FIRST GUARANTY BANCSHARES, INC.
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 2015
Commission File Number 000-52748
FIRST GUARANTY BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
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Louisiana
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26-0513559
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(State or other jurisdiction incorporation or organization)
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(I.R.S. Employer Identification Number)
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400 East Thomas Street
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Hammond, Louisiana
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70401
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(Address of principal executive office)
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(Zip Code)
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(985) 345-7685
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(Telephone number, including area code)
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
x
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes
x
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company
x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
o
No
x
As of May 14 , 2015 the registrant had 6,291,332 shares of $1 par value common stock outstanding.
1
| Table of Contents | ||
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Page
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||
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Part I.
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||
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Item 1.
|
3 | |
|
3
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||
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4
|
||
| 5 | ||
| 6 | ||
| 7 | ||
|
8
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||
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Item 2.
|
24 | |
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Item 3.
|
37 | |
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Item 4.
|
39 | |
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Part II.
|
39 | |
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Item 1.
|
39 | |
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Item 1A.
|
39 | |
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Item 6.
|
40 | |
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Signatures
|
41 | |
|
|
||||||
| (in thousands, except share data) |
March 31, 2015
|
December 31, 2014
|
||||
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Assets
|
||||||
|
Cash and cash equivalents:
|
||||||
|
Cash and due from banks
|
$
|
45,011 |
$
|
44,365
|
||
|
Federal funds sold
|
169 |
210
|
||||
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Cash and cash equivalents
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45,180 |
44,575
|
||||
| Interest-earning time deposits with banks | 9,747 | 10,247 | ||||
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Investment securities:
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||||||
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Available for sale, at fair value
|
483,394
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499,808
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||||
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Held to maturity, at cost (
estimated fair value of $186,762 and $139,688 respectively
)
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187,091
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141,795
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||||
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Investment securities
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670,485
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641,603
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||||
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Federal Home Loan Bank stock, at cost
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1,457
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1,621
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||||
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Loans, net of unearned income
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796,172
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790,321
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||||
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Less: allowance for loan losses
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9,414 |
9,105
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||||
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Net loans
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786,758 |
781,216
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||||
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Premises and equipment, net
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19,254
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19,211
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||||
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Goodwill
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1,999
|
1,999
|
||||
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Intangible assets, net
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1,645 |
1,733
|
||||
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Other real estate, net
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2,363 |
2,198
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||||
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Accrued interest receivable
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6,729 |
6,384
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||||
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Other assets
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5,695 |
8,089
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||||
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Total Assets
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$
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1,551,312
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$
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1,518,876
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||
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Liabilities and Shareholders' Equity
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||||||
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Deposits:
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||||||
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Noninterest-bearing demand
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$
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213,251
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$
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207,969
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||
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Interest-bearing demand
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440,676
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432,294
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||||
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Savings
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76,540 |
74,550
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||||
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Time
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664,597
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657,026
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||||
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Total deposits
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1,395,064 |
1,371,839
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||||
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Short-term borrowings
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1,800 |
1,800
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||||
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Accrued interest payable
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2,200
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1,997
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||||
| Long-term borrowings | 1,305 | 1,455 | ||||
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Other liabilities
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4,819 |
2,202
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||||
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Total Liabilities
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1,405,188
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1,379,293
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||||
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Shareholders' Equity
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||||||
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Preferred stock:
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||||||
| Series C - $1,000 par value - authorized 39,435 shares; issued and outstanding 39,435 | 39,435 | 39,435 | ||||
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Common stock:
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||||||
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$1 par value - authorized 100,600,000 shares; issued 6,294,227 shares
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6,294
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6,294
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||||
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Surplus
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39,387
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39,387
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||||
| Treasury stock, at cost, 2,895 shares | (54 | ) | (54 | ) | ||
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Retained earnings
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56,568
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54,280
|
||||
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Accumulated other comprehensive income
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4,494 |
241
|
||||
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Total Shareholders' Equity
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146,124
|
139,583
|
||||
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Total Liabilities and Shareholders' Equity
|
$
|
1,551,312 |
$
|
1,518,876
|
||
3
|
|
||||||
| Three Months Ended March 31, | ||||||
| (in thousands, except share data) | 2015 |
2014
|
||||
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Interest Income:
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||||||
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Loans (including fees)
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$
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10,739 | $ |
9,508
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||
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Deposits with other banks
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20 |
32
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||||
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Securities (including FHLB stock)
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3,345 |
3,341
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||||
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Total Interest Income
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14,104 |
12,881
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||||
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Interest Expense:
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||||||
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Demand deposits
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358 | 351 | ||||
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Savings deposits
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9 | 8 | ||||
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Time deposits
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1,843 |
1,967
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||||
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Borrowings
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34 | 30 | ||||
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Total Interest Expense
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2,244 |
2,356
|
||||
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Net Interest Income
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11,860 | 10,525 | ||||
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Less: Provision for loan losses
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610 | 300 | ||||
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Net Interest Income after Provision for Loan Losses
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11,250 | 10,225 | ||||
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Noninterest Income:
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||||||
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Service charges, commissions and fees
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646 | 680 | ||||
| ATM and debit card fees | 426 | 392 | ||||
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Net gains on securities
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316 |
153
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||||
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Net gains on sale of loans
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- |
19
|
||||
| Gain on sale of assets | - | 9 | ||||
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Other
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354 | 378 | ||||
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Total Noninterest Income
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1,742 |
1,631
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||||
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Noninterest Expense:
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||||||
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Salaries and employee benefits
|
4,046 |
3,830
|
||||
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Occupancy and equipment expense
|
983 |
993
|
||||
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Other
|
2,864 | 2,801 | ||||
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Total Noninterest Expense
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7,893 | 7,624 | ||||
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Income Before Income Taxes
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5,099 | 4,232 | ||||
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Less: Provision for income taxes
|
1,705 | 1,447 | ||||
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Net Income
|
3,394 | 2,785 | ||||
|
Preferred Stock Dividends
|
(99 | ) |
(99
|
)
|
||
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Income Available to Common Shareholders
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$
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3 ,295 | $ |
2,686
|
||
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Per Common Share:
|
||||||
| Earnings |
$
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0.52 | $ | 0.43 | ||
| Cash dividends paid | $ | 0.16 | $ | 0.16 | ||
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Weighted Average Common Shares Outstanding
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6,291,332
|
6,291,332
|
||||
|
See Notes to Consolidated Financial Statements
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||||||
4
| FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY | ||||||
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
|
||||||
| Three Months Ended March 31, | ||||||
| (in thousands) | 2015 | 2014 | ||||
| Net Income | $ | 3,394 | $ | 2,785 | ||
| Other comprehensive income: | ||||||
| Unrealized gains on securities: | ||||||
| Unrealized holding gains arising during the period | 6,759 | 6,777 | ||||
| Reclassification adjustments for gains included in net income | (316 | ) | (153 | ) | ||
| Change in unrealized gains on securities | 6,443 | 6,624 | ||||
| Tax impact | (2,190 | ) | (2,252 | ) | ||
| Other comprehensive income | 4,253 | 4,372 | ||||
| Comprehensive Income | $ | 7,647 | $ | 7,157 | ||
| See Notes to Consolidated Financial Statements | ||||||
5
| FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY | |||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited) | |||||||||||||||||||||
| Series C | Accumulated | ||||||||||||||||||||
| Preferred | Common | Other | |||||||||||||||||||
| Stock | Stock | Treasury | Retained | Comprehensive | |||||||||||||||||
| $1,000 Par | $1 Par | Surplus | Stock | Earnings | Income/(Loss) | Total | |||||||||||||||
| (in thousands, except per share data) | |||||||||||||||||||||
|
Balance December 31, 2013
|
$ | 39,435 | $ | 6,294 | $ |
39,387
|
$ | (54 | ) | $ |
47,477
|
$ |
(9,134
|
)
|
$ |
123,405
|
|||||
|
Net income
|
- |
-
|
-
|
- |
2,785
|
-
|
2,785
|
||||||||||||||
|
Other comprehensive income
|
- |
-
|
-
|
- |
-
|
4,372
|
4,372 |
|
|||||||||||||
|
Cash dividends on common stock ($0.16 per share)
|
- |
-
|
-
|
- |
(1,007
|
)
|
|
(1,007
|
)
|
||||||||||||
|
Preferred stock dividend
|
- |
-
|
-
|
- |
(99
|
)
|
|
(99
|
)
|
||||||||||||
|
Balance March 31, 2014 (unaudited)
|
$ | 39,435 | $ |
6,294
|
$ | 39,387 | $ | (54 |
)
|
$ |
49,156
|
$ |
(4,762
|
)
|
$ |
129,456
|
|||||
|
Balance December 31, 2014
|
$ | 39,435 | $ |
6,294
|
$ |
39,387
|
$ | (54 |
)
|
$ |
54,280
|
$ |
241
|
$ | 139,583 | ||||||
| Net income | - | - | - | - | 3,394 | - | 3,394 | ||||||||||||||
|
Other comprehensive income
|
- |
-
|
-
|
- |
-
|
4,253
|
|
4,253
|
|
||||||||||||
|
Cash dividends on common stock ($0.16 per share)
|
- |
-
|
-
|
- |
(1,007
|
)
|
-
|
(1,007
|
)
|
||||||||||||
|
Preferred stock dividend
|
- |
-
|
-
|
- |
(99
|
)
|
-
|
(99
|
)
|
||||||||||||
|
Balance March 31, 2015 (unaudited)
|
$ | 39,435 | $ | 6,294 | $ |
39,387
|
$ | (54 |
)
|
$ |
56,568
|
$ |
4,494
|
$ |
146,124
|
||||||
|
See Notes to Consolidated Financial Statements
|
|||||||||||||||||||||
6
|
|
||||||
|
Three Months Ended March 31,
|
||||||
| (in thousands) |
2015
|
2014
|
||||
|
Cash Flows From
Operating Activities
|
||||||
|
Net income
|
$
|
3,394 |
$
|
2,785
|
||
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||
|
Provision for loan losses
|
610
|
300
|
||||
|
Depreciation and amortization
|
530
|
540
|
||||
|
Amortization/Accretion of investments
|
527 |
493
|
||||
| Gain on sale/call of securities | (316 | ) | (153 | ) | ||
| Gain on sale of assets | - | (21 | ) | |||
|
ORE write downs and loss on disposition
|
50 |
16
|
||||
| FHLB stock dividends | (1 | ) | (1 | ) | ||
| Net decrease in loans held for sale | - | 88 | ||||
|
Change in other assets and liabilities, net
|
1,168
|
3,029
|
||||
|
Net Cash Provided By Operating Activities
|
5,962
|
7,076
|
||||
|
Cash Flows From Investing Activities
|
||||||
| Proceeds from maturities and calls of certificates of deposit | 500 | - | ||||
| Proceeds from maturities and calls of HTM securities | 6,487 |
3,646
|
||||
| Proceeds from maturities, calls and sales of AFS securities | 291,608 | 236,839 | ||||
| Funds Invested in AFS securities | (319,246 | ) |
(219,399
|
) | ||
|
Proceeds from sale/redemption of Federal Home Loan Bank stock
|
1,032 | 838 | ||||
|
Funds invested in Federal Home Loan Bank stock
|
(867 | ) | - | |||
|
Net increase in loans
|
(6,367 | ) | (8,018 | ) | ||
|
Purchase of premises and equipment
|
(473 | ) |
(308
|
) | ||
| Proceeds from sales of premises and equipment | - | 32 | ||||
|
Proceeds from sales of other real estate owned
|
- | 833 | ||||
|
Net Cash (Used In) Provided By Investing Activities
|
(27,326
|
)
|
14,463
|
|
||
|
Cash Flows From Financing
Activities
|
||||||
|
Net increase (decrease) in deposits
|
23,225 |
(6,330
|
) | |||
|
Net increase in federal funds purchased and short-term borrowings
|
-
|
4,401
|
||||
|
Repayment of long-term borrowings
|
(150
|
) |
(150
|
)
|
||
|
Dividends paid
|
(1,106
|
)
|
(1,106
|
)
|
||
|
Net Cash Provided By (Used In) Financing Activities
|
21,969
|
(3,185
|
) | |||
|
Net Increase In Cash and Cash Equivalents
|
605
|
18,354
|
||||
|
Cash and Cash Equivalents at the Beginning of the Period
|
44,575
|
61,484
|
||||
|
Cash and Cash Equivalents at the End of the Period
|
$
|
45,180
|
$
|
79,838
|
||
|
Noncash Activities:
|
||||||
|
Loans transferred to foreclosed assets
|
$
|
215
|
$
|
235
|
||
|
Cash Paid During The Period:
|
||||||
|
Interest on deposits and borrowed funds
|
$
|
2,041
|
$
|
2,203
|
||
|
Income taxes
|
$
|
400
|
$
|
500 | ||
|
See Notes to the Consolidated Financial Statements.
|
||||||
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles. The consolidated financial statements and the footnotes of First Guaranty Bancshares, Inc. (the “Company”) thereto should be read in conjunction with the audited financial statements and note disclosures for the Company previously filed with the Securities and Exchange Commission in the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2014.
The consolidated financial statements include the accounts of First Guaranty Bancshares, Inc. and its wholly owned subsidiary First Guaranty Bank. All significant intercompany balances and transactions have been eliminated in consolidation.
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary for a fair presentation of the consolidated financial statements. Those adjustments are of a normal recurring nature. The results of operations at March 31, 2105 and for the three month periods ended March 31, 2015 and 2014 are not necessarily indicative of the results expected for the full year. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Material estimates that are susceptible to significant change in the near term are the allowance for loan losses, valuation of goodwill, intangible assets and other purchase accounting adjustments.
In April 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-03, "Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs." The amendments in this guidance require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU.
This guidance is effective for interim and annual reporting periods beginning after December 15, 2015, with early adoption permitted. This guidance must be adopted retrospectively, wherein the balance sheet of each period presented should be adjusted to reflect the new guidance. The adoption of this guidance is not expected to have a material impact upon the Company’s financial statements.
8
A summary comparison of securities by type at March 31, 2015 and December 31, 2014 is shown below.
|
March 31, 2015
|
December 31, 2014
|
|||||||||||||||||||||||
| (in thousands) |
Amortized Cost
|
Gross Unrealized Gains
|
Gross Unrealized Losses
|
Fair Value
|
Amortized Cost
|
Gross Unrealized Gains
|
Gross Unrealized Losses
|
Fair Value
|
||||||||||||||||
|
Available for sale:
|
||||||||||||||||||||||||
| U.S Treasuries | $ |
-
|
$ | - | $ | - | $ | - | $ | 36,000 | $ | - | $ | - | $ | 36,000 | ||||||||
|
U.S. Government Agencies
|
309,409 | 366 |
(1,204
|
)
|
308,571
|
295,620
|
30
|
(4,155
|
)
|
291,495
|
||||||||||||||
|
Corporate debt securities
|
128,928 |
5,225
|
(792
|
)
|
133,361
|
126,654
|
4,415
|
(1,006
|
)
|
130,063
|
||||||||||||||
|
Mutual funds or other equity securities
|
2,075 |
2,560
|
-
|
4,635
|
570
|
4
|
-
|
574
|
||||||||||||||||
|
Municipal bonds
|
36,045 |
782
|
-
|
36,827 |
40,599
|
1,077
|
-
|
|
41,676
|
|||||||||||||||
|
Total available-for-sale securities
|
$
|
476,457 |
$
|
8,933
|
$
|
(1,996
|
)
|
$
|
483,394 |
$
|
499,443
|
$
|
5,526
|
$
|
(5,161
|
)
|
$
|
499,808
|
||||||
|
Held to maturity:
|
||||||||||||||||||||||||
|
U.S. Government Agencies
|
$
|
131,317 |
$
|
4
|
$
|
(554
|
)
|
$
|
130,767
|
$
|
84,479
|
$
|
-
|
$
|
(1,950
|
)
|
$
|
82,529
|
||||||
| Mortgage-backed securities | 55,774 | 272 | (51 | ) | 55,995 | 57,316 | 57 | (214 | ) | 57,159 | ||||||||||||||
|
Total held to maturity securities
|
$
|
187,091 |
$
|
276
|
$
|
(605
|
)
|
$
|
186,762 |
$
|
141,795
|
$
|
57
|
$
|
(2,164
|
)
|
$
|
139,688
|
||||||
The scheduled maturities of securities at March 31, 2015 and December 31, 2014, by contractual maturity, are shown below. Actual
maturities may differ from contractual maturities due to call or prepayments.
Mortgage-backed securities are not due at a single maturity because of amortization and potential prepayment of the underlying mortgages. For this reason they are presented separately in the maturity table below.
|
March 31, 2015
|
December 31, 2014 | |||||||||||
| (in thousands) |
Amortized Cost
|
Fair Value
|
Amortized Cost | Fair Value | ||||||||
|
Available For Sale:
|
||||||||||||
|
Due in one year or less
|
$
|
21,710
|
$
|
21,835 | $ | 71,547 | $ | 71,665 | ||||
|
Due after one year through five years
|
307,606
|
309,463 | 219,470 | 219,785 | ||||||||
|
Due after five years through 10 years
|
107,746
|
109,445 | 158,076 | 157,531 | ||||||||
|
Over 10 years
|
39,395
|
42,651 | 50,350 | 50,827 | ||||||||
|
Total available-for-sale securities
|
$
|
476,457
|
$
|
483,394 | $ | 499,443 | $ | 499,808 | ||||
|
Held to Maturity:
|
||||||||||||
|
Due in one year or less
|
$
|
-
|
$
|
-
|
$ | - | $ | - | ||||
|
Due after one year through five years
|
19,999
|
19,968
|
24,999 | 24,609 | ||||||||
|
Due after five years through 10 years
|
111,318
|
110,799
|
59,480 | 57,920 | ||||||||
|
Over 10 years
|
-
|
-
|
- | - | ||||||||
| Subtotal | 131,317 | 130,767 | 84,479 | 82,529 | ||||||||
| Mortgage-backed Securities | 55,774 | 55,995 | 57,316 | 57,159 | ||||||||
|
Total held to maturity securities
|
$
|
187,091
|
$
|
186,762 | $ | 141,795 | $ | 139,688 | ||||
At March 31, 2015
$537.6
million of the Company's securities were pledged to secure public fund deposits and borrowings.
The pledged securities had a market value of $537.3 million as of March 31, 2015.
The following is a summary of the fair value of securities with gross unrealized losses and an aging of those gross unrealized losses at March 31, 2015.
| At March 31, 2015 | ||||||||||||||||||||||||
| Less Than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
| (in thousands) | Number of Securities |
Fair Value
|
Gross Unrealized Losses
|
Number of Securities |
Fair Value
|
Gross Unrealized Losses
|
Number of Securities |
Fair Value
|
Gross Unrealized Losses
|
|||||||||||||||
|
Available for sale:
|
||||||||||||||||||||||||
| U.S. Treasuries | - | $ | - | $ | - | - | $ | - | $ | - | - | $ | - | $ | - | |||||||||
|
U.S. Government agencies
|
25 |
85,583
|
(311 | ) | 25 |
93,494
|
|
(893
|
) | 50 | 179,077 |
(1,204
|
) | |||||||||||
|
Corporate debt securities
|
43 |
19,055
|
(250 | ) | 24 |
5,536
|
(542
|
) | 67 |
24,591
|
(792
|
) | ||||||||||||
|
Mutual funds or other equity securities
|
- |
-
|
-
|
- | - |
-
|
- |
-
|
-
|
|||||||||||||||
| Municipal bonds | - | - | - | - | - | - | - | - | - | |||||||||||||||
|
Total available-for-sale securities
|
68 |
$
|
104,638
|
$
|
(561
|
) | 49 |
$
|
99,030
|
$
|
(1,435
|
) | 117 |
$
|
203,668
|
$
|
(1,996
|
) | ||||||
|
Held to maturity:
|
||||||||||||||||||||||||
|
U.S. Government agencies
|
11 |
45,094
|
|
(220
|
) | 7 |
|
23,832
|
|
(334
|
) | 18 |
|
68,926
|
|
(554
|
) | |||||||
| Mortgage-backed securities | 5 | 15,493 | (51 | ) | - | - | - | 5 | 15,493 | (51 | ) | |||||||||||||
|
Total held to maturity
|
16 |
$
|
60,587
|
$
|
(271
|
) | 7 |
$
|
23,832
|
$
|
(334
|
) | 23 |
$
|
84,419
|
$
|
(605
|
) | ||||||
9
The following is a summary of the fair value of securities with gross unrealized losses and an aging of those gross unrealized losses at December 31, 2014.
| At December 31, 2014 | ||||||||||||||||||||||||
| Less Than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
| (in thousands) |
Number
of Securities
|
Fair Value
|
Gross Unrealized Losses
|
Number of Securities |
Fair Value
|
Gross Unrealized Losses
|
Number of Securities |
Fair Value
|
Gross Unrealized Losses
|
|||||||||||||||
|
Available for sale:
|
||||||||||||||||||||||||
| U.S. Treasuries | 4 | $ | 24,000 | $ | - | - | $ | - | $ | - | 4 | $ | 24,000 | $ | - | |||||||||
|
U.S. Government agencies
|
4 |
43,983
|
(17
|
) | 66 |
232,482
|
|
(4,138
|
) | 70 |
276,465
|
(4,155
|
) | |||||||||||
|
Corporate debt securities
|
37 |
15,395
|
(238
|
) | 50 |
15,397
|
(768
|
) | 87 |
30,792
|
(1,006
|
) | ||||||||||||
|
Mutual funds or other equity securities
|
- |
-
|
-
|
- |
-
|
-
|
- |
-
|
-
|
|||||||||||||||
|
Total available for sale
|
45 |
$
|
83,378
|
$
|
(255
|
) | 116 |
$
|
247,879
|
$
|
(4,906
|
) | 161 |
$
|
331,257
|
$
|
(5,161
|
) | ||||||
|
Held to maturity:
|
||||||||||||||||||||||||
|
U.S. Government agencies
|
1 |
$
|
4,993
|
$
|
(7
|
) | 19 |
$
|
77,536
|
$
|
(1,943
|
) | 20 |
$
|
82,529
|
$
|
(1,950
|
) | ||||||
| Mortgage-backed securities | 7 | 12,008 | (13 | ) | 12 | 29,415 | (201 | ) | 19 | 41,423 | (214 | ) | ||||||||||||
|
Total held to maturity
|
8 |
$
|
17,001
|
$
|
(20
|
) | 31 |
$
|
106,951
|
$
|
(2,144
|
) | 39 |
$
|
123,952
|
$
|
(2,164
|
) | ||||||
Securities are evaluated for other-than-temporary impairment at least quarterly and more frequently when economic or market conditions warrant such evaluation. Consideration is given to (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, (iii) the recovery of contractual principal and interest and (iv) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
The amount of investment securities issued by U.S. Government and Government sponsored agencies with unrealized losses and the amount of unrealized losses on those investment securities are the result of changes in market interest rates. The Company has the ability and intent to hold these securities in its current portfolio until recovery, which may be until maturity.
The corporate debt securities consist primarily of corporate bonds issued by financial, insurance, utility, manufacturing, industrial, consumer products and oil and gas organizations. The Company believes that each of the issuers will be able to fulfill the obligations of these securities based on evaluations described above. The Company has the ability and intent to hold these securities until they recover, which could be at their maturity dates.
The Company believes that the securities with unrealized losses reflect impairment that is temporary and there are currently no securities with other-than-temporary impairment.
At March 31, 2015, the Company's exposure to bond issuers that exceeded 10% of shareholders’ equity is below:
|
At March 31, 2015
|
||||||
|
(in thousands)
|
Amortized Cost
|
Fair Value
|
||||
|
U
.S Treasury
|
$
|
-
|
$
|
-
|
||
|
Federal Home Loan Bank (FHLB)
|
147,247
|
146,721
|
||||
|
Federal Home Loan Mortgage Corporation (Freddie Mac-FHLMC)
|
87,036
|
86,971
|
||||
|
Federal National Mortgage Association (Fannie Mae-FNMA)
|
127,141
|
126,867
|
||||
|
Federal Farm Credit Bank (FFCB)
|
135,075
|
134,774 | ||||
|
Total
|
$
|
496,499
|
$
|
495,333 | ||
10
The following table summarizes the components of the Company's loan portfolio as of March 31, 2015 and December 31, 2014:
|
March 31, 2015
|
December 31, 2014
|
|||||||||
| (in thousands except for %) |
Balance
|
As % of Category
|
Balance
|
As % of Category
|
||||||
|
Real
Estate:
|
||||||||||
|
Construction & land development
|
$
|
56,671
|
7.1
|
%
|
$
|
52,094
|
6.6
|
%
|
||
|
Farmland
|
13,974
|
1.7
|
%
|
13,539
|
1.7
|
%
|
||||
|
1- 4 Family
|
125,126
|
15.7
|
%
|
118,181
|
14.9
|
%
|
||||
|
Multifamily
|
14,308
|
1.8
|
%
|
14,323
|
1.8
|
%
|
||||
|
Non-farm non-residential
|
338,847
|
42.5
|
%
|
328,400
|
41.5
|
%
|
||||
|
Total Real Estate
|
548,926
|
68.8
|
%
|
526,537
|
66.5
|
%
|
||||
| Non-Real Estate: | ||||||||||
|
Agricultural
|
23,111
|
2.9
|
%
|
26,278
|
3.3
|
%
|
||||
|
Commercial and industrial
|
186,895
|
23.4
|
%
|
196,339
|
24.8
|
%
|
||||
|
Consumer and other
|
38,953
|
4.9
|
%
|
42,991
|
5.4
|
%
|
||||
| Total Non-Real Estate | 248,959 | 31.2 | % | 265,608 | 33.5 | % | ||||
|
Total loans before unearned income
|
797,885
|
100.0
|
%
|
792,145
|
100.0
|
%
|
||||
|
Unearned income
|
(1,713
|
)
|
(1,824
|
)
|
||||||
|
Total loans net of unearned income
|
$
|
796,172
|
$
|
790,321
|
||||||
The following table summarizes fixed and floating rate loans by contractual maturity, excluding nonaccrual loans, as of March 31, 2015 and December 31, 2014 unadjusted for scheduled principal payments, prepayments, or repricing opportunities. The average life of the loan portfolio may be substantially less than the contractual terms when these adjustments are considered.
|
March 31, 2015
|
December 31, 2014 | |||||||||||||||||
| (in thousands) |
Fixed
|
Floating
|
Total
|
Fixed | Floating | Total | ||||||||||||
|
One year or less
|
$
|
91,067
|
$
|
83,162
|
$
|
174,229
|
$ |
88,686
|
$ |
72,250
|
$ |
160,936
|
||||||
|
One to five years
|
269,104
|
210,773
|
479,877
|
253,306
|
225,655
|
478,961
|
||||||||||||
|
Five to 15 years
|
50,944
|
41,481
|
92,425
|
67,012
|
39,634
|
106,646
|
||||||||||||
|
Over 15 years
|
30,483 |
8,486
|
38,969
|
25,304
|
8,104
|
33,408
|
||||||||||||
|
Subtotal
|
$
|
441,598
|
$ |
343,902
|
785,500
|
$ |
434,308
|
$ |
345,643
|
779,951
|
||||||||
|
Nonaccrual loans
|
12,385
|
12,194
|
||||||||||||||||
|
Total loans before unearned income
|
797,885
|
792,145
|
||||||||||||||||
|
Unearned income
|
(1,713
|
)
|
(1,824 | ) | ||||||||||||||
| Total loans net of unearned income | $ | 796,172 | $ | 790,321 | ||||||||||||||
As of March 31, 2015 $185.2 million of floating rate loans were at their interest rate floor. At December 31, 2014 $195.7 million of floating rate loans were at the floor rate. Nonaccrual
loans have been excluded from these totals.
The following tables present the age analysis of past due loans at March 31, 2015 and December 31, 2014:
|
As of March 31, 2015
|
||||||||||||||||||
|
(in thousands)
|
30-89 Days Past Due
|
90 Days or Greater
|
Total Past Due
|
Current
|
Total Loans
|
Recorded Investment 90 Days Accruing
|
||||||||||||
|
Real Estate:
|
||||||||||||||||||
|
Construction & land development
|
$
|
84
|
$
|
434 |
$
|
518
|
$
|
56,153
|
$
|
56,671 |
$
|
-
|
||||||
|
Farmland
|
68
|
153
|
221
|
13,753
|
13,974 |
-
|
||||||||||||
|
1 - 4 family
|
1,388
|
5,830
|
7,218
|
117,908
|
125,126
|
234
|
||||||||||||
|
Multifamily
|
-
|
4,344
|
4,344
|
9,964
|
14,308
|
3,006
|
||||||||||||
|
Non-farm non-residential
|
1,777
|
2,107
|
3,884 | 334,963 |
338,847
|
-
|
||||||||||||
|
Total Real Estate
|
|
3,317
|
|
12,868
|
|
16,185
|
532,741
|
548,926
|
3,240
|
|||||||||
|
Non-Real Estate:
|
||||||||||||||||||
|
Agricultural
|
|
13
|
826
|
839
|
22,272
|
23,111
|
-
|
|||||||||||
|
Commercial and industrial
|
879
|
1,893
|
2,772
|
184,123 |
186,895
|
-
|
||||||||||||
|
Consumer and other
|
164 |
38
|
202
|
38,751
|
38,953 |
-
|
||||||||||||
|
Total Non-Real Estate
|
|
1,056
|
|
2,757
|
3,813 |
245,146
|
248,959
|
-
|
||||||||||
|
Total loans before unearned income
|
$
|
4,373
|
$
|
15,625
|
$
|
19,998
|
$
|
777,887
|
$
|
797,885 |
$
|
3,240 | ||||||
|
Unearned income
|
(1,713 |
)
|
||||||||||||||||
|
Total loans net of unearned income
|
$
|
796,172
|
||||||||||||||||
11
|
As of December 31, 2014
|
||||||||||||||||||
|
(in thousands)
|
30-89 Days Past Due
|
90 Days or Greater
|
Total Past Due
|
Current
|
Total Loans
|
Recorded Investment 90 Days Accruing
|
||||||||||||
|
Real Estate:
|
||||||||||||||||||
|
Construction & land development
|
$
|
338
|
$
|
486
|
$
|
824
|
$
|
51,270
|
$
|
52,094
|
$
|
-
|
||||||
|
Farmland
|
10
|
153
|
163
|
13,376
|
13,539
|
-
|
||||||||||||
|
1 - 4 family
|
2,924
|
4,418
|
7,342
|
110,839
|
118,181
|
599
|
||||||||||||
|
Multifamily
|
2,990
|
-
|
2,990
|
11,333
|
14,323
|
-
|
||||||||||||
|
Non-farm non-residential
|
1,509
|
4,993
|
6,502
|
321,898
|
328,400
|
-
|
||||||||||||
|
Total Real Estate
|
7,771
|
10,050
|
17,821
|
508,716
|
526,537
|
599
|
||||||||||||
| Non-Real Estate: | ||||||||||||||||||
|
Agricultural
|
-
|
832
|
832
|
25,446
|
26,278
|
-
|
||||||||||||
|
Commercial and industrial
|
1,241
|
1,907
|
3,148
|
193,191
|
196,339
|
-
|
||||||||||||
|
Consumer and other
|
105
|
4
|
109
|
42,882
|
42,991
|
-
|
||||||||||||
| Total Non-Real Estate | 1,346 | 2,743 | 4,089 | 261,519 | 265,608 | - | ||||||||||||
|
Total loans before unearned income
|
$
|
9,117
|
$
|
12,793
|
$
|
21,910
|
$
|
770,235
|
$
|
792,145
|
$
|
599
|
||||||
|
Unearned income
|
(1,824
|
)
|
||||||||||||||||
|
Total loans net of unearned income
|
$
|
790,321
|
||||||||||||||||
The tables above include $12.4 million and $12.2 million of nonaccrual loans at March 31, 2015 and December 31, 2014, respectively. See the tables below for more detail on nonaccrual loans.
The following is a summary of nonaccrual loans by class at the date indicated:
|
in thousands)
|
As of March 31, 2015
|
As of December 31, 2014 | ||||
|
Real Estate:
|
||||||
|
Construction & land development
|
$
|
434 | $ |
486
|
||
|
Farmland
|
153 |
153
|
||||
|
1 - 4 family
|
5,596 |
3,819
|
||||
|
Multifamily
|
1,338 | - | ||||
|
Non-farm non-residential
|
2,107
|
4,993
|
||||
|
Total Real Estate
|
9,628 |
9,451
|
||||
| Non-Real Estate: | ||||||
|
Agricultural
|
826 |
832
|
||||
|
Commercial and industrial
|
1,893 |
1,907
|
||||
|
Consumer and other
|
38 |
4
|
||||
| Total Non-Real Estate | 2,757 | 2,743 | ||||
|
Total Nonaccrual Loans
|
$
|
12,385 | $ |
12,194
|
||
12
The following table identifies the credit exposure of the loan portfolio by specific credit ratings as of the dates indicated:
|
As of March 31, 2015
|
As of December 31, 2014 | |||||||||||||||||||||||||||||
|
(in thousands)
|
Pass
|
Special
Mention
|
Substandard
|
Doubtful |
Total
|
Pass |
Special
Mention
|
Substandard | Doubtful | Total | ||||||||||||||||||||
|
Real Estate:
|
||||||||||||||||||||||||||||||
|
Construction & land development
|
$
|
51,168
|
$
|
534
|
$
|
4,969 | $ | - |
$
|
56,671
|
$ |
46,451
|
$ |
559
|
$ |
5,084
|
$ | - | $ |
52,094
|
||||||||||
|
Farmland
|
13,744
|
77
|
153 | - |
13,974
|
13,299
|
87 |
153
|
- |
13,539
|
||||||||||||||||||||
|
1 - 4 family
|
110,517
|
6,245
|
8,364 | - |
125,126
|
103,582
|
6,113
|
8,486
|
- |
118,181
|
||||||||||||||||||||
|
Multifamily
|
4,103 | 5,862 |
4,343
|
- |
14,308
|
3,581
|
6,414
|
4,328
|
- |
14,323
|
||||||||||||||||||||
|
Non-farm non-residential
|
310,312
|
10,274
|
18,261
|
- |
338,847
|
300,319
|
6,788
|
21,293
|
- |
328,400
|
||||||||||||||||||||
|
Total Real Estate
|
489,844
|
22,992 |
36,090
|
- | 548,926 |
467,232
|
19,961
|
39,344
|
- |
526,537
|
||||||||||||||||||||
| Non-Real Estate: | ||||||||||||||||||||||||||||||
|
Agricultural
|
19,964
|
6
|
3,141
|
- |
23,111
|
22,789
|
7
|
3,482
|
- |
26,278
|
||||||||||||||||||||
|
Commercial and industrial
|
183,606 |
1,401
|
1,888
|
- | 186,895 |
185,839
|
8,611
|
1,889
|
- |
196,339
|
||||||||||||||||||||
|
Consumer and other
|
38,737
|
190
|
26 | - |
38,953
|
42,831
|
123
|
37
|
- |
42,991
|
||||||||||||||||||||
| Total Non-Real Estate | 242,307 | 1,597 | 5,055 | - | 248,959 | 251,459 | 8,741 | 5,408 | - | 265,608 | ||||||||||||||||||||
|
Total loans before unearned income
|
$
|
732,151
|
$
|
24,589
|
$
|
41,145 | $ | - |
$
|
797,885 | $ |
718,691
|
$ |
28,702
|
$ |
44,752
|
$ | - | $ |
792,145
|
||||||||||
|
Unearned income
|
(1,713
|
)
|
(1,824
|
) | ||||||||||||||||||||||||||
|
Total loans net of unearned income
|
$
|
796,172
|
$ |
790,321
|
||||||||||||||||||||||||||
13
A summary of changes in the allowance for loan losses, by portfolio type, for the three months ended March 31, 2015 and 2014 are as follows:
| As of March 31, | ||||||||||||||||||||||||||||||
|
2015
|
2014 | |||||||||||||||||||||||||||||
|
(in thousands)
|
Beginning
Allowance (12/31/14)
|
Charge-offs
|
Recoveries
|
Provision |
Ending
Allowance (3/31/15)
|
Beginning
Allowance (12/31/13)
|
Charge-offs
|
Recoveries
|
Provision |
Ending Allowance(3/31/14)
|
||||||||||||||||||||
|
Real Estate:
|
||||||||||||||||||||||||||||||
|
Construction & land development
|
$
|
702
|
$
|
-
|
$
|
1 | $ | (78 | ) |
$
|
625 | $ |
1,530
|
$ | - | $ |
1
|
$ | 193 | $ |
1,724
|
|||||||||
|
Farmland
|
21
|
-
|
-
|
(4 | ) |
17
|
17
|
- |
-
|
1 |
18
|
|||||||||||||||||||
|
1 - 4 family
|
2,131
|
(6
|
) | 48 | 148 | 2,321 |
1,974
|
(24
|
) |
30
|
(321 | ) |
1,659
|
|||||||||||||||||
|
Multifamily
|
813
|
-
|
10
|
(9 | ) |
814
|
376
|
-
|
-
|
69 |
445
|
|||||||||||||||||||
|
Non-farm non-residential
|
2,713
|
-
|
2
|
(425 | ) |
2,290
|
3,607
|
(865
|
) |
6
|
489 |
3,237
|
||||||||||||||||||
|
Total real estate
|
6
,380
|
(6
|
) | 61 | (368 | ) |
6,067
|
7,504
|
(889
|
) |
37
|
431 |
7,083
|
|||||||||||||||||
| Non-Real Estate: | ||||||||||||||||||||||||||||||
|
Agricultural
|
293 |
(336
|
) | - | 69 |
26
|
46
|
-
|
-
|
(8 | ) |
38
|
||||||||||||||||||
|
Commercial and industrial
|
1,797
|
-
|
5 | 329 |
2,131
|
2,176
|
(149
|
) |
6
|
(217 | ) |
1,816
|
||||||||||||||||||
|
Consumer and other
|
371
|
(76
|
) |
51
|
228 |
574
|
208
|
(99
|
) |
56
|
25 |
190
|
||||||||||||||||||
| Unallocated | 264 |
-
|
- | 352 | 616 | 421 | - | - | 69 | 490 | ||||||||||||||||||||
| Total Non-Real Estate | 2,725 |
(412
|
) | 56 | 978 | 3,347 | 2,851 | (248 | ) | 62 | (131 | ) | 2,534 | |||||||||||||||||
|
Total
|
$
|
9,105
|
$
|
(418
|
) |
$
|
117
|
$ | 610 |
$
|
9,414
|
$ |
10,355
|
$ |
(1,137
|
) | $ | 99 | $ | 300 | $ | 9,617 | ||||||||
Negative
provisions are caused by changes in the composition and credit quality of the loan portfolio. The result is an allocation of the loan loss reserve from one category to another.
14
A summary of the allowance and loans individually and collectively evaluated for impairment are as follows
:
| As of March 31, 2015 | ||||||||||||||||||
|
(in thousands)
|
Allowance
Individually
Evaluated
for Impairment
|
Allowance
Collectively
Evaluated
for Impairment
|
Total Allowance for
Credit Losses
|
Loans
Individually
Evaluated for Impairment
|
Loans
Collectively
Evaluated for Impairment
|
Total Loans before Unearned Income
|
||||||||||||
|
Real Estate:
|
||||||||||||||||||
|
Construction & land development
|
$
|
114
|
$ | 511 |
$
|
625 | $ | 4,117 | $ | 52,554 | $ | 56,671 | ||||||
|
Farmland
|
- | 17 |
17
|
-
|
13,974 |
13,974
|
||||||||||||
|
1 - 4 family
|
700 | 1,621 |
2,321
|
3,403 | 121,723 |
125,126
|
||||||||||||
|
Multifamily
|
501
|
313 | 814 | 7,200 | 7,108 | 14,308 | ||||||||||||
|
Non-farm non-residential
|
477
|
1,813 |
2,290
|
13,327
|
325,520 | 338,847 | ||||||||||||
|
Total Real Estate
|
1,792
|
4,275 | 6,067 |
28,047
|
520,879 | 548,926 | ||||||||||||
| Non-Real Estate: | ||||||||||||||||||
|
Agricultural
|
-
|
26 |
26
|
2,314
|
20,797 |
23,111
|
||||||||||||
|
Commercial and industrial
|
19
|
2,112 |
2,131
|
1,664
|
185,231 |
186,895
|
||||||||||||
|
Consumer and other
|
-
|
574 | 574 |
-
|
38,953 |
38,953
|
||||||||||||
| Unallocated | - | 616 | 616 | - | - | - | ||||||||||||
| Total Non-Real Estate | 19 | 3,328 | 3,347 | 3,978 | 244,981 | 248,959 | ||||||||||||
|
Total
|
$
|
1,811
|
$ | 7,603 |
$
|
9,414 | $ | 32,025 | $ | 765,860 | $ |
797,885
|
||||||
| Unearned Income | (1,713 | ) | ||||||||||||||||
| Total loans net of unearned income | $ | 796,172 | ||||||||||||||||
| As of December 31, 2014 | ||||||||||||||||||
|
(in thousands)
|
Allowance
Individually
Evaluated for
Impairment
|
Allowance
Collectively
Evaluated
for Impairment
|
Total Allowance for Credit Losses
|
Loans
Individually
Evaluated for Impairment
|
Loans
Collectively
Evaluated for Impairment
|
Total Loans before Unearned Income
|
||||||||||||
|
Real Estate:
|
||||||||||||||||||
|
Construction & land development
|
$
|
126
|
$ | 576 |
$
|
702
|
$ |
4,150
|
$ | 47,944 | $ |
52,094
|
||||||
|
Farmland
|
-
|
21 |
21
|
-
|
13,539 |
13,539
|
||||||||||||
|
1 - 4 family
|
598
|
1,533 |
2,131
|
3,420
|
114,761 |
118,181
|
||||||||||||
|
Multifamily
|
437
|
376 |
813
|
7,201
|
7,122 |
14,323
|
||||||||||||
|
Non-farm non-residential
|
468
|
2,245 |
2,713
|
16,287
|
312,113 |
328,400
|
||||||||||||
|
Total Real Estate
|
1,629
|
4,751 |
6,380
|
31,058
|
495,479 |
526,537
|
||||||||||||
| Non-Real Estate: | ||||||||||||||||||
|
Agricultural
|
262
|
31 |
293
|
2,650
|
23,628 |
26,278
|
||||||||||||
|
Commercial and industrial
|
19
|
1,778 |
1,797
|
1,664
|
194,675 |
196,339
|
||||||||||||
|
Consumer and other
|
-
|
371 |
371
|
-
|
42,991 |
42,991
|
||||||||||||
| Unallocated | - | 264 | 264 | - | - | - | ||||||||||||
| Total Non-Real Estate | 281 | 2,444 | 2,725 | 4,314 | 261,294 | 265,608 | ||||||||||||
|
Total
|
$
|
1,910
|
$ | 7,195 |
$
|
9,105
|
$ |
35,372
|
$ | 756,773 | $ |
792,145
|
||||||
| Unearned Income | (1,824 | ) | ||||||||||||||||
| Total loans net of unearned income | $ | 790,321 | ||||||||||||||||
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Payment status, collateral value and the probability of collecting scheduled principal and interest payments when due are considered in evaluating loan impairment. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.
The significance of payment delays and payment shortfalls are considered on a case-by-case basis; all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed are factors considered. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent. This process is applied to impaired loan relationships in excess of $250,000.
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, individual consumer and residential loans are not separately identified for impairment disclosures, unless such loans are the subject of a restructuring agreement.
15
The following is a summary of impaired loans by class as of the date indicated:
|
As of March 31, 2015
|
||||||||||||||||||
| (in thousands) |
Recorded Investment
|
Unpaid Principal
Balance
|
Related Allowance
|
Average Recorded Investment
|
Interest Income Recognized
|
Interest Income Cash Basis | ||||||||||||
|
Impaired Loans with no related allowance:
|
||||||||||||||||||
|
Real Estate:
|
||||||||||||||||||
|
Construction & land development
|
$
|
1,716
|
$
|
2,768
|
$
|
-
|
$
|
1,717
|
$
|
22
|
$ | 23 | ||||||
|
Farmland
|
-
|
-
|
-
|
-
|
-
|
- | ||||||||||||
|
1 - 4 family
|
1,353 | 1,652 |
-
|
1,360
|
7
|
18 | ||||||||||||
|
Multifamily
|
-
|
-
|
-
|
-
|
-
|
- | ||||||||||||
|
Non-farm non-residential
|
4,547
|
5,139
|
-
|
4,557 |
32
|
46 | ||||||||||||
|
Total Real Estate
|
7,616
|
9,559
|
-
|
7,634
|
61
|
87 | ||||||||||||
| Non-Real Estate: | ||||||||||||||||||
|
Agricultural
|
2,314
|
2,314
|
-
|
2,482
|
40
|
- | ||||||||||||
|
Commercial and industrial
|
-
|
-
|
-
|
-
|
-
|
- | ||||||||||||
|
Consumer and other
|
-
|
-
|
-
|
-
|
-
|
- | ||||||||||||
| Total Non-Real Estate | 2,314 | 2,314 | - | 2,482 | 40 | - | ||||||||||||
| Total Impaired Loans with no related allowance | 9,930 | 11,873 | - | 10,116 | 101 | 87 | ||||||||||||
|
Impaired Loans w
ith an allowance recorded:
|
||||||||||||||||||
|
Real Estate:
|
||||||||||||||||||
|
Construction & land development
|
2,401
|
2,401
|
114
|
2,417
|
43 | 37 | ||||||||||||
|
Farmland
|
- |
-
|
-
|
-
|
-
|
- | ||||||||||||
|
1 - 4 family
|
2,051
|
2,068 |
700
|
2,052 |
9
|
4 | ||||||||||||
|
Multifamily
|
1,337
|
1,337
|
455
|
1,337
|
14
|
15 | ||||||||||||
|
Non-farm non-residential
|
8,780
|
8,780
|
477
|
8,814 | 105 | 106 | ||||||||||||
|
Total Real Estate
|
14,569
|
14,586 |
1,746
|
14,620
|
171
|
162 | ||||||||||||
| Non-Real Estate: | ||||||||||||||||||
|
Agricultural
|
-
|
-
|
-
|
-
|
-
|
- | ||||||||||||
|
Commercial and industrial
|
1,664
|
1,854
|
19
|
1,664
|
-
|
- | ||||||||||||
|
Consumer and other
|
-
|
-
|
-
|
-
|
-
|
- | ||||||||||||
| Total Non-Real Estate | 1,664 | 1,854 | 19 | 1,664 | - | - | ||||||||||||
| Total Impaired Loans with an allowance recorded | 16,233 | 16,440 | 1,765 | 16,284 | 171 | 162 | ||||||||||||
|
Total Impaired Loans
|
$
|
26,163
|
$
|
28,313
|
$
|
1,765 |
$
|
26,400 |
$
|
272
|
$ | 249 | ||||||
16
The following is a summary of impaired loans by class as of the date indicated:
|
As of December 31, 2014
|
||||||||||||||||||
| (in thousands) |
Recorded Investment
|
Unpaid Principal Balance
|
Related Allowance
|
Average Recorded Investment
|
Interest Income Recognized
|
Interest Income Cash Basis | ||||||||||||
|
Impaired Loans with no related allowance:
|
||||||||||||||||||
|
Real Estate:
|
||||||||||||||||||
|
Construction & land development
|
$
|
3,308
|
$
|
4,359
|
$
|
-
|
$
|
3,479
|
$
|
217
|
$ | 224 | ||||||
|
Farmland
|
-
|
-
|
-
|
-
|
-
|
- | ||||||||||||
|
1 - 4 family
|
1,368
|
1,656
|
-
|
397
|
72
|
43 | ||||||||||||
|
Multifamily
|
-
|
-
|
-
|
148
|
31
|
34 | ||||||||||||
|
Non-farm non-residential
|
7,439
|
9,008
|
-
|
8,694
|
422
|
275 | ||||||||||||
|
Total Real Estate
|
12,115
|
15,023
|
-
|
12,718
|
742
|
576 | ||||||||||||
| Non-Real Estate: | ||||||||||||||||||
|
Agricultural
|
-
|
-
|
-
|
-
|
-
|
- | ||||||||||||
|
Commercial and industrial
|
-
|
-
|
-
|
-
|
-
|
- | ||||||||||||
|
Consumer and other
|
-
|
-
|
-
|
-
|
-
|
- | ||||||||||||
| Total Non-Real Estate | - | - | - | - | - | - | ||||||||||||
| Total Impaired Loans with no related allowance | 12,115 | 15,023 | - | 12,718 | 742 | 576 | ||||||||||||
|
Impaired Loans w
ith an allowance recorded:
|
||||||||||||||||||
|
Real Estate:
|
||||||||||||||||||
|
Construction & land development
|
842
|
842
|
126
|
829
|
48
|
43 | ||||||||||||
|
Farmland
|
-
|
-
|
-
|
-
|
-
|
- | ||||||||||||
|
1 - 4 family
|
2,052
|
2,068
|
598
|
2,062
|
97
|
87 | ||||||||||||
|
Multifamily
|
1,338
|
1,337
|
398
|
1,340
|
60
|
55 | ||||||||||||
|
Non-farm non-residential
|
8,848
|
8,913
|
468
|
8,948
|
317
|
327 | ||||||||||||
|
Total Real Estate
|
13,080
|
13,160
|
1,590
|
13,179
|
522
|
512 | ||||||||||||
| Non-Real Estate: | ||||||||||||||||||
|
Agricultural
|
2,650
|
2,650
|
262
|
-
|
-
|
- | ||||||||||||
|
Commercial and industrial
|
1,664
|
1,854
|
19
|
-
|
-
|
- | ||||||||||||
|
Consumer and other
|
-
|
-
|
-
|
-
|
-
|
- | ||||||||||||
| Total Non-Real Estate | 4,314 | 4,504 | 281 | - | - | - | ||||||||||||
| Total Impaired Loans with an allowance recorded | 17,394 | 17,664 | 1,871 | 13,179 | 522 | 512 | ||||||||||||
|
Total Impaired Loans
|
$
|
29,509
|
$
|
32,687
|
$
|
1,871
|
$
|
25,897
|
$
|
1,264
|
$ | 1,088 | ||||||
17
A Troubled Debt Restructuring ("TDR") is considered such if the creditor for economic or legal reasons related to the debtor's financial difficulties grants a concession to the debtor that it would not otherwise consider. The modifications to the Company's TDRs were concessions on the interest rate charged. The effect of the modifications to the Company was a reduction in interest income. These loans have an allocated reserve in the Company's reserve for loan losses. The Company has not restructured any loans that are considered troubled debt restructurings in the prior three months.
The following table identifies the Troubled Debt Restructurings as of March 31, 2015 and December 31, 2014:
| Troubled Debt Restructurings | March 31, 2015 | December 31, 2014 | ||||||||||||||||||||||
| Accruing Loans | Accruing Loans | |||||||||||||||||||||||
| (in thousands) | Current | 30-89 Days Past Due | Nonaccrual | Total TDRs | Current | 30-89 Days Past Due | Nonaccrual | Total TDRs | ||||||||||||||||
| Real Estate: | ||||||||||||||||||||||||
| Construction & land development | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||
| Farmland | - | - | - | - | - | - | - | - | ||||||||||||||||
| 1-4 Family | - | - | 1,752 | 1,752 | - | 1,752 | - | 1,752 | ||||||||||||||||
| Multifamily | - | - | - | - | - | - | - | - | ||||||||||||||||
| Non-farm non residential | 2,995 | 452 | 230 | 3,677 | 2,998 | 452 | 230 | 3,680 | ||||||||||||||||
| Total Real Estate | 2,995 | 452 | 1,982 | 5,429 | 2,998 | 2,204 | 230 | 5,432 | ||||||||||||||||
| Non-Real Estate: | ||||||||||||||||||||||||
| Agricultural | - | - | - | - | - | - | - | - | ||||||||||||||||
| Commercial and industrial | - | - | - | - | - | - | - | - | ||||||||||||||||
| Consumer and other | - | - | - | - | - | - | - | - | ||||||||||||||||
| Total Non-Real Estate | - | - | - | - | - | - | - | - | ||||||||||||||||
| Total | $ | 2,995 | $ | 452 | $ | 1,982 | $ | 5,429 | $ | 2,998 | $ | 2,204 | $ | 230 | $ | 5,432 | ||||||||
The following table discloses TDR activity for the three months ended March 31, 2015.
|
Trouble Debt Restructured Loans Activity
Three Months Ended March 31, 2015
|
||||||||||||||||||||||||
| (in thousands) |
Beginning balance December 31,
2014
|
New TDRs
|
Charge-offs
post-
modification
|
Transferred to ORE
|
Paydowns
|
Construction to permanent financing |
Restructured
to market
terms
|
Ending balance
March 31, 2015
|
||||||||||||||||
|
Real Estate:
|
||||||||||||||||||||||||
|
Construction & land development
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$ | - | $ | - | $ | - | ||||||||
|
Farmland
|
-
|
-
|
-
|
-
|
-
|
- | - | - | ||||||||||||||||
|
1 - 4 family
|
1,752
|
-
|
-
|
-
|
-
|
- | - | 1,752 | ||||||||||||||||
|
Multifamily
|
-
|
-
|
-
|
-
|
-
|
- | - | - | ||||||||||||||||
|
Non-farm non-residential
|
3,680
|
-
|
-
|
-
|
(3
|
) | - | - | 3,677 | |||||||||||||||
|
Total Real Estate
|
5,432
|
|
-
|
-
|
(3
|
) | - | - | 5,429 | |||||||||||||||
| Non-Real Estate: | ||||||||||||||||||||||||
|
Agricultural
|
-
|
-
|
-
|
-
|
-
|
- | - | - | ||||||||||||||||
|
Commercial and industrial
|
-
|
-
|
-
|
-
|
-
|
- | - | - | ||||||||||||||||
|
Consumer and other
|
-
|
-
|
-
|
-
|
-
|
- | - | - | ||||||||||||||||
| Total Non-Real Estate | - | - | - | - | - | - | - | - | ||||||||||||||||
| Total Impaired Loans with no related allowance | $ | 5,432 | $ | - | $ | - | $ | - | $ | (3 | ) | $ | - | $ | - | $ | 5,429 | |||||||
There were no commitments to lend additional funds to debtors whose terms have been modified in a troubled debt restructuring at March 31, 2015.
18
Goodwill and intangible assets deemed to have indefinite lives are no longer amortized, but are subject to impairment testing. Other intangible assets continue to be amortized over their useful lives. The Company's goodwill is the difference in purchase price over the fair value of net assets acquired from its acquisition of Homestead Bancorp in 2007. Goodwill totaled $2.0 million at March 31, 2015 and December 31, 2014. No impairment charges have been recognized on the Company's intangible assets.
Mortgage servicing rights were relatively unchanged totaling $0.1 million at March 31, 2015 and December 31, 2014. Other intangible assets recorded include core deposit intangibles, which are subject to amortization. The weighted-average amortization period remaining for the Company's core deposit intangibles is 5.1 years. The core deposits intangible reflect the value of deposit relationships, including the beneficial rates, which arose from acquisitions.
Other real estate owned consists of the following at the dates indicated:
|
(in thousands)
|
March 31, 2015 | December 31, 2014 | ||||
| Real Estate Owned Acquired by Foreclosure: | ||||||
| Residential | $ | 1,071 | $ | 1,121 | ||
| Construction & land development | 127 | 127 | ||||
| Non-farm non-residential | 1,165 | 950 | ||||
| Total Other Real Estate Owned and Foreclosed Property | $ | 2,363 | $ | 2,198 | ||
Loans secured by one-to-four family residential properties in the process of foreclosure totaled $0.6 million as of March 31, 2015
.
Off-balance sheet commitments
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 and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit and standby and commercial letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Balance Sheets. The contract or notional amounts of those instruments reflect the extent of the involvement in particular classes of financial instruments.
The exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby and commercial letters of credit is represented by the contractual notional amount of those instruments. The same credit policies are used in making commitments and conditional obligations as it does for balance sheet instruments. Unless otherwise noted, collateral or other security is not required to support financial instruments with credit risk.
Below is a summary of the notional amounts of the financial instruments with off-balance sheet risk at March 31, 2015 and December 31, 2014:
|
Contract Amount
|
||||||
|
(in thousands)
|
March 31, 2015
|
December 31, 2014
|
||||
|
Commitments to Extend Credit
|
$
|
70,215 |
$
|
59,675
|
||
|
Unfunded Commitments under lines of credit
|
$
|
115,991 |
$
|
111,247
|
||
|
Commercial and Standby letters of credit
|
$
|
7,065 |
$
|
7,743
|
||
Litigation
The nature of the Company’s business ordinarily results in a certain amount of claims, litigation and legal and administrative cases, all of which are considered incidental to the normal conduct of business. When the Company determines it has defenses to the claims asserted, it defends itself. The Company will consider settlement of cases when it is in the best interests of both the Company and its shareholders.
While the final outcome of legal proceedings is inherently uncertain, based on information currently available, any incremental liability arising from the Company’s legal proceedings will not have a material adverse effect on the Company’s financial position.
19
The following table details the changes in the single component of accumulated other comprehensive income for the three months ended March 31, 2015:
|
(in thousands)
|
Unrealized Gain (Loss) on Securities Available for Sale | ||
| Accumulated Other Comprehensive (Loss) Income: | |||
|
Balance December 31, 2014
|
$ | 241 | |
| Reclassification adjustments to net income: | |||
| Realized gains on securities | (316 | ) | |
| Provision for income taxes | 107 | ||
| Unrealized gains arising during the period, net of tax | 4,462 | ||
| Balance March 31, 2015 | $ | 4,494 | |
The following table details the changes in the single component of accumulated other comprehensive income for the three months ended March 31, 2014:
|
(in thousands)
|
Unrealized Gain (Loss) on Securities Available for Sale | ||
| Accumulated Other Comprehensive (Loss) Income: | |||
|
Balance December 31, 2013
|
$ | (9,134 | ) |
| Reclassification adjustments to net income: | |||
| Realized gains on securities | (153 | ) | |
| Provision for income taxes | 52 | ||
| Unrealized gains arising during the period, net of tax | 4,473 | ||
| Balance March 31, 2014 | $ | (4,762 | ) |
20
The fair value of a financial instrument is the current amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. Valuation techniques use certain inputs to arrive at fair value. Inputs to valuation techniques are the assumptions that market participants would use in pricing the asset or liability. They may be observable or unobservable. The Company uses a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
Level 1 Inputs
– Unadjusted quoted market prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 Inputs
– Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds or credit risks) or inputs that are derived principally from or corroborated by market data by correlation or other means.
Level 3 Inputs
– Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
A description of the valuation methodologies used for instruments measured at fair value follows, as well as the classification of such instruments within the valuation hierarchy.
Securities available for sale.
Securities are classified within Level 1 where quoted market prices are available in an active market. Inputs include securities that have quoted prices in active markets for identical assets. If quoted market prices are unavailable, fair value is estimated using quoted prices of securities with similar characteristics, at which point the securities would be classified within Level 2 of the hierarchy. Securities classified within Level 3 in the Company's portfolio as of March 31, 2015 include municipal bonds and one preferred equity security.
Impaired loans.
Loans are measured for impairment using the methods permitted by ASC Topic 310. Fair value of impaired loans is measured by either the fair value of the collateral if the loan is collateral dependent (Level 2 or Level 3), or the present value of expected future cash flows, discounted at the loan's effective interest rate (Level 3). Fair value of the collateral is determined by appraisals or by independent valuation.
Other real estate owned.
Properties are recorded at the balance of the loan or at estimated fair value less estimated selling costs, whichever is less, at the date acquired. Fair values of other real estate owned ("OREO") at December 31, 2014 and 2013 are determined by sales agreement or appraisal, and costs to sell are based on estimation per the terms and conditions of the sales agreement or amounts commonly used in real estate transactions. Inputs include appraisal values or recent sales activity for similar assets in the property’s market; thus OREO measured at fair value would be classified within either Level 2 or Level 3 of the hierarchy.
Certain non-financial assets and non-financial liabilities are measured at fair value on a non-recurring basis including assets and liabilities related to reporting units measured at fair value in the testing of goodwill impairment, as well as intangible assets and other non-financial long-lived assets measured at fair value for impairment assessment.
The following table summarizes financial assets measured at fair value on a recurring basis as of March 31, 2015 and December 31, 2014, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
|
(in thousands)
|
March 31, 2015
|
December 31, 2014
|
||||
|
Available for Sale Securities Fair Value Measurements Using:
|
||||||
|
Level 1: Quoted Prices in Active Markets For Identical Assets
|
$
|
510 |
$
|
36,504 | ||
|
Level 2: Significant Other Observable Inputs
|
|
468,344 |
|
454,524 | ||
|
Level 3: Significant Unobservable Inputs
|
|
14,540 |
|
8,780 | ||
| Securities available for sale measured at fair value | $ | 483,394 | $ | 499,808 | ||
The Company's valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While the methodologies used are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value.
The change in Level 1 securities available for sale from December 31, 2014 was due principally to a reduction in Treasury bills of $36.0 million.
21
The following table measures financial assets and financial liabilities measured at fair value on a non-recurring basis as of March 31, 2015 and December 31, 2014, segregated by the level of valuation inputs within the fair value hierarchy utilized to measure fair value:
|
(in thousands)
|
At March 31, 2015
|
At December 31, 2014
|
||||
|
Impaired Loans - Fair Value Measurements Using:
|
||||||
|
Level 1: Quoted Prices in Active Markets For Identical Assets
|
$
|
- |
$
|
- | ||
|
Level 2: Significant Other Observable Inputs
|
|
9,988 |
|
5,244 | ||
|
Level 3: Significant Unobservable Inputs
|
|
14,410 |
|
15,618 | ||
| Impaired loans measured at fair value | $ | 24,398 | $ | 20,862 | ||
|
|
||||||
|
Other Real Estate Owned - Fair Value Measurements Using:
|
||||||
|
Level 1: Quoted Prices in Active Markets For Identical Assets
|
$
|
- |
$
|
- | ||
|
Level 2: Significant Other Observable Inputs
|
|
2,012 |
|
1,847 | ||
|
Level 3: Significant Unobservable Inputs
|
|
351 |
|
351 | ||
| Other real estate owned measured at fair value | $ | 2,363 | $ | 2,198 | ||
ASC 825-10 provides the Company with an option to report selected financial assets and liabilities at fair value. The fair value option established by this statement permits the Company to choose to measure eligible items at fair value at specified election dates and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each reporting date subsequent to implementation.
The Company has chosen not to elect the fair value option for any items that are not already required to be measured at fair value in accordance with accounting principles generally accepted in the United States.
Fair value estimates are generally subjective in nature and are dependent upon a number of significant assumptions associated with each instrument or group of similar instruments, including estimates of discount rates, risks associated with specific financial instruments, estimates of future cash flows and relevant available market information. Fair value information is intended to represent an estimate of an amount at which a financial instrument could be exchanged in a current transaction between a willing buyer and seller engaging in an exchange transaction. However, since there are no established trading markets for a significant portion of the Company’s financial instruments, the Company may not be able to immediately settle financial instruments; as such, the fair values are not necessarily indicative of the amounts that could be realized through immediate settlement. In addition, the majority of the financial instruments, such as loans and deposits, are held to maturity and are realized or paid according to the contractual agreement with the customer.
Quoted market prices are used to estimate fair values when available. However, due to the nature of the financial instruments, in many instances quoted market prices are not available. Accordingly, estimated fair values have been estimated based on other valuation techniques, such as discounting estimated future cash flows using a rate commensurate with the risks involved or other acceptable methods. Fair values are estimated without regard to any premium or discount that may result from concentrations of ownership of financial instruments, possible income tax ramifications or estimated transaction costs. The fair value estimates are subjective in nature and involve matters of significant judgment and, therefore, cannot be determined with precision. Fair values are also estimated at a specific point in time and are based on interest rates and other assumptions at that date. As events change the assumptions underlying these estimates, the fair values of financial instruments will change.
Disclosure of fair values is not required for certain items such as lease financing, investments accounted for under the equity method of accounting, obligations of pension and other postretirement benefits, premises and equipment, other real estate, prepaid expenses, the value of long-term relationships with depositors (core deposit intangibles) and other customer relationships, other intangible assets and income tax assets and liabilities. Fair value estimates are presented for existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax ramifications related to the realization of the unrealized gains and losses have not been considered in the estimates. Accordingly, the aggregate fair value amounts presented do not purport to represent and should not be considered representative of the underlying market or franchise value of the Company.
Because the standard permits many alternative calculation techniques and because numerous assumptions have been used to estimate the fair values, reasonable comparison of the fair value information with other financial institutions' fair value information cannot necessarily be made. The methods and assumptions used to estimate the fair values of financial instruments are as follows:
Cash and due from banks, interest-bearing deposits with banks, federal funds sold and federal funds purchased.
These items are generally short-term and the carrying amounts reported in the consolidated balance sheets are a reasonable estimation of the fair values.
Investment Securities.
Fair values are principally based on quoted market prices. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments or the use of discounted cash flow analyses.
22
Loans Held for Sale.
Fair values of mortgage loans held for sale are based on commitments on hand from investors or prevailing market prices. These loans are classified within level 3 of the fair value hierarchy.
Loans, net.
Market values are computed present values using net present value formulas. The present value is the sum of the present value of all projected cash flows on an item at a specified discount rate. The discount rate is set as an appropriate rate index, plus or minus an appropriate spread. These loans are classified within level 3 of the fair value hierarchy.
Accrued interest receivable.
The carrying amount of accrued interest receivable approximates its fair value.
Deposits.
Market values are actually computed present values using net present value formulas. The present value is the sum of the present value of all projected cash flows on an item at a specified discount rate. The discount rate is set as an appropriate rate index, plus or minus an appropriate spread. Deposits are classified within level 3 of the fair value hierarchy.
Accrued interest payable.
The carrying amount of accrued interest payable approximates its fair value.
Borrowings.
The carrying amount of federal funds purchased and other short-term borrowings approximate their fair values. The fair value of the Company’s long-term borrowings is computed using net present value formulas. The present value is the sum of the present value of all projected cash flows on an item at a specified discount rate. The discount rate is set as an appropriate rate index, plus or minus an appropriate spread. Borrowings are classified within level 3 of the fair value hierarchy.
Other Unrecognized
Financial Instruments.
The fair value of commitments to extend credit is estimated using the fees charged to enter into similar legally binding agreements, taking into account the remaining terms of the agreements and customers' credit ratings. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. Noninterest-bearing deposits are held at cost. The fair values of letters of credit are based on fees charged for similar agreements or on estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. At March 31, 2015 and December 31, 2014 the fair value of guarantees under commercial and standby letters of credit was not material.
The estimated fair values and carrying values of the financial instruments at March 31, 2015 and December 31, 2014 are presented in the following table:
|
March 31, 2015
|
December 31, 2014
|
|||||||||||
| (in thousands) |
Carrying Value
|
Estimated Fair Value
|
Carrying Value
|
Estimated Fair Value
|
||||||||
|
Assets
|
||||||||||||
|
Cash and cash equivalents
|
$
|
45,180 |
$
|
45,180
|
$
|
44,575
|
$
|
44,575
|
||||
|
Securities, available for sale
|
483,394
|
483,394
|
499,808
|
499,808
|
||||||||
|
Securities, held to maturity
|
187,091 | 186,762 |
141,795
|
139,688
|
||||||||
|
Federal Home Loan Bank stock
|
1,457
|
1,457 |
1,621
|
1,621
|
||||||||
|
Loans, net of allowance for loan losses
|
786,758 |
785,689
|
781,216
|
780,470
|
||||||||
|
Accrued interest receivable
|
6,729 | 6,729 |
6,384
|
6,384
|
||||||||
|
Liabilities
|
||||||||||||
|
Deposits
|
$
|
1,395,064
|
$
|
1,365,494
|
$
|
1,371,839
|
$
|
1,339,574
|
||||
|
Borrowings
|
3,105
|
3,105 |
3,255
|
3,255
|
||||||||
|
Accrued interest payable
|
2,200
|
2,200
|
1,997
|
1,997
|
||||||||
There is no material difference between the contract amount and the estimated fair value of off-balance sheet items that are primarily comprised of short-term unfunded loan commitments that are generally at market prices.
23
The following discussion of the Company's financial condition and results of operations is intended to highlight the significant factors affecting the Company's financial condition and results of operations presented in the consolidated financial statements included in this Form 10-Q. This discussion is designed to provide readers with a more comprehensive view of the operating results and financial position than would be obtained from reading the consolidated financial statements alone. Reference should be made to those statements for an understanding of the following review and analysis. The financial data at March 31, 2015 and for the three months ended March 31, 2015 and 2014 have been derived from unaudited consolidated financial statements and include, in the opinion of management, all adjustments (consisting of normal recurring accruals and provisions) necessary to present fairly the Company's financial position and results of operations for such periods.
Special Note Regarding Forward-Looking Statements
Congress passed the Private Securities Litigation Act of 1995 in an effort to encourage corporations to provide information about a company's anticipated future financial performance. This act provides a safe harbor for such disclosure, which protects us from unwarranted litigation, if actual results are different from Management expectations. This discussion and analysis contains forward-looking statements and reflects Management’s current views and estimates of future economic circumstances, industry conditions, company performance and financial results. The words “may,” “should,” “expect,” “anticipate,” “intend,” “plan,” “continue,” “believe,” “seek,” “estimate” and similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to a number of factors and uncertainties, including, changes in general economic conditions, either nationally or in our market areas, that are worse than expected; competition among depository and other financial institutions; inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments; adverse changes in the securities markets; changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements; our ability to enter new markets successfully and capitalize on growth opportunities; our ability to successfully integrate acquired entities, if any; changes in consumer spending, borrowing and savings habits; changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board; changes in our organization, compensation and benefit plans; changes in our financial condition or results of operations that reduce capital available to pay dividends; and changes in the financial condition or future prospects of issuers of securities that we own, which could cause our actual results and experience to differ from the anticipated results and expectations, expressed in such forward-looking statements.
24
First Quarter 2015 Financial Overview
First Guaranty Bancshares, Inc. is a Louisiana corporation and a bank holding company headquartered in Hammond, LA. First Guaranty Bank, the wholly-owned subsidiary of First Guaranty Bancshares, Inc., is a Louisiana chartered commercial bank that provides personalized commercial banking services primarily to Louisiana customers through 21 banking facilities primary located throughout Southeast, Southwest and North Louisiana. We emphasize personal relationships and localized decision making to ensure that products and services are matched to customer needs. The Company competes for business principally on the basis of personal service to customers, customer access to officers and directors and competitive interest rates and fees.
Financial highlights for the three months period ended March 31, 2015 and 2014 are as follows:
| ● |
Total assets were $1.6 billion at March 31, 2015 and $1.5 billion as of December 31, 2014. Total deposits were $1.4 billion at each of March 31, 2015 and December 31, 2014. Total loans were $796.2 million at March 31, 2015, an increase of $5.9 million, or 0.7%, compared with December 31, 2014. Common shareholders’ equity was $106.7 million and $100.1 million at March 31, 2015 and December 31, 2014.
|
| ● |
Net income for the first quarter of 2015 and 2014 was $3.4 million and $2.8 million, respectively. The increase in net income for the first quarter of 2015 was the result of higher loan interest income and non-interest income and lower interest expense compared to the same period in 2014.
|
| ● |
Net income available to common shareholders after preferred stock dividends was $3.3 million and $2.7 million for the first quarter of 2015 and 2014, respectively.
|
| ● |
Earnings per common share were $0.52 and $0.43 for the first quarter of 2015 and 2014, respectively.
|
| ● |
Net interest income for the first quarter of 2015 was $11.9 million compared to $10.5 million for the same period in 2014.
|
| ● | The provision for loan losses for the first quarter 2015 was $0.6 million compared to $0.3 million for the same period in 2014. |
| ● | The net interest margin for the first quarter of 2015 was 3.20% which was an increase of 17 basis points from the net interest margin of 3.03% for the first quarter of 2014. The Company attributed the improvement in the net interest margin to the gradual shift in interest earning asset balances from securities to loans and the continued reduction in interest expense over the first quarter of last year. |
| ● |
Investment securities totaled $670.5 million at March 31, 2015, an increase of $28.9 million when compared to $641.6 million at December 31, 2014. At March 31, 2015, available for sale securities, at fair value, totaled $483.4 million, a decrease of $16.4 million when compared to $499.8 million at December 31, 2014. At March 31, 2015, held to maturity securities, at amortized cost, totaled $187.1 million, an increase of $45.3 million when compared to $141.8 million at December 31, 2014. The increase in investment securities was primary associated with the purchase of municipal securities and short term agency securities used to collateralize public funds.
|
| ● |
The net loan portfolio at March 31, 2015 totaled $786.8 million, a net increase of $5.5 million from the December 31, 2014 net loan portfolio of $781.2 million. Net loans are reduced by the allowance for loan losses which totaled $9.4 million at March 31, 2015 and $9.1 million at December 31, 2014. Total loans net of unearned income were $796.2 million at March 31, 2015 compared to $790.3 million at December 31, 2014.
|
| ● |
Total impaired loans decreased $3.3 million to $26.2 million at March 31, 2015 compared to $29.5 million at December 31, 2014.
|
| ● |
Return on average assets for the three months ended March 31, 2015 and March 31, 2014 was 0.89% and 0.78%, respectively. Return on average common equity for the three months ended March 31, 2015 and March 31, 2014 was 12.82% and 12.27
%, respectively. Return on average assets is calculated by dividing annualized net income before preferred dividends by average assets. Return on average common equity is calculated by dividing net income available to common shareholders by average common equity.
|
| ● |
Book value per common share was $16.96 as of March 31, 2015 compared to $15.92 as of December 31, 2014. Tangible book value per share was $16.40 as of March 31, 2015 compared to $15.34 as of December 31, 2014. The increase in book value was due to the changes in accumulated other comprehensive income/loss (“AOCI”) and an increase in retained earnings. Our AOCI is comprised of unrealized gains and losses on available for sale securities.
|
| ● |
The Company's Board of Directors declared cash dividends of $0.16 per common share in the first quarter of 2015 and 2014. The Company has paid 87 consecutive quarterly dividends as of March 31, 2015.
|
25
Financial Condition
Changes in Financial Condition from December 31, 2014 to March 31, 2015
General
.
Total assets at March 31, 2015 increased $32.4 million or 2.1% to $1.6 billion when compared to $1.5 billion at December 31, 2014. The increase was primarily due to growth of $5.9 million in our loan portfolio and $28.9 million in our investment securities portfolio.
Loans.
Net loans increased $5.5 million or 0.7% to $786.8 million from $781.2 million at December 31, 2014. Net loans increased during the first three months of 2015 primarily due to a $10.4 million increase in non-farm non-residential real estate loans, a $6.9 million increase in one-to four-family residential loans, and a $4.6 million increase in construction and land development. Non-farm non-residential real estate loans increased due to an increase in our origination of small business loans and petrochemical industry loans . One-to-four family residential loans increased primarily due to the purchase of $7.8 million in conforming one-to four-family residential loans and due to an increase in our local loan originations. Construction and land development loans increased principally due to the funding of unfunded commitments on various construction projects. Commercial and industrial loans decreased $9.4 million primarily due to a decrease in syndicated loans and reductions in other commercial loans as of March 31, 2015. The $3.2 million decrease in our agricultural loans was a result of seasonal paydowns on our agricultural loan commitments. There are no significant concentrations of credit to any individual borrower.
As of March 31, 2015, 68.8% of our loan portfolio was secured primarily or secondarily by real estate. There are no significant concentrations of credit to any individual borrower. The largest portion of our loan portfolio, at 42.5% as of March 31, 2015, is non-farm non-residential loans secured by real estate. Approximately 44% of the loan portfolio is based on a floating rate tied to the prime rate or LIBOR as of March 31, 2015. 83% of the loan portfolio is scheduled to mature within 5 years from March 31, 2015.
As we have increased our loans to qualified small businesses, as a part of the SBLF program, our preferred dividend on our SBLF capital has decreased to $0.1 million for the first quarter of 2015 and 2014. The Company is at the contractual minimum dividend rate on the SBLF capital. The Company expects to pay the contractual minimum dividend rate of 1.0% through December 31, 2015.
Net loa ns are reduced by the allowance for loan losses which totaled $9.4 million at March 31, 2015 and $9.1 million at December 31, 2014. Loan charge-offs totaled $0.4 million during the first three months of 2015 and $1.1 million during the same period in 2014. Recoveries totaled $0.1 million during the first three months of 2015 and $0.1 million during the first three months of 2014. See Note 4 of the Notes to Consolidated Financial Statements for more information on loans and Note 5 for information on the allowance for loan losses.
Investment Securities.
Investment securities at March 31, 2015 totaled $670.5 million, an increase of $28.9 million compared to $641.6 million at December 31, 2014. The increase is primarily attributed to the deployment of surplus cash into short term investment securities used to collateralize public funds deposits.
The investment portfolio consisted of available for sale securities at their fair market value total of $483.4 million and held to maturity securities at amortized cost of $187.1 million.
The securities portfolio consisted principally of U.S. Government and Government agency securities, agency mortgage-backed securities, corporate debt securities and municipal bonds. U.S. government agencies consist of FHLB, FFCB, Freddie Mac, and Fannie Mae obligations. The mortgage backed securities that we purchased were issued by Freddie Mac and Fannie Mae. The securities portfolio provides the Company with a balance to credit risk when compared to other categories of assets. Management monitors the securities portfolio for both credit and interest rate risk. The Company generally limits the purchase of corporate securities to individual issuers to manage concentration and credit risk. Corporate securities generally have a maturity of 10 years or less. U.S. Government securities consist of U.S. Treasury bills that have maturities of less than 30 days. Municipal securities usually have maturities of 15 years or less. Government agency securities generally have maturities of 15 years or less. Agency mortgage backed securities have stated final maturities of 15 to 20 years.
Our available-for-sale securities portfolio totaled $483.4 million at March 31, 2015, a decrease of $16.4 million, or 3.3%, compared to $499.8 million at December 31, 2014. The decrease was primarily due to the transfer of securities classified as available-for-sale to held to maturity.
We had an unrealized gain on the conversion of a preferred security into common stock with a readily determinable fair value during the first
quarter.
The
pre-tax unrealized gain was approximately $2.6 million. The Company plans to sell the common stock during 2015 and the gains will be subsequently recognized into income.
Our held-to-maturity securities portfolio had an amortized cost of $187.1 million at March 31, 2015, an increase of $45.3 million, or 31.9%, compared to $141.8 million at December 31, 2014. The increase is due to the transfer of securities classified as available-for-sale to held-to-maturity that was partially offset by early payoffs of $5.0 million and the continued amortization of our mortgage-backed securities. The securities transfered to held-to-maturity were government agency securities used for the collateralization of public funds deposits. The securities have maturities of five to ten years.
At March 31, 2015, $21.8 million or 3.3% of the securities portfolio was scheduled to mature in less than one year. $329.5 million or 49.1% is scheduled to mature between one and five years.
Securities, not including mortgage backed securities, with contractual maturity dates over 10 years totaled $42.7 million or 6.4% of the total portfolio at March 31, 2015.
The weighted average maturity of the securities portfolio was 4.1 years at March 31, 2015 compared to 5.3 years at December 31, 2014. The average maturity of the securities portfolio is affected by call options that may be exercised by the issuer of the securities and are influenced by market interest rates. Prepayments of mortgages that collateralize mortgage-backed securities also affect the maturity of the securities portfolio. Based on internal forecasts as of March 31, 2015, management believes that the securities portfolio has a forecasted weighted average life of approximately 4.1 years based on the current interest rate environment. A parallel interest rate shock of 400 basis points is forecasted to increase the weighted average life of the portfolio to approximately 4.9 years.
There was no other than temporary impairment of securities in the three months ended March 31, 2015.
26
Nonperforming Assets
.
Non-performing assets consist of non-performing loans and other real-estate owned. Non-performing loans (including nonaccruing troubled debt restructurings described below) are those on which the accrual of interest has stopped or loans which are contractually 90 days past due on which interest continues to accrue. Loans are ordinarily placed on nonaccrual status when principal and interest is delinquent for 90 days or more. However, management may elect to continue the accrual when the estimated net available value of collateral is sufficient to cover the principal balance and accrued interest. It is our policy to discontinue the accrual of interest income on any loan for which we have reasonable doubt as to the payment of interest or principal. When a loan is placed on nonaccrual status, unpaid interest credited to income is reversed. Nonaccrual loans are returned to accrual status when the financial position of the borrower indicates there is no longer any reasonable doubt as to the payment of principal or interest. Other real estate owned consists of property acquired through formal foreclosure, in-substance foreclosure or by deed in lieu of foreclosure.
The table below sets forth the amounts and categories of our nonperforming assets at the dates indicated.
|
(in thousands)
|
March 31, 2015 |
December 31, 2014
|
||||
|
Nonaccrual loans:
|
||||||
|
Real Estate:
|
||||||
|
Construction and land development
|
$
|
434 |
$
|
486
|
||
|
Farmland
|
153
|
153
|
||||
|
1 - 4 family residential
|
5,596
|
3,819
|
||||
|
Multifamily
|
1,338
|
-
|
||||
|
Non-farm non-residential
|
2,107
|
4,993
|
||||
| Total Real Estate | 9,628 | 9,451 | ||||
|
Non-Real Estate:
|
||||||
|
Agricultural
|
826
|
832
|
||||
|
Commercial and industrial
|
1,893
|
1,907
|
||||
|
Consumer and other
|
38 |
4
|
||||
| Total Non-Real Estate | 2,757 | 2,743 | ||||
|
Total nonaccrual loans
|
12,385
|
12,194
|
||||
|
Loans 90 days and greater delinquent & accruing:
|
||||||
|
Real Estate:
|
||||||
|
Construction and land development
|
-
|
-
|
||||
|
Farmland
|
-
|
-
|
||||
|
1 - 4 family residential
|
234
|
599
|
||||
|
Multifamily
|
3,006
|
-
|
||||
|
Non-farm non-residential
|
-
|
-
|
||||
| Total Real Estate | 3,240 | 599 | ||||
|
Non-Real Estate:
|
||||||
|
Agricultural
|
-
|
-
|
||||
|
Commercial and industrial
|
-
|
-
|
||||
|
Consumer and other
|
-
|
-
|
||||
| Total Non-Real Estate | - | - | ||||
|
Total loans 90 days and greater delinquent & accruing
|
3,240
|
599
|
||||
|
Total non-performing loans
|
15,625
|
12,793
|
||||
|
Real Estate Owned:
|
||||||
| Real Estate Loans: | ||||||
|
Construction and land development
|
127
|
127
|
||||
|
Farmland
|
-
|
-
|
||||
|
1 - 4 family residential
|
1,071
|
1,121
|
||||
|
Multifamily
|
-
|
-
|
||||
|
Non-farm non-residential
|
1,165 |
950
|
||||
| Total Real Estate | 2,363 | 2,198 | ||||
|
Non-Real Estate Loans:
|
||||||
|
Agricultural
|
-
|
-
|
||||
|
Commercial and industrial
|
-
|
-
|
||||
|
Consumer and other
|
-
|
-
|
||||
|
Total Non-Real Estate
|
-
|
-
|
||||
| Total Real Estate Owned | 2,363 | 2, 198 | ||||
|
Total non-performing assets
|
$
|
17,988
|
$
|
14,991
|
||
| Non-performing assets to total loans | 2.25 | % | 1.90 | % | ||
| Non-performing assets to total assets | 1.16 | % | 0.99 | % | ||
| Non-performing loans to total loans | 1.96 | % | 1.62 | % | ||
27
At March 31, 2015, nonperforming assets totaled $17.9 million, or 1.16% of total assets, compared to $15.0 million or 0.99% of total assets at December 31, 2014,
which represented an increase of $2.9 million or 20.0%. The increase in non-performing assets occurred primarily as a result of one commercial real estate loan that was 90 days past due and still accruing as of March 31, 2015.
The loan is adequately secured by collateral with a personal guarantee and the Company expects collection of all outstanding principal and interest.
Management has not identified additional information on any loans not already included in impaired loans or the nonperforming assets that indicates possible credit problems that could cause doubt as to the ability of borrowers to comply with the loan repayment terms in the future.
At March 31, 2015 nonaccrual loans totaled $12.4 million, an increase of $0.2 million or 1.6% compared to nonaccrual loans of $12.2 million at December 31, 2014. The largest increase in non-accrual loans occurred with two lending relationships: (1) a loan was secured by one-to-four family residential properties in the amount of $1.8 million; and (2) a loan in the amount of $1.3 million that was secured by a multi-family property. The increase in non-accrual loans was partially offset by a decrease in non-farm non-residential non-accrual loans of $2.9 million. One non-farm non-residential loan relationship in the amount of $2.9 million secured by a commercial property returned to accrual status in the first quarter. Nonaccrual loans were concentrated in 4 loan relationships for a total of $5.6 million or 45.4% of nonaccrual loans at March 31, 2015.
At March 31, 2015 loans 90 days or greater delinquent and still accruing totaled $3.2 million compared to $0.6 million at December 31, 2014
; an increase of $2.6 million.
The increase was associated with a multi-family loan that totaled $3.0 million and was secured by commercial real estate
. As previously noted, the Company believes that the loan is adequately secured and all principal and interest will be collected.
Other real estate owned at March 31, 2015 totaled $2.4 million, an increase of $0.2 million from $2.2 million at December 31, 2014. The increase in other real estate owned was due to the addition of $0.2 million in non-farm non-residential properties.
At March 31, 2015, our largest non-performing assets were comprised of the following nonaccrual loans: (1) a lending relationship secured with three one-to-four family loans that in aggregate total $1.8 million; (2) a commercial and industrial loan with a balance of $1.7 million secured by equipment, which has a USDA government guarantee for $1.4 million; (3) a multi-family loan with a balance of $1.3 million secured by a commercial property; (4) a non-farm non-residential loan with a balance of $0.8 million that is secured by a commercial property.
Troubled Debt Restructuring
.
Another category of assets which contribute to our credit risk is troubled debt restructurings (“TDRs”). A TDR is a loan for which a concession has been granted to the borrower due to a deterioration of the borrower’s financial condition. Such concessions may include reduction in interest rates, deferral of interest or principal payments, principal forgiveness and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. We strive to identify borrowers in financial difficulty early and work with them to modify to more affordable terms before such loan reaches nonaccrual status. In evaluating whether to restructure a loan, management analyzes the long-term financial condition of the borrower, including guarantor and collateral support, to determine whether the proposed concessions will increase the likelihood of repayment of principal and interest. TDRs that are not performing in accordance with their restructured terms and are either contractually 90 days past due or placed on nonaccrual status are reported as non-performing loans. Our policy provides that nonaccrual TDRs are returned to accrual status after a period of satisfactory and reasonable future payment performance under the terms of the restructuring. Satisfactory payment performance is generally no less than six consecutive months of timely payments and demonstrated ability to continue to repay.
The following is a summary of loans restructured as TDRs at March 31, 2015 and December 31, 2014:
| (in thousands) | March 31, 2015 |
December 31, 2014
|
||||
| Restructured Loans: | ||||||
| In Compliance with Modified Terms |
$
|
2,995
|
$
|
2,998
|
||
| Past Due 30 through 89 days and still accruing | 452 | 2,204 | ||||
| Past Due 90 days and greater and still accruing | - | - | ||||
| Nonaccrual | - | - | ||||
| Restructured Loans that subsequently defaulted | 1,982 | 230 | ||||
| Total Restructured Loans | $ | 5,429 | $ | 5,432 | ||
At March 31, 2015, we had four outstanding TDRs: (1) a $3.0 million non-farm non-residential loan secured by commercial real estate, which is performing in accordance with its modified terms; (2) a $0.5 million non-farm non-residential loan secured by commercial real estate that is 30-89 days past due; (3) a $1.8 million lending relationship with three individual loans secured by one-to-four family residential properties that subsequently defaulted; and (4) a $0.2 million loan secured by commercial real estate that subsequently defaulted. The restructuring of these loans were related to interest rate or amortization concessions.
28
Allowance for Loan Losses.
The allowance for loan losses is maintained to absorb potential losses in the loan portfolio. The allowance is increased by the provision for loan losses, offset by recoveries of previously charged-off loans and is decreased by loan charge-offs. The provision is a charge to current expense to provide for current loan losses and to maintain the allowance commensurate with management’s evaluation of the risks inherent in the loan portfolio. Various factors are taken into consideration when determining the amount of the provision and the adequacy of the allowance. These factors include but are not limited to:
|
|
●
|
past due and non-performing assets;
|
|
|
●
|
specific internal analysis of loans requiring special attention;
|
|
|
●
|
the current level of regulatory classified and criticized assets and the associated risk factors with each;
|
|
|
●
|
changes in underwriting standards or lending procedures and policies;
|
|
|
●
|
charge-off and recovery practices;
|
|
|
●
|
national and local economic and business conditions;
|
|
|
●
|
nature and volume of loans;
|
|
|
●
|
overall portfolio quality;
|
|
|
●
|
adequacy of loan collateral;
|
|
|
●
|
quality of loan review system and degree of oversight by our board of directors;
|
|
|
●
|
competition and legal and regulatory requirements on borrowers;
|
|
|
●
|
examinations of the loan portfolio by federal and state regulatory agencies and examinations; and
|
|
|
●
|
review by our internal loan review department and independent accountants.
|
The data collected from all sources in determining the adequacy of the allowance is evaluated on a regular basis by management with regard to current national and local economic trends, prior loss history, underlying collateral values, credit concentrations and industry risks. An estimate of potential loss on specific loans is developed in conjunction with an overall risk evaluation of the total loan portfolio. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as new information becomes available.
The allowance consists of specific, general, and unallocated components. The specific component relates to loans that are classified as doubtful, substandard, and impaired. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. Also, a specific reserve is allocated for our syndicated loans, including shared national credits. The general component covers non-classified loans and special mention loans and is based on historical loss experience for the past three years adjusted for qualitative factors described above. An unallocated component is maintained to cover uncertainties that could affect the estimate of probable losses.
The balance in the allowance for loan losses is principally influenced by the provision for loan losses and by net loan loss experience. Additions to the allowance are charged to the provision for loan losses. Losses are charged to the allowance as incurred and recoveries on losses previously charged to the allowance are credited to the allowance at the time recovery is collected.
The allowance for losses was $9.4 million at March 31, 2015, up from $9.1 million at December 31, 2014.
Provisions totaled $0.6 million in the first three months of 2015 as compared to $0.3 million for the same period in 2014. The provisions made in the first three months of 2015 were taken to provide for current loan losses and to maintain the allowance proportionate to risks inherent in the loan portfolio. Total charge-offs were $0.4 million for first three months of 2015 as compared to $1.1 million for the same period in 2014. The Company attributed the decline in charged-off loans from the first quarter of 2014 to the first quarter of 2015 to a general improvement in the credit quality of the loan portfolio and to the fact that charge-offs in the first quarter of 2014 were concentrated in two loan relationships that had specific reserves from prior periods. Recoveries totaled $0.1 million during the first three months of 2015 and $0.1 million during the first three months of 2014. For more information, see Note 5 to Consolidated Financial Statements.
Comparing the three months ended March 31, 2015 to March 31, 2014, the increase in allowance provision is attributed to growth in the loan portfolio. The increase in 90 day past due loans was related to one credit relationship in the amount of $3.0 million. The Company antipates that the borrower will return to performing status. There was general improvement in the credit quality of the loan portfolio and the impaired loan portfolio did not suffer additional declines in estimated fair value. The credit quality improvements were across most loan portfolio types with the largest improvement in non-farm non-residential loans, commercial and industrial loans, and construction and land development. Special mention credits declined principally due to the payoff of one loan relationship in the amount of $6.1 million.
The Company charged off $0.4 million in loan balances during the first three months of 2015. The charged-off loan balances were concentrated in one loan relationship which totaled $0.3 million or 75.0% of the total charged off amount. The details of the $0.4 million in charged off loans were as follows:
| 1. |
The Company charged off a $0.3 million agricultural loan.
|
| 2. | $0.1 million of charge-offs for the first three months of 2015 were comprised of smaller loans and overdrawn deposit accounts. |
29
All accrued but uncollected interest related to a loan is deducted from income in the period the loan is placed on nonaccrual. During the period a loan is in nonaccrual status, any cash receipts are first applied to the principal balance. Once the principal balance has been fully recovered, any residual amounts are applied to expenses resulting from the collection of the payment and to the recovery of any reversed interest income and interest income that would have been due had the loan not been nonaccrual. As of March 31, 2015 and December 31, 2014 the Company had nonaccrual loans totaling $12.4 million and $12.2 million, respectively. The allowance for loan losses at March 31, 2015 was $9.4 million or 1.18% of total loans and 60.2% of nonperforming loans. See Note 4 and 5 of the Notes to Consolidated Financial Statements for more information on loans and the allowance for loan losses.
Other information related to the allowance for loan losses are as follows:
|
(in thousands)
|
March 31, 2015 | March 31, 2014 | ||||
| Loans: | ||||||
|
Average outstanding balance
|
$
|
797,138 |
$
|
703,725
|
||
|
Balance at end of period
|
$
|
796,172
|
$
|
709,911
|
||
|
Allowance for Loan Losses:
|
||||||
|
Balance at beginning of year
|
$
|
9,105 |
$
|
10,355
|
||
|
Charge-offs
|
(418
|
)
|
(1,137
|
) | ||
|
Recoveries
|
117
|
99
|
||||
| Provision | 610 | 300 | ||||
|
Balance at end of period
|
$
|
9,414 |
$
|
9,617
|
||
30
Deposits
.
Managing the mix and pricing the maturities of deposit liabilities is an important factor affecting our ability to maximize our net interest margin. The strategies used to manage interest-bearing deposit liabilities are designed to adjust as the interest rate environment changes. We regularly assess our funding needs, deposit pricing and interest rate outlooks. From December 31, 2014 to March 31, 2015, total deposits increased $23.2 million, or 1.7%, to $1.4 billion. Time deposits increased $7.6 million, or 1.2%, to $664.6 million at March 31, 2015 compared to $657.0 million at December 31, 2014. The majority of the increase in time deposits was associated with public funds deposits. Noninterest-bearing demand deposits increased $5.3 million from December 31, 2014 to March 31, 2015. Interest-bearing demand deposits increased $8.4 million from December 31, 2014 to March 31, 2015. At March 31, 2015, we had $27.5 million in brokered deposits.
As we seek to strengthen our net interest margin and improve our earnings, attracting core noninterest-bearing deposits will be a primary emphasis. Management will continue to evaluate and update our product mix in its efforts to attract additional core customers. We currently offer a number of noninterest-bearing deposit products that are competitively priced and designed to attract and retain customers with primary emphasis on core deposits.
As of March 31 , 2015, the aggregate amount of outstanding certificates of deposit in amounts greater than or equal to $250,000 was approximately $336.4 million . At March 31, 2015, approximately $254.5 million of the Company's certificates of deposit had a remaining term greater than one year.
The following table compares deposit categories for the periods indicated.
| For the Three Months Ended March 31, | For the Years Ended December, 31 | ||||||||||||||||||||||||||
|
Total Deposits
|
2015
|
2014
|
2013
|
||||||||||||||||||||||||
|
(in thousands except for %)
|
Average Balance
|
Percent
|
Weighted Average Rate
|
Average Balance
|
Percent
|
Weighted Average Rate
|
Average Balance
|
Percent
|
Weighted Average Rate
|
||||||||||||||||||
|
Noninterest-bearing Demand
|
$
|
205,705
|
14.8
|
%
|
0.0
|
%
|
$
|
200,127
|
15.3
|
%
|
0.0
|
%
|
$
|
196,589
|
15.8
|
%
|
0.0
|
%
|
|||||||||
|
Interest-bearing Demand
|
440,585
|
31.8
|
%
|
0.3
|
%
|
386,363
|
29.6
|
%
|
0.3
|
%
|
334,573
|
26.8
|
%
|
0.4
|
%
|
||||||||||||
|
Savings
|
75,039
|
5.4
|
%
|
0.0
|
%
|
69,719
|
5.4
|
%
|
0.0
|
%
|
64,639
|
5.2
|
%
|
0.1
|
%
|
||||||||||||
|
Time
|
665,121
|
48.0
|
%
|
1.1
|
%
|
649,165
|
49.7
|
%
|
1.2
|
%
|
650,540
|
52.2
|
%
|
1.5
|
%
|
||||||||||||
|
Total Deposits
|
$
|
1,386,450
|
100.0
|
%
|
0.6
|
%
|
$
|
1,305,374
|
100.0
|
%
|
0.8
|
%
|
$
|
1,246,341
|
100.0
|
%
|
0.9
|
%
|
|||||||||
| For the Three Months Ended March 31, | For the Years Ended December, 31 | ||||||||||||||||||||||||||
|
Individual and Business Deposits
|
2015
|
2014
|
2013
|
||||||||||||||||||||||||
|
(in thousands except for %)
|
Average Balance
|
Percent
|
Weighted Average Rate
|
Average Balance
|
Percent
|
Weighted Average Rate
|
Average Balance
|
Percent
|
Weighted Average Rate
|
||||||||||||||||||
|
Noninterest-bearing Demand
|
$
|
200,926
|
26.3
|
%
|
0.0
|
%
|
$
|
197,332
|
25.3
|
%
|
0.0
|
%
|
$
|
193,773
|
24.6
|
%
|
0.0
|
%
|
|||||||||
|
Interest-bearing Demand
|
112,945
|
14.8
|
%
|
0.2
|
%
|
105,569
|
13.5
|
%
|
0.2
|
%
|
85,384
|
10.9
|
%
|
0.3
|
%
|
||||||||||||
|
Savings
|
64,561
|
8.4
|
%
|
0.1
|
%
|
61,288
|
7.9
|
%
|
0.0
|
%
|
57,819
|
7.3
|
%
|
0.1
|
%
|
||||||||||||
|
Time
|
385,893
|
50.5
|
%
|
1.4
|
%
|
414,975
|
53.3
|
%
|
1.4
|
%
|
450,178
|
57.2
|
%
|
1.8
|
%
|
||||||||||||
|
Total Deposits
|
$
|
764,325
|
100.0
|
%
|
0.8
|
%
|
$
|
779,164
|
100.0
|
%
|
0.8
|
%
|
$
|
787,154
|
100.0
|
%
|
1.1
|
%
|
|||||||||
| For the Three Months Ended March 31, | For the Years Ended December, 31 | ||||||||||||||||||||||||||
|
Public Fund Deposits
|
2015
|
2014
|
2013
|
||||||||||||||||||||||||
|
(in thousands except for %)
|
Average Balance
|
Percent
|
Weighted Average Rate
|
Average Balance
|
Percent
|
Weighted Average Rate
|
Average Balance
|
Percent
|
Weighted Average Rate
|
||||||||||||||||||
|
Noninterest-bearing Demand
|
$
|
4,779
|
0.8
|
%
|
0.0
|
%
|
$
|
2,795
|
0.5
|
%
|
0.0
|
%
|
$
|
2,816
|
0.6
|
%
|
0.0
|
%
|
|||||||||
|
Interest-bearing Demand
|
327,640
|
52.6
|
%
|
0.4
|
%
|
280,794
|
53.4
|
%
|
0.4
|
%
|
249,189
|
54.3
|
%
|
0.4
|
%
|
||||||||||||
|
Savings
|
10,478
|
1.7
|
%
|
0.0
|
%
|
8,431
|
1.6
|
%
|
0.0
|
%
|
6,820
|
1.5
|
%
|
0.1
|
%
|
||||||||||||
|
Time
|
279,228
|
44.9
|
%
|
0.7
|
%
|
234,190
|
44.5
|
%
|
0.7
|
%
|
200,362
|
43.6
|
%
|
0.8
|
%
|
||||||||||||
|
Total Deposits
|
$
|
622,125
|
100.0
|
%
|
0.5
|
%
|
$
|
526,210
|
100.0
|
%
|
0.5
|
%
|
$
|
459,187
|
100.0
|
%
|
0.6
|
%
|
|||||||||
31
At March 31, 2015, public funds deposits totaled $619.8 million compared to $601.5 million at December 31, 2014. Public fund time deposits totaled $284.0 million at March 31,
2015 compared to $266.7 million at December 31, 2014. We have developed a program for the retention and management of public funds deposits. Since 2012, we have
maintained public funds deposits in excess of $400.0 million. These deposits are from local government entities such as school districts, hospital districts, sheriff departments and
other municipalities.
$500.5 million
, or 81%,
of these
accounts at March 31, 2015, are under contracts with terms of three years or less. Three of these relationships
account for
38
% of our
total public funds deposits, each of which is currently under contract with us. These deposits generally have stable balances as we maintain both operating accounts and time deposits for these entities. There is a seasonal component to public deposit levels associated with annual tax collections. Public funds will increase at the end of the year and the first quarter. Public funds deposit accounts are collateralized by FHLB letters of credit, by Louisiana municipal bonds and by eligible government and government agency securities such as those issued by the FHLB, FFCB, Fannie Mae, and Freddie Mac. We invest the majority of these public deposits in our investment portfolio.
The following table sets forth public funds as a percent of total deposits
.
|
(in
thousands except for
%)
|
March 31, 2015 | December 31, 2014 | December 31, 2013 | December 31, 2012 | December 31, 2011 | |||||||||||||||
| Public Funds: | ||||||||||||||||||||
|
Noninterest-bearing Demand
|
$ | 4,702 | $ | 3,241 | $ | 3,016 | $ | 3,735 | $ | 2,552 | ||||||||||
| Interest-bearing Demand | 320,403 | 321,382 | 296,739 | 265,296 | 208,230 | |||||||||||||||
| Savings | 10,712 | 10,142 | 7,209 | 6,415 | 3,918 | |||||||||||||||
| Time | 283,986 | 266,743 | 208,614 | 195,052 | 217,205 | |||||||||||||||
| Total Public Funds | $ | 619,803 | $ | 601,508 | $ | 515,578 | $ | 470,498 | $ | 431,905 | ||||||||||
| Total Deposits | $ | 1,395,064 | $ | 1,371,839 | $ | 1,303,099 | $ | 1,252,612 | $ | 1,207,302 | ||||||||||
| Total Public Funds as a percent of Total Deposits | 44.4 | % | 43.9 | % | 39.6 | % | 37.6 | % | 35.8 | % | ||||||||||
The following table sets forth the distribution of our time deposit accounts.
|
(
in thousands)
|
March 31, 2015 | ||
| Time deposits of less than $100,000 | $ | 180,750 | |
| Time deposits of $100,000 through $250,000 | 147,411 | ||
| Time deposits of more than $250,000 | 336,436 | ||
| Total Time Deposits | $ | 664,597 | |
32
Borrowings
.
The Company maintains borrowing relationships with other financial institutions as well as the Federal Home Loan Bank on a short and long-term basis to meet liquidity needs. At March 31, 2
015, short-term borrowings totaled $1.8 million which was the same at December 31, 2014. Short-term borrowings consisted of a line of credit totaling $1.8 million. The Company had long-term borrowings totaling $1.3 million as of March 31, 2015 and $1.5 million at December 31, 2014.
The average amount of total short-term borrowings for the three months ended March 31, 2015 totaled $2.8 million, compared to $12.6 million for the three months ended March 31, 2014
. The decline in short-term borrowings was attributed to the Company's termination of its repurchase agreements in the second quarter of 2014. At March 31, 2015, the Company had $160.0 million in Federal Home Loan Bank letters of credit outstanding obtained solely for collateralizing public deposits.
Total Shareholders' Equity.
Total shareholders' equity increased to $146.1 million at March 31, 2015 from $139.6 million at December 31, 2014. The increase in shareholders' equity was principally the result of a $4.3 million increase in accumulated other comprehensive income. The market value of the Company's securities portfolio increased due to a decline in market interest rates and also from the unrealized gain on conversion of a preferred security into common stock with a readily determinable fair value during the three months ended March 31, 2015. Total shareholders' equity also increased due to net income of $3.4 million during the three month period ended March 31, 2015, partially offset by $1.0 million in cash dividends paid on our common stock and $0.1 million in dividends paid on our preferred stock issued to the U.S. Treasury in connection with our participation in the SBLF. Retained earnings increased by $2.3 million from December 31, 2014 to March 31, 2015.
Results of Operations for the First Quarter 2015 and 2014
Results of Operations for the First Quarter 2015 and 2014
Performance Summary
Three months ended March 31, 2015 compared to the three months ended March 31, 2014.
Net income for the three months ended March 31, 2015 was $3.4 million, an increase of $0.6 million, or 21.9%, from $2.8 million for the three months ended March 31, 2014. Net income available to common shareholders for the three months ended March 31, 2015 was $3.3 million which was an increase of $0.6 million from $2.7 million for the same period in 2014. The increase in net income for the three months ended March 31, 2015 was primarily the result of increased loan interest income, increased noninterest income, and lower interest expense. Earnings per common share for the three months ended March 31, 2015 was $0.52 per common share, an increase of 20.9% or $0.09 per common share from $0.43 per common share for the three months ended March 31, 2014.
Net I
nterest Income
Our operating results depend primarily on our net interest income, which is the difference between interest income earned on interest-earning assets, including loans and securities, and interest expense incurred on interest-bearing liabilities, including deposits and other borrowed funds. Interest rate fluctuations, as well as changes in the amount and type of interest-earning assets and interest-bearing liabilities, combine to affect net interest income. Our net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities. It is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds.
A financial institution’s asset and liability structure is substantially different from that of a non-financial company, in that virtually all assets and liabilities are monetary in nature. Accordingly, changes in interest rates may have a significant impact on a financial institution’s performance. The impact of interest rate changes depends on the sensitivity to the change of our interest-earning assets and interest-bearing liabilities. The effects of the low interest rate environment in recent years and our interest sensitivity position is discussed below.
Three months ended March 31, 2015 compared to the three months ended March 31, 2014.
Net interest income for the three months ended March 31, 2015 and 2014 was $11.9 million and $10.5 million, respectively. The increase in net interest income for the three months ended March 31, 2015 was primarily due to the increase in the average balance of our total interest-earning assets , an increase in the average rate of interest earning assets and a decrease in the average rate of our total interest-bearing liabilities. For the three months ended March 31, 2015, the average balance of our total interest-earning assets increased by $95.9 million to $1.5 billion, and the average yield of interest-earning assets increased by 9 basis points to 3.80% from 3.71% for the three months ended March 31, 2014. The average rate of our total interest-bearing liabilities decreased by 8 basis points to 0.77% for the three months ended March 31, 2015 compared to 0.85% for the three months ended March 31, 2014, which was partially offset by the increase in the average balance of total interest-bearing liabilities by $60.1 million to $1.2 billion for the three months ended March 31, 2015. As a result, our net interest rate spread increased 17 basis points to 3.03% for the three months ended March 31, 2015 from 2.86% for the three months ended March 31, 2014, and our net interest margin also increased 17 basis points to 3.20% for the three months ended March 31, 2015 from 3.03% for the three months ended March 31, 2014.
Interest Income
Three months ended March 31, 2015 compared to the three months ended March 31, 2014.
Interest income increased $1.2 million, or 9.5%, to $14.1 million for the three months ended March 31, 2015 primarily as a result of a $1.2 million increase in interest income on loans. The increase in interest income resulted primarily from a $95.9 million increase in the average balance of our interest-earnings assets to $1.5 billion for the three months ended March 31, 2015. The average yield of interest-earning assets increased by 9 basis points to 3.80% for the three months ended March 31, 2015 compared to 3.71% for the three months ended March 31, 2014.
Interest income on loans increased $1.2 million, or 12.9%, to $10.7 million for the three months ended March 31, 2015 as a result of an increase in the average balance of loans, partially offset by a decrease in the average yield on loans. The average balance of loans (excluding loans held for sale) increased by $93.4 million to $797.1 million for the three months ended March 31, 2015 from $703.7 million for the three months ended March 31, 2014 as a result of new loan originations, the majority of which were non-farm non-residential loans, one-to-four family residential loans, a purchased pool of performing commercial leases and commercial and industrial loans including syndicated loans.
Partially offsetting the increase in interest income on loans was a decrease in the average yield on loans (excluding loans held for sale), which decreased by 2 basis points to 5.46% for the three months ended March 31, 2015 from 5.48% for the three months ended March 31, 2014 due to pay-offs of higher-yielding existing loans in the current low interest rate environment.
In
terest income on securities increased $4,000, or 0.1%, to $3.3 million for the three months ended March 31, 2015 primarily as a result of an increase in the average balance of the securities. The average balance of securities increased $28.4 million to $671.8 million for the three months ended March 31, 2015 from $643.4 million for the three months ended March 31, 2014 due to an increase in the average balance of our municipal securities and short-term agency securities. The average yield on securities decreased by 9 basis points to 2.02% for the three months ended March 31, 2015 from 2.11% for the three months ended March 31, 2014 due to payoffs of higher yielding securities, which were primarily reinvested in shorter duration lower yielding securities.
33
Interest Expense
Three months ended March 31, 2015 compared to the three months ended March 31, 2014.
Interest expense decreased $0.1 million, or 4.8%, to $2.2 million for the three months ended March 31, 2015 from $2.4 million for the three months ended March 31, 2014 due to a decrease in the average rate on time deposits. The average rate of time deposits decreased by 13 basis points during the three months ended March 31, 2015 to 1.12%, reflecting downward repricing of our time deposits in the continued low interest rate environment. The average balance of interest-bearing deposits increased by $69.0 million during the three months ended March 31, 2015 to $1.2 billion as a result of a $42.0 million increase in the average balance of demand deposits and savings deposits along with a $27.0 million increase in the average balance of time deposits.
The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments were made, as the effect thereof was not material. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. Loans, net of unearned income, include loans held for sale. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.
The net interest income yield shown below in the average balance sheet is calculated by dividing net interest income by average interest-earning assets and is a measure of the efficiency of the earnings from balance sheet activities. It is affected by changes in the difference between interest on interest-earning assets and interest-bearing liabilities and the percentage of interest-earning assets funded by interest-bearing liabilities.
| Three Months Ended March 31, 2015 | Three Months Ended March 31, 2014 | |||||||||||||||||
|
(
in thousands except for %)
|
Average Balance | Interest | Yield/Rate (5) | Average Balance | Interest | Yield/Rate (5) | ||||||||||||
|
Assets
|
||||||||||||||||||
|
Interest-earning assets:
|
||||||||||||||||||
|
Interest-earning deposits with banks
|
$
|
36,246 |
$
|
20 | 0.23 |
%
|
$
|
61,953 |
$
|
32
|
0.21 |
%
|
||||||
|
Securities (including FHLB stock)
|
671,821 | 3,345 | 2.02 |
%
|
643,433
|
3,341 | 2.11 |
%
|
||||||||||
|
Federal funds sold
|
237 |
-
|
- |
%
|
387 |
-
|
0.05 |
%
|
||||||||||
| Loans held for sale | - | - | - | % | - | - | - | % | ||||||||||
|
Loans, net of unearned income
|
797,138 | 10,739 | 5.46 |
%
|
703,725 |
9,508
|
5.48
|
%
|
||||||||||
|
Total interest-earning assets
|
|
1,505,442 |
$
|
14,104 | 3.80 |
%
|
|
1,409,498
|
$
|
12,881
|
3.71 |
%
|
||||||
|
Noninterest-earning assets:
|
||||||||||||||||||
|
Cash and due from banks
|
|
8,605 |
|
9,618
|
||||||||||||||
|
Premises and equipment, net
|
19,278 |
19,549
|
||||||||||||||||
|
Other assets
|
6,128 |
9,281
|
||||||||||||||||
|
Total Assets
|
$
|
1,539,453 |
$
|
1,447,946
|
||||||||||||||
|
Liabilities and Shareholders' Equity
|
||||||||||||||||||
|
Interest-bearing liabilities:
|
||||||||||||||||||
|
Demand deposits
|
$
|
440,585 |
$
|
358 | 0.33 |
%
|
$
|
405,461
|
$
|
351
|
0.35 |
%
|
||||||
|
Savings deposits
|
75,039 | 9 | 0.05 |
%
|
68,116
|
8 | 0.05 |
%
|
||||||||||
|
Time deposits
|
665,121 | 1,843 | 1.12 |
%
|
638,156
|
1,967
|
1.25 |
%
|
||||||||||
|
Borrowings
|
4,163 | 34 | 3.37 |
%
|
13,033
|
30
|
0.94 |
%
|
||||||||||
|
Total interest-bearing liabilities
|
|
1,184,908 |
$
|
2,244 | 0.77 |
%
|
|
1,124,766 |
$
|
2,356
|
0.85 |
%
|
||||||
|
Noninterest-bearing liabilities:
|
||||||||||||||||||
|
Demand deposits
|
|
205,705 |
|
190,566
|
||||||||||||||
|
Other
|
5,207 |
4,373
|
||||||||||||||||
|
Total Liabilities
|
|
1,395,820 |
|
1,319,705
|
||||||||||||||
|
Shareholders' equity
|
143,633 |
128,241
|
||||||||||||||||
|
Total Liabilities and Shareholders' Equity
|
$
|
1,539,453 |
$
|
1,447,946
|
||||||||||||||
|
Net interest income
|
$
|
11,860 |
$
|
10,525
|
||||||||||||||
|
Net interest rate spread
(1)
|
3.03 |
%
|
2.86 |
%
|
||||||||||||||
|
Net interest-earning assets
(2)
|
$
|
320,534 |
$
|
284,732
|
||||||||||||||
|
Net interest margin
(3), (4)
|
3.20 |
%
|
3.03 |
%
|
||||||||||||||
|
Average interest-earning assets to interest-bearing liabilities
|
127.05 |
%
|
125.31 |
%
|
||||||||||||||
| (1) | Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities. |
| (2) | Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities. |
| (3) | Net interest margin represents net interest income divided by average total interest-earning assets. |
| (4) | The tax adjusted net interest margin was 3.22% and 3.04% for the above periods ended March 31, 2015 and 2014 respectively. A 35% tax rate was used to calculate the effect on securities income from tax exempt securities. |
| (5) | Annualized. |
34
Provision for Loan Losses.
A provision for loan losses is a charge to income in an amount that management believes is necessary to maintain an adequate allowance for loan losses. The provision is based on management’s regular evaluation of current economic conditions in our specific markets as well as regionally and nationally, changes in the character and size of the loan portfolio, underlying collateral values securing loans, and other factors which deserve recognition in estimating loan losses. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events change.
For the three months ended March 31, 2015, the provision for loan losses was $0.6 million compared to $0.3 million for the same period in 2014. The allowance for loan losses at March 31, 2015 was $9.4 million and was 1.18% of total loans. The increase in the provision was principally due to growth in loans.
We believe that the allowance is adequate to cover potential losses in the loan portfolio given the current economic conditions, and current expected net charge-offs and non-performing asset levels.
Noninterest Income.
Our primary sources of recurring noninterest income are customer service fees, loan fees, gains on the sale of loans and available-for-sale securities and other service fees. Noninterest income does not include loan origination fees which are recognized over the life of the related loan as an adjustment to yield using the interest method.
Noninterest income totaled $1.7 million for the three months ended March 31, 2015, an increase of $0.1 million from $1.6 million for the three months ended March 31, 2014. The majority of the increase was due to higher gains on securities sales. Net securities gains were $0.3 million for the three months ended March 31, 2015 as compared to $0.2 million for the same period in 2014. The gains on securities occured as the Company sold longer duration investment securities in order to fund loan growth in the first quarter of 2015. Service charges, commissions and fees totaled $0.6 million for the three months ended March 31, 2015 as compared to $0.7 million for the same period in 2014. ATM and debit card fees totaled $0.4 million for the three months ended March 31, 2015 and March 31, 2014. Other noninterest income remained the same at $0.4 million for the three months ended March 31, 2015 and March 31, 2014.
Noninterest Expense.
Noninterest expense includes salaries and employee benefits, occupancy and equipment expense and other types of expenses. Noninterest expense totaled $7.9 million for the three months ended March 31, 2015 and $7.6 million for the three months ended March 31, 2014. Salaries and benefits expense increased $0.2 million to $4.0 million for the three months ended March 31, 2015 compared to $3.8 million for the same period in 2014. Occupancy and equipment expense totaled $1.0 million for both the three months ended March 31, 2015 and 2014. Other noninterest expense totaled $2.9 million for the three months ended March 31, 2015, an increase of $0.1 million when compared to $2.8 million for the same period in 2014.
The following table presents, for the periods indicated, the major categories of other noninterest expense:
| Three Months Ended March 31, | ||||||
| (in thousands) |
2015
|
2014
|
||||
|
Other noninterest expense:
|
||||||
|
Legal and professional fees
|
$
|
331
|
$
|
457
|
||
|
Data processing
|
332 |
274
|
||||
|
Marketing and public relations
|
168
|
176
|
||||
|
Taxes - sales, capital, and franchise
|
171 |
172
|
||||
|
Operating supplies
|
94
|
100
|
||||
|
Travel and lodging
|
196 |
133
|
||||
| Telephone | 47 | 62 | ||||
| Amortization of core deposits | 80 | 80 | ||||
| Donations | 95 | 75 | ||||
|
Net costs from other real estate and repossessions
|
143 | 184 | ||||
| Regulatory assessment | 269 | 361 | ||||
|
Other
|
938
|
727
|
||||
|
Total other expense
|
$
|
2,864
|
$
|
2,801
|
||
Income Taxes.
The amount of income tax expense is influenced by the amount of pre-tax income, the amount of tax-exempt income and the amount of other non-deductible expenses. The provision for income taxes for the three months ended March 31, 2015 and 2014 was $1.7 million and $1.4 million, respectively. The provision for income taxes increased due to the increase in income before taxes.
The Company’s statutory tax rate was 35.0% for the three months ended March 31, 2015, which was unchanged from the first quarter of 2014.
35
Liquidity and Capital Resources
Liquidity
.
Liquidity refers to the ability or flexibility to manage future cash flows to meet the needs of depositors and borrowers and fund operations. Maintaining appropriate levels of liquidity allows us to have sufficient funds available to meet customer demand for loans, withdrawal of deposit balances and maturities of deposits and other liabilities. Liquid assets include cash and due from banks, interest-earning demand deposits with banks, federal funds sold and available for sale investment securities.
Loans maturing within one year or less at March 31, 2015 totaled $174.2 million. At March 31, 2015, time deposits maturing within one year or less totaled $410.1 million. The Company’s held to maturity ("HTM") portfolio at March 31, 2015 was $187.1 million or 27.9% of the investment portfolio compared to $141.8 million or 22.1% at December 31, 2014. The securities in the held to maturity portfolio are used to collateralize public funds deposits and may also be used to secure borrowings with the Federal Home Loan Bank or Federal Reserve Bank. The agency securities in the HTM portfolio have maturities of 10 years or less. The mortgage backed securities have stated final maturities of 15 to 20 years at March 31, 2015. The HTM portfolio had a forecasted weighted average life of approximately 4.9 years based on current interest rates. Management regularly monitors the size and composition of the HTM portfolio to evaluate its effect on the Company’s liquidity. The Company’s available for sale portfolio was $483.4 million or 72.1% of the investment portfolio as of March 31, 2015. The majority of the AFS portfolio was comprised of U.S. Government Agencies, municipal bonds and investment grade corporate bonds. Management believes these securities are readily marketable and enhance the Company’s liquidity.
The Company maintained a net borrowing capacity at the Federal Home Loan Bank totaling $130.6 million and $156.4 million at March 31, 2015 and December 31, 2014, respectively. The Company also has a discount window line with the Federal Reserve Bank. We also maintain federal funds lines of credit at various correspondent banks with borrowing capacity of $70.5 million and a revolving line of credit for $2.5 million with an availability of $0.7 million as of March 31, 2015. Management believes there is sufficient liquidity to satisfy current operating needs.
Capital Resources.
The Company's capital position is reflected in shareholders’ equity, subject to certain adjustments for regulatory purposes. Further, our capital base allows us to take advantage of business opportunities while maintaining the level of resources we deem appropriate to address business risks inherent in daily operations.
Total shareholders’ equity increased to $146.1 million at March 31, 2015 from $139.6 million at December 31, 2014. The increase in total shareholders’ equity was principally the result of a $4.3 million increase in the balance of the accumulated other comprehensive income from $0.2 million at December 31, 2014 to $4.5 million at March 31, 2015. The market value of available for sale securities (after taxes) increased primarily as a result of a decline in market interest rates and also from the unrealized gain on conversion of a preferred security into common stock with a readily determinable fair value. Shareholders’ equity also increased due to net income of $3.4 million during the three month period ended March 31, 2015, partially offset by $1.0 million in cash dividends paid on our common stock and $0.1 million in dividends paid on our Series C Preferred Stock issued to the Treasury in connection with our participation in the SBLF. We are currently at the contractual minimum dividend rate of 1.0% on our SBLF capital. Beginning on March 22, 2016, the per annum dividend rate on the Series C Preferred Stock will increase to a fixed rate of 9.0% if any Series C Preferred Stock remains outstanding.
Regulatory Capital .
Risk-based capital regulations adopted by the FDIC require banks to achieve and maintain specified ratios of capital to risk-weighted assets. Similar capital regulations apply to bank holding companies over $1.0 billion in assets. The risk-based capital rules are designed to measure “Tier 1” capital (consisting of common equity, retained earnings and a limited amount of qualifying perpetual preferred stock and trust preferred securities, net of goodwill and other intangible assets and accumulated other comprehensive income) and total capital in relation to the credit risk of both on- and off- balance sheet items. Under the guidelines, one of its risk weights is applied to the different on balance sheet items. Off-balance sheet items, such as loan commitments, are also subject to risk weighting. Applicable bank holding companies and all banks must maintain a minimum total capital to total risk weighted assets ratio of 8.00%, at least half of which must be in the form of core or Tier 1 capital. These guidelines also specify that bank holding companies that are experiencing internal growth or making acquisitions will be expected to maintain capital positions substantially above the minimum supervisory levels.
At March 31, 2015, we satisfied the minimum regulatory capital requirements and were well capitalized within the meaning of federal regulatory requirements.
|
"Well Capitalized Minimums"
|
As of March 31, 2015
|
As of December 31, 2014 | |||||||
|
Tier 1 Leverage Ratio
|
|||||||||
|
Consolidated
|
5.00
|
%
|
9.06
|
%
|
9.33 | % | |||
|
Bank
|
5.00
|
%
|
8.91
|
%
|
9.26 | % | |||
|
Tier 1 Risk-based Capital Ratio
|
|||||||||
|
Consolidated
|
8.00
|
%
|
13.12 |
%
|
13.16 | % | |||
|
Bank
|
8.00
|
%
|
12.95 |
%
|
13.08 | % | |||
|
Total Risk-based Capital Ratio
|
|||||||||
|
Consolidated
|
10.00
|
%
|
14.01
|
%
|
14.05 | % | |||
|
Bank
|
10.00
|
%
|
13.84
|
%
|
13.96 | % | |||
| Common Equity Tier One Capital Ratio | |||||||||
| Consolidated |
6.50
|
% | 9.40 | % | * | % | |||
| Bank | 6.50 | % | 12.95 | % | * | % | |||
36
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
Asset/Liability Management and Market Risk
Asset/Liability Management.
Our asset/liability management (ALM) process consists of quantifying, analyzing and controlling interest rate risk (IRR) to maintain reasonably stable net interest income levels under various interest rate environments. The principal objective of ALM is to maximize net interest income while operating within acceptable limits established for interest rate risk and to maintain adequate levels of liquidity.
The majority of our assets and liabilities are monetary in nature. Consequently, one of our most significant forms of market risk is interest rate risk, which is inherent in our lending and deposit-taking activities. Our assets, consisting primarily of loans secured by real estate and fixed rate securities in our investment portfolio, have longer maturities than our liabilities, consisting primarily of deposits. As a result, a principal part of our business strategy is to manage interest rate risk and reduce the exposure of our net interest income to changes in market interest rates. The board of directors of First Guaranty Bank has established two committees, the management asset liability committee and the board investment committee, to oversee the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the board of directors. The management asset liability committee is comprised of senior officers of the Bank and meets as needed to review our asset liability policies and interest rate risk position. The board ALCO investment committee is comprised of certain members of the board of directors of the Bank and meets monthly. The management asset liability committee provides a monthly report to the board ALCO investment committee.
The need for interest sensitivity gap management is most critical in times of rapid changes in overall interest rates. We generally seek to limit our exposure to interest rate fluctuations by maintaining a relatively balanced mix of rate sensitive assets and liabilities on a one-year time horizon and greater than one-year time horizon. Because of the significant impact on net interest margin from mismatches in repricing opportunities, we monitor the asset-liability mix periodically depending upon the management asset liability committee’s assessment of current business conditions and the interest rate outlook. We maintain exposure to interest rate fluctuations within prudent levels using varying investment strategies. These strategies include, but are not limited to, frequent internal modeling of asset and liability values and behavior due to changes in interest rates. We monitor cash flow forecasts closely and evaluate the impact of both prepayments and extension risk.
The following interest sensitivity analysis is one measurement of interest rate risk. This analysis, which we prepare monthly, reflects the contractual maturity characteristics of assets and liabilities over various time periods. This analysis does not factor in prepayments or interest rate floors on loans which may significantly change the report. This table includes nonaccrual loans in their respective maturity periods. The gap indicates whether more assets or liabilities are subject to repricing over a given time period. The interest sensitivity analysis at March 31, 2015 illustrated below reflects a liability-sensitive position with a negative cumulative gap on a one-year basis.
The interest spread and liability funding discussed below are directly related to changes in asset and liability mixes, volumes, maturities and repricing opportunities for interest-earning assets and interest-bearing liabilities. Interest-sensitive assets and liabilities are those which are subject to repricing in the near term, including both floating or adjustable rate instruments and instruments approaching maturity. The interest sensitivity gap is the difference between total interest-sensitive assets and total interest-sensitive liabilities. Interest rates on our various asset and liability categories do not respond uniformly to changing market conditions. Interest rate risk is the degree to which interest rate fluctuations in the marketplace can affect net interest income.
|
March 31, 2015
|
|||||||||||||||
|
Interest Sensitivity Within
|
|||||||||||||||
|
(in thousands except for %)
|
3 Months Or Less
|
Over 3 Months thru 12
Months
|
Total One Year
|
Over One Year
|
Total | ||||||||||
|
Earning Assets:
|
|||||||||||||||
| Loans (including loans held for sale) | $ |
222,960
|
$
|
75,008 |
$
|
297,968
|
$
|
498,204
|
$
|
796,172 | |||||
|
Securities (including FHLB stock)
|
5,572
|
17,719
|
23,291
|
648,651
|
671,942
|
||||||||||
|
Federal Funds Sold
|
169 |
-
|
169
|
-
|
169
|
||||||||||
|
Other earning assets
|
46,049 |
-
|
46,049
|
-
|
46,049
|
||||||||||
|
Total earning assets
|
$
|
274,750
|
$
|
92,727
|
$
|
367,477
|
$
|
1,146,855 |
$
|
1,514,332
|
|||||
|
Source of Funds:
|
|||||||||||||||
|
Interest-bearing accounts:
|
|||||||||||||||
|
Demand deposits
|
$
|
440,676
|
$
|
-
|
$
|
440,676
|
$
|
-
|
$
|
440,676
|
|||||
|
Savings deposits
|
76,540
|
-
|
76,540
|
-
|
76,540 | ||||||||||
|
Time deposits
|
205,555
|
204,565
|
410,120
|
254,477
|
664,597
|
||||||||||
|
Short-term borrowings
|
1,800
|
-
|
1,800
|
-
|
1,800
|
||||||||||
|
Long-term borrowings
|
-
|
-
|
-
|
1,305
|
1,305
|
||||||||||
|
Noninterest-bearing, net
|
-
|
-
|
-
|
329,414
|
329,414
|
||||||||||
|
Total source of funds
|
$
|
724,571
|
$
|
204,565
|
$
|
929,136
|
$
|
585,196
|
$
|
1,514,332
|
|||||
|
Period gap
|
$
|
(449,821
|
)
|
$
|
(111,838
|
)
|
$
|
(561,659
|
)
|
$
|
561,659
|
||||
|
Cumulative gap
|
$
|
(449,821
|
)
|
$
|
(561,659
|
)
|
$
|
(561,659
|
)
|
$
|
-
|
||||
| Cumulative gap as a percent of earning assets |
-29.7
|
% | -37.1 | % | -37.1 | % | |||||||||
37
Net interest income at risk measures the risk of a decline in earnings due to changes in interest rates. The first table below presents an analysis of our interest rate risk as measured by the estimated changes in net interest income resulting from an instantaneous and sustained parallel shift in the yield curve over a 12-month horizon at March 31, 2015. Shifts are measured in 100 basis point increments (+400 through -100 basis points) from base case. We don’t present shifts less than 100 basis points because of the current low interest rate environment. The base case scenario encompasses key assumptions for asset/liability mix, loan and deposit growth, pricing, prepayment speeds, deposit decay rates, securities portfolio cash flows and reinvestment strategy and the market value of certain assets under the various interest rate scenarios. The base case scenario assumes that the current interest rate environment is held constant throughout the forecast period for a static balance sheet and the instantaneous shocks are performed against that yield curve. The second table presents an analysis of our interest rate risk as measured by the estimated changes in net interest income resulting from a gradual shift in the yield curve over a 12 month horizon.
|
Intantaneous
Changes in Interest Rates (In Basis Points)
|
Percent Change In Net Interest Income |
| +400 | ( 18.25%) |
| +300 | (10.68%) |
|
+200
|
(6.89%) |
| +100 | (3.05%) |
| Base | -% |
| -100 | (4.57%) |
| Gradual Change in Interest Rates (In Basis Points) | Percent Change In Net Interest Income |
| +400 | (4.03%) |
|
+300
|
(2.61%) |
|
+200
|
(1.65%) |
| +100 | (0.83%) |
| Base | -% |
| -100 | (0.67%) |
These scenarios above are both instantaneous shocks and gradual interest rate ramps that assume balance sheet management will mirror the base case. Even if interest rates change in the designated amounts, there can be no assurance that our assets and liabilities would perform as anticipated. Additionally, a change in the U.S. Treasury rates in the designated amounts accompanied by a change in the shape of the U.S. Treasury yield curve would cause significantly different changes to net interest income than indicated above. Strategic management of our balance sheet would be adjusted to accommodate these movements. As with any method of measuring interest rate risk, certain shortcomings are inherent in the methods of analysis presented above. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Also, the ability of many borrowers to service their debt may decrease in the event of an interest rate increase. We consider all of these factors in monitoring exposure to interest rate risk.
38
Evaluation of Disclosure Controls and Procedures
As defined by the Securities and Exchange Commission in Exchange Act Rules 13a-15(e) and 15d-15(e), a Company's “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within time periods specified in the Commission’s rules and forms. The Company maintains such controls designed to ensure this material information is communicated to Management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decision regarding required disclosure.
Management, with the participation of the CEO and CFO, have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on that evaluation, the CEO and CFO have concluded that the disclosure controls and procedures as of the end of the period covered by this quarterly report are effective. There were no changes in the Company's internal control over financial reporting during the last fiscal quarter in the period covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
The Company is subject to various other legal proceedings in the normal course of business and otherwise. It is our belief that the ultimate resolution of such other claims will not have a material adverse effect on the Company's financial position or results of operations.
There have been no material additions to our risk factors.
39
The following exhibits are either field as part of this report or are incorporated herein by reference.
|
Exhibit
|
|
|
Number
|
Exhibit
|
|
31.1
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31.2
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32.1
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32.2
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
| 101.SCH |
XBRL Taxonomy Extension Schema.
|
| 101.CAL |
XBRL Taxonomy Extension Calculation Linkbase.
|
| 101.DEF |
XBRL Taxonomy Extension Definition Linkbase.
|
| 101.PRE |
XBRL Taxonomy Extension Presentation Linkbase.
|
| 101.LAB |
XBRL Taxonomy Extension Label Linkbase.
|
| 101.INS |
XBRL Instance Document.
|
40
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
FIRST GUARANTY BANCSHARES, INC.
|
||
|
Date: May 14
, 2015
|
By: /s/ Alton B. Lewis
|
|
|
Alton B. Lewis
|
||
|
Principal Executive Officer
|
||
|
Date: May 14
, 2015
|
By: /s/ Eric J. Dosch
|
|
|
Eric J. Dosch
|
||
|
Principal Financial Officer
|
||
|
Secretary and Treasurer
|
||
41
TABLE OF CONTENTS
Part I. Financial InformationItem 1. Consolidated Financial StatementsNote 1. Basis Of PresentationNote 2. Recent Accounting PronouncementsNote 3. SecuritiesNote 4. LoansNote 5. Allowance For Loan LossesNote 6. Goodwill and Other Intangible AssetsNote 7. Other Real Estate (ore)Note 8. Commitments and ContingenciesNote 9. Accumulated Other Comprehensive IncomeNote 10. Fair ValueNote 11. Financial InstrumentsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II. Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 6. Exhibits