NOTE 1. BASIS OF PRESENTATION
We, Summit Financial Group, Inc. and subsidiary, prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America for interim financial information and with instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for annual year end financial statements. In our opinion, all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature.
The presentation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from these estimates. You should carefully consider each risk factor discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021.
The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the full year. The consolidated financial statements and notes included herein should be read in conjunction with our 2021 audited financial statements and Annual Report on Form 10-K.
NOTE 2. SIGNIFICANT NEW AUTHORITATIVE ACCOUNTING GUIDANCE
Recently Adopted
In October 2020, the FASB issued ASU 2020-08 Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable fees and Other Costs which clarifies that an entity should reevaluate whether a callable debt security is within the scope of ASC paragraph 310-20-35-33 for each reporting period. For public business entities, the ASU is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Early adoption is not permitted. All entities should apply ASU No. 2020-08 on a prospective basis as of the beginning of the period of adoption for existing or newly purchased callable debt securities. The adoption of ASU 2020-08 did not have a material impact on our consolidated financial statements.
Pending Adoption
In March 2020, the Financial Accounting Standards Board (FASB) issued ASU 2020-04 Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting 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 LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. At this time, we do not anticipate any material adverse impact to our business operation or financial results during the period of transition.
In October 2021, the FASB issued ASU 2021-08 Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The ASU requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. The amendments improve comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. The ASU is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2022. Entities should apply the amendments prospectively and early adoption is permitted. We do not expect the adoption of ASU 2021-08 to have a material impact on our consolidated financial statements.
In March 2022, the Financial Accounting Standards Board (FASB) issued ASU No. 2022-01, Derivatives and Hedging (Topic 815), Fair Value Hedging—Portfolio Layer Method. ASU 2022-01 clarifies the guidance in ASC 815 on fair value hedge accounting of interest rate risk for portfolios of financial assets and is intended to better align hedge accounting with an organization’s risk management strategies. In 2017, FASB issued ASU 2017-12 to better align the economic results of risk management activities with hedge accounting. One of the major provisions of that standard was the addition of the last-of-layer hedging method. For a closed portfolio of fixed-rate prepayable financial assets or one or more beneficial interests secured by a portfolio of prepayable financial instruments, such as mortgages or mortgage-backed securities, the last-of-layer method allows an entity to hedge its exposure to fair value changes due to changes in interest rates for a portion of the portfolio that is not
expected to be affected by prepayments, defaults, and other events affecting the timing and amount of cash flows. ASU 2022-01 renames that method the portfolio layer method. For public business entities, ASU 2022-01 is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. We do not expect the adoption of ASU 2022-01 to have a material impact on our consolidated financial statements.
In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings in ASC Subtopic 310-40, Receivables - Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Additionally, ASU 2022-02 requires entities to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of ASC Subtopic 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost. ASU 2022-02 will be effective for us on January 1, 2023 though early adoption is permitted. The adoption of ASU 2022-02 is not expected to have a significant impact on our financial statements.
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The ASU is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted. We do not expect the adoption of ASU 2022-03 to have a material impact on our consolidated financial statements.
NOTE 3. FAIR VALUE MEASUREMENTS
The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis.
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| Balance at | | Fair Value Measurements Using: |
Dollars in thousands | June 30, 2022 | | Level 1 | | Level 2 | | Level 3 |
Debt securities available for sale | | | | | | | |
U.S. Government sponsored agencies and corporations | $ | 26,431 | | | $ | — | | | $ | 26,431 | | | $ | — | |
Residential mortgage-backed securities: | | | | | | | |
Government sponsored agencies | 53,780 | | | — | | | 53,780 | | | — | |
Nongovernment sponsored entities | 40,391 | | | — | | | 40,391 | | | — | |
State and political subdivisions | 96,648 | | | — | | | 96,648 | | | — | |
Corporate debt securities | 31,550 | | | — | | | 27,800 | | | 3,750 | |
Asset-backed securities | 24,979 | | | — | | | 24,979 | | | — | |
| | | | | | | |
Tax-exempt state and political subdivisions | 94,270 | | | — | | | 94,270 | | | — | |
Total debt securities available for sale | $ | 368,049 | | | $ | — | | | $ | 364,299 | | | $ | 3,750 | |
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Derivative financial assets | | | | | | | |
Interest rate caps | $ | 24,890 | | | $ | — | | | $ | 24,890 | | | $ | — | |
Interest rate swaps | 6,562 | | | — | | | 6,562 | | | — | |
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| Balance at | | Fair Value Measurements Using: |
Dollars in thousands | December 31, 2021 | | Level 1 | | Level 2 | | Level 3 |
Debt securities available for sale | | | | | | | |
U.S. Government sponsored agencies and corporations | $ | 36,629 | | | $ | — | | | $ | 36,629 | | | $ | — | |
Residential mortgage-backed securities: | | | | | | | |
Government sponsored agencies | 62,211 | | | — | | | 62,211 | | | — | |
Nongovernment sponsored entities | 26,586 | | | — | | | 26,586 | | | — | |
State and political subdivisions | 137,786 | | | — | | | 137,786 | | | — | |
Corporate debt securities | 30,278 | | | — | | | 30,278 | | | — | |
Asset-backed securities | 24,883 | | | — | | | 24,883 | | | — | |
| | | | | | | |
Tax-exempt state and political subdivisions | 82,730 | | | — | | | 82,730 | | | — | |
Total debt securities available for sale | $ | 401,103 | | | $ | — | | | $ | 401,103 | | | $ | — | |
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Derivative financial assets | | | | | | | |
Interest rate caps | $ | 11,187 | | | $ | — | | | $ | 11,187 | | | $ | — | |
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Derivative financial liabilities | | | | | | | |
Interest rate swaps | $ | 1,124 | | | $ | — | | | $ | 1,124 | | | $ | — | |
We may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis are included in the table below.
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| Balance at | | Fair Value Measurements Using: |
Dollars in thousands | June 30, 2022 | | Level 1 | | Level 2 | | Level 3 |
Residential mortgage loans held for sale | $ | 244 | | | $ | — | | | $ | 244 | | | $ | — | |
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Collateral-dependent loans with an ACLL | | | | | | | |
| | | | | | | |
Commercial real estate | $ | 3,051 | | | $ | — | | | $ | 3,051 | | | $ | — | |
Construction and development | 350 | | | — | | | 350 | | | — | |
Residential real estate | 337 | | | — | | | 182 | | | 155 | |
| | | | | | | |
Total collateral-dependent loans with an ACLL | $ | 3,738 | | | $ | — | | | $ | 3,583 | | | $ | 155 | |
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Property held for sale | | | | | | | |
| | | | | | | |
Commercial real estate | $ | 351 | | | $ | — | | | $ | 351 | | | $ | — | |
Construction and development | 4,625 | | | — | | | 4,625 | | | — | |
Residential real estate | — | | | — | | | — | | | — | |
Total property held for sale | $ | 4,976 | | | $ | — | | | $ | 4,976 | | | $ | — | |
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| Balance at | | Fair Value Measurements Using: |
Dollars in thousands | December 31, 2021 | | Level 1 | | Level 2 | | Level 3 |
Residential mortgage loans held for sale | $ | 227 | | | $ | — | | | $ | 227 | | | $ | — | |
| | | | | | | |
Collateral-dependent loans with an ACLL | | | | | | | |
| | | | | | | |
Commercial real estate | $ | 2,417 | | | $ | — | | | $ | 2,417 | | | $ | — | |
Construction and development | 693 | | | — | | | 693 | | | — | |
Residential real estate | 528 | | | — | | | 528 | | | — | |
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Total collateral-dependent loans with an ACLL | $ | 3,638 | | | $ | — | | | $ | 3,638 | | | $ | — | |
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Property held for sale | | | | | | | |
| | | | | | | |
Commercial real estate | $ | 1,170 | | | $ | — | | | $ | 1,170 | | | $ | — | |
Construction and development | 7,893 | | | — | | | 7,893 | | | — | |
Residential real estate | 27 | | | — | | | 27 | | | — | |
Total property held for sale | $ | 9,090 | | | $ | — | | | $ | 9,090 | | | $ | — | |
The carrying values and estimated fair values of our financial instruments are summarized below:
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| | June 30, 2022 | | Fair Value Measurements Using: |
Dollars in thousands | | Carrying Value | | Estimated Fair Value | | Level 1 | Level 2 | Level 3 |
Financial assets | | | | | | | | |
Cash and cash equivalents | | $ | 49,601 | | | $ | 49,601 | | | $ | 17,921 | | $ | 31,680 | | $ | — | |
Debt securities available for sale | | 368,049 | | | 368,049 | | | — | | 364,299 | | 3,750 | |
Debt securities held to maturity | | 97,116 | | | 88,442 | | | — | | 88,442 | | — | |
Equity investments | | 19,905 | | | 19,905 | | | — | | 19,905 | | — | |
Other investments | | 18,329 | | | 18,329 | | | — | | 18,329 | | — | |
Loans held for sale | | 244 | | | 244 | | | — | | 244 | | — | |
Loans, net | | 2,941,813 | | | 2,971,493 | | | — | | 3,583 | | 2,967,910 | |
Accrued interest receivable | | 11,794 | | | 11,794 | | | — | | 11,794 | | — | |
Cash surrender value of life insurance policies and annuities | | 71,073 | | | 71,073 | | | — | | 71,073 | | — | |
Derivative financial assets | | 31,452 | | | 31,452 | | | — | | 31,452 | | — | |
| | $ | 3,609,376 | | | $ | 3,630,382 | | | $ | 17,921 | | $ | 640,801 | | $ | 2,971,660 | |
Financial liabilities | | | | | | | | |
Deposits | | $ | 2,975,304 | | | $ | 2,979,781 | | | $ | — | | $ | 2,979,781 | | $ | — | |
Short-term borrowings | | 291,447 | | | 291,447 | | | — | | 291,447 | | — | |
Long-term borrowings | | 669 | | | 715 | | | — | | 715 | | — | |
Subordinated debentures | | 103,053 | | | 95,997 | | | — | | — | | 95,997 | |
Subordinated debentures owed to unconsolidated subsidiary trusts | | 19,589 | | | 19,589 | | | — | | 19,589 | | — | |
Accrued interest payable | | 963 | | | 963 | | | — | | 963 | | — | |
| | | | | | | | |
| | $ | 3,391,025 | | | $ | 3,388,492 | | | $ | — | | $ | 3,292,495 | | $ | 95,997 | |
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| | December 31, 2021 | | Fair Value Measurements Using: |
Dollars in thousands | | Carrying Value | | Estimated Fair Value | | Level 1 | Level 2 | Level 3 |
Financial assets | | | | | | | | |
Cash and cash equivalents | | $ | 78,458 | | | $ | 78,458 | | | $ | 21,006 | | $ | 57,452 | | $ | — | |
Debt securities available for sale | | 401,103 | | | 401,103 | | | — | | 401,103 | | — | |
Debt securities held to maturity | | 98,060 | | | 101,242 | | | — | | 101,242 | | — | |
Equity investments | | 20,202 | | | 20,202 | | | — | | 20,202 | | — | |
Other investments | | 11,304 | | | 11,304 | | | — | | 11,304 | | — | |
Loans held for sale, net | | 227 | | | 227 | | | — | | 227 | | — | |
Loans, net | | 2,729,093 | | | 2,726,959 | | | — | | 3,638 | | 2,723,321 | |
Accrued interest receivable | | 10,578 | | | 10,578 | | | — | | 10,578 | | — | |
Cash surrender value of life insurance policies and annuities | | 60,613 | | | 60,613 | | | — | | 60,613 | | — | |
Derivative financial assets | | 11,187 | | | 11,187 | | | — | | 11,187 | | — | |
| | $ | 3,420,825 | | | $ | 3,421,873 | | | $ | 21,006 | | $ | 677,546 | | $ | 2,723,321 | |
Financial liabilities | | | | | | | | |
Deposits | | $ | 2,943,089 | | | $ | 2,944,722 | | | $ | — | | $ | 2,944,722 | | $ | — | |
Short-term borrowings | | 140,146 | | | 140,146 | | | — | | 140,146 | | — | |
Long-term borrowings | | 679 | | | 795 | | | — | | 795 | | — | |
Subordinated debentures | | 102,891 | | | 103,623 | | | — | | — | | 103,623 | |
Subordinated debentures owed to unconsolidated subsidiary trusts | | 19,589 | | | 19,589 | | | — | | 19,589 | | — | |
Accrued interest payable | | 788 | | | 788 | | | — | | 788 | | — | |
Derivative financial liabilities | | 1,124 | | | 1,124 | | | — | | 1,124 | | — | |
| | $ | 3,208,306 | | | $ | 3,210,787 | | | $ | — | | $ | 3,107,164 | | $ | 103,623 | |
NOTE 4. EARNINGS PER SHARE
The computations of basic and diluted earnings per share follow:
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| | For the Three Months Ended June 30, |
| | 2022 | | 2021 |
Dollars in thousands,except per share amounts | | Net Income (Numerator) | | Common Shares (Denominator) | | Per Share | | Net Income (Numerator) | | Common Shares (Denominator) | | Per Share |
Net income | | $ | 12,014 | | | | | | | $ | 10,560 | | | | | |
Less preferred stock dividends | | (225) | | | | | | | (139) | | | | | |
| | | | | | | | | | | | |
Basic earnings per share | | $ | 11,789 | | | 12,754,724 | | | $ | 0.92 | | | $ | 10,421 | | | 12,952,357 | | | $ | 0.80 | |
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Effect of dilutive securities: | | | | | | | | | | | | |
Stock options | | | | — | | | | | | | 4,534 | | | |
Stock appreciation rights ("SARs") | | | | 51,205 | | | | | | | 51,244 | | | |
Restricted stock units ("RSUs") | | | | 4,245 | | | | | | | 5,579 | | | |
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Diluted earnings per share | | $ | 11,789 | | | 12,810,174 | | | $ | 0.92 | | | $ | 10,421 | | | 13,013,714 | | | $ | 0.80 | |
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| | For the Six Months Ended June 30, |
| | 2022 | | 2021 |
Dollars in thousands,except per share amounts | | Net Income (Numerator) | | Common Shares (Denominator) | | Per Share | | Net Income (Numerator) | | Common Shares (Denominator) | | Per Share |
Net income | | $ | 23,707 | | | | | | | $ | 20,919 | | | | | |
Less preferred stock dividends | | (450) | | | | | | | (139) | | | | | |
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Basic earnings per share | | $ | 23,257 | | | 12,750,037 | | | $ | 1.82 | | | $ | 20,780 | | | 12,947,228 | | | $ | 1.61 | |
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Effect of dilutive securities: | | | | | | | | | | | | |
Stock options | | | | — | | | | | | | 4,522 | | | |
Stock appreciation rights ("SARs") | | | | 51,192 | | | | | | | 50,513 | | | |
Restricted stock units ("RSUs") | | | | 4,643 | | | | | | | 5,626 | | | |
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Diluted earnings per share | | $ | 23,257 | | | 12,805,872 | | | $ | 1.82 | | | $ | 20,780 | | | 13,007,889 | | | $ | 1.60 | |
Stock option and SAR grants are disregarded in this computation if they are determined to be anti-dilutive. All stock options were dilutive for the three and six months ended June 30, 2021. Our anti-dilutive SARs were 237,101 for the three and six months ended June 30, 2022 and totaled 222,740 for the three and six months ended June 30, 2021. All RSUs were dilutive for all periods presented.
NOTE 5. DEBT SECURITIES
Debt Securities Available for Sale
The amortized cost, unrealized gains, unrealized losses and estimated fair values of debt securities available for sale at June 30, 2022 and December 31, 2021 are summarized as follows:
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| June 30, 2022 |
| Amortized | | Unrealized | | Estimated |
Dollars in thousands | Cost | | Gains | | Losses | | Fair Value |
Debt Securities Available for Sale | | | | | | | |
Taxable debt securities | | | | | | | |
U.S. Government and agencies and corporations | $ | 26,657 | | | $ | 107 | | | $ | 333 | | | $ | 26,431 | |
Residential mortgage-backed securities: | | | | | | | |
Government-sponsored agencies | 56,268 | | | 248 | | | 2,736 | | | 53,780 | |
Nongovernment-sponsored entities | 41,827 | | | — | | | 1,436 | | | 40,391 | |
State and political subdivisions | | | | | | | |
General obligations | 76,016 | | | 3 | | | 14,189 | | | 61,830 | |
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Sales tax revenues | 6,900 | | | — | | | 1,473 | | | 5,427 | |
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Various tax revenues | 13,015 | | | — | | | 1,943 | | | 11,072 | |
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Other revenues | 21,635 | | | — | | | 3,316 | | | 18,319 | |
Corporate debt securities | 32,863 | | | — | | | 1,313 | | | 31,550 | |
Asset-backed securities | 25,604 | | | — | | | 625 | | | 24,979 | |
Total taxable debt securities | 300,785 | | | 358 | | | 27,364 | | | 273,779 | |
Tax-exempt debt securities | | | | | | | |
State and political subdivisions | | | | | | | |
General obligations | 64,642 | | | 168 | | | 5,044 | | | 59,766 | |
Water and sewer revenues | 14,034 | | | 1 | | | 940 | | | 13,095 | |
Lease revenues | 7,496 | | | 61 | | | 380 | | | 7,177 | |
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Various tax revenues | 7,919 | | | — | | | 1,139 | | | 6,780 | |
Other revenues | 8,589 | | | — | | | 1,137 | | | 7,452 | |
Total tax-exempt debt securities | 102,680 | | | 230 | | | 8,640 | | | 94,270 | |
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Total debt securities available for sale | $ | 403,465 | | | $ | 588 | | | $ | 36,004 | | | $ | 368,049 | |
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| December 31, 2021 |
| Amortized | | Unrealized | | Estimated |
Dollars in thousands | Cost | | Gains | | Losses | | Fair Value |
Debt Securities Available for Sale | | | | | | | |
Taxable debt securities | | | | | | | |
U.S. Government and agencies and corporations | $ | 36,820 | | | $ | 169 | | | $ | 360 | | | $ | 36,629 | |
Residential mortgage-backed securities: | | | | | | | |
Government-sponsored agencies | 61,646 | | | 1,153 | | | 588 | | | 62,211 | |
Nongovernment-sponsored entities | 26,839 | | | 26 | | | 279 | | | 26,586 | |
State and political subdivisions | | | | | | | |
General obligations | 78,627 | | | 377 | | | 1,323 | | | 77,681 | |
Water and sewer revenues | 9,839 | | | 294 | | | — | | | 10,133 | |
Lease revenues | 6,401 | | | 215 | | | 26 | | | 6,590 | |
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Income tax revenues | 6,487 | | | 250 | | | 3 | | | 6,734 | |
Sales tax revenues | 6,909 | | | 19 | | | 99 | | | 6,829 | |
Various tax revenues | 13,031 | | | 218 | | | 203 | | | 13,046 | |
Utility revenues | 7,153 | | | 137 | | | 130 | | | 7,160 | |
Other revenues | 9,291 | | | 331 | | | 9 | | | 9,613 | |
Corporate debt securities | 30,524 | | | 78 | | | 324 | | | 30,278 | |
Asset-backed securities | 24,873 | | | 97 | | | 87 | | | 24,883 | |
Total taxable debt securities | 318,440 | | | 3,364 | | | 3,431 | | | 318,373 | |
Tax-exempt debt securities | | | | | | | |
State and political subdivisions | | | | | | | |
General obligations | 47,583 | | | 1,526 | | | 270 | | | 48,839 | |
Water and sewer revenues | 10,618 | | | 375 | | | 15 | | | 10,978 | |
Lease revenues | 7,974 | | | 553 | | | 31 | | | 8,496 | |
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Other revenues | 14,028 | | | 405 | | | 16 | | | 14,417 | |
Total tax-exempt debt securities | 80,203 | | | 2,859 | | | 332 | | | 82,730 | |
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Total debt securities available for sale | $ | 398,643 | | | $ | 6,223 | | | $ | 3,763 | | | $ | 401,103 | |
Accrued interest receivable on debt securities available for sale totaled $2.3 million at June 30, 2022 and December 31, 2021, respectively and is included in accrued interest and fees receivable in the accompanying consolidated balance sheets.
The below information is relative to the five states where issuers with the highest volume of state and political subdivision securities held in our available for sale portfolio are located. We own no such securities of any single issuer which we deem to be a concentration.
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| June 30, 2022 |
| Amortized | | Unrealized | | Estimated |
Dollars in thousands | Cost | | Gains | | Losses | | Fair Value |
| | | | | | | |
California | $ | 45,491 | | | $ | — | | | $ | 8,002 | | | $ | 37,489 | |
Texas | 23,573 | | | 37 | | | 3,635 | | | 19,975 | |
Michigan | 19,584 | | | — | | | 1,821 | | | 17,763 | |
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Washington | 14,399 | | | 67 | | | 1,300 | | | 13,166 | |
Oregon | 14,746 | | | — | | | 3,070 | | | 11,676 | |
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Management performs pre-purchase and ongoing analysis to confirm that all investment securities meet applicable credit quality standards.
The maturities, amortized cost and estimated fair values of debt securities available for sale at June 30, 2022, are summarized as follows:
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Dollars in thousands | | Amortized Cost | | Estimated Fair Value |
Due in one year or less | | $ | 36,971 | | | $ | 36,035 | |
Due from one to five years | | 78,624 | | | 76,279 | |
Due from five to ten years | | 57,340 | | | 54,286 | |
Due after ten years | | 230,530 | | | 201,449 | |
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Total | | $ | 403,465 | | | $ | 368,049 | |
The proceeds from sales, calls and maturities of debt securities available for sale, including principal payments received on mortgage-backed obligations, and the related gross gains and losses realized, for the six months ended June 30, 2022 and 2021 are as follows:
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| Proceeds from | | Gross realized |
Dollars in thousands | Sales | | Calls and Maturities | | Principal Payments | | Gains | | Losses |
For the Six Months Ended June 30, | | | | | | | | | |
2022 | $ | 52,922 | | | $ | 1,545 | | | $ | 18,247 | | | $ | 209 | | | $ | 651 | |
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2021 | $ | 8,241 | | | $ | 3,055 | | | $ | 14,812 | | | $ | 628 | | | $ | 26 | |
Provided below is a summary of debt securities available for sale which were in an unrealized loss position at June 30, 2022 and December 31, 2021.
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| June 30, 2022 |
| | | Less than 12 months | | 12 months or more | | Total |
Dollars in thousands | # of securities in loss position | | Estimated Fair Value | | Unrealized Loss | | Estimated Fair Value | | Unrealized Loss | | Estimated Fair Value | | Unrealized Loss |
Taxable debt securities | | | | | | | | | | | | | |
U.S. Government agencies and corporations | 29 | | $ | 5,927 | | | $ | 57 | | | $ | 14,390 | | | $ | 276 | | | $ | 20,317 | | | $ | 333 | |
Residential mortgage-backed securities: | | | | | | | | | | | | | |
Government-sponsored agencies | 43 | | 32,842 | | | 2,506 | | | 6,961 | | | 230 | | | 39,803 | | | 2,736 | |
Nongovernment-sponsored entities | 19 | | 28,540 | | | 1,115 | | | 4,430 | | | 321 | | | 32,970 | | | 1,436 | |
State and political subdivisions: | | | | | | | | | | | | | |
General obligations | 53 | | 59,419 | | | 13,831 | | | 1,416 | | | 358 | | | 60,835 | | | 14,189 | |
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Sales tax revenues | 4 | | 5,427 | | | 1,473 | | | — | | | — | | | 5,427 | | | 1,473 | |
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Various tax revenues | 10 | | 9,667 | | | 1,528 | | | 1,405 | | | 415 | | | 11,072 | | | 1,943 | |
Other revenues | 19 | | 18,319 | | | 3,316 | | | — | | | — | | | 18,319 | | | 3,316 | |
Corporate debt securities | 21 | | 12,487 | | | 610 | | | 9,640 | | | 703 | | | 22,127 | | | 1,313 | |
Asset-backed securities | 16 | | 22,462 | | | 373 | | | 2,516 | | | 252 | | | 24,978 | | | 625 | |
Tax-exempt debt securities | | | | | | | | | | | | | |
State and political subdivisions: | | | | | | | | | | | | | |
General obligations | 28 | | 40,134 | | | 4,183 | | | 6,411 | | | 861 | | | 46,545 | | | 5,044 | |
Water and sewer revenues | 10 | | 12,419 | | | 940 | | | — | | | — | | | 12,419 | | | 940 | |
Lease revenues | 1 | | 2,026 | | | 380 | | | — | | | — | | | 2,026 | | | 380 | |
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Various tax revenues | 4 | | 6,647 | | | 1,116 | | | 133 | | | 23 | | | 6,780 | | | 1,139 | |
Other revenues | 6 | | 7,307 | | | 1,137 | | | — | | | — | | | 7,307 | | | 1,137 | |
Total | 263 | | $ | 263,623 | | | $ | 32,565 | | | $ | 47,302 | | | $ | 3,439 | | | $ | 310,925 | | | $ | 36,004 | |
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| December 31, 2021 |
| | | Less than 12 months | | 12 months or more | | Total |
Dollars in thousands | # of securities in loss position | | Estimated Fair Value | | Unrealized Loss | | Estimated Fair Value | | Unrealized Loss | | Estimated Fair Value | | Unrealized Loss |
Taxable debt securities | | | | | | | | | | | | | |
U.S. Government agencies and corporations | 41 | | $ | 6,630 | | | $ | 23 | | | $ | 21,061 | | | $ | 337 | | | $ | 27,691 | | | $ | 360 | |
Residential mortgage-backed securities: | | | | | | | | | | | | | |
Government-sponsored agencies | 19 | | 19,828 | | | 376 | | | 6,886 | | | 212 | | | 26,714 | | | 588 | |
Nongovernment-sponsored entities | 6 | | 4,345 | | | 61 | | | 7,591 | | | 218 | | | 11,936 | | | 279 | |
State and political subdivisions: | | | | | | | | | | | | | |
General obligations | 41 | | 62,543 | | | 1,286 | | | 1,055 | | | 37 | | | 63,598 | | | 1,323 | |
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Lease revenues | 2 | | 1,564 | | | 14 | | | 494 | | | 12 | | | 2,058 | | | 26 | |
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Income tax revenues | 1 | | 721 | | | 3 | | | — | | | — | | | 721 | | | 3 | |
Sales tax revenues | 2 | | 6,052 | | | 99 | | | — | | | — | | | 6,052 | | | 99 | |
Various tax revenues | 5 | | 8,389 | | | 203 | | | — | | | — | | | 8,389 | | | 203 | |
Utility revenues | 3 | | 5,175 | | | 130 | | | — | | | — | | | 5,175 | | | 130 | |
Other revenues | 1 | | 744 | | | 9 | | | — | | | — | | | 744 | | | 9 | |
Corporate debt securities | 10 | | 10,534 | | | 314 | | | 990 | | | 10 | | | 11,524 | | | 324 | |
Asset-backed securities | 8 | | 10,522 | | | 86 | | | 751 | | | 1 | | | 11,273 | | | 87 | |
Tax-exempt debt securities | | | | | | | | | | | | | |
State and political subdivisions: | | | | | | | | | | | | | |
General obligations | 13 | | 25,555 | | | 261 | | | 853 | | | 9 | | | 26,408 | | | 270 | |
Water and sewer revenues | 1 | | 904 | | | 15 | | | — | | | — | | | 904 | | | 15 | |
Lease revenues | 1 | | 2,396 | | | 31 | | | — | | | — | | | 2,396 | | | 31 | |
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Other revenues | 3 | | 3,558 | | | 15 | | | 156 | | | 1 | | | 3,714 | | | 16 | |
Total | 157 | | $ | 169,460 | | | $ | 2,926 | | | $ | 39,837 | | | $ | 837 | | | $ | 209,297 | | | $ | 3,763 | |
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We do not intend to sell the above securities, and it is more likely than not that we will not be required to sell these securities before recovery of their amortized cost bases. We believe that this decline in value is primarily attributable to changes in market interest rates, and in some cases limited market liquidity and is not due to credit quality as none of these securities are in default and all carry above investment grade ratings. Accordingly, no allowance for credit losses has been recognized relative to these securities.
Debt Securities Held to Maturity
The amortized cost, unrealized gains, unrealized losses and estimated fair values of debt securities held to maturity at June 30, 2022 and December 31, 2021 are summarized as follows:
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| June 30, 2022 |
| Amortized | | Unrealized | | Estimated |
Dollars in thousands | Cost | | Gains | | Losses | | Fair Value |
Debt Securities Held to Maturity | | | | | | | |
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Tax-exempt debt securities | | | | | | | |
State and political subdivisions: | | | | | | | |
General obligations | $ | 71,107 | | | $ | — | | | $ | 6,009 | | | $ | 65,098 | |
Water and sewer revenues | 8,100 | | | — | | | 555 | | | 7,545 | |
Lease revenues | 4,275 | | | — | | | 507 | | | 3,768 | |
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Sales tax revenues | 4,549 | | | — | | | 548 | | | 4,001 | |
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Various tax revenues | 5,553 | | | — | | | 803 | | | 4,750 | |
Other revenues | 3,532 | | | — | | | 252 | | | 3,280 | |
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Total debt securities held to maturity | $ | 97,116 | | | $ | — | | | $ | 8,674 | | | $ | 88,442 | |
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| December 31, 2021 |
| Amortized | | Unrealized | | Estimated |
Dollars in thousands | Cost | | Gains | | Losses | | Fair Value |
Debt Securities Held to Maturity | | | | | | | |
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Tax-exempt debt securities | | | | | | | |
State and political subdivisions: | | | | | | | |
General obligations | $ | 71,807 | | | $ | 2,583 | | | $ | — | | | $ | 74,390 | |
Water and sewer revenues | 8,192 | | | 210 | | | — | | | 8,402 | |
Lease revenues | 4,316 | | | 74 | | | — | | | 4,390 | |
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Sales tax revenues | 4,582 | | | 106 | | | — | | | 4,688 | |
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Other revenues | 9,163 | | | 214 | | | 5 | | | 9,372 | |
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Total debt securities held to maturity | $ | 98,060 | | | $ | 3,187 | | | $ | 5 | | | $ | 101,242 | |
Accrued interest receivable on debt securities held to maturity totaled $1.1 million at June 30, 2022 and December 31, 2021, respectively and is included in accrued interest and fees receivable in the accompanying consolidated balance sheets.
The below information is relative to the five states where issuers with the highest volume of state and political subdivision securities held in our held to maturity portfolio are located. We own no such securities of any single issuer which we deem to be a concentration.
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| June 30, 2022 |
| Amortized | | Unrealized | | Estimated |
Dollars in thousands | Cost | | Gains | | Losses | | Fair Value |
Texas | $ | 15,251 | | | $ | — | | | $ | 1,283 | | | $ | 13,968 | |
California | 9,770 | | | — | | | 669 | | | 9,101 | |
Pennsylvania | 8,557 | | | — | | | 692 | | | 7,865 | |
Florida | 7,530 | | | — | | | 797 | | | 6,733 | |
Michigan | 6,969 | | | — | | | 684 | | | 6,285 | |
The following table displays the amortized cost of held to maturity debt securities by credit rating at June 30, 2022 and December 31, 2021.
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| June 30, 2022 |
Dollars in thousands | AAA | AA | A | BBB | Below Investment Grade |
Tax-exempt state and political subdivisions | $ | 12,965 | | $ | 76,714 | | $ | 7,437 | | $ | — | | $ | — | |
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| December 31, 2021 |
Dollars in thousands | AAA | AA | A | BBB | Below Investment Grade |
Tax-exempt state and political subdivisions | $ | 15,450 | | $ | 75,119 | | $ | 7,491 | | $ | — | | $ | — | |
We owned no past due or nonaccrual held to maturity debt securities at June 30, 2022 or December 31, 2021.
The maturities, amortized cost and estimated fair values of held to maturity debt securities at June 30, 2022, are summarized as follows:
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Dollars in thousands | | Amortized Cost | | Estimated Fair Value |
Due in one year or less | | $ | — | | | $ | — | |
Due from one to five years | | — | | | — | |
Due from five to ten years | | 2,843 | | | 2,609 | |
Due after ten years | | 94,273 | | | 85,833 | |
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Total | | $ | 97,116 | | | $ | 88,442 | |
There were no proceeds from calls and maturities of debt securities held to maturity for the six months ended June 30, 2022 or for the year ended December 31, 2021.
At June 30, 2022, no allowance for credit losses on debt securities held to maturity has been recognized.
NOTE 6. LOANS AND ALLOWANCE FOR CREDIT LOSSES ON LOANS
Loans
The following table presents the amortized cost of loans held for investment:
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Dollars in thousands | | June 30, 2022 | | December 31, 2021 |
Commercial | | $ | 455,202 | | | $ | 365,301 | |
Commercial real estate - owner occupied | | | | |
Professional & medical | | 147,912 | | | 150,759 | |
Retail | | 193,806 | | | 190,304 | |
Other | | 160,434 | | | 143,645 | |
Commercial real estate - non-owner occupied | | | | |
Hotels & motels | | 139,371 | | | 128,450 | |
Mini-storage | | 52,378 | | | 59,045 | |
Multifamily | | 286,903 | | | 233,157 | |
Retail | | 194,900 | | | 162,758 | |
Other | | 290,094 | | | 282,621 | |
Construction and development | | | | |
Land & land development | | 106,840 | | | 100,805 | |
Construction | | 211,955 | | | 146,038 | |
Residential 1-4 family real estate | | | | |
Personal residence | | 255,223 | | | 262,805 | |
Rental - small loan | | 122,757 | | | 121,989 | |
Rental - large loan | | 79,803 | | | 79,108 | |
Home equity | | 71,136 | | | 72,112 | |
Mortgage warehouse lines | | 171,399 | | | 227,869 | |
Consumer | | 33,816 | | | 31,923 | |
Other | | | | |
Credit cards | | 1,910 | | | 1,891 | |
Overdrafts | | 1,037 | | | 811 | |
Total loans, net of unearned fees | | 2,976,876 | | | 2,761,391 | |
Less allowance for credit losses - loans | | 35,063 | | | 32,298 | |
Loans, net | | $ | 2,941,813 | | | $ | 2,729,093 | |
Accrued interest and fees receivable on loans totaled $8.2 million and $7.2 million at June 30, 2022 and December 31, 2021, respectively and is included in accrued interest and fees receivable in the accompanying consolidated balance sheets.
The following table presents the contractual aging of the amortized cost basis of past due loans by class as of June 30, 2022 and December 31, 2021.
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| At June 30, 2022 |
| Past Due | | 90 days or more and Accruing |
Dollars in thousands | 30-59 days | 60-89 days | 90 days or more | Total | Current |
Commercial | $ | 841 | | $ | 223 | | $ | 39 | | $ | 1,103 | | $ | 454,099 | | $ | — | |
Commercial real estate - owner occupied | | | | | | |
Professional & medical | — | | — | | — | | — | | 147,912 | | — | |
Retail | 326 | | — | | 1,074 | | 1,400 | | 192,406 | | — | |
Other | 298 | | 132 | | — | | 430 | | 160,004 | | — | |
Commercial real estate - non-owner occupied | | | | | | |
Hotels & motels | — | | — | | — | | — | | 139,371 | | — | |
Mini-storage | — | | — | | — | | — | | 52,378 | | — | |
Multifamily | 3,348 | | — | | 53 | | 3,401 | | 283,502 | | — | |
Retail | — | | 117 | | 259 | | 376 | | 194,524 | | — | |
Other | — | | — | | — | | — | | 290,094 | | — | |
Construction and development | | | | | | |
Land & land development | 602 | | 143 | | 175 | | 920 | | 105,920 | | — | |
Construction | 76 | | — | | — | | 76 | | 211,879 | | — | |
Residential 1-4 family real estate | | | | | | |
Personal residence | 1,938 | | 746 | | 2,655 | | 5,339 | | 249,884 | | — | |
Rental - small loan | 992 | | 397 | | 749 | | 2,138 | | 120,619 | | — | |
Rental - large loan | — | | — | | — | | — | | 79,803 | | — | |
Home equity | 183 | | 25 | | 58 | | 266 | | 70,870 | | — | |
Mortgage warehouse lines | — | | — | | — | | — | | 171,399 | | — | |
Consumer | 190 | | 6 | | 32 | | 228 | | 33,588 | | — | |
Other | | | | | | |
Credit cards | 12 | | 2 | | 3 | | 17 | | 1,893 | | 3 | |
Overdrafts | — | | — | | — | | — | | 1,037 | | — | |
Total | $ | 8,806 | | $ | 1,791 | | $ | 5,097 | | $ | 15,694 | | $ | 2,961,182 | | $ | 3 | |
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| At December 31, 2021 |
| Past Due | | 90 days or more and Accruing |
Dollars in thousands | 30-59 days | 60-89 days | 90 days or more | Total | Current |
Commercial | $ | 736 | | $ | 15 | | $ | 613 | | $ | 1,364 | | $ | 363,937 | | $ | — | |
Commercial real estate - owner occupied | | | | | | |
Professional & medical | 409 | | — | | — | | 409 | | 150,350 | | — | |
Retail | — | | 405 | | 144 | | 549 | | 189,755 | | — | |
Other | 208 | | — | | 150 | | 358 | | 143,287 | | — | |
Commercial real estate - non-owner occupied | | | | | | |
Hotels & motels | — | | — | | — | | — | | 128,450 | | — | |
Mini-storage | 2 | | — | | — | | 2 | | 59,043 | | — | |
Multifamily | — | | — | | 55 | | 55 | | 233,102 | | — | |
Retail | 66 | | — | | 338 | | 404 | | 162,354 | | — | |
Other | — | | — | | — | | — | | 282,621 | | — | |
Construction and development | | | | | | |
Land & land development | 38 | | 7 | | 962 | | 1,007 | | 99,798 | | — | |
Construction | — | | — | | — | | — | | 146,038 | | — | |
Residential 1-4 family real estate | | | | | | |
Personal residence | 2,283 | | 1,211 | | 1,384 | | 4,878 | | 257,927 | | — | |
Rental - small loan | 429 | | 247 | | 1,093 | | 1,769 | | 120,220 | | — | |
Rental - large loan | — | | — | | — | | — | | 79,108 | | — | |
Home equity | 236 | | 80 | | 175 | | 491 | | 71,621 | | — | |
Mortgage warehouse lines | — | | — | | — | | — | | 227,869 | | — | |
Consumer | 98 | | 101 | | 7 | | 206 | | 31,717 | | — | |
Other | | | | | | |
Credit cards | 12 | | 10 | | 4 | | 26 | | 1,865 | | 4 | |
Overdrafts | — | | — | | — | | — | | 811 | | — | |
Total | $ | 4,517 | | $ | 2,076 | | $ | 4,925 | | $ | 11,518 | | $ | 2,749,873 | | $ | 4 | |
The following table presents the nonaccrual loans included in the net balance of loans at June 30, 2022 and December 31, 2021.
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| | June 30, | | December 31, |
| | 2022 | | 2021 |
Dollars in thousands | | Nonaccrual | Nonaccrual with No Allowance for Credit Losses - Loans | | Nonaccrual | Nonaccrual with No Allowance for Credit Losses - Loans |
Commercial | | $ | 345 | | $ | 71 | | | $ | 740 | | $ | 96 | |
Commercial real estate - owner occupied | | | | | | |
Professional & medical | | — | | — | | | — | | — | |
Retail | | 1,284 | | 669 | | | 775 | | — | |
Other | | 335 | | — | | | 341 | | — | |
Commercial real estate - non-owner occupied | | | | | | |
Hotels & motels | | — | | — | | | 3,085 | | — | |
Mini-storage | | — | | — | | | — | | — | |
Multifamily | | 52 | | — | | | 55 | | — | |
Retail | | 704 | | — | | | 338 | | — | |
Other | | 328 | | — | | | 9 | | — | |
Construction and development | | | | | | |
Land & land development | | 1,053 | | — | | | 1,560 | | — | |
Construction | | — | | — | | | — | | — | |
Residential 1-4 family real estate | | | | | | |
Personal residence | | 3,850 | | — | | | 2,504 | | — | |
Rental - small loan | | 2,781 | | — | | | 3,094 | | — | |
Rental - large loan | | — | | — | | | — | | — | |
Home equity | | 168 | | — | | | 174 | | — | |
Mortgage warehouse lines | | — | | — | | | — | | — | |
Consumer | | 34 | | — | | | 17 | | — | |
Other | | | | | | |
Credit cards | | — | | — | | | — | | — | |
Overdrafts | | — | | — | | | — | | — | |
Total | | $ | 10,934 | | $ | 740 | | | $ | 12,692 | | $ | 96 | |
At June 30, 2022, we had troubled debt restructurings ("TDRs") of $20.9 million, of which $18.2 million were current with respect to restructured contractual payments. At December 31, 2021, our TDRs totaled $20.9 million, of which $18.7 million were current with respect to restructured contractual payments. There were no commitments to lend additional funds under these restructurings at either balance sheet date.
The following table presents by class the TDRs that were restructured during the three and six months ended June 30, 2022 and June 30, 2021. Generally, the modifications were extensions of term, modifying the payment terms from principal and interest to interest only for an extended period, or reduction in interest rate. TDRs are evaluated individually for allowance for credit loss purposes if the loan balance exceeds $500,000, otherwise, smaller balance TDR loans are included in the pools to determine ACLL.
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| For the Three Months Ended June 30, 2022 | | For the Three Months Ended June 30, 2021 |
Dollars in thousands | Number of Modifications | | Pre- modification Recorded Investment | | Post- modification Recorded Investment | | Number of Modifications | | Pre- modification Recorded Investment | | Post- modification Recorded Investment |
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Residential 1-4 family real estate | | | | | | | | | | | |
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Home equity | 1 | | | $ | 132 | | | $ | 132 | | | — | | | $ | — | | | $ | — | |
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Total | 1 | | $ | 132 | | | $ | 132 | | | $ | — | | | $ | — | | | $ | — | |
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| For the Six Months Ended June 30, 2022 | | For the Six Months Ended June 30, 2021 |
Dollars in thousands | Number of Modifications | | Pre- modification Recorded Investment | | Post- modification Recorded Investment | | Number of Modifications | | Pre- modification Recorded Investment | | Post- modification Recorded Investment |
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Residential 1-4 family real estate | | | | | | | | | | | |
Personal residence | 6 | | | $ | 335 | | | $ | 335 | | | — | | | $ | — | | | $ | — | |
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Home equity | 1 | | | 132 | | | 132 | | | — | | | — | | | — | |
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Total | 7 | | $ | 467 | | | $ | 467 | | | $ | — | | | $ | — | | | $ | — | |
The following tables present defaults during the stated period of TDRs that were restructured during the prior 12 months. For purposes of these tables, a default is considered as either the loan was past due 30 days or more at any time during the period, or the loan was fully or partially charged off during the period.
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| For the Three Months Ended June 30, 2022 | | For the Three Months Ended June 30, 2021 |
Dollars in thousands | Number of Defaults | | Recorded Investment at Default Date | | Number of Defaults | | Recorded Investment at Default Date |
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Residential 1-4 family real estate | | | | | | | |
Personal residence | 4 | | | $ | 312 | | | 1 | | | $ | 49 | |
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Total | 4 | | $ | 312 | | | 1 | | | $ | 49 | |
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| For the Six Months Ended June 30, 2022 | | For the Six Months Ended June 30, 2021 |
Dollars in thousands | Number of Defaults | | Recorded Investment at Default Date | | Number of Defaults | | Recorded Investment at Default Date |
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Residential 1-4 family real estate | | | | | | | |
Personal residence | 4 | | | $ | 312 | | | 1 | | | $ | 49 | |
Rental - small loan | — | | | — | | | 1 | | | 399 | |
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Total | 4 | | $ | 312 | | | 2 | | | $ | 448 | |
Credit Quality Indicators: We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. We analyze loans individually by classifying the loans as to credit risk. We internally grade all commercial loans at the time of loan origination. In addition, we perform an annual loan review on all non-homogenous commercial loan relationships with an aggregate exposure of $5.0 million, at which time these loans are re-graded. We use the following definitions for our risk grades:
Pass: Loans graded as Pass are loans to borrowers of acceptable credit quality and risk. They are higher quality loans that do not fit any of the other categories described below.
Special Mention: Commercial loans categorized as Special Mention are potentially weak. The credit risk may be relatively minor yet represent a risk given certain specific circumstances. If the potential weaknesses are not monitored or mitigated, the asset may weaken or inadequately protect our position in the future.
Substandard: Commercial loans categorized as Substandard are inadequately protected by the borrower’s ability to repay, equity and/or the collateral pledged to secure the loan. These loans have identified weaknesses that could hinder normal repayment or collection of the debt. These loans are characterized by the distinct possibility that we will sustain some loss if the identified weaknesses are not mitigated.
Doubtful: Commercial loans categorized as Doubtful have all the weaknesses inherent in those loans classified as Substandard, with the added elements that the full collection of the loan is improbable and the possibility of loss is high.
Loss: Loans classified as loss are considered to be non-collectible and of such little value that their continuance as a bankable asset is not warranted. This does not mean that the loan has absolutely no recovery value, but rather it is neither practical nor desirable to defer writing off the loan, even though partial recovery may be obtained in the future.
Management considers the guidance in ASC 310-20 when determining whether a modification, extension, or renewal of loan constitutes a current period origination. Generally, current period renewals of credit are reunderwritten at the point of renewal and considered current period originations for purposes of the table below. As of June 30, 2022 and December 31, 2021, based on the most recent analysis performed, the risk category of loans based on year of origination is as follows:
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| | June 30, 2022 |
Dollars in thousands | | Risk Rating | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Revolvi- ng | Revolving- Term | Total |
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Commercial | | Pass | $ | 88,651 | | $ | 105,632 | | $ | 30,738 | | $ | 23,204 | | $ | 4,184 | | $ | 14,273 | | $ | 184,769 | | $ | — | | $ | 451,451 | |
| | | Special Mention | 274 | | 558 | | 274 | | 63 | | 34 | | 199 | | 1,993 | | — | | 3,395 | |
| | | Substandard | — | | 101 | | 17 | | 71 | | 34 | | 6 | | 127 | | — | | 356 | |
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Total Commercial | | | 88,925 | | 106,291 | | 31,029 | | 23,338 | | 4,252 | | 14,478 | | 186,889 | | — | | 455,202 | |
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Commercial Real Estate - Owner Occupied | | | | | | | | | |
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Professional & medical | | Pass | 9,858 | | 71,998 | | 10,615 | | 6,824 | | 4,286 | | 40,111 | | 2,562 | | — | | 146,254 | |
| | | Special Mention | — | | — | | 1,133 | | — | | — | | 240 | | — | | — | | 1,373 | |
| | | Substandard | — | | — | | 72 | | — | | — | | 213 | | — | | — | | 285 | |
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Total Professional & Medical | | | 9,858 | | 71,998 | | 11,820 | | 6,824 | | 4,286 | | 40,564 | | 2,562 | | — | | 147,912 | |
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Retail | | Pass | 16,842 | | 76,371 | | 28,975 | | 30,859 | | 8,428 | | 27,898 | | 2,514 | | — | | 191,887 | |
| | | Special Mention | — | | — | | — | | — | | — | | 635 | | — | | — | | 635 | |
| | | Substandard | — | | — | | — | | — | | — | | 1,284 | | — | | — | | 1,284 | |
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Total Retail | | | 16,842 | | 76,371 | | 28,975 | | 30,859 | | 8,428 | | 29,817 | | 2,514 | | — | | 193,806 | |
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Other | | Pass | 26,538 | | 32,927 | | 31,259 | | 9,080 | | 15,771 | | 39,422 | | 4,482 | | — | | 159,479 | |
| | | Special Mention | — | | 57 | | — | | — | | — | | 563 | | — | | — | | 620 | |
| | | Substandard | — | | — | | — | | — | | — | | 299 | | 36 | | — | | 335 | |
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Total Other | | | 26,538 | | 32,984 | | 31,259 | | 9,080 | | 15,771 | | 40,284 | | 4,518 | | — | | 160,434 | |
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Total Commercial Real Estate - Owner Occupied | 53,238 | | 181,353 | | 72,054 | | 46,763 | | 28,485 | | 110,665 | | 9,594 | | — | | 502,152 | |
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Commercial Real Estate - Non-Owner Occupied | | | | | | | | | |
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Hotels & motels | | Pass | 24,495 | | 1,716 | | 3,253 | | 32,705 | | 15,537 | | 21,225 | | 922 | | — | | 99,853 | |
| | | Special Mention | — | | — | | — | | 36,541 | | — | | — | | — | | — | | 36,541 | |
| | | Substandard | — | | — | | 2,741 | | — | | — | | 236 | | — | | — | | 2,977 | |
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Total Hotels & Motels | | | 24,495 | | 1,716 | | 5,994 | | 69,246 | | 15,537 | | 21,461 | | 922 | | — | | 139,371 | |
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Mini-storage | | Pass | 2,502 | | 13,380 | | 8,185 | | 3,938 | | 13,363 | | 10,965 | | — | | — | | 52,333 | |
| | | Special Mention | — | | — | | — | | — | | — | | 45 | | — | | — | | 45 | |
| | | Substandard | — | | — | | — | | — | | — | | — | | — | | — | | — | |
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Total Mini-storage | | | 2,502 | | 13,380 | | 8,185 | | 3,938 | | 13,363 | | 11,010 | | — | | — | | 52,378 | |
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Multifamily | | Pass | 43,320 | | 58,193 | | 49,135 | | 52,840 | | 23,335 | | 56,249 | | 3,690 | | — | | 286,762 | |
| | | Special Mention | — | | — | | 88 | | — | | — | | — | | — | | — | | 88 | |
| | | Substandard | — | | — | | — | | — | | — | | 53 | | — | | — | | 53 | |
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Total Multifamily | | | 43,320 | | 58,193 | | 49,223 | | 52,840 | | 23,335 | | 56,302 | | 3,690 | | — | | 286,903 | |
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| | June 30, 2022 |
Dollars in thousands | | Risk Rating | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Revolvi- ng | Revolving- Term | Total |
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Retail | | Pass | 43,103 | | 53,235 | | 40,464 | | 5,757 | | 7,300 | | 28,392 | | 7,014 | | — | | 185,265 | |
| | | Special Mention | — | | — | | — | | — | | 52 | | 1,001 | | — | | — | | 1,053 | |
| | | Substandard | — | | — | | — | | 7,878 | | — | | 704 | | — | | — | | 8,582 | |
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Total Retail | | | 43,103 | | 53,235 | | 40,464 | | 13,635 | | 7,352 | | 30,097 | | 7,014 | | — | | 194,900 | |
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Other | | Pass | 40,942 | | 106,945 | | 62,424 | | 12,523 | | 6,713 | | 55,428 | | 1,673 | | — | | 286,648 | |
| | | Special Mention | — | | — | | — | | — | | 568 | | — | | — | | — | | 568 | |
| | | Substandard | — | | — | | — | | — | | — | | 2,878 | | — | | — | | 2,878 | |
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Total Other | | | 40,942 | | 106,945 | | 62,424 | | 12,523 | | 7,281 | | 58,306 | | 1,673 | | — | | 290,094 | |
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Total Commercial Real Estate - Non-Owner Occupied | 154,362 | | 233,469 | | 166,290 | | 152,182 | | 66,868 | | 177,176 | | 13,299 | | — | | 963,646 | |
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Construction and Development | | | | | | | | | | | |
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Land & land development | | Pass | 21,903 | | 23,421 | | 10,976 | | 17,279 | | 5,271 | | 21,560 | | 4,033 | | — | | 104,443 | |
| | | Special Mention | — | | — | | 153 | | 113 | | — | | 513 | | — | | — | | 779 | |
| | | Substandard | — | | — | | — | | — | | — | | 1,618 | | — | | — | | 1,618 | |
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Total Land & land development | | | 21,903 | | 23,421 | | 11,129 | | 17,392 | | 5,271 | | 23,691 | | 4,033 | | — | | 106,840 | |
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Construction | | Pass | 46,548 | | 95,049 | | 62,449 | | 317 | | 1,381 | | — | | 5,713 | | — | | 211,457 | |
| | | Special Mention | — | | — | | — | | — | | — | | — | | — | | — | | — | |
| | | Substandard | — | | — | | — | | — | | 327 | | 171 | | — | | — | | 498 | |
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Total Construction | | | 46,548 | | 95,049 | | 62,449 | | 317 | | 1,708 | | 171 | | 5,713 | | — | | 211,955 | |
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Total Construction and Development | 68,451 | | 118,470 | | 73,578 | | 17,709 | | 6,979 | | 23,862 | | 9,746 | | — | | 318,795 | |
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Residential 1-4 Family Real Estate | | | | | | | | | | | |
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Personal residence | | Pass | 17,902 | | 37,949 | | 30,668 | | 16,685 | | 17,592 | | 114,968 | | — | | — | | 235,764 | |
| | | Special Mention | — | | — | | — | | 182 | | 62 | | 9,392 | | — | | — | | 9,636 | |
| | | Substandard | — | | — | | — | | 752 | | 827 | | 8,244 | | — | | — | | 9,823 | |
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Total Personal Residence | | | 17,902 | | 37,949 | | 30,668 | | 17,619 | | 18,481 | | 132,604 | | — | | — | | 255,223 | |
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Rental - small loan | | Pass | 12,814 | | 29,049 | | 13,064 | | 12,270 | | 9,262 | | 34,899 | | 5,527 | | — | | 116,885 | |
| | | Special Mention | — | | 227 | | 105 | | — | | — | | 1,145 | | — | | — | | 1,477 | |
| | | Substandard | — | | — | | — | | 322 | | 436 | | 3,467 | | 170 | | — | | 4,395 | |
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Total Rental - Small Loan | | | 12,814 | | 29,276 | | 13,169 | | 12,592 | | 9,698 | | 39,511 | | 5,697 | | — | | 122,757 | |
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Rental - large loan | | Pass | 10,318 | | 33,947 | | 12,192 | | 3,668 | | 4,215 | | 9,842 | | 2,119 | | — | | 76,301 | |
| | | Special Mention | — | | — | | — | | — | | — | | 28 | | — | | — | | 28 | |
| | | Substandard | — | | — | | — | | — | | — | | 3,474 | | — | | — | | 3,474 | |
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Total Rental - Large Loan | | | 10,318 | | 33,947 | | 12,192 | | 3,668 | | 4,215 | | 13,344 | | 2,119 | | — | | 79,803 | |
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Home equity | | Pass | — | | 117 | | 100 | | 30 | | — | | 1,282 | | 67,541 | | — | | 69,070 | |
| | | Special Mention | — | | — | | — | | — | | — | | 91 | | 1,385 | | — | | 1,476 | |
| | | Substandard | — | | — | | — | | — | | 27 | | 307 | | 256 | | — | | 590 | |
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Total Home Equity | | | — | | 117 | | 100 | | 30 | | 27 | | 1,680 | | 69,182 | | — | | 71,136 | |
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Total Residential 1-4 Family Real Estate | 41,034 | | 101,289 | | 56,129 | | 33,909 | | 32,421 | | 187,139 | | 76,998 | | — | | 528,919 | |
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| | June 30, 2022 |
Dollars in thousands | | Risk Rating | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Revolvi- ng | Revolving- Term | Total |
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Mortgage warehouse lines | | Pass | — | | — | | — | | — | | — | | — | | 171,399 | | — | | 171,399 | |
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Total Mortgage Warehouse Lines | | | — | | — | | — | | — | | — | | — | | 171,399 | | — | | 171,399 | |
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Consumer | | Pass | 9,858 | | 10,635 | | 4,302 | | 2,900 | | 1,092 | | 1,563 | | 1,058 | | — | | 31,408 | |
| | | Special Mention | 799 | | 560 | | 310 | | 138 | | 26 | | 119 | | 11 | | — | | 1,963 | |
| | | Substandard | 211 | | 130 | | 53 | | 15 | | 7 | | 1 | | 28 | | — | | 445 | |
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Total Consumer | | | 10,868 | | 11,325 | | 4,665 | | 3,053 | | 1,125 | | 1,683 | | 1,097 | | — | | 33,816 | |
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Other | | | | | | | | | | | |
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Credit cards | | Pass | 1,910 | | — | | — | | — | | — | | — | | — | | — | | 1,910 | |
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Total Credit Cards | | | 1,910 | | — | | — | | — | | — | | — | | — | | — | | 1,910 | |
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Overdrafts | | Pass | 1,037 | | — | | — | | — | | — | | — | | — | | — | | 1,037 | |
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Total Overdrafts | | | 1,037 | | — | | — | | — | | — | | — | | — | | — | | 1,037 | |
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Total Other | | | 2,947 | | — | | — | | — | | — | | — | | — | | — | | 2,947 | |
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Total | | | $ | 419,825 | | $ | 752,197 | | $ | 403,745 | | $ | 276,954 | | $ | 140,130 | | $ | 515,003 | | $ | 469,022 | | $ | — | | $ | 2,976,876 | |
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| | December 31, 2021 |
Dollars in thousands | | Risk Rating | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolvi- ng | Revolving- Term | Total |
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Commercial | | Pass | $ | 123,890 | | $ | 36,339 | | $ | 31,116 | | $ | 5,549 | | $ | 8,831 | | $ | 14,061 | | $ | 141,003 | | $ | — | | $ | 360,789 | |
| | | Special Mention | 693 | | 279 | | 69 | | 41 | | 60 | | 539 | | 1,984 | | — | | 3,665 | |
| | | Substandard | 135 | | 45 | | 110 | | 48 | | 18 | | 7 | | 484 | | — | | 847 | |
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Total Commercial | | | 124,718 | | 36,663 | | 31,295 | | 5,638 | | 8,909 | | 14,607 | | 143,471 | | — | | 365,301 | |
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Commercial Real Estate - Owner Occupied | | | | | | | | | |
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Professional & medical | | Pass | 72,417 | | 11,869 | | 7,046 | | 4,595 | | 22,939 | | 27,905 | | 2,366 | | — | | 149,137 | |
| | | Special Mention | — | | 1,146 | | — | | — | | — | | 187 | | — | | — | | 1,333 | |
| | | Substandard | — | | 72 | | — | | — | | 217 | | — | | — | | — | | 289 | |
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Total Professional & Medical | | | 72,417 | | 13,087 | | 7,046 | | 4,595 | | 23,156 | | 28,092 | | 2,366 | | — | | 150,759 | |
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Retail | | Pass | 78,780 | | 29,749 | | 33,114 | | 8,813 | | 9,318 | | 25,296 | | 2,464 | | — | | 187,534 | |
| | | Special Mention | — | | — | | — | | — | | — | | 671 | | — | | — | | 671 | |
| | | Substandard | — | | — | | 1,324 | | — | | 549 | | 226 | | — | | — | | 2,099 | |
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Total Retail | | | 78,780 | | 29,749 | | 34,438 | | 8,813 | | 9,867 | | 26,193 | | 2,464 | | — | | 190,304 | |
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Other | | Pass | 32,805 | | 30,897 | | 13,216 | | 16,716 | | 7,501 | | 38,796 | | 2,782 | | — | | 142,713 | |
| | | Special Mention | 59 | | — | | — | | — | | — | | 532 | | — | | — | | 591 | |
| | | Substandard | — | | — | | — | | — | | — | | 303 | | 38 | | — | | 341 | |
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Total Other | | | 32,864 | | 30,897 | | 13,216 | | 16,716 | | 7,501 | | 39,631 | | 2,820 | | — | | 143,645 | |
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Total Commercial Real Estate - Owner Occupied | 184,061 | | 73,733 | | 54,700 | | 30,124 | | 40,524 | | 93,916 | | 7,650 | | — | | 484,708 | |
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| | December 31, 2021 |
Dollars in thousands | | Risk Rating | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolvi- ng | Revolving- Term | Total |
| | | | | | | | | | | | |
Commercial Real Estate - Non-Owner Occupied | | | | | | | | | |
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Hotels & motels | | Pass | 1,736 | | 3,313 | | 32,634 | | 15,949 | | 6,953 | | 20,308 | | 7,531 | | — | | 88,424 | |
| | | Special Mention | — | | — | | 36,941 | | — | | — | | — | | — | | — | | 36,941 | |
| | | Substandard | — | | 2,830 | | — | | — | | — | | 255 | | — | | — | | 3,085 | |
| | | | | | | | | | | | |
Total Hotels & Motels | | | 1,736 | | 6,143 | | 69,575 | | 15,949 | | 6,953 | | 20,563 | | 7,531 | | — | | 128,450 | |
| | | | | | | | | | | | |
Mini-storage | | Pass | 13,294 | | 7,641 | | 9,218 | | 14,209 | | 4,506 | | 10,109 | | 21 | | — | | 58,998 | |
| | | Special Mention | — | | — | | — | | — | | — | | 47 | | — | | — | | 47 | |
| | | Substandard | — | | — | | — | | — | | — | | — | | — | | — | | — | |
| | | | | | | | | | | | |
Total Mini-storage | | | 13,294 | | 7,641 | | 9,218 | | 14,209 | | 4,506 | | 10,156 | | 21 | | — | | 59,045 | |
| | | | | | | | | | | | |
Multifamily | | Pass | 55,367 | | 39,105 | | 45,016 | | 23,665 | | 14,629 | | 51,155 | | 3,372 | | — | | 232,309 | |
| | | Special Mention | — | | 582 | | — | | — | | — | | 43 | | 169 | | — | | 794 | |
| | | Substandard | — | | — | | — | | — | | — | | 54 | | — | | — | | 54 | |
| | | | | | | | | | | | |
Total Multifamily | | | 55,367 | | 39,687 | | 45,016 | | 23,665 | | 14,629 | | 51,252 | | 3,541 | | — | | 233,157 | |
| | | | | | | | | | | | |
Retail | | Pass | 52,533 | | 42,177 | | 20,763 | | 7,653 | | 6,778 | | 24,958 | | 6,586 | | — | | 161,448 | |
| | | Special Mention | — | | — | | — | | — | | — | | 972 | | — | | — | | 972 | |
| | | Substandard | — | | — | | — | | — | | — | | 338 | | — | | — | | 338 | |
| | | | | | | | | | | | |
Total Retail | | | 52,533 | | 42,177 | | 20,763 | | 7,653 | | 6,778 | | 26,268 | | 6,586 | | — | | 162,758 | |
| | | | | | | | | | | | |
Other | | Pass | 107,962 | | 82,846 | | 14,211 | | 8,443 | | 11,421 | | 51,587 | | 2,620 | | — | | 279,090 | |
| | | Special Mention | — | | — | | — | | 572 | | — | | — | | — | | — | | 572 | |
| | | Substandard | — | | — | | — | | — | | — | | 2,959 | | — | | — | | 2,959 | |
| | | | | | | | | | | | |
Total Other | | | 107,962 | | 82,846 | | 14,211 | | 9,015 | | 11,421 | | 54,546 | | 2,620 | | — | | 282,621 | |
| | | | | | | | | | | | |
Total Commercial Real Estate - Non-Owner Occupied | 230,892 | | 178,494 | | 158,783 | | 70,491 | | 44,287 | | 162,785 | | 20,299 | | — | | 866,031 | |
| | | | | | | | | | | | |
Construction and Development | | | | | | | | | | | |
| | | | | | | | | | | | |
Land & land development | | Pass | 26,671 | | 14,050 | | 20,275 | | 5,627 | | 2,927 | | 21,875 | | 6,721 | | — | | 98,146 | |
| | | Special Mention | — | | 155 | | 117 | | — | | — | | 591 | | — | | — | | 863 | |
| | | Substandard | — | | — | | — | | — | | — | | 1,796 | | — | | — | | 1,796 | |
| | | | | | | | | | | | |
Total Land & land development | | | 26,671 | | 14,205 | | 20,392 | | 5,627 | | 2,927 | | 24,262 | | 6,721 | | — | | 100,805 | |
| | | | | | | | | | | | |
Construction | | Pass | 64,352 | | 64,022 | | 7,438 | | 1,407 | | — | | — | | 8,320 | | — | | 145,539 | |
| | | Special Mention | — | | — | | — | | — | | — | | — | | — | | — | | — | |
| | | Substandard | — | | — | | — | | 329 | | — | | 170 | | — | | — | | 499 | |
| | | | | | | | | | | | |
Total Construction | | | 64,352 | | 64,022 | | 7,438 | | 1,736 | | — | | 170 | | 8,320 | | — | | 146,038 | |
| | | | | | | | | | | | |
Total Construction and Development | 91,023 | | 78,227 | | 27,830 | | 7,363 | | 2,927 | | 24,432 | | 15,041 | | — | | 246,843 | |
| | | | | | | | | | | | |
Residential 1-4 Family Real Estate | | | | | | | | | | | |
| | | | | | | | | | | | |
Personal residence | | Pass | 39,637 | | 34,962 | | 18,974 | | 18,784 | | 14,597 | | 115,384 | | — | | — | | 242,338 | |
| | | Special Mention | — | | — | | 184 | | 62 | | 534 | | 10,377 | | — | | — | | 11,157 | |
| | | Substandard | — | | — | | 475 | | 847 | | 456 | | 7,532 | | — | | — | | 9,310 | |
| | | | | | | | | | | | |
Total Personal Residence | | | 39,637 | | 34,962 | | 19,633 | | 19,693 | | 15,587 | | 133,293 | | — | | — | | 262,805 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
Dollars in thousands | | Risk Rating | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolvi- ng | Revolving- Term | Total |
| | | | | | | | | | | | |
Rental - small loan | | Pass | 30,342 | | 13,990 | | 14,093 | | 11,524 | | 6,567 | | 33,936 | | 4,630 | | — | | 115,082 | |
| | | Special Mention | 229 | | 107 | | 57 | | 250 | | 1 | | 1,579 | | 9 | | — | | 2,232 | |
| | | Substandard | — | | 132 | | 133 | | 374 | | 513 | | 3,388 | | 135 | | — | | 4,675 | |
| | | | | | | | | | | | |
Total Rental - Small Loan | | | 30,571 | | 14,229 | | 14,283 | | 12,148 | | 7,081 | | 38,903 | | 4,774 | | — | | 121,989 | |
| | | | | | | | | | | | |
Rental - large loan | | Pass | 34,558 | | 14,069 | | 5,971 | | 5,283 | | 2,790 | | 11,776 | | 1,078 | | — | | 75,525 | |
| | | Special Mention | — | | — | | — | | — | | — | | 29 | | — | | — | | 29 | |
| | | Substandard | — | | — | | — | | — | | — | | 3,554 | | — | | — | | 3,554 | |
| | | | | | | | | | | | |
Total Rental - Large Loan | | | 34,558 | | 14,069 | | 5,971 | | 5,283 | | 2,790 | | 15,359 | | 1,078 | | — | | 79,108 | |
| | | | | | | | | | | | |
Home equity | | Pass | 27 | | 115 | | 11 | | 50 | | 78 | | 1,380 | | 68,293 | | — | | 69,954 | |
| | | Special Mention | — | | — | | — | | — | | — | | 94 | | 1,399 | | — | | 1,493 | |
| | | Substandard | — | | — | | — | | — | | — | | 407 | | 258 | | — | | 665 | |
| | | | | | | | | | | | |
Total Home Equity | | | 27 | | 115 | | 11 | | 50 | | 78 | | 1,881 | | 69,950 | | — | | 72,112 | |
| | | | | | | | | | | | |
Total Residential 1-4 Family Real Estate | 104,793 | | 63,375 | | 39,898 | | 37,174 | | 25,536 | | 189,436 | | 75,802 | | — | | 536,014 | |
| | | | | | | | | | | | |
Mortgage warehouse lines | | Pass | — | | — | | — | | — | | — | | — | | 227,869 | | — | | 227,869 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Total Mortgage Warehouse Lines | | | — | | — | | — | | — | | — | | — | | 227,869 | | — | | 227,869 | |
| | | | | | | | | | | | |
Consumer | | Pass | 14,134 | | 6,333 | | 4,444 | | 1,767 | | 540 | | 1,691 | | 902 | | — | | 29,811 | |
| | | Special Mention | 904 | | 381 | | 210 | | 66 | | 87 | | 53 | | 11 | | — | | 1,712 | |
| | | Substandard | 199 | | 96 | | 40 | | 11 | | 3 | | 22 | | 29 | | — | | 400 | |
| | | | | | | | | | | | |
Total Consumer | | | 15,237 | | 6,810 | | 4,694 | | 1,844 | | 630 | | 1,766 | | 942 | | — | | 31,923 | |
| | | | | | | | | | | | |
Other | | | | | | | | | | | |
| | | | | | | | | | | | |
Credit cards | | Pass | 1,891 | | — | | — | | — | | — | | — | | — | | — | | 1,891 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Total Credit Cards | | | 1,891 | | — | | — | | — | | — | | — | | — | | — | | 1,891 | |
| | | | | | | | | | | | |
Overdrafts | | Pass | 811 | | — | | — | | — | | — | | — | | — | | — | | 811 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Total Overdrafts | | | 811 | | — | | — | | — | | — | | — | | — | | — | | 811 | |
| | | | | | | | | | | | |
Total Other | | | 2,702 | | — | | — | | — | | — | | — | | — | | — | | 2,702 | |
| | | | | | | | | | | | |
Total | | | $ | 753,426 | | $ | 437,302 | | $ | 317,200 | | $ | 152,634 | | $ | 122,813 | | $ | 486,942 | | $ | 491,074 | | $ | — | | $ | 2,761,391 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Allowance for Credit Losses - Loans
The following tables presents the activity in the ACLL by portfolio segment during the three and six months ended June 30, 2022 and the twelve months ended December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended June 30, 2022 | | | | |
| Allowance for Credit Losses - Loans | | | | |
Dollars in thousands | Beginning Balance | | Provision for Credit Losses - Loans | | Charge- offs | Recoveries | Ending Balance | | | | | | | | | | |
Commercial | $ | 4,011 | | | $ | 467 | | | $ | — | | $ | 67 | | $ | 4,545 | | | | | | | | | | | |
Commercial real estate - owner occupied | | | | | | | | | | | | | | | | | |
Professional & medical | 1,151 | | | 29 | | | — | | — | | 1,180 | | | | | | | | | | | |
Retail | 1,334 | | | 263 | | | — | | — | | 1,597 | | | | | | | | | | | |
Other | 395 | | | 62 | | | — | | — | | 457 | | | | | | | | | | | |
Commercial real estate - non-owner occupied | | | | | | | | | | | | | | | | | |
Hotels & motels | 1,200 | | | (41) | | | — | | — | | 1,159 | | | | | | | | | | | |
Mini-storage | 120 | | | (23) | | | — | | — | | 97 | | | | | | | | | | | |
Multifamily | 2,058 | | | 271 | | | — | | 1 | | 2,330 | | | | | | | | | | | |
Retail | 1,550 | | | 338 | | | — | | 3 | | 1,891 | | | | | | | | | | | |
Other | 1,958 | | | 142 | | | — | | 3 | | 2,103 | | | | | | | | | | | |
Construction and development | | | | | | | | | | | | | | | | | |
Land & land development | 3,456 | | | 213 | | | (71) | | 2 | | 3,600 | | | | | | | | | | | |
Construction | 7,378 | | | 830 | | | — | | — | | 8,208 | | | | | | | | | | | |
Residential 1-4 family real estate | | | | | | | | | | | | | | | | | |
Personal residence | 2,696 | | | (6) | | | (31) | | 10 | | 2,669 | | | | | | | | | | | |
Rental - small loan | 2,290 | | | (90) | | | (110) | | 7 | | 2,097 | | | | | | | | | | | |
Rental - large loan | 2,193 | | | (12) | | | — | | — | | 2,181 | | | | | | | | | | | |
Home equity | 442 | | | (49) | | | — | | 6 | | 399 | | | | | | | | | | | |
Mortgage warehouse lines | — | | | — | | | — | | — | | — | | | | | | | | | | | |
Consumer | 147 | | | 101 | | | (19) | | 25 | | 254 | | | | | | | | | | | |
Other | | | | | | | | | | | | | | | | | |
Credit cards | 18 | | | 17 | | | (18) | | — | | 17 | | | | | | | | | | | |
Overdrafts | 226 | | | 88 | | | (58) | | 23 | | 279 | | | | | | | | | | | |
Total | $ | 32,623 | | | $ | 2,600 | | | $ | (307) | | $ | 147 | | $ | 35,063 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Six Months Ended June 30, 2022 | | | | |
| Allowance for Credit Losses - Loans | | | | |
Dollars in thousands | Beginning Balance | | Provision for Credit Losses - Loans | | Charge- offs | Recoveries | Ending Balance | | | | | | | | | | |
Commercial | $ | 3,218 | | | $ | 1,459 | | | $ | (202) | | $ | 70 | | $ | 4,545 | | | | | | | | | | | |
Commercial real estate - owner occupied | | | | | | | | | | | | | | | | | |
Professional & medical | 1,092 | | | 88 | | | — | | — | | 1,180 | | | | | | | | | | | |
Retail | 1,362 | | | 234 | | | — | | 1 | | 1,597 | | | | | | | | | | | |
Other | 575 | | | (118) | | | — | | — | | 457 | | | | | | | | | | | |
Commercial real estate - non-owner occupied | | | | | | | | | | | | | | | | | |
Hotels & motels | 2,532 | | | (1,373) | | | — | | — | | 1,159 | | | | | | | | | | | |
Mini-storage | 133 | | | (36) | | | — | | — | | 97 | | | | | | | | | | | |
Multifamily | 1,821 | | | 506 | | | — | | 3 | | 2,330 | | | | | | | | | | | |
Retail | 1,074 | | | 814 | | | — | | 3 | | 1,891 | | | | | | | | | | | |
Other | 1,820 | | | 277 | | | — | | 6 | | 2,103 | | | | | | | | | | | |
Construction and development | | | | | | | | | | | | | | | | | |
Land & land development | 3,468 | | | 198 | | | (71) | | 5 | | 3,600 | | | | | | | | | | | |
Construction | 6,346 | | | 1,862 | | | — | | — | | 8,208 | | | | | | | | | | | |
Residential 1-4 family real estate | | | | | | | | | | | | | | | | | |
Personal residence | 2,765 | | | (42) | | | (84) | | 30 | | 2,669 | | | | | | | | | | | |
Rental - small loan | 2,834 | | | (559) | | | (193) | | 15 | | 2,097 | | | | | | | | | | | |
Rental - large loan | 2,374 | | | (193) | | | — | | — | | 2,181 | | | | | | | | | | | |
Home equity | 497 | | | (100) | | | (8) | | 10 | | 399 | | | | | | | | | | | |
Mortgage warehouse lines | — | | | — | | | — | | — | | — | | | | | | | | | | | |
Consumer | 163 | | | 116 | | | (74) | | 49 | | 254 | | | | | | | | | | | |
Other | | | | | | | | | | | | | | | | | |
Credit cards | 17 | | | 16 | | | (18) | | 2 | | 17 | | | | | | | | | | | |
Overdrafts | 207 | | | 284 | | | (274) | | 62 | | 279 | | | | | | | | | | | |
Total | $ | 32,298 | | | $ | 3,433 | | | $ | (924) | | $ | 256 | | $ | 35,063 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Twelve Months Ended December 31, 2021 | | | | |
| Allowance for Credit Losses - Loans | | | | |
Dollars in thousands | Beginning Balance | | Provision for Credit Losses - Loans | Adjustment for PCD Acquired Loans | Charge- offs | Recoveries | Ending Balance | | | | | | | | | | |
Commercial | $ | 2,304 | | | $ | 1,112 | | $ | — | | $ | (222) | | $ | 24 | | $ | 3,218 | | | | | | | | | | | |
Commercial real estate - owner occupied | | | | | | | | | | | | | | | | | |
Professional & medical | 954 | | | 71 | | 71 | | (4) | | — | | 1,092 | | | | | | | | | | | |
Retail | 3,173 | | | (1,812) | | — | | — | | 1 | | 1,362 | | | | | | | | | | | |
Other | 610 | | | (35) | | — | | — | | — | | 575 | | | | | | | | | | | |
Commercial real estate - non-owner occupied | | | | | | | | | | | | | | | | | |
Hotels & motels | 2,135 | | | 397 | | — | | — | | — | | 2,532 | | | | | | | | | | | |
Mini-storage | 337 | | | (204) | | — | | — | | — | | 133 | | | | | | | | | | | |
Multifamily | 1,547 | | | 265 | | — | | — | | 9 | | 1,821 | | | | | | | | | | | |
Retail | 981 | | | 93 | | — | | — | | — | | 1,074 | | | | | | | | | | | |
Other | 1,104 | | | 947 | | — | | (233) | | 2 | | 1,820 | | | | | | | | | | | |
Construction and development | | | | | | | | | | | | | | | | | |
Land & land development | 4,084 | | | (628) | | — | | — | | 12 | | 3,468 | | | | | | | | | | | |
Construction | 4,648 | | | 1,698 | | — | | — | | — | | 6,346 | | | | | | | | | | | |
Residential 1-4 family real estate | | | | | | | | | | | | | | | | | |
Personal residence | 3,559 | | | (548) | | — | | (365) | | 119 | | 2,765 | | | | | | | | | | | |
Rental - small loan | 2,736 | | | 177 | | 20 | | (189) | | 90 | | 2,834 | | | | | | | | | | | |
Rental - large loan | 3,007 | | | (633) | | — | | — | | — | | 2,374 | | | | | | | | | | | |
Home equity | 713 | | | (206) | | — | | (26) | | 16 | | 497 | | | | | | | | | | | |
Mortgage warehouse lines | — | | | — | | — | | — | | — | | — | | | | | | | | | | | |
Consumer | 216 | | | (44) | | — | | (131) | | 122 | | 163 | | | | | | | | | | | |
Other | | | | | | | | | | | | | | | | | |
Credit cards | 17 | | | 10 | | — | | (16) | | 6 | | 17 | | | | | | | | | | | |
Overdrafts | 121 | | | 255 | | — | | (321) | | 152 | | 207 | | | | | | | | | | | |
Total | $ | 32,246 | | | $ | 915 | | $ | 91 | | $ | (1,507) | | $ | 553 | | $ | 32,298 | | | | | | | | | | | |
The following tables presents, as of June 30, 2022 and December 31, 2021 segregated by loan portfolio segment, details of the loan portfolio and the ACLL calculated in accordance with our credit loss accounting methodology for loans described above.
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 |
| Loan Balances | | Allowance for Credit Losses - Loans |
Dollars in thousands | Loans Individually Evaluated | Loans Collectively Evaluated (1) | Total | | Loans Individually Evaluated | Loans Collectively Evaluated | Total |
Commercial | $ | 133 | | $ | 455,069 | | $ | 455,202 | | | $ | — | | $ | 4,545 | | $ | 4,545 | |
Commercial real estate - owner occupied | | | | | | | |
Professional & medical | 2,024 | | 145,888 | | 147,912 | | | 228 | | 952 | | 1,180 | |
Retail | 5,281 | | 188,525 | | 193,806 | | | — | | 1,597 | | 1,597 | |
Other | — | | 160,434 | | 160,434 | | | — | | 457 | | 457 | |
Commercial real estate - non-owner occupied | | | | | | | |
Hotels & motels | 2,978 | | 136,393 | | 139,371 | | | — | | 1,159 | | 1,159 | |
Mini-storage | — | | 52,378 | | 52,378 | | | — | | 97 | | 97 | |
Multifamily | — | | 286,903 | | 286,903 | | | — | | 2,330 | | 2,330 | |
Retail | 10,053 | | 184,847 | | 194,900 | | | 256 | | 1,635 | | 1,891 | |
Other | 5,593 | | 284,501 | | 290,094 | | | 302 | | 1,801 | | 2,103 | |
Construction and development | | | | | | | |
Land & land development | 1,449 | | 105,391 | | 106,840 | | | 529 | | 3,071 | | 3,600 | |
Construction | — | | 211,955 | | 211,955 | | | — | | 8,208 | | 8,208 | |
Residential 1-4 family real estate | | | | | | | |
Personal residence | — | | 255,223 | | 255,223 | | | — | | 2,669 | | 2,669 | |
Rental - small loan | 1,428 | | 121,329 | | 122,757 | | | 401 | | 1,696 | | 2,097 | |
Rental - large loan | 3,093 | | 76,710 | | 79,803 | | | — | | 2,181 | | 2,181 | |
Home equity | 471 | | 70,665 | | 71,136 | | | — | | 399 | | 399 | |
Mortgage warehouse lines | — | | 171,399 | | 171,399 | | | — | | — | | — | |
Consumer | — | | 33,816 | | 33,816 | | | — | | 254 | | 254 | |
Other | | | | | | | |
Credit cards | — | | 1,910 | | 1,910 | | | — | | 17 | | 17 | |
Overdrafts | — | | 1,037 | | 1,037 | | | — | | 279 | | 279 | |
Total | $ | 32,503 | | $ | 2,944,373 | | $ | 2,976,876 | | | $ | 1,716 | | $ | 33,347 | | $ | 35,063 | |
(1) Included in the loans collectively evaluated are $10.9 million in fully guaranteed or cash secured loans, which are excluded from the pools collectively evaluated and carry no allowance.
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Loan Balances | | Allowance for Credit Losses - Loans |
Dollars in thousands | Loans Individually Evaluated | Loans Collectively Evaluated (1) | Total | | Loans Individually Evaluated | Loans Collectively Evaluated | Total |
Commercial | $ | 177 | | $ | 365,124 | | $ | 365,301 | | | $ | — | | $ | 3,218 | | $ | 3,218 | |
Commercial real estate - owner occupied | | | | | | | |
Professional & medical | 2,073 | | 148,686 | | 150,759 | | | 199 | | 893 | | 1,092 | |
Retail | 5,559 | | 184,745 | | 190,304 | | | — | | 1,362 | | 1,362 | |
Other | — | | 143,645 | | 143,645 | | | — | | 575 | | 575 | |
Commercial real estate - non-owner occupied | | | | | | | |
Hotels & motels | 3,085 | | 125,365 | | 128,450 | | | 669 | | 1,863 | | 2,532 | |
Mini-storage | 1,058 | | 57,987 | | 59,045 | | | — | | 133 | | 133 | |
Multifamily | — | | 233,157 | | 233,157 | | | — | | 1,821 | | 1,821 | |
Retail | 2,693 | | 160,065 | | 162,758 | | | — | | 1,074 | | 1,074 | |
Other | 5,726 | | 276,895 | | 282,621 | | | 69 | | 1,751 | | 1,820 | |
Construction and development | | | | | | | |
Land & land development | 2,004 | | 98,801 | | 100,805 | | | 723 | | 2,745 | | 3,468 | |
Construction | — | | 146,038 | | 146,038 | | | — | | 6,346 | | 6,346 | |
Residential 1-4 family real estate | | | | | | | |
Personal residence | — | | 262,805 | | 262,805 | | | — | | 2,765 | | 2,765 | |
Rental - small loan | 1,463 | | 120,526 | | 121,989 | | | 436 | | 2,398 | | 2,834 | |
Rental - large loan | 3,162 | | 75,946 | | 79,108 | | | — | | 2,374 | | 2,374 | |
Home equity | 523 | | 71,589 | | 72,112 | | | — | | 497 | | 497 | |
Mortgage warehouse lines | — | | 227,869 | | 227,869 | | | — | | — | | — | |
Consumer | — | | 31,923 | | 31,923 | | | — | | 163 | | 163 | |
Other | | | | | | | |
Credit cards | — | | 1,891 | | 1,891 | | | — | | 17 | | 17 | |
Overdrafts | — | | 811 | | 811 | | | — | | 207 | | 207 | |
Total | $ | 27,523 | | $ | 2,733,868 | | $ | 2,761,391 | | | $ | 2,096 | | $ | 30,202 | | $ | 32,298 | |
(1) Included in the loans collectively evaluated are $19.8 million in fully guaranteed or cash secured loans, which are excluded from the pools collectively evaluated and carry no allowance.
The following table presents the amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses, and the related ACLL allocated to those loans:
| | | | | | | | | | | | | | |
| June 30, 2022 |
Dollars in thousands | Real Estate Secured Loans | Non-Real Estate Secured Loans | Total Loans | Allowance for Credit Losses - Loans |
Commercial | $ | — | | $ | 133 | | $ | 133 | | $ | — | |
Commercial real estate - owner occupied | | | | |
Professional & medical | 2,024 | | — | | 2,024 | | 228 | |
Retail | 5,281 | | — | | 5,281 | | — | |
Other | — | | — | | — | | — | |
Commercial real estate - non-owner occupied | | | | |
Hotels & motels | 2,978 | | — | | 2,978 | | — | |
Mini-storage | — | | — | | — | | — | |
Multifamily | — | | — | | — | | — | |
Retail | 10,053 | | — | | 10,053 | | 256 | |
Other | 5,593 | | — | | 5,593 | | 302 | |
Construction and development | | | | |
Land & land development | 1,449 | | — | | 1,449 | | 529 | |
Construction | — | | — | | — | | — | |
Residential 1-4 family real estate | | | | |
Personal residence | — | | — | | — | | — | |
Rental - small loan | 1,428 | | — | | 1,428 | | 401 | |
Rental - large loan | 3,093 | | — | | 3,093 | | — | |
Home equity | 471 | | — | | 471 | | — | |
Consumer | — | | — | | — | | — | |
Other | | | | |
Credit cards | — | | — | | — | | — | |
Overdrafts | — | | — | | — | | — | |
Total | $ | 32,370 | | $ | 133 | | $ | 32,503 | | $ | 1,716 | |
| | | | | | | | | | | | | | |
| December 31, 2021 |
Dollars in thousands | Real Estate Secured Loans | Non-Real Estate Secured Loans | Total Loans | Allowance for Credit Losses - Loans |
Commercial | $ | — | | $ | 177 | | $ | 177 | | $ | — | |
Commercial real estate - owner occupied | | | | |
Professional & medical | 2,073 | | — | | 2,073 | | 199 | |
Retail | 5,559 | | — | | 5,559 | | — | |
Other | — | | — | | — | | — | |
Commercial real estate - non-owner occupied | | | | |
Hotels & motels | 3,085 | | — | | 3,085 | | 669 | |
Mini-storage | 1,058 | | — | | 1,058 | | — | |
Multifamily | — | | — | | — | | — | |
Retail | 2,693 | | — | | 2,693 | | — | |
Other | 5,726 | | — | | 5,726 | | 69 | |
Construction and development | | | | |
Land & land development | 2,004 | | — | | 2,004 | | 723 | |
Construction | — | | — | | — | | — | |
Residential 1-4 family real estate | | | | |
Personal residence | — | | — | | — | | — | |
Rental - small loan | 1,463 | | — | | 1,463 | | 436 | |
Rental - large loan | 3,162 | | — | | 3,162 | | — | |
Home equity | 523 | | — | | 523 | | — | |
Consumer | — | | — | | — | | — | |
Other | | | | |
Credit cards | — | | — | | — | | — | |
Overdrafts | — | | — | | — | | — | |
Total | $ | 27,346 | | $ | 177 | | $ | 27,523 | | $ | 2,096 | |
NOTE 7. GOODWILL AND OTHER INTANGIBLE ASSETS
The following tables present our goodwill activity for the quarter ending June 30, 2022 and the balance of other intangible assets at June 30, 2022 and December 31, 2021.
| | | | | | | | | | | | |
| | |
Dollars in thousands | | Goodwill Activity | | | | |
Balance, January 1, 2022 | | $ | 55,347 | | | | | |
Reclassifications from goodwill | | — | | | | | |
Acquired goodwill | | — | | | | | |
| | | | | | |
Balance, June 30, 2022 | | $ | 55,347 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | Other Intangible Assets |
Dollars in thousands | | June 30, 2022 | | December 31, 2021 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Identifiable intangible assets | | | | | | | | | | | | |
Gross carrying amount | | $ | 15,828 | | | | | | | $ | 15,828 | | | | | |
Less: accumulated amortization | | 8,319 | | | | | | | 7,585 | | | | | |
| | | | | | | | | | | | |
Net carrying amount | | $ | 7,509 | | | | | | | $ | 8,243 | | | | | |
We recorded amortization expense of $355,000 and $734,000 for the three and six months ended June 30, 2022 and $382,000 and $787,000 for the three and six months ended June 30, 2021, relative to our identifiable intangible assets.
Amortization relative to our identifiable intangible assets is expected to approximate the following during the next five years and thereafter:
| | | | | | |
| Core Deposit | |
Dollars in thousands | Intangible | |
| | |
| | |
| | |
| | |
Six month period ending December 31, 2022 | $ | 707 | | |
Year ending December 31, 2023 | 1,299 | | |
Year ending December 31, 2024 | 1,158 | | |
Year ending December 31, 2025 | 1,019 | | |
Year ending December 31, 2026 | 878 | | |
Thereafter | 2,378 | | |
NOTE 8. DEPOSITS
The following is a summary of interest bearing deposits by type as of June 30, 2022 and December 31, 2021:
| | | | | | | | | | | | | | |
Dollars in thousands | | June 30, 2022 | | December 31, 2021 |
Demand deposits, interest bearing | | $ | 1,238,367 | | | $ | 1,127,298 | |
Savings deposits | | 645,099 | | | 698,156 | |
Time deposits | | 491,046 | | | 548,649 | |
Total | | $ | 2,374,512 | | | $ | 2,374,103 | |
Included in time deposits are deposits acquired through a third party (“brokered deposits”) totaling $32.8 million and $14.7 million at June 30, 2022 and December 31, 2021, respectively.
A summary of the scheduled maturities for all time deposits as of June 30, 2022 is as follows:
| | | | | |
Dollars in thousands | |
Six month period ending December 31, 2022 | $ | 221,217 | |
Year ending December 31, 2023 | 152,848 | |
Year ending December 31, 2024 | 56,487 | |
Year ending December 31, 2025 | 32,621 | |
Year ending December 31, 2026 | 15,439 | |
Thereafter | 12,434 | |
Total | $ | 491,046 | |
The aggregate amount of time deposits in denominations that meet or exceed the FDIC insurance limit of $250,000 totaled $107.3 million at June 30, 2022 and $98.9 million at December 31, 2021.
NOTE 9. BORROWED FUNDS
Short-term borrowings: Federal funds purchased mature the next business day and totaled $147,000 at June 30, 2022 and December 31, 2021. A summary of short-term FHLB advancecs is presented below:
| | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2022 | | 2021 |
Dollars in thousands | Short-term FHLB Advances | | |
Balance at June 30 | $ | 291,300 | | | | | $ | 140,000 | | | |
Average balance outstanding for the period | 173,768 | | | | | 140,000 | | | |
Maximum balance outstanding at any month end during period | 291,300 | | | | | 140,000 | | | |
Weighted average interest rate for the period | 0.85 | % | | | | 0.35 | % | | |
Weighted average interest rate for balances | | | | | | | |
outstanding at June 30 | 1.52 | % | | | | 0.31 | % | | |
| | | | | | | | | |
| Year Ended December 31, 2021 |
Dollars in thousands | Short-term FHLB Advances | | | | |
Balance at December 31 | $ | 140,000 | | | | | |
Average balance outstanding for the period | 140,000 | | | | | |
Maximum balance outstanding at any month end during period | 140,000 | | | | | |
Weighted average interest rate for the period | 0.33 | % | | | | |
Weighted average interest rate for balances | | | | | |
outstanding at December 31 | 0.26 | % | | | | |
Long-term borrowings: Our long-term borrowings of $669,000 and $679,000 at June 30, 2022 and December 31, 2021, respectively, consisted of a 5.34% fixed rate advance from the Federal Home Loan Bank (“FHLB”), maturing in 2026. This FHLB advance is collateralized by a blanket lien of $1.74 billion of residential mortgage loans, certain commercial loans, mortgage backed securities and securities of U.S. Government agencies and corporations.
Subordinated debentures: We issued $75 million of subordinated debentures, net of $1.74 million debt issuance costs, during fourth quarter 2021 in a private placement transaction, which had a net balance of $73.5 million at June 30, 2022 and $73.4 million at December 31, 2021. The subordinated debt qualifies as Tier 2 capital under Federal Reserve Board guidelines, until the debt is within 5 years of its maturity; thereafter the amount qualifying as Tier 2 capital is reduced by 20 percent each year until maturity. This subordinated debt bears interest at a fixed rate of 3.25% per year, from and including November 16, 2021 to, but excluding, December 1, 2026, payable semi-annually in arrears. From and including December 1, 2026 to, but excluding, the maturity date or earlier redemption date, the interest rate will reset quarterly at a variable rate equal to the then current three-month term Secured Overnight Financing Rate (“SOFR”), as published by the Federal Reserve Bank of New York, plus 230 basis points, payable quarterly in arrears. This debt has a 10 years term and generally, is not prepayable by us within the first five years.
We issued $30 million of subordinated debentures, net of $681,000 debt issuance costs, during third quarter 2020 in a private placement transaction, which had a net balance of $29.6 million at June 30, 2022 and $29.5 million at December 31, 2021. The subordinated debt qualifies as Tier 2 capital under Federal Reserve Board guidelines, until the debt is within 5 years of its maturity; thereafter the amount qualifying as Tier 2 capital is reduced by 20 percent each year until maturity. This subordinated debt bears interest at a fixed rate of 5.00% per year, from and including September 22, 2020 to, but excluding, September 30, 2025, payable quarterly in arrears. From and including September 30, 2025 to, but excluding, the maturity date or earlier redemption date, the interest rate will reset quarterly at a variable rate equal to the then current three-month term Secured Overnight Financing Rate (“SOFR”), as published by the Federal Reserve Bank of New York, plus 487 basis points, payable quarterly in arrears. This debt has a 10 years term and generally, is not prepayable by us within the first five years.
Subordinated debentures owed to unconsolidated subsidiary trusts: We have three statutory business trusts that were formed for the purpose of issuing mandatorily redeemable securities (the “capital securities”) for which we are obligated to third party investors and investing the proceeds from the sale of the capital securities in our junior subordinated debentures (the “debentures”). The debentures held by the trusts are their sole assets. These subordinated debentures totaled $19.6 million at June 30, 2022 and December 31, 2021.
The capital securities held by SFG Capital Trust I, SFG Capital Trust II, and SFG Capital Trust III qualify as Tier 1 capital under Federal Reserve Board guidelines. In accordance with these Guidelines, trust preferred securities generally are limited to 25% of Tier 1 capital elements, net of goodwill. The amount of trust preferred securities and certain other elements in excess of the limit can be included in Tier 2 capital.
A summary of the maturities of all long-term borrowings and subordinated debentures for the next five years and thereafter is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
Dollars in thousands | | | Long-term borrowings | | Subordinated debentures | | Subordinated debentures owed to unconsolidated subsidiary trusts |
Year Ending December 31, | 2022 | | $ | 11 | | | $ | — | | | $ | — | |
| 2023 | | 22 | | | — | | | — | |
| 2024 | | 23 | | | — | | | — | |
| 2025 | | 24 | | | — | | | — | |
| 2026 | | 589 | | | — | | | — | |
| Thereafter | | — | | | 105,000 | | | 19,589 | |
| | | $ | 669 | | | $ | 105,000 | | | $ | 19,589 | |
NOTE 10. SHARE-BASED COMPENSATION
Under the 2014 Long-Term Incentive Plan (“2014 LTIP”), stock options, SARs and RSUs have generally been granted with an exercise price equal to the fair value of Summit's common stock on the grant date. We periodically grant employee stock options to individual employees.
The fair value of our employee stock options and SARs granted under the Plans is estimated at the date of grant using the Black-Scholes option-pricing model. This model requires the input of highly subjective assumptions, changes to which can materially affect the fair value estimate. Additionally, there may be other factors that would otherwise have a significant effect on the value of employee stock options and SARs granted but are not considered by the model. Because our employee stock options and SARs have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options and SARs at the time of grant.
There were no grants of SARs or stock options during first half 2022. During third quarter 2021, we granted 54,947 SARs with a $9.44 grant date fair value per SAR that become exercisable ratably over seven years (14.3% per year) and expire ten years after the grant date. Also during 2021, we granted 122,542 SARs with an $9.34 grant date fair value per SAR that become exercisable ratably over five years (20% per year) and expire ten years after the grant date.
The fair value of our employee stock options and SARs granted under the Plans is estimated at the date of grant using the Black-Scholes option-pricing model. This model requires the input of highly subjective assumptions, changes to which can materially affect the fair value estimate. Additionally, there may be other factors that would otherwise have a significant effect on the value of employee stock options and SARs granted but are not considered by the model. Because our employee stock options and SARs have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options and SARs at the time of grant. The assumptions used to value SARs granted in 2021 are as follows:
| | | | | | | | |
| 2021 grant with 7 year expiration | 2021 grant with 5 year expiration |
Risk-free interest rate | 1.06 | % | 0.74 | % |
Expected dividend yield | 3.00 | % | 3.00 | % |
Expected common stock volatility | 55.59 | % | 55.59 | % |
Expected life | 7 years | 5.5 years |
A summary of our SAR and stock option activity during the first six months of 2022 and 2021 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Six Months Ended June 30, |
| 2022 |
| Options/SARs | | Aggregate Intrinsic Value (in thousands) | | Remaining Contractual Term (Yrs.) | | Weighted-Average Exercise Price |
Outstanding, January 1 | 491,792 | | | | | | | $ | 21.32 | |
Granted | — | | | | | | | — | |
Exercised | (1,200) | | | | | | | 12.01 | |
Forfeited | — | | | | | | | — | |
Expired | — | | | | | | | — | |
Outstanding, June 30 | 490,592 | | | $ | — | | | 6.45 | | $ | 21.34 | |
| | | | | | | |
Exercisable, June 30 | 244,057 | | | $ | 1,858,572 | | | 4.59 | | $ | 20.16 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Six Months Ended June 30, |
| 2021 |
| Options/SARs | | Aggregate Intrinsic Value (in thousands) | | Remaining Contractual Term (Yrs.) | | Weighted-Average Exercise Price |
Outstanding, January 1 | 329,203 | | | | | | | $ | 20.47 | |
Granted | — | | | | | | | — | |
Exercised | (800) | | | | | | | 12.01 | |
Forfeited | — | | | | | | | — | |
Expired | — | | | | | | | — | |
Outstanding, June 30 | 328,403 | | | $ | 1,103 | | | 5.85 | | $ | 20.49 | |
| | | | | | | |
Exercisable, June 30 | 218,216 | | | $ | 1,103 | | | 5.18 | | $ | 18.53 | |
Grants of RSUs include time-based vesting conditions that generally vest ratably over a period of 3 to 5 years.
| | | | | | | | | | | |
| RSUs | | Weighted Average Grant Date Fair Value |
Nonvested, December 31, 2021 | 13,015 | | | $ | 21.24 | |
Granted | — | | | — | |
Forfeited | — | | | — | |
Vested | (5,246) | | | 22.24 | |
Nonvested, June 30, 2022 | 7,769 | | | $ | 20.57 | |
| | | | | | | | | | | |
| RSUs | | Weighted Average Grant Date Fair Value |
Nonvested, December 31, 2020 | 15,686 | | | $ | 20.40 | |
Granted | — | | | — | |
Forfeited | — | | | — | |
Vested | (3,400) | | | 19.61 | |
Nonvested, June 30, 2021 | 12,286 | | | $ | 20.62 | |
We recognize compensation expense based on the estimated number of stock awards expected to actually vest, exclusive of the awards expected to be forfeited. During the first six months of 2022 and 2021, total stock compensation expense for all share-based arrangements was $324,000 and $252,000 and the related deferred tax benefits were approximately $80,000 and $61,000. At June 30, 2022 our total unrecognized compensation expense related to all nonvested awards not yet recognized totaled $1.85 million and on a weighted average basis, will be recognized over the next 2.07 years.
NOTE 11. COMMITMENTS AND CONTINGENCIES
Off-Balance Sheet Arrangements
We are a party to certain financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of our customers. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the statement of financial position. The contract amounts of these instruments reflect the extent of involvement that we have in this class of financial instruments.
Many of our lending relationships contain both funded and unfunded elements. The funded portion is reflected on our balance sheet. The unfunded portion of these commitments is not recorded on our balance sheet until a draw is made under the loan facility. Since many of the commitments to extend credit may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash flow requirements.
A summary of the total unfunded, or off-balance sheet, credit extension commitments follows:
| | | | | | | | |
Dollars in thousands | | June 30, 2022 |
Commitments to extend credit: | | |
Revolving home equity and credit card lines | | $ | 104,126 | |
Construction loans | | 300,784 | |
Other loans | | 451,599 | |
Standby letters of credit | | 19,648 | |
Total | | $ | 876,157 | |
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. We evaluate each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if we deem necessary upon extension of credit, is based on our credit evaluation. Collateral held varies but may include accounts receivable, inventory, equipment or real estate.
Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party.
Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments.
Allowance For Credit Losses - Off-Balance-Sheet Credit Exposures
The provision for credit losses on unfunded commitments was $(600,000) and $955,000 for the three months ended June 30, 2022 and 2021 and $517,000 and $470,000 for the six months ended June 30, 2022 and 2021. The ACL on off-balance-sheet credit exposures totaled $7.79 million at June 30, 2022 compared to $7.28 million at December 31, 2021 and is included in other liabilities on the accompanying consolidated balance sheets.
Litigation
We are not a party to litigation except for matters that arise in the normal course of business. While it is impossible to ascertain the ultimate resolution or range of financial liability, if any, with respect to these contingent matters, in the opinion of management, after consultation with legal counsel, the outcome of these matters will not have a significant adverse effect on the consolidated financial statements.
NOTE 12. PREFERRED STOCK
In April 2021, we sold through a private placement 1,500 shares or $15.0 million of Series 2021 6% Fixed-Rate Non-Cumulative Perpetual Preferred Stock, $1.00 par value, with a liquidation preference of $10,000 per share (the “Preferred Stock”). The Preferred Stock is non-convertible and will pay noncumulative dividends, if and when declared by the Summit
board of directors, at a rate of 6.0% per annum. Dividends declared will be payable quarterly in arrears on the 15th day of March, June, September and December of each year.
NOTE 13. REGULATORY MATTERS
Our bank subsidiary, Summit Community Bank, Inc. (“Summit Community”), is subject to various regulatory capital requirements administered by the banking regulatory agencies. Under the capital adequacy guidelines and the regulatory framework for prompt corrective action, Summit Community must meet specific capital guidelines that involve quantitative measures of its assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Our bank subsidiary’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require Summit Community to maintain minimum amounts and ratios of Common Equity Tier 1("CET1"), Total capital and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). We believe, as of June 30, 2022, that our bank subsidiary met all capital adequacy requirements to which they were subject.
The most recent notifications from the banking regulatory agencies categorized Summit Community as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, Summit Community must maintain minimum CET1, Total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table below.
In December 2018, the federal bank regulatory agencies approved a final rule modifying their regulatory capital rules to provide an option to phase-in over a period of three years the day-one regulatory capital effects of the implementation of ASC 326. In March 2020, those agencies approved a final rule providing an option to delay the estimated impact on regulatory capital. We elected this optional phase-in period upon adoption of ASC 326 on January 1, 2020 and elected to delay the estimated impact. The initial impact of adoption as well as 25% of the quarterly increases in the allowance for credit losses subsequent to adoption (collectively the “transition adjustments”) will be delayed for two years. After two years, the cumulative amount of the transition adjustments will become fixed and will be phased out of the regulatory capital calculations evenly over a three year period, with 75% recognized in year three, 50% recognized in year four, and 25% recognized in year five. After five years, the temporary regulatory capital benefits will be fully reversed.
The following tables present Summit's, as well as Summit Community's, actual and required minimum regulatory capital amounts and ratios as of June 30, 2022 and December 31, 2021.
Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Actual | | Minimum Required Capital - Basel III | | Minimum Required To Be Well Capitalized |
Dollars in thousands | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
As of June 30, 2022 | | | | | | | | | | | | |
CET1 (to risk weighted assets) | | | | | | | | | | | | |
Summit | | $ | 274,554 | | | 8.2 | % | | $ | 234,375 | | | 7.0 | % | | N/A | | N/A |
Summit Community | | 380,913 | | | 11.4 | % | | 233,894 | | | 7.0 | % | | 217,187 | | | 6.5 | % |
Tier I Capital (to risk weighted assets) | | | | | | | | | | |
Summit | | 308,474 | | | 9.2 | % | | 285,003 | | | 8.5 | % | | N/A | | N/A |
Summit Community | | 380,913 | | | 11.4 | % | | 284,014 | | | 8.5 | % | | 267,307 | | | 8.0 | % |
Total Capital (to risk weighted assets) | | | | | | | | | | |
Summit | | 444,241 | | | 13.3 | % | | 350,717 | | | 10.5 | % | | N/A | | N/A |
Summit Community | | 413,627 | | | 12.4 | % | | 350,249 | | | 10.5 | % | | 333,570 | | | 10.0 | % |
Tier I Capital (to average assets) | | | | | | | | | | | | |
Summit | | 308,474 | | | 8.4 | % | | 146,892 | | | 4.0 | % | | N/A | | N/A |
Summit Community | | 380,913 | | | 10.4 | % | | 146,505 | | | 4.0 | % | | 183,131 | | | 5.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Actual | | Minimum Required Capital - Basel III | | Minimum Required To Be Well Capitalized |
Dollars in thousands | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
As of December 31, 2021 | | | | | | | | |
CET1 (to risk weighted assets) | | | | | | | | | | | | |
Summit | | 257,122 | | | 8.4 | % | | 214,268 | | | 7.0 | % | | N/A | | N/A |
Summit Community | | 364,125 | | | 11.9 | % | | 214,191 | | | 7.0 | % | | 198,892 | | | 6.5 | % |
Tier I Capital (to risk weighted assets) | | | | | | | | | | |
Summit | | 291,042 | | | 9.5 | % | | 260,406 | | | 8.5 | % | | N/A | | N/A |
Summit Community | | 364,125 | | | 11.9 | % | | 260,089 | | | 8.5 | % | | 244,790 | | | 8.0 | % |
Total Capital (to risk weighted assets) | | | | | | | | | | |
Summit | | 420,045 | | | 13.8 | % | | 319,599 | | | 10.5 | % | | N/A | | N/A |
Summit Community | | 390,236 | | | 12.8 | % | | 320,115 | | | 10.5 | % | | 304,872 | | | 10.0 | % |
Tier I Capital (to average assets) | | | | | | | | | | | | |
Summit | | 291,042 | | | 8.3 | % | | 140,261 | | | 4.0 | % | | N/A | | N/A |
Summit Community | | 364,125 | | | 10.4 | % | | 140,048 | | | 4.0 | % | | 175,060 | | | 5.0 | % |
NOTE 14. DERIVATIVE FINANCIAL INSTRUMENTS
Cash flow hedges
We have entered into two pay-fixed/receive LIBOR interest rate swaps as follows:
•A $20 million notional interest rate swap with an effective date of October 18, 2021 and expiring on October 18, 2023, was designated as a cash flow hedge of $20 million of variable rate Federal Home Loan Bank advances. Under the terms of this swap we will pay a fixed rate of 1.07% and receive a variable rate equal to three month LIBOR.
•A $20 million notional interest rate swap with an effective date of October 18, 2021 and expiring on October 18, 2024, was designated as a cash flow hedge of $20 million of variable rate Federal Home Loan Bank advances. Under the terms of this swap we will pay a fixed rate of 1.1055% and receive a variable rate equal to three month LIBOR.
In addition, we have entered into two interest rate caps as follows:
•A $100 million notional interest rate cap with an effective date of July 20, 2020 and expiring on April 18, 2030, was designated as a cash flow hedge of $100 million of fixed rate Federal Home Loan Bank advances. Under the terms of this cap we will hedge the variability of cash flows when three month LIBOR is above .75%.
•A $100 million notional interest rate cap with an effective date of December 29, 2020 and expiring on December 18, 2025, was designated as a cash flow hedge of $100 million of certain indexed interest bearing demand deposit accounts. Under the terms of this cap we will hedge the variability of cash flows when the indexed rate of SOFR is above 0.50%.
Fair value hedges
We have entered into two pay fixed/receive variable interest rate swaps to hedge fair value variability of two commercial fixed rate loans with the same principal, amortization, and maturity terms of the underlying loans, which are designated as fair value hedges with a total original notional amount of $21.3 million.
We have also entered into a pay fixed/receive variable interest rate swap to hedge the fair value variability of certain available for sale taxable muncipal securities, which is designated as a fair value hedge with a total original notional amount of $71.2 million.
A summary of our derivative financial instruments as of June 30, 2022 and December 31, 2021 follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 |
| Notional Amount | | Derivative Fair Value | | Net Ineffective |
Dollars in thousands | | Asset | | Liability | | Hedge Gains/(Losses) |
CASH FLOW HEDGES | | | | | | | |
Pay-fixed/receive-variable interest rate swaps | | | | | | | |
Short term borrowings | $ | 40,000 | | | $ | 1,446 | | | $ | — | | | $ | — | |
| | | | | | | |
Interest rate cap hedging: | | | | | | | |
Short term borrowings | $ | 100,000 | | | $ | 17,201 | | | $ | — | | | $ | — | |
Indexed interest bearing demand deposit accounts | 100,000 | | | 7,689 | | | — | | | — | |
| | | | | | | |
FAIR VALUE HEDGES | | | | | | | |
Pay-fixed/receive-variable interest rate swaps | | | | | | | |
Commercial real estate loans | $ | 17,216 | | | $ | 478 | | | $ | — | | | $ | — | |
Available for sale taxable municipal securities | 71,245 | | | 4,638 | | | — | | | (12) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Notional Amount | | Derivative Fair Value | | Net Ineffective |
Dollars in thousands | | Asset | | Liability | | Hedge Gains/(Losses) |
CASH FLOW HEDGES | | | | | | | |
Pay-fixed/receive-variable interest rate swaps | | | | | | |
Short term borrowings | $ | 40,000 | | | $ | — | | | $ | 83 | | | $ | — | |
| | | | | | | |
Interest rate cap hedging: | | | | | | | |
Short term borrowings | $ | 100,000 | | | $ | 8,336 | | | $ | — | | | $ | — | |
Indexed interest bearing demand deposit accounts | 100,000 | | | 2,851 | | | — | | | — | |
| | | | | | | |
FAIR VALUE HEDGES | | | | | | | |
Pay-fixed/receive-variable interest rate swaps | | | | | | | |
Commercial real estate loans | $ | 17,548 | | | $ | — | | | $ | 512 | | | $ | — | |
Available for sale taxable municipal securities | 71,245 | | | — | | | 529 | | | 22 | |
Loan commitments: ASC Topic 815, Derivatives and Hedging, requires that commitments to make mortgage loans should be accounted for as derivatives if the loans are to be held for sale, because the commitment represents a written option and accordingly is recorded at the fair value of the option liability.
NOTE 15. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
The following is changes in accumulated other comprehensive (loss) income by component, net of tax, for the three and six months ending June 3, 2022 and 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended June 30, 2022 |
Dollars in thousands | | Gains and Losses on Pension Plan | | Gains and Losses on Other Post-Retirement Benefits | | Gains and Losses on Cash Flow Hedges | | Unrealized Gains/Losses on Debt Securities Available for Sale | | Unrealized Gains on Securities Fair Value Hedge | | Total |
Beginning balance | | $ | 30 | | | $ | 9 | | | $ | 12,454 | | | $ | (15,218) | | | $ | 1,652 | | | $ | (1,073) | |
Other comprehensive (loss) income before reclassification | | — | | | — | | | 3,431 | | | (11,918) | | | 1,866 | | | (6,621) | |
Amounts reclassified from accumulated other comprehensive income, net of tax | | — | | | — | | | — | | | 220 | | | — | | | 220 | |
Net current period other comprehensive (loss) income | | — | | | — | | | 3,431 | | | (11,698) | | | 1,866 | | | (6,401) | |
Ending balance | | $ | 30 | | | $ | 9 | | | $ | 15,885 | | | $ | (26,916) | | | $ | 3,518 | | | $ | (7,474) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended June 30, 2021 |
Dollars in thousands | | Gains and Losses on Pension Plan | | Gains and Losses on Other Post-Retirement Benefits | | Gains and Losses on Cash Flow Hedges | | Unrealized Gains/Losses on Debt Securities Available for Sale | | Total |
Beginning balance | | $ | (199) | | | $ | (40) | | | $ | 4,958 | | | $ | 4,099 | | | $ | 8,818 | |
Other comprehensive income (loss) before reclassification | | — | | | — | | | (2,795) | | | 1,175 | | | (1,620) | |
Amounts reclassified from accumulated other comprehensive income, net of tax | | — | | | — | | | — | | | (97) | | | (97) | |
Net current period other comprehensive income (loss) | | — | | | — | | | (2,795) | | | 1,078 | | | (1,717) | |
Ending balance | | $ | (199) | | | $ | (40) | | | $ | 2,163 | | | $ | 5,177 | | | $ | 7,101 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Six Months Ended June 30, 2022 |
Dollars in thousands | | Gains and Losses on Pension Plan | | Gains and Losses on Other Post-Retirement Benefits | | Gains and Losses on Cash Flow Hedges | | Unrealized Gains/Losses on Debt Securities Available for Sale | | Unrealized Gains on Securities Fair Value Hedge | | Total |
Beginning balance | | $ | 30 | | | $ | 9 | | | $ | 3,993 | | | $ | 1,868 | | | $ | (418) | | | $ | 5,482 | |
Other comprehensive (loss) income before reclassification | | — | | | — | | | 11,892 | | | (29,120) | | | 3,936 | | | (13,292) | |
Amounts reclassified from accumulated other comprehensive income, net of tax | | — | | | — | | | — | | | 336 | | | — | | | 336 | |
Net current period other comprehensive (loss) income | | — | | | — | | | 11,892 | | | (28,784) | | | 3,936 | | | (12,956) | |
Ending balance | | $ | 30 | | | $ | 9 | | | $ | 15,885 | | | $ | (26,916) | | | $ | 3,518 | | | $ | (7,474) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Six Months Ended June 30, 2021 |
Dollars in thousands | | Gains and Losses on Pension Plan | | Gains and Losses on Other Post-Retirement Benefits | | Gains and Losses on Cash Flow Hedges | | Unrealized Gains/Losses on Debt Securities Available for Sale | | Total |
Beginning balance | | $ | (199) | | | $ | (40) | | | $ | (1,132) | | | $ | 6,816 | | | $ | 5,445 | |
Other comprehensive income (loss) before reclassification | | — | | | — | | | 3,295 | | | (1,181) | | | 2,114 | |
Amounts reclassified from accumulated other comprehensive income, net of tax | | — | | | — | | | — | | | (458) | | | (458) | |
Net current period other comprehensive income (loss) | | — | | | — | | | 3,295 | | | (1,639) | | | 1,656 | |
Ending balance | | $ | (199) | | | $ | (40) | | | $ | 2,163 | | | $ | 5,177 | | | $ | 7,101 | |
NOTE 16. INCOME TAXES
Our income tax expense for the three and six ended June 30, 2022 and June 30, 2021 totaled $3.2 million and $2.9 million, and $6.5 million and $5.9 million, respectively. Our effective tax rate (income tax expense as a percentage of income before taxes) for the three and six months ended June 30, 2022 and 2021 was 21.0% and 21.7% and 21.4% and 21.9%, respectively. A reconciliation between the statutory income tax rate and our effective income tax rate for the three and six months ended June 30, 2022 and 2021 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Percent | | Percent | | Percent | | Percent |
Applicable statutory rate | 21.0 | % | | 21.0 | % | | 21.0 | % | | 21.0 | % |
Increase (decrease) in rate resulting from: | | | | | | | |
Tax-exempt interest and dividends, net | (1.4) | % | | (1.5) | % | | (1.4) | % | | (1.5) | % |
State income taxes, net of Federal income tax benefit | 2.3 | % | | 2.2 | % | | 2.0 | % | | 2.2 | % |
Low-income housing and rehabilitation tax credits | (0.2) | % | | (0.2) | % | | (0.2) | % | | (0.3) | % |
Other, net | (0.7) | % | | 0.2 | % | | — | % | | 0.5 | % |
Effective income tax rate | 21.0 | % | | 21.7 | % | | 21.4 | % | | 21.9 | % |
The components of applicable income tax expense for the three and six months ended June 30, 2022 and 2021 are as follows:
| | | | | | | | | | | | | | | | | |
| For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
Dollars in thousands | 2022 | 2021 | | 2022 | 2021 |
Current | | | | | |
Federal | $ | 2,701 | | $ | 2,695 | | | $ | 5,028 | | $ | 5,370 | |
State | 431 | | 386 | | | 700 | | 771 | |
| 3,132 | | 3,081 | | | 5,728 | | 6,141 | |
Deferred | | | | | |
Federal | 58 | | (132) | | | 636 | | (244) | |
State | 8 | | (19) | | | 91 | | (34) | |
| 66 | | (151) | | | 727 | | (278) | |
Total | $ | 3,198 | | $ | 2,930 | | | $ | 6,455 | | $ | 5,863 | |
NOTE 17. REVENUE FROM CONTRACTS WITH CUSTOMERS
Interest income, loan fees, realized securities gains and losses, bank owned life insurance income and mortgage banking revenue are not in the scope of ASC Topic 606, Revenue from Contracts with Customers. With the exception of gains or losses on sales of foreclosed properties, all of our revenue from contracts with customers in the scope of ASC 606 is recognized within Noninterest Income in the Consolidated Statements of Income. Incremental costs of obtaining a contract are expensed when incurred when the amortization period is one year or less.
The following table illustrates our total non-interest income segregated by revenues within the scope of ASC Topic 606 and those which are within the scope of other ASC Topics:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
Dollars in thousands | | 2022 | | 2021 | | 2022 | | 2021 |
Service fees on deposit accounts | | $ | 1,674 | | | $ | 1,093 | | | $ | 3,074 | | | $ | 2,193 | |
Bank card revenue | | 1,618 | | | 1,519 | | | 3,109 | | | 2,860 | |
Trust and wealth management fees | | 745 | | | 683 | | | 1,503 | | | 1,321 | |
| | | | | | | | |
Other | | 129 | | | 120 | | | 183 | | | 269 | |
Net revenue from contracts with customers | | 4,166 | | | 3,415 | | | 7,869 | | | 6,643 | |
Non-interest income within the scope of other ASC topics | | (310) | | | 1,300 | | | 532 | | | 3,046 | |
Total noninterest income | | $ | 3,856 | | | $ | 4,715 | | | $ | 8,401 | | | $ | 9,689 | |