
1,322
|
|
|
$
|
17,432
|
|
|
$
|
-
|
|
|
$
|
510
|
|
The following table presents the effect of derivative and hedging activity, if applicable, on the consolidated statements of income for the periods indicated:
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
(Amounts in thousands)
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Income Statement Location
|
Derivatives designated as hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
80
|
|
|
$
|
-
|
|
|
$
|
92
|
|
|
$
|
-
|
|
Interest and fees on loans
|
Total derivative expense
|
|
$
|
80
|
|
|
$
|
-
|
|
|
$
|
92
|
|
|
$
|
-
|
|
|
Note 12. Employee Benefit Plans
The Company maintains two nonqualified domestic, noncontributory defined benefit plans (the “Benefit Plans”) for key members of senior management and non-management directors. The Company’s unfunded Benefit Plans include the Supplemental Executive Retention Plan and the Directors’ Supplemental Retirement Plan. The following table presents the components of net periodic pension cost and the effect on the consolidated statements of income for the periods indicated:
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Income Statement Location
|
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
78
|
|
|
$
|
80
|
|
|
$
|
155
|
|
|
$
|
160
|
|
Salaries and employee benefits
|
Interest cost
|
|
|
89
|
|
|
|
101
|
|
|
|
178
|
|
|
|
202
|
|
Other expense
|
Amortization of prior service cost
|
|
|
50
|
|
|
|
64
|
|
|
|
100
|
|
|
|
128
|
|
Other expense
|
Amortization of losses
|
|
|
47
|
|
|
|
6
|
|
|
|
93
|
|
|
|
11
|
|
Other expense
|
Net periodic cost
|
|
$
|
264
|
|
|
$
|
251
|
|
|
$
|
526
|
|
|
$
|
501
|
|
|
Note 13. Earnings per Share
The following table presents the calculation of basic and diluted earnings per common share for the periods indicated:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
(Amounts in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
8,238
|
|
|
$
|
10,451
|
|
|
$
|
16,110
|
|
|
$
|
20,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic
|
|
|
17,701,853
|
|
|
|
15,712,204
|
|
|
|
17,850,423
|
|
|
|
15,775,462
|
|
Dilutive effect of potential common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
20,661
|
|
|
|
56,818
|
|
|
|
27,017
|
|
|
|
57,795
|
|
Restricted stock
|
|
|
5,786
|
|
|
|
6,298
|
|
|
|
10,885
|
|
|
|
14,241
|
|
Total dilutive effect of potential common shares
|
|
|
26,447
|
|
|
|
63,116
|
|
|
|
37,902
|
|
|
|
72,036
|
|
Weighted average common shares outstanding, diluted
|
|
|
17,728,300
|
|
|
|
15,775,320
|
|
|
|
17,888,325
|
|
|
|
15,847,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
0.47
|
|
|
$
|
0.67
|
|
|
$
|
0.90
|
|
|
$
|
1.27
|
|
Diluted earnings per common share
|
|
|
0.46
|
|
|
|
0.66
|
|
|
|
0.90
|
|
|
|
1.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Antidilutive potential common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
60,375
|
|
|
|
-
|
|
|
|
66,808
|
|
|
|
-
|
|
Restricted stock
|
|
|
34,661
|
|
|
|
-
|
|
|
|
32,159
|
|
|
|
-
|
|
Total potential antidilutive shares
|
|
|
95,036
|
|
|
|
-
|
|
|
|
98,967
|
|
|
|
-
|
|
Note 14. Accumulated Other Comprehensive Income (Loss)
The following tables present the changes in accumulated other comprehensive income (“AOCI”), net of tax and by component, during the periods indicated:
|
|
Three Months Ended June 30, 2020
|
|
|
|
Unrealized Gains
(Losses) on Available-
for-Sale Securities
|
|
|
Employee Benefit Plans
|
|
|
Total
|
|
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
1,509
|
|
|
$
|
(2,648
|
)
|
|
$
|
(1,139
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
(45
|
)
|
|
|
-
|
|
|
|
(45
|
)
|
Reclassified from AOCI
|
|
|
-
|
|
|
|
76
|
|
|
|
76
|
|
Other comprehensive income, net
|
|
|
(45
|
)
|
|
|
76
|
|
|
|
31
|
|
Ending balance
|
|
$
|
1,464
|
|
|
$
|
(2,572
|
)
|
|
$
|
(1,108
|
)
|
|
|
Three Months Ended June 30, 2019
|
|
|
|
Unrealized Gains
(Losses) on Available-
for-Sale Securities
|
|
|
Employee Benefit Plans
|
|
|
Total
|
|
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
677
|
|
|
$
|
(1,410
|
)
|
|
$
|
(733
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
262
|
|
|
|
-
|
|
|
|
262
|
|
Reclassified from AOCI
|
|
|
34
|
|
|
|
56
|
|
|
|
90
|
|
Other comprehensive (loss) income, net
|
|
|
296
|
|
|
|
56
|
|
|
|
352
|
|
Ending balance
|
|
$
|
973
|
|
|
$
|
(1,354
|
)
|
|
$
|
(381
|
)
|
|
|
Six Months Ended June 30, 2020
|
|
|
|
Unrealized Gains
(Losses) on Available-
for-Sale Securities
|
|
|
Employee Benefit Plans
|
|
|
Total
|
|
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
866
|
|
|
$
|
(2,372
|
)
|
|
$
|
(1,506
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
902
|
|
|
|
(353
|
)
|
|
|
549
|
|
Reclassified from AOCI
|
|
|
(304
|
)
|
|
|
153
|
|
|
|
(151
|
)
|
Other comprehensive income, net
|
|
|
598
|
|
|
|
(200
|
)
|
|
|
398
|
|
Ending balance
|
|
$
|
1,464
|
|
|
$
|
(2,572
|
)
|
|
$
|
(1,108
|
)
|
|
|
Six Months Ended June 30, 2019
|
|
|
|
Unrealized Gains
(Losses) on Available-
for-Sale Securities
|
|
|
Employee Benefit Plans
|
|
|
Total
|
|
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
(285
|
)
|
|
$
|
(1,144
|
)
|
|
$
|
(1,429
|
)
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
before reclassifications
|
|
|
1,224
|
|
|
|
(320
|
)
|
|
|
904
|
|
Reclassified from AOCI
|
|
|
34
|
|
|
|
110
|
|
|
|
144
|
|
Other comprehensive (loss) income, net
|
|
|
1,258
|
|
|
|
(210
|
)
|
|
|
1,048
|
|
Ending balance
|
|
$
|
973
|
|
|
$
|
(1,354
|
)
|
|
$
|
(381
|
)
|
The following table presents reclassifications out of AOCI, by component, during the periods indicated:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
Income Statement
|
|
(Amounts in thousands)
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Line Item Affected
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain recognized
|
|
$
|
-
|
|
|
$
|
43
|
|
|
$
|
(385
|
)
|
|
$
|
43
|
|
|
Net loss on sale of securities
|
|
Reclassified out of AOCI, before tax
|
|
|
-
|
|
|
|
43
|
|
|
|
(385
|
)
|
|
|
43
|
|
|
Income before income taxes
|
|
Income tax expense
|
|
|
-
|
|
|
|
9
|
|
|
|
(81
|
)
|
|
|
9
|
|
|
Income tax expense
|
|
Reclassified out of AOCI, net of tax
|
|
|
-
|
|
|
|
34
|
|
|
|
(304
|
)
|
|
|
34
|
|
|
Net income
|
|
Employee benefit plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost
|
|
$
|
50
|
|
|
$
|
64
|
|
|
$
|
100
|
|
|
$
|
128
|
|
|
(1)
|
|
Amortization of net actuarial benefit cost
|
|
|
47
|
|
|
|
6
|
|
|
|
93
|
|
|
|
11
|
|
|
(1)
|
|
Reclassified out of AOCI, before tax
|
|
|
97
|
|
|
|
70
|
|
|
|
193
|
|
|
|
139
|
|
|
Income before income taxes
|
|
Income tax expense
|
|
|
21
|
|
|
|
15
|
|
|
|
41
|
|
|
|
29
|
|
|
Income tax expense
|
|
Reclassified out of AOCI, net of tax
|
|
|
76
|
|
|
|
55
|
|
|
|
152
|
|
|
|
110
|
|
|
Net income
|
|
Total reclassified out of AOCI, net of tax
|
|
$
|
76
|
|
|
$
|
89
|
|
|
$
|
(152
|
)
|
|
$
|
144
|
|
|
Net income
|
|
(1)
|
Amortization is included in net periodic pension cost. See Note 11, "Employee Benefit Plans."
|
Note 15. Fair Value
Financial Instruments Measured at Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The fair value hierarchy ranks the inputs used in measuring fair value as follows:
|
●
|
Level 1 – Observable, unadjusted quoted prices in active markets
|
|
●
|
Level 2 – Inputs other than quoted prices included in Level 1 that are directly or indirectly observable for the asset or liability
|
|
●
|
Level 3 – Unobservable inputs with little or no market activity that require the Company to use reasonable inputs and assumptions
|
The Company uses fair value measurements to record adjustments to certain financial assets and liabilities on a recurring basis. The Company may be required to record certain assets at fair value on a nonrecurring basis in specific circumstances, such as evidence of impairment. Methodologies used to determine fair value might be highly subjective and judgmental in nature; therefore, valuations may not be precise. If the Company determines that a valuation technique change is necessary, the change is assumed to have occurred at the end of the respective reporting period. The following discussion describes the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments under the valuation hierarchy.
Assets and Liabilities Reported at Fair Value on a Recurring Basis
Available-for-Sale Debt Securities. Debt securities available for sale are reported at fair value on a recurring basis. The fair value of Level 1 securities is based on quoted market prices in active markets, if available. If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are primarily derived from or corroborated by observable market data. Level 2 securities use fair value measurements from independent pricing services obtained by the Company. These fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and bond terms and conditions. The Company’s Level 2 securities include U.S. Agency and Treasury securities, municipal securities, and mortgage-backed securities. Securities are based on Level 3 inputs when there is limited activity or less transparency to the valuation inputs. In the absence of observable or corroborated market data, internally developed estimates that incorporate market-based assumptions are used when such information is available.
Fair value models may be required when trading activity has declined significantly or does not exist, prices are not current, or pricing variations are significant. For Level 3 securities, the Company obtains the cash flow of specific securities from third parties that use modeling software to determine cash flows based on market participant data and knowledge of the structures of each individual security. The fair values of Level 3 securities are determined by applying proper market observable discount rates to the cash flow derived from third-party models. Discount rates are developed by determining credit spreads above a benchmark rate, such as LIBOR, and adding premiums for illiquidity, which are based on a comparison of initial issuance spread to LIBOR versus a financial sector curve for recently issued debt to LIBOR. Securities with increased uncertainty about the receipt of cash flows are discounted at higher rates due to the addition of a deal specific credit premium based on assumptions about the performance of the underlying collateral. Finally, internal fair value model pricing and external pricing observations are combined by assigning weights to each pricing observation. Pricing is reviewed for reasonableness based on the direction of specific markets and the general economic indicators.
Equity Securities. Equity securities are recorded at fair value on a recurring basis and included in other assets in the consolidated balance sheets. The Company uses Level 1 inputs to value equity securities that are traded in active markets. Equity securities that are not actively traded are classified in Level 2.
Loans Held for Investment. Loans held for investment are reported at fair value using the exit price notion, which is derived from third-party models. Loans related to fair value hedges are recorded at fair value on a recurring basis.
Deferred Compensation Assets and Liabilities. Securities held for trading purposes are recorded at fair value on a recurring basis and included in other assets in the consolidated balance sheets. These securities include assets related to employee deferred compensation plans, which are generally invested in Level 1 equity securities. The liability associated with these deferred compensation plans is carried at the fair value of the obligation to the employee, which corresponds to the fair value of the invested assets.
Derivative Assets and Liabilities. Derivatives are recorded at fair value on a recurring basis. The Company obtains dealer quotes, Level 2 inputs, based on observable data to value derivatives.
The following tables summarize financial assets and liabilities recorded at fair value on a recurring basis, by the level of valuation inputs in the fair value hierarchy, as of the dates indicated:
|
|
June 30, 2020
|
|
|
|
Total
|
|
|
Fair Value Measurements Using
|
|
(Amounts in thousands)
|
|
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Available-for-sale debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency securities
|
|
$
|
593
|
|
|
$
|
-
|
|
|
$
|
593
|
|
|
$
|
-
|
|
Municipal securities
|
|
|
62,491
|
|
|
|
-
|
|
|
|
62,491
|
|
|
|
-
|
|
Mortgage-backed Agency securities
|
|
|
35,283
|
|
|
|
-
|
|
|
|
35,283
|
|
|
|
-
|
|
Total available-for-sale debt securities
|
|
|
98,367
|
|
|
|
-
|
|
|
|
98,367
|
|
|
|
-
|
|
Equity securities
|
|
|
55
|
|
|
|
55
|
|
|
|
-
|
|
|
|
-
|
|
Fair value loans
|
|
|
12,128
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,128
|
|
Deferred compensation assets
|
|
|
3,790
|
|
|
|
3,790
|
|
|
|
-
|
|
|
|
-
|
|
Deferred compensation liabilities
|
|
|
3,790
|
|
|
|
3,790
|
|
|
|
-
|
|
|
|
-
|
|
Derivative liabilities
|
|
|
1,322
|
|
|
|
-
|
|
|
|
1,322
|
|
|
|
-
|
|
|
|
December 31, 2019
|
|
|
|
Total
|
|
|
Fair Value Measurements Using
|
|
(Amounts in thousands)
|
|
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Available-for-sale debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency securities
|
|
$
|
5,034
|
|
|
$
|
-
|
|
|
$
|
5,034
|
|
|
$
|
-
|
|
Municipal securities
|
|
|
86,878
|
|
|
|
-
|
|
|
|
86,878
|
|
|
|
-
|
|
Mortgage-backed Agency securities
|
|
|
77,662
|
|
|
|
-
|
|
|
|
77,662
|
|
|
|
-
|
|
Total available-for-sale debt securities
|
|
|
169,574
|
|
|
|
-
|
|
|
|
169,574
|
|
|
|
-
|
|
Equity securities
|
|
|
55
|
|
|
|
55
|
|
|
|
-
|
|
|
|
-
|
|
Fair value loans
|
|
|
10,358
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,358
|
|
Deferred compensation assets
|
|
|
3,990
|
|
|
|
3,990
|
|
|
|
-
|
|
|
|
-
|
|
Deferred compensation liabilities
|
|
|
3,990
|
|
|
|
3,990
|
|
|
|
-
|
|
|
|
-
|
|
Derivative liabilities
|
|
|
510
|
|
|
|
|
|
|
|
510
|
|
|
|
|
|
Assets Measured at Fair Value on a Nonrecurring Basis
Impaired Loans. Impaired loans are recorded at fair value on a nonrecurring basis when repayment is expected solely from the sale of the loan’s collateral. Fair value is based on appraised value adjusted for customized discounting criteria, Level 3 inputs.
The Company maintains an active and robust problem credit identification system. The impairment review includes obtaining third-party collateral valuations to help management identify potential credit impairment and determine the amount of impairment to record. The Company’s Special Assets staff manages and monitors all impaired loans. Internal collateral valuations are generally performed within two to four weeks of identifying the initial potential impairment. The internal valuation compares the original appraisal to current local real estate market conditions and considers experience and expected liquidation costs. The Company typically receives a third-party valuation within thirty to forty-five days of completing the internal valuation. When a third-party valuation is received, it is reviewed for reasonableness. Once the valuation is reviewed and accepted, discounts are applied to fair market value, based on, but not limited to, our historical liquidation experience for like collateral, resulting in an estimated net realizable value. The estimated net realizable value is compared to the outstanding loan balance to determine the appropriate amount of specific impairment reserve.
Specific reserves are generally recorded for impaired loans while third-party valuations are in process and for impaired loans that continue to make some form of payment. While waiting to receive the third-party appraisal, the Company regularly reviews the relationship to identify any potential adverse developments and begins the tasks necessary to gain control of the collateral and prepare it for liquidation, including, but not limited to, engagement of counsel, inspection of collateral, and continued communication with the borrower. Generally, the only difference between the current appraised value, less liquidation costs, and the carrying amount of the loan, less the specific reserve, is any downward adjustment to the appraised value that the Company deems appropriate, such as the costs to sell the property. Impaired loans that do not meet certain criteria and do not have a specific reserve have typically been written down through partial charge-offs to net realizable value. Based on prior experience, the Company rarely returns loans to performing status after they have been partially charged off. Credits identified as impaired move quickly through the process towards ultimate resolution, except in cases involving bankruptcy and various state judicial processes that may extend the time for ultimate resolution.
OREO. OREO is recorded at fair value on a nonrecurring basis using Level 3 inputs. The Company calculates the fair value of OREO from current or prior appraisals that have been adjusted for valuation declines, estimated selling costs, and other proprietary qualitative adjustments that are deemed necessary.
The following tables present assets measured at fair value on a nonrecurring basis, by the level of valuation inputs in the fair value hierarchy, as of the dates indicated:
|
|
June 30, 2020
|
|
|
|
Total
|
|
|
Fair Value Measurements Using
|
|
|
|
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans, non-covered
|
|
$
|
3,178
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,178
|
|
OREO
|
|
|
2,181
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,181
|
|
|
|
December 31, 2019
|
|
|
|
Total
|
|
|
Fair Value Measurements Using
|
|
|
|
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans, non-covered
|
|
$
|
1,828
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,828
|
|
OREO
|
|
|
3,969
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,969
|
|
Quantitative Information about Level 3 Fair Value Measurements
The following table provides quantitative information for assets measured at fair value on a nonrecurring basis using Level 3 valuation inputs as of the dates indicated:
|
Valuation
|
|
Unobservable
|
|
Discount Range (Weighted Average)
|
|
Technique
|
|
Input
|
|
June 30, 2020
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans, non-covered
|
Discounted appraisals(1)
|
|
Appraisal adjustments(2)
|
|
5%
|
to
|
65%
|
(30%)
|
|
22%
|
to
|
36%
|
(26%)
|
OREO
|
Discounted appraisals(1)
|
|
Appraisal adjustments(2)
|
|
0%
|
to
|
77%
|
(25%)
|
|
15%
|
to
|
100%
|
(8%)
|
(1)
|
Fair value is generally based on appraisals of the underlying collateral.
|
(2)
|
Appraisals may be adjusted by management for customized discounting criteria, estimated sales costs, and proprietary qualitative adjustments.
|
Fair Value of Financial Instruments
The Company uses various methodologies and assumptions to estimate the fair value of certain financial instruments. A description of valuation methodologies used for instruments not previously discussed is as follows:
Cash and Cash Equivalents. Cash and cash equivalents are reported at their carrying amount, which is considered a reasonable estimate due to the short-term nature of these instruments.
FDIC Indemnification Asset. The FDIC indemnification asset is reported at fair value using discounted future cash flows that apply current discount rates.
Accrued Interest Receivable/Payable. Accrued interest receivable/payable is reported at its carrying amount, which is considered a reasonable estimate due to the short-term nature of these instruments.
Deposits and Securities Sold Under Agreements to Repurchase. Deposits and repurchase agreements with fixed maturities and rates are reported at fair value using discounted future cash flows that apply interest rates available in the market for instruments with similar characteristics and maturities.
FHLB and Other Borrowings. FHLB and other borrowings are reported at fair value using discounted future cash flows that apply interest rates available to the Company for borrowings with similar characteristics and maturities.
Off-Balance Sheet Instruments. The Company believes that fair values of unfunded commitments to extend credit, standby letters of credit, and financial guarantees are not meaningful; therefore, off-balance sheet instruments are not addressed in the fair value disclosures. The Company believes it is not feasible or practical to accurately disclose the fair values of off-balance sheet instruments due to the uncertainty and difficulty in assessing the likelihood and timing of advancing available proceeds, the lack of an established market for these instruments, and the diversity in fee structures. For additional information about the unfunded, contractual value of off-balance sheet financial instruments, see Note 16, “Litigation, Commitments, and Contingencies,” to the Condensed Consolidated Financial Statements of this report.
The following tables present the carrying amounts and fair values of financial instruments, by the level of valuation inputs in the fair value hierarchy, as of the dates indicated:
|
|
June 30, 2020
|
|
|
|
Carrying
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
(Amounts in thousands)
|
|
Amount
|
|
|
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
421,492
|
|
|
$
|
421,492
|
|
|
$
|
421,492
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Debt securities available for sale
|
|
|
98,367
|
|
|
|
98,367
|
|
|
|
-
|
|
|
|
98,367
|
|
|
|
-
|
|
Equity securities
|
|
|
55
|
|
|
|
55
|
|
|
|
55
|
|
|
|
-
|
|
|
|
-
|
|
Loans held for investment, net of allowance
|
|
|
2,136,817
|
|
|
|
2,041,821
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,041,821
|
|
FDIC indemnification asset
|
|
|
1,943
|
|
|
|
810
|
|
|
|
-
|
|
|
|
-
|
|
|
|
810
|
|
Interest receivable
|
|
|
8,380
|
|
|
|
8,380
|
|
|
|
-
|
|
|
|
8,380
|
|
|
|
-
|
|
Deferred compensation assets
|
|
|
3,790
|
|
|
|
3,790
|
|
|
|
3,790
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits
|
|
|
459,041
|
|
|
|
462,940
|
|
|
|
-
|
|
|
|
462,940
|
|
|
|
-
|
|
Securities sold under agreements to repurchase
|
|
|
1,100
|
|
|
|
1,100
|
|
|
|
-
|
|
|
|
1,100
|
|
|
|
-
|
|
Interest payable
|
|
|
808
|
|
|
|
808
|
|
|
|
-
|
|
|
|
808
|
|
|
|
-
|
|
Derivative financial liabilities
|
|
|
1,322
|
|
|
|
1,322
|
|
|
|
-
|
|
|
|
1,322
|
|
|
|
-
|
|
Deferred compensation liabilities
|
|
|
3,790
|
|
|
|
3,790
|
|
|
|
3,790
|
|
|
|
-
|
|
|
|
-
|
|
|
|
December 31, 2019
|
|
|
|
Carrying
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
(Amounts in thousands)
|
|
Amount
|
|
|
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
217,009
|
|
|
$
|
217,009
|
|
|
$
|
217,009
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Debt securities available for sale
|
|
|
169,574
|
|
|
|
169,574
|
|
|
|
-
|
|
|
|
169,574
|
|
|
|
-
|
|
Equity securities
|
|
|
55
|
|
|
|
55
|
|
|
|
55
|
|
|
|
-
|
|
|
|
-
|
|
Loans held for sale
|
|
|
263
|
|
|
|
263
|
|
|
|
-
|
|
|
|
-
|
|
|
|
263
|
|
Loans held for investment, net of allowance
|
|
|
2,096,035
|
|
|
|
2,068,257
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,068,257
|
|
FDIC indemnification asset
|
|
|
2,883
|
|
|
|
1,201
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,201
|
|
Interest receivable
|
|
|
6,677
|
|
|
|
6,677
|
|
|
|
-
|
|
|
|
6,677
|
|
|
|
-
|
|
Deferred compensation assets
|
|
|
3,990
|
|
|
|
3,990
|
|
|
|
3,990
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits
|
|
|
515,622
|
|
|
|
512,134
|
|
|
|
-
|
|
|
|
512,134
|
|
|
|
-
|
|
Securities sold under agreements to repurchase
|
|
|
1,601
|
|
|
|
1,601
|
|
|
|
-
|
|
|
|
1,601
|
|
|
|
-
|
|
Interest payable
|
|
|
472
|
|
|
|
472
|
|
|
|
-
|
|
|
|
472
|
|
|
|
-
|
|
Derivative liabilities
|
|
|
510
|
|
|
|
510
|
|
|
|
-
|
|
|
|
510
|
|
|
|
-
|
|
Deferred compensation liabilities
|
|
|
3,990
|
|
|
|
3,990
|
|
|
|
3,990
|
|
|
|
-
|
|
|
|
-
|
|
Note 16. Litigation, Commitments, and Contingencies
Litigation
In the normal course of business, the Company is a defendant in various legal actions and asserted claims. While the Company and its legal counsel are unable to assess the ultimate outcome of each of these matters with certainty, the Company believes the resolution of these actions, singly or in the aggregate, should not have a material adverse effect on its financial condition, results of operations, or cash flows.
Commitments and Contingencies
The Company is a party to financial instruments with off balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit, and financial guarantees. These instruments involve, to varying degrees, elements of credit and interest rate risk beyond the amount recognized in the consolidated balance sheets. The contractual amounts of these instruments reflect the extent of involvement the Company has in particular classes of financial instruments. If the other party to a financial instrument does not perform, the Company’s credit loss exposure is the same as the contractual amount of the instrument. The Company uses the same credit policies in making commitments and conditional obligations as it does for on balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many commitments are expected to expire without being drawn on, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of each customer on a case-by-case basis. Collateral may include accounts receivable, inventory, property, plant and equipment, and income producing commercial properties. The Company maintains a reserve for the risk inherent in unfunded lending commitments, which is included in other liabilities in the consolidated balance sheets.
Standby letters of credit and financial guarantees are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending credit to customers. The amount of collateral obtained, if deemed necessary, to secure the customer’s performance under certain letters of credit is based on management’s credit evaluation of the customer.
The following table presents the off-balance sheet financial instruments as of the dates indicated:
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
Commitments to extend credit
|
|
$
|
218,577
|
|
|
$
|
228,716
|
|
Standby letters of credit and financial guarantees(1)
|
|
|
174,545
|
|
|
|
167,612
|
|
Total off-balance sheet risk
|
|
|
393,122
|
|
|
|
396,328
|
|
|
|
|
|
|
|
|
|
|
Reserve for unfunded commitments
|
|
$
|
66
|
|
|
$
|
66
|
|
(1)
|
Includes FHLB letters of credit
|