UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
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FIRST WESTERN FINANCIAL, INC.
TABLE OF CONTENTS
2
Important Notice about Information in this Quarterly Report
Unless we state otherwise or the context otherwise requires, references in this Quarterly Report to we, our, us, the Company and First Western refer to First Western Financial, Inc. and its consolidated subsidiaries, including First Western Trust Bank, which we sometimes refer to as the Bank or our Bank.
The information contained in this Quarterly Report is accurate only as of the date of this Quarterly Report on Form 10-Q and as of the dates specified herein.
3
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as may, should, could, predict, potential, believe, will likely result, expect, continue, will, anticipate, seek, estimate, intend, plan, projection, would and outlook, or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control, particularly with regard to developments related to COVID-19. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.
There are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, the following:
| ● | The impact of the COVID-19 pandemic and actions taken by governmental authorities in response to the pandemic; |
| ● | geographic concentration in Colorado, Arizona, Wyoming, Montana, and California; |
| ● | changes in the economy affecting real estate values and liquidity; |
| ● | risks associated with higher inflation; |
| ● | our ability to continue to originate residential real estate loans and sell such loans; |
| ● | risks specific to commercial loans and borrowers; |
| ● | claims and litigation pertaining to our fiduciary responsibilities; |
| ● | competition for investment managers and professionals and our ability to retain our associates; |
| ● | fluctuation in the value of our investment securities; |
| ● | the terminable nature of our investment management contracts; |
| ● | changes to the level or type of investment activity by our clients; |
| ● | investment performance, in either relative or absolute terms; |
| ● | changes in interest rates; |
| ● | the adequacy of our allowance for loan losses; |
| ● | weak economic conditions and global trade; |
| ● | legislative changes or the adoption of tax reform policies; |
| ● | external business disruptors in the financial services industry; |
| ● | liquidity risks; |
| ● | our ability to maintain a strong core deposit base or other low-cost funding sources; |
| ● | continued positive interaction with and financial health of our referral sources; |
| ● | retaining our largest trust clients; |
| ● | our ability to achieve our strategic objectives; |
| ● | competition from other banks, financial institutions and wealth and investment management firms; |
| ● | our ability to implement our internal growth strategy and manage the risks associated with our anticipated growth; |
4
| ● | the acquisition of other banks and financial services companies and integration risks and other unknown risks associated with acquisitions; |
| ● | the accuracy of estimates and assumptions; |
| ● | our ability to protect against and manage fraudulent activity, breaches of our information security, and cybersecurity attacks; |
| ● | our reliance on communications, information, operating and financial control systems technology and related services from third-party service providers; |
| ● | technological change; |
| ● | our ability to attract and retain clients; |
| ● | unforeseen or catastrophic events, including pandemics, terrorist attacks, extreme weather events or other natural disasters; |
| ● | new lines of business or new products and services; |
| ● | regulation of the financial services industry; |
| ● | legal and regulatory proceedings, investigations and inquiries, fines and sanctions; |
| ● | limited trading volume and liquidity in the market for our common stock; |
| ● | fluctuations in the market price of our common stock; |
| ● | potential impairment of goodwill recorded on our balance sheet and possible requirements to recognize significant charges to earnings due to impairment of intangible assets; |
| ● | actual or anticipated issuances or sales of our common stock or preferred stock in the future; |
| ● | the initiation and continuation of securities analysts coverage of the Company; |
| ● | future issuances of debt securities; |
| ● | our ability to manage our existing and future indebtedness; |
| ● | available cash flows from the Bank; and |
| ● | other factors that are discussed in Item 1A - Risk Factors in our Annual Report on Form 10-K. |
The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in the section titled Risk Factors in Part I, Item 1A of our Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission (SEC) on March 15, 2022. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
5
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST WESTERN FINANCIAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share amounts)
June 30, | December 31, | |||||
| 2022 |
| 2021 | |||
Assets |
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Cash and cash equivalents: |
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Cash and due from banks | $ | | $ | | ||
Federal funds sold | | | ||||
Interest-bearing deposits in other financial institutions |
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Total cash and cash equivalents |
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Available-for-sale securities, at fair value |
| — |
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Held-to-maturity securities, at amortized cost (fair value of $ | | — | ||||
Correspondent bank stock, at cost |
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Mortgage loans held for sale, at fair value |
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Loans (includes $ |
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Allowance for loan losses | ( | ( | ||||
Loans, net | | | ||||
Premises and equipment, net |
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Accrued interest receivable |
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Accounts receivable |
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Other receivables | | | ||||
Other real estate owned, net | | — | ||||
Goodwill and other intangible assets, net |
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Deferred tax assets, net |
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Company-owned life insurance |
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Other assets |
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Assets held for sale |
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Total assets | $ | | $ | | ||
Liabilities |
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Deposits: |
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Noninterest-bearing | $ | | $ | | ||
Interest-bearing |
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Total deposits |
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Borrowings: |
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Federal Home Loan Bank and Federal Reserve borrowings |
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Subordinated notes |
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Accrued interest payable |
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Other liabilities |
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Total liabilities |
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Shareholders' Equity |
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Preferred stock - |
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Common stock - |
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Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive (loss)/income |
| ( |
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Total shareholders’ equity |
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Total liabilities and shareholders’ equity | $ | | $ | | ||
See accompanying notes to condensed consolidated financial statements (unaudited).
6
FIRST WESTERN FINANCIAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except per share amounts)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Interest and dividend income: |
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Loans, including fees | $ | | $ | | $ | | $ | | ||||
Loans accounted for under the fair value option | | — | | — | ||||||||
Investment securities |
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Interest-bearing deposits in other financial institutions |
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Total interest and dividend income |
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Interest expense: |
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Deposits |
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Other borrowed funds |
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Total interest expense |
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Net interest income |
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Less: Provision for loan losses |
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Net interest income, after provision for loan losses |
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Non-interest income: |
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Trust and investment management fees |
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Net gain on mortgage loans |
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Bank fees |
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Risk management and insurance fees |
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Income on company-owned life insurance |
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Net gain on equity interests | — | — | | — | ||||||||
Net (loss)/gain on loans accounted for under the fair value option | ( | — | ( | — | ||||||||
Unrealized gains/(losses) recognized on equity securities |
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Other | | — | | | ||||||||
Total non-interest income |
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Total income before non-interest expense |
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Non-interest expense: |
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Salaries and employee benefits |
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Occupancy and equipment |
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Professional services |
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Technology and information systems |
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Data processing |
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Marketing |
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Amortization of other intangible assets |
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Net (gain)/loss on assets held for sale | ( | — | ( | — | ||||||||
Other |
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Total non-interest expense |
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Income before income taxes |
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Income tax expense |
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Net income available to common shareholders | $ | | $ | | $ | | $ | | ||||
Earnings per common share: | ||||||||||||
Basic | $ | | $ | | $ | | $ | | ||||
Diluted | | | | | ||||||||
See accompanying notes to condensed consolidated financial statements (unaudited).
7
FIRST WESTERN FINANCIAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Net income | $ | | $ | | $ | | $ | | ||||
Other comprehensive income/(loss) items: | ||||||||||||
Unrealized losses on available-for-sale securities |
| — |
| ( |
| ( |
| ( | ||||
Income tax effect | — | | | | ||||||||
Reclassification adjustment of unrealized loss on available-for-sale securities transferred to held-to-maturity | | — | | — | ||||||||
Income tax effect | ( | — | ( | — | ||||||||
Total other comprehensive income/(loss) items | | ( | ( | ( | ||||||||
Comprehensive income | $ | | $ | | $ | | $ | | ||||
See accompanying notes to condensed consolidated financial statements (unaudited).
8
FIRST WESTERN FINANCIAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)
(in thousands, except share amounts)
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| Accumulated |
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Shares | Additional | Other | ||||||||||||
Common | Paid-In | Retained | Comprehensive | |||||||||||
Stock | Capital | Earnings | Income (Loss) | Total | ||||||||||
Balance as of April 1, 2021 |
| | $ | | $ | | $ | | $ | | ||||
Net income |
| — | — | | — |
| | |||||||
Other comprehensive loss, net of tax |
| — | — | — | ( |
| ( | |||||||
Settlement of share awards | | ( | — | — | ( | |||||||||
Stock-based compensation |
| — | | — | — |
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Balance as of June 30, 2021 |
| | $ | | $ | | $ | | $ | | ||||
Balance as of April 1, 2022 | | $ | | $ | | $ | ( | $ | | |||||
Net income |
| — |
| — |
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| — |
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Other comprehensive income, net of tax and reclassifications |
| — |
| — |
| — |
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Settlement of share awards | | ( | — | — | ( | |||||||||
Options exercised | | | — | — | | |||||||||
Stock-based compensation |
| — |
| |
| — |
| — |
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Balance as of June 30, 2022 |
| | $ | | $ | | $ | ( | $ | | ||||
Balance as of January 1, 2021 |
| | $ | | $ | | $ | | $ | | ||||
Net income |
| — | — | | — | | ||||||||
Other comprehensive loss, net of tax | — | — | — | ( | ( | |||||||||
Settlement of share awards |
| | ( | — | — | ( | ||||||||
Stock-based compensation |
| — | | — | — | | ||||||||
Balance as of June 30, 2021 |
| | $ | | $ | | $ | | $ | | ||||
Balance as of January 1, 2022 |
| | $ | | $ | | $ | | $ | | ||||
Net income |
| — |
| — |
| |
| — |
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Other comprehensive loss, net of tax and reclassifications |
| — |
| — |
| — |
| ( |
| ( | ||||
Settlement of share awards | |
| ( |
| — |
| — | ( | ||||||
Options exercised | | | — |
| — | | ||||||||
Stock-based compensation |
| — |
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| — |
| — |
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Balance as of June 30, 2022 |
| | $ | | $ | | $ | ( | $ | | ||||
See accompanying notes to condensed consolidated financial statements (unaudited).
9
FIRST WESTERN FINANCIAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
| Six Months Ended June 30, | |||||
2022 | 2021 | |||||
Cash flows from operating activities |
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Net income | $ | | $ | | ||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
Net amortization of investment securities |
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Stock dividends received on correspondent bank stock |
| ( |
| ( | ||
Provision for loan losses |
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Net gain on mortgage loans |
| ( |
| ( | ||
Origination of mortgage loans held for sale |
| ( |
| ( | ||
Proceeds from mortgage loans |
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Gain on disposal of fixed assets | ( | — | ||||
Depreciation and amortization |
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Deferred income tax (benefit)/expense, net of valuation allowance |
| ( |
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Increase in cash surrender value of company-owned life insurance |
| ( |
| ( | ||
Stock-based compensation |
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Change in fair value of equity securities | ( | — | ||||
Change in fair value of loans accounted for under the fair value option | | — | ||||
Net changes in operating assets and liabilities: | ||||||
Change in accounts receivable |
| |
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Change in accrued interest receivable and other assets |
| ( |
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Change in accrued interest payable and other liabilities |
| ( |
| ( | ||
Net cash provided by operating activities |
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Cash flows from investing activities | ||||||
Activity in available-for-sale securities: | ||||||
Maturities, prepayments, and calls |
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Purchases |
| ( |
| — | ||
Activity in held-to-maturity securities: | ||||||
Maturities, prepayments, and calls | | — | ||||
Purchases | ( | — | ||||
Purchases of correspondent bank stock |
| ( |
| ( | ||
Redemption of correspondent bank stock | | | ||||
Contributions to low-income housing tax credit investments | ( | — | ||||
Loan and note receivable originations and principal collections, net |
| ( |
| ( | ||
Purchases of premises and equipment | ( | ( | ||||
Purchases of loans |
| ( |
| — | ||
Proceeds from sale of other real estate owned | — | | ||||
Net cash used in investing activities |
| ( |
| ( | ||
Cash flows from financing activities |
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Net change in deposits |
| ( | | |||
Proceeds from Federal Home Loan Bank borrowings |
| | — | |||
Payments to Federal Reserve borrowings | ( | ( | ||||
Proceeds from Federal Reserve borrowings |
| — | | |||
Payments on subordinated notes | ( | — | ||||
Proceeds from subordinated notes, net of issuance costs | — | ( | ||||
Proceeds from the exercise of stock options | | — | ||||
Settlement of restricted stock | ( | ( | ||||
Net cash provided by financing activities |
| | | |||
Net change in cash and cash equivalents | ( | | ||||
Cash and cash equivalents, beginning of year |
| | | |||
Cash and cash equivalents, end of period |
| $ | | $ | | |
Supplemental cash flow information: |
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Interest paid on deposits and borrowed funds | $ | | $ | | ||
Income tax payment, net of refunds received | | | ||||
Cash paid for lease liabilities | | | ||||
Supplemental noncash disclosures: | ||||||
Change in unrealized loss on available-for-sale securities | ( | ( | ||||
Transfer of securities from available-for-sale to held-to-maturity | | — | ||||
Security purchase settled in subsequent period | ( | — | ||||
Transfers from loans to other real estate owned | | — | ||||
See Note 2 - Acquisitions regarding noncash transactions related to measurement period adjustments | ||||||
See accompanying notes to condensed consolidated financial statements (unaudited).
10
FIRST WESTERN FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Basis of Presentation: The condensed consolidated financial statements include the accounts of First Western Financial, Inc. (FWFI), incorporated in Colorado on July 18, 2002, and its direct and indirect wholly-owned subsidiaries listed below (collectively referred to as the Company, we, us, or our).
FWFI is a bank holding company with financial holding company status registered with the Board of Governors of the Federal Reserve System. FWFI wholly owns the following subsidiaries: First Western Trust Bank (the Bank) and Ryder, Stilwell Inc. (RSI). The Bank wholly owns the following subsidiaries, which are therefore indirectly wholly-owned by FWFI: First Western Merger Corporation (Merger Corp) and RRI, LLC (RRI). RSI and RRI are not active operating entities.
The Company provides a fully-integrated suite of wealth management services including, private banking, personal trust, investment management, mortgage loans, and institutional asset management services to individual and corporate clients principally in Colorado (metro Denver, Aspen, Boulder, Fort Collins, and Vail Valley), Arizona (Phoenix and Scottsdale), California (Century City), Montana (Bozeman), and Wyoming (Jackson Hole, Laramie, Pinedale, and Rock Springs). The Company’s revenues are generated from its full range of product offerings as noted above, but principally from net interest income (the interest income earned on the Bank’s assets net of funding costs), fee-based wealth advisory, investment management, asset management and personal trust services, and net gains earned on mortgage loans.
The condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. The December 31, 2021 condensed consolidated balance sheet has been derived from the audited financial statements for the year ended December 31, 2021.
In the opinion of management, all adjustments that were recurring in nature and considered necessary have been included for fair presentation of the Company’s financial position and results of operations. Operating results for the three and six months ended June 30, 2022 are not necessarily indicative of results that may be expected for the full year ending December 31, 2022. In preparing the condensed consolidated financial statements, the Company is required to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could be significantly different from those estimates.
The condensed consolidated financial statements and notes should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the SEC.
Consolidation: The Company’s policy is to consolidate all majority-owned subsidiaries in which it has a controlling financial interest and variable-interest entities where the Company is deemed to be the primary beneficiary. All material intercompany accounts and transactions have been eliminated in consolidation.
Business Combinations and Divestitures: On December 31, 2021, the Company completed its merger pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) with Teton Financial Services, Inc. (“Teton”), parent company of Rocky Mountain Bank, a Wyoming-chartered bank headquartered in Jackson, Wyoming. Management concluded that the merger represented a business combination, which is accounted for using the acquisition method, with the results of operations included in the Company’s condensed consolidated financial statements as of the acquisition date.
Use of Estimates: To prepare financial statements in conformity with GAAP, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the condensed consolidated financial statements and the disclosures provided, and actual results could differ. Information available which could affect these judgments include, but are not limited to, changes in interest rates, changes in the performance of the economy, including the impact of the COVID-19 pandemic, and changes in the financial condition of borrowers. Material estimates that are particularly susceptible to significant change include: the determination of the allowance for loan losses, the evaluation of goodwill impairment, and the fair value of financial instruments.
11
Concentration of Credit Risk: Most of the Company’s lending activity is to clients located in and around metro Denver, Aspen, Fort Collins, and Vail, Colorado; Phoenix and Scottsdale, Arizona; Bozeman, Montana; and Jackson Hole, Wyoming. The Company does not believe it has significant concentrations in any one industry or customer. As of June 30, 2022 and December 31, 2021,
Mortgage Banking Derivatives: Commitments to fund mortgage loans, interest rate lock commitments (IRLC), and forward sale commitments (FSC), to be sold in the secondary market for the future delivery of these loans are accounted for as free standing derivatives. The fair value of the IRLC is recorded at the time the commitment to fund the mortgage loan is executed and is adjusted for the expected exercise of the commitment before the loan is funded. The Company sells mortgage loans to third party investors at the best execution available which includes best efforts, mandatory, and bulk bids. Loans committed under mandatory or bulk bid are considered FSC and qualify as financial derivatives. Fair values of these mortgage derivatives are estimated based on the change in the loan pricing from the date of the commitment to the period end date for any unsettled commitments. Changes in the fair values of these derivatives are included in the Net gain on mortgage loans line of the Condensed Consolidated Statements of Income.
In order to manage the interest rate risk on our uncommitted IRLC and mortgage loans held for sale pipeline, the Company enters into mortgage derivative financial instruments called To Be Announced (TBA), which we refer to as forward commitments. TBA agreements are forward contracts to purchase mortgage backed securities (MBS) that will be issued by a US Government Sponsored Enterprise. The Bank purchases or sells these derivatives to offset the changes in value of our mortgage loans held for sale and IRLC adjusted pipeline where we have exposure to interest rate volatility. Changes in the fair values of these derivatives are included in the Net gain on mortgage loans line of the Condensed Consolidated Statements of Income.
Revenue Recognition: In accordance with the Financial Accounting Standards Board (FASB), Revenue Contracts with Customers (Topic 606), trust and investment management fees are earned by providing trust and investment services to customers. The Company’s performance obligation under these contracts is satisfied over time as the services are provided. Fees are recognized monthly based on the average monthly value of the assets under management and the corresponding fee rate based on the terms of the contract. Receivables are recorded on the Condensed Consolidated Balance Sheets in the Accounts receivable line item. Income related to trust and investment management fees, bank fees, and risk management and insurance fees on the Condensed Consolidated Statements of Income for the three and six months ended June 30, 2022 and 2021 are considered in scope of Topic 606.
Transition of LIBOR to an Alternative Reference Rate: In July 2017, the United Kingdom's Financial Conduct Authority, which regulates the London Interbank Offered Rate (LIBOR), announced that after 2021 it will no longer persuade or compel banks to submit rates for the calculation of LIBOR. In response, the Federal Reserve Board and the Federal Reserve Bank of New York convened the Alternative Reference Rates Committee to identify a set of alternative reference interest rates for possible use as market benchmarks. This committee has proposed the Secured Overnight Financing Rate (SOFR) as its recommended alternative to U.S. dollar LIBOR, and the Federal Reserve Bank of New York began publishing SOFR rates in the second quarter of 2018. SOFR is based on a broad segment of the overnight Treasury repurchase market and is intended to be a measure of the cost of borrowing cash overnight collateralized by Treasury securities.
12
In March 2020, the Financial Accounting Standards Board (‘FASB”) issued Accounting Standards Update (“ASU’) No. 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. Subsequently, in January 2021, the FASB issued ASU No. 2021-01 “Reference Rate Reform (Topic 848): Scope.” This ASU clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The ASU also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. An entity may elect to apply ASU No. 2021-01 on contract modifications that change the interest rate used for margining, discounting, or contract price alignment retrospectively as of any date from the beginning of the interim period that includes March 12, 2020, or prospectively to new modifications from any date within the interim period that includes or is subsequent to January 7, 2021, up to the date that financial statements are available to be issued. An entity may elect to apply ASU No. 2021-01 to eligible hedging relationships existing as of the beginning of the interim period that includes March 12, 2020, and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020.
Certain of the Company’s assets and liabilities are indexed to LIBOR, with exposure extending beyond December 31, 2021. The Company is currently evaluating and planning for the eventual replacement of the LIBOR benchmark interest rate, including the possibility of SOFR as the dominant replacement. In general, the transition away from LIBOR may result in increased market risk, credit risk, operational risk and business risk for the Company. The Company has developed a LIBOR transition plan, which addresses governance, risk management, legal, operational, systems, fallback language, and other aspects of planning. The company no longer originates LIBOR indexed loans and is working on transitioning existing LIBOR loans to SOFR. Consumer indexed loans are being managed in accordance with Interagency Guidance.
COVID-19 and CARES Act: On March 11, 2020 the World Health Organization declared the outbreak of COVID-19 a global pandemic, which continues to spread throughout the United States and around the world. In response to the COVID-19 pandemic, the President signed the Coronavirus Aid, Relief and Economic Security Act (CARES Act) into law on March 27, 2020. The objective of the CARES Act is to prevent a severe economic downturn using various measures, including economic stimulus to significantly impacted industry sectors. We continue to monitor the impact of COVID-19 closely, as well as any effects that may result from the CARES Act and other government actions.
The CARES Act created the Paycheck Protection Program (PPP), which is administered by the Small Business Administration (SBA). The PPP is intended to provide loans to small businesses to pay their employees, rent, mortgage interest, and utilities. The loans may be forgiven conditioned upon the client providing payroll documentation evidencing their compliant use of funds and otherwise complying with the terms of the program. The Bank is an approved SBA lender and supported the community and clients by originating PPP loans since the program was created. PPP loans are classified in the Cash, Securities and Other portion of the loan portfolio. See Note 4 – Loans and the Allowance for Loan Losses for further discussion on our PPP loans.
As a result of the COVID-19 pandemic, a loan modification program was designed and implemented to assist our clients experiencing financial stress resulting from the economic impacts caused by the global pandemic. The Company offered loan extensions, temporary payment moratoriums, and financial covenant waivers for commercial and consumer borrowers impacted by the pandemic and had a risk rating of “pass” and had not been delinquent in making interest or principal payment by more than 30 days during the last two years.
The CARES Act provides banks optional, temporary relief from accounting for certain loan modifications as troubled debt restructurings (TDR). The modifications must be related to the adverse effects of COVID-19, and certain other criteria are required to be met in order to apply the relief. Interagency guidance from Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) confirmed with the FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not to be considered a TDR. We believe our loan modification program meets that definition and have not classified any of these modifications as a TDR as of June 30, 2022. See Note 4 – Loans and the Allowance for Loan Losses for further discussion on our loan modification program.
13
The Company is a participant in the Federal Reserve’s Main Street Lending Program (MSLP) to support lending to small and medium-sized for profit businesses and nonprofit organizations that were in sound financial condition before the onset of the COVID-19 pandemic. The Company may sell a 95% participation in a new MSLP loan to the Main Street Special Purpose Vehicle (SPV) at par value. The Company must retain 5% of the MSLP loan until (i) it matures or (ii) neither the Main Street SPV nor a Governmental Assignee holds an interest in MSLP Loan in any capacity, whichever comes first. See Note 4 – Loans and the Allowance for Loan Losses for further discussion on our participation in the program.
Reclassifications: Certain items in prior year financial statements were reclassified to conform to the current presentation. Such reclassifications had no impact on net income or total shareholders’ equity.
Recently adopted accounting pronouncements: The following reflects recent accounting pronouncements that were adopted by the Company since the end of the Company’s fiscal year ended December 31, 2021.
In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-04), which amended existing guidance to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. The amendments require an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognizing an impairment charge of the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 was set to be effective for the Company on January 1, 2021. However, ASU 2019-10 amended the mandatory effective date for ASU 2014-07 to January 1, 2023 for SRC’s, with earlier adoption permitted. On January 1, 2022, the Company adopted the new guidance. The adoption of this ASU has not had a material impact on the consolidated financial statements, and the Company has not recorded goodwill impairment to date as of part of the acquisition activity.
Recently issued accounting pronouncements, not yet adopted: The following reflects pending pronouncements with an update to the expected impact since the end of the Company’s fiscal year ended December 31, 2021.
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. This was issued to clarify the guidance in Topic 820, Fair Value Measurement, when measuring fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security and to introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. The Company is currently assessing the impact of this guidance on our existing equity securities. This guidance is effective for the Company in fiscal years after December 15, 2023.
In February 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326) (ASU 2016-13). ASU 2016-13 replaces the incurred loss model with an expected loss model, which is referred to as the current expected credit loss (CECL) model. The CECL model is applicable to the measurement of credit losses on the financial assets measured at amortized cost, including loan receivables, held-to-maturity debt securities, and reinsurance receivables. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor. For all other assets within the scope of CECL, a cumulative-effect adjustment will be recognized in retained earnings and the allowance for credit losses as of the beginning of the first reporting period in which the guidance is effective. ASU 2016-13 was set to be effective for most public companies on January 1, 2020. However, at the October 16, 2019 FASB meeting, the FASB voted unanimously to delay the effective date of CECL adoption for smaller reporting companies (SRCs) to January 1, 2023.
During the six months ended June 30, 2022, the Company’s CECL project team continued to work through its implementation plan. The Company has selected a champion quantitative model to approximate expected losses by call code segment using regional and other appropriate peers. The Company has selected qualitative factors and evaluated those factors for each loan segment for the quarter ended June 30, 2022. The Company has begun to document policies and procedures, internal control structure, and process flows. Using this information, the Company successfully ran parallel models for both the first and second quarters of 2022 in order for management to review and compare results between the initial CECL model and existing ALLL model. Currently, we are unable to estimate the impact the adoption of this update will have on the condensed consolidated financial statements and disclosures. However, the Company expects the impact of the adoption will be significantly influenced by the composition and characteristics of its loan portfolios along with economic conditions prevalent as of the date of adoption. The Company expects to implement the new standard beginning January 1, 2023.
14
In March, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326); Troubled Debt Restructurings (“TDR”) and Vintage Disclosures. This ASU will be effective for the Company at the same time we adopt CECL, January 1, 2023. The amendments eliminate the TDR recognition and measurement guidance and instead require an entity to evaluate whether the modification represents a new loan or a continuation of an existing loan (consistent with accounting for other modifications). The amendments also enhance existing disclosure requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty.
NOTE 2 – ACQUISITIONS
On July 22, 2021, the Company entered into the Merger Agreement with Teton, parent company of Rocky Mountain Bank, a Wyoming-chartered bank headquartered in Jackson, Wyoming. The Merger Agreement provided that, subject to the terms and conditions set forth in the Merger Agreement, Teton would merge into the Company, with the Company continuing as the surviving corporation. The Merger Agreement also provided that following the merger, Rocky Mountain Bank would merge with and into the Bank, with the Bank surviving the bank merger. The transaction closed on December 31, 2021 with an aggregate purchase price of $
The Teton Acquisition was accounted for under the acquisition method of accounting and therefore all assets and liabilities were measured and recorded at their provisional fair values as of the acquisition close date of December 31, 2021 with final measurement period adjustments made as of March 31, 2022. All non-equity acquisition related costs were expensed as incurred. Certain acquisition costs related to the issuance of equity were capitalized as of December 31, 2021. Market value adjustments for assets acquired and liabilities assumed were amortized or accreted on a level yield basis over the estimated life of the asset or liability. Loans acquired were recorded at their estimated fair value and therefore no allowance for loan and lease losses was recorded at the date of acquisition. Goodwill of $
15
The following presents the estimated fair values of the assets acquired and liabilities assumed in the transaction with Teton as of December 31, 2021, including all measurement period adjustments to the provisional estimates (dollars in thousands):
Provisional | Measurement Period | December 31, | |||||||
Fair value of consideration transferred | Estimates | Adjustments | 2021 | ||||||
Cash consideration | $ | | $ | — | $ | | |||
Common stock issued | | — | | ||||||
Total fair value of consideration transferred | | — | | ||||||
Assets acquired | |||||||||
Cash and cash equivalents | | — | | ||||||
Available-for-sale securities, at fair value | | — | | ||||||
Correspondent bank stock, at cost | | — | | ||||||
Mortgage loans held for sale | | — | | ||||||
Loans | | ( | | ||||||
Premises and equipment | | — | | ||||||
Accrued interest receivable | | — | | ||||||
Accounts receivable | | — | | ||||||
Other receivable | | — | | ||||||
Core deposit intangible(1) | | | | ||||||
Other assets | | | | ||||||
Assets held for sale | | | | ||||||
Total assets acquired | | | | ||||||
Liabilities assumed | |||||||||
Deposits | | ( | | ||||||
Accrued interest payable | | — | | ||||||
Other liabilities |
| | — | | |||||
Deferred tax liabilities/(assets), net | | ( | ( | ||||||
Total liabilities assumed | | ( | | ||||||
Net assets acquired | | | | ||||||
Goodwill recognized | $ | | $ | ( | $ | | |||
________________________________
(1) The core deposit intangible was determined to have an estimated life of
16
The Company incurred $
Three Months Ended | Six Months Ended | |||||
June 30, 2022 | June 30, 2022 | |||||
Mergers and acquisitions expense: | ||||||
Salaries and employee benefits | $ | | $ | | ||
Professional services | | | ||||
Technology and information systems | | | ||||
Data processing(1) | ( | | ||||
Marketing | | | ||||
Other | | | ||||
Total mergers and acquisitions expense | $ | | $ | | ||
________________________________
(1) Includes credit for avoided contract termination costs due to new contract terms.
The following table presents pro forma information for the three and six months ended June 30, 2022 and 2021, as if the Teton Acquisition had occurred on January 1, 2021. This table has been prepared for comparative purposes only, and is not indicative of the actual results that would have been attained had the acquisitions occurred as of the beginning of the periods presented, nor is it indicative of future results (in thousands, except per share data):
Pro Forma | ||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||
Net interest income after provision for loan losses | $ | | $ | | $ | | $ | | ||||
Non-interest income | | | | | ||||||||
Net income | | | | | ||||||||
Pro forma earnings per share: | ||||||||||||
Basic | | | | | ||||||||
Diluted | | | | | ||||||||
k
NOTE 3 - INVESTMENT SECURITIES
The following presents the amortized cost and fair value of securities held-to-maturity and securities available-for-sale and the corresponding amounts of gross unrecognized gains and losses and gross unrealized gains and losses recognized in accumulated other comprehensive loss as of the dates noted (dollars in thousands):
|
| Gross | Gross | |||||||||
Amortized | Unrecognized | Unrecognized | Fair | |||||||||
June 30, 2022 | Cost | Gains | Losses | Value | ||||||||
Investment securities held-to-maturity: |
|
|
|
|
|
|
|
| ||||
U.S. Treasury debt | $ | | $ | — | $ | ( | $ | | ||||
U.S. Government Agency | | — | ( | | ||||||||
Corporate bonds | | | ( | | ||||||||
GNMA mortgage-backed securities – residential |
| |
| — |
| ( |
| | ||||
FNMA mortgage-backed securities – residential | | — | ( | | ||||||||
Government CMO and MBS - commercial | | | ( | | ||||||||
Corporate CMO and MBS |
| |
| |
| ( |
| | ||||
Total securities held-to-maturity | $ | | $ | | $ | ( | $ | | ||||
17
|
| Gross |
| Gross |
| |||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||
December 31, 2021 | Cost | Gains | Losses | Value | ||||||||
Investment securities available-for-sale: |
|
|
|
|
|
|
|
| ||||
U.S. Treasury debt | $ | | $ | — | $ | ( | $ | | ||||
U.S. Government Agency | | — | — | | ||||||||
Corporate bonds |
| | | ( |
| | ||||||
GNMA mortgage-backed securities – residential | |
| |
| ( | | ||||||
FNMA mortgage-backed securities – residential | | | — | | ||||||||
Government CMO and MBS - commercial | | — | — | | ||||||||
Corporate CMO and MBS | |
| |
| ( | | ||||||
Total securities available-for-sale | $ | | $ | | $ | ( | $ | | ||||
The Company reassessed classification of investment securities and, effective April 1, 2022, elected to transfer all securities, fair valued at $
As of June 30, 2022, the amortized cost and estimated fair value of held-to-maturity securities have contractual maturity dates shown in the table below (dollars in thousands). Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.
| Amortized |
| Fair | |||
June 30, 2022 | Cost | Value | ||||
Due within one year | $ | | $ | | ||
Due between one year and five years | | | ||||
Due between five years and ten years | | | ||||
Due after ten years | | | ||||
Securities (CMO and MBS) |
| |
| | ||
Total | $ | | $ | | ||
In the first quarter of 2022, the Company committed $
In 2014, the Company began investing in a small business investment company (SBIC) fund administered by the Small Business Administration. The Company did not make any contributions to the SBIC fund during the six months ended June 30, 2022 or the year ended December 31, 2021 and received a $
As of June 30, 2022 and December 31, 2021, securities with carrying values totaling $
As of June 30, 2022 and December 31, 2021, there were no holdings of securities of any one issuer, other than the U.S. Government sponsored entities and agencies, in an amount greater than
As of June 30, 2022 and December 31, 2021,
18
The following presents securities with unrealized losses aggregated by major security type and length of time in a continuous unrealized loss position as of the dates noted (dollars in thousands, before tax):
| Less than 12 Months |
| 12 Months or Longer |
| Total | |||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||
June 30, 2022 | Value | Losses | Value | Losses | Value |
| Losses | |||||||||||
Investment securities held-to-maturity: | ||||||||||||||||||
U.S. Treasury debt | $ | | $ | ( | $ | — | $ | — | $ | | $ | ( | ||||||
U.S. Government Agency | | ( | — | — | | ( | ||||||||||||
Corporate bonds | | ( | | ( | | ( | ||||||||||||
GNMA mortgage-backed securities – residential | | ( | | ( | | ( | ||||||||||||
FNMA mortgage-backed securities – residential | | ( | — | — | | ( | ||||||||||||
Government CMO and MBS - commercial | | ( | — | — | | ( | ||||||||||||
Corporate CMO and MBS |
| |
| ( |
| |
| ( |
| |
| ( | ||||||
Total | $ | | $ | ( | $ | | $ | ( | $ | | $ | ( | ||||||
| Less than 12 Months |
| 12 Months or Longer |
| Total | |||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||
December 31, 2021 |
| Value | Losses | Value | Losses |
| Value |
| Losses | |||||||||
Investment securities available-for-sale: | ||||||||||||||||||
U.S. Treasury debt | $ | | $ | ( | $ | — | $ | — | $ | | $ | ( | ||||||
Corporate bonds | | ( | — | — | | ( | ||||||||||||
GNMA mortgage-backed securities – residential | | ( | — | — | | ( | ||||||||||||
Corporate CMO and MBS |
| — |
| — |
| |
| ( |
| |
| ( | ||||||
Total | $ | | $ | ( | $ | | $ | ( | $ | | $ | ( | ||||||
The Company did not sell any securities during the three and six months ended June 30, 2022 or during the year ended December 31, 2021.
NOTE 4 - LOANS AND THE ALLOWANCE FOR LOAN LOSSES
The following presents a summary of the Company’s loans as of the dates noted (dollars in thousands):
June 30, | December 31, | |||||
| 2022 |
| 2021 | |||
Cash, Securities and Other(1) | $ | | $ | | ||
Consumer and Other(2) | | | ||||
Construction and Development |
| |
| | ||
1-4 Family Residential |
| |
| | ||
Non-Owner Occupied CRE |
| |
| | ||
Owner Occupied CRE | | | ||||
Commercial and Industrial(3) | | | ||||
Total loans held for investment |
| |
| | ||
Deferred fees and unamortized premiums/(unaccreted discounts), net(4) |
| ( |
| ( | ||
Allowance for loan losses |
| ( |
| ( | ||
Loans, net | $ | | $ | | ||
______________________________________
(1) Includes PPP loans of $
(2) Includes $
(3) Includes MSLP loans of $
(4) Includes fair value adjustments on loans held for investment accounted for under the fair value option.
As of June 30, 2022 and December 31, 2021, total loans held for investment included $
19
The CARES Act created the PPP, which is administered by the SBA. The PPP is intended to provide loans to small businesses to pay their employees, rent, mortgage interest, and utilities. The loans may be forgiven conditioned upon the client providing payroll documentation evidencing their compliant use of funds and otherwise complying with the terms of the program. The Bank is an approved SBA lender and as of June 30, 2022, the Cash, Securities and Other portion of the loan portfolio included $
The Company is a participant in the Federal Reserve’s MSLP to support lending to small and medium-sized for profit businesses and nonprofit organizations that were in sound financial condition before the onset of the COVID-19 pandemic. As of June 30, 2022, the Company’s Commercial and Industrial loans included
Loan Modifications
As a result of the COVID-19 pandemic, a loan modification program was designed and implemented to assist our clients experiencing financial stress resulting from the economic impacts caused by the global pandemic. The Company offered loan extensions, temporary payment moratoriums, and financial covenant waivers for commercial and consumer borrowers impacted by the pandemic who have a pass risk rating and have not been delinquent over
In 2021, the deferral period ended for all non-acquired loans previously modified and payments resumed under the original terms. As of June 30, 2022, the Company’s loan portfolio included
The CARES Act provides banks optional, temporary relief from accounting for certain loan modifications as a TDR. The modifications must be related to the adverse effects of COVID-19, and certain other criteria are required to be met in order to apply the relief. Interagency guidance from Federal Reserve and the FDIC confirmed with the FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not to be considered TDRs. We believe our loan modification program meets that definition. In accordance with that guidance, the Company recognized interest income on all loans modified for temporary payment moratoriums, primarily for a period of
All loans modified in response to COVID-19 are classified as performing and pass rated as of June 30, 2022. These loans are included in the allowance for loan loss general reserve in accordance with ASC 450-20. Management has increased our loan level reviews and portfolio monitoring to address the changing environment. Management believes the diversity of the loan portfolio is prudent and remains consistent with the credit culture and goals of the Bank.
Interest accrued during the modification term on modified loans is deferred to the end of the loan term. As of June 30, 2022, no allowance for loan loss was deemed necessary on the accrued interest balances related to loan modifications.
The following presents, by class, an aging analysis of the recorded investments (excluding accrued interest receivable, deferred fees, and unamortized premiums/(unaccreted discounts), which are not material) in loans past due as of the dates noted (dollars in thousands):
| 30-59 |
| 60-89 |
| 90 or |
| Total |
|
| Total | ||||||||
Days | Days | More Days | Loans | Recorded | ||||||||||||||
June 30, 2022 | Past Due | Past Due | Past Due | Past Due | Current | Investment | ||||||||||||
Cash, Securities and Other | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
Consumer and Other | | | | | | | ||||||||||||
Construction and Development |
| — | | — |
| |
| |
| | ||||||||
1-4 Family Residential |
| | — | — |
| |
| |
| | ||||||||
Non-Owner Occupied CRE | — | — | — | — | | | ||||||||||||
Owner Occupied CRE | — | | — | | | | ||||||||||||
Commercial and Industrial |
| | | |
| |
| |
| | ||||||||
Total | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
20
| 30-59 |
| 60-89 |
| 90 or |
| Total |
|
| Total | ||||||||
Days | Days | More Days | Loans | Recorded | ||||||||||||||
December 31, 2021 | Past Due | Past Due | Past Due | Past Due | Current | Investment | ||||||||||||
Cash, Securities and Other | $ | | $ | — | $ | | $ | | $ | | $ | | ||||||
Consumer and Other | | — | | | | | ||||||||||||
Construction and Development |
| | — | — |
| |
| |
| | ||||||||
1-4 Family Residential |
| | — | — |
| |
| |
| | ||||||||
Non-Owner Occupied CRE | — | | — | | | | ||||||||||||
Owner Occupied CRE | | — | — | | | | ||||||||||||
Commercial and Industrial |
| | — | |
| |
| |
| | ||||||||
Total | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
As of June 30, 2022, the Company had
Non-Accrual Loans and Troubled Debt Restructurings
The following presents the recorded investment in non-accrual loans by class as of the dates noted (dollars in thousands):
June 30, | December 31, | |||||
| 2022 |
| 2021 | |||
Cash, Securities and Other | $ | | $ | | ||
Consumer and Other | | | ||||
1-4 Family Residential | | | ||||
Owner Occupied CRE | | | ||||
Commercial and Industrial |
| |
| | ||
Total | $ | | $ | | ||
Non-accrual loans classified as TDRs accounted for $
The following presents a summary of the unpaid principal balance of loans classified as TDRs as of the dates noted (dollars in thousands):
June 30, | December 31, | |||||
| 2022 |
| 2021 | |||
Accruing | ||||||
Non-Owner Occupied CRE | $ | | $ | | ||
Non-accrual | ||||||
Cash, Securities, and Other | | | ||||
1-4 Family Residential | | | ||||
Owner Occupied CRE | | | ||||
Commercial and Industrial | | | ||||
Total | | | ||||
Allowance for loan losses associated with TDR |
| ( |
| ( | ||
Net recorded investment | $ | | $ | | ||
As of June 30, 2022 and December 31, 2021, the Company had
21
The Company did not modify any loans resulting in TDR status during the six months ended June 30, 2022. The Company modified
TDRs are reviewed individually for impairment and are included in the Company’s specific reserves in the allowance for loan losses. If charged off, the amount of the charge-off is included in the Company’s charge-off factors, which impact the Company’s reserves on non-impaired loans.
The following presents impaired loans by portfolio and related valuation allowance during the periods presented (dollars in thousands):
June 30, 2022 | December 31, 2021 | |||||||||||||||||
|
| Unpaid |
| Allowance |
| Unpaid |
| Allowance | ||||||||||
Total | Contractual | for | Total | Contractual | for | |||||||||||||
Recorded | Principal | Loan | Recorded | Principal | Loan | |||||||||||||
Investment | Balance | Losses | Investment | Balance | Losses | |||||||||||||
Impaired loans with a valuation allowance: | ||||||||||||||||||
Consumer and Other | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
Commercial and Industrial | | | | | | | ||||||||||||
Total | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
Impaired loans with no related valuation allowance: | ||||||||||||||||||
Cash, Securities, and Other | $ | | $ | | $ | — | $ | | $ | | $ | — | ||||||
1-4 Family Residential | | | — | | | — | ||||||||||||
Owner Occupied CRE | | | — | | | — | ||||||||||||
Commercial and Industrial | | | — | | | — | ||||||||||||
Total | $ | | $ | | $ | — | $ | | $ | | $ | — | ||||||
Total impaired loans: | ||||||||||||||||||
Cash, Securities, and Other | $ | | $ | | $ | — | $ | | $ | | $ | — | ||||||
Consumer and Other | | | | | | | ||||||||||||
1-4 Family Residential | | | — | | | — | ||||||||||||
Owner Occupied CRE | | | — | | | — | ||||||||||||
Commercial and Industrial | | | | | | | ||||||||||||
Total | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
The recorded investment in loans in the previous tables excludes accrued interest, deferred fees, and unamortized premiums/(unaccreted discounts), which are not material. Interest income, if any, was recognized on the cash basis on non-accrual loans.
22
The following presents the average balance of impaired loans and interest income recognized on impaired loans during the periods presented (dollars in thousands):
Three Months Ended June 30, | ||||||||||||
2022 | 2021 | |||||||||||
Average | Interest | Average | Interest | |||||||||
Recorded | Income | Recorded | Income | |||||||||
Investment | Recognized | Investment | Recognized | |||||||||
Impaired loans with a valuation allowance: | ||||||||||||
Cash, Securities, and Other | $ | — | $ | — | $ | | $ | — | ||||
Consumer and Other | | — | | — | ||||||||
Commercial and Industrial | | — | | | ||||||||
Total | $ | | $ | — | $ | | $ | | ||||
Impaired loans with no related valuation allowance: | ||||||||||||
Cash, Securities, and Other | $ | | $ | — | $ | | $ | — | ||||
Owner Occupied CRE | | — | — | | ||||||||
Commercial and Industrial | | — | | — | ||||||||
1-4 Family Residential | | — | — | — | ||||||||
Total | $ | | $ | — | $ | | $ | | ||||
Total impaired loans: | ||||||||||||
Cash, Securities, and Other | $ | | $ | — | $ | | $ | — | ||||
Consumer and Other | | — | | — | ||||||||
Owner Occupied CRE | | — | — | | ||||||||
Commercial and Industrial | | — | | | ||||||||
1-4 Family Residential | | — | — | — | ||||||||
Total | $ | | $ | — | $ | | $ | | ||||
Six Months Ended June 30, | ||||||||||||
2022 | 2021 | |||||||||||
Average | Interest | Average | Interest | |||||||||
Recorded | Income | Recorded | Income | |||||||||
Investment | Recognized | Investment | Recognized | |||||||||
Impaired loans with a valuation allowance: | ||||||||||||
Cash, Securities, and Other | $ | — | $ | — | $ | | $ | — | ||||
Consumer and Other | | — | | — | ||||||||
Commercial and Industrial | | — | | | ||||||||
Total | $ | | $ | — | $ | | $ | | ||||
Impaired loans with no related valuation allowance: | ||||||||||||
Cash, Securities, and Other | $ | | $ | — | $ | | $ | — | ||||
Owner Occupied CRE | | — | — | | ||||||||
Commercial and Industrial | | * | | — | ||||||||
1-4 Family Residential | | — | — | — | ||||||||
Total | $ | | $ | — | $ | | $ | | ||||
Total impaired loans: | ||||||||||||
Cash, Securities, and Other | $ | | $ | — | $ | | $ | — | ||||
Consumer and Other | | — | | — | ||||||||
Owner Occupied CRE | | — | — | | ||||||||
Commercial and Industrial | | * | | | ||||||||
1-4 Family Residential | | — | — | — | ||||||||
Total | $ | | $ | — | $ | | $ | | ||||
______________________________________
* The Company recognized an immaterial amount of interest income during the period.
23
Allowance for Loan Losses
Allocation of a portion of the allowance for loan losses to one category of loans does not preclude its availability to absorb losses in other categories.
Cash, | Consumer | Construction | 1-4 | Non-Owner | Owner | Commercial | ||||||||||||||||||
Securities | and | and | Family | Occupied | Occupied | and | ||||||||||||||||||
| and Other | Other | Development | Residential | CRE | CRE | Industrial | Total | ||||||||||||||||
Changes in allowance for loan losses for the three months ended June 30, 2022 | ||||||||||||||||||||||||
Beginning balance | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
(Release)/provision for loan losses |
| ( |
| ( |
| |
| |
| |
| |
| ( |
| | ||||||||
Charge-offs |
| — |
| ( |
| — | — | — | — | — |
| ( | ||||||||||||
Recoveries |
| — |
| |
| — | — | — | — | — |
| | ||||||||||||
Ending balance | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Changes in allowance for loan losses for the six months ended June 30, 2022 | ||||||||||||||||||||||||
Beginning balance | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
(Release)/provision for loan losses |
| ( |
| |
| ( |
| |
| |
| |
| ( |
| | ||||||||
Charge-offs |
| — |
| ( |
| — |
| — |
| — |
| — |
| — |
| ( | ||||||||
Recoveries |
| — |
| |
| — |
| — |
| — |
| — |
| — |
| | ||||||||
Ending balance | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Allowance for loan losses as of June 30, 2022 allocated to loans evaluated for impairment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Individually | $ | — | $ | | $ | — | $ | — | $ | — | $ | — | $ | | $ | | ||||||||
Collectively |
| |
| |
| |
| |
| |
| |
| |
| | ||||||||
Ending balance | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Loans as of June 30, 2022: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Individually evaluated for impairment | $ | | $ | | $ | — | $ | | $ | — | $ | | $ | | $ | | ||||||||
Collectively evaluated for impairment | |
| |
| |
| |
| |
| |
| |
| | |||||||||
Measured at fair value |
| — |
| |
| — |
| — |
| — |
| — |
| — |
| | ||||||||
Ending balance | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
24
Cash, | Consumer | Construction | 1-4 | Non-Owner | Owner | Commercial | ||||||||||||||||||
Securities | and | and | Family | Occupied | Occupied | and | ||||||||||||||||||
| and Other | Other | Development | Residential | CRE | CRE | Industrial | Total | ||||||||||||||||
Changes in allowance for loan losses for the three months ended June 30, 2021 | ||||||||||||||||||||||||
Beginning balance | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
(Release)/provision for loan losses |
| ( |
| |
| |
| |
| |
| |
| |
| | ||||||||
Charge-offs |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — | ||||||||
Recoveries |
| — |
| |
| — |
| — |
| — |
| — |
| — |
| | ||||||||
Ending balance | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Changes in allowance for loan losses for the six months ended June 30, 2021 | ||||||||||||||||||||||||
Beginning balance | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
(Release)/provision for loan losses |
| ( |
| |
| ( |
| |
| |
| |
| |
| | ||||||||
Charge-offs |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — | ||||||||
Recoveries |
| — |
| |
| — |
| — |
| — |
| — |
| — |
| | ||||||||
Ending balance | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Allowance for loan losses as of December 31, 2021 allocated to loans evaluated for impairment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Individually | $ | — | $ | | $ | — | $ | — | $ | — | $ | — | $ | | $ | | ||||||||
Collectively |
| |
| |
| |
| |
| |
| |
| |
| | ||||||||
Ending balance | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Loans as of December 31, 2021: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Individually evaluated for impairment | $ | | $ | | $ | — | $ | | $ | — | $ | | $ | | $ | | ||||||||
Collectively evaluated for impairment |
| |
| |
| |
| |
| | |
| |
| | |||||||||
Ending balance | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
The Company categorizes loans into risk categories based on relevant information about the ability of the borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans by credit risk on a quarterly basis. The Company uses the following definitions for risk ratings:
Special Mention—Loans classified as special mention have a potential weakness or borrowing relationships that require more than the usual amount of management attention. Adverse industry conditions, deteriorating financial conditions, declining trends, management problems, documentation deficiencies, or other similar weaknesses may be evident. Ability to meet current payment schedules may be questionable, even though interest and principal are still being paid as agreed. The asset has potential weaknesses that may result in deteriorating repayment prospects if left uncorrected. Loans in this risk grade are not considered adversely classified.
Substandard—Substandard loans are considered classified and are inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardizes the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loans in this category may be placed on non-accrual status and may individually be evaluated for impairment if indicators of impairment exist.
Doubtful—Loans graded Doubtful are considered classified and have all the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable. However, the amount of certainty of eventual loss is not known because of specific pending factors.
Loans accounted for under the fair value option are not rated.
25
Loans not meeting any of the three criteria above are considered to be pass-rated loans.
Special | |||||||||||||||
June 30, 2022 |
| Pass |
| Mention |
| Substandard | Not Rated |
| Total | ||||||
Cash, Securities and Other | $ | | $ | — | $ | | $ | — | $ | | |||||
Consumer and Other | | — | | | | ||||||||||
Construction and Development |
| |
| — |
| — | — |
| | ||||||
1-4 Family Residential | | — | | — | | ||||||||||
Non-Owner Occupied CRE | | | — | — | | ||||||||||
Owner Occupied CRE | | — | | — | | ||||||||||
Commercial and Industrial |
| |
| |
| | — |
| | ||||||
Total | $ | | $ | | $ | | $ | | $ | | |||||
Special | |||||||||||||||
December 31, 2021 |
| Pass |
| Mention |
| Substandard | Not Rated |
| Total | ||||||
Cash, Securities and Other | $ | | $ | — | $ | | $ | — | $ | | |||||
Consumer and Other | | — | | — | | ||||||||||
Construction and Development | |
| |
| — | — |
| | |||||||
1-4 Family Residential | | — | | — | | ||||||||||
Non-Owner Occupied CRE | | | — | — | | ||||||||||
Owner Occupied CRE |
| | — | | — | | |||||||||
Commercial and Industrial |
| |
| |
| | — |
| | ||||||
Total | $ | | $ | | $ | | $ | — | $ | | |||||
The Company had
NOTE 5 - GOODWILL
The following presents changes in the carrying amount of goodwill as of the dates noted (dollars in thousands):
June 30, | December 31, | |||||
Beginning balance | $ | | $ | | ||
Acquisition activity | ( | | ||||
Ending balance | $ | | $ | | ||
During the year ended December 31, 2021, the Company recorded $
Goodwill is tested annually for impairment on October 31 or earlier upon the occurrence of certain events.
The goodwill impairment analysis includes the determination of the carrying value of the reporting unit, including the existing goodwill, and estimating the fair value of the reporting unit. If the fair value is less than its carrying amount, goodwill impairment is recognized equal to the difference between the fair value and its carrying amount, not to exceed its carrying amount. As of June 30, 2022, there has not been any impairment of goodwill identified or recorded. Goodwill totaled $
26
NOTE 6 - LEASES
Leases in which the Company is determined to be the lessee are primarily operating leases comprised of real estate property and office space for our corporate headquarters and profit centers with terms that extend to 2032. In accordance with ASC 842, operating leases are required to be recognized as a right-of-use asset with a corresponding lease liability.
The Company elected to not include short-term leases with initial terms of twelve months or less on the Condensed Consolidated Balance Sheets. The following presents the classification of the right-of-use assets and corresponding liabilities within the Condensed Consolidated Balance Sheets, as of the dates noted (dollars in thousands).
| June 30, | December 31, | |||||||
2022 | 2021 | ||||||||
Lease Right-of-Use Assets | Classification | ||||||||
Operating lease right-of-use assets | Other assets | $ | | $ | | ||||
Lease Liabilities | Classification | ||||||||
Operating lease liabilities | Other liabilities | $ | | $ | | ||||
The Company’s operating lease agreements typically include an option to renew the lease at the Company’s discretion. To the extent the Company is reasonably certain it will exercise the renewal option at the inception of the lease, the Company will include the extended term in the calculation of the right-of-use asset and lease liability. ASC 842 requires the use of the rate implicit in the lease when it is readily determinable. As this rate is typically not readily determinable, at the inception of the lease, the Company uses its collateralized incremental borrowing rate over a similar term. The amount of the right-of-use asset and lease liability are impacted by the discount rate used to calculate the present value of the minimum lease payments over the term of the lease.
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
Weighted-Average Remaining Lease Term | ||||||||
Operating leases | years | years | ||||||
Weighted-Average Discount Rate | ||||||||
Operating leases | | % | | % | ||||
The Company’s operating leases contain fixed and variable lease components and it has elected to account for all classes of underlying assets as a single lease component. Variable lease costs primarily represent common area maintenance and parking. The Company recognized lease costs in Occupancy and equipment expense in the accompanying Condensed Consolidated Statements of Income.
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||
Lease Costs | |||||||||||
Operating lease cost | $ | | $ | | $ | | $ | | |||
Variable lease cost | | | | | |||||||
Lease costs, net | $ | | $ | | $ | | $ | | |||
27
The following presents a maturity analysis of the Company’s operating lease liabilities on an annual basis for each of the next five years and total amounts thereafter (dollars in thousands):
Year Ending December 31, | Operating Leases | ||
2022(1) | $ | | |
2023 |
| | |
2024 | | ||
2025 |
| | |
2026 |
| | |
Thereafter |
| | |
Total future minimum lease payments | | ||
Less: imputed interest | ( | ||
Present value of net future minimum lease payments | $ | | |
________________________________________
(1) Amount represents the remaining six months of year.
Leases in which the Company is determined to be the lessor are considered operating leases and consist of the partial lease of Company owned buildings. In accordance with ASC 842, these leases have been accounted for as operating leases. During the three and six months ended June 30, 2022, the Company recognized $
The following presents a maturity analysis of the Company's operating payments to be received on an annual basis for each of the next five years and total amounts thereafter (dollars in thousands):
Undiscounted | |||
Year Ending December 31, | Operating Lease Income | ||
2022(1) | $ | ||
2023 | |||
2024 | |||
2025 | — | ||
2026 | — | ||
Thereafter | — | ||
Total undiscounted operating lease income | $ |
________________________________________
(1) Amount represents the remaining six months of year.
NOTE 7 - DEPOSITS
The following presents the Company’s interest-bearing deposits as of the dates noted (dollars in thousands):
June 30, | December 31, | |||||
| 2022 |
| 2021 | |||
Money market deposit accounts | $ | | $ | | ||
Time deposits |
| |
| | ||
Negotiable order of withdrawal accounts |
| |
| | ||
Savings accounts |
| |
| | ||
Total interest-bearing deposits | $ | | $ | | ||
Aggregate time deposits of $250 or greater | $ | | $ | | ||
Overdraft balances classified as loans totaled $
28
The following presents the scheduled maturities of all time deposits for each of the next five years and total amounts thereafter (dollars in thousands):
Year ending December 31, |
| Time Deposits | |
2022(1) | $ | | |
2023 |
| | |
2024 |
| | |
2025 |
| | |
2026 |
| | |
Thereafter |
| | |
Total | $ | |
________________________________________
(1) Amount represents the remaining six months of year.
NOTE 8 - BORROWINGS
The Bank has executed a blanket pledge and security agreement with the FHLB that requires certain loans and securities be pledged as collateral for any outstanding borrowings under the agreement. The collateral pledged as of June 30, 2022 and December 31, 2021 amounted to $
The following presents the Company’s required maturities on FHLB borrowings as of the dates noted (dollars in thousands):
June 30, | December 31, | |||||||
Maturity Date |
| Rate % |
| 2022 |
| 2021 | ||
April 22, 2022 | | $ | — | $ | | |||
July 1, 2022(1) | | | — | |||||
May 5, 2023 | | | | |||||
Total |
|
| $ | | $ | | ||
________________________________________
(1) The borrowing has a one day, automatic daily renewal maturity date, subject to FHLB discretion not to renew.
To bolster the effectiveness of the SBA’s PPP, the Federal Reserve is supplying liquidity to participating financial institutions through term financing collateralized by PPP loans to small businesses. The Paycheck Protection Program Liquidity Facility (PPPLF) extends credit to eligible financial institutions that originate PPP loans, taking the loans as collateral at face value and bearing interest at
The Bank has borrowing capacity associated with
On January 1, 2022, the Company redeemed the subordinated notes due December 31, 2026 in the amount of $
On August 31, 2021, the Company completed the issuance and sale of subordinated notes (the Notes) totaling $
29
On November 25, 2020, the Company completed the issuance and sale of subordinated notes (the November 2020 Sub Notes) totaling $
On March 17, 2020, the Company completed the issuance and sale of subordinated notes (the ‘March 2020 Sub Notes”) totaling $
The Company’s borrowing facilities include various financial and other covenants, including, but not limited to, a requirement that the Bank maintains regulatory capital that is deemed well capitalized by federal banking agencies. See Note 17 – Regulatory Capital Matters for additional information. As of June 30, 2022 and December 31, 2021, the Company was in compliance with the covenant requirements.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
The Company is party to credit-related financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its clients. These financial instruments include commitments to extend credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Condensed Consolidated Balance Sheets. Commitments may expire without being utilized. The Company’s exposure to loan loss is represented by the contractual amount of these commitments, although material losses are not anticipated. The Company follows the same credit policies in making commitments as it does for on-balance sheet instruments.
The following presents the Company’s financial instruments whose contract amounts represent credit risk, as of the dates noted (dollars in thousands):
June 30, 2022 | December 31, 2021 | |||||||||||
| Fixed Rate |
| Variable Rate |
| Fixed Rate |
| Variable Rate | |||||
Unused lines of credit | $ | | $ | | $ | | $ | | ||||
Standby letters of credit | | | | | ||||||||
Commitments to make loans to sell | | — | | — | ||||||||
Commitments to make loans | | | | | ||||||||
Unused lines of credit are agreements to lend to a client as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Several of the commitments may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Company, is based on management’s credit evaluation of the client.
Unused lines of credit under commercial lines of credit, revolving credit lines, and overdraft protection agreements are commitments for possible future extensions of credit to existing clients. These lines of credit are uncollateralized and usually do not contain a specified maturity date and may not be drawn upon to the total extent to which the Company is committed.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a client’s obligation to a third party. Those letters of credit are primarily issued to support public and private borrowing arrangements. Substantially all letters of credit issued have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to clients. The Company holds collateral supporting those commitments if deemed necessary.
30
Commitments to make loans to sell are agreements to lend to a client which would then be sold to an investor in the secondary market for which the interest rate has been locked with the client, provided there is no violation of any condition within the contract with either party. Commitments to make loans to sell have fixed interest rates. Since commitments may expire without being extended, total commitment amounts may not necessarily represent cash requirements.
Commitments to make loans are agreements to lend to a client, provided there is no violation of any condition within the contract. Commitments to make loans generally have fixed expiration dates or other termination clauses. Since commitments may expire without being extended, total commitment amounts may not necessarily represent cash requirements.
Litigation, Claims and Settlements
The Company is, from time to time, involved in various legal actions arising in the normal course of business. While the ultimate outcome of any such proceedings cannot be predicted with certainty, it is the opinion of management, based on advice from legal counsel, that no proceedings exist, either individually or in the aggregate, which, if determined adversely to the Company, would have a material effect on the Company’s condensed consolidated financial statements.
NOTE 10 - SHAREHOLDERS’ EQUITY
Common Stock
The Company’s common stock has
On January 6, 2022, the Company filed a Form S-3 Registration Statement with the SEC providing that the Company may offer and sell from time to time, separately or together, in multiple series or in one or more offerings, any combination of common stock, preferred stock, debt securities, warrants, depository shares and units, up to a maximum aggregate offer price of $
On November 3, 2020, the Company announced that its board of directors authorized the repurchase of up to
During the six months ended June 30, 2022 and 2021, the Company sold
Restricted Stock Awards
In 2017, the Company issued
As of June 30, 2022, the Restricted Stock Awards have a weighted-average grant date fair value of $
31
Stock-Based Compensation Plans
The 2008 Stock Incentive Plan (the 2008 Plan) was frozen in connection with the adoption of the 2016 Plan and no new awards may be granted under the 2008 Plan. As of June 30, 2022, there were a total of
Stock Options
The Company did
During the three and six months ended June 30, 2022, the Company recognized
The following presents activity for nonqualified stock options during the six months ended June 30, 2022:
Weighted | ||||||||||||
Weighted | Average | |||||||||||
Number | Average | Remaining | Aggregate | |||||||||
of | Exercise | Contractual | Intrinsic | |||||||||
| Options |
| Price |
| Term |
| Value | |||||
Outstanding as of December 31, 2021 | | $ | | |||||||||
Granted | — | — | ||||||||||
Exercised | ( | | ||||||||||
Forfeited or expired | ( | | ||||||||||
Outstanding as of June 30, 2022 | | | (1) | |||||||||
Options fully vested / exercisable as of June 30, 2022 | | | (1) | |||||||||
______________________________________
(1) Nonqualified stock options outstanding at the end of the period and those fully vested/exercisable had immaterial aggregate intrinsic values.
As of June 30, 2022, there were
Restricted Stock Units
Pursuant to the 2016 Plan, the Company can grant associates and non-associate directors long-term cash and stock-based compensation. Historically, the Company has granted certain associates restricted stock units which are earned over time or based on various performance measures and convert to common stock upon vesting, which are summarized here and expanded further below.
The following presents the activity for the Time Vesting Units, the Financial Performance Units, and the Market Performance Units during the six months ended June 30, 2022:
Time | Financial | Market | |||||||
Vesting | Performance | Performance | |||||||
| Units |
| Units |
| Units | ||||
Outstanding as of December 31, 2021 | | | | ||||||
Granted | | | — | ||||||
Vested | ( | ( | — | ||||||
Forfeited | ( | ( | ( | ||||||
Outstanding as of June 30, 2022 | — |
32
During the three months ended June 30, 2022, the Company issued
Time Vesting Units
Time Vesting Units are granted to full-time associates and board members at the date approved by the Company’s board of directors. The Company granted
Financial Performance Units
Financial Performance Units are granted to certain key associates and are earned based on the Company achieving various financial performance metrics. If the Company achieves the financial metrics, which include various thresholds from
The following presents the Company’s existing Financial Performance Units as of June 30, 2022 (dollars in thousands, except share amounts):
Grant Period | Threshold Accrual | Maximum Issuable Shares at Current Threshold | Unrecognized Compensation Expense | Weighted-Average (1) | Financial Metric End Date | Vesting Requirement End Date | ||||||
May 1, 2019 through April 30, 2020 | | $ | | December 31, 2021 | December 31, 2023 | |||||||
May 1, 2020 through December 31, 2020, excluding November 18, 2020 | | | December 31, 2022 | December 31, 2023 | ||||||||
On November 18, 2020 | | | December 31, 2022 | |||||||||
May 3, 2021 through August 11, 2021 | | | December 31, 2023 | December 31, 2025 | ||||||||
On May 2, 2022 | | | December 31, 2024 | December 31, 2026 | ||||||||
______________________________________
(1) Represents the expected unrecognized stock-based compensation expense recognition period.
33
The following presents the Company’s Financial Performance Units activity during the periods presented (dollars in thousands, except share amounts):
Units Granted | Compensation Expense Recognized | |||||||||||||||||
Six Months Ended June 30, | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||
Grant Period | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Prior to May 1, 2019 | — | — | $ | — | | — | $ | | ||||||||||
May 1, 2019 through April 30, 2020 | — | — | | | | | ||||||||||||
May 1, 2020 through December 31, 2020, excluding November 18, 2020 | — | — | | | | | ||||||||||||
On November 18, 2020 | — | ( | | | | |||||||||||||
May 3, 2021 through August 11, 2021 | — | | | | | | ||||||||||||
On May 2, 2022 | | — | | — | | — | ||||||||||||
Market Performance Units
Market Performance Units were granted to certain key associates and are earned based on growth in the value of the Company’s common stock, and were dependent on the Company completing an initial public offering of stock during a defined period of time. On July 23, 2018, the Company completed its initial public offering and the Market Performance Units performance condition was met. Subsequent to the performance condition there is also a market condition as a vesting requirement for the Market Performance Units which affects the determination of the grant date fair value. The Company estimated the grant date fair value using various valuation assumptions. During the three and six months ended June 30, 2022 and 2021, the Company recognized an immaterial amount of compensation expense for the Market Performance Units. As of June 30, 2022, the Company has
If the Company’s common stock is trading at or above certain prices, over a performance period which ended on June 30, 2020, the Market Performance Units would have been determined to be earned and vest following the completion of a subsequent service period, which ended on June 30, 2022. The Company’s common stock did not trade at or above the required prices over the performance period and as a result, no Market Performance Units were eligible to be earned.
34
NOTE 11 - EARNINGS PER COMMON SHARE
The following presents the calculation of basic and diluted earnings per common share during the periods presented (dollars in thousands, except share and per share amounts):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Earnings per common share - Basic | ||||||||||||
Numerator: | ||||||||||||
Net income available for common shareholders | $ | |
| $ | | $ | |
| $ | | ||
Denominator: | ||||||||||||
Basic weighted average shares |
| |
|
| |
| |
|
| | ||
Earnings per common share - basic | $ | | $ | | $ | | $ | | ||||
Earnings per common share - Diluted | ||||||||||||
Numerator: | ||||||||||||
Net income available for common shareholders | $ | |
| $ | | $ | |
| $ | | ||
Denominator: | ||||||||||||
Basic weighted average shares | | | | | ||||||||
Diluted effect of common stock equivalents: | ||||||||||||
Stock options | | | | | ||||||||
Time Vesting Units | | | | | ||||||||
Financial Performance Units | | | | | ||||||||
Market Performance Units | — | | | | ||||||||
Total diluted effect of common stock equivalents | | | | | ||||||||
Diluted weighted average shares |
| |
|
| |
| |
|
| | ||
Earnings per common share - diluted | $ | | $ | | $ | | $ | | ||||
Diluted earnings per share was computed without consideration to potentially dilutive instruments as their inclusion would have been anti-dilutive.
The following presents potentially dilutive securities excluded from the diluted earnings per share calculation during the periods presented:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
| 2022 |
| 2021 | 2022 |
| 2021 | ||||||
Stock options | — | | — | | ||||||||
Time Vesting Units | | — | | | ||||||||
Financial Performance Units | — | | — | | ||||||||
Restricted Stock Awards | — | — | — | | ||||||||
Total potentially dilutive securities | | | | | ||||||||
NOTE 12 - INCOME TAXES
During the three and six months ended June 30, 2022, the Company recorded an income tax provision of $
35
NOTE 13 - RELATED-PARTY TRANSACTIONS
The Bank extends credit to certain covered parties including Company directors, executive officers, and their affiliates. As of June 30, 2022 and December 31, 2021, there were no delinquent or non-performing loans to any executive officer or director of the Company. These covered parties, along with principal owners, management, immediate family of management or principal owners, a parent company and its subsidiaries, trusts for the benefit of employees, and other parties, may be considered related parties.
| June 30, 2022 |
| December 31, 2021 | |||
Balance, beginning of year | $ | | $ | | ||
Funded loans |
| |
| | ||
Payments collected |
| ( |
| ( | ||
Balance, end of period | $ | | $ | | ||
Deposits from related parties held by the Bank as of June 30, 2022 and December 31, 2021 totaled $
The Company leases office spaces from entities controlled by one of the Company’s board members. During each of the six months ended June 30, 2022 and 2021, the Company incurred $
NOTE 14 - FAIR VALUE
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:
Level 1: | Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. |
Level 2: | Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. |
Level 3: | Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. |
Recurring Fair Value
Available-for-sale securities: The fair values for available-for-sale investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).
Equity Securities: Fair value of equity securities represents the market value of mutual funds based on quoted market prices (Level 1) and the value of stock held in other companies, which is based on recent market transactions or quoted rates that are not actively traded (Level 2).
Equity Warrants: Fair value of equity warrants of private companies are priced using a Black-Scholes option pricing model to estimate the asset fair value by using strike prices, option expiration dates, risk-free interest rates, and option volatility assumptions (Level 3).
36
Guarantee Asset and Liability: The guarantee asset represents the fair value of the consideration received in exchange for the credit enhancement fee. The guarantee liability represents a financial guarantee to cover the second layer of any losses on loans sold to FHLB under the MPF 125 loan sales agreement. The guarantee liability value on day one is equivalent to the guarantee asset fair value, which is the consideration for the credit enhancement fee paid over the life of the loans. The liability is then carried at amortized cost. Significant inputs in the valuation analysis for the asset are Level 3, due to the nature of this asset and the lack of market quotes. The fair value of the guarantee asset is determined using a discounted cash flow model, for which significant unobservable inputs include assumed future prepayment rates (CPR) and market discount rate (Level 3). An increase in prepayment rates or discount rate would generally reduce the estimated fair value of the guarantee asset.
Mortgage Related Derivatives: Mortgage related derivatives include our IRLC, FSC, and the forward commitments on our loans held for sale pipeline. The fair value estimate of our IRLC is based on valuation models using market data from secondary market loan sales and direct contacts with third party investors as of the measurement date and pull through assumptions (Level 3). The FSC fair value estimate reflects the potential pair off fee associated with mandatory trades and is estimated by using a market differential and pair off penalty assessed by the investor (Level 3). The fair value estimate of the forward commitments is based on market prices of similar securities to the underlying MBS (Level 2).
Loans Held for Investment: The fair value of loans held for investment are typically determined based on discounted cash flow analysis using market-based interest rate spreads. Discounted cash flow analysis are adjusted, as appropriate, to reflect current market conditions and borrower specific credit risk. Due to the nature of the valuation inputs, loans held for investment are classified within Level 3 of the valuation hierarchy.
Mortgage Loans Held for Sale: The fair value of mortgage loans held for sale is estimated based upon quotes from third party investors for similar assets resulting in a Level 2 classification.
The following presents assets and liabilities measured on a recurring basis as of the dates noted (dollars in thousands):
| Quoted |
|
|
| ||||||||
Prices in | Significant | |||||||||||
Active Markets | Other | Significant | ||||||||||
for Identical | Observable | Unobservable | ||||||||||
Assets | Inputs | Inputs | Reported | |||||||||
June 30, 2022 | (Level 1) | (Level 2) | (Level 3) | Balance | ||||||||
Mortgage loans held for sale | $ | — | $ | | $ | — | $ | | ||||
Loans held at fair value | $ | — | $ | — | $ | | $ | | ||||
Forward commitments and FSC | $ | — | $ | | $ | — | $ | | ||||
Equity securities | $ | | $ | | $ | — | $ | | ||||
Guarantee asset | $ | — | $ | — | $ | | $ | | ||||
IRLC, net | $ | — | $ | — | $ | | $ | | ||||
Equity warrants | $ | — | $ | — | $ | | $ | | ||||
37
| Quoted |
|
|
| ||||||||
Prices in | Significant | |||||||||||
Active Markets | Other | Significant | ||||||||||
for Identical | Observable | Unobservable | ||||||||||
Assets | Inputs | Inputs | Reported | |||||||||
December 31, 2021 | (Level 1) | (Level 2) | (Level 3) | Balance | ||||||||
Investment securities available-for-sale: |
|
|
|
|
|
|
|
| ||||
U.S. Treasury debt | $ | | $ | — | $ | — | $ | | ||||
U.S. Government Agency | — | | — | | ||||||||
Corporate bonds | — | | | | ||||||||
GNMA mortgage-backed securities - residential |
| — |
| |
| — |
| | ||||
FNMA mortgage-backed securities - residential | — | | — | | ||||||||
Government CMO and MBS | — | | — | | ||||||||
Corporate CMO and MBS |
| — |
| |
| — |
| | ||||
Total securities available-for-sale | $ | | $ | | $ | | $ | | ||||
Mortgage loans held for sale | $ | — | $ | | $ | — | $ | | ||||
Forward commitments and FSC | $ | — | $ | ( | $ | ( | $ | ( | ||||
Equity securities | $ | | $ | | $ | — | $ | | ||||
Guarantee asset | $ | — | $ | — | $ | | $ | | ||||
IRLC, net | $ | — | $ | — | $ | | $ | | ||||
Equity warrants | $ | — | $ | — | $ | | $ | | ||||
There were no transfers between levels during the six months ended June 30, 2022 or year ended December 31, 2021. On April 1, 2022, the Company elected to transfer all securities classified as available-for-sale to held-to-maturity and are now carried at amortized cost. See Note 3 – Investment Securities for more information.
As of December 31, 2021, U.S. Treasury debt was reported at fair value utilizing Level 1 inputs. Three Corporate bonds were reported at fair value utilizing Level 3 inputs. The remaining portfolio of securities were reported at fair value with Level 2 inputs provided by a pricing service. The majority of the securities had credit support provided by the Federal Home Loan Mortgage Corporation, GNMA, and FNMA. Factors used to value the securities by the pricing service include: benchmark yields, reported trades, interest spreads, prepayments, and other market research. In addition, ratings and collateral quality were considered.
As of June 30, 2022, equity securities, equity warrants, IRLC, and guarantee assets have been recorded at fair value within the Other assets line item in the Condensed Consolidated Balance Sheets. All changes are recorded in the Other line item in the Condensed Consolidated Statements of Income.
Fair Value Option
The Company has elected to account for certain purchased whole loans held for investment under the fair value option in order to align the accounting presentation with the Company’s viewpoint of the economics of the loans. Interest income on loans held for investment accounted for under the fair value option is recognized within Interest and dividend income in the accompanying Condensed Consolidated Statements of Income. Not electing fair value generally results in a larger discount being recorded on the date of the loan purchase. The discount is subsequently accreted into interest income over the underlying loan’s remaining term using the effective interest method. Additionally, management has elected the fair value option for mortgage loans originated and held for sale.
There were
38
The following provides more information about the fair value carrying amount and unpaid principal outstanding of loans accounted for under the fair value option as of the dates noted (dollars in thousands):
June 30, 2022 | |||||||||||||||||||||||||||
Total Loans | Non Accruals | 90 Days or More Past Due | |||||||||||||||||||||||||
Fair Value Carrying Amount | Unpaid Principal Balance | Difference | Fair Value Carrying Amount | Unpaid Principal Balance | Difference | Fair Value Carrying Amount | Unpaid Principal Balance | Difference | |||||||||||||||||||
Loans held for sale | $ | | $ | | $ | | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||
Loans held for investment | | | | — | — | — | — | — | — | ||||||||||||||||||
$ | | $ | | $ | | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
December 31, 2021 | |||||||||||||||||||||||||||
Total Loans | Non Accruals | 90 Days or More Past Due | |||||||||||||||||||||||||
Fair Value Carrying Amount | Unpaid Principal Balance | Difference | Fair Value Carrying Amount | Unpaid Principal Balance | Difference | Fair Value Carrying Amount | Unpaid Principal Balance | Difference | |||||||||||||||||||
Loans held for sale | $ | | $ | | $ | | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||
Loans held for investment | — | — | — | — | — | — | — | — | — | ||||||||||||||||||
$ | | $ | | $ | | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
The following presents the net (losses)/gains from changes in fair value of loans accounted for under the fair value option as of the dates noted (dollars in thousands):
Three Months Ended | Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||
Loans held for sale | $ | ( | $ | | $ | ( | $ | ( | ||||
Loans held for investment | | — | | — | ||||||||
$ | ( | $ | | $ | ( | $ | ( | |||||
The following summarizes the activity pertaining to loans accounted for under the fair value option as of the dates noted (dollars in thousands):
Three Months Ended | Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
Loans held for sale | 2022 | 2021 | 2022 | 2021 | ||||||||
Balance at beginning of period | $ | | $ | | $ | | $ | | ||||
Loans originated | | | | | ||||||||
Fair value changes | ( | | ( | ( | ||||||||
Sales | ( | ( | ( | ( | ||||||||
Settlements | ( | ( | ( | ( | ||||||||
Balance at end of period | $ | | $ | | $ | | $ | | ||||
Three Months Ended | Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
Loans held for investment | 2022 | 2021 | 2022 | 2021 | ||||||||
Balance at beginning of period | $ | | $ | — | $ | — | $ | — | ||||
Loans acquired | | — | | — | ||||||||
Fair value changes | | — | | — | ||||||||
Settlements | ( | — | ( | — | ||||||||
Balance at end of period | $ | | $ | — | $ | | $ | — | ||||
39
Nonrecurring Fair Value
Other Real Estate Owned (“OREO”): Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. They are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals which are updated no less frequently than on an annual basis. Appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between comparable sales and income data available. Such adjustments can be significant and typically result in Level 3 classifications of the inputs for determining fair value. OREO is evaluated annually for additional impairment and adjusted accordingly.
Impaired Loans: The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments can be significant and typically result in Level 3 classifications of the inputs for determining fair value. Impaired loans are evaluated monthly for additional impairment and adjusted accordingly.
Appraisals for both collateral-dependent impaired loans and OREO are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, the Company reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics.
The following presents assets measured on a nonrecurring basis as of the dates noted (dollars in thousands):
| Quoted |
|
|
|
|
|
| |||||
Prices in | Significant | |||||||||||
Active Markets | Other | Significant | ||||||||||
for Identical | Observable | Unobservable | ||||||||||
Assets | Inputs | Inputs | Reported | |||||||||
June 30, 2022 | (Level 1) | (Level 2) | (Level 3) | Balance | ||||||||
OREO: |
|
|
|
|
|
|
|
| ||||
Commercial properties | $ | — | $ | — | $ | | $ | | ||||
Impaired loans(1): | ||||||||||||
Commercial and Industrial | $ | — | $ | — | $ | | $ | | ||||
| Quoted |
|
|
|
|
|
| |||||
Prices in | Significant | |||||||||||
Active Markets | Other | Significant | ||||||||||
for Identical | Observable | Unobservable | ||||||||||
Assets | Inputs | Inputs | Reported | |||||||||
December 31, 2021 | (Level 1) | (Level 2) | (Level 3) | Balance | ||||||||
Impaired loans(1): | ||||||||||||
Commercial and Industrial | $ | — | $ | — | $ | | $ | | ||||
______________________________________
(1)
The sales comparison approach was utilized for estimating the fair value of non-recurring assets.
In the second quarter of 2022, the Company recorded $
As of June 30, 2022, total impaired loans measured for impairment using the fair value of the collateral for collateral dependent loans had carrying values of $
40
Impaired loans accounted for specific reserves of $
Level 3 Analysis
The following presents a reconciliation for Level 3 instruments measured at fair value on a recurring basis as of the dates noted (dollars in thousands):
Three Months Ended June 30, 2022 |
| Corporate Bonds |
| Loans Held at Fair Value | FSC |
| Guarantee Asset |
| IRLC |
| Equity Warrants | |||||||
Beginning balance | $ | | $ | | $ | — | $ | | $ | | $ | | ||||||
Acquisitions |
| — | | — |
| — | |
| — | |||||||||
Originations |
| — | — | — |
| — | ( |
| — | |||||||||
Gains/(losses) in net income, net | — | ( | — | ( | | | ||||||||||||
Transfer to held-to-maturity |
| ( | — | — |
| — | — |
| — | |||||||||
Settlements | — | ( | — | — | — | — | ||||||||||||
Ending balance | $ | — | $ | | $ | — | $ | | $ | | $ | | ||||||
Three Months Ended June 30, 2021 |
| Corporate Bonds |
| Loans Held at Fair Value | FSC |
| Guarantee Asset |
| IRLC |
| Equity Warrants | |||||||
Beginning balance | $ | — | $ | — | $ | ( | $ | | $ | | $ | — | ||||||
Acquisitions |
| — | — | — |
| — | |
| — | |||||||||
Originations |
| — | — | — |
| | ( |
| — | |||||||||
Gains/(losses) in net income, net | — | — | | | | — | ||||||||||||
Ending balance | $ | — | $ | — | $ | — | $ | | $ | | $ | — | ||||||
Six Months Ended June 30, 2022 |
| Corporate Bonds |
| Loans Held at Fair Value | FSC |
| Guarantee Asset |
| IRLC |
| Equity Warrants | |||||||
Beginning balance | $ | | $ | — | $ | ( | $ | | $ | | $ | | ||||||
Acquisitions |
| | | |
| — | |
| | |||||||||
Originations |
| — | — | — |
| — | ( |
| — | |||||||||
Gains/(losses) in net income, net | — | ( | — | ( | | | ||||||||||||
Unrealized gains, net | | — | — | — | — | — | ||||||||||||
Transfer to held-to-maturity |
| ( | — | — |
| — | — |
| — | |||||||||
Settlements | — | ( | — | — | — | — | ||||||||||||
Ending balance | $ | — | $ | | $ | — | $ | | $ | | $ | | ||||||
Six Months Ended June 30, 2021 |
| Corporate Bonds |
| Loans Held at Fair Value | FSC |
| Guarantee Asset |
| IRLC |
| Equity Warrants | |||||||
Beginning balance | $ | — | $ | — | $ | ( | $ | | $ | | $ | — | ||||||
Acquisitions |
| — |
| — | ( |
| | |
| — | ||||||||
Originations |
| — |
| — | — |
| — | ( |
| — | ||||||||
Gains/(losses) in net income, net | — | — | | ( | ( | — | ||||||||||||
Ending balance | $ | — | $ | — | $ | — | $ | | $ | | $ | — | ||||||
41
The following presents quantitative information about Level 3 assets measured on a recurring and nonrecurring basis as of the dates noted (dollars in thousands):
Quantitative Information about Level 3 Fair Value Measurements as of June 30, 2022 | ||||||||||||
Valuation | Significant | Range | ||||||||||
Fair Value | Technique | Unobservable Input | (Weighted Average) | |||||||||
Recurring fair value | ||||||||||||
Loans held at fair value | $ | | Discounted cash flow | Discount rate | ||||||||
Guarantee asset | | Discounted cash flow | Discount rate | |||||||||
IRLC, net | | Best execution model | Pull through | |||||||||
Equity warrants | | Black-Scholes option pricing model | Volatility | |||||||||
Nonrecurring fair value | ||||||||||||
OREO: | ||||||||||||
Commercial properties | | Appraisal value | Commission, cost to sell, closing costs | |||||||||
Impaired loans(1): | ||||||||||||
Commercial and Industrial | | Sales comparison, Market approach - guideline transaction method | Management discount for asset/property type | |||||||||
42
Quantitative Information about Level 3 Fair Value Measurements as of December 31, 2021 | ||||||||||||
Valuation | Significant | Range | ||||||||||
Fair Value | Technique | Unobservable Input | (Weighted Average) | |||||||||
Recurring fair value | ||||||||||||
Corporate Bonds | $ | | Discounted cash flow | Discount rate | ||||||||
FSC | ( | Internal pricing model | Market Differential | - | ||||||||
Guarantee asset | | Discounted cash flow | Discount rate | |||||||||
IRLC, net | | Best execution model | Pull through | |||||||||
Equity warrants | | Black-Scholes option pricing model | Volatility | |||||||||
Nonrecurring fair value | ||||||||||||
Impaired loans(1): | ||||||||||||
Commercial and Industrial | | Sales comparison, Market approach - guideline transaction method | Management discount for asset/property type | |||||||||
______________________________________
(1) One immaterial Consumer and Other loan was fully reserved for using a specific allowance as of June 30, 2022 and December 31, 2021.
Estimated Fair Value of Other Financial Instruments
The following presents carrying amounts and estimated fair values for financial instruments not carried at fair value as of the dates noted (dollars in thousands):
Carrying | Fair Value Measurements Using: | |||||||||||
June 30, 2022 |
| Amount |
| Level 1 |
| Level 2 |
| Level 3 | ||||
Assets: | ||||||||||||
Cash and cash equivalents | $ | | $ | | $ | — | $ | — | ||||
Held-to-maturity securities | | | | | ||||||||
Loans, net |
| |
| — |
| — |
| | ||||
Accrued interest receivable |
| |
| |
| |
| | ||||
Liabilities: |
|
|
|
|
|
|
|
| ||||
Deposits | | | — | | ||||||||
Borrowings: |
|
|
|
|
|
|
|
| ||||
FHLB borrowings – fixed rate |
| |
| — |
| |
| — | ||||
Federal Reserve borrowings – fixed rate |
| |
| — |
| |
| — | ||||
Subordinated notes – fixed-to-floating rate |
| |
| — |
| — |
| | ||||
Accrued interest payable | | | — | | ||||||||
43
Carrying | Fair Value Measurements Using: | |||||||||||
December 31, 2021 | Amount | Level 1 | Level 2 | Level 3 | ||||||||
Assets: |
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents | $ | | $ | | $ | — | $ | — | ||||
Loans, net |
| |
| — |
| — |
| | ||||
Accrued interest receivable |
| |
| |
| |
| | ||||
Liabilities: |
|
|
|
|
|
|
|
| ||||
Deposits | | | — | | ||||||||
Borrowings: |
|
|
|
|
|
|
|
| ||||
FHLB borrowings – fixed rate |
| |
| — |
| |
| — | ||||
Federal Reserve borrowings – fixed rate | |
| — |
| |
| — | |||||
Subordinated notes – fixed-to-floating rate | |
| — |
| — |
| | |||||
Accrued interest payable | | | — | | ||||||||
The fair value estimates presented and discussed above are based on pertinent information available to management as of the dates specified. The estimated fair value amounts are based on the exit price notion set forth by ASU 2016-01. Although management is not aware of any factors that would significantly affect the estimated fair values, such amounts have not been comprehensively revalued for purposes of these condensed consolidated financial statements since the balance sheet dates. Therefore, current estimates of fair value may differ significantly from the amounts presented herein.
The methods and assumptions, not previously presented, used to estimate fair values are described as follows.
Cash and Cash Equivalents and Restricted Cash: The carrying amounts of cash and cash equivalents and restricted cash approximate fair values as maturities are less than 90 days and balances are generally in accounts bearing current market interest rates.
Held-to-maturity securities: The fair values for held-to-maturity investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities is not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).
Loans, net: The fair values for all fixed-rate and variable-rate performing loans were estimated using the income approach and by discounting the projected cash flows of such loans. Principal and interest cash flows were projected based on the contractual terms of the loans, including maturity, contractual amortization, and adjustments for prepayments and expected losses, where appropriate. A discount rate was developed based on the relative risk of the cash flows, considering the loan type, maturity, and a required return on capital.
Accrued Interest Receivable and Payable: The carrying amounts of accrued interest approximate fair value due to their short-term nature.
Deposits: The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amounts payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts of variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting dates. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.
Fixed Rate Borrowings: Borrowings with fixed rates are valued using inputs such as discounted cash flows and current interest rates for similar instruments and borrowers with similar credit ratings.
Fixed-to-Floating Rate Borrowings: Borrowings with fixed-to-floating rates are valued using inputs such as discounted cash flows and current interest rates for similar instruments and assume the Company will redeem the instrument prior to the first interest rate reset date.
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NOTE 15 - SEGMENT REPORTING
The Company’s reportable segments consist of Wealth Management and Mortgage. The chief operating decision maker (CODM) is the Chief Executive Officer. The measure of profit or loss used by the CODM to identify and measure the Company’s reportable segments is income before income tax.
The Wealth Management segment consists of operations relative to the Company’s fully integrated wealth management products and services. Services provided include deposit, loan, insurance, and trust and investment management advisory products and services.
The Mortgage segment consists of operations relative to the Company’s residential mortgage service offerings. Mortgage products and services are financial in nature for which premiums are recognized net of expenses, upon the sale of mortgage loans to third parties.
The following presents the financial information for each segment that is specifically identifiable or based on allocations using internal methods as of or for the three and six months ended June 30, 2022 and 2021 (dollars in thousands):
As of or for the three months ended June 30, 2022 | Wealth | Mortgage | Consolidated | ||||||
Income Statement | |||||||||
Total interest income |
| $ | |
| $ | — |
| $ | |
Total interest expense | | — | | ||||||
Provision for loan losses | | — | | ||||||
Net interest income, after provision for loan losses | | — | | ||||||
Non-interest income | | | | ||||||
Total income before non-interest expense | | | | ||||||
Depreciation and amortization expense | |
| |
| | ||||
Net (gain)/loss on assets held for sale | ( | — | ( | ||||||
All other non-interest expense | | | | ||||||
Income before income taxes | $ | | $ | ( | $ | | |||
Goodwill | $ | |
| $ | — |
| $ | | |
Total assets | |
| |
| | ||||
As of or for the three months ended June 30, 2021 | Wealth | Mortgage |
| Consolidated | |||||
Income Statement |
| ||||||||
Total interest income |
| $ | | $ | — |
| $ | | |
Total interest expense | | — |
| | |||||
Provision for loan losses | | — |
| | |||||
Net interest income, after provision for loan losses | | — |
| | |||||
Non-interest income | | |
| | |||||
Total income before non-interest expense | | |
| | |||||
Depreciation and amortization expense | | |
| | |||||
All other non-interest expense | | |
| | |||||
Income before income taxes | $ | | $ | |
| $ | | ||
| |||||||||
Goodwill | $ | | $ | — |
| $ | | ||
Total assets | | |
| | |||||
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As of or for the six months ended June 30, 2022 | Wealth | Mortgage | Consolidated | ||||||
Income Statement | |||||||||
Total interest income |
| $ | |
| $ | — |
| $ | |
Total interest expense | | — |
| | |||||
Provision for loan losses | | — |
| | |||||
Net interest income, after provision for loan losses | | — |
| | |||||
Non-interest income | | |
| | |||||
Total income before non-interest expense | | |
| | |||||
Depreciation and amortization expense | | |
| | |||||
Net loss on assets held for sale | ( | — | ( | ||||||
All other non-interest expense | | |
| | |||||
Income before income taxes | $ | | $ | ( |
| $ | | ||
| |||||||||
Goodwill | $ | | $ | — |
| $ | | ||
Total assets | | |
| | |||||
F
As of or for the six months ended June 30, 2021 | Wealth | Mortgage |
| Consolidated | |||||
Income Statement |
| ||||||||
Total interest income |
| $ | | $ | — |
| $ | | |
Total interest expense | | — |
| | |||||
Provision for loan losses | | — |
| | |||||
Net interest income, after provision for loan losses | | — |
| | |||||
Non-interest income | | |
| | |||||
Total income before non-interest expense | | |
| | |||||
Depreciation and amortization expense | | |
| | |||||
All other non-interest expense | | |
| | |||||
Income before income taxes | $ | | $ | |
| $ | | ||
| |||||||||
Goodwill | $ | | $ | — |
| $ | | ||
Total assets | | |
| | |||||
NOTE 16 – LOW-INCOME HOUSING TAX CREDIT INVESTMENTS
On December 19, 2019, the Company invested in a low-income housing tax credit (LIHTC) investment. As of June 30, 2022 and December 31, 2021, the balance of the LIHTC investment was $
The Company uses the proportional amortization method to account for this investment. Amortization expense is included within the Income tax expense line item of the Condensed Consolidated Statements of Income. During the three months ended June 30, 2022 and 2021, the Company recognized amortization expense of $
Additionally, during the three months ended June 30, 2022 and 2021, the Company recognized $
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NOTE 17 - REGULATORY CAPITAL MATTERS
First Western and the Bank are subject to various regulatory capital adequacy requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s condensed consolidated financial statements. Under capital adequacy guidelines and, additionally for banks, the regulatory framework for prompt corrective action, First Western and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.
First Western and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators regarding components, risk weightings, and other factors. The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (Basel III rules) have been fully phased in. The net unrealized gain or loss on available-for-sale securities is not included in computing regulatory capital. During the year ended December 31, 2021, First Western made a capital injection of $
Prompt corrective action regulations for First Western and the Bank provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required.
The standard ratios established by First Western and the Bank’s primary regulators to measure capital require First Western and the Bank to maintain minimum amounts and ratios, set forth in the following table. These ratios are common equity Tier 1 capital (CET1), Tier 1 capital and total capital (as defined in the regulations) to risk-weighted assets (as defined), and Tier 1 capital (as defined) to average assets (as defined).
The actual capital ratios of First Western and the Bank, along with the applicable regulatory capital requirements as of June 30, 2022, were calculated in accordance with the requirements of Basel III. The final rules of Basel III also established a “capital conservation buffer” of
As of June 30, 2022 and December 31, 2021, the most recent filings with the FDIC categorized First Western and the Bank as well capitalized under the regulatory guidelines. To be categorized as well capitalized, an institution must maintain minimum CET1 risk-based, Tier 1 risk-based, total risk-based, and Tier 1 leverage ratios as set forth in the following table. Management believes there are
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The following presents the actual and required capital amounts and ratios as of dates noted (dollars in thousands):
To be Well Capitalized |
| |||||||||||||||||
Under Prompt |
| |||||||||||||||||
Required for Capital | Corrective Action |
| ||||||||||||||||
Actual | Adequacy Purposes(1) | Regulations |
| |||||||||||||||
June 30, 2022 |
| Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
| Ratio |
| |||||
Tier 1 capital to risk-weighted assets |
| |||||||||||||||||
Bank | $ | |
| | % | $ | |
| | % | $ | | | % | ||||
Consolidated | | | N/A | N/A | N/A | N/A | ||||||||||||
CET1 to risk-weighted assets | ||||||||||||||||||
Bank | |
| | |
| | |
| | |||||||||
Consolidated | | | N/A | N/A | N/A | N/A | ||||||||||||
Total capital to risk-weighted assets |
| |||||||||||||||||
Bank | |
| |
| |
| |
| |
| | |||||||
Consolidated | | | N/A | N/A | N/A | N/A | ||||||||||||
Tier 1 capital to average assets |
| |||||||||||||||||
Bank | |
| |
| |
| |
| |
| | |||||||
Consolidated | | | N/A | N/A | N/A | N/A | ||||||||||||
To be Well Capitalized |
| |||||||||||||||||
Under Prompt |
| |||||||||||||||||
Required for Capital | Corrective Action |
| ||||||||||||||||
Actual | Adequacy Purposes(1) | Regulations |
| |||||||||||||||
December 31, 2021 |
| Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
| Ratio |
| |||||
Tier 1 capital to risk-weighted assets | ||||||||||||||||||
Bank | $ | |
| | % | $ | |
| | % | $ | | | % | ||||
Consolidated | | | N/A | N/A | N/A | N/A | ||||||||||||
CET1 to risk-weighted assets | ||||||||||||||||||
Bank | |
| | |
| | |
| | |||||||||
Consolidated | | | N/A | N/A | N/A | N/A | ||||||||||||
Total capital to risk-weighted assets |
| |||||||||||||||||
Bank | |
| |
| |
| |
| |
| | |||||||
Consolidated | | | N/A | N/A | N/A | N/A | ||||||||||||
Tier 1 capital to average assets |
| |||||||||||||||||
Bank | |
| |
| |
| |
| |
| | |||||||
Consolidated | | | N/A | N/A | N/A | N/A | ||||||||||||
______________________________________
(1) Does not include capital conservation buffer.
48
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis is intended to assist readers in understanding our financial condition and results of operations for the three and six months ended June 30, 2022 and should be read in conjunction with our consolidated financial statements and the accompanying notes thereto included in this Quarterly Report on Form 10-Q (this Form 10-Q) and in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on March 15, 2022. Unless we state otherwise or the context otherwise requires, references in this Form 10-Q to we, our, us, the Company, and First Western refer to First Western Financial, Inc. and its consolidated subsidiaries, including First Western Trust Bank, which we sometimes refer to as the Bank or our Bank.
The following discussion contains forward-looking statements that reflect our future plans, estimates, beliefs, and expected performance. We caution that assumptions, expectations, projections, intentions, or beliefs about future events may, and often do, vary from actual results and the differences can be material. See Cautionary Note Regarding Forward-Looking Statements. Also, see the risk factors and other cautionary statements described under the heading Item 1A - Risk Factors included in our Annual Report Form 10-K filed with the SEC on March 15, 2022 and in Part II–Item 1A of this Form 10-Q. We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.
Company Overview
We are a financial holding company founded in 2002 and headquartered in Denver, Colorado. We provide a fully integrated suite of wealth management services to our clients including banking, trust, and investment management products and services. Our mission is to be the best private bank for the Western wealth management client. We target entrepreneurs, professionals, and high-net worth individuals, typically with $1.0 million-plus in liquid net worth, and their related philanthropic and business organizations, which we refer to as the Western wealth management client. We believe that the Western wealth management client shares our entrepreneurial spirit and values our sophisticated, high-touch wealth management services that are tailored to meet their specific needs. We partner with our clients to solve their unique financial needs through our expert integrated services provided in a team approach.
We offer our services through a branded network of boutique private trust bank offices, which we believe are strategically located in affluent and high-growth markets in locations across Colorado, Arizona, Wyoming, Montana, and California. Our profit centers, which are comprised of private bankers, lenders, wealth planners, and portfolio managers, under the leadership of a local chairman and/or president, are also supported centrally by teams providing management services such as operations, risk management, credit administration, marketing, technology support, human capital, and accounting/finance services, which we refer to as support centers.
From 2004, when we opened our first profit center, until June 30, 2022, we have expanded our footprint into thirteen full service profit centers, three loan production offices, and two trust offices located across five states. As of and for the six months ended June 30, 2022, we had $2.54 billion in total assets, $53.2 million in total revenues, and provided fiduciary and advisory services on $6.28 billion of assets under management (AUM).
Response to COVID-19
The spread of COVID-19 caused significant disruptions in the U.S. economy since it was declared a pandemic in March of 2020 by the World Health Organization. Disruptions include temporary closures of many businesses that led to a loss of revenues and a rapid increase in unemployment, disrupted global supply chains, market downturns and volatility, changes in consumer behavior related to pandemic fears, and related emergency response legislation. The changes have impacted our clients and their industries, as well as the financial services industry.
The Company activated its Business Continuity Management Plan in early 2020 in response to the emergence of COVID-19 and has continued to adjust as the crisis continues to impact our markets, clients, and business. A majority of our associates have been working remotely since early 2020. All of our offices are open, functioning, and continue to operate as usual. We are taking additional precautions within our profit centers, including enhanced cleaning procedures and physical distancing measures, to ensure the safety of our clients and our associates.
A provision in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) created the Paycheck Protection Program (PPP), which is administered by the Small Business Administration (SBA). The PPP is intended to provide loans to small businesses to pay their employees, rent, mortgage interest, and utilities. The loans may be forgiven conditioned upon the client providing payroll documentation evidencing their compliant use of funds and otherwise complying with the terms of the program. The Bank is an approved SBA lender and participated in all rounds of the program.
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The last round of program funds were depleted in early May 2021. With the originations closed, the SBA turned their attention to forgiveness, processing applications submitted by the Company. Loans funded in 2021 became eligible for forgiveness after the covered period of 8 to 24 weeks, which began for some clients in the early second quarter of 2021. As of June 30, 2022, we have received forgiveness payments of $305.7 million from the SBA and have 47 PPP loans for a total of $10.7 million with an average loan size of $0.2 million remaining.
As a result of the COVID-19 pandemic, a loan modification program was designed and implemented to assist our clients experiencing financial stress resulting from the economic impacts caused by the global pandemic. The Company has offered loan extensions, temporary payment moratoriums, and financial covenant waivers for commercial and consumer borrowers impacted by the pandemic who have a pass risk rating and have not been delinquent over 30 days on payments in the last two years. In 2021, the deferral period ended for all non-acquired loans previously modified and payments resumed under the original terms. As of June 30, 2022, the Company’s loan portfolio included 55 non-acquired loans which were previously modified under the loan modification program, totaling $100.5 million. Through the Teton Acquisition, the Company acquired loans which were previously modified and are still in their deferral period. As of June 30, 2022, there were 15 of these loans, totaling $3.5 million.
The Company also participated in the Federal Reserve’s Main Street Lending Program (MSLP) to support lending to small and medium-sized for-profit businesses and nonprofit organizations that were in sound financial condition before the onset of the COVID-19 pandemic. As of June 30, 2022, the Company had five loans with a balance held by the Bank of $6.8 million.
Primary Factors Used to Evaluate the Results of Operations
As a financial institution, we manage and evaluate various aspects of both our results of operations and our financial condition. We evaluate the comparative levels and trends of the line items in our Condensed Consolidated Balance Sheets and Statements of Income as well as various financial ratios that are commonly used in our industry. The primary factors we use to evaluate our results of operations include net interest income, non-interest income, and non-interest expense.
Net Interest Income
Net interest income represents interest income less interest expense. We generate interest income on interest-earning assets, primarily loans and investment securities. We incur interest expense on interest-bearing liabilities, primarily interest-bearing deposits and borrowings. To evaluate net interest income, we measure and monitor: (i) yields on loans, investment securities, and other interest-earning assets; (ii) the costs of deposits and other funding sources; (iii) the rates incurred on borrowings and other interest-bearing liabilities; and (iv) the regulatory risk weighting associated with the assets. Interest income is primarily impacted by loan growth and loan repayments, along with changes in interest rates on the loans. Interest expense is primarily impacted by changes in deposit balances, changes in interest rates on deposits, along with the volume and type of interest-bearing liabilities. Net interest income is primarily impacted by changes in market interest rates, the slope of the yield curve, and interest we earn on interest-earning assets or pay on interest-bearing liabilities.
Non-Interest Income
Non-interest income primarily consists of the following:
| ● | Trust and investment management fees—fees and other sources of income charged to clients for managing their trust and investment assets, providing financial planning consulting services, 401(k) and retirement advisory consulting services, and other wealth management services. Trust and investment management fees are primarily impacted by rates charged and increases and decreases in AUM. AUM is primarily impacted by opening and closing of client advisory and trust accounts, contributions and withdrawals, and the fluctuation in market values. |
| ● | Net gain on mortgage loans—gain on originating and selling mortgages and origination fees, less commissions to loan originators, document review, and other costs specific to originating and selling the loan. The market adjustments for interest rate lock commitments (IRLC), mortgage derivatives, and gains and losses incurred on the mandatory trading of loans are also included in this line item. Net gain on mortgage loans is primarily impacted by the amount of loans sold, the type of loans sold, and market conditions. |
50
| ● | Bank fees—income generated through bank-related service charges such as: electronic transfer fees, treasury management fees, bill pay fees, servicing fees for MSLP, and other banking fees. Banking fees are primarily impacted by the level of business activities and cash movement activities of our clients. |
| ● | Risk management and insurance fees—commissions earned on insurance policies we have placed for clients through our client risk management team who incorporate insurance services, primarily life insurance, to support our clients’ wealth planning needs. Our insurance revenues are primarily impacted by the type and volume of policies placed for our clients. |
| ● | Income on company-owned life insurance—income earned on the growth of the cash surrender value of life insurance policies we hold on certain key associates. The income on the increase in the cash surrender value is non-taxable income. |
Non-Interest Expense
Non-interest expense is comprised primarily of the following:
| ● | Salaries and employee benefits—all forms of compensation-related expenses including salary, incentive compensation, payroll-related taxes, stock-based compensation, benefit plans, health insurance, 401(k) plan match costs, and other benefit-related expenses. Salaries and employee benefit costs are primarily impacted by changes in headcount and fluctuations in benefits costs. |
| ● | Occupancy and equipment—costs related to building and land maintenance, leasing our office space, depreciation charges for the buildings, building improvements, furniture, fixtures and equipment, amortization of leasehold improvements, utilities, and other occupancy-related expenses. Occupancy and equipment costs are primarily impacted by the number of locations we occupy. |
| ● | Professional services—costs related to legal, accounting, tax, consulting, personnel recruiting, insurance, and other outsourcing arrangements. Professional services costs are primarily impacted by corporate activities requiring specialized services. FDIC insurance expense is also included in this line and represents the assessments that we pay to the FDIC for deposit insurance. |
| ● | Technology and information systems—costs related to software and information technology services to support office activities and internal networks. Technology and information system costs are primarily impacted by the number of locations we occupy, the number of associates we have, and the level of service we require from our third-party technology vendors. |
| ● | Data processing—costs related to processing fees paid to our third-party data processing system providers relating to our core private trust banking platform. Data processing costs are primarily impacted by the number of loan, deposit, and trust accounts we have and the level of transactions processed for our clients. |
| ● | Marketing—costs related to promoting our business through advertising, promotions, charitable events, sponsorships, donations, and other marketing-related expenses. Marketing costs are primarily impacted by the levels of advertising programs and other marketing activities and events held throughout the year. |
| ● | Amortization of other intangible assets—primarily represents the amortization of intangible assets including client lists, core deposit intangibles, and other similar items recognized in connection with acquisitions. |
| ● | Other—includes costs related to operational expenses associated with office supplies, postage, travel expenses, meals and entertainment, dues and memberships, costs to maintain or prepare other real estate owned (“OREO”) for sale, director compensation and travel, and other general corporate expenses that do not fit within one of the specific non-interest expense lines described above. Other operational expenses are generally impacted by our business activities and needs. |
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Operating Segments
The Company’s reportable segments consist of Wealth Management and Mortgage. We measure the overall profitability of operating segments based on income before income tax. We believe this is a more useful measurement as our wealth management products and services are fully integrated with our private trust bank. We allocate costs to our segments, which consist primarily of compensation and overhead expense directly attributable to the products and services within the Wealth Management and Mortgage segments. We measure the profitability of each segment based on a post-allocation basis, as we believe it better approximates the operating cash flows generated by our reportable operating segments. A description of each segment is provided in Note 15 - Segment Reporting of the accompanying Notes to the Condensed Consolidated Financial Statements.
Primary Factors Used to Evaluate our Balance Sheet
The primary factors we use to evaluate our balance sheet include asset and liability levels, asset quality, capital, liquidity, and potential profit production from assets.
We manage our asset levels to ensure our lending initiatives are efficiently and profitably supported and to ensure we have the necessary liquidity and capital to meet the required regulatory capital ratios. Funding needs are evaluated and forecasted by communicating with clients, reviewing loan maturity and draw expectations, and projecting new loan opportunities.
We manage the diversification and quality of our assets based upon factors that include the level, distribution, severity, and trend of problem assets such as those determined to be classified, delinquent, non-accrual, non-performing or restructured; the adequacy of our allowance for loan losses; the diversification and quality of loan and investment portfolios; the extent of counterparty risks, credit risk concentrations, and other factors.
We manage our liquidity based upon factors that include the level and quality of capital and our overall financial condition, the trend and volume of problem assets, our balance sheet risk exposure, the level of deposits as a percentage of total loans, the amount of non-deposit funding used to fund assets, the availability of unused funding sources and off-balance sheet obligations, the availability of assets to be readily converted into cash without undue loss, the amount of cash and liquid securities we hold, and other factors.
Financial institution regulators have established guidelines for minimum capital ratios for banks and bank holding companies. The Company has adopted the Basel III regulatory capital framework. As of June 30, 2022, the Bank’s capital ratios exceeded the current well capitalized regulatory requirements established under Basel III.
Acquisitions and Divestitures
On July 22, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement” or “Teton Acquisition”) with Teton Financial Services, Inc. (“Teton”), parent company of Rocky Mountain Bank, a Wyoming-chartered bank headquartered in Jackson, Wyoming. The Merger Agreement provided that, subject to the terms and conditions set forth in the Merger Agreement, Teton would merge into the Company, with the Company continuing as the surviving corporation. The Merger Agreement also provided that following the merger, Rocky Mountain Bank would merge with and into the Bank, with the Bank surviving the bank merger. The transaction successfully closed on December 31, 2021. See Note 2 – Acquisitions of the accompanying Notes to the Condensed Consolidated Financial Statements for additional information.
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Results of Operations
Overview
The three months ended June 30, 2022 compared with the three months ended June 30, 2021. We reported net income available to common shareholders of $4.5 million for the three months ended June 30, 2022, compared to $6.3 million of net income available to common shareholders for the three months ended June 30, 2021, a $1.8 million, or 28.6% decrease. For the three months ended June 30, 2022, our income before income tax was $6.0 million, a $2.2 million, or 27.0% decrease from the three months ended June 30, 2021. The decrease was primarily driven by a $5.1 million increase in non-interest expense and a $2.8 million decrease in net gain on mortgage loans, partially offset by a $5.4 million increase in net interest income, after provision for loan losses. The increase in non-interest expense was primarily driven by the addition of Teton’s operations at the end of 2021 and additional headcount to support the growth of the Company. The decrease in net gain on mortgage loans was primarily driven by a slowdown in new lock volume on held for sale loans associated with rising interest rates, reduced housing inventory, and origination volume more heavily weighted to portfolio loans held for investment. The increase in net interest income, after provision for loan losses was primarily due to an increase in average loan balances and an increase in average loan yields.
The six months ended June 30, 2022 compared with the six months ended June 30, 2021. We reported net income available to common shareholders of $10.0 million for the six months ended June 30, 2022, compared to $12.3 million of net income available to common shareholders for the six months ended June 30, 2021, a $2.3 million, or 18.5% decrease. For the six months ended June 30, 2022, our income before income tax was $13.3 million, a $2.9 million, or 18.1% decrease from the six months ended June 30, 2021. The decrease was primarily driven by a $8.8 million increase in non-interest expense and a $5.5 million decrease in net gain on mortgage loans, partially offset by a $10.4 million increase in net interest income, after provision for loan losses. The increase in non-interest expense was primarily driven by the addition of Teton’s operations at the end of 2021 and additional headcount to support the growth of the Company. The decrease in net gain on mortgage loans was primarily driven by a slowdown in new lock volume on held for sale loans associated with rising interest rates, reduced housing inventory, and origination volume more heavily weighted to portfolio loans held for investment. The increase in net interest income, after provision for loan losses was primarily due to an increase in average loan balances and an increase in average loan yields.
Net Interest Income
The three months ended June 30, 2022 compared with the three months ended June 30, 2021. For the three months ended June 30, 2022, net interest income, before the provision for loan losses, was $20.1 million, an increase of $5.9 million, or 41.6%, compared to the three months ended June 30, 2021. The increase in net interest income was driven by a $436.5 million increase in average loans outstanding and a 22 basis point increase in the average yield on loans, partially offset by a $382.2 million increase in average interest bearing deposit balances. Net interest margin increased 34 basis points to 3.35% in the second quarter of 2022 from 3.01% reported in the second quarter of 2021. The increase in net interest margin was primarily a result of a 22 basis point increase in average yield on loans.
The six months ended June 30, 2022 compared with the six months ended June 30, 2021. For the six months ended June 30, 2022, net interest income, before the provision for loan losses, was $38.4 million, an increase of $11.1 million, or 40.9%, compared to the six months ended June 30, 2021. The increase in net interest income was driven by a $402.3 million increase in average loans outstanding, a 27 basis point increase in the average yield on loans, and a 4 basis point decrease in the average cost of funds, partially offset by a $412.1 million increase in average interest bearing deposit balances. Net interest margin increased 22 basis points to 3.17% in the six months ended June 30, 2022, from 2.95% reported in the six months ended June 30, 2021. The increase in net interest margin was primarily a result of a 27 basis point increase in average yield on loans and a 4 basis point decrease in the average cost of funds.
The increase in average loans outstanding for the three and six months ended June 30, 2022 compared to the same periods in 2021 was due to organic loan growth and the Teton acquisition at the end of 2021. Average loan yields were 4.11% and 4.04% for the three and six months ended June 30, 2022, compared to 3.89% and 3.77% for the three and six months ended June 30, 2021. The increase in loan yields during the three and six month periods were primarily driven by the addition of higher yielding loans from the Teton acquisition, a beneficial mix shift in the loan portfolio due to PPP loan forgiveness, and the rising interest rate environment.
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Interest income on our investment securities portfolio increased as a result of higher average investment balances for the three and six months ended June 30, 2022 compared to the same period in 2021. Our average investment securities balance during the three and six months ended June 30, 2022 was $69.3 million and $62.5 million, an increase of $42.8 million and $33.3 million from the three and six months ended June 30, 2021. The impact on the increase in average balances was partially offset by a lower average yield on the securities portfolio.
Interest expense on deposits increased during the three and six months ended June 30, 2022 compared to the same period in 2021. The increase was driven primarily by a 32.8% and 35.4% increase in average interest-bearing deposits for the three and six months ended June 30, 2022 compared to the same period in 2021. The increase in average interest-bearing deposits was attributable to the Teton acquisition and organic growth in interest checking accounts.
The following presents an analysis of net interest income and net interest margin during the periods presented, using daily average balances for each major category of interest-earning assets and interest-bearing liabilities, the interest earned or paid, and the average rate earned or paid on those assets or liabilities.
As of or for the Three Months Ended June 30, |
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2022 | 2021 |
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| Average |
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| Interest |
| Average |
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Average | Earned / | Yield / | Average | Earned / | Yield / |
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(Dollars in thousands) | Balance(1) | Paid | Rate | Balance(1) | Paid | Rate |
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Assets |
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|
|
|
| ||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
| |||||||
Interest-bearing deposits in other financial institutions | $ | 320,656 | $ | 547 |
| 0.68 | % | $ | 292,615 | $ | 92 |
| 0.13 | % | ||||
Federal funds sold | 1,017 | 2 | 0.79 | — | — | — | ||||||||||||
Investment securities(2) |
| 69,320 |
| 418 |
| 2.41 |
| 26,474 |
| 169 |
| 2.55 | ||||||
Loans(3) |
| 2,010,024 |
| 20,664 |
| 4.11 |
| 1,573,553 |
| 15,287 |
| 3.89 | ||||||
Interest-earning assets(4) |
| 2,401,017 |
| 21,631 |
| 3.60 |
| 1,892,642 |
| 15,548 |
| 3.29 | ||||||
Mortgage loans held for sale(5) |
| 19,452 |
| 229 |
| 4.71 |
| 86,760 |
| 625 |
| 2.88 | ||||||
Total interest-earning assets, plus mortgage loans held for sale | 2,420,469 | 21,860 |
| 3.61 | 1,979,402 | 16,173 |
| 3.27 | ||||||||||
Allowance for loan losses |
| (13,257) |
|
|
|
| (12,540) |
|
|
| ||||||||
Noninterest-earning assets |
| 119,857 |
|
|
|
| 93,629 |
|
|
| ||||||||
Total assets | $ | 2,527,069 |
|
|
| $ | 2,060,491 |
|
|
| ||||||||
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
|
| ||||||||
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
| ||||||||
Interest-bearing deposits | $ | 1,547,901 | 1,103 |
| 0.29 | $ | 1,165,734 | 866 |
| 0.30 | ||||||||
FHLB and Federal Reserve borrowings |
| 20,815 |
| 28 |
| 0.54 |
| 148,869 |
| 117 |
| 0.31 | ||||||
Subordinated notes |
| 32,533 |
| 362 |
| 4.45 |
| 24,252 |
| 342 |
| 5.64 | ||||||
Total interest-bearing liabilities | 1,601,249 | 1,493 |
| 0.37 | 1,338,855 | 1,325 |
| 0.40 | ||||||||||
Noninterest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
| ||||||||
Noninterest-bearing deposits |
| 679,531 |
|
|
|
| 539,613 |
|
|
| ||||||||
Other liabilities |
| 19,194 |
|
|
|
| 16,558 |
|
|
| ||||||||
Total noninterest-bearing liabilities | 698,725 |
|
|
| 556,171 |
|
|
| ||||||||||
Total shareholders’ equity |
| 227,095 |
|
|
|
| 165,465 |
|
|
| ||||||||
Total liabilities and shareholders’ equity | $ | 2,527,069 |
|
|
| $ | 2,060,491 |
|
|
| ||||||||
Net interest rate spread(6) |
|
|
|
|
| 3.23 |
|
|
|
|
| 2.89 | ||||||
Net interest income(7) |
|
| $ | 20,138 |
|
|
| $ | 14,223 |
| ||||||||
Net interest margin(8) |
|
|
|
|
| 3.35 |
|
|
|
|
| 3.01 | ||||||
54
As of and For the Six Months Ended June 30, |
| |||||||||||||||||
2022 | 2021 |
| ||||||||||||||||
|
| Interest |
| Average |
|
| Interest |
| Average |
| ||||||||
Average | Earned / | Yield / | Average | Earned / | Yield / |
| ||||||||||||
(Dollars in thousands) | Balance(1) | Paid | Rate | Balance (1) | Paid | Rate |
| |||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
| |||||||
Interest-bearing deposits in other financial institutions | $ | 397,199 | $ | 778 |
| 0.39 | % | $ | 253,314 | $ | 183 |
| 0.14 | % | ||||
Federal funds sold | 1,182 | 3 | 0.51 | — | — | — | ||||||||||||
Investment securities(2) |
| 62,530 |
| 755 |
| 2.41 |
| 29,205 |
| 365 |
| 2.50 | ||||||
Loans(3) |
| 1,966,639 |
| 39,760 |
| 4.04 |
| 1,564,323 |
| 29,499 |
| 3.77 | ||||||
Interest-earning assets(4) |
| 2,427,550 |
| 41,296 |
| 3.40 |
| 1,846,842 |
| 30,047 |
| 3.25 | ||||||
Mortgage loans held for sale(5) |
| 21,067 |
| 419 |
| 3.98 |
| 131,079 |
| 1,777 |
| 2.71 | ||||||
Total interest-earning assets, plus mortgage loans held for sale | 2,448,617 | 41,715 |
| 3.41 | 1,977,921 | 31,824 |
| 3.22 | ||||||||||
Allowance for loan losses |
| (13,485) |
|
|
|
| (12,541) |
|
|
| ||||||||
Noninterest-earning assets |
| 120,785 |
|
|
|
| 96,988 |
|
|
| ||||||||
Total assets | $ | 2,555,917 |
|
|
| $ | 2,062,368 |
|
|
| ||||||||
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
|
| ||||||||
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
| ||||||||
Interest-bearing deposits | $ | 1,576,449 | 2,046 |
| 0.26 | $ | 1,164,379 | 1,840 |
| 0.32 | ||||||||
FHLB and Federal Reserve borrowings |
| 26,925 |
| 67 |
| 0.50 |
| 143,279 |
| 248 |
| 0.35 | ||||||
Subordinated notes |
| 32,735 |
| 761 |
| 4.65 |
| 24,256 |
| 683 |
| 5.63 | ||||||
Total interest-bearing liabilities | 1,636,109 | 2,874 |
| 0.35 | 1,331,914 | 2,771 |
| 0.42 | ||||||||||
Noninterest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
| ||||||||
Noninterest-bearing deposits |
| 674,148 |
|
|
|
| 548,610 |
|
|
| ||||||||
Other liabilities |
| 21,363 |
|
|
|
| 18,842 |
|
|
| ||||||||
Total noninterest-bearing liabilities | 695,511 |
|
|
| 567,452 |
|
|
| ||||||||||
Shareholders’ equity |
| 224,297 |
|
|
|
| 163,002 |
|
|
| ||||||||
Total liabilities and shareholders’ equity | $ | 2,555,917 |
|
|
| $ | 2,062,368 |
|
|
| ||||||||
Net interest rate spread(6) |
|
|
|
|
| 3.05 |
|
|
|
|
| 2.83 | ||||||
Net interest income(7) |
| $ | 38,422 |
|
|
| $ | 27,276 |
| |||||||||
Net interest margin(8) |
|
|
|
|
| 3.17 | % |
|
|
|
|
| 2.95 | % | ||||
____________________________________________________________
(1) Average balance represents daily averages, unless otherwise noted.
(2) Represents monthly averages.
(3) Non-performing loans are included in the respective average loan balances. Income, if any, on such loans is recognized on a cash basis.
(4) Tax-equivalent yield adjustments are immaterial.
(5) Mortgage loans held for sale are separated from the interest-earning assets above, as these loans are held for a short period of time until sold in the secondary market and are not held for investment purposes, with interest income recognized in the net gain on mortgage loans line in the Condensed Consolidated Statements of Income. These balances are excluded from the margin calculations in these tables.
(6) Net interest spread is the average yield on interest-earning assets (excluding mortgage loans held for sale) minus the average rate on interest-bearing liabilities.
(7) Net interest income is the difference between income earned on interest-earning assets, which does not include interest earned on mortgage loans held for sale, and expense paid on interest-bearing liabilities.
(8) Net interest margin is equal to net interest income divided by average interest-earning assets (excluding mortgage loans held for sale).
55
The following presents the dollar amount of changes in interest income and interest expense during the periods presented for each component of interest-earning assets and interest-bearing liabilities (excluding mortgage loans held for sale), and distinguishes between changes attributable to volume and interest rates. Changes attributable to both rate and volume that cannot be separated have been allocated to volume (dollars in thousands):
Three Months Ended June 30, 2022 |
| Six Months Ended June 30, 2022 | ||||||||||||||||
Compared to 2021 |
| Compared to 2021 | ||||||||||||||||
Increase |
| Increase | ||||||||||||||||
(Decrease) Due | Total |
| (Decrease) Due | Total | ||||||||||||||
to Change in: | Increase |
| to Change in: | Increase | ||||||||||||||
| Volume |
| Rate |
| (Decrease) |
| Volume |
| Rate |
| (Decrease) | |||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
| |||||||
Interest-bearing deposits in other financial institutions | $ | 48 | $ | 407 | $ | 455 | $ | 282 | $ | 313 | $ | 595 | ||||||
Federal funds sold | 2 | — | 2 | 3 | — | 3 | ||||||||||||
Investment securities |
| 258 |
| (9) |
| 249 |
| 402 |
| (12) |
| 390 | ||||||
Loans |
| 4,487 |
| 890 |
| 5,377 |
| 8,134 |
| 2,127 |
| 10,261 | ||||||
Total increase (decrease) in interest income | 4,795 | 1,288 | 6,083 | 8,821 | 2,428 | 11,249 | ||||||||||||
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest-bearing deposits |
| 272 |
| (35) |
| 237 |
| 535 |
| (329) |
| 206 | ||||||
FHLB and Federal Reserve borrowings |
| (172) |
| 83 |
| (89) |
| (290) |
| 109 |
| (181) | ||||||
Subordinated notes |
| 92 |
| (72) |
| 20 |
| 197 |
| (119) |
| 78 | ||||||
Total increase (decrease) in interest expense | 192 | (24) | 168 | 442 | (339) | 103 | ||||||||||||
Increase in net interest income | $ | 4,603 | $ | 1,312 | $ | 5,915 | $ | 8,379 | $ | 2,767 | $ | 11,146 | ||||||
Provision for Loan Losses
We have a dedicated problem loan resolution team comprised of associates from our credit, senior leadership, risk, and accounting teams that meets frequently to ensure that watch list and problem credits are identified early and actively managed. We work to identify potential losses in a timely manner and proactively manage the problem credits to minimize losses. For the three and six months ended June 30, 2022, we recorded a $0.5 million and $0.7 million provision for credit losses. The provision during the three months ended June 30, 2022 was partially offset by a release of specific reserve on an impaired loan.
The Company has increased loan level reviews and portfolio monitoring to address the changing environment. Management believes the financial strength of the Company’s clientele and the diversity of the portfolio continues to mitigate the credit risk within the portfolio.
Non-Interest Income
The three months ended June 30, 2022 compared with the three months ended June 30, 2021. For the three months ended June 30, 2022 compared with the three months ended June 30, 2021, non-interest income decreased $2.6 million, or 26.9%, to $6.9 million. The decrease in non-interest income during the three months ended June 30, 2022 was primarily a result of a $2.8 million decrease in net gain on mortgage loans, compared to the same period in 2021.
The six months ended June 30, 2022 compared with the six months ended June 30, 2021. For the six months ended June 30, 2022 compared with the six months ended June 30, 2021, non-interest income decreased $4.6 million, or 22.7%, to $15.5 million. The decrease in non-interest income during the six months ended June 30, 2022 was primarily a result of a $5.5 million decrease in net gain on mortgage loans, compared to the same period in 2021.
56
The following presents the significant categories of our non-interest income during the periods presented (dollars in thousands):
Three Months Ended |
| ||||||||||||
June 30, | Change |
| |||||||||||
(Dollars in thousands) |
| 2022 |
| 2021 |
| $ |
| % | |||||
Non-interest income: |
|
|
|
|
|
|
| ||||||
Trust and investment management fees | $ | 4,784 | $ | 5,009 | $ | (225) | (4.5) | % | |||||
Net gain on mortgage loans |
| 1,152 |
| 3,914 |
| (2,762) | (70.6) | ||||||
Bank fees |
| 601 |
| 394 |
| 207 | 52.5 | ||||||
Risk management and insurance fees |
| 83 |
| 92 |
| (9) | (9.8) | ||||||
Income on company-owned life insurance |
| 87 |
| 89 |
| (2) | (2.2) | ||||||
Net gain/(loss) on loans accounted for under the fair value option | (155) | — | (155) | * | |||||||||
Unrealized gains/(losses) recognized on equity securities | 299 | 2 | 297 | * | |||||||||
Other | 89 | — | 89 | * | |||||||||
Total non-interest income | $ | 6,940 | $ | 9,500 | $ | (2,560) | (26.9) | ||||||
Six Months Ended |
| ||||||||||||
June 30, | Change |
| |||||||||||
(Dollars in thousands) |
| 2022 |
| 2021 |
| $ |
| % | |||||
Non-interest income: |
|
|
|
|
|
|
| ||||||
Trust and investment management fees | $ | 9,952 | $ | 9,856 | $ | 96 | 1.0 | % | |||||
Net gain on mortgage loans |
| 3,646 |
| 9,110 |
| (5,464) | (60.0) | ||||||
Bank fees |
| 1,290 |
| 766 |
| 524 | 68.4 | ||||||
Risk management and insurance fees |
| 192 |
| 143 |
| 49 | 34.3 | ||||||
Income on company-owned life insurance | 173 | 177 | (4) | (2.3) | |||||||||
Net gain on equity interests | 1 | — | 1 | * | |||||||||
Net gain/(loss) on loans accounted for under the fair value option | (155) | — | (155) | * | |||||||||
Unrealized gains/(losses) recognized on equity securities | 267 | (10) | 277 | * | |||||||||
Other | 174 | 60 | 114 | 190.0 | |||||||||
Total non-interest income | $ | 15,540 | $ | 20,102 | $ | (4,562) | (22.7) | ||||||
______________________________________
* Not meaningful
Trust and investment management fees—For the three months ended June 30, 2022 compared to the same period in 2021, our trust and investment management fees decreased $0.2 million, or 4.5%. For the six months ended June 30, 2022 compared to the same period in 2021, our trust and investment management fees increased $0.1 million, or 1.0%. The decrease for the three months ended June 30, 2022, is due to a decreased value of AUM balances caused by unfavorable market conditions, primarily during 2022. The increase for the six months ended June 30, 2022, is driven by favorable market conditions experienced in 2021.
Net gain on mortgage loans—For the three months ended June 30, 2022 compared to the same period in 2021, our net gain on mortgage loans decreased by $2.8 million, or 70.6%, to $1.2 million. For the six months ended June 30, 2022 compared to the same period in 2021, our net gain on mortgage loans decreased by $5.5 million, or 60.0%, to $3.6 million. The decrease in net gain on mortgage loans was primarily driven by a slowdown in new lock volume on held for sale loans associated with rising interest rates, reduced housing inventory, and origination volume more heavily weighted to portfolio loans held for investment.
Bank fees— For the three months ended June 30, 2022 compared to the same period in 2021, our bank fees increased by $0.2 million or 52.5%. For the six months ended June 30, 2022 compared to the same period in 2021, our bank fees increased by $0.5 million or 68.4%. The increase during the three and six month periods were primarily driven by increased activity consistent with the growth of the balance sheet.
57
Net gain/(loss) on loans accounted for under the fair value option— The Company elected the fair value option on certain new loans purchased in 2022. During the three and six months ended June 30, 2022, the Company recorded a net loss on loans accounted for under the fair value option of $0.2 million. There were no loans accounted for under the fair value option in the same periods in 2021.
Unrealized gains/(losses) on Equity Securities— For the three and six months ended June 30, 2022 compared to the same period in 2021, our unrealized gains on equity securities increased by $0.3 million. The increase was primarily driven by fair value adjustments on equity warrants.
Non-Interest Expense
The three months ended June 30, 2022 compared with the three months ended June 30, 2021. The increase in non-interest expense of 32.6% to $20.6 million for the three months ended June 30, 2022, was primarily driven by the addition of Teton’s operations and additional headcount to support the growth of the Company.
The six months ended June 30, 2022 compared with the six months ended June 30, 2021. The increase in non-interest expense of 28.3% to $39.9 million for the six months ended June 30, 2022, was primarily driven by the addition of Teton’s operations and additional headcount to support the growth of the Company.
The following presents the significant categories of our non-interest expense during the periods presented (dollars in thousands):
Three Months Ended |
| ||||||||||||
June 30, | Change |
| |||||||||||
(Dollars in thousands) |
| 2022 |
| 2021 |
| $ |
| % | |||||
Non-interest expense: |
|
|
|
|
|
|
| ||||||
Salaries and employee benefits | $ | 12,945 | $ | 9,643 | $ | 3,302 | 34.2 | % | |||||
Occupancy and equipment |
| 1,892 |
| 1,443 |
| 449 | 31.1 | ||||||
Professional services |
| 2,027 |
| 1,370 |
| 657 | 48.0 | ||||||
Technology and information systems |
| 1,076 |
| 904 |
| 172 | 19.0 | ||||||
Data processing |
| 987 |
| 1,093 |
| (106) | (9.7) | ||||||
Marketing |
| 428 |
| 398 |
| 30 | 7.5 | ||||||
Amortization of other intangible assets |
| 77 |
| 4 |
| 73 | * | ||||||
Net gain on assets held for sale | (2) | — | (2) | * | |||||||||
Other |
| 1,153 |
| 668 |
| 485 | 72.6 | ||||||
Total non-interest expense | $ | 20,583 | $ | 15,523 | $ | 5,060 | 32.6 | ||||||
Six Months Ended |
| ||||||||||||
June 30, | Change |
| |||||||||||
(Dollars in thousands) |
| 2022 |
| 2021 |
| $ |
| % | |||||
Non-interest expense: |
|
|
|
|
|
|
| ||||||
Salaries and employee benefits | $ | 25,003 | $ | 19,504 | $ | 5,499 | 28.2 | % | |||||
Occupancy and equipment |
| 3,774 |
| 2,852 |
| 922 | 32.3 | ||||||
Professional services |
| 3,553 |
| 2,649 |
| 904 | 34.1 | ||||||
Technology and information systems |
| 2,122 |
| 1,846 |
| 276 | 15.0 | ||||||
Data processing |
| 2,174 |
| 2,108 |
| 66 | 3.1 | ||||||
Marketing |
| 985 |
| 719 |
| 266 | 37.0 | ||||||
Amortization of other intangible assets |
| 154 |
| 8 |
| 146 | * | ||||||
Net gain on assets held for sale |
| (3) | — | (3) | * | ||||||||
Other | 2,179 |
| 1,453 |
| 726 | 50.0 | |||||||
Total non-interest expense | $ | 39,941 | $ | 31,139 | $ | 8,802 | 28.3 | ||||||
_______________________________________
* Not meaningful
58
Salaries and employee benefits— The increase in salaries and employee benefits of $3.3 million, or 34.2%, and $5.5 million, or 28.2%, for the three and six months ended June 30, 2022, respectively, was primarily related to the additional associates added through the Teton acquisition and additional headcount to support the growth of the Company.
Occupancy and equipment— The increase in occupancy and equipment of $0.4 million, or 31.1%, and $0.9 million, or 32.3%, for the three and six months ended June 30, 2022, respectively, was primarily driven by building depreciation on the locations acquired with the Teton acquisition and an increase in office lease space as we increase office locations.
Professional services— The increase in professional services of $0.7 million, or 48.0%, and $0.9 million, or 34.1%, for the three and six months ended June 30, 2022, respectively, was primarily driven by additional expenses related to the addition of Teton’s operations, acquisition related expenses of $0.3 million and $0.4 million for the three and six months ended June 30, 2022, respectively, and corporate activities to support balance sheet growth.
Technology and information systems— The increase in technology and information systems of $0.2 million, or 19.0%, and $0.3 million, or 15.0%, for the three and six months ended June 30, 2022, respectively, was primarily driven by the addition of Teton’s operations and increased expenses to support balance sheet growth.
Data processing— The decrease in data processing of $0.1 million, or 9.7%, for the three months ended June 30, 2022, was driven by reduced mortgage processing expenses. The increase in data processing of $0.1 million, or 3.1%, for the six months ended June 30, 2022 was primarily driven by additional expenses related to the addition of Teton’s operations and increased expenses to support balance sheet growth, offset partially by reduced mortgage processing expenses.
Marketing— The increase in marketing of $0.3 million, or 37.0%, for the six months ended June 30, 2022, was primarily driven by marketing expenses associated with the onboarding of new clients from the Teton acquisition and event sponsorships.
Amortization of other intangible assets— The increase in amortization of other intangible assets of $0.1 million for the three and six months ended June 30, 2022, was primarily driven by amortization of intangibles acquired through the Teton acquisition.
Other—The increase in other of $0.5 million, or 72.6%, and $0.7 million, or 50.0%, for the three and six months ended June 30, 2022, respectively, was driven by the addition of Teton’s operations and additional travel and training expenses as the Company travels to meet with clients and associates participate in more trainings in 2022 compared to 2021.
Income Tax
The Company recorded an income tax provision of $1.5 million and $1.9 million, respectively, for the three months ended June 30, 2022 and 2021, reflecting an effective tax rate of 25.0% and 23.3%, respectively. The Company recorded an income tax provision of $3.3 million and $4.0 million, respectively, for the six months ended June 30, 2022 and 2021, reflecting an effective tax rate of 24.7% and 24.3%, respectively.
Segment Reporting
We have two reportable operating segments: Wealth Management and Mortgage. Our Wealth Management segment consists of operations relating to the Company’s fully integrated wealth management products and services. Services provided include deposit, loan, insurance, and trust and investment management advisory products and services. Our Mortgage segment consists of operations relating to the Company’s residential mortgage service offerings. Mortgage products and services are financial in nature, for which premiums are recognized net of expenses, upon the sale of mortgage loans to third parties. Services provided by our Mortgage segment include soliciting, originating, and selling mortgage loans into the secondary market. Mortgage loans originated and held for investment purposes are recorded in the Wealth Management segment, as this segment provides ongoing services to our clients.
59
The following presents key metrics related to our segments during the periods presented (dollars in thousands):
Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 |
| |||||||||||||||||
| Wealth |
|
| Wealth |
|
|
| ||||||||||||
Management | Mortgage | Consolidated | Management | Mortgage | Consolidated |
| |||||||||||||
Income(1) | $ | 25,282 | $ | 1,277 | $ | 26,559 | $ | 49,438 | $ | 3,795 | $ | 53,233 | |||||||
Income before taxes | 6,926 | (950) | 5,976 | 13,937 | (645) | 13,292 | |||||||||||||
Profit margin |
| 27.4 | % |
| (74.4) | % |
| 22.5 | % |
| 28.2 | % |
| (17.0) | % |
| 25.0 | % | |
Three Months Ended June 30, 2021 | Six Months Ended June 30, 2021 | ||||||||||||||||||
| Wealth |
|
| Wealth |
|
| |||||||||||||
Management | Mortgage | Consolidated | Management | Mortgage | Consolidated | ||||||||||||||
Income(1) | $ | 19,784 | $ | 3,927 | $ | 23,711 | $ | 38,242 | $ | 9,124 | $ | 47,366 | |||||||
Income before taxes | 6,983 | 1,205 | 8,188 | 12,900 | 3,327 | 16,227 | |||||||||||||
Profit margin |
| 35.3 | % |
| 30.7 | % |
| 34.5 | % |
| 33.7 | % |
| 36.5 | % |
| 34.3 | % | |
________________________________________
(1) Net interest income after provision plus non-interest income.
The following presents selected financial metrics of each segment as of and during the periods presented (dollars in thousands):
Wealth Management
As of or for the Three Months Ended June 30, |
| ||||||||||||
(Dollars in thousands) |
| 2022 |
| 2021 |
| $ Change |
| % Change |
| ||||
Total interest income | $ | 21,631 | $ | 15,548 | $ | 6,083 |
| 39.1 | % | ||||
Total interest expense |
| 1,493 |
| 1,325 |
| 168 |
| 12.7 | |||||
Provision for loan losses |
| 519 |
| 12 |
| 507 |
| * | |||||
Net interest income, after provision for loan losses |
| 19,619 |
| 14,211 |
| 5,408 |
| 38.1 | |||||
Non-interest income |
| 5,663 |
| 5,573 |
| 90 |
| 1.6 | |||||
Total income |
| 25,282 |
| 19,784 |
| 5,498 |
| 27.8 | |||||
Depreciation and amortization expense |
| 522 |
| 262 |
| 260 |
| 99.2 | |||||
Net loss on assets held for sale | (2) | — | (2) | * | |||||||||
All other non-interest expense |
| 17,836 |
| 12,539 |
| 5,297 |
| 42.2 | |||||
Income before income tax | $ | 6,926 | $ | 6,983 | $ | (57) |
| (0.8) | |||||
Goodwill | $ | 30,400 | $ | 24,191 | $ | 6,209 |
| 25.7 | |||||
Total assets | 2,513,177 | 1,956,393 | 556,784 |
| 28.5 | ||||||||
As of or for the Six Months Ended June 30, |
| ||||||||||||
(Dollars in thousands) |
| 2022 |
| 2021 |
| $ Change |
| % Change |
| ||||
Total interest income | $ | 41,296 | $ | 30,047 | $ | 11,249 |
| 37.4 | % | ||||
Total interest expense |
| 2,874 |
| 2,771 |
| 103 |
| 3.7 | |||||
Provision for loan losses |
| 729 |
| 12 |
| 717 |
| * | |||||
Net interest income, after provision for loan losses |
| 37,693 |
| 27,264 |
| 10,429 |
| 38.3 | |||||
Non-interest income |
| 11,745 |
| 10,978 |
| 767 |
| 7.0 | |||||
Total income |
| 49,438 |
| 38,242 |
| 11,196 |
| 29.3 | |||||
Depreciation and amortization expense |
| 1,070 |
| 520 |
| 550 |
| 105.8 | |||||
Net loss on assets held for sale | (3) | — | (3) | * | |||||||||
All other non-interest expense |
| 34,434 |
| 24,822 |
| 9,612 |
| 38.7 | |||||
Income before income tax | $ | 13,937 | $ | 12,900 | $ | 1,037 |
| 8.0 | |||||
Goodwill | $ | 30,400 | $ | 24,191 | $ | 6,209 |
| 25.7 | |||||
Total assets | 2,513,177 | 1,956,393 | 556,784 |
| 28.5 | ||||||||
________________________________________
* Not meaningful
60
The Wealth Management segment reported income before income tax of $6.9 million and $13.9 million for the three and six months ended June 30, 2022, respectively, compared to $7.0 million and $12.9 million for the same periods in 2021. The majority of our assets and liabilities are on the Wealth Management segment balance sheet and the increase in income before taxes is primarily driven by an increase in net interest income, after provision for loan losses, offset partially by an increase in non-interest expense. The increase in net interest income, after provision for loan losses, was primarily driven by an increase in average loans outstanding and an increase in average loan yields. The increase in non-interest expense was primarily driven by the addition of Teton’s operations and additional headcount to support the growth of the Company.
Mortgage
As of or for the Three Months Ended June 30, |
| ||||||||||||
(Dollars in thousands) |
| 2022 |
| 2021 |
| $ Change |
| % Change |
| ||||
Total interest income | $ | — | $ | — | $ | — |
| — | % | ||||
Total interest expense |
| — |
| — |
| — |
| — | |||||
Provision for loan losses |
| — |
| — |
| — |
| — | |||||
Net interest income, after provision for loan losses |
| — |
| — |
| — |
| — | |||||
Non-interest income |
| 1,277 |
| 3,927 |
| (2,650) |
| (67.5) | |||||
Total income |
| 1,277 |
| 3,927 |
| (2,650) |
| (67.5) | |||||
Depreciation and amortization expense |
| 12 |
| 13 | (1) |
| (7.7) | ||||||
All other non-interest expense |
| 2,215 |
| 2,709 |
| (494) |
| (18.2) | |||||
Income before income tax | $ | (950) | $ | 1,205 | $ | (2,155) |
| (178.8) | |||||
Total assets | $ | 28,316 | $ | 52,911 | $ | (24,595) |
| (46.5) | |||||
As of or for the Six Months Ended June 30, |
| ||||||||||||
(Dollars in thousands) |
| 2022 |
| 2021 |
| $ Change |
| % Change |
| ||||
Total interest income | $ | — | $ | — | $ | — |
| — | % | ||||
Total interest expense |
| — |
| — |
| — |
| — | |||||
Provision for loan losses |
| — |
| — |
| — |
| — | |||||
Net interest income, after provision for loan losses |
| — |
| — |
| — |
| — | |||||
Non-interest income |
| 3,795 |
| 9,124 |
| (5,329) |
| (58.4) | |||||
Total income |
| 3,795 |
| 9,124 |
| (5,329) |
| (58.4) | |||||
Depreciation and amortization expense |
| 24 |
| 27 | (3) |
| (11.1) | ||||||
All other non-interest expense |
| 4,416 |
| 5,770 |
| (1,354) |
| (23.5) | |||||
Income before income tax | $ | (645) | $ | 3,327 | $ | (3,972) |
| (119.4) | |||||
Total assets | $ | 28,316 | $ | 52,911 | $ | (24,595) |
| (46.5) | |||||
The Mortgage segment reported a loss before income tax of ($1.0) million and ($0.6) million for the three and six months ended June 30, 2022, respectively, compared to income before income tax of $1.2 million and $3.3 million for the same periods in 2021. The overall decrease in non-interest income was primarily driven by a slowdown in new lock volume on held for sale loans associated with rising interest rates, reduced housing inventory, and origination volume more heavily weighted to portfolio loans held for investment. The decrease in non-interest expense was driven by a reduction in headcount to better align the operations functions with the slowdown in volume.
61
Financial Condition
The following presents our Condensed Consolidated Balance Sheets as of the dates noted (dollars in thousands):
June 30, | December 31, |
| |||||||||||
(Dollars in thousands) |
| 2022 | 2021 |
| $ Change |
| % Change |
| |||||
Balance Sheet Data: |
|
|
|
|
|
|
| ||||||
Cash and cash equivalents | $ | 171,606 | $ | 386,983 | $ | (215,377) |
| (55.7) | % | ||||
Investment securities |
| 87,029 |
| 55,562 |
| 31,467 |
| 56.6 | |||||
Loans (includes $21,477 and $0 measured at fair value, respectively) |
| 2,146,394 |
| 1,949,137 |
| 197,257 |
| 10.1 | |||||
Allowance for loan losses |
| (14,357) |
| (13,732) |
| (625) |
| 4.6 | |||||
Loans, net of allowance |
| 2,132,037 |
| 1,935,405 |
| 196,632 |
| 10.2 | |||||
Mortgage loans held for sale, at fair value |
| 26,202 |
| 30,620 |
| (4,418) |
| (14.4) | |||||
Goodwill and other intangible assets, net |
| 32,258 |
| 31,902 |
| 356 |
| 1.1 | |||||
Company-owned life insurance |
| 15,976 |
| 15,803 |
| 173 |
| 1.1 | |||||
Other assets |
| 76,239 |
| 71,099 |
| 5,140 |
| 7.2 | |||||
Assets held for sale | 146 | 115 | 31 |
| 27.0 | ||||||||
Total assets | $ | 2,541,493 | $ | 2,527,489 | $ | 14,004 |
| 0.6 | |||||
Deposits | $ | 2,169,998 | $ | 2,205,703 | $ | (35,705) |
| (1.6) | |||||
Borrowings |
| 119,776 |
| 77,660 |
| 42,116 |
| 54.2 | |||||
Other liabilities |
| 23,695 |
| 25,085 |
| (1,390) |
| (5.5) | |||||
Total liabilities |
| 2,313,469 |
| 2,308,448 |
| 5,021 |
| 0.2 | |||||
Total shareholders’ equity |
| 228,024 |
| 219,041 |
| 8,983 |
| 4.1 | |||||
Total liabilities and shareholders’ equity | $ | 2,541,493 | $ | 2,527,489 | $ | 14,004 |
| 0.6 | |||||
________________________________________
* Not meaningful
Cash and cash equivalents decreased by $215.4 million, or 55.7%, to $171.6 million as of June 30, 2022 compared to December 31, 2021. The decrease in liquidity was driven by record loan production in the second quarter of 2022. During the same period, investments increased by $31.5 million, or 56.6%, to $87.0 million as of June 30, 2022. The increase is due to held-to-maturity securities purchased during the second quarter of 2022.
Loans increased by $197.3 million, or 10.1%, to $2.15 billion as of June 30, 2022 compared to December 31, 2021. The increase was primarily driven by loan growth in the residential mortgage, commercial and industrial, and commercial real estate portfolios.
Mortgage loans held for sale decreased $4.4 million, or 14.4%, to $26.2 million as of June 30, 2022 compared to December 31, 2021. The decrease was driven by a reduction in the origination of loans held for sale.
Goodwill and other intangible assets, net increased by $0.4 million, or 1.1%, to $32.3 million as of June 30, 2022 compared to December 31, 2021. The increase was driven by measurement period adjustments of $0.7 million to core deposit intangibles and ($0.2) million to goodwill during the first quarter of 2022.
Other assets increased by $5.1 million, or 7.2%, to $76.2 million as of June 30, 2022 compared to December 31, 2021. This was related to a $3.0 million purchase of correspondent bank stock during the quarter and an increase in tax receivables.
Deposits decreased $35.7 million, or 1.6%, to $2.17 billion as of June 30, 2022 compared to December 31, 2021. The decrease was primarily attributable to client depository activities including seasonal outflows related to tax payments, real estate acquisitions, and client operating cash outflows.
Money market deposit accounts decreased $22.9 million, or 2.2%, to $1.03 billion as of June 30, 2022 compared to December 31, 2021. Time deposit accounts decreased $22.9 million, or 13.4%, from December 31, 2021 to $147.6 million as of June 30, 2022. Negotiable order of withdrawal, or NOW accounts, decreased $22.7 million, or 7.3%, to $287.2 million from December 31, 2021 to June 30, 2022.
62
Borrowings increased $42.1 million, or 54.2%, to $119.8 million as of June 30, 2022 compared to December 31, 2021. The increase is attributed to additional FHLB borrowings to support the strong loan growth in 2022, partially offset by the redemption of subordinated notes on January 1, 2022 in the amount of $6.6 million and a reduction in outstanding advances on the Federal Reserve’s Paycheck Protection Program Loan Facility. Borrowing from this facility is expected to trend in the same direction as the PPP loan balances.
Other liabilities decreased $1.4 million, or 5.5%, to $23.7 million as of June 30, 2022 compared to December 31, 2021. The decrease is primarily attributed to the payment of 2021 incentive compensation.
Total shareholders’ equity increased $9.0 million, or 4.1%, from December 31, 2021 to $228.0 million as of June 30, 2022. The increase is primarily due to net income.
63
Assets Under Management
Three Months Ended | Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
(Dollars in millions) | 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Managed Trust Balance as of Beginning of Period | $ | 2,095 | $ | 1,821 | $ | 2,204 | $ | 1,890 | ||||
New relationships | 8 | 1 | 32 | 16 | ||||||||
Closed relationships | - | (1) | (1) | (1) | ||||||||
Contributions | 5 | 10 | 7 | 28 | ||||||||
Withdrawals | (70) | (34) | (171) | (154) | ||||||||
Market change, net | (259) | 95 | (292) | 113 | ||||||||
Ending Balance | $ | 1,779 | $ | 1,892 | $ | 1,779 | $ | 1,892 | ||||
Yield* | 0.19 | % | 0.18 | % | 0.20 | % | 0.18 | % | ||||
Directed Trust Balance as of Beginning of Period | $ | 1,297 | $ | 1,031 | $ | 1,309 | $ | 951 | ||||
New relationships | 6 | 6 | 6 | 82 | ||||||||
Closed relationships | - | (7) | — | (7) | ||||||||
Contributions | 14 | 13 | 21 | 18 | ||||||||
Withdrawals | (14) | (9) | (17) | (14) | ||||||||
Market change, net | (99) | 35 | (115) | 39 | ||||||||
Ending Balance | $ | 1,204 | $ | 1,069 | $ | 1,204 | $ | 1,069 | ||||
Yield* | 0.09 | % | 0.09 | % | 0.09 | % | 0.08 | % | ||||
Investment Agency Balance as of Beginning of Period | $ | 1,943 | $ | 1,933 | $ | 2,063 | $ | 1,840 | ||||
New relationships | 21 | 20 | 32 | 61 | ||||||||
Closed relationships | (24) | (9) | (40) | (23) | ||||||||
Contributions | 19 | 73 | 72 | 168 | ||||||||
Withdrawals | (146) | (53) | (196) | (128) | ||||||||
Market change, net | (179) | 80 | (297) | 126 | ||||||||
Ending Balance | $ | 1,634 | $ | 2,044 | $ | 1,634 | $ | 2,044 | ||||
Yield* | 0.77 | % | 0.68 | % | 0.82 | % | 0.66 | % | ||||
Custody Balance as of Beginning of Period | $ | 704 | $ | 595 | $ | 633 | $ | 518 | ||||
New relationships | 14 | — | 14 | — | ||||||||
Closed relationships | (1) | — | (1) | (1) | ||||||||
Contributions | - | 1 | 78 | 71 | ||||||||
Withdrawals | (57) | (8) | (66) | (10) | ||||||||
Market change, net | (94) | 26 | (92) | 36 | ||||||||
Ending Balance | $ | 566 | $ | 614 | $ | 566 | $ | 614 | ||||
Yield* | 0.03 | % | 0.03 | % | 0.03 | % | 0.03 | % | ||||
401(k)/Retirement Balance as of Beginning of Period | $ | 1,160 | $ | 1,106 | $ | 1,143 | $ | 1,056 | ||||
New relationships | 1 | 1 | 14 | 8 | ||||||||
Closed relationships | (1) | — | (39) | (52) | ||||||||
Contributions | 28 | 28 | 51 | 55 | ||||||||
Withdrawals | (22) | (30) | (55) | (58) | ||||||||
Market change, net | (71) | 38 | (19) | 134 | ||||||||
Ending Balance(1) | $ | 1,095 | $ | 1,143 | $ | 1,095 | $ | 1,143 | ||||
Yield* | 0.16 | % | 0.15 | % | 0.16 | % | 0.15 | % | ||||
Total Assets Under Management as of Beginning of Period | $ | 7,199 | $ | 6,486 | $ | 7,352 | $ | 6,255 | ||||
New relationships | 50 | 28 | 98 | 167 | ||||||||
Closed relationships | (26) | (17) | (81) | (84) | ||||||||
Contributions | 66 | 125 | 229 | 340 | ||||||||
Withdrawals | (309) | (134) | (505) | (364) | ||||||||
Market change, net | (702) | 274 | (815) | 448 | ||||||||
Total Assets Under Management | $ | 6,278 | $ | 6,762 | $ | 6,278 | $ | 6,762 | ||||
Yield* | 0.30 | % | 0.30 | % | 0.32 | % | 0.29 | % | ||||
________________________________________
* Trust investment management fees divided by period end balance.
(1) AUM reported for the current period are one quarter in arrears.
64
Assets under management decreased $921.7 million, or 12.8%, for the three months ended June 30, 2022 and decreased $1.07 billion, or 14.6%, for the six months ended June 30, 2022. The decrease was primarily attributable to unfavorable market conditions resulting in a decrease in the value of AUM balances.
Investment Securities
Investments we intend to hold for an indefinite period of time, but not necessarily to maturity, are classified as available-for-sale and are recorded at fair value using current market information from a pricing service, with unrealized gains and losses excluded from earnings and reported in other comprehensive income, net of tax. The carrying values of our investment securities classified as available-for-sale are adjusted for unrealized gain or loss, and any gain or loss is reported on an after-tax basis as a component of other comprehensive income in shareholders’ equity.
Investments for which we have the intent and ability to hold to their maturity are classified as held-to-maturity securities and are recorded at amortized cost. Securities held-to-maturity are carried at cost, adjusted for the amortization of premiums and the accretion of discounts using the level-yield method over the remaining period until maturity.
As of December 31, 2021, all our investments in securities were classified as available-for-sale. The Company reassessed classification of investment securities and, effective April 1, 2022, elected to transfer all securities, fair valued at $58.7 million, from available-for-sale to held-to-maturity. The related unrealized loss of $2.3 million included in other comprehensive income remained in other comprehensive income and will be amortized out with an offsetting entry to interest income as a yield adjustment through earnings over the remaining term of the securities. No gain or loss was recorded at the time of transfer. As of June 30, 2022, all our investments in securities were classified as held-to-maturity.
The following presents the amortized cost and estimated fair value of our investment securities as of the dates noted (dollars in thousands):
June 30, 2022 | ||||||||||||
|
| Gross |
| Gross |
| |||||||
Amortized | Unrecognized | Unrecognized | Fair | |||||||||
(Dollars in thousands) | Cost | Gains | Losses | Value | ||||||||
Investment securities held-to-maturity: |
|
|
|
|
|
|
|
| ||||
U.S. Treasury debt | $ | 240 | $ | — | $ | (4) | $ | 236 | ||||
U.S Government Agency | 252 | — | (2) | 250 | ||||||||
Corporate bonds | 24,085 | 6 | (651) | 23,440 | ||||||||
Government National Mortgage Association (GNMA) mortgage -backed securities—residential |
| 43,583 |
| — |
| (1,089) |
| 42,494 | ||||
Federal National Mortgage Association (FNMA) mortgage-backed securities—residential | 7,184 |
| — |
| (333) | 6,851 | ||||||
Government collateralized mortgage obligations (GMO) and mortgage-backed securities (MBS) - commercial | 7,426 | 14 | (249) | 7,191 | ||||||||
Corporate collateralized mortgage obligations (CMO) and mortgage-backed securities (MBS) |
| 4,259 |
| 74 |
| (53) |
| 4,280 | ||||
Total securities held-to-maturity | $ | 87,029 | $ | 94 | $ | (2,381) | $ | 84,742 | ||||
65
December 31, 2021 | ||||||||||||
|
| Gross |
| Gross |
| |||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||
(Dollars in thousands) | Cost | Gains | Losses | Value | ||||||||
Investment securities available-for-sale: |
|
|
|
|
|
|
|
| ||||
U.S. Treasury debt | $ | 250 | $ | — | $ | (3) | $ | 247 | ||||
U.S. Government Agency | 3,522 | — | — | 3,522 | ||||||||
Corporate bonds | 8,113 | 227 | (15) | 8,325 | ||||||||
GNMA mortgage -backed securities—residential |
| 26,611 |
| 185 |
| (146) |
| 26,650 | ||||
FNMA mortgage-backed securities—residential | 14,400 |
| 43 |
| — | 14,443 | ||||||
GMO and MBS - commercial | 878 | — | — | 878 | ||||||||
CMO and MBS | 1,492 | 23 | (18) | 1,497 | ||||||||
Total securities available-for-sale | $ | 55,266 | $ | 478 | $ | (182) | $ | 55,562 | ||||
The following presents the book value of our contractual maturities and weighted average yield for our investment securities as of the dates presented. Contractual maturities may differ from expected maturities because issuers can have the right to call or prepay obligations without penalties. Our investments are taxable securities. The weighted average yield for each range of maturities was calculated using the yield on each security within that range weighted by the amortized cost of each security as of June 30, 2022. Weighted average yields are not presented on a taxable equivalent basis.
Maturity as of June 30, 2022 |
| ||||||||||||||||||||||||
One Year or Less | One to Five Years | Five to Ten Years | After Ten Years |
| |||||||||||||||||||||
|
| Weighted |
|
| Weighted |
|
| Weighted |
|
| Weighted |
| |||||||||||||
Amortized | Average | Amortized | Average | Amortized | Average | Amortized | Average |
| |||||||||||||||||
(Dollars in thousands) | Cost | Yield | Cost | Yield | Cost | Yield | Cost | Yield |
| ||||||||||||||||
Held-to-maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
U.S. Treasury debt | $ | — |
| — | % | $ | 240 |
| * | % | $ | — |
| — | % | $ | — |
| — | % | |||||
U.S. Government agency | 252 | * | — | — | — | — | — | — | |||||||||||||||||
Corporate bonds | 111 | * | 1,993 | 0.10 | 21,582 | 1.12 | 399 | 0.01 | |||||||||||||||||
GNMA mortgage-backed securities - residential |
| — |
| — |
| 133 |
| * |
| — |
| — |
| 43,450 |
| 1.27 | |||||||||
FNMA mortgage-backed securities - residential | — | — | — | — | 1,466 | 0.02 | 5,718 | 0.12 | |||||||||||||||||
Government CMO and MBS - commercial | — | — | 86 | * | 1,369 | 0.03 | 5,971 | 0.12 | |||||||||||||||||
Corporate CMO and MBS | — | — | — | — | 27 | * | 4,232 | 0.17 | |||||||||||||||||
Total held-to-maturity | $ | 363 |
| * | % | $ | 2,452 |
| 0.10 | % | $ | 24,444 |
| 1.17 | % | $ | 59,770 |
| 1.69 | % | |||||
Maturity as of December 31, 2021 |
| ||||||||||||||||||||||||
One Year or Less | One to Five Years | Five to Ten Years | After Ten Years |
| |||||||||||||||||||||
|
| Weighted |
|
| Weighted |
|
| Weighted |
|
| Weighted |
| |||||||||||||
Amortized | Average | Amortized | Average | Amortized | Average | Amortized | Average |
| |||||||||||||||||
(Dollars in thousands) | Cost | Yield | Cost | Yield | Cost | Yield | Cost | Yield |
| ||||||||||||||||
Available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
U.S. Treasury debt | $ | — |
| — | % | $ | 250 |
| * | % | $ | — |
| — | % | $ | — |
| — | % | |||||
U.S. Government agency | 506 | 0.02 | 164 | * | 1,190 | 0.04 | 1,662 | 0.07 | |||||||||||||||||
Corporate bonds | — | — | — | — | 8,113 | 0.71 | — | — | |||||||||||||||||
GNMA mortgage-backed securities - residential |
| — |
| — |
| — |
| — |
| — |
| — |
| 26,611 |
| 0.92 | |||||||||
FNMA mortgage-backed securities - residential | — | — | 176 | 0.01 | 2,183 | 0.10 | 12,041 | 0.36 | |||||||||||||||||
Government CMO and MBS - commercial | — | — | 202 | 0.01 | — | — | 676 | 0.04 | |||||||||||||||||
Corporate CMO and MBS | — | — | — | — | 33 | * | 1,459 | 0.07 | |||||||||||||||||
Total available-for-sale | $ | 506 |
| 0.02 | % | $ | 792 |
| 0.02 | % | $ | 11,519 |
| 0.85 | % | $ | 42,449 |
| 1.46 | % | |||||
________________________________________
* Not meaningful
As of June 30, 2022 and December 31, 2021, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of shareholders’ equity.
66
Loan Portfolio
Our primary source of interest income is derived through interest earned on loans to high net worth individuals and their related commercial interests. Our senior lending and credit team consists of seasoned, experienced personnel and we believe that our officers are well versed in the types of lending in which we are engaged. Underwriting policies and decisions are managed centrally and the approval process is tiered based on loan size, making the process consistent, efficient, and effective. The management team and credit culture demands prudent, practical, and conservative approaches to all credit requests in compliance with the loan policy guidelines to ensure strong credit underwriting practices.
In addition to originating loans for our own portfolio, we conduct mortgage banking activities in which we originate and sell servicing-released, whole loans in the secondary market. Our mortgage banking loan sale activities are primarily directed at originating single family mortgages that are priced and underwritten to conform to previously agreed-upon criteria before loan funding and are delivered to the investor shortly after funding. The level of future loan originations, loan sales, and loan repayments depends on overall credit availability, the interest rate environment, the strength of the general economy, local real estate markets and the housing industry, and conditions in the secondary loan sale market. The amount of gain or loss on the sale of loans is primarily driven by market conditions and changes in interest rates, as well as our pricing and asset liability management strategies. As of June 30, 2022 and December 31, 2021, we had mortgage loans held for sale of $26.2 million and $30.6 million, respectively, in residential mortgage loans we originated.
Beginning in the first quarter of 2022, the Company entered into whole loan purchase agreements to acquire third party originated and serviced unsecured consumer loans to hold for investment. As of June 30, 2022, the Company had purchased $21.1 million in loan balances which were accounted for under the fair value option and had a carrying value of $21.5 million. See Note 14 – Fair Value in the Notes to Condensed Consolidated Financial Statements.
As of June 30, 2022, the Company has $10.7 million in PPP loans outstanding with $0.2 million in remaining fees to be recognized. The remaining fees represent the net amount of the fees from the SBA for participation in the PPP less the loan origination costs on these loans. The current amortization of this income is being recognized over a five-year period from the time of origination, however, if a loan receives full forgiveness from the SBA, the remaining income will be recognized upon receipt of the funds from the SBA.
The following presents our loan portfolio by type of loan as of the dates noted (dollars in thousands):
June 30, | December 31, | ||||||||||||
2022 | 2021 | ||||||||||||
| Amount |
| % of Total |
| Amount |
| % of Total |
| |||||
Cash, Securities and Other(1) | $ | 180,738 | 8.5 | % | $ | 261,190 | 13.4 | % | |||||
Consumer and Other(2) | 47,855 | 2.2 | 34,758 | 1.8 | |||||||||
Construction and Development |
| 162,426 | 7.6 |
| 178,716 | 9.1 | |||||||
1-4 Family Residential |
| 732,725 | 34.1 |
| 580,872 | 29.7 | |||||||
Non-Owner Occupied CRE |
| 489,111 | 22.7 |
| 482,622 | 24.7 | |||||||
Owner Occupied CRE |
| 224,597 | 10.4 |
| 212,426 | 10.9 | |||||||
Commercial and Industrial |
| 312,696 | 14.5 |
| 203,584 | 10.4 | |||||||
Total loans held for investment(3) | $ | 2,150,148 | 100.0 | % | $ | 1,954,168 | 100.0 | % | |||||
Mortgage loans held for sale, at fair value | $ | 26,202 |
| $ | 30,620 |
| |||||||
________________________________________
(1) Includes PPP loans of $10.7 million and $46.8 million as of June 30, 2022 and December 31, 2021, respectively.
(2) Includes loans held for investment accounted for under fair value option of $21.1 million as of June 30, 2022.
(3) Loans held for investment exclude deferred fees, unamortized premiums/(unaccreted discounts), net, and fair value adjustments on loans held for investment accounted for under fair value option, which collectively totaled ($3.8) million and ($5.0) million as of June 30, 2022 and December 31, 2021, respectively.
| ● | Cash, Securities and Other—consists of consumer and commercial purpose loans, which are primarily secured by securities managed and under custody with us, cash on deposit with us, or life insurance policies. In addition, loans in this portfolio are collateralized with other sources of collateral. This segment of our portfolio is affected by a variety of local and national economic factors affecting borrowers’ employment prospects, income levels, and overall economic sentiment. PPP loans that are fully guaranteed by the SBA are classified within this line item and had balances of $10.7 million and $46.8 million as of June 30, 2022 and December 31, 2021, respectively. |
67
| ● | Consumer and Other—consists of unsecured consumer loans. Loans held for investment accounted for under the fair value option are also classified within this line item and had a balance of $21.1 million as of June 30, 2022. There were no loans held for investment accounted for under the fair value option as of December 31, 2021. |
| ● | Construction and Development—consists of loans to finance the construction of residential and non-residential properties. These loans are dependent on the strength of the industries of the related borrowers and the risks consistent with construction projects. |
| ● | 1-4 Family Residential—consists of loans and home equity lines of credit secured by 1-4 family residential properties. These loans typically enable borrowers to purchase or refinance existing homes, most of which serve as the primary residence of the owner. In addition, some borrowers secure a commercial purpose loan with owner occupied or non-owner occupied 1-4 family residential properties. Loans in this segment are dependent on the industries tied to these loans as well as the national and local economies, and local residential and commercial real estate markets. |
| ● | Commercial Real Estate, Owner Occupied, and Non-Owner Occupied—consists of commercial loans collateralized by real estate. These loans may be collateralized by owner occupied or non-owner occupied real estate, as well as multi-family residential real estate. These loans are dependent on the strength of the industries of the related borrowers and the success of their businesses. |
| ● | Commercial and Industrial—consists of commercial and industrial loans, including working capital lines of credit, permanent working capital term loans, business asset loans, acquisition, expansion and development loans, and other loan products, primarily in our target markets. This portfolio primarily consists of term loans and lines of credit which are dependent on the strength of the industries of the related borrowers and the success of their businesses. MSLP loans of $6.8 million as of June 30, 2022 and December 31, 2021 are classified within this line item. |
The contractual maturity ranges of loans in our loan portfolio and the amount of such loans with fixed and floating interest rates in each maturity range, excluding deferred fees, and unamortized premiums/(unaccreted discounts), as of the dates noted, are summarized in the following tables:
As of June 30, 2022 | |||||||||||||||
| One Year |
| One Through |
| Five Through |
| After |
| |||||||
(Dollars in thousands) | or Less | Five Years | Fifteen Years | Fifteen Years | Total | ||||||||||
Cash, Securities and Other | $ | 57,832 | (1) | $ | 119,368 | (1) | $ | 2,695 | $ | 843 | $ | 180,738 | |||
Consumer and Other | 18,755 | (2) | 25,965 | (2) | 2,157 | (2) | 978 | 47,855 | |||||||
Construction and Development |
| 61,066 |
| 95,329 |
| 6,031 |
| — |
| 162,426 | |||||
1-4 Family Residential |
| 56,083 |
| 129,876 |
| 42,656 |
| 504,110 |
| 732,725 | |||||
Non-Owner Occupied CRE |
| 38,220 |
| 270,580 |
| 163,288 |
| 17,023 |
| 489,111 | |||||
Owner Occupied CRE |
| 7,166 |
| 69,845 |
| 135,327 |
| 12,259 |
| 224,597 | |||||
Commercial and Industrial |
| 71,010 |
| 188,751 |
| 52,935 |
| — |
| 312,696 | |||||
Total loans | $ | 310,132 | $ | 899,714 | $ | 405,089 | $ | 535,213 | $ | 2,150,148 | |||||
Amounts with fixed rates | $ | 92,054 | $ | 539,597 | $ | 285,574 | $ | 22,205 | $ | 939,430 | |||||
Amounts with floating rates |
| 218,078 |
| 360,117 |
| 119,515 |
| 513,008 |
| 1,210,718 | |||||
Total loans | $ | 310,132 | $ | 899,714 | $ | 405,089 | $ | 535,213 | $ | 2,150,148 | |||||
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As of December 31, 2021 | |||||||||||||||
| One Year |
| One Through |
| Five Through |
| After |
| |||||||
(Dollars in thousands) |
| or Less |
| Five Years |
| Fifteen Years | Fifteen Years | Total | |||||||
Cash, Securities and Other | $ | 113,984 | (1) | $ | 137,675 | (1) | $ | 5,434 | $ | 4,097 | $ | 261,190 | |||
Consumer and Other | 22,314 | 11,214 | 127 | 1,103 | 34,758 | ||||||||||
Construction and Development |
| 74,111 |
| 96,817 |
| 7,788 |
| — |
| 178,716 | |||||
1-4 Family Residential |
| 24,824 |
| 126,681 |
| 33,085 |
| 396,282 |
| 580,872 | |||||
Non-Owner Occupied CRE |
| 66,036 |
| 275,057 |
| 125,330 |
| 16,199 |
| 482,622 | |||||
Owner Occupied CRE |
| 5,255 |
| 66,656 |
| 129,890 |
| 10,625 |
| 212,426 | |||||
Commercial and Industrial |
| 46,742 |
| 107,596 |
| 49,246 |
| — |
| 203,584 | |||||
Total loans | $ | 353,266 | $ | 821,696 | $ | 350,900 | $ | 428,306 | $ | 1,954,168 | |||||
Amounts with fixed rates | $ | 120,549 | $ | 506,040 | $ | 253,223 | $ | 26,682 | $ | 906,494 | |||||
Amounts with floating rates |
| 232,717 |
| 315,656 |
| 97,677 |
| 401,624 |
| 1,047,674 | |||||
Total loans | $ | 353,266 | $ | 821,696 | $ | 350,900 | $ | 428,306 | $ | 1,954,168 | |||||
________________________________________
(1) Includes PPP loans.
(2) Includes loans held for investment accounted for under fair value option.
Loan Modifications
As a result of the COVID-19 pandemic, a loan modification program was designed and implemented to assist our clients experiencing financial stress resulting from the economic impacts caused by the global pandemic. The Company was offering loan extensions, temporary payment moratoriums, and financial covenant waivers for commercial and consumer borrowers impacted by the pandemic who have a pass risk rating and have not been delinquent over 30 days on payments in the last two years.
The CARES Act provides banks optional, temporary relief from accounting for certain loan modifications as a TDR. The modifications must be related to the adverse effects of COVID-19, and certain other criteria are required to be met in order to apply the relief. Interagency guidance from Federal Reserve and the FDIC confirmed with the FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not to be considered TDRs. We believe our loan modification program meets that definition. In accordance with that guidance, the Company is recognizing interest income on all loans modified for temporary payment moratoriums, primarily for a period of 180 days or less.
In 2021, the deferral period ended for all non-acquired loans previously modified and payments resumed under the original terms. As of June 30, 2022, the Company’s loan portfolio included 55 non-acquired loans which were previously modified under the loan modification program, totaling $100.5 million. Through the Teton Acquisition, the Company acquired loans which were previously modified and are still in their deferral period. As of June 30, 2022, there were 15 of these loans, totaling $3.5 million.
All loans modified in response to COVID-19 are classified as performing and pass rated as of June 30, 2022. These loans are included in the allowance for loan loss general reserve in accordance with ASC 450-20. Management has increased our loan level reviews and portfolio monitoring to address the changing environment. Management believes the diversity of the loan portfolio is prudent and remains consistent with the credit culture and goals of the Bank.
Interest accrued during the modification term on modified loans is deferred to the end of the loan term. As of June 30, 2022, no allowance for loan loss was deemed necessary on the accrued interest balances related to loan modifications.
Non-Performing Assets
Non-performing assets include non-accrual loans, TDRs, loans past due 90 days or more and still accruing interest, and OREO. The accrual of interest on loans is discontinued at the time the loan becomes 90 or more days delinquent unless the loan is well secured and in the process of collection. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on non-accrual status or charged off if collection of interest or principal is considered doubtful.
69
OREO represents assets acquired through, or in lieu of, foreclosure. The amounts reported as OREO are supported by recent appraisals, with the appraised values adjusted, where applicable, for expected transaction fees likely to be incurred upon sale of the property. We incur recurring expenses relating to OREO in the form of maintenance, taxes, insurance, and legal fees, among others, until the OREO parcel is disposed. While disposition efforts with respect to our OREO are generally ongoing, if these properties are appraised at lower-than-expected values or if we are unable to sell the properties at the prices for which we expect to be able to sell them, we may incur additional losses. In the second quarter of 2022, the Company recorded $0.4 million of OREO as a result of obtaining physical possession of a foreclosed property as partial consideration for amounts owed on an impaired loan.
The amount of lost interest for non-accrual loans was immaterial and $0.1 million for the three months ended June 30, 2022 and 2021, respectively. For the six months ended June 30, 2022 and 2021, the amount of lost interest was $0.1 million.
We had $4.3 million in non-performing assets as of June 30, 2022 and December 31, 2021.
The following presents information regarding non-performing loans as of the dates noted (dollars in thousands):
June 30, | December 31, | ||||||
| 2022 |
| 2021 |
| |||
Non-accrual loans by category (1) |
|
|
|
|
| ||
Cash, Securities and Other | $ | 4 | $ | 6 | |||
Consumer and Other | 2 | 2 | |||||
1-4 Family Residential |
| 68 |
| 75 | |||
Owner Occupied CRE |
| 1,200 |
| 1,241 | |||
Commercial and Industrial |
| 2,603 |
| 2,938 | |||
Total non-accrual loans |
| 3,877 |
| 4,262 | |||
TDRs still accruing |
| 46 |
| 55 | |||
Accruing loans 90 or more days past due | 8 |
| 10 | ||||
Total non-performing loans |
| 3,931 |
| 4,327 | |||
OREO |
| 378 |
| — | |||
Total non-performing assets | $ | 4,309 | $ | 4,327 | |||
Non-accrual loans to total loans(2) | 0.18 | % | 0.22 | % | |||
Non-performing loans to total loans(2) |
| 0.18 |
| 0.22 | |||
Non-performing assets to total assets |
| 0.17 |
| 0.17 | |||
Allowance for loan losses to non-accrual loans | 370.31 | 322.20 | |||||
Allowance for loan losses to non-performing loans |
| 365.23 |
| 317.36 | |||
________________________________________
(1) As of June 30, 2022 and December 31, 2021, all but one non-accrual loan, totaling an immaterial amount, were also classified as TDRs. See Note 4 – Loans and the Allowance for Loan Losses to the condensed consolidated financial statements.
(2) Excludes mortgage loans held for sale of $26.2 million and $30.6 million as of June 30, 2022 and December 31, 2021, respectively.
Potential Problem Loans
We categorize loans into risk categories based on relevant information about the ability of the borrowers to service their debt, such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. We analyze loans individually by classifying the loans by credit risk on a quarterly basis, which are segregated into the following definitions for risk ratings:
Special Mention—Loans categorized as special mention have a potential weakness or borrowing relationships that require more than the usual amount of management attention. Adverse industry conditions, deteriorating financial conditions, declining trends, management problems, documentation deficiencies, or other similar weaknesses may be evident. Ability to meet current payment schedules may be questionable, even though interest and principal are still being paid as agreed. The asset has potential weaknesses that may result in deteriorating repayment prospects if left uncorrected. Loans in this risk grade are not considered adversely classified.
Substandard—Substandard loans are considered classified and are inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardizes the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loans in this category may be placed on non-accrual status and may individually be evaluated for impairment if indicators of impairment exist.
70
Doubtful—Loans graded doubtful are considered classified and have all the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable. However, the amount or certainty of eventual loss is not known because of specific pending factors.
Loans accounted for under the fair value option are not rated.
Loans not meeting any of the three criteria above are considered to be pass-rated loans.
As of June 30, 2022 and December 31, 2021, non-performing loans of $3.9 million and $4.3 million, respectively, were included in the substandard category in the table below. The following presents, by class and by credit quality indicator, the recorded investment in our loans as of the dates noted (dollars in thousands):
As of June 30, 2022 | |||||||||||||||
|
| Special |
|
| |||||||||||
Pass | Mention | Substandard | Not Rated | Total | |||||||||||
Cash, Securities and Other(1) | $ | 180,734 | $ | — | $ | 4 | $ | — | $ | 180,738 | |||||
Consumer and Other(2) | 26,704 | — | 2 | 21,149 | 47,855 | ||||||||||
Construction and Development |
| 162,426 |
| — |
| — | — |
| 162,426 | ||||||
1-4 Family Residential |
| 732,657 |
| — |
| 68 | — |
| 732,725 | ||||||
Non-Owner Occupied CRE |
| 483,848 |
| 5,263 |
| — | — |
| 489,111 | ||||||
Owner Occupied CRE |
| 222,714 |
| — |
| 1,883 | — |
| 224,597 | ||||||
Commercial and Industrial |
| 305,765 |
| 2,693 |
| 4,238 | — |
| 312,696 | ||||||
Total | $ | 2,114,848 | $ | 7,956 | $ | 6,195 | $ | 21,149 | $ | 2,150,148 | |||||
As of December 31, 2021 | |||||||||||||||
| Special |
|
| ||||||||||||
Pass | Mention | Substandard | Not Rated | Total | |||||||||||
Cash, Securities and Other(1) | $ | 261,184 | $ | — | $ | 6 | $ | — | $ | 261,190 | |||||
Consumer and Other | 34,756 | — | 2 | — | 34,758 | ||||||||||
Construction and Development |
| 176,194 |
| 2,522 |
| — | — |
| 178,716 | ||||||
1-4 Family Residential |
| 580,797 |
| — |
| 75 | — |
| 580,872 | ||||||
Non-Owner Occupied CRE |
| 476,670 |
| 5,952 |
| — | — |
| 482,622 | ||||||
Owner Occupied CRE |
| 210,493 |
| — |
| 1,933 | — |
| 212,426 | ||||||
Commercial and Industrial |
| 198,368 |
| 401 |
| 4,815 | — |
| 203,584 | ||||||
Total | $ | 1,938,462 | $ | 8,875 | $ | 6,831 | $ | — | $ | 1,954,168 | |||||
________________________________________
(1) Includes PPP loans of $10.7 million and $46.8 million as of June 30, 2022 and December 31, 2021, respectively.
(2) Includes loans held for investment accounted for under fair value option of $21.1 million as of June 30, 2022.
Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan losses, which is a noncash charge to earnings. Loan losses are charged against the allowance when management believes that a loan balance is confirmed uncollectable. Subsequent recoveries, if any, are credited to the allowance for loan losses.
The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and dollar volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, and prevailing economic conditions. Allocations of the allowance for loan losses may be made for specific loans, but the entire allowance for loan losses is available for any loan that, in management’s judgment, should be charged off.
We are closely monitoring the changing dynamics in the economy and the related client. Our clientele is generally comprised of high net-worth individuals and commercial borrowers with strong credit profiles and multiple sources of repayment. During the second quarter of 2022, the impact of loan growth on provision for loan losses was partially offset by a release of specific reserve on an impaired loan, resulting in a quarterly provision of $0.5 million. Management will continue to closely monitor the loan portfolio and analyze the economic data to assess the impact on the allowance for loan loss. We believe the allowance for loan losses is adequate as of June 30, 2022.
71
The following presents summary information regarding our allowance for loan losses during the periods presented (dollars in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| |||||
Average loans outstanding(1)(2) | $ | 2,010,024 | $ | 1,573,553 | $ | 1,966,639 | $ | 1,564,323 | |||||
Total loans outstanding at end of period(3) | $ | 2,146,394 | $ | 1,571,060 | $ | 2,146,394 | $ | 1,571,060 | |||||
Allowance for loan losses at beginning of period | $ | 13,885 | $ | 12,539 | $ | 13,732 | $ | 12,539 | |||||
Provision for loan losses |
| 519 |
| 12 |
| 729 |
| 12 | |||||
Charge-offs: |
|
|
|
|
|
|
|
| |||||
Cash, Securities and Other |
| — |
| — |
| — |
| — | |||||
Consumer and Other | 95 | — | 192 | — | |||||||||
Construction and Development |
| — |
| — |
| — |
| — | |||||
1-4 Family Residential |
| — |
| — |
| — |
| — | |||||
Non-Owner Occupied CRE |
| — |
| — |
| — |
| — | |||||
Owner Occupied CRE |
| — |
| — |
| — |
| — | |||||
Commercial and Industrial |
| — |
| — |
| — |
| — | |||||
Total charge-offs |
| 95 |
| — |
| 192 |
| — | |||||
Recoveries: |
|
|
|
|
|
|
|
| |||||
Cash, Securities and Other |
| — |
| — |
| — |
| — | |||||
Consumer and Other | 48 | 1 | 88 | 1 | |||||||||
Construction and Development |
| — |
| — |
| — |
| — | |||||
1-4 Family Residential |
| — |
| — |
| — |
| — | |||||
Non-Owner Occupied CRE |
| — |
| — |
| — |
| — | |||||
Owner Occupied CRE |
| — |
| — |
| — |
| — | |||||
Commercial and Industrial |
| — |
| — |
| — |
| — | |||||
Total recoveries |
| 48 |
| 1 |
| 88 |
| 1 | |||||
Net charge-offs (recoveries) |
| 47 |
| (1) |
| 104 |
| (1) | |||||
Allowance for loan losses at end of period | $ | 14,357 | $ | 12,552 | $ | 14,357 | $ | 12,552 | |||||
Allowance for loan losses to total loans(4) |
| 0.67 | % |
| 0.80 | % |
| 0.67 | % |
| 0.80 | % | |
Net charge-offs to average loans(5) |
| — |
| — |
| 0.01 |
| — | |||||
________________________________________
(1) Average balances are average daily balances.
(2) Excludes average outstanding balances of mortgage loans held for sale of $19.5 million and $86.8 million for the three months ended June 30, 2022 and 2021, respectively and $21.1 million and 131.1 million for the six months ended June 30, 2022 and 2021, respectively.
(3) Excludes mortgage loans held for sale of $26.2 million and $48.6 million as of June 30, 2022 and 2021, respectively.
(4) End of period loans as of June 30, 2022 include $287.6 million in acquired loans, $9.1 million in bank originated PPP loans, $1.6 million of acquired PPP loans, and $21.1 million of loans held for investment accounted for under the fair value option. No reserve is allocated for those loans. Excluding these loans would result in an increase of the ratio for the three months ended June 30, 2022.
(5) For percentages shown as a dash, the ratio of net charge-offs to average loans is negligible or immaterial.
72
The following presents the allocation of the allowance for loan losses among loan categories and other summary information. The allocation for loan losses by category should neither be interpreted as an indication of future charge-offs, nor as an indication that charge-offs in future periods will necessarily occur in these amounts or in the indicated proportions. The allocation of a portion of the allowance for loan losses to one category of loans does not preclude its availability to absorb losses in other categories.
As of June 30, | As of December 31, | ||||||||||||
2022 | 2021 | ||||||||||||
(Dollars in thousands) |
| Amount |
| %(1) |
| Amount |
| %(1) | |||||
Cash, Securities and Other | $ | 1,194 |
| 8.5 | % | $ | 1,598 |
| 13.4 | % | |||
Consumer and Other | 220 | 2.2 | 266 | 1.8 | |||||||||
Construction and Development |
| 1,074 |
| 7.6 |
| 1,092 |
| 9.1 | |||||
1-4 Family Residential |
| 4,845 |
| 34.1 |
| 3,553 |
| 29.7 | |||||
Non-Owner Occupied CRE |
| 3,235 |
| 22.7 |
| 2,952 |
| 24.7 | |||||
Owner Occupied CRE |
| 1,477 |
| 10.4 |
| 1,292 |
| 10.9 | |||||
Commercial and Industrial |
| 2,312 |
| 14.5 |
| 2,979 |
| 10.4 | |||||
Total allowance for loan losses | $ | 14,357 |
| 100.0 | % | $ | 13,732 |
| 100.0 | % | |||
________________________________________
(1) Represents the percentage of loans to total loans in the respective category.
Deferred Tax Assets, Net
Deferred tax assets, net represent the differences in timing of when items are recognized for GAAP purposes and when they are recognized for tax purposes, as well as our net operating losses. Our deferred tax assets, net are valued based on the amounts that are expected to be recovered in the future utilizing the tax rates in effect at the time recognized. Our deferred tax assets, net as of June 30, 2022, increased $0.8 million, or 11.9%, from December 31, 2021.
Deposits
Our deposit products include money market accounts, demand deposit accounts, time deposit accounts (typically certificates of deposit), NOW accounts (interest checking accounts), and saving accounts. Our accounts are federally insured by the FDIC up to the legal maximum amount.
Total deposits decreased by $35.7 million, or 1.6%, to $2.17 billion as of June 30, 2022 from December 31, 2021. Total average deposits for the three months ended June 30, 2022 were $2.23 billion, an increase of $522.1 million, or 30.6%, compared to $1.71 billion as of June 30, 2021. The decrease in total deposits from December 31, 2021 was attributable to seasonal outflow related to tax payments, real estate acquisitions, and client operating cash outflows, offset partially by inflows from new business development efforts.
73
The following presents the average balances and average rates paid on deposits during the periods presented (dollars in thousands):
For the Three Month Period Ending June 30, | |||||||||||||
2022 | 2021 | ||||||||||||
| Average |
| Average |
| Average |
| Average |
| |||||
Balance | Rate | Balance | Rate |
| |||||||||
Deposits |
|
|
|
|
|
|
|
| |||||
Money market deposit accounts | $ | 1,057,026 |
| 0.27 | % | $ | 878,341 |
| 0.22 | % | |||
Demand deposit accounts |
| 306,590 |
| 0.15 |
| 130,197 |
| 0.16 | |||||
Uninsured time deposits |
| 55,137 |
| 1.06 |
| 67,408 |
| 1.29 | |||||
Other time deposits |
| 96,774 |
| 0.49 |
| 83,088 |
| 0.51 | |||||
Total time deposits |
| 151,911 |
| 0.70 |
| 150,496 |
| 0.86 | |||||
Savings accounts |
| 32,374 |
| 0.03 |
| 6,700 |
| 0.03 | |||||
Total interest-bearing deposits |
| 1,547,901 |
| 0.29 |
| 1,165,734 |
| 0.30 | |||||
Noninterest-bearing accounts |
| 679,531 |
|
|
| 539,613 |
|
| |||||
Total deposits | $ | 2,227,432 |
| 0.20 | $ | 1,705,347 |
| 0.20 | |||||
For the Six Month Period Ending June 30, | |||||||||||||
2022 | 2021 | ||||||||||||
| Average |
| Average |
| Average |
| Average |
| |||||
(Dollars in thousands) | Balance | Rate | Balance | Rate |
| ||||||||
Deposits |
|
|
|
|
|
|
|
| |||||
Money market deposit accounts | $ | 1,076,066 |
| 0.24 | % | $ | 878,173 |
| 0.24 | % | |||
NOW accounts |
| 307,579 |
| 0.15 |
| 122,917 |
| 0.17 | |||||
Uninsured time deposits |
| 53,696 |
| 1.04 |
| 67,000 |
| 1.33 | |||||
Other time deposits |
| 106,501 |
| 0.47 |
| 89,803 |
| 0.56 | |||||
Total time deposits |
| 160,197 |
| 0.66 |
| 156,803 |
| 0.89 | |||||
Savings accounts |
| 32,607 |
| 0.04 |
| 6,486 |
| 0.03 | |||||
Total interest-bearing deposits |
| 1,576,449 |
| 0.26 |
| 1,164,379 |
| 0.32 | |||||
Noninterest-bearing accounts |
| 674,148 |
|
| 548,610 |
|
| ||||||
Total deposits | $ | 2,250,597 |
| 0.18 | $ | 1,712,989 |
| 0.21 | |||||
Average noninterest-bearing deposits to average total deposits was 30.5% and 31.6% for the three months ended June 30, 2022 and 2021, respectively, and 30.0% and 32.0% for the six months ended June 30, 2022 and 2021, respectively.
Our average cost of funds was 0.26% and 0.28% for the three months ended June 30, 2022 and 2021, respectively, and 0.25% and 0.29% for the six months ended June 30, 2022 and 2021, respectively. The decrease in cost of funds was driven by a reduction in interest bearing deposit costs due to the repricing of term deposits.
Total money market accounts as of June 30, 2022 were $1.03 billion, a decrease of $22.9 million, or 2.2%, compared to December 31, 2021. NOW accounts decreased $22.7 million, or 7.3%, to $287.2 million compared to December 31, 2021.
Total time deposits as of June 30, 2022 were $147.6 million, a decrease of $22.9 million, or 13.4%, from December 31, 2021.
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The following presents the amount of certificates of deposit by time remaining until maturity as of June 30, 2022 (dollars in thousands):
| Three Months or Less |
| Three to Six Months |
| Six to 12 Months |
| After 12 Months |
| Total | ||||||
Uninsured Time Deposits | $ | 9,679 | $ | 14,633 | $ | 10,973 | $ | 38,929 | $ | 74,214 | |||||
Other | 16,526 | 23,277 | 13,254 | 20,352 | 73,409 | ||||||||||
Total | $ | 26,205 | $ | 37,910 | $ | 24,227 | $ | 59,281 | $ | 147,623 | |||||
Borrowings
We have short-term and long-term borrowing sources available to supplement deposits and meet our liquidity needs. As of June 30, 2022 and December 31, 2021, borrowings totaled $119.8 million and $77.7 million, respectively. On January 1, 2022, the Company redeemed subordinated notes due December 31, 2026 in the amount of $6.6 million, which were redeemable on or after January 1, 2022.
The increase in other borrowings is attributed to additional FHLB borrowings to support the strong loan growth in 2022, partially offset by the paydown of loans in the Paycheck Protection Program Loan Facility (“PPPLF”) from the Federal Reserve with a period end balance of $7.2 million and the redemption of $6.6 million in subordinated notes. Borrowing from the PPPLF is expected to trend in the same direction as the PPP loan balances. The following presents balances of each of the borrowing facilities as of the dates noted (dollars in thousands):
June 30, | December 31, | |||||
| 2022 |
| 2021 | |||
Borrowings |
|
|
|
| ||
FHLB borrowings | $ | 80,000 | $ | 15,000 | ||
Federal Reserve borrowings | 7,223 | 23,629 | ||||
Subordinated notes |
| 32,553 |
| 39,031 | ||
Total | $ | 119,776 | $ | 77,660 | ||
FHLB
We have a blanket pledge and security agreement with FHLB that requires certain loans and securities to be pledged as collateral for any outstanding borrowings under the agreement. The collateral pledged as of June 30, 2022 and December 31, 2021 amounted to $856.6 million and $771.4 million, respectively. Based on this collateral and the Company’s holdings of FHLB stock, the Company was eligible to borrow an additional $517.0 million as of June 30, 2022.
| As of and for the |
| ||
| Six Months Ended | |||
| June 30, | |||
| 2022 | |||
Short-term borrowings | ||||
Maximum outstanding at any month-end during the period | $ | 80,000 | ||
Balance outstanding at end of period | 80,000 | |||
Average outstanding during the period | 13,260 | |||
Average interest rate during the period |
| 0.54 | % | |
Average interest rate at the end of the period |
| 0.76 | ||
The Bank has borrowing capacity associated with three unsecured federal funds lines of credit up to $10.0 million, $19.0 million, and $25.0 million. As of June 30, 2022 and December 31, 2021, there were no amounts outstanding on any of the federal funds lines.
Our borrowing facilities include various financial and other covenants, including, but not limited to, a requirement that the Bank maintains regulatory capital that is deemed well capitalized by federal banking agencies. As of June 30, 2022 and December 31, 2021, the Company was in compliance with the covenant requirements.
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Liquidity and Capital Resources
Liquidity resources primarily include interest-bearing and noninterest-bearing deposits which primarily contribute to our ability to raise funds to support asset growth, acquisitions, and meet deposit withdrawals and other payment obligations. Access to purchased funds primarily include the ability to borrow from FHLB, other correspondent banks, and the use of brokered deposits.
The following presents the composition of our funding sources and the average assets in which those funds are invested as a percentage of average total assets during the periods presented.
Three Months Ended | Six Months Ended | ||||||
June 30, | June 30, | ||||||
| 2022 |
| 2022 |
| |||
Sources of Funds: | |||||||
Deposits: |
|
|
|
|
| ||
Noninterest-bearing |
| 26.89 | % | 26.38 | % | ||
Interest-bearing |
| 61.25 | 61.67 | ||||
FHLB and Federal Reserve borrowings |
| 0.82 | 1.05 | ||||
Subordinated notes |
| 1.29 | 1.28 | ||||
Other liabilities |
| 0.76 | 0.84 | ||||
Shareholders’ equity |
| 8.99 | 8.78 | ||||
Total |
| 100.00 | % | 100.00 | % | ||
Uses of Funds: |
|
|
|
| |||
Total loans |
| 79.02 | % | 76.41 | % | ||
Investment securities |
| 2.74 | 2.45 | ||||
Mortgage loans held for sale |
| 0.77 | 0.82 | ||||
Interest-bearing deposits in other financial institutions |
| 12.69 | 15.54 | ||||
Federal funds sold | 0.04 | 0.05 | |||||
Noninterest-earning assets |
| 4.74 | 4.73 | ||||
Total |
| 100.00 | % | 100.00 | % | ||
Average noninterest-bearing deposits to total average deposits |
| 30.51 | % | 29.95 | % | ||
Average loans to total average deposits |
| 90.24 | 87.38 | ||||
Average interest-bearing deposits to total average deposits |
| 69.49 | 70.05 |
Our primary source of funds is interest-bearing and noninterest-bearing deposits, and our primary use of funds is loans. We do not expect a change in the primary source or use of our funds in the foreseeable future.
Capital Resources
Total shareholders’ equity increased $9.0 million, or 4.1%, from December 31, 2021 to $228.0 million as of June 30, 2022. The increase is primarily due to net income.
On January 6, 2022, the Company filed a Form S-3 Registration Statement with the SEC providing that the Company may offer and sell from time to time, separately or together, in multiple series or in one or more offerings, any combination of common stock, preferred stock, debt securities, warrants, depository shares and units, up to a maximum aggregate offer price of $100 million.
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On November 3, 2020, the Company announced that its board of directors authorized the repurchase of up to 400,000 shares of the Company’s common stock, no par value (the 2020 Repurchase Plan) and that the Board of Governors of the Federal Reserve System advised the Company that it has no objection to the Company’s 2020 Repurchase Plan. The 2020 Repurchase Plan was in effect for a one-year period, with the timing of purchases and the number of shares repurchased under the program dependent upon a variety of factors including price, trading volume, corporate and regulatory requirements, and market conditions. The 2020 Repurchase Plan expired in November 2021. During the year ended December 31, 2021, the Company did not repurchase any shares under the 2020 Repurchase Plan.
We are subject to various regulatory capital adequacy requirements at a consolidated level and the Bank level. These requirements are administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our condensed consolidated financial statements. Under capital adequacy guidelines and, additionally for banks, the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.
Capital levels are viewed as important indicators of an institution’s financial soundness by banking regulators. Generally, FDIC-insured depository institutions and their holding companies are required to maintain minimum capital relative to the amount and types of assets they hold. As of June 30, 2022 and December 31, 2021, our holding company and Bank were in compliance with all applicable regulatory capital requirements, and the Bank was classified as well capitalized, for purposes of the prompt corrective action regulations. As we continue to grow our operations and maintain capital requirements, our regulatory capital levels may decrease depending on our level of earnings. We continue to monitor growth and control our capital activities in order to remain in compliance with all applicable regulatory capital standards.
The following presents our regulatory capital ratios during the periods presented (dollars in thousands):
June 30, 2022 | December 31, 2021 |
| ||||||||||||
| Amount |
| Ratio |
| Amount |
| Ratio |
| ||||||
Tier 1 capital to risk-weighted assets |
|
|
|
| ||||||||||
Bank | $ | 214,993 |
| 10.99 | % | $ | 203,164 |
| 11.40 | % | ||||
Consolidated Company |
| 199,379 |
| 10.15 |
| 188,777 |
| 10.54 | ||||||
Common Equity Tier 1(CET1) to risk-weighted assets |
|
|
|
|
|
|
|
| ||||||
Bank | 214,993 |
| 10.99 | 203,164 |
| 11.40 | ||||||||
Consolidated Company |
| 199,379 |
| 10.15 |
| 188,777 |
| 10.54 | ||||||
Total capital to risk-weighted assets |
|
|
|
| ||||||||||
Bank |
| 229,777 |
| 11.75 |
| 217,215 |
| 12.19 | ||||||
Consolidated Company | 247,164 |
| 12.58 | 242,388 |
| 13.54 | ||||||||
Tier 1 capital to average assets |
|
|
|
| ||||||||||
Bank |
| 214,993 |
| 8.65 |
| 203,164 |
| 10.05 | ||||||
Consolidated Company | 199,379 |
| 8.00 | 188,777 |
| 9.31 | ||||||||
Contractual Obligations and Off-Balance Sheet Arrangements
We enter into credit-related financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our clients. These financial instruments include commitments to extend credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Condensed Consolidated Balance Sheets. Commitments may expire without being utilized. Our exposure to loan loss is represented by the contractual amount of these commitments, although material losses are not anticipated. We follow the same credit policies in making commitments as we do for on-balance sheet instruments.
77
The following presents future contractual obligations to make future payments during the periods presented (dollars in thousands):
As of June 30, 2022 | |||||||||||||||
|
| More than |
| More than |
|
| |||||||||
1 Year | 1 Year but Less | 3 Years but Less | 5 Years | ||||||||||||
or Less | than 3 Years | than 5 Years | or More | Total | |||||||||||
FHLB and Federal Reserve | $ | 80,000 | $ | — | $ | 7,223 | $ | — | $ | 87,223 | |||||
Subordinated notes |
| — |
| — |
| — |
| 32,553 | (1) |
| 32,553 | ||||
Time deposits | 88,342 | 42,453 | 11,852 | 4,976 | 147,623 | ||||||||||
Minimum lease payments | 3,415 | 6,073 | 1,628 | 1,857 | 12,973 | ||||||||||
Total | $ | 171,757 | $ | 48,526 | $ | 20,703 | $ | 39,386 | $ | 280,372 | |||||
________________________________________
(1) Reflects contractual maturity dates of March 31, 2030, December 1, 2030, and September 1, 2031.
The following presents financial instruments whose contract amounts represent credit risk, as of the periods presented (dollars in thousands):
June 30, 2022 | December 31, 2021 | |||||||||||
| Fixed Rate |
| Variable Rate |
| Fixed Rate |
| Variable Rate | |||||
Unused lines of credit | $ | 128,605 | $ | 575,094 | $ | 136,289 | $ | 442,035 | ||||
Standby letters of credit | 6,263 | 22,035 | 2,420 | 20,940 | ||||||||
Commitments to make loans to sell | 37,841 | — | 60,529 | — | ||||||||
Commitments to make loans | 52,056 | 17,749 | 16,256 | 14,920 | ||||||||
We may enter into contracts for services in the conduct of ordinary business operations, which may require payment for services to be provided in the future and may contain penalty clauses for early termination of the contracts. We do not believe these off-balance sheet arrangements have or are reasonably likely to have a material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources. However, there can be no assurance that such arrangements will not have an effect on future operations.
Critical Accounting Policies
Our accounting policies and procedures are described in Note 1 - Organization and Summary of Significant Accounting Policies in the accompanying Notes to the Condensed Consolidated Financial Statements as well as the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the SEC.
Item 3.Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Sensitivity and Market Risk
Market risk is the risk of loss in a financial instrument arising from adverse changes in market prices and rates, foreign currency exchange rates, commodity prices, and equity prices. Our market risk arises primarily from interest rate risk inherent in lending, investing, and deposit taking activities. To that end, management actively monitors and manages interest rate risk exposure. We do not have any market risk sensitive instruments entered into for trading purposes.
Management uses various asset/liability strategies to manage the re-pricing characteristics of our assets and liabilities designed to ensure that exposure to interest rate fluctuations is limited within established guidelines of acceptable levels of risk-taking.
The board of directors monitors interest rate risk by analyzing the potential impact on the net economic value of equity and net interest income from potential changes in interest rates and considers the impact of alternative strategies or changes in balance sheet structure. We manage our balance sheet in part to maintain the potential impact on economic value of equity and net interest income within acceptable ranges despite changes in interest rates.
Our exposure to interest rate risk is reviewed at least quarterly by the board of directors. Interest rate risk exposure is measured using interest rate sensitivity analysis to determine the change in net interest income and economic value of equity in the event of hypothetical changes in interest rates. If potential changes to net economic value of equity and net interest income resulting from hypothetical interest rate changes are not within the limits established by our board of directors, the board of directors may direct management to adjust the asset and liability mix to bring interest rate risk within board-approved limits.
78
The following presents the sensitivity in net interest income and fair value of equity during the periods presented, using a parallel ramp scenario.
As of June 30, 2022 | As of December 31, 2021 |
| |||||||||||
| Percent Change |
| Percent Change |
| Percent Change |
| Percent Change |
| |||||
in Net Interest | in Fair Value of | in Net Interest | in Fair Value of |
| |||||||||
Change in Interest Rates (Basis Points) | Income | Equity | Income | Equity |
| ||||||||
300 | 4.36 | % | (3.28) | % | 11.85 | % | 11.17 | % | |||||
200 |
| 3.80 | 0.89 | 9.31 | 11.43 | ||||||||
100 |
| 2.20 | 1.93 | 4.88 | 7.78 | ||||||||
Base |
| — | — | — | — | ||||||||
−100 |
| (3.99) | (8.80) | (2.58) | (26.39) | ||||||||
The model simulations as of June 30, 2022 imply that our balance sheet is less asset sensitive compared to our balance sheet as of December 31, 2021.
Although the simulation model is useful in identifying potential exposure to interest rate changes, actual results for net interest income and economic value of equity may differ. There are a variety of factors that can impact the outcomes such as timing and magnitude of interest rate changes, asset and liability mix, pre-payment speeds, deposit beta assumptions, and decay rates that differ from our projections. Additionally, the results do not account for actions implemented to manage our interest rate risk exposure.
Impact of Inflation
Our Condensed Consolidated Financial Statements and related notes included within this Form 10-Q have been prepared in accordance with GAAP, which requires the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative value of money over time due to inflation or recession.
Our assets and liabilities are substantially monetary in nature. Therefore, changes in interest rates can significantly impact our performance beyond the general effects of inflation. Interest rates do not necessarily move in the same direction or magnitude as prices of general goods and services, while other operating expenses can be correlated with the impact of general levels of inflation.
Item 4.Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Form 10-Q, the Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Operating Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply judgment in evaluating its controls and procedures. Based on this evaluation, the Company’s Chief Executive Officer and Chief Operating Officer concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the “Exchange Act”) were effective as of the end of the period covered by this report.
Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended June 30, 2022 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1.Legal Proceedings
The Company, from time to time, is involved in various legal actions arising in the normal course of business. While the ultimate outcome of any such proceedings cannot be predicted with certainty, it is the opinion of management, after consulting with our legal counsel, that no proceedings exist, either individually or in the aggregate, which, if determined adversely to the Company, would have a material effect on the Company’s condensed consolidated financial statements. See Note 9 - Commitments and Contingencies in the Notes to Condensed Consolidated Financial Statements.
Item 1A. Risk Factors
There has been no material change in the risk factors previously disclosed under Item 1A of the Company’s 2021 Annual Report on Form 10-K filed with the SEC on March 15, 2022.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
(c) Issuer Purchases of Equity Securities
|
|
|
| Maximum number (or | |||||
Total number of | approximate dollar | ||||||||
shares purchased | value) of shares | ||||||||
Total number | Average | as part of publicly | that may yet be | ||||||
of shares | price paid | announced plans | purchased under the | ||||||
| purchased (1) | per share |
| or programs |
| plans or programs | |||
April 1, 2022 through April 30, 2022 | 6,729 | $ | 32.82 | — |
| — | |||
May 1, 2022 through May 31, 2022 | 10,293 | 32.94 | — |
| — | ||||
June 1, 2022 through June 30, 2022 | 4,323 | 27.19 | — | — | |||||
________________________________________
(1) These shares relate to the net settlement by employees related to vested, restricted stock awards and do not impact the shares available for repurchase. Net settlements represent instances where employees elect to satisfy their income tax liability related to the vesting of restricted stock through the surrender of a proportionate number of the vested shares to the Company.
Item 3.Defaults upon Senior Securities
Not applicable.
Item 4.Mine Safety Disclosures
Not applicable.
Item 5.Other Information
Not applicable.
80
Item 6.Exhibits
Exhibit No. |
| Description |
31.1* | ||
31.2* | ||
32.1** | ||
32.2** | ||
101.INS* | Inline XBRL Instance Document | |
101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
* Filed herewith.
** These exhibits are furnished herewith and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act.
81
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
First Western Financial, Inc. | |||
August 5, 2022 | By: | /s/ Scott C. Wylie | |
Date | Scott C. Wylie | ||
Chairman, Chief Executive Officer, and President | |||
August 5, 2022 | By: | /s/ Julie A. Courkamp | |
Date | Julie A. Courkamp | ||
Chief Operating Officer, Chief Financial Officer, and Treasurer | |||
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