Texas
|
|
001-36682
|
|
27-0973566
|
(State or other jurisdiction of incorporation)
|
|
(Commission File Number)
|
|
(IRS Employer
Identification No.)
|
(i)
|
The audited consolidated balance sheets of Sovereign Bancshares as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the two years in the period ended December 31, 2015, and the related notes and report of independent auditors thereto, required by this item are included as Exhibit 99.3 and incorporated by reference herein.
|
(ii)
|
The unaudited consolidated balance sheets of Sovereign Bancshares as of September 30, 2016 and 2015, and related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for the nine months ended September 30, 2016 and 2015, and related notes required by this item, are included as Exhibit 99.4 and incorporated herein by reference.
|
(iii)
|
Sovereign Bancshares’s Management’s Discussion and Analysis of Financial Condition and Results of Operations comparing December 31, 2015 to December 31, 2014 and September 30, 2016 to September 30, 2015 required by this item, are included as Exhibit 99.5 and incorporated herein by reference.
|
(i)
|
The unaudited pro forma combined condensed consolidated balance sheet as of September 30, 2016, and the unaudited pro forma combined condensed consolidated statements of income for the nine months ended September 30, 2016, and the year ended December 31, 2015, required by this item are incorporated herein by reference to Exhibit 99.6.
|
(i)
|
Not applicable.
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
|
2.1
|
|
Agreement and Plan of Reorganization by and between Veritex Holdings, Inc., Spartan Merger Sub, Inc., and Sovereign Bancshares, Inc., dated December 14, 2016.
|
10.1
|
|
Form of Voting Agreement, dated December 14, 2016, by and among Veritex Holdings, Inc. and certain shareholders of Sovereign Bancshares (included as Exhibit A to Exhibit 2.1 to this Current Report on Form 8-K).
|
10.2
|
|
Form of Director Support Agreement, dated December 14, 2016, by and between Veritex Holdings, Inc. and non-employee directors of Sovereign Bancshares, Inc. (included as Exhibit B to Exhibit 2.1 to this Current Report on Form 8-K).
|
23.1
|
|
Consent of RSM US LLP.
|
23.2
|
|
Consent of Grant Thornton LLP
|
99.1
|
|
Press Release issued by Veritex Holdings, Inc. announcing the execution of the Agreement and related information, dated December 14, 2016.
|
99.2
|
|
Press Release issued by Veritex Holdings, Inc. announcing commencement of an underwritten public offering, dated December 14, 2016.
|
99.3
|
|
Audited Consolidated Financial Statements of Sovereign Bancshares, Inc. as of and for the years ended December 31, 2015 and 2014.
|
99.4
|
|
Unaudited Consolidated Financial Statements of Sovereign Bancshares, Inc. as of and for the nine months ended September 30, 2016 and September 30, 2015.
|
99.5
|
|
Sovereign Bancshares, Inc.’s
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
|
99.6
|
|
Unaudited Pro Forma Combined Condensed Consolidated Financial Statements.
|
|
Veritex Holdings, Inc.
|
|
|
|
By: /s/ C. Malcolm Holland, III
|
|
C. Malcolm Holland, III
|
|
Chairman and Chief Executive Officer
|
|
|
|
Date: December 14, 2016
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
|
2.1
|
|
Agreement and Plan of Reorganization by and between Veritex Holdings, Inc., Spartan Merger Sub, Inc., and Sovereign Bancshares, Inc., dated December 14, 2016.
|
10.1
|
|
Form of Voting Agreement, dated December 14, 2016, by and among Veritex Holdings, Inc. and certain shareholders of Sovereign Bancshares (included as Exhibit A to Exhibit 2.1 to this Current Report on Form 8-K).
|
10.2
|
|
Form of Director Support Agreement, dated December 14, 2016, by and between Veritex Holdings, Inc. and non-employee directors of Sovereign Bancshares, Inc. (included as Exhibit B to Exhibit 2.1 to this Current Report on Form 8-K).
|
23.1
|
|
Consent of RSM US LLP.
|
23.2
|
|
Consent of Grant Thornton LLP.
|
99.1
|
|
Press Release issued by Veritex Holdings, Inc. announcing the execution of the Agreement and related information, dated December 14, 2016.
|
99.2
|
|
Press Release issued by Veritex Holdings, Inc. announcing commencement of an underwritten public offering, dated December 14, 2016.
|
99.3
|
|
Audited Consolidated Financial Statements of Sovereign Bancshares, Inc. as of and for the years ended December 31, 2015 and 2014.
|
99.4
|
|
Unaudited Consolidated Financial Statements of Sovereign Bancshares, Inc. as of and for the nine months ended September 30, 2016 and September 30, 2015.
|
99.5
|
|
Sovereign Bancshares, Inc.’s
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
|
99.6
|
|
Unaudited Pro Forma Combined Condensed Consolidated Financial Statements.
|
Article I
|
THE MERGER
|
1
|
1.1
|
The Merger
|
1
|
1.2
|
Closing
|
2
|
1.3
|
Conversion of Stock
|
2
|
1.4
|
Certificate of Formation and Bylaws of Surviving Corporation
|
4
|
1.5
|
Directors and Officers
|
4
|
1.6
|
Tax Free Reorganization
|
4
|
1.7
|
The Bank Merger
|
4
|
Article II
|
ADJUSTMENT TO AGGREGATE MERGER CONSIDERATION; EXCHANGE PROCEDURES
|
5
|
2.1
|
Adjustment to Aggregate Merger Consideration
|
5
|
2.2
|
Deposit of Merger Consideration
|
8
|
2.3
|
Delivery of Merger Consideration
|
8
|
Article III
|
REPRESENTATIONS AND WARRANTIES OF TARGET
|
10
|
3.1
|
Corporate Organization
|
11
|
3.2
|
Capitalization
|
11
|
3.3
|
Authority; No Violation
|
12
|
3.4
|
Consents and Approvals
|
13
|
3.5
|
Reports
|
13
|
3.6
|
Financial Statements
|
14
|
3.7
|
No Undisclosed Liabilities
|
15
|
3.8
|
Broker’s Fees
|
15
|
3.9
|
Absence of Certain Changes or Events
|
16
|
3.10
|
Legal Proceedings
|
16
|
3.11
|
Taxes and Tax Returns
|
16
|
3.12
|
Employees
|
19
|
3.13
|
Compliance with Applicable Law
|
21
|
3.14
|
Certain Contracts
|
22
|
3.15
|
Agreements with Regulatory Agencies
|
24
|
3.16
|
Risk Management Instruments
|
25
|
3.17
|
Environmental Matters
|
25
|
3.18
|
Investment Securities and Commodities
|
26
|
3.19
|
Real Property
|
26
|
3.20
|
Intellectual Property
|
26
|
3.21
|
Related Party Transactions
|
27
|
3.22
|
State Takeover Laws
|
27
|
3.23
|
Reorganization
|
27
|
3.24
|
Opinion of Target’s Financial Advisor
|
27
|
3.25
|
Target Information
|
27
|
3.26
|
Loan Portfolio
|
28
|
3.27
|
Deposits
|
29
|
3.28
|
Insurance
|
29
|
3.29
|
Outstanding Trust Preferred Securities of Subsidiary Trust
|
29
|
3.30
|
Target SBLF Preferred Stock
|
30
|
3.31
|
Regulatory Approvals
|
30
|
3.32
|
No Other Representations or Warranties
|
30
|
Article IV
|
REPRESENTATIONS AND WARRANTIES OF PARENT
|
30
|
4.1
|
Corporate Organization
|
31
|
4.2
|
Capitalization
|
31
|
4.3
|
Authority; No Violation
|
32
|
4.4
|
Consents and Approvals
|
33
|
4.5
|
Reports
|
33
|
4.6
|
Financial Statements
|
34
|
4.7
|
No Undisclosed Liabilities
|
35
|
4.8
|
Broker’s Fees
|
35
|
4.9
|
Absence of Certain Changes or Events
|
35
|
4.10
|
Legal Proceedings
|
35
|
4.11
|
Taxes and Tax Returns
|
35
|
4.12
|
Employees
|
36
|
4.13
|
Compliance with Applicable Law
|
39
|
4.14
|
Certain Contracts
|
40
|
4.15
|
Agreements with Regulatory Agencies
|
40
|
4.16
|
Risk Management Instruments
|
40
|
4.17
|
Intellectual Property
|
41
|
4.18
|
Related Party Transactions
|
41
|
4.19
|
State Takeover Laws
|
41
|
4.20
|
Loan Portfolio
|
42
|
4.21
|
Insurance
|
43
|
4.22
|
Reorganization
|
43
|
4.23
|
Opinion of Parent’s Financial Advisor
|
43
|
4.24
|
Regulatory Approvals
|
43
|
4.25
|
SEC Reports
|
43
|
4.26
|
Parent Information
|
44
|
4.27
|
No Other Representations or Warranties
|
44
|
Article V
|
COVENANTS RELATING TO CONDUCT OF BUSINESS
|
44
|
5.1
|
Conduct of Business of Target Prior to the Effective Time
|
44
|
5.2
|
Target Forbearances
|
45
|
5.3
|
Parent Forbearances
|
48
|
Article VI
|
ADDITIONAL AGREEMENTS
|
49
|
6.1
|
Regulatory Matters
|
49
|
6.2
|
Access to Information
|
50
|
6.3
|
Shareholders’ Approvals
|
51
|
6.4
|
Legal Conditions to Merger
|
52
|
6.5
|
Tax-free Reorganization
|
52
|
6.6
|
Stock Exchange Listing
|
52
|
6.7
|
Employee Matters
|
52
|
6.8
|
Indemnification; Directors’ and Officers’ Insurance
|
54
|
6.9
|
Minimum Allowance for Loan Losses
|
55
|
6.10
|
Additional Agreements
|
56
|
6.11
|
Advise of Changes
|
56
|
6.12
|
Corporate Governance
|
56
|
6.13
|
No Solicitation
|
56
|
6.14
|
Coordination; Integration
|
57
|
6.15
|
Public Announcements
|
58
|
6.16
|
Change of Method
|
58
|
6.17
|
Bank Merger Agreement
|
58
|
6.18
|
Target Preferred Stock
|
58
|
6.19
|
Data Processing Contracts
|
58
|
6.20
|
TRUPS Assumption
|
59
|
6.21
|
Financing
|
59
|
6.22
|
Tax Matters
|
59
|
Article VII
|
CONDITIONS PRECEDENT
|
60
|
7.1
|
Conditions to Each Party’s Obligation To Effect the Merger
|
60
|
7.2
|
Conditions to Obligations of Parent
|
60
|
7.3
|
Conditions to Obligations of Target
|
62
|
Article VIII
|
TERMINATION AND AMENDMENT
|
63
|
8.1
|
Termination
|
63
|
8.2
|
Effect of Termination
|
66
|
8.3
|
Amendment
|
67
|
8.4
|
Extension; Waiver
|
67
|
Article IX
|
GENERAL PROVISIONS
|
68
|
9.1
|
Nonsurvival of Representations, Warranties and Agreements
|
68
|
9.2
|
Expenses
|
68
|
9.3
|
Notices
|
68
|
9.4
|
Interpretation
|
69
|
9.5
|
Counterparts
|
69
|
9.6
|
Entire Agreement
|
69
|
9.7
|
Governing Law; Jurisdiction
|
69
|
9.8
|
Waiver of Jury Trial
|
70
|
9.9
|
Assignment; Third Party Beneficiaries
|
70
|
9.10
|
Specific Performance
|
70
|
9.11
|
Additional Definitions
|
71
|
9.12
|
Severability
|
74
|
9.13
|
Delivery by Facsimile or Electronic Transmission
|
74
|
EXHIBITS
|
|
|
Exhibit A:
|
Form of Voting Agreement
|
|
Exhibit B:
|
Form of Director Support Agreement
|
|
Exhibit C:
|
Form of Director Release
|
|
Exhibit D:
|
Form of Officer Release
|
|
2016 Balance Sheet
|
14
|
|
Exchange Act
|
72
|
Acquisition Proposal
|
71
|
|
Exchange Agent
|
8
|
Affiliate
|
71
|
|
Exchange Fund
|
8
|
Aggregate Cash Consideration
|
5
|
|
FDIC
|
11
|
Aggregate Merger Consideration
|
5
|
|
Federal Reserve Board
|
14
|
Aggregate Parent Stock Value
|
5
|
|
Final Index Price
|
66
|
Aggregate Stock Consideration
|
5
|
|
Financial Statements
|
14
|
Agreement
|
1
|
|
GAAP
|
7
|
Bank
|
4
|
|
Governmental Entity
|
13
|
Bank Merger
|
4
|
|
Gross Transaction Expenses
|
5
|
Bank Merger Agreement
|
4
|
|
Holder
|
8
|
Bank Regulatory Applications
|
49
|
|
Index Group
|
66
|
Best Knowledge
|
72
|
|
Index Price
|
66
|
BHC Act
|
11
|
|
Integrated Mergers
|
1
|
Budgeted Transaction Expenses
|
5
|
|
Intellectual Property
|
72
|
Business Day
|
72
|
|
Interim Financial Statements
|
15
|
Cancelled Shares
|
3
|
|
IRS
|
17
|
Certificate
|
2
|
|
Joint Proxy Statement
|
28
|
Certificate of Merger
|
2
|
|
Law
|
72
|
Chosen Courts
|
70
|
|
Letter of Transmittal
|
8
|
Closing
|
2
|
|
Liens
|
12
|
Closing Date
|
2
|
|
Loans
|
28
|
Code
|
4
|
|
made available
|
73
|
Confidentiality Agreement
|
51
|
|
Material Adverse Effect
|
72
|
Continuing Employees
|
53
|
|
Materially Burdensome Condition
|
50
|
D&O Tail Policy
|
55
|
|
Merger
|
1
|
date hereof
|
72
|
|
Merger Sub
|
1
|
Derivative Transactions
|
72
|
|
Minimum Allowance Amount
|
56
|
Determination Date
|
66
|
|
Minimum Tangible Common Equity
|
8
|
Determination Date Aggregate Merger Consideration
|
66
|
|
Multiemployer Plan
|
20
|
Determination Date Stock Price
|
66
|
|
Multiple Employer Plan
|
20
|
Diluted Target Shares
|
5
|
|
New Plans
|
53
|
Director Releases
|
62
|
|
Non-Compete Valuations
|
60
|
Director Support Agreements
|
1
|
|
Officer Releases
|
62
|
Dissenting Share
|
3
|
|
Option Holder Release Agreements
|
3
|
Dissenting Shareholder
|
3
|
|
Parent
|
1
|
DOL
|
20
|
|
Parent Benefit Plans
|
37
|
DSAs
|
4
|
|
Parent Capital Stock
|
32
|
Effective Time
|
2
|
|
Parent Common Stock
|
2
|
Enforceability Exceptions
|
13
|
|
Parent Constituent Documents
|
73
|
Environmental Laws
|
26
|
|
Parent Contract
|
40
|
ERISA
|
19
|
|
Parent Disclosure Schedule
|
31
|
Excess Transaction Expenses
|
5
|
|
Parent ERISA Affiliate
|
37
|
Parent Meeting
|
51
|
|
Target ERISA Affiliate
|
19
|
Parent Qualified Plans
|
37
|
|
Target Indemnified Parties
|
55
|
Parent Regulatory Agreement
|
41
|
|
Target Leased Properties
|
27
|
Parent Reports
|
34
|
|
Target Meeting
|
51
|
Parent SBLF Preferred Stock
|
4
|
|
Target Option
|
3
|
Parent Subsidiary
|
31
|
|
Target Owned Properties
|
26
|
PBGC
|
20
|
|
Target Qualified Plans
|
20
|
PEO
|
22
|
|
Target Real Property
|
27
|
PEO Agreement
|
22
|
|
Target Regulatory Agreement
|
25
|
Per Option Amount
|
6
|
|
Target Reports
|
14
|
Per Share Cash Consideration
|
7
|
|
Target SBLF Preferred Stock
|
3
|
Per Share Merger Consideration
|
7
|
|
Target Stock Option Plans
|
3
|
Per Share Stock Consideration
|
7
|
|
Target Subsidiary
|
11
|
Permitted Encumbrances
|
27
|
|
Tax
|
74
|
Person
|
73
|
|
Tax Effected
|
7
|
Regulatory Agencies
|
14
|
|
Tax Return
|
74
|
Representatives
|
57
|
|
Taxes
|
74
|
Requisite Parent Vote
|
33
|
|
TBOC
|
1
|
Requisite Regulatory Approvals
|
73
|
|
TDB
|
14
|
Requisite Target Vote
|
13
|
|
Termination Date
|
64
|
Restrictive Covenant
|
21
|
|
Termination Fee
|
67
|
S-4
|
28
|
|
Texas Secretary of State
|
2
|
SEC
|
14
|
|
Trust I
|
30
|
Second-Step Merger
|
1
|
|
Trust I Indenture
|
30
|
Securities Act
|
73
|
|
Trust Preferred Issuance
|
30
|
Signing Date Aggregate Merger Consideration
|
66
|
|
Unbooked Amounts
|
7
|
Starting Index
|
66
|
|
Voting Agreement
|
1
|
Starting Price
|
66
|
|
|
|
Stock Price
|
7
|
|
|
|
Subsidiary
|
73
|
|
|
|
Surviving Corporation
|
1
|
|
|
|
Takeover Statutes
|
27
|
|
|
|
Tangible Common Equity
|
7
|
|
|
|
Target
|
1
|
|
|
|
Target Bank
|
1
|
|
|
|
Target Benefit Plans
|
19
|
|
|
|
Target Capital Stock
|
12
|
|
|
|
Target Common Stock
|
2
|
|
|
|
Target Constituent Documents
|
11
|
|
|
|
Target Contract
|
24
|
|
|
|
Target Disclosure Schedule
|
10
|
|
|
|
Target Employment Agreements
|
54
|
|
|
|
Target Equity Awards
|
12
|
|
|
|
(1)
|
The number obtained by dividing the Determination Date Stock Price by the Starting Price (each as defined below) (the “
Stock Ratio
”) shall be less than 0.80; and
|
(2)
|
(x) the Stock Ratio shall be less than (y) the number obtained by dividing the Final Index Price by the Starting Index (each as defined below) and subtracting 0.20 from the quotient in this clause (2)(y);
|
VERITEX HOLDINGS, INC.
|
|
|
|
|
|
By:
|
/s/ C. Malcolm Holland, III
|
Name:
|
C. Malcolm Holland, III
|
Title:
|
Chairman and Chief Executive Officer
|
|
|
SPARTAN MERGER SUB, INC.
|
|
|
|
|
|
By:
|
/s/ C. Malcolm Holland, III
|
Name:
|
C. Malcolm Holland, III
|
Title:
|
Chairman and Chief Executive Officer
|
|
|
SOVEREIGN BANCSHARES, INC.
|
|
|
|
|
|
By:
|
/s/ Thomas J. Mastor
|
Name:
|
Thomas J. Mastor
|
Title:
|
President and Chief Executive Officer
|
Director
|
Institution
|
|
|
|
|
Director
|
Institution
|
Position
|
|
|
|
|
|
|
(a)
|
Attached as
Schedule 1
hereto is a list of all loans outstanding from Target and Target Bank to the Director. The Director acknowledges that there are no existing claims or defenses, personal or otherwise, or rights of set off whatsoever against Target or Target Bank, except as set forth below. The Director for himself or herself and on behalf of his or her heirs and assigns (each a “
Releasing Party
” and collectively, the “
Releasing Parties
”) hereby releases, acquits and forever discharges each of Target and Target Bank and each of their respective predecessors, successors, assigns, Subsidiaries, and each of their respective past or present officers, directors, employees, agents and servants, and all persons, natural or corporate, in privity with them or any of them (each a “
Released Party
” and collectively, the “
Released Parties
”) (but only as to their actions or omissions in their capacity as officers, directors, employees, agents or servants of the Released Parties) to the fullest extent permitted by applicable law, from any and any and all claims, obligations, costs, losses, expenses (including attorneys’ fees), causes of action, rights, demands, debts, liens, liabilities or damages of every kind and nature whatsoever, whether known
|
(b)
|
Each of the Releasing Parties further covenants and agrees that he or she will not directly or indirectly bring or cause to be brought, or participate in the prosecution of or otherwise assert or solicit, any Proceeding (defined below) (i) with respect to any Claim against a Released Party, or (ii) that is based in whole or in part on the grounds that any or all the terms of this Release were entered into pursuant to a fraudulent inducement or are for any reason illegal, invalid, not binding, unenforceable or against public policy. For the purposes of this Release, a “
Proceeding
” means any action, suit, litigation, arbitration, proceeding (including any civil, criminal, administrative, investigative or appellate proceeding), prosecution, contest, hearing, inquiry, inquest, audit, examination or investigation that is, has been or may in the future be commenced, brought, conducted or heard at law or in equity or before any Governmental Entity or any arbitrator or arbitration panel.
|
(c)
|
Each of the Releasing Parties represents that it has not commenced any Proceeding against any of the Released Parties with respect to a Claim and is the sole owner of all right, title and interests to the Claims and has not transferred or agreed to transfer any interest in any Claim.
|
(d)
|
Each of the Releasing Parties agrees to indemnify, defend and hold harmless the Released Parties against any and all claims, demands, actions, causes of action, losses, damages, rights to recover or to be indemnified for losses, costs, expenses, and liabilities whatsoever (including court costs, litigation expenses and reasonable attorneys’ fees), known or unknown, anticipated or unanticipated, suspected or unsuspected, fixed, contingent, or conditional, at law or in equity, whether arising out of contract, tort, violation of law, statute, regulation, or otherwise incurred or suffered by any Released Party arising out of or in connection with any breach of this Release by a Releasing Party.
|
(e)
|
It is the intention of all parties that the foregoing be construed broadly as a total and unconditional release and covenant by each of the Releasing Parties to never to assert any Claim against any Released Party, except as otherwise provided herein.
|
DIRECTOR
|
|
|
Name of Director
|
|
|
|
STATE OF TEXAS
|
§
|
|
§
|
COUNTY OF _______________
|
§
|
|
Notary Public in and for the State of Texas
|
|
Printed Name:_______________________________
|
|
My Commission Expires:______________________
|
(a)
|
Attached as
Schedule 1
hereto is a list of all loans outstanding from Target and Target Bank to the Officer. The Officer acknowledges that there are no existing claims or defenses, personal or otherwise, or rights of set off whatsoever against Target or Target Bank, except as set forth below. The Officer for himself or herself and on behalf of his or her heirs and assigns (each a “
Releasing Party
” and collectively, the “
Releasing Parties
”) hereby releases, acquits and forever discharges each of Target and Target Bank and each of their respective predecessors, successors, assigns, Subsidiaries, and each of their respective past or present officers, directors, employees, agents and servants, and all persons, natural or corporate, in privity with them or any of them (each a “
Released Party
” and collectively, the “
Released Parties
”) (but only as to their actions or omissions in their capacity as officers, directors, employees, agents or servants of the Released Parties) to the fullest extent permitted by applicable law, from any and any and all claims, obligations, costs, losses, expenses (including attorneys’ fees), causes of action, rights, demands, debts, liens, liabilities or damages of every kind and nature whatsoever, whether known
|
(b)
|
Each of the Releasing Parties further covenants and agrees that he or she will not directly or indirectly bring or cause to be brought, or participate in the prosecution of or otherwise assert or solicit, any Proceeding (defined below) (i) with respect to any Claim against a Released Party, or (ii) that is based in whole or in part on the grounds that any or all the terms of this Release were entered into pursuant to a fraudulent inducement or are for any reason illegal, invalid, not binding, unenforceable or against public policy. For the purposes of this Release, a “
Proceeding
” means any action, suit, litigation, arbitration, proceeding (including any civil, criminal, administrative, investigative or appellate proceeding), prosecution, contest, hearing, inquiry, inquest, audit, examination or investigation that is, has been or may in the future be commenced, brought, conducted or heard at law or in equity or before any Governmental Entity or any arbitrator or arbitration panel.
|
(c)
|
Each of the Releasing Parties represents that it has not commenced any Proceeding against any of the Released Parties with respect to a Claim and is the sole owner of all right, title and interests to the Claims and has not transferred or agreed to transfer any interest in any Claim.
|
(d)
|
Each of the Releasing Parties agrees to indemnify, defend and hold harmless the Released Parties against any and all claims, demands, actions, causes of action, losses, damages, rights to recover or to be indemnified for losses, costs, expenses, and liabilities whatsoever (including court costs, litigation expenses and reasonable attorneys’ fees), known or unknown, anticipated or unanticipated, suspected or
|
(e)
|
It is the intention of all parties that the foregoing be construed broadly as a total and unconditional release and covenant by each of the Releasing Parties to never to assert any Claim against any Released Party, except as otherwise provided herein.
|
OFFICER
|
|
|
Name of Officer
|
|
|
|
STATE OF TEXAS
|
§
|
|
§
|
COUNTY OF ______________
|
§
|
|
Notary Public in and for the State of Texas
|
|
Printed Name:_______________________________
|
|
My Commission Expires:______________________
|
|
|
December 31,
|
|
December 31,
|
||||
|
|
2015
|
|
2014
|
||||
ASSETS
|
|
|
|
|
||||
Cash and due from banks
|
|
$
|
4,553
|
|
|
$
|
5,906
|
|
Interest-bearing deposits
|
|
9,614
|
|
|
2,911
|
|
||
Federal funds sold
|
|
74
|
|
|
73
|
|
||
Cash and cash equivalents
|
|
14,241
|
|
|
8,890
|
|
||
Securities held to maturity
|
|
132,542
|
|
|
155,482
|
|
||
Securities available for sale
|
|
119,920
|
|
|
166,148
|
|
||
Loans, net
|
|
800,535
|
|
|
671,809
|
|
||
Premises and equipment, net
|
|
22,440
|
|
|
23,273
|
|
||
Other real estate owned
|
|
621
|
|
|
711
|
|
||
Accrued interest receivable
|
|
3,415
|
|
|
3,582
|
|
||
Federal Home Loan Bank Stock
|
|
9,446
|
|
|
6,572
|
|
||
Other assets
|
|
9,423
|
|
|
19,435
|
|
||
Total assets
|
|
$
|
1,112,583
|
|
|
$
|
1,055,902
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
||||
Deposits:
|
|
|
|
|
||||
Noninterest-bearing
|
|
$
|
173,985
|
|
|
$
|
155,078
|
|
Interest-bearing
|
|
624,467
|
|
|
638,257
|
|
||
Total deposits
|
|
798,452
|
|
|
793,335
|
|
||
Accrued interest payable
|
|
361
|
|
|
359
|
|
||
Trust preferred subordinated debentures
|
|
8,609
|
|
|
8,609
|
|
||
Other liabilities
|
|
1,894
|
|
|
18,211
|
|
||
Federal Home Loan Bank advances
|
|
190,000
|
|
|
130,000
|
|
||
Total liabilities
|
|
999,316
|
|
|
950,514
|
|
||
Commitments and contingencies
|
|
|
|
|
||||
Stockholders’ equity:
|
|
|
|
|
||||
Preferred stock, 2,000,000 total shares authorized:
Series C cumulative perpetual preferred shares, $1 par value, $1,000 per share liquidation value; 24,500 shares issued and outstanding at December 31, 2015 and 2014
|
|
24,500
|
|
|
24,500
|
|
||
Common stock, par value $1 per share, 10,000,000 shares authorized; 5,203,100 and 5,161,888 shares issued and outstanding at December 31, 2015 and 2014, respectively
|
|
5,203
|
|
|
5,162
|
|
||
Additional paid-in capital
|
|
57,366
|
|
|
56,887
|
|
||
Retained earnings
|
|
24,901
|
|
|
17,526
|
|
||
Accumulated other comprehensive income
|
|
1,297
|
|
|
1,313
|
|
||
Total stockholders’ equity
|
|
113,267
|
|
|
105,388
|
|
||
Total liabilities and stockholders’ equity
|
|
$
|
1,112,583
|
|
|
$
|
1,055,902
|
|
|
|
Year Ended December 31,
|
||||||
|
|
2015
|
|
2014
|
||||
Interest income:
|
|
|
|
|
||||
Loans, including fees
|
|
$
|
35,417
|
|
|
$
|
30,971
|
|
Investment securities:
|
|
|
|
|
||||
Taxable
|
|
4,690
|
|
|
6,126
|
|
||
Nontaxable
|
|
2,608
|
|
|
2,676
|
|
||
Federal funds sold
|
|
33
|
|
|
38
|
|
||
Other
|
|
26
|
|
|
16
|
|
||
Total interest income
|
|
42,774
|
|
|
39,827
|
|
||
|
|
|
|
|
||||
Interest expense:
|
|
|
|
|
||||
Deposits
|
|
4,595
|
|
|
4,868
|
|
||
Federal funds purchased
|
|
18
|
|
|
13
|
|
||
Trust preferred subordinated debentures
|
|
374
|
|
|
370
|
|
||
Federal Home Loan Bank advances
|
|
602
|
|
|
521
|
|
||
Total interest expense
|
|
5,589
|
|
|
5,772
|
|
||
Net interest income
|
|
37,185
|
|
|
34,055
|
|
||
Provision for loan losses
|
|
4,800
|
|
|
—
|
|
||
Net interest income after provision for loan losses
|
|
32,385
|
|
|
34,055
|
|
||
|
|
|
|
|
||||
Noninterest income:
|
|
|
|
|
||||
Service charges and other fees
|
|
604
|
|
|
620
|
|
||
Net investment securities gains
|
|
55
|
|
|
—
|
|
||
Gain on sales of loans
|
|
3,194
|
|
|
1,613
|
|
||
Other
|
|
918
|
|
|
1,131
|
|
||
Total noninterest income
|
|
4,771
|
|
|
3,364
|
|
||
|
|
|
|
|
||||
Noninterest expense:
|
|
|
|
|
||||
Salaries and employee benefits
|
|
16,157
|
|
|
15,698
|
|
||
Occupancy expense
|
|
3,514
|
|
|
3,523
|
|
||
Legal and professional fees
|
|
2,037
|
|
|
7,820
|
|
||
Valuation adjustments and other expenses on other real estate owned
|
|
99
|
|
|
1,722
|
|
||
Deposit insurance assessment
|
|
853
|
|
|
862
|
|
||
Data processing
|
|
840
|
|
|
801
|
|
||
Telephone
|
|
701
|
|
|
517
|
|
||
Other
|
|
2,686
|
|
|
2,405
|
|
||
Total noninterest expense
|
|
26,887
|
|
|
33,348
|
|
||
|
|
|
|
|
||||
Income before taxes
|
|
10,269
|
|
|
4,071
|
|
||
Income tax expense
|
|
2,649
|
|
|
399
|
|
||
|
|
|
|
|
||||
Net income
|
|
$
|
7,620
|
|
|
$
|
3,672
|
|
|
|
Year Ended December 31,
|
||||||
|
|
2016
|
|
2015
|
||||
Net income
|
|
$
|
7,620
|
|
|
$
|
3,672
|
|
|
|
|
|
|
||||
Other comprehensive income (loss) before tax:
|
|
|
|
|
||||
Net unrealized (losses) gains on available for sale securities arising during the year
|
|
741
|
|
|
8,571
|
|
||
Reclassification adjustment for amortization of unrealized losses on investment securities transferred to held to maturity from available for sale
|
|
(710
|
)
|
|
(350
|
)
|
||
Reclassification adjustment for net gains on sales of securities available for sale included in net income
|
|
(55
|
)
|
|
—
|
|
||
Other comprehensive (loss) income, before tax
|
|
(24
|
)
|
|
8,221
|
|
||
Income tax expense (benefit)
|
|
(8
|
)
|
|
2,795
|
|
||
Other comprehensive (loss) income, net of tax
|
|
(16
|
)
|
|
5,426
|
|
||
|
|
|
|
|
||||
Comprehensive income
|
|
$
|
7,604
|
|
|
$
|
9,098
|
|
|
|
Preferred
Stock
|
|
Common Stock
|
|
Additional
Paid-In
Capital
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Total
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Balance at January 1, 2014
|
|
$
|
24,500
|
|
|
$
|
4,967
|
|
|
$
|
58,386
|
|
|
$
|
14,099
|
|
|
$
|
(4,113
|
)
|
|
$
|
97,839
|
|
Net Income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,672
|
|
|
—
|
|
|
$
|
3,672
|
|
|||||
Other comprehensive income, net of tax
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,426
|
|
|
$
|
5,426
|
|
|||||
Stock-based compensation
|
|
—
|
|
|
—
|
|
|
225
|
|
|
—
|
|
|
—
|
|
|
$
|
225
|
|
|||||
Deferred stock vested (63,303 shares)
|
|
—
|
|
|
63
|
|
|
(63
|
)
|
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|||||
Stock options exercised (230,500 shares), net of shares acquired (80,000) in lieu of cash
|
|
—
|
|
|
154
|
|
|
(154
|
)
|
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|||||
Stock warrants exercised (137,365 shares) net of shares acquired (59,000) in lieu of cash
|
|
—
|
|
|
79
|
|
|
(28
|
)
|
|
—
|
|
|
—
|
|
|
$
|
51
|
|
|||||
Repurchase of common stock (101,000 shares)
|
|
—
|
|
|
(101
|
)
|
|
(1,867
|
)
|
|
—
|
|
|
—
|
|
|
$
|
(1,968
|
)
|
|||||
Excess tax benefit from stock-based compensation
|
|
—
|
|
|
—
|
|
|
388
|
|
|
—
|
|
|
—
|
|
|
$
|
388
|
|
|||||
Preferred Stock dividends
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(245
|
)
|
|
—
|
|
|
$
|
(245
|
)
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Balance at December 31, 2014
|
|
$
|
24,500
|
|
|
$
|
5,162
|
|
|
$
|
56,887
|
|
|
$
|
17,526
|
|
|
$
|
1,313
|
|
|
$
|
105,388
|
|
Net Income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,620
|
|
|
—
|
|
|
7,620
|
|
||||||
Other comprehensive income, net of tax
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(16
|
)
|
|
(16
|
)
|
||||||
Stock-based compensation
|
|
—
|
|
|
—
|
|
|
304
|
|
|
—
|
|
|
—
|
|
|
304
|
|
||||||
Deferred stock vested (13,360 shares)
|
|
—
|
|
|
13
|
|
|
(13
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Stock options exercised (34,000 shares), net of shares acquired (5,703) in lieu of cash
|
|
—
|
|
|
28
|
|
|
188
|
|
|
—
|
|
|
—
|
|
|
216
|
|
||||||
Preferred stock dividends
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(245
|
)
|
|
—
|
|
|
(245
|
)
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Balance at December 31, 2015
|
|
$
|
24,500
|
|
|
$
|
5,203
|
|
|
$
|
57,366
|
|
|
$
|
24,901
|
|
|
$
|
1,297
|
|
|
$
|
113,267
|
|
|
|
For the Year Ended December 31,
|
||||||
|
|
2016
|
|
2015
|
||||
Cash flows from operating activities:
|
|
|
|
|
||||
Net income
|
|
$
|
7,620
|
|
|
$
|
3,672
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
||||
Deprecation expense
|
|
877
|
|
|
1,068
|
|
||
Deferred income tax expense (benefit)
|
|
1,563
|
|
|
(114
|
)
|
||
Provision for loan losses
|
|
4,800
|
|
|
—
|
|
||
Net gain on sales of securities available for sale
|
|
(55
|
)
|
|
—
|
|
||
Gain on sales of loans
|
|
(3,194
|
)
|
|
(1,613
|
)
|
||
Valuation adjustments on other real estate owned
|
|
90
|
|
|
826
|
|
||
Stock-based compensation expense
|
|
304
|
|
|
225
|
|
||
Excess tax benefit from stock-based compensation
|
|
—
|
|
|
388
|
|
||
Net amortization of securities available for sale
|
|
2,181
|
|
|
1,698
|
|
||
Net amortization of securities held to maturity
|
|
1,386
|
|
|
2,258
|
|
||
Changes in operating assets and liabilities:
|
|
|
|
|
||||
Accrued interest receivable and other assets
|
|
8,616
|
|
|
(10,513
|
)
|
||
Accrued interest payable and other liabilities
|
|
(16,306
|
)
|
|
10,023
|
|
||
Net cash provided by operating activities
|
|
7,882
|
|
|
7,918
|
|
||
Cash flows from investing activities:
|
|
|
|
|
||||
Purchase of securities available for sale
|
|
(100,000
|
)
|
|
(166,029
|
)
|
||
Proceeds from sales of securities available for sale
|
|
29,420
|
|
|
—
|
|
||
Proceeds from calls, maturities and principal repayments of securities held to maturity
|
|
21,469
|
|
|
11,336
|
|
||
Proceeds from calls, maturities and principal repayments of securities available for sale
|
|
114,742
|
|
|
172,354
|
|
||
Net purchase of FHLB stock
|
|
(2,874
|
)
|
|
(3,191
|
)
|
||
Net increase in loans
|
|
(130,332
|
)
|
|
(62,036
|
)
|
||
Proceeds from sales of other real estate owned
|
|
—
|
|
|
4,241
|
|
||
Purchases of premises and equipment
|
|
(44
|
)
|
|
(4,167
|
)
|
||
Net cash used in investing activities
|
|
(67,619
|
)
|
|
(47,492
|
)
|
||
Cash flows from financing activities:
|
|
|
|
|
||||
Net increase (decrease) in deposits
|
|
5,117
|
|
|
(67,397
|
)
|
||
Net increase in Federal Home Loan Bank advances
|
|
60,000
|
|
|
60,006
|
|
||
Preferred stock dividend paid
|
|
(245
|
)
|
|
(245
|
)
|
||
Proceeds from exercise of stock options and stock warrants
|
|
216
|
|
|
51
|
|
||
Excess tax benefit from stock-based compensation
|
|
—
|
|
|
388
|
|
||
Repurchase of common stock
|
|
—
|
|
|
(1,968
|
)
|
||
Net cash provided by financing activities
|
|
65,088
|
|
|
(9,165
|
)
|
||
Net increase in cash and cash equivalents
|
|
5,351
|
|
|
(48,739
|
)
|
||
Cash and cash equivalents at beginning of year
|
|
8,890
|
|
|
57,629
|
|
||
Cash and cash equivalents at end of year
|
|
$
|
14,241
|
|
|
$
|
8,890
|
|
Note 1.
|
Summary of Significant Accounting Policies
|
•
|
Pro-rata ownership in an entire financial asset.
|
•
|
From the date of the transfer, all cash flows received from the entire financial asset are divided proportionately among the participating interest holders in an amount equal to their share of ownership.
|
•
|
The rights of each participating interest holder have the same priority, and no participating interest holder’s interest is subordinated to the interest of another participating interest holder. That is, no participating interest holder is entitled to receive cash before any other participating interest holder under its contractual rights as a participating interest holder.
|
•
|
No party has the right to pledge or exchange the entire financial asset unless all participating interest holders agree to pledge or exchange the entire financial asset.
|
Note 2.
|
Statements of Cash Flows
|
|
2015
|
2014
|
||||
|
|
|
||||
Cash paid for interest
|
$
|
5,587
|
|
$
|
5,836
|
|
|
|
|
||||
Cash paid for taxes
|
$
|
90
|
|
$
|
3,306
|
|
|
|
|
||||
Real estate acquired in foreclosure or in settlement of loans
|
—
|
|
$
|
5,047
|
|
|
|
|
|
||||
Transfers of investments securities available for sale to
|
|
|
||||
investment securities held to maturity
|
—
|
|
$
|
169,076
|
|
|
|
|
|
||||
Shares of common stock received in lieu of cash on exercise of
|
|
|
||||
stock options and warrants (5,700 and 139,000 shares)
|
$
|
170
|
|
$
|
4,138
|
|
Note 3.
|
Restrictions on Cash and Due From Banks
|
Note 4.
|
Securities
|
|
|
Gross
|
Gross
|
|
||||||||
|
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
||||||||
|
Cost
|
Gains
|
Losses
|
Value
|
||||||||
|
|
|
|
|
||||||||
Securities Held to Maturity
|
|
|
|
|
||||||||
|
|
|
|
|
||||||||
December 31, 2015:
|
|
|
|
|
||||||||
Pass-through securities guaranteed
|
|
|
|
|
||||||||
by FNMA, GNMA, FHLMC, SBA
|
|
|
|
|
||||||||
and SBIC
|
$
|
135,936
|
|
$
|
27
|
|
$
|
(2,192
|
)
|
$
|
133,771
|
|
|
|
|
|
|
||||||||
|
$
|
135,936
|
|
$
|
27
|
|
$
|
(2,192
|
)
|
$
|
133,771
|
|
|
|
|
|
|
||||||||
Securities Available for Sale
|
|
|
|
|
||||||||
|
|
|
|
|
||||||||
December 31, 2015:
|
|
|
|
|
||||||||
Municipal securities
|
$
|
71,611
|
|
$
|
4,946
|
|
$
|
—
|
|
$
|
76,557
|
|
Pass-through securities guaranteed
|
|
|
|
|
||||||||
by FNMA, GNMA, FHLMC, SBA
|
|
|
|
|
||||||||
and SBIC
|
42,950
|
|
436
|
|
(23
|
)
|
43,363
|
|
||||
|
|
|
|
|
||||||||
|
$
|
114,561
|
|
$
|
5,382
|
|
$
|
(23
|
)
|
$
|
119,920
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
||||||||
Securities Held to Maturity
|
|
|
|
|
||||||||
|
|
|
|
|
||||||||
December 31, 2014:
|
|
|
|
|
||||||||
Pass-through securities guaranteed
|
|
|
|
|
||||||||
by FNMA, GNMA, FHLMC, SBA
|
|
|
|
|
||||||||
and SBIC
|
$
|
159,586
|
|
$
|
22
|
|
$
|
(2,530
|
)
|
$
|
157,078
|
|
|
|
|
|
|
||||||||
|
$
|
159,586
|
|
$
|
22
|
|
$
|
(2,530
|
)
|
$
|
157,078
|
|
|
|
|
|
|
||||||||
Securities Available for Sale
|
|
|
|
|
||||||||
|
|
|
|
|
||||||||
December 31, 2014:
|
|
|
|
|
||||||||
Municipal securities
|
$
|
73,907
|
|
$
|
5,140
|
|
$
|
—
|
|
$
|
79,047
|
|
Pass-through securities guaranteed
|
|
|
|
|
||||||||
by FNMA, GNMA, FHLMC, SBA
|
|
|
|
|
||||||||
and SBIC
|
86,148
|
|
975
|
|
(22)
|
|
87,101
|
|
||||
|
|
|
|
|
||||||||
|
$
|
160,055
|
|
$
|
6,115
|
|
$
|
(22
|
)
|
$
|
166,148
|
|
|
Continuous Unrealized
|
Continuous Unrealized
|
||||||||||
|
Losses Existing for
|
Losses Existing for
|
||||||||||
|
Less than 12 Months
|
Greater than 12 Months
|
||||||||||
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
||||||||
Description of Securities
|
Value
|
Losses
|
Value
|
Losses
|
||||||||
|
|
|
|
|
||||||||
December 31, 2015:
|
|
|
|
|
||||||||
Pass-through securities guaranteed
|
|
|
|
|
||||||||
by FNMA, GNMA, FHLMC, SBA
|
|
|
|
|
||||||||
and SBIC:
|
|
|
|
|
||||||||
Securities held to maturity
|
$
|
60,143
|
|
$
|
749
|
|
$
|
67,294
|
|
$
|
1,443
|
|
Securities available for sale
|
3,017
|
|
23
|
|
—
|
|
—
|
|
||||
|
|
|
|
|
||||||||
|
$
|
63,160
|
|
$
|
772
|
|
$
|
67,294
|
|
$
|
1,443
|
|
|
|
|
|
|
||||||||
December 31, 2014:
|
|
|
|
|
||||||||
Pass-through securities guaranteed
|
|
|
|
|
||||||||
by FNMA, GNMA, FHLMC, SBA
|
|
|
|
|
||||||||
and SBIC:
|
|
|
|
|
||||||||
Securities held to maturity
|
$
|
12,101
|
|
$
|
384
|
|
$
|
141,430
|
|
$
|
2,146
|
|
Securities available for sale
|
5,407
|
|
21
|
|
3,231
|
|
1
|
|
||||
|
|
|
|
|
||||||||
|
$
|
17,508
|
|
$
|
405
|
|
$
|
144,661
|
|
$
|
2,147
|
|
|
Held to Maturity
|
|||||
|
Amortized
|
Estimated
|
||||
|
Cost
|
Fair Value
|
||||
|
|
|
||||
Pass-through securities guaranteed by FNMA, GNMA, FHLMC,
|
|
|
||||
SBA and SBIC
|
$
|
135,936
|
|
$
|
133,771
|
|
|
|
|
||||
|
$
|
135,936
|
|
$
|
133,771
|
|
|
|
|
||||
|
|
|
||||
|
Available for Sale
|
|||||
|
Amortized
|
Estimated
|
||||
|
Cost
|
Fair Value
|
||||
|
|
|
||||
Due 3 months or less
|
$
|
645
|
|
$
|
649
|
|
Due after 3 months through 1 year
|
516
|
|
527
|
|
||
Due after one year through 5 years
|
6,047
|
|
6,424
|
|
||
Due after five years through 10 years
|
35,041
|
|
37,495
|
|
||
Due after ten years
|
29,362
|
|
31,462
|
|
||
Pass-through securities guaranteed by FNMA, GNMA, FHLMC,
|
|
|
||||
SBA and SBIC
|
42,950
|
|
43,363
|
|
||
|
|
|
||||
|
$
|
114,561
|
|
$
|
119,920
|
|
|
2015
|
2014
|
||||
|
|
|
||||
Proceeds from sales
|
$
|
29,420
|
|
$
|
—
|
|
|
|
|
||||
Gross realized gains
|
$
|
106
|
|
$
|
—
|
|
|
|
|
||||
Gross realized losses
|
$
|
51
|
|
$
|
—
|
|
Note 5.
|
Loans and Allowance for Loan Losses
|
|
2015
|
2014
|
||||
|
|
|
||||
Real estate:
|
|
|
||||
Construction
|
$
|
163,993
|
|
$
|
121,262
|
|
Residential
|
16,672
|
|
23,167
|
|
||
Owner occupied
|
110,352
|
|
94,265
|
|
||
Commercial and farmland
|
218,355
|
|
132,092
|
|
||
Commercial:
|
|
|
||||
Financial and agricultural
|
186,640
|
|
186,834
|
|
||
Energy
|
112,146
|
|
117,127
|
|
||
Consumer and other loans
|
6,890
|
|
7,454
|
|
||
|
815,048
|
|
682,201
|
|
||
Unearned loan fees
|
(3,587
|
)
|
(2,140
|
)
|
||
Allowance for loan losses
|
(10,926
|
)
|
(8,252
|
)
|
||
|
|
|
||||
|
$
|
800,535
|
|
$
|
671,809
|
|
•
|
Real estate - construction
: This category consists of loans secured by real estate under construction or land development, both commercial and residential. Construction and land development loans can carry additional risk of repayment from several different factors influencing the completion of the project on time and on budget. Other risks involved are market driven through real estate values and long-term financing options. As such, the Company takes additional steps to insure that sufficient equity is required, underwriting supports the project, and secondary sources of repayment are identified. This category also consists of loans secured by vacant land, which includes developed commercial land, undeveloped commercial land, rural land, single family residential lots, and lot development loans. These types of loans require larger down payments to help mitigate the risk.
|
•
|
Real estate - residential:
This category consists of loans secured by some form of both owner-occupied and non-owner occupied residential real estate. The category includes loans for 1-4 family home construction, home improvement, home equity lines of credit, closed-end financing for 1-4 family properties, and financing for multi-family residential properties. The overall credit risk in this segment of the loan portfolio is low given the nature of the collateral and the Company’s strict underwriting standards for this type of financing. The Company does not originate sub-prime mortgage loans. The higher risk area of this category is the non-owner occupied portion of these loans, which are often reliant on rental income as the primary source of repayment.
|
•
|
Real estate - owner occupied:
This category consists of loans secured by commercial buildings that are occupied by companies that are run by the borrower or guarantors on the loan.
These loans are lower risk than the non owner occupied loans because the borrower or guarantor has a personal interest in the success of the tenant company. In addition, more in-depth financial information can be obtained to help management evaluate the business and its profitability.
|
•
|
Real estate - commercial and farmland:
This category consists of loans secured by income-producing commercial buildings such as shopping centers, office buildings, office warehouse buildings, hotels, and multi-family properties. These loans carry a higher risk than owner-occupied properties because the repayment is based on the successful operations of the tenants and may be subject to adverse conditions in the real estate market and/or general economy. A substantial majority of these loans have adequate secondary sources of repayment through financially strong guarantors that are well known to the Company.
|
•
|
Commercial - financial and agricultural:
This category consists of all business loans and leases secured by assets other than the business real estate. A substantial majority of these loans are secured by equipment, accounts receivable, and inventory. The primary risk involved with this category is that the loans and leases are typically secured by depreciable assets that may not provide an adequate source of repayment if the loan goes into default. However, the Company’s very conservative underwriting standards and credit culture help mitigate risk.
|
•
|
Commercial - energy:
Energy loans are credits extended to businesses deriving a majority of their revenues from the sale of oil and gas related products or whose credit requires a technical evaluation of oil and gas reserves or where the forecasting and analysis of oil and gas prices directly impacts credit quality. The Energy Industry can be divided into three segments: Upstream (Oil and gas exploration and production or E&P); Midstream (refining, gathering, processing); and Downstream (selling product to end users). Integrated oil companies are generally involved in all three segments. The other oil and gas companies are involved in the upstream segment and may also be involved in midstream and downstream segments. Energy lending at Sovereign Bank focuses its efforts on upstream and midstream E&P companies. Loans are secured by proven, producing oil and gas reserves.
|
•
|
Consumer and other loans:
This category of loans includes all other forms of consumer debt, including automobiles, recreational vehicles, debt consolidation, household or personal use, education, taxes, and investments. A large majority of the loans in this category are relatively short-term loans secured by new and used automobiles, recreational vehicles, and bank certificates of deposit.
|
•
|
1-6 - pass ratings:
Risk ratings from 1-6 are all “Pass” ratings and represent the loans considered acceptable to the bank. The ratings range from 1 being the Highest Quality to 6 being Minimum Acceptable Quality (including a 6 - pass/watch rating). All ratings reflect loans with a good primary and secondary source of repayment and/or well collateralized. While the availability varies within the Pass categories, borrowers typically have access to alternative financial markets.
|
•
|
7 - special mention:
A Special Mention asset has 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 bank’s credit position at some future date. Special Mention assets are not adversely classified and do not expose the bank to sufficient risk to warrant adverse classification.
|
•
|
8 - substandard:
The loan is inadequately protected by the current worth and paying capacity of the obligor or of the collateral pledged, if any. There are well-defined weaknesses that jeopardize the repayment of the debt.
|
•
|
9 - doubtful:
The loan has the weaknesses of those in the classification of Substandard, one or more of which make collection or liquidation in full, on the basis of currently ascertainable facts, conditions and values, highly questionable or improbable. The possibility of loss is extremely high, but certain identifiable contingencies that are reasonably likely to materialize may work to the advantage and strengthening of the loan, such that it is reasonable to defer its classification as a loss until its more exact status may be determined. Contingencies that may call for deferral of loss classification
|
•
|
10 - loss:
Loans in this classification are considered uncollectible and of such little value that their continued classification as bankable assets is not warranted. This classification does not mean the loan has absolutely no recovery or salvage value, but that it is neither practical nor desirable to defer writing off this basically worthless loan even though partial recovery may be affected in the future.
|
|
|
Special
|
|
|
|
||||||||||
|
Pass
|
Mention
|
Substandard
|
Doubtful
|
|
||||||||||
|
(Rating 1-6)
|
(Rating 7)
|
(Rating 8)
|
(Rating 9)
|
Total
|
||||||||||
|
|
|
|
|
|
||||||||||
2015:
|
|
|
|
|
|
||||||||||
Real estate:
|
|
|
|
|
|
||||||||||
Construction
|
$
|
163,993
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
163,993
|
|
Residential
|
16,672
|
|
—
|
|
—
|
|
—
|
|
16,672
|
|
|||||
Owner occupied
|
109,664
|
|
370
|
|
318
|
|
—
|
|
110,352
|
|
|||||
Commercial and farmland
|
215,485
|
|
—
|
|
2,870
|
|
—
|
|
218,355
|
|
|||||
Commercial:
|
|
|
|
|
|
||||||||||
Financial and agricultural
|
182,760
|
|
1,820
|
|
2,060
|
|
—
|
|
186,640
|
|
|||||
Energy
|
65,929
|
|
9,792
|
|
36,425
|
|
—
|
|
112,146
|
|
|||||
Consumer and other loans
|
6,842
|
|
—
|
|
48
|
|
—
|
|
6,890
|
|
|||||
|
|
|
|
|
|
||||||||||
|
$
|
761,345
|
|
$
|
11,982
|
|
$
|
41,721
|
|
$
|
—
|
|
$
|
815,048
|
|
|
|
|
|
|
|
||||||||||
2014:
|
|
|
|
|
|
||||||||||
Real estate:
|
|
|
|
|
|
||||||||||
Construction
|
$
|
121,262
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
121,262
|
|
Residential
|
22,809
|
|
—
|
|
359
|
|
—
|
|
23,168
|
|
|||||
Owner occupied
|
93,874
|
|
391
|
|
—
|
|
—
|
|
94,265
|
|
|||||
Commercial and farmland
|
127,191
|
|
1,979
|
|
2,922
|
|
—
|
|
132,092
|
|
|||||
Commercial:
|
|
|
|
|
|
||||||||||
Financial and agricultural
|
184,881
|
|
—
|
|
1,953
|
|
—
|
|
186,834
|
|
|||||
Energy
|
92,216
|
|
5,736
|
|
19,175
|
|
—
|
|
117,127
|
|
|||||
Consumer and other loans
|
6,168
|
|
—
|
|
1,285
|
|
—
|
|
7,453
|
|
|||||
|
|
|
|
|
|
||||||||||
|
$
|
648,401
|
|
$
|
8,106
|
|
$
|
25,694
|
|
$
|
—
|
|
$
|
682,201
|
|
|
Real Estate
|
Commercial
|
|
|
||||||||||||||||||||
|
Construction
|
Residential
|
Owner Occupied
|
Commercial
and
Farmland
|
Financial
and
Agricultural
|
Energy
|
Consumer
and
Other Loans
|
Total
|
||||||||||||||||
2015:
|
|
|
|
|
|
|
|
|
||||||||||||||||
Beginning balance
|
$
|
1,512
|
|
$
|
303
|
|
$
|
783
|
|
$
|
1,046
|
|
$
|
2,330
|
|
$
|
2,158
|
|
$
|
120
|
|
$
|
8,252
|
|
Charge-offs
|
—
|
|
(359
|
)
|
—
|
|
—
|
|
—
|
|
(1,779
|
)
|
—
|
|
(2,138
|
)
|
||||||||
Recoveries
|
—
|
|
—
|
|
—
|
|
—
|
|
12
|
|
—
|
|
—
|
|
12
|
|
||||||||
Provision
|
249
|
|
190
|
|
10
|
|
512
|
|
(380
|
)
|
4,276
|
|
(57
|
)
|
4,800
|
|
||||||||
|
|
|
|
|
|
|
|
|
||||||||||||||||
Ending balance
|
$
|
1,761
|
|
$
|
134
|
|
$
|
793
|
|
$
|
1,558
|
|
$
|
1,962
|
|
$
|
4,655
|
|
$
|
63
|
|
$
|
10,926
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Period-end amount allocated to:
|
|
|
|
|
|
|
|
|
||||||||||||||||
Loans individually evaluated
|
|
|
|
|
|
|
|
|
||||||||||||||||
for impairment
|
$
|
—
|
|
$
|
—
|
|
$
|
3
|
|
$
|
26
|
|
$
|
53
|
|
$
|
2,384
|
|
$
|
—
|
|
$
|
2,466
|
|
Loans collectively evaluated
|
|
|
|
|
|
|
|
|
||||||||||||||||
for impairment
|
1,761
|
|
134
|
|
790
|
|
1,532
|
|
1,909
|
|
2,271
|
|
63
|
|
8,460
|
|
||||||||
|
|
|
|
|
|
|
|
|
||||||||||||||||
Ending balance
|
$
|
1,761
|
|
$
|
134
|
|
$
|
793
|
|
$
|
1,558
|
|
$
|
1,962
|
|
$
|
4,655
|
|
$
|
63
|
|
$
|
10,926
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Loans:
|
|
|
|
|
|
|
|
|
||||||||||||||||
Loans individually evaluated
|
|
|
|
|
|
|
|
|
||||||||||||||||
for impairment
|
$
|
—
|
|
$
|
—
|
|
$
|
318
|
|
$
|
2,870
|
|
$
|
1,694
|
|
$
|
14,294
|
|
$
|
—
|
|
$
|
19,176
|
|
Loans collectively evaluated
|
|
|
|
|
|
|
|
|
||||||||||||||||
for impairment
|
163,992
|
|
16,672
|
|
110,034
|
|
215,486
|
|
184,946
|
|
97,852
|
|
6,890
|
|
795,872
|
|
||||||||
|
|
|
|
|
|
|
|
|
||||||||||||||||
Ending balance
|
$
|
163,992
|
|
$
|
16,672
|
|
$
|
110,352
|
|
$
|
218,356
|
|
$
|
186,640
|
|
$
|
112,146
|
|
$
|
6,890
|
|
$
|
815,048
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
2014:
|
|
|
|
|
|
|
|
|
||||||||||||||||
Beginning balance
|
$
|
1,040
|
|
$
|
803
|
|
$
|
758
|
|
$
|
1,656
|
|
$
|
2,795
|
|
$
|
3,998
|
|
$
|
148
|
|
$
|
11,198
|
|
Charge-offs
|
—
|
|
(701
|
)
|
—
|
|
—
|
|
(274
|
)
|
(1,985
|
)
|
—
|
|
(2,960
|
)
|
||||||||
Recoveries
|
—
|
|
—
|
|
—
|
|
—
|
|
14
|
|
—
|
|
—
|
|
14
|
|
||||||||
Provision
|
472
|
|
201
|
|
25
|
|
(610
|
)
|
(205
|
)
|
145
|
|
(28
|
)
|
—
|
|
||||||||
|
|
|
|
|
|
|
|
|
||||||||||||||||
Ending balance
|
$
|
1,512
|
|
$
|
303
|
|
$
|
783
|
|
$
|
1,046
|
|
$
|
2,330
|
|
$
|
2,158
|
|
$
|
120
|
|
$
|
8,252
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Period-end amount allocated to:
|
|
|
|
|
|
|
|
|
||||||||||||||||
Loans individually evaluated
|
|
|
|
|
|
|
|
|
||||||||||||||||
for impairment
|
$
|
—
|
|
$
|
90
|
|
$
|
—
|
|
$
|
126
|
|
$
|
86
|
|
$
|
364
|
|
$
|
—
|
|
$
|
666
|
|
Loans collectively evaluated
|
|
|
|
|
|
|
|
|
||||||||||||||||
for impairment
|
1,512
|
|
213
|
|
783
|
|
920
|
|
2,244
|
|
1,794
|
|
120
|
|
7,586
|
|
||||||||
|
|
|
|
|
|
|
|
|
||||||||||||||||
Ending balance
|
$
|
1,512
|
|
$
|
303
|
|
$
|
783
|
|
$
|
1,046
|
|
$
|
2,330
|
|
$
|
2,158
|
|
$
|
120
|
|
$
|
8,252
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Loans:
|
|
|
|
|
|
|
|
|
||||||||||||||||
Loans individually evaluated
|
|
|
|
|
|
|
|
|
||||||||||||||||
for impairment
|
$
|
—
|
|
$
|
359
|
|
$
|
—
|
|
$
|
2,922
|
|
$
|
1,147
|
|
$
|
3,542
|
|
$
|
—
|
|
$
|
7,970
|
|
Loans collectively evaluated
|
|
|
|
|
|
|
|
|
||||||||||||||||
for impairment
|
121,262
|
|
22,808
|
|
94,265
|
|
129,170
|
|
185,687
|
|
113,585
|
|
7,454
|
|
674,231
|
|
||||||||
|
|
|
|
|
|
|
|
|
||||||||||||||||
Ending balance
|
$
|
121,262
|
|
$
|
23,167
|
|
$
|
94,265
|
|
$
|
132,092
|
|
$
|
186,834
|
|
$
|
117,127
|
|
$
|
7,454
|
|
$
|
682,201
|
|
|
Loans
|
Loans
|
Loans
|
|
|
||||||||||
|
30-59 Days
|
60-89 Days
|
90 or More
|
Total Past
|
Non-Accrual
|
||||||||||
|
Past Due
|
Past Due
|
Past Due
|
Due Loans
|
Loans
|
||||||||||
|
|
|
|
|
|
||||||||||
2015:
|
|
|
|
|
|
||||||||||
Real estate:
|
|
|
|
|
|
||||||||||
Construction
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Residential
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||
Owner occupied
|
318
|
|
—
|
|
—
|
|
318
|
|
—
|
|
|||||
Commercial and farmland
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||
Commercial:
|
|
|
|
|
|
||||||||||
Financial and agricultural
|
712
|
|
—
|
|
748
|
|
1,460
|
|
748
|
|
|||||
Energy
|
—
|
|
2,055
|
|
11,945
|
|
14,000
|
|
14,000
|
|
|||||
Consumer and other loans
|
4
|
|
—
|
|
—
|
|
4
|
|
—
|
|
|||||
|
|
|
|
|
|
||||||||||
|
$
|
1,034
|
|
$
|
2,055
|
|
$
|
12,693
|
|
$
|
15,782
|
|
$
|
14,748
|
|
|
|
|
|
|
|
||||||||||
2014:
|
|
|
|
|
|
||||||||||
Real estate:
|
|
|
|
|
|
||||||||||
Construction
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Residential
|
—
|
|
—
|
|
359
|
|
359
|
|
359
|
|
|||||
Owner occupied
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||
Commercial and farmland
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||
Commercial:
|
|
|
|
|
|
||||||||||
Financial and agricultural
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||
Energy
|
—
|
|
—
|
|
3,388
|
|
3,388
|
|
3,388
|
|
|||||
Consumer and other loans
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||
|
|
|
|
|
|
||||||||||
|
$
|
—
|
|
$
|
—
|
|
$
|
3,747
|
|
$
|
3,747
|
|
$
|
3,747
|
|
|
|
|
|
|
|
|
Interest
|
||||||||||||||
|
Unpaid
|
Recorded
|
Recorded
|
|
|
|
Income
|
||||||||||||||
|
Contractual
|
Investment
|
Investment
|
Total
|
|
Average
|
Recognized
|
||||||||||||||
|
Principal
|
With No
|
With
|
Recorded
|
Related
|
Recorded
|
on Impaired
|
||||||||||||||
|
Balance
|
Allowance
|
Allowance
|
Investment
|
Allowance
|
Investment
|
Loans
|
||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||||
2015:
|
|
|
|
|
|
|
|
||||||||||||||
Real estate:
|
|
|
|
|
|
|
|
||||||||||||||
Construction
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Residential
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||
Owner occupied
|
317
|
|
—
|
|
317
|
|
317
|
|
3
|
|
64
|
|
24
|
|
|||||||
Commercial and farmland
|
2,870
|
|
—
|
|
2,870
|
|
2,870
|
|
26
|
|
2,895
|
|
190
|
|
|||||||
Commercial:
|
|
|
|
|
|
|
|
||||||||||||||
Financial and agricultural
|
1,694
|
|
—
|
|
1,694
|
|
1,694
|
|
53
|
|
1,346
|
|
52
|
|
|||||||
Energy
|
14,295
|
|
—
|
|
14,295
|
|
14,295
|
|
2,384
|
|
5,508
|
|
39
|
|
|||||||
Consumer and other loans
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||
|
|
|
|
|
|
|
|
||||||||||||||
|
$
|
19,176
|
|
$
|
—
|
|
$
|
19,176
|
|
$
|
19,176
|
|
$
|
2,466
|
|
$
|
9,813
|
|
$
|
305
|
|
|
|
|
|
|
|
|
|
||||||||||||||
2014:
|
|
|
|
|
|
|
|
||||||||||||||
Real estate:
|
|
|
|
|
|
|
|
||||||||||||||
Construction
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Residential
|
359
|
|
—
|
|
359
|
|
359
|
|
90
|
|
2,699
|
|
—
|
|
|||||||
Owner occupied
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||
Commercial and farmland
|
2,922
|
|
—
|
|
2,922
|
|
2,922
|
|
126
|
|
1,753
|
|
178
|
|
|||||||
Commercial:
|
|
|
|
|
|
|
|
||||||||||||||
Financial and agricultural
|
1,147
|
|
—
|
|
1,147
|
|
1,147
|
|
86
|
|
1,473
|
|
63
|
|
|||||||
Energy
|
3,542
|
|
—
|
|
3,542
|
|
3,542
|
|
364
|
|
9,661
|
|
9
|
|
|||||||
Consumer and other loans
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||
|
|
|
|
|
|
|
|
||||||||||||||
|
$
|
7,970
|
|
$
|
—
|
|
$
|
7,970
|
|
$
|
7,970
|
|
$
|
666
|
|
$
|
15,586
|
|
$
|
250
|
|
Note 6.
|
Premises and Equipment
|
|
2015
|
2014
|
||||
|
|
|
||||
Land
|
$
|
11,771
|
|
$
|
11,771
|
|
Building and improvements
|
11,388
|
|
11,367
|
|
||
Leasehold improvements
|
2,917
|
|
2,916
|
|
||
Furniture, fixtures and equipment
|
6,512
|
|
6,490
|
|
||
|
32,588
|
|
32,544
|
|
||
Less accumulated depreciation and amortization
|
(10,148
|
)
|
(9,271
|
)
|
||
|
|
|
||||
|
$
|
22,440
|
|
$
|
23,273
|
|
Note 7.
|
Deposits
|
|
2015
|
2014
|
||||||||
|
Amount
|
Percent
|
Amount
|
Percent
|
||||||
|
|
|
|
|
||||||
Noninterest-bearing demand accounts
|
$
|
173,985
|
|
21.8
|
%
|
$
|
155,078
|
|
19.5
|
%
|
Interest-bearing checking accounts
|
30,520
|
|
3.8
|
|
26,447
|
|
3.3
|
|
||
Limited access money market accounts
|
224,537
|
|
28.1
|
|
248,046
|
|
31.2
|
|
||
Savings accounts
|
2,816
|
|
0.4
|
|
2,582
|
|
0.3
|
|
||
Certificates of deposit, $250,000 and greater
|
86,008
|
|
10.8
|
|
73,605
|
|
9.3
|
|
||
Certificates of deposit, less than $250,000
|
280,586
|
|
35.1
|
|
287,577
|
|
36.2
|
|
||
|
|
|
|
|
||||||
|
$
|
798,452
|
|
100
|
%
|
$
|
793,335
|
|
100
|
%
|
2015
|
$
|
317,363
|
|
2016
|
46,781
|
|
|
2017
|
2,058
|
|
|
2018
|
16
|
|
|
2019
|
376
|
|
|
|
|
||
|
$
|
366,594
|
|
Note 8.
|
Federal Home Loan Bank Advances
|
|
Interest
|
Principal
|
||
Maturity
|
Rate
|
Balance
|
||
|
|
|
||
January 4, 2016
|
0.36%
|
$
|
10,000
|
|
January 6, 2016
|
0.31%
|
10,000
|
|
|
January 11, 2016
|
0.31%
|
10,000
|
|
|
January 13, 2016
|
0.31%
|
10,000
|
|
|
January 14, 2016
|
0.31%
|
10,000
|
|
|
January 19, 2016
|
0.35%
|
10,000
|
|
|
January 28, 2016
|
0.3%
|
10,000
|
|
|
February 18, 2016
|
0.39%
|
10,000
|
|
|
February 29, 2016
|
0.41%
|
10,000
|
|
|
March 2, 2016
|
0.36%
|
10,000
|
|
|
March 3, 2016
|
0.37%
|
10,000
|
|
|
March 7, 2016
|
0.39%
|
10,000
|
|
|
March 7, 2016
|
0.39%
|
10,000
|
|
|
April 14, 2016
|
0.51%
|
10,000
|
|
|
May 9, 2016
|
0.51%
|
10,000
|
|
|
June 22, 2016
|
0.51%
|
10,000
|
|
|
July 28, 2016
|
0.52%
|
10,000
|
|
|
August 8, 2016
|
0.51%
|
10,000
|
|
|
August 29, 2016
|
0.54%
|
10,000
|
|
|
|
|
|
||
|
|
$
|
190,000
|
|
Note 9.
|
Trust Preferred Subordinated Debentures
|
Note 10.
|
Income Taxes
|
|
2015
|
2014
|
||||
|
|
|
||||
Current:
|
|
|
||||
Federal
|
$
|
1,055
|
|
$
|
437
|
|
State
|
31
|
|
76
|
|
||
|
1,086
|
|
513
|
|
||
Deferred
|
1,563
|
|
(114
|
)
|
||
|
|
|
||||
Total
|
$
|
2,649
|
|
$
|
399
|
|
|
2015
|
2014
|
||||
|
|
|
||||
Federal income tax expense computed at statutory rate
|
$
|
3,491
|
|
$
|
1,384
|
|
State tax (net of federal benefit)
|
20
|
|
50
|
|
||
Meals, entertainment and nondeductible dues
|
72
|
|
80
|
|
||
Tax exempt interest
|
(887
|
)
|
(883
|
)
|
||
Tax credits
|
10
|
|
(20
|
)
|
||
Other
|
(57
|
)
|
(212
|
)
|
||
|
|
|
||||
Income tax expense
|
$
|
2,649
|
|
$
|
399
|
|
|
2015
|
2014
|
||||
|
|
|
||||
Deferred tax assets:
|
|
|
||||
Allowance for loan losses
|
$
|
3,715
|
|
$
|
2,806
|
|
Deferred loan fees
|
478
|
|
383
|
|
||
Reserves and accruals
|
—
|
|
2,550
|
|
||
Interest on non-accrual loans
|
362
|
|
956
|
|
||
Stock options/warrants
|
70
|
|
82
|
|
||
Other real estate owned
|
37
|
|
7
|
|
||
Premises and equipment
|
101
|
|
27
|
|
||
Other
|
21
|
|
—
|
|
||
Total deferred tax assets
|
4,784
|
|
6,811
|
|
||
|
|
|
||||
Deferred tax liability:
|
|
|
||||
Securities available for sale
|
(669
|
)
|
(677
|
)
|
||
Lone Star New Market Fund
|
(214
|
)
|
(254
|
)
|
||
Other
|
—
|
|
(27
|
)
|
||
Total deferred tax liabilities
|
(883
|
)
|
(958
|
)
|
||
|
|
|
||||
Deferred tax asset
|
$
|
3,901
|
|
$
|
5,853
|
|
Note 11.
|
Commitments and Contingencies
|
2016
|
$
|
1,380
|
|
2017
|
1,463
|
|
|
2018
|
1,489
|
|
|
2019
|
1,519
|
|
|
2020
|
1,418
|
|
|
Thereafter
|
7,949
|
|
|
|
|
||
|
$
|
15,217
|
|
|
2015
|
2014
|
||||
|
|
|
||||
Financial instruments whose contract amounts represent credit risk:
|
|
|
||||
Commitments to extend credit
|
$
|
304,662
|
|
$
|
335,624
|
|
Standby letters of credit
|
3,689
|
|
3,377
|
|
||
|
|
|
||||
|
$
|
308,351
|
|
$
|
339,001
|
|
|
2015
|
2014
|
||||||||
|
|
Weighted
|
|
Weighted
|
||||||
|
|
Average
|
|
Average
|
||||||
|
|
Exercise
|
|
Exercise
|
||||||
|
Shares
|
Price
|
Shares
|
Price
|
||||||
|
|
|
|
|
||||||
Outstanding, beginning of year
|
144,699
|
|
$
|
18.67
|
|
375,699
|
|
$
|
13.34
|
|
Exercised
|
(34,000
|
)
|
11.35
|
|
(230,500
|
)
|
10.00
|
|
||
Forfeited
|
(2,500
|
)
|
12.00
|
|
(500
|
)
|
10.00
|
|
||
|
|
|
|
|
||||||
Outstanding, end of year
|
108,199
|
|
$
|
21.12
|
|
144,699
|
|
$
|
18.67
|
|
|
|
|
|
|
||||||
Options exercisable
|
108,199
|
|
$
|
21.12
|
|
144,699
|
|
$
|
18.67
|
|
|
|
|
|
|
||||||
Weighted average remaining contractual
|
|
|
|
|
||||||
life of options:
|
|
|
|
|
||||||
Outstanding
|
1.92 years
|
|
2.39 years
|
|
|
|||||
Exercisable
|
1.92 years
|
|
2.39 years
|
|
|
|
|
Fair Value Measurements at Reporting Date
|
||||||||||
|
|
Quoted Prices
|
Significant
|
|
||||||||
|
Assets/
|
in Active
|
Other
|
Significant
|
||||||||
|
Liabilities
|
Markets for
|
Observable
|
Unobservable
|
||||||||
|
Measured
|
Identical Assets
|
Inputs
|
Inputs
|
||||||||
|
at Fair Value
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
||||||||
|
|
|
|
|
||||||||
December 31, 2015:
|
|
|
|
|
||||||||
Measured on a recurring basis:
|
|
|
|
|
||||||||
Assets:
|
|
|
|
|
||||||||
Municipal securities
|
$
|
76,557
|
|
$
|
—
|
|
$
|
76,557
|
|
$
|
—
|
|
Pass-through securities guranteed by FNMA, GNMA, FHLMC, SBA, and SBIC
|
43,363
|
|
—
|
|
43,363
|
|
—
|
|
||||
|
|
|
|
|
||||||||
December 31, 2014:
|
|
|
|
|
||||||||
Measured on a recurring basis:
|
|
|
|
|
||||||||
Assets:
|
|
|
|
|
||||||||
Municipal securities
|
$
|
79,047
|
|
$
|
—
|
|
$
|
79,047
|
|
$
|
—
|
|
Pass-through securities guranteed by FNMA, GNMA, FHLMC, SBA, and SBIC
|
87,101
|
|
—
|
|
87,101
|
|
—
|
|
|
|
Fair Value Measurements at Reporting Date
|
|
||||||||||||
|
|
Quoted Prices
|
Significant
|
|
|
||||||||||
|
Assets/
|
in Active
|
Other
|
Significant
|
|
||||||||||
|
Liabilities
|
Markets for
|
Observable
|
Unobservable
|
Net Change
|
||||||||||
|
Measured
|
Identical Assets
|
Inputs
|
Inputs
|
During
|
||||||||||
|
at Fair Value
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
Period
|
||||||||||
|
|
|
|
|
|
||||||||||
December 31, 2015:
|
|
|
|
|
|
||||||||||
Measured on a nonrecurring basis:
|
|
|
|
|
|
||||||||||
Assets:
|
|
|
|
|
|
||||||||||
Impaired loans
|
$
|
19,178
|
|
$
|
—
|
|
$
|
—
|
|
$
|
19,178
|
|
$
|
2,210
|
|
|
|
|
|
|
|
||||||||||
December 31, 2014:
|
|
|
|
|
|
||||||||||
Measured on a nonrecurring basis:
|
|
|
|
|
|
||||||||||
Assets:
|
|
|
|
|
|
||||||||||
Impaired loans
|
$
|
7,970
|
|
$
|
—
|
|
$
|
—
|
|
$
|
7,970
|
|
$
|
(1,656
|
)
|
|
2015
|
2014
|
||||||||||
|
Carrying
|
Fair
|
Carrying
|
Fair
|
||||||||
|
Amount
|
Value
|
Amount
|
Value
|
||||||||
|
|
|
|
|
||||||||
Financial assets:
|
|
|
|
|
||||||||
Cash and cash equivalents
|
$
|
14,241
|
|
$
|
14,241
|
|
$
|
8,890
|
|
$
|
8,890
|
|
Securities held to maturity
|
132,542
|
|
133,771
|
|
155,482
|
|
157,078
|
|
||||
Securities available for sale
|
119,920
|
|
119,920
|
|
166,148
|
|
166,148
|
|
||||
Loans, net
|
800,535
|
|
799,535
|
|
671,809
|
|
670,725
|
|
||||
Federal Home Loan Bank stock
|
9,446
|
|
9,446
|
|
6,572
|
|
6,572
|
|
||||
Accrued interest receivable
|
3,415
|
|
3,415
|
|
3,582
|
|
3,582
|
|
||||
|
|
|
|
|
||||||||
Financial liabilities:
|
|
|
|
|
||||||||
Deposits
|
798,452
|
|
798,810
|
|
793,335
|
|
794,116
|
|
||||
Federal Home Loan Bank advances
|
190,000
|
|
190,029
|
|
130,000
|
|
130,147
|
|
||||
Accrued interest payable
|
361
|
|
361
|
|
359
|
|
359
|
|
||||
|
|
|
|
|
||||||||
Off-balance sheet assets (liabilities):
|
|
|
|
|
||||||||
Commitments to extend credit
|
—
|
|
—
|
|
—
|
|
—
|
|
||||
Standby letters of credit
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Sovereign
|
|
|
|
||||||||
|
Bancshares,
|
Sovereign
|
|
|
||||||||
Assets
|
Inc.
|
Bank
|
Eliminations
|
Consolidated
|
||||||||
|
|
|
|
|
||||||||
Cash and due from banks
|
$
|
394
|
|
$
|
4,553
|
|
$
|
(394
|
)
|
$
|
4,553
|
|
Interest-bearing deposits
|
—
|
|
9,614
|
|
—
|
|
9,614
|
|
||||
Federal funds sold
|
—
|
|
74
|
|
—
|
|
74
|
|
||||
Cash and cash equivalents
|
394
|
|
14,241
|
|
(394
|
)
|
14,241
|
|
||||
|
|
|
|
|
||||||||
Securities held to maturity
|
—
|
|
132,542
|
|
—
|
|
132,542
|
|
||||
Securities available for sale
|
—
|
|
119,920
|
|
—
|
|
119,920
|
|
||||
Investment in subsidiary
|
120,780
|
|
—
|
|
(120,780
|
)
|
—
|
|
||||
Loans, net
|
—
|
|
800,535
|
|
—
|
|
800,535
|
|
||||
Premises and equipment, net
|
—
|
|
22,440
|
|
—
|
|
22,440
|
|
||||
Other real estate
|
—
|
|
621
|
|
—
|
|
621
|
|
||||
Accrued interest receivable
|
—
|
|
3,415
|
|
—
|
|
3,415
|
|
||||
Federal Home Loan Bank Stock
|
—
|
|
9,446
|
|
|
9,446
|
|
|||||
Other assets
|
795
|
|
8,628
|
|
—
|
|
9,423
|
|
||||
|
|
|
|
|
||||||||
Total assets
|
$
|
121,969
|
|
$
|
1,111,788
|
|
$
|
(121,174
|
)
|
$
|
1,112,583
|
|
|
|
|
|
|
||||||||
Liabilities and Stockholders’ Equity
|
|
|
|
|
||||||||
|
|
|
|
|
||||||||
Deposits:
|
|
|
|
|
||||||||
Noninterest-bearing
|
$
|
—
|
|
$
|
174,379
|
|
$
|
(394
|
)
|
$
|
173,985
|
|
Interest-bearing
|
—
|
|
624,467
|
|
—
|
|
624,467
|
|
||||
Total deposits
|
—
|
|
798,846
|
|
(394
|
)
|
798,452
|
|
||||
|
|
|
|
|
||||||||
Accrued interest payable
|
93
|
|
268
|
|
—
|
|
361
|
|
||||
Trust preferred subordinated debentures
|
8,609
|
|
—
|
|
—
|
|
8,609
|
|
||||
Other liabilities
|
—
|
|
1,894
|
|
—
|
|
1,894
|
|
||||
Federal Home Loan Bank advances
|
—
|
|
190,000
|
|
—
|
|
190,000
|
|
||||
Total liabilities
|
8,702
|
|
991,008
|
|
(394
|
)
|
999,316
|
|
||||
|
|
|
|
|
||||||||
Commitments and contingencies
|
|
|
|
|
||||||||
|
|
|
|
|
||||||||
Stockholders’ equity:
|
|
|
|
|
||||||||
Series C preferred stock
|
24,500
|
|
—
|
|
—
|
|
24,500
|
|
||||
Common stock
|
5,203
|
|
5,200
|
|
(5,200
|
)
|
5,203
|
|
||||
Additional paid-in capital
|
57,366
|
|
80,760
|
|
(80,760
|
)
|
57,366
|
|
||||
Retained earnings
|
24,901
|
|
33,523
|
|
(33,523
|
)
|
24,901
|
|
||||
Accumulated other comprehensive income
|
1,297
|
|
1,297
|
|
(1,297
|
)
|
1,297
|
|
||||
Total stockholders’ equity
|
113,267
|
|
120,780
|
|
(120,780
|
)
|
113,267
|
|
||||
|
|
|
|
|
||||||||
Total liabilities and stockholders’ equity
|
$
|
121,969
|
|
$
|
1,111,788
|
|
$
|
(121,174
|
)
|
$
|
1,112,583
|
|
|
|
|
|
|
||||||||
See independent Auditor’s Report on Supplementary Information.
|
|
|
|
|
|
Sovereign
|
Sovereign
|
|
|
||||||||
|
Bancshares, Inc
|
Bank
|
Eliminations
|
Consolidated
|
||||||||
Interest income:
|
|
|
|
|
||||||||
Loans, including fees
|
$
|
—
|
|
$
|
35,417
|
|
$
|
—
|
|
$
|
35,417
|
|
Investment securities:
|
|
|
|
|
||||||||
Taxable
|
—
|
|
4,690
|
|
—
|
|
4,690
|
|
||||
Nontaxable
|
—
|
|
2,608
|
|
—
|
|
2,608
|
|
||||
Federal funds sold
|
—
|
|
33
|
|
—
|
|
33
|
|
||||
Other
|
—
|
|
26
|
|
—
|
|
26
|
|
||||
Total interest income
|
—
|
|
42,774
|
|
—
|
|
42,774
|
|
||||
|
|
|
|
|
||||||||
Interest expense:
|
|
|
|
|
||||||||
Deposits
|
—
|
|
4,595
|
|
—
|
|
4,595
|
|
||||
Federal funds purchased
|
—
|
|
18
|
|
—
|
|
18
|
|
||||
Trust preferred subordinated debentures
|
374
|
|
—
|
|
—
|
|
374
|
|
||||
Federal Home Loan Bank advances
|
—
|
|
602
|
|
—
|
|
602
|
|
||||
Total interest expense
|
374
|
|
5,215
|
|
—
|
|
5,589
|
|
||||
|
|
|
|
|
||||||||
Net interest income (expense)
|
(374
|
)
|
37,559
|
|
—
|
|
37,185
|
|
||||
|
|
|
|
|
||||||||
Provision for loan losses
|
—
|
|
4,800
|
|
—
|
|
4,800
|
|
||||
|
|
|
|
|
||||||||
Net interest income (expense) after provision for loan losses
|
(374
|
)
|
32,759
|
|
—
|
|
32,385
|
|
||||
|
|
|
|
|
||||||||
Noninterest income:
|
|
|
|
|
||||||||
Service charges and other fees
|
—
|
|
604
|
|
—
|
|
604
|
|
||||
Net income from subsidiary
|
8,061
|
|
—
|
|
(8,061
|
)
|
—
|
|
||||
Net investment securities gains
|
—
|
|
55
|
|
—
|
|
55
|
|
||||
Gain on sales of loans
|
—
|
|
3,194
|
|
—
|
|
3,194
|
|
||||
Other
|
11
|
|
907
|
|
—
|
|
918
|
|
||||
Total noninterest income
|
8,072
|
|
4,760
|
|
(8,061
|
)
|
4,771
|
|
||||
|
|
|
|
|
||||||||
Noninterest expense:
|
|
|
|
|
||||||||
Salaries and employee benefits
|
304
|
|
15,853
|
|
—
|
|
16,157
|
|
||||
Occupancy expense
|
—
|
|
3,514
|
|
—
|
|
3,514
|
|
||||
Legal and professional fees
|
—
|
|
2,037
|
|
—
|
|
2,037
|
|
||||
Writedowns and other expenses on other real
|
|
|
|
|
||||||||
estate owned
|
—
|
|
99
|
|
—
|
|
99
|
|
||||
Deposit insurance assessment
|
—
|
|
853
|
|
—
|
|
853
|
|
||||
Data processing
|
—
|
|
840
|
|
—
|
|
840
|
|
||||
Telephone
|
—
|
|
701
|
|
—
|
|
701
|
|
||||
Other
|
7
|
|
2,679
|
|
—
|
|
2,686
|
|
||||
Total noninterest expense
|
311
|
|
26,576
|
|
—
|
|
26,887
|
|
||||
|
|
|
|
|
||||||||
Income before taxes
|
7,387
|
|
10,943
|
|
(8,061
|
)
|
10,269
|
|
||||
Income tax:
|
|
|
|
|
||||||||
Income tax expense (benefit)
|
(233
|
)
|
2,882
|
|
—
|
|
2,649
|
|
||||
|
|
|
|
|
||||||||
Net income
|
$
|
7,620
|
|
$
|
8,061
|
|
$
|
(8,061
|
)
|
$
|
7,620
|
|
|
|
|
|
|
||||||||
See independent Auditor’s Report on Supplementary Information.
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
||||
|
|
2016
|
|
2015
|
||||
ASSETS
|
|
|
|
|
||||
Cash and due from banks
|
|
$
|
7,817
|
|
|
$
|
4,454
|
|
Interest-bearing deposits
|
|
17,613
|
|
|
9,713
|
|
||
Federal funds sold
|
|
77
|
|
|
74
|
|
||
Cash and cash equivalents
|
|
25,507
|
|
|
14,241
|
|
||
|
|
|
|
|
||||
Securities held to maturity
|
|
115,413
|
|
|
132,542
|
|
||
Securities available for sale
|
|
73,531
|
|
|
119,920
|
|
||
Loans, net
|
|
845,533
|
|
|
800,535
|
|
||
Premises and equipment, net
|
|
22,040
|
|
|
22,440
|
|
||
Other real estate owned
|
|
621
|
|
|
621
|
|
||
Accrued interest receivable
|
|
2,610
|
|
|
3,415
|
|
||
Federal Home Loan Bank Stock
|
|
5,705
|
|
|
9,446
|
|
||
Other assets
|
|
7,629
|
|
|
9,423
|
|
||
Total assets
|
|
$
|
1,098,589
|
|
|
$
|
1,112,583
|
|
|
|
|
|
|
||||
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
||||
Deposits:
|
|
|
|
|
||||
Noninterest-bearing
|
|
$
|
181,281
|
|
|
$
|
173,985
|
|
Interest-bearing
|
|
677,338
|
|
|
624,467
|
|
||
Total deposits
|
|
858,619
|
|
|
798,452
|
|
||
|
|
|
|
|
||||
Accrued interest payable
|
|
375
|
|
|
361
|
|
||
Trust preferred subordinated debentures
|
|
8,609
|
|
|
8,609
|
|
||
Other liabilities
|
|
2,618
|
|
|
1,894
|
|
||
Federal Home Loan Bank advances
|
|
110,000
|
|
|
190,000
|
|
||
Total liabilities
|
|
980,221
|
|
|
999,316
|
|
||
|
|
|
|
|
||||
Commitments and contingencies
|
|
|
|
|
||||
|
|
|
|
|
||||
Stockholders’ equity:
|
|
|
|
|
||||
Preferred stock, 2,000,000 total shares authorized:
Series C cumulative perpetual preferred shares, $1 par value, $1,000 per share liquidation value; 24,500 shares issued and outstanding at September 30, 2016 and December 31, 2015
|
|
24,500
|
|
|
24,500
|
|
||
Common stock, par value $1 per share, 10,000,000 shares authorized; 5,248,200 and 5,203,100 shares issued and outstanding at September 30, 2016 and December 31, 2015
|
|
5,248
|
|
|
5,203
|
|
||
Additional paid-in capital
|
|
57,633
|
|
|
57,366
|
|
||
Retained earnings
|
|
30,277
|
|
|
24,901
|
|
||
Accumulated other comprehensive income
|
|
710
|
|
|
1,297
|
|
||
Total stockholders’ equity
|
|
118,368
|
|
|
113,267
|
|
||
Total liabilities and stockholders’ equity
|
|
$
|
1,098,589
|
|
|
$
|
1,112,583
|
|
|
|
Nine Months Ended September 30,
|
||||||
|
|
2016
|
|
2015
|
||||
Interest income:
|
|
|
|
|
||||
Loans, including fees
|
|
$
|
28,287
|
|
|
$
|
25,619
|
|
Investment securities:
|
|
|
|
|
||||
Taxable
|
|
2,084
|
|
|
3,649
|
|
||
Nontaxable
|
|
1,773
|
|
|
1,964
|
|
||
Federal funds sold
|
|
70
|
|
|
23
|
|
||
Other
|
|
73
|
|
|
18
|
|
||
Total interest income
|
|
32,287
|
|
|
31,273
|
|
||
|
|
|
|
|
||||
Interest expense:
|
|
|
|
|
||||
Deposits
|
|
3,746
|
|
|
3,418
|
|
||
Federal funds purchased
|
|
12
|
|
|
17
|
|
||
Trust preferred subordinated debentures
|
|
303
|
|
|
279
|
|
||
Federal Home Loan Bank advances
|
|
505
|
|
|
418
|
|
||
Total interest expense
|
|
4,566
|
|
|
4,132
|
|
||
Net interest income
|
|
27,721
|
|
|
27,141
|
|
||
Provision for loan losses
|
|
3,000
|
|
|
2,800
|
|
||
Net interest income after provision for loan losses
|
|
24,721
|
|
|
24,341
|
|
||
Noninterest income:
|
|
|
|
|
||||
Service charges and other fees
|
|
432
|
|
|
456
|
|
||
Net investment securities gains
|
|
1,052
|
|
|
55
|
|
||
Gain on sales of loans
|
|
788
|
|
|
2,393
|
|
||
Other
|
|
631
|
|
|
724
|
|
||
Total noninterest income
|
|
2,903
|
|
|
3,628
|
|
||
|
|
|
|
|
||||
Noninterest expense:
|
|
|
|
|
||||
Salaries and employee benefits
|
|
11,547
|
|
|
12,092
|
|
||
Occupancy expense
|
|
2,473
|
|
|
2,657
|
|
||
Legal and professional fees
|
|
711
|
|
|
1,762
|
|
||
Deposit insurance assessment
|
|
663
|
|
|
586
|
|
||
Loan and repossessed asset expense
|
|
588
|
|
|
74
|
|
||
Data processing
|
|
553
|
|
|
632
|
|
||
Telephone
|
|
443
|
|
|
533
|
|
||
Other
|
|
2,072
|
|
|
1,936
|
|
||
Total noninterest expense
|
|
19,050
|
|
|
20,272
|
|
||
|
|
|
|
|
||||
Income before taxes
|
|
8,574
|
|
|
7,697
|
|
||
Income tax expense
|
|
2,475
|
|
|
2,148
|
|
||
|
|
|
|
|
||||
Net income
|
|
$
|
6,099
|
|
|
$
|
5,549
|
|
|
|
Nine Months Ended September 30,
|
||||||
|
|
2016
|
|
2015
|
||||
Net income
|
|
$
|
6,099
|
|
|
$
|
5,549
|
|
|
|
|
|
|
||||
Other comprehensive loss before tax:
|
|
|
|
|
||||
Net unrealized gains on available for sale securities arising during the year
|
|
654
|
|
|
345
|
|
||
Reclassification adjustment for amortization of unrealized losses on investment securities transferred to held to maturity from available for sale
|
|
(491
|
)
|
|
(563
|
)
|
||
Reclassification adjustment for net gains on sales of securities available for sale included in net income
|
|
(1,052
|
)
|
|
(55
|
)
|
||
Other comprehensive (loss) income before tax
|
|
(889
|
)
|
|
(273
|
)
|
||
Income tax expense (benefit)
|
|
(302
|
)
|
|
(93
|
)
|
||
Other comprehensive income (loss), net of tax
|
|
(587
|
)
|
|
(180
|
)
|
||
|
|
|
|
|
||||
Comprehensive income
|
|
$
|
5,512
|
|
|
$
|
5,369
|
|
|
|
Preferred
Stock
|
|
Common Stock
|
|
Additional
Paid-In
Capital
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
Income
|
|
Total
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Balance at December 31, 2015
|
|
$
|
24,500
|
|
|
$
|
5,203
|
|
|
$
|
57,366
|
|
|
$
|
24,901
|
|
|
$
|
1,297
|
|
|
$
|
113,267
|
|
Net Income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,099
|
|
|
—
|
|
|
6,099
|
|
||||||
Other comprehensive income, net of tax
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(587
|
)
|
|
(587
|
)
|
||||||
Stock-based compensation
|
|
—
|
|
|
—
|
|
|
221
|
|
|
—
|
|
|
—
|
|
|
221
|
|
||||||
Deferred stock vested (39,100 shares)
|
|
—
|
|
|
39
|
|
|
(39
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Stock options exercised (6,000 shares)
|
|
—
|
|
|
6
|
|
|
85
|
|
|
—
|
|
|
—
|
|
|
91
|
|
||||||
Preferred stock dividends
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(723
|
)
|
|
—
|
|
|
(723
|
)
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Balance at September 30, 2016
|
|
$
|
24,500
|
|
|
$
|
5,248
|
|
|
$
|
57,633
|
|
|
$
|
30,277
|
|
|
$
|
710
|
|
|
$
|
118,368
|
|
|
|
For the For the Nine Months Ended September 30,
|
||||||
|
|
2016
|
|
2015
|
||||
Cash flows from operating activities:
|
|
|
|
|
||||
Net income
|
|
$
|
6,099
|
|
|
$
|
5,549
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
||||
Deprecation expense
|
|
544
|
|
|
672
|
|
||
Provision for loan losses
|
|
3,000
|
|
|
2,800
|
|
||
Net gain on sales of securities available for sale
|
|
(1,052
|
)
|
|
(55
|
)
|
||
Gain on sales of loans
|
|
(788
|
)
|
|
(2,393
|
)
|
||
Valuation adjustments on other real estate owned
|
|
—
|
|
|
90
|
|
||
Stock-based compensation expense
|
|
221
|
|
|
217
|
|
||
Net amortization of securities held to maturity
|
|
1,528
|
|
|
1,698
|
|
||
Net amortization of securities available for sale
|
|
384
|
|
|
1,153
|
|
||
Changes in operating assets and liabilities:
|
|
|
|
|
||||
Accrued interest receivable and other assets
|
|
2,599
|
|
|
11,655
|
|
||
Accrued interest payable and other liabilities
|
|
1,040
|
|
|
(8,643
|
)
|
||
Net cash provided by operating activities
|
|
13,575
|
|
|
12,743
|
|
||
Cash flows from investing activities:
|
|
|
|
|
||||
Proceeds from sales of securities available for sale
|
|
41,121
|
|
|
29,420
|
|
||
Proceeds from calls, maturities and principal repayments of securities held to maturity
|
|
16,093
|
|
|
16,996
|
|
||
Proceeds from calls, maturities and principal repayments of securities available for sale
|
|
4,555
|
|
|
12,869
|
|
||
Net purchase (redemption) of FHLB stock
|
|
3,741
|
|
|
(1,233
|
)
|
||
Net increase in loans
|
|
(47,210
|
)
|
|
(141,215
|
)
|
||
Purchases of premises and equipment
|
|
(144
|
)
|
|
(23
|
)
|
||
Net cash provided by (used in) investing activities
|
|
18,156
|
|
|
(83,186
|
)
|
||
Cash flows from financing activities:
|
|
|
|
|
||||
Net increase in deposits
|
|
60,167
|
|
|
26,902
|
|
||
Net increase (decrease) in Federal Home Loan Bank advances
|
|
(80,000
|
)
|
|
50,000
|
|
||
Preferred stock dividend paid
|
|
(723
|
)
|
|
(184
|
)
|
||
Proceeds from exercise of stock options and stock warrants
|
|
91
|
|
|
—
|
|
||
Net cash provided by (used in) financing activities
|
|
(20,465
|
)
|
|
76,718
|
|
||
Net increase in cash and cash equivalents
|
|
11,266
|
|
|
6,275
|
|
||
Cash and cash equivalents at beginning of year
|
|
14,241
|
|
|
8,890
|
|
||
Cash and cash equivalents at end of year
|
|
$
|
25,507
|
|
|
$
|
15,165
|
|
Note 1.
|
Summary of Significant Accounting Policies
|
•
|
Pro-rata ownership in an entire financial asset.
|
•
|
From the date of the transfer, all cash flows received from the entire financial asset are divided proportionately among the participating interest holders in an amount equal to their share of ownership.
|
•
|
The rights of each participating interest holder have the same priority, and no participating interest holder’s interest is subordinated to the interest of another participating interest holder. That is, no participating interest holder is entitled to receive cash before any other participating interest holder under its contractual rights as a participating interest holder.
|
•
|
No party has the right to pledge or exchange the entire financial asset unless all participating interest holders agree to pledge or exchange the entire financial asset.
|
Note 2.
|
Statements of Cash Flows
|
|
2016
|
2015
|
||||
|
|
|
||||
Cash paid for interest
|
$
|
4,552
|
|
$
|
4,116
|
|
|
|
|
||||
Cash paid for taxes
|
$
|
800
|
|
—
|
|
|
|
|
|
||||
Shares of common stock received in lieu of cash on exercise of
|
|
|
||||
stock options and warrants (5,700 shares)
|
—
|
|
$
|
170
|
|
Note 3.
|
Securities
|
|
|
Gross
|
Gross
|
|
||||||||
|
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
||||||||
|
Cost
|
Gains
|
Losses
|
Value
|
||||||||
|
|
|
|
|
||||||||
Securities Held to Maturity
|
|
|
|
|
||||||||
|
|
|
|
|
||||||||
September 30, 2016:
|
|
|
|
|
||||||||
Pass-through securities guaranteed
|
|
|
|
|
||||||||
by FNMA, GNMA, FHLMC, SBA
|
|
|
|
|
||||||||
and SBIC
|
$
|
118,316
|
|
$
|
507
|
|
$
|
(211
|
)
|
$
|
118,612
|
|
|
|
|
|
|
||||||||
|
$
|
118,316
|
|
$
|
507
|
|
$
|
(211
|
)
|
$
|
118,612
|
|
|
|
|
|
|
||||||||
Securities Available for Sale
|
|
|
|
|
||||||||
|
|
|
|
|
||||||||
September 30, 2016:
|
|
|
|
|
||||||||
Municipal securities
|
$
|
63,526
|
|
$
|
3,885
|
|
—
|
|
$
|
67,411
|
|
|
Pass-through securities guaranteed
|
|
|
|
|
||||||||
by FNMA, GNMA, FHLMC, SBA
|
|
|
|
|
||||||||
and SBIC
|
6,026
|
|
94
|
|
—
|
|
6,120
|
|
||||
|
|
|
|
|
||||||||
|
$
|
69,552
|
|
$
|
3,979
|
|
—
|
|
$
|
73,531
|
|
|
|
|
|
|
|
||||||||
Securities Held to Maturity
|
|
|
|
|
||||||||
|
|
|
|
|
||||||||
December 31, 2015:
|
|
|
|
|
||||||||
Pass-through securities guaranteed
|
|
|
|
|
||||||||
by FNMA, GNMA, FHLMC, SBA
|
|
|
|
|
||||||||
and SBIC
|
$
|
135,936
|
|
$
|
27
|
|
$
|
(2,192
|
)
|
$
|
133,771
|
|
|
|
|
|
|
||||||||
|
$
|
135,936
|
|
$
|
27
|
|
$
|
(2,192
|
)
|
$
|
133,771
|
|
|
|
|
|
|
||||||||
Securities Available for Sale
|
|
|
|
|
||||||||
|
|
|
|
|
||||||||
December 31, 2015:
|
|
|
|
|
||||||||
Municipal securities
|
$
|
71,611
|
|
$
|
4,946
|
|
—
|
|
$
|
76,557
|
|
|
Pass-through securities guaranteed
|
|
|
|
|
||||||||
by FNMA, GNMA, FHLMC, SBA
|
|
|
|
|
||||||||
and SBIC
|
42,950
|
|
436
|
|
(23
|
)
|
43,363
|
|
||||
|
|
|
|
|
||||||||
|
$
|
114,561
|
|
$
|
5,382
|
|
$
|
(23
|
)
|
$
|
119,920
|
|
|
Continuous Unrealized
|
Continuous Unrealized
|
||||||||||
|
Losses Existing for
|
Losses Existing for
|
||||||||||
|
Less than 12 Months
|
Greater than 12 Months
|
||||||||||
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
||||||||
Description of Securities
|
Value
|
Losses
|
Value
|
Losses
|
||||||||
|
|
|
|
|
||||||||
September 30, 2016:
|
|
|
|
|
||||||||
Pass-through securities guaranteed
|
|
|
|
|
||||||||
by FNMA, GNMA, FHLMC, SBA
|
|
|
|
|
||||||||
and SBIC:
|
|
|
|
|
||||||||
Securities held to maturity
|
$
|
4,992
|
|
$
|
11
|
|
$
|
41,361
|
|
$
|
200
|
|
Securities available for sale
|
—
|
|
—
|
|
—
|
|
—
|
|
||||
|
|
|
|
|
||||||||
|
$
|
4,992
|
|
$
|
11
|
|
$
|
41,361
|
|
$
|
200
|
|
|
|
|
|
|
||||||||
December 31, 2015:
|
|
|
|
|
||||||||
Pass-through securities guaranteed
|
|
|
|
|
||||||||
by FNMA, GNMA, FHLMC, SBA
|
|
|
|
|
||||||||
and SBIC:
|
|
|
|
|
||||||||
Securities held to maturity
|
$
|
60,143
|
|
$
|
749
|
|
$
|
67,294
|
|
$
|
1,443
|
|
Securities available for sale
|
3,017
|
|
23
|
|
—
|
|
—
|
|
||||
|
|
|
|
|
||||||||
|
$
|
63,160
|
|
$
|
772
|
|
$
|
67,294
|
|
$
|
1,443
|
|
|
Held to Maturity
|
|||||
|
Amortized
|
Estimated
|
||||
|
Cost
|
Fair Value
|
||||
|
|
|
||||
Pass-through securities guaranteed by FNMA, GNMA, FHLMC,
|
|
|
||||
SBA and SBIC
|
$
|
118,316
|
|
$
|
118,612
|
|
|
|
|
||||
|
$
|
118,316
|
|
$
|
118,612
|
|
|
|
|
||||
|
Available for Sale
|
|||||
|
Amortized
|
Estimated
|
||||
|
Cost
|
Fair Value
|
||||
|
|
|
||||
Due 3 months or less
|
—
|
|
—
|
|
||
Due after 3 months through 1 year
|
987
|
|
1,010
|
|
||
Due after one year through 5 years
|
16,634
|
|
17,639
|
|
||
Due after five years through 10 years
|
26,691
|
|
28,294
|
|
||
Due after ten years
|
19,214
|
|
20,468
|
|
||
Pass-through securities guaranteed by FNMA, GNMA, FHLMC,
|
|
|
||||
SBA and SBIC
|
6,026
|
|
6,120
|
|
||
|
|
|
||||
|
$
|
69,552
|
|
$
|
73,531
|
|
|
2016
|
2015
|
||||
|
|
|
||||
Proceeds from sales
|
$
|
41,121
|
|
$
|
29,420
|
|
|
|
|
||||
Gross realized gains
|
$
|
1,052
|
|
$
|
106
|
|
|
|
|
||||
Gross realized losses
|
—
|
|
$
|
51
|
|
|
|
|
|
Note 4.
|
Loans and Allowance for Loan Losses
|
|
2016
|
2015
|
||||
|
|
|
||||
Real estate:
|
|
|
||||
Construction
|
$
|
132,744
|
|
$
|
163,993
|
|
Residential
|
15,717
|
|
16,672
|
|
||
Owner occupied
|
135,717
|
|
110,352
|
|
||
Commercial and farmland
|
291,586
|
|
218,355
|
|
||
Commercial:
|
|
|
||||
Financial and agricultural
|
201,063
|
|
186,640
|
|
||
Energy
|
80,724
|
|
112,146
|
|
||
Consumer and other loans
|
5,425
|
|
6,890
|
|
||
|
862,976
|
|
815,048
|
|
||
Unearned loan fees
|
(3,467
|
)
|
(3,587
|
)
|
||
Allowance for loan losses
|
(13,976
|
)
|
(10,926
|
)
|
||
|
|
|
||||
|
$
|
845,533
|
|
$
|
800,535
|
|
|
|
|
•
|
Real estate - construction
: This category consists of loans secured by real estate under construction or land development, both commercial and residential. Construction and land development loans can carry additional risk of repayment from several different factors influencing the completion of the project on time and on budget. Other risks involved are market driven through real estate values and long-term financing options. As such, the Company takes additional steps to insure that sufficient equity is required, underwriting supports the project, and secondary sources of repayment are identified. This category also consists of loans secured by vacant land, which includes developed commercial land, undeveloped commercial land, rural land, single family residential lots, and lot development loans. These types of loans require larger down payments to help mitigate the risk.
|
•
|
Real estate - residential:
This category consists of loans secured by some form of both owner-occupied and non-owner occupied residential real estate. The category includes loans for 1-4 family home construction, home improvement, home equity lines of credit, closed-end financing for 1-4 family properties, and financing for multi-family residential properties. The overall credit risk in this segment of the loan portfolio is low given the nature of the collateral and the Company’s strict underwriting standards for this type of financing. The Company does not originate sub-prime mortgage loans. The higher risk area of this category is the non-owner occupied portion of these loans, which are often reliant on rental income as the primary source of repayment.
|
•
|
Real estate - owner occupied:
This category consists of loans secured by commercial buildings that are occupied by companies that are run by the borrower or guarantors on the loan.
These loans are lower risk than the non owner occupied loans because the borrower or guarantor has a personal interest in the success of the tenant company. In addition, more in-depth financial information can be obtained to help management evaluate the business and its profitability.
|
•
|
Real estate - commercial and farmland:
This category consists of loans secured by income-producing commercial buildings such as shopping centers, office buildings, office warehouse buildings, hotels, and multi-family properties. These loans carry a higher risk than owner-occupied properties because the repayment is based on the successful operations of the tenants and may be subject to adverse conditions in the real estate market and/or general economy. A substantial majority of these loans have adequate secondary sources of repayment through financially strong guarantors that are well known to the Company.
|
•
|
Commercial - financial and agricultural:
This category consists of all business loans and leases secured by assets other than the business real estate. A substantial majority of these loans are secured by equipment, accounts receivable, and inventory. The primary risk involved with this category is that the loans and leases are typically secured by depreciable assets that may not provide an adequate source of repayment if the loan goes into default. However, the Company’s very conservative underwriting standards and credit culture help mitigate risk.
|
•
|
Commercial - energy:
Energy loans are credits extended to businesses deriving a majority of their revenues from the sale of oil and gas related products or whose credit requires a technical evaluation of oil and gas reserves or where the forecasting and analysis of oil and gas prices directly impacts credit quality. The Energy Industry can be divided into three segments: Upstream (Oil and gas exploration and production or E&P); Midstream (refining, gathering, processing); and Downstream (selling product to end users). Integrated oil companies are generally involved in all three segments. The other oil and gas companies are involved in the upstream segment and may also be involved in midstream and downstream segments. Energy lending at Sovereign Bank focuses its efforts on upstream and midstream E&P companies. Loans are secured by proven, producing oil and gas reserves.
|
•
|
Consumer and other loans:
This category of loans includes all other forms of consumer debt, including automobiles, recreational vehicles, debt consolidation, household or personal use, education, taxes, and investments. A large majority of the loans in this category are relatively short-term loans secured by new and used automobiles, recreational vehicles, and bank certificates of deposit.
|
•
|
1-6 - pass ratings:
Risk ratings from 1-6 are all “Pass” ratings and represent the loans considered acceptable to the bank. The ratings range from 1 being the Highest Quality to 6 being Minimum Acceptable Quality (including a 6 - pass/watch rating). All ratings reflect loans with a good primary and secondary source of repayment and/or well collateralized. While the availability varies within the Pass categories, borrowers typically have access to alternative financial markets.
|
•
|
7 - special mention:
A Special Mention asset has 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 bank’s credit position at some future date. Special Mention assets are not adversely classified and do not expose the bank to sufficient risk to warrant adverse classification.
|
•
|
8 - substandard:
The loan is inadequately protected by the current worth and paying capacity of the obligor or of the collateral pledged, if any. There are well-defined weaknesses that jeopardize the repayment of the debt.
|
•
|
9 - doubtful:
The loan has the weaknesses of those in the classification of Substandard, one or more of which make collection or liquidation in full, on the basis of currently ascertainable facts, conditions and values, highly questionable or improbable. The possibility of loss is extremely high, but certain identifiable contingencies that are reasonably likely to materialize may work to the advantage and strengthening of the loan, such that it is reasonable to defer its classification
|
•
|
10 - loss:
Loans in this classification are considered uncollectible and of such little value that their continued classification as bankable assets is not warranted. This classification does not mean the loan has absolutely no recovery or salvage value, but that it is neither practical nor desirable to defer writing off this basically worthless loan even though partial recovery may be affected in the future.
|
|
|
Special
|
|
|
|
|||||||||
|
Pass
|
Mention
|
Substandard
|
Doubtful
|
|
|||||||||
|
(Rating 1-6)
|
(Rating 7)
|
(Rating 8)
|
(Rating 9)
|
Total
|
|||||||||
|
|
|
|
|
|
|||||||||
2016:
|
|
|
|
|
|
|||||||||
Real estate:
|
|
|
|
|
|
|||||||||
Construction
|
$
|
132,744
|
|
—
|
|
—
|
|
—
|
|
$
|
132,744
|
|
||
Residential
|
15,717
|
|
—
|
|
—
|
|
—
|
|
15,717
|
|
||||
Owner occupied
|
126,037
|
|
99
|
|
9,581
|
|
—
|
|
135,717
|
|
||||
Commercial and farmland
|
288,761
|
|
—
|
|
2,825
|
|
—
|
|
291,586
|
|
||||
Commercial:
|
|
|
|
|
—
|
|
||||||||
Financial and agricultural
|
185,987
|
|
1,417
|
|
13,659
|
|
—
|
|
201,063
|
|
||||
Energy
|
32,541
|
|
21,193
|
|
26,990
|
|
—
|
|
80,724
|
|
||||
Consumer and other loans
|
5,346
|
|
—
|
|
79
|
|
—
|
|
5,425
|
|
||||
|
|
|
|
|
|
|||||||||
|
$
|
787,133
|
|
$
|
22,709
|
|
$
|
53,134
|
|
—
|
|
$
|
862,976
|
|
|
|
|
|
|
|
|||||||||
2015:
|
|
|
|
|
|
|||||||||
Real estate:
|
|
|
|
|
|
|||||||||
Construction
|
$
|
163,993
|
|
—
|
|
—
|
|
—
|
|
$
|
163,993
|
|
||
Residential
|
16,672
|
|
—
|
|
—
|
|
—
|
|
16,672
|
|
||||
Owner occupied
|
109,664
|
|
370
|
|
318
|
|
—
|
|
110,352
|
|
||||
Commercial and farmland
|
215,485
|
|
—
|
|
2,870
|
|
—
|
|
218,355
|
|
||||
Commercial:
|
|
|
|
|
|
|||||||||
Financial and agricultural
|
182,760
|
|
1,820
|
|
2,060
|
|
—
|
|
186,640
|
|
||||
Energy
|
65,929
|
|
9,792
|
|
36,425
|
|
—
|
|
112,146
|
|
||||
Consumer and other loans
|
6,842
|
|
—
|
|
48
|
|
—
|
|
6,890
|
|
||||
|
|
|
|
|
|
|||||||||
|
$
|
761,345
|
|
$
|
11,982
|
|
$
|
41,721
|
|
—
|
|
$
|
815,048
|
|
|
|
|
|
|
|
|
Real Estate
|
Commercial
|
|
|
||||||||||||||||||||
|
Construction
|
Residential
|
Owner Occupied
|
Commercial
and
Farmland
|
Financial
and
Agricultural
|
Energy
|
Consumer
and
Other Loans
|
Total
|
||||||||||||||||
2016:
|
|
|
|
|
|
|
|
|
||||||||||||||||
Beginning balance
|
$
|
1,761
|
|
$
|
134
|
|
$
|
793
|
|
$
|
1,558
|
|
$
|
1,962
|
|
$
|
4,655
|
|
$
|
63
|
|
$
|
10,926
|
|
Charge-offs
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(4
|
)
|
(4
|
)
|
||||||||
Recoveries
|
—
|
|
—
|
|
—
|
|
—
|
|
54
|
|
—
|
|
—
|
|
54
|
|
||||||||
Provision
|
(253
|
)
|
—
|
|
499
|
|
886
|
|
422
|
|
1,452
|
|
(6
|
)
|
3,000
|
|
||||||||
|
|
|
|
|
|
|
|
|
||||||||||||||||
Ending balance
|
$
|
1,508
|
|
$
|
134
|
|
$
|
1,292
|
|
$
|
2,444
|
|
$
|
2,438
|
|
$
|
6,107
|
|
$
|
53
|
|
$
|
13,976
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Period-end amount allocated to:
|
|
|
|
|
|
|
|
|
||||||||||||||||
Loans individually evaluated
|
|
|
|
|
|
|
|
|
||||||||||||||||
for impairment
|
—
|
|
—
|
|
$
|
3
|
|
$
|
27
|
|
$
|
15
|
|
$
|
5,137
|
|
—
|
|
$
|
5,182
|
|
|||
Loans collectively evaluated
|
|
|
|
|
|
|
|
|
||||||||||||||||
for impairment
|
1,508
|
|
134
|
|
1,289
|
|
2,418
|
|
2,422
|
|
969
|
|
54
|
|
8,794
|
|
||||||||
|
|
|
|
|
|
|
|
|
||||||||||||||||
Ending balance
|
$
|
1,508
|
|
$
|
134
|
|
$
|
1,292
|
|
$
|
2,445
|
|
$
|
2,437
|
|
$
|
6,106
|
|
$
|
54
|
|
$
|
13,976
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Loans:
|
|
|
|
|
|
|
|
|
||||||||||||||||
Loans individually evaluated
|
|
|
|
|
|
|
|
|
||||||||||||||||
for impairment
|
—
|
|
—
|
|
$
|
313
|
|
$
|
2,825
|
|
$
|
1,502
|
|
$
|
15,398
|
|
—
|
|
$
|
20,038
|
|
|||
Loans collectively evaluated
|
|
|
|
|
|
|
|
|
||||||||||||||||
for impairment
|
132,744
|
|
15,717
|
|
135,404
|
|
288,761
|
|
199,561
|
|
65,326
|
|
5,425
|
|
842,938
|
|
||||||||
|
|
|
|
|
|
|
|
|
||||||||||||||||
Ending balance
|
$
|
132,744
|
|
$
|
15,717
|
|
$
|
135,717
|
|
$
|
291,586
|
|
$
|
201,063
|
|
$
|
80,724
|
|
$
|
5,425
|
|
$
|
862,976
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
2015:
|
|
|
|
|
|
|
|
|
||||||||||||||||
Beginning balance
|
$
|
1,512
|
|
$
|
303
|
|
$
|
783
|
|
$
|
1,046
|
|
$
|
2,330
|
|
$
|
2,158
|
|
$
|
120
|
|
$
|
8,252
|
|
Charge-offs
|
—
|
|
(359
|
)
|
—
|
|
—
|
|
—
|
|
(1,779
|
)
|
—
|
|
(2,138
|
)
|
||||||||
Recoveries
|
—
|
|
—
|
|
—
|
|
—
|
|
12
|
|
—
|
|
—
|
|
12
|
|
||||||||
Provision
|
249
|
|
190
|
|
10
|
|
512
|
|
(380
|
)
|
4,276
|
|
(57
|
)
|
4,800
|
|
||||||||
|
|
|
|
|
|
|
|
|
||||||||||||||||
Ending balance
|
$
|
1,761
|
|
$
|
134
|
|
$
|
793
|
|
$
|
1,558
|
|
$
|
1,962
|
|
$
|
4,655
|
|
$
|
63
|
|
$
|
10,926
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Period-end amount allocated to:
|
|
|
|
|
|
|
|
|
||||||||||||||||
Loans individually evaluated
|
|
|
|
|
|
|
|
|
||||||||||||||||
for impairment
|
—
|
|
—
|
|
$
|
3
|
|
$
|
26
|
|
$
|
53
|
|
$
|
2,384
|
|
—
|
|
$
|
2,466
|
|
|||
Loans collectively evaluated
|
|
|
|
|
|
|
|
|
||||||||||||||||
for impairment
|
1,761
|
|
134
|
|
790
|
|
1,532
|
|
1,909
|
|
2,271
|
|
63
|
|
8,460
|
|
||||||||
|
|
|
|
|
|
|
|
|
||||||||||||||||
Ending balance
|
$
|
1,761
|
|
$
|
134
|
|
$
|
793
|
|
$
|
1,558
|
|
$
|
1,962
|
|
$
|
4,655
|
|
$
|
63
|
|
$
|
10,926
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Loans:
|
|
|
|
|
|
|
|
|
||||||||||||||||
Loans individually evaluated
|
|
|
|
|
|
|
|
|
||||||||||||||||
for impairment
|
—
|
|
—
|
|
$
|
318
|
|
$
|
2,870
|
|
$
|
1,694
|
|
$
|
14,294
|
|
—
|
|
$
|
19,176
|
|
|||
Loans collectively evaluated
|
|
|
|
|
|
|
|
|
||||||||||||||||
for impairment
|
163,992
|
|
16,672
|
|
110,034
|
|
215,486
|
|
184,946
|
|
97,852
|
|
6,890
|
|
795,872
|
|
||||||||
|
|
|
|
|
|
|
|
|
||||||||||||||||
Ending balance
|
$
|
163,992
|
|
$
|
16,672
|
|
$
|
110,352
|
|
$
|
218,356
|
|
$
|
186,640
|
|
$
|
112,146
|
|
$
|
6,890
|
|
$
|
815,048
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
Loans
|
Loans
|
|
|
||||||||||
|
30-59 Days
|
60-89 Days
|
90 or More
|
Total Past
|
Non-Accrual
|
||||||||||
|
Past Due
|
Past Due
|
Past Due
|
Due Loans
|
Loans
|
||||||||||
|
|
|
|
|
|
||||||||||
2016:
|
|
|
|
|
|
||||||||||
Real estate:
|
|
|
|
|
|
||||||||||
Construction
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||
Residential
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||
Owner occupied
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||
Commercial and farmland
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||
Commercial:
|
|
|
|
|
|
||||||||||
Financial and agricultural
|
—
|
|
—
|
|
705
|
|
705
|
|
705
|
|
|||||
Energy
|
—
|
|
—
|
|
12,789
|
|
12,789
|
|
12,789
|
|
|||||
Consumer and other loans
|
—
|
|
—
|
|
38
|
|
38
|
|
38
|
|
|||||
|
|
|
|
|
|
||||||||||
|
—
|
|
—
|
|
$
|
13,532
|
|
$
|
13,532
|
|
$
|
13,532
|
|
||
|
|
|
|
|
|
||||||||||
2015:
|
|
|
|
|
|
||||||||||
Real estate:
|
|
|
|
|
|
||||||||||
Construction
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||
Residential
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||
Owner occupied
|
318
|
|
—
|
|
—
|
|
318
|
|
—
|
|
|||||
Commercial and farmland
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||
Commercial:
|
|
|
|
|
|
||||||||||
Financial and agricultural
|
712
|
|
—
|
|
748
|
|
1,460
|
|
748
|
|
|||||
Energy
|
—
|
|
2,055
|
|
11,945
|
|
14,000
|
|
14,000
|
|
|||||
Consumer and other loans
|
4
|
|
—
|
|
—
|
|
4
|
|
—
|
|
|||||
|
|
|
|
|
|
||||||||||
|
$
|
1,034
|
|
$
|
2,055
|
|
$
|
12,693
|
|
$
|
15,782
|
|
$
|
14,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|||||||||||||
|
Unpaid
|
Recorded
|
Recorded
|
|
|
|
Income
|
|||||||||||||
|
Contractual
|
Investment
|
Investment
|
Total
|
|
Average
|
Recognized
|
|||||||||||||
|
Principal
|
With No
|
With
|
Recorded
|
Related
|
Recorded
|
on Impaired
|
|||||||||||||
|
Balance
|
Allowance
|
Allowance
|
Investment
|
Allowance
|
Investment
|
Loans
|
|||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
2016:
|
|
|
|
|
|
|
|
|||||||||||||
Real estate:
|
|
|
|
|
|
|
|
|||||||||||||
Construction
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
||||||
Residential
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
||||||
Owner occupied
|
313
|
|
—
|
|
313
|
|
313
|
|
3
|
|
316
|
|
13
|
|
||||||
Commercial and farmland
|
2,825
|
|
—
|
|
2,825
|
|
2,825
|
|
27
|
|
2,846
|
|
93
|
|
||||||
Commercial:
|
|
|
|
|
|
|
|
|||||||||||||
Financial and agricultural
|
1,502
|
|
—
|
|
1,502
|
|
1,502
|
|
15
|
|
1,609
|
|
33
|
|
||||||
Energy
|
15,398
|
|
—
|
|
15,398
|
|
15,398
|
|
5,137
|
|
14,804
|
|
96
|
|
||||||
Consumer and other loans
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
||||||
|
|
|
|
|
|
|
|
|||||||||||||
|
$
|
20,038
|
|
—
|
|
$
|
20,038
|
|
$
|
20,038
|
|
$
|
5,182
|
|
$
|
19,575
|
|
$
|
235
|
|
|
|
|
|
|
|
|
|
|||||||||||||
2015:
|
|
|
|
|
|
|
|
|||||||||||||
Real estate:
|
|
|
|
|
|
|
|
|||||||||||||
Construction
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
||||||
Residential
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
||||||
Owner occupied
|
317
|
|
—
|
|
317
|
|
317
|
|
3
|
|
64
|
|
24
|
|
||||||
Commercial and farmland
|
2,870
|
|
—
|
|
2,870
|
|
2,870
|
|
26
|
|
2,895
|
|
190
|
|
||||||
Commercial:
|
|
|
|
|
|
|
|
|||||||||||||
Financial and agricultural
|
1,694
|
|
—
|
|
1,694
|
|
1,694
|
|
53
|
|
1,346
|
|
52
|
|
||||||
Energy
|
14,295
|
|
—
|
|
14,295
|
|
14,295
|
|
2,384
|
|
5,508
|
|
39
|
|
||||||
Consumer and other loans
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
||||||
|
|
|
|
|
|
|
|
|||||||||||||
|
$
|
19,176
|
|
—
|
|
$
|
19,176
|
|
$
|
19,176
|
|
$
|
2,466
|
|
$
|
9,813
|
|
$
|
305
|
|
|
|
|
|
|
|
|
|
Note 5.
|
Federal Home Loan Bank Advances
|
|
Interest
|
Principal
|
||
Maturity
|
Rate
|
Balance
|
||
|
|
|
||
October 3, 2016
|
0.66%
|
10,000
|
|
|
October 11, 2016
|
0.6%
|
10,000
|
|
|
October 21, 2016
|
0.54%
|
10,000
|
|
|
October 28, 2016
|
0.5%
|
10,000
|
|
|
November 8, 2016
|
0.54%
|
10,000
|
|
|
November 18, 2016
|
0.52%
|
10,000
|
|
|
December 5, 2016
|
0.54%
|
10,000
|
|
|
December 15, 2016
|
0.57%
|
10,000
|
|
|
December 27, 2016
|
0.64%
|
10,000
|
|
|
January 9, 2017
|
0.62%
|
10,000
|
|
|
January 25, 2017
|
0.62%
|
10,000
|
|
|
|
|
|
||
|
|
$
|
110,000
|
|
|
|
|
Note 7.
|
Trust Preferred Subordinated Debentures
|
Note 8.
|
Income Taxes
|
|
2016
|
2015
|
||||
|
|
|
||||
Financial instruments whose contract amounts represent credit risk:
|
|
|
||||
Commitments to extend credit
|
$
|
306,792
|
|
$
|
304,662
|
|
Standby letters of credit
|
3,520
|
|
3,689
|
|
||
|
|
|
||||
|
$
|
310,312
|
|
$
|
308,351
|
|
|
|
|
|
September 30, 2016
|
September 30, 2015
|
||||||||
|
|
Weighted
|
|
Weighted
|
||||||
|
|
Average
|
|
Average
|
||||||
|
|
Exercise
|
|
Exercise
|
||||||
|
Shares
|
Price
|
Shares
|
Price
|
||||||
|
|
|
|
|
||||||
Outstanding, beginning of period
|
108,199
|
|
$
|
21.12
|
|
144,699
|
|
$
|
18.67
|
|
Exercised
|
(6,000
|
)
|
15
|
|
(16,000
|
)
|
10.63
|
|
||
Forfeited
|
(56,479
|
)
|
21.48
|
|
—
|
|
—
|
|
||
|
|
|
|
|
||||||
Outstanding, end of period
|
45,720
|
|
$
|
21.48
|
|
128,699
|
|
$
|
19.67
|
|
|
|
|
|
|
||||||
Options exercisable
|
45,720
|
|
$
|
21.48
|
|
128,699
|
|
$
|
19.67
|
|
|
|
|
|
|
||||||
Weighted average remaining contractual
|
|
|
|
|
||||||
life of options:
|
|
|
|
|
||||||
Outstanding
|
1.27 years
|
|
1.14 years
|
|
|
|||||
Exercisable
|
1.27 years
|
|
1.14 years
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
To Be Well Capitalized
|
||||||||||
|
|
|
For Capital
|
Under Prompt Corrective
|
|||||||||||
|
Actual
|
Adequacy Purposes
|
Action Provisions
|
||||||||||||
|
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
|||||||||
|
|
|
|
|
|
|
|||||||||
September 30, 2016:
|
|
|
|
|
|
|
|||||||||
Total capital (to risk weighted assets):
|
|
|
|
|
|
|
|||||||||
Consolidated
|
$
|
138,802
|
|
13.58
|
%
|
$
|
81,789
|
|
8
|
%
|
N/A
|
N/A
|
|||
Bank
|
137,725
|
|
13.48
|
%
|
$
|
81,750
|
|
8
|
%
|
$
|
102,187
|
|
10
|
%
|
|
Tier I capital (to risk weighted assets):
|
|
|
|
|
|
||||||||||
Consolidated
|
$
|
126,008
|
|
12.33
|
%
|
$
|
61,342
|
|
6
|
%
|
N/A
|
N/A
|
|||
Bank
|
124,937
|
|
12.23
|
%
|
$
|
61,312
|
|
6
|
%
|
$
|
81,750
|
|
8
|
%
|
|
Common equity (to risk weighted assets):
|
|
|
|
|
|
|
|||||||||
Consolidated
|
$
|
93,158
|
|
9.11
|
%
|
$
|
46,006
|
|
4.5
|
%
|
N/A
|
N/A
|
|||
Bank
|
124,937
|
|
12.23
|
%
|
$
|
45,984
|
|
4.5
|
%
|
$
|
66,422
|
|
6.5
|
%
|
|
Tier I capital (to average assets):
|
|
|
|
|
|
|
|||||||||
Consolidated
|
$
|
126,008
|
|
11.71
|
%
|
$
|
43,027
|
|
4
|
%
|
N/A
|
N/A
|
|||
Bank
|
124,937
|
|
11.62
|
%
|
$
|
42,998
|
|
4
|
%
|
$
|
53,748
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|||||||||
December 31, 2015:
|
|
|
|
|
|
|
|||||||||
Total capital (to risk weighted assets):
|
|
|
|
|
|
|
|||||||||
Consolidated
|
$
|
131,246
|
|
13.06
|
%
|
$
|
80,423
|
|
8
|
%
|
N/A
|
N/A
|
|||
Bank
|
130,409
|
|
12.98
|
%
|
$
|
80,380
|
|
8
|
%
|
$
|
100,475
|
|
10
|
%
|
|
Tier I capital (to risk weighted assets):
|
|
|
|
|
|
|
|||||||||
Consolidated
|
$
|
120,320
|
|
11.97
|
%
|
$
|
60,317
|
|
6
|
%
|
N/A
|
N/A
|
|||
Bank
|
119,483
|
|
11.89
|
%
|
$
|
60,285
|
|
6
|
%
|
$
|
80,380
|
|
8
|
%
|
|
Common equity (to risk weighted assets):
|
|
|
|
|
|
|
|||||||||
Consolidated
|
$
|
87,470
|
|
8.7
|
%
|
$
|
45,238
|
|
4.5
|
%
|
N/A
|
N/A
|
|||
Bank
|
119,483
|
|
11.89
|
%
|
$
|
45,214
|
|
4.5
|
%
|
$
|
65,308
|
|
6.5
|
%
|
|
Tier I capital (to average assets):
|
|
|
|
|
|
|
|||||||||
Consolidated
|
$
|
120,320
|
|
10.69
|
%
|
$
|
45,027
|
|
4
|
%
|
N/A
|
N/A
|
|||
Bank
|
119,483
|
|
10.62
|
%
|
$
|
44,997
|
|
4
|
%
|
$
|
56,247
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date
|
||||||||
|
|
Quoted Prices
|
Significant
|
|
||||||
|
Assets/
|
in Active
|
Other
|
Significant
|
||||||
|
Liabilities
|
Markets for
|
Observable
|
Unobservable
|
||||||
|
Measured
|
Identical Assets
|
Inputs
|
Inputs
|
||||||
|
at Fair Value
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
||||||
|
|
|
|
|
||||||
September 30, 2016:
|
|
|
|
|
||||||
Measured on a recurring basis:
|
|
|
|
|
||||||
Assets:
|
|
|
|
|
||||||
Municipal securities
|
$
|
67,411
|
|
—
|
|
$
|
67,411
|
|
—
|
|
Pass-through securities
|
|
|
|
|
||||||
guaranteed by FNMA, GNMA, FLMC, SBA, and SBC
|
6,120
|
|
—
|
|
6,120
|
|
—
|
|
||
|
|
|
|
|
||||||
December 31, 2015:
|
|
|
|
|
||||||
Measured on a recurring basis:
|
|
|
|
|
||||||
Assets:
|
|
|
|
|
||||||
Municipal securities
|
$
|
76,557
|
|
—
|
|
$
|
76,557
|
|
—
|
|
Pass-through securities
|
|
|
|
|
||||||
guaranteed by FNMA, GNMA, FLMC, SBA, and SBC
|
43,363
|
|
—
|
|
43,363
|
|
—
|
|
||
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date
|
|
||||||||||||
|
|
Quoted Prices
|
Significant
|
|
|
||||||||||
|
Assets/
|
in Active
|
Other
|
Significant
|
|
||||||||||
|
Liabilities
|
Markets for
|
Observable
|
Unobservable
|
Net Change
|
||||||||||
|
Measured
|
Identical Assets
|
Inputs
|
Inputs
|
During
|
||||||||||
|
at Fair Value
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
Period
|
||||||||||
|
|
|
|
|
|
||||||||||
September 30, 2016:
|
|
|
|
|
|
||||||||||
Measured on a nonrecurring basis:
|
|
|
|
|
|
||||||||||
Assets:
|
|
|
|
|
|
||||||||||
Impaired loans
|
$
|
20,038
|
|
$
|
—
|
|
$
|
—
|
|
$
|
20,038
|
|
$
|
2,715
|
|
|
|
|
|
|
|
||||||||||
December 31, 2015:
|
|
|
|
|
|
||||||||||
Measured on a nonrecurring basis:
|
|
|
|
|
|
||||||||||
Assets:
|
|
|
|
|
|
||||||||||
Impaired loans
|
$
|
19,178
|
|
$
|
—
|
|
$
|
—
|
|
$
|
19,178
|
|
$
|
2,210
|
|
|
|
|
|
|
|
|
2016
|
2015
|
||||||||||
|
Carrying
|
Fair
|
Carrying
|
Fair
|
||||||||
|
Amount
|
Value
|
Amount
|
Value
|
||||||||
|
|
|
|
|
||||||||
Financial assets:
|
|
|
|
|
||||||||
Cash and cash equivalents
|
$
|
25,507
|
|
$
|
25,507
|
|
$
|
14,241
|
|
$
|
14,241
|
|
Securities held to maturity
|
115,413
|
|
118,612
|
|
132,542
|
|
133,771
|
|
||||
Securities available for sale
|
73,531
|
|
73,531
|
|
119,920
|
|
119,920
|
|
||||
Loans, net
|
845,533
|
|
844,550
|
|
800,535
|
|
799,535
|
|
||||
Federal Home Loan Bank stock
|
5,705
|
|
5,705
|
|
9,446
|
|
9,446
|
|
||||
Accrued interest receivable
|
2,610
|
|
2,610
|
|
3,415
|
|
3,415
|
|
||||
|
|
|
|
|
||||||||
Financial liabilities:
|
|
|
|
|
||||||||
Deposits
|
858,619
|
|
858,964
|
|
798,452
|
|
798,810
|
|
||||
Federal Home Loan Bank advances
|
110,000
|
|
110,014
|
|
190,000
|
|
190,029
|
|
||||
Accrued interest payable
|
375
|
|
375
|
|
361
|
|
361
|
|
||||
|
|
|
|
|
||||||||
Off-balance sheet assets (liabilities):
|
|
|
|
|
||||||||
Commitments to extend credit
|
—
|
|
—
|
|
—
|
|
—
|
|
||||
Standby letters of credit
|
—
|
|
—
|
|
—
|
|
—
|
|
||||
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
||||||||||||||||||||
|
2016
|
|
2015
|
||||||||||||||||||
|
Average Outstanding Balance
|
|
Interest Earned/ Interest Paid
|
|
Average Yield/ Rate
|
|
Average Outstanding Balance
|
|
Interest Earned/ Interest Paid
|
|
Average Yield/ Rate
|
||||||||||
|
(dollars in thousands) (Unaudited)
|
||||||||||||||||||||
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Total loans
|
$
|
821,349
|
|
|
$
|
28,287
|
|
|
4.60
|
%
|
|
$
|
728,761
|
|
|
$
|
25,619
|
|
|
4.70
|
%
|
Investment securities
|
207,697
|
|
|
3,857
|
|
|
2.48
|
|
|
296,951
|
|
|
5,613
|
|
|
2.53
|
|
||||
Federal funds sold
|
18,224
|
|
|
70
|
|
|
0.51
|
|
|
12,380
|
|
|
23
|
|
|
0.25
|
|
||||
Other
|
9,527
|
|
|
73
|
|
|
1.02
|
|
|
7,140
|
|
|
18
|
|
|
0.34
|
|
||||
Total interest-earning assets
|
1,056,797
|
|
|
32,287
|
|
|
4.08
|
|
|
1,045,232
|
|
|
31,273
|
|
|
4.00
|
|
||||
Allowance for loan losses
|
(12,792
|
)
|
|
|
|
|
|
(8,146
|
)
|
|
|
|
|
||||||||
Noninterest-earning assets
|
39,401
|
|
|
|
|
|
|
42,689
|
|
|
|
|
|
||||||||
Total assets
|
$
|
1,083,406
|
|
|
|
|
|
|
$
|
1,079,775
|
|
|
|
|
|
||||||
Liabilities and stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest-bearing deposits
|
$
|
646,892
|
|
|
$
|
3,746
|
|
|
0.77
|
%
|
|
$
|
638,060
|
|
|
$
|
3,418
|
|
|
0.72
|
%
|
Federal funds purchased
|
1,013
|
|
|
12
|
|
|
1.58
|
|
|
1,744
|
|
|
17
|
|
|
1.30
|
|
||||
Trust preferred subordinated debt
|
8,609
|
|
|
303
|
|
|
4.70
|
|
|
8,609
|
|
|
279
|
|
|
4.33
|
|
||||
Federal Home Loan Bank advances
|
132,555
|
|
|
505
|
|
|
0.51
|
|
|
154,176
|
|
|
418
|
|
|
0.36
|
|
||||
Total interest-bearing liabilities
|
789,069
|
|
|
4,566
|
|
|
0.77
|
|
|
802,589
|
|
|
4,132
|
|
|
0.69
|
|
||||
Noninterest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Noninterest-bearing deposits
|
176,935
|
|
|
|
|
|
|
166,440
|
|
|
|
|
|
||||||||
Other liabilities
|
1,876
|
|
|
|
|
|
|
3,029
|
|
|
|
|
|
||||||||
Total noninterest-bearing liabilities
|
178,811
|
|
|
|
|
|
|
169,469
|
|
|
|
|
|
||||||||
Stockholders’ equity
|
115,526
|
|
|
|
|
|
|
107,717
|
|
|
|
|
|
||||||||
Total liabilities and stockholders’ equity
|
$
|
1,083,406
|
|
|
|
|
|
|
$
|
1,079,775
|
|
|
|
|
|
||||||
Net interest rate spread(1)
|
|
|
|
|
3.31
|
%
|
|
|
|
|
|
3.31
|
%
|
||||||||
Net interest income
|
|
|
$
|
27,721
|
|
|
|
|
|
|
$
|
27,141
|
|
|
|
||||||
Net interest margin(2)
|
|
|
|
|
3.50
|
%
|
|
|
|
|
|
3.47
|
%
|
|
For the Nine Months Ended September 30, 2016 vs. 2015
|
||||||||||
|
Increase (Decrease) due to
|
|
|
||||||||
|
Volume
|
|
Rate
|
|
Total
|
||||||
|
(dollars in thousands) (Unaudited)
|
||||||||||
|
|
|
|
|
|
||||||
Interest-earning assets:
|
|
|
|
|
|
||||||
Total loans
|
$
|
3,258
|
|
|
$
|
(590
|
)
|
|
$
|
2,668
|
|
Investment securities
|
(1,689
|
)
|
|
(67
|
)
|
|
(1,756
|
)
|
|||
Federal funds sold
|
11
|
|
|
36
|
|
|
47
|
|
|||
Other
|
6
|
|
|
49
|
|
|
55
|
|
|||
Total increase (decrease) in interest income
|
$
|
1,586
|
|
|
$
|
(572
|
)
|
|
$
|
1,014
|
|
|
|
|
|
|
|
||||||
Interest-bearing liabilities:
|
|
|
|
|
|
||||||
Interest-bearing deposits
|
$
|
47
|
|
|
$
|
281
|
|
|
$
|
328
|
|
Federal funds purchased
|
(7
|
)
|
|
2
|
|
|
(5
|
)
|
|||
Trust preferred subordinated debt
|
—
|
|
|
24
|
|
|
24
|
|
|||
Federal Home Loan Bank advances
|
(59
|
)
|
|
146
|
|
|
87
|
|
|||
Total increase (decrease) in interest expense
|
(19
|
)
|
|
453
|
|
|
434
|
|
|||
|
|
|
|
|
|
||||||
Increase (decrease) in net interest income
|
$
|
1,605
|
|
|
$
|
(1,025
|
)
|
|
$
|
580
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30
|
|
|
||||||||
|
2016
|
|
2015
|
|
Increase (Decrease)
|
||||||
|
(dollars in thousands) (Unaudited)
|
||||||||||
|
|
|
|
|
|
||||||
Noninterest income:
|
|
|
|
|
|
||||||
Service charges and other fees
|
$
|
432
|
|
|
$
|
456
|
|
|
$
|
(24
|
)
|
Net investment security gains
|
1,052
|
|
|
55
|
|
|
997
|
|
|||
Gains on sales of loans
|
788
|
|
|
2,393
|
|
|
(1,605
|
)
|
|||
Other
|
631
|
|
|
724
|
|
|
(93
|
)
|
|||
Total noninterest income
|
$
|
2,903
|
|
|
$
|
3,628
|
|
|
$
|
(725
|
)
|
|
For the Nine Months Ended September 30
|
|
|
||||||||
|
2016
|
|
2015
|
|
Increase (Decrease)
|
||||||
|
(dollars in thousands) (Unaudited)
|
||||||||||
|
|
|
|
|
|
||||||
Noninterest expense:
|
|
|
|
|
|
||||||
Salaries and employee benefits
|
$
|
11,547
|
|
|
$
|
12,092
|
|
|
$
|
(545
|
)
|
Non-staff expenses:
|
|
|
|
|
|
||||||
Occupancy expense
|
2,473
|
|
|
2,657
|
|
|
(184
|
)
|
|||
Legal and professional fees
|
711
|
|
|
1,762
|
|
|
(1,051
|
)
|
|||
Deposit insurance assessment
|
663
|
|
|
586
|
|
|
77
|
|
|||
Loan and repossessed asset expenses
|
588
|
|
|
74
|
|
|
514
|
|
|||
Data processing
|
553
|
|
|
632
|
|
|
(79
|
)
|
|||
Telephone
|
443
|
|
|
533
|
|
|
(90
|
)
|
|||
Other
|
2,072
|
|
|
1,936
|
|
|
136
|
|
|||
Total noninterest expense
|
$
|
19,050
|
|
|
$
|
20,272
|
|
|
$
|
(1,222
|
)
|
|
For the Years Ended December 31,
|
||||||||||||||||||||
|
2015
|
|
2014
|
||||||||||||||||||
|
Average Outstanding Balance
|
|
Interest Earned/ Interest Paid
|
|
Average Yield/ Rate
|
|
Average Outstanding Balance
|
|
Interest Earned/ Interest Paid
|
|
Average Yield/ Rate
|
||||||||||
|
(dollars in thousands)
|
||||||||||||||||||||
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Total loans
|
$
|
750,572
|
|
|
$
|
35,417
|
|
|
4.72
|
%
|
|
$
|
633,261
|
|
|
$
|
30,971
|
|
|
4.89
|
%
|
Investment securities
|
286,921
|
|
|
7,298
|
|
|
2.54
|
|
|
334,693
|
|
|
8,802
|
|
|
2.63
|
|
||||
Federal funds sold
|
12,935
|
|
|
33
|
|
|
0.26
|
|
|
14,881
|
|
|
38
|
|
|
0.26
|
|
||||
Other
|
7,346
|
|
|
26
|
|
|
0.35
|
|
|
4,941
|
|
|
16
|
|
|
0.32
|
|
||||
Total interest-earning assets
|
1,057,774
|
|
|
42,774
|
|
|
4.04
|
|
|
987,776
|
|
|
39,827
|
|
|
4.03
|
|
||||
Allowance for loan losses
|
(8,649
|
)
|
|
|
|
|
|
(9,962
|
)
|
|
|
|
|
||||||||
Noninterest-earning assets
|
42,031
|
|
|
|
|
|
|
44,255
|
|
|
|
|
|
||||||||
Total assets
|
$
|
1,091,156
|
|
|
|
|
|
|
$
|
1,022,069
|
|
|
|
|
|
||||||
Liabilities and stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest-bearing deposits
|
$
|
641,206
|
|
|
$
|
4,595
|
|
|
0.72
|
%
|
|
$
|
650,249
|
|
|
$
|
4,868
|
|
|
0.75
|
%
|
Federal funds purchased
|
1,440
|
|
|
18
|
|
|
1.25
|
|
|
1,174
|
|
|
13
|
|
|
1.11
|
|
||||
Trust preferred subordinated debt
|
8,609
|
|
|
374
|
|
|
4.34
|
|
|
8,609
|
|
|
370
|
|
|
4.30
|
|
||||
Federal Home Loan Bank Advances
|
158,219
|
|
|
602
|
|
|
0.38
|
|
|
96,575
|
|
|
521
|
|
|
0.54
|
|
||||
Total interest-bearing liabilities
|
809,474
|
|
|
5,589
|
|
|
0.69
|
|
|
756,607
|
|
|
5,772
|
|
|
0.76
|
|
||||
Noninterest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Noninterest-bearing deposits
|
170,112
|
|
|
|
|
|
|
156,355
|
|
|
|
|
|
||||||||
Other liabilities
|
2,891
|
|
|
|
|
|
|
5,700
|
|
|
|
|
|
||||||||
Total noninterest-bearing liabilities
|
173,003
|
|
|
|
|
|
|
162,055
|
|
|
|
|
|
||||||||
Stockholders’ equity
|
108,679
|
|
|
|
|
|
|
103,407
|
|
|
|
|
|
||||||||
Total liabilities and stockholders’ equity
|
$
|
1,091,156
|
|
|
|
|
|
|
$
|
1,022,069
|
|
|
|
|
|
||||||
Net interest rate spread(1)
|
|
|
|
|
3.35
|
%
|
|
|
|
|
|
3.27
|
%
|
||||||||
Net interest income
|
|
|
$
|
37,185
|
|
|
|
|
|
|
$
|
34,055
|
|
|
|
||||||
Net interest margin(2)
|
|
|
|
|
3.52
|
%
|
|
|
|
|
|
3.45
|
%
|
|
For the Year Ended December 31, 2015 vs. 2014
|
||||||||||
|
Increase (Decrease) due to
|
|
|
||||||||
|
Volume
|
|
Rate
|
|
Total
|
||||||
|
(dollars in thousands)
|
||||||||||
|
|
|
|
|
|
||||||
Interest-earning assets:
|
|
|
|
|
|
||||||
Total loans
|
$
|
5,722
|
|
|
$
|
(1,276
|
)
|
|
$
|
4,446
|
|
Investment securities
|
(1,253
|
)
|
|
(251
|
)
|
|
(1,504
|
)
|
|||
Federal funds sold
|
(5
|
)
|
|
—
|
|
|
(5
|
)
|
|||
Other
|
8
|
|
|
2
|
|
|
10
|
|
|||
Total increase (decrease) in interest income
|
$
|
4,472
|
|
|
$
|
(1,525
|
)
|
|
$
|
2,947
|
|
|
|
|
|
|
|
||||||
Interest-bearing liabilities:
|
|
|
|
|
|
||||||
Interest-bearing deposits
|
$
|
(68
|
)
|
|
$
|
(205
|
)
|
|
$
|
(273
|
)
|
Federal funds purchased
|
3
|
|
|
2
|
|
|
5
|
|
|||
Trust preferred subordinated debt
|
—
|
|
|
4
|
|
|
4
|
|
|||
Federal Home Loan Bank Advances
|
332
|
|
|
(251
|
)
|
|
81
|
|
|||
Total increase (decrease) in interest expense
|
267
|
|
|
(450
|
)
|
|
(183
|
)
|
|||
|
|
|
|
|
|
||||||
Increase (decrease) in net interest income
|
$
|
4,205
|
|
|
$
|
(1,075
|
)
|
|
$
|
3,130
|
|
|
For the Years Ended December 31
|
|
|
||||||||
|
2015
|
|
2014
|
|
Increase (Decrease)
|
||||||
|
(dollars in thousands)
|
||||||||||
|
|
|
|
|
|
||||||
Noninterest income:
|
|
|
|
|
|
||||||
Service charges and other fees
|
$
|
604
|
|
|
$
|
620
|
|
|
$
|
(16
|
)
|
Net investment security gains
|
55
|
|
|
—
|
|
|
55
|
|
|||
Gains on sales of loans
|
3,194
|
|
|
1,613
|
|
|
1,581
|
|
|||
Other
|
918
|
|
|
1,131
|
|
|
(213
|
)
|
|||
Total noninterest income
|
$
|
4,771
|
|
|
$
|
3,364
|
|
|
$
|
1,407
|
|
|
For the Years Ended December 31
|
|
|
||||||||
|
2015
|
|
2014
|
|
Increase (Decrease)
|
||||||
|
(dollars in thousands)
|
||||||||||
|
|
|
|
|
|
||||||
Noninterest expense:
|
|
|
|
|
|
||||||
Salaries and employee benefits
|
$
|
16,157
|
|
|
$
|
15,698
|
|
|
$
|
459
|
|
Non-staff expenses:
|
|
|
|
|
|
||||||
Occupancy expense
|
3,514
|
|
|
3,523
|
|
|
(9
|
)
|
|||
Legal and professional fees
|
2,037
|
|
|
7,820
|
|
|
(5,783
|
)
|
|||
Valuation adjustments and other expenses on other real estate owned
|
99
|
|
|
1,722
|
|
|
(1,623
|
)
|
|||
Deposit insurance assessment
|
853
|
|
|
862
|
|
|
(9)
|
|
|||
Data processing
|
840
|
|
|
801
|
|
|
39
|
|
|||
Telephone
|
701
|
|
|
517
|
|
|
184
|
|
|||
Other
|
2,686
|
|
|
2,405
|
|
|
281
|
|
|||
Total noninterest expense
|
$
|
26,887
|
|
|
$
|
33,348
|
|
|
$ (6,461)
|
|
|
(Unaudited)
|
|
|
||||||||
|
As of September 30,
|
|
As of December 31,
|
||||||||
|
2016
|
|
2015
|
|
2014
|
||||||
|
(dollars in thousands)
|
||||||||||
|
|
|
|
|
|
||||||
Nonaccrual loans by category:
|
|
|
|
|
|
||||||
Real estate:
|
|
|
|
|
|
||||||
Construction and land
|
—
|
|
|
—
|
|
|
—
|
|
|||
1-4 family residential
|
—
|
|
|
—
|
|
|
359
|
|
|||
Owner occupied
|
—
|
|
|
—
|
|
|
—
|
|
|||
Commercial and farmland
|
—
|
|
|
—
|
|
|
—
|
|
|||
Commercial:
|
—
|
|
|
—
|
|
|
—
|
|
|||
Financial and agricultural
|
705
|
|
|
748
|
|
|
—
|
|
|||
Energy
|
12,789
|
|
|
14,000
|
|
|
3,388
|
|
|||
Consumer
|
38
|
|
|
—
|
|
|
—
|
|
|||
Total
|
$
|
13,532
|
|
|
$
|
14,748
|
|
|
$
|
3,747
|
|
•
|
for commercial and industrial loans, the operating results of the commercial, industrial or professional enterprise, the borrower’s business, professional and financial ability and expertise, the specific risks and volatility of income and operating results typical for businesses in that category and the value, nature and marketability of collateral;
|
•
|
for commercial mortgage loans and multifamily residential loans, the debt service coverage ratio (income from the property in excess of operating expenses compared to loan payment requirements), operating results of the owner in the case of owner occupied properties, the loan to value ratio, the age and condition of the collateral and the volatility of income, property value and future operating results typical of properties of that type;
|
•
|
for 1-4 family residential mortgage loans, the borrower’s ability to repay the loan, including a consideration of the debt to income ratio and employment and income stability, the loan to value ratio, and the age, condition and marketability of the collateral; and
|
•
|
for construction, land development and other land loans, the perceived feasibility of the project including the ability to sell developed lots or improvements constructed for resale or the ability to lease property constructed for lease, the quality and nature of contracts for presale or prelease, if any, experience and ability of the developer and loan to value ratio.
|
•
|
the sale and issuance of 4,629,097 shares of Veritex common stock pursuant to a shelf registration statement and related prospectus supplement (the “offering”); and
|
•
|
the consummation of the acquisition of Sovereign Bancshares, Inc. (“Sovereign”), the parent holding company of Sovereign Bank, by Veritex pursuant to an Agreement and Plan of Reorganization dated December 14, 2016, among Veritex, Spartan Merger Sub, Inc., Veritex’s wholly-owned subsidiary, and Sovereign (the “Sovereign Merger”), including Veritex’s expected issuance of 5,117,647 shares of its common stock to Sovereign’s shareholders as a portion of the consideration for the Sovereign Merger and its payment of $58 million as a portion of the consideration for the Sovereign Merger.
|
•
|
a closing price of Veritex common stock of $17.39 per share, which was the closing price of Veritex common stock on September 30, 2016; and
|
•
|
that Sovereign’s consolidated capital, surplus and retained earnings accounts less all intangible assets and the Sovereign Merger costs prior to the closing totals at least $89.0 million.
|
|
(In Thousands)
|
||
Assets acquired:
|
|
||
Cash and cash equivalents
|
$
|
9,257
|
|
Investment securities
|
189,359
|
|
|
Loans
|
834,233
|
|
|
Premises and equipment
|
23,040
|
|
|
Goodwill
|
66,594
|
|
|
Core deposit intangible
|
6,689
|
|
|
Other assets
|
22,545
|
|
|
Total assets acquired
|
$
|
1,151,717
|
|
Liabilities assumed:
|
|
||
Deposits
|
$
|
858,619
|
|
FHLB advances
|
110,000
|
|
|
Other liabilities
|
11,602
|
|
|
Total liabilities assumed
|
$
|
980,221
|
|
|
|
||
Series C Preferred Stock
|
$
|
24,500
|
|
|
|
||
Total estimated fair value of net assets acquired
|
$
|
146,996
|
|
|
|
||
Consideration
|
|
||
Issuance of 5,177,647 shares of common stock at $17.39 per share
|
$
|
88,996
|
|
Cash paid
|
$
|
58,000
|
|
Total preliminary estimated merger consideration
|
$
|
146,996
|
|
|
|
|
|
|
|
Pro Forma Purchase Accounting Adjustments
|
|
|
|
Pro Forma Combined
|
||||||||
|
|
|
|
|
|
|
|
|
||||||||||
|
|
Veritex
Historical |
|
Sovereign
Historical |
|
|
Notes
|
|
||||||||||
ASSETS
|
|
|
|
|
|
|
|
|
|
|
||||||||
Cash and cash equivalents
|
|
$
|
178,587
|
|
|
$
|
25,507
|
|
|
$
|
475
|
|
|
(A)
|
|
$
|
204,569
|
|
Investment securities
|
|
86,772
|
|
|
188,944
|
|
|
415
|
|
|
(B)
|
|
276,131
|
|
||||
Loans held for sale
|
|
4,856
|
|
|
—
|
|
|
—
|
|
|
|
|
4,856
|
|
||||
Loans, net
|
|
918,559
|
|
|
845,533
|
|
|
(11,300
|
)
|
|
(C)
|
|
1,752,792
|
|
||||
Accrued interest receivable
|
|
2,414
|
|
|
2,610
|
|
|
—
|
|
|
|
|
5,024
|
|
||||
Bank-owned life insurance
|
|
19,922
|
|
|
—
|
|
|
—
|
|
|
|
|
19,922
|
|
||||
Bank premises, furniture and equipment, net
|
|
17,501
|
|
|
22,040
|
|
|
1,000
|
|
|
(D)
|
|
40,541
|
|
||||
Non-marketable equity securities
|
|
7,358
|
|
|
5,705
|
|
|
—
|
|
|
|
|
13,063
|
|
||||
Investment in unconsolidated subsidiary
|
|
93
|
|
|
—
|
|
|
—
|
|
|
|
|
93
|
|
||||
Other real estate owned and repossessed assets
|
|
662
|
|
|
621
|
|
|
(700
|
)
|
|
(E)
|
|
583
|
|
||||
Intangible assets, net
|
|
2,257
|
|
|
—
|
|
|
6,689
|
|
|
(F)
|
|
8,946
|
|
||||
Goodwill
|
|
26,865
|
|
|
—
|
|
|
66,594
|
|
|
(G)
|
|
93,459
|
|
||||
Other assets
|
|
3,392
|
|
|
7,629
|
|
|
7,293
|
|
|
(H)
|
|
18,314
|
|
||||
Total assets
|
|
$
|
1,269,238
|
|
|
$
|
1,098,589
|
|
|
$
|
70,466
|
|
|
|
|
$
|
2,438,293
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
||||||||
Deposits:
|
|
|
|
|
|
|
|
|
|
|
||||||||
Noninterest-bearing
|
|
$
|
304,972
|
|
|
$
|
181,281
|
|
|
$
|
—
|
|
|
|
|
$
|
486,253
|
|
Interest-bearing
|
|
772,245
|
|
|
677,338
|
|
|
—
|
|
|
|
|
1,449,583
|
|
||||
Total deposits
|
|
1,077,217
|
|
|
858,619
|
|
|
—
|
|
|
|
|
1,935,836
|
|
||||
Accounts payable and accrued expenses
|
|
2,082
|
|
|
—
|
|
|
—
|
|
|
|
|
2,082
|
|
||||
Accrued interest payable and other liabilities
|
|
1,098
|
|
|
2,993
|
|
|
—
|
|
|
|
|
4,091
|
|
||||
Advances from Federal Home Loan Bank
|
|
38,341
|
|
|
110,000
|
|
|
—
|
|
|
|
|
148,341
|
|
||||
Junior subordinated debentures
|
|
3,093
|
|
|
8,609
|
|
|
—
|
|
|
|
|
11,702
|
|
||||
Subordinated notes
|
|
4,984
|
|
|
—
|
|
|
—
|
|
|
|
|
4,984
|
|
||||
Total liabilities
|
|
1,126,815
|
|
|
980,221
|
|
|
—
|
|
|
|
|
2,107,036
|
|
||||
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
||||||||
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
||||||||
Preferred stock
|
|
—
|
|
|
24,500
|
|
|
—
|
|
|
(I)
|
|
24,500
|
|
||||
Common stock
|
|
107
|
|
|
5,248
|
|
|
(5,151
|
)
|
|
(J)
|
|
204
|
|
||||
Additional paid-in capital
|
|
116,315
|
|
|
57,633
|
|
|
107,741
|
|
|
(K)
|
|
281,689
|
|
||||
Retained earnings
|
|
26,101
|
|
|
30,277
|
|
|
(31,414
|
)
|
|
(L)
|
|
24,964
|
|
||||
Unallocated Employee Stock Ownership Plan shares
|
|
(309
|
)
|
|
—
|
|
|
—
|
|
|
|
|
(309
|
)
|
||||
Accumulated other comprehensive income (loss)
|
|
279
|
|
|
710
|
|
|
(710
|
)
|
|
(M)
|
|
279
|
|
||||
Treasury stock
|
|
(70
|
)
|
|
—
|
|
|
—
|
|
|
|
|
(70
|
)
|
||||
Total stockholders’ equity
|
|
142,423
|
|
|
118,368
|
|
|
70,466
|
|
|
|
|
331,257
|
|
||||
Total liabilities and stockholders’ equity
|
|
$
|
1,269,238
|
|
|
$
|
1,098,589
|
|
|
$
|
70,466
|
|
|
|
|
$
|
2,438,293
|
|
|
|
|
|
|
|
Pro Forma Purchase Accounting Adjustments
|
|
|
|
Pro Forma
Combined |
||||||||
|
|
|
|
|
|
|
|
|
||||||||||
|
|
Veritex
Historical |
|
Sovereign
Historical |
|
|
Notes
|
|
||||||||||
Interest income:
|
|
|
|
|
|
|
|
|
|
|
||||||||
Interest and fees on loans
|
|
$
|
32,996
|
|
|
$
|
28,287
|
|
|
$
|
2,090
|
|
|
(A)
|
|
$
|
63,373
|
|
Interest on investment securities
|
|
1,014
|
|
|
3,857
|
|
|
—
|
|
|
|
|
4,871
|
|
||||
Interest on deposits in other banks
|
|
302
|
|
|
70
|
|
|
—
|
|
|
|
|
372
|
|
||||
Interest on other
|
|
2
|
|
|
73
|
|
|
—
|
|
|
|
|
75
|
|
||||
Total interest income
|
|
34,314
|
|
|
32,287
|
|
|
2,090
|
|
|
|
|
68,691
|
|
||||
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
||||||||
Interest on deposit accounts
|
|
3,388
|
|
|
3,746
|
|
|
—
|
|
|
|
|
7,134
|
|
||||
Interest on borrowings
|
|
491
|
|
|
820
|
|
|
—
|
|
|
|
|
1,311
|
|
||||
Total interest expense
|
|
3,879
|
|
|
4,566
|
|
|
—
|
|
|
|
|
8,445
|
|
||||
Net interest income
|
|
30,435
|
|
|
27,721
|
|
|
2,090
|
|
|
|
|
60,246
|
|
||||
Provision for loan losses
|
|
1,610
|
|
|
3,000
|
|
|
(3,000
|
)
|
|
(B)
|
|
1,610
|
|
||||
Net interest income after provision for loan losses
|
|
28,825
|
|
|
24,721
|
|
|
5,090
|
|
|
|
|
58,636
|
|
||||
Noninterest income:
|
|
|
|
|
|
|
|
|
|
|
||||||||
Service charges and fees on deposit accounts
|
|
1,309
|
|
|
432
|
|
|
—
|
|
|
|
|
1,741
|
|
||||
Gain on sales of investment securities
|
|
15
|
|
|
1,052
|
|
|
—
|
|
|
|
|
1,067
|
|
||||
Gain on sales of loans
|
|
2,318
|
|
|
788
|
|
|
—
|
|
|
|
|
3,106
|
|
||||
Loss on sales of other assets owned
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
||||
Bank-owned life insurance
|
|
577
|
|
|
—
|
|
|
—
|
|
|
|
|
577
|
|
||||
Other
|
|
460
|
|
|
631
|
|
|
—
|
|
|
|
|
1,091
|
|
||||
Total noninterest income
|
|
4,679
|
|
|
2,903
|
|
|
—
|
|
|
|
|
7,582
|
|
||||
Noninterest expense:
|
|
|
|
|
|
|
|
|
|
|
||||||||
Salaries and employee benefits
|
|
10,683
|
|
|
11,547
|
|
|
—
|
|
|
|
|
22,230
|
|
||||
Occupancy and equipment
|
|
2,718
|
|
|
2,473
|
|
|
—
|
|
|
|
|
5,191
|
|
||||
Professional fees
|
|
1,861
|
|
|
711
|
|
|
—
|
|
|
|
|
2,572
|
|
||||
Data processing and software expense
|
|
850
|
|
|
553
|
|
|
—
|
|
|
|
|
1,403
|
|
||||
FDIC assessment fees
|
|
447
|
|
|
663
|
|
|
—
|
|
|
|
|
1,110
|
|
||||
Marketing
|
|
704
|
|
|
—
|
|
|
—
|
|
|
|
|
704
|
|
||||
Other assets owned expenses and write-downs
|
|
139
|
|
|
588
|
|
|
—
|
|
|
|
|
727
|
|
||||
Amortization of intangibles
|
|
285
|
|
|
—
|
|
|
502
|
|
|
(C)
|
|
787
|
|
||||
Telephone and communications
|
|
295
|
|
|
443
|
|
|
—
|
|
|
|
|
738
|
|
||||
Other
|
|
1,323
|
|
|
2,072
|
|
|
—
|
|
|
|
|
3,395
|
|
||||
Total noninterest expense
|
|
19,305
|
|
|
19,050
|
|
|
502
|
|
|
|
|
38,857
|
|
||||
Net income from operations
|
|
14,199
|
|
|
8,574
|
|
|
4,588
|
|
|
|
|
27,361
|
|
||||
Income tax expense
|
|
4,837
|
|
|
2,475
|
|
|
1,278
|
|
|
(D)
|
|
8,590
|
|
||||
Net income
|
|
9,362
|
|
|
6,099
|
|
|
3,310
|
|
|
|
|
18,771
|
|
||||
Preferred stock dividends
|
|
—
|
|
|
723
|
|
|
—
|
|
|
|
|
723
|
|
||||
Net income available to common stockholders
|
|
$
|
9,362
|
|
|
$
|
5,376
|
|
|
$
|
3,310
|
|
|
|
|
$
|
18,048
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Basic earnings per share
|
|
$
|
0.88
|
|
|
|
|
|
|
|
|
$
|
0.88
|
|
||||
Diluted earnings per share
|
|
$
|
0.85
|
|
|
|
|
|
|
|
|
$
|
0.87
|
|
||||
Weighted-average shares outstanding for basic EPS
|
|
10,698
|
|
|
|
|
9,747
|
|
|
(E)
|
|
20,445
|
|
|||||
Adjusted weighted average shares outstanding for diluted EPS
|
|
10,992
|
|
|
|
|
9,747
|
|
|
(E)
|
|
20,739
|
|
(A)
|
|
Adjustments to interest and fees on loans:
|
|
|
|
|
||
|
|
To reflect the interest income for accretion on acquired loans based on expected fair market value adjustment
|
|
$
|
2,090
|
|
|
|
|
|
|
|
|
|
|
||
(B)
|
|
Adjustment to the provision:
|
|
|
|
|
||
|
|
To eliminate Sovereign historical provision. The Sovereign acquired loans, which are marked to fair value at the acquisition date, are not expected to require a provision
|
|
$
|
(3,000
|
)
|
|
|
|
|
|
|
|
|
|
||
(C)
|
|
Adjustment to amortization of intangibles:
|
|
|
|
|
||
|
|
To reflect the expected amortization of core deposit intangible based on a 10 year life
|
|
$
|
502
|
|
|
|
|
|
|
|
|
|
|
||
(D)
|
|
Adjustment to income tax expense:
|
|
|
|
|
||
|
|
To reflect the tax adjustment related to other pro forma adjustments calculated at a 35% rate
|
|
$
|
1,278
|
|
|
|
|
|
|
|
|
|
|
||
(E)
|
|
Adjustment to weighted average shares:
|
|
|
|
|
||
|
|
To reflect the increase in the weighted average shares in connection with the issuance of 5,117,647 shares of Veritex common stock in the Sovereign Merger and 4,629,097 shares of Veritex common stock in this offering
|
|
9,747 shares
|
|
(1)
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Purchase Accounting Adjustments
|
|
|
|
Pro Forma Combined
|
||||||||
|
|
|
|
|
|
|
|
|
||||||||||
|
|
Veritex
Historical |
|
Sovereign
Historical |
|
|
Notes
|
|
||||||||||
Interest income:
|
|
|
|
|
|
|
|
|
|
|
||||||||
Interest and fees on loans
|
|
$
|
33,680
|
|
|
$
|
35,417
|
|
|
$
|
2,786
|
|
|
(A)
|
|
$
|
71,883
|
|
Interest on investment securities
|
|
997
|
|
|
7,298
|
|
|
|
|
|
|
|
8,295
|
|
||||
Interest on deposits in other banks
|
|
241
|
|
|
33
|
|
|
|
|
|
|
|
274
|
|
||||
Interest on other
|
|
2
|
|
|
26
|
|
|
|
|
|
|
|
28
|
|
||||
Total interest income
|
|
34,920
|
|
|
42,774
|
|
|
2,786
|
|
|
|
|
80,480
|
|
||||
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
||||||||
Interest on deposit accounts
|
|
2,918
|
|
|
4,595
|
|
|
|
|
|
|
|
7,513
|
|
||||
Interest on borrowings
|
|
543
|
|
|
994
|
|
|
—
|
|
|
|
|
1,537
|
|
||||
Total interest expense
|
|
3,461
|
|
|
5,589
|
|
|
—
|
|
|
|
|
9,050
|
|
||||
Net interest income
|
|
31,459
|
|
|
37,185
|
|
|
2,786
|
|
|
|
|
71,430
|
|
||||
Provision for loan losses
|
|
868
|
|
|
4,800
|
|
|
(4,800
|
)
|
|
(B)
|
|
868
|
|
||||
Net interest income after provision for loan losses
|
|
30,591
|
|
|
32,385
|
|
|
7,586
|
|
|
|
|
70,562
|
|
||||
Noninterest income:
|
|
|
|
|
|
|
|
|
|
|
||||||||
Service charges and fees on deposit accounts
|
|
1,326
|
|
|
604
|
|
|
|
|
|
|
|
1,930
|
|
||||
Gain on sales of investment securities
|
|
7
|
|
|
55
|
|
|
|
|
|
|
|
62
|
|
||||
Gain on sales of loans
|
|
1,254
|
|
|
3,194
|
|
|
|
|
|
|
|
4,448
|
|
||||
Loss on sales of other real estate owned
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
||||
Gain on sales of other assets owned
|
|
19
|
|
|
—
|
|
|
|
|
|
|
|
19
|
|
||||
Bank-owned life insurance
|
|
747
|
|
|
—
|
|
|
|
|
|
|
|
747
|
|
||||
Other
|
|
351
|
|
|
918
|
|
|
|
|
|
|
|
1,269
|
|
||||
Total noninterest income
|
|
3,704
|
|
|
4,771
|
|
|
—
|
|
|
|
|
8,475
|
|
||||
Noninterest expense:
|
|
|
|
|
|
|
|
|
|
|
||||||||
Salaries and employee benefits
|
|
11,265
|
|
|
16,157
|
|
|
|
|
|
|
|
27,422
|
|
||||
Occupancy and equipment
|
|
3,477
|
|
|
3,514
|
|
|
|
|
|
|
|
6,991
|
|
||||
Professional fees
|
|
2,023
|
|
|
2,037
|
|
|
|
|
|
|
|
4,060
|
|
||||
Data processing and software expense
|
|
1,216
|
|
|
840
|
|
|
|
|
|
|
|
2,056
|
|
||||
FDIC assessment fees
|
|
448
|
|
|
853
|
|
|
|
|
|
|
|
1,301
|
|
||||
Marketing
|
|
799
|
|
|
—
|
|
|
|
|
|
|
|
799
|
|
||||
Other assets owned expenses and write-downs
|
|
53
|
|
|
99
|
|
|
|
|
|
|
|
152
|
|
||||
Amortization of intangibles
|
|
338
|
|
|
—
|
|
|
669
|
|
|
(C)
|
|
1,007
|
|
||||
Telephone and communications
|
|
263
|
|
|
701
|
|
|
|
|
|
|
|
964
|
|
||||
Other
|
|
1,506
|
|
|
2,686
|
|
|
|
|
|
|
|
4,192
|
|
||||
Total noninterest expense
|
|
21,388
|
|
|
26,887
|
|
|
669
|
|
|
|
|
48,944
|
|
||||
Net income from operations
|
|
12,907
|
|
|
10,269
|
|
|
6,917
|
|
|
|
|
30,093
|
|
||||
Income tax expense
|
|
4,117
|
|
|
2,649
|
|
|
2,421
|
|
|
(D)
|
|
9,187
|
|
||||
Net income
|
|
8,790
|
|
|
7,620
|
|
|
4,496
|
|
|
|
|
20,906
|
|
||||
Preferred stock dividends
|
|
98
|
|
|
245
|
|
|
—
|
|
|
|
|
343
|
|
||||
Net income available to common stockholders
|
|
$
|
8,692
|
|
|
$
|
7,375
|
|
|
$
|
4,496
|
|
|
|
|
$
|
20,563
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Basic earnings per share
|
|
$
|
0.86
|
|
|
|
|
|
|
|
|
$
|
1.04
|
|
||||
Diluted earnings per share
|
|
$
|
0.84
|
|
|
|
|
|
|
|
|
$
|
1.02
|
|
||||
Weighted-average shares outstanding for basic EPS
|
|
10,061
|
|
|
|
|
9,747
|
|
|
(E)
|
|
19,808
|
|
|||||
Adjusted weighted average shares outstanding for diluted EPS
|
|
10,332
|
|
|
|
|
9,747
|
|
|
(E)
|
|
20,079
|
|
(A)
|
|
Adjustments to interest and fees on loans:
|
|
|
|
|
||
|
|
To reflect the interest income for accretion on acquired loans based on expected fair market value adjustment
|
|
$
|
2,786
|
|
|
|
|
|
|
|
|
|
|
||
(B)
|
|
Adjustment to the provision:
|
|
|
|
|
||
|
|
To eliminate Sovereign historical provision. The Sovereign acquired loans, which are marked to fair value at the acquisition date, are not expected to require a provision
|
|
$
|
(4,800
|
)
|
|
|
|
|
|
|
|
|
|
||
(C)
|
|
Adjustment to amortization of intangibles:
|
|
|
|
|
||
|
|
To reflect the expected amortization of core deposit intangible based on a 10 year life
|
|
$
|
669
|
|
|
|
|
|
|
|
|
|
|
||
(D)
|
|
Adjustment to income tax expense:
|
|
|
|
|
||
|
|
To reflect the tax adjustment related to other pro forma adjustments calculated at a 35% rate
|
|
$
|
2,421
|
|
|
|
|
|
|
|
|
|
|
||
(E)
|
|
Adjustment to weighted average shares:
|
|
|
|
|
||
|
|
To reflect the increase in the weighted average shares in connection with the issuance of 5,117,647 shares of Veritex common stock in the Sovereign Merger and 4,629,097 shares of Veritex common stock in this offering
|
|
9,747 shares
|
|
(1)
|
||
|
|
|
|
|
|
|