Item 1 – Financial Statements
MVB Financial Corp. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
|
(Unaudited)
|
|
(Audited)
|
ASSETS
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
Cash and due from banks
|
|
$
|
25,410
|
|
|
$
|
19,110
|
|
Interest-bearing balances with banks
|
|
307,361
|
|
|
244,783
|
|
Total cash and cash equivalents
|
|
332,771
|
|
|
263,893
|
|
Certificates of deposit with banks
|
|
11,803
|
|
|
11,803
|
|
Investment securities available-for-sale
|
|
450,772
|
|
|
410,624
|
|
Equity securities
|
|
32,215
|
|
|
27,585
|
|
Loans held-for-sale
|
|
—
|
|
|
1,062
|
|
Loans receivable
|
|
1,697,326
|
|
|
1,453,744
|
|
Allowance for loan losses
|
|
(24,882)
|
|
|
(25,844)
|
|
Loans receivable, net
|
|
1,672,444
|
|
|
1,427,900
|
|
Premises and equipment, net
|
|
21,033
|
|
|
24,936
|
|
Bank-owned life insurance
|
|
41,762
|
|
|
41,262
|
|
Equity method investment
|
|
34,771
|
|
|
46,494
|
|
Accrued interest receivable and other assets
|
|
73,362
|
|
|
73,567
|
|
Assets of branches held-for-sale
|
|
59,488
|
|
|
—
|
|
Goodwill
|
|
4,119
|
|
|
2,350
|
|
TOTAL ASSETS
|
|
$
|
2,734,540
|
|
|
$
|
2,331,476
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
Deposits:
|
|
|
|
|
Noninterest-bearing
|
|
$
|
932,660
|
|
|
$
|
715,791
|
|
Interest-bearing
|
|
1,296,515
|
|
|
1,266,598
|
|
Total deposits
|
|
2,229,175
|
|
|
1,982,389
|
|
Liabilities of branches held-for-sale
|
|
165,750
|
|
|
—
|
|
Accrued interest payable and other liabilities
|
|
35,274
|
|
|
55,931
|
|
Repurchase agreements
|
|
11,361
|
|
|
10,266
|
|
FHLB and other borrowings
|
|
100
|
|
|
—
|
|
Subordinated debt
|
|
43,480
|
|
|
43,407
|
|
Total liabilities
|
|
2,485,140
|
|
|
2,091,993
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY
|
|
|
|
|
Preferred stock - par value $1,000; 20,000 shares authorized; no shares issued and outstanding as of June 30, 2021 and 733 shares issued and outstanding as December 31, 2020
|
|
—
|
|
|
7,334
|
|
Common stock - par value $1; 20,000,000 shares authorized; 12,622,075 and 11,774,059 shares issued and outstanding, respectively, as of June 30, 2021 and 12,374,322 and 11,526,306 shares issued and outstanding, respectively, as of December 31, 2020
|
|
12,622
|
|
|
12,374
|
|
Additional paid-in capital
|
|
132,821
|
|
|
129,119
|
|
Retained earnings
|
|
119,910
|
|
|
105,171
|
|
Accumulated other comprehensive income (loss)
|
|
(1)
|
|
|
2,226
|
|
Treasury stock - 848,016 shares as of June 30, 2021 and December 31, 2020, at cost
|
|
(16,741)
|
|
|
(16,741)
|
|
Total equity attributable to parent
|
|
248,611
|
|
|
239,483
|
|
Noncontrolling interest
|
|
789
|
|
|
—
|
|
Total stockholders' equity
|
|
249,400
|
|
|
239,483
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
2,734,540
|
|
|
$
|
2,331,476
|
|
See accompanying notes to unaudited consolidated financial statements.
MVB Financial Corp. and Subsidiaries
Consolidated Statements of Income
(Unaudited) (Dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
INTEREST INCOME
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$
|
18,753
|
|
|
$
|
20,149
|
|
|
$
|
35,645
|
|
|
$
|
39,088
|
|
Interest on deposits with banks
|
|
98
|
|
|
80
|
|
|
220
|
|
|
191
|
|
Interest on investment securities
|
|
625
|
|
|
477
|
|
|
1,256
|
|
|
1,143
|
|
Interest on tax-exempt loans and securities
|
|
1,357
|
|
|
1,068
|
|
|
2,775
|
|
|
2,051
|
|
Total interest income
|
|
20,833
|
|
|
21,774
|
|
|
39,896
|
|
|
42,473
|
|
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE
|
|
|
|
|
|
|
|
|
Interest on deposits
|
|
1,236
|
|
|
3,036
|
|
|
2,284
|
|
|
6,946
|
|
Interest on short-term borrowings
|
|
52
|
|
|
257
|
|
|
96
|
|
|
840
|
|
Interest on subordinated debt
|
|
490
|
|
|
23
|
|
|
956
|
|
|
58
|
|
Total interest expense
|
|
1,778
|
|
|
3,316
|
|
|
3,336
|
|
|
7,844
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME
|
|
19,055
|
|
|
18,458
|
|
|
36,560
|
|
|
34,629
|
|
Provision (release of allowance) for loan losses
|
|
(1,540)
|
|
|
6,596
|
|
|
(922)
|
|
|
7,734
|
|
Net interest income after provision (release of allowance) for loan losses
|
|
20,595
|
|
|
11,862
|
|
|
37,482
|
|
|
26,895
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST INCOME
|
|
|
|
|
|
|
|
|
Payment card and service charge income
|
|
1,926
|
|
|
528
|
|
|
3,419
|
|
|
1,078
|
|
Mortgage fee income
|
|
—
|
|
|
14,944
|
|
|
—
|
|
|
26,163
|
|
Insurance and investment services income
|
|
247
|
|
|
189
|
|
|
471
|
|
|
396
|
|
Gain on sale of available-for-sale securities, net
|
|
1,708
|
|
|
554
|
|
|
2,851
|
|
|
830
|
|
Gain on sale of equity securities, net
|
|
5
|
|
|
30
|
|
|
5
|
|
|
30
|
|
Gain on sale of loans, net
|
|
1,447
|
|
|
—
|
|
|
2,217
|
|
|
130
|
|
Gain on derivatives, net
|
|
—
|
|
|
13,435
|
|
|
—
|
|
|
9,873
|
|
Holding gain on equity securities, net
|
|
699
|
|
|
3
|
|
|
1,214
|
|
|
17
|
|
Compliance consulting income
|
|
1,868
|
|
|
941
|
|
|
3,149
|
|
|
1,950
|
|
Equity method investment income
|
|
4,528
|
|
|
—
|
|
|
10,997
|
|
|
—
|
|
Gains on acquisition and divestiture activity
|
|
—
|
|
|
14,302
|
|
|
—
|
|
|
14,302
|
|
Other operating income
|
|
1,216
|
|
|
587
|
|
|
1,779
|
|
|
1,594
|
|
Total noninterest income
|
|
13,644
|
|
|
45,513
|
|
|
26,102
|
|
|
56,363
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST EXPENSES
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
13,661
|
|
|
22,659
|
|
|
25,572
|
|
|
38,841
|
|
Occupancy expense
|
|
1,115
|
|
|
1,187
|
|
|
2,273
|
|
|
2,407
|
|
Equipment depreciation and maintenance
|
|
1,206
|
|
|
914
|
|
|
2,247
|
|
|
1,791
|
|
Data processing and communications
|
|
1,420
|
|
|
1,733
|
|
|
2,329
|
|
|
2,896
|
|
Mortgage processing
|
|
—
|
|
|
890
|
|
|
—
|
|
|
1,741
|
|
Marketing, contributions and sponsorships
|
|
146
|
|
|
328
|
|
|
211
|
|
|
664
|
|
Professional fees
|
|
2,450
|
|
|
2,994
|
|
|
4,192
|
|
|
4,325
|
|
Insurance, tax and assessment expense
|
|
500
|
|
|
566
|
|
|
1,038
|
|
|
1,030
|
|
Travel, entertainment, dues and subscriptions
|
|
1,204
|
|
|
841
|
|
|
2,088
|
|
|
2,059
|
|
Other operating expenses
|
|
1,701
|
|
|
1,221
|
|
|
2,571
|
|
|
2,235
|
|
Total noninterest expense
|
|
23,403
|
|
|
33,333
|
|
|
42,521
|
|
|
57,989
|
|
Income before income taxes
|
|
10,836
|
|
|
24,042
|
|
|
21,063
|
|
|
25,269
|
|
Income tax expense
|
|
1,673
|
|
|
6,008
|
|
|
3,842
|
|
|
6,187
|
|
Net income before noncontrolling interest
|
|
9,163
|
|
|
18,034
|
|
|
17,221
|
|
|
19,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to noncontrolling interest
|
|
84
|
|
|
—
|
|
|
111
|
|
|
—
|
|
Net income attributable to parent
|
|
9,247
|
|
|
18,034
|
|
|
17,332
|
|
|
19,082
|
|
Preferred dividends
|
|
—
|
|
|
115
|
|
|
35
|
|
|
229
|
|
Net income available to common shareholders
|
|
$
|
9,247
|
|
|
$
|
17,919
|
|
|
$
|
17,297
|
|
|
$
|
18,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common shareholder - basic
|
|
$
|
0.79
|
|
|
$
|
1.50
|
|
|
$
|
1.49
|
|
|
$
|
1.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common shareholder - diluted
|
|
$
|
0.73
|
|
|
$
|
1.49
|
|
|
$
|
1.39
|
|
|
$
|
1.55
|
|
Weighted-average shares outstanding - basic
|
|
11,639,237
|
|
|
11,954,813
|
|
|
11,585,059
|
|
|
11,948,790
|
|
Weighted-average shares outstanding - diluted
|
|
12,612,030
|
|
|
12,011,845
|
|
|
12,449,973
|
|
|
12,156,214
|
|
See accompanying notes to unaudited consolidated financial statements.
MVB Financial Corp. and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited) (Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Net income before noncontrolling interest
|
|
$
|
9,163
|
|
|
$
|
18,034
|
|
|
$
|
17,221
|
|
|
$
|
19,082
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gain (loss) on securities available-for-sale
|
|
3,371
|
|
|
551
|
|
|
(2,960)
|
|
|
1,965
|
|
Income tax effect
|
|
(790)
|
|
|
(149)
|
|
|
693
|
|
|
(531)
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for gain recognized in income
|
|
(1,708)
|
|
|
(554)
|
|
|
(2,851)
|
|
|
(830)
|
|
Income tax effect
|
|
400
|
|
|
150
|
|
|
668
|
|
|
225
|
|
|
|
|
|
|
|
|
|
|
Change in defined benefit pension plan
|
|
321
|
|
|
(1,001)
|
|
|
2,026
|
|
|
(1,707)
|
|
Income tax effect
|
|
(75)
|
|
|
270
|
|
|
(474)
|
|
|
461
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for amortization of net actuarial loss recognized in income
|
|
127
|
|
|
105
|
|
|
254
|
|
|
210
|
|
Income tax effect
|
|
(30)
|
|
|
(28)
|
|
|
(60)
|
|
|
(57)
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for carrying value adjustment - investment hedge recognized in income
|
|
359
|
|
|
960
|
|
|
623
|
|
|
(833)
|
|
Income tax effect
|
|
(84)
|
|
|
(259)
|
|
|
(146)
|
|
|
225
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss)
|
|
1,891
|
|
|
45
|
|
|
(2,227)
|
|
|
(872)
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss attributable to noncontrolling interest
|
|
84
|
|
|
—
|
|
|
111
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
11,138
|
|
|
$
|
18,079
|
|
|
$
|
15,105
|
|
|
$
|
18,210
|
|
See accompanying notes to unaudited consolidated financial statements.
MVB Financial Corp. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited) (Dollars in thousands except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
Common stock
|
|
Additional paid-in capital
|
|
Retained earnings
|
|
Accumulated other comprehensive income (loss)
|
|
Treasury stock
|
|
Total stockholders' equity attributable to parent
|
|
Noncontrolling interest
|
|
Total stockholders' equity
|
Shares
|
|
Amount
|
Shares
|
|
Amount
|
Shares
|
|
Amount
|
Balance at December 31, 2020
|
|
733
|
|
|
$
|
7,334
|
|
|
12,374,322
|
|
|
$
|
12,374
|
|
|
$
|
129,119
|
|
|
$
|
105,171
|
|
|
$
|
2,226
|
|
|
848,016
|
|
|
$
|
(16,741)
|
|
|
$
|
239,483
|
|
|
$
|
—
|
|
|
$
|
239,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,085
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,085
|
|
|
(27)
|
|
|
8,058
|
|
Other comprehensive loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,118)
|
|
|
—
|
|
|
—
|
|
|
(4,118)
|
|
|
—
|
|
|
(4,118)
|
|
Dividends on common stock ($0.10 per share)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,153)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,153)
|
|
|
—
|
|
|
(1,153)
|
|
Dividends on preferred stock
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(35)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(35)
|
|
|
—
|
|
|
(35)
|
|
Stock-based compensation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
592
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
592
|
|
|
—
|
|
|
592
|
|
Redemption of preferred stock
|
|
(733)
|
|
|
(7,334)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,334)
|
|
|
—
|
|
|
(7,334)
|
|
Common stock options exercised
|
|
—
|
|
|
—
|
|
|
52,584
|
|
|
53
|
|
|
637
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
690
|
|
|
—
|
|
|
690
|
|
Restricted stock units issued
|
|
—
|
|
|
—
|
|
|
11,155
|
|
|
11
|
|
|
(11)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Noncontrolling interests due to acquisition
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
500
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2021
|
|
—
|
|
|
$
|
—
|
|
|
12,438,061
|
|
|
$
|
12,438
|
|
|
$
|
130,337
|
|
|
$
|
112,068
|
|
|
$
|
(1,892)
|
|
|
848,016
|
|
|
$
|
(16,741)
|
|
|
$
|
236,210
|
|
|
$
|
473
|
|
|
$
|
236,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,247
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,247
|
|
|
(84)
|
|
|
9,163
|
|
Other comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,891
|
|
|
—
|
|
|
—
|
|
|
1,891
|
|
|
—
|
|
|
1,891
|
|
Dividends on common stock ($0.12 per share)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,405)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,405)
|
|
|
—
|
|
|
(1,405)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
692
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
692
|
|
|
—
|
|
|
692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock options exercised
|
|
—
|
|
|
—
|
|
|
108,511
|
|
|
108
|
|
|
1,499
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,607
|
|
|
—
|
|
|
1,607
|
|
Restricted stock units issued
|
|
—
|
|
|
—
|
|
|
57,906
|
|
|
58
|
|
|
(58)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Minimum tax withholdings on restricted stock units issued
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(231)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(231)
|
|
|
—
|
|
|
(231)
|
|
Noncontrolling interests due to acquisition
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
400
|
|
|
400
|
|
Common stock issued related to Trabian acquisition
|
|
—
|
|
|
—
|
|
|
17,597
|
|
|
18
|
|
|
582
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
600
|
|
|
—
|
|
|
600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2021
|
|
—
|
|
|
$
|
—
|
|
|
12,622,075
|
|
|
$
|
12,622
|
|
|
$
|
132,821
|
|
|
$
|
119,910
|
|
|
$
|
(1)
|
|
|
848,016
|
|
|
$
|
(16,741)
|
|
|
$
|
248,611
|
|
|
$
|
789
|
|
|
$
|
249,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
Common stock
|
|
Additional paid-in capital
|
|
Retained earnings
|
|
Accumulated other comprehensive income (loss)
|
|
Treasury stock
|
|
Total stockholders' equity attributable to parent
|
|
Noncontrolling interest
|
|
Total stockholders' equity
|
Shares
|
|
Amount
|
Shares
|
|
Amount
|
Shares
|
|
Amount
|
Balance at December 31, 2019
|
|
733
|
|
|
$
|
7,334
|
|
|
11,995,366
|
|
|
$
|
11,995
|
|
|
$
|
122,516
|
|
|
$
|
72,496
|
|
|
$
|
(1,321)
|
|
|
51,077
|
|
|
$
|
(1,084)
|
|
|
$
|
211,936
|
|
|
$
|
—
|
|
|
$
|
211,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,048
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,048
|
|
|
—
|
|
|
1,048
|
|
Other comprehensive loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(917)
|
|
|
—
|
|
|
—
|
|
|
(917)
|
|
|
—
|
|
|
(917)
|
|
Dividends on common stock ($0.09 per share)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,076)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,076)
|
|
|
—
|
|
|
(1,076)
|
|
Dividends on preferred stock
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(114)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(114)
|
|
|
—
|
|
|
(114)
|
|
Stock-based compensation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
498
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
498
|
|
|
—
|
|
|
498
|
|
Common stock options exercised
|
|
—
|
|
|
—
|
|
|
2,500
|
|
|
3
|
|
|
35
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
38
|
|
|
—
|
|
|
38
|
|
Common stock repurchased
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16,300
|
|
|
(260)
|
|
|
(260)
|
|
|
—
|
|
|
(260)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2020
|
|
733
|
|
|
$
|
7,334
|
|
$
|
—
|
|
11,997,866
|
|
|
$
|
11,998
|
|
$
|
—
|
|
$
|
123,049
|
|
$
|
—
|
|
$
|
72,354
|
|
$
|
—
|
|
$
|
(2,238)
|
|
$
|
—
|
|
67,377
|
|
|
$
|
(1,344)
|
|
|
$
|
211,153
|
|
|
$
|
—
|
|
$0
|
$
|
211,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18,034
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18,034
|
|
|
—
|
|
|
18,034
|
|
Other comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
45
|
|
|
—
|
|
|
—
|
|
|
45
|
|
|
—
|
|
|
45
|
|
Dividends on common stock (0.09 per share)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,076)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,076)
|
|
|
—
|
|
|
(1,076)
|
|
Dividends on preferred stock
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(115)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(115)
|
|
|
—
|
|
|
(115)
|
|
Stock-based compensation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
627
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
627
|
|
|
—
|
|
|
627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units issued
|
|
—
|
|
|
—
|
|
|
48,483
|
|
|
49
|
|
|
(49)
|
|
|
—
|
|
|
—
|
|
|
525
|
|
|
(7)
|
|
|
(7)
|
|
|
—
|
|
|
(7)
|
|
Common stock issued related to Paladin acquisition
|
|
—
|
|
|
—
|
|
|
19,278
|
|
|
19
|
|
|
221
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
240
|
|
|
—
|
|
|
240
|
|
Common stock repurchased
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
29,300
|
|
|
(401)
|
|
|
(401)
|
|
|
—
|
|
|
(401)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2020
|
|
733
|
|
|
$
|
7,334
|
|
|
12,065,627
|
|
|
$
|
12,066
|
|
|
$
|
123,848
|
|
|
$
|
89,197
|
|
|
$
|
(2,193)
|
|
|
97,202
|
|
|
$
|
(1,752)
|
|
|
$
|
228,500
|
|
|
$
|
—
|
|
|
$
|
228,500
|
|
See accompanying notes to unaudited consolidated financial statements.
MVB Financial Corp. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited) (Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
OPERATING ACTIVITIES
|
|
|
|
|
Net income before noncontrolling interest
|
|
$
|
17,221
|
|
|
$
|
19,082
|
|
Adjustments to reconcile net income to net cash from operating activities:
|
|
|
|
|
Net amortization and accretion of investments
|
|
1,909
|
|
|
638
|
|
Net amortization of deferred loan costs
|
|
1,322
|
|
|
381
|
|
Provision (release of allowance) for loan losses
|
|
(922)
|
|
|
7,734
|
|
Depreciation and amortization
|
|
2,018
|
|
|
1,708
|
|
Stock-based compensation
|
|
1,284
|
|
|
1,125
|
|
Loans originated for sale
|
|
(21,867)
|
|
|
(1,334,910)
|
|
Proceeds of loans sold
|
|
13,693
|
|
|
1,228,772
|
|
Holding gain on equity securities
|
|
(1,214)
|
|
|
(17)
|
|
Mortgage fee income
|
|
—
|
|
|
(26,163)
|
|
Gain on sale of available-for-sale securities
|
|
(2,864)
|
|
|
(830)
|
|
Loss on sale of available-for-sale securities
|
|
13
|
|
|
—
|
|
Gain on sale of equity securities
|
|
(5)
|
|
|
(30)
|
|
Loss on sale of equity securities
|
|
—
|
|
|
—
|
|
Gain on sale of loans
|
|
(2,217)
|
|
|
(130)
|
|
Gains on acquisition and divestiture activity
|
|
—
|
|
|
(14,302)
|
|
Income on bank-owned life insurance
|
|
(500)
|
|
|
(444)
|
|
Deferred income taxes
|
|
(1,718)
|
|
|
1,280
|
|
Equity method investment income
|
|
(10,997)
|
|
|
—
|
|
Return on equity method investment
|
|
22,720
|
|
|
—
|
|
Other assets
|
|
5,321
|
|
|
(32,452)
|
|
Other liabilities
|
|
(18,402)
|
|
|
27,841
|
|
Net cash from operating activities
|
|
4,795
|
|
|
(120,717)
|
|
INVESTING ACTIVITIES
|
|
|
|
|
Purchases of available-for-sale investment securities
|
|
(144,633)
|
|
|
(51,201)
|
|
Maturities/paydowns of available-for-sale investment securities
|
|
24,236
|
|
|
37,637
|
|
Sales of available-for-sale investment securities
|
|
75,316
|
|
|
41,160
|
|
Purchases of premises and equipment
|
|
(652)
|
|
|
(2,519)
|
|
|
|
|
|
|
External-use software
|
|
(1,805)
|
|
|
—
|
|
Loans, net
|
|
(288,169)
|
|
|
(55,365)
|
|
Purchases of restricted bank stock
|
|
(1,044)
|
|
|
(18,615)
|
|
Redemptions of restricted bank stock
|
|
—
|
|
|
27,982
|
|
|
|
|
|
|
Purchases of certificates of deposit with banks
|
|
—
|
|
|
(497)
|
|
Proceeds from sale of other real estate owned
|
|
267
|
|
|
4,440
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of equity securities
|
|
(3,222)
|
|
|
(1,260)
|
|
Sales of equity securities
|
|
61
|
|
|
357
|
|
Cash paid for acquisitions, net of cash acquired
|
|
(772)
|
|
|
(71,372)
|
|
Net cash from investing activities
|
|
(340,417)
|
|
|
(89,253)
|
|
FINANCING ACTIVITIES
|
|
|
|
|
Deposits, net
|
|
412,486
|
|
|
456,265
|
|
Repurchase agreements, net
|
|
1,095
|
|
|
(357)
|
|
FHLB and other borrowings, net
|
|
100
|
|
|
(192,075)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock redemption
|
|
(7,334)
|
|
|
—
|
|
Common stock repurchased
|
|
—
|
|
|
(668)
|
|
Common stock options exercised
|
|
2,297
|
|
|
38
|
|
Withholding cash issued in lieu of restricted stock
|
|
(231)
|
|
|
—
|
|
Cash dividends paid on common stock
|
|
(2,558)
|
|
|
(2,152)
|
|
Cash dividends paid on preferred stock
|
|
(35)
|
|
|
(229)
|
|
Net cash from financing activities
|
|
405,820
|
|
|
260,822
|
|
Increase in cash and cash equivalents
|
|
70,198
|
|
|
50,852
|
|
Cash and cash equivalents, beginning of period
|
|
263,893
|
|
|
28,002
|
|
Cash and cash equivalents, end of period (includes $1,320 of cash held-for-sale as of June 30, 2021)
|
|
$
|
334,091
|
|
|
$
|
78,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments for:
|
|
|
|
|
Interest on deposits, repurchase agreements and borrowings
|
|
$
|
3,389
|
|
|
$
|
10,264
|
|
Income taxes
|
|
7,942
|
|
|
1,455
|
|
|
|
|
|
|
Business combination non-cash disclosures:
|
|
|
|
|
Assets acquired in business combination (net of cash received)
|
|
$
|
739
|
|
|
$
|
87,722
|
|
Liabilities assumed in business combination
|
|
605
|
|
|
148,731
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
Fair value of noncontrolling interests at acquisition date
|
|
$
|
900
|
|
|
$
|
—
|
|
Loans transferred to other real estate owned
|
|
116
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued related to acquisitions
|
|
600
|
|
|
240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
Notes to the Consolidated Financial Statements
Note 1 – Nature of Operations and Basis of Presentation
Business and Organization
MVB Financial Corp. is a financial holding company organized as a West Virginia corporation that operates principally through its wholly-owned subsidiary, MVB Bank, Inc. (the “Bank”). The Bank’s subsidiaries include MVB Insurance, LLC, a title insurance company (“MVB Insurance”), MVB Community Development Corporation (“MVB CDC”), ProCo Global, Inc. (“Chartwell”, which began doing business under the registered trade name Chartwell Compliance), Paladin Fraud, LLC (“Paladin Fraud”) and MVB Edge Ventures, LLC (“Edge Ventures”). The Company also owns an equity method investment in Intercoastal Mortgage Company, LLC (“ICM”) and the Bank owns a controlling interest in Trabian Technology, Inc. (“Trabian”) and in Flexia Payments, LLC (“Flexia”).
In 2021, Edge Ventures was created as a management company providing oversight, alignment and structure for MVB’s Fintech companies and allocates resources to help incubate venture businesses and technologies acquired and developed by MVB. Subsidiaries of Edge Ventures include MVB Technology, LLC (“MVB Technology”) and Victor Technologies, Inc. (“Victor”).
The Company conducts a wide range of business activities, primarily commercial and retail (“CoRe”) banking. The Company also continues to be involved in new innovative strategies to provide independent banking to corporate clients throughout the United States by leveraging recent investments in Fintech-related companies. The Company considers Fintech companies as those entities that use technology to electronically move funds.
COVID-19 Pandemic
Throughout 2020 and into 2021, economies throughout the world have been severely disrupted as a result of the outbreak of COVID-19. The outbreak and any preventative or protective actions that the Company or its clients may take in respect of this virus may result in a period of disruption, including the Company’s financial reporting capabilities, its operations generally and could potentially impact the Company’s clients, providers and third parties. The extent to which the COVID-19 pandemic impacts the Company’s future operating results will depend on future developments, which are highly uncertain and cannot be predicted.
Principles of Consolidation and Basis of Presentation
The financial statements are consolidated to include the accounts of the Company, its subsidiaries, including the Bank and the Bank’s subsidiaries. These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, practices in the banking industry and with instructions to Form 10-Q. All significant inter-company accounts and transactions have been eliminated in the consolidated financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal, recurring nature. The consolidated balance sheet as of December 31, 2020 has been derived from audited financial statements included in the 2020 Form 10-K. Operating results for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.
In 2021, the Bank entered into agreements to acquire majority interests in both Flexia and in Trabian. Although the Company owns, through its subsidiaries, an 80% interest in each of Flexia and Trabian, the Company is required to consolidate 100% of Flexia and Trabian within the consolidated financial statements. The remaining 20% of each is accounted for separately as noncontrolling interests within the consolidated financial statements. Noncontrolling interest represents the portion of ownership and profit or loss that is attributable to the minority owners of these entities.
Unconsolidated investments where the Company has the ability to exercise significant influence over the operating and financial policies of the respective investee are accounted for using the equity method of accounting; those that are not consolidated or accounted for using the equity method of accounting are accounted for under cost or fair value accounting. For these investments accounted for under the equity method, the Company records its investment in non-consolidated affiliates and the portion of income or loss in equity in earnings of non-consolidated affiliates. The Company periodically evaluates these investments for impairment. As of June 30, 2021, the Company holds one equity method investment.
Preparation of the Company’s consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates are based upon the best available information and actual results could differ from those estimates. Estimates that
are particularly significant to the consolidated financial statements relate to the determination of the allowance for loan losses (“ALL”), purchased credit impaired (“PCI”) loans, derivative instruments, goodwill and deferred tax assets and liabilities.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the 2020 Form 10-K.
In certain instances, amounts reported in prior periods’ consolidated financial statements have been reclassified to conform to the current presentation.
The Company has evaluated subsequent events for potential recognition and/or disclosure through the date these consolidated financial statements were issued.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and subsequent amendments to the initial guidance in November 2018, ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, in April 2019, ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, in May 2019, ASU 2019-05, Financial Instruments – Credit Losses, Topic 326 and in November 2019, ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates and ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, all of which clarifies codification and corrects unintended application of the guidance. The new guidance replaces the incurred loss impairment methodology in current U.S. GAAP with an expected credit loss methodology and requires consideration of a broader range of information to determine credit loss estimates. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. PCI loans will receive an allowance account at the acquisition date that represents a component of the purchase price allocation. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses, with such allowance limited to the amount by which fair value is below amortized cost. The guidance was initially effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. On November 15, 2019, the FASB issued ASU 2019-10, Financial Investments – Credit Issues (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, which finalizes a delay in the effective date of the standard for smaller reporting companies (“SRCs”). The Company expects to lose its SRC designation beginning in 2022. However, because the Company met the criteria to be an SRC as of the issuance date of this guidance, it is eligible for the delay in effective date and plans to adopt this standard for fiscal years ending after December 15, 2022. The Company expects to recognize a one-time cumulative effect adjustment to the ALL as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements. In that regard, the Company has formed a cross-functional implementation team. The team is working to develop an implementation plan which will include assessment and documentation of processes, internal controls and data sources; model development and documentation; and system configuration, among other things. The Company is also in the process of implementing a third-party vendor solution to assist it in the application of this standard. The adoption of this standard could result in an increase in the ALL as a result of changing from an “incurred loss” model, which encompasses allowances for current known and inherent losses within the portfolio, to an “expected loss” model, which encompasses allowances for losses expected to be incurred over the life of the portfolio. While the Company is currently unable to reasonably estimate the impact of adopting ASU 2016-13, it expects that the impact of adoption will be significantly influenced by the composition, characteristics and quality of its loan portfolio, as well as the prevailing economic conditions and forecasts as of the adoption date.
In August 2018, the FASB issued ASU 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirement for Defined Benefit Plans, which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The updates in this ASU are part of the disclosure framework project ASU 2018-14 and modify the disclosure requirements under Accounting Standards Codification (“ASC”) 715-20 for employers that sponsor defined benefit pension or other postretirement plans. Those modifications include the removal and addition of disclosure requirements as well as clarifying specific disclosure requirements. The ASU removed the following disclosures: 1) the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year; 2) the amount and timing of plan assets expected to be returned to the employer; 3) the disclosures related to the June 2001 amendments to the Japanese Welfare Pension Insurance Law; 4) related party disclosures about the amount of future annual benefits covered by insurance and annuity contracts and significant transactions between the employer or related parties and the plan; 5) for nonpublic entities, the reconciliation of the opening balances to the closing balances of plan assets measured on a recurring basis in Level 3 of the fair value hierarchy; however, nonpublic entities will be required to disclose separately the amounts of transfers into and out of Level 3 of the fair value hierarchy and purchases of Level 3 plan assets and 6) for public entities, the effects of a one-percentage-point change in
assumed health care cost trend rates on the (i) aggregate of the service and interest cost components of net periodic benefit costs and (ii) benefit obligation for postretirement health care benefits. The ASU added the following disclosures: 1) the weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates and 2) an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. The ASU then clarified the following disclosures: 1) the projected benefit obligation (“PBO”) and fair value of plan assets for plans with PBOs more than plan assets; and 2) the accumulated benefit obligation (“ABO”) and fair value of plan assets for plans with ABOs more than plan assets. ASU 2018-14 is effective for public business entities for fiscal years ending after December 15, 2020. As ASU 2018-04 only revises disclosure requirements, the adoption did not have a material impact on the Company's interim consolidated financial statements. The Company's year-end disclosures will be revised to comply with the new requirements.
In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)-Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. ASU 2020-01 clarifies the interaction between accounting standards related to equity securities, equity method investments and certain derivatives, including accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments. The amendments were effective for the Company beginning January 1, 2021 and did not have a material effect on its consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments provide optional expedients and exceptions for certain contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of rate reform. The guidance is effective from the date of issuance until December 31, 2022. The guidance permits entities to not apply modification accounting or remeasure lease payments in lease contracts if the changes to the contract are related to the discontinuation of the reference rate. If certain criteria are met, the amendments also allow exceptions to the de-designation criteria of the hedging relationship and the assessment of hedge effectiveness during the transition period. In January 2021, ASU 2021-01 was issued by the FASB and clarified that certain exceptions in reference rate reform apply to derivatives that are affected by the discounting transition. The Company will continue to assess the impact as the reference rate transition occurs.
Note 2 – Investment Securities
The following tables present amortized cost and fair values of investment securities available-for-sale as of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
(Dollars in thousands)
|
|
Amortized Cost
|
|
Unrealized Gain
|
|
Unrealized Loss
|
|
Fair Value
|
United States government agency securities
|
|
$
|
43,428
|
|
|
$
|
341
|
|
|
$
|
(567)
|
|
|
$
|
43,202
|
|
United States sponsored mortgage-backed securities
|
|
87,082
|
|
|
340
|
|
|
(1,186)
|
|
|
86,236
|
|
United States treasury securities
|
|
106,869
|
|
|
78
|
|
|
(291)
|
|
|
106,656
|
|
Municipal securities
|
|
191,010
|
|
|
5,517
|
|
|
(278)
|
|
|
196,249
|
|
Other debt securities
|
|
7,500
|
|
|
—
|
|
|
—
|
|
|
7,500
|
|
Total debt securities
|
|
435,889
|
|
|
6,276
|
|
|
(2,322)
|
|
|
439,843
|
|
Other securities
|
|
10,787
|
|
|
178
|
|
|
(36)
|
|
|
10,929
|
|
Total investment securities available-for-sale
|
|
$
|
446,676
|
|
|
$
|
6,454
|
|
|
$
|
(2,358)
|
|
|
$
|
450,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
(Dollars in thousands)
|
|
Amortized Cost
|
|
Unrealized Gain
|
|
Unrealized Loss
|
|
Fair Value
|
United States government agency securities
|
|
$
|
56,207
|
|
|
$
|
995
|
|
|
$
|
(210)
|
|
|
$
|
56,992
|
|
United States sponsored mortgage-backed securities
|
|
94,968
|
|
|
972
|
|
|
(171)
|
|
|
95,769
|
|
Municipal securities
|
|
223,642
|
|
|
8,327
|
|
|
(82)
|
|
|
231,887
|
|
Other debt securities
|
|
7,500
|
|
|
—
|
|
|
—
|
|
|
7,500
|
|
Total debt securities
|
|
382,317
|
|
|
10,294
|
|
|
(463)
|
|
|
392,148
|
|
Other securities
|
|
18,401
|
|
|
146
|
|
|
(71)
|
|
|
18,476
|
|
Total investment securities available-for-sale
|
|
$
|
400,718
|
|
|
$
|
10,440
|
|
|
$
|
(534)
|
|
|
$
|
410,624
|
|
The following table presents amortized cost and fair values of available-for-sale debt securities by contractual maturity as of the period indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
(Dollars in thousands)
|
|
Amortized Cost
|
|
Fair Value
|
Within one year
|
|
$
|
—
|
|
|
$
|
—
|
|
After one year, but within five years
|
|
87,689
|
|
|
87,564
|
|
After five years, but within ten years
|
|
59,339
|
|
|
59,499
|
|
After ten years
|
|
288,861
|
|
|
292,780
|
|
Total
|
|
$
|
435,889
|
|
|
$
|
439,843
|
|
The table above reflects contractual maturities. Actual results will differ as the loans underlying the mortgage-backed securities may repay sooner than scheduled.
Investment securities with a carrying value of $232.4 million and $229.4 million at June 30, 2021 and December 31, 2020, respectively, were pledged to secure public funds, repurchase agreements and potential borrowings at the Federal Reserve Discount Window.
The Company’s investment portfolio includes securities that are in an unrealized loss position as of June 30, 2021, the details of which are included in the following table. Although these securities, if sold at June 30, 2021, would result in a pretax loss of $2.4 million, the Company has no intention of selling the applicable securities at such fair values and maintains the Company has the ability to hold these securities until all principal has been recovered. It is more likely than not that the Company will not, for liquidity purposes, sell any securities at a loss. Declines in the fair values of these securities can be traced to general market conditions, which reflect the prospect for the economy as a whole. When determining other-than-temporary impairment on securities, the Company considers such factors as adverse conditions specifically related to a certain security or to specific conditions in an industry or geographic area, the time frame securities have been in an unrealized loss position, the Company’s ability to hold the security for a period of time sufficient to allow for anticipated recovery in value, whether or not the security has been downgraded by a rating agency and whether or not the financial condition of the security issuer has severely deteriorated. As of June 30, 2021, the Company considers all securities with unrealized loss positions to be temporarily impaired, and consequently, does not believe the Company will sustain any material realized losses as a result of the current decline in fair value.
The following tables present investments in an unrealized loss position as of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
(Dollars in thousands)
|
|
Less than 12 months
|
|
12 months or more
|
Description and number of positions
|
|
Fair Value
|
|
Unrealized Loss
|
|
Fair Value
|
|
Unrealized Loss
|
United States government agency securities (22)
|
|
$
|
23,645
|
|
|
$
|
(498)
|
|
|
$
|
6,493
|
|
|
$
|
(69)
|
|
United States sponsored mortgage-backed securities (21)
|
|
65,666
|
|
|
(1,177)
|
|
|
1,946
|
|
|
(9)
|
|
United States treasury securities (18)
|
|
82,564
|
|
|
(291)
|
|
|
—
|
|
|
—
|
|
Municipal securities (39)
|
|
28,119
|
|
|
(271)
|
|
|
1,049
|
|
|
(7)
|
|
Other securities (1)
|
|
—
|
|
|
—
|
|
|
1,464
|
|
|
(36)
|
|
|
|
$
|
199,994
|
|
|
$
|
(2,237)
|
|
|
$
|
10,952
|
|
|
$
|
(121)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
(Dollars in thousands)
|
|
Less than 12 months
|
|
12 months or more
|
Description and number of positions
|
|
Fair Value
|
|
Unrealized Loss
|
|
Fair Value
|
|
Unrealized Loss
|
United States government agency securities (27)
|
|
$
|
19,021
|
|
|
$
|
(68)
|
|
|
$
|
12,574
|
|
|
$
|
(142)
|
|
United States sponsored mortgage-backed securities (9)
|
|
15,331
|
|
|
(155)
|
|
|
3,349
|
|
|
(16)
|
|
Municipal securities (14)
|
|
11,856
|
|
|
(82)
|
|
|
—
|
|
|
—
|
|
Other securities (5)
|
|
3,947
|
|
|
(71)
|
|
|
—
|
|
|
—
|
|
|
|
$
|
50,155
|
|
|
$
|
(376)
|
|
|
$
|
15,923
|
|
|
$
|
(158)
|
|
The following table summarizes investment sales, related gains and losses, and unrealized holding gains for the periods shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(Dollars in thousands)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Sales of available-for-sale securities
|
|
$
|
34,279
|
|
|
$
|
30,860
|
|
|
$
|
75,316
|
|
|
$
|
41,160
|
|
Gains, gross
|
|
1,708
|
|
|
554
|
|
|
2,864
|
|
|
830
|
|
|
|
|
|
|
|
|
|
|
Losses, gross
|
|
—
|
|
|
—
|
|
|
13
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Sales of equity securities
|
|
$
|
61
|
|
|
$
|
357
|
|
|
$
|
61
|
|
|
$
|
357
|
|
Gain, gross
|
|
5
|
|
|
30
|
|
|
5
|
|
|
30
|
|
Losses, gross
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains on equity securities
|
|
699
|
|
|
3
|
|
|
1,214
|
|
|
17
|
|
Qualified Affordable Housing Projects
The Company has invested, as a limited partner, in three Section 42 affordable housing investment funds. In exchange for these investments, the Company receives its pro-rata share of income, expense, gains and losses, including tax credits, that are received by the projects using the proportional amortization method. As of both June 30, 2021 and December 31, 2020, the Company has recognized, as an investment, $2.8 million in the aggregate between the three affordable housing investment funds and has recognized cumulative losses of $1.4 million and $1.2 million from these funds as of June 30, 2021 and December 31, 2020, respectively.
Note 3 – Loans and Allowance for Loan Losses
Prior to the ICM transaction, the Company routinely generated one-to-four family mortgages for sale into the secondary market. During the three and six months ended June 30, 2020, the Company received sales proceeds of $808.9 million and $1.23 billion, resulting in mortgage fee income of $14.9 million and $26.2 million, respectively. Subsequent to the ICM transaction and during the three and six months ended June 30, 2021, the Company did not receive any sales proceeds or recognize any mortgage fee income related to the sale of one-to-four family mortgages.
The following table presents the components of loans as of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
June 30, 2021
|
|
December 31, 2020
|
Commercial and non-residential real estate
|
|
$
|
1,385,849
|
|
|
$
|
1,141,114
|
|
Residential real estate
|
|
255,935
|
|
|
240,264
|
|
Home equity
|
|
24,833
|
|
|
30,828
|
|
Consumer
|
|
10,112
|
|
|
3,156
|
|
Total
|
|
1,676,729
|
|
|
1,415,362
|
|
Purchased credit impaired loans:
|
|
|
|
|
Commercial and non-residential real estate
|
|
13,860
|
|
|
21,008
|
|
Residential real estate
|
|
8,851
|
|
|
16,943
|
|
|
|
|
|
|
Consumer
|
|
431
|
|
|
1,488
|
|
Total purchased credit impaired loans
|
|
23,142
|
|
|
39,439
|
|
Total Loans
|
|
$
|
1,699,871
|
|
|
$
|
1,454,801
|
|
Deferred loan origination costs and (fees), net
|
|
(2,545)
|
|
|
(1,057)
|
|
Loans receivable
|
|
$
|
1,697,326
|
|
|
$
|
1,453,744
|
|
The Company currently manages its loan portfolios and the respective exposure to credit losses (credit risk) by the following specific portfolio segments, which are levels at which the Company develops and documents its systematic methodology to determine the allowance for credit losses attributable to each respective portfolio segment. These segments are as follows:
Commercial business loans – Commercial loans are made to provide funds for equipment and general corporate needs, as well as to finance owner-occupied real estate, and to finance future cash flows of Federal Government lease contracts. Repayment of these loans primarily uses the funds obtained from the operation of the borrower’s business. Commercial loans also include lines of credit that are utilized to finance a borrower’s short-term credit needs and/or to finance a percentage of eligible receivables and inventory. This segment includes both company originated and purchased participation loans. Credit risk arises from the successful operation of the business, which may be affected by competition, rising interest rates, regulatory changes and adverse conditions in the local and regional economy.
Commercial real estate loans – Commercial real estate loans consist of non-owner occupied properties, such as investment properties for retail, office and multifamily with a history of occupancy and cash flow. This segment includes both company originated and purchased participation loans. These loans carry the risk of adverse changes in the local economy and a tenant’s deteriorating credit strength, lease expirations in soft markets and sustained vacancies, which can adversely impact cash flow.
Commercial acquisition, development and construction loans – Commercial acquisition, development and construction loans are intended to finance the construction of commercial and residential properties, including the construction of single-family dwellings, and also includes loans for the acquisition and development of land. Construction loans represent a higher degree of risk than permanent real estate loans and may be affected by a variety of factors such as the borrower’s ability to control costs and adhere to time schedules and the risk that constructed units may not be absorbed by the market within the anticipated time frame or at the anticipated price. The loan commitment on these loans often includes an interest reserve that allows the lender to periodically advance loan funds to pay interest charges on the outstanding balance of the loan.
Commercial Small Business Administration (“SBA”) loans – Loans originated through the various SBA programs have become an area of lending focus for the Company. As of June 30, 2021, these loans have not yet been designated as a unique portfolio segment due to the relative insignificance from a loan volume perspective. These loans are currently included within the loan types noted above, based on the purpose of each loan originated. However, it is anticipated that this portfolio will continue to expand through a dedicated SBA lending focus, which the Company continues to monitor. When appropriate, the portfolio segments will be adjusted to segregate the SBA loan portfolio segment from the other commercial loan portfolio segments.
Commercial SBA Paycheck Protection Program (“PPP”) loans –This segment includes the loan originated through the recently created SBA PPP loans. Credit risk is heightened as this SBA program mandates that these loans require no collateral and no guarantors of the loans. However, the loans are backed by a full guaranty of the SBA, so long as the loans were originated in accordance with the program guidelines. Additionally, these loans are eligible for full forgiveness by the SBA so long as the borrowers comply with the program guidelines as it pertains to their eligibility to borrow these funds, as well as their use of the funds.
Residential mortgage loans – This residential real estate subsegment contains permanent and construction mortgage loans principally to consumers secured by residential real estate. Residential real estate loans are evaluated for the adequacy of repayment sources at the time of approval, based upon measures including credit scores, debt-to-income ratios and collateral values. Credit risk arises from the borrower’s, and where applicable, the builder's, continuing financial stability, which can be adversely impacted by job loss, divorce, illness or personal bankruptcy, among other factors. Also impacting credit risk would be a shortfall in the value of the residential real estate in relation to the outstanding loan balance in the event of a default or subsequent liquidation of the real estate collateral.
Home equity lines of credit – This segment includes subsegment for senior lien and subordinate lien lines of credit. Credit risk is similar to residential real estate loans described above as it is subject to the borrower’s continuing financial stability and the value of the collateral securing the loan.
Consumer loans – This segment of loans includes primarily installment loans and personal lines of credit. Consumer loans include installment loans used by clients to purchase automobiles, boats and recreational vehicles. Credit risk is similar to residential real estate loans described above as it is subject to the borrower’s continuing financial stability and the value of the collateral securing the loan. This segment also includes loans purchased from a third-party originator which it originates to finance the purchase of personal automotive vehicles. Credit risk is unique in comparison to the Consumer segment as this
segment includes only those loans provided to consumers that cannot typically obtain financing through traditional lenders. As such, these loans are subject to a higher risk of default than the typical consumer loan.
The following table presents impaired loans by class, excluding PCI loans, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary as of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans with Specific Allowance
|
|
Impaired Loans with No Specific Allowance
|
|
Total Impaired Loans
|
(Dollars in thousands)
|
|
Recorded Investment
|
|
Related Allowance
|
|
Recorded Investment
|
|
Recorded Investment
|
|
Unpaid Principal Balance
|
June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
Commercial business
|
|
$
|
4,938
|
|
|
$
|
841
|
|
|
$
|
2,226
|
|
|
$
|
7,164
|
|
|
$
|
8,711
|
|
Commercial real estate
|
|
683
|
|
|
243
|
|
|
581
|
|
|
1,264
|
|
|
1,418
|
|
Acquisition and development
|
|
—
|
|
|
—
|
|
|
1,526
|
|
|
1,526
|
|
|
2,937
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
5,621
|
|
|
1,084
|
|
|
4,333
|
|
|
9,954
|
|
|
13,066
|
|
Residential
|
|
—
|
|
|
—
|
|
|
6,966
|
|
|
6,966
|
|
|
7,210
|
|
Home equity
|
|
69
|
|
|
69
|
|
|
26
|
|
|
95
|
|
|
95
|
|
Consumer
|
|
—
|
|
|
—
|
|
|
3
|
|
|
3
|
|
|
3
|
|
Total impaired loans
|
|
$
|
5,690
|
|
|
$
|
1,153
|
|
|
$
|
11,328
|
|
|
$
|
17,018
|
|
|
$
|
20,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
Commercial business
|
|
$
|
3,431
|
|
|
$
|
1,032
|
|
|
$
|
5,653
|
|
|
$
|
9,084
|
|
|
$
|
10,440
|
|
Commercial real estate
|
|
772
|
|
|
264
|
|
|
944
|
|
|
1,716
|
|
|
1,864
|
|
Acquisition and development
|
|
—
|
|
|
—
|
|
|
2,534
|
|
|
2,534
|
|
|
3,939
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
4,203
|
|
|
1,296
|
|
|
9,131
|
|
|
13,334
|
|
|
16,243
|
|
Residential
|
|
—
|
|
|
—
|
|
|
1,960
|
|
|
1,960
|
|
|
2,232
|
|
Home equity
|
|
—
|
|
|
—
|
|
|
95
|
|
|
95
|
|
|
95
|
|
Consumer
|
|
—
|
|
|
—
|
|
|
5
|
|
|
5
|
|
|
5
|
|
Total impaired loans
|
|
$
|
4,203
|
|
|
$
|
1,296
|
|
|
$
|
11,191
|
|
|
$
|
15,394
|
|
|
$
|
18,575
|
|
The following table presents the average recorded investment in impaired loans, excluding PCI loans, and related interest income recognized for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
2021
|
|
2020
|
(Dollars in thousands)
|
|
Average Investment in Impaired Loans
|
|
Interest Income Recognized on Accrual Basis
|
|
Interest Income Recognized on Cash Basis
|
|
Average Investment in Impaired Loans
|
|
Interest Income Recognized on Accrual Basis
|
|
Interest Income Recognized on Cash Basis
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business
|
|
$
|
6,361
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,681
|
|
|
$
|
1
|
|
|
$
|
—
|
|
Commercial real estate
|
|
2,154
|
|
|
11
|
|
|
12
|
|
|
3,211
|
|
|
26
|
|
|
29
|
|
Acquisition and development
|
|
347
|
|
|
—
|
|
|
—
|
|
|
2,038
|
|
|
29
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
8,862
|
|
|
11
|
|
|
12
|
|
|
9,930
|
|
|
56
|
|
|
29
|
|
Residential
|
|
7,282
|
|
|
3
|
|
|
3
|
|
|
2,712
|
|
|
6
|
|
|
4
|
|
Home equity
|
|
69
|
|
|
—
|
|
|
—
|
|
|
120
|
|
|
—
|
|
|
—
|
|
Consumer
|
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
16,216
|
|
|
$
|
14
|
|
|
$
|
15
|
|
|
$
|
12,762
|
|
|
$
|
62
|
|
|
$
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
(Dollars in thousands)
|
|
Average Investment in Impaired Loans
|
|
Interest Income Recognized on Accrual Basis
|
|
Interest Income Recognized on Cash Basis
|
|
Average Investment in Impaired Loans
|
|
Interest Income Recognized on Accrual Basis
|
|
Interest Income Recognized on Cash Basis
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business
|
|
$
|
6,641
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,972
|
|
|
$
|
1
|
|
|
$
|
—
|
|
Commercial real estate
|
|
2,216
|
|
|
22
|
|
|
21
|
|
|
3,054
|
|
|
52
|
|
|
52
|
|
Acquisition and development
|
|
352
|
|
|
—
|
|
|
—
|
|
|
2,043
|
|
|
57
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
9,209
|
|
|
22
|
|
|
21
|
|
|
9,069
|
|
|
110
|
|
|
71
|
|
Residential
|
|
4,613
|
|
|
8
|
|
|
7
|
|
|
2,547
|
|
|
11
|
|
|
9
|
|
Home equity
|
|
69
|
|
|
—
|
|
|
—
|
|
|
110
|
|
|
—
|
|
|
—
|
|
Consumer
|
|
3
|
|
|
—
|
|
|
—
|
|
|
10
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
13,894
|
|
|
$
|
30
|
|
|
$
|
28
|
|
|
$
|
11,736
|
|
|
$
|
121
|
|
|
$
|
80
|
|
As of June 30, 2021, the Bank’s other real estate owned balance totaled $4.3 million, of which $3.2 million was related to the acquisition of The First State Bank (“First State”) in 2020. The Bank held $3.2 million, or 74.4%, of other real estate owned as a result of the foreclosure of 14 unrelated commercial loans. The remaining $1.1 million, or 25.6%, consists of 16 foreclosed residential real estate properties. There are six additional consumer mortgage loans collateralized by residential real estate properties in the process of foreclosure, with a total recorded investment of $0.5 million as of June 30, 2021. These include four legacy MVB loans totaling $0.2 million and two loans acquired from First State totaling $0.3 million. These loans are included in the table above and have no specific allowance allocated to them.
Bank management uses a nine-point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first six categories are considered not criticized and are aggregated as “Pass” rated. The criticized rating categories utilized by management generally follow bank regulatory definitions.
Loans categorized as “Pass” rated have adequate sources of repayment, with little identifiable risk of collection and general conformity to the Bank's policy requirements, product guidelines and underwriting standards. Any exceptions that are identified during the underwriting and approval process have been adequately mitigated by other factors.
Loans categorized as “Special Mention” rated have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose the institution to sufficient risk to warrant adverse classification.
Loans categorized as “Substandard” rated are inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt and are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Loans categorized as “Doubtful” rated have all the weakness inherent in those classified substandard with the added characteristic that the weakness makes collections or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable. However, these loans are not yet rated as loss because certain events may occur which would salvage the debt.
The Special Mention category includes assets that are currently protected but are potentially weak, resulting in undue and unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. Any portion of a loan that has been or is expected to be charged off is placed in the Loss category.
To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Bank has a structured loan rating process with several layers of internal and external oversight. Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as past due status, bankruptcy, repossession or death, occurs to raise awareness of a possible credit event. The Bank’s Chief Credit Officer is responsible for the timely and accurate risk rating of the loans in the portfolio at origination and on an ongoing basis. The Credit Department ensures that a review of all commercial relationships of $1.0 million or greater is performed annually.
Review of the appropriate risk grade is included in both the internal and external loan review process and on an ongoing basis. The Bank has an experienced Credit Department that continually reviews and assesses loans within the portfolio. The Bank engages an external consultant to conduct independent loan reviews on at least an annual basis. Generally, the external consultant reviews larger commercial relationships or criticized relationships. The Credit Department compiles detailed reviews, including plans for resolution, on loans classified as Substandard on a quarterly basis. Loans in the Special Mention and Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance.
The following table represents the classes of the loan portfolio, excluding PCI loans, summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk rating system as of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Pass
|
|
Special Mention
|
|
Substandard
|
|
Doubtful
|
|
Total
|
June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
Commercial business
|
|
$
|
558,052
|
|
|
$
|
18,893
|
|
|
$
|
13,679
|
|
|
$
|
937
|
|
|
$
|
591,561
|
|
Commercial real estate
|
|
428,548
|
|
|
24,495
|
|
|
33,781
|
|
|
156
|
|
|
486,980
|
|
Acquisition and development
|
|
86,891
|
|
|
7,615
|
|
|
4,315
|
|
|
1,184
|
|
|
100,005
|
|
SBA PPP
|
|
207,303
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
207,303
|
|
Total commercial
|
|
1,280,794
|
|
|
51,003
|
|
|
51,775
|
|
|
2,277
|
|
|
1,385,849
|
|
Residential
|
|
245,794
|
|
|
920
|
|
|
8,666
|
|
|
555
|
|
|
255,935
|
|
Home equity
|
|
24,289
|
|
|
379
|
|
|
70
|
|
|
95
|
|
|
24,833
|
|
Consumer
|
|
10,088
|
|
|
21
|
|
|
3
|
|
|
—
|
|
|
10,112
|
|
Total Loans
|
|
$
|
1,560,965
|
|
|
$
|
52,323
|
|
|
$
|
60,514
|
|
|
$
|
2,927
|
|
|
$
|
1,676,729
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
Commercial business
|
|
$
|
496,222
|
|
|
$
|
9,529
|
|
|
$
|
17,045
|
|
|
$
|
1,095
|
|
|
$
|
523,891
|
|
Commercial real estate
|
|
356,544
|
|
|
32,044
|
|
|
34,001
|
|
|
533
|
|
|
423,122
|
|
Acquisition and development
|
|
80,771
|
|
|
25,001
|
|
|
4,184
|
|
|
2,170
|
|
|
112,126
|
|
SBA PPP
|
|
81,975
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
81,975
|
|
Total commercial
|
|
1,015,512
|
|
|
66,574
|
|
|
55,230
|
|
|
3,798
|
|
|
1,141,114
|
|
Residential
|
|
236,250
|
|
|
948
|
|
|
2,896
|
|
|
170
|
|
|
240,264
|
|
Home equity
|
|
30,277
|
|
|
381
|
|
|
144
|
|
|
26
|
|
|
30,828
|
|
Consumer
|
|
3,124
|
|
|
32
|
|
|
—
|
|
|
—
|
|
|
3,156
|
|
Total Loans
|
|
$
|
1,285,163
|
|
|
$
|
67,935
|
|
|
$
|
58,270
|
|
|
$
|
3,994
|
|
|
$
|
1,415,362
|
|
Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due.
A loan that has deteriorated and requires additional collection efforts by the Bank could warrant non-accrual status. A thorough review is presented to the Chief Credit Officer and/or the Special Asset Review Committee (“SARC”), as required with respect to any loan which is in a collection process and to make a determination as to whether the loan should be placed on non-accrual status. The placement of loans on non-accrual status is subject to applicable regulatory restrictions and guidelines. Generally, loans should be placed in non-accrual status when the loan reaches 90 days past due, when it becomes likely the borrower cannot or will not make scheduled principal or interest payments, when full repayment of principal and interest is not expected or when the loan displays potential loss characteristics. Normally, all accrued interest is charged off when a loan is placed in non-accrual status unless the Company believes it is likely the accrued interest will be collected. Any payments subsequently received are applied to the principal. All principal and interest due must be paid up-to-date and the Bank is reasonably sure of future satisfactory payment performance to remove a loan from non-accrual status. Usually, this requires the receipt of six consecutive months of regular, on-time payments. Removal of a loan from non-accrual status will require the approval of the Chief Credit Officer and/or SARC.
The following table presents the classes of the loan portfolio, excluding PCI loans, summarized by aging categories of performing loans and non-accrual loans as of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Current
|
|
30-59 Days Past Due
|
|
60-89 Days Past Due
|
|
90+ Days Past Due
|
|
Total Past Due
|
|
Total Loans
|
|
Non-Accrual
|
|
90+ Days Still Accruing
|
June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business
|
|
$
|
590,008
|
|
|
$
|
626
|
|
|
$
|
—
|
|
|
$
|
927
|
|
|
$
|
1,553
|
|
|
$
|
591,561
|
|
|
$
|
6,778
|
|
|
$
|
—
|
|
Commercial real estate
|
|
486,692
|
|
|
132
|
|
|
—
|
|
|
156
|
|
|
288
|
|
|
486,980
|
|
|
506
|
|
|
—
|
|
Acquisition and development
|
|
98,562
|
|
|
—
|
|
|
—
|
|
|
1,443
|
|
|
1,443
|
|
|
100,005
|
|
|
1,527
|
|
|
—
|
|
SBA PPP
|
|
207,303
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
207,303
|
|
|
—
|
|
|
—
|
|
Total commercial
|
|
1,382,565
|
|
|
758
|
|
|
—
|
|
|
2,526
|
|
|
3,284
|
|
|
1,385,849
|
|
|
8,811
|
|
|
—
|
|
Residential
|
|
248,736
|
|
|
829
|
|
|
236
|
|
|
6,134
|
|
|
7,199
|
|
|
255,935
|
|
|
6,592
|
|
|
—
|
|
Home equity
|
|
24,660
|
|
|
48
|
|
|
30
|
|
|
95
|
|
|
173
|
|
|
24,833
|
|
|
95
|
|
|
—
|
|
Consumer
|
|
10,109
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
10,112
|
|
|
3
|
|
|
—
|
|
Total Loans
|
|
$
|
1,666,070
|
|
|
$
|
1,638
|
|
|
$
|
266
|
|
|
$
|
8,755
|
|
|
$
|
10,659
|
|
|
$
|
1,676,729
|
|
|
$
|
15,501
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business
|
|
$
|
521,799
|
|
|
$
|
1,040
|
|
|
$
|
33
|
|
|
$
|
1,019
|
|
|
$
|
2,092
|
|
|
$
|
523,891
|
|
|
$
|
8,601
|
|
|
$
|
—
|
|
Commercial real estate
|
|
422,343
|
|
|
34
|
|
|
212
|
|
|
533
|
|
|
779
|
|
|
423,122
|
|
|
944
|
|
|
—
|
|
Acquisition and development
|
|
109,686
|
|
|
—
|
|
|
—
|
|
|
2,440
|
|
|
2,440
|
|
|
112,126
|
|
|
2,534
|
|
|
—
|
|
SBA PPP
|
|
81,975
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
81,975
|
|
|
—
|
|
|
—
|
|
Total commercial
|
|
1,135,803
|
|
|
1,074
|
|
|
245
|
|
|
3,992
|
|
|
5,311
|
|
|
1,141,114
|
|
|
12,079
|
|
|
—
|
|
Residential
|
|
235,420
|
|
|
2,058
|
|
|
1,969
|
|
|
817
|
|
|
4,844
|
|
|
240,264
|
|
|
1,534
|
|
|
—
|
|
Home equity
|
|
30,369
|
|
|
289
|
|
|
75
|
|
|
95
|
|
|
459
|
|
|
30,828
|
|
|
95
|
|
|
—
|
|
Consumer
|
|
3,156
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,156
|
|
|
5
|
|
|
—
|
|
Total Loans
|
|
$
|
1,404,748
|
|
|
$
|
3,421
|
|
|
$
|
2,289
|
|
|
$
|
4,904
|
|
|
$
|
10,614
|
|
|
$
|
1,415,362
|
|
|
$
|
13,713
|
|
|
$
|
—
|
|
An ALL is maintained to absorb losses from the loan portfolio. The ALL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience and the amount of non-performing loans.
The Bank’s methodology for determining the ALL is based on the requirements of ASC Section 310-10-35 for loans individually evaluated for impairment and ASC Subtopic 450-20 for loans collectively evaluated for impairment, as well as the Interagency Policy Statements on the Allowance for Loan and Lease Losses and other bank regulatory guidance. The total of the two components represents the Bank’s ALL. The Bank’s methodology allows for the analysis of certain impaired loans in homogeneous pools, rather than on an individual basis, when those loans are below specific thresholds based on the outstanding
principal balance. More specifically, residential mortgage loans, home equity lines of credit and consumer loans, when considered impaired, are evaluated collectively for impairment by applying allocation rates derived from the Bank’s historical losses specific to impaired loans. Total collectively evaluated impaired loans, excluding the PCI loans acquired from First State, were $1.3 million and $2.0 million, while the related reserves were $0.1 million and $0.1 million as of June 30, 2021 and December 31, 2020. Such collectively evaluated impaired loans are included in total loans individually evaluated for impairment and in total impaired loans.
Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate. For general allowances, historical loss trends are used in the estimation of losses in the current portfolio. These historical loss amounts are modified by qualified factors.
The segments described above, which are based on the federal call code assigned to each loan, provide the starting point for the ALL analysis. Company and Bank management track the historical net charge-off activity at the call code level. A historical charge-off factor is calculated utilizing a defined number of consecutive historical quarters. All pools currently utilize a rolling 12 quarters.
“Pass” rated credits are segregated from “Criticized” credits for the application of qualitative factors. Loans in the criticized pools, which possess certain qualities or characteristics that may lead to collection and loss issues, are closely monitored by management and subject to additional qualitative factors.
Company and Bank management have identified a number of additional qualitative factors which it uses to supplement the historical charge-off factor because these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience. The additional factors that are evaluated quarterly and updated using information obtained from internal, regulatory and governmental sources are: lending policies and procedures, nature and volume of the portfolio, experience and ability of lending management and staff, volume and severity of problem credits, quality of the loan review system, changes in the value of underlying collateral, effect of concentrations of credit from a loan type, industry and/or geographic standpoint, changes in economic and business conditions, consumer sentiment and other external factors. The combination of historical charge-off and qualitative factors are then weighted for each risk grade. These weightings are determined internally based upon the likelihood of loss as a loan risk grading deteriorates.
Bank management analyzed the portfolios of letters of credit, non-revolving lines of credit and revolving lines of credit and based its calculation to estimate the liability for off-balance sheet credit exposures on the expectation of future advances of each loan category. Letters of credit were determined to be highly unlikely to advance since they are generally in place only to ensure various forms of performance of the borrowers. In the Bank’s history, there have been no letters of credit drawn upon. In addition, many of the letters of credit are cash secured and do not warrant an allocation. Non-revolving lines of credit were determined to be highly likely to advance as these are typically construction lines. Meanwhile, the likelihood of revolving lines of credit advancing varies with each individual borrower. Therefore, the future usage of each line was estimated based on the average line utilization of the revolving line of credit portfolio as a whole.
Once the estimated future advances were calculated, an allocation rate, which was derived from the Bank’s historical losses and qualitative environmental factors, was applied in a similar manner as those used for the allowance for loan loss calculation. The resulting estimated loss allocations were totaled to determine the liability for unfunded commitments related to these loans, which management considers necessary to anticipate potential losses on those commitments that have a reasonable probability of funding. As of June 30, 2021 and December 31, 2020, the liability for unfunded commitments related to loans held for investment, excluding loans acquired from First State, was $0.6 million.
Bank management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ALL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL.
The following table presents the primary segments of the ALL, excluding PCI loans, segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Commercial
|
|
Residential
|
|
Home Equity
|
|
Consumer
|
|
Total
|
ALL balance at March 31, 2021
|
|
$
|
24,279
|
|
|
$
|
1,513
|
|
|
$
|
283
|
|
|
$
|
49
|
|
|
$
|
26,124
|
|
Charge-offs
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Recoveries
|
|
204
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
208
|
|
Provision (release)
|
|
(1,824)
|
|
|
(150)
|
|
|
(3)
|
|
|
527
|
|
|
(1,450)
|
|
|
|
|
|
|
|
|
|
|
|
|
ALL balance at June 30, 2021
|
|
$
|
22,659
|
|
|
$
|
1,363
|
|
|
$
|
284
|
|
|
$
|
576
|
|
|
$
|
24,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Commercial
|
|
Residential
|
|
Home Equity
|
|
Consumer
|
|
Total
|
ALL balance at December 31, 2020
|
|
$
|
24,033
|
|
|
$
|
1,378
|
|
|
$
|
298
|
|
|
$
|
51
|
|
|
$
|
25,760
|
|
Charge-offs
|
|
(265)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(265)
|
|
Recoveries
|
|
214
|
|
|
—
|
|
|
8
|
|
|
3
|
|
|
225
|
|
Provision (release)
|
|
(1,323)
|
|
|
(15)
|
|
|
(22)
|
|
|
522
|
|
|
(838)
|
|
|
|
|
|
|
|
|
|
|
|
|
ALL balance at June 30, 2021
|
|
$
|
22,659
|
|
|
$
|
1,363
|
|
|
$
|
284
|
|
|
$
|
576
|
|
|
$
|
24,882
|
|
Individually evaluated for impairment
|
|
$
|
1,084
|
|
|
$
|
—
|
|
|
$
|
69
|
|
|
$
|
—
|
|
|
$
|
1,153
|
|
Collectively evaluated for impairment
|
|
$
|
21,575
|
|
|
$
|
1,363
|
|
|
$
|
215
|
|
|
$
|
576
|
|
|
$
|
23,729
|
|
The following table presents the primary segments of the Company's loan portfolio, excluding PCI loans, as of the period indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Commercial
|
|
Residential
|
|
Home Equity
|
|
Consumer
|
|
Total
|
June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
9,954
|
|
|
$
|
6,966
|
|
|
$
|
95
|
|
|
$
|
3
|
|
|
$
|
17,018
|
|
Collectively evaluated for impairment
|
|
1,375,895
|
|
|
248,969
|
|
|
24,738
|
|
|
10,109
|
|
|
1,659,711
|
|
Total Loans
|
|
$
|
1,385,849
|
|
|
$
|
255,935
|
|
|
$
|
24,833
|
|
|
$
|
10,112
|
|
|
$
|
1,676,729
|
|
The following table presents the primary segments of the ALL, excluding PCI loans, segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Commercial
|
|
Residential
|
|
Home Equity
|
|
Consumer
|
|
Total
|
ALL balance at March 31, 2020
|
|
$
|
9,597
|
|
|
$
|
1,272
|
|
|
$
|
236
|
|
|
$
|
56
|
|
|
$
|
11,161
|
|
Charge-offs
|
|
—
|
|
|
—
|
|
|
(23)
|
|
|
—
|
|
|
(23)
|
|
Recoveries
|
|
6
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
8
|
|
Provision
|
|
5,798
|
|
|
574
|
|
|
49
|
|
|
2
|
|
|
6,423
|
|
ALL balance at June 30, 2020
|
|
$
|
15,401
|
|
|
$
|
1,846
|
|
|
$
|
264
|
|
|
$
|
58
|
|
|
$
|
17,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Commercial
|
|
Residential
|
|
Home Equity
|
|
Consumer
|
|
Total
|
ALL balance at December 31, 2019
|
|
$
|
10,098
|
|
|
$
|
1,272
|
|
|
$
|
327
|
|
|
$
|
78
|
|
|
$
|
11,775
|
|
Charge-offs
|
|
(1,756)
|
|
|
—
|
|
|
(23)
|
|
|
—
|
|
|
(1,779)
|
|
Recoveries
|
|
6
|
|
|
—
|
|
|
4
|
|
|
2
|
|
|
12
|
|
Provision (release)
|
|
7,053
|
|
|
574
|
|
|
(44)
|
|
|
(22)
|
|
|
7,561
|
|
|
|
|
|
|
|
|
|
|
|
|
ALL balance at June 30, 2020
|
|
$
|
15,401
|
|
|
$
|
1,846
|
|
|
$
|
264
|
|
|
$
|
58
|
|
|
$
|
17,569
|
|
Individually evaluated for impairment
|
|
$
|
1,547
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,547
|
|
Collectively evaluated for impairment
|
|
$
|
13,854
|
|
|
$
|
1,846
|
|
|
$
|
264
|
|
|
$
|
58
|
|
|
$
|
16,022
|
|
The following table presents the primary segments of the Company's loan portfolio, excluding PCI loans, as of the period indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Commercial
|
|
Residential
|
|
Home Equity
|
|
Consumer
|
|
Total
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
14,372
|
|
|
$
|
3,082
|
|
|
$
|
102
|
|
|
$
|
—
|
|
|
$
|
17,556
|
|
Collectively evaluated for impairment
|
|
1,113,420
|
|
|
276,544
|
|
|
37,281
|
|
|
3,525
|
|
|
1,430,770
|
|
Total Loans
|
|
$
|
1,127,792
|
|
|
$
|
279,626
|
|
|
$
|
37,383
|
|
|
$
|
3,525
|
|
|
$
|
1,448,326
|
|
The ALL is based on estimates and actual losses will vary from current estimates. Management believes that the granularity of the homogeneous pools and the related historical loss ratios and other qualitative factors, as well as the consistency in the application of assumptions, result in an ALL that is representative of the risk found in the components of the portfolio at any given date.
Troubled Debt Restructurings
At June 30, 2021 and December 31, 2020, the Bank had specific reserve allocations for troubled debt restructurings (“TDRs”) of $0.7 million and $0.6 million, respectively. Loans considered to be troubled debt restructured loans totaled $8.1 million and $10.2 million as of June 30, 2021 and December 31, 2020, respectively. Of these totals, $1.5 million and $1.6 million, respectively, represent accruing troubled debt restructured loans and represent 9% and 10%, respectively, of total impaired loans. Meanwhile, as of June 30, 2021, $2.7 million represent four loans to two borrowers that have defaulted under the restructured terms. The largest of these loans, totaling $2.1 million, is a commercial loan, and the other three of these loans, totaling $0.6 million, are commercial acquisition and development loans that were considered TDRs due to extended interest-only periods and/or unsatisfactory repayment structures once transitioned to principal and interest payments. These borrowers have experienced continued financial difficulty and are considered non-performing loans as of June 30, 2021 and December 31, 2020.
During the six months ended June 30, 2021, no additional loans were classified as TDRs and no restructured loan defaulted under their modified terms that were not already classified as non-performing for having previously defaulted under their modified terms. For the three and six months ended June 30, 2020, the following tables present the new TDRs as of the period indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
2020
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
Number of Contracts
|
|
Pre-Modification Outstanding Recorded Investment
|
|
Post-Modification Outstanding Recorded Investment
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business
|
|
|
|
|
|
|
|
3
|
|
|
$
|
6,083
|
|
|
$
|
6,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
|
|
|
|
|
3
|
|
|
6,083
|
|
|
6,083
|
|
Residential
|
|
|
|
|
|
|
|
1
|
|
|
87
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
4
|
|
|
$
|
6,170
|
|
|
$
|
6,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
Number of Contracts
|
|
Pre-Modification Outstanding Recorded Investment
|
|
Post-Modification Outstanding Recorded Investment
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business
|
|
|
|
|
|
|
|
5
|
|
|
$
|
6,237
|
|
|
$
|
6,232
|
|
Commercial real estate
|
|
|
|
|
|
|
|
2
|
|
|
159
|
|
|
159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
|
|
|
|
|
7
|
|
|
6,396
|
|
|
6,391
|
|
Residential
|
|
|
|
|
|
|
|
1
|
|
|
87
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
8
|
|
|
$
|
6,483
|
|
|
$
|
6,478
|
|
The pre-modification and post-modification balances represent the balances outstanding immediately before and after modification of the loan.
Purchased Credit Impaired Loans
As a result of the acquisition of First State, the Company has PCI loans. The following table presents the carrying amount of the PCI loan portfolio as of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
June 30, 2021
|
|
December 31, 2020
|
Commercial
|
|
$
|
13,860
|
|
|
$
|
21,008
|
|
Residential
|
|
8,851
|
|
|
16,943
|
|
|
|
|
|
|
Consumer
|
|
431
|
|
|
1,488
|
|
Outstanding balance
|
|
$
|
23,142
|
|
|
$
|
39,439
|
|
Carrying amount, net of allowance
|
|
$
|
23,142
|
|
|
$
|
39,355
|
|
The following table presents the accretable yield, or income expected to be collected, as of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
June 30, 2021
|
|
December 31, 2020
|
Beginning balance
|
|
$
|
8,313
|
|
|
$
|
—
|
|
New loans purchased
|
|
—
|
|
|
11,746
|
|
Accretion of income
|
|
(1,960)
|
|
|
(2,945)
|
|
Other changes in expected cash flows
|
|
922
|
|
|
(488)
|
|
|
|
|
|
|
Ending balance
|
|
$
|
7,275
|
|
|
$
|
8,313
|
|
There were no PCI loans purchased during the three or six months ended June 30, 2021. Income is not recognized on PCI loans if the Company cannot reasonably estimate cash flows expected to be collected and, as of June 30, 2021, the Company held no such loans.
The following tables summarize the primary segments of the ALL, segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment for the PCI loan portfolio as of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Commercial
|
|
Residential
|
|
|
|
|
|
|
Total
|
ALL balance at March 31, 2021
|
|
$
|
90
|
|
|
$
|
—
|
|
|
|
|
|
|
|
$
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Release
|
|
(90)
|
|
|
—
|
|
|
|
|
|
|
|
(90)
|
|
ALL balance at June 30, 2021
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Commercial
|
|
Residential
|
|
|
|
|
|
|
Total
|
ALL balance at December 31, 2020
|
|
$
|
—
|
|
|
$
|
84
|
|
|
|
|
|
|
|
$
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Release
|
|
—
|
|
|
(84)
|
|
|
|
|
|
|
|
(84)
|
|
ALL balance at June 30, 2021
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively evaluated for impairment
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Commercial
|
|
Residential
|
|
|
|
|
|
|
Total
|
ALL balance at March 31, 2020
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
|
|
121
|
|
|
52
|
|
|
|
|
|
|
|
173
|
|
ALL balance at June 30, 2020
|
|
$
|
121
|
|
|
$
|
52
|
|
|
|
|
|
|
|
$
|
173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Commercial
|
|
Residential
|
|
|
|
|
|
|
Total
|
ALL balance at December 31, 2019
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
|
|
121
|
|
|
52
|
|
|
|
|
|
|
|
173
|
|
ALL balance at June 30, 2020
|
|
$
|
121
|
|
|
$
|
52
|
|
|
|
|
|
|
|
$
|
173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively evaluated for impairment
|
|
$
|
121
|
|
|
$
|
52
|
|
|
|
|
|
|
|
$
|
173
|
|
For the PCI loan portfolio disclosed above, the Company decreased the ALL by $0.1 million and $0.1 million during the three and six months ended June 30, 2021, respectively. During the same periods of 2020, the Company increased the ALL for the PCI loan portfolio by $0.2 million and $0.2 million, respectively.
As of June 30, 2021, the loans in the Company's PCI portfolio were all collectively evaluated for impairment and are segmented into three categories: commercial loans totaling $13.9 million, residential loans totaling $8.9 million, and consumer loans totaling $0.4 million, for a portfolio total of $23.1 million.
The following table presents the classes of the PCI loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk rating system as of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Pass
|
|
Special Mention
|
|
Substandard
|
|
Doubtful
|
|
Total
|
June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
Commercial business
|
|
$
|
6,828
|
|
|
$
|
614
|
|
|
$
|
426
|
|
|
$
|
3,358
|
|
|
$
|
11,226
|
|
Commercial real estate
|
|
594
|
|
|
2
|
|
|
—
|
|
|
1,663
|
|
|
2,259
|
|
Acquisition and development
|
|
140
|
|
|
—
|
|
|
—
|
|
|
235
|
|
|
375
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
7,562
|
|
|
616
|
|
|
426
|
|
|
5,256
|
|
|
13,860
|
|
Residential
|
|
6,659
|
|
|
87
|
|
|
1,130
|
|
|
975
|
|
|
8,851
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
429
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
431
|
|
Total Loans
|
|
$
|
14,650
|
|
|
$
|
703
|
|
|
$
|
1,556
|
|
|
$
|
6,233
|
|
|
$
|
23,142
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
Commercial business
|
|
$
|
12,263
|
|
|
$
|
136
|
|
|
$
|
345
|
|
|
$
|
4,860
|
|
|
$
|
17,604
|
|
Commercial real estate
|
|
982
|
|
|
3
|
|
|
263
|
|
|
21
|
|
|
1,269
|
|
Acquisition and development
|
|
1,900
|
|
|
—
|
|
|
—
|
|
|
235
|
|
|
2,135
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
15,145
|
|
|
139
|
|
|
608
|
|
|
5,116
|
|
|
21,008
|
|
Residential
|
|
15,157
|
|
|
—
|
|
|
1,665
|
|
|
121
|
|
|
16,943
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
1,256
|
|
|
—
|
|
|
—
|
|
|
232
|
|
|
1,488
|
|
Total Loans
|
|
$
|
31,558
|
|
|
$
|
139
|
|
|
$
|
2,273
|
|
|
$
|
5,469
|
|
|
$
|
39,439
|
|
The following table presents the classes of the PCI loan portfolio summarized by aging categories of performing loans and non-accrual loans as of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Current
|
|
30-59 Days Past Due
|
|
60-89 Days Past Due
|
|
90+ Days Past Due
|
|
Total Past Due
|
|
Total Loans
|
|
|
|
|
June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business
|
|
$
|
6,400
|
|
|
$
|
373
|
|
|
$
|
284
|
|
|
$
|
4,169
|
|
|
$
|
4,826
|
|
|
$
|
11,226
|
|
|
|
|
|
Commercial real estate
|
|
551
|
|
|
—
|
|
|
—
|
|
|
1,708
|
|
|
1,708
|
|
|
2,259
|
|
|
|
|
|
Acquisition and development
|
|
—
|
|
|
—
|
|
|
—
|
|
|
375
|
|
|
375
|
|
|
375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
6,951
|
|
|
373
|
|
|
284
|
|
|
6,252
|
|
|
6,909
|
|
|
13,860
|
|
|
|
|
|
Residential
|
|
6,272
|
|
|
212
|
|
|
71
|
|
|
2,296
|
|
|
2,579
|
|
|
8,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
429
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
2
|
|
|
431
|
|
|
|
|
|
Total Loans
|
|
$
|
13,652
|
|
|
$
|
585
|
|
|
$
|
355
|
|
|
$
|
8,550
|
|
|
$
|
9,490
|
|
|
$
|
23,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business
|
|
$
|
16,264
|
|
|
$
|
71
|
|
|
$
|
65
|
|
|
$
|
1,204
|
|
|
$
|
1,340
|
|
|
$
|
17,604
|
|
|
|
|
|
Commercial real estate
|
|
1,157
|
|
|
—
|
|
|
—
|
|
|
112
|
|
|
112
|
|
|
1,269
|
|
|
|
|
|
Acquisition and development
|
|
2,135
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
19,556
|
|
|
71
|
|
|
65
|
|
|
1,316
|
|
|
1,452
|
|
|
21,008
|
|
|
|
|
|
Residential
|
|
13,714
|
|
|
710
|
|
|
145
|
|
|
2,374
|
|
|
3,229
|
|
|
16,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
1,245
|
|
|
3
|
|
|
1
|
|
|
239
|
|
|
243
|
|
|
1,488
|
|
|
|
|
|
Total Loans
|
|
$
|
34,515
|
|
|
$
|
784
|
|
|
$
|
211
|
|
|
$
|
3,929
|
|
|
$
|
4,924
|
|
|
$
|
39,439
|
|
|
|
|
|
None of the PCI loans are considered non-accrual as they are all currently accreting interest income under PCI accounting.
As the Company's PCI loan portfolio is accounted for in pools with similar risk characteristics in accordance with ASC 310-30, this portfolio is not subject to the impaired loan and TDR guidance. Rather, the revised estimated future cash flows of the individually modified loans are included in the estimated future cash flows of the pool.
PPP Loans and CARES Act Deferrals
The Company actively participated in the PPP as a lender, evaluating other programs available to assist its clients and providing deferrals consistent with GSE guidelines. The Company originated 733 PPP loans with outstanding balances of $64.3 million through our internal commercial team and originated PPP loans totaling $143.0 million through our partnership with a Fintech company as of June 30, 2021.
As of June 30, 2021, commercial loans totaling $34.7 million and mortgage loans totaling $8.4 million were approved for COVID-19 related modifications, such as interest-only payments and payment deferrals. These modifications were not considered to be troubled debt restructurings in reliance on guidance issued by banking regulators titled the “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus.”
Note 4 – Premises and Equipment
The following table presents the components of premises and equipment as of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
June 30, 2021
|
|
December 31, 2020
|
Land
|
|
$
|
3,936
|
|
|
$
|
3,936
|
|
Buildings and improvements
|
|
11,629
|
|
|
14,350
|
|
Furniture, fixtures and equipment
|
|
16,612
|
|
|
17,669
|
|
Construction in progress
|
|
538
|
|
|
28
|
|
Leasehold improvements
|
|
3,079
|
|
|
3,079
|
|
|
|
35,794
|
|
|
39,062
|
|
Accumulated depreciation
|
|
(14,761)
|
|
|
(14,126)
|
|
Net premises and equipment
|
|
$
|
21,033
|
|
|
$
|
24,936
|
|
The Company leases certain premises and equipment under operating and finance leases.
At June 30, 2021, the Company had lease liabilities totaling $18.0 million, of which $17.9 million was related to operating leases and $0.1 million was related to finance leases, and right-of-use assets totaling $17.1 million, of which $16.8 million was related to operating leases and $0.3 million was related to finance leases, related to these leases. Lease liabilities and right-of-use assets are reflected in other liabilities and other assets, respectively. At June 30, 2021, the weighted-average remaining lease term for finance leases was 1.9 years and the weighted-average discount rate used in the measurement of finance lease liabilities was 2.3%. At June 30, 2021, the weighted-average remaining lease term for operating leases was 12.5 years and the weighted-average discount rate used in the measurement of operating lease liabilities was 2.9%.
At December 31, 2020, the Company had lease liabilities totaling $18.4 million, of which $18.3 million was related to operating leases and $0.2 million was related to finance leases, and right-of-use assets totaling $17.7 million, of which $17.5 million was related to operating leases and $0.2 million was related to finance leases, related to these leases. Lease liabilities and right-of-use assets are reflected in other liabilities and other assets, respectively. For the year ended December 31, 2020, the weighted-average remaining lease term for finance leases was 2.3 years and the weighted-average discount rate used in the measurement of finance lease liabilities was 2.4%. At December 31, 2020, the weighted-average remaining lease term for operating leases was 12.9 years and the weighted-average discount rate used in the measurement of operating lease liabilities was 2.9%.
The following table presents lease costs for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(Dollars in thousands)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Amortization of right-of-use assets, finance leases
|
|
$
|
14
|
|
|
$
|
18
|
|
|
$
|
28
|
|
|
$
|
36
|
|
Interest on lease liabilities, finance leases
|
|
—
|
|
|
1
|
|
1
|
|
2
|
Operating lease cost
|
|
477
|
|
577
|
|
954
|
|
|
1,121
|
|
Short-term lease cost
|
|
2
|
|
|
12
|
|
3
|
|
26
|
Variable lease cost
|
|
9
|
|
10
|
|
19
|
|
20
|
Total lease cost
|
|
$
|
502
|
|
|
$
|
618
|
|
|
$
|
1,005
|
|
|
$
|
1,205
|
|
The following table presents future minimum payments for finance leases and operating leases with initial or remaining terms of one year or more as of June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Finance Leases
|
|
Operating Leases
|
2021
|
|
$
|
59
|
|
|
$
|
1,820
|
|
2022
|
|
14
|
|
|
1,822
|
|
2023
|
|
5
|
|
|
1,724
|
|
2024
|
|
5
|
|
|
1,705
|
|
2025
|
|
1
|
|
|
1,722
|
|
2026 and thereafter
|
|
—
|
|
|
13,001
|
|
Total future minimum lease payments
|
|
$
|
84
|
|
|
$
|
21,794
|
|
Less: Amounts representing interest
|
|
(1)
|
|
|
(3,921)
|
|
Present value of net future minimum lease payments
|
|
$
|
83
|
|
|
$
|
17,873
|
|
Note 5 – Equity Method Investment
In the third quarter of 2020, the Company acquired a portion of ICM, a direct mortgage lender, and recognizes its ownership as an equity method investment initially recorded at fair value and subsequently adjusted for the Company's share of ICM's earnings. In accordance with Rule 8-03(b)(3) of Regulation S-X, the Company must assess whether its equity method investment is a significant equity method investment. In evaluating the significance of this investment, the Company performed the income, asset and investment tests described in S-X 3-05 and S-X 1-02(w). Rule 8-03(b)(3) of Regulation S-X requires summarized financial information in a quarterly report if any of the three tests exceeds 20%. Under the income test, the Company’s proportionate share of its equity method investee's aggregated net income exceeded the applicable threshold of 20%, and accordingly, it is required to provide summarized income statement information for this investee for all periods presented. The Company's share of net income from its equity method investment totaled $4.5 million and $11.0 million for the three and six months ended June 30, 2021.
The following table presents summarized income statement information for the Company's equity method investment for the period indicated. As ICM did not exist prior to July 1, 2020, no historical financial information is presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(Dollars in thousands)
|
|
2021
|
|
2021
|
Total revenues
|
|
$
|
40,080
|
|
|
$
|
90,877
|
|
Net income
|
|
10,921
|
|
|
$
|
26,785
|
|
|
|
|
|
|
Gain on sale of loans
|
|
$
|
44,308
|
|
|
$
|
91,902
|
|
Volume of loans sold
|
|
$
|
1,492,309
|
|
|
$
|
3,270,399
|
|
As of June 30, 2021 and December 31, 2020, the mortgage pipeline was $1.24 billion and $1.54 billion, respectively.
Note 6 – Deposits
The following table presents the components of deposits as of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
June 30, 2021
|
|
December 31, 2020
|
Noninterest-bearing demand
|
|
$
|
932,660
|
|
|
$
|
715,791
|
|
Interest-bearing demand
|
|
669,036
|
|
|
496,502
|
|
Savings and money markets
|
|
457,126
|
|
|
545,501
|
|
Time deposits, including CDs and IRAs
|
|
170,353
|
|
|
224,595
|
|
Total deposits
|
|
$
|
2,229,175
|
|
|
$
|
1,982,389
|
|
|
|
|
|
|
Time deposits that meet or exceed the FDIC insurance limit
|
|
$
|
14,601
|
|
|
$
|
16,955
|
|
The following table presents the maturities of time deposits for the twelve months ended June 30,:
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
2022
|
|
$
|
125,220
|
|
2023
|
|
27,888
|
|
2024
|
|
12,435
|
|
2025
|
|
3,917
|
|
2026
|
|
893
|
|
Total
|
|
$
|
170,353
|
|
As of June 30, 2021, overdrawn deposit accounts totaling $0.3 million were reclassified as loan balances.
Note 7 – Borrowed Funds
The Bank is a member of the FHLB of Pittsburgh, Pennsylvania. As of June 30, 2021, the Bank's maximum borrowing capacity with the FHLB was $480.1 million and the remaining borrowing capacity was $468.8 million, with the difference being deposit letters of credit.
The Bank also maintains borrowing capacity with the Federal Reserve Bank under the discount window program, with the Federal Reserve Board under the Federal Reserve's Paycheck Protection Program Liquidity Facility (“PPPLF”) program in the amount of the outstanding pledged PPP loans, and with commercial banks for their excess reserves borrowed on an overnight basis as Federal Funds (“Fed Funds”) purchased. All borrowings under the PPPLF program have been repaid in full as of June 30, 2021.
Short-term borrowings
As of June 30, 2021, the Bank had borrowed $0.1 million under Fed Funds purchased. As of December 31, 2020, no amounts were outstanding.
The following table presents information related to short-term borrowings as of and for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Six Months Ended June 30, 2021
|
|
Year Ended December 31, 2020
|
Balance at end of period
|
|
$
|
100
|
|
|
$
|
—
|
|
Average balance during the period
|
|
50,901
|
|
|
68,407
|
|
Maximum month-end balance
|
|
130,047
|
|
|
154,248
|
|
Weighted-average rate during the period
|
|
0.35
|
%
|
|
0.58
|
%
|
Weighted-average rate at end of period
|
|
0.33
|
%
|
|
—
|
%
|
Long-term borrowings
As of June 30, 2021 and December 31, 2020, the Bank had no long-term borrowings with the FHLB or the Federal Reserve.
Repurchase agreements
Along with traditional deposits, the Bank has access to securities sold under agreements to repurchase (“repurchase agreements”) with clients representing funds deposited by clients, on an overnight basis, that are collateralized by investment securities owned by the Company. Repurchase agreements with clients are included in the borrowings section on the consolidated balance sheets. All repurchase agreements are subject to terms and conditions of repurchase/security agreements between the Company and the client and are accounted for as secured borrowings. The Company’s repurchase agreements reflected in liabilities consist of client accounts and securities which are pledged on an individual security basis.
The Company monitors the fair value of the underlying securities on a monthly basis. Repurchase agreements are reflected in the amount of cash received in connection with the transaction. The primary risk with the Company’s repurchase agreements is the market risk associated with the investments securing the transactions, as we may be required to provide additional collateral based on fair value changes of the underlying investments. Securities pledged as collateral under repurchase agreements are maintained with our safekeeping agents.
All of the Company’s repurchase agreements were overnight agreements at June 30, 2021 and December 31, 2020. These borrowings were collateralized with investment securities with a carrying value of $11.8 million and $10.7 million at June 30, 2021 and December 31, 2020, respectively, and were comprised of United States government agency securities and United States sponsored mortgage-backed securities. Declines in the value of the collateral would require the Company to increase the amounts of securities pledged.
The following table presents information related to repurchase agreements as of and for the periods shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Six Months Ended June 30, 2021
|
|
Year Ended December 31, 2020
|
Balance at end of period
|
|
$
|
11,361
|
|
|
$
|
10,266
|
|
Average balance during the period
|
|
10,542
|
|
|
9,856
|
|
Maximum month-end balance
|
|
11,361
|
|
|
10,505
|
|
Weighted-average rate during the period
|
|
0.15
|
%
|
|
0.23
|
%
|
Weighted-average rate at end of period
|
|
0.12
|
%
|
|
0.14
|
%
|
Subordinated debt
The following table presents information related to subordinated debt as of and for the periods shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Six Months Ended June 30, 2021
|
|
Year Ended December 31, 2020
|
Balance at end of period
|
|
$
|
43,480
|
|
|
$
|
43,407
|
|
Average balance during the period
|
|
43,444
|
|
|
7,568
|
|
Maximum month-end balance
|
|
43,480
|
|
|
43,524
|
|
Weighted-average rate during the period
|
|
4.44
|
%
|
|
3.45
|
%
|
Weighted-average rate at end of period
|
|
4.01
|
%
|
|
4.02
|
%
|
In November 2020, the Company completed the private placement of $40 million fixed-to-floating rate subordinated notes to certain qualified institutional investors. These notes are unsecured and have a ten-year term, maturing December 1, 2030 and will bear interest at a fixed rate of 4.25%, payable semi-annually in arrears, for the first five years of the term. Thereafter, the interest rate will reset quarterly to an interest rate per annum equal to a benchmark rate, which is expected to be Three-Month Term SOFR, plus 401 basis points, payable quarterly in arrears. These notes have been structured to qualify as Tier 2 capital for regulatory capital purposes. The weighted-average rate during the period shown in the table above for the six months ended June 30, 2021 exceeds the coupon rate of the subordinated debt due to the impact of the amortization of the issuance costs to interest expense.
In March 2007, the Company completed the private placement of $4 million Floating Rate, Trust Preferred Securities through its MVB Financial Statutory Trust I subsidiary (the “Trust”). The Company established the Trust for the sole purpose of issuing the Trust Preferred Securities pursuant to an Amended and Restated Declaration of Trust. The proceeds from the sale of the Trust Preferred Securities will be loaned to the Company under subordinated Debentures (the “Debentures”) issued to the Trust pursuant to an Indenture. The Debentures are the only asset of the Trust. The Trust Preferred Securities have been issued to a pooling vehicle that will use the distributions on the Trust Preferred Securities to securitize note obligations. The securities issued by the Trust are includable for regulatory purposes as a component of the Company’s Tier 1 capital. The Trust Preferred
Securities and the Debentures mature in 2037 and have been redeemable by the Company since 2012. Interest payments are due in March, June, September and December and are adjusted at the interest due dates at a rate of 1.6% over the three-month LIBOR Rate. The obligations of the Company with respect to the issuance of the trust preferred securities constitute a full and unconditional guarantee by the Company of the Trust’s obligations with respect to the trust preferred securities to the extent set forth in the related guarantees.
All subordinated debt matures in 2030.
Note 8 – Pension and Supplemental Executive Retirement Plans
The Company participates in a trusteed pension plan known as the Allegheny Group Retirement Plan covering virtually all full-time employees. Benefits are based on years of service and the employee’s compensation. Accruals under the Plan were frozen as of May 31, 2014. Freezing the plan resulted in a remeasurement of the pension obligations and plan assets as of the freeze date. The pension obligation was remeasured using the discount rate based on the Citigroup Above Median Pension Discount Curve in effect on May 31, 2014 of 4.5%.
On June 19, 2017, the Company and MVB Mortgage approved a Supplemental Executive Retirement Plan (“SERP”), pursuant to which the Chief Executive Officer of MVB Mortgage is entitled to receive certain supplemental nonqualified retirement benefits. The SERP took effect on December 31, 2017. As the executive completed three years of continuous employment with MVB Mortgage prior to retirement date (which shall be no earlier than the date he attains age 55) he will, upon retirement, be entitled to receive $1.8 million payable in 180 equal consecutive monthly installments of $10 thousand. The liability is calculated by discounting the anticipated future cash flows at 4.0%. The liability accrued for this obligation was $1.2 million as of June 30, 2021 and $1.2 million as of December 31, 2020. Service cost was $0.01 million and $0.1 million for the three months ended June 30, 2021 and 2020, respectively, and $0.02 million and $0.2 million for the six months ended June 30, 2021 and 2020, respectively.
The following table presents information pertaining to the activity in the Company’s defined benefit plan, using the latest available actuarial valuations with a measurement date of June 30, 2021 and 2020 for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(Dollars in thousands)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Service cost
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest cost
|
|
78
|
|
|
91
|
|
|
156
|
|
|
182
|
|
Expected return on plan assets
|
|
(118)
|
|
|
(109)
|
|
|
(236)
|
|
|
(218)
|
|
Amortization of net actuarial loss
|
|
127
|
|
|
105
|
|
|
254
|
|
|
210
|
|
Amortization of prior service cost
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net periodic benefit cost
|
|
$
|
87
|
|
|
$
|
87
|
|
|
$
|
174
|
|
|
$
|
174
|
|
Contributions paid
|
|
$
|
—
|
|
|
$
|
119
|
|
|
$
|
3,835
|
|
|
$
|
468
|
|
Note 9 – Stock Offerings
In December 2020, the Company issued a notice of redemption to redeem all of the Company’s outstanding shares of Convertible Noncumulative Perpetual Preferred Stock, Series B, par value $1.00 per share, with a liquidation preference of $1,000 per share (the “Series B Preferred Stock”) and all of the Company’s outstanding shares of Convertible Noncumulative Perpetual Preferred Stock, Series C, par value $1.00 per share, with a liquidation preference of $1,000 per share (the “Series C Preferred Stock, together with the Series B Preferred Stock, referred to herein as the “Preferred Stock”), at a redemption price per share equal to $10,000, plus declared and unpaid dividends of $46.03 per share of Series B Preferred Stock, and $49.86 per share of Series C Preferred Stock, for the period from and including December 31, 2020, to but excluding January 28, 2021, the date of redemption (the “Preferred Stock Redemption”). The Preferred Stock Redemption is in accordance with the terms of the Company’s Articles of Incorporation, as amended. All outstanding shares of the Company's preferred stock were redeemed in January 2021.
In April 2021, the Bank entered into a Stock Purchase Agreement with Trabian, a leading software development firm servicing financial institutions. Pursuant to the agreement, a portion of the Bank's purchase consideration for Trabian included 17,597 unregistered shares of MVB common stock. For more information regarding the Trabian acquisition, see Note 15 – Acquisitions.
Note 10 – Fair Value of Financial Instruments
The following table presents the carrying values and estimated fair values of the Company’s financial instruments as of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Carrying Value
|
|
Estimated Fair Value
|
|
Quoted Prices in Active Markets for Identical Assets (Level I)
|
|
Significant Other Observable Inputs (Level II)
|
|
Significant Unobservable Inputs (Level III)
|
June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
332,771
|
|
|
$
|
332,771
|
|
|
$
|
332,771
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Certificates of deposit with banks
|
|
11,803
|
|
|
11,943
|
|
|
—
|
|
|
11,943
|
|
|
—
|
|
Securities available-for-sale
|
|
450,772
|
|
|
450,772
|
|
|
—
|
|
|
411,002
|
|
|
39,770
|
|
Equity securities
|
|
32,215
|
|
|
32,215
|
|
|
447
|
|
|
—
|
|
|
31,768
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net
|
|
1,672,444
|
|
|
1,684,871
|
|
|
—
|
|
|
—
|
|
|
1,684,871
|
|
Mortgage servicing rights
|
|
2,759
|
|
|
2,759
|
|
|
—
|
|
|
—
|
|
|
2,759
|
|
Interest rate swap
|
|
9,447
|
|
|
9,447
|
|
|
—
|
|
|
9,447
|
|
|
—
|
|
Fair value hedge
|
|
1,942
|
|
|
1,942
|
|
|
—
|
|
|
1,942
|
|
|
—
|
|
Accrued interest receivable
|
|
8,312
|
|
|
8,312
|
|
|
—
|
|
|
2,413
|
|
|
5,899
|
|
Bank-owned life insurance
|
|
41,762
|
|
|
41,762
|
|
|
—
|
|
|
41,762
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
2,229,175
|
|
|
$
|
2,186,598
|
|
|
$
|
—
|
|
|
$
|
2,186,598
|
|
|
$
|
—
|
|
Repurchase agreements
|
|
11,361
|
|
|
11,361
|
|
|
—
|
|
|
11,361
|
|
|
—
|
|
FHLB and other borrowings
|
|
100
|
|
|
100
|
|
|
—
|
|
|
100
|
|
|
—
|
|
Interest rate swap
|
|
9,447
|
|
|
9,447
|
|
|
—
|
|
|
9,447
|
|
|
—
|
|
Fair value hedge
|
|
1,384
|
|
|
1,384
|
|
|
—
|
|
|
1,384
|
|
|
—
|
|
Accrued interest payable
|
|
517
|
|
|
517
|
|
|
—
|
|
|
517
|
|
|
—
|
|
Subordinated debt
|
|
43,480
|
|
|
45,837
|
|
|
—
|
|
|
45,837
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
263,893
|
|
|
$
|
263,893
|
|
|
$
|
263,893
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Certificates of deposits with banks
|
|
11,803
|
|
|
11,986
|
|
|
—
|
|
|
11,986
|
|
|
—
|
|
Securities available-for-sale
|
|
410,624
|
|
|
410,624
|
|
|
—
|
|
|
366,945
|
|
|
43,679
|
|
Equity securities
|
|
27,585
|
|
|
27,585
|
|
|
472
|
|
|
—
|
|
|
27,113
|
|
Loans held-for-sale
|
|
1,062
|
|
|
1,062
|
|
|
—
|
|
|
1,062
|
|
|
—
|
|
Loans receivable, net
|
|
1,427,900
|
|
|
1,434,275
|
|
|
—
|
|
|
—
|
|
|
1,434,275
|
|
Mortgage servicing rights
|
|
2,942
|
|
|
2,942
|
|
|
—
|
|
|
—
|
|
|
2,942
|
|
Interest rate swap
|
|
13,822
|
|
|
13,822
|
|
|
—
|
|
|
13,822
|
|
|
—
|
|
Fair value hedge
|
|
2,215
|
|
|
2,215
|
|
|
—
|
|
|
2,215
|
|
|
|
Accrued interest receivable
|
|
7,793
|
|
|
7,793
|
|
|
—
|
|
|
2,770
|
|
|
5,023
|
|
Bank-owned life insurance
|
|
41,262
|
|
|
41,262
|
|
|
—
|
|
|
41,262
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
1,982,389
|
|
|
$
|
1,964,860
|
|
|
$
|
—
|
|
|
$
|
1,964,860
|
|
|
$
|
—
|
|
Repurchase agreements
|
|
10,266
|
|
|
10,266
|
|
|
—
|
|
|
10,266
|
|
|
—
|
|
Interest rate swap
|
|
13,822
|
|
|
13,822
|
|
|
—
|
|
|
13,822
|
|
|
—
|
|
Fair value hedge
|
|
2,141
|
|
|
2,141
|
|
|
—
|
|
|
2,141
|
|
|
—
|
|
Accrued interest payable
|
|
572
|
|
|
572
|
|
|
—
|
|
|
572
|
|
|
—
|
|
Subordinated debt
|
|
43,407
|
|
|
45,536
|
|
|
—
|
|
|
45,536
|
|
|
—
|
|
Note 11 – Fair Value Measurements
Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial
instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment, and therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on-and-off balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments.
The methods of determining the fair value of assets and liabilities presented in this footnote are consistent with our methodologies disclosed in Note 1 - Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of the 2020 Form 10-K.
Assets Measured on a Recurring Basis
As required by accounting standards, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company classified investments in government securities as Level II instruments and valued them using the market approach. The following measurements are made on a recurring basis.
Available-for-sale investment securities – Available-for-sale investment securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level I securities include those traded on an active exchange, such as the New York Stock Exchange, United States Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level II securities include mortgage-backed securities issued by government-sponsored entities and private label entities, municipal bonds and corporate debt securities. There have been no changes in valuation techniques for the three and six months ended June 30, 2021. Valuation techniques are consistent with techniques used in prior periods. Certain local municipal securities related to tax increment financing (“TIF”) are independently valued and classified as Level III instruments. The Company classified investments in government securities as Level II instruments and valued them using the market approach.
Equity securities – Certain equity securities are recorded at fair value on both a recurring and nonrecurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security's credit rating, prepayment assumptions and other factors such as credit loss assumptions. The valuation methodologies utilized may include significant unobservable inputs. There have been no changes in valuation techniques for the three and six months ended June 30, 2021. Valuation techniques are consistent with techniques used in prior periods.
Loans held-for-sale – The fair value of mortgage loans held-for-sale is determined, when possible, using quoted secondary-market prices or investor commitments. If no such quoted price exists, the fair value of a loan is determined using quoted prices for a similar asset or assets, adjusted for the specific attributes of that loan, which would be used by other market participants.
Interest rate swap – Interest rate swaps are recorded at fair value based on third-party vendors who compile prices from various sources and may determine the fair value of identical or similar instruments by using pricing models that consider observable market data.
Fair value hedge – Treated like an interest rate swap, fair value hedges are recorded at fair value based on third-party vendors who compile prices from various sources and may determine fair value of identical or similar instruments by using pricing models that consider observable market data.
The following tables present assets and liabilities reported on the consolidated statements of financial condition at their fair value on a recurring basis as of the periods indicated by level within the fair value hierarchy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
(Dollars in thousands)
|
|
Level I
|
|
Level II
|
|
Level III
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
United States government agency securities
|
|
$
|
—
|
|
|
$
|
43,202
|
|
|
$
|
—
|
|
|
$
|
43,202
|
|
United States sponsored mortgage-backed securities
|
|
—
|
|
|
86,236
|
|
|
—
|
|
|
86,236
|
|
United States treasury securities
|
|
106,656
|
|
|
—
|
|
|
—
|
|
|
106,656
|
|
Municipal securities
|
|
—
|
|
|
156,479
|
|
|
39,770
|
|
|
196,249
|
|
|
|
|
|
|
|
|
|
|
Other securities
|
|
—
|
|
|
10,929
|
|
|
—
|
|
|
10,929
|
|
Equity securities
|
|
447
|
|
|
—
|
|
|
—
|
|
|
447
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap
|
|
—
|
|
|
9,447
|
|
|
—
|
|
|
9,447
|
|
Fair value hedge
|
|
—
|
|
|
1,942
|
|
|
—
|
|
|
1,942
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Interest rate swap
|
|
—
|
|
|
9,447
|
|
|
—
|
|
|
9,447
|
|
Fair value hedge
|
|
—
|
|
|
1,384
|
|
|
—
|
|
|
1,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
(Dollars in thousands)
|
|
Level I
|
|
Level II
|
|
Level III
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
United States government agency securities
|
|
$
|
—
|
|
|
$
|
56,992
|
|
|
$
|
—
|
|
|
$
|
56,992
|
|
United States sponsored mortgage-backed securities
|
|
—
|
|
|
95,769
|
|
|
—
|
|
|
95,769
|
|
Municipal securities
|
|
—
|
|
|
188,208
|
|
|
43,679
|
|
|
231,887
|
|
|
|
|
|
|
|
|
|
|
Other securities
|
|
—
|
|
|
18,476
|
|
|
—
|
|
|
18,476
|
|
Equity securities
|
|
472
|
|
|
—
|
|
|
—
|
|
|
472
|
|
Loans held-for-sale
|
|
—
|
|
|
1,062
|
|
|
—
|
|
|
1,062
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap
|
|
—
|
|
|
13,822
|
|
|
—
|
|
|
13,822
|
|
Fair value hedge
|
|
—
|
|
|
2,215
|
|
|
—
|
|
|
2,215
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Interest rate swap
|
|
—
|
|
|
13,822
|
|
|
—
|
|
|
13,822
|
|
Fair value hedge
|
|
—
|
|
|
2,141
|
|
|
—
|
|
|
2,141
|
|
|
|
|
|
|
|
|
|
|
The following table represents recurring Level III assets as of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Interest Rate Lock Commitments
|
|
Municipal Securities
|
|
|
|
Total
|
Balance at March 31, 2021
|
|
$
|
—
|
|
|
$
|
40,272
|
|
|
|
|
$
|
40,272
|
|
Realized and unrealized gains included in earnings
|
|
—
|
|
|
1
|
|
|
|
|
1
|
|
Purchase of securities
|
|
—
|
|
|
627
|
|
|
|
|
627
|
|
Maturities/calls
|
|
—
|
|
|
(1,241)
|
|
|
|
|
(1,241)
|
|
Unrealized gain included in other comprehensive income (loss)
|
|
—
|
|
|
3,293
|
|
|
|
|
3,293
|
|
Unrealized loss included in other comprehensive income (loss)
|
|
—
|
|
|
(3,182)
|
|
|
|
|
(3,182)
|
|
Balance at June 30, 2021
|
|
$
|
—
|
|
|
$
|
39,770
|
|
|
|
|
$
|
39,770
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020
|
|
$
|
—
|
|
|
$
|
43,679
|
|
|
|
|
$
|
43,679
|
|
Realized and unrealized gains included in earnings
|
|
—
|
|
|
20
|
|
|
|
|
20
|
|
Purchase of securities
|
|
—
|
|
|
1,818
|
|
|
|
|
1,818
|
|
Maturities/calls
|
|
—
|
|
|
(5,174)
|
|
|
|
|
(5,174)
|
|
Unrealized gain included in other comprehensive income (loss)
|
|
—
|
|
|
4,420
|
|
|
|
|
4,420
|
|
Unrealized loss included in other comprehensive income (loss)
|
|
—
|
|
|
(4,993)
|
|
|
|
|
(4,993)
|
|
Balance at June 30, 2021
|
|
$
|
—
|
|
|
$
|
39,770
|
|
|
|
|
$
|
39,770
|
|
|
|
|
|
|
|
|
|
|
Balance at March 30, 2020
|
|
$
|
5,791
|
|
|
$
|
36,626
|
|
|
|
|
$
|
42,417
|
|
Realized and unrealized losses included in earnings
|
|
1,547
|
|
|
—
|
|
|
|
|
1,547
|
|
Purchase of securities
|
|
—
|
|
|
20,258
|
|
|
|
|
20,258
|
|
Maturities/calls
|
|
—
|
|
|
(15,513)
|
|
|
|
|
(15,513)
|
|
Unrealized gain included in other comprehensive income (loss)
|
|
—
|
|
|
1,366
|
|
|
|
|
1,366
|
|
Unrealized loss included in other comprehensive income (loss)
|
|
—
|
|
|
(2,280)
|
|
|
|
|
(2,280)
|
|
Balance at June 30, 2020
|
|
$
|
7,338
|
|
|
$
|
40,457
|
|
|
|
|
$
|
47,795
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
|
$
|
1,660
|
|
|
$
|
37,259
|
|
|
|
|
$
|
38,919
|
|
Realized and unrealized gains included in earnings
|
|
5,678
|
|
|
—
|
|
|
|
|
5,678
|
|
Purchase of securities
|
|
—
|
|
|
20,780
|
|
|
|
|
20,780
|
|
Maturities/calls
|
|
—
|
|
|
(15,513)
|
|
|
|
|
(15,513)
|
|
Unrealized gain included in other comprehensive income (loss)
|
|
—
|
|
|
1,645
|
|
|
|
|
1,645
|
|
Unrealized loss included in other comprehensive income (loss)
|
|
—
|
|
|
(3,714)
|
|
|
|
|
(3,714)
|
|
Balance at June 30, 2020
|
|
$
|
7,338
|
|
|
$
|
40,457
|
|
|
|
|
$
|
47,795
|
|
Assets Measured on a Nonrecurring Basis
The Company may be required, from time to time, to measure certain financial assets, financial liabilities, non-financial assets and non-financial liabilities at fair value on a nonrecurring basis in accordance with U.S. GAAP. These include assets that are measured at the lower of cost or market value that were recognized at fair value below cost at the end of the period. Certain non-financial assets measured at fair value on a nonrecurring basis include foreclosed assets (upon initial recognition or subsequent impairment), non-financial assets and non-financial liabilities measured at fair value in the second step of a goodwill impairment test and intangible assets and other non-financial long-lived assets measured at fair value for impairment assessment. Non-financial assets measured at fair value on a nonrecurring basis during 2021 and 2020 include certain foreclosed assets which, upon initial recognition, were remeasured and reported at fair value through a charge-off to the allowance for possible loan losses and certain foreclosed assets which, subsequent to their initial recognition, were remeasured at fair value through a write-down included in other noninterest expense.
Impaired loans – Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment using one of several methods, including collateral value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. Collateral values are estimated using Level II inputs based on observable market data or Level III inputs based on customized discounting criteria. For a majority of impaired real estate-related loans, the Company obtains a current external appraisal. Other valuation techniques are used as well, including internal valuations, comparable property analysis and contractual sales information.
Other real estate owned – Other real estate owned, which is obtained through the Bank’s foreclosure process, is valued utilizing the appraised collateral value. Collateral values are estimated using Level II inputs based on observable market data or Level III inputs based on customized discounting criteria. At the time the foreclosure is completed, the Company obtains a current external appraisal.
Other debt securities – Certain debt securities are recorded at fair value on a nonrecurring basis. These other debt securities, which include preferred member interest in an equity method investment, are securities without a readily determinable fair value and are measured at cost minus impairment, if any, plus or minus any changes resulting from observable price changes in orderly transactions, as defined, for identical or similar investments of the same issuer.
Equity securities – Certain equity securities are recorded at fair value on a nonrecurring basis. Equity securities without a readily determinable fair value are measured at cost minus impairment, if any, plus or minus any changes resulting from observable price changes in orderly transactions, as defined, for identical or similar investments of the same issuer.
The following table presents the fair value of these assets as of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
(Dollars in thousands)
|
|
Level I
|
|
Level II
|
|
Level III
|
|
Total
|
Impaired loans
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
15,865
|
|
|
$
|
15,865
|
|
Other real estate owned
|
|
—
|
|
|
—
|
|
|
4,256
|
|
|
4,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
(Dollars in thousands)
|
|
Level I
|
|
Level II
|
|
Level III
|
|
Total
|
Impaired loans
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
14,098
|
|
|
$
|
14,098
|
|
Other real estate owned
|
|
—
|
|
|
—
|
|
|
5,730
|
|
|
5,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no changes to the fair value of other debt securities or equity securities measured on a nonrecurring basis as of June 30, 2021.
The following tables present quantitative information about the Level III significant unobservable inputs for assets and liabilities measured at fair value as of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quantitative Information about Level III Fair Value Measurements
|
(Dollars in thousands)
|
|
Fair Value
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Range
|
June 30, 2021
|
|
|
|
|
|
|
|
|
Nonrecurring measurements:
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
15,865
|
|
|
Appraisal of collateral 1
|
|
Appraisal adjustments 2
|
|
20% - 62%
|
|
|
|
|
|
|
Liquidation expense 2
|
|
5% - 10%
|
|
|
|
|
|
|
|
|
|
Other real estate owned
|
|
$
|
4,256
|
|
|
Appraisal of collateral 1
|
|
Appraisal adjustments 2
|
|
20% - 30%
|
|
|
|
|
|
|
Liquidation expense 2
|
|
5% - 10%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring measurements:
|
|
|
|
|
|
|
|
|
Municipal securities 5
|
|
$
|
39,770
|
|
|
Appraisal of bond 3
|
|
Bond appraisal adjustment 4
|
|
5% - 15%
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
Nonrecurring measurements:
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
14,098
|
|
|
Appraisal of collateral 1
|
|
Appraisal adjustments 2
|
|
20% - 62%
|
|
|
|
|
|
|
Liquidation expense 2
|
|
5% - 10%
|
|
|
|
|
|
|
|
|
|
Other real estate owned
|
|
$
|
5,730
|
|
|
Appraisal of collateral 1
|
|
Appraisal adjustments 2
|
|
20% - 30%
|
|
|
|
|
|
|
Liquidation expense 2
|
|
5% - 10%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring measurements:
|
|
|
|
|
|
|
|
|
Municipal securities 5
|
|
$
|
43,679
|
|
|
Appraisal of bond 3
|
|
Bond appraisal adjustment 4
|
|
5% - 15%
|
1 Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level III inputs that are not identifiable.
2 Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.
3 Fair value is determined through independent analysis of liquidity, rating, yield and duration.
4 Appraisals may be adjusted for qualitative factors such as local economic conditions.
5 Municipal securities classified as Level III instruments are comprised of TIF bonds related to certain local municipal securities.
Note 12 – Earnings per Share
The Company determines basic earnings per share (“EPS”) by dividing net income less preferred stock dividends by the weighted-average number of common shares outstanding during the period. Diluted EPS is determined by dividing net income less dividends on convertible preferred stock plus interest on convertible subordinated debt by the weighted-average number of shares outstanding, increased by both the number of shares that would be issued assuming the exercise of stock options under the Company’s 2003 and 2013 Stock Incentive Plans and the conversion of preferred stock and subordinated debt, if dilutive.
The following table presents the Company's calculation of EPS for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(Dollars in thousands except shares and per share data)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Numerator for basic earnings per share:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
9,247
|
|
|
$
|
18,034
|
|
|
$
|
17,332
|
|
|
$
|
19,082
|
|
Less: Dividends on preferred stock
|
|
—
|
|
|
115
|
|
|
35
|
|
|
229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders - basic
|
|
$
|
9,247
|
|
|
$
|
17,919
|
|
|
$
|
17,297
|
|
|
$
|
18,853
|
|
|
|
|
|
|
|
|
|
|
Numerator for diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders - diluted
|
|
$
|
9,247
|
|
|
$
|
17,919
|
|
|
$
|
17,297
|
|
|
$
|
18,853
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Total weighted-average shares outstanding
|
|
11,639,237
|
|
|
11,954,813
|
|
|
11,585,059
|
|
|
11,948,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive stock options and restricted stock units
|
|
972,793
|
|
|
57,032
|
|
|
864,914
|
|
|
207,424
|
|
Total diluted weighted-average shares outstanding
|
|
12,612,030
|
|
|
12,011,845
|
|
|
12,449,973
|
|
|
12,156,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share - basic
|
|
$
|
0.79
|
|
|
$
|
1.50
|
|
|
$
|
1.49
|
|
|
$
|
1.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share - diluted
|
|
$
|
0.73
|
|
|
$
|
1.49
|
|
|
$
|
1.39
|
|
|
$
|
1.55
|
|
|
|
|
|
|
|
|
|
|
Stock options not included in the computation of diluted EPS because the effect would be antidilutive
|
|
113,083
|
|
|
858,589
|
|
|
113,083
|
|
|
858,589
|
|
Note 13 – Comprehensive Income
The following tables present the components of accumulated other comprehensive income (“AOCI”) as of and for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
(Dollars in thousands)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
Details about AOCI components
|
|
Amount reclassified from AOCI
|
|
Amount reclassified from AOCI
|
|
Amount reclassified from AOCI
|
|
Amount reclassified from AOCI
|
|
Affected income statement line item
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains
|
|
$
|
1,708
|
|
|
$
|
554
|
|
|
$
|
2,851
|
|
|
$
|
830
|
|
|
Gain (loss) on sale of available-for-sale securities
|
|
|
1,708
|
|
|
554
|
|
|
2,851
|
|
|
830
|
|
|
Total before tax
|
|
|
(400)
|
|
|
(150)
|
|
|
(668)
|
|
|
(225)
|
|
|
Income tax effect
|
|
|
1,308
|
|
|
404
|
|
|
2,183
|
|
|
605
|
|
|
Net of tax
|
Defined benefit pension plan items
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss
|
|
(127)
|
|
|
(105)
|
|
|
(254)
|
|
|
(210)
|
|
|
Salaries and benefits
|
|
|
(127)
|
|
|
(105)
|
|
|
(254)
|
|
|
(210)
|
|
|
Total before tax
|
|
|
30
|
|
|
28
|
|
|
59
|
|
|
57
|
|
|
Income tax effect
|
|
|
(97)
|
|
|
(77)
|
|
|
(195)
|
|
|
(153)
|
|
|
Net of tax
|
Investment hedge
|
|
|
|
|
|
|
|
|
|
|
Carrying value adjustment
|
|
(359)
|
|
|
(960)
|
|
|
(623)
|
|
|
833
|
|
|
Interest on investment securities
|
|
|
(359)
|
|
|
(960)
|
|
|
(623)
|
|
|
833
|
|
|
Total before tax
|
|
|
84
|
|
|
259
|
|
|
146
|
|
|
(225)
|
|
|
Income tax effect
|
|
|
(275)
|
|
|
(701)
|
|
|
(477)
|
|
|
608
|
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications
|
|
$
|
936
|
|
|
$
|
(374)
|
|
|
$
|
1,511
|
|
|
$
|
1,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Unrealized gains (losses) on available for-sale securities
|
|
Defined benefit pension plan items
|
|
Investment hedge
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2021
|
|
$
|
1,863
|
|
|
$
|
(3,644)
|
|
|
$
|
(111)
|
|
|
$
|
(1,892)
|
|
Other comprehensive income before reclassification
|
|
2,581
|
|
|
246
|
|
|
—
|
|
|
2,827
|
|
Amounts reclassified from AOCI
|
|
(1,308)
|
|
|
97
|
|
|
275
|
|
|
(936)
|
|
Net current period OCI
|
|
1,273
|
|
|
343
|
|
|
275
|
|
|
1,891
|
|
Balance at June 30, 2021
|
|
$
|
3,136
|
|
|
$
|
(3,301)
|
|
|
$
|
164
|
|
|
$
|
(1)
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020
|
|
7,586
|
|
|
(5,047)
|
|
|
(313)
|
|
|
2,226
|
|
Other comprehensive income (loss) before reclassification
|
|
(2,267)
|
|
|
1,551
|
|
|
—
|
|
|
(716)
|
|
Amounts reclassified from AOCI
|
|
(2,183)
|
|
|
195
|
|
|
477
|
|
|
(1,511)
|
|
Net current period OCI
|
|
(4,450)
|
|
|
1,746
|
|
|
477
|
|
|
(2,227)
|
|
Balance at June 30, 2020
|
|
$
|
3,136
|
|
|
$
|
(3,301)
|
|
|
$
|
164
|
|
|
$
|
(1)
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2020
|
|
$
|
3,773
|
|
|
$
|
(4,734)
|
|
|
$
|
(1,277)
|
|
|
$
|
(2,238)
|
|
Other comprehensive income (loss) before reclassification
|
|
402
|
|
|
(731)
|
|
|
—
|
|
|
(329)
|
|
Amounts reclassified from AOCI
|
|
(404)
|
|
|
77
|
|
|
701
|
|
|
374
|
|
Net current period OCI
|
|
(2)
|
|
|
(654)
|
|
|
701
|
|
|
45
|
|
Balance at June 30, 2020
|
|
$
|
3,771
|
|
|
$
|
(5,388)
|
|
|
$
|
(576)
|
|
|
$
|
(2,193)
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
|
2,942
|
|
|
(4,295)
|
|
|
32
|
|
|
(1,321)
|
|
Other comprehensive income (loss) before reclassification
|
|
1,434
|
|
|
(1,246)
|
|
|
—
|
|
|
188
|
|
Amounts reclassified from AOCI
|
|
(605)
|
|
|
153
|
|
|
(608)
|
|
|
(1,060)
|
|
Net current period OCI
|
|
829
|
|
|
(1,093)
|
|
|
(608)
|
|
|
(872)
|
|
Balance at June 30, 2020
|
|
$
|
3,771
|
|
|
$
|
(5,388)
|
|
|
$
|
(576)
|
|
|
$
|
(2,193)
|
|
Note 14 – Segment Reporting
The Company has identified three reportable segments: CoRe banking; mortgage banking; and financial holding company. Revenue from CoRe banking activities consists primarily of interest earned on loans and investment securities and service charges on deposit accounts. The Fintech division, Chartwell and Paladin Fraud reside in the CoRe banking segment. Revenue from the mortgage banking activities is comprised of interest earned on loans and fees received as a result of the mortgage loan origination process. Prior to July 1, 2020, the mortgage banking services were conducted by PMG. In July 2020, the Company announced the completion of PMG’s combination with Intercoastal to form ICM. The Company has recognized its ownership of ICM as an equity method investment, initially recorded at fair value. Income related to this equity method investment is included in the Mortgage Banking segment. Revenue from financial holding company activities is mainly comprised of intercompany service income and dividends.
The following tables present information about the reportable segments and reconciliation to the consolidated financial statements for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2021
|
|
CoRe Banking
|
|
Mortgage Banking
|
|
Financial Holding Company
|
|
Intercompany Eliminations
|
|
Consolidated
|
(Dollars in thousands)
|
|
|
|
|
|
Interest income
|
|
$
|
20,736
|
|
|
$
|
98
|
|
|
$
|
—
|
|
|
$
|
(1)
|
|
|
$
|
20,833
|
|
Interest expense
|
|
1,290
|
|
|
—
|
|
|
490
|
|
|
(2)
|
|
|
1,778
|
|
Net interest income
|
|
19,446
|
|
|
98
|
|
|
(490)
|
|
|
1
|
|
|
19,055
|
|
Provision (release of allowance) for loan losses
|
|
(1,540)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,540)
|
|
Net interest income after provision (release of allowance) for loan losses
|
|
20,986
|
|
|
98
|
|
|
(490)
|
|
|
1
|
|
|
20,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
9,986
|
|
|
4,546
|
|
|
2,309
|
|
|
(3,197)
|
|
|
13,644
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest Expenses:
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
10,384
|
|
|
—
|
|
|
3,277
|
|
|
—
|
|
|
13,661
|
|
Other expense
|
|
11,578
|
|
|
23
|
|
|
1,337
|
|
|
(3,196)
|
|
|
9,742
|
|
Total noninterest expenses
|
|
21,962
|
|
|
23
|
|
|
4,614
|
|
|
(3,196)
|
|
|
23,403
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
9,010
|
|
|
4,621
|
|
|
(2,795)
|
|
|
—
|
|
|
10,836
|
|
Income tax expense (benefit)
|
|
1,168
|
|
|
1,120
|
|
|
(615)
|
|
|
—
|
|
|
1,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before noncontrolling interest
|
|
7,842
|
|
|
3,501
|
|
|
(2,180)
|
|
|
—
|
|
|
9,163
|
|
Net loss attributable to noncontrolling interest
|
|
84
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
84
|
|
Net income (loss) attributable to parent
|
|
$
|
7,926
|
|
|
$
|
3,501
|
|
|
$
|
(2,180)
|
|
|
$
|
—
|
|
|
$
|
9,247
|
|
Preferred stock dividends
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net income (loss) available to common shareholders
|
|
$
|
7,926
|
|
|
$
|
3,501
|
|
|
$
|
(2,180)
|
|
|
$
|
—
|
|
|
$
|
9,247
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures for the three months ended June 30, 2021
|
|
$
|
694
|
|
|
$
|
22
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
716
|
|
Total assets as of June 30, 2021
|
|
2,758,741
|
|
|
49,767
|
|
|
295,735
|
|
|
(369,703)
|
|
|
2,734,540
|
|
Total assets as of December 31, 2020
|
|
2,343,556
|
|
|
58,140
|
|
|
284,943
|
|
|
(355,163)
|
|
|
2,331,476
|
|
Goodwill as of June 30, 2021
|
|
4,119
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,119
|
|
Goodwill as of December 31, 2020
|
|
2,350
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2020
|
|
CoRe Banking
|
|
Mortgage Banking
|
|
Financial Holding Company
|
|
Intercompany Eliminations
|
|
Consolidated
|
(Dollars in thousands)
|
|
|
|
|
|
Interest income
|
|
$
|
19,182
|
|
|
$
|
3,538
|
|
|
$
|
1
|
|
|
$
|
(947)
|
|
|
$
|
21,774
|
|
Interest expense
|
|
3,027
|
|
|
1,517
|
|
|
23
|
|
|
(1,251)
|
|
|
3,316
|
|
Net interest income
|
|
16,155
|
|
|
2,021
|
|
|
(22)
|
|
|
304
|
|
|
18,458
|
|
Provision (release of allowance) for loan losses
|
|
6,598
|
|
|
(2)
|
|
|
—
|
|
|
—
|
|
|
6,596
|
|
Net interest income after provision (release of allowance) for loan losses
|
|
9,557
|
|
|
2,023
|
|
|
(22)
|
|
|
304
|
|
|
11,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
17,832
|
|
|
28,562
|
|
|
1,679
|
|
|
(2,560)
|
|
|
45,513
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest Expense:
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
6,170
|
|
|
13,584
|
|
|
2,905
|
|
|
—
|
|
|
22,659
|
|
Other expense
|
|
9,124
|
|
|
2,315
|
|
|
1,491
|
|
|
(2,256)
|
|
|
10,674
|
|
Total noninterest expenses
|
|
15,294
|
|
|
15,899
|
|
|
4,396
|
|
|
(2,256)
|
|
|
33,333
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
12,095
|
|
|
14,686
|
|
|
(2,739)
|
|
|
—
|
|
|
24,042
|
|
Income tax expense (benefit)
|
|
2,880
|
|
|
3,800
|
|
|
(672)
|
|
|
—
|
|
|
6,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
9,215
|
|
|
$
|
10,886
|
|
|
$
|
(2,067)
|
|
|
$
|
—
|
|
|
$
|
18,034
|
|
Preferred stock dividends
|
|
—
|
|
|
—
|
|
|
115
|
|
|
—
|
|
|
115
|
|
Net income (loss) available to common shareholders
|
|
$
|
9,215
|
|
|
$
|
10,886
|
|
|
$
|
(2,182)
|
|
|
$
|
—
|
|
|
$
|
17,919
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures for the three months ended June 30, 2020
|
|
$
|
1,105
|
|
|
$
|
30
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2021
|
|
CoRe Banking
|
|
Mortgage Banking
|
|
Financial Holding Company
|
|
Intercompany Eliminations
|
|
Consolidated
|
(Dollars in thousands)
|
|
|
|
|
|
Interest income
|
|
$
|
39,695
|
|
|
$
|
202
|
|
|
$
|
1
|
|
|
$
|
(2)
|
|
|
$
|
39,896
|
|
Interest expense
|
|
2,382
|
|
|
—
|
|
|
956
|
|
|
(2)
|
|
|
3,336
|
|
Net interest income
|
|
37,313
|
|
|
202
|
|
|
(955)
|
|
|
—
|
|
|
36,560
|
|
Provision (release of allowance) for loan losses
|
|
(920)
|
|
|
(2)
|
|
|
—
|
|
|
—
|
|
|
(922)
|
|
Net interest income after provision (release of allowance) for loan losses
|
|
38,233
|
|
|
204
|
|
|
(955)
|
|
|
—
|
|
|
37,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
16,423
|
|
|
10,953
|
|
|
3,890
|
|
|
(5,164)
|
|
|
26,102
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest Expenses:
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
19,226
|
|
|
—
|
|
|
6,346
|
|
|
—
|
|
|
25,572
|
|
Other expense
|
|
19,607
|
|
|
86
|
|
|
2,420
|
|
|
(5,164)
|
|
|
16,949
|
|
Total noninterest expenses
|
|
38,833
|
|
|
86
|
|
|
8,766
|
|
|
(5,164)
|
|
|
42,521
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
15,823
|
|
|
11,071
|
|
|
(5,831)
|
|
|
—
|
|
|
21,063
|
|
Income tax expense (benefit)
|
|
2,317
|
|
|
2,684
|
|
|
(1,159)
|
|
|
—
|
|
|
3,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before noncontrolling interest
|
|
13,506
|
|
|
8,387
|
|
|
(4,672)
|
|
|
—
|
|
|
17,221
|
|
Net loss attributable to noncontrolling interest
|
|
111
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
111
|
|
Net income (loss) attributable to parent
|
|
$
|
13,617
|
|
|
$
|
8,387
|
|
|
$
|
(4,672)
|
|
|
$
|
—
|
|
|
$
|
17,332
|
|
Preferred stock dividends
|
|
—
|
|
|
—
|
|
|
35
|
|
|
—
|
|
|
35
|
|
Net income (loss) available to common shareholders
|
|
$
|
13,617
|
|
|
$
|
8,387
|
|
|
$
|
(4,707)
|
|
|
$
|
—
|
|
|
$
|
17,297
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures for the six months ended June 30, 2021
|
|
$
|
2,630
|
|
|
$
|
22
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020
|
|
CoRe Banking
|
|
Mortgage Banking
|
|
Financial Holding Company
|
|
Intercompany Eliminations
|
|
Consolidated
|
(Dollars in thousands)
|
|
|
|
|
|
Interest income
|
|
$
|
37,956
|
|
|
$
|
5,956
|
|
|
$
|
2
|
|
|
$
|
(1,441)
|
|
|
$
|
42,473
|
|
Interest expense
|
|
6,865
|
|
|
2,904
|
|
|
58
|
|
|
(1,983)
|
|
|
7,844
|
|
Net interest income
|
|
31,091
|
|
|
3,052
|
|
|
(56)
|
|
|
542
|
|
|
34,629
|
|
Provision for loan losses
|
|
7,730
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
7,734
|
|
Net interest income (loss) after provision for loan losses
|
|
23,361
|
|
|
3,048
|
|
|
(56)
|
|
|
542
|
|
|
26,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
21,288
|
|
|
36,347
|
|
|
3,183
|
|
|
(4,455)
|
|
|
56,363
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest Expenses:
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
12,036
|
|
|
21,468
|
|
|
5,337
|
|
|
—
|
|
|
38,841
|
|
Other expense
|
|
15,783
|
|
|
4,712
|
|
|
2,566
|
|
|
(3,913)
|
|
|
19,148
|
|
Total noninterest expenses
|
|
27,819
|
|
|
26,180
|
|
|
7,903
|
|
|
(3,913)
|
|
|
57,989
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
16,830
|
|
|
13,215
|
|
|
(4,776)
|
|
|
—
|
|
|
25,269
|
|
Income tax expense (benefit)
|
|
3,892
|
|
|
3,451
|
|
|
(1,156)
|
|
|
—
|
|
|
6,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
12,938
|
|
|
$
|
9,764
|
|
|
$
|
(3,620)
|
|
|
$
|
—
|
|
|
$
|
19,082
|
|
Preferred stock dividends
|
|
—
|
|
|
—
|
|
|
229
|
|
|
—
|
|
|
229
|
|
Net income (loss) available to common shareholders
|
|
$
|
12,938
|
|
|
$
|
9,764
|
|
|
$
|
(3,849)
|
|
|
$
|
—
|
|
|
$
|
18,853
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures for the three months ended June 30, 2020
|
|
$
|
2,400
|
|
|
$
|
99
|
|
|
$
|
20
|
|
|
$
|
—
|
|
|
$
|
2,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 15 – Acquisitions
Flexia Payments, LLC
In February 2021, the Bank entered into an agreement to acquire an 80% interest in Flexia. The Bank invested approximately $2.5 million for the 80% interest. At the time of acquisition, Flexia had no assets or liabilities. Soon after the Bank's investment, Flexia purchased a license for technology that allows users to access a reloadable account that combines a debit card account and casino gaming accounts into one card and to utilize them for non-cash transactions at participating casinos, for approximately $1 million for exclusive use in the United States and Canada. On the acquisition date, $0.5 million was recorded on the consolidated balance sheet for the 20% noncontrolling interest.
Trabian Technology, Inc.
In April 2021, the Bank entered into a Stock Purchase Agreement with Trabian, a leading software development firm servicing financial institutions. Pursuant to the agreement, the Bank invested approximately $1.6 million, including unregistered shares of MVB common stock, for the 80% interest. At the time of acquisition, Trabian had assets totaling $0.8 million and liabilities totaling $0.6 million. As a result of the transaction, the Bank recorded goodwill of $1.8 million and intangible assets related to Trabian's customer relationships and trade name totaling $0.6 million. On the acquisition date, $0.4 million was recorded on the consolidated balance sheet for the 20% noncontrolling interest.
Note 16 – Subsequent Event
Sale of South Market, WV Branches
In July 2021, the Bank completed the previously announced sale of certain assets and liabilities of four branch locations in West Virginia. Pursuant to the terms of the Purchase and Assumption Agreement between the Bank and Summit Community Bank, Inc. (“Summit”), dated April 22, 2021 and as further amended, Summit assumed approximately $167 million in deposit liabilities, including accrued interest, and acquired approximately $55 million in loans, as well as accrued interest on those loans, cash, real property, personal property and other fixed assets associated with the branches, as of the July 10, 2021 closing date. The Bank expects to record a pre-tax gain of approximately $10.0 million on the sale in the third quarter of 2021.
The following table presents assets to be acquired and liabilities to be assumed as of the period indicated:
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
June 30, 2021
|
Cash and due from banks
|
|
$
|
1,320
|
|
Loans receivable
|
|
54,547
|
|
Premises and equipment, net
|
|
3,469
|
|
Accrued interest receivable and other assets
|
|
152
|
|
Assets of branches held-for-sale
|
|
$
|
59,488
|
|
|
|
|
Deposits:
|
|
|
Noninterest-bearing
|
|
$
|
30,462
|
|
Interest-bearing
|
|
135,238
|
|
Total deposits
|
|
165,700
|
|
Accrued interest payable and other liabilities
|
|
50
|
|
Liabilities of branches held-for-sale
|
|
$
|
165,750
|
|
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the Company's consolidated financial statements and related notes thereto included elsewhere in this report. A discussion of changes in the Company's results of operations from 2019 to 2020 has been omitted from this report but may be found in Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations, of its Quarterly Report on Form 10-Q for the period ended June 30, 2020, filed with the SEC on August 6, 2020. Further, the Company encourages you to revisit the Forward-Looking Statements at the beginning of this report.
Executive Summary
The Company has invested in infrastructure to support anticipated future growth in each area that is key to the Company's performance, including personnel, technology and processes in order to meet the increasing compliance obligations of the financial services industry. The Company believes it is well-positioned in high-growth markets in West Virginia and Virginia and will continue to focus on margin improvement, leveraging capital, organic portfolio loan growth, and operating efficiency. Management believes the key challenge for the Company in the future is to attract core deposits to fund growth in new markets through continued delivery of outstanding client service, coupled with high-quality products and technology. The Company is expanding the Bank's treasury services function to support the banking needs of financial and emerging technology companies, which we believe will further enhance core deposits, notably through the expansion of deposit acquisition and fee income strategies through the Fintech division. During 2020 and into 2021, the Company entered into agreements for debit card program sponsorship to further enhance fee income and noninterest income. In addition, the Company continues to expand into the Fintech industry through the acquisition of technology, including a software development team, in order to scale and diversify its banking capabilities.
Financial Results
Total assets increased $403.1 million to $2.73 billion at June 30, 2021 from $2.33 billion at December 31, 2020. Earning assets increased $349.9 million to $2.50 billion at June 30, 2021 from $2.15 billion at December 31, 2020. This increase in earning assets was primarily driven by the $243.6 million increase in total loans to $1.70 billion at June 30, 2021, from $1.45 billion at December 31, 2020. Deposits increased $246.8 million to $2.23 billion at June 30, 2021, from $1.98 billion at December 31, 2020.
Three Months Ended June 30, 2021 vs. Three Months Ended June 30, 2020
Net interest income increased $0.6 million, noninterest income decreased $31.9 million and noninterest expenses decreased by $9.9 million during the three months ended June 30, 2021 compared to the three months ended June 30, 2020. The Company’s yield on earning assets (tax-equivalent) in the three months ended June 30, 2021 was 3.54% compared to 4.44% in the three months ended June 30, 2020. Total loans increased by $2.9 million to $1.70 billion during the three months ended June 30, 2021. The Company's overall cost of interest-bearing liabilities was 0.47% in the three months ended June 30, 2021 compared to 0.93% in the three months ended June 30, 2020. This cost of interest-bearing liabilities, combined with the earning asset yield, resulted in a net interest margin (tax-equivalent) of 3.24% in the three months ended June 30, 2021 compared to 3.78% in the three months ended June 30, 2020.
The Company earned $9.2 million in the three months ended June 30, 2021 compared to $18.0 million in the three months ended June 30, 2020. The three months ended June 30, 2021 earnings equated to a return on average assets of 1.4% and a return on average equity of 15.5%, compared to the three months ended June 30, 2020 results of 3.3% and 32.9%, respectively. Basic and diluted earnings per share were $0.79 and $0.73, respectively, for the three months ended June 30, 2021 compared to $1.50 and $1.49, respectively, for the three months ended June 30, 2020.
Six Months Ended June 30, 2021 vs. Six Months Ended June 30, 2020
Net interest income increased $1.9 million, noninterest income decreased $30.3 million and noninterest expenses decreased by $15.5 million during the six months ended June 30, 2021 compared to the six months ended June 30, 2020. The Company’s yield on earning assets (tax-equivalent) in the six months ended June 30, 2021 was 3.54% compared to 4.57% in the six months ended June 30, 2020. Total loans increased by $243.6 million to $1.70 billion during the six months ended June 30, 2021. The Company's overall cost of interest-bearing liabilities was 0.47% in the six months ended June 30, 2021 compared to 1.12% in the six months ended June 30, 2020. This cost of interest-bearing liabilities, combined with the earning asset yield, resulted in a net interest margin (tax-equivalent) of 3.25% in the six months ended June 30, 2021 compared to 3.73% in the six months ended June
30, 2020.
The Company earned $17.3 million in the six months ended June 30, 2021 compared to $19.1 million in the six months ended June 30, 2020. The six months ended June 30, 2021 earnings equated to a return on average assets of 1.4% and a return on average equity of 14.6%, compared to the six months ended June 30, 2020 results of 1.8% and 17.6%, respectively. Basic and diluted earnings per share were $1.49 and $1.39, respectively, for the six months ended June 30, 2021 compared to $1.58 and $1.55, respectively, for the six months ended June 30, 2020.
Corporate Updates
In April 2021, the Bank entered into a Stock Purchase Agreement with Trabian, a leading software development firm servicing financial institutions for 80% interest in Trabian. Founded in 2003, Trabian builds digital products, web and mobile applications for forward-thinking community banks, credit unions, digital banks and Fintechs. In pursuing its mission to create technology to accelerate community finance, Trabian has created technology platforms that have been instrumental to the success of many of today’s leading Fintech companies.
In June 2021, the creation of Edge Ventures was announced. Edge Ventures was created as a management company providing oversight, alignment and structure for MVB’s Fintech companies and allocates resources to help incubate venture businesses and technologies acquired and developed by MVB. Subsidiaries of Edge Ventures include MVB Technology and Victor.
MVB Technology's primary product, GRAND, provides cheaper, faster payments from a modern bank account. Account-holders fund their GRAND account using a bank account, card or direct deposit and can then seamlessly transfer between their GRAND account and their favorite apps. GRAND helps drive significant savings for online merchants through a streamlined process for customer fund transfers.
MVB created the Victor platform to make it faster and easier to launch and scale a broad spectrum of Fintech solutions for the Gaming, Payments, Banking-as-a-Service and Digital Asset sectors. Fintech developers can build solutions to manage and move money in a matter of weeks with developer-friendly application programming interfaces (“APIs”). Banks can onboard and manage more programs with Victor’s tailored due diligence, risk assessment and oversight workflow tools. Recognizing the complexity of the Fintech ecosystem, Victor also supports seamless integration with a proven network of value-added technology and service providers.
In July 2021, the Bank completed the previously announced sale of certain assets and liabilities of four branch locations in West Virginia. Summit assumed approximately $167 million in deposit liabilities, including accrued interest, and acquired approximately $55 million in loans, as well as accrued interest on those loans, cash, real property, personal property and other fixed assets associated with the branches, as of the July 10, 2021 closing date. The Bank expects to record a pre-tax gain of approximately $10.0 million on the sale in the third quarter of 2021.
COVID-19 Pandemic
The COVID-19 pandemic has introduced a great degree of uncertainty to both the global and domestic economy and financial markets. The full impact of COVID-19 is unknown and continues to evolve. Financial markets adjusted dramatically to the reduced economic activity and the pace of recovery is uncertain. The financial market benchmark most relevant to the Company’s current and future profitability is the United States Government Treasury yield curve. The United States Government Treasury yield curve is used as a basis for pricing most bonds, loans, borrowings, deposits and other fixed income yield curves. The United States Government Treasury yield curve has experienced a large, relatively parallel, downward shift. Given the Company’s asset-sensitive position, management expects that net interest income will continue to decline. As the outlook for the COVID-19 pandemic improves, management expects that the United States Government Treasury curve will experience some degree of an upward shift over time.
The Company actively participated in the PPP, is evaluating other programs available to assist its clients and provides consumer deferrals consistent with government-sponsored enterprise (“GSE”) guidelines. Management is working to incorporate scenarios that reflect decreased loan cash flows in the short term into the Company’s interest rate risk models.
There was considerable demand for the PPP implemented by the CARES Act to combat the economic slowdown brought on by the COVID-19 pandemic. The PPP was created to provide funding to small business owners who may have had to temporarily close or scale back production as a result of the COVID-19 pandemic. The intended use of this funding is to pay employees who may be temporarily unable to work. The original tranche of PPP funding of $349 billion ran out 13 days after the program's
implementation. The second tranche of PPP funding of $310 billion had funds available as of the program's closure date. On July 2, 2020, additional legislation was passed that allowed small businesses to apply for loans through August 8, 2020. On January 8, 2021, the SBA announced that the PPP program would reopen on January 11, 2021 for new borrowers and certain existing PPP borrowers. During the latest round, funds totaling $284 billion were authorized through March 31, 2021. As of June 30, 2021, the Company originated 733 PPP loans with outstanding balances of $64.3 million through our internal commercial team and originated PPP loans with outstanding balances of $143.0 million through our partnership with a Fintech company. Fee income related to these loans totaled $0.7 million in the three months ended June 30, 2021 and deferred loan fees of $3.6 million remain to be recognized on PPP loans originated through June 30, 2021.
As of June 30, 2021, commercial loans totaling $34.7 million and mortgage loans totaling $8.4 million were approved for COVID-19 related modifications, such as interest-only payments and payment deferrals. These modifications were not considered to be troubled debt restructurings in reliance on guidance issued by banking regulators titled the “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus.”
Net Interest Income and Net Interest Margin (Average Balance Schedules)
The following tables present, for the periods indicated, information about (1) average balances, the total dollar amount of interest income from interest earning assets and the resultant average yields; (2) average balances, the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rates; (3) the interest rate spread; (4) net interest income and margin; and (5) net interest income and margin (on a tax-equivalent basis) as of and for the periods indicated. The average balances presented are derived from daily average balances.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
2021
|
|
2020
|
(Dollars in thousands)
|
|
Average Balance
|
|
Interest Income/Expense
|
|
Yield/Cost
|
|
Average Balance
|
|
Interest Income/Expense
|
|
Yield/Cost
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing balances with banks
|
|
$
|
178,792
|
|
|
$
|
40
|
|
|
0.09
|
%
|
|
$
|
44,095
|
|
|
$
|
16
|
|
|
0.15
|
%
|
CDs with banks
|
|
11,803
|
|
|
58
|
|
|
1.97
|
|
|
12,811
|
|
|
64
|
|
|
2.00
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
254,536
|
|
|
625
|
|
|
0.98
|
|
|
96,760
|
|
|
477
|
|
|
1.98
|
|
Tax-exempt 2
|
|
207,830
|
|
|
1,640
|
|
|
3.17
|
|
|
123,806
|
|
|
1,248
|
|
|
4.04
|
|
Loans and loans held-for-sale: 1
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial 3
|
|
1,416,669
|
|
|
15,884
|
|
|
4.50
|
|
|
1,165,649
|
|
|
14,319
|
|
|
4.93
|
|
Tax exempt 2
|
|
6,905
|
|
|
78
|
|
|
4.53
|
|
|
8,879
|
|
|
104
|
|
|
4.69
|
|
Real estate
|
|
320,528
|
|
|
2,747
|
|
|
3.44
|
|
|
532,386
|
|
|
5,701
|
|
|
4.30
|
|
Consumer
|
|
6,550
|
|
|
122
|
|
|
7.47
|
|
|
6,332
|
|
|
129
|
|
|
8.17
|
|
Total loans
|
|
1,750,652
|
|
|
18,831
|
|
|
4.31
|
|
|
1,713,246
|
|
|
20,253
|
|
|
4.74
|
|
Total earning assets
|
|
2,403,613
|
|
|
21,194
|
|
|
3.54
|
|
|
1,990,718
|
|
|
22,058
|
|
|
4.44
|
|
Less: Allowance for loan losses
|
|
(26,625)
|
|
|
|
|
|
|
(14,253)
|
|
|
|
|
|
Cash and due from banks
|
|
22,141
|
|
|
|
|
|
|
34,449
|
|
|
|
|
|
Other assets
|
|
193,165
|
|
|
|
|
|
|
179,806
|
|
|
|
|
|
Total assets
|
|
$
|
2,592,294
|
|
|
|
|
|
|
$
|
2,190,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW
|
|
$
|
716,924
|
|
|
$
|
643
|
|
|
0.36
|
%
|
|
$
|
367,448
|
|
|
$
|
775
|
|
|
0.85
|
%
|
Money market checking
|
|
466,091
|
|
|
221
|
|
|
0.19
|
|
|
429,708
|
|
|
564
|
|
|
0.53
|
|
Savings
|
|
52,992
|
|
|
—
|
|
|
—
|
|
|
41,485
|
|
|
8
|
|
|
0.08
|
|
IRAs
|
|
12,358
|
|
|
40
|
|
|
1.30
|
|
|
12,408
|
|
|
47
|
|
|
1.52
|
|
CDs
|
|
156,507
|
|
|
332
|
|
|
0.85
|
|
|
495,519
|
|
|
1,642
|
|
|
1.33
|
|
Repurchase agreements and federal funds sold
|
|
10,833
|
|
|
3
|
|
|
0.11
|
|
|
9,682
|
|
|
5
|
|
|
0.21
|
|
FHLB and other borrowings
|
|
55,402
|
|
|
49
|
|
|
0.35
|
|
|
76,739
|
|
|
252
|
|
|
1.32
|
|
Subordinated debt
|
|
43,462
|
|
|
490
|
|
|
4.52
|
|
|
4,124
|
|
|
23
|
|
|
2.24
|
|
Total interest-bearing liabilities
|
|
1,514,569
|
|
|
1,778
|
|
|
0.47
|
|
|
1,437,113
|
|
|
3,316
|
|
|
0.93
|
|
Noninterest-bearing demand deposits
|
|
810,298
|
|
|
|
|
|
|
454,486
|
|
|
|
|
|
Other liabilities
|
|
28,688
|
|
|
|
|
|
|
79,826
|
|
|
|
|
|
Total liabilities
|
|
2,353,555
|
|
|
|
|
|
|
1,971,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
—
|
|
|
|
|
|
|
7,334
|
|
|
|
|
|
Common stock
|
|
12,487
|
|
|
|
|
|
|
12,030
|
|
|
|
|
|
Paid-in capital
|
|
141,782
|
|
|
|
|
|
|
123,351
|
|
|
|
|
|
Treasury stock
|
|
(16,741)
|
|
|
|
|
|
|
(1,437)
|
|
|
|
|
|
Retained earnings
|
|
98,413
|
|
|
|
|
|
|
79,820
|
|
|
|
|
|
Accumulated other comprehensive income (loss)
|
|
2,194
|
|
|
|
|
|
|
(1,803)
|
|
|
|
|
|
Total stockholders’ equity
|
|
238,135
|
|
|
|
|
|
|
219,295
|
|
|
|
|
|
Noncontrolling interest
|
|
604
|
|
|
|
|
|
|
—
|
|
|
|
|
|
Total stockholders’ equity attributable to parent
|
|
238,739
|
|
|
|
|
|
|
219,295
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
2,592,294
|
|
|
|
|
|
|
$
|
2,190,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread (tax-equivalent)
|
|
|
|
|
|
3.07
|
%
|
|
|
|
|
|
3.51
|
%
|
Net interest income and margin (tax-equivalent) 2
|
|
|
|
$
|
19,416
|
|
|
3.24
|
%
|
|
|
|
$
|
18,742
|
|
|
3.78
|
%
|
Less: Tax-equivalent adjustments
|
|
|
|
$
|
(361)
|
|
|
|
|
|
|
$
|
(284)
|
|
|
|
Net interest spread
|
|
|
|
|
|
3.01
|
%
|
|
|
|
|
|
3.46
|
%
|
Net interest income and margin
|
|
|
|
$
|
19,055
|
|
|
3.18
|
%
|
|
|
|
$
|
18,458
|
|
|
3.72
|
%
|
1 Non-accrual loans are included in total loan balances, lowering the effective yield for the portfolio in the aggregate.
2 In order to make pre-tax income and resultant yields on tax-exempt loans and investment securities comparable to those on taxable loans and investment securities, a tax-equivalent adjustment has been computed using a Federal tax rate of 21% for the three months ended June 30, 2021 and 2020, which is a non-U.S. GAAP financial measure. See the reconciliation of this non-U.S. GAAP financial measure to its most directly comparable U.S. GAAP financial measure following this table.
3 The Company’s PPP loans, totaling $207.3 million at June 30, 2021 and $89.8 million at June 30, 2020, are included in this amount for the three months ended June 30, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
(Dollars in thousands)
|
|
Average Balance
|
|
Interest Income/Expense
|
|
Yield/Cost
|
|
Average Balance
|
|
Interest Income/Expense
|
|
Yield/Cost
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing balances with banks
|
|
$
|
218,919
|
|
|
$
|
105
|
|
|
0.10
|
%
|
|
$
|
28,869
|
|
|
$
|
65
|
|
|
0.45
|
%
|
CDs with banks
|
|
11,803
|
|
|
115
|
|
|
1.96
|
|
|
12,680
|
|
|
126
|
|
|
1.99
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
213,944
|
|
|
1,256
|
|
|
1.18
|
|
|
104,932
|
|
|
1,143
|
|
|
2.18
|
|
Tax-exempt 2
|
|
210,146
|
|
|
3,354
|
|
|
3.22
|
|
|
116,997
|
|
|
2,358
|
|
|
4.04
|
|
Loans and loans held-for-sale: 1
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial 3
|
|
1,339,983
|
|
|
30,055
|
|
|
4.52
|
|
|
1,127,430
|
|
|
28,182
|
|
|
5.01
|
|
Tax exempt 2
|
|
7,055
|
|
|
159
|
|
|
4.54
|
|
|
10,319
|
|
|
238
|
|
|
4.63
|
|
Real estate
|
|
306,878
|
|
|
5,430
|
|
|
3.57
|
|
|
481,053
|
|
|
10,655
|
|
|
4.44
|
|
Consumer
|
|
7,120
|
|
|
160
|
|
|
4.53
|
|
|
6,903
|
|
|
251
|
|
|
7.29
|
|
Total loans
|
|
1,661,036
|
|
|
35,804
|
|
|
4.35
|
|
|
1,625,705
|
|
|
39,326
|
|
|
4.85
|
|
Total earning assets
|
|
2,315,848
|
|
|
40,634
|
|
|
3.54
|
|
|
1,889,183
|
|
|
43,018
|
|
|
4.57
|
|
Less: Allowance for loan losses
|
|
(26,399)
|
|
|
|
|
|
|
(12,809)
|
|
|
|
|
|
Cash and due from banks
|
|
21,549
|
|
|
|
|
|
|
27,608
|
|
|
|
|
|
Other assets
|
|
201,533
|
|
|
|
|
|
|
165,387
|
|
|
|
|
|
Total assets
|
|
$
|
2,512,531
|
|
|
|
|
|
|
$
|
2,069,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW
|
|
$
|
618,478
|
|
|
$
|
987
|
|
|
0.32
|
%
|
|
$
|
387,455
|
|
|
$
|
1,573
|
|
|
0.81
|
%
|
Money market checking
|
|
476,628
|
|
|
452
|
|
|
0.19
|
|
|
430,942
|
|
|
2,017
|
|
|
0.94
|
|
Savings
|
|
46,366
|
|
|
5
|
|
|
0.02
|
|
|
40,527
|
|
|
9
|
|
|
0.04
|
|
IRAs
|
|
12,525
|
|
|
82
|
|
|
1.32
|
|
|
14,490
|
|
|
125
|
|
|
1.73
|
|
CDs
|
|
162,694
|
|
|
758
|
|
|
0.94
|
|
|
415,165
|
|
|
3,222
|
|
|
1.56
|
|
Repurchase agreements and federal funds sold
|
|
10,542
|
|
|
8
|
|
|
0.15
|
|
|
9,601
|
|
|
15
|
|
|
0.31
|
|
FHLB and other borrowings
|
|
50,901
|
|
|
88
|
|
|
0.35
|
|
|
96,335
|
|
|
825
|
|
|
1.72
|
|
Subordinated debt
|
|
43,444
|
|
|
956
|
|
|
4.44
|
|
|
4,124
|
|
|
58
|
|
|
2.82
|
|
Total interest-bearing liabilities
|
|
1,421,578
|
|
|
3,336
|
|
|
0.47
|
|
|
1,398,639
|
|
|
7,844
|
|
|
1.12
|
|
Noninterest-bearing demand deposits
|
|
816,078
|
|
|
|
|
|
|
391,872
|
|
|
|
|
|
Other liabilities
|
|
36,960
|
|
|
|
|
|
|
61,644
|
|
|
|
|
|
Total liabilities
|
|
2,274,616
|
|
|
|
|
|
|
1,852,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
1,168
|
|
|
|
|
|
|
7,334
|
|
|
|
|
|
Common stock
|
|
12,433
|
|
|
|
|
|
|
12,014
|
|
|
|
|
|
Paid-in capital
|
|
139,330
|
|
|
|
|
|
|
123,007
|
|
|
|
|
|
Treasury stock
|
|
(16,741)
|
|
|
|
|
|
|
(1,286)
|
|
|
|
|
|
Retained earnings
|
|
99,336
|
|
|
|
|
|
|
77,111
|
|
|
|
|
|
Accumulated other comprehensive income (loss)
|
|
2,083
|
|
|
|
|
|
|
(966)
|
|
|
|
|
|
Total stockholders’ equity
|
|
237,609
|
|
|
|
|
|
|
217,214
|
|
|
|
|
|
Noncontrolling interest
|
|
306
|
|
|
|
|
|
|
—
|
|
|
|
|
|
Total stockholders’ equity attributable to parent
|
|
237,915
|
|
|
|
|
|
|
217,214
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
2,512,531
|
|
|
|
|
|
|
$
|
2,069,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread (tax-equivalent)
|
|
|
|
|
|
3.07
|
%
|
|
|
|
|
|
3.45
|
%
|
Net interest income and margin (tax-equivalent) 2
|
|
|
|
$
|
37,298
|
|
|
3.25
|
%
|
|
|
|
$
|
35,174
|
|
|
3.73
|
%
|
Less: Tax-equivalent adjustments
|
|
|
|
$
|
(738)
|
|
|
|
|
|
|
$
|
(545)
|
|
|
|
Net interest spread
|
|
|
|
|
|
3.00
|
%
|
|
|
|
|
|
3.38
|
%
|
Net interest income and margin
|
|
|
|
$
|
36,560
|
|
|
3.18
|
%
|
|
|
|
$
|
34,629
|
|
|
3.68
|
%
|
1 Non-accrual loans are included in total loan balances, lowering the effective yield for the portfolio in the aggregate.
2 In order to make pre-tax income and resultant yields on tax-exempt loans and investment securities comparable to those on taxable loans and investment securities, a tax-equivalent adjustment has been computed using a Federal tax rate of 21% for the six months ended June 30, 2021 and 2020, which is a non-U.S. GAAP financial measure. See the reconciliation of this non-U.S. GAAP financial measure to its most directly comparable U.S. GAAP financial measure following this table.
3 The Company’s PPP loans, totaling $207.3 million at June 30, 2021 and $89.8 million at June 30, 2020, are included in this amount for the six months ended June 30, 2021.
The following table presents the reconciliation of net interest margin for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(Dollars in thousands)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Net interest margin - U.S. GAAP basis
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
19,055
|
|
|
$
|
18,458
|
|
|
$
|
36,560
|
|
|
$
|
34,629
|
|
Average interest-earning assets
|
|
2,403,613
|
|
|
1,990,718
|
|
|
2,315,848
|
|
|
1,889,183
|
|
Net interest margin
|
|
3.18
|
%
|
|
3.72
|
%
|
|
3.18
|
%
|
|
3.68
|
%
|
|
|
|
|
|
|
|
|
|
Net interest margin - non-U.S. GAAP basis
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
19,055
|
|
|
$
|
18,458
|
|
|
$
|
36,560
|
|
|
$
|
34,629
|
|
Plus: Impact of fully tax-equivalent adjustment
|
|
361
|
|
|
284
|
|
|
738
|
|
|
545
|
|
Net interest income on a fully tax-equivalent basis
|
|
19,416
|
|
|
18,742
|
|
|
37,298
|
|
|
35,174
|
|
Average interest-earning assets
|
|
2,403,613
|
|
|
1,990,718
|
|
|
2,315,848
|
|
|
1,889,183
|
|
Net interest margin on a fully tax-equivalent basis
|
|
3.24
|
%
|
|
3.78
|
%
|
|
3.25
|
%
|
|
3.73
|
%
|
Key Metrics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(Dollars in thousands, except per share data)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Book value per common share
|
|
$
|
21.12
|
|
|
$
|
18.48
|
|
|
$
|
21.12
|
|
|
$
|
18.48
|
|
Efficiency ratio 1 6
|
|
71.6
|
%
|
|
52.1
|
%
|
|
67.9
|
%
|
|
63.7
|
%
|
Overhead ratio 2 3 6
|
|
3.6
|
%
|
|
6.1
|
%
|
|
3.4
|
%
|
|
5.6
|
%
|
Net loan charge-offs to total loans 4
|
|
(0.1)
|
%
|
|
—
|
%
|
|
—
|
%
|
|
0.2
|
%
|
Allowance for loan losses to total loans 5
|
|
1.5
|
%
|
|
1.2
|
%
|
|
1.5
|
%
|
|
1.2
|
%
|
Nonperforming loans
|
|
$
|
15,501
|
|
|
$
|
14,061
|
|
|
$
|
15,501
|
|
|
$
|
14,061
|
|
Nonperforming loans to total loans
|
|
0.9
|
%
|
|
0.9
|
%
|
|
0.9
|
%
|
|
0.9
|
%
|
Equity to assets
|
|
9.1
|
%
|
|
10.3
|
%
|
|
9.1
|
%
|
|
10.3
|
%
|
Bank leverage ratio
|
|
11.0
|
%
|
|
9.5
|
%
|
|
11.0
|
%
|
|
9.5
|
%
|
1 Noninterest expense as a percentage of net interest income and noninterest income
2 Annualized for the quarterly periods presented
3 Noninterest expense as a percentage of average assets
4 Charge-offs less recoveries
5 Excludes loans held-for-sale
6 Non-U.S. GAAP metric
Net Interest Income
Net interest income is the amount by which interest income on earning assets exceeds interest expense incurred on interest-bearing liabilities. Interest-earning assets include loans, investment securities and certificates of deposit in banks. Interest-bearing liabilities include interest-bearing deposits and borrowed funds such as sweep accounts and repurchase agreements. Net interest income, which is the primary source of revenue for the Bank, is also impacted by changes in market interest rates and the mix of interest-earning assets and interest-bearing liabilities. Net interest income is impacted favorably by increases in noninterest-bearing demand deposits and equity.
Net interest margin is calculated by dividing net interest income by average interest-earning assets and measures the net revenue stream generated by the Bank’s balance sheet. The net interest margin continues to face considerable pressure due to low interest rates and competitive pricing of loans and deposits in the Bank’s markets. Net interest spread is calculated by taking the difference between interest earned on earning assets and interest paid on interest-bearing liabilities in an effort to maximize net interest income while maintaining an appropriate level of interest rate risk.
In 2020, the Federal Reserve lowered its key interest rate from a range of 1.50% to 1.75% to a range of 0.00% to 0.25% and remains at this rate as of June 30, 2021. Management’s estimate of the impact of future changes in market interest rates is shown in the section captioned Interest Rate Risk, in Item 3 – Quantitative and Qualitative Disclosures About Market Risk.
Company management continues to analyze methods to deploy assets into an earning asset mix to result in a stronger net interest margin. Loan growth continues to be strong and management anticipates that loan activity will remain strong in the near-term future.
Three Months Ended June 30, 2021 vs. Three Months Ended June 30, 2020
Net interest margin (tax-equivalent) was 3.24% for the three months ended June 30, 2021 compared to 3.78% for the three months ended June 30, 2020. Net interest spread (tax-equivalent) was 3.07% for the three months ended June 30, 2021 compared to 3.51% for the three months ended June 30, 2020. The difference between the net interest margin (tax-equivalent) and net interest spread (tax-equivalent) was 17 basis points in the three months ended June 30, 2021 compared to 27 basis points in the three months ended June 30, 2020. The increase of $355.8 million in average noninterest-bearing demand deposits helped maintain the favorable spread for the three months ended June 30, 2021 and 2020.
During the three months ended June 30, 2021, net interest income increased by $0.6 million, or 3.2%, to $19.1 million from $18.5 million during the three months ended June 30, 2020. This increase is largely due to the increase in the average earning assets of $412.9 million being primarily funded by the increase in noninterest-bearing demand deposits of $355.8 million. Also impacting the yield was the sale of four branches to Summit in April 2020, the accretion related to loans acquired from First State and the amortization of PPP origination fees. Average total earning assets were $2.40 billion in the three months ended June 30, 2021 compared to $1.99 billion in the three months ended June 30, 2020. Although there was an increase in average total earning assets, total interest income decreased by $0.9 million, or 4.3%, to $20.8 million in the three months ended June 30, 2021 from $21.8 million in the three months ended June 30, 2020. This decrease in total interest income was driven by the effect of the Federal Reserve lowering its key interest rates, which resulted in the decrease in the yield on earning assets of 90 basis points. Average total loans and loans held-for-sale increased to $1.75 billion in the three months ended June 30, 2021 from $1.71 billion in the three months ended June 30, 2020, primarily as the result of a $251.0 million increase in average commercial loans; however, PPP loan growth of $117.5 million from June 30, 2020 to June 30, 2021 accounted for a portion of the increase and carried just a 1% yield, exclusive of origination fee accretion. The yield on total loans and loans held-for-sale decreased 43 basis points. Changes in the balance sheet related to the Summit and First State transactions also impacted the yield on earning assets.
Average investment securities increased $241.8 million as the result of a $84.0 million increase in tax-exempt investments and a $157.8 million increase in taxable investments during three months ended June 30, 2021, compared to three months ended June 30, 2020. The yield on tax-exempt securities decreased 87 basis points and the taxable securities yield decreased 100 basis points.
Average interest-bearing liabilities increased by $77.5 million for three months ended June 30, 2021 from three months ended June 30, 2020. The increase was primarily the result of increases of $349.5 million in the average balance of negotiable order of withdrawal accounts, $39.3 million in the average balance of subordinated debt, $36.4 million in money market checking accounts and $11.5 million in the average balance of savings accounts, partially offset by decreases of $339.0 million in the average balance of certificates of deposit and $21.3 million in the average balance of FHLB and other borrowings.
Average interest-bearing deposits were $1.40 billion for the three months ended June 30, 2021 and $1.35 billion for the three months ended June 30, 2020. Total interest expense decreased by $1.5 million, caused primarily by a $1.8 million decrease in deposit interest. The result was a 46-basis point decrease in the cost of interest-bearing liabilities, primarily from the improved deposit mix resulting from the replacement of high-cost deposits with noninterest-bearing deposits.
The Company’s average earning assets increased $412.9 million and net interest income increased by $0.6 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020. Net interest margin continues to be pressured by falling rates and increased competition for high-quality loan growth.
The Bank’s yield on earning assets for the three months ended June 30, 2021 declined due to decreases in the loan portfolio yield of 43 basis points, driven by the addition of PPP loans originated in the second quarter of 2020 and the first quarter of 2021, and the investment portfolio yield of 118 basis points, while the cost of interest-bearing liabilities decreased by 46 basis points compared to three months ended June 30, 2020.
The cost of interest-bearing liabilities decreased to 0.47% in the three months ended June 30, 2021 from 0.93% in the three months ended June 30, 2020. This decrease is primarily the result of decreases of 97 basis points in the cost of FHLB and other borrowings and a 55 basis point decrease in the cost of deposits, primarily from the improved deposit mix resulting from the replacement of high-cost deposits with noninterest-bearing deposits.
Six Months Ended June 30, 2021 vs. Six Months Ended June 30, 2020
Net interest margin (tax-equivalent) was 3.25% for the six months ended June 30, 2021 compared to 3.73% for the six months ended June 30, 2020. Net interest spread (tax-equivalent) was 3.07% for the six months ended June 30, 2021 compared to 3.45% for the six months ended June 30, 2020. The difference between the net interest margin (tax-equivalent) and net interest spread (tax-equivalent) was 18 basis points in the six months ended June 30, 2021 compared to 28 basis points in the six months ended June 30, 2020. The increase of $424.2 million in average noninterest-bearing demand deposits helped maintain the favorable spread for the six months ended June 30, 2021 and 2020, respectively.
During the six months ended June 30, 2021, net interest income increased by $2.0 million, or 5.6%, to $36.6 million from $34.6 million during the six months ended June 30, 2020. This increase is largely due to the increase in the average earning assets of $426.7 million being primarily funded by the increase in noninterest-bearing demand deposits of $424.2 million. Also impacting the yield was the sale of four branches to Summit in April 2020, the accretion related to loans acquired from First State and the amortization of PPP origination fees. Average total earning assets were $2.32 billion in the six months ended June 30, 2021 compared to $1.89 billion in the six months ended June 30, 2020. Although there was an increase in average total earning assets, total interest income decreased by $2.6 million, or 6.1%, to $39.9 million in the six months ended June 30, 2021 from $42.5 million in the six months ended June 30, 2020. This decrease in total interest income was driven by the effect of the Federal Reserve lowering its key interest rates, which resulted in the decrease in yield on earning assets of 103 basis points. Average total loans and loans held-for-sale increased to $1.66 billion in the six months ended June 30, 2021 from $1.63 billion in the six months ended June 30, 2020, primarily as the result of a $212.6 million increase in average commercial loans; however, PPP loan growth of $117.5 million from June 30, 2020 to June 30, 2021 accounted for a portion of the increase and carried just a 1% yield, exclusive of origination fee accretion. The yield on total loans and loans held-for-sale decreased 50 basis points. Changes in the balance sheet related to the Summit and First State transactions also impacted the yield on earning assets.
Average investment securities increased $202.2 million as the result of a $93.1 million increase in tax-exempt investments and a $109.0 million increase in taxable investments during the six months ended June 30, 2021, compared to the six months ended June 30, 2020. The yield on tax-exempt securities decreased 82 basis points and the taxable securities yield decreased 100 basis points.
Average interest-bearing liabilities increased by $22.9 million for the six months ended June 30, 2021 from the six months ended June 30, 2020. The increase was primarily the result of increases of $231.0 million in the average balance of negotiable order of withdrawal accounts, $45.7 million in money market checking accounts, $39.3 million in the average balance of subordinated debt and $5.8 million in the average balance of savings accounts, partially offset by decreases of $252.5 million in the average balance of certificates of deposit and $45.4 million in the average balance of FHLB and other borrowings.
Average interest-bearing deposits were $1.32 billion for the six months ended June 30, 2021 and $1.29 billion for the six months ended June 30, 2020. Total interest expense decreased by $4.5 million, caused primarily by a $4.7 million decrease in deposit interest. The result was a 65-basis point decrease in the cost of interest-bearing liabilities, primarily from the improved deposit mix resulting from the replacement of high-cost deposits with noninterest-bearing deposits.
The Company’s average earning assets increased $426.7 million and net interest income increased by $1.9 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020. Net interest margin continues to be pressured by falling rates and increased competition for high-quality loan growth.
The Bank’s yield on earning assets for the six months ended June 30, 2021 declined due to decreases in the loan portfolio yield of 50 basis points, driven by the addition of PPP loans originated in the second quarter of 2020 and the first quarter of 2021, and the investment portfolio yield of 97 basis points, while the cost of interest-bearing liabilities decreased by 65 basis points compared to six months ended June 30, 2020.
The cost of interest-bearing liabilities decreased to 0.47% in the six months ended June 30, 2021 from 1.12% in the six months ended June 30, 2020. This decrease is primarily the result of decreases of 137 basis points in the cost of FHLB and other borrowings and a 73 basis point decrease in the cost of deposits, primarily from the improved deposit mix resulting from the replacement of high-cost deposits with noninterest-bearing deposits.
Further discussion on borrowings is included in Note 7 – Borrowed Funds accompanying the consolidated financial statements included elsewhere in this report.
Provision for Loan Losses
The provision for loan losses, which is a product of management’s formal quarterly analysis, is recorded in response to inherent losses in the loan portfolio. No loan loss provision was required and a total of $1.5 million was released from the allowance for loan losses into earnings for the three months ended June 30, 2021. In contrast, loan loss provision of $6.6 million was made for the three months ended June 30, 2020. This resulted in a net release of allowance for loan losses of $0.9 million for the six months ended June 30, 2021, compared to the loan loss provision of $7.7 million that was made for the six months ended June 30, 2020. The decrease in loan loss provision is primarily the result of the improvement of the qualitative adjustment factors within the allowance methodology. In addition, changes to the outstanding balances of the loan portfolios, changes to the level of recognized charge-offs and changes in the resulting historical loss rates, and adjustments to the risk grading of loans within the portfolio were all contributing factors in the ultimate change in loan loss provision.
Meanwhile, management has continued to evaluate the qualitative factor framework within the allowance for loan loss methodology in order to assess how well the framework can appropriately respond to the unprecedented risk presented by the COVID-19 pandemic. As a result, the framework was significantly enhanced in the third quarter of 2020 to consider a much greater degree of risk than when the framework was originally designed. The framework has consistently generated an adequate allowance for loan loss within a generally stable economic environment. However, the onset of the COVID-19 pandemic made it apparent that the framework required modifications to consider this greater degree of risk. While the ultimate timing and severity of impacts to the economic and business conditions in which the Company operates are not yet fully known, it appears that the impacts will continue to be significant and it is likely that the impacts will evolve as businesses and individuals learn to adapt to a new way of operating and living. The breadth of the COVID-19 pandemic and the fact that it impacts virtually all industries has inherently created additional risk within the loan portfolios, despite there being no change to the nature of those portfolios.
Furthermore, as a result of the ongoing analysis of the loan portfolios, it has become apparent that a significant number of borrowers are experiencing a strain on their operations, As a result, they present an increase in the volume and severity of problem loans. Additionally, it is evident that consumer sentiment has been impacted, although not as significantly as during the Great Recession. Other significant factors include the increasingly volatile social atmosphere, the evolving political climate and the vaccines' timing and effectiveness. The unprecedented initiatives of the Federal Government to provide support to the economy through new loan programs has simultaneously served to temporarily mitigate some of the impacts to the economy and borrowers, while also adding some degree of increased risk to lending policies and procedures as a result of the pace and manner in which these programs have been developed and made available to the public. As a result, quantifiable evidence of the impacts to the Company's loan portfolios have not yet fully revealed themselves in terms of delinquent loans or deterioration in collateral values. Meanwhile, the Company has not made any significant changes to lending strategies that would impact the concentrations of credit risk within those portfolios.
Three Months Ended June 30, 2021 vs. Three Months Ended June 30, 2020
Total loan balances increased $2.9 million during the three months ended June 30, 2021 versus an increase of $98.1 million in the three months ended June 30, 2020. The commercial loan portfolio increased by $26.5 million during the three months ended June 30, 2021, in comparison to an increase of $53.1 million in the three months ended June 30, 2020, while the residential mortgage loan portfolio decreased by $25.2 million during the three months ended June 30, 2021, while increasing by $45.2 million in the three months ended June 30, 2020. Included in the commercial and total loan volume increases are SBA PPP loans totaling $207.3 million as of June 30, 2021 compared to $89.8 million as of June 30, 2020. This portion of loan growth is significant to the overall change in provision as these loans are guaranteed by the SBA, and accordingly, are subject to a loan loss allocation that is only a fraction of the typical allocation rate applied to other loans in the portfolio. In addition, net recoveries during the three months ended June 30, 2021 totaled $0.2 million, compared to net charge-offs of $0.03 million in the three months ended June 30, 2020. Additionally, provision was impacted by a $0.1 million increase in the specific loan loss allocations in the three months ended June 30, 2021, relative to a $1.0 million increase in the three months ended June 30, 2020.
Six Months Ended June 30, 2021 vs. Six Months Ended June 30, 2020
Total loan balances increased $243.6 million during the six months ended June 30, 2021 versus an increase of $120.1 million in the six months ended June 30, 2020. The commercial loan portfolio increased by $237.6 million during the six months ended June 30, 2021, in comparison to an increase of $83.8 million in the six months ended June 30, 2020, while the residential mortgage loan portfolio increased by $7.6 million during the six months ended June 30, 2021, while increasing by $35.1 million in the six months ended June 30, 2020. Included in the commercial and total loan volume increases are SBA PPP loans totaling $207.3 million as of June 30, 2021 compared to $89.8 million as of June 30, 2020. This portion of loan growth is significant to the overall change in provision as these loans are guaranteed by the SBA, and accordingly, are subject to a loan loss allocation that is only a
fraction of the typical allocation rate applied to other loans in the portfolio. In addition, net charge-offs during the six months ended June 30, 2021 totaled $0.04 million, compared to net charge-offs of $1.8 million in the six months ended June 30, 2020. Additionally, provision was impacted by a $0.1 million decrease in the specific loan loss allocations in the six months ended June 30, 2021, relative to a $1.0 million increase in the six months ended June 30, 2020.
Noninterest Income
Payment card and service charge income, consulting compliance income, equity method investment income and gains on securities generate the majority of the Company’s noninterest income.
Three Months Ended June 30, 2021 vs. Three Months Ended June 30, 2020
Noninterest income for the three months ended June 30, 2021 and 2020 totaled $13.6 million and $45.5 million, respectively. The decrease in noninterest income for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 was primarily the result of decreases of $14.9 million in mortgage fee income, $14.3 million in gains on acquisition and divestiture activity and $13.4 million in the gain on derivatives. These decreases were partially offset by increases of $4.5 million in equity method investment income from ICM, $1.4 million in payment card and service charge income, $1.4 million in the gain on sale of loans and $1.2 million in the gain on sale of available-for-sale securities.
Mortgage fee income decreased $14.9 million for the three months ended June 30, 2021 due to the ICM combination in July 2020. Prior to this combination, income from the Company's mortgage activities was recognized through mortgage fee income.
Gains on acquisition and divestiture activity decreased $14.3 million for the three months ended June 30, 2021 due to the sale of four branches to Summit in April 2020 and the acquisition of branch locations from First State in April 2020.
Gain on derivatives decreased $13.4 million for the three months ended June 30, 2021 due to the removal of the mortgage derivative driven by the ICM combination.
Equity method investment income increased $4.5 million for the three months ended June 30, 2021 due to the ICM combination in July 2020. Prior to this combination, income from the Company's mortgage activities was recognized through mortgage fee income.
Gain on sale of loans increased $1.4 million for the three months ended June 30, 2021 due to the addition of the SBA lending team during the fourth quarter of 2020.
Payment card and service charge income increased $1.4 million for the three months ended June 30, 2021 due to several sponsoring agreements and new products and services as a result of recent investments in Fintech capabilities.
Gain on sale of available-for-sale securities increased $1.2 million for the three months ended June 30, 2021 due to the sale of available-for-sale investments totaling $34.3 million in the second quarter of 2021.
Six Months Ended June 30, 2021 vs. Six Months Ended June 30, 2020
Noninterest income for the six months ended June 30, 2021 and 2020 totaled $26.1 million and $56.4 million, respectively. The decrease in noninterest income for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 was primarily the result of decreases of $26.2 million in mortgage fee income, $14.3 million in gains on acquisition and divestiture activity and $9.9 million in the gain on derivatives. These decreases were partially offset by increases of $11.0 million in equity method investment income from ICM, $2.3 million in payment card and service charge income, $2.0 million in the gain on sale of available-for-sale securities and $2.1 million in the gain on sale of loans.
Mortgage fee income decreased $26.2 million for the six months ended June 30, 2021 due to the ICM combination in July 2020. Prior to this combination, income from the Company's mortgage activities was recognized through mortgage fee income.
Gains on acquisition and divestiture activity decreased $14.3 million for the six months ended June 30, 2021 due to the sale of four branches to Summit in April 2020 and the acquisition of branch locations from First State in April 2020.
Gain on derivatives decreased $9.9 million for the six months ended June 30, 2021 due to the removal of the mortgage derivative driven by the ICM combination.
Equity method investment income increased $11.0 million for the six months ended June 30, 2021 due to the ICM combination in July 2020. Prior to this combination, income from the Company's mortgage activities was recognized through mortgage fee income.
Payment card and service charge income increased $2.3 million for the six months ended June 30, 2021 due to several sponsoring agreements and new products and services as a result of recent investments in Fintech capabilities.
Gain on sale of available-for-sale securities increased $2.0 million for the six months ended June 30, 2021 due to the sale of available-for-sale securities totaling $75.3 million in the first and second quarters of 2021.
Gain on sale of loans increased $2.1 million for the six months ended June 30, 2021 due to the addition of the SBA lending team during the fourth quarter of 2020.
Noninterest Expense
Three Months Ended June 30, 2021 vs. Three Months Ended June 30, 2020
Noninterest expense was $23.4 million and $33.3 million in the three months ended June 30, 2021 and 2020, respectively. Approximately 58% and 68% of noninterest expense for the three months ended June 30, 2021 and 2020, respectively, was related to personnel costs. Personnel costs are a significant part of the Company's noninterest expense as such costs are critical to services organizations. Salaries and benefits decreased by $9.0 million, primarily as a result of the ICM combination and partially offset by the acquisition of First State in April 2020. Mortgage processing decreased by $0.9 million in the three months ended June 30, 2021 compared to the three months ended June 30, 2020, primarily as the result of the ICM combination.
Six Months Ended June 30, 2021 vs. Six Months Ended June 30, 2020
Noninterest expense was $42.5 million and $58.0 million in the six months ended June 30, 2021 and 2020, respectively. Approximately 60% and 67% of noninterest expense for the six months ended June 30, 2021 and 2020, respectively, was related to personnel costs. Personnel costs are a significant part of the Company's noninterest expense as such costs are critical to services organizations. Salaries and benefits decreased by $13.3 million, primarily as a result of the ICM combination and partially offset by the acquisition of First State in April 2020. Mortgage processing decreased by $1.7 million in the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily as the result of the ICM combination.
Return on Assets and Equity
Assets
Three Months Ended June 30, 2021 vs. Three Months Ended June 30, 2020
The Company’s return on average assets was 1.4% for the three months ended June 30, 2021, compared to 3.3% for the three months ended June 30, 2020. The decreased return in 2021 is a result of an $8.8 million decrease in earnings, while average total assets increased by $401.6 million, mainly as the result of a $241.8 million increase in average investment securities, a $134.7 million increase in average interest-bearing balances with banks and a $37.4 million increase in average total loans.
Six Months Ended June 30, 2021 vs. Six Months Ended June 30, 2020
The Company’s return on average assets was 1.4% for the six months ended June 30, 2021, compared to 1.8% for the six months ended June 30, 2020. The decreased return in 2021 is a result of a $1.7 million decrease in earnings, while average total assets increased by $443.2 million, mainly as the result of a $202.2 million increase in average investment securities, a $190.1 million increase in average interest-bearing balances with banks and a $35.3 million increase in average total loans.
Equity
Three Months Ended June 30, 2021 vs. Three Months Ended June 30, 2020
The Company’s return on average stockholders’ equity was 15.5% for the three months ended June 30, 2021, compared to 32.9%
for the three months ended June 30, 2020. The decreased return in 2021 is a result of an $8.8 million decrease in earnings, while average equity increased by $19.4 million.
Six Months Ended June 30, 2021 vs. Six Months Ended June 30, 2020
The Company’s return on average stockholders’ equity was 14.6% for the six months ended June 30, 2021, compared to 17.6% for the six months ended June 30, 2020. The decreased return in 2021 is a result of a $1.7 million decrease in earnings, while average equity increased by $20.7 million.
Statement of Financial Condition
Cash and Cash Equivalents
Cash and cash equivalents totaled $332.8 million at June 30, 2021 (exclusive of $1.3 million of cash and cash equivalents classified as held-for-sale), compared to $263.9 million at December 31, 2020.
Management believes the current balance of cash and cash equivalents adequately serves the Company’s liquidity and performance needs. Total cash and cash equivalents fluctuate daily due to transactions in process and other liquidity demands. Management believes liquidity needs are satisfied by the current balance of cash and cash equivalents, readily available access to traditional and non-traditional funding sources and the portions of the investment and loan portfolios that mature within one year. These sources of funds should enable the Company to meet cash obligations as they come due. Due to the increase in liquidity driven by growth in noninterest-bearing deposits, management has elected to maintain a higher cash and cash equivalents balance to provide flexibility during the COVID-19 pandemic.
Investment Securities
Investment securities, including equity securities, totaled $483.0 million at June 30, 2021, compared to $438.2 million at December 31, 2020. The following table presents a summary of the investment securities portfolio as of the periods indicated. The available-for-sale securities are reported at estimated fair value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
June 30, 2021
|
|
December 31, 2020
|
Available-for-sale securities:
|
|
|
|
|
United States government agency securities
|
|
$
|
43,202
|
|
|
$
|
56,992
|
|
United States sponsored mortgage-backed securities
|
|
86,236
|
|
|
95,769
|
|
United States treasury securities
|
|
106,656
|
|
|
—
|
|
Municipal securities
|
|
196,249
|
|
|
231,887
|
|
Other debt securities
|
|
7,500
|
|
|
7,500
|
|
Other securities
|
|
10,929
|
|
|
18,476
|
|
Total investment securities available-for-sale
|
|
$
|
450,772
|
|
|
$
|
410,624
|
|
|
|
|
|
|
Equity securities
|
|
$
|
32,215
|
|
|
$
|
27,585
|
|
Management monitors the earnings performance and liquidity of the investment portfolio regularly through the Asset and Liability Committee (“ALCO”) meetings. The ALCO also monitors net interest income and assists in managing interest rate risk for the Company. Through active balance sheet management and analysis of the investment securities portfolio, sufficient liquidity is maintained to satisfy depositor requirements and the various credit needs of its customers. Management believes the risk characteristics inherent in the investment portfolio are acceptable based on these parameters.
Loans
The Company’s loan portfolio totaled $1.70 billion as of June 30, 2021 and totaled $1.45 billion as of December 31, 2020. The Bank’s lending is primarily focused in North Central West Virginia and Northern Virginia. The portfolio consists principally of commercial lending, retail lending, which includes single-family residential mortgages, and consumer lending. The growth in loans is primarily attributable to organic growth within the Bank’s primary lending areas and Northern Virginia, as well as the
addition of an SBA lending team in the fourth quarter of 2020.
The total of residential real estate loans reported as 90 or more days past due increased significantly during the three months ended June 30, 2021. This increase was the result of a single loan in the amount of $5.6 million that became delinquent due to an interruption in the employment status of the borrower. The loan is well secured by the residence, which provides a loan to value of approximately 50%, and the borrower is now under a forbearance agreement.
For more information regarding the Company's loans, see Note 3 – Loans and Allowance for Loan Losses accompanying the consolidated financial statements included elsewhere in this report.
Loan Concentration
At June 30, 2021 and December 31, 2020, commercial and non-residential real estate loans comprised the largest component of the loan portfolio. A large portion of commercial loans are secured by real estate and they are diverse with respect to geographical location and industry. Loans that are not secured by real estate are typically secured by accounts receivable, mortgages or equipment. While the loan concentration is in commercial loans, the commercial portfolio is comprised of loans to many different borrowers in numerous different industries, primarily located in the Company's market areas.
Allowance for Loan Losses
The ALL was $24.9 million or 1.5% of total loans at June 30, 2021 compared to $25.8 million or 1.8% of total loans at December 31, 2020. The decrease in this ratio directly resulted from the $0.9 million release from the ALL into earnings for the six months ended June 30, 2021. The decrease in ALL was primarily the result of improvement in the qualitative adjustment factors within the allowance methodology. In addition, changes to the outstanding balances of the loan portfolios, changes in the level of recognized charge-offs and changes in the resulting historical loss rates, and adjustments to the risk grading of loans within the portfolio were all contributing factors in the ultimate change in loan loss provision.
Management continually monitors the risk in the loan portfolio through the review of the monthly delinquency reports and the Loan Review Committee. The Loan Review Committee is responsible for the determination of the adequacy of the ALL. This analysis involves both experience of the portfolio to date and the makeup of the overall portfolio. Specific loss estimates are derived for individual loans based on specific criteria such as current delinquent status, related deposit account activity, where applicable and changes in the local and national economy. When appropriate, management also considers public knowledge and verifiable information from the local market to assess risks to specific loans and the loan portfolios as a whole.
Funding Sources
The Bank considers a number of alternatives, including but not limited to deposits, short-term borrowings and long-term borrowings when evaluating funding sources. Traditional deposits remain the most significant source of funds, totaling $2.23 billion, or 97.6% of funding sources, at June 30, 2021. This same information at December 31, 2020 reflected $1.98 billion in deposits representing 97.4% of funding sources.
FHLB and other borrowings and subordinated debt represented 1.9% of funding sources at June 30, 2021 and 2.1% of funding sources at December 31, 2020. FHLB and other borrowings totaled $0.1 million at June 30, 2021 and there were no FHLB and other borrowings at December 31, 2020. Subordinated debt totaled $43.5 million at June 30, 2021 and $43.4 million at December 31, 2020.
Repurchase agreements, which are available to large corporate customers, represented 0.5% of funding sources at both June 30, 2021 and December 31, 2020.
Management continues to emphasize the development of additional noninterest-bearing deposits as a core funding source for the
Company. At June 30, 2021, noninterest-bearing balances totaled $932.7 million, compared to $715.8 million at December 31, 2020, or 41.8% and 36.1%, respectively, of total deposits. Interest-bearing deposits totaled $1.30 billion at June 30, 2021, compared to $1.27 billion at December 31, 2020, or 58.2% and 63.9%, respectively, of total deposits. The main driver of deposit growth has been the increase in Fintech deposits from $533.0 million at December 31, 2020 to $765.9 million as of June 30, 2021, through the addition of new relationships and continuing to grow current relationships. This growth in Fintech deposits is primarily due to the increase in gaming deposits, primarily as a result of the increasing number of states legalizing sports gaming. Gaming deposits, which are included in total Fintech deposits, totaled $595.9 million as of June 30, 2021, compared to $357.9 million at December 31, 2020. The Company currently expects its Fintech banking to continue to grow.
The following table presents the balance of each of the deposit categories as of the periods indicated:
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|
|
|
|
|
(Dollars in thousands)
|
|
June 30, 2021
|
|
December 31, 2020
|
Noninterest-bearing demand
|
|
$
|
932,660
|
|
|
$
|
715,791
|
|
Interest-bearing demand
|
|
669,036
|
|
|
496,502
|
|
Savings and money markets
|
|
457,126
|
|
|
545,501
|
|
Time deposits, including CDs and IRAs
|
|
170,353
|
|
|
224,595
|
|
Total deposits
|
|
$
|
2,229,175
|
|
|
$
|
1,982,389
|
|
|
|
|
|
|
Time deposits that meet or exceed the FDIC insurance limit
|
|
$
|
14,601
|
|
|
$
|
16,955
|
|
Average interest-bearing deposits were $1.40 billion during the three months ended June 30, 2021 compared to $1.35 billion during the same time period in 2020 and average noninterest-bearing deposits were $810.3 million during the three months ended June 30, 2021 compared to $454.5 million during the same time period in 2020.
Average interest-bearing deposits were $1.32 billion during the six months ended June 30, 2021 compared to $1.29 billion during the same time period in 2020 and average noninterest-bearing deposits were $816.1 million during the six months ended June 30, 2021 compared to $391.9 million during the same time period in 2020.
Along with traditional deposits, the Bank has access to both short-term borrowings from FHLB and overnight repurchase agreements to fund its operations and investments. For details on the Company's borrowings, refer to Note 7 – Borrowed Funds accompanying the consolidated financial statements included elsewhere in this report.
Capital and Stockholders' Equity
During the six months ended June 30, 2021, stockholders’ equity increased $9.9 million to $249.4 million. This increase consists of net income attributable to the Company for the year-to-date period of $17.3 million, common stock options exercised totaling $2.3 million, stock-based compensation of $1.3 million and noncontrolling interests due to acquisitions of $0.8 million. These increases were partially offset by the redemption of preferred stock of $7.3 million, other comprehensive loss of $2.2 million and cash dividends paid of $2.6 million.
With the stockholders’ equity increasing as noted above and being outpaced by the growth in assets of $403.1 million in the six months ended June 30, 2021, the equity to assets ratio decreased from 10.3% at December 31, 2020 to 9.1% at June 30, 2021. The Company paid dividends to common shareholders of $2.6 million and $2.2 million in the six months ended June 30, 2021 and 2020, respectively, compared to earnings of $17.3 million and $19.1 million in the six months ended June 30, 2021 and 2020, respectively, resulting in the dividend payout ratio increasing to 14.8% in the six months ended June 30, 2021 from 11.3% in the six months ended June 30, 2020 .
The Company and the Bank are also subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. The Bank is
required to comply with applicable capital adequacy standards established by the FDIC. The Company is exempt from the Federal
Reserve Board’s capital adequacy standards as it believes it meets the requirements of the Small Bank Holding Company Policy Statement. West Virginia state chartered banks, such as the Bank, are subject to similar capital requirements adopted by the West Virginia Division of Financial Institutions. Bank regulators have established “risk-based” capital requirements designed to measure capital adequacy. Risk-based capital ratios reflect the relative risks of various assets companies hold in their portfolios. A
weight category of 0% (lowest risk assets), 20%, 50%, 100% or 150% (highest risk assets) is assigned to each asset on the balance
sheet. Detailed information concerning the Company’s risk-based capital ratios can be found in Supervision and Regulation in Item 1 – Business and Note 15 – Regulatory Capital Requirements to the consolidated financial statements and accompanying notes contained in the 2020 Form 10-K.
In November 2019, federal regulators finalized and adopted a regulatory capital rule establishing a new community bank leverage ratio (“CBLR”), which became effective on January 1, 2020. The CBLR intends to provide a simple alternative measure of capital adequacy for electing qualifying depository institutions as directed under the EGRRCPA. Under the CBLR, if a qualifying depository institution elects to use such measure, such institutions will be considered well capitalized if its ratio of Tier 1 capital to average total consolidated assets (i.e. leverage ratio) exceeds a 9% threshold, subject to a limited two quarter grace period,
during which the leverage ratio cannot go 100 basis points below the then applicable threshold, and will not be required to calculate and report risk-based capital ratios.
In April 2020, under the CARES Act, the 9% leverage ratio threshold was temporarily reduced to 8% in response to the COVID-19 pandemic. The threshold will increase to 8.5% in 2021 and return to 9% in 2022. The Bank elected to begin using the CBLR for the first quarter of 2021 and intends to utilize this measure for the foreseeable future. Eligibility criteria to utilize the CBLR includes the following:
● Total assets of less than $10 billion;
● Total trading assets plus liabilities of 5% or less of consolidated assets;
● Total off-balance sheet exposures of 25% or less of consolidated assets;
● Cannot be an advanced approaches banking organization; and
● Leverage ratio greater than 9%, or temporarily prescribed threshold established in response to COVID-19.
The Bank's CBLR at June 30, 2021 was 11.0%, which is above the well-capitalized standard of 8.5%. Management believes that capital continues to provide a strong base for profitable growth.
Liquidity
Maintenance of a sufficient level of liquidity is a primary objective of the ALCO. Liquidity, as defined by the ALCO, is the ability to meet anticipated operating cash needs, loan demand and deposit withdrawals without incurring a sustained negative impact on net interest income. It is the Company’s policy to manage liquidity so that there is no need to make unplanned sales of assets or to borrow funds under emergency conditions.
The main source of liquidity for the Bank comes through deposit growth. Liquidity is also provided from cash generated from investment maturities, principal payments from loans and income from loans and investment securities. During the six months ended June 30, 2021, cash provided by financing activities totaled $405.8 million, while outflows from investing activity totaled $340.4 million. When appropriate, the Bank has the ability to take advantage of external sources of funds such as advances from the FHLB, national market certificate of deposit issuance programs, the Federal Reserve discount window, brokered deposits and Certificate of Deposit Account Registry Services. These external sources often provide attractive interest rates and flexible maturity dates that enable the Bank to match funding with contractual maturity dates of assets. Securities in the investment portfolio are classified as available-for-sale and can be utilized as an additional source of liquidity.
The Company has an effective shelf registration covering $75 million of debt and equity securities, all of which is available, subject to authorization from the Board of Directors and market conditions, to issue debt or equity securities at the Company's discretion. While the Company seeks to preserve flexibility with respect to cash requirements, there can be no assurance that market conditions would permit it to sell securities on acceptable terms or at all.
Current Economic Conditions
The Company considers its primary market area for CoRe banking services to be comprised of North Central West Virginia and Northern Virginia. The Company considers its Fintech banking market to be customers located throughout the entire United States.
The Company believes that the current economic climate in its primary market areas reflect economic climates that are consistent with the general national economic climate. Unemployment in the United States was 6.1% and 11.2% for June 2021 and 2020, respectively.
Commitments and Contingent Liabilities
The Company is a party to financial instruments with off-balance-sheet risk in the ordinary course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the statements of financial condition.
The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The
Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount and type of collateral obtained, if deemed necessary by the Company upon extension of credit, varies and is based on management’s credit evaluation of the customer.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Standby letters of credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. The Company’s policy for obtaining collateral, and the nature of such collateral, is essentially the same as that involved in making commitments to extend credit.
Concentration of Credit Risk
The Company grants a majority of its commercial, financial, agricultural, real estate and installment loans to customers throughout the North Central West Virginia and Northern Virginia markets. Collateral for loans is primarily residential and commercial real estate, personal property and business equipment. The Company evaluates the creditworthiness of each of its customers on a case-by-case basis and the amount of collateral it obtains is based upon management’s credit evaluation.
Regulatory
The Company is required to maintain certain reserve balances on hand in accordance with the Federal Reserve Board requirements. In accordance with these requirements, the Company implemented a deposit reclassification program that allowed the Company to maintain no such reserve balances as of June 30, 2021 and December 31, 2020.
In addition, MVB Bank is now subject to certain regulatory requirements resulting from its increased levels of insured deposit accounts. FDIC rules set forth in 12 CFR Part 370 impose recordkeeping requirements on insured depository institutions with two million or more deposit accounts (such as MVB Bank) to facilitate rapid payment of insured deposits to customers if such an institution were to fail. The rule requires those insured depository institutions to: (i) maintain complete and accurate data on each depositor’s ownership interest by right and capacity for all of the institution’s deposit accounts; and (ii) develop the capability to calculate the insured and uninsured amounts for each deposit owner within 24 hours of failure. The FDIC will conduct periodic testing of compliance with these requirements, and institutions subject to the rule must submit to the FDIC a certification of compliance, signed by the bank’s CEO, and deposit insurance coverage summary report on or before the mandatory compliance date and annually thereafter.
Additional information regarding supervision and regulatory matters related to the Company’s business and operations can be found in in Item 1. Business of the 2020 Form 10-K under the heading Supervision and Regulation.
Contingent Liability
The Company's subsidiary bank is involved in various legal actions arising in the ordinary course of business. In the opinion of management and counsel, the outcome of these matters will not have a significant adverse effect on the consolidated financial statements.
Off-Balance Sheet Commitments
The Bank has entered into certain agreements that represent off-balance sheet arrangements that could significantly impact the consolidated financial statements and could have a significant impact in future periods. Specifically, the Bank has entered into agreements to extend credit or provide conditional payments pursuant to standby and commercial letters of credit. In addition, the Bank utilizes letters of credit issued by the FHLB to collateralize certain public funds deposits.
Commitments to extend credit, including loan commitments, standby letters of credit and commercial letters of credit do not necessarily represent future cash requirements, in that these commitments often expire without being drawn upon.
Critical Accounting Policies and Estimates
The preparation of the accompanying condensed consolidated financial statements in conformity with U.S. GAAP required management to use judgment in making estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses.
There have been no significant changes to the Company's critical accounting policies and estimates or in the underlying accounting assumptions and estimates used in these critical accounting policies from those disclosed in the consolidated financial statements and accompanying notes contained in the 2020 Form 10-K.
Recent Accounting Pronouncements and Developments
Recent accounting pronouncements and developments applicable to the Company are described further in Note 1 – Nature of Operations and Basis of Presentation accompanying the consolidated financial statements included elsewhere in this report.