美國
證券交易委員會
華盛頓特區 20549
表格
截至2024年6月30日季度結束 |
過渡期從________到________
委員會檔案編號：
（依憑章程所載的完整登記名稱）
(成立地或組織其他管轄區) |
（聯邦稅號） |
(主要行政辦事處地址) (郵遞區號)
(
(註冊人電話號碼，包括區號)
(Not applicable)
(如與上次報告不同，列明前名稱、前地址及前財政年度)
根據法案第12(b)條規定註冊的證券：
每種類別的名稱 |
交易標的（s） |
每個註冊交易所的名稱 |
請勾選表示：（1）申報人在過去12個月內已根據1934年證券交易法第13或15（d）條的要求進行了必須申報的所有報告（或者對於申報人被要求提交該等報告的較短期間）；並且（2）申報人在過去90天內一直受到該等申報要求的約束。 ☒
請標示✓，表明在過去的12個月內（或者要求提交此類文件的較短期間），登記公司是否已根據Regulation S-t（本章節的§232.405）的第405條規定，電子提交了每一份互動數據文件。 ☒
請以核取方塊標示註冊人是否為大型加速報告者、加速報告者、非加速報告者、小型報告公司或新興成長公司。詳見《交易所法》第12b-2條中對「大型加速報告者」、「加速報告者」、「小型報告公司」及「新興成長公司」的定義。
大型加速提交人 ☐ |
加速提交人 ☐ |
較小的報告公司 |
新興成長型公司 |
如果是新興成長公司，請用勾選表示該註冊人已選擇不使用根據《交易所法》第13(a)條提供的任何新的或修訂的財務會計標準的擴展過渡期來遵守。 ☐
請勾選登記者是否為空殼公司（如《交易所法》第120億條所定義）。是 ☐ 否
請表示於最近可行日期，每種發行人普通股的流通股數。
二零二四年十一月十三日止的普通股 |
national bankshares, inc.
10-Q表格
指數
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項目2 |
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項目 3 |
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項目 1 |
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項目1A |
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項目2 |
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項目 3 |
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項目4 |
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條款5 |
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條款6 |
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2
Part I
Item 1. Financial Statements
Financial Information
National Bankshares, Inc.
Consolidated Balance Sheets
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(Unaudited) |
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(in thousands, except share and per share data) |
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September 30, 2024 |
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December 31, 2023 |
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Assets |
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Cash and due from banks |
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$ |
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$ |
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Interest-bearing deposits |
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Federal funds sold |
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Total cash and cash equivalents |
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Securities available for sale, at fair value |
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Restricted stock, at cost |
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Mortgage loans held for sale |
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Loans: |
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Loans, net of unearned income and deferred fees and costs |
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Less: allowance for credit losses |
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( |
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( |
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Loans, net |
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Premises and equipment, net |
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Accrued interest receivable |
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Goodwill |
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Core deposit intangible, net |
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Bank-owned life insurance |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders' Equity |
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Noninterest-bearing demand deposits |
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$ |
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$ |
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Interest-bearing demand deposits |
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Savings deposits |
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Time deposits |
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Total deposits |
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Accrued interest payable |
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Other liabilities |
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Total liabilities |
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Stockholders' Equity |
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Preferred stock, |
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$ |
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$ |
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Common stock of $ |
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Retained earnings |
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Accumulated other comprehensive loss, net |
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( |
) |
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( |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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See accompanying notes to consolidated financial statements.
3
National Bankshares, Inc.
Consolidated Statements of Income
(Unaudited)
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Three Months Ended September 30, |
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(in thousands, except share and per share data) |
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2024 |
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2023 |
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Interest Income |
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Interest and fees on loans |
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$ |
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$ |
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Interest on federal funds sold |
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Interest on interest-bearing deposits |
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Interest on securities – taxable |
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Interest on securities – nontaxable |
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Total interest income |
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Interest Expense |
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Interest on time deposits |
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Interest on other deposits |
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Interest on borrowings |
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Total interest expense |
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Net interest income |
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Recovery of credit losses |
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( |
) |
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( |
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Net interest income after recovery of credit losses |
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Noninterest Income |
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Service charges on deposit accounts |
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Other service charges and fees |
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Credit and debit card fees, net |
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Trust income |
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BOLI income |
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Gain on sale of mortgage loans |
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Other income |
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Total noninterest income |
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Noninterest Expense |
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Salaries and employee benefits |
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Occupancy, furniture and fixtures |
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Data processing and ATM |
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FDIC assessment |
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Intangible asset amortization |
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Net costs of other real estate owned |
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Franchise taxes |
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Professional services |
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Merger-related expenses |
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Other operating expenses |
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Total noninterest expense |
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Income before income tax expense |
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Income tax expense |
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Net Income |
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$ |
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$ |
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Basic net income per common share |
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$ |
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$ |
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Fully diluted net income per common share |
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$ |
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$ |
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Weighted average number of common shares outstanding, basic |
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Weighted average number of common shares outstanding, fully diluted |
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See accompanying notes to consolidated financial statements.
4
National Bankshares, Inc.
Consolidated Statements of Comprehensive Income (Loss)
Three Months Ended September 30, 2024 and 2023
(Unaudited)
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September 30, |
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(in thousands) |
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2024 |
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2023 |
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Net Income |
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$ |
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$ |
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Other Comprehensive Income (Loss), Net of Tax |
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Unrealized holding gain (loss) on available for sale securities net of tax of $ |
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( |
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Other comprehensive income (loss), net of tax |
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( |
) |
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Total Comprehensive Income (Loss) |
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$ |
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$ |
( |
) |
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5
National Bankshares, Inc.
Consolidated Statements of Income
(Unaudited)
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Nine Months Ended September 30, |
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(in thousands, except share and per share data) |
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2024 |
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2023 |
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Interest Income |
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Interest and fees on loans |
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$ |
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$ |
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Interest on federal funds sold |
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Interest on interest-bearing deposits |
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Interest on securities – taxable |
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Interest on securities – nontaxable |
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Total interest income |
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Interest Expense |
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Interest on time deposits |
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Interest on other deposits |
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Interest on borrowings |
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Total interest expense |
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Net interest income |
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Provision for (recovery of) credit losses |
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( |
) |
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Net interest income after provision for (recovery of) credit losses |
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Noninterest Income |
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Service charges on deposit accounts |
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Other service charges and fees |
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Credit and debit card fees, net |
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Trust income |
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BOLI income |
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Gain on sale of investment |
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Gain on sale of mortgage loans |
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Other income |
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Realized securities loss, net |
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( |
) |
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Total noninterest income |
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Noninterest Expense |
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Salaries and employee benefits |
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Occupancy, furniture and fixtures |
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Data processing and ATM |
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FDIC assessment |
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Intangible asset amortization |
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Net costs of other real estate owned |
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Franchise taxes |
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Professional services |
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Merger-related expenses |
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Contract termination |
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Other operating expenses |
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Total noninterest expense |
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Income before income tax expense |
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Income tax expense |
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Net Income |
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$ |
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$ |
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Basic net income per common share |
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$ |
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$ |
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Fully diluted net income per common share |
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$ |
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$ |
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Weighted average number of common shares outstanding, basic |
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Weighted average number of common shares outstanding, fully diluted |
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Dividends declared per common share |
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$ |
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$ |
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6
National Bankshares, Inc.
Consolidated Statements of Comprehensive Income
Nine Months Ended September 30, 2024 and 2023
(Unaudited)
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September 30, |
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(in thousands) |
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2024 |
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2023 |
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Net Income |
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$ |
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$ |
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Other Comprehensive Income (Loss), Net of Tax |
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Unrealized holding gain (loss) on available for sale securities net of tax of $ |
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( |
) |
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Reclassification adjustment for loss included in net income, net of tax of $ |
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Other comprehensive income (loss), net of tax |
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( |
) |
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Total Comprehensive Income |
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$ |
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$ |
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See accompanying notes to consolidated financial statements.
7
National Bankshares, Inc.
Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)
Three Months Ended September 30, 2024 and 2023
(in thousands except share data) |
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Common Stock and Additional Paid-in Capital |
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Retained Earnings |
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Accumulated Other Comprehensive Loss |
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Total |
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Balances at June 30, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Net income |
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Other comprehensive loss, net of tax of ($ |
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( |
) |
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( |
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Stock based compensation |
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Balances at September 30, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Balances at June 30, 2024 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Net income |
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Other comprehensive income, net of tax of $ |
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Stock based compensation |
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Balances at September 30, 2024 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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See accompanying notes to consolidated financial statements.
Nine Months Ended September 30, 2024 and 2023
(in thousands except share data) |
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Common Stock and Additional Paid-in Capital |
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Retained Earnings |
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Accumulated Other Comprehensive Loss |
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Total |
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Balances at December 31, 2022 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Adoption of ASU 2016-13 |
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( |
) |
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( |
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Net income |
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Cash dividends of $ |
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( |
) |
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( |
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Other comprehensive loss, net of tax of ($ |
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( |
) |
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( |
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Stock based compensation |
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Balances at September 30, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Balances at December 31, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Net income |
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Acquisition of Frontier Community Bank |
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Cash dividends of $ |
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( |
) |
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( |
) |
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Other comprehensive income, net of tax of $ |
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Stock based compensation |
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Balances at September 30, 2024 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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See accompanying notes to consolidated financial statements.
8
National Bankshares, Inc.
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2024 and 2023
(Unaudited)
|
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September 30, |
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September 30, |
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(in thousands) |
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2024 |
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2023 |
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Cash Flows from Operating Activities |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Provision for (recovery of) credit losses |
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( |
) |
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Depreciation of premises and equipment |
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Core deposit intangible amortization |
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- |
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Net accretion of acquisition accounting estimates |
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( |
) |
|
|
|
|
Amortization of premiums and accretion of discounts, net |
|
|
|
|
|
|
||
Loss on sale of securities available for sale, net |
|
|
|
|
|
|
||
Loss on disposal of repossessed assets |
|
|
|
|
|
|
||
Increase in cash value of bank-owned life insurance |
|
|
( |
) |
|
|
( |
) |
Origination of mortgage loans held for sale |
|
|
( |
) |
|
|
( |
) |
Proceeds from sale of mortgage loans held for sale |
|
|
|
|
|
|
||
Gain on sale of mortgage loans held for sale |
|
|
( |
) |
|
|
( |
) |
Equity based compensation expense |
|
|
|
|
|
|
||
Net change in: |
|
|
|
|
|
|
||
Accrued interest receivable |
|
|
|
|
|
( |
) |
|
Other assets |
|
|
( |
) |
|
|
|
|
Accrued interest payable |
|
|
|
|
|
|
||
Other liabilities |
|
|
|
|
|
( |
) |
|
Net cash provided by operating activities |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Cash Flows from Investing Activities |
|
|
|
|
|
|
||
Proceeds from calls, principal payments, sales and maturities of securities available for sale |
|
|
|
|
|
|
||
Net change in restricted stock |
|
|
|
|
|
( |
) |
|
Purchase of loan participations |
|
|
( |
) |
|
|
( |
) |
Collection of loan participations |
|
|
|
|
|
|
||
Loan originations and principal collections, net |
|
|
( |
) |
|
|
|
|
Proceeds from sale of repossessed assets |
|
|
|
|
|
|
||
Recoveries on loans charged off |
|
|
|
|
|
|
||
Purchases of premises and equipment |
|
|
( |
) |
|
|
( |
) |
Proceeds from sale of premises and equipment |
|
|
|
|
|
|
||
BOLI settlement |
|
|
|
|
|
|
||
Cash acquired in the acquisition, net of cash paid |
|
|
|
|
|
|
||
Net cash (used in) provided by investing activities |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
||
Cash Flows from Financing Activities |
|
|
|
|
|
|
||
Net change in time deposits |
|
|
|
|
|
|
||
Net change in other deposits |
|
|
( |
) |
|
|
( |
) |
Cash dividends paid |
|
|
( |
) |
|
|
( |
) |
Repayment of borrowings |
|
|
( |
) |
|
|
- |
|
Net cash used in financing activities |
|
|
( |
) |
|
|
( |
) |
Net change in cash and cash equivalents |
|
|
( |
) |
|
|
( |
) |
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
||
Cash and cash equivalents at end of period |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Supplemental Disclosures of Cash Flow Information |
|
|
|
|
|
|
||
Interest paid on deposits and borrowings |
|
$ |
|
|
$ |
|
||
Income taxes paid |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Supplemental Disclosure of Noncash Activities |
|
|
|
|
|
|
||
Loans charged against the allowance for credit losses |
|
$ |
|
|
$ |
|
||
Loans transferred to repossessed assets |
|
|
|
|
|
|
||
Unrealized holding gain (loss) on securities available for sale |
|
|
|
|
|
( |
) |
|
Lease liabilities arising from obtaining right-of-use assets during the period |
|
|
|
|
|
|
||
See accompanying notes to consolidated financial statements.
9
National Bankshares, Inc.
Notes to Consolidated Financial Statements
September 30, 2024
(Unaudited)
$ in thousands, except per share data
Note 1: General and Summary of Significant Accounting Policies
The consolidated financial statements of National Bankshares, Inc. (“NBI”) and its wholly-owned subsidiaries, The National Bank of Blacksburg (the “Bank” or “NBB”) and National Bankshares Financial Services, Inc. (“NBFS”) (collectively, the “Company”), conform to accounting principles generally accepted in the United States of America (“GAAP”) and to general practices within the banking industry. All significant intercompany accounts and transactions between the Company and its subsidiaries have been eliminated. The accompanying interim period consolidated financial statements are unaudited; however, in the opinion of the Company’s management, all adjustments consisting of normal recurring adjustments, which are necessary for a fair presentation of the consolidated financial statements, have been included.
Application of the principles of GAAP and practices within the banking industry requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statement; accordingly, as this information changes, the financial statements may reflect different estimates, assumptions, and judgments. Certain policies inherently rely more extensively on the use of estimates, assumptions, and judgments and as such may have a greater possibility of producing results that could be materially different than originally reported. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance of credit losses on loans and acquisition accounting.
The results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of results of operations for the full year or any other interim period. The interim period consolidated financial statements and financial information included in this Form 10-Q should be read in conjunction with the notes to consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (“2023 Form 10-K”). The Company’s significant accounting policies followed in preparation of the unaudited consolidated financial statements are disclosed in Note 1 of the 2023 Form 10-K. All amounts and disclosures included in this quarterly report as of December 31, 2023, were derived from the Company’s audited consolidated financial statements. Certain items in the prior period financial statements have been reclassified to conform to the current presentation. These reclassifications had no effect on prior year net income or stockholders’ equity. The Company posts all reports required to be filed under the Securities Exchange Act of 1934 on its web site at www.nationalbankshares.com.
In addition to applying significant accounting policies disclosed in Note 1 of the 2023 Form 10-K, the Company implemented accounting policies appropriate for its merger with Frontier Community Bank (“FCB”). Business combinations are accounted for under Accounting Standards Codification (“ASC”) 805, Business Combinations, using the acquisition method of accounting. The acquisition method of accounting requires an acquirer to record at fair value on the acquisition date the assets acquired and the liabilities assumed. To determine the fair values, the Company relies on internal or third-party valuations, such as appraisals, valuations based on discounted cash flow analyses, or other valuation techniques.
Under the acquisition method of accounting, the Company identifies the acquirer and the closing date and applies applicable recognition principles and conditions. Acquisition-related costs are costs the Company incurs to effect a business combination. Those costs include advisory, legal, accounting, valuation, and other professional or consulting fees. Some other examples of costs to the Company include systems conversions, integration planning consultants and advertising costs. The Company accounts for acquisition-related costs as expenses in the periods in which the costs are incurred and the services are received, with one exception. The costs to issue debt or equity securities are recognized in accordance with other applicable GAAP. These acquisition-related costs have been and will be included within the consolidated statements of income classified within the noninterest expenses caption.
The most significant assessment of fair value in the Company’s accounting for business combinations relates to the valuation of an acquired loan portfolio. At acquisition, loans are classified as either (i) purchase credit-deteriorated (“PCD”) loans or (ii) non-PCD loans and are recorded at fair value on the date of acquisition. PCD loans are those for which there is more than insignificant evidence of credit deterioration since origination. Fair values are determined primarily through a discounted cash flow approach which considers the acquired loans’ underlying characteristics, including account types, remaining terms, annual interest rates, interest types, timing of principal and interest payments, current market rates, and remaining balances. Estimates of fair value also include estimates of default, loss severity, and estimated prepayments.
At acquisition, an allowance for credit losses (“ACL”) for PCD loans is determined based upon the Company’s methodology for estimating the ACL on loans. This allowance is credited to the ACL on loans with a corresponding adjustment to the amortized cost basis of the loan on the date of the acquisition. The difference between the new amortized cost basis and the unpaid principal balance is either a noncredit discount or premium that is amortized or accreted to interest income over the remaining life of the loan. Disposals of PCD loans, which may include sale of loans to third parties, receipt of payments in full or in part from the borrower or foreclosure of the collateral, result in removal of the loan from the loan portfolio at its carrying amount.
10
For non-PCD loans, an ACL is established in a manner that is consistent with the Company’s originated loans. The ACL is determined using the Company’s methodology and the related ACL for non-PCD loans is recorded through a charge to the provision for credit losses in the period in which the loans are purchased or acquired. The entirety of any purchase discount or premium on non-PCD loans is amortized or accreted to interest income over the remaining life of the loan.
In accordance with ASC 805, the Company also identified intangible assets acquired. Intangible assets lack physical substance but have contractual or other legal rights or are capable of being sold or exchanged either on their own or in combination with a related contract, asset or liability. Intangible assets are initially recorded at fair value. Determining fair value is subjective, requiring the use of estimates, assumptions and management judgment. Intangible assets that have finite lives are amortized over their estimated useful lives and are subject to impairment testing. Upon acquisition of FCB, the Company recognized a core deposit intangible asset, which represents the value of customer deposit relationships. Core deposit intangible assets are amortized over an estimated useful life of 10 years using an accelerated method which approximates the estimated attrition of the acquired deposits.
Risks and Uncertainties
The Company is closely monitoring risks that may impact its business, including high inflation, along with U.S. monetary policy maneuvers to reduce inflation. Inflation and U.S. monetary policy maneuvers to reduce it may impact the Company’s customers’ demand for banking services and ability to qualify for and/or repay loans. These risks could adversely affect the Company’s business, financial condition, results of operations, cash flows, credit risk, asset valuations and capital position.
Recent Accounting Pronouncements
ASU 2023-09
In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The amendments in this ASU require an entity to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold, which is greater than five percent of the amount computed by multiplying pretax income by the entity’s applicable statutory rate, on an annual basis. Additionally, the amendments in this ASU require an entity to disclose the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions that are equal to or greater than five percent of total income taxes paid (net of refunds received). Lastly, the amendments in this ASU require an entity to disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or benefit) from continuing operations disaggregated by federal, state, and foreign. This ASU is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied on a prospective basis; however, retrospective application is permitted. The Company does not expect the adoption of ASU 2023-09 to have a material impact on its consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” ASU 2024-03 requires public companies to disclose, in the notes to the financial statements, specific information about certain costs and expenses at each interim and annual reporting period. This includes disclosing amounts related to employee compensation, depreciation, and intangible asset amortization. In addition, public companies will need to provide qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. ASU 2024-03 is effective for public business entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Implementation of ASU 2024-03 may be applied prospectively or retrospectively. The Company does not expect the adoption of ASU 2024-03 to have a material impact on its consolidated financial statements.
Note 2: Business Combination
On June 1, 2024 (the “Acquisition Date”), the Company completed its acquisition of FCB, a Virginia chartered commercial bank, in accordance with the definitive merger agreement that was entered into on January 23, 2024, by and among the Company, the Bank and FCB. Upon completion of the merger, former FCB shareholders received a combination of the Company's common stock and cash.
The acquisition of FCB was accounted for as a business combination using the acquisition method of accounting. Assets acquired, liabilities assumed, and consideration paid were recorded at estimated fair value on the Acquisition Date. The excess of the purchase price over the fair value of the net assets was recorded as provisional goodwill and represents the benefit from the transaction that is not otherwise quantifiable, including expected management and operational synergies and intangible assets that do not qualify for separate recognition. The Company will keep the measurement of goodwill open for twelve months following the Acquisition Date in order to reflect any adjustments to the fair value of assets acquired and liabilities assumed that may arise during the Company’s final review procedures of any updated information. The Company does not expect that any portion of goodwill will be deductible.
11
The following table presents the calculation of the purchase price and the fair value of the identifiable assets and liabilities.
June 1, 2024 |
|
As Recorded by FCB |
|
|
Estimated Fair Value Adjustments |
|
|
Estimated Fair Values as Recorded by NBI |
|
|||
Purchase Price Consideration: |
|
|
|
|
|
|
|
|
|
|||
Stock consideration(1) |
|
|
|
|
|
|
|
$ |
|
|||
Cash consideration (2) |
|
|
|
|
|
|
|
|
|
|||
Total purchase price consideration |
|
|
|
|
|
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Identifiable assets: |
|
|
|
|
|
|
|
|
|
|||
Cash and cash equivalents |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Securities |
|
|
|
|
|
( |
) |
|
|
|
||
Loans, gross, purchased performing |
|
|
|
|
|
( |
) |
|
|
|
||
Loans, gross, purchased credit deteriorated |
|
|
|
|
|
( |
) |
|
|
|
||
Loans in process |
|
|
|
|
|
|
|
|
|
|||
Deferred fees and costs on loans |
|
|
|
|
|
( |
) |
|
|
|
||
Allowance for credit losses on loans |
|
|
( |
) |
|
|
|
|
|
|
||
Premises and equipment |
|
|
|
|
|
|
|
|
|
|||
Core deposit intangible |
|
|
|
|
|
|
|
|
|
|||
Other assets |
|
|
|
|
|
|
|
|
|
|||
Total identifiable assets acquired |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|||
Identifiable Liabilities |
|
|
|
|
|
|
|
|
|
|||
Deposits |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Borrowings |
|
|
|
|
|
( |
) |
|
|
|
||
Other liabilities |
|
|
|
|
|
|
|
|
|
|||
Total identifiable liabilities assumed |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|||
Provisional fair value of net assets acquired |
|
|
|
|
|
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Provisional goodwill |
|
|
|
|
|
|
|
$ |
|
|||
Management made significant estimates and exercised significant judgment in accounting for the acquisition of FCB. The following is a brief description of the valuation methodologies used to estimate the fair values of major categories of assets acquired and liabilities assumed. The Company utilized a valuation specialist to assist with the determination of fair values for certain acquired assets and assumed liabilities.
Cash and equivalents
Included in cash and equivalents are an investment in time deposits of other financial institutions, valued at the present value of the expected contractual payments discounted at market rates for instruments with similar terms.
Securities
The estimated fair value of the acquired portfolio of debt securities was based on quoted market prices. All of the acquired portfolio was sold upon completion of the acquisition.
12
Loans
The fair valuation process identified loans with credit risk indicators that qualified for PCD status. PCD and non-PCD loans were then evaluated for credit risk and other fair value indicators. Consistent with GAAP, FCB’s related allowance for credit losses on loans and deferred fees and costs were not recorded.
Credit risk was quantified using a probability of default (“PD”)/loss given default(“LGD”) methodology from a market participant perspective and applied to each loan’s outstanding principal balance. PD/LGD rates were tailored to PCD or non-PCD status. Other fair value indicators were quantified using a discounted cash flow methodology, with discounts applied for current market rates, credit risk and liquidity. Cash flows were generated based upon the loans’ underlying characteristics and estimated prepayment speeds.
The following table provides information on PCD and non-PCD loans as of the Acquisition Date:
June 1, 2024 |
|
PCD Loans |
|
|
Non-PCD Loans |
|
||
Number of loans |
|
|
|
|
|
|
||
FCB recorded value |
|
$ |
|
|
$ |
|
||
Discount for credit risk |
|
|
( |
) |
|
|
( |
) |
Discount for non-credit factors |
|
|
( |
) |
|
|
( |
) |
Fair value |
|
$ |
|
|
$ |
|
||
Premises and equipment
The fair value of premises acquired was based on a recent third-party appraisal. Acquired equipment was based on the remaining net book value of FCB, which approximated fair value.
Core Deposit Intangible
Core deposit relationships provide a stable source of funds for lending and contribute to profitability. The core deposit intangible was valued using an income approach focused on cost savings, which recognizes the cost savings represented by the expense of maintaining the core deposit base versus the cost of an alternative funding source. The valuation incorporates assumptions related to account retention, discount rates, deposit interest rates, deposit maintenance costs and alternative funding rates.
Leases: right of use asset, lease liability and fair value
Right of use assets (included in other assets) and lease liabilities (included in other liabilities) for branch locations were measured at the acquisition date. The fair value of leases was determined by applying a discounted cash flow methodology discounted by current lease rates within the appropriate market.
Deposits
Deposits were valued using methods appropriate to their characteristics. The fair value of noninterest bearing demand deposits, interest bearing demand deposits, money market and savings deposit accounts were assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand. Time deposits were valued at the present value of the expected contractual payments discounted at market rates for instruments with similar terms.
Borrowings
The estimated fair value of borrowings was determined by obtaining payoff quotes from the lender. Borrowings were paid off upon completion of the acquisition.
Deferred Tax Asset
Application of fair value measurements resulted in an increase to the deferred tax asset, included in other assets.
13
Note 3: Loans and Allowance for Credit Losses
Loans
Loans as of September 30, 2024 include acquired loans at their outstanding principal balance, net of the remaining purchase discount of $
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
Real estate construction |
|
$ |
|
|
$ |
|
||
Consumer real estate |
|
|
|
|
|
|
||
Commercial real estate |
|
|
|
|
|
|
||
Commercial non real estate |
|
|
|
|
|
|
||
Public sector and IDA |
|
|
|
|
|
|
||
Consumer non real estate |
|
|
|
|
|
|
||
Gross loans |
|
$ |
|
|
$ |
|
||
Less unearned income and deferred fees and costs |
|
|
( |
) |
|
|
( |
) |
Loans, net of unearned income and deferred fees and costs |
|
$ |
|
|
$ |
|
||
Allowance for credit losses on loans |
|
|
( |
) |
|
|
( |
) |
Total loans, net |
|
$ |
|
|
$ |
|
||
Accrued interest receivable of $
Past Due and Nonaccrual Loans
The following tables present the aging of past due loans, by loan pool, as of the dates indicated.
September 30, 2024 |
|
Accruing Current Loans |
|
|
Accruing Loans |
|
|
Accruing Loans |
|
|
Nonaccrual Loans |
|
|
Total Loans |
|
|
Accruing and Nonaccrual |
|
||||||
Real Estate Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Construction, 1-4 family residential |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Construction, other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Consumer Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Equity line |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Residential closed-end first liens |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Residential closed-end junior liens |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Investor-owned residential real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Multifamily residential real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Commercial real estate owner-occupied |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Commercial real estate, other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Commercial Non Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Commercial and industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Public Sector and IDA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
States and political subdivisions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Consumer Non Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Credit cards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Automobile |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other consumer loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
14
December 31, 2023 |
|
Accruing Current Loans |
|
|
Accruing Loans |
|
|
Accruing Loans |
|
|
Nonaccrual Loans |
|
|
Total Loans |
|
|
Accruing and Nonaccrual |
|
||||||
Real Estate Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Construction, 1-4 family residential |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Construction, other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Consumer Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Equity line |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Residential closed-end first liens |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Residential closed-end junior liens |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Investor-owned residential real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Multifamily residential real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Commercial real estate owner-occupied |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Commercial real estate, other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Commercial Non Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Commercial and industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Public Sector and IDA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
States and political subdivisions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Consumer Non Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Credit cards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Automobile |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other consumer loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
The following table presents nonaccrual loans, by loan class, as of the dates indicated:
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||||||||||||||||||
|
|
With No |
|
|
With an |
|
|
Total |
|
|
With No |
|
|
With an |
|
|
Total |
|
||||||
Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Commercial real estate owner-occupied |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Commercial Non Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Commercial and industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
During the three and nine months ended September 30, 2024, no accrued interest receivable was reversed against interest income.
Allowance for Credit Losses on Loans (“ACLL”)
The following tables present the activity in the ACLL by portfolio segment for the periods indicated:
|
|
Activity in the ACLL for the Nine Months Ended September 30, 2024 |
|
|||||||||||||||||||||||||||||
|
|
Real Estate Construction |
|
|
Consumer Real Estate |
|
|
Commercial Real Estate |
|
|
Commercial Non Real Estate |
|
|
Public Sector and IDA |
|
|
Consumer Non Real Estate |
|
|
Unallocated |
|
|
Total |
|
||||||||
Balance, December 31, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Charge-offs |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||||
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Provision for (recovery of) credit losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||||
Merger adjustment(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Balance, September 30, 2024 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
15
|
|
Activity in the ACLL for the Nine Months Ended September 30, 2023 |
|
|||||||||||||||||||||||||||||
|
|
Real Estate Construction |
|
|
Consumer Real Estate |
|
|
Commercial Real Estate |
|
|
Commercial Non Real Estate |
|
|
Public Sector and IDA |
|
|
Consumer Non Real Estate |
|
|
Unallocated |
|
|
Total |
|
||||||||
Balance, December 31, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Adoption of ASU 2016-13 |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||||
Charge-offs |
|
|
|
|
( |
) |
|
|
|
|
( |
) |
|
|
|
|
( |
) |
|
|
|
|
( |
) |
||||||||
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Provision for (recovery of) credit losses |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
||||
Balance, September 30, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
|
|
Activity in the ACLL for the Year Ended December 31, 2023 |
|
|||||||||||||||||||||||||||||
|
|
Real Estate Construction |
|
|
Consumer Real Estate |
|
|
Commercial Real Estate |
|
|
Commercial Non Real Estate |
|
|
Public Sector and IDA |
|
|
Consumer Non Real Estate |
|
|
Unallocated |
|
|
Total |
|
||||||||
Balance, December 31, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Adoption of ASU 2016-13 |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||||
Charge-offs |
|
|
|
|
( |
) |
|
|
|
|
( |
) |
|
|
|
|
( |
) |
|
|
|
|
( |
) |
||||||||
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Provision for (recovery of) for credit losses |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||
Balance, December 31, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
The following tables present information about the ACLL for individually evaluated loans and collectively evaluated loans by portfolio segment as of the dates indicated.
|
|
ACLL by Segment and Evaluation Method |
|
|||||||||||||||||||||||||||||
September 30, 2024 |
|
Real Estate Construction |
|
|
Consumer Real Estate |
|
|
Commercial Real Estate |
|
|
Commercial Non Real Estate |
|
|
Public Sector and IDA |
|
|
Consumer Non Real Estate |
|
|
Unallocated |
|
|
Total |
|
||||||||
Individually evaluated |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Collectively evaluated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
|
|
ACLL by Segment and Evaluation Method |
|
|||||||||||||||||||||||||||||
December 31, 2023 |
|
Real Estate Construction |
|
|
Consumer Real Estate |
|
|
Commercial Real Estate |
|
|
Commercial Non Real Estate |
|
|
Public Sector and IDA |
|
|
Consumer Non Real Estate |
|
|
Unallocated |
|
|
Total |
|
||||||||
Individually evaluated |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Collectively evaluated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
The following tables present information about individually evaluated loans and collectively evaluated loans by portfolio segment as of the dates indicated.
|
|
Loans by Segment and Evaluation Method as of |
|
|||||||||||||||||||||||||
September 30, 2024 |
|
Real Estate Construction |
|
|
Consumer Real Estate |
|
|
Commercial Real Estate |
|
|
Commercial Non Real Estate |
|
|
Public Sector and IDA |
|
|
Consumer Non Real Estate |
|
|
Total |
|
|||||||
Individually evaluated |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Collectively evaluated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
Loans by Segment and Evaluation Method as of |
|
|||||||||||||||||||||||||
December 31, 2023 |
|
Real Estate Construction |
|
|
Consumer Real Estate |
|
|
Commercial Real Estate |
|
|
Commercial Non Real Estate |
|
|
Public Sector and IDA |
|
|
Consumer Non Real Estate |
|
|
Total |
|
|||||||
Individually evaluated |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Collectively evaluated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Collateral Dependent Loans
Loans are collateral dependent when repayment is expected substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. Collateral dependent loans are individually evaluated. The Company measures the ACLL
16
on collateral dependent loans based upon the fair value of the collateral, as permitted by ASU 2016-13. Fair value of the collateral is adjusted for liquidation costs/discounts. If the fair value of the collateral falls below the amortized cost of the loan, the shortfall is recognized in the ACLL. If the fair value of the collateral exceeds the amortized cost, no ACLL is required.
As of September 30, 2024, four of the Company’s individually evaluated loans were collateral dependent. As of December 31, 2023, three of the Company’s individually evaluated loans were collateral dependent. All collateral dependent loans were secured by real estate as of September 30, 2024 and December 31, 2023. The following table details the amortized cost of the collateral dependent loans as of the dates indicated:
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||||||||||
|
|
Balance |
|
|
Related Allowance |
|
|
Balance |
|
|
Related Allowance |
|
||||
Consumer Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Residential closed-end first lien |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial real estate, owner occupied |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial real estate, other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Credit Quality
The Company categorizes loans by risk based on relevant information about the ability of borrowers to service their debt, including: collateral and financial information, historical payment experience, credit documentation and current economic trends, among other factors. At origination, each loan is assigned a risk rating. Ongoing analysis of the loan portfolio adjusts risk ratings on an individual loan basis to reflect updated information. Loans rated pass have acceptable credit quality. Loans rated special mention have potential weakness due to challenging economic or financial conditions. Loans rated classified have well-defined weaknesses that heighten the risk of default. The tables below present the loan portfolio by amortized cost basis, year of origination, loan class and credit quality, and gross charge-offs for the nine months ended September 30, 2024 and year ended December 31, 2023.
17
|
|
Term Loans Amortized Cost Basis by Origination Year |
|
|
|
Revolving |
|
|
|
|||||||||||||||||||
September 30, 2024 |
|
Prior |
|
2020 |
|
2021 |
|
2022 |
|
2023 |
|
2024 |
|
Revolving |
|
to Term |
|
Total |
|
|||||||||
Construction, residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Construction, other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Classified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Total |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Equity lines |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Classified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Total |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Residential closed-end first liens |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Special Mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Classified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Total |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Residential closed-end junior liens |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Investor-owned residential real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Special Mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Classified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Total |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Multifamily residential real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Commercial real estate, owner occupied |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Classified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Total |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Commercial real estate, other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Special Mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Total |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Commercial and industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Special Mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Classified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Total |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
YTD gross charge-offs |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Public sector and IDA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Credit cards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
YTD gross charge-offs |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Automobile |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Special Mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Classified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Total |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
YTD gross charge-offs |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Other consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Special Mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Classified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Total |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
YTD gross charge-offs |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Total Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Special Mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Classified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Total |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
YTD gross charge-offs |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
18
|
|
Term Loans Amortized Cost Basis by Origination Year |
|
|
|
Revolving |
|
|
|
|||||||||||||||||||
December 31, 2023 |
|
Prior |
|
2019 |
|
2020 |
|
2021 |
|
2022 |
|
2023 |
|
Revolving |
|
to Term |
|
Total |
|
|||||||||
Construction, residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Construction, other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Classified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Total |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Equity lines |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Classified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Total |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Residential closed-end first liens |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Classified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Total |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
YTD gross charge-offs |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Residential closed-end junior liens |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Investor-owned residential real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Classified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Total |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Multifamily residential real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Commercial real estate, owner occupied |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Classified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Total |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Commercial real estate, other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Commercial and industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Classified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Total |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
YTD gross charge-offs |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Public sector and IDA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Credit cards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
YTD gross charge-offs |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Automobile |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
YTD gross charge-offs |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Other Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Classified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Total |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
YTD gross charge-offs |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Total Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Classified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Total |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
YTD gross charge-offs |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||
Loan Modifications to Borrowers Experiencing Financial Difficulty
The Company modifies loans for a variety of reasons. At the date of modification, the Company assesses whether the borrower is experiencing financial difficulty. If the borrower is experiencing financial difficulty, the loan’s risk rating is evaluated and is typically changed to special mention or classified, which results in individual evaluation of the loan for the ACLL. Two loans were modified for borrowers experiencing financial difficulty during the first three months of 2024. These loans were modified again during the three months ended September 30, 2024. There was
19
The following table presents information as of September 30, 2024 about loans modified for borrowers experiencing financial difficulty during the nine months ended September 30, 2024.
September 30, 2024 |
|
Amortized Cost Basis |
|
|
% of Class |
|
|
Type of Modification |
|
Financial Effect |
||
Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
||
Commercial real estate owner-occupied |
|
$ |
|
|
|
% |
|
Interest only payments |
|
|||
Commercial Non real estate |
|
|
|
|
|
|
|
|
|
|
||
Commercial and industrial |
|
$ |
|
|
|
% |
|
Term |
|
Renewal of single-payment note for an additional |
||
The following table presents information as of September 30, 2023 about loans modified for borrowers experiencing financial difficulty during the nine months ended September 30, 2023.
September 30, 2023 |
|
Amortized Cost Basis |
|
|
% of Class |
|
|
Type of Modification |
Financial Effect |
||
Commercial Real Estate |
|
|
|
|
|
|
|
|
|
||
Commercial real estate owner-occupied |
|
$ |
|
|
|
% |
|
Interest only |
|
||
The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty. Both loans are in current status as of September 30, 2024.
There were
Consumer Real Estate Loans In Process of Foreclosure
As of September 30, 2024, the Company had three consumer real estate loans totaling $
ACL for Unfunded Commitments
The following tables present the balance and activity in the ACL for unfunded commitments for the nine months ended September 30, 2024 and 2023:
Allowance for Credit Losses on Unfunded Commitments |
|
|||
Balance, December 31, 2023 |
|
$ |
|
|
Recovery of credit losses |
|
|
( |
) |
FCB acquisition |
|
|
|
|
Balance, September 30, 2024 |
|
$ |
|
|
Allowance for Credit Losses on Unfunded Commitments |
|
|||
Balance, December 31, 2022 |
|
$ |
|
|
Adoption of ASU 2016-13 |
|
|
|
|
Recovery of credit losses |
|
|
|
|
Balance, September 30, 2023 |
|
$ |
|
|
20
Note 4: Securities
The amortized cost and estimated fair value of securities available for sale along with gross unrealized gains and losses as of the dates indicated are summarized as follows:
September 30, 2024 |
|
Amortized |
|
|
Gross |
|
|
Gross |
|
|
Fair Value |
|
||||
U.S. government agencies and corporations |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
States and political subdivisions |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. treasury |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total securities available for sale |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
December 31, 2023 |
|
Amortized |
|
|
Gross |
|
|
Gross |
|
|
Fair Value |
|
||||
U.S. government agencies and corporations |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
States and political subdivisions |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. treasury |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total securities available for sale |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Accrued interest receivable on securities, included in accrued interest receivable on the Consolidated Balance Sheets, totaled $
The deferred tax asset for the net unrealized loss on securities available for sale was $
The amortized cost and fair value of single maturity securities available for sale at September 30, 2024, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities included in these totals are categorized by final maturity.
|
|
September 30, 2024 |
|
|||||
|
|
Amortized Cost |
|
|
Fair Value |
|
||
Available for Sale: |
|
|
|
|
|
|
||
Due in one year or less |
|
$ |
|
|
$ |
|
||
Due after one year through five years |
|
|
|
|
|
|
||
Due after five years through ten years |
|
|
|
|
|
|
||
Due after ten years |
|
|
|
|
|
|
||
Total securities available for sale |
|
$ |
|
|
$ |
|
||
21
Information pertaining to securities with gross unrealized losses aggregated by investment category and length of time that the individual securities have been in a continuous loss position, as of the dates indicated, follows.
September 30, 2024 |
|
Less Than 12 Months |
|
|
12 Months or More |
|
||||||||||
|
|
Fair |
|
|
Gross Unrealized |
|
|
Fair |
|
|
Gross Unrealized |
|
||||
U.S. government agencies and corporations |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
State and political subdivisions |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. treasury |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total temporarily impaired securities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
December 31, 2023 |
|
Less Than 12 Months |
|
|
12 Months or More |
|
||||||||||
|
|
Fair |
|
|
Gross Unrealized |
|
|
Fair |
|
|
Gross Unrealized |
|
||||
U.S. government agencies and corporations |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
State and political subdivisions |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. treasury |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total temporarily impaired securities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The Company evaluates securities available for sale that are in unrealized loss positions to determine whether the impairment is due to credit-related factors or noncredit-related factors. Consideration is given to the extent to which the fair value is less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value.
At September 30, 2024, the Company had
Restricted Stock.
The Company holds restricted stock that is reported separately from available for sale securities. As a member of the Federal Reserve and the Federal Home Loan Bank of Atlanta (“FHLB”), NBB is required to maintain certain minimum investments in the common stock of those entities. Required levels of investment are based upon NBB’s capital and a percentage of qualifying assets. The Company purchases stock from or sells stock back to the correspondents based on their calculations. The stock is held by member institutions only and is not actively traded.
Redemption of FHLB stock is subject to certain limitations and conditions. At its discretion, the FHLB may declare dividends on the stock. In addition to dividends, NBB also benefits from its membership with FHLB through eligibility to borrow from the FHLB, using as collateral NBB’s capital stock investment in the FHLB and qualifying NBB real estate mortgage loans totaling $
Realized Securities Gains and Losses
The Company initiated sale of FCB’s securities portfolio upon completion of the acquisition, and no gain or loss was recorded. During the first nine months of 2023, the Company realized net securities losses of $
22
Note 5: Defined Benefit Plan
The following table presents components of Net Periodic Benefit Cost for the periods indicated:
|
|
Pension Benefits |
|
|||||
|
|
Three Months Ended September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Service cost |
|
$ |
|
|
$ |
|
||
Interest cost |
|
|
|
|
|
|
||
Expected return on plan assets |
|
|
( |
) |
|
|
( |
) |
Recognized net actuarial loss |
|
|
|
|
|
|
||
Net periodic benefit income |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
Pension Benefits |
|
|||||
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Service cost |
|
$ |
|
|
$ |
|
||
Interest cost |
|
|
|
|
|
|
||
Expected return on plan assets |
|
|
( |
) |
|
|
( |
) |
Recognized net actuarial loss |
|
|
|
|
|
|
||
Net periodic benefit income |
|
$ |
( |
) |
|
$ |
( |
) |
The service cost component of net periodic benefit cost is included in salaries and employee benefits expense in the Consolidated Statements of Income. All other components are included in other operating expense in the Consolidated Statements of Income. In April of 2024, the Company made a contribution of $
Note 6: Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. GAAP requires that valuation techniques maximize the use of the observable inputs and minimize the use of the unobservable inputs. GAAP also establishes a fair value hierarchy which prioritizes the valuation inputs into three broad levels. Based on the underlying inputs, each fair value measurement in its entirety is reported in one of the three levels. These levels are:
|
Level 1 – |
|
Valuation is based on quoted prices in active markets for identical assets and liabilities. |
|
Level 2 – |
|
Valuation is based on observable inputs including: • quoted prices in active markets for similar assets and liabilities, • quoted prices for identical or similar assets and liabilities in less active markets, • inputs other than quoted prices that are observable, and • model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market. |
|
Level 3 – |
|
Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market. |
Fair value is best determined by quoted market prices. However, in cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, fair value estimates may not be realized in an immediate settlement of the instrument. Accounting guidance for fair value excludes certain financial instruments and all nonfinancial instruments from disclosure requirements. Consequently, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company. The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the consolidated financial statements.
23
Financial Instruments Measured at Fair Value on a Recurring Basis
Securities Available for Sale
Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2). The carrying value of restricted Federal Reserve Bank of Richmond and FHLB stock approximates fair value based upon the redemption provisions of each entity and is therefore excluded from the following tables. The following tables present the balances of financial assets measured at fair value on a recurring basis as of the dates indicated.
|
|
|
|
|
Fair Value Measurement Using |
|
||||||||||
September 30, 2024 |
|
Balance |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
U.S. government agencies and corporations |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
States and political subdivisions |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. treasury |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total securities available for sale |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
Fair Value Measurement Using |
|
||||||||||
December 31, 2023 |
|
Balance |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
U.S. government agencies and corporations |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
States and political subdivisions |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. treasury |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total securities available for sale |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The Company’s securities portfolio is valued using Level 2 inputs. The Company relies on an independent third party vendor to provide market valuations. The inputs used to determine value include: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data including market research publications. The third party vendor also monitors market indicators, industry activity and economic events as part of the valuation process. Central to the final valuation is the assumption that the indicators used are representative of the fair value of securities held within the Company’s portfolio. Level 2 inputs are subject to a certain degree of uncertainty and changes in these assumptions or methodologies in the future, if any, may impact securities fair value, deferred tax assets or liabilities, or expense.
Interest Rate Loan Contracts and Forward Sale Commitments
The Company originates consumer real estate loans which it intends to sell to a correspondent lender. Interest rate loan contracts and forward sale commitments result from originating loans held for sale and are derivatives reported at fair value. The Company enters interest rate lock commitments with customers who apply for a loan which the Company intends to sell to a correspondent lender. The interest rate loan contract ends when the loan closes or the customer withdraws their application. Fair value of the interest rate loan contract is based upon the correspondent lender’s pricing quotes at the report date. Fair value is adjusted for the estimated probability of the loan closing with the borrower.
At the time the Company enters into an interest rate loan contract with a customer, it also enters into a best efforts forward sales commitment with the correspondent lender. If the loan is closed and funded, the best efforts commitment converts to a mandatory forward sales commitment. Fair value is based on the gain or loss that would occur if the Company were to pair-off the transaction with the investor at the measurement date. This is a Level 3 input. The Company measures and reports best efforts commitments at fair value.
Interest rate loan contracts and forward sale commitments are valued based on quotes from the correspondent lender at the reporting date. Pricing changes daily and if a loan has not been sold to the correspondent by the next reporting date, the fair value may be different from that reported currently. Changes in fair value measurement impacts net income.
As of September 30, 2024, three funded loans gave rise to a liability for the forward sales commitment. The Company had one rate lock commitment as of December 31, 2023, resulting in an asset for the interest rate loan contract and a liability for the forward sales commitment, and one funded loan resulting in a forward sales commitment. The following tables present information on the interest rate loan contracts and forward sale commitments as of the date indicated:
24
|
|
|
|
|
Fair Value Measurement Using |
|
||||||||||
September 30, 2024 |
|
Balance |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
||||
Forward sale commitment |
|
$ |
( |
) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
( |
) |
September 30, 2024 |
|
Valuation Technique |
|
Unobservable Input |
|
Range (Weighted Average) |
Forward sale commitment |
|
Market approach |
|
Pull-through rate |
|
|
Forward sale commitment |
|
Market approach |
|
Current reference price |
|
|
|
|
|
|
Fair Value Measurement Using |
|
||||||||||
December 31, 2023 |
|
Balance |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
||||
Interest rate loan contract |
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
||
Forward sale commitment |
|
$ |
( |
) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
( |
) |
December 31, 2023 |
|
Valuation Technique |
|
Unobservable Input |
|
Range (Weighted Average) |
Interest rate loan contract |
|
Market approach |
|
Pull-through rate |
|
|
Forward sale commitment |
|
Market approach |
|
Pull-through rate |
|
|
|
|
|
|
|
|
|
Interest rate loan contract |
|
Market approach |
|
Current reference price |
|
|
Forward sale commitment |
|
Market approach |
|
Current reference price |
|
Financial Instruments Measured at Fair Value on a Non-Recurring Basis
Certain financial instruments are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets. The following describes the valuation techniques used by the Company to measure certain assets recorded at fair value on a nonrecurring basis in the consolidated financial statements.
Loans Held for Sale
Loans held for sale are carried at the lower of cost or fair value. These loans currently consist of one-to-four family residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). As such, the Company records any fair value adjustments on a nonrecurring basis. A liability of $
Collateral Dependent Loans
Collateral dependent loans are measured on a non-recurring basis for the ACLL. If the fair value of the collateral is lower than the loan’s amortized cost basis, the shortfall is recognized in the ACLL. When repayment is expected from the operation of the collateral, fair value is estimated as the present value of expected cash flows from the operation of the collateral. When repayment is expected from the sale of the collateral, fair value is estimated using measurement techniques discussed below and discounted by the estimated cost to sell. The ACLL may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset.
For loans secured by real estate, fair value of collateral is determined by the “as-is” value of appraisals or third party evaluations that are less than 24 months of age. Appraisals are prepared by independent, licensed appraisers. Appraisals are based upon observable market data analyzed through an income or sales valuation approach. Valuation falls within Level 2 categorization. The Company may further discount appraisals for marketing strategies, which results in Level 3 categorization.
The value of business equipment is based upon an outside appraisal (Level 2) if deemed significant, or the net book value on the applicable business’ financial statements (Level 3) if not considered significant. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3).
As of September 30, 2024, one consumer real estate loan totaling $
25
Fair Value Summary
The following presents the recorded amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of the dates indicated. Fair values are estimated using the exit price notion.
|
|
|
|
|
Estimated Fair Value |
|
||||||||||
September 30, 2024 |
|
Carrying Amount |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash and due from banks |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Interest-bearing deposits |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Federal funds sold |
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
||
Securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Restricted stock, at cost |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Mortgage loans held for sale |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Loans, net |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Accrued interest receivable |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Bank-owned life insurance |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Deposits |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Accrued interest payable |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Forward sale commitment |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
Estimated Fair Value |
|
||||||||||
December 31, 2023 |
|
Carrying Amount |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash and due from banks |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Interest-bearing deposits |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Restricted stock, at cost |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Mortgage loans held for sale |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Loans, net |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Accrued interest receivable |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Bank-owned life insurance |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate loan contract |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Deposits |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Accrued interest payable |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Forward sale commitment |
|
|
|
|
|
|
|
|
|
|
|
|
||||
26
Note 7: Components of Accumulated Other Comprehensive Loss
The following tables provide information about components of accumulated other comprehensive loss as of the dates indicated:
|
|
Net Unrealized Loss on Securities |
|
|
Adjustments Related to Pension Benefits |
|
|
Accumulated Other Comprehensive Loss |
|
|||
Balance at June 30, 2023 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Unrealized holding loss on available for sale securities, net of |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Balance at September 30, 2023 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|||
Balance at June 30, 2024 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Unrealized holding loss on available for sale securities, net of |
|
|
|
|
|
|
|
|
|
|||
Balance at September 30, 2024 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
Net Unrealized Loss on Securities |
|
|
Adjustments Related to Pension Benefits |
|
|
Accumulated Other Comprehensive Loss |
|
|||
Balance at December 31, 2022 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Unrealized holding gain on available for sale securities, net of |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Reclassification adjustment, net of tax of $ |
|
|
|
|
|
|
|
|
|
|||
Balance at September 30, 2023 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|||
Balance at December 31, 2023 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Unrealized holding loss on available for sale securities, net of |
|
|
|
|
|
|
|
|
|
|||
Balance at September 30, 2024 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Note 8: Revenue Recognition
Substantially all of the Company’s revenue is generated from contracts with customers. Noninterest revenue streams such as service charges on deposit accounts, other service charges and fees, credit and debit card fees, trust income, and annuity and insurance commissions are recognized in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“Topic 606”). Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain noninterest income streams such as financial guarantees, derivatives, and certain credit card fees are outside the scope of the guidance. Noninterest revenue streams within the scope of Topic 606 are discussed below.
Service Charges on Deposit Accounts
Service charges on deposit accounts consist of monthly service fees, overdraft and nonsufficient funds fees, ATM fees, wire transfer fees, and other deposit account related fees. The Company’s performance obligation for monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. Wire transfer fees, overdraft and nonsufficient funds fees and other deposit account related fees are transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time.
Other Service Charges and Fees
Other service charges include safe deposit box rental fees, check ordering charges, and other service charges. Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon receipt of payment. The Company determined that since
27
rentals and renewals occur fairly consistently over time, revenue is recognized on a basis consistent with the duration of the performance obligation. Check ordering charges are transactional based, and therefore the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time.
Credit and Debit Card Fees
Credit and debit card fees are primarily comprised of interchange fee income and merchant services income. Interchange fees are earned whenever the Company’s debit and credit cards are processed through card payment networks such as Visa and MasterCard. Merchant services income mainly represents commission fees based upon merchant processing volume. The Company’s performance obligation for interchange fee income and merchant services income are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month. In compliance with Topic 606, credit and debit card fee income is presented net of associated expense.
Trust Income
Trust income is primarily comprised of fees earned from the management and administration of trusts and estates and other customer assets. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon the month-end market value of the assets under management and the applicable fee rate. Payment is generally received a few days after month end through a direct charge to customers’ accounts. The Company does not earn performance-based incentives. Estate management fees are based upon the size of the estate. A partial fee is recognized half-way through the estate administration and the remainder of the fee is recognized when remaining assets are distributed and the estate is closed.
Insurance and Investment
Insurance income primarily consists of commissions received on insurance product sales. The Company acts as an intermediary between the Company’s customer and the insurance carrier. The Company’s performance obligation is generally satisfied upon the issuance of the insurance policy. Shortly after the insurance policy is issued, the carrier remits the commission payment to the Company, and the Company recognizes the revenue.
Investment income consists of recurring revenue streams such as commissions from sales of mutual funds, annuities and other investments. Commissions from the sale of mutual funds, annuities and other investments are recognized on trade date, which is when the Company has satisfied its performance obligation. The Company also receives periodic service fees (i.e., trailers) from mutual fund companies typically based on a percentage of net asset value. Trailer revenue is recorded over time, usually monthly or quarterly, as net asset value is determined.
OREO Gains and Losses
The Company records a gain or loss from the sale of other real estate owned (“OREO”) when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of OREO to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer.
The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the periods indicated.
|
|
Three Months Ended September 30, |
|
|||||
Noninterest Income |
|
2024 |
|
|
2023 |
|
||
In-scope of Topic 606: |
|
|
|
|
|
|
||
Service charges on deposit accounts |
|
$ |
|
|
$ |
|
||
Other service charges and fees |
|
|
|
|
|
|
||
Credit and debit card fees, net |
|
|
|
|
|
|
||
Trust income |
|
|
|
|
|
|
||
Insurance and Investment (included within Other Income in the Consolidated |
|
|
|
|
|
|
||
Noninterest Income (in-scope of Topic 606) |
|
$ |
|
|
$ |
|
||
Noninterest Income (out-of-scope of Topic 606) |
|
|
|
|
|
|
||
Total noninterest income |
|
$ |
|
|
$ |
|
||
28
|
|
Nine Months Ended September 30, |
|
|||||
Noninterest Income |
|
2024 |
|
|
2023 |
|
||
In-scope of Topic 606: |
|
|
|
|
|
|
||
Service charges on deposit accounts |
|
$ |
|
|
$ |
|
||
Other service charges and fees |
|
|
|
|
|
|
||
Credit and debit card fees, net |
|
|
|
|
|
|
||
Trust income |
|
|
|
|
|
|
||
Insurance and Investment (included within Other Income in the Consolidated |
|
|
|
|
|
|
||
Noninterest Income (in-scope of Topic 606) |
|
$ |
|
|
$ |
|
||
Noninterest Income (out-of-scope of Topic 606) |
|
|
|
|
|
|
||
Total noninterest income |
|
$ |
|
|
$ |
|
||
Note 9: Leases
The Company’s leases are recorded under ASC Topic 842, “Leases”. The Company categorizes leases as short-term, operating or finance leases. Leases with terms of 12 months or less are designated as short-term and are not capitalized. Operating and finance leases are capitalized as right-of-use assets and lease liabilities. Right-of-use assets, included in other assets, represent the Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs and any incentives received from the lessor. Lease liabilities, included in other liabilities, represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease. The Company does not separate non-lease components from lease components within a single contract. Counterparties for the Company’s lease contracts are external to the Company and not related parties.
On June 1, 2024, the Company’s acquisition of FCB added two long-term branch leases. At the Acquisition Date, the leases were remeasured using the Company’s incremental borrowing rate and remaining lease terms, resulting in an increase of $
Lease payments
Short-term lease payments are recognized as lease expense on a straight-line basis over the lease term, or for variable lease payments, in the period in which the obligation was incurred. Operating and finance lease payments may be fixed for the term of the lease or variable. If the escalation factor for a variable lease payment is known, such as a specified percentage increase per year or a stated increase at a specified time, the variable payment is included in the cash flows used to determine the lease liability. If the variable payment is based upon an unknown escalator, such as the consumer price index at a future date, the increase is not included in the cash flows used to determine the lease liability.
Options to Extend, Residual Value Guarantees, Restrictions and Covenants
Certain of the Company’s operating leases offer the option to extend the lease term and the Company has included such extensions in its calculation of the lease liabilities to the extent the options are reasonably certain of being exercised. The lease agreements do not provide for residual value guarantees and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations.
The following tables present information about leases as of the dates and for the periods indicated:
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
Lease liability |
|
$ |
|
|
$ |
|
||
Right-of-use asset |
|
$ |
|
|
$ |
|
||
Weighted average remaining lease term (in years) |
|
|
|
|
|
|
||
Weighted average discount rate |
|
|
% |
|
|
% |
||
|
|
For the Three Months Ended September 30, |
|
|||||
Lease Expense |
|
2024 |
|
|
2023 |
|
||
Operating lease expense |
|
$ |
|
|
$ |
|
||
Short-term lease expense |
|
|
|
|
|
|
||
Total lease expense |
|
$ |
|
|
$ |
|
||
Cash paid for amounts included in lease liabilities |
|
$ |
|
|
$ |
|
||
29
|
|
For the Nine Months Ended September 30, |
|
|||||
Lease Expense |
|
2024 |
|
|
2023 |
|
||
Operating lease expense |
|
$ |
|
|
$ |
|
||
Short-term lease expense |
|
|
|
|
|
|
||
Total lease expense |
|
$ |
|
|
$ |
|
||
Cash paid for amounts included in lease liabilities |
|
$ |
|
|
$ |
|
||
Right-of-use assets obtained in exchange for operating lease liabilities commencing |
|
$ |
|
|
$ |
|
||
The following table presents a maturity schedule of undiscounted cash flows that contribute to the lease liability:
Undiscounted Cash Flow for the Period |
|
As of |
|
|
Twelve months ending September 30, 2025 |
|
$ |
|
|
Twelve months ending September 30, 2026 |
|
|
|
|
Twelve months ending September 30, 2027 |
|
|
|
|
Twelve months ending September 30, 2028 |
|
|
|
|
Twelve months ending September 30, 2029 |
|
|
|
|
Thereafter |
|
|
|
|
Total undiscounted cash flows |
|
$ |
|
|
Less: discount |
|
|
( |
) |
Lease liability |
|
$ |
|
|
Note 10: Stock Based Compensation
The Company’s 2023 Stock Incentive Plan (“the Plan”) was approved by shareholders at the annual shareholders meeting on May 9, 2023. The Plan provides for the grant of various forms of stock-based compensation awards that may be settled in, or based upon the value of, the Company’s common stock. The maximum number of shares available for issuance under the Plan is
Restricted Stock Awards
Under the Plan, non-employee directors receive restricted stock awards (“RSAs”) each June and December. The RSAs are valued at the closing stock price on the grant date and expensed over the
|
|
Shares |
|
|
Weighted-Average Grant-Date Fair Value |
|
||
Nonvested at January 1, 2024 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Vested and released |
|
|
( |
) |
|
|
|
|
Forfeited |
|
|
( |
) |
|
|
|
|
Nonvested at September 30, 2024 |
|
|
|
|
$ |
|
||
30
Note 11: Net Income Per Common Share
The factors used in the computation of net income per common share for the periods indicated are presented below:
|
|
For the Three Months Ended September 30, |
|
|||||||||||||||||||||
|
|
2024 |
|
|
2023 |
|
||||||||||||||||||
|
|
Net Income |
|
|
Common Shares1 (Denominator) |
|
|
Per Share |
|
|
Net Income |
|
|
Common Shares1 (Denominator) |
|
|
Per Share |
|
||||||
Basic net income per |
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
||||||
Dilutive shares for restricted stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Diluted net income per |
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
||||||
|
|
For the Nine Months Ended September 30, |
|
|||||||||||||||||||||
|
|
2024 |
|
|
2023 |
|
||||||||||||||||||
|
|
Net Income |
|
|
Common Shares1 (Denominator) |
|
|
Per Share |
|
|
Net Income |
|
|
Common Shares1 (Denominator) |
|
|
Per Share |
|
||||||
Basic net income per |
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
||||||
Dilutive shares for restricted stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Diluted net income per |
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
||||||
RSA grants are disregarded in the computation of diluted net income per share if they are determined to be anti-dilutive. There were no anti-dilutive RSAs for the three and nine months ended September 30, 2024 and September 30, 2023.
Note 12 – Goodwill and Other Intangibles
The aggregate amortization expense was $
|
|
Gross Carrying Amount |
|
|
Additions |
|
|
Measurement Period Adjustment |
|
|
Accumulated Amortization |
|
|
Net Carrying Amount |
|
|||||
Goodwill |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
- |
|
|
$ |
|
|||
Core deposit intangible |
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
( |
) |
|
$ |
|
|||
As of September 30, 2024, estimated future remaining amortization of the core deposit intangible within the years ending December 31, is as follows:
|
|
Amortization Expense |
|
|
2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
Thereafter |
|
|
|
|
Total amortizing core deposit intangible |
|
$ |
|
|
31
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
$ in thousands, except per share data
The purpose of this discussion and analysis is to provide information about the financial condition and results of operations of the Company. Please refer to the financial statements and other information included in this report as well as the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (“2023 Form 10-K”) for an understanding of the following discussion and analysis. References in the following discussion and analysis to “we” or “us” refer to the Company unless the context indicates that the reference is to the Bank.
Cautionary Statement Regarding Forward-Looking Statements
We make forward-looking statements in this Form 10-Q that are subject to significant risks and uncertainties. These forward-looking statements include statements regarding our profitability, liquidity, allowance for credit losses, interest rate sensitivity, market risk, growth strategy, and financial and other goals, and are based upon management’s views and assumptions as of the date of this report. The words “believes,” “expects,” “may,” “will,” “should,” “projects,” “contemplates,” “anticipates,” “forecasts,” “intends,” or other similar words or terms are intended to identify forward-looking statements.
These forward-looking statements are based upon or are affected by factors that could cause our actual results to differ materially from historical results or from any results expressed or implied by such forward-looking statements. These factors include, but are not limited to, effects of or changes in:
On June 1, 2024, the Company and the Bank acquired Frontier Community Bank (“FCB”). In addition to the factors described above, the Company’s operations, performance, business strategy and results may be affected by the following factors:
32
These risks and uncertainties should be considered in evaluating the forward-looking statements contained in this report. We caution readers not to place undue reliance on those statements, which speak only as of the date of this report. This discussion and analysis should be read in conjunction with the description of our “Risk Factors” in Item 1A of the 2023 Form 10-K.
Overview
NBI is a financial holding company that was organized in 1986 under the laws of Virginia and is registered under the Bank Holding Company Act of 1956. NBI common stock is listed on the Nasdaq Capital Market and is traded under the symbol “NKSH.”
NBI has two wholly-owned subsidiaries; the National Bank of Blacksburg ("NBB") and National Bankshares Financial Services, Inc. ("NBFS"). NBB is a community bank and does business as National Bank from 27 office locations and two loan production offices. NBB is the source of nearly all of the Company’s revenue. NBFS does business as National Bankshares Investment Services and National Bankshares Insurance Services. Income from NBFS is not significant at this time, nor is it expected to be so in the near future.
The Company expects construction of a new branch in Roanoke, Virginia to be completed during the fourth quarter of 2024. The full service branch will expand our already successful loan production office and enhance our business opportunities in the Roanoke Valley.
Critical Accounting Policies
The Company’s consolidated financial statements are prepared in accordance with GAAP. The financial information contained within our statements is, to a significant extent, based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value obtained when earning income, recognizing an expense, recovering an asset or relieving a liability. Although the economics of the Company’s transactions may not change, the timing of events that would impact the transactions could change.
Critical accounting policies are most important to the portrayal of the Company’s financial condition or results of operations and require management’s most difficult, subjective, and complex judgments about matters that are inherently uncertain. If conditions occur that differ from our assumptions, depending upon the severity of such differences, the Company’s financial condition or results of operations may be materially impacted. The Company has designated the following policies as critical: those governing the allowance for credit losses, goodwill, the pension plan, core deposit intangibles and loans acquired in a business combination. The Company evaluates its critical accounting estimates and assumptions on an ongoing basis and updates them as needed. For information on the allowance for credit losses, goodwill and the pension plan, please refer to the Company’s 2023 Form 10-K, Note 1: Summary of Significant Accounting Policies. For information on policies governing core deposit intangibles and loans acquired in a business combination, please refer to Note 1: General and Summary of Significant Accounting Policies of this Form 10-Q report.
Acquisition of Frontier Community Bank
On June 1, 2024, the Company and the Bank acquired FCB, a Virginia chartered commercial bank headquartered in Waynesboro, Virginia. FCB’s balances and results of operations are included in the Company’s consolidated results beginning on the Acquisition Date.
The acquisition was made pursuant to an Agreement and Plan of Merger, dated January 23, 2024, by and among the Company, the Bank and FCB under which FCB merged with and into the Bank (the “FCB Merger Agreement”). Pursuant to the terms of the FCB Merger Agreement, at the effective time of the acquisition, each share of FCB common stock was converted into either $14.48 in cash or 0.4250 shares of the Company’s common stock, with FCB shareholders having the ability to elect the merger consideration to be received, subject to the allocation and proration procedures set forth in the FCB Merger Agreement. The Company issued 464,855 shares of common stock and paid $2,050 to former FCB shareholders in the acquisition. As a result of the transaction, the Bank expanded its operations into the Waynesboro, Staunton and Lynchburg, Virginia markets. Please refer to Note 2: Business Combination in Part I, Item 1 of this report for additional information of the acquisition of FCB.
Non-GAAP Financial Measures
This report refers to certain financial measures that are computed under a basis other than GAAP (“non-GAAP”). The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial performance. The methodology for determining these non-GAAP measures may differ among companies. Non-GAAP measures are supplemental and not a substitute for, or more important than, financial measures prepared in accordance with GAAP. Details on non-GAAP measures follow.
33
Net Interest Margin
The Company uses the net interest margin to measure profit on interest generating activities, as a percentage of total interest-earning assets. The Company’s net interest margin is calculated on a fully taxable equivalent (“FTE”) basis. The portion of interest income that is nontaxable is grossed up to the tax equivalent by adding the tax benefit based on a tax rate of 21%. Annualized FTE net interest income is divided by total average earning assets to calculate the net interest margin. The following tables present the reconciliation of tax equivalent net interest income, which is not a measurement under GAAP, to net interest income, for the periods indicated.
|
|
Three Months Ended September 30, |
|
|||||
Net Interest Margin, FTE |
|
2024 |
|
|
2023 |
|
||
Interest income (GAAP) |
|
$ |
18,666 |
|
|
$ |
14,679 |
|
Add: FTE adjustment |
|
|
241 |
|
|
|
229 |
|
Interest income, FTE (non-GAAP) |
|
|
18,907 |
|
|
|
14,908 |
|
Interest expense (GAAP) |
|
|
9,218 |
|
|
|
6,039 |
|
Net interest income, FTE (non-GAAP) |
|
$ |
9,689 |
|
|
$ |
8,869 |
|
Average balance of interest-earning assets |
|
$ |
1,754,031 |
|
|
$ |
1,581,042 |
|
Net interest margin |
|
|
2.20 |
% |
|
|
2.23 |
% |
|
|
Nine Months Ended September 30, |
|
|||||
Net Interest Margin, FTE |
|
2024 |
|
|
2023 |
|
||
Interest income (GAAP) |
|
$ |
51,805 |
|
|
$ |
43,320 |
|
Add: FTE adjustment |
|
|
729 |
|
|
|
648 |
|
Interest income, FTE (non-GAAP) |
|
|
52,534 |
|
|
|
43,968 |
|
Interest expense (GAAP) |
|
|
25,412 |
|
|
|
14,517 |
|
Net interest income, FTE (non-GAAP) |
|
$ |
27,122 |
|
|
$ |
29,451 |
|
Average balance of interest-earning assets |
|
$ |
1,694,186 |
|
|
$ |
1,605,202 |
|
Net interest margin |
|
|
2.14 |
% |
|
|
2.45 |
% |
Efficiency Ratio
The efficiency ratio is computed by dividing noninterest expense by the sum of FTE net interest income and noninterest income, excluding certain items the Company’s management deems unusual or non-recurring. This is a non-GAAP financial measure that the Company believes provides investors with important information regarding operational efficiency. The components of the efficiency ratio calculation for the periods indicated are summarized in the following table.
|
|
Three Months Ended September 30, |
|
|||||
Efficiency Ratio |
|
2024 |
|
|
2023 |
|
||
Noninterest expense (GAAP) |
|
$ |
8,499 |
|
|
$ |
7,435 |
|
Less: merger-related expense |
|
|
(150 |
) |
|
|
– |
|
Less: proxy-related expense (2) |
|
|
– |
|
|
|
(2 |
) |
Adjusted noninterest expense (non-GAAP) |
|
$ |
8,349 |
|
|
$ |
7,433 |
|
Noninterest income (GAAP) |
|
$ |
2,272 |
|
|
$ |
2,115 |
|
Net interest income, FTE (non-GAAP) |
|
|
9,689 |
|
|
|
8,869 |
|
Total income for efficiency ratio (non-GAAP) |
|
$ |
11,961 |
|
|
$ |
10,984 |
|
Efficiency ratio |
|
|
69.80 |
% |
|
|
67.67 |
% |
34
|
|
Nine Months Ended September 30, |
|
|||||
Efficiency Ratio |
|
2024 |
|
|
2023 |
|
||
Noninterest expense (GAAP) |
|
$ |
26,388 |
|
|
$ |
22,665 |
|
Less: merger-related expense |
|
|
(2,891 |
) |
|
|
– |
|
Less: contract termination expense (1) |
|
|
(173 |
) |
|
|
– |
|
Less: proxy-related expense (2) |
|
|
– |
|
|
|
(786 |
) |
Adjusted noninterest expense (non-GAAP) |
|
$ |
23,324 |
|
|
$ |
21,879 |
|
Noninterest income (GAAP) |
|
$ |
6,717 |
|
|
$ |
7,105 |
|
Less: realized securities loss, net |
|
|
– |
|
|
|
3,332 |
|
Less: gain on sale of investment (3) |
|
|
– |
|
|
|
(2,971 |
) |
Less: gain on BOLI settlement |
|
|
– |
|
|
|
(1,037 |
) |
Adjusted noninterest income (non-GAAP) |
|
|
6,717 |
|
|
|
6,429 |
|
Net interest income, FTE (non-GAAP) |
|
|
27,122 |
|
|
|
29,451 |
|
Total income for efficiency ratio (non-GAAP) |
|
$ |
33,839 |
|
|
$ |
35,880 |
|
Efficiency ratio |
|
|
68.93 |
% |
|
|
60.98 |
% |
Adjusted Return on Average Assets and Adjusted Return on Average Equity
The adjusted return on average assets and adjusted return on average equity are measures of profitability, calculated by annualizing net income and dividing by average year-to-date assets or equity, respectively. Larger nonrecurring income or expenses are not annualized, in order to reduce distortion within the ratios. The tables below present the reconciliation of adjusted annualized net income, which is not a measurement under GAAP, for the periods indicated.
|
|
Three Months Ended September 30, |
|
|||||
Annualized Net Income for Ratio Calculation |
|
2024 |
|
|
2023 |
|
||
Net income per GAAP |
|
$ |
2,676 |
|
|
$ |
3,074 |
|
Less: items not annualized: |
|
|
|
|
|
|
||
Proxy-related expense, net of tax of $0 for the period ended September 30, 2023 |
|
|
– |
|
|
|
2 |
|
ACL recovery, net of tax of $84 for the period ended September 30, 2023 |
|
|
– |
|
|
|
(317 |
) |
Merger-related expense, net of tax of $6 for the period ended September 30, 2024 |
|
|
144 |
|
|
|
– |
|
Total non-annualized items |
|
|
144 |
|
|
|
(315 |
) |
Adjusted net income |
|
$ |
2,820 |
|
|
$ |
2,759 |
|
Adjusted net income, annualized |
|
$ |
11,219 |
|
|
$ |
10,946 |
|
Add: total non-annualized items |
|
|
(144 |
) |
|
|
315 |
|
Annualized net income for ratio calculation (non-GAAP) |
|
$ |
11,075 |
|
|
$ |
11,261 |
|
Return on average assets (GAAP) |
|
|
0.59 |
% |
|
|
0.77 |
% |
Adjusted return on average assets (non-GAAP) |
|
|
0.61 |
% |
|
|
0.71 |
% |
Return on average equity (GAAP) |
|
|
6.82 |
% |
|
|
9.63 |
% |
Adjusted return on average equity (non-GAAP) |
|
|
7.09 |
% |
|
|
8.89 |
% |
35
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Net income per GAAP |
|
$ |
4,544 |
|
|
$ |
11,506 |
|
Less: items not annualized: |
|
|
|
|
|
|
||
Partnership income net of tax of ($35) and ($44) for the periods ended September 30, 2024 and 2023, respectively |
|
|
(134 |
) |
|
|
(164 |
) |
Realized securities gain, net of tax of $700 for the period ended September 30, 2023 |
|
|
– |
|
|
|
2,632 |
|
Proxy-related expense, net of tax of $165 for the period ended September 30, 2023 |
|
|
– |
|
|
|
621 |
|
Gain on sale of investment, net of tax of ($624) for the period ended September 30, 2023 |
|
|
– |
|
|
|
(2,347 |
) |
Gain on BOLI settlement |
|
|
– |
|
|
|
(1,037 |
) |
ACL provision (recovery), net of tax of $271 and ($82) for the periods ended September 30, 2024 and 2023, respectively(1) |
|
|
1,019 |
|
|
|
(307 |
) |
Merger-related expense, net of tax of $417 for the period ended September 30, 2024 |
|
|
2,474 |
|
|
|
– |
|
Contract termination expense, net of tax of $36 for the period ended September 30, 2024 |
|
|
137 |
|
|
|
– |
|
Total non-annualized items |
|
|
3,496 |
|
|
|
(602 |
) |
Adjusted net income |
|
$ |
8,040 |
|
|
$ |
10,904 |
|
Adjusted net income, annualized |
|
$ |
10,740 |
|
|
$ |
14,579 |
|
Add: total non-annualized items |
|
|
(3,496 |
) |
|
|
602 |
|
Annualized net income for ratio calculation (non-GAAP) |
|
$ |
7,244 |
|
|
$ |
15,181 |
|
Return on average assets (GAAP) |
|
|
0.35 |
% |
|
|
0.95 |
% |
Adjusted return on average assets (non-GAAP) |
|
|
0.42 |
% |
|
|
0.94 |
% |
Return on average equity (GAAP) |
|
|
4.23 |
% |
|
|
12.13 |
% |
Adjusted return on average equity (non-GAAP) |
|
|
5.05 |
% |
|
|
11.97 |
% |
Performance Summary
The following table presents the Company’s key performance indicators for the periods indicated.
|
|
Three Months Ended September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Net Income |
|
$ |
2,676 |
|
|
$ |
3,074 |
|
Return on average assets |
|
|
0.59 |
% |
|
|
0.77 |
% |
Adjusted return on average assets (1) |
|
|
0.61 |
% |
|
|
0.71 |
% |
Return on average equity |
|
|
6.82 |
% |
|
|
9.63 |
% |
Adjusted return on average equity (1) |
|
|
7.09 |
% |
|
|
8.89 |
% |
Basic net income per common share |
|
$ |
0.42 |
|
|
$ |
0.52 |
|
Fully diluted net income per common share (2) |
|
$ |
0.42 |
|
|
$ |
0.52 |
|
Net interest margin (1) |
|
|
2.20 |
% |
|
|
2.23 |
% |
Efficiency ratio (1) |
|
|
69.80 |
% |
|
|
67.67 |
% |
36
|
|
Nine Months Ended |
|
|
Nine Months Ended |
|
|
Twelve Months Ended December 31, 2023 |
|
|||
Net Income |
|
$ |
4,544 |
|
|
$ |
11,506 |
|
|
$ |
15,691 |
|
Return on average assets |
|
|
0.35 |
% |
|
|
0.95 |
% |
|
|
0.97 |
% |
Adjusted return on average assets (1) |
|
|
0.42 |
% |
|
|
0.94 |
% |
|
|
0.97 |
% |
Return on average equity |
|
|
4.23 |
% |
|
|
12.13 |
% |
|
|
12.59 |
% |
Adjusted return on average equity (1) |
|
|
5.05 |
% |
|
|
11.97 |
% |
|
|
12.59 |
% |
Basic net income per common share |
|
$ |
0.75 |
|
|
$ |
1.95 |
|
|
$ |
2.66 |
|
Fully diluted net income per common share (2) |
|
$ |
0.75 |
|
|
$ |
1.95 |
|
|
$ |
2.66 |
|
Net interest margin (1) |
|
|
2.14 |
% |
|
|
2.45 |
% |
|
|
2.38 |
% |
Efficiency ratio (1) |
|
|
68.93 |
% |
|
|
60.98 |
% |
|
|
61.01 |
% |
Net income for the three and nine months ended September 30, 2024 decreased when compared with the comparable period of 2023, due to net interest margin compression, merger related expenses and contract termination expense. The net interest margin as well as key noninterest income and expense items are discussed below.
Net Interest Income
The following tables show interest‑earning assets and interest‑bearing liabilities, the interest earned or paid, the average yield or rate on the daily average balance outstanding, net interest income and net interest margin for the periods indicated.
|
|
Three Months Ended September 30, |
|
||||||||||||||||||||||
|
|
2024 |
|
|
|
2023 |
|
||||||||||||||||||
|
|
Average |
|
|
Interest |
|
|
Average |
|
|
|
Average |
|
|
Interest |
|
|
Average |
|
||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Loans (1)(2)(4)(5)(6) |
|
$ |
994,744 |
|
|
$ |
13,285 |
|
|
|
5.31 |
% |
|
|
$ |
843,546 |
|
|
$ |
9,924 |
|
|
|
4.67 |
% |
Taxable securities (6)(7) |
|
|
625,908 |
|
|
|
4,203 |
|
|
|
2.67 |
% |
|
|
|
640,578 |
|
|
|
4,084 |
|
|
|
2.53 |
% |
Nontaxable securities (1)(6) |
|
|
63,197 |
|
|
|
453 |
|
|
|
2.85 |
% |
|
|
|
64,415 |
|
|
|
461 |
|
|
|
2.84 |
% |
Federal funds sold |
|
|
918 |
|
|
|
12 |
|
|
|
5.20 |
% |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
Interest-bearing deposits |
|
|
69,264 |
|
|
|
954 |
|
|
|
5.48 |
% |
|
|
|
32,503 |
|
|
|
439 |
|
|
|
5.36 |
% |
Total interest-earning assets |
|
$ |
1,754,031 |
|
|
$ |
18,907 |
|
|
|
4.29 |
% |
|
|
$ |
1,581,042 |
|
|
$ |
14,908 |
|
|
|
3.74 |
% |
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest-bearing demand deposits |
|
$ |
852,126 |
|
|
$ |
5,488 |
|
|
|
2.56 |
% |
|
|
$ |
799,772 |
|
|
$ |
4,358 |
|
|
|
2.16 |
% |
Savings deposits |
|
|
176,354 |
|
|
|
221 |
|
|
|
0.50 |
% |
|
|
|
192,702 |
|
|
|
226 |
|
|
|
0.47 |
% |
Time deposits |
|
|
308,247 |
|
|
|
3,509 |
|
|
|
4.53 |
% |
|
|
|
163,476 |
|
|
|
1,452 |
|
|
|
3.52 |
% |
Borrowings |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
|
207 |
|
|
|
3 |
|
|
|
5.75 |
% |
Total interest-bearing liabilities |
|
$ |
1,336,727 |
|
|
$ |
9,218 |
|
|
|
2.74 |
% |
|
|
$ |
1,156,157 |
|
|
$ |
6,039 |
|
|
|
2.07 |
% |
Net interest income and interest rate spread |
|
|
|
|
$ |
9,689 |
|
|
|
1.55 |
% |
|
|
|
|
|
$ |
8,869 |
|
|
|
1.67 |
% |
||
Net interest margin |
|
|
|
|
|
|
|
|
2.20 |
% |
|
|
|
|
|
|
|
|
|
2.23 |
% |
||||
37
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||||||
|
|
2024 |
|
|
|
2023 |
|
||||||||||||||||||
|
|
Average |
|
|
Interest |
|
|
Average |
|
|
|
Average |
|
|
Interest |
|
|
Average |
|
||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Loans (1)(3)(4)(5)(6) |
|
$ |
919,369 |
|
|
$ |
35,108 |
|
|
|
5.10 |
% |
|
|
$ |
850,543 |
|
|
$ |
29,068 |
|
|
|
4.57 |
% |
Taxable securities (6)(7) |
|
|
629,748 |
|
|
|
12,718 |
|
|
|
2.70 |
% |
|
|
|
657,575 |
|
|
|
12,268 |
|
|
|
2.49 |
% |
Nontaxable securities (1)(6) |
|
|
63,730 |
|
|
|
1,373 |
|
|
|
2.88 |
% |
|
|
|
65,649 |
|
|
|
1,425 |
|
|
|
2.90 |
% |
Federal funds sold |
|
|
702 |
|
|
|
23 |
|
|
|
4.38 |
% |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
Interest-bearing deposits |
|
|
80,637 |
|
|
|
3,312 |
|
|
|
5.49 |
% |
|
|
|
31,435 |
|
|
|
1,207 |
|
|
|
5.13 |
% |
Total interest-earning assets |
|
$ |
1,694,186 |
|
|
$ |
52,534 |
|
|
|
4.14 |
% |
|
|
$ |
1,605,202 |
|
|
$ |
43,968 |
|
|
|
3.66 |
% |
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest-bearing demand deposits |
|
$ |
839,211 |
|
|
$ |
15,747 |
|
|
|
2.51 |
% |
|
|
$ |
834,575 |
|
|
$ |
10,846 |
|
|
|
1.74 |
% |
Savings deposits |
|
|
175,670 |
|
|
|
672 |
|
|
|
0.51 |
% |
|
|
|
200,170 |
|
|
|
506 |
|
|
|
0.34 |
% |
Time deposits |
|
|
268,313 |
|
|
|
8,991 |
|
|
|
4.48 |
% |
|
|
|
131,398 |
|
|
|
2,865 |
|
|
|
2.92 |
% |
Borrowings |
|
|
76 |
|
|
|
2 |
|
|
|
3.52 |
% |
|
|
|
8,287 |
|
|
|
300 |
|
|
|
4.84 |
% |
Total interest-bearing liabilities |
|
$ |
1,283,270 |
|
|
$ |
25,412 |
|
|
|
2.65 |
% |
|
|
$ |
1,174,430 |
|
|
$ |
14,517 |
|
|
|
1.65 |
% |
Net interest income and interest rate spread |
|
|
|
|
$ |
27,122 |
|
|
|
1.49 |
% |
|
|
|
|
|
$ |
29,451 |
|
|
|
2.01 |
% |
||
Net interest margin |
|
|
|
|
|
|
|
|
2.14 |
% |
|
|
|
|
|
|
|
|
|
2.45 |
% |
||||
In September, 2024, the Federal Reserve cut its target interest rate by 50 basis points. This cut had an immediate impact on deposits with pricing based on the prime interest rate. Competitive pressure for deposits began in 2023 and continues to contribute to higher cost of funds and compressed net interest margin when results for the three and nine months ended September 30, 2024 are compared with the same periods of 2023. However, the Company expects the interest rate cut to benefit deposit costs during the fourth quarter of 2024. While the interest rate cut is expected to reduce deposit costs, current interest rates are still at a level that will allow interest income and the yield on earning assets to grow as adjustable loans reach repricing dates.
Noninterest Income
|
|
Three Months Ended September 30, |
|
|
|
|
||||||
|
|
2024 |
|
|
2023 |
|
|
Percent Change |
|
|||
Service charges on deposit accounts |
|
$ |
753 |
|
|
$ |
642 |
|
|
|
17.29 |
% |
Other service charges and fees |
|
|
82 |
|
|
|
151 |
|
|
|
(45.70 |
)% |
Credit and debit card fees, net |
|
|
344 |
|
|
|
395 |
|
|
|
(12.91 |
)% |
Trust income |
|
|
580 |
|
|
|
505 |
|
|
|
14.85 |
% |
BOLI income |
|
|
295 |
|
|
|
253 |
|
|
|
16.60 |
% |
Gain on sale of mortgage loans |
|
|
50 |
|
|
|
22 |
|
|
|
127.27 |
% |
Other income |
|
|
168 |
|
|
|
147 |
|
|
|
14.29 |
% |
Total noninterest income |
|
$ |
2,272 |
|
|
$ |
2,115 |
|
|
|
7.42 |
% |
38
|
|
Nine Months Ended September 30, |
|
|
|
|
||||||
|
|
2024 |
|
|
2023 |
|
|
Percent Change |
|
|||
Service charges on deposit accounts |
|
$ |
2,150 |
|
|
$ |
1,871 |
|
|
|
14.91 |
% |
Other service charges and fees |
|
|
176 |
|
|
|
253 |
|
|
|
(30.43 |
)% |
Credit and debit card fees, net |
|
|
1,141 |
|
|
|
1,276 |
|
|
|
(10.58 |
)% |
Trust income |
|
|
1,596 |
|
|
|
1,431 |
|
|
|
11.53 |
% |
BOLI income |
|
|
822 |
|
|
|
1,771 |
|
|
|
(53.59 |
)% |
Gain on sale of investment |
|
|
– |
|
|
|
2,971 |
|
|
NM |
|
|
Gain on sale of mortgage loans |
|
|
132 |
|
|
|
93 |
|
|
|
41.94 |
% |
Other income |
|
|
700 |
|
|
|
771 |
|
|
|
(9.21 |
)% |
Realized securities loss, net |
|
|
– |
|
|
|
(3,332 |
) |
|
NM |
|
|
Total noninterest income |
|
$ |
6,717 |
|
|
$ |
7,105 |
|
|
|
(5.46 |
)% |
Service charges on deposit accounts increased when the three and nine months ended September 30, 2024 are compared with the comparable periods of 2023, due to changes in fee structure. Other service charges and fees decreased when the three and nine months ended September 30, 2024 are compared with the comparable periods of 2023, due to lower fees associated with letters of credit and one time fee income received in 2023.
Credit and debit card fees, net, decreased when the three and nine months ended September 30, 2024 are compared with the comparable periods of 2023, due to higher processing fees.
Trust income increased due to higher volume, when the three and nine months ended September 30, 2024 are compared with the comparable periods of 2023.
BOLI income increased when the three month period ended September 30, 2024 is compared with the comparable period of 2023 due to income from the BOLI policies acquired with the FCB merger. BOLI income decreased when the nine month period ended September 30, 2024 is compared with the comparable period of 2023 due to the settlement of a policy in the second quarter of 2023.
The Company recorded a gain on the sale of an investment and a loss on the sale of securities during the second quarter of 2023. The sale of securities is discussed in more detail under the Securities section below.
Other income includes revenue from investment and insurance sales, adjustments to partnership basis and other miscellaneous components. During 2023, the Company recognized an incentive payment from a vendor. These areas fluctuate with market conditions and competitive factors.
Noninterest Expense
|
|
Three Months Ended September 30, |
|
|
|
|
||||||
|
|
2024 |
|
|
2023 |
|
|
Percent Change |
|
|||
Salaries and employee benefits |
|
$ |
4,953 |
|
|
$ |
4,462 |
|
|
|
11.00 |
% |
Occupancy, furniture and fixtures |
|
|
641 |
|
|
|
547 |
|
|
|
17.18 |
% |
Data processing and ATM |
|
|
1,054 |
|
|
|
978 |
|
|
|
7.77 |
% |
FDIC assessment |
|
|
211 |
|
|
|
190 |
|
|
|
11.05 |
% |
Intangible asset amortization |
|
|
102 |
|
|
|
– |
|
|
NM |
|
|
Net costs of other real estate owned |
|
|
– |
|
|
|
14 |
|
|
NM |
|
|
Franchise taxes |
|
|
373 |
|
|
|
339 |
|
|
|
10.03 |
% |
Professional services |
|
|
254 |
|
|
|
251 |
|
|
|
1.20 |
% |
Merger-related expenses |
|
|
150 |
|
|
|
– |
|
|
NM |
|
|
Other operating expenses |
|
|
761 |
|
|
|
654 |
|
|
|
16.36 |
% |
Total noninterest expense |
|
$ |
8,499 |
|
|
$ |
7,435 |
|
|
|
14.31 |
% |
39
|
|
Nine Months Ended September 30, |
|
|
|
|
||||||
|
|
2024 |
|
|
2023 |
|
|
Percent Change |
|
|||
Salaries and employee benefits |
|
$ |
14,106 |
|
|
$ |
13,361 |
|
|
|
5.58 |
% |
Occupancy, furniture and fixtures |
|
|
1,741 |
|
|
|
1,500 |
|
|
|
16.07 |
% |
Data processing and ATM |
|
|
2,807 |
|
|
|
2,730 |
|
|
|
2.82 |
% |
FDIC assessment |
|
|
590 |
|
|
|
561 |
|
|
|
5.17 |
% |
Intangible asset amortization |
|
|
137 |
|
|
|
– |
|
|
NM |
|
|
Net costs of other real estate owned |
|
|
– |
|
|
|
29 |
|
|
NM |
|
|
Franchise taxes |
|
|
1,081 |
|
|
|
1,072 |
|
|
|
0.84 |
% |
Professional services |
|
|
766 |
|
|
|
1,555 |
|
|
|
(50.74 |
)% |
Merger-related expenses |
|
|
2,891 |
|
|
|
– |
|
|
NM |
|
|
Contract termination expenses |
|
|
173 |
|
|
|
– |
|
|
NM |
|
|
Other operating expenses |
|
|
2,096 |
|
|
|
1,857 |
|
|
|
12.87 |
% |
Total noninterest expense |
|
$ |
26,388 |
|
|
$ |
22,665 |
|
|
|
16.43 |
% |
Noninterest expense increased when the three and nine months ended September 30, 2024 are compared with the comparable periods of 2023. Key noninterest expense changes include occupancy, furniture and fixtures, professional services, merger-related expenses, and contract termination expenses.
Occupancy, furniture and fixtures expense increased when compared with 2023 due to the addition of assets acquired in the FCB merger and the receipt of a one-time insurance reimbursement during 2023.
Professional services include legal and other expenses for the Company’s response to a proxy contest from an activist shareholder during 2023, which amounted to $786 for the nine months ended September 30, 2023.
During 2024, the Company recorded expenses associated with its acquisition of FCB, including executive and employee severance benefits and legal and consulting fees.
During the second quarter of 2024, the Company recorded a contract termination expense when it gave formal notification to a vendor that it intends to end its relationship in 2025.
Included in various categories of noninterest expense are expenses to manage cybersecurity risk. The cost of these measures was $92 for the three months ended September 30, 2024 and $141 for the three months ended September 30, 2023. For the nine months ended September 30, 2024, the total cybersecurity expense was $276 compared to $424 for the nine months ended September 30, 2023. The Company places high priority on cybersecurity. The decrease in expense reflects renegotiation of contracts and licensing.
Income Tax
The Company’s income tax expense for the three months ended September 30, 2024 was $550. For the three months ended September 30, 2023, the Company recorded an income tax expense of $617. For the nine months ended September 30, 2024, the Company’s income tax expense was $891 and effective tax rate was 16.39%. For the nine months ended September 30, 2023, the Company’s income tax expense was $2,105 and effective tax rate was 15.47%. A significant portion of the merger related expense was not tax deductible, resulting in an increase to the Company’s effective tax rate for 2024. During 2023, the Company recognized a gain on the settlement of a BOLI policy that was not taxable.
Asset Quality
Key indicators of the Company’s asset quality are presented in the following table.
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
December 31, 2023 |
|
|||
Nonaccrual loans |
|
$ |
2,283 |
|
|
$ |
2,981 |
|
|
$ |
2,629 |
|
Loans past due 90 days or more, and still accruing |
|
|
71 |
|
|
|
31 |
|
|
|
188 |
|
Other real estate owned |
|
|
– |
|
|
|
662 |
|
|
|
– |
|
ACLL to loans net of unearned income and deferred fees and costs |
|
|
1.03 |
% |
|
|
1.20 |
% |
|
|
1.06 |
% |
Net charge-off ratio |
|
|
0.04 |
% |
|
|
– |
|
|
|
0.02 |
% |
Ratio of nonperforming assets to loans, net of unearned income and |
|
|
0.23 |
% |
|
|
0.43 |
% |
|
|
0.31 |
% |
Ratio of ACLL to nonperforming loans |
|
|
452.39 |
% |
|
|
341.53 |
% |
|
|
345.91 |
% |
For information on the Company’s policies on the ACLL, please refer to the Company’s 2023 Form 10-K, Note 1: Summary of Significant Accounting Policies.
The Company’s risk analysis as of September 30, 2024 determined an ACLL of $10,328, or 1.03% of loans net of unearned income and deferred fees and costs. This compares with an allowance of $9,094 as of December 31, 2023, or 1.06% of loans. To determine the
40
appropriate level of the ACLL, the Company considers credit risk for individually evaluated loans and for groups of loans evaluated collectively.
Individually Evaluated Loans
Individually evaluated loans were $10,713 as of September 30, 2024, a slight increase from $10,544 as of December 31, 2023. As of September 30, 2024, four individually evaluated loans were collateral dependent but were adequately collateralized and did not result in an individual allocation. The remaining individually evaluated loans were measured using the discounted cash flow method, resulting in an allocation of $85.
Collectively Evaluated Loans
Collectively evaluated loans totaled $991,528, with an ACLL of $10,243 as of September 30, 2024. As of December 31, 2023, collectively evaluated loans totaled $846,631, with an allowance of $8,522.
Collectively evaluated loans are divided into classes based upon risk characteristics. Utilizing historical loss information and peer data, the Company calculates probability of default and loss given default for each class, which is adjusted for a reasonable and supportable forecast. Cash flow projections based on each loan’s contractual terms are modified by the adjusted probability of default and loss given default for its class. Loan classes are allocated additional loss estimates based upon the Company’s analysis of qualitative factors including economic measures, asset quality indicators, loan characteristics, and changes to internal Company policies and management.
Reasonable and Supportable Forecast
The Company applies national unemployment forecasts to project cash flows. The Company determined that 12 months represents a reasonable and supportable forecast period as of September 30, 2024, and set a period of 12 months to revert to historical losses on a straight-line basis. The forecast applied as of September 30, 2024 projects that unemployment will rise over the next 12 months to a higher level than the forecast applied as of December 31, 2023. The higher unemployment forecast increased the required level of the ACLL when September 30, 2024 is compared with December 31, 2023.
Qualitative Factors: Economic
The Company sources economic data pertinent to its market from the most recently available publications, including business and personal bankruptcy filings, the residential vacancy rate and the inventory of new and existing homes.
Higher bankruptcy filings indicate heightened credit risk and increase the ACLL, while lower bankruptcy filings have a beneficial impact on credit risk. Compared with data available as of December 31, 2023, business and personal bankruptcies filings increased slightly.
Residential vacancy rates and housing inventory impact the Company’s residential construction customers and the consumer real estate market. Higher levels increase credit risk. The residential vacancy rate available as of September 30, 2024 increased from the data incorporated into the December 31, 2023 calculation. Housing data available as of September 30, 2024 showed higher inventory than as of December 31, 2023, resulting in a higher allocation.
Qualitative Factors: Asset Quality Indicators
Accruing past due loans are analyzed at the class level and compared with previous levels. Increases in past due loans indicate heightened credit risk. Accruing loans past due 30-89 days were 0.33% of total loans as of September 30, 2024, an increase from 0.19% as of December 31, 2023.
Qualitative Factors: Other Considerations
The Company considers other factors that impact credit risk, including the interest rate environment, the competitive, legal and regulatory environments, changes in lending policies and loan review, changes in lending management, and high risk loans.
The interest rate environment impacts variable rate loans. The Federal Reserve’s substantial interest rate increases between March 2022 and July 2023 have increased and are expected to continue to increase payments on the Company’s variable rate loans as they reach contractual repricing dates, despite the Federal Reserve's recent reduction in their target rate. The Company allocates additional reserve each time the Federal Reserve increases rates, under the expectation that higher payments may increase credit risk. After the rate increase has been in effect for one year, the allocation may be removed if management deems that the impact of the change has become integrated to the portfolio. As of September 30, 2024, the Company reduced its allocation from December 31, 2023 .
The competitive, legal and regulatory environments were evaluated for changes that would affect credit risk. Higher competition for loans increases credit risk, while lower competition decreases credit risk. Competition remained at similar levels to those at December 31, 2023. The legal and regulatory environments also remain in a similar posture to December 31, 2023.
Lending policies, loan review procedures and management’s experience influence credit risk. Policies and procedures remain similar to those at December 31, 2023. The Company added an allocation to account for absorption of FCB acquired loans and integration of FCB lenders.
41
Levels of high risk loans are considered in the determination of the level of the ACLL. A decrease in the level of high risk loans within a class decreases the required allocation for the loan class, and an increase in the level of high risk loans within a class increases the required allocation for the loan class. Total high risk loans increased from the level at December 31, 2023.
Unallocated Surplus
The unallocated surplus as of September 30, 2024 is $83, or 0.81% in excess of the calculated requirement. The unallocated surplus at December 31, 2023 was $350, or 4.00% in excess of the calculated requirement. The surplus provides some mitigation of current economic uncertainty that may impact credit risk.
Conclusion
The calculation of the appropriate level for the ACLL incorporates analysis of multiple factors and requires management’s prudent and informed judgment. The Company augmented the calculated requirement with an unallocated surplus. Based on analysis of historical indicators, asset quality and economic factors, management believes the level of ACLL is reasonable for the credit risk in the loan portfolio as of September 30, 2024.
ACL on Unfunded Commitments
The ACL on unfunded commitments was $241, or 0.14% of unfunded commitments as of September 30, 2024. The ACL on unfunded commitments was $259, or 0.16% as of December 31, 2023.
Provision for (Recovery of) Credit Losses
The provision for credit losses represents charges to earnings necessary to maintain an adequate allowance. The adequacy of the ACLL is reviewed quarterly and adjustments are made as determined necessary. The Company recorded a provision for credit losses on loans of $5 and a recovery of credit losses on unfunded commitments of $10 for the three months ended September 30, 2024, compared with a recovery of credit losses on loans of $401 for the three months ended September 30, 2023 and a provision of $30 for unfunded commitments.
The Company recorded a provision for credit losses on loans of $1,312 and a recovery of credit losses on unfunded commitments of $25 for the nine months ended September 30, 2024, compared with a recovery of credit losses on loans of $389 for the nine months ended September 30, 2023 and a provision of $21 for unfunded commitments. Upon acquisition of FCB in June 2024, the Company recorded a provision for credit losses of $1,290 to establish an allowance on non-PCD loans.
Loan Modifications
In the ordinary course of business the Company modifies loan terms on a case-by-case basis for a variety of reasons. Modifications may include rate reductions, payment extensions of varying lengths of time, a change in amortization term or method or other arrangements. Modifications to consumer loans generally involve short-term payment extensions to accommodate specific, temporary circumstances. Modifications to commercial loans may include, but are not limited to, changes in interest rate, maturity, amortization and financial covenants.
The Company reviews modifications to determine whether the borrower is experiencing financial difficulty, including indicators of default, bankruptcy, going concern, insufficient projected cash flows and inability to obtain financing from other sources. If a modification is made to a borrower experiencing financial difficulty, the loan’s risk rating is downgraded to special mention or classified, resulting in individual evaluation for the ACLL. Please refer to Note 3: Loans and Allowance for Credit Losses in Part I, Item 1 of this report for more information on loans modified for borrowers experiencing financial difficulty.
Modifications for Borrowers Who Were Not Experiencing Financial Difficulty
During the three and nine months ended September 30, 2024 and 2023, the Company modified loans in the normal course of business for borrowers who were not experiencing financial difficulty. During the three months ended September 30, 2024, the Company modified 205 loans totaling $42,969. During the nine months ended September 30, 2024, the Company modified 637 loans totaling $86,905. During the three months ended September 30, 2023, the Company provided 186 modifications to loans totaling $23,054. For the nine months ended September 30, 2023, the Company provided 581 modifications to loans totaling $65,089.
Key Assets and Liabilities
NBI’s key assets and liabilities and their change from December 31, 2023 are shown in the following table.
42
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
|
Percent |
|
|||
Interest-bearing deposits |
|
$ |
33,707 |
|
|
$ |
73,636 |
|
|
|
(54.22 |
)% |
Securities available for sale, at fair value and restricted stock |
|
|
624,120 |
|
|
|
619,865 |
|
|
|
0.69 |
% |
Loans, net |
|
|
991,331 |
|
|
|
847,552 |
|
|
|
16.96 |
% |
Total assets |
|
|
1,785,033 |
|
|
|
1,655,370 |
|
|
|
7.83 |
% |
Deposits |
|
|
1,602,953 |
|
|
|
1,503,972 |
|
|
|
6.58 |
% |
Average Balances
Year-to-date daily averages for the major balance sheet categories are as follows:
Assets |
|
September 30, 2024 |
|
|
December 31, 2023 |
|
|
Percent |
|
|||
Interest-bearing deposits |
|
$ |
80,637 |
|
|
$ |
37,660 |
|
|
|
114.12 |
% |
Securities available for sale, at fair value and restricted stock |
|
|
611,037 |
|
|
|
620,535 |
|
|
|
(1.53 |
)% |
Loans, net |
|
|
909,345 |
|
|
|
840,590 |
|
|
|
8.18 |
% |
Total assets |
|
|
1,726,898 |
|
|
|
1,613,854 |
|
|
|
7.00 |
% |
Liabilities and stockholders’ equity |
|
|
|
|
|
|
|
|
|
|||
Noninterest-bearing demand deposits |
|
$ |
286,643 |
|
|
$ |
299,748 |
|
|
|
(4.37 |
)% |
Interest-bearing demand deposits |
|
|
839,211 |
|
|
|
826,112 |
|
|
|
1.59 |
% |
Savings deposits |
|
|
175,670 |
|
|
|
195,592 |
|
|
|
(10.19 |
)% |
Time deposits |
|
|
268,313 |
|
|
|
150,395 |
|
|
|
78.41 |
% |
Stockholders’ equity |
|
|
143,444 |
|
|
|
124,641 |
|
|
|
15.09 |
% |
Increased customer deposits resulted in increased investment in interest bearing deposit assets. Changes in securities, loans, deposits and stockholders’ equity are discussed below.
Securities
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
|
Percent |
|
|||
Amortized cost |
|
$ |
685,472 |
|
|
$ |
697,786 |
|
|
|
(1.76 |
)% |
Unrealized loss, net |
|
|
(63,201 |
) |
|
|
(79,185 |
) |
|
|
20.19 |
% |
Securities available for sale, at fair value |
|
$ |
622,271 |
|
|
$ |
618,601 |
|
|
|
0.59 |
% |
Securities available for sale are presented at fair value as of each reporting date. The fair value of bonds moves inversely to interest rate changes and expectations of interest rate changes. Most of the Company’s securities were purchased during periods prior to the Federal Reserve’s interest rate increases that began in March of 2022. The Federal Reserve's cut to its target rate in September 2024 improved the unrealized loss on securities when September 30, 2024 is compared with December 31, 2023. The Company’s analysis of the securities portfolio determined no identifiable credit risk as of September 30, 2024 and no ACL has been recorded. Please refer to Note 1: General and Summary of Significant Accounting Policies of the 2023 Form 10-K and Note 4: Securities in Part I, Item 1 of this report for additional information on the securities portfolio.
Loans
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
|
Percent |
|
|||
Real estate construction |
|
$ |
71,920 |
|
|
$ |
55,379 |
|
|
|
29.87 |
% |
Consumer real estate |
|
|
306,012 |
|
|
|
241,564 |
|
|
|
26.68 |
% |
Commercial real estate |
|
|
473,018 |
|
|
|
419,130 |
|
|
|
12.86 |
% |
Commercial non real estate |
|
|
52,699 |
|
|
|
41,555 |
|
|
|
26.82 |
% |
Public sector and IDA |
|
|
58,109 |
|
|
|
60,551 |
|
|
|
(4.03 |
)% |
Consumer non real estate |
|
|
40,483 |
|
|
|
38,996 |
|
|
|
3.81 |
% |
Less: unearned income and deferred fees and costs |
|
|
(582 |
) |
|
|
(529 |
) |
|
|
10.02 |
% |
Loans, net of unearned income and deferred fees and costs |
|
$ |
1,001,659 |
|
|
$ |
856,646 |
|
|
|
16.93 |
% |
The increase from December 31, 2023 reflects the acquisition of FCB. The higher interest rate environment continues to restrain loan demand. The Company is positioned to make every loan that meets its underwriting standards.
43
Deposits
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
|
Percent |
|
|||
Noninterest-bearing demand deposits |
|
$ |
296,469 |
|
|
$ |
281,215 |
|
|
|
5.42 |
% |
Interest-bearing demand deposits |
|
|
819,947 |
|
|
|
821,661 |
|
|
|
(0.21 |
)% |
Savings deposits |
|
|
176,460 |
|
|
|
177,856 |
|
|
|
(0.78 |
)% |
Time deposits |
|
|
310,077 |
|
|
|
223,240 |
|
|
|
38.90 |
% |
Total deposits |
|
$ |
1,602,953 |
|
|
$ |
1,503,972 |
|
|
|
6.58 |
% |
The Company’s depositors within its market area are diverse, including individuals, businesses and municipalities. The Company does not have any brokered deposits. Depositors are insured up to the FDIC maximum of $250 thousand. Municipal deposits, which account for approximately 22% of the Company’s deposits, have additional security from bonds pledged as collateral, in accordance with state regulation. Of the Company’s non-municipal deposits, approximately 22% are uninsured.
Borrowings
The Company acquired FHLB borrowings in the FCB merger, which were repaid upon completion of the merger.
Capital Resources
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
|
Percent |
|
|||
Common stock and additional paid in capital |
|
$ |
21,796 |
|
|
$ |
7,404 |
|
|
|
194.38 |
% |
Retained earnings |
|
|
198,225 |
|
|
|
197,984 |
|
|
|
0.12 |
% |
Accumulated other comprehensive loss |
|
|
(52,239 |
) |
|
|
(64,866 |
) |
|
|
(19.47 |
)% |
Total stockholders’ equity |
|
$ |
167,782 |
|
|
$ |
140,522 |
|
|
|
19.40 |
% |
The increase in stockholders’ equity reflects the stock consideration issued to acquire FCB. The Company paid dividends to shareholders in June 2024.
The Company qualifies as a small bank holding company under the Federal Reserve’s Small Bank Holding Company Policy Statement, which exempts bank holding companies with less than $3 billion in assets from reporting consolidated regulatory capital ratios and from minimum regulatory capital requirements. NBB is subject to various capital requirements administered by banking agencies, including an additional capital conservation buffer in order to make capital distributions or discretionary bonus payments. Risk-based capital ratios are calculated in compliance with OCC rules based on the Basel III Capital Rules. The Bank’s ratios are well above the required minimums as of September 30, 2024. Capital ratios for NBB are shown in the following tables.
|
|
NBB |
|
|
Regulatory |
|
|
Regulatory Capital |
|
|||
Common Equity Tier I Capital Ratio |
|
|
16.55 |
% |
|
|
4.50 |
% |
|
|
7.00 |
% |
Tier I Capital Ratio |
|
|
16.55 |
% |
|
|
6.00 |
% |
|
|
8.50 |
% |
Total Capital Ratio |
|
|
17.40 |
% |
|
|
8.00 |
% |
|
|
10.50 |
% |
Leverage Ratio |
|
|
11.08 |
% |
|
|
4.00 |
% |
|
|
4.00 |
% |
Liquidity
Liquidity measures the Company’s ability to meet its financial commitments at a reasonable cost. Demands on the Company’s liquidity include funding additional loan demand and accepting withdrawals of existing deposits. The Company has diverse liquidity sources, including customer and purchased deposits, customer repayments of loan principal and interest, sales, calls and maturities of securities, Federal Reserve discount window borrowing, short-term borrowing, and FHLB advances.
As of September 30, 2024, the Company had $293,379 of borrowing capacity from the FHLB and the Company had $178,582 of unused capacity at the Federal Reserve Bank discount window. Periodically during 2023, the Company accessed FHLB borrowings. The advances were fully repaid, due to the success of the Company’s deposit strategy. As of September 30, 2024, the Company did not have purchased deposits, discount window borrowings or short-term borrowings.
44
The Company considers its security portfolio for typical liquidity needs, within accounting, legal and strategic parameters. Portions of the securities portfolio are pledged to meet state requirements for public funds deposits. Discount window borrowings also require pledged securities. Increased/decreased liquidity from public funds deposits or discount window borrowings results in increased/decreased liquidity from pledging requirements. The Company monitors public funds pledging requirements and unpledged available for sale securities accessible for liquidity needs.
Regulatory capital levels determine the Company’s ability to use purchased deposits and the Federal Reserve Bank discount window. As of September 30, 2024, the Company is considered well capitalized and does not have any restrictions on purchased deposits or borrowing ability at the Federal Reserve Bank discount window.
The Company monitors factors that may increase its liquidity needs. Some of these factors include deposit trends, large depositor activity, maturing deposit promotions, interest rate sensitivity, maturity and repricing timing gaps between assets and liabilities, the level of unfunded loan commitments and loan growth. As of September 30, 2024, the Company’s liquidity is sufficient to meet projected trends.
To monitor and estimate liquidity levels, the Company performs stress testing under varying assumptions on credit sensitive liabilities and the sources and amounts of balance sheet and external liquidity available to replace outflows. The Company’s Contingency Funding Plan sets forth avenues for rectifying liquidity shortfalls. As of September 30, 2024, the analysis indicated adequate liquidity under the tested scenarios.
The Company utilizes several other strategies to maintain sufficient liquidity. Loan and deposit growth are managed to keep the loan to deposit ratio within the Company’s internally-set target range. As of September 30, 2024, the loan to deposit ratio was 62.49%. The investment strategy takes into consideration the term of the investment, and securities in the available for sale portfolio are laddered based upon projected funding needs.
Off-Balance Sheet Arrangements
In the normal course of business, NBB extends lines of credit and letters of credit to its customers. Depending on their needs, customers may draw upon lines of credit at any time in any amount up to a pre-approved limit. Financial letters of credit guarantee payments to facilitate customer purchases. Performance letters of credit guarantee payment if the customer fails to complete a specific obligation.
While it would be possible for customers to fully draw on approved lines of credit and for beneficiaries to call all letters of credit, historically this has not occurred. In the event of a sudden and substantial draw on these lines, the Company would be able to access multiple options, including its lines of credit with correspondents, raising additional deposits, or selling securities available for sale or loans. The Company estimates an ACL on unfunded loan commitments under the current expected credit losses model.
The Company sells mortgages on the secondary market. Our agreement with the purchaser provides for strict underwriting and documentation requirements. Violation of the representations and warranties of the agreement would entitle the purchaser to recourse provisions. The Company has determined that its risk in this area is not significant because of the low volume of secondary market mortgage loans and high underwriting standards. The Company estimates a potential loss reserve for recourse provisions that is not material as of September 30, 2024. To date, no recourse provisions have been invoked. If funds were needed, the Company would access the same sources as noted above for funding lines and letters of credit. There were no material changes in off-balance sheet arrangements during the three and nine months ended September 30, 2024.
Contractual Obligations
The Company had no finance lease or purchase obligations and no long-term debt at September 30, 2024.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
The Company’s management evaluated, with the participation of the Company’s principal executive officer and principal financial officer, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e)) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report. In conducting the evaluation of the effectiveness of its disclosure controls and procedures as of September 30, 2024, the Company has excluded the operations of FCB as permitted by the guidance issued by the Office of the Chief Accountant of the Securities and Exchange Commission (not to extend more than one year beyond the date of the acquisition or for more than one annual reporting period). The merger was completed on June 1, 2024. See "Note 2. Business Combinations" for further discussion of the merger and its impact on the Company’s consolidated financial statements.
Based on that evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective as of September 30, 2024 to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time
45
periods specified by the Company's management, including the Company's principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the three months ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Because of the inherent limitations in all control systems, the Company believes that no system of controls, no matter how well designed and operated, can provide absolute assurance that all control issues have been detected.
Part II
Other Information
Item 1. Legal Proceedings
There are no pending or threatened legal proceedings to which the Company or any of its subsidiaries is a party or to which the property of the Company or any of its subsidiaries is subject that, in the opinion of management, may materially impact the financial condition of the Company.
Item 1A. Risk Factors
Please refer to the “Risk Factors” previously disclosed in Item 1A of the 2023 Form 10-K and the factors discussed under “Cautionary Statement Regarding Forward-Looking Statements” in Part I. Item 2 of this Form 10-Q.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
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Item 6. Exhibits
Index of Exhibits
Exhibit No. |
Description |
|
|
2(i) |
|
(incorporated herein by reference to Exhibit 2.1 of the Form 8-K filed on January 24, 2024) |
|
3(i) |
Amended and Restated Articles of Incorporation of National Bankshares, Inc. |
|
(incorporated herein by reference to Exhibit 3.1 of the Form 8-K filed on March 16, 2006) |
3(ii) |
|
(incorporated herein by reference to Exhibit 3.2 of the Form 8-K filed on July 10, 2024) |
|
4 |
Specimen copy of certificate for National Bankshares, Inc. common stock |
|
(incorporated herein by reference to Exhibit 4(a) of the Annual Report on Form 10-K for fiscal year ended December 31, 1993) |
10(i) |
|
Filed herewith |
|
+31(i) |
|
Filed herewith |
|
+31(ii) |
|
Filed herewith |
|
+32(i) |
18 U.S.C. Section 1350 Certification of Chief Executive Officer |
|
Filed herewith |
+32(ii) |
18 U.S.C. Section 1350 Certification of Chief Financial Officer |
|
Filed herewith |
+101 |
The following materials from National Bankshares, Inc.’s Quarterly Report on Form 10-Q for the period ended September 30, 2024 are formatted in iXBRL (Inline Extensible Business Reporting Language), furnished herewith: (i) Consolidated Balance Sheets at September 30, 2024 and December 31, 2023; (ii) Consolidated Statements of Income for the three and nine months ended September 30, 2024 and 2023; (iii) Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2024 and 2023; (iv) Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2024 and 2023; (v) Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023; and (vi) Notes to Consolidated Financial Statements. |
|
Filed herewith |
104 |
Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) |
|
Filed herewith |
47
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
NATIONAL BANKSHARES, INC. |
|
|
|
|
|
|
|
Date: November 13, 2024 |
|
/s/ F. Brad Denardo |
|
|
By: F. Brad Denardo |
|
|
Chairman, President and |
|
|
Chief Executive Officer |
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
Date: November 13, 2024 |
|
/s/ Lora M. Jones |
|
|
By: Lora M. Jones |
|
|
Treasurer and |
|
|
Chief Financial Officer |
|
|
(Principal Financial Officer) |
|
|
(Principal Accounting Officer) |
48