UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to ___________
Commission File Number
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
(Address of principal executive offices) |
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(Zip Code) |
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(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Exchange Act:
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Trading |
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None |
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N/A |
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N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common stock outstanding:
Part I: |
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Item 1. |
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The unaudited consolidated financial statements of the Company and its subsidiary are as follows: |
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Consolidated Balance Sheets — September 30, 2024 and December 31, 2023. |
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Consolidated Statements of Cash Flows — For the nine months ended September 30, 2024 and 2023. |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
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Item 3. |
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Disclosures required by Item 3 are incorporated by reference to Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
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Item 4. |
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Part II: |
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Item 1. |
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Item 1A. |
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Item 2. |
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Unregistered Sales of Equity Securities and Use of Proceeds. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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EX-31.1 SECTION 302 CERTIFICATION OF THE CEO |
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EX-31.2 SECTION 302 CERTIFICATION OF THE CFO |
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EX-32.1 SECTION 906 CERTIFICATION OF THE CEO |
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EX-32.2 SECTION 906 CERTIFICATION OF THE CFO |
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EX-101.INS |
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EX-101.SCH |
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EX-104 |
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Part I. Financial Information
Item 1. Financial Statements
WILSON BANK HOLDING COMPANY
Consolidated Balance Sheets
September 30, 2024 and December 31, 2023
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(Unaudited) |
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(Audited) |
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September 30, 2024 |
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December 31, 2023 |
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(Dollars in Thousands Except Share Amounts) |
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Assets |
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Loans |
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$ |
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$ |
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Less: Allowance for credit losses |
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Net loans |
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Securities available-for-sale, at market (amortized cost $ |
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Loans held for sale |
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Interest bearing deposits |
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Restricted equity securities |
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Federal funds sold |
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Total earning assets |
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Cash and due from banks |
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Bank premises and equipment, net |
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Accrued interest receivable |
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Deferred income tax asset |
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Bank owned life insurance |
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Other assets |
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Goodwill |
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Total assets |
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$ |
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$ |
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Liabilities and Shareholders’ Equity |
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Deposits: |
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Noninterest-bearing |
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$ |
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$ |
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Interest bearing |
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Savings and money market accounts |
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Time |
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Total deposits |
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Accrued interest payable and other liabilities |
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Total liabilities |
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Shareholders’ equity: |
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Common stock, $ |
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Additional paid-in capital |
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Retained earnings |
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Noncontrolling interest in consolidated subsidiary |
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Accumulated other comprehensive losses, net of taxes of $ |
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Total shareholders’ equity |
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Total liabilities and shareholders’ equity |
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$ |
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$ |
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See accompanying notes to consolidated financial statements (unaudited)
4
WILSON BANK HOLDING COMPANY
Consolidated Statements of Earnings
three and nine months ended September 30, 2024 and 2023
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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(Dollars in Thousands Except Per Share Amounts) |
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(Dollars in Thousands Except Per Share Amounts) |
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Interest income: |
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Interest and fees on loans |
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$ |
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$ |
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$ |
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$ |
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Interest and dividends on securities: |
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Taxable securities |
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Exempt from federal income taxes |
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Interest on loans held for sale |
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Interest on federal funds sold |
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Interest on balances held at depository institutions |
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Interest and dividends on restricted securities |
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Total interest income |
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Interest expense: |
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Interest on negotiable order of withdrawal accounts |
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Interest on money market and savings accounts |
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Interest on time deposits |
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Interest on Federal Home Loan Bank advances |
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Interest on Federal funds purchased |
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Interest on finance leases |
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Total interest expense |
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Net interest income before provision for credit losses |
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Provision for credit losses - loans |
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Provision for credit losses - off-balance sheet exposures |
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Net interest income after provision for credit losses |
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Non-interest income: |
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Service charges on deposit accounts |
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Brokerage income |
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Debit and credit card interchange income, net |
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Other fees and commissions |
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Income on BOLI and annuity contracts |
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Gain on sale of loans |
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Mortgage servicing income (loss), net |
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Loss on sale of fixed assets |
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Gain (loss) on sale of securities, net |
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Loss on sale of other assets |
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Other income (loss) |
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Total non-interest income |
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Non-interest expense: |
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Salaries and employee benefits |
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Occupancy expenses, net |
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Advertising & public relations expense |
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Furniture and equipment expense |
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Data processing expense |
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Directors’ fees |
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FDIC insurance |
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Audit, legal & consulting expenses |
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Other operating expenses |
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Total non-interest expense |
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Earnings before income taxes |
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Income taxes |
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Net earnings |
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Net (earnings) loss attributable to noncontrolling interest |
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Net earnings attributable to Wilson Bank Holding Company |
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$ |
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$ |
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$ |
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$ |
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Weighted average number of common shares outstanding-basic |
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Weighted average number of common shares outstanding-diluted |
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Basic earnings per common share |
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$ |
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$ |
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$ |
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$ |
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Diluted earnings per common share |
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$ |
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$ |
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$ |
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$ |
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Dividends per common share |
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$ |
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$ |
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$ |
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$ |
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See accompanying notes to consolidated financial statements (unaudited)
5
WILSON BANK HOLDING COMPANY
Consolidated Statements of Comprehensive Earnings (Losses)
three and nine months ended September 30, 2024 and 2023
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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(In Thousands) |
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Net earnings |
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$ |
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$ |
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$ |
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$ |
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Other comprehensive earnings (losses): |
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Unrealized gains (losses) on available-for-sale securities |
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Reclassification adjustment for net (gains) losses included in |
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Tax effect |
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Other comprehensive earnings (losses): |
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Comprehensive earnings (losses) |
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$ |
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$ |
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$ |
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$ |
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Comprehensive earnings (losses) attributable to noncontrolling interest |
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Comprehensive earnings (losses) attributable to Wilson Bank |
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$ |
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$ |
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$ |
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$ |
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See accompanying notes to consolidated financial statements (unaudited)
6
WILSON BANK HOLDING COMPANY
Consolidated Statements of Changes in Shareholders’ Equity
three and nine months ended September 30, 2024 and 2023
(Unaudited)
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Dollars In Thousands |
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Common |
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Additional |
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Retained |
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Noncontrolling |
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Accumulated |
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Total |
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Three Months Ended: |
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September 30, 2024 |
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Balance at beginning of period |
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$ |
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Cash dividends declared, $ |
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— |
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— |
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— |
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— |
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Issuance of |
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— |
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— |
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— |
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Issuance of |
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— |
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— |
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— |
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( |
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Share based compensation expense |
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— |
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— |
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— |
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— |
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Net change in fair value of available-for-sale securities |
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— |
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— |
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— |
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— |
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Net earnings for the quarter |
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— |
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— |
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— |
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Balance at end of period |
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$ |
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( |
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September 30, 2023 |
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Balance at beginning of period |
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$ |
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( |
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Cash dividends declared, $ |
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— |
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— |
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( |
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— |
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— |
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( |
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Issuance of |
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— |
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— |
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— |
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Issuance of |
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— |
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— |
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— |
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Share based compensation expense |
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— |
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— |
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— |
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— |
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Net change in fair value of available-for-sale securities |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Net earnings (loss) for the quarter |
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— |
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— |
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( |
) |
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— |
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Balance at end of period |
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$ |
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( |
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Dollars In Thousands |
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|||||||||||||||||||||
|
|
Common |
|
|
Additional |
|
|
Retained |
|
|
Noncontrolling |
|
|
Accumulated |
|
|
Total |
|
||||||
Nine Months Ended: |
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|
|
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||||||
September 30, 2024 |
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|
||||||
Balance at beginning of period |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Cash dividends declared, $ |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Issuance of |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Issuance of |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Vesting of |
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Vesting of |
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Repurchase of |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Share based compensation expense |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Net change in fair value of available-for-sale securities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Net earnings for the period |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Balance at end of period |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
September 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Balance at beginning of period |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Cash dividends declared, $ |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Issuance of |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Issuance of |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Share based compensation expense |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Net change in fair value of available-for-sale securities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Net earnings for the period |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Balance at end of period |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
See accompanying notes to consolidated financial statements (unaudited)
7
WILSON BANK HOLDING COMPANY
Consolidated Statements of Cash Flows
nine months ended September 30, 2024 and 2023
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(In Thousands) |
|
|||||
OPERATING ACTIVITIES |
|
|
|
|
|
|
||
Net earnings |
|
$ |
|
|
$ |
|
||
Adjustments to reconcile consolidated net earnings to net cash provided by operating activities |
|
|
|
|
|
|
||
Provision for credit losses |
|
|
|
|
|
|
||
Deferred income tax benefit |
|
|
( |
) |
|
|
( |
) |
Depreciation and amortization of premises and equipment |
|
|
|
|
|
|
||
Loss on sale of fixed assets |
|
|
|
|
|
|
||
Net amortization of securities |
|
|
|
|
|
|
||
Net realized loss (gain) on sale of securities |
|
|
|
|
|
( |
) |
|
Gains on mortgage loans sold, net |
|
|
( |
) |
|
|
( |
) |
Share-based compensation expense |
|
|
|
|
|
|
||
Loss on sale of other assets |
|
|
|
|
|
|
||
Increase in value of life insurance and annuity contracts |
|
|
( |
) |
|
|
( |
) |
Mortgage loans originated for resale |
|
|
( |
) |
|
|
( |
) |
Proceeds from sale of mortgage loans |
|
|
|
|
|
|
||
Right of use asset amortization |
|
|
|
|
|
|
||
Change in |
|
|
|
|
|
|
||
Accrued interest receivable |
|
|
( |
) |
|
|
( |
) |
Other assets |
|
|
( |
) |
|
|
|
|
Accrued interest payable |
|
|
|
|
|
|
||
Other liabilities |
|
|
|
|
|
|
||
TOTAL ADJUSTMENTS |
|
|
|
|
|
|
||
NET CASH PROVIDED BY OPERATING ACTIVITIES |
|
|
|
|
|
|
||
INVESTING ACTIVITIES |
|
|
|
|
|
|
||
Activities in available for sale securities |
|
|
|
|
|
|
||
Purchases |
|
|
( |
) |
|
|
( |
) |
Sales |
|
|
|
|
|
|
||
Maturities, prepayments and calls |
|
|
|
|
|
|
||
Redemptions (purchases) of restricted equity securities |
|
|
( |
) |
|
|
|
|
Net increase in loans |
|
|
( |
) |
|
|
( |
) |
Purchase of buildings, leasehold improvements, and equipment |
|
|
( |
) |
|
|
( |
) |
Proceeds from sale of other assets |
|
|
|
|
|
|
||
Purchase of life insurance and annuity contracts |
|
|
( |
) |
|
|
|
|
Redemption of annuity contracts |
|
|
|
|
|
|
||
NET CASH USED IN INVESTING ACTIVITIES |
|
|
( |
) |
|
|
( |
) |
FINANCING ACTIVITIES |
|
|
|
|
|
|
||
Net change in deposits - non-maturing |
|
|
|
|
|
( |
) |
|
Net change in deposits - time |
|
|
|
|
|
|
||
Change in escrow balances |
|
|
( |
) |
|
|
|
|
Repayment of finance lease obligation |
|
|
( |
) |
|
|
( |
) |
Issuance of common stock related to exercise of stock options |
|
|
|
|
|
|
||
Issuance of common stock pursuant to dividend reinvestment plan |
|
|
|
|
|
|
||
Repurchase of common stock |
|
|
( |
) |
|
|
|
|
Cash dividends paid on common stock |
|
|
( |
) |
|
|
( |
) |
NET CASH PROVIDED BY FINANCING ACTIVITIES |
|
|
|
|
|
|
||
NET CHANGE IN CASH AND CASH EQUIVALENTS |
|
|
( |
) |
|
|
|
|
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD |
|
|
|
|
|
|
||
CASH AND CASH EQUIVALENTS - END OF PERIOD |
|
$ |
|
|
$ |
|
||
See accompanying notes to consolidated financial statements (unaudited)
8
WILSON BANK HOLDING COMPANY
Consolidated Statements of Cash Flows, Continued
nine months ended September 30, 2024 and 2023
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(In Thousands) |
|
|||||
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
||
Cash paid during the period for |
|
|
|
|
|
|
||
Interest |
|
$ |
|
|
$ |
|
||
Taxes |
|
$ |
|
|
$ |
|
||
Non-cash investing and financing activities: |
|
|
|
|
|
|
||
Change in fair value of securities available-for-sale, net of taxes of $( |
|
$ |
|
|
$ |
( |
) |
|
Non-cash transfers from loans to other assets |
|
$ |
|
|
$ |
|
||
See accompanying notes to consolidated financial statements (unaudited)
9
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements
(Unaudited)
Note 1. Summary of Significant Accounting Policies
Nature of Business — Wilson Bank Holding Company (the “Company”) is a bank holding company whose primary business is conducted by its wholly-owned subsidiary, Wilson Bank & Trust (the “Bank”). The Bank is a commercial bank headquartered in Lebanon, Tennessee. The Bank provides a full range of banking services in its primary market areas of Wilson, Davidson, Rutherford, Trousdale, Sumner, Dekalb, Putnam, Smith, Hamilton, and Williamson Counties, Tennessee. On June 1, 2022, the Bank began operations with a newly-formed joint venture, Encompass Home Lending LLC ("Encompass") of which the Bank owns
Basis of Presentation — The accompanying unaudited, consolidated financial statements have been prepared in accordance with instructions to Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, and cash flows in conformity with U.S. generally accepted accounting principles. All adjustments consisting of normally recurring accruals that, in the opinion of management, are necessary for a fair presentation of the financial position and results of operations for the periods covered by the report have been included. The accompanying unaudited consolidated financial statements should be read in conjunction with the Company’s consolidated audited financial statements and related notes appearing in the Company's Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (the "SEC") on February 28, 2024 (the "2023 Form 10-K").
These consolidated financial statements include the accounts of the Company, the Bank, and Encompass. Significant intercompany transactions and accounts are eliminated in consolidation.
Use of Estimates — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term include the determination of the allowance for credit losses, the valuation of deferred tax assets, determination of any impairment of goodwill or other intangibles, the valuation of other real estate (if any), and the fair value of financial instruments. These financial statements should be read in conjunction with the 2023 Form 10-K. There have been no significant changes to the Company’s significant accounting policies as disclosed in the 2023 Form 10-K.
Newly Issued Not Yet Effective Accounting Standards
Information about certain recently issued accounting standards updates is presented below. Also refer to Note 1 - Accounting Standards Updates in our 2023 Form 10-K for additional information related to previously issued accounting standards updates.
Accounting Standards Update ("ASU") 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative, in October 2023, the Financial Accounting Standards Board ("FASB") issued this pronouncement which incorporates certain SEC disclosure requirements into the FASB Accounting Standards Codification. The amendments in the ASU are expected to clarify or improve disclosure and presentation requirements of a variety of Codification Topics, allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the Accounting Standards Codification with the SEC’s regulations. For entities subject to the SEC’s existing disclosure requirements and for entities required to file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer, the effective date for each amendment will be the date on which the SEC removes that related disclosure from its rules. For all other entities, the amendments will be effective two years later. However, if by June 30, 2027, the SEC has not removed the related disclosure from its regulations, the amendments will be removed from the Accounting Standards Codification and not become effective for any entity. The Company does not expect the adoption of ASU 2023-06 to have a material impact on its accounting and disclosures.
ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, in November 2023, the FASB issued this pronouncement which requires public entities to provide disclosures of significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment's profit or loss and assets that are currently required annually. The ASU requires a public entity to disclose, for each reportable segment, the significant expense categories and amounts that are regularly provided to the chief operating decision-maker (CODM) and included in each reported measure of a segment's profit or loss. ASU 2023-07 also requires disclosure of the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate
10
resources. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods beginning after December 15, 2024. Early adoption is permitted. The guidance is applied retrospectively to all periods presented in the financial statements unless it is impracticable. The Company will adopt ASU 2023-07 as of December 31, 2024, and is currently assessing the impact on its accounting and disclosures.
ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, in December 2023, the FASB issued this pronouncement which amends the guidance for income tax disclosures to include certain required disclosures related to tax rate reconciliations, including certain categories of expense requiring disclosure, income taxes paid, including disclosure of taxes paid disaggregated by nation, state, and foreign taxes, and other disclosures for disaggregation of income before income tax expense (or benefit) and income tax expense (or benefit) by domestic and foreign allocation. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2024. Early adoption is permitted. An entity should apply ASU 2023-09 on a prospective basis once adopted with retrospective application permitted. The Company is assessing ASU 2023-09 and its potential impact on its accounting and disclosures.
ASU 2024-02, Codification Improvements: Amendments to Remove References to the Concepts Statements, in March 2024, the FASB issued this pronouncement which contains amendments to the Codification that remove references to various Concepts Statements. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2024. Early adoption is permitted. If an entity adopts the amendments in an interim period, it must adopt them as of the beginning of the fiscal year that includes that interim period. The Company is assessing ASU 2024-02 and its potential impact on its accounting and disclosures.
ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40), in November 2024, the FASB issued this pronouncement which requires public entities to disclose additional information about specific expense categories in the notes to the financial statements. The guidance is effective for public business entities for fiscal years beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is assessing ASU 2024-03 and its impact on its consolidated financial statements and accompanying notes.
Recently Adopted Accounting Standards
ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. In March 2020, the FASB issued this pronouncement and has issued subsequent amendments thereto, which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference London Interbank Offered Rate ("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 was effective for all entities as of March 12, 2020 through December 31, 2022. In December 2022, the FASB issued an update to Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting with Accounting Standards Update 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which updated the effective date to be March 12, 2020 through December 31, 2024. The Company implemented a transition plan to identify and modify its loans and other financial instruments, including certain indebtedness, with attributes that are either directly or indirectly influenced by LIBOR. The Company has moved all of its LIBOR-based loans to its preferred replacement index, a Secured Overnight Financing Rate ("SOFR") based index as of September 30, 2024.
ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, in June 2022, the FASB issued this pronouncement which clarifies the guidance in ASC 820 when measuring the fair value of equity securities subject to contractual restrictions that prohibit the sale of an equity security. This update also requires specific disclosures related to these types of securities. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023. The adoption of ASU 2022-03 did not have a significant impact on our financial statements.
Other than those previously discussed, there were no other recently issued accounting pronouncements that are expected to materially impact the Company.
11
Note 2. Loans and Allowance for Credit Losses
Loans — Loans are reported at their outstanding principal balances less unearned income, the allowance for credit losses and any deferred fees or costs on originated loans. Interest income on loans is accrued based on the principal balance outstanding. Loan origination fees, net of certain loan origination costs, are deferred and recognized as an adjustment to the related loan yield using a method which approximates the interest method.
For financial reporting purposes, the Company classifies its loan portfolio based on the underlying collateral utilized to secure each loan. This classification is consistent with that utilized in the Quarterly Report of Condition and Income filed by the Bank with the Federal Deposit Insurance Corporation (“FDIC”).
The following schedule details the loans of the Company at September 30, 2024 and December 31, 2023:
|
|
(In Thousands) |
|
|||||
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
|
|
|
|
|
|
|
||
Residential 1-4 family real estate |
|
$ |
|
|
$ |
|
||
Commercial and multi-family real estate |
|
|
|
|
|
|
||
Construction, land development and farmland |
|
|
|
|
|
|
||
Commercial, industrial and agricultural |
|
|
|
|
|
|
||
1-4 family equity lines of credit |
|
|
|
|
|
|
||
Consumer and other |
|
|
|
|
|
|
||
Total loans before net deferred loan fees |
|
|
|
|
|
|
||
Net deferred loan fees |
|
|
( |
) |
|
|
( |
) |
Total loans |
|
|
|
|
|
|
||
Less: Allowance for credit losses |
|
|
( |
) |
|
|
( |
) |
Net loans |
|
|
|
|
$ |
|
||
Risk characteristics relevant to each portfolio segment are as follows:
Construction, land development and farmland: Loans for non-owner-occupied real estate construction or land development are generally repaid through cash flow related to the operation, sale or refinance of the property. The Company also finances construction loans for owner-occupied properties. A portion of the Company’s construction and land portfolio segment is comprised of loans secured by residential product types (residential land and single-family construction). Construction and land development loans are underwritten utilizing independent appraisal reviews, sensitivity analysis of absorption and lease rates, market sales activity, and financial analysis of the developers and property owners. Construction loans generally rely on estimates of project costs and the anticipated value of the completed project, while the Company strives to ensure the accuracy of these estimates, it is possible for these estimates to be inaccurate. Construction loans often involve the disbursement of substantial funds with repayments substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, the value of the completed project, general economic conditions and the availability of long-term financing.
Residential 1-4 family real estate: Residential real estate loans represent loans to consumers or investors to finance a residence. These loans are typically financed on
1-4 family equity lines of credit: This loan segment includes open-end home equity loans that are secured by a first or second mortgage on the borrower’s residence. This allows customers to borrow against the equity in their home utilizing a revolving line of credit. These loans are underwritten and approved based on a number of credit quality criteria including limits on maximum LTV ratios, minimum credit scores, and maximum debt to income ratios. Real estate market values as of the time the loan is made directly affect the amount of credit extended and, in addition, changes in these residential property values impact the depth of potential losses in this
12
portfolio segment. Because of the revolving nature of these loans, as well as the fact that many represent second mortgages, this portfolio segment can contain more risk than the amortizing 1-4 family residential real estate loans.
Commercial and multi-family real estate: Multi-family and commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans, in addition to those of real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate.
Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type. This diversity helps reduce the Company’s exposure to adverse economic events that affect any single market or industry. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. The Company also utilizes third-party experts to provide insight and guidance about economic conditions and trends affecting the market areas it serves. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied commercial real estate loans. Non-owner occupied commercial real estate loans are loans secured by multifamily and commercial properties where the primary source of repayment is derived from rental income associated with the property (that is, loans for which 50 percent or more of the source of repayment comes from third party, nonaffiliated, rental income) or the proceeds of the sale, refinancing, or permanent financing of the property. These loans are made to finance income-producing properties such as apartment buildings, office and industrial buildings, and retail properties. Owner-occupied commercial real estate loans are loans where the primary source of repayment is the cash flow from the ongoing operations and business activities conducted by the party, or affiliate of the party, who owns the property.
Commercial, industrial, and agricultural: The commercial, industrial, and agricultural loan portfolio segment includes commercial, industrial, and agricultural loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases or other expansion projects. Collection risk in this portfolio is driven by the creditworthiness of underlying borrowers, particularly cash flow from customers’ business operations. Commercial, industrial, and agricultural loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower, if any. The cash flows of borrowers, however, may not be as expected and any collateral securing these loans may fluctuate in value. Most commercial, industrial, and agricultural loans are secured by the assets being financed or other business assets such as accounts receivable, inventory, crops, or livestock and usually incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.
Consumer: The consumer loan portfolio segment includes non-real estate secured direct loans to consumers for household, family, and other personal expenditures. Consumer loans may be secured or unsecured and are usually structured with short or medium term maturities. These loans are underwritten and approved based on a number of consumer credit quality criteria including limits on maximum LTV ratios on secured consumer loans, minimum credit scores, and maximum debt to income ratios. Many traditional forms of consumer installment credit have standard monthly payments and fixed repayment schedules of to
Allowance For Credit Losses ("ACL") - Loans. The allowance for credit losses on loans is a contra-asset valuation account, calculated in accordance with Accounting Standards Codification ("ASC") Topic 326 ("ASC 326") Financial Instruments-Credit Losses, that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. The amount of the allowance represents management's best estimate of current expected credit losses on loans considering available information from internal and external sources, relevant to assessing collectability over the loans' contractual terms, adjusted for expected prepayments when appropriate. Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses, adjustments to historical loss information may be made for differences in current portfolio-specific risk characteristics, environmental conditions or other relevant factors. The allowance for credit losses is measured on a collective basis for portfolios of loans when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Expected credit losses for collateral dependent loans are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.
The Company’s discounted cash flow methodology incorporates a probability of default and loss given default model, as well as expectations of future economic conditions, using reasonable and supportable forecasts. Together, the probability of default and loss given default model with the use of reasonable and supportable forecasts generate estimates for cash flows expected and not expected to be collected over the estimated life of a loan. Estimates of future expected cash flows ultimately reflect assumptions made concerning net credit losses over the life of a loan. The use of reasonable and supportable forecasts requires significant judgment. Management leverages economic projections from reputable and independent third parties to inform and provide its reasonable and supportable
13
economic forecasts. The Company’s model reverts to a straight line basis for purposes of estimating cash flows beyond a period deemed reasonable and supportable. The Company forecasts probability of default and loss given default based on economic forecast scenarios over an eight quarter time period before reverting to a straight line basis for a four quarter time period. The duration of the forecast horizon, the period over which forecasts revert to a straight line basis, the economic forecasts that management utilizes, as well as additional internal and external indicators of economic forecasts that management considers, may change over time depending on the nature and composition of our loan portfolio. Changes in economic forecasts, in conjunction with changes in loan specific attributes, impact a loan’s probability of default and loss given default, which can drive changes in the determination of the ACL. Expectations of future cash flows are discounted at the loan’s effective interest rate. The resulting ACL represents the amount by which a loan’s amortized cost exceeds the net present value of a loan’s discounted cash flows expected to be collected. The ACL is recorded through a charge to provision for credit losses and is reduced by charge-offs, net of recoveries on loans previously charged-off. It is the Company’s policy to charge-off loan balances at the time they have been deemed uncollectible.
For segments where the discounted cash flow methodology is not used, a remaining life methodology is utilized. The remaining life method uses an average annual charge-off rate applied to the contractual term, further adjusted for estimated prepayments to determine the unadjusted historical charge-off rate for the remaining balance of assets.
The estimated credit losses for all loan segments are adjusted for changes in qualitative factors not inherently considered in the quantitative analyses. The qualitative categories and the measurements used to quantify the risks within each of these categories are subjectively selected by management. The data for each measurement may be obtained from internal or external sources. The current period measurements are evaluated and assigned a factor commensurate with the current level of risk relative to past measurements over time. The resulting qualitative adjustments are applied to the relevant collectively evaluated loan portfolios. These adjustments are based upon the following:
The qualitative allowance allocation, as determined by the processes noted above, is increased or decreased for each loan segment based on the assessment of these various qualitative factors.
Loans that do not share similar risk characteristics with the collectively evaluated pools are evaluated on an individual basis and are excluded from the collectively evaluated pools. Individual evaluations are generally performed for loans greater than $500,000 which have experienced significant credit deterioration. Such loans are evaluated for credit losses based on the fair value of collateral. When management determines that foreclosure is probable, expected credit losses are based on the fair value of the collateral, less selling costs. For loans for which foreclosure is not probable, but for which repayment is expected to be provided substantially through the operation or sale of the collateral, the Company has elected the practical expedient under ASC 326 to estimate expected credit losses based on the fair value of collateral, with selling costs considered in the event sale of the collateral is expected.
In assessing the adequacy of the allowance for credit losses, the Company considers the results of the Company's ongoing independent loan review process. The Company undertakes this process both to ascertain those loans in the portfolio with elevated credit risk and to assist in its overall evaluation of the risk characteristics of the entire loan portfolio. Its loan review process includes the judgment of management, independent internal loan reviewers and reviews that may have been conducted by third-party reviewers including regulatory examiners. The Company incorporates relevant loan review results in calculating the allowance for credit losses.
In accordance with Current Expected Credit Losses ("CECL"), losses are estimated over the remaining contractual terms of loans, adjusted for prepayments and curtailment. The contractual term excludes expected extensions, renewals and modifications.
Credit losses are estimated on the amortized cost basis of loans, which includes the principal balance outstanding and deferred loan fees and costs.
14
While management utilizes its best judgment and information available, the ultimate appropriateness of the allowance is dependent upon a variety of factors beyond our control, including the performance of our loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications.
Loans are charged off when management believes that the full collectability of the loan is unlikely. As such, a loan may be partially charged-off after a “confirming event” has occurred which serves to validate that full repayment pursuant to the terms of the loan is unlikely.
Transactions in the allowance for credit losses for the nine months ended September 30, 2024 and 2023 are summarized as follows:
|
|
(In Thousands) |
|
|||||||||||||||||||||||||
|
|
Residential |
|
|
Commercial |
|
|
Construction, |
|
|
Commercial, |
|
|
1-4 family |
|
|
Consumer |
|
|
Total |
|
|||||||
September 30, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Allowance for credit losses - loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Beginning balance January 1, |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Provision for credit losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Charge-offs |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
||||
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Ending balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|||||||
|
|
(In Thousands) |
|
|||||||||||||||||||||||||
|
|
Residential |
|
|
Commercial |
|
|
Construction, |
|
|
Commercial, |
|
|
1-4 family |
|
|
Consumer |
|
|
Total |
|
|||||||
September 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Allowance for credit losses - loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Beginning balance January 1, |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Provision |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Charge-offs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|||||
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Ending balance |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Transactions in the allowance for credit losses for the three months ended September 30, 2024 and 2023 are summarized as follows:
|
|
(In Thousands) |
|
|||||||||||||||||||||||||
|
|
Residential |
|
|
Commercial |
|
|
Construction, |
|
|
Commercial, |
|
|
1-4 family |
|
|
Consumer |
|
|
Total |
|
|||||||
September 30, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Allowance for credit losses - loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Beginning balance July 1, |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Provision for credit losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
||||||
Charge-offs |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
||||
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Ending balance |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
15
|
|
(In Thousands) |
|
|||||||||||||||||||||||||
|
|
Residential |
|
|
Commercial |
|
|
Construction, |
|
|
Commercial, |
|
|
1-4 family |
|
|
Consumer |
|
|
Total |
|
|||||||
September 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Allowance for credit losses - loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Beginning balance July 1, |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Provision |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||||
Charge-offs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|||||
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Ending balance |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
The following table presents the amortized cost basis of collateral dependent loans at September 30, 2024 and December 31, 2023 which are individually evaluated to determine expected credit losses:
|
|
In Thousands |
|
|||||||||
|
|
Real Estate |
|
|
Other |
|
|
Total |
|
|||
September 30, 2024 |
|
|
|
|
|
|
|
|
|
|||
Residential 1-4 family real estate |
|
$ |
|
|
|
|
|
|
|
|||
Commercial and multi-family real estate |
|
|
|
|
|
|
|
|
|
|||
Construction, land development and farmland |
|
|
|
|
|
|
|
|
|
|||
Commercial, industrial and agricultural |
|
|
|
|
|
|
|
|
|
|||
1-4 family equity lines of credit |
|
|
|
|
|
|
|
|
|
|||
Consumer and other |
|
|
|
|
|
|
|
|
|
|||
|
|
$ |
|
|
|
|
|
|
|
|||
|
|
In Thousands |
|
|||||||||
|
|
Real Estate |
|
|
Other |
|
|
Total |
|
|||
December 31, 2023 |
|
|
|
|
|
|
|
|
|
|||
Residential 1-4 family real estate |
|
$ |
|
|
|
|
|
|
|
|||
Commercial and multi-family real estate |
|
|
|
|
|
|
|
|
|
|||
Construction, land development and farmland |
|
|
|
|
|
|
|
|
|
|||
Commercial, industrial and agricultural |
|
|
|
|
|
|
|
|
|
|||
1-4 family equity lines of credit |
|
|
|
|
|
|
|
|
|
|||
Consumer and other |
|
|
|
|
|
|
|
|
|
|||
|
|
$ |
|
|
|
|
|
|
|
|||
Loans are placed on nonaccrual status when there is a significant deterioration in the financial condition of the borrower, which often is determined when the principal or interest on the loan is 90 days or more past due, unless the loan is both well-secured and in the process of collection. Generally, all interest accrued but not collected for loans that are placed on nonaccrual status, is reversed against current income. Interest income is subsequently recognized only to the extent cash payments are received while the loan is classified as nonaccrual, but interest income recognition is reviewed on a case-by-case basis. A nonaccrual loan is returned to accruing status once the loan has been brought current and collection is reasonably assured or the loan has been “well-secured” through other techniques. Past due status is determined based on the contractual due date per the underlying loan agreement.
16
The following tables present the Company’s nonaccrual loans and past due loans as of September 30, 2024 and December 31, 2023.
Loans on Nonaccrual Status
|
|
In Thousands |
|
|||||
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2024 |
|
|
2023 |
|
||
Residential 1-4 family real estate |
|
$ |
|
|
$ |
|
||
Commercial and multi-family real estate |
|
|
|
|
|
|
||
Construction, land development and farmland |
|
|
|
|
|
|
||
Commercial, industrial and agricultural |
|
|
|
|
|
|
||
1-4 family equity lines of credit |
|
|
|
|
|
|
||
Consumer and other |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
Past Due Loans
|
|
(In thousands) |
|
|||||||||||||||||||||||||
|
|
30-59 Days |
|
|
60-89 Days |
|
|
Non Accrual |
|
|
Total Non |
|
|
Current |
|
|
Total Loans |
|
|
Recorded |
|
|||||||
September 30, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Residential 1-4 family real estate |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|||||||
Commercial and multi-family real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Construction, land development and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Commercial, industrial and agricultural |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
1-4 family equity lines of credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Consumer and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|||||||
December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Residential 1-4 family real estate |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|||||||
Commercial and multi-family real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Construction, land development and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Commercial, industrial and agricultural |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
1-4 family equity lines of credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Consumer and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|||||||
Loan Modifications to Borrowers Experiencing Financial Difficulty
Effective January 1, 2023, the Company adopted ASU 2022-02 which eliminated the accounting guidance for troubled debt restructurings ("TDRs") and requires disclosures for certain loan modifications when a borrower is experiencing financial difficulty.
Occasionally, the Company modifies loans to borrowers in financial distress by providing principal forgiveness, term extension, an other-than-insignificant payment delay or interest rate reduction. When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses.
In some cases, the Company provides multiple types of concessions on one loan. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted. For the loans included in the "combination" columns below, multiple types of modifications have been made on the same loan within the current reporting period. The combination is at least two of the following: a term extension, principal forgiveness, an other-than-insignificant payment delay and/or an interest rate reduction.
The following tables present the amortized cost basis of loans at September 30, 2024 and September 30, 2023 that were both experiencing financial difficulty and modified during the nine months ended September 30, 2024 or nine months ended September 30, 2023, by class and type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to each class of financing receivable is also presented below.
17
|
|
(In Thousands) |
|
|||||||||||||||||||||||||
|
|
Principal |
|
|
Payment |
|
|
Term |
|
|
Interest Rate |
|
|
Combination |
|
|
Combination Term Extension and Interest Rate Reduction |
|
|
Total Class of Financing Receivable |
|
|||||||
Nine Months Ended September 30, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Residential 1-4 family real estate |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
% |
|||||||
Commercial and multi-family real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|||||||
Construction, land development and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|||||||
Commercial, industrial and agricultural |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|||||||
1-4 family equity lines of credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|||||||
Consumer and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
% |
|||||||
As of September 30, 2024, the Company has not committed to lend additional amounts to the borrowers included in the previous table.
|
|
(In Thousands) |
|
|||||||||||||||||||||||||
|
|
Principal |
|
|
Payment |
|
|
Term |
|
|
Interest Rate |
|
|
Combination |
|
|
Combination Term Extension and Interest Rate Reduction |
|
|
Total Class of Financing Receivable |
|
|||||||
Nine Months Ended September 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Residential 1-4 family real estate |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
% |
|||||||
Commercial and multi-family real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|||||||
Construction, land development and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|||||||
Commercial, industrial and agricultural |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|||||||
1-4 family equity lines of credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|||||||
Consumer and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
% |
|||||||
As of September 30, 2023, the Company had not committed to lend additional amounts to the borrowers included in the previous table.
The following tables present the amortized cost basis of loans at September 30, 2024 and September 30, 2023 that were both experiencing financial difficulty and modified during the three months ended September 30, 2024 or three months ended September 30, 2023, by class and type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to each class of financing receivable is also presented below.
|
|
(In Thousands) |
|
|||||||||||||||||||||||||
|
|
Principal |
|
|
Payment |
|
|
Term |
|
|
Interest Rate |
|
|
Combination |
|
|
Combination Term Extension and Interest Rate Reduction |
|
|
Total Class of Financing Receivable |
|
|||||||
Three Months Ended September 30, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Residential 1-4 family real estate |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
% |
|||||||
Commercial and multi-family real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|||||||
Construction, land development and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|||||||
Commercial, industrial and agricultural |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|||||||
1-4 family equity lines of credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|||||||
Consumer and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
% |
|||||||
18
|
|
(In Thousands) |
|
|||||||||||||||||||||||||
|
|
Principal |
|
|
Payment |
|
|
Term |
|
|
Interest Rate |
|
|
Combination |
|
|
Combination Term Extension and Interest Rate Reduction |
|
|
Total Class of Financing Receivable |
|
|||||||
Three Months Ended September 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Residential 1-4 family real estate |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
% |
|||||||
Commercial and multi-family real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|||||||
Construction, land development and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|||||||
Commercial, industrial and agricultural |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|||||||
1-4 family equity lines of credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|||||||
Consumer and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
% |
|||||||
The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts.
The following table presents the performance of such loans that have been modified within the last twelve months as of September 30, 2024:
|
|
In Thousands |
|
|||||||||||||
|
|
30-59 Days Past Due |
|
|
60-89 Days Past Due |
|
|
Greater Than 89 Days Past Due |
|
|
Total Past Due |
|
||||
September 30, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Residential 1-4 family real estate |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Commercial and multi-family real estate |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Construction, land development and |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial, industrial and agricultural |
|
|
|
|
|
|
|
|
|
|
|
|
||||
1-4 family equity lines of credit |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consumer and other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
As evidenced above,
The following table presents the performance of such loans that have been modified for the nine months ended September 30, 2023:
|
|
In Thousands |
|
|||||||||||||
|
|
30-59 Days Past Due |
|
|
60-89 Days Past Due |
|
|
Greater Than 89 Days Past Due |
|
|
Total Past Due |
|
||||
September 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Residential 1-4 family real estate |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Commercial and multi-family real estate |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Construction, land development and |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial, industrial and agricultural |
|
|
|
|
|
|
|
|
|
|
|
|
||||
1-4 family equity lines of credit |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consumer and other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
19
As evidenced above,
The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the nine months ended September 30, 2024 and 2023 (dollars in thousands):
|
|
Nine Months Ended September 30, 2024 |
|
|
Nine Months Ended September 30, 2023 |
|
||||||||||||||||||
|
|
Principal |
|
|
Weighted-Average |
|
|
Weighted-Average Months of Term Extension |
|
|
Principal |
|
|
Weighted-Average |
|
|
Weighted-Average Months of Term Extension |
|
||||||
Residential 1-4 family real estate |
|
$ |
|
|
|
% |
|
|
|
|
$ |
|
|
|
% |
|
$ |
— |
|
|||||
Commercial and multi-family real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|||||
Construction, land development and farmland |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
||||
Commercial, industrial and agricultural |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|||||
1-4 family equity lines of credit |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
||||
Consumer and other |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
||||
Total |
|
$ |
|
|
|
% |
|
|
|
|
$ |
|
|
|
% |
|
|
|
||||||
The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the three months ended September 30, 2024 and 2023 (dollars in thousands):
|
|
Three Months Ended September 30, 2024 |
|
|
Three Months Ended September 30, 2023 |
|
||||||||||||||||||
|
|
Principal |
|
|
Weighted-Average |
|
|
Weighted-Average Months of Term Extension |
|
|
Principal |
|
|
Weighted-Average |
|
|
Weighted-Average Months of Term Extension |
|
||||||
Residential 1-4 family real estate |
|
$ |
|
|
|
% |
|
|
— |
|
|
$ |
|
|
|
% |
|
|
— |
|
||||
Commercial and multi-family real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|||||
Construction, land development and farmland |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
||||
Commercial, industrial and agricultural |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
||||
1-4 family equity lines of credit |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
||||
Consumer and other |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
||||
Total |
|
$ |
|
|
|
% |
|
|
|
|
$ |
|
|
|
% |
|
|
— |
|
|||||
There were no loan modifications with financial effect during the three months ended September 30, 2023.
20
The following table presents the amortized cost basis of loans that had a payment default during the three and nine months ended September 30, 2024 and were modified in the twelve months prior to that default to borrowers experiencing financial difficulty (dollars in thousands):
|
|
Three Months Ended September 30, 2024 |
|
|
Nine Months Ended September 30, 2024 |
|
||||||||||||||||||||||||||
|
|
Principal Forgiveness |
|
|
Payment Delay |
|
|
Term Extension |
|
|
Interest Rate Reduction |
|
|
Principal Forgiveness |
|
|
Payment Delay |
|
|
Term Extension |
|
|
Interest Rate Reduction |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Residential 1-4 family real estate |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Commercial and multi-family real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Construction, land development and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Commercial, industrial and agricultural |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
1-4 family equity lines of credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Consumer and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
There were
The following table presents the amortized cost basis of loans that had a payment default during the three and nine months ended September 30, 2023 and were modified in the nine months prior to that default to borrowers experiencing financial difficulty (dollars in thousands):
|
|
Three Months Ended September 30, 2023 |
|
|
Nine Months Ended September 30, 2023 |
|
||||||||||||||||||||||||||
|
|
Principal Forgiveness |
|
|
Payment Delay |
|
|
Term Extension |
|
|
Interest Rate Reduction |
|
|
Principal Forgiveness |
|
|
Payment Delay |
|
|
Term Extension |
|
|
Interest Rate Reduction |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Residential 1-4 family real estate |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Commercial and multi-family real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Construction, land development and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Commercial, industrial and agricultural |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
1-4 family equity lines of credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Consumer and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
There were
Upon the Company's determination that a modified loan (or a portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is charged off. Therefore, the amortized costs basis of the loan is reduced by the amount deemed uncollectible and the allowance for credit losses is adjusted by the same amount.
As of September 30, 2024 there were $
21
Potential problem loans, which include nonperforming loans, amounted to approximately $
The following summary presents the Bank's loan balances by primary loan classification and the amount classified within each risk rating category. Pass rated loans include all credits other than those included in special mention, substandard and doubtful which are defined as follows:
22
The table below presents loan balances classified within each risk rating category by primary loan type and based on year of origination as of September 30, 2024:
|
|
In Thousands |
|
|||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
Prior |
|
|
Revolving Loans |
|
|
Total |
|
||||||||
September 30, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Residential 1-4 family real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total Residential 1-4 family real estate |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Residential 1-4 family real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Current-period gross charge-offs |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Commercial and multi-family real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total Commercial and multi-family real |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Commercial and multi-family real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Current-period gross charge-offs |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Construction, land development and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total Construction, land development |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Construction, land development and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Current-period gross charge-offs |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Commercial, industrial and agricultural |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total Commercial, industrial and |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Commercial, industrial and agricultural: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Current-period gross charge-offs |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
1-4 family equity lines of credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total 1-4 family equity lines of credit |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
1-4 family equity lines of credit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Current-period gross charge-offs |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Consumer and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total Consumer and other |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Consumer and other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Current-period gross charge-offs |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
The table below presents loan balances classified within each risk rating category based on year of origination as of September 30, 2024:
|
|
In Thousands |
|
|||||||||||||||||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
Prior |
|
|
Revolving Loans |
|
|
Total |
|
||||||||
September 30, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
23
The table below presents loan balances classified within each risk rating category by primary loan type and based on year of origination as of December 31, 2023:
|
|
In Thousands |
|
|||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving |
|
|
|
|
||||||||
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|
Prior |
|
|
Loans |
|
|
Total |
|
||||||||
December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Residential 1-4 family real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total Residential 1-4 family real estate |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Residential 1-4 family real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Current-period gross charge-offs |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Commercial and multi-family real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total Commercial and multi-family real estate |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Commercial and multi-family real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Current-period gross charge-offs |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Construction, land development and farmland: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total Construction, land development and farmland |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Construction, land development and farmland: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Current-period gross charge-offs |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Commercial, industrial and agricultural: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total Commercial, industrial and agricultural |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Commercial, industrial and agricultural: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Current-period gross charge-offs |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
1-4 family equity lines of credit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total 1-4 family equity lines of credit |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
1-4 family equity lines of credit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Current-period gross charge-offs |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Consumer and other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total Consumer and other |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Consumer and other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Current-period gross charge-offs |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
The table below presents loan balances classified within each risk rating category based on year of origination as of December 31, 2023:
|
|
In Thousands |
|
|||||||||||||||||||||||||||||
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|
Prior |
|
|
Revolving Loans |
|
|
Total |
|
||||||||
December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
24
Note 3. Debt Securities
Debt securities have been classified in the consolidated balance sheet according to management’s intent.
|
|
September 30, 2024 |
|
|||||||||||||
|
|
Securities Available-For-Sale |
|
|||||||||||||
|
|
In Thousands |
|
|||||||||||||
|
|
Amortized |
|
|
Gross |
|
|
Gross |
|
|
Estimated |
|
||||
U.S. Treasury and other U.S. government |
|
$ |
|
|
|
|
|
|
|
|
|
|
||||
U.S. Government-sponsored enterprises |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Asset-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Obligations of states and political |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
|
|
|
|
|
|
|
|
|
|
||||
|
|
December 31, 2023 |
|
|||||||||||||
|
|
Securities Available-For-Sale |
|
|||||||||||||
|
|
In Thousands |
|
|||||||||||||
|
|
Amortized |
|
|
Gross |
|
|
Gross |
|
|
Estimated |
|
||||
U.S. Treasury and other U.S. government |
|
$ |
|
|
|
|
|
|
|
|
|
|
||||
U.S. Government-sponsored enterprises |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Asset-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Obligations of states and political |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
|
|
|
|
|
|
|
|
|
|
||||
As of September 30, 2024 and December 31, 2023, there was
Included in mortgage-backed securities are collateralized mortgage obligations totaling $
Securities carried on the balance sheet of approximately $
At September 30, 2024, there were
25
|
|
Available-For-Sale |
|
|||||
|
|
In Thousands |
|
|||||
|
|
Amortized |
|
|
Estimated |
|
||
Due in one year or less |
|
$ |
|
|
$ |
|
||
Due after one year through five years |
|
|
|
|
|
|
||
Due after five years through ten years |
|
|
|
|
|
|
||
Due after ten years |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
The following tables show the gross unrealized losses and fair value of the Company’s investments with unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2024 and December 31, 2023.
|
|
In Thousands, Except Number of Securities |
|
|||||||||||||||||||||||||||||
|
|
Less than 12 Months |
|
|
12 Months or More |
|
|
Total |
|
|||||||||||||||||||||||
September 30, 2024 |
|
Fair |
|
|
Unrealized |
|
|
Number of |
|
|
Fair |
|
|
Unrealized |
|
|
Number of |
|
|
Fair |
|
|
Unrealized |
|
||||||||
Available-for-Sale Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
U.S. Treasury and other |
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
||||||||
U.S. Government-sponsored |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Asset-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Obligations of states and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
||||||||
|
|
In Thousands, Except Number of Securities |
|
|||||||||||||||||||||||||||||
|
|
Less than 12 Months |
|
|
12 Months or More |
|
|
Total |
|
|||||||||||||||||||||||
December 31, 2023 |
|
Fair |
|
|
Unrealized |
|
|
Number of |
|
|
Fair |
|
|
Unrealized |
|
|
Number of |
|
|
Fair |
|
|
Unrealized |
|
||||||||
Available-for-Sale Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
U.S. Treasury and other |
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
||||||||
U.S. Government-sponsored |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Asset-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Obligations of states and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
||||||||
The applicable date for determining when securities are in an unrealized loss position is September 30, 2024 and December 31, 2023. As such, it is possible that a security had a market value less than its amortized cost on other days during the nine months ended September 30, 2024 and the twelve-month period ended December 31, 2023, but is not in the "Investments with an Unrealized Loss of less than 12 months" category above.
As shown in the tables above, at September 30, 2024 and December 31, 2023, the Company had unrealized losses of $
26
or not it intends to sell the security, or more-likely-than-not will be required to sell the security, before recovery of its amortized cost basis which would require a write-down to fair value through net income. Because the Company currently does not intend to sell those securities that have an unrealized loss at September 30, 2024, and it is not more likely than not that the Company will be required to sell the securities before recovery of their amortized cost bases, which may be maturity, the Company has determined that no write-down is necessary. These securities must then be evaluated for credit and non-credit related impairment. Securities with one or more of the following characteristics will be deemed to have only non-credit related impairment and will be excluded from further evaluation from credit impairment: Guaranteed by the U.S. government, insured by the FDIC, a review of market price discount to principal face value, risk weighting under the FDIC’s Simplified Supervisory Formula Approach, and average credit rating. Securities that are not excluded by the aforementioned characteristics are further evaluated for credit deterioration, which would require the recognition of an allowance for credit losses. The unrealized losses associated with securities at September 30, 2024 are driven by changes in interest rates and not due to the credit quality of the securities, and accordingly,
Mortgage-Backed Securities
At September 30, 2024, approximately
The Company's mortgage-backed securities portfolio includes non-agency collateralized mortgage obligations with a fair value of $
Obligations of States and Political Subdivisions
Unrealized losses on municipal bonds have not been recognized into income because the issuers' bonds are of high credit quality (rated A or higher) or the bonds have been refunded. Management does not intend to sell the securities and it is not more likely than not that management will be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions. The issuers continue to make timely principal and interest payments on the bonds. The fair value is expected to recover as the bonds approach maturity.
Asset-Backed Securities
The Company's asset-backed securities portfolio includes agency and non-agency asset backed and other amortizing debt securities with a fair value of $
Corporate Bonds
The Company's lone corporate debt security with a fair value of $
Note 4. Derivatives
Derivatives Designated as Fair Value Hedges
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, the sources and duration of certain balance sheet assets and liabilities. In the normal course of business, the Company also uses derivative financial instruments to add stability to interest income or expense and to manage its exposure to movements in interest rates. The Company does not use derivatives for trading or speculative purposes and only enters into transactions that have a qualifying hedge relationship. The
27
Company's hedging strategies involving interest rate derivatives that are classified as either cash flow hedges or fair value hedges, depending upon the rate characteristic of the hedged item.
The Company had previously utilized an interest rate swap designated as a fair value hedge to mitigate the effect of changing interest rates on the fair values of fixed rate loans. The hedging strategy on loans converted the fixed interest rates to variable interest rates tied to the applicable reference rate.
During the fourth quarter of 2023 the Company voluntarily terminated the interest rate swap with a notional amount of $
The following table presents the net effects of derivative hedging instruments on the Company's consolidated statements of income for the three and nine months ended September 30, 2024 and 2023. The effects are presented as an increase to income before taxes in the relevant caption of the Company's consolidated statements of income.
|
|
In Thousands |
|
|||||||||||||
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
||||
Location in the Consolidated Statements of Income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest income: |
|
$ |
|
|
|
|
|
$ |
|
|
|
|
||||
Net increase to income before taxes |
|
$ |
|
|
|
|
|
$ |
|
|
|
|
||||
Mortgage Banking Derivatives
Commitments to fund certain mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of mortgage loans to third party investors under the Bank's mandatory delivery program are considered derivatives. It is the Company's practice to enter into forward commitments for the future delivery of residential mortgage loans when interest rate lock commitments are entered into in an effort to economically hedge the effect of changes in interest rates resulting from its commitments to fund the loans. At September 30, 2024 and December 31, 2023, the Company had approximately $
The net gains (losses) relating to free-standing derivative instruments used for risk management is summarized below (in thousands):
|
|
In Thousands |
|
|||||
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
||
Interest rate contracts for customers |
|
$ |
|
|
|
( |
) |
|
Forward contracts related to mortgage loans held for sale |
|
|
|
|
|
( |
) |
|
28
The following table reflects the amount and fair value of mortgage banking derivatives included in the consolidated balance sheet as of September 30, 2024 and December 31, 2023 (in thousands):
|
|
In Thousands |
|
|||||||||||||
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||||||||||
|
|
Notional |
|
|
Fair |
|
|
Notional |
|
|
Fair |
|
||||
Included in other assets (liabilities): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate contracts for customers |
|
$ |
|
|
|
|
|
|
|
|
|
|
||||
Forward contracts related to mortgage loans |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||
Note 5. Mortgage Servicing Rights
The Company sells residential mortgage loans in the secondary market and typically retains the rights to service the loans. Mortgage loans serviced for others are not reported as assets. The principal balances of these loans as of September 30, 2024 and December 31, 2023 are as follows:
|
|
In Thousands |
|
|||||
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
Mortgage loan portfolios serviced for: |
|
|
|
|
|
|
||
FHLMC |
|
$ |
|
|
$ |
|
||
For the nine months ended September 30, 2024 and 2023, the change in carrying value of the Company's mortgage servicing rights accounted for under the amortization method was as follows:
|
|
In Thousands |
|
|||||
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
||
Balance at beginning of period |
|
$ |
|
|
$ |
|
||
Servicing rights retained from loans sold |
|
|
|
|
|
|
||
Amortization |
|
|
( |
) |
|
|
( |
) |
Valuation Allowance Provision |
|
|
|
|
|
|
||
Balance at end of period |
|
$ |
|
|
|
|
||
Fair value, end of period |
|
$ |
|
|
$ |
|
||
The key data and assumptions used in estimating the fair value of the Company's mortgage servicing rights as of September 30, 2024 and December 31, 2023 were as follows:
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
Prepayment speed |
|
|
% |
|
|
% |
||
Weighted-average life (in years) |
|
|
|
|
|
|
||
Weighted-average note rate |
|
|
% |
|
|
% |
||
Weighted-average discount rate |
|
|
% |
|
|
% |
||
29
Note 6. Equity Incentive Plans
In April 2009, the Company’s shareholders approved the Wilson Bank Holding Company 2009 Stock Option Plan (the “2009 Stock Option Plan”). The 2009 Stock Option Plan was effective as of April 14, 2009. Under the 2009 Stock Option Plan, awards could be in the form of options to acquire common stock of the Company. Subject to adjustment as provided by the terms of the 2009 Stock Option Plan, the maximum number of shares of common stock with respect to which awards could be granted under the 2009 Stock Option Plan was
During the second quarter of 2016, the Company’s shareholders approved the Wilson Bank Holding Company 2016 Equity Incentive Plan, which authorizes awards of up to
Stock Options and Stock Appreciation Rights
As of September 30, 2024, the Company had outstanding
The following table summarizes information about stock options and cash-settled SARs activity for the nine months ended September 30, 2024 and 2023:
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
||||||||||
|
|
Shares |
|
|
Weighted Average Exercise Price |
|
|
Shares |
|
|
Weighted Average Exercise Price |
|
||||
Options and SARs outstanding at beginning of period |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Exercised |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Forfeited or expired |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Outstanding at end of period |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Options and SARs exercisable at September 30 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
As of September 30, 2024, there was $
30
Time-based Vesting Restricted Shares and Restricted Share Units
A summary of restricted share awards activity for the nine months ended September 30, 2024 and 2023 is as follows:
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
||||||||||
|
|
Shares |
|
|
Weighted Average Cost |
|
|
Shares |
|
|
Weighted Average Cost |
|
||||
Outstanding at beginning of period |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Vested |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Outstanding at September 30, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
A summary of restricted share unit awards activity for the nine months ended September 30, 2024 and 2023 is as follows:
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
||||||||||
|
|
Shares |
|
|
Weighted Average Cost |
|
|
Shares |
|
|
Weighted Average Cost |
|
||||
Outstanding at beginning of period |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Vested |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Forfeited |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Outstanding at September 30, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
The restricted shares and restricted share units vest over various time periods. As of September 30, 2024, there was $
Performance-Based Vesting Restricted Stock Units ("PSUs")
The Company awards PSUs to officers and employees of the Bank. Under the terms of the awards, the number of units that will be earned and thereafter settled in shares of the Company's common stock will be based on the employee's performance against certain performance metrics over a fixed three-year performance period. Compensation expense for PSUs is estimated each period based on the fair value of the Company's common stock at the grant date and the most probable outcome of the performance condition, adjusted for the passage of time within the performance period of the awards.
A summary of the PSUs activity for the nine months ended September 30, 2024 and 2023 is as follows:
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
||||||||||
|
|
Shares |
|
|
Weighted Average Cost |
|
|
Shares |
|
|
Weighted Average Cost |
|
||||
Outstanding at beginning of period |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Vested |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Outstanding at September 30, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
31
Grant Year |
|
Grant Price |
|
|
Applicable Performance Period |
|
Period in which units to be settled |
|
PSUs Outstanding |
|
||
2023 |
|
$ |
|
|
2023-2025 |
|
2024-2026 |
|
|
|
||
As of September 30, 2024, there was $
Note 7. Regulatory Capital
Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital. Management believes as of September 30, 2024, the Bank and the Company meet all capital adequacy requirements to which they are subject.
Prompt corrective action regulations 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 an institution is classified as adequately capitalized or lower, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is growth and expansion, and capital restoration plans are required. As of September 30, 2024 and December 31, 2023, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution’s category.
The Company’s and the Bank’s actual capital amounts and ratios as of September 30, 2024 and December 31, 2023 are presented in the following tables. The capital conservation buffer of 2.5% is not included in the required minimum ratios of the tables presented below.
|
|
Actual |
|
|
Minimum Capital Adequacy |
|
|
For Classification as Well Capitalized (1) (2) |
|
|||||||||||||||
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
||||||
|
|
(dollars in thousands) |
|
|||||||||||||||||||||
September 30, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total capital to risk weighted assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Consolidated |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||||
Wilson Bank |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Tier 1 capital to risk weighted assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Wilson Bank |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Common equity Tier 1 capital to risk weighted assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
N/A |
|
|
N/A |
|
||||||
Wilson Bank |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Tier 1 capital to average assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
N/A |
|
|
N/A |
|
||||||
Wilson Bank |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
32
|
|
Actual |
|
|
Minimum Capital Adequacy |
|
|
For Classification as Well Capitalized (1) (2) |
|
|||||||||||||||
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
||||||
|
|
(dollars in thousands) |
|
|||||||||||||||||||||
December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total capital to risk weighted assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Consolidated |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||||
Wilson Bank |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Tier 1 capital to risk weighted assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Wilson Bank |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Common equity Tier 1 capital to risk weighted assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
N/A |
|
|
N/A |
|
||||||
Wilson Bank |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Tier 1 capital to average assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
N/A |
|
|
N/A |
|
||||||
Wilson Bank |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
1.
2.
Dividend Restrictions
The Company and the Bank are subject to dividend restrictions set forth by the Tennessee Department of Financial Institutions and federal banking agencies, as applicable. Additional restrictions may be imposed by the Tennessee Department of Financial Institutions and federal banking agencies under the powers granted to them by law.
Note 8. Fair Value Measurements
FASB ASC 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value in U.S. GAAP and expands disclosures about fair value measurements. The definition of fair value focuses on the exit price, i.e., the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, not the entry price (i.e., the price that would be paid to acquire the asset or received to assume the liability at the measurement date). The statement emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, the fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability.
Valuation Hierarchy
FASB ASC 820 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Following is a description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy.
Assets
Securities available-for-sale — Where quoted prices are available for identical securities in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid government securities and certain other financial products. If quoted market prices are not available, then fair values are estimated by using pricing models that use observable inputs or quoted prices of securities with similar characteristics and are classified within Level 2 of the valuation hierarchy. In certain cases where there is limited activity or less transparency around inputs to the valuation and more complex pricing models or discounted cash flows are used, securities are classified within Level 3 of the valuation hierarchy.
33
Collateral dependent loans – Collateral dependent loans are measured at the fair value of the collateral securing the loan less estimated selling costs. The fair value of real estate collateral is determined based on real estate appraisals which are generally based on recent sales of comparable properties which are then adjusted for property specific factors. Non-real estate collateral is valued based on various sources, including third party asset valuations and internally determined values based on cost adjusted for depreciation and other judgmentally determined discount factors. Collateral dependent loans are classified within Level 3 of the valuation hierarchy due to the unobservable inputs used in determining their fair value such as collateral values and the borrower's underlying financial condition.
Other real estate owned — Other real estate owned (“OREO”) represents real estate foreclosed upon by the Company through loan defaults by customers or acquired in lieu of foreclosure. Substantially all of these amounts relate to construction and land development loans, other loans secured by land, and commercial real estate loans for which the Company believes it has adequate collateral. Upon foreclosure, the property is recorded at the lower of cost or fair value, based on appraised value, less selling costs estimated as of the date acquired with any loss recognized as a charge-off through the allowance for credit losses. Additional OREO losses for subsequent valuation downward adjustments are determined on a specific property basis and are included as a component of noninterest expense along with holding costs. Any gains or losses realized at the time of disposal are also reflected in noninterest expense, as applicable. OREO is included in Level 3 of the valuation hierarchy due to the lack of observable market inputs into the determination of fair value. Appraisal values are property-specific and sensitive to the changes in the overall economic environment.
Mortgage loans held-for-sale — Mortgage loans held-for-sale are carried at fair value, and are classified within Level 2 of the valuation hierarchy. The fair value of mortgage loans held-for-sale is determined using quoted prices for similar assets, adjusted for specific attributes of that loan.
Derivative Instruments — The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level 2).
Other investments — Included in other investments are investments recorded at fair value primarily in certain nonpublic investments and funds. The valuation of these nonpublic investments requires management judgment due to the absence of observable quoted market prices, inherent lack of liquidity and the long-term nature of such assets. These investments are valued initially based upon transaction price. The carrying values of other investments are adjusted either upwards or downwards from the transaction price to reflect expected exit values as evidenced by financing and sale transactions with third parties. These investments are included in Level 3 of the valuation hierarchy if the entities and funds are not widely traded and the underlying investments are in privately-held and/or start-up companies for which market values are not readily available.
34
The following tables present the financial instruments carried at fair value as of September 30, 2024 and December 31, 2023, by caption on the consolidated balance sheet and by FASB ASC 820 valuation hierarchy (as described above):
|
|
Assets and Liabilities Measured at Fair Value on a Recurring Basis |
|
|||||||||||||
|
|
(In Thousands) |
|
|||||||||||||
|
|
Total Carrying Value in the Consolidated Balance Sheet |
|
|
Quoted Market Prices in an Active Market (Level 1) |
|
|
Models with Significant Observable Market Parameters (Level 2) |
|
|
Models with Significant Unobservable Market Parameters (Level 3) |
|
||||
September 30, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Investment securities available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Treasury and other U.S. government |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
U.S. Government sponsored enterprises |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Asset-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
||||
State and municipal securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total investment securities available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Mortgage loans held for sale |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative instruments |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other investments |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Investment securities available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Treasury and other U.S. government |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
U.S. Government sponsored enterprises |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Asset-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
||||
State and municipal securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total investment securities available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Mortgage loans held for sale |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative instruments |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other investments |
|
|
|
|
|
|
|
|
|
|
|
|||||
Total assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative instruments |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total liabilities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
35
|
|
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis |
|
|||||||||||||
|
|
(In Thousands) |
|
|||||||||||||
|
|
Total Carrying Value in the Consolidated Balance Sheet |
|
|
Quoted Market Prices in an Active Market (Level 1) |
|
|
Models with Significant Observable Market Parameters (Level 2) |
|
|
Models with Significant Unobservable Market Parameters (Level 3) |
|
||||
September 30, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other real estate owned |
|
$ |
|
|
|
|
|
|
|
|
|
|
||||
Collateral dependent loans (¹) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
|
|
|
|
|
|
|
|
||||
December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other real estate owned |
|
$ |
|
|
|
|
|
|
|
|
|
|
||||
Collateral dependent loans (¹) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
|
|
|
|
|
|
|
|
||||
The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which we have utilized Level 3 inputs to determine fair value at September 30, 2024 and December 31, 2023:
|
|
Valuation |
|
Significant Unobservable Inputs |
|
Weighted Average |
Collateral dependent loans |
|
Appraisal |
|
Estimated costs to sell |
|
|
Other real estate owned |
|
Appraisal |
|
Estimated costs to sell |
|
In the case of its investment securities portfolio, the Company monitors the valuation technique utilized by various pricing agencies to ascertain when transfers between levels have been affected. The nature of the remaining assets and liabilities is such that transfers in and out of any level are expected to be rare. For the nine months ended September 30, 2024, there were
36
The tables below includes a rollforward of the balance sheet amounts for the three and nine months ended September 30, 2024 and 2023 (including the change in fair value) for financial instruments classified by the Company within Level 3 of the valuation hierarchy for assets and liabilities measured at fair value on a recurring basis. When a determination is made to classify a financial instrument within Level 3 of the valuation hierarchy, the determination is based upon the significance of the unobservable factors to the overall fair value measurement. However, since Level 3 financial instruments typically include, in addition to the unobservable or Level 3 components, observable components (that is, components that are actively quoted and can be validated to external sources), the gains and losses in the table below include changes in fair value due in part to observable factors that are part of the valuation methodology (in thousands):
|
|
For the Three Months Ended September 30, |
|
|||||||||||||
|
|
2024 |
|
|
2023 |
|
||||||||||
|
|
Other Assets |
|
|
Other Liabilities |
|
|
Other Assets |
|
|
Other Liabilities |
|
||||
Fair value, July 1 |
|
$ |
|
|
|
|
|
$ |
|
|
|
|
||||
Total realized gains (losses) included in income |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Change in unrealized gains/losses included in other comprehensive income for assets and liabilities still held at September 30 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Purchases, issuances and settlements, net |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Transfers out of Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Fair value, September 30 |
|
$ |
|
|
|
|
|
$ |
|
|
|
|
||||
Total realized gains (losses) included in income related to financial assets and liabilities still on the consolidated balance sheet at September 30 |
|
$ |
|
|
|
|
|
$ |
( |
) |
|
|
|
|||
|
|
For the Nine Months Ended September 30, |
|
|||||||||||||
|
|
2024 |
|
|
2023 |
|
||||||||||
|
|
Other Assets |
|
|
Other Liabilities |
|
|
Other Assets |
|
|
Other Liabilities |
|
||||
Fair value, January 1 |
|
$ |
|
|
|
|
|
$ |
|
|
|
|
||||
Total realized gains included in income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Change in unrealized gains/losses included in other comprehensive income for assets and liabilities still held at September 30 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Purchases, issuances and settlements, net |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Transfers out of Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Fair value, September 30 |
|
$ |
|
|
|
|
|
$ |
|
|
|
|
||||
Total realized gains included in income related to financial assets and liabilities still on the consolidated balance sheet at September 30 |
|
$ |
|
|
|
|
|
$ |
|
|
|
|
||||
The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments that are not measured at fair value. In cases where quoted market prices or observable components are not available, fair values are based on estimates using discounted cash flow models. Those models are significantly affected by the assumptions used, including the discount rates, estimates of future cash flows and borrower creditworthiness. The fair value estimates presented herein are based on pertinent information available to management as of September 30, 2024 and December 31, 2023. Such amounts have not been revalued for purposes of these consolidated financial statements since those dates and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.
Cash and cash equivalents — The carrying amounts of cash and short-term instruments approximate fair values and are classified as Level 1.
Loans — The fair value of our loan portfolio includes a credit risk factor in the determination of the fair value of our loans. This credit risk assumption is intended to approximate the fair value that a market participant would realize in a hypothetical orderly transaction. Our loan portfolio is initially fair valued using a segmented approach. We divide our loan portfolio into the following categories: variable rate loans, collateral dependent loans and all other loans. The results are then adjusted to account for credit risk.
For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values approximate carrying values. Fair values for collateral dependent loans are estimated using discounted cash flow models or based on the fair value of the
37
underlying collateral. For other loans, fair values are estimated using discounted cash flow models, using current market interest rates offered for loans with similar terms to borrowers of similar credit quality. The values derived from the discounted cash flow approach for each of the above portfolios are then further discounted to incorporate credit risk to determine the exit price.
Mortgage servicing rights — The fair value of servicing rights is based on the present value of estimated future cash flows of mortgages sold, stratified by rate and maturity date. Assumptions that are incorporated in the valuation of servicing rights include assumptions about prepayment speeds on mortgages and the cost to service loans.
Deposits and Federal Home Loan Bank borrowings — Fair values for deposits and Federal Home Loan Bank borrowings are estimated using discounted cash flow models, using current market interest rates offered on deposits with similar remaining maturities.
Off-Balance Sheet Instruments — The fair values of the Company’s off-balance-sheet financial instruments are based on fees charged to enter into similar agreements. However, commitments to extend credit do not represent a significant value to the Company until such commitments are funded.
The following table presents the carrying amounts, estimated fair value and placement in the fair valuation hierarchy of the Company’s financial instruments at September 30, 2024 and December 31, 2023. This table excludes financial instruments for which the carrying amount approximates fair value. For short-term financial assets such as cash and cash equivalents, the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization.
|
|
Carrying/ Notional |
|
|
Estimated |
|
|
Quoted Market Prices in an Active Market |
|
|
Models with Significant Observable Market Parameters |
|
|
Models with Significant Unobservable Market Parameters |
|
|||||
(in Thousands) |
|
Amount |
|
|
Fair Value (¹) |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|||||
September 30, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash and cash equivalents |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Loans, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Mortgage servicing rights |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash and cash equivalents |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Loans, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Mortgage servicing rights |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Note 9. Income Taxes
ASC 740, Income Taxes, defines the threshold for recognizing the benefits of tax return positions in the financial statements as “more-likely-than-not” to be sustained by the taxing authority. This section also provides guidance on the derecognition, measurement and classification of income tax uncertainties, along with any related interest and penalties, and includes guidance concerning accounting for income tax uncertainties in interim periods. As of September 30, 2024, the Company had
The Company's effective tax rate for the three and nine months ended September 30, 2024 was
38
As of and for the nine months ended September 30, 2024, the Company has
The Company and the Bank file consolidated U.S. Federal and State of Tennessee income tax returns. The Company is currently open to audit under the statute of limitations by the State of Tennessee for the years ended December 31, and the IRS for the years ended December 31, 2021 through 2023.
Note 10. Earnings Per Share
The computation of basic earnings per share is based on the weighted average number of common shares outstanding during the period, adjusted for stock splits. The computation of diluted earnings per share for the Company begins with the basic earnings per share and includes the effect of common shares contingently issuable from stock options, restricted share units and PSUs.
The following is a summary of components comprising basic and diluted earnings per share (“EPS”) for the three and nine months ended September 30, 2024 and 2023:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
(Dollars in Thousands Except |
|
|
(Dollars in Thousands Except |
|
||||||||||
Basic EPS Computation: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Numerator – Earnings available to common stockholders |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Denominator – Weighted average number of common |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic earnings per common share |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Diluted EPS Computation: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Numerator – Earnings available to common stockholders |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Denominator – Weighted average number of common |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dilutive effect of stock options, RSUs and PSUs |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average diluted common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted earnings per common share |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Note 11. Commitments and Contingent Liabilities
In the normal course of business, the Bank has entered into off-balance sheet financial instruments which include commitments to extend credit (i.e., including unfunded lines of credit) and standby letters of credit. Commitments to extend credit are usually the result of lines of credit granted to existing borrowers under agreements that the total outstanding indebtedness will not exceed a specific amount during the term of the indebtedness. Typical borrowers are commercial concerns that use lines of credit to supplement their treasury management functions, thus their total outstanding indebtedness may fluctuate during any time period based on the seasonality of their business and the resultant timing of their cash flows. Other typical lines of credit are related to home equity loans granted to consumers. Commitments to extend credit generally have fixed expiration dates or other termination clauses and may require payment of a fee.
Standby letters of credit are generally issued on behalf of an applicant (the Bank's customer) to a specifically named beneficiary and are the result of a particular business arrangement that exists between the applicant and the beneficiary. Standby letters of credit have fixed expiration dates and are usually for terms of
The Bank follows the same credit policies and underwriting practices when making these commitments as it does for on-balance sheet instruments. Each customer’s creditworthiness is evaluated on a case-by-case basis, and the amount of collateral obtained,
39
if any, is based on management’s credit evaluation of the customer. Collateral held varies but may include cash and cash equivalents, real estate and improvements, marketable securities, accounts receivable, inventory, equipment, and personal property.
The contractual amounts of these commitments are not reflected in the consolidated financial statements and would only be reflected if drawn upon. Since many of the commitments are expected to expire without being drawn upon, the contractual amounts do not necessarily represent future cash requirements. However, should the commitments be drawn upon and should our customers default on their resulting obligation to us, the Company’s maximum exposure to credit loss, without consideration of collateral, is represented by the contractual amount of those instruments.
A summary of the Company’s total contractual amount for all off-balance sheet commitments at September 30, 2024 is as follows:
Commitments to extend credit |
|
$ |
|
|
Standby letters of credit |
|
$ |
|
Allowance For Credit Losses - Off-Balance-Sheet Credit Exposures. The allowance for credit losses on off-balance-sheet credit exposures is a liability account, calculated in accordance with ASC 326, representing expected credit losses over the contractual period for which we are exposed to credit risk resulting from a contractual obligation to extend credit. No allowance is recognized if we have the unconditional right to cancel the obligation. Off-balance-sheet credit exposures primarily consist of amounts available under outstanding lines of credit and letters of credit detailed in the table above. For the period of exposure, the estimate of expected credit losses considers both the likelihood that funding will occur and the amount expected to be funded over the estimated remaining life of the commitment or other off-balance-sheet exposure. The likelihood and expected amount of funding are based on historical utilization rates. The amount of the allowance represents management's best estimate of expected credit losses on commitments expected to be funded over the contractual life of the commitment.
Estimating credit losses on amounts expected to be funded uses the same methodology as described for loans in Note 2 - Loans and Allowance for Credit Losses as if such commitments were funded.
The following table details activity in the allowance for credit losses on off-balance-sheet credit exposures for the nine months ended September 30, 2024 and 2023.
|
|
(In Thousands) |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Beginning balance, January 1 |
|
$ |
|
|
|
|
||
Credit loss expense (benefit) |
|
|
( |
) |
|
|
( |
) |
Ending balance, September 30 |
|
$ |
|
|
|
|
||
The following table details activity in the allowance for credit losses on off-balance-sheet credit exposures for the three months ended September 30, 2024 and 2023.
|
|
(In Thousands) |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Beginning balance, July 1 |
|
$ |
|
|
|
|
||
Credit loss expense (benefit) |
|
|
( |
) |
|
|
( |
) |
Ending balance, September 30 |
|
$ |
|
|
|
|
||
The Bank originates residential mortgage loans, sells them to third-party purchasers, and may or may not retain the servicing rights. These loans are originated internally and are primarily to borrowers in the Bank’s geographic market footprint. These sales are typically to investors that follow guidelines of conventional government sponsored entities ("GSE") and the Department of Housing and Urban Development/U.S. Department of Veterans Affairs ("HUD/VA"). Generally, loans held for sale are underwritten by the Bank, including HUD/VA loans. In the fourth quarter of 2018, the Bank began to participate in a mandatory delivery program that requires the Bank to deliver a particular volume of mortgage loans by agreed upon dates. A majority of the Bank’s secondary mortgage volume is delivered to the secondary market via mandatory delivery with the remainder done on a best efforts basis. The Bank does not realize any exposure to delivery penalties as the Bank's mortgage department only bids loans post-closing to ensure that
Each purchaser has specific guidelines and criteria for sellers of loans, and the risk of credit loss with regard to the principal amount of the loans sold is generally transferred to the purchasers upon sale. While the loans are sold without recourse, the purchase
40
agreements require the Bank to make certain representations and warranties regarding the existence and sufficiency of file documentation and the absence of fraud by borrowers or other third parties such as appraisers in connection with obtaining the loan. If it is determined that the loans sold were in breach of these representations or warranties or the loan had an early payoff or payment default, the Bank has obligations to either repurchase the loan for the unpaid principal balance and related investor fees or make the purchaser whole for the economic benefits of the loan.
To date, repurchase activity pursuant to the terms of these representations and warranties or due to early payoffs or payment defaults has been insignificant and has resulted in insignificant losses to the Bank.
Based on information currently available, management believes that the Bank does not have significant exposure to contingent losses that may arise relating to the representations and warranties that it has made in connection with its mortgage loan sales or for early payoffs or payment defaults of such mortgage loans.
Various legal claims also arise from time to time in the normal course of business. In the opinion of management, the resolution of these claims outstanding at September 30, 2024 will not have a material impact on the Company’s consolidated financial statements.
Note 12. Subsequent Events
ASC 855, Subsequent Events, establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. Wilson Bank Holding Company evaluated all events or transactions that occurred after September 30, 2024, through the date of the issued financial statements.
On October 28, 2024, the Company's board of directors authorized a share repurchase program for up to $
41
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The purpose of this discussion is to provide insight into the financial condition and results of operations of Wilson Bank Holding Company (the "Company", "our" or "we") and its bank subsidiary, Wilson Bank & Trust (the "Bank") and Encompass Home Lending LLC ("Encompass"), a company offering mortgage banking services that is 51% owned by the Bank and 49% owned by two home builders operating in the Bank's market areas. The results of Encompass, which commenced operations on June 1, 2022, are consolidated in the Company's financial statements included elsewhere in this Quarterly Report on Form 10-Q. This discussion should be read in conjunction with the Company's consolidated financial statements appearing elsewhere in this report. Reference should also be made to the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (the "SEC") on February 28, 2024 (the "2023 Form 10-K") for a more complete discussion of factors that impact the Company's liquidity, capital and results of operations.
Forward-Looking Statements
This Form 10-Q contains certain forward-looking statements within the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act") regarding, among other things, the anticipated financial and operating results of the Company. Investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly release any modifications or revisions to these forward-looking statements to reflect events or circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events.
The Company cautions investors that future financial and operating results may differ materially from those projected in forward-looking statements made by, or on behalf of, the Company. The words “expect,” “intend,” “should,” “may,” “could,” “believe,” “suspect,” “anticipate,” “seek,” “plan,” “estimate” and similar expressions are intended to identify such forward-looking statements, but other statements not based on historical fact may also be considered forward-looking. Such forward-looking statements involve known and unknown risks and uncertainties, including, but not limited to those described in the 2023 Form 10-K, and also include, without limitation, (i) deterioration in the financial condition of borrowers resulting in significant increases in credit losses and provisions for these losses, (ii) deterioration in the real estate market conditions in the Company’s market areas including demand for residential real estate loans as a result of elevated rates on residential real estate mortgage loans, (iii) the impact of increased competition with other financial institutions, including pricing pressures on loans and deposits, and the resulting impact on the Company's results, including as a result of compression to net interest margin, (iv) adverse conditions in local or national economies, including the economy in the Company’s market areas, including as a result of the impact of escalating geopolitical tensions, political uncertainty, inflationary pressures and the elevated rate environment, supply chain disruptions and labor shortages on our customers and on their businesses, (v) the sale of investment securities in a loss position before their value recovers, including as a result of asset liability management strategies or in response to liquidity needs, (vi) fluctuations or differences in interest rates on earning assets and interest bearing liabilities from those that the Company is modeling or anticipating, including as a result of the Bank's inability to maintain deposit rates or defer increases to those rates in an elevated rate environment or lower rates in a falling rate environment, (vii) the ability to grow and retain low-cost core deposits, (viii) significant downturns in the business of one or more large customers, (ix) the inability of the Company to comply with regulatory capital requirements, including those resulting from changes to capital calculation methodologies, required capital maintenance levels, or regulatory requests or directives, (x) changes in state or Federal regulations, policies, or legislation applicable to banks and other financial service providers, including regulatory or legislative developments arising out of current unsettled conditions in the economy, (xi) changes in capital levels and loan underwriting, credit review or loss reserve policies associated with economic conditions, examination conclusions, or regulatory developments, (xii) inadequate allowance for credit losses, (xiii) the effectiveness of the Company’s activities in improving, resolving or liquidating lower quality assets, (xiv) results of regulatory examinations, (xv) the vulnerability of the Company's network and online banking portals, and the systems of parties with whom the Company contracts, to unauthorized access, computer viruses, phishing schemes, social engineering, fraud, spam attacks, ransomware attacks, human error, natural disasters, power loss, and other security breaches, (xvi) the possibility of additional increases to compliance costs or other operational expenses as a result of increased regulatory oversight, (xvii) loss of key personnel, and (xviii) adverse results (including costs, fines, reputational harm and/or other negative effects) from current or future litigation, examinations or other legal and/or regulatory actions. These risks and uncertainties may cause the actual results or performance of the Company to be materially different from any future results or performance expressed or implied by such forward-looking statements. The Company’s future operating results depend on a number of factors which were derived utilizing numerous assumptions that could cause actual results to differ materially from those projected in forward-looking statements.
Application of Critical Accounting Policies and Accounting Estimates
We follow accounting and reporting policies that conform, in all material respects, to accounting principles generally accepted in the United States and to general practices within the financial services industry. The preparation of financial statements in conformity
42
with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. While we base estimates on historical experience, current information, forecasted economic conditions, and other factors deemed to be relevant, actual results could differ from those estimates.
We consider accounting estimates to be critical to reported financial results if (i) the accounting estimate requires management to make assumptions about matters that are highly uncertain and (ii) different estimates that management reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a material impact on our financial statements.
Accounting policies related to the allowance for credit losses on financial instruments including loans and off-balance-sheet credit exposures are considered to be critical as these policies involve considerable subjective judgment and estimation by management. In the case of loans, the allowance for credit losses is a contra-asset valuation account, calculated in accordance with ASC 326, that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. In the case of off-balance-sheet credit exposures, the allowance for credit losses is a liability account, calculated in accordance with ASC 326, reported as a component of accrued interest payable and other liabilities in our consolidated balance sheets. The amount of each allowance account represents management's best estimate of current expected credit losses on these financial instruments considering available information, from internal and external sources, relevant to assessing exposure to credit loss over the contractual term of the instrument. Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses, adjustments to historical loss information may be made for differences in current portfolio-specific risk characteristics, environmental conditions or other relevant factors. While management utilizes its best judgment and information available, the ultimate adequacy of our allowance accounts is dependent upon a variety of factors beyond our control, including the performance of our portfolios, the economy, changes in interest rates and the view of the regulatory authorities toward classification of assets. For additional information regarding critical accounting policies, refer to Note 1 - Summary of Significant Accounting Policies and Note 2 - Loans and Allowance for Credit Losses in the notes to consolidated financial statements contained elsewhere in this Quarterly Report.
Non-GAAP Financial Measures
This Quarterly Report contains certain financial measures that are not measures recognized under U.S. GAAP and, therefore, are considered non-GAAP financial measures. Members of Company management use these non-GAAP financial measures in their analysis of the Company’s performance. Management of the Company believes that these non-GAAP financial measures provide a greater understanding of ongoing operations and enhance comparability of results with prior periods. Management of the Company also believes that investors find these non-GAAP financial measures useful as they assist investors in understanding underlying operating performance and identifying and analyzing ongoing operating trends. However, the non-GAAP financial measures discussed herein should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with U.S. GAAP. Moreover, the manner in which the non-GAAP financial measures discussed herein are calculated may differ from the manner in which measures with similar names are calculated by other companies. You should understand how other companies calculate their financial measures similar to, or with names similar to, the non-GAAP financial measures we have discussed herein when comparing such non-GAAP financial measures.
The non-GAAP measures in this Quarterly Report include “pre-tax pre-provision income,” “pre-tax pre-provision basic earnings per share,” “pre-tax pre-provision annualized return on average shareholders' equity,” and “pre-tax pre-provision annualized return on average assets.” A reconciliation of these measures to the comparable GAAP measures is included below.
43
Selected Financial Information
The executive management and Board of Directors of the Company evaluate key performance indicators (KPIs) on a continuing basis. These KPIs serve as benchmarks of Company performance and are used in making strategic decisions and, in some cases, are utilized for purposes of setting performance targets for our executive officers' incentive-based cash compensation. The following table represents KPIs that management has determined to be important in making decisions for the Bank:
|
|
As of or For the Three Months Ended September 30, |
|
|
|
|
|
As of or For the Nine Months Ended September 30, |
|
|
|
|
||||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 - 2023 Percent Increase (Decrease) |
|
|
2024 |
|
|
2023 |
|
|
2024 - 2023 Percent Increase (Decrease) |
|
||||||
PER SHARE DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Basic earnings per common share (GAAP) |
|
$ |
1.07 |
|
|
$ |
0.99 |
|
|
|
8.08 |
% |
|
$ |
3.53 |
|
|
$ |
3.25 |
|
|
|
8.62 |
% |
Pre-tax pre-provision basic earnings per share (1) |
|
$ |
1.64 |
|
|
$ |
1.35 |
|
|
|
21.48 |
% |
|
$ |
4.81 |
|
|
$ |
4.43 |
|
|
|
8.58 |
% |
Diluted earnings per common share (GAAP) |
|
$ |
1.07 |
|
|
$ |
0.98 |
|
|
|
9.18 |
% |
|
$ |
3.52 |
|
|
$ |
3.25 |
|
|
|
8.31 |
% |
Cash dividends per common share |
|
$ |
1.00 |
|
|
$ |
0.75 |
|
|
|
33.33 |
% |
|
$ |
1.75 |
|
|
$ |
1.50 |
|
|
|
16.67 |
% |
Dividends declared per common share as a percentage of basic |
|
|
93.46 |
% |
|
|
75.76 |
% |
|
|
23.36 |
% |
|
|
49.58 |
% |
|
|
46.15 |
% |
|
|
7.43 |
% |
|
|
As of or For the Three Months Ended September 30, |
|
|
|
|
|
As of or For the Nine Months Ended September 30, |
|
|
|
|
||||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 - 2023 Percent Increase (Decrease) |
|
|
2024 |
|
|
2023 |
|
|
2024 - 2023 Percent Increase (Decrease) |
|
||||||
PERFORMANCE RATIOS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Annualized return on average shareholders' equity (GAAP) (1) |
|
|
10.66 |
% |
|
|
11.65 |
% |
|
|
(8.50 |
)% |
|
|
12.42 |
% |
|
|
12.96 |
% |
|
|
(4.17 |
)% |
Pre-tax pre-provision annualized return on average shareholders' |
|
|
16.26 |
% |
|
|
15.94 |
% |
|
|
2.01 |
% |
|
|
16.91 |
% |
|
|
17.65 |
% |
|
|
(4.19 |
)% |
Annualized return on average assets (GAAP) (3) |
|
|
0.99 |
% |
|
|
1.00 |
% |
|
|
(1.00 |
)% |
|
|
1.12 |
% |
|
|
1.13 |
% |
|
|
(0.88 |
)% |
Pre-tax pre-provision annualized return on average assets (2) |
|
|
1.51 |
% |
|
|
1.36 |
% |
|
|
11.03 |
% |
|
|
1.52 |
% |
|
|
1.54 |
% |
|
|
(1.30 |
)% |
Efficiency ratio (GAAP) (4) |
|
|
59.12 |
% |
|
|
62.02 |
% |
|
|
(4.68 |
)% |
|
|
58.68 |
% |
|
|
58.98 |
% |
|
|
(0.51 |
)% |
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
|
2024 - 2023 Percent Increase (Decrease) |
|
|||
BALANCE SHEET RATIOS: |
|
|
|
|
|
|
|
|
|
|||
Total capital to assets ratio |
|
|
9.21 |
% |
|
|
8.86 |
% |
|
|
3.95 |
% |
Equity to assets ratio (Average equity divided by average total assets) |
|
|
8.99 |
% |
|
|
8.69 |
% |
|
|
3.45 |
% |
Tier 1 capital to average assets |
|
|
10.49 |
% |
|
|
10.60 |
% |
|
|
(1.04 |
)% |
Non-performing asset ratio |
|
|
0.11 |
% |
|
|
0.03 |
% |
|
|
266.67 |
% |
Book value per common share |
|
$ |
40.74 |
|
|
$ |
36.74 |
|
|
|
10.89 |
% |
44
Reconciliation of Non-GAAP Financial Measures
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
||||
Pre-tax pre-provision income: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income attributable to common shareholders |
|
$ |
12,686 |
|
|
$ |
11,486 |
|
|
$ |
41,591 |
|
|
$ |
37,716 |
|
Add: provision for credit losses - loans |
|
|
3,563 |
|
|
|
1,641 |
|
|
|
3,563 |
|
|
|
5,681 |
|
Add: provision benefit for credit |
|
|
(563 |
) |
|
|
(677 |
) |
|
|
(563 |
) |
|
|
(2,975 |
) |
Add: provision for credit |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Add: income tax expense |
|
|
3,665 |
|
|
|
3,266 |
|
|
|
12,042 |
|
|
|
10,954 |
|
Pre-tax pre-provision income |
|
$ |
19,351 |
|
|
$ |
15,716 |
|
|
$ |
56,633 |
|
|
$ |
51,376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Pre-tax pre-provision basic earnings per |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Pre-tax pre-provision income |
|
$ |
19,351 |
|
|
$ |
15,716 |
|
|
$ |
56,633 |
|
|
$ |
51,376 |
|
Weighted average shares |
|
|
11,834,944 |
|
|
|
11,645,953 |
|
|
|
11,785,618 |
|
|
|
11,589,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic earnings per common share (GAAP) |
|
$ |
1.07 |
|
|
$ |
0.99 |
|
|
$ |
3.53 |
|
|
$ |
3.25 |
|
Provision for credit losses - loans |
|
$ |
0.30 |
|
|
$ |
0.14 |
|
|
$ |
0.30 |
|
|
$ |
0.49 |
|
Provision benefit for credit losses on |
|
$ |
(0.05 |
) |
|
$ |
(0.06 |
) |
|
$ |
(0.05 |
) |
|
$ |
(0.26 |
) |
Provision for credit losses - available-for-sale |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Income tax expense |
|
$ |
0.32 |
|
|
$ |
0.28 |
|
|
$ |
1.03 |
|
|
$ |
0.95 |
|
Pre-tax pre-provision basic earnings per |
|
$ |
1.64 |
|
|
$ |
1.35 |
|
|
$ |
4.81 |
|
|
$ |
4.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Pre-tax pre-provision annualized return on |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Pre-tax pre-provision income |
|
$ |
19,351 |
|
|
$ |
15,716 |
|
|
$ |
56,633 |
|
|
$ |
51,376 |
|
Average assets |
|
|
5,110,372 |
|
|
|
4,571,761 |
|
|
|
4,972,332 |
|
|
|
4,463,602 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Annualized return on average assets (GAAP) |
|
|
0.99 |
% |
|
|
1.00 |
% |
|
|
1.12 |
% |
|
|
1.13 |
% |
Provision for credit losses - loans |
|
|
0.28 |
% |
|
|
0.14 |
% |
|
|
0.10 |
% |
|
|
0.17 |
% |
Provision benefit for credit losses on |
|
|
(0.04 |
)% |
|
|
(0.06 |
)% |
|
|
(0.02 |
)% |
|
|
(0.09 |
)% |
Provision for credit losses - available-for-sale |
|
|
— |
% |
|
|
— |
% |
|
|
— |
% |
|
|
— |
% |
Income tax expense |
|
|
0.28 |
% |
|
|
0.28 |
% |
|
|
0.32 |
% |
|
|
0.33 |
% |
Pre-tax pre-provision annualized return on |
|
|
1.51 |
% |
|
|
1.36 |
% |
|
|
1.52 |
% |
|
|
1.54 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Pre-tax pre-provision annualized return on |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Pre-tax pre-provision income |
|
$ |
19,351 |
|
|
$ |
15,716 |
|
|
$ |
56,633 |
|
|
$ |
51,376 |
|
Average total shareholders' equity |
|
|
473,491 |
|
|
|
391,263 |
|
|
|
447,248 |
|
|
|
389,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Annualized return on average shareholders' |
|
|
10.66 |
% |
|
|
11.65 |
% |
|
|
12.42 |
% |
|
|
12.96 |
% |
Provision for credit losses - loans |
|
|
2.99 |
% |
|
|
1.66 |
% |
|
|
1.06 |
% |
|
|
1.95 |
% |
Provision benefit for credit losses on |
|
|
(0.47 |
)% |
|
|
(0.69 |
)% |
|
|
(0.17 |
)% |
|
|
(1.02 |
)% |
Provision for credit losses - available-for-sale |
|
|
— |
% |
|
|
— |
% |
|
|
— |
% |
|
|
— |
% |
Income tax expense |
|
|
3.08 |
% |
|
|
3.32 |
% |
|
|
3.60 |
% |
|
|
3.76 |
% |
Pre-tax pre-provision annualized return on |
|
|
16.26 |
% |
|
|
15.94 |
% |
|
|
16.91 |
% |
|
|
17.65 |
% |
45
Results of Operations
Net earnings of the Company increased $3,875,000, or 10.27%, to $41,591,000 for the nine months ended September 30, 2024, from $37,716,000 in the first nine months of 2023. The increase in net earnings for the first nine months of 2024 compared to the first nine months of 2023 was primarily due to an increase in net interest income and non-interest income, partially offset by increases in non-interest expense and provision for credit losses.
Net earnings of the Company for the three months ended September 30, 2024 were $12,686,000, an increase of $1,200,000, or 10.45%, from $11,486,000 for the three months ended September 30, 2023. The increase in net earnings for the third quarter of 2024 compared to the third quarter of 2023 was primarily due to an increase in net interest income, partially offset by increases in non-interest expense and provision for credit losses, as well as a decrease in non-interest income. The decrease in non-interest income was primarily due to management's decision to strategically restructure the securities portfolio, which resulted in $1,414,000 of net losses from sales of $86,515,000 of available-for-sale securities.
The increase in net interest income for the three and nine months ended September 30, 2024 when compared to the comparable periods in 2023 was due to an increase in average interest earning asset balances and an increase in the average yield earned on earning assets, partially offset by an increase in cost of funds and an increase in average interest bearing deposit balances.
The changes in non-interest income and non-interest expenses are discussed in more detail below in the sections of this report titled, "Non-Interest Income" and "Non-Interest Expense". The changes in provision for credit losses is discussed in more detail below in the section of this report titled "Provision For Credit Losses".
Return on average assets (ROA) and return on average shareholders' equity (ROE) are common benchmarks for bank profitability and are calculated by taking our annualized net earnings for the relevant period and dividing that amount by our average assets and average equity for the relevant periods, respectively. ROA and ROE measure a company’s return on investment in a format that is easily comparable to other financial institutions. ROA is particularly important to the Company as it serves as the basis for certain executive and employee bonuses. The ROA for the three and nine months ended September 30, 2024 was 0.99% and 1.12%, respectively; while the ROA for the three and nine months ended September 30, 2023 was 1.00% and 1.13%, respectively. The ROE for the three and nine months ended September 30, 2024 was 10.66% and 12.42% , respectively; while the ROE for the three and nine months ended September 30, 2023 was 11.65% and 12.96%, respectively. The decrease in ROA and ROE for the three months ended September 30, 2024 was related to the increased provision for credit losses-loans in the third quarter of 2024 and the loss on sale of securities mentioned above. The decrease in ROA and ROE for the nine months ended September 30, 2024 was related to an increase in non-interest expense and the loss on sale of securities mentioned above, partially offset by lower provision for credit losses-loans.
Net Interest Income
The average balances, interest, and average rates of our assets and liabilities for the three and nine months ended September 30, 2024 and 2023 are presented in the following table (dollars in thousands):
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
Net Change Three Months Ended |
|
|||||||||||||||||||||||||||||||
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
September 30, 2024 versus September 30, 2023 |
|
|||||||||||||||||||||||||||||||
|
|
Average Balance |
|
|
Interest Rate |
|
|
Income/ Expense |
|
|
Average Balance |
|
|
Interest Rate |
|
|
Income/ |
|
|
Due to Volume |
|
|
Due to Rate |
|
|
Net Change |
|
|
Percent Change |
|
||||||||||
Loans, net of unearned interest (1) (2) |
|
$ |
3,862,396 |
|
|
|
6.81 |
% |
|
$ |
65,400 |
|
|
$ |
3,470,019 |
|
|
|
6.03 |
% |
|
$ |
52,063 |
|
|
$ |
6,231 |
|
|
$ |
7,106 |
|
|
$ |
13,337 |
|
|
|
|
|
Investment securities—taxable |
|
|
783,321 |
|
|
|
2.79 |
|
|
|
5,493 |
|
|
|
721,506 |
|
|
|
2.36 |
|
|
|
4,300 |
|
|
|
385 |
|
|
|
808 |
|
|
|
1,193 |
|
|
|
|
|
Investment securities—tax exempt |
|
|
53,536 |
|
|
|
2.62 |
|
|
|
352 |
|
|
|
66,586 |
|
|
|
2.35 |
|
|
|
395 |
|
|
|
(250 |
) |
|
|
207 |
|
|
|
(43 |
) |
|
|
|
|
Taxable equivalent adjustment (3) |
|
|
— |
|
|
|
0.70 |
|
|
|
94 |
|
|
|
— |
|
|
|
0.63 |
|
|
|
105 |
|
|
|
(68 |
) |
|
|
57 |
|
|
|
(11 |
) |
|
|
|
|
Total tax-exempt investment securities |
|
|
53,536 |
|
|
|
3.31 |
|
|
|
446 |
|
|
|
66,586 |
|
|
|
2.98 |
|
|
|
500 |
|
|
|
(318 |
) |
|
|
264 |
|
|
|
(54 |
) |
|
|
|
|
Total investment securities |
|
|
836,857 |
|
|
|
2.82 |
|
|
|
5,939 |
|
|
|
788,092 |
|
|
|
2.42 |
|
|
|
4,800 |
|
|
|
67 |
|
|
|
1,072 |
|
|
|
1,139 |
|
|
|
|
|
Loans held for sale |
|
|
2,307 |
|
|
|
8.45 |
|
|
|
49 |
|
|
|
6,194 |
|
|
|
5.06 |
|
|
|
79 |
|
|
|
(218 |
) |
|
|
188 |
|
|
|
(30 |
) |
|
|
|
|
Federal funds sold |
|
|
9,471 |
|
|
|
5.33 |
|
|
|
127 |
|
|
|
9,015 |
|
|
|
5.46 |
|
|
|
124 |
|
|
|
17 |
|
|
|
(14 |
) |
|
|
3 |
|
|
|
|
|
Accounts with depository institutions |
|
|
188,638 |
|
|
|
4.81 |
|
|
|
2,281 |
|
|
|
83,366 |
|
|
|
3.90 |
|
|
|
819 |
|
|
|
1,233 |
|
|
|
229 |
|
|
|
1,462 |
|
|
|
|
|
Restricted equity securities |
|
|
3,876 |
|
|
|
11.50 |
|
|
|
112 |
|
|
|
3,461 |
|
|
|
8.83 |
|
|
|
77 |
|
|
|
10 |
|
|
|
25 |
|
|
|
35 |
|
|
|
|
|
Total earning assets |
|
|
4,903,545 |
|
|
|
6.05 |
|
|
|
73,908 |
|
|
|
4,360,147 |
|
|
|
5.33 |
|
|
|
57,962 |
|
|
|
7,340 |
|
|
|
8,606 |
|
|
|
15,946 |
|
|
|
27.51 |
% |
Cash and due from banks |
|
|
26,701 |
|
|
|
|
|
|
|
|
|
23,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Allowance for credit losses |
|
|
(44,609 |
) |
|
|
|
|
|
|
|
|
(43,263 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Bank premises and equipment |
|
|
62,088 |
|
|
|
|
|
|
|
|
|
62,037 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Other assets |
|
|
162,647 |
|
|
|
|
|
|
|
|
|
168,854 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total assets |
|
$ |
5,110,372 |
|
|
|
|
|
|
|
|
$ |
4,571,761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
46
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
Net Change Three Months Ended |
|
|||||||||||||||||||||||||||||||
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
September 30, 2024 versus September 30, 2023 |
|
|||||||||||||||||||||||||||||||
|
|
Average Balance |
|
|
Interest Rate |
|
|
Income/ Expense |
|
|
Average Balance |
|
|
Interest Rate |
|
|
Income/ Expense |
|
|
Due to Volume |
|
|
Due to Rate |
|
|
Net Change |
|
|
Percent Change |
|
||||||||||
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Negotiable order of withdrawal accounts |
|
$ |
922,162 |
|
|
|
0.91 |
% |
|
$ |
2,100 |
|
|
$ |
962,195 |
|
|
|
0.65 |
% |
|
$ |
1,580 |
|
|
$ |
(422 |
) |
|
$ |
942 |
|
|
$ |
520 |
|
|
|
|
|
Money market demand accounts |
|
|
1,245,965 |
|
|
|
2.87 |
|
|
|
8,985 |
|
|
|
1,062,736 |
|
|
|
2.31 |
|
|
|
6,192 |
|
|
|
1,165 |
|
|
|
1,628 |
|
|
|
2,793 |
|
|
|
|
|
Time deposits |
|
|
1,694,899 |
|
|
|
4.76 |
|
|
|
20,277 |
|
|
|
1,380,133 |
|
|
|
4.21 |
|
|
|
14,629 |
|
|
|
3,580 |
|
|
|
2,068 |
|
|
|
5,648 |
|
|
|
|
|
Other savings |
|
|
327,020 |
|
|
|
1.73 |
|
|
|
1,420 |
|
|
|
317,958 |
|
|
|
1.59 |
|
|
|
1,278 |
|
|
|
36 |
|
|
|
106 |
|
|
|
142 |
|
|
|
|
|
Total interest-bearing deposits |
|
|
4,190,046 |
|
|
|
3.11 |
|
|
|
32,782 |
|
|
|
3,723,022 |
|
|
|
2.52 |
|
|
|
23,679 |
|
|
|
4,359 |
|
|
|
4,744 |
|
|
|
9,103 |
|
|
|
|
|
Finance leases |
|
|
2,229 |
|
|
|
3.03 |
|
|
|
17 |
|
|
|
2,263 |
|
|
|
2.98 |
|
|
|
17 |
|
|
|
(1 |
) |
|
|
1 |
|
|
|
— |
|
|
|
|
|
Fed funds purchased |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
98 |
|
|
|
4.05 |
|
|
|
1 |
|
|
|
— |
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
|
|
Total interest-bearing liabilities |
|
|
4,192,275 |
|
|
|
3.11 |
|
|
|
32,799 |
|
|
|
3,725,383 |
|
|
|
2.52 |
|
|
|
23,697 |
|
|
|
4,358 |
|
|
|
4,744 |
|
|
|
9,102 |
|
|
|
38.41 |
% |
Non-interest bearing deposits |
|
|
404,299 |
|
|
|
|
|
|
|
|
|
406,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Other liabilities |
|
|
40,307 |
|
|
|
|
|
|
|
|
|
48,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Shareholders’ equity |
|
|
473,491 |
|
|
|
|
|
|
|
|
|
391,263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total liabilities and shareholders’ |
|
$ |
5,110,372 |
|
|
|
|
|
|
|
|
$ |
4,571,761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Net interest income, on a tax equivalent basis |
|
|
|
|
|
|
|
$ |
41,109 |
|
|
|
|
|
|
|
|
$ |
34,265 |
|
|
$ |
2,982 |
|
|
$ |
3,862 |
|
|
$ |
6,844 |
|
|
|
19.97 |
% |
||||
Net interest margin (4) |
|
|
|
|
|
3.39 |
% |
|
|
|
|
|
|
|
|
3.18 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Net interest spread (5) |
|
|
|
|
|
2.94 |
% |
|
|
|
|
|
|
|
|
2.81 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Notes:
|
|
Nine Months Ended |
|
|
Nine Months Ended |
|
|
Net Change Nine Months Ended |
|
|||||||||||||||||||||||||||||||
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
September 30, 2024 versus September 30, 2023 |
|
|||||||||||||||||||||||||||||||
|
|
Average Balance |
|
|
Interest Rate |
|
|
Income/ |
|
|
Average Balance |
|
|
Interest Rate |
|
|
Income/ |
|
|
Due to Volume |
|
|
Due to Rate |
|
|
Net Change |
|
|
Percent Change |
|
||||||||||
Loans, net of unearned interest (1) (2) |
|
$ |
3,709,596 |
|
|
|
6.63 |
% |
|
$ |
182,079 |
|
|
$ |
3,341,007 |
|
|
|
5.82 |
% |
|
$ |
143,345 |
|
|
$ |
17,080 |
|
|
$ |
21,654 |
|
|
$ |
38,734 |
|
|
|
|
|
Investment securities—taxable |
|
|
778,701 |
|
|
|
2.78 |
|
|
|
16,215 |
|
|
|
744,008 |
|
|
|
2.37 |
|
|
|
13,179 |
|
|
|
641 |
|
|
|
2,395 |
|
|
|
3,036 |
|
|
|
|
|
Investment securities—tax exempt |
|
|
61,339 |
|
|
|
2.62 |
|
|
|
1,202 |
|
|
|
67,528 |
|
|
|
2.33 |
|
|
|
1,178 |
|
|
|
(155 |
) |
|
|
179 |
|
|
|
24 |
|
|
|
|
|
Taxable equivalent adjustment (3) |
|
|
— |
|
|
|
0.70 |
|
|
|
320 |
|
|
|
— |
|
|
|
0.62 |
|
|
|
313 |
|
|
|
(41 |
) |
|
|
48 |
|
|
|
7 |
|
|
|
|
|
Total tax-exempt investment securities |
|
|
61,339 |
|
|
|
3.31 |
|
|
|
1,522 |
|
|
|
67,528 |
|
|
|
2.95 |
|
|
|
1,491 |
|
|
|
(196 |
) |
|
|
227 |
|
|
|
31 |
|
|
|
|
|
Total investment securities |
|
|
840,040 |
|
|
|
2.82 |
|
|
|
17,737 |
|
|
|
811,536 |
|
|
|
2.42 |
|
|
|
14,670 |
|
|
|
445 |
|
|
|
2,622 |
|
|
|
3,067 |
|
|
|
|
|
Loans held for sale |
|
|
2,840 |
|
|
|
6.82 |
|
|
|
145 |
|
|
|
5,033 |
|
|
|
5.02 |
|
|
|
189 |
|
|
|
(124 |
) |
|
|
80 |
|
|
|
(44 |
) |
|
|
|
|
Federal funds sold |
|
|
9,687 |
|
|
|
5.50 |
|
|
|
399 |
|
|
|
8,557 |
|
|
|
5.14 |
|
|
|
329 |
|
|
|
46 |
|
|
|
24 |
|
|
|
70 |
|
|
|
|
|
Accounts with depository institutions |
|
|
198,464 |
|
|
|
4.97 |
|
|
|
7,390 |
|
|
|
82,437 |
|
|
|
3.78 |
|
|
|
2,331 |
|
|
|
4,132 |
|
|
|
927 |
|
|
|
5,059 |
|
|
|
|
|
Restricted equity securities |
|
|
3,693 |
|
|
|
9.80 |
|
|
|
271 |
|
|
|
3,584 |
|
|
|
8.32 |
|
|
|
223 |
|
|
|
7 |
|
|
|
41 |
|
|
|
48 |
|
|
|
|
|
Total earning assets |
|
|
4,764,320 |
|
|
|
5.89 |
|
|
|
208,021 |
|
|
|
4,252,154 |
|
|
|
5.13 |
|
|
|
161,087 |
|
|
|
21,586 |
|
|
|
25,348 |
|
|
|
46,934 |
|
|
|
29.14 |
% |
Cash and due from banks |
|
|
25,827 |
|
|
|
|
|
|
|
|
|
24,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Allowance for credit losses |
|
|
(44,695 |
) |
|
|
|
|
|
|
|
|
(41,448 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Bank premises and equipment |
|
|
62,183 |
|
|
|
|
|
|
|
|
|
62,032 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Other assets |
|
|
164,697 |
|
|
|
|
|
|
|
|
|
166,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total assets |
|
$ |
4,972,332 |
|
|
|
|
|
|
|
|
$ |
4,463,602 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
47
|
|
Nine Months Ended |
|
|
Nine Months Ended |
|
|
Net Change Nine Months Ended |
|
|||||||||||||||||||||||||||||||
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
September 30, 2024 versus September 30, 2023 |
|
|||||||||||||||||||||||||||||||
|
|
Average Balance |
|
|
Interest Rate |
|
|
Income/ Expense |
|
|
Average Balance |
|
|
Interest Rate |
|
|
Income/ |
|
|
Due to Volume |
|
|
Due to Rate |
|
|
Net Change |
|
|
Percent Change |
|
||||||||||
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Negotiable order of withdrawal accounts |
|
$ |
920,232 |
|
|
|
0.84 |
% |
|
$ |
5,807 |
|
|
$ |
989,655 |
|
|
|
0.57 |
% |
|
$ |
4,229 |
|
|
$ |
(489 |
) |
|
$ |
2,067 |
|
|
$ |
1,578 |
|
|
|
|
|
Money market demand accounts |
|
|
1,213,098 |
|
|
|
2.76 |
|
|
|
25,091 |
|
|
|
1,134,803 |
|
|
|
1.89 |
|
|
|
16,070 |
|
|
|
1,178 |
|
|
|
7,843 |
|
|
|
9,021 |
|
|
|
|
|
Time deposits |
|
|
1,629,581 |
|
|
|
4.72 |
|
|
|
57,526 |
|
|
|
1,185,058 |
|
|
|
3.77 |
|
|
|
33,453 |
|
|
|
14,460 |
|
|
|
9,613 |
|
|
|
24,073 |
|
|
|
|
|
Other savings |
|
|
327,471 |
|
|
|
1.71 |
|
|
|
4,191 |
|
|
|
324,499 |
|
|
|
1.36 |
|
|
|
3,298 |
|
|
|
30 |
|
|
|
863 |
|
|
|
893 |
|
|
|
|
|
Total interest-bearing deposits |
|
|
4,090,382 |
|
|
|
3.02 |
|
|
|
92,615 |
|
|
|
3,634,015 |
|
|
|
2.10 |
|
|
|
57,050 |
|
|
|
15,179 |
|
|
|
20,386 |
|
|
|
35,565 |
|
|
|
|
|
Federal Home Loan Bank advances |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
84 |
|
|
|
3.18 |
|
|
|
2 |
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(2 |
) |
|
|
|
|
Finance leases |
|
|
2,238 |
|
|
|
2.92 |
|
|
|
49 |
|
|
|
2,269 |
|
|
|
3.24 |
|
|
|
55 |
|
|
|
(1 |
) |
|
|
(5 |
) |
|
|
(6 |
) |
|
|
|
|
Fed funds purchased |
|
|
18 |
|
|
|
6.29 |
|
|
|
1 |
|
|
|
724 |
|
|
|
4.43 |
|
|
|
24 |
|
|
|
(35 |
) |
|
|
12 |
|
|
|
(23 |
) |
|
|
|
|
Total interest-bearing liabilities |
|
|
4,092,638 |
|
|
|
3.02 |
|
|
|
92,665 |
|
|
|
3,637,092 |
|
|
|
2.10 |
|
|
|
57,131 |
|
|
|
15,142 |
|
|
|
20,392 |
|
|
|
35,534 |
|
|
|
62.20 |
% |
Non-interest bearing deposits |
|
|
390,054 |
|
|
|
|
|
|
|
|
|
402,033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Other liabilities |
|
|
42,392 |
|
|
|
|
|
|
|
|
|
35,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Shareholders’ equity |
|
|
447,248 |
|
|
|
|
|
|
|
|
|
389,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total liabilities and shareholders’ |
|
$ |
4,972,332 |
|
|
|
|
|
|
|
|
$ |
4,463,602 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Net interest income, on a tax equivalent basis |
|
|
|
|
|
|
|
$ |
115,356 |
|
|
|
|
|
|
|
|
$ |
103,956 |
|
|
$ |
6,444 |
|
|
$ |
4,956 |
|
|
$ |
11,400 |
|
|
|
10.97 |
% |
||||
Net interest margin (4) |
|
|
|
|
|
3.29 |
% |
|
|
|
|
|
|
|
|
3.33 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Net interest spread (5) |
|
|
|
|
|
2.87 |
% |
|
|
|
|
|
|
|
|
3.03 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Notes:
48
The components of our loan yield, a key driver to our net interest margin for the three and nine months ended September 30, 2024 and 2023, were as follows:
|
|
Three Months Ended September 30, |
|
|||||||||||||
|
|
2024 |
|
|
2023 |
|
||||||||||
|
|
Interest Income |
|
|
Average Yield |
|
|
Interest Income |
|
|
Average Yield |
|
||||
Loan yield components: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Contractual interest rates |
|
|
60,956 |
|
|
|
6.28 |
% |
|
|
49,116 |
|
|
|
5.61 |
% |
Origination and other fee income |
|
|
4,444 |
|
|
|
0.46 |
% |
|
|
2,947 |
|
|
|
0.34 |
% |
Loan tax credits |
|
|
679 |
|
|
|
0.07 |
% |
|
|
665 |
|
|
|
0.08 |
% |
Total |
|
$ |
66,079 |
|
|
|
6.81 |
% |
|
$ |
52,728 |
|
|
|
6.03 |
% |
|
|
Nine Months Ended September 30, |
|
|||||||||||||
|
|
2024 |
|
|
2023 |
|
||||||||||
|
|
Interest Income |
|
|
Average Yield |
|
|
Interest Income |
|
|
Average Yield |
|
||||
Loan yield components: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Contractual interest rates |
|
|
170,734 |
|
|
|
6.15 |
% |
|
|
134,477 |
|
|
|
5.39 |
% |
Origination and other fee income |
|
|
11,345 |
|
|
|
0.41 |
% |
|
|
8,868 |
|
|
|
0.35 |
% |
Loan tax credits |
|
|
2,037 |
|
|
|
0.07 |
% |
|
|
1,995 |
|
|
|
0.08 |
% |
Total |
|
$ |
184,116 |
|
|
|
6.63 |
% |
|
$ |
145,340 |
|
|
|
5.82 |
% |
Net interest margin for the nine months ended September 30, 2024 and 2023 was 3.29% and 3.33%, respectively. The decrease in net interest margin for the nine months ended September 30, 2024 compared to the prior year comparable period was primarily due to an increase in the cost of funds, partially offset by an increase in average interest earning asset balances and an increase in the yield earned on such assets. The net interest spread was 2.87% and 3.03% for the nine months ended September 30, 2024 and 2023, respectively, and was 2.94% and 2.81% for the three months ended September 30, 2024 and 2023, respectively. Net interest margin for the three months ended September 30, 2024 and 2023 was 3.39% and 3.18%, respectively. The increase in net interest margin for the third quarter of 2024 was primarily due to the increase in average interest earning asset balances and an increase in the yield earned on loans outpacing the increase in cost of funds as competitive pressures continued to improve in the third quarter of 2024. The yield on loans increased during the three and nine months ended September 30, 2024 when compared to the comparable periods in 2023 due to the higher rates charged on new loans and the repricing of a portion of the Bank's variable rate loan portfolio.
The direction and speed with which short-term interest rates move has an impact on our net interest income. The Federal Reserve influences the general market rates of interest, including the deposit and loan rates offered by many financial institutions. Our loan portfolio is significantly affected by changes in the prime interest rate. The prime interest rate, which is the rate offered on loans to borrowers with strong credit decreased by 50 basis points as the Federal Reserve cut the target rate for the federal funds rate by 50 basis points on September 18, 2024.
If short term rates continue to decline, as the Company believes is likely to happen in the fourth quarter of 2024, the Company’s net interest margin and earnings could be negatively impacted if the yields on loans decrease faster than the Company is able to lower deposit rates, including as a result of loan growth outpacing our ability to add lower cost core deposits or competitive pressures in our markets limiting our ability to reduce the rates we pay on deposits. However, if the Company is able to reprice its deposits more quickly than it reprices the rates it earns on loans in such a falling rate environment, the Company expects its net interest margin would expand.
Net interest income represents the amount by which interest earned on various earning assets exceeds interest paid on deposits and other interest-bearing liabilities and is the most significant component of the Company’s earnings. Net interest income, excluding tax equivalent adjustments relating to tax exempt securities and loans, for the three and nine months ended September 30, 2024 totaled $41,015,000 and $115,036,000, respectively. Net interest income, excluding tax equivalent adjustments relating to tax exempt securities and loans, for the three and nine months ended September 30, 2023 totaled $34,160,000 and $103,643,000, respectively.
The increase in net interest income for the three and nine months ended September 30, 2024 compared to the comparable periods in 2023 was primarily due to an increase in the volume of average interest earning assets, an increase in interest and fees on loans, an increase in interest earned on deposits with depository institutions, and an increase in interest and dividends earned on
49
securities, partially offset by an increase in interest expense resulting from the increase in the cost of funds and an increase in the volume of average interest bearing deposits.
The ratio of average earning assets to total average assets for the three and nine months ended September 30, 2024 was 96.0% and 95.8%, respectively, compared to 95.4% and 95.3%, respectively, for the same periods in 2023.
Interest expense increased in the three and nine months ended September 30, 2024 when compared to the comparable periods in 2023 due to an increase in the average balance of our interest bearing deposits combined with competitive pressures in the second half of 2023 and first part of 2024 in the elevated short-term interest rate environment which required the Bank to raise rates paid on deposits. Also negatively impacting interest expense in the three and nine months ended September 30, 2024, was Bank's customers' continued shift of deposits from transaction and money market accounts to time deposit accounts. As competitive pressures have begun to ease in the second half of the third quarter of 2024, and the 50 basis point rate cut by the Federal Reserve in late September 2024 has taken effect, we have begun to lower interest rates on some of our deposit products and anticipate that we will be able to continue to lower the rates we pay on deposits for the remainder of 2024 and into 2025 as time deposits reprice; however, if the competitive pressures begin to rise once again, the Federal Reserve does not cut the federal funds rate any further or at the pace we are anticipating or loan growth outpaces deposit growth, the Bank may have to lower rates at a slower pace. Despite the expectation the Bank will be able to lower rates paid on deposits, we expect interest expense to continue to increase due to an increase in overall deposit balances.
Provision for Credit Losses
The provision for credit losses represents a charge to earnings necessary to establish an allowance for credit losses that, in management's evaluation is adequate to provide coverage for all expected credit losses. The determination of the amount of the allowance for credit losses ("ACL") is complex and involves a high degree of judgment and subjectivity. Refer to Note 1, "Summary of Significant Accounting Policies" in the notes to our consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q for a detailed discussion regarding ACL methodology.
The provision for credit losses-loans for the three and nine months ended September 30, 2024 was $3,563,000 compared to a provision of $1,641,000 and $5,681,000 for the three and nine months ended September 30, 2023, respectively. Significant loan growth in the third quarter and a single relationship downgrade during that quarter, partially offset by an improved economic outlook, contributed to management's decision in the third quarter of 2024 to record a provision of $3,563,000 after recording no provision in the first six months of 2024.
As discussed below under Financial Condition-Loans, loan growth was higher for the three and nine months ended September 30, 2024 compared to the same periods for 2023. Loan growth for the nine months ended September 30, 2024 was $393,851,000, while loan growth for the nine months ended September 30, 2023 was $379,987,000. For the three months ended September 30, 2024 loan growth was $231,968,000 compared to $117,297,000 for three months ended September 30, 2023.
There was a benefit to the provision for credit losses-off balance sheet exposures of $563,000 for the three and nine months ended September 30, 2024 compared to a benefit of $677,000 and $2,975,000 for the three and nine months ended September 30, 2023. A slight decline in unfunded balances for the first nine months of 2024 and an improved economic outlook in the third quarter of 2024 led to the release in the off balance sheet exposures in the third quarter of 2024.
50
The following detail provides a breakdown of the provision for credit loss-loans expense and net (charge-offs) recoveries as of and for the nine months ended September 30, 2024 and 2023:
|
|
In Thousands, Except Percentages |
|
|||||||||||||
|
|
Provision for Credit Loss - Loans Expense (Benefit) |
|
|
Net (Charge-Offs) Recoveries |
|
|
Average Loans |
|
|
Ratio of Net (Charge-offs) Recoveries to Average Loans |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
September 30, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Residential 1-4 family real estate |
|
$ |
423 |
|
|
$ |
34 |
|
|
$ |
999,971 |
|
|
|
— |
% |
Commercial and multi-family real estate |
|
|
1,860 |
|
|
|
— |
|
|
|
1,366,067 |
|
|
|
— |
|
Construction, land development and farmland |
|
|
788 |
|
|
|
17 |
|
|
|
899,767 |
|
|
|
— |
|
Commercial, industrial and agricultural |
|
|
19 |
|
|
|
(10 |
) |
|
|
127,249 |
|
|
|
(0.01 |
) |
1-4 family equity lines of credit |
|
|
63 |
|
|
|
— |
|
|
|
211,427 |
|
|
|
— |
|
Consumer and other |
|
|
410 |
|
|
|
(410 |
) |
|
|
105,115 |
|
|
|
(0.39 |
) |
Total |
|
$ |
3,563 |
|
|
$ |
(369 |
) |
|
$ |
3,709,596 |
|
|
|
(0.01 |
)% |
September 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Residential 1-4 family real estate |
|
$ |
1,187 |
|
|
$ |
19 |
|
|
|
891,510 |
|
|
|
— |
% |
Commercial and multi-family real estate |
|
|
1,769 |
|
|
|
— |
|
|
|
1,123,136 |
|
|
|
— |
|
Construction, land development and farmland |
|
|
1,400 |
|
|
|
17 |
|
|
|
935,793 |
|
|
|
— |
|
Commercial, industrial and agricultural |
|
|
119 |
|
|
|
1 |
|
|
|
124,823 |
|
|
|
— |
|
1-4 family equity lines of credit |
|
|
312 |
|
|
|
— |
|
|
|
168,544 |
|
|
|
— |
|
Consumer and other |
|
|
894 |
|
|
|
(830 |
) |
|
|
97,201 |
|
|
|
(0.85 |
) |
Total |
|
$ |
5,681 |
|
|
$ |
(793 |
) |
|
$ |
3,341,007 |
|
|
|
(0.02 |
)% |
The provision for credit losses-loans charged to operating expense requires us to estimate all expected credit losses over the remaining life of our loan portfolio. Other factors which, in management’s judgment, deserve current recognition in estimating expected credit losses include growth and composition of the loan portfolio, review of specific problem loans, the relationship of the allowance for credit losses to outstanding loans, adverse situations that may affect our borrowers' ability to repay, the estimated value of any underlying collateral and current economic conditions that may affect our borrowers' ability to pay.
There was no provision for credit losses on available-for-sale securities for the three and nine months ended September 30, 2024 and 2023, respectively.
Non-Interest Income
Our non-interest income is composed of several components, some of which vary significantly between quarterly and annual periods. The following is a summary of our non-interest income for the three and nine months ended September 30, 2024 and 2023 (in thousands):
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
$ Increase (Decrease) |
|
|
% Increase (Decrease) |
|
|
2024 |
|
|
2023 |
|
|
$ Increase (Decrease) |
|
|
% Increase (Decrease) |
|
||||||||
Service charges on deposit accounts |
|
$ |
2,116 |
|
|
$ |
2,065 |
|
|
$ |
51 |
|
|
|
2.47 |
% |
|
$ |
6,102 |
|
|
$ |
5,844 |
|
|
$ |
258 |
|
|
|
4.41 |
% |
Brokerage income |
|
|
2,107 |
|
|
|
1,738 |
|
|
|
369 |
|
|
|
21.23 |
|
|
|
6,425 |
|
|
|
4,962 |
|
|
|
1,463 |
|
|
|
29.48 |
|
Debit and credit card interchange income, net |
|
|
2,014 |
|
|
|
2,018 |
|
|
|
(4 |
) |
|
|
(0.20 |
) |
|
|
6,622 |
|
|
|
6,476 |
|
|
|
146 |
|
|
|
2.25 |
|
Other fees and commissions |
|
|
386 |
|
|
|
382 |
|
|
|
4 |
|
|
|
1.05 |
|
|
|
1,170 |
|
|
|
1,075 |
|
|
|
95 |
|
|
|
8.84 |
|
Income on BOLI and annuity contracts |
|
|
466 |
|
|
|
426 |
|
|
|
40 |
|
|
|
9.39 |
|
|
|
1,483 |
|
|
|
1,372 |
|
|
|
111 |
|
|
|
8.09 |
|
Gain on sale of loans |
|
|
637 |
|
|
|
628 |
|
|
|
9 |
|
|
|
1.43 |
|
|
|
2,262 |
|
|
|
1,994 |
|
|
|
268 |
|
|
|
13.44 |
|
Mortgage servicing income (loss), net |
|
|
(2 |
) |
|
|
3 |
|
|
|
(5 |
) |
|
|
(166.67 |
) |
|
|
1 |
|
|
|
7 |
|
|
|
(6 |
) |
|
|
(85.71 |
) |
Loss on sale of fixed assets |
|
|
(11 |
) |
|
|
(7 |
) |
|
|
(4 |
) |
|
|
(57.14 |
) |
|
|
(214 |
) |
|
|
(55 |
) |
|
|
(159 |
) |
|
|
(289.09 |
) |
Gain (loss) on sale of securities, net |
|
|
(1,414 |
) |
|
|
— |
|
|
|
(1,414 |
) |
|
|
(100.00 |
) |
|
|
(1,732 |
) |
|
|
3 |
|
|
|
(1,735 |
) |
|
|
(57,833.33 |
) |
Loss on sale of other assets |
|
|
(1 |
) |
|
|
(6 |
) |
|
|
5 |
|
|
|
83.33 |
|
|
|
(4 |
) |
|
|
(7 |
) |
|
|
3 |
|
|
|
42.86 |
|
Other income (loss) |
|
|
84 |
|
|
|
(42 |
) |
|
|
126 |
|
|
|
300.00 |
|
|
|
140 |
|
|
|
40 |
|
|
|
100 |
|
|
|
250.00 |
|
Total non-interest income |
|
$ |
6,382 |
|
|
$ |
7,205 |
|
|
$ |
(823 |
) |
|
|
(11.42 |
%) |
|
$ |
22,255 |
|
|
$ |
21,711 |
|
|
$ |
544 |
|
|
|
2.51 |
% |
51
The decrease in non-interest income for the three months ended September 30, 2024 when compared to the comparable period in 2023 is primarily attributable to an increase in loss on sale of securities, partially offset by an increase in brokerage income. The increase in non-interest income for the nine months ended September 30, 2024 was primarily attributable to an increase in brokerage income, an increase in service charges on deposit accounts, and an increase in gain on sale of loans, partially offset by an increase in the loss on sale of securities and a loss on sale of fixed assets.
The increase in brokerage income for the three and nine months ended September 30, 2024 compared to the comparable time periods in 2023 was primarily due to multiple client acquisitions, the completion of estate planning cases, and an increase of overall market share in our market areas as well as the positive performance of financial markets.
The increase in gain on sale of loans for the nine months ended September 30, 2024 compared to the comparable time period in 2023 was primarily due to the declining mortgage interest rate market positively impacting the fair value of our interest rate lock commitments.
The increase in service charges on deposit accounts for the nine months ended September 30, 2024 compared to the comparable time period in 2023 was primarily due to an increase in overdraft fees as a result of an increase in transaction volume.
The increase in loss on sale of securities for the nine months ended September 30, 2024 compared to the comparable time period in 2023 was due to management's decision in the third quarter of 2024 to take advantage of favorable market conditions and restructure the securities portfolio in an attempt to improve the Bank's positioning relative to interest rate risk. This restructuring included the sale of approximately $86.5 million of available-for-sale securities that were in a loss position for a net loss of $1.4 million and the reinvestment of a portion of the net proceeds in higher yielding securities. The Company also sold $2.5 million of investment securities in the second quarter of 2024 for a net loss of $318,000.
The loss on sale of fixed assets for the nine months ended September 30, 2024 was primarily due to write-offs associated with the closure of our leased Wal-Mart branch that we closed on January 13, 2024.
Non-Interest Expense
Non-interest expense consists primarily of employee costs, occupancy expenses, furniture and equipment expenses, advertising and public relations expenses, data processing expenses, director’s fees, audit, legal and consulting fees, FDIC insurance and other operating expenses. The following is a summary of our non-interest expense for the three and nine months ended September 30, 2024 and 2023 (in thousands):
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
$ Increase (Decrease) |
|
|
% Increase (Decrease) |
|
|
2024 |
|
|
2023 |
|
|
$ Increase (Decrease) |
|
|
% Increase (Decrease) |
|
||||||||
Salaries and employee benefits |
|
$ |
17,889 |
|
|
$ |
15,328 |
|
|
$ |
2,561 |
|
|
|
16.71 |
% |
|
$ |
51,344 |
|
|
$ |
45,474 |
|
|
$ |
5,870 |
|
|
|
12.91 |
% |
Occupancy expenses, net |
|
|
1,503 |
|
|
|
1,532 |
|
|
|
(29 |
) |
|
|
(1.89 |
) |
|
|
4,260 |
|
|
|
4,475 |
|
|
|
(215 |
) |
|
|
(4.80 |
) |
Advertising & public relations expense |
|
|
872 |
|
|
|
910 |
|
|
|
(38 |
) |
|
|
(4.18 |
) |
|
|
2,453 |
|
|
|
2,607 |
|
|
|
(154 |
) |
|
|
(5.91 |
) |
Furniture and equipment expense |
|
|
774 |
|
|
|
796 |
|
|
|
(22 |
) |
|
|
(2.76 |
) |
|
|
2,276 |
|
|
|
2,447 |
|
|
|
(171 |
) |
|
|
(6.99 |
) |
Data processing expense |
|
|
2,432 |
|
|
|
2,228 |
|
|
|
204 |
|
|
|
9.16 |
|
|
|
7,154 |
|
|
|
6,477 |
|
|
|
677 |
|
|
|
10.45 |
|
Directors’ fees |
|
|
183 |
|
|
|
174 |
|
|
|
9 |
|
|
|
5.17 |
|
|
|
548 |
|
|
|
493 |
|
|
|
55 |
|
|
|
11.16 |
|
FDIC insurance |
|
|
721 |
|
|
|
1,209 |
|
|
|
(488 |
) |
|
|
(40.36 |
) |
|
|
2,349 |
|
|
|
2,281 |
|
|
|
68 |
|
|
|
2.98 |
|
Audit, legal & consulting expenses |
|
|
438 |
|
|
|
489 |
|
|
|
(51 |
) |
|
|
(10.43 |
) |
|
|
1,143 |
|
|
|
1,157 |
|
|
|
(14 |
) |
|
|
(1.21 |
) |
Other operating expenses |
|
|
3,209 |
|
|
|
2,990 |
|
|
|
219 |
|
|
|
7.32 |
|
|
|
9,039 |
|
|
|
8,526 |
|
|
|
513 |
|
|
|
6.02 |
|
Total non-interest expense |
|
$ |
28,021 |
|
|
$ |
25,656 |
|
|
$ |
2,365 |
|
|
|
9.22 |
% |
|
$ |
80,566 |
|
|
$ |
73,937 |
|
|
$ |
6,629 |
|
|
|
8.97 |
% |
The increase in non-interest expense for the three and nine months ended September 30, 2024 when compared to the comparable period in 2023 is primarily attributable to increases in salaries and employee benefits, increases in data processing expenses, and an increase in other operating expenses, partially offset by reduced occupancy expenses, furniture and equipment expenses, and advertising and public relations expenses. Also offsetting a portion of the increase in non-interest expense for the three months ended September 30, 2024 was a decrease in FDIC insurance costs.
Salaries and employee benefits increased for the three and nine months ended September 30, 2024 primarily due to an increase in the number of employees necessary to support the Company’s growth in operations, an increase in incentives and commissions paid due to the increase in loan volume and a large investment relationship obtained, and a one-time company-wide employee bonus triggered by the Bank reaching an asset milestone.
52
Data processing expenses increased in the three and nine months ended September 30, 2024 due to implementation of a new small business online solution, enhanced treasury management solution, and an increase in the number of customers using digital services. The Company anticipates that data processing expenses will continue to increase as the Company’s operations grow, the demand for digital products and services from customers increases, and the cyber threat environment grows.
The increase in other operating expenses for the three and nine months ended September 30, 2024 compared to the comparable periods in 2023 was primarily due to costs associated with a new employee development program, including employee engagement activities. Also contributing to the increase for the nine months ended September 30, 2024 were increased mailing costs associated with the mailing of account change notices and the Company's annual report to shareholders.
The decrease in occupancy expenses for the three and nine months ended September 30, 2024 was primarily due to the closure of our leased Wal-Mart branch that we closed on January 13, 2024.
The decrease in furniture and equipment expense for the three and nine months ended September 30, 2024 was primarily due to a decrease in depreciation expense which resulted from the full depreciation of the Company's operations building equipment and Cool Springs branch equipment.
The decrease in advertising and public relations expense for the three and nine months ended September 30, 2024 was primarily due to the competitive rate environment experienced in 2023, which caused the Bank to increase marketing efforts focused on driving deposit growth.
FDIC insurance expense decreased in the three months ended September 30, 2024 when compared to the three months ended September 30, 2023 due to a change in the Bank's assessment rate.
The efficiency ratio is a common and comparable KPI used in the banking industry. The Company uses this metric to monitor how effective management is at using our internal resources. It is calculated by dividing our non-interest expense by our net interest income plus non-interest income. The efficiency ratio for the nine months ended September 30, 2024 and 2023 was 58.68% and 58.98%, respectively. The efficiency ratio for the three months ended September 30, 2024 and 2023 was 59.12% and 62.02%, respectively. The improvement in the efficiency ratio for the nine months ended September 30, 2024 compared to the comparable period in 2023 was primarily due to the increases in net interest income and non-interest income outpacing the increase in non-interest expense. The improvement in the efficiency ratio for the three months ended September 30, 2024 compared to the comparable period in 2023 was primarily due to the increase in net interest income outpacing the increase in non-interest expense.
Income Taxes
The Company’s income tax expense was $12,042,000 for the nine months ended September 30, 2024, an increase of $1,088,000 over the comparable period in 2023. The percentage of income tax expense to net income before taxes was 22.41% and 22.49% for the nine months ended September 30, 2024 and 2023, respectively. The Company's income tax expense for the three months ended September 30, 2024 was $3,665,000, an increase of $399,000 compared to the three months ended September 30, 2023. The percentage of income tax expense to net income taxes was 22.38% and 22.15% for the three months ended September 30, 2024 and 2023, respectively. Our effective tax rate represents our blended federal and state rate of 26.14% affected by the impact of anticipated favorable permanent differences between our book and taxable income such as share based compensation, bank-owned life insurance, income earned on tax-exempt securities and loans, and certain federal and state tax credits, offset in part by the limitation on deductibility of meals and entertainment expense and non-deductible executive compensation.
Financial Condition
Balance Sheet Summary
The Company’s total assets increased $405,435,000, or 8.37%, to $5,251,911,000 at September 30, 2024 from $4,846,476,000 at December 31, 2023. Loans, net of allowance for credit losses, totaled $3,941,332,000 at September 30, 2024, an 11.00% increase compared to $3,550,675,000 at December 31, 2023. In 2024, management is targeting owner-occupied commercial real estate, residential real estate lending and consumer lending as areas of focus. Total liabilities increased by 7.95% to $4,768,428,000 at September 30, 2024 compared to $4,417,071,000 at December 31, 2023.
Loans
The following details the loans of the Company at September 30, 2024 and December 31, 2023:
53
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
|
|
|
|
|
|
||||||||||||
|
|
Balance |
|
|
% of Portfolio |
|
|
Balance |
|
|
% of Portfolio |
|
|
Balance $ Increase (Decrease) |
|
|
Balance % Increase (Decrease) |
|
||||||
Residential 1-4 family real estate |
|
$ |
1,092,678 |
|
|
|
27.29 |
% |
|
$ |
959,218 |
|
|
|
26.58 |
% |
|
$ |
133,460 |
|
|
|
13.91 |
% |
Commercial and multi-family real estate |
|
|
1,489,823 |
|
|
|
37.23 |
|
|
|
1,313,284 |
|
|
|
36.39 |
|
|
|
176,539 |
|
|
|
13.44 |
|
Construction, land development and |
|
|
944,946 |
|
|
|
23.60 |
|
|
|
901,336 |
|
|
|
24.98 |
|
|
|
43,610 |
|
|
|
4.84 |
|
Commercial, industrial and agricultural |
|
|
133,451 |
|
|
|
3.33 |
|
|
|
127,659 |
|
|
|
3.54 |
|
|
|
5,792 |
|
|
|
4.54 |
|
1-4 family equity lines of credit |
|
|
231,108 |
|
|
|
5.77 |
|
|
|
202,731 |
|
|
|
5.62 |
|
|
|
28,377 |
|
|
|
14.00 |
|
Consumer and other |
|
|
111,318 |
|
|
|
2.78 |
|
|
|
104,373 |
|
|
|
2.89 |
|
|
|
6,945 |
|
|
|
6.65 |
|
Total loans before net deferred loan |
|
$ |
4,003,324 |
|
|
|
100.00 |
% |
|
$ |
3,608,601 |
|
|
|
100.00 |
% |
|
$ |
394,723 |
|
|
|
10.94 |
% |
Overall, the Bank's loan demand and related new loan production continued to increase throughout the Bank's markets in the third quarter of 2024, yielding a year-to-date total loan growth net of deferred loan fees of 10.95%. Total loan growth net of deferred loan fees for the first nine months of 2024 was $393,851,000, with $231,968,000 of that growth occurring in the third quarter. Contributing to the Company's loan growth in the first nine months of 2024 were the continued population growth and corporate relocations in the Bank's primary market areas and increased marketing efforts. The increase in residential 1-4 family real estate loans is attributable to the Bank successfully growing its residential portfolio through enhanced marketing efforts directed at homebuilders in the Company's market areas, and the increase the Company is seeing in the investor sector of 1-4 family. The increase in commercial and multi-family real estate and 1-4 family equity lines of credit is primarily attributable to continued economic growth and expansion in the Bank's primary market areas. The Company anticipates that loan growth for the second half of 2024 will exceed the loan growth experienced in the first half of 2024.
Because construction loans remain a meaningful portion of our portfolio, the Bank has implemented an additional layer of monitoring as it seeks to avoid advancing funds that exceed the present value of the collateral securing the loan. The responsibility for monitoring percentage of completion and distribution of funds tied to these completion percentages is now monitored and administered by a Credit Administration Department independent of the lending function. The Bank continues to seek to diversify its real estate portfolio as it seeks to lessen concentrations in any one type of loan.
Allowance for Credit Losses
The current expected credit losses (CECL) methodology requires us to estimate all expected credit losses over the remaining life of our loan portfolio when calculating our allowance for credit losses for loans. The provision for credit losses for loans represents a charge to earnings necessary to establish an allowance for credit losses that, in management’s evaluation, is adequate to provide coverage for all expected credit losses on loans.
The allowance for credit losses for loans represents the portion of the loan's amortized cost basis that we do not expect to collect due to credit losses over the loan's life, considering past events, current conditions, and reasonable and supportable forecasts of future economic conditions considering macroeconomic forecasts. Loan losses are charged against the allowance when we believe the collectibility of a loan balance is unlikely. Subsequent recoveries, if any, are credited to the allowance. The allowance for credit losses for loans is based on the loan's amortized cost basis, excluding accrued interest receivables, as we promptly charge off accrued interest receivable determined to be uncollectible. We determine the appropriateness of the allowance through quarterly discounted cash flow modeling of the loan portfolio which considers lending-related commitments and other relevant factors, including macroeconomic forecasts and historical loss rates. In future quarters, we may update information and forecasts that may cause significant changes in the estimate in those future quarters.
Our allowance for credit losses for loans at September 30, 2024 reflects an amount deemed appropriate to adequately cover all expected future losses as of the date the allowance is determined based on our allowance for credit losses for loans assessment methodology. The allowance for credit losses for loans (net of charge-offs and recoveries) increased to $48,042,000 at September 30, 2024 from $44,848,000 at December 31, 2023, due to significant loan growth in the third quarter and a single relationship downgrade, partially offset by an improved economic outlook, which contributed to management's decision in the third quarter of 2024 to record a provision of $3,563,000 after recording no provision in the first six months of 2024. The allowance for credit losses for loans was 1.20% of total loans outstanding at September 30, 2024 compared to 1.25% at December 31, 2023. The internally classified loans as a percentage of the allowance for credit losses for loans were 98.5% and 13.2% respectively, at September 30, 2024 and December 31, 2023. This increase was primarily due to the credit downgrades and deterioration in payment performance of a few large borrowers.
The following schedule provides an allocation of the allowance for credit losses for loans by portfolio segment for the Company as of September 30, 2024 and December 31, 2023:
54
|
|
In Thousands, Except Percentages |
|
|||||||||||||
|
|
Amount of Allowance Allocated |
|
|
Percent of Loans in Each Category to Total Loans |
|
|
Total Loans |
|
|
Ratio of Allowance Allocated to Loans in Each Category |
|
||||
September 30, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Residential 1-4 family real estate |
|
$ |
9,222 |
|
|
|
27.3 |
% |
|
$ |
1,092,678 |
|
|
|
0.84 |
% |
Commercial and multi-family real estate |
|
|
19,282 |
|
|
|
37.2 |
|
|
|
1,489,823 |
|
|
|
1.29 |
|
Construction, land development and farmland |
|
|
14,832 |
|
|
|
23.6 |
|
|
|
944,946 |
|
|
|
1.57 |
|
Commercial, industrial and agricultural |
|
|
1,542 |
|
|
|
3.3 |
|
|
|
133,451 |
|
|
|
1.16 |
|
1-4 family equity lines of credit |
|
|
1,872 |
|
|
|
5.8 |
|
|
|
231,108 |
|
|
|
0.81 |
|
Consumer and other |
|
|
1,292 |
|
|
|
2.8 |
|
|
|
111,318 |
|
|
|
1.16 |
|
Total |
|
$ |
48,042 |
|
|
|
100.0 |
% |
|
|
4,003,324 |
|
|
|
1.20 |
|
Net deferred loan fees |
|
|
|
|
|
|
|
|
(13,950 |
) |
|
|
|
|||
|
|
|
|
|
|
|
|
$ |
3,989,374 |
|
|
|
1.20 |
% |
||
December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Residential 1-4 family real estate |
|
$ |
8,765 |
|
|
|
26.6 |
% |
|
$ |
959,218 |
|
|
|
0.91 |
% |
Commercial and multi-family real estate |
|
|
17,422 |
|
|
|
36.4 |
|
|
|
1,313,284 |
|
|
|
1.33 |
|
Construction, land development and farmland |
|
|
14,027 |
|
|
|
25.0 |
|
|
|
901,336 |
|
|
|
1.56 |
|
Commercial, industrial and agricultural |
|
|
1,533 |
|
|
|
3.5 |
|
|
|
127,659 |
|
|
|
1.20 |
|
1-4 family equity lines of credit |
|
|
1,809 |
|
|
|
5.6 |
|
|
|
202,731 |
|
|
|
0.89 |
|
Consumer and other |
|
|
1,292 |
|
|
|
2.9 |
|
|
|
104,373 |
|
|
|
1.24 |
|
Total |
|
$ |
44,848 |
|
|
|
100.0 |
% |
|
|
3,608,601 |
|
|
|
1.24 |
|
Net deferred loan fees |
|
|
|
|
|
|
|
|
(13,078 |
) |
|
|
|
|||
|
|
|
|
|
|
|
|
$ |
3,595,523 |
|
|
|
1.25 |
% |
||
The allowance for credit losses for loans is an amount that management believes will be adequate to absorb expected losses on existing loans that may become uncollectible as of the measurement date. The allowance for credit losses for loans as a percentage of total loans outstanding at September 30, 2024, net of deferred fees, decreased from the year ended December 31, 2023. The decrease was primarily due to an improved economic outlook for GDP, unemployment, and home prices as mentioned above.
We measure expected credit losses over the life of each loan utilizing two methods. For residential 1-4 family, commercial and multi-family real estate, construction and land development, commercial and industrial, 1-4 family equity lines of credit, municipal, and certain other loan types, we use discounted cash flow models which measure probability of default and loss given default. For farmland, agricultural, credit cards, auto, and other consumer loans we use the remaining life method to estimate credit losses. The measurement of expected credit losses for loan segments utilizing discounted cash flow is impacted by certain macroeconomic variables. Models are adjusted to reflect the current impact of certain macroeconomic variables as well as their expected changes over a reasonable and supportable forecast period.
In estimating expected credit losses as of September 30, 2024, we utilized then available forecasts of macroeconomic variables over our reasonable and supportable horizon based on the review of a variety of forecasts of the U.S. economy provided by Moody's Analytics. Key economic variables as forecasted and utilized in our models include: (i) U.S. Gross Domestic Product ("GDP") with annualized quarterly growth rates in the range of 1.9% to 2.2%; (ii) a U.S. unemployment rate in the range of approximately 4.0% to 4.2%; and (iii) a Home Price Index annualized quarterly growth rates in the range of approximately 1.0% to 3.2%.
We adjust model results using qualitative factor ("Q-factor") adjustments. Q-Factor adjustments are based upon management judgment and current assessment as to the impact of risks related to changes in lending policies and procedures; economic and business conditions; loan portfolio attributes and credit concentrations; and external factors, among other things, that are not already captured within the modeling inputs, assumptions and other processes. Management assesses the potential impact of such items within a range of major risk to improvement and adjusts the modeled expected credit loss by an aggregate adjustment percentage based upon the assessment.
Our charge-off policy for collateral dependent loans is similar to our charge-off policy for all loans in that loans are charged-off in the month when a determination is made that the loan is uncollectible. Net charge-offs decreased to $369,000 for the nine months ended September 30, 2024, compared to net charge-offs of $793,000 for the same period in 2023. The ratio of net charge-offs to average total outstanding loans was 0.01% for the nine months ended September 30, 2024 compared to 0.02% for the nine months ended September 30, 2023. Net charge-offs for the three months ended September 30, 2024 and 2023 were $182,000 and $303,000,
55
respectively. Overall, the Bank experienced minimal charge-offs during the three and nine months ended September 30, 2024 and it is expected that charge-offs will continue to be modest for the remainder of 2024; however, a deterioration in local economic conditions may negatively impact charge-offs in the future.
We also maintain an allowance for credit losses on off-balance sheet exposures, which decreased $563,000 from December 31, 2023 to $2,584,000 at September 30, 2024 as a result of a decrease in our off-balance sheet commitments and an increase in our unconditionally cancellable commitments.
The level of the allowance and the amount of the provision for credit losses involve evaluation of uncertainties and matters of judgment. The Company maintains an allowance for credit losses for loans which management believes is adequate to absorb losses in the loan portfolio. A formal calculation is prepared quarterly by the Company's Chief Financial Officer and provided to the Board of Directors to determine the adequacy of the allowance for credit losses. The calculation includes an evaluation of historical default and loss experience, current and forecasted economic conditions, an evaluation of qualitative factors, industry and peer bank loan quality indicators and other factors. See the discussion above under “Application of Critical Accounting Policies and Accounting Estimates” for more information. Management believes the allowance for credit losses at September 30, 2024 to be adequate, but if forecasted economic conditions do not meet management’s current expectations, the allowance for credit losses may require an increase through additional provision for credit loss expense which would negatively impact earnings.
For a detailed discussion regarding our allowance for credit losses, see “Provision for Credit Losses and Allowance for Credit Losses” above.
Securities
Securities increased $12,974,000, or 1.60%, to $824,055,000 at September 30, 2024 from $811,081,000 at December 31, 2023. The increase is primarily due to the purchase of $124,927,000 in new available-for-sale securities and an increase in the fair value of our available-for-sale securities of $26,365,000 as a result of favorable movement in interest rates, partially offset by the sale of $88,986,000 of securities discussed above and the run-off of our declining balance securities of $45,203,000. As mentioned above, management decided to restructure a portion of the securities portfolio in the third quarter of 2024. The restructuring involved the purchase of approximately $40,982,000 in new securities and the sale of approximately $86,515,000 in securities, both of which are included in the purchase and sale figures above. The average yield, excluding tax equivalent adjustment, of the securities portfolio at September 30, 2024 was 2.40% with a weighted average life of 7.06 years, as compared to an average yield of 2.33% and a weighted average life of 8.25 years at December 31, 2023. The weighted average lives on mortgage-backed securities reflect the repayment rate used for book value calculations.
Premises and Equipment
Premises and equipment decreased $603,000, or 0.97%, from December 31, 2023 to September 30, 2024. The primary reason for the decrease was due to current year depreciation of $3,008,000 and write-offs due to the closure of a leased branch office location, partially offset by the purchase of equipment and furniture and fixtures, and the remodeling of several branches.
Deposits and Other Liabilities
Deposits increased by $339,475,000, or 7.77%, in the first nine months of 2024 due to a strategic focus on growing customers by utilizing deposit promotions. Included in deposits at September 30, 2024 were $19,140,000 in brokered deposits, compared to $69,135,000 at December 31, 2023. The decrease in brokered deposits from December 31, 2023 to September 30, 2024 was the result of management's decision to not renew some brokered deposits when they matured, as the Company has been able to grow lower cost core deposits.
56
The average balance and weighted average interest rate paid for deposit types for the quarters ended September 30, 2024, December 31, 2023 and September 30, 2023 are detailed in the following schedule:
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
|
September 30, 2023 |
|
|||||||||||||||
|
|
Average |
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
|
|
|
||||||
|
|
Balance |
|
|
|
|
|
Balance |
|
|
|
|
|
Balance |
|
|
|
|
||||||
|
|
In |
|
|
Average |
|
|
In |
|
|
Average |
|
|
In |
|
|
Average |
|
||||||
|
|
Thousands |
|
|
Rate |
|
|
Thousands |
|
|
Rate |
|
|
Thousands |
|
|
Rate |
|
||||||
Non-interest bearing deposits |
|
$ |
404,299 |
|
|
|
— |
% |
|
$ |
392,633 |
|
|
|
— |
% |
|
$ |
406,121 |
|
|
|
— |
% |
Interest-bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Negotiable order of withdrawal accounts |
|
|
922,162 |
|
|
|
0.91 |
|
|
|
935,651 |
|
|
|
0.69 |
|
|
|
962,195 |
|
|
|
0.65 |
|
Money market demand accounts |
|
|
1,245,965 |
|
|
|
2.87 |
|
|
|
1,089,519 |
|
|
|
2.44 |
|
|
|
1,062,736 |
|
|
|
2.31 |
|
Time deposits |
|
|
1,694,899 |
|
|
|
4.76 |
|
|
|
1,503,234 |
|
|
|
4.46 |
|
|
|
1,380,133 |
|
|
|
4.21 |
|
Other savings |
|
|
327,020 |
|
|
|
1.73 |
|
|
|
316,335 |
|
|
|
1.66 |
|
|
|
317,958 |
|
|
|
1.59 |
|
Total interest-bearing deposits |
|
|
4,190,046 |
|
|
|
3.11 |
% |
|
|
3,844,739 |
|
|
|
2.74 |
% |
|
|
3,723,022 |
|
|
|
2.52 |
% |
Total deposits |
|
$ |
4,594,345 |
|
|
|
2.84 |
% |
|
$ |
4,237,372 |
|
|
|
2.48 |
% |
|
$ |
4,129,143 |
|
|
|
2.28 |
% |
At September 30, 2024 and December 31, 2023, we estimate that we had approximately $1.4 billion and $1.2 billion in uninsured deposits, which are the portion of deposit amounts that exceed the FDIC insurance limit. Approximately 29% of our total deposits exceeded the FDIC deposit insurance limits at September 30, 2024. However, we offer large depositors access to the Certificate of Deposit Account Registry Service (“CDARS”) and the Insured Cash Sweep (“ICS Product”), which allows us to divide customers' deposits that exceed the FDIC insurance limits into smaller amounts, below the FDIC insurance limits, and place those excess deposits in other participating FDIC insured institutions with the convenience of managing all deposit accounts through our Bank. Our total deposits in CDARS and the ICS Products increased to $166,404,000, or 3.54% of total deposits, at September 30, 2024, compared to $104,204,000, or 2.39% of total deposits, at December 31, 2023.
Principal maturities of certificates of deposit and individual retirement accounts at September 30, 2024 are as follows:
|
|
In Thousands |
|
|
Maturity |
|
|
|
|
2024 |
|
$ |
532,908 |
|
2025 |
|
|
1,039,300 |
|
2026 |
|
|
121,629 |
|
2027 |
|
|
44,867 |
|
2028 |
|
|
16,238 |
|
Thereafter |
|
|
4,729 |
|
|
|
$ |
1,759,671 |
|
The increase in total liabilities since December 31, 2023 was composed of a $339,475,000, or 7.77%, increase in total deposits and an $11,882,000, or 23.78%, increase in accrued interest and other liabilities. The increase in total deposits since December 31, 2023 was primarily attributable to growth in market share and concerted marketing efforts to drive deposit growth which resulted in the opening of new deposit accounts. The increase in accrued interest and other liabilities since December 31, 2023 was primarily attributable to an increase in interest payable on deposits and an increase in employee bonus payable, partially offset by a decrease in reserve for off-balance sheet commitments.
Non-Performing Assets
Non-performing loans, which included nonaccrual loans and loans 90 days past due, at September 30, 2024 totaled $5,905,000, an increase of $4,496,000 from $1,409,000 at December 31, 2023. The increase in non-performing loans during the nine months ended September 30, 2024 is primarily due to one commercial real estate loan, one 1-4 family equity line of credit, and one residential 1-4 family real estate loan, all of which are on non-accrual status as of September 30, 2024. Management believes that it is probable that it will incur losses on its non-performing loans but believes that these losses should not exceed the amount in the allowance for credit losses for loans already allocated to these loans, unless there is unanticipated deterioration of local real estate values.
The net non-performing asset ratio (NPA) is used as a measure of the overall quality of the Company's assets. Our NPA ratio is calculated by taking the total of our loans that are 90 days or more past due and accruing interest, nonaccrual loans and other real
57
estate owned and dividing that sum by our total assets outstanding. Our NPA ratio for the periods ended September 30, 2024 and December 31, 2023 was 0.11% and 0.03%, respectively.
Other loans may be classified as collateral dependent when the current net worth and financial capacity of the borrower or of the collateral pledged, if any, is viewed as inadequate and it is probable that the Company will be unable to collect the scheduled payments of principal and interest due under the contractual terms of the loan agreement. Such loans generally have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt, and if such deficiencies are not corrected, there is a probability that the Company will sustain some loss. In such cases, interest income continues to accrue as long as the loan does not meet the Company’s criteria for nonaccrual status. Collateral dependent loans are measured at the fair value of the collateral less estimated selling costs. If the fair value of the collateral dependent loan less estimated selling costs is less than the recorded investment in the loan, the Company shall recognize impairment by creating a valuation allowance with a corresponding charge to the provision for credit losses or by adjusting an existing valuation allowance for the collateral dependent loan with a corresponding charge or credit to the provision for credit losses.
At September 30, 2024 the Company had a recorded investment in collateral dependent loans totaling $37,751,000, an increase of $32,913,000 from a recorded investment in collateral dependent loans totaling $4,838,000 at December 31, 2023. The increase during the nine months ended September 30, 2024 as compared to December 31, 2023 is primarily due to the deterioration in payment performance and downgrade of a few large borrowers for which we believe the majority of the loans to be well-collateralized. Management has developed and continues to execute performance improvement plans on these relationships and is working to mitigate the credit risk of the loans in order to reduce our potential exposure to credit losses. As of September 30, 2024, a $402,000 valuation allowance was recorded on collateral dependent loans due to one loan relationship. As of December 31, 2023, no valuation allowance was recorded on collateral dependent loans. The allowance for credit losses for loans related to collateral dependent loans was measured based upon the estimated fair value of related collateral less estimated selling costs.
At September 30, 2024, as a result of the downgrade of a few large borrowers mentioned above, our internally classified loans increased $41,400,000, or 701.69%, to $47,300,000 from $5,900,000 at December 31, 2023. Loans are listed as classified when information obtained about possible credit problems of the borrower has prompted management to question the ability of the borrower to comply with the repayment terms of the loan agreement. Management continues to develop and execute performance improvement plans with these select few borrowers and continues to believe these loans are well collateralized. If economic uncertainty remains in the market, or management's performance improvement plan proves to be unsuccessful, our classified loan balances could increase further.
Liquidity and Asset Liability Management
Liquidity
The Company’s management seeks to maximize net interest income by managing the Company’s assets and liabilities within appropriate constraints on capital, liquidity and interest rate risk. Liquidity is a measure of our ability to meet our cash flow requirements, including inflows and outflows of cash for depositors and borrowers, while at the same time meeting our operating, capital and strategic cash flow needs. Several factors influence our liquidity needs, including depositor and borrower activity, interest rate trends, changes in the economy, maturities, re-pricing and interest rate sensitivity of our debt securities, loan portfolio and deposits. We strive to maintain appropriate levels of liquidity. We calculate our liquidity ratio by taking cash and due from banks, interest bearing deposits, federal funds sold, and available-for-sale debt securities not pledged as collateral and dividing by total assets. Our total liquidity ratios were 11.65% at September 30, 2024 and 13.09% at December 31, 2023. The decrease in our liquidity ratio is primarily attributable to a decrease in liquid assets as a result of an increase in the dollar amount of our available-for-sale securities that we have pledged to secure certain of our customers' deposits.
The Company’s primary source of liquidity is a stable core deposit base. In addition, Federal funds purchased, Federal Home Loan Bank advances, and brokered deposits provide a secondary source of liquidity. These sources of liquidity are generally short-term in nature and are used to fund asset growth and meet other short-term liquidity needs. Liquidity needs can also be met from loan payments and investment security sales or maturities. While maturities and scheduled amortization of loans and debt securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by market interest rates, economic conditions, and competition. At September 30, 2024, the Company’s liquid assets totaled $612.0 million, a decrease from $634.0 million at December 31, 2023, though a portion of these liquid assets include available-for-sale securities that are in an unrealized loss position at September 30, 2024. If the Company was required to sell any of these securities, including to meet liquidity needs, while they are in an unrealized loss position the Company would be required to recognize the loss on those securities through the income statement when they are sold. Recognition of these losses would negatively impact the Bank's and the Company's regulatory capital levels. Additionally, as of September 30, 2024, the Company had available approximately $118.8 million in unused federal funds lines of credit with regional banks and, subject to certain restrictions and collateral requirements, approximately $518.6 million of borrowing capacity with the Federal Home Loan Bank of Cincinnati to meet short term funding needs. The Company maintains a formal asset and liability management process in an effort to quantify, monitor and control interest rate risk and to assist management as management seeks to maintain stability in net interest margin under varying interest rate environments. The Company accomplishes this process through the development and implementation of lending, funding and pricing strategies designed to maximize net interest income under varying interest rate environments subject to specific liquidity and interest rate risk guidelines and competitive market conditions.
58
Securities classified as available-for-sale include securities intended to be used as part of the Company’s asset/liability strategy and/or securities that may be sold in response to changes in interest rate, prepayment risk, or the need to fund loan demand or other liquidity needs. At September 30, 2024, securities totaling approximately $52.6 million mature or will be subject to rate adjustments within the next twelve months.
A secondary source of liquidity is the Company’s loan portfolio. At September 30, 2024, loans totaling approximately $1.3 billion either will become due or will be subject to rate adjustments within twelve months from that date.
As for liabilities, at September 30, 2024, certificates of deposit of $250,000 or greater totaling approximately $643.9 million will become due or reprice during the next twelve months. Historically, there has been no significant reduction in immediately withdrawable accounts such as negotiable order of withdrawal accounts, money market demand accounts, demand deposit accounts and regular savings accounts. Management does not anticipate that there will be significant withdrawals from these accounts in the future.
Management believes that with present maturities, borrowing capacity with the Federal Home Loan Bank of Cincinnati and the efforts of management in its asset/liability management program, the Company should be able to meet its liquidity needs in the near term future.
Asset Liability Management
Analysis of rate sensitivity and rate gap analysis are the primary tools used to assess the direction and magnitude of changes in net interest income resulting from changes in interest rates. Included in the analysis are cash flows and maturities of financial instruments held for purposes other than trading, changes in market conditions, loan volumes and pricing and deposit volume and mix. These assumptions are inherently uncertain, and, as a result, net interest income cannot be precisely estimated nor can the impact of higher or lower interest rates on net interest income be precisely predicted. Actual results will differ due to timing, magnitude and frequency of interest rate changes and changes in market conditions and management’s strategies, among other factors.
The Company also uses simulation modeling to evaluate both the level of interest rate sensitivity as well as potential balance sheet strategies. The Company's Asset Liability Committee (ALCO) meets quarterly to analyze the interest rate shock ("IRR") simulation. The interest rate shock simulation model is based on a number of assumptions. The assumptions include, but are not limited to, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment and replacement of asset and liability cash flows and balance sheet management strategies. We model instantaneous change in interest rates using a growth in the balance sheet as well as a flat balance sheet to understand the impact to earnings and capital. Based on the Company's IRR simulation, the Company had a neutral interest-rate risk position as of September 30, 2024, though the Company’s net interest margin and earnings could be negatively impacted if short term interest rates continue to decline, which is the Company's current expectation, and the Company's yields on loans decrease faster than the Company is able to lower deposit rates, including as a result of loan growth outpacing our ability to add lower cost core deposits. Alternatively, if short-term rates remain elevated, or begin to rise again, and competitive pressures in the Company's market areas or funding needs force the Company to increase deposit rates faster than it is able to increase yields on loans, the Company's net interest margin and earnings could be negatively impacted. The Company also uses Economic Value of Equity (“EVE”) sensitivity analysis to understand the impact of changes in interest rates on long-term cash flows, income and capital. EVE is calculated by discounting the cash flows for all balance sheet instruments under different interest rate scenarios. The EVE is a longer term view of interest rate risk because it measures the present value of the future cash flows. Presented below is the estimated impact on the Bank’s net interest income and EVE as of September 30, 2024, assuming an immediate shift in interest rates:
|
|
% Change from Base Case for Immediate Parallel Changes in Rates |
|
|||||||||||||||||||||
|
|
-300 BP |
|
|
-200 BP |
|
|
-100 BP |
|
|
+100 BP |
|
|
+200 BP |
|
|
+300 BP |
|
||||||
Net interest income |
|
|
(0.09 |
)% |
|
|
(1.38 |
)% |
|
|
(0.87 |
)% |
|
|
(2.69 |
)% |
|
|
(5.65 |
)% |
|
|
(8.86 |
)% |
EVE |
|
|
(15.25 |
)% |
|
|
(6.31 |
)% |
|
|
(1.19 |
)% |
|
|
(2.08 |
)% |
|
|
(5.17 |
)% |
|
|
(9.14 |
)% |
While an instantaneous and severe shift in interest rates was used in this analysis to provide an estimate of exposure under these scenarios, we believe that a gradual shift in interest rates would have a more modest impact. Further, the earnings simulation model does not take into account factors such as future balance sheet growth, changes in product mix, changes in yield curve relationships, and changing product spreads that could mitigate any potential adverse impact of changes in interest rates. Moreover, since EVE measures the discounted present value of cash flows over the estimated lives of instruments, the change in EVE does not directly correlate to the degree that earnings would be impacted over a shorter time horizon (i.e., the current year). Further, EVE does not take into account factors such as future balance sheet growth, changes in product mix, changes in yield curve relationships, hedging strategies that we may institute, and changing product spreads that could mitigate any potential adverse impact of changes in interest rates.
Interest rate risk (sensitivity) management focuses on the earnings risk associated with changing interest rates. Management seeks to maintain profitability in both immediate and long-term earnings through funds management/interest rate risk management. The Company’s rate sensitivity position has an important impact on earnings. Senior management of the Company analyzes the rate
59
sensitivity position quarterly. Management focuses on the spread between the Company’s cost of funds and interest yields generated primarily through loans and investments.
In addition to the ALCO, the Audit Committee and the Risk Oversight Committee, as well as the Chief Risk Officer are all responsible for the “risk management framework” of the Company. The ALCO meets monthly and the Audit and Risk Oversight Committees meet quarterly, with the authority to convene additional meetings, as circumstances require.
Off Balance Sheet Arrangements
At September 30, 2024, we had unfunded loan commitments outstanding of $1,126,833,000 and outstanding standby letters of credit of $103,322,000, compared to $1,010,899,000 and $106,420,000, respectively, at December 31, 2023. Because these commitments generally have fixed expiration dates and many will expire without being drawn upon, the total commitment level does not necessarily represent future cash requirements. If needed to fund these outstanding commitments, the Bank has the ability to liquidate federal funds sold or securities available-for-sale or on a short-term basis to borrow and purchase federal funds from other financial institutions. Additionally, the Bank could sell participations in these or other loans to correspondent banks. As mentioned above, the Bank has historically been able to fund its ongoing liquidity needs through its stable core deposit base, loan payments, investment security maturities and short-term borrowings.
Capital Position and Dividends
At September 30, 2024, total shareholders’ equity was $483,483,000, or 9.21% of total assets, which compares with $429,405,000, or 8.86% of total assets, at December 31, 2023. The dollar increase in shareholders’ equity during the nine months ended September 30, 2024 is the result of the net effect of $842,000 related to stock option compensation, restricted share awards, restricted share units, and performance share units, the Company’s net earnings of $41,591,000, proceeds from the issuance of common stock related to exercise of stock options of $81,000 and a decrease of $19,474,000 in unrealized losses on investment securities (described elsewhere in this report), net of applicable income taxes of $6,891,000. Also included was $92,000 of net earnings attributable to Encompass. The increase in shareholders' equity was partially offset by cash dividends declared of $20,552,000, net of $14,731,000 reinvested under the Company’s dividend reinvestment plan, and the $2,181,000 repurchase of common stock from a limited number of the Company's shareholders that occurred in the second quarter of 2024.
Share Repurchase Program
On October 28, 2024, the Company's board of directors authorized a share repurchase program for up to $4.0 million of the Company's outstanding common stock. The authorization for this program remains in effect through March 31, 2025. Share repurchases under the authorized program may be made from time to time in privately negotiated transactions, at the discretion of the management of the Company. The approved share repurchase program does not obligate the Company to repurchase any dollar amount or number of shares, and the program may be extended, modified, suspended or discontinued at any time. The timing of these repurchases will depend on market conditions and other requirements. As of the date of this filing, the Company has not repurchased any shares of its common stock under its share repurchase program.
60
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company’s primary component of market risk is interest rate volatility. Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on a large portion of the Company’s assets and liabilities, and the market value of all interest-earning assets and interest-bearing liabilities, other than those which possess a short term to maturity. Based upon the nature of the Company’s operations, the Company is not subject to foreign currency exchange or commodity price risk.
Interest rate risk (sensitivity) management focuses on the earnings risk associated with changing interest rates. Management seeks to maintain profitability in both short-term and long-term earnings through funds management/interest rate risk management. The Company’s rate sensitivity position has an important impact on earnings. Senior management of the Company meets monthly to analyze the rate sensitivity position. These meetings focus on the spread between the cost of funds and interest yields generated primarily through loans and investments.
There have been no material changes in reported market risks during the nine months ended September 30, 2024.
Item 4. Controls and Procedures
The Company maintains disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Exchange Act, that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and its Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this report. Based on the evaluation of these disclosure controls and procedures, its Chief Executive Officer and its Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.
Overall, there were no changes in the Company’s internal control over financial reporting during the Company’s fiscal quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
61
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Not applicable
Item 1A. RISK FACTORS
There were no material changes to the Company’s risk factors as previously disclosed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Item 3. DEFAULTS UPON SENIOR SECURITIES
Item 4. MINE SAFETY DISCLOSURES
Not applicable
Item 5. OTHER INFORMATION
Rule 10b5-1 Trading Plan Disclosure
During the quarter ended September 30, 2024, no officer or director of the Company
Important Information Regarding Stock Transfers
The Bank serves as the Company's transfer agent and all transfers of shares of the capital stock of the Company, including sales or purchases, shall be made only on the books of the Company through the Bank, as the Company's transfer agent. In order for the Company’s transfer agent to record any transfer of the capital stock of the Company, the Company’s transfer agent must be provided with the actual name and contact information of the transferor(s) and transferee(s) so the transactions may be recorded on the books of the Company by the Company’s transfer agent. If a transferor or transferee is a trust or entity, then the appropriate authority documentation will need to be provided as deemed necessary in the reasonable discretion of the Company’s transfer agent. The Company’s transfer agent will be happy to furnish customary transaction forms necessary for transfer of the capital stock of the Company, including by sale or purchase, upon notice to the Company's stock department at 615-443-5900 (or WBHCStocktransfer@wilsonbank.com).
62
Item 6. EXHIBITS
31.1 |
|
|
|
|
|
31.2 |
|
|
|
|
|
32.1 |
|
|
|
|
|
32.2 |
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) |
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents. |
|
|
|
104 |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
63
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.
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WILSON BANK HOLDING COMPANY |
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(Registrant) |
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DATE: November 8, 2024 |
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/s/ John C. McDearman III |
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John C. McDearman III |
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President and Chief Executive Officer (Principal Executive Officer) |
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DATE: November 8, 2024 |
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/s/ Kayla Hawkins |
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Kayla Hawkins |
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Executive Vice President & Chief Financial Officer (Principal Financial and Accounting Officer) |
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