WBHC 10-Q
Wilson Bank Holding Co (WBHC)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number
WILSON BANK HOLDING COMPANY
(Exact name of registrant as specified in its charter)
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(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | | ☒ | |
| Non-accelerated filer | ☐ | Smaller reporting company | | |
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| Emerging growth company | | ||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common stock outstanding:
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| The unaudited consolidated financial statements of the Company and its subsidiary are as follows: |
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Consolidated Balance Sheets — March 31, 2022 and December 31, 2021. |
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Consolidated Statements of Earnings — For the three months ended March 31, 2022 and 2021. |
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Consolidated Statements of Cash Flows — For the three months ended March 31, 2022 and 2021. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
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Disclosures required by Item 3 are incorporated by reference to Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
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| Part II: |
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| Item 1. |
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| Item 1A. |
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| Item 2. |
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Unregistered Sales of Equity Securities and Use of Proceeds. |
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| Item 3. |
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| Item 4. |
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| Item 5. |
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| Item 6. |
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| EX-31.1 SECTION 302 CERTIFICATION OF THE CEO |
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| EX-31.2 SECTION 302 CERTIFICATION OF THE CFO |
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| EX-32.1 SECTION 906 CERTIFICATION OF THE CEO |
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| EX-32.2 SECTION 906 CERTIFICATION OF THE CFO |
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| EX-101.INS |
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| EX-101.SCH |
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| EX-101.CAL |
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| EX-104 |
Item 1. Financial Statements
WILSON BANK HOLDING COMPANY
Consolidated Balance Sheets
March 31, 2022 and December 31, 2021
| (Unaudited) | (Audited) | |||||||
| March 31, 2022 | December 31, 2021 | |||||||
| (Dollars in Thousands Except Share Amounts) | ||||||||
| Assets | ||||||||
| Loans | $ | $ | ||||||
| Less: Allowance for credit losses | ( | ) | ( | ) | ||||
| Net loans | ||||||||
| Securities available-for-sale, at market (amortized cost and , respectively) | ||||||||
| Loans held for sale | ||||||||
| Interest bearing deposits | ||||||||
| Restricted equity securities | ||||||||
| Federal funds sold | ||||||||
| Total earning assets | ||||||||
| Cash and due from banks | ||||||||
| Bank premises and equipment, net | ||||||||
| Accrued interest receivable | ||||||||
| Deferred income tax asset | ||||||||
| Bank owned life insurance | ||||||||
| Other assets | ||||||||
| Goodwill | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Deposits | $ | $ | ||||||
| Accrued interest payable and other liabilities | ||||||||
| Total liabilities | ||||||||
| Stockholders’ equity: | ||||||||
| Common stock, par value; authorized shares, issued and outstanding and shares, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive earnings (loss), net of taxes of and , respectively | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to consolidated financial statements (unaudited)
Consolidated Statements of Earnings
Three Months Ended March 31, 2022 and 2021
(Unaudited)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2022 | 2021 | |||||||
| (Dollars in Thousands Except Per Share Amounts) | ||||||||
| Interest income: | ||||||||
| Interest and fees on loans | $ | $ | ||||||
| Interest and dividends on securities: | ||||||||
| Taxable securities | ||||||||
| Exempt from federal income taxes | ||||||||
| Interest on loans held for sale | ||||||||
| Interest on federal funds sold | ||||||||
| Interest on balances held at depository institutions | ||||||||
| Interest and dividends on restricted securities | ||||||||
| Total interest income | ||||||||
| Interest expense: | ||||||||
| Interest on negotiable order of withdrawal accounts | ||||||||
| Interest on money market and savings accounts | ||||||||
| Interest on time deposits | ||||||||
| Interest on Federal Home Loan Bank advances | ||||||||
| Interest on finance leases | ||||||||
| Total interest expense | ||||||||
| Net interest income before provision for credit losses | ||||||||
| Provision for credit losses | ||||||||
| Net interest income after provision for credit losses | ||||||||
| Non-interest income: | ||||||||
| Service charges on deposit accounts | ||||||||
| Brokerage income | ||||||||
| Debit and credit card interchange income | ||||||||
| Other fees and commissions | ||||||||
| Income on BOLI and annuity contracts | ||||||||
| Gain on sale of loans | ||||||||
| Gain on sale of fixed assets | ||||||||
| Gain on sale of other assets | ||||||||
| Other income | ( | ) | ||||||
| Total non-interest income | ||||||||
| Non-interest expense: | ||||||||
| Salaries and employee benefits | ||||||||
| Occupancy expenses, net | ||||||||
| Advertising & public relations expense | ||||||||
| Furniture and equipment expense | ||||||||
| Data processing expense | ||||||||
| ATM & interchange expense | ||||||||
| Directors’ fees | ||||||||
| Audit, legal & consulting expenses | ||||||||
| Provision for credit losses on unfunded commitments | ||||||||
| Other operating expenses | ||||||||
| Total non-interest expense | ||||||||
| Earnings before income taxes | ||||||||
| Income taxes | ||||||||
| Net earnings | $ | $ | ||||||
| Weighted average number of common shares outstanding-basic | ||||||||
| Weighted average number of common shares outstanding-diluted | ||||||||
| Basic earnings per common share | $ | $ | ||||||
| Diluted earnings per common share | $ | $ | ||||||
| Dividends per common share | $ | $ | ||||||
See accompanying notes to consolidated financial statements (unaudited)
Consolidated Statements of Comprehensive Earnings
Three Months Ended March 31, 2022 and 2021
(Unaudited)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2022 | 2021 | |||||||
| (In Thousands) | ||||||||
| Net earnings | $ | $ | ||||||
| Other comprehensive earnings (losses): | ||||||||
| Unrealized losses on available-for-sale securities | ( | ) | ( | ) | ||||
| Tax effect | ||||||||
| Other comprehensive earnings (losses): | ( | ) | ( | ) | ||||
| Comprehensive earnings (losses) | $ | ( | ) | $ | ||||
See accompanying notes to consolidated financial statements (unaudited)
Consolidated Statements of Changes in Stockholders’ Equity
Three Months Ended March 31, 2022 and 2021
(Unaudited)
| Dollars In Thousands | ||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Earnings (Loss) | Total | ||||||||||||||||
| Three months ended: | ||||||||||||||||||||
| March 31, 2022 | ||||||||||||||||||||
| Balance at beginning of period | $ | ( | ) | |||||||||||||||||
| Cash dividends declared, per share | ( | ) | ( | ) | ||||||||||||||||
| Issuance of shares of common stock pursuant to dividend reinvestment plan | ||||||||||||||||||||
| Issuance of shares of common stock pursuant to exercise of stock options, net | ||||||||||||||||||||
| Share based compensation expense | ||||||||||||||||||||
| Net change in fair value of available-for-sale securities during the period, net of taxes of | ( | ) | ( | ) | ||||||||||||||||
| Cumulative effect of change in accounting principle from the adoption of ASC 326 | ||||||||||||||||||||
| Net earnings for the quarter | ||||||||||||||||||||
| Balance at end of period | $ | ( | ) | |||||||||||||||||
| March 31, 2021 | ||||||||||||||||||||
| Balance at beginning of period | $ | |||||||||||||||||||
| Cash dividends declared, per share | ( | ) | ( | ) | ||||||||||||||||
| Issuance of shares of common stock pursuant to dividend reinvestment plan | ||||||||||||||||||||
| Issuance of shares of common stock pursuant to exercise of stock options, net | ||||||||||||||||||||
| Share based compensation expense | ||||||||||||||||||||
| Net change in fair value of available-for-sale securities during the period, net of taxes of | ( | ) | ( | ) | ||||||||||||||||
| Net earnings for the quarter | ||||||||||||||||||||
| Balance at end of period | $ | ( | ) | |||||||||||||||||
See accompanying notes to consolidated financial statements (unaudited)
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2022 and 2021
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| (In Thousands) | ||||||||
| OPERATING ACTIVITIES | ||||||||
| Consolidated net income | $ | $ | ||||||
| Adjustments to reconcile consolidated net income to net cash provided (used) by operating activities | ||||||||
| Provision for credit losses | ||||||||
| Deferred income taxes provision (benefit) | ( | ) | ||||||
| Depreciation and amortization of premises and equipment | ||||||||
| Gain on disposal of premises and equipment | ( | ) | ||||||
| Net amortization of securities | ||||||||
| Gains on mortgage loans sold, net | ( | ) | ( | ) | ||||
| Share-based compensation expense | ||||||||
| Loss on sale of repossessed assets | ||||||||
| Increase in value of life insurance and annuity contracts | ( | ) | ( | ) | ||||
| Mortgage loans originated for resale | ( | ) | ( | ) | ||||
| Proceeds from sale of mortgage loans | ||||||||
| Right of use asset amortization | ||||||||
| Change in | ||||||||
| Accrued interest receivable | ( | ) | ( | ) | ||||
| Other assets | ( | ) | ( | ) | ||||
| Accrued interest payable | ( | ) | ( | ) | ||||
| Other liabilities | ||||||||
| TOTAL ADJUSTMENTS | ( | ) | ||||||
| NET CASH PROVIDED BY OPERATING ACTIVITIES | ||||||||
| INVESTING ACTIVITIES | ||||||||
| Activities in available for sale securities | ||||||||
| Purchases | ( | ) | ( | ) | ||||
| Sales | ||||||||
| Maturities, prepayments and calls | ||||||||
| Net increase in loans | ( | ) | ( | ) | ||||
| Purchase of buildings, leasehold improvements, and equipment | ( | ) | ( | ) | ||||
| Proceeds from sale of premises and equipment | ||||||||
| Proceeds from sale of other assets | ||||||||
| Purchase of life insurance and annuity contracts | ( | ) | ||||||
| NET CASH USED IN INVESTING ACTIVITIES | ( | ) | ( | ) | ||||
| FINANCING ACTIVITIES | ||||||||
| Net change in deposits - non-maturing | ||||||||
| Net change in deposits - time | ( | ) | ( | ) | ||||
| Net change in Federal Home Loan Bank Advances | ( | ) | ||||||
| Change in escrow balances | ( | ) | ||||||
| Repayment of finance lease obligation | ( | ) | ||||||
| Issuance of common stock related to exercise of stock options | ||||||||
| Issuance of common stock pursuant to dividend reinvestment plan | ||||||||
| Cash dividends paid on common stock | ( | ) | ( | ) | ||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | ||||||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS | ( | ) | ||||||
| CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD | ||||||||
| CASH AND CASH EQUIVALENTS - END OF PERIOD | $ | $ | ||||||
See accompanying notes to consolidated financial statements (unaudited)
WILSON BANK HOLDING COMPANY
Consolidated Statements of Cash Flows, Continued
Three Months Ended March 31, 2022 and 2021
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| (In Thousands) | ||||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid during the period for | ||||||||
| Interest | $ | $ | ||||||
| Taxes | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Change in fair value of securities available-for-sale, net of taxes of and for the three months ended March 31, 2022 and 2021, respectively | $ | ( | ) | $ | ( | ) | ||
| Non-cash transfers from loans to other real estate | $ | $ | ||||||
| Non-cash transfers from loans to other assets | $ | $ | ||||||
See accompanying notes to consolidated financial statements (unaudited)
Notes to Consolidated Financial Statements
(Unaudited)
Note 1. Summary of Significant Accounting Policies
Nature of Business — Wilson Bank Holding Company (the “Company”) is a bank holding company whose primary business is conducted by its wholly-owned subsidiary, Wilson Bank & Trust (the “Bank”). The Bank is a commercial bank headquartered in Lebanon, Tennessee. The Bank provides a full range of banking services in its primary market areas of Wilson, Davidson, Rutherford, Trousdale, Sumner, Dekalb, Putnam, Smith, and Williamson Counties, Tennessee.
Basis of Presentation — The accompanying unaudited, consolidated financial statements have been prepared in accordance with instructions to Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, and cash flows in conformity with U.S. generally accepted accounting principles. All adjustments consisting of normally recurring accruals that, in the opinion of management, are necessary for a fair presentation of the financial position and results of operations for the periods covered by the report have been included. The accompanying unaudited consolidated financial statements should be read in conjunction with the Company’s consolidated audited financial statements and related notes appearing in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.
These consolidated financial statements include the accounts of the Company and the Bank. Significant intercompany transactions and accounts are eliminated in consolidation.
Use of Estimates — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term include the determination of the allowance for credit losses, the valuation of deferred tax assets, determination of any impairment of goodwill or other intangibles, the valuation of other real estate (if any), and the fair value of financial instruments. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. There have been no significant changes to the Company’s significant accounting policies as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 other than the adoption of ASC 326 as described in Note 1. Summary of Significant Accounting Policies - Accounting Changes, Reclassifications and Restatements and in Note 2 - Loans and Allowance for Credit Losses.
Accounting Changes, Reclassifications and Restatements – Certain items in prior financial statements have been reclassified to conform to the current presentation. In addition, on January 1, 2022, we adopted Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” as subsequently updated for certain clarifications, targeted relief and codification improvements. Accounting Standards Codification (“ASC”) Topic 326 (“ASC 326”) replaces the previous “incurred loss” model for measuring credit losses, which encompassed allowances for current known and inherent losses within the portfolio, with an “expected loss” model, which encompasses allowances for losses expected to be incurred over the life of the portfolio. The new current expected credit loss (“CECL”) model requires the measurement of all expected credit losses for financial assets measured at amortized cost and certain off-balance-sheet credit exposures based on historical experience, current conditions, and reasonable and supportable forecasts. ASC 326 also requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, ASC 326 includes certain changes to the accounting for available-for-sale securities including the requirement to present credit losses as an allowance rather than as a direct write-down for available-for-sale securities management does not intend to sell or believes that it is more likely than not they will be required to sell.
We adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance-sheet credit exposures. Upon adoption, we recognized an after-tax cumulative effect increase to retained earnings totaling $
In connection with the adoption of ASC 326, we revised certain accounting policies and implemented certain accounting policy elections. The revised accounting policies are described below.
Allowance For Credit Losses - Loans — The allowance for credit losses on loans is a contra-asset valuation account, calculated in accordance with ASC 326, that is deducted from the amortized cost basis of loans to present management's best estimate of the net amount expected to be collected. Loans are charged-off against the allowance when deemed uncollectible by management. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Adjustments to the allowance are reported in our income statement as a component of credit loss expense. Management has made the accounting policy election to exclude accrued interest receivable on loans from the estimate of credit losses. Further information regarding our policies and methodology used to estimate the allowance for credit losses on loans is presented in Note 2 - Loans and Allowance for Credit Losses.
Allowance For Credit Losses - Off-Balance-Sheet Credit Exposures — The allowance for credit losses on off-balance-sheet credit exposures is a liability account, calculated in accordance with ASC 326, representing expected credit losses over the contractual period for which we are exposed to credit risk resulting from a contractual obligation to extend credit. No allowance is recognized if we have the unconditional right to cancel the obligation. The allowance is reported as a component of accrued interest payable and other liabilities in our consolidated balance sheets. Adjustments to the allowance are reported in our income statement as a component of non-interest expense. Further information regarding our policies and methodology used to estimate the allowance for credit losses on off-balance-sheet credit exposures is presented in Note 11 - Commitments and Contingent Liabilities.
Securities – Securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them until maturity. Securities to be held for indefinite periods of time are classified as available for sale and carried at fair value, with the unrealized holding gains and losses (those for which no allowance for credit losses are recorded) reported as a component of other comprehensive earnings, net of tax. Securities held for resale in anticipation of short-term market movements are classified as trading and are carried at fair value, with changes in unrealized holding gains and losses included in income. Management determines the appropriate classification of securities at the time of purchase. Securities with limited marketability, such as stock in the Federal Reserve Bank and the Federal Home Loan Bank, are carried at cost.
Interest income on securities includes amortization of purchase premiums and discounts. Premiums and discounts on securities are generally amortized using the interest method with a constant effective yield without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated. Premiums on callable securities are amortized to their earliest call date. A security is placed on non-accrual status if (i) principal or interest has been in default for a period of 90 days or more or (ii) full payment of principal and interest is not expected. Interest accrued but not received for a security placed on non-accrual status is reversed against interest income. Gains and losses on sales are recorded on the trade date and are derived from the amortized cost of the security sold.
Allowance for Credit Losses - Securities Available-for-Sale — For any securities classified as available-for-sale that are in an unrealized loss position at the balance sheet date, the Company assesses whether or not it intends to sell the security, or more likely than not will be required to sell the security, before recovery of its amortized cost basis. If either criteria is met, the security's amortized cost basis is written down to fair value through net income. If neither criteria is met, the Company evaluates whether any portion of the decline in fair value is the result of credit deterioration. Such evaluations consider the extent to which the amortized cost of the security exceeds its fair value, changes in credit ratings and any other known adverse conditions related to the specific security. If the evaluation indicates that a credit loss exists, an allowance for credit losses is recorded for the amount by which the amortized cost basis of the security exceeds the present value of cash flows expected to be collected, limited by the amount by which the amortized cost exceeds fair value. Any impairment not recognized in the allowance for credit losses is recognized in other comprehensive income.
Recently Issued Accounting Pronouncements
Information about certain recently issued accounting standards updates is presented below. Also refer to Note 1 - Accounting Standards Updates in our 2021 Form 10-K for additional information related to previously issued accounting standards updates.
ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. Effective January 1, 2022 the Company adopted ASU 2016-13, which resulted in a $
ASU 2020-4, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU 2020-4 provides optional expedients and exceptions for accounting related to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 applies only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform and do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. ASU 2020-4 was effective upon issuance and generally can be applied through December 31, 2022. The adoption of ASU 2020- 4 did not significantly impact our financial statements.
ASU 2021-01, “Reference Rate Reform (Topic 848): Scope.” ASU 2021-01 clarifies that certain optional expedients and exceptions in ASC 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. ASU 2021-01 also amends the expedients and exceptions in ASC 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. ASU 2021-01 was effective upon issuance and generally can be applied through December 31, 2022. The adoption of ASU 2021-01 did not significantly impact our financial statements.
ASU 2022-01, “Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method.” ASU 2022-01 was issued to expand the scope of assets eligible for portfolio layer method hedging to include all financial assets. The update also expands the current last-of-layer method that permits only one hedged layer to allow multiple hedged layers of a single closed portfolio. The last-of-layer method is renamed the portfolio layer method, because more than the last layer of a portfolio could be hedged. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. The Company is currently assessing the impact of ASU 2022-01 in its consolidated financial statements.
ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.” ASU 2022-02 was issued to respond to feedback received from post-implementation review of Topic 326. The amendments eliminate the troubled debt restructuring (TDR) recognition and measurement guidance and now require that an entity evaluate whether the modification represents a new loan or a continuation of an existing loan. The amendments enhance existing disclosures and include new disclosure requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. To improve consistency for vintage disclosures, the ASU requires that public business entities disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. The Company is currently assessing the impact of ASU 2022-02 in its consolidated financial statements.
Other than those previously discussed, there were no other recently issued accounting pronouncements that are expected to materially impact the Company.
Note 2. Loans and Allowance for Credit Losses
Loans — Loans are reported at their outstanding principal balances less unearned income, the allowance for credit losses and any deferred fees or costs on originated loans. Interest income on loans is accrued based on the principal balance outstanding. Loan origination fees, net of certain loan origination costs, are deferred and recognized as an adjustment to the related loan yield using a method which approximates the interest method.
For financial reporting purposes, the Company classifies its loan portfolio based on the underlying collateral utilized to secure each loan. This classification is consistent with that utilized in the Quarterly Report of Condition and Income filed by the Bank with the Federal Deposit Insurance Corporation (“FDIC”).
The following schedule details the loans of the Company at March 31, 2022 and December 31, 2021:
| (In Thousands) | ||||||||
| March 31, 2022 | December 31, 2021 | |||||||
| Residential 1-4 family real estate | $ | $ | ||||||
| Commercial and multi-family real estate | ||||||||
| Construction, land development and farmland | ||||||||
| Commercial, industrial and agricultural | ||||||||
| 1-4 family equity lines of credit | ||||||||
| Consumer and other | ||||||||
| Total loans before net deferred loan fees | ||||||||
| Net deferred loan fees | ( | ) | ( | ) | ||||
| Total loans | ||||||||
| Less: Allowance for credit losses | ( | ) | ( | ) | ||||
| Net loans | $ | $ | ||||||
Risk characteristics relevant to each portfolio segment are as follows:
Construction, land development and farmland: Loans for non-owner-occupied real estate construction or land development are generally repaid through cash flow related to the operation, sale or refinance of the property. The Company also finances construction loans for owner-occupied properties. A portion of the Company’s construction and land portfolio segment is comprised of loans secured by residential product types (residential land and single-family construction). With respect to construction loans to developers and builders that are secured by non-owner occupied properties that the Company may originate from time to time, the Company generally requires the borrower to have had an existing relationship with the Company and have a proven record of success. Construction and land development loans are underwritten utilizing independent appraisal reviews, sensitivity analysis of absorption and lease rates, market sales activity, and financial analysis of the developers and property owners. Construction loans are generally based upon estimates of costs and value associated with the complete project. These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayments substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.
Residential 1-4 family real estate: Residential real estate loans represent loans to consumers or investors to finance a residence. These loans are typically financed on
1-4 family equity lines of credit: This loan segment includes open-end home equity loans that are secured by a first or second mortgage on the borrower’s residence. This allows customers to borrow against the equity in their home utilizing a revolving line of credit. These loans are underwritten and approved based on a number of credit quality criteria including limits on maximum LTV ratios, minimum credit scores, and maximum debt to income ratios. Real estate market values as of the time the loan is made directly affect the amount of credit extended and, in addition, changes in these residential property values impact the depth of potential losses in this portfolio segment. Because of the revolving nature of these loans, as well as the fact that many represent second mortgages, this portfolio segment can contain more risk than the amortizing 1-4 family residential real estate loans.
Commercial and multi-family real estate: Multi-family and commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans, in addition to those of real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate.
Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type. This diversity helps reduce the Company’s exposure to adverse economic events that affect any single market or industry. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. The Company also utilizes third-party experts to provide insight and guidance about economic conditions and trends affecting the market areas it serves. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans. Non-owner occupied commercial real estate loans are loans secured by multifamily and commercial properties where the primary source of repayment is derived from rental income associated with the property (that is, loans for which 50 percent or more of the source of repayment comes from third party, nonaffiliated, rental income) or the proceeds of the sale, refinancing, or permanent financing of the property. These loans are made to finance income-producing properties such as apartment buildings, office and industrial buildings, and retail properties. Owner-occupied commercial real estate loans are loans where the primary source of repayment is the cash flow from the ongoing operations and business activities conducted by the party, or affiliate of the party, who owns the property.
Commercial, industrial, and agricultural: The commercial and industrial loan portfolio segment includes commercial and industrial loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases or other expansion projects. Also included in this category are PPP loans guaranteed by the SBA, which totaled $
Consumer: The consumer loan portfolio segment includes non-real estate secured direct loans to consumers for household, family, and other personal expenditures. Consumer loans may be secured or unsecured and are usually structured with short or medium term maturities. These loans are underwritten and approved based on a number of consumer credit quality criteria including limits on maximum LTV ratios on secured consumer loans, minimum credit scores, and maximum debt to income ratios. Many traditional forms of consumer installment credit have standard monthly payments and fixed repayment schedules of to years. These loans are made with either fixed or variable interest rates that are based on specific indices. Installment loans fill a variety of needs, such as financing the purchase of an automobile, a boat, a recreational vehicle or other large personal items, or for consolidating debt. These loans may be unsecured or secured by an assignment of title, as in an automobile loan, or by money in a bank account. In addition to consumer installment loans, this portfolio segment also includes secured and unsecured personal lines of credit as well as overdraft protection lines. Loans in this portfolio segment are sensitive to unemployment and other key consumer economic measures.
Allowance For Credit Losses ("ACL") - Loans. The allowance for credit losses on loans is a contra-asset valuation account, calculated in accordance with ASC 326, that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. The amount of the allowance represents management's best estimate of current expected credit losses on loans considering available information, from internal and external sources, relevant to assessing collectability over the loans' contractual terms, adjusted for expected prepayments when appropriate. Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses, adjustments to historical loss information may be made for differences in current portfolio-specific risk characteristics, environmental conditions or other relevant factors. The allowance for credit losses is measured on a collective basis for portfolios of loans when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Expected credit losses for collateral dependent loans, including loans where the borrower is experiencing financial difficulty but foreclosure is not probable, are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.
The Company’s discounted cash flow methodology incorporates a probability of default and loss given default model, as well as expectations of future economic conditions, using reasonable and supportable forecasts. Together, the probability of default and loss given default model with the use of reasonable and supportable forecasts generate estimates for cash flows expected and not expected to be collected over the estimated life of a loan. Estimates of future expected cash flows ultimately reflect assumptions made concerning net credit losses over the life of a loan. The use of reasonable and supportable forecasts requires significant judgment. Management leverages economic projections from reputable and independent third parties to inform and provide its reasonable and supportable economic forecasts. The Company’s model reverts to a straight line basis for purposes of estimating cash flows beyond a period deemed reasonable and supportable. The Company forecasts probability of default and loss given default based on economic forecast scenarios over a four quarter time period before reverting to a straight line basis for a four quarter time period. The duration of the forecast horizon, the period over which forecasts revert to a straight line basis, the economic forecasts that management utilizes, as well as additional internal and external indicators of economic forecasts that management considers, may change over time depending on the nature and composition of our loan portfolio. Changes in economic forecasts, in conjunction with changes in loan specific attributes, impact a loan’s probability of default and loss given default, which can drive changes in the determination of the ACL. Expectations of future cash flows are discounted at the loan’s effective interest rate. The resulting ACL represents the amount by which the loan’s amortized cost exceeds the net present value of a loan’s discounted cash flows expected to be collected. The ACL is recorded through a charge to provision for credit losses and is reduced by charge-offs, net of recoveries on loans previously charged-off. It is the Company’s policy to charge-off loan balances at the time they have been deemed uncollectible.
For segments where the discounted cash flow methodology is not used, a remaining life methodology is utilized. The remaining life method uses an average annual charge-off rate applied to the contractual term, further adjusted for estimated prepayments to determine the unadjusted historical charge-off rate for the remaining balance of assets.
The estimated loan losses for all loan segments are adjusted for changes in qualitative factors not inherently considered in the quantitative analyses. The qualitative categories and the measurements used to quantify the risks within each of these categories are subjectively selected by management. The data for each measurement may be obtained from internal or external sources. The current period measurements are evaluated and assigned a factor commensurate with the current level of risk relative to past measurements over time. The resulting qualitative adjustments are applied to the relevant collectively evaluated loan portfolios. These adjustments are based upon the following:
| 1. | Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses. |
| 2. | Changes in international, national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments. |
| 3. | Changes in the nature and volume of the portfolio and in the terms of loans. |
| 4. | Changes in the experience, ability, and depth of lending management and other relevant staff. |
| 5. | Changes in the volume and severity of past-due loans, the volume of non-accrual loans, and the volume and severity of adversely classified or graded loans. |
| 6. | Changes in the quality of the Company's loan review system. |
| 7. | Changes in the value of underlying collateral for collateral-dependent loans. |
| 8. | The existence and effect of any concentrations of credit, and changes in the level of such concentrations. |
| 9. | The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the Company’s existing portfolio. |
The qualitative allowance allocation, as determined by the processes noted above, is increased or decreased for each loan segment based on the assessment of these various qualitative factors.
Loans that do not share similar risk characteristics with the collectively evaluated pools are evaluated on an individual basis and are excluded from the collectively evaluated pools. Individual evaluations are generally performed for loans greater than $500,000 which have experienced significant credit deterioration. Such loans are evaluated for credit losses based on either discounted cash flows or the fair value of collateral. When management determines that foreclosure is probable, expected credit losses are based on the fair value of the collateral, less selling costs. For loans for which foreclosure is not probable, but for which repayment is expected to be provided substantially through the operation or sale of the collateral, the Company has elected the practical expedient under ASC 326 to estimate expected credit losses based on the fair value of collateral, with selling costs considered in the event sale of the collateral is expected. Loans for which terms have been modified in a TDR are evaluated using these same individual evaluation methods. In the event the discounted cash flow method is used for a TDR, the original interest rate is used to discount expected cash flows.
In assessing the adequacy of the allowance for credit losses, the Company considers the results of the Company's ongoing independent loan review process. The Company undertakes this process both to ascertain those loans in the portfolio with elevated credit risk and to assist in its overall evaluation of the risk characteristics of the entire loan portfolio. Its loan review process includes the judgment of management, independent internal loan reviewers and reviews that may have been conducted by third-party reviewers including regulatory examiners. The Company incorporates relevant loan review results in the allowance.
In accordance with CECL, losses are estimated over the remaining contractual terms of loans, adjusted for prepayments and curtailment. The contractual term excludes expected extensions, renewals and modifications unless management has a reasonable expectation at the reporting date that a TDR will be executed or such renewals, extensions or modifications are included in the original loan agreement and are not unconditionally cancellable by the Company.
Credit losses are estimated on the amortized cost basis of loans, which includes the principal balance outstanding and deferred loan fees and costs.
While management utilizes its best judgment and information available, the ultimate appropriateness of the allowance is dependent upon a variety of factors beyond our control, including the performance of our loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications.
Allowance for Loan Losses (allowance) - Prior to the Adoption of FASB ASC 326 on Janaury 1, 2022, which introduced the CECL methodology for credit losses, the allowance for loan losses was composed of the result of two independent analyses pursuant to the provisions of ASC 450-20, Loss Contingencies and ASC 310-10-35, Receivables. The ASC 450-20 analysis was intended to quantify the inherent risks in the performing loan portfolio. The ASC 310-10-35 analysis included a loan-by-loan analysis of impaired loans, primarily consisting of loans reported as nonaccrual or troubled-debt restructurings.
The allowance allocation began with a process of estimating the probable losses in each of the twelve loan segments. The estimates for these loans were based on our historical loss data for that category over twenty quarters. Each segment was then analyzed such that an allocation of the allowance was estimated for
each loan segment.
The estimated loan loss allocation for all twelve loan portfolio segments was then adjusted for several “environmental” factors. The allocation for environmental factors is particularly subjective and did not lend itself to exact mathematical calculation. This amount represented estimated probable inherent credit losses which existed, but had not yet been identified, as of the balance sheet date, and were based upon quarterly trend assessments in delinquent and nonaccrual loans, unanticipated charge-offs, credit concentration changes, prevailing economic conditions, changes in lending personnel experience, changes in lending policies, increase in interest rates, or procedures and other influencing factors. These environmental factors were considered for each of the twelve loan segments and the allowance allocation, as determined by the processes noted above for each component, was increased or decreased through provision expense based on the incremental assessment of those various environmental factors.
We then tested the resulting allowance by comparing the balance in the allowance to industry and peer information. Our management then evaluated the result of the procedures performed, including the result of our testing, and concluded on the appropriateness of the balance of the allowance in its entirety. The board of
directors reviewed and approved the assessment prior to the filing of quarterly and annual financial information.
A loan was impaired when, based on current information and events, it was probable that we would be unable to collect all amounts due according to the contractual terms of the loan agreement. Collection of all amounts due according to the contractual terms means that both the interest and principal payments of a loan would be collected as scheduled in the loan agreement.
An impairment allowance was recognized if the fair value of the loan was less than the recorded investment in the loan (recorded investment in the loan was the principal balance plus any accrued interest, net of deferred loan fees or costs and unamortized premium or discount). The impairment was recognized through the allowance. Loans that were impaired were recorded at the present value of expected future cash flows discounted at the loan’s effective interest rate, or if the loan was collateral dependent, impairment measurement was based on the fair value of the collateral, less estimated disposal costs. If the measure of the impaired loan was less than the recorded investment in the loan, the Company recognized an impairment by creating a valuation allowance with a corresponding charge to the provision for loan losses or by adjusting an existing valuation allowance for the impaired loan with a corresponding charge or credit to the provision for loan losses. Management believes it followed appropriate accounting and regulatory guidance in determining impairment and accrual status of impaired loans.
Loans are charged off when management believes that the full collectability of the loan is unlikely. As such, a loan may be partially charged-off after a “confirming event” has occurred which serves to validate that full repayment pursuant to the terms of the loan is unlikely.
Transactions in the allowance for credit losses for the three months ended March 31, 2022 and allowance for loan losses for the three months ended March 31, 2021 are summarized as follows:
| (In Thousands) | ||||||||||||||||||||||||||||
| Residential 1-4 Family Real Estate | Commercial and Multi-family Real Estate | Construction, Land Development and Farmland | Commercial, Industrial and Agricultural | 1-4 family Equity Lines of Credit | Consumer and Other | Total | ||||||||||||||||||||||
| March 31, 2022 | ||||||||||||||||||||||||||||
| Allowance for credit losses: | ||||||||||||||||||||||||||||
| Beginning balance January 1, | $ | |||||||||||||||||||||||||||
| Impact of adopting ASC 326 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Provision for credit losses on loans | ||||||||||||||||||||||||||||
| Charge-offs | ( | ) | ( | ) | ||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||
| Ending balance | $ | |||||||||||||||||||||||||||
| (In Thousands) | ||||||||||||||||||||||||||||
| Residential 1-4 Family Real Estate | Commercial and Multi-family Real Estate | Construction, Land Development and Farmland | Commercial, Industrial and Agricultural | 1-4 family Equity Lines of Credit | Consumer and Other | Total | ||||||||||||||||||||||
| March 31, 2021 | ||||||||||||||||||||||||||||
| Allowance for loan losses: | ||||||||||||||||||||||||||||
| Beginning balance January 1, | $ | |||||||||||||||||||||||||||
| Provision | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Charge-offs | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||
| Ending balance | $ | |||||||||||||||||||||||||||
The following table details the allowance for loan losses and recorded investment in loans by loan classification and by impairment evaluation method as of December 31, 2021, as determined in accordance with ASC 310 prior to the adoption of ASC 326:
| (In Thousands) | ||||||||||||||||||||||||||||
| Residential 1-4 Family Real Estate | Commercial and Multi-family Real Estate | Construction, Land Development and Farmland | Commercial, Industrial and Agricultural | 1-4 family Equity Lines of Credit | Consumer and Other | Total | ||||||||||||||||||||||
| December 31, 2021 | ||||||||||||||||||||||||||||
| Allowance for loan losses: | ||||||||||||||||||||||||||||
| Ending balance individually evaluated for impairment | $ | |||||||||||||||||||||||||||
| Ending balance collectively evaluated for impairment | $ | |||||||||||||||||||||||||||
| Loans: | ||||||||||||||||||||||||||||
| Ending balance | $ | |||||||||||||||||||||||||||
| Ending balance individually evaluated for impairment | $ | |||||||||||||||||||||||||||
| Ending balance collectively evaluated for impairment | $ | |||||||||||||||||||||||||||
The following table presents the amortized cost basis of collateral dependent loans at March 31, 2022, which are individually evaluated to determine expected credit losses:
| In Thousands | ||||||||||||
| Real Estate | Other | Total | ||||||||||
| March 31, 2022 | ||||||||||||
| Residential 1-4 family real estate | $ | |||||||||||
| Commercial and multi-family real estate | ||||||||||||
| Construction, land development and farmland | ||||||||||||
| Commercial, industrial and agricultural | ||||||||||||
| 1-4 family equity lines of credit | ||||||||||||
| Consumer and other | ||||||||||||
| $ | ||||||||||||
The following table presents impaired loans at December 31, 2021 as determined under ASC 310 prior to the adoption of ASC 326. Impaired loans generally include nonaccrual loans, troubled debt restructurings, and other loans deemed to be impaired but that continue to accrue interest. Presented are the recorded investment, unpaid principal balance and related allowance of impaired loans at December 31, 2021 by loan classification:
| December 31, 2021 | ||||||||||||
| Recorded Investment | Unpaid Principal Balance | Related Allowance | ||||||||||
| In Thousands | ||||||||||||
| With no related allowance recorded: | ||||||||||||
| Residential 1-4 family real estate | $ | — | ||||||||||
| Commercial and multi-family real estate | — | |||||||||||
| Construction, land development and farmland | — | |||||||||||
| Commercial, industrial and agricultural | — | |||||||||||
| 1-4 family equity lines of credit | — | |||||||||||
| Consumer and other | — | |||||||||||
| $ | — | |||||||||||
| With related allowance recorded: | ||||||||||||
| Residential 1-4 family real estate | $ | |||||||||||
| Commercial and multi-family real estate | ||||||||||||
| Construction, land development and farmland | ||||||||||||
| Commercial, industrial and agricultural | ||||||||||||
| 1-4 family equity lines of credit | ||||||||||||
| Consumer and other | ||||||||||||
| $ | — | — | — | |||||||||
| Total: | ||||||||||||
| Residential 1-4 family real estate | $ | |||||||||||
| Commercial and multi-family real estate | ||||||||||||
| Construction, land development and farmland | ||||||||||||
| Commercial, industrial and agricultural | ||||||||||||
| 1-4 family equity lines of credit | ||||||||||||
| Consumer and other | ||||||||||||
| $ | ||||||||||||
The following table details the average recorded investment and the amount of interest income recognized on a cash basis for the three months ended March 31, 2021, respectively, of impaired loans by loan classification as determined under ASC 310 prior to the adoption of ASC 326:
| March 31, 2021 | ||||||||
| Average Recorded Investment | Interest Income Recognized | |||||||
| In Thousands | ||||||||
| With no related allowance recorded: | ||||||||
| Residential 1-4 family real estate | $ | |||||||
| Commercial and multi-family real estate | ||||||||
| Construction, land development and farmland | ||||||||
| Commercial, industrial and agricultural | ||||||||
| 1-4 family equity lines of credit | ||||||||
| Consumer and other | ||||||||
| $ | ||||||||
| With related allowance recorded: | ||||||||
| Residential 1-4 family real estate | $ | |||||||
| Commercial and multi-family real estate | ||||||||
| Construction, land development and farmland | ||||||||
| Commercial, industrial and agricultural | ||||||||
| 1-4 family equity lines of credit | ||||||||
| Consumer and other | ||||||||
| $ | ||||||||
| Total: | ||||||||
| Residential 1-4 family real estate | $ | |||||||
| Commercial and multi-family real estate | ||||||||
| Construction, land development and farmland | ||||||||
| Commercial, industrial and agricultural | ||||||||
| 1-4 family equity lines of credit | ||||||||
| Consumer and other | ||||||||
| $ | ||||||||
Loans are placed on nonaccrual status when there is a significant deterioration in the financial condition of the borrower, which often is determined when the principal or interest on the loan is more than 90 days past due, unless the loan is both well-secured and in the process of collection. Generally, all interest accrued but not collected for loans that are placed on nonaccrual status, is reversed against current income. Interest income is subsequently recognized only to the extent cash payments are received while the loan is classified as nonaccrual, but interest income recognition is reviewed on a case-by-case basis. A nonaccrual loan is returned to accruing status once the loan has been brought current and collection is reasonably assured or the loan has been “well-secured” through other techniques. Past due status is determined based on the contractual due date per the underlying loan agreement.
The following tables present the Company’s nonaccrual loans and past due loans as of March 31, 2022 and December 31, 2021.
Loans on Nonaccrual Status
| In Thousands | ||||||||
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Residential 1-4 family real estate | $ | $ | ||||||
| Commercial and multi-family real estate | ||||||||
| Construction, land development and farmland | ||||||||
| Commercial, industrial and agricultural | ||||||||
| 1-4 family equity lines of credit | ||||||||
| Consumer and other | ||||||||
| Total | $ | $ | ||||||
Past Due Loans
| (In thousands) | ||||||||||||||||||||||||||||
| 30-59 Days Past Due | 60-89 Days Past Due | Non Accrual and Greater Than 90 Days Past Due | Total Non Accrual and Past Due | Current | Total Loans | Recorded Investment Greater Than 90 Days Past Due and Accruing | ||||||||||||||||||||||
| March 31, 2022 | ||||||||||||||||||||||||||||
| Residential 1-4 family real estate | $ | $ | ||||||||||||||||||||||||||
| Commercial and multi-family real estate | ||||||||||||||||||||||||||||
| Construction, land development and farmland | ||||||||||||||||||||||||||||
| Commercial, industrial and agricultural | ||||||||||||||||||||||||||||
| 1-4 family equity lines of credit | ||||||||||||||||||||||||||||
| Consumer and other | ||||||||||||||||||||||||||||
| Total | $ | $ | ||||||||||||||||||||||||||
| December 31, 2021 | ||||||||||||||||||||||||||||
| Residential 1-4 family real estate | $ | $ | ||||||||||||||||||||||||||
| Commercial and multi-family real estate | ||||||||||||||||||||||||||||
| Construction, land development and farmland | ||||||||||||||||||||||||||||
| Commercial, industrial and agricultural | ||||||||||||||||||||||||||||
| 1-4 family equity lines of credit | ||||||||||||||||||||||||||||
| Consumer and other | ||||||||||||||||||||||||||||
| Total | $ | $ | ||||||||||||||||||||||||||
The Bank’s loan portfolio includes certain loans that have been modified in a troubled debt restructuring ("TDR"), where economic or other concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Bank’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months.
The following table summarizes the carrying balances of TDRs at March 31, 2022 and December 31, 2021.
| March 31, 2022 | December 31, 2021 | |||||||
| (In thousands) | ||||||||
| Performing TDRs | $ | $ | ||||||
| Nonperforming TDRs | ||||||||
| Total TDRS | $ | $ | ||||||
The following table outlines the amount of each troubled debt restructuring, categorized by loan classification, made during the three months ended March 31, 2022 and the three months ended March 31, 2021 (in thousands, except for number of contracts):
| March 31, 2022 | March 31, 2021 | |||||||||||||||||||||||
| Number of Contracts | Pre Modification Outstanding Recorded Investment | Post Modification Outstanding Recorded Investment, Net of Related Allowance | Number of Contracts | Pre Modification Outstanding Recorded Investment | Post Modification Outstanding Recorded Investment, Net of Related Allowance | |||||||||||||||||||
| Residential 1-4 family real estate | $ | $ | $ | $ | ||||||||||||||||||||
| Commercial and multi-family real estate | ||||||||||||||||||||||||
| Construction, land development and farmland | ||||||||||||||||||||||||
| Commercial, industrial and agricultural | ||||||||||||||||||||||||
| 1-4 family equity lines of credit | ||||||||||||||||||||||||
| Consumer and other | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||
As of March 31, 2022 and March 31, 2021 the Company had
As of March 31, 2022 there were
Potential problem loans, which include nonperforming loans, amounted to approximately $
The following summary presents the Bank's loan balances by primary loan classification and the amount classified within each risk rating category. Pass rated loans include all credits other than those included in special mention, substandard and doubtful which are defined as follows:
| • | Special mention loans have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date. | |
| • | Substandard loans are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize liquidation of the debt. Substandard loans are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. | |
| • | Doubtful loans have all the characteristics of substandard loans with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The Bank considers all doubtful loans to be collateral dependent and places such loans on nonaccrual status. |
The table below presents loan balances classified within each risk rating category by primary loan type and based on year of origination as of March 31, 2022:
| In Thousands | ||||||||||||||||||||||||||||||||
| Revolving | ||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Loans | Total | |||||||||||||||||||||||||
| March 31, 2022 | ||||||||||||||||||||||||||||||||
| Residential 1-4 family real estate | ||||||||||||||||||||||||||||||||
| Pass | $ | |||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Total Residential 1-4 family real estate | $ | |||||||||||||||||||||||||||||||
| Commercial and multi-family real estate | ||||||||||||||||||||||||||||||||
| Pass | $ | |||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Total Commercial and multi-family real estate | $ | |||||||||||||||||||||||||||||||
| Construction, land development and farmland | ||||||||||||||||||||||||||||||||
| Pass | $ | |||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Total Construction, land development and farmland | $ | |||||||||||||||||||||||||||||||
| Commercial, industrial and agricultural | ||||||||||||||||||||||||||||||||
| Pass | $ | |||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Total Commercial, industrial and agricultural | $ | |||||||||||||||||||||||||||||||
| 1-4 family equity lines of credit | ||||||||||||||||||||||||||||||||
| Pass | $ | |||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Total 1-4 family equity lines of credit | $ | |||||||||||||||||||||||||||||||
| Consumer and other | ||||||||||||||||||||||||||||||||
| Pass | $ | |||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Total Consumer and other | $ | |||||||||||||||||||||||||||||||
The table below presents loan balances classified within each risk rating category based on year of origination as of March 31, 2022:
| In Thousands | ||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Revolving Loans | Total | |||||||||||||||||||||||||
| March 31, 2022 | ||||||||||||||||||||||||||||||||
| Pass | $ | |||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Total | $ | |||||||||||||||||||||||||||||||
The following table outlines the risk category of loans as of December 31, 2021:
| In Thousands | ||||||||||||||||||||||||||||
| Residential 1-4 Family Real Estate | Commercial and Multi-family Real Estate | Construction, Land Development and Farmland | Commercial, Industrial and Agricultural | 1-4 Family Equity Lines of Credit | Consumer and Other | Total | ||||||||||||||||||||||
| Credit Risk Profile by Internally Assigned Grade | ||||||||||||||||||||||||||||
| December 31, 2021 | ||||||||||||||||||||||||||||
| Pass | $ | |||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||
| Total | $ | |||||||||||||||||||||||||||
Note 3. Debt and Equity Securities
Debt and equity securities have been classified in the consolidated balance sheet according to management’s intent. Debt and equity securities at March 31, 2022 and December 31, 2021 are summarized as follows:
| March 31, 2022 | ||||||||||||||||
| Securities Available-For-Sale | ||||||||||||||||
| In Thousands | ||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Market Value | |||||||||||||
| U.S. Treasury and other U.S. government agencies | $ | |||||||||||||||
| U.S. Government-sponsored enterprises (GSEs) | ||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||
| Asset-backed securities | ||||||||||||||||
| Corporate bonds | ||||||||||||||||
| Obligations of states and political subdivisions | ||||||||||||||||
| $ | ||||||||||||||||
| December 31, 2021 | ||||||||||||||||
| Securities Available-For-Sale | ||||||||||||||||
| In Thousands | ||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Market Value | |||||||||||||
| U.S. Treasury and other U.S. government agencies | $ | |||||||||||||||
| U.S. Government-sponsored enterprises (GSEs) | ||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||
| Asset-backed securities | ||||||||||||||||
| Corporate bonds | ||||||||||||||||
| Obligations of states and political subdivisions | ||||||||||||||||
| $ | ||||||||||||||||
Included in mortgage-backed securities are collateralized mortgage obligations totaling $
Securities carried on the balance sheet of approximately $
The amortized cost and estimated market value of debt securities at March 31, 2022 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
| Available-For-Sale | ||||||||
| In Thousands | ||||||||
| Amortized Cost | Estimated Market Value | |||||||
| Due in one year or less | $ | $ | ||||||
| Due after one year through five years | ||||||||
| Due after five years through ten years | ||||||||
| Due after ten years | ||||||||
| $ | $ | |||||||
The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2022 and December 31, 2021.
| In Thousands, Except Number of Securities | ||||||||||||||||||||||||||||||||
| Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||||||||||
| March 31, 2022 | Fair Value | Unrealized Losses | Number of Securities Included | Fair Value | Unrealized Losses | Number of Securities Included | Fair Value | Unrealized Losses | ||||||||||||||||||||||||
| Available-for-Sale Securities: | ||||||||||||||||||||||||||||||||
| U.S. Treasury and other U.S. government agencies | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| GSEs | ||||||||||||||||||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||||||||||||||||||
| Asset-backed securities | ||||||||||||||||||||||||||||||||
| Corporate bonds | ||||||||||||||||||||||||||||||||
| Obligations of states and political subdivisions | ||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| In Thousands, Except Number of Securities | ||||||||||||||||||||||||||||||||
| Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||||||||||
| December 31, 2021 | Fair Value | Unrealized Losses | Number of Securities Included | Fair Value | Unrealized Losses | Number of Securities Included | Fair Value | Unrealized Losses | ||||||||||||||||||||||||
| Available-for-Sale Securities: | ||||||||||||||||||||||||||||||||
| U.S. Treasury and other U.S. government agencies | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| U.S. Government-sponsored enterprises (GSEs) | ||||||||||||||||||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||||||||||||||||||
| Asset-backed securities | ||||||||||||||||||||||||||||||||
| Corporate bonds | ||||||||||||||||||||||||||||||||
| Obligations of states and political subdivisions | ||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
For any securities classified as available-for-sale that are in an unrealized loss position at the balance sheet date, the Company assesses whether or not it intends to sell the security, or more likely than not will be required to sell the security, before recovery of its amortized cost basis which would require a write-down to fair value through net income. Because the Company currently does not intend to sell those securities that have an unrealized loss at March 31, 2022, and it is not more-likely-than-not that the Company will be required to sell the securities before recovery of their amortized cost bases, which may be maturity, the Company has determined that no write-down is necessary. In addition, the Company evaluates whether any portion of the decline in fair value is the result of credit deterioration, which would require the recognition of an allowance for credit losses. Such evaluations consider the extent to which the amortized cost of the security exceeds its fair value, changes in credit ratings and any other known adverse conditions related to the specific security. The unrealized losses associated with securities at March 31, 2022 are driven by changes in interest rates and are not due to the credit quality of the securities, and accordingly,
Note 4. Derivatives
Derivatives Designated as Fair Value Hedges
For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged asset or liability attributable to the hedged risk are recognized in current earnings. The gain or loss on the derivative instrument is presented on the same income statement line item as the earnings effect of the hedged item. The Company utilizes interest rate swaps designated as fair value hedges to mitigate the effect of changing interest rates on the fair values of fixed rate loans. The hedging strategy on loans converts the fixed interest rates to LIBOR-based variable interest rates. These derivatives are designated as partial term hedges of selected cash flows covering specified periods of time prior to the maturity dates of the hedged loans.
During the second quarter of 2020, the Company entered into one swap transaction with a notional amount of $
A summary of the Company's fair value hedge relationships as of March 31, 2022 and December 31, 2021 are as follows (in thousands):
| March 31, 2022 | |||||||||||||||||||
| Balance Sheet Location | Weighted Average Remaining Maturity (In Years) | Weighted Average Pay Rate | Receive Rate | Notional Amount | Estimated Fair Value | ||||||||||||||
| Interest rate swap agreements - loans | Other assets | % | 1 month LIBOR | $ | |||||||||||||||
| December 31, 2021 | |||||||||||||||||||
| Balance Sheet Location | Weighted Average Remaining Maturity (In Years) | Weighted Average Pay Rate | Receive Rate | Notional Amount | Estimated Fair Value | ||||||||||||||
| Interest rate swap agreements - loans | Other assets | % | 1 month LIBOR | $ | |||||||||||||||
The effects of fair value hedge relationships reported in interest income on loans on the consolidated statements of income for the three months ended March 31, 2022 and 2021 were as follows (in thousands):
| Three Months Ended March 31, | ||||||||
| Gain (loss) on fair value hedging relationship | 2022 | 2021 | ||||||
| Interest rate swap agreements - loans: | ||||||||
| Hedged items | $ | ( | ) | ( | ) | |||
| Derivative designated as hedging instruments | ||||||||
The following amounts were recorded on the balance sheet related to cumulative basis adjustments for fair value hedges at March 31, 2022 and December 31, 2021 (in thousands):
| Carrying Amount of the Hedged Assets | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets | |||||||||||||||
| Line item on the balance sheet | March 31, 2022 | December 31, 2021 | March 31, 2022 | December 31, 2021 | ||||||||||||
| Loans | $ | ( | ) | ( | ) | |||||||||||
Mortgage Banking Derivatives
Commitments to fund certain mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of mortgage loans to third party investors under the Bank's mandatory delivery program are considered derivatives. It is the Company's practice to enter into forward commitments for the future delivery of residential mortgage loans when interest rate lock commitments are entered into in order to economically hedge the effect of changes in interest rates resulting from its commitments to fund the loans. At March 31, 2022 and December 31, 2021, the Company had approximately $
The net gains (losses) relating to free-standing derivative instruments used for risk management is summarized below (in thousands):
| In Thousands | ||||||||
| March 31, 2022 | March 31, 2021 | |||||||
| Interest rate contracts for customers | $ | ( | ) | |||||
| Forward contracts related to mortgage loans held for sale and interest rate contracts | ||||||||
The following table reflects the amount and fair value of mortgage banking derivatives included in the consolidated balance sheet as of March 31, 2022 and December 31, 2021 (in thousands):
| In Thousands | ||||||||||||||||
| March 31, 2022 | December 31, 2021 | |||||||||||||||
| Notional Amount | Fair Value | Notional Amount | Fair Value | |||||||||||||
| Included in other assets (liabilities): | ||||||||||||||||
| Interest rate contracts for customers | $ | |||||||||||||||
| Forward contracts related to mortgage loans held-for-sale | ||||||||||||||||
Note 5. Mortgage Servicing Rights
During the first quarter of 2022, the Company began selling a portfolio of residential mortgage loans to a third party, while retaining the rights to service the loans. Mortgage loans serviced for others are not reported as assets. The principal balances of these loans as of March 31, 2022 are as follows:
| In Thousands | ||||
| March 31, | 2022 | |||
| Mortgage loan portfolios serviced for: | ||||
| FHLMC | $ | |||
For the three months ended March 31, 2022, the change in carrying value of the Company's mortgage servicing rights accounted for under the amortization method was as follows:
| In Thousands | ||||
| March 31, | 2022 | |||
| Balance at beginning of period | $ | |||
| Servicing rights retained from loans sold | ||||
| Amortization | ( | ) | ||
| Valuation Allowance Provision | ||||
| Balance at end of period | $ | |||
| Fair value, end of period | $ | |||
The key data and assumptions used in estimating the fair value of the Company's mortgage servicing rights as of March 31, 2022 were as follows:
| March 31, 2022 | ||||
| Prepayment speed | % | |||
| Weighted-average life (in years) | ||||
| Weighted-average note rate | % | |||
| Weighted-average discount rate | % | |||
Note 6. Equity Incentive Plans
In April 2009, the Company’s shareholders approved the Wilson Bank Holding Company 2009 Stock Option Plan (the “2009 Stock Option Plan”). The 2009 Stock Option Plan was effective as of April 14, 2009. Under the 2009 Stock Option Plan, awards could be in the form of options to acquire common stock of the Company. Subject to adjustment as provided by the terms of the 2009 Stock Option Plan, the maximum number of shares of common stock with respect to which awards could be granted under the 2009 Stock Option Plan was
During the second quarter of 2016, the Company’s shareholders approved the Wilson Bank Holding Company 2016 Equity Incentive Plan, which authorizes awards of up to
As of March 31, 2022, the Company had outstanding
The following table summarizes information about stock options and cash-settled SARs for the three months ended March 31, 2022 and 2021:
| March 31, 2022 | March 31, 2021 | |||||||||||||||
| Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | |||||||||||||
| Options and SARs outstanding at beginning of period | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ( | ) | ( | ) | ||||||||||||
| Forfeited or expired | ( | ) | ||||||||||||||
| Outstanding at end of period | $ | $ | ||||||||||||||
| Options and SARs exercisable at March 31 | $ | $ | ||||||||||||||
As of March 31, 2022, there was $
Note 7. Regulatory Capital
Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital. Management believes as of March 31, 2022, the Bank and the Company meet all capital adequacy requirements to which they are subject.
Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized, although these terms are not used to represent overall financial condition. If an institution is classified as adequately capitalized or lower, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is growth and expansion, and capital restoration plans are required. As of March 31, 2022 and December 31, 2021, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution’s category.
The Company’s and Wilson Bank’s actual capital amounts and ratios as of March 31, 2022 and December 31, 2021 are presented in the following tables. The capital conservation buffer of 2.5% is not included in the required minimum ratios of the tables presented below.
| Actual | Minimum Capital Adequacy | For Classification Under Corrective Action Plan as Well Capitalized | ||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||
| March 31, 2022 | ||||||||||||||||||||||||
| Total capital to risk weighted assets: | ||||||||||||||||||||||||
| Consolidated | $ | % | $ | % | $ | % | ||||||||||||||||||
| Wilson Bank | ||||||||||||||||||||||||
| Tier 1 capital to risk weighted assets: | ||||||||||||||||||||||||
| Consolidated | ||||||||||||||||||||||||
| Wilson Bank | ||||||||||||||||||||||||
| Common equity Tier 1 capital to risk weighted assets: | ||||||||||||||||||||||||
| Consolidated | N/A | N/A | ||||||||||||||||||||||
| Wilson Bank | ||||||||||||||||||||||||
| Tier 1 capital to average assets: | ||||||||||||||||||||||||
| Consolidated | N/A | N/A | ||||||||||||||||||||||
| Wilson Bank | ||||||||||||||||||||||||
| Actual | Minimum Capital Adequacy | For Classification Under Corrective Action Plan as Well Capitalized | ||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||
| December 31, 2021 | ||||||||||||||||||||||||
| Total capital to risk weighted assets: | ||||||||||||||||||||||||
| Consolidated | $ | % | $ | % | $ | % | ||||||||||||||||||
| Wilson Bank | ||||||||||||||||||||||||
| Tier 1 capital to risk weighted assets: | ||||||||||||||||||||||||
| Consolidated | ||||||||||||||||||||||||
| Wilson Bank | ||||||||||||||||||||||||
| Common equity Tier 1 capital to risk weighted assets: | ||||||||||||||||||||||||
| Consolidated | N/A | N/A | ||||||||||||||||||||||
| Wilson Bank | ||||||||||||||||||||||||
| Tier 1 capital to average assets: | ||||||||||||||||||||||||
| Consolidated | N/A | N/A | ||||||||||||||||||||||
| Wilson Bank | ||||||||||||||||||||||||
Dividend Restrictions
The Company and the Bank are subject to dividend restrictions set forth by the Tennessee Department of Financial Institutions and federal banking agencies, as applicable. Additional restrictions may be imposed by the Tennessee Department of Financial Institutions and federal banking agencies under the powers granted to them by law.
Note 8. Fair Value Measurements
FASB ASC 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value in U.S. GAAP and expands disclosures about fair value measurements. The definition of fair value focuses on the exit price, i.e., the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, not the entry price (i.e., the price that would be paid to acquire the asset or received to assume the liability at the measurement date). The statement emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, the fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability.
Valuation Hierarchy
FASB ASC 820 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
| • | Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. | |
| • | Level 2 — inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. | |
| • | Level 3 — inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Following is a description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy.
Assets
Securities available-for-sale — Where quoted prices are available for identical securities in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid government securities and certain other financial products. If quoted market prices are not available, then fair values are estimated by using pricing models that use observable inputs or quoted prices of securities with similar characteristics and are classified within Level 2 of the valuation hierarchy. In certain cases where there is limited activity or less transparency around inputs to the valuation and more complex pricing models or discounted cash flows are used, securities are classified within Level 3 of the valuation hierarchy.
Hedged loans — The fair value of our hedged loan portfolio is intended to approximate the fair value that a market participant would realize in a hypothetical orderly transaction.
Collateral dependent loans – Collateral dependent loans are measured at the fair value of the collateral securing the loan less estimated selling costs. The fair value of real estate collateral is determined based on real estate appraisals which are generally based on recent sales of comparable properties which are then adjusted for property specific factors. Non-real estate collateral is valued based on various sources, including third party asset valuations and internally determined values based on cost adjusted for depreciation and other judgmentally determined discount factors. Collateral dependent loans are classified within Level 3 of the valuation hierarchy due to the unobservable inputs used in determining their fair value such as collateral values and the borrower's underlying financial condition.
Other real estate owned — Other real estate owned (“OREO”) represents real estate foreclosed upon by the Company through loan defaults by customers or acquired in lieu of foreclosure. Substantially all of these amounts relate to construction and land development loans, other loans secured by land, and commercial real estate loans for which the Company believes it has adequate collateral. Upon foreclosure, the property is recorded at the lower of cost or fair value, based on appraised value, less selling costs estimated as of the date acquired with any loss recognized as a charge-off through the allowance for credit losses. Additional OREO losses for subsequent valuation downward adjustments are determined on a specific property basis and are included as a component of noninterest expense along with holding costs. Any gains or losses realized at the time of disposal are also reflected in noninterest expense, as applicable. OREO is included in Level 3 of the valuation hierarchy due to the lack of observable market inputs into the determination of fair value. Appraisal values are property-specific and sensitive to the changes in the overall economic environment.
Mortgage loans held-for-sale — Mortgage loans held-for-sale are carried at fair value, and are classified within Level 2 of the valuation hierarchy. The fair value of mortgage loans held-for-sale is determined using quoted prices for similar assets, adjusted for specific attributes of that loan.
Derivatives — The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level 2).
Other investments — Included in other investments are investments recorded at fair value primarily in certain nonpublic investments and funds. The valuation of these nonpublic investments requires management judgment due to the absence of observable quoted market prices, inherent lack of liquidity and the long-term nature of such assets. These investments are valued initially based upon transaction price. The carrying values of other investments are adjusted either upwards or downwards from the transaction price to reflect expected exit values as evidenced by financing and sale transactions with third parties. These investments are included in Level 3 of the valuation hierarchy if the entities and funds are not widely traded and the underlying investments are in privately-held and/or start-up companies for which market values are not readily available.
The following tables present the financial instruments carried at fair value as of March 31, 2022 and December 31, 2021, by caption on the consolidated balance sheet and by FASB ASC 820 valuation hierarchy (as described above):
| Assets and Liabilities Measured at Fair Value on a Recurring Basis | ||||||||||||||||
| (In Thousands) | ||||||||||||||||
| Total Carrying Value in the Consolidated Balance Sheet | Quoted Market Prices in an Active Market (Level 1) | Models with Significant Observable Market Parameters (Level 2) | Models with Significant Unobservable Market Parameters (Level 3) | |||||||||||||
| March 31, 2022 | ||||||||||||||||
| Hedged Loans | $ | |||||||||||||||
| Investment securities available-for-sale: | ||||||||||||||||
| U.S. Treasury and other U.S. government agencies | ||||||||||||||||
| U.S. Government sponsored enterprises | ||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||
| Asset-backed securities | ||||||||||||||||
| Corporate bonds | ||||||||||||||||
| State and municipal securities | ||||||||||||||||
| Total investment securities available-for-sale | ||||||||||||||||
| Mortgage loans held for sale | ||||||||||||||||
| Derivatives | ||||||||||||||||
| Other investments | ||||||||||||||||
| Total assets | $ | |||||||||||||||
| December 31, 2021 | ||||||||||||||||
| Hedged Loans | $ | |||||||||||||||
| Investment securities available-for-sale: | ||||||||||||||||
| U.S. Treasury and other U.S. government agencies | ||||||||||||||||
| U.S. Government sponsored enterprises | ||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||
| Asset-backed securities | ||||||||||||||||
| Corporate bonds | ||||||||||||||||
| State and municipal securities | ||||||||||||||||
| Total investment securities available-for-sale | ||||||||||||||||
| Mortgage loans held for sale | ||||||||||||||||
| Derivatives | ||||||||||||||||
| Other investments | ||||||||||||||||
| Total assets | $ | |||||||||||||||
| Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis | ||||||||||||||||
| (In Thousands) | ||||||||||||||||
| Total Carrying Value in the Consolidated Balance Sheet | Quoted Market Prices in an Active Market (Level 1) | Models with Significant Observable Market Parameters (Level 2) | Models with Significant Unobservable Market Parameters (Level 3) | |||||||||||||
| March 31, 2022 | ||||||||||||||||
| Other real estate owned | $ | |||||||||||||||
| Collateral dependent loans (¹) | ||||||||||||||||
| Total | $ | |||||||||||||||
| December 31, 2021 | ||||||||||||||||
| Other real estate owned | $ | |||||||||||||||
| Impaired loans, net (¹) | ||||||||||||||||
| Total | $ | |||||||||||||||
| (1) | As of March 31, 2022 |
The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which we have utilized Level 3 inputs to determine fair value at March 31, 2022 and December 31, 2021:
| Valuation Techniques (1) | Significant Unobservable Inputs | Weighted Average | |||||
| Collateral dependent loans | Appraisal | Estimated costs to sell | |||||
| Other real estate owned | Appraisal | Estimated costs to sell | |
| (1) The fair value is generally determined through independent appraisals of the underlying collateral, which may include Level 3 inputs that are not identifiable, or by using the discounted cash flow method if the loan is not collateral dependent. |
In the case of its investment securities portfolio, the Company monitors the valuation technique utilized by various pricing agencies to ascertain when transfers between levels have been affected. The nature of the remaining assets and liabilities is such that transfers in and out of any level are expected to be rare. For the three months ended March 31, 2022, there were no transfers between Levels 1, 2 or 3.
The table below includes a rollforward of the balance sheet amounts for the three months ended March 31, 2022 and 2021 (including the change in fair value) for financial instruments classified by the Company within Level 3 of the valuation hierarchy for assets and liabilities measured at fair value on a recurring basis. When a determination is made to classify a financial instrument within Level 3 of the valuation hierarchy, the determination is based upon the significance of the unobservable factors to the overall fair value measurement. However, since Level 3 financial instruments typically include, in addition to the unobservable or Level 3 components, observable components (that is, components that are actively quoted and can be validated to external sources), the gains and losses in the table below include changes in fair value due in part to observable factors that are part of the valuation methodology (in thousands):
| For the Three Months Ended March 31, | ||||||||||||||||
| 2022 | 2021 | |||||||||||||||
| Other Assets | Other Liabilities | Other Assets | Other Liabilities | |||||||||||||
| Fair value, January 1 | $ | $ | ||||||||||||||
| Total realized gains (losses) included in income | ( | ) | ||||||||||||||
| Change in unrealized gains/losses included in other comprehensive income for assets and liabilities still held at March 31 | ||||||||||||||||
| Purchases, issuances and settlements, net | ||||||||||||||||
| Transfers out of Level 3 | ||||||||||||||||
| Fair value, March 31 | $ | $ | ||||||||||||||
| Total realized gains (losses) included in income related to financial assets and liabilities still on the consolidated balance sheet at March 31 | $ | ( | ) | $ | ||||||||||||
The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments that are not measured at fair value. In cases where quoted market prices or observable components are not available, fair values are based on estimates using discounted cash flow models. Those models are significantly affected by the assumptions used, including the discount rates, estimates of future cash flows and borrower creditworthiness. The fair value estimates presented herein are based on pertinent information available to management as of March 31, 2022 and December 31, 2021. Such amounts have not been revalued for purposes of these consolidated financial statements since those dates and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.
Cash and cash equivalents — The carrying amounts of cash and short-term instruments approximate fair values and are classified as Level 1.
Loans — The fair value of our loan portfolio includes a credit risk factor in the determination of the fair value of our loans. This credit risk assumption is intended to approximate the fair value that a market participant would realize in a hypothetical orderly transaction. Our loan portfolio is initially fair valued using a segmented approach. We divide our loan portfolio into the following categories: variable rate loans, collateral dependent loans and all other loans. The results are then adjusted to account for credit risk.
For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values approximate carrying values. Fair values for collateral dependent loans are estimated using discounted cash flow models or based on the fair value of the underlying collateral. For other loans, fair values are estimated using discounted cash flow models, using current market interest rates offered for loans with similar terms to borrowers of similar credit quality. The values derived from the discounted cash flow approach for each of the above portfolios are then further discounted to incorporate credit risk to determine the exit price.
Deposits and Federal Home Loan Bank borrowings — Fair values for deposits and Federal Home Loan Bank borrowings are estimated using discounted cash flow models, using current market interest rates offered on deposits with similar remaining maturities.
Restricted equity securities — It is not practical to determine the fair value of Federal Home Loan Bank or Federal Reserve Bank stock due to restrictions placed on its transferability.
Off-Balance Sheet Instruments — The fair values of the Company’s off-balance-sheet financial instruments are based on fees charged to enter into similar agreements. However, commitments to extend credit do not represent a significant value to the Company until such commitments are funded.
The following table presents the carrying amounts, estimated fair value and placement in the fair valuation hierarchy of the Company’s financial instruments at March 31, 2022 and December 31, 2021. This table excludes financial instruments for which the carrying amount approximates fair value. For short-term financial assets such as cash and cash equivalents, the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization.
| Carrying/ Notional | Estimated | Quote Market Prices in an Active Market | Models with Significant Observable Market Parameters | Models with Significant Unobservable Market Parameters | ||||||||||||||||
| (in Thousands) | Amount | Fair Value (¹) | (Level 1) | (Level 2) | (Level 3) | |||||||||||||||
| March 31, 2022 | ||||||||||||||||||||
| Financial assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | |||||||||||||||||||
| Loans, net | ||||||||||||||||||||
| Restricted equity securities | NA | NA | NA | NA | ||||||||||||||||
| Financial liabilities: | ||||||||||||||||||||
| Deposits | ||||||||||||||||||||
| December 31, 2021 | ||||||||||||||||||||
| Financial assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | |||||||||||||||||||
| Loans, net | ||||||||||||||||||||
| Restricted equity securities | NA | NA | NA | NA | ||||||||||||||||
| Financial liabilities: | ||||||||||||||||||||
| Deposits | ||||||||||||||||||||
| (1) | Estimated fair values are consistent with an exit-price concept. The assumptions used to estimate the fair values are intended to approximate those that a market-participant would realize in a hypothetical orderly transaction. |
Note 9. Income Taxes
Accounting Standards Codification (“ASC”) 740, Income Taxes, defines the threshold for recognizing the benefits of tax return positions in the financial statements as “more-likely-than-not” to be sustained by the taxing authority. This section also provides guidance on the derecognition, measurement and classification of income tax uncertainties, along with any related interest and penalties, and includes guidance concerning accounting for income tax uncertainties in interim periods. As of March 31, 2022, the Company had
The Company’s effective tax rate for the three months ended March 31, 2022 and 2021 was
As of and for the three months ended March 31, 2022, the Company has accrued or recognized interest or penalties related to uncertain tax positions. The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense.
The Company and the Bank file consolidated U.S. Federal and State of Tennessee income tax returns. The Company is currently open to audit under the statute of limitations by the State of Tennessee for the years ended December 31, through 2021 and the IRS for the years ended December 31, through 2021.
Note 10. Earnings Per Share
The computation of basic earnings per share is based on the weighted average number of common shares outstanding during the period, adjusted for stock splits. The computation of diluted earnings per share for the Company begins with the basic earnings per share and includes the effect of common shares contingently issuable from stock options.
The following is a summary of components comprising basic and diluted earnings per share (“EPS”) for the three months ended March 31, 2022 and 2021:
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| (Dollars in Thousands Except Share and Per Share Amounts) | ||||||||
| Basic EPS Computation: | ||||||||
| Numerator – Earnings available to common stockholders | $ | $ | ||||||
| Denominator – Weighted average number of common shares outstanding | ||||||||
| Basic earnings per common share | $ | $ | ||||||
| Diluted EPS Computation: | ||||||||
| Numerator – Earnings available to common stockholders | $ | $ | ||||||
| Denominator – Weighted average number of common shares outstanding | ||||||||
| Dilutive effect of stock options | ||||||||
| Weighted average diluted common shares outstanding | ||||||||
| Diluted earnings per common share | $ | $ | ||||||
Note 11. Commitments and Contingent Liabilities
In the normal course of business, the Bank has entered into off-balance sheet financial instruments which include commitments to extend credit (i.e., including unfunded lines of credit) and standby letters of credit. Commitments to extend credit are usually the result of lines of credit granted to existing borrowers under agreements that the total outstanding indebtedness will not exceed a specific amount during the term of the indebtedness. Typical borrowers are commercial concerns that use lines of credit to supplement their treasury management functions, thus their total outstanding indebtedness may fluctuate during any time period based on the seasonality of their business and the resultant timing of their cash flows. Other typical lines of credit are related to home equity loans granted to consumers. Commitments to extend credit generally have fixed expiration dates or other termination clauses and may require payment of a fee.
Standby letters of credit are generally issued on behalf of an applicant (the Bank's customer) to a specifically named beneficiary and are the result of a particular business arrangement that exists between the applicant and the beneficiary. Standby letters of credit have fixed expiration dates and are usually for terms of years or less unless terminated sooner due to criteria specified in the standby letter of credit. A typical arrangement involves the applicant routinely being indebted to the beneficiary for such items as inventory purchases, insurance, utilities, lease guarantees or other third party commercial transactions. The standby letter of credit would permit the beneficiary to obtain payment from the Bank under certain prescribed circumstances. Subsequently, the Bank would then seek reimbursement from the applicant pursuant to the terms of the standby letter of credit.
The Bank follows the same credit policies and underwriting practices when making these commitments as it does for on-balance sheet instruments. Each customer’s creditworthiness is evaluated on a case-by-case basis, and the amount of collateral obtained, if any, is based on management’s credit evaluation of the customer. Collateral held varies but may include cash and cash equivalents, real estate and improvements, marketable securities, accounts receivable, inventory, equipment, and personal property.
The contractual amounts of these commitments are not reflected in the consolidated financial statements and would only be reflected if drawn upon. Since many of the commitments are expected to expire without being drawn upon, the contractual amounts do not necessarily represent future cash requirements. However, should the commitments be drawn upon and should our customers default on their resulting obligation to us, the Company’s maximum exposure to credit loss, without consideration of collateral, is represented by the contractual amount of those instruments.
A summary of the Company’s total contractual amount for all off-balance sheet commitments at March 31, 2022 is as follows:
| Commitments to extend credit | $ | |||
| Standby letters of credit | $ |
Allowance For Credit Losses - Off-Balance-Sheet Credit Exposures. The allowance for credit losses on off-balance-sheet credit exposures is a liability account, calculated in accordance with ASC 326, representing expected credit losses over the contractual period for which we are exposed to credit risk resulting from a contractual obligation to extend credit. No allowance is recognized if we have the unconditional right to cancel the obligation. Off-balance-sheet credit exposures primarily consist of amounts available under outstanding lines of credit and letters of credit detailed in the table above. For the period of exposure, the estimate of expected credit losses considers both the likelihood that funding will occur and the amount expected to be funded over the estimated remaining life of the commitment or other off-balance-sheet exposure. The likelihood and expected amount of funding are based on historical utilization rates. The amount of the allowance represents management's best estimate of expected credit losses on commitments expected to be funded over the contractual life of the commitment.
Estimating credit losses on amounts expected to be funded uses the same methodology as described for loans in Note 2 - Loans and Allowance for Credit Losses as if such commitments were funded.
The following table details activity in the allowance for credit losses on off-balance-sheet credit exposures for the three months ended March 31, 2022 and 2021.
| (In Thousands) | ||||||||
| 2022 | 2021 | |||||||
| Beginning balance, January 1 | $ | |||||||
| Impact of adopting ASC 326 | ||||||||
| Credit loss expense | ||||||||
| Ending balance, March 31 | $ | |||||||
The Bank originates residential mortgage loans, sells them to third-party purchasers, and may or may not retain the servicing rights. These loans are originated internally and are primarily to borrowers in the Company’s geographic market footprint. These sales are typically to investors that follow guidelines of conventional government sponsored entities ("GSE") and the Department of Housing and Urban Development/U.S. Department of Veterans Affairs ("HUD/VA"). Generally, loans held for sale are underwritten by the Company, including HUD/VA loans. In the fourth quarter of 2018, the Bank began to participate in a mandatory delivery program that requires the Bank to deliver a particular volume of mortgage loans by agreed upon dates. A majority of the Bank’s secondary mortgage volume is delivered to the secondary market via mandatory delivery with the remainder done on a best efforts basis. The Bank does not realize any exposure delivery penalties as the mortgage department only bids loans post-closing to ensure that
Each purchaser has specific guidelines and criteria for sellers of loans, and the risk of credit loss with regard to the principal amount of the loans sold is generally transferred to the purchasers upon sale. While the loans are sold without recourse, the purchase agreements require the Bank to make certain representations and warranties regarding the existence and sufficiency of file documentation and the absence of fraud by borrowers or other third parties such as appraisers in connection with obtaining the loan. If it is determined that the loans sold were in breach of these representations or warranties or the loan had an early payoff or payment default, the Bank has obligations to either repurchase the loan for the unpaid principal balance and related investor fees or make the purchaser whole for the economic benefits of the loan.
To date, repurchase activity pursuant to the terms of these representations and warranties or due to early payoffs or payment defaults has been insignificant and has resulted in insignificant losses to the Company.
Based on information currently available, management believes that the Bank does not have significant exposure to contingent losses that may arise relating to the representations and warranties that it has made in connection with its mortgage loan sales or for early payoffs or payment defaults of such mortgage loans.
Various legal claims also arise from time to time in the normal course of business. In the opinion of management, the resolution of these claims outstanding at March 31, 2022 will not have a material impact on the Company’s consolidated financial statements.
Note 12. Subsequent Events
ASC 855, Subsequent Events, establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. Wilson Bank Holding Company evaluated all events or transactions that occurred after March 31, 2022, through the date of the issued financial statements. On April 13, 2022, the Company informed shareholders that the board of directors declared a special $
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The purpose of this discussion is to provide insight into the financial condition and results of operations of the Company and its bank subsidiary, Wilson Bank. This discussion should be read in conjunction with the Company's consolidated financial statements appearing elsewhere in this report. Reference should also be made to the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 for a more complete discussion of factors that impact the Company's liquidity, capital and results of operations.
Forward-Looking Statements
This Form 10-Q contains certain forward-looking statements within the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act") regarding, among other things, the anticipated financial and operating results of the Company. Investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly release any modifications or revisions to these forward-looking statements to reflect events or circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events.
The Company cautions investors that future financial and operating results may differ materially from those projected in forward-looking statements made by, or on behalf of, the Company. The words “expect,” “intend,” “should,” “may,” “could,” “believe,” “suspect,” “anticipate,” “seek,” “plan,” “estimate” and similar expressions are intended to identify such forward-looking statements, but other statements not based on historical fact may also be considered forward-looking. Such forward-looking statements involve known and unknown risks and uncertainties, including, but not limited to those described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, and also include, without limitation, (i) deterioration in the financial condition of borrowers resulting in significant increases in credit losses and provisions for these losses, (ii) the effects of new outbreaks of COVID-19, including actions taken by governmental officials to curb the spread of the virus, and the resulting impact on general economic and financial market conditions and on the Company's and its customers' business, results of operations, asset quality and financial condition; (iii) deterioration in the real estate market conditions in the Company’s market areas, (iv) the impact of increased competition with other financial institutions, including pricing pressures on loans and deposits, and the resulting impact on the Company's results, including as a result of compression to net interest margin, (v) adverse conditions in local or national economies, including the economy in the Company’s market areas, including as a result of inflationary pressures on our customers and on their businesses (vi) fluctuations or differences in interest rates on earning assets and interest bearing liabilities from those that the Company is modeling or anticipating, including as a result of the Bank's inability to maintain deposit rates or defer increases to those rates in a rising rate environment in connection with the changes in the short-term rate environment, or that affect the yield curve, (vii) the ability to grow and retain low-cost core deposits, (viii) significant downturns in the business of one or more large customers, (ix) the inability of the Company to comply with regulatory capital requirements, including those resulting from changes to capital calculation methodologies, required capital maintenance levels, or regulatory requests or directives, (x) changes in state or Federal regulations, policies, or legislation applicable to banks and other financial service providers, including regulatory or legislative developments arising out of current unsettled conditions in the economy, including implementation of the Dodd Frank Wall Street Reform and Consumer Protection Act, (xi) changes in capital levels and loan underwriting, credit review or loss reserve policies associated with economic conditions, examination conclusions, or regulatory developments, (xii) inadequate allowance for credit losses, (xiii) the effectiveness of the Company’s activities in improving, resolving or liquidating lower quality assets, (xiv) results of regulatory examinations, (xv) the vulnerability of the Company's network and online banking portals, and the systems of parties with whom the Company contracts, to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss, and other security breaches, (xvi) the possibility of additional increases to compliance costs or other operational expenses as a result of increased regulatory oversight, (xvii) loss of key personnel, (xviii) adverse results (including costs, fines, reputational harm and/or other negative effects) from current or future litigation, examinations or other legal and/or regulatory actions, (xix) further public acceptance of the vaccines that were developed against the virus as well as the decisions of governmental agencies with respect to vaccines, including recommendations related to booster shots and requirements that seek to mandate that individuals receive or employers require that their employees receive the vaccine, and (xx) those vaccines' efficacy against the virus, including new variants. These risks and uncertainties may cause the actual results or performance of the Company to be materially different from any future results or performance expressed or implied by such forward-looking statements. The Company’s future operating results depend on a number of factors which were derived utilizing numerous assumptions that could cause actual results to differ materially from those projected in forward-looking statements.
Impact of COVID-19
The outbreak and spread of the novel Coronavirus Disease 2019 (“COVID-19”) in 2020 created a global public health crisis that has periodically contributed to uncertainty, volatility and deterioration in financial markets and in governmental, commercial and consumer activity including in the United States, where we conduct substantially all of our activity. Though progress has been made in responding to the pandemic, the emergence of new variants of the virus and public reaction thereto may cause disruption to our operations and the economies in the markets where we operate.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security ("CARES") Act was signed into law. It contained substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic. The CARES Act included the Paycheck Protection Program ("PPP"), a nearly $659 billion program designed to aid small and medium-sized businesses and sole proprietors through federally guaranteed loans distributed through banks. These loans were intended to guarantee eight weeks of payroll and other costs to help those businesses remain viable and allow their workers to pay their bills. On December 21, 2020, the Coronavirus Response and Relief Supplemental Appropriations Act ("Coronavirus Relief Act") was signed into law. The Coronavirus Relief Act earmarked an additional $284 billion for a new round of PPP loans. The Company funded $125.2 million of PPP loans to our small business and other eligible customers,$607,000 of which remained outstanding as of March 31, 2022.
In connection with our initial response to COVID-19, we took deliberate actions to try to ensure that we had the balance sheet strength to serve our clients and communities, including maintaining increased liquidity and reserves supported by a strong capital position. We currently expect our levels of liquidity and reserves to remain above pre-pandemic levels through the remainder of 2022.
Application of Critical Accounting Policies and Accounting Estimates
We follow accounting and reporting policies that conform, in all material respects, to accounting principles generally accepted in the United States and to general practices within the financial services industry. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. While we base estimates on historical experience, current information, forecasted economic conditions, and other factors deemed to be relevant, actual results could differ from those estimates.
We consider accounting estimates to be critical to reported financial results if (i) the accounting estimate requires management to make assumptions about matters that are highly uncertain and (ii) different estimates that management reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a material impact on our financial statements.
Accounting policies related to the allowance for credit losses on financial instruments including loans and off-balance-sheet credit exposures are considered to be critical as these policies involve considerable subjective judgment and estimation by management. As discussed in Note 1 - Summary of Significant Accounting Policies, our policies related to allowances for credit losses changed on January 1, 2022 in connection with the adoption of a new accounting standard update as codified in Accounting Standards Codification (“ASC”) Topic 326 (“ASC 326”) Financial Instruments - Credit Losses. In the case of loans, the allowance for credit losses is a contra-asset valuation account, calculated in accordance with ASC 326, that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. In the case of off-balance-sheet credit exposures, the allowance for credit losses is a liability account, calculated in accordance with ASC 326, reported as a component of accrued interest payable and other liabilities in our consolidated balance sheets. The amount of each allowance account represents management's best estimate of current expected credit losses on these financial instruments considering available information, from internal and external sources, relevant to assessing exposure to credit loss over the contractual term of the instrument. Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses, adjustments to historical loss information may be made for differences in current portfolio-specific risk characteristics, environmental conditions or other relevant factors. While management utilizes its best judgment and information available, the ultimate adequacy of our allowance accounts is dependent upon a variety of factors beyond our control, including the performance of our portfolios, the economy, changes in interest rates and the view of the regulatory authorities toward classification of assets. For additional information regarding critical accounting policies, refer to Note 1 - Summary of Significant Accounting Policies and Note 2 - Loans and Allowance for Credit Losses in the notes to consolidated financial statements.
This Quarterly Report contains certain financial measures that are not measures recognized under U.S. GAAP and, therefore, are considered non-GAAP financial measures. Members of Company management use these non-GAAP financial measures in their analysis of the Company’s performance, financial condition, and efficiency of operations. Management of the Company believes that these non-GAAP financial measures provide a greater understanding of ongoing operations and enhance comparability of results with prior periods. Management of the Company also believes that investors find these non-GAAP financial measures useful as they assist investors in understanding underlying operating performance and identifying and analyzing ongoing operating trends. However, the non-GAAP financial measures discussed herein should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with U.S. GAAP. Moreover, the manner in which the non-GAAP financial measures discussed herein are calculated may differ from the manner in which measures with similar names are calculated by other companies. You should understand how other companies calculate their financial measures similar to, or with names similar to, the non-GAAP financial measures we have discussed herein when comparing such non-GAAP financial measures.
The non-GAAP measures in this Quarterly Report include “pre-tax pre-provision income,” “pre-tax pre-provision basic earnings per share,” “pre-tax pre-provision annualized return on average equity,” and “pre-tax pre-provision annualized return on average assets.”
Selected Financial Information
The executive management and Board of Directors of the Company evaluate key performance indicators (KPIs) on a continuing basis. These KPIs serve as benchmarks of Company performance and are used in making strategic decisions. The following table represents the KPIs that management has determined to be important in making decisions for the Bank:
| As of or For the Three Months Ended March 31, |
||||||||||||
| 2022 |
2021 |
2022 - 2021 Percent Increase (Decrease) |
||||||||||
| PER SHARE DATA: |
||||||||||||
| Basic earnings per common share (GAAP) |
$ | 1.01 | $ | 1.01 | 0.00 | % | ||||||
| Pre-tax pre-provision basic earnings per share (1) |
$ | 1.53 | $ | 1.41 | 8.51 | % | ||||||
| Diluted earnings per common share (GAAP) |
$ | 1.01 | $ | 1.00 | 1.00 | % | ||||||
| Cash dividends per common share |
$ | 0.75 | $ | 0.60 | 25.00 | % | ||||||
| Dividends declared per common share as a percentage of basic earnings per common share |
74.26 | % | 59.41 | % | 24.99 | % | ||||||
| As of or For the Three Months Ended March 31, |
||||||||||||
| 2022 |
2021 |
2022 - 2021 Percent Increase (Decrease) |
||||||||||
| PERFORMANCE RATIOS: |
||||||||||||
| Annualized return on average stockholders' equity (GAAP) |
11.70 | % | 11.82 | % | (1.02 | )% | ||||||
| Pre-tax pre-provision annualized return on average stockholders' equity (1) |
17.75 | % | 16.57 | % | 7.12 | % | ||||||
| Annualized return on average assets (GAAP) |
1.15 | % | 1.33 | % | (13.53 | )% | ||||||
| Pre-tax pre-provision annualized return on average assets (1) |
1.74 | % | 1.86 | % | (6.45 | )% | ||||||
| Efficiency ratio |
59.49 | % | 58.11 | % | 2.37 | % | ||||||
(1) Excludes income tax expense, and for 2022 provision for credit losses and provision for credit losses on unfunded commitments. For 2021 excludes income tax expense and provision for loan losses.
| March 31, 2022 |
December 31, 2021 |
2022 - 2021 Percent Increase (Decrease) |
||||||||||
| BALANCE SHEET RATIOS: |
||||||||||||
| Total capital to assets ratio |
9.25 | % | 10.37 | % | (10.80 | )% | ||||||
| Equity to asset ratio (Average equity divided by average total assets) |
9.81 | % | 10.86 | % | (9.67 | )% | ||||||
| Leverage capital ratio |
10.60 | % | 10.77 | % | (1.58 | )% | ||||||
| Non-performing asset ratio |
0.01 | % | 0.01 | % | — | % | ||||||
| Book value per common share |
$ | 33.60 | $ | 36.93 | (9.02 | )% | ||||||
Reconciliation of Non-GAAP Financial Measures
| Three Months Ended |
||||||||
| March 31, 2022 |
March 31, 2021 |
|||||||
| Pre-tax pre-provision income: |
||||||||
| Net income attributable to common stockholders (GAAP) |
$ | 11,373 | $ | 11,144 | ||||
| Add: provision for credit losses |
1,892 | 827 | ||||||
| Add: provision for credit losses on unfunded commitments |
825 | — | ||||||
| Add: income tax expense |
3,171 | 3,648 | ||||||
| Pre-tax pre-provision income |
$ | 17,261 | $ | 15,619 | ||||
| Pre-tax pre-provision basic earnings per share: |
||||||||
| Pre-tax pre-provision income |
$ | 17,261 | $ | 15,619 | ||||
| Weighted average shares |
11,276,121 | 11,079,350 | ||||||
| Basic earnings per common share (GAAP) |
$ | 1.01 | $ | 1.01 | ||||
| Provision for credit losses |
$ | 0.17 | $ | 0.07 | ||||
| Provision for credit losses on unfunded commitments |
$ | 0.07 | $ | — | ||||
| Income tax expense |
$ | 0.28 | $ | 0.33 | ||||
| Pre-tax pre-provision basic earnings per common share |
$ | 1.53 | $ | 1.41 | ||||
| Pre-tax pre-provision annualized return on average assets: |
||||||||
| Pre-tax pre-provision income |
$ | 17,261 | $ | 15,619 | ||||
| Average assets |
4,018,591 | 3,404,391 | ||||||
| Annualized return on average assets (GAAP) |
1.15 | % | 1.33 | % | ||||
| Provision for credit losses |
0.19 | % | 0.10 | % | ||||
| Provision for credit losses on unfunded commitments |
0.08 | % | — | % | ||||
| Income tax expense |
0.32 | % | 0.43 | % | ||||
| Pre-tax pre-provision annualized return on average assets |
1.74 | % | 1.86 | % | ||||
| Pre-tax pre-provision annualized return on average stockholders' equity: |
||||||||
| Pre-tax pre-provision income |
$ | 17,261 | $ | 15,619 | ||||
| Average total stockholders' equity |
394,376 | 382,254 | ||||||
| Annualized return on average stockholders' equity (GAAP) |
11.70 | % | 11.82 | % | ||||
| Provision for credit losses |
1.95 | % | 0.88 | % | ||||
| Provision for credit losses on unfunded commitments |
0.85 | % | — | % | ||||
| Income tax expense |
3.25 | % | 3.87 | % | ||||
| Pre-tax pre-provision annualized return on average stockholders' equity |
17.75 | % | 16.57 | % | ||||
Net Interest Income
The average balances, interest, and average rates of our assets and liabilities for the three-month periods ended March 31, 2022 and March 31, 2021 are presented in the following table (dollars in thousands):
| Three Months Ended |
Three Months Ended |
Net Change Three Months Ended |
||||||||||||||||||||||||||||||||||||||
| March 31, 2022 |
March 31, 2021 |
March 31, 2022 versus March 31, 2021 |
||||||||||||||||||||||||||||||||||||||
| Average Balance |
Interest Rate |
Income/ Expense |
Average Balance |
Interest Rate |
Income/ Expense |
Due to Volume |
Due to Rate |
Net Change |
Percent Change |
|||||||||||||||||||||||||||||||
| Loans, net of unearned interest (1) (2) |
$ | 2,535,031 | 4.82 | % | $ | 29,604 | $ | 2,317,991 | 5.08 | % | $ | 28,493 | $ | 8,543 | $ | (7,432 | ) | $ | 1,111 | |||||||||||||||||||||
| Investment securities—taxable |
832,808 | 1.57 | 3,231 | 519,027 | 1.32 | 1,692 | 1,171 | 368 | 1,539 | |||||||||||||||||||||||||||||||
| Investment securities—tax exempt |
77,525 | 1.69 | 324 | 78,364 | 1.67 | 323 | (15 | ) | 16 | 1 | ||||||||||||||||||||||||||||||
| Taxable equivalent adjustment (3) |
— | 0.45 | 86 | — | 0.45 | 86 | (4 | ) | 4 | — | ||||||||||||||||||||||||||||||
| Total tax-exempt investment securities |
77,525 | 2.14 | 410 | 78,364 | 2.12 | 409 | (19 | ) | 20 | 1 | ||||||||||||||||||||||||||||||
| Total investment securities |
910,333 | 1.62 | 3,641 | 597,391 | 1.43 | 2,101 | 1,152 | 388 | 1,540 | |||||||||||||||||||||||||||||||
| Loans held for sale |
12,655 | 4.94 | 154 | 19,921 | 2.04 | 100 | (225 | ) | 279 | 54 | ||||||||||||||||||||||||||||||
| Federal funds sold |
27,290 | 0.10 | 7 | 675 | — | — | — | 7 | 7 | |||||||||||||||||||||||||||||||
| Accounts with depository institutions |
366,616 | 0.16 | 145 | 328,150 | 0.13 | 108 | 14 | 23 | 37 | |||||||||||||||||||||||||||||||
| Restricted equity securities |
5,089 | 2.71 | 34 | 5,089 | 2.07 | 26 | — | 8 | 8 | |||||||||||||||||||||||||||||||
| Total earning assets |
3,857,014 | 3.58 | 33,585 | 3,269,217 | 3.89 | 30,828 | 9,484 | (6,727 | ) | 2,757 | 8.94 | % | ||||||||||||||||||||||||||||
| Cash and due from banks |
23,447 | 34,802 | ||||||||||||||||||||||||||||||||||||||
| Allowance for credit losses |
(39,476 | ) | (38,575 | ) | ||||||||||||||||||||||||||||||||||||
| Bank premises and equipment |
62,828 | 57,993 | ||||||||||||||||||||||||||||||||||||||
| Other assets |
114,778 | 80,954 | ||||||||||||||||||||||||||||||||||||||
| Total assets |
$ | 4,018,591 | $ | 3,404,391 | ||||||||||||||||||||||||||||||||||||
| Three Months Ended |
Three Months Ended |
Net Change Three Months Ended |
||||||||||||||||||||||||||||||||||||||
| March 31, 2022 |
March 31, 2021 |
March 31, 2022 versus March 31, 2021 |
||||||||||||||||||||||||||||||||||||||
| Average Balance |
Interest Rate |
Income/ Expense |
Average Balance |
Interest Rate |
Income/ Expense |
Due to Volume |
Due to Rate |
Net Change |
Percent Change |
|||||||||||||||||||||||||||||||
| Deposits: |
||||||||||||||||||||||||||||||||||||||||
| Negotiable order of withdrawal accounts |
$ | 1,056,065 | 0.18 | % | $ | 465 | $ | 825,582 | 0.21 | % | $ | 436 | $ | 387 | $ | (358 | ) | $ | 29 | |||||||||||||||||||||
| Money market demand accounts |
1,219,000 | 0.11 | 342 | 1,008,463 | 0.17 | 422 | 406 | (486 | ) | (80 | ) | |||||||||||||||||||||||||||||
| Time Deposits |
581,088 | 0.85 | 1,221 | 610,020 | 1.43 | 2,149 | (98 | ) | (830 | ) | (928 | ) | ||||||||||||||||||||||||||||
| Other savings |
309,205 | 0.13 | 100 | 217,246 | 0.22 | 118 | 189 | (207 | ) | (18 | ) | |||||||||||||||||||||||||||||
| Total interest-bearing deposits |
3,165,358 | 0.27 | 2,128 | 2,661,311 | 0.48 | 3,125 | 884 | (1,881 | ) | (997 | ) | |||||||||||||||||||||||||||||
| Federal Home Loan Bank advances |
— | — | — | 3,480 | 15.50 | 133 | (66 | ) | (67 | ) | (133 | ) | ||||||||||||||||||||||||||||
| Finance leases |
818 | 7.93 | 16 | — | — | — | — | 16 | 16 | |||||||||||||||||||||||||||||||
| Total interest-bearing liabilities |
3,166,176 | 0.27 | 2,144 | 2,664,791 | 0.50 | 3,258 | 818 | (1,932 | ) | (1,114 | ) | (34.19 | %) | |||||||||||||||||||||||||||
| Non-interest bearing deposits |
426,676 | 336,400 | ||||||||||||||||||||||||||||||||||||||
| Other liabilities |
31,363 | 20,946 | ||||||||||||||||||||||||||||||||||||||
| Stockholders’ equity |
394,376 | 382,254 | ||||||||||||||||||||||||||||||||||||||
| Total liabilities and stockholders’ equity |
$ | 4,018,591 | $ | 3,404,391 | ||||||||||||||||||||||||||||||||||||
| Net interest income, on a tax equivalent basis |
$ | 31,441 | $ | 27,570 | $ | 8,666 | $ | (4,795 | ) | $ | 3,871 | 14.04 | % | |||||||||||||||||||||||||||
| Net interest margin (4) |
3.36 | % | 3.48 | % | ||||||||||||||||||||||||||||||||||||
| Net interest spread (5) |
3.31 | % | 3.39 | % | ||||||||||||||||||||||||||||||||||||
Notes:
(1) Yields on loans and total earning assets include the impact of State income tax credits related to incentive loans at below market rates and tax exempt loans to municipalities.
(2) Loan fees of $3.0 million are included in interest income in 2022, inclusive of $102,000 in 2022 in SBA fees related to PPP loans. Loan fees of $3.7 million are included in interest income in 2021, inclusive of $1.2 million in 2021 in SBA fees related to PPP loans.
(3) The tax equivalent adjustment has been computed using a 21% Federal tax rate.
(4) Annualized net interest income on a tax equivalent basis divided by average interest-earning assets.
(5) Average interest rate on interest-earning assets less average interest rate on interest-bearing liabilities.
Net interest margin for the three months ended March 31, 2022 and 2021 was 3.36% and 3.48%, respectively. The decrease in net interest margin for the three months ended March 31, 2022, was due to a decrease in the yield earned on our earning assets that outpaced the decrease in rates paid on our interest-bearing liabilities. The Federal Reserve influences the general market rates of interest, including the deposit and loan rates offered by many financial institutions. Our loan portfolio is significantly affected by changes in the prime interest rate. The prime interest rate, which is the rate offered on loans to borrowers with strong credit, increased 25 basis points late in the first quarter of 2022, as the Federal Reserve sought to address high levels of inflation. The direction and speed with which short-term interest rates move has an impact on our net interest income. At present, we believe the Federal Reserve plans to raise short-term rates six more times in 2022. If short-term interest rates are increased and we remain asset-sensitive at that time (meaning that our interest-earning assets are expected to reprice more quickly than our interest-bearing liabilities), those increases could increase our net interest spread, as well as our net interest income, if we are able to raise rates on our loans faster than we are required to raise rates on our deposits. Deposit rates that we pay are largely impacted by rates offered by our competitors for similar products. The yield on loans decreased during the three months ended March 31, 2022 when compared to the comparable period in 2021 due to a decrease in loan fees largely related to PPP loans. Loan fees related to PPP loans accounted for 21 basis points of our loan yields for the period ended March 31, 2021 versus 2 basis points for the period ended March 31, 2022. The yield on securities increased due to the company purchasing higher yielding securities, due to management's decision to purchase additional securities to utilize a portion of the Company's excess liquidity. The net interest spread was 3.31% and 3.39% for the three months ended March 31, 2022 and March 31, 2021, respectively. The rate we pay on our deposits decreased in the three months ended March 31, 2022 when compared to the comparable period in 2021, as we decreased the rates we paid on several of our deposit products and higher paying time deposits repriced at lower rates throughout 2021. Our net interest margin could expand during the remainder of 2022 as could our net interest spread as the Federal Reserve is expected to raise short-term interest rates. This will depend on our ability to raise the rates we charge on loans at faster rates than we have to increase rates we pay on deposits.
Net interest income represents the amount by which interest earned on various earning assets exceeds interest paid on deposits and other interest-bearing liabilities and is the most significant component of the Company’s earnings. Net interest income, excluding tax equivalent adjustments relating to tax exempt securities and loans, for the three months ended March 31, 2022 totaled $31,355,000, compared to $27,484,000 for the same period in 2021, an increase of $3,871,000 between respective periods.
The increase in interest income for the three months ended March 31, 2022 when compared to the three months ended March 31, 2021 was primarily attributable to an increase in interest and fees earned on loans as well as as increase in interest and dividends earned on taxable securities. The increase in interest and fees earned on loans resulted from an overall increase in average loans, partially offset by a decrease in fees earned on SBA PPP loans and a decrease in loan rates. The increase in interest and dividends earned on taxable securities resulted from an overall increase in the average balance of securities, due to management's decision to purchase additional securities to utilize excess liquidity, and increase in rates. The ratio of average earning assets to total average assets for the three months ended March 31, 2022 was 96.0%, compared to 96.0% for the same period in 2021.
The decrease in interest expense for the three months ended March 31, 2022 as compared to the prior year's comparable period was primarily due to a decrease in the rates of average interest bearing deposits, reflecting the low rate environment that we have experienced since the first quarter of 2020, as well as the Company decreasing rates on several of our deposit products. The decrease in rates was partially offset by an overall increase in the volume of average interest-bearing deposits.
Provision for Credit Losses and Allowance for Credit Losses
On January 1, 2022, we adopted FASB ASU 2016-13, which introduces the current expected credit losses (CECL) methodology and requires us to estimate all expected credit losses over the remaining life of our loan portfolio. The provision for credit losses represents a charge to earnings necessary to establish an allowance for credit losses that, in management’s evaluation, is adequate to provide coverage for all expected credit losses. The provision for credit losses for the three months ended March 31, 2022 was $1,892,000 calculated under the CECL methodology, compared to $827,000 incurred in the first three months of 2021 under the incurred loss methodology. The increase in provision expense for the three months ended March 31, 2022 from the comparable period in 2021 is primarily attributable to an increase in the volume of loans originated during the period. While the local and national economic outlooks have improved in 2022, we believe the challenges affecting supply chains globally and labor shortages stemming from the COVID-19 pandemic are still impacting our clients. In addition, inflation as well as the war in Ukraine remain risks to the economy.
Upon and subsequent to adoption of CECL, for available-for-sale debt securities in an unrealized loss position, we evaluate the securities at each measurement date to determine whether the decline in the fair value below the amortized cost basis is due to credit-related factors or noncredit-related factors. Any impairment that is not credit related is recognized in other comprehensive income, net of applicable taxes. Credit-related impairment is recognized through the allowance for credit losses on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings via provision for credit loss. At January 1, 2022 and March 31, 2022, we determined that all available-for-sale securities that experienced a decline in fair value below the amortized cost basis were due to noncredit-related factors, principally the result of the rising rate environment we have been experiencing. Therefore, there was no provision for credit loss recognized during the three months ended March 31, 2022 with respect to our available-for-sale securities.
The Bank’s charge-off policy for collateral dependent loans is similar to its charge-off policy for all loans in that loans are charged-off in the month when a determination is made that the loan is uncollectible. The volume of net loans charged off for the first three months of 2022 totaled approximately $182,000 compared to approximately $36,000 in net loans charged off during the first three months of 2021.
Our allowance for credit losses at March 31, 2022 reflects an amount deemed appropriate to adequately cover all expected future losses as of the date the allowance is determined based on our allowance for credit losses assessment methodology. The allowance for credit losses (net of charge-offs and recoveries) was $33,778,000 at March 31, 2022, a decrease of $5,854,000 or 14.77%, from an allowance for loan losses of $39,632,000 at December 31, 2021 and a decrease of $5,552,000, or 14.12%, from an allowance for loan losses of $39,330,000 at March 31, 2021. The decrease in the allowance for credit losses is the result of the implementation of CECL on January 1, 2022, which resulted in an adjustment to the opening balance of the allowance for credit losses of $7.6 million; offset by increased provisioning during the quarter ended March 31, 2022 largely due to an increase in loan growth. The allowance for credit losses was 1.29% of total loans outstanding at March 31, 2022, compared to an allowance for loan losses of 1.60% of total loans at December 31, 2021 and 1.68% at March 31, 2021. As a percentage of nonperforming loans at March 31, 2022, December 31, 2021, and March 31, 2021, the allowance for credit losses and allowance for loan losses, represented 11,852%, 7,154% and 1,635%, respectively. The internally classified loans as a percentage of the allowance for credit losses and allowance for loan losses, as applicable, were 15.9%, 19.4%, and 20.3% respectively, at March 31, 2022, December 31, 2021, and March 31, 2021.
The level of the allowance and the amount of the provision for credit losses involve evaluation of uncertainties and matters of judgment. The Company maintains an allowance for credit losses which management believes is adequate to absorb losses in the loan portfolio. A formal calculation is prepared quarterly by the Chief Financial Officer and provided to the Board of Directors to determine the adequacy of the allowance for credit losses. The calculation includes an evaluation of historical default and loss experience, current and forecasted economic conditions, an evaluation of qualitative factors, industry and peer bank loan quality indicators and other factors. See the discussion above under “Critical Accounting Estimates” for more information. Management believes the allowance for credit losses at March 31, 2022 to be adequate, but if forecasted economic conditions deteriorate beyond management’s current expectations the allowance for credit losses may require an increase through additional provision for credit loss expense which would negatively impact earnings.
Non-Interest Income
Our non-interest income is composed of several components, some of which vary significantly between quarterly and annual periods. The following is a summary of our non-interest income for the three months ended March 31, 2022 and 2021 (in thousands):
| Three Months Ended March 31, |
||||||||||||||||
| 2022 |
2021 |
$ Increase (Decrease) |
% Increase (Decrease) |
|||||||||||||
| Service charges on deposit accounts |
$ | 1,719 | $ | 1,325 | $ | 394 | 29.74 | % | ||||||||
| Brokerage income |
1,739 | 1,398 | 341 | 24.39 | ||||||||||||
| Debit and credit card interchange income |
2,877 | 2,529 | 348 | 13.76 | ||||||||||||
| Other fees and commissions |
308 | 309 | (1 | ) | (0.32 | ) | ||||||||||
| Income on BOLI and annuity contracts |
335 | 413 | (78 | ) | (18.89 | ) | ||||||||||
| Gain on sale of loans |
2,214 | 3,606 | (1,392 | ) | (38.60 | ) | ||||||||||
| Gain on sale of fixed assets |
28 | — | 28 | 100.00 | ||||||||||||
| Gain on sale of other assets |
8 | 1 | 7 | 700.00 | ||||||||||||
| Other income |
(10 | ) | — | (10 | ) | (100.00 | ) | |||||||||
| Total non-interest income |
$ | 9,218 | $ | 9,581 | $ | (363 | ) | (3.79% | ) | |||||||
The decrease in non-interest income for the three months ended March 31, 2022 when compared to the comparable period in 2021 is attributable to a decrease in gain on sale of loans; partially offset by an increase in service charges on deposit accounts, an increase in debit and credit card interchange income, and an increase in brokerage income.
The decrease in gain on sale of loans for the three months ended March 31, 2022 was due to a decrease in the volume of refinancing transactions due to rising mortgage interest rates as a result of the Federal Reserve ending quantitative easing. In addition, high inflation has also contributed to the increase in interest rates. The mortgage industry expects volume to decrease in 2022. The volume of mortgage loans originated for the three months ended March 31, 2022 was $53,117,000 compared to $78,769,000 for the three months ended March 31, 2021. In anticipation of the slowing of mortgage origination volume due to the rising rate environment, the Company began to retain servicing rights on some of the loans it originates during the first quarter of 2022.
The increase in service charges on deposit accounts for the three months ended March 31, 2022 primarily was due to an increase in service charges earned on overdraft fees and fees for paper statements. The increase in service charges on overdraft fees resulted from an increase in consumer spending. The increase in fees for paper statements resulted from an account conversion that placed new qualifications on certain account types.
The increase in debit and credit card interchange income for the three months ended March 31, 2022 was due to an increase in the number and volume of debit card holders and transactions. The increase in the volume of transactions was partially attributable to an increase in economic activity as consumer spending continued to increase as pandemic conditions continued to improve.
The increase in brokerage income for the three months ended March 31, 2022 was primarily due to an increase in the opening of new investment accounts during the last twelve months.
Non-Interest Expense
Non-interest expense consists primarily of employee costs, occupancy expenses, furniture and equipment expenses, advertising and public relations expenses, data processing expenses, ATM and interchange expenses, director’s fees, audit, legal and consulting fees, and other operating expenses. The following is a summary of our non-interest expense for the three months ended March 31, 2022 and 2021 (in thousands):
| Three Months Ended March 31, |
||||||||||||||||
| 2022 |
2021 |
$ Increase (Decrease) |
% Increase (Decrease) |
|||||||||||||
| Salaries and employee benefits |
$ | 14,396 | $ | 13,300 | $ | 1,096 | 8.24 | % | ||||||||
| Occupancy expenses, net |
1,348 | 1,291 | 57 | 4.42 | ||||||||||||
| Advertising & public relations expense |
659 | 487 | 172 | 35.32 | ||||||||||||
| Furniture and equipment expense |
856 | 826 | 30 | 3.63 | ||||||||||||
| Data processing expense |
1,757 | 1,387 | 370 | 26.68 | ||||||||||||
| ATM & interchange expense |
1,192 | 1,090 | 102 | 9.36 | ||||||||||||
| Directors’ fees |
153 | 157 | (4 | ) | (2.55 | ) | ||||||||||
| Audit, legal & consulting expenses |
227 | 189 | 38 | 20.11 | ||||||||||||
| Provision for credit losses on unfunded commitments |
825 | — | 825 | 100.00 | ||||||||||||
| Other operating expenses |
1,899 | 2,719 | (820 | ) | (30.16 | ) | ||||||||||
| Total non-interest expense |
$ | 23,312 | $ | 21,446 | $ | 1,866 | 8.70 | % | ||||||||
The increase in non-interest expense for the three months ended March 31, 2022 when compared to the comparable period in 2021 is primarily attributable to an increase in salaries and employee benefits, an increase in occupancy expense, an increase in other operating expenses, an increase in data processing expense, an increase in advertising and public relations expense, and an increase in ATM and interchange expense.
Salaries and employee benefits increased for the three months ended March 31, 2022 primarily due to an increase in the number of employees necessary to support the Company’s growth in operations as well as an increase in incentives and an increase in new investment accounts. The increase in occupancy expense is primarily attributable to an increase in lease expense due to an increase in leased branches, an increase in utility expense due to increasing utility rates and unseasonably cold weather, and an increase in depreciation expense resulting from the opening of a new branch. The Company anticipates that salaries and employee benefits expense and occupancy expense will continue to increase as the Company's operations and facilities continue to grow and competition to retain and attract associates is becoming more intense.
Provision for credit losses on unfunded commitments increased for the three months ended March 31, 2022 due to the adoption of CECL and an increase in the amount of unfunded off-balance sheet commitments.
Data processing expense increased for the three months ended March 31, 2022 primarily due to an increase in computer maintenance and computer license expense. These expenses included movement of in-house systems to cloud servicers, additional investments in digital banking solutions, and an increase in information security expenses. The Company anticipates that data processing expenses will continue to increase as the Company's operations grow and the focus on the acceleration of digital product offerings increases.
Advertising and public relations expense increased for the three months ended March 31, 2022 partially due to the opening of a new branch which included targeted marketing efforts to drive traffic and awareness for the new location, as well as additional targeted marketing efforts to help increase market share in our growth areas. We also saw an increase in expenses related to the return of in-person events, both bank hosted and by our community partners, as COVID-19 restrictions continued to loosen. In addition, we purchased several new marquee signs that we installed at local schools.
ATM and interchange expense increased for the three months ended March 31, 2022 primarily due to an increase in debit card interchange fee expense due to the volume of transactions, and an increase in economic activity.
The efficiency ratio is a common and comparable KPI used in the banking industry. The Company uses this metric to monitor how effective management is at using our internal resources. It is calculated by dividing our non-interest expense by our net interest income plus non-interest income. Our efficiency ratio for the three months ended March 31, 2022 and 2021 was 59.49% and 58.11%, respectively. The increase for the three months ended March 31, 2022 when compared to the prior year comparable period was attributable to, among other things, the decrease in gain on sale of loans due to the rising interest rate environment as well as an increase in the provision for credit losses on unfunded commitments.
Income Taxes
The Company’s income tax expense was $3,171,000 for the three months ended March 31, 2022, a decrease of $477,000 over the comparable period in 2021. The percentage of income tax expense to net income before taxes was 21.80% and 24.66% for the three months ended March 31, 2022 and March 31, 2021, respectively. Our effective tax rate represents our blended federal and state rate of 26.14% affected by the impact of anticipated favorable permanent differences between our book and taxable income such as bank-owned life insurance, income earned on tax-exempt securities and loans, and certain federal and state tax credits.
Financial Condition
Balance Sheet Summary
The Company’s total assets increased $118,009,000, or 2.96%, to $4,107,605,000 at March 31, 2022 from $3,989,596,000 at December 31, 2021. Loans, net of allowance for credit losses, totaled $2,591,006,000 at March 31, 2022, a 6.00% increase compared to $2,444,282,000 at December 31, 2021. In 2021, management targeted owner-occupied commercial real estate, residential real estate lending and consumer lending as areas of focus on growing our loan portfolio. In 2022, management is targeting owner-occupied commercial real estate, residential real estate lending and consumer lending as areas of focus.
The following details the loans of the Company at March 31, 2022 and December 31, 2021:
| March 31, 2022 |
December 31, 2021 |
|||||||||||||||||||||||
| Balance |
% of Portfolio |
Balance |
% of Portfolio |
Balance $ Increase (Decrease) |
Balance % Increase (Decrease) |
|||||||||||||||||||
| Residential 1-4 family real estate |
$ | 703,198 | 26.66 | % | $ | 689,579 | 27.63 | % | $ | 13,619 | 1.97 | % | ||||||||||||
| Commercial and multi-family real estate |
956,059 | 36.25 | 908,673 | 36.41 | 47,386 | 5.21 | ||||||||||||||||||
| Construction, land development and farmland |
678,516 | 25.73 | 612,659 | 24.55 | 65,857 | 10.75 | ||||||||||||||||||
| Commercial, industrial and agricultural |
118,006 | 4.47 | 118,155 | 4.73 | (149 | ) | (0.13 | ) | ||||||||||||||||
| 1-4 family equity lines of credit |
103,358 | 3.92 | 92,229 | 3.69 | 11,129 | 12.07 | ||||||||||||||||||
| Consumer and other |
78,346 | 2.97 | 74,643 | 2.99 | 3,703 | 4.96 | ||||||||||||||||||
| Total loans before net deferred loan fees |
$ | 2,637,483 | 100.00 | % | $ | 2,495,938 | 100.00 | % | $ | 141,545 | 5.67 | % | ||||||||||||
Overall, the Bank's loan demand and related new loan production has continued to be strong. The net loan growth of 6.00% from December 31, 2021, reflects the strong production, partially offset by several large loan payoffs. The demand is supported by the continued rise in new borrowers moving into the Bank's primary market areas. The increase in residential 1-4 family real estate loans is attributable to the Bank being able to grow its residential portfolio through marketing efforts directed at those building houses, and the developing investor sector of 1-4 family. The increase in construction, land development and farmland loans, commercial and multi-family real estate, and 1-4 family equity lines of credit is primarily attributable to the addition of several large loan relationships. Although the Company has continued to grow loans in 2022, the Company could experience a decline in demand for loans as interest rates continue to rise.
Because construction loans remain a meaningful portion of our portfolio, the Bank has implemented an additional layer of monitoring as it seeks to avoid advancing funds that exceed the present value of the collateral securing the loan. The responsibility for monitoring percentage of completion and distribution of funds tied to these completion percentages is now monitored and administered by a Credit Administration Department independent of the lending function. The Bank continues to seek to diversify its real estate portfolio as it seeks to lessen concentrations in any one type of loan.
For a detailed discussion regarding our allowance for credit losses, see “Provision for Credit Losses and Allowance for Credit Losses” above.
Securities decreased $9,065,000, or 1.01%, to $888,520,000 at March 31, 2022 from $897,585,000 at December 31, 2021, primarily as a result of an increase in interest rates that caused the fair market value of our securities portfolio to decline, partially offset by the purchase of new securities. The average yield, excluding tax equivalent adjustment, of the securities portfolio at March 31, 2022 was 1.70% with a weighted average life of 8.42 years, as compared to an average yield of 1.59% and a weighted average life of 8.17 years at December 31, 2021. The weighted average lives on mortgage-backed securities reflect the repayment rate used for book value calculations.
Premises and equipment decreased$281,000, or 0.45%, from December 31, 2021 to March 31, 2022. The primary reason for the decrease was due to current year depreciation of $1,091,000. This was partially offset by an increase in leasehold improvements and an increase in furniture, fixtures and equipment from the opening of a new branch, as well as an increase in equipment that was primarily attributable to the purchase of new debit card printers for several branches and security cameras, an increase in computer hardware and software, and the purchase of a company vehicle.
The increase in deposits in the first three months of 2022, which is described below, was outpaced by loan growth during the period, causing interest bearing deposits with other financial institutions to decrease. Interest bearing deposits with other financial institutions decreased to $360,724,000 at March 31, 2022 from $400,940,000 at December 31, 2021.
Total liabilities increased by 4.25% to $3,727,707,000 at March 31, 2022 compared to $3,575,879,000 at December 31, 2021. The increase in total liabilities since December 31, 2021 was composed of a $135,394,000, or 3.81%, increase in total deposits and a $16,434,000, or 78.98%, increase in accrued interest and other liabilities. The increase in total deposits since December 31, 2021 was primarily attributable to the opening of new deposit accounts as well as refunds to customers from the filing of their tax returns. The increase in accrued interest and other liabilities since December 31, 2021 was primarily attributable to an increase in reserve for unfunded commitments due to the adoption of CECL on January 1, 2022, which resulted in an adjustment to the opening balance of the reserve for unfunded commitments of $6,195,000 and an increased provisioning of $825,000 during the quarter ended March 31, 2022 due to growth in off-balance sheet commitments. This increase was also attributable to an increase in escrow payable, an increase in reserve for income taxes, an increase in finance lease payable, and an increase in employee bonus payable, partially offset by a decrease in interest payable on CDs as customers have moved their funds to NOW and money market accounts as a result of anticipated interest rate increases.
Non-Performing Assets
Non-performing loans, which included nonaccrual loans and loans 90 days past due, at March 31, 2022 totaled $152,000, a decrease from $389,000 at December 31, 2021. The decrease in non-performing loans during the three months ended March 31, 2022 of $237,000 is due primarily to two residential 1-4 family real estate loan relationships that are no longer 90 days past due, partially offset by the increase of one loan relationship that was not 90 days past due at December 31, 2021. Management believes that it is probable that it will incur losses on its non-performing loans but believes that these losses should not exceed the amount in the allowance for credit losses already allocated to these loans, unless there is unanticipated deterioration of local real estate values.
The net non-performing asset ratio (NPA) is used as a measure of the overall quality of the Company's assets. Our NPA ratio is calculated by taking the total of our loans greater than 90 days past due and accruing interest, nonaccrual loans, non-performing TDRs and other real estate owned divided by our total assets outstanding. Our NPA ratio for the periods ended March 31, 2022 and December 31, 2021 were 0.01% and 0.01%, respectively.
Other loans may be classified as collateral dependent when the current net worth and financial capacity of the borrower or of the collateral pledged, if any, is viewed as inadequate and it is probable that the Company will be unable to collect the scheduled payments of principal and interest due under the contractual terms of the loan agreement. Such loans generally have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt, and if such deficiencies are not corrected, there is a probability that the Company will sustain some loss. In such cases, interest income continues to accrue as long as the loan does not meet the Company’s criteria for nonaccrual status. Collateral dependent loans are measured at the fair value of the collateral less estimated selling costs. If the measure of the collateral dependent loan is less than the recorded investment in the loan, the Company shall recognize impairment by creating a valuation allowance with a corresponding charge to the provision for credit losses or by adjusting an existing valuation allowance for the collateral dependent loan with a corresponding charge or credit to the provision for credit losses.
At March 31, 2022 the Company had a recorded investment in collateral dependent loans totaling $657,000, down from a recorded investment in impaired loans totaling $668,000 at December 31, 2021. The decrease during the three months ended March 31, 2022 as compared to December 31, 2021 is primarily due to the paydown of three collateral dependent relationships. Overall, the Company’s market areas have seen continued strengthening in the residential real estate market in recent years while the commercial real estate market has remained steady. The allowance for credit losses related to collateral dependent loans was measured based upon the estimated fair value of related collateral.
Loans are charged-off in the month when the determination is made that the loan is uncollectible. Net charge-offs for the three months ended March 31, 2022 were $182,000 as compared to $36,000 in net charge-offs for the same period in 2021. Overall, the Bank has experienced minimal charge-offs during 2022. It is expected that charge-offs will be modest for the remainder of 2022; however, unanticipated changes in local economic conditions may negatively impact charge-offs in the future.
At March 31, 2022, our internally classified loans decreased $2,310,000, or 30.05%, to $5,376,000 from $7,686,000 at December 31, 2021 primarily due to the payoff of three internally classified loan relationships. Classified loan balances have remained relatively consistent due to the stable markets in which we operate and economic stimulus provided in response to the COVID-19 pandemic. Loans are listed as classified when information obtained about possible credit problems of the borrower has prompted management to question the ability of the borrower to comply with the repayment terms of the loan agreement. The loan classifications do not represent or result from trends or uncertainties which management expects will materially impact future operating results, liquidity or capital resources.
Liquidity and Asset Management
The Company’s management seeks to maximize net interest income by managing the Company’s assets and liabilities within appropriate constraints on capital, liquidity and interest rate risk. Liquidity is the ability to maintain sufficient cash levels necessary to fund operations, meet the requirements of depositors and borrowers, and fund attractive investment opportunities. Higher levels of liquidity, like those we built up in response to the COVID-19 pandemic, bear corresponding costs, measured in terms of lower yields on short-term, more liquid earning assets and higher interest expense involved in extending liability maturities.
Liquid assets include cash, due from banks, interest bearing deposits in other financial institutions and unpledged investment securities that will mature within one year. The Company’s primary source of liquidity is a stable core deposit base. In addition, Federal funds purchased, FHLB advances, and brokered deposits provide a secondary source. These sources of liquidity are generally short-term in nature and are used to fund asset growth and meet other short-term liquidity needs. Liquidity needs can also be met from loan payments and investment security maturities. At March 31, 2022, the Company’s liquid assets totaled $952.5 million down from$985.9 million at December 31, 2021. Additionally, as of March 31, 2022, the Company had available approximately $130.8 million in unused federal funds lines of credit with regional banks and, subject to certain restrictions and collateral requirements, approximately $456.5 million of borrowing capacity with the Federal Home Loan Bank of Cincinnati to meet short term funding needs. The Company maintains a formal asset and liability management process to quantify, monitor and control interest rate risk and to assist management as management seeks to maintain stability in net interest margin under varying interest rate environments. The Company accomplishes this process through the development and implementation of lending, funding and pricing strategies designed to maximize net interest income under varying interest rate environments subject to specific liquidity and interest rate risk guidelines and competitive market conditions.
Analysis of rate sensitivity and rate gap analysis are the primary tools used to assess the direction and magnitude of changes in net interest income resulting from changes in interest rates. Included in the analysis are cash flows and maturities of financial instruments held for purposes other than trading, changes in market conditions, loan volumes and pricing and deposit volume and mix. These assumptions are inherently uncertain, and, as a result, net interest income cannot be precisely estimated nor can the impact of higher or lower interest rates on net interest income be precisely predicted. Actual results will differ due to timing, magnitude and frequency of interest rate changes and changes in market conditions and management’s strategies, among other factors.
The Company also uses simulation modeling to evaluate both the level of interest rate sensitivity as well as potential balance sheet strategies. The Company's Asset Liability Committee meets quarterly to analyze the interest rate shock simulation. The interest rate shock simulation model is based on a number of assumptions. These assumptions include, but are not limited to, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment and replacement of asset and liability cash flows and balance sheet management strategies. We model instantaneous change in interest rates using a growth in the balance sheet as well as a flat balance sheet to understand the impact to earnings and capital. Based on the Company's IRR simulation, the Company had an asset sensitive position (a positive gap) as of March 31, 2022. Asset sensitivity means that more of the Company’s assets are capable of re-pricing over certain time frames than its liabilities. The interest rates associated with these assets may not actually change over this period but are capable of changing. Asset sensitivity generally should lead to an expansion in net interest margin in a rising rate environment, but for that to occur the Bank will need to reprice its assets more quickly than it reprices rates it pays on deposits. Conversely, a declining rate environment and an asset sensitive balance sheet could have a short-term negative impact on net interest margin, as assets would likely re-price faster than liabilities. Management regularly monitors the deposit rates of the Company’s competitors. The Company’s net interest margin and earnings could be negatively impacted if short-term rates continue to rise and competitive pressures in the Company's market areas force the Company to hold loan yields steady or increase deposit rates faster than it is able to increase yields on loans. As discussed elsewhere herein, the Bank anticipates that its net interest margin is likely to expand during the remainder of 2022 because of the Company's current balance sheet position in a rising rate environment. The Company also uses Economic Value of Equity (“EVE”) sensitivity analysis to understand the impact of changes in interest rates on long-term cash flows, income and capital. EVE is calculated by discounting the cash flows for all balance sheet instruments under different interest rate scenarios. The EVE is a longer term view of interest rate risk because it measures the present value of the future cash flows. Presented below is the estimated impact on the Bank’s net interest income and EVE as of March 31, 2022, assuming an immediate shift in interest rates:
| % Change from Base Case for Immediate Parallel Changes in Rates | ||||||||||||||||||||
| -200 BP(1) |
-100 BP(1) |
+100 BP |
+200 BP |
+300 BP |
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| Net interest income |
(5.93 | )% | (3.55 | )% | 0.55 | % | 1.57 | % | 2.32 | % | ||||||||||
| EVE |
(13.58 | )% | (5.70 | )% | (0.10 | )% | (0.84 | )% | (2.41 | )% | ||||||||||
| (1) |
Currently, some short term interest rates are below the standard down rate scenarios (100, 200 bps). The asset liability model does not calculate negative interest rates and will floor any index at 0. |
While an instantaneous and severe shift in interest rates was used in this analysis to provide an estimate of exposure under these scenarios, we believe that a gradual shift in interest rates would have a more modest impact. Further, the earnings simulation model does not take into account factors such as future balance sheet growth, changes in product mix, changes in yield curve relationships, and changing product spreads that could mitigate any potential adverse impact of changes in interest rates. Moreover, since EVE measures the discounted present value of cash flows over the estimated lives of instruments, the change in EVE does not directly correlate to the degree that earnings would be impacted over a shorter time horizon (i.e., the current year). Further, EVE does not take into account factors such as future balance sheet growth, changes in product mix, changes in yield curve relationships, hedging strategies that we may institute, and changing product spreads that could mitigate any potential adverse impact of changes in interest rates.
Interest rate risk (sensitivity) management focuses on the earnings risk associated with changing interest rates. Management seeks to maintain profitability in both immediate and long-term earnings through funds management/interest rate risk management. The Company’s rate sensitivity position has an important impact on earnings. Senior management of the Company analyzes the rate sensitivity position quarterly. Management focuses on the spread between the Company’s cost of funds and interest yields generated primarily through loans and investments.
Management believes that with present maturities, the anticipated growth in deposit base, and the efforts of management in its asset/liability management program, liquidity will not pose a problem in the near term future.
Off Balance Sheet Arrangements
At March 31, 2022, we had unfunded loan commitments outstanding of $1,331,196,000 and outstanding standby letters of credit of $110,245,000. Because these commitments generally have fixed expiration dates and many will expire without being drawn upon, the total commitment level does not necessarily represent future cash requirements. If needed to fund these outstanding commitments, the Bank has the ability to liquidate federal funds sold or securities available-for-sale or on a short-term basis to borrow and purchase federal funds from other financial institutions. Additionally, the Bank could sell participations in these or other loans to correspondent banks. As mentioned above, the Bank has been able to fund its ongoing liquidity needs through its stable core deposit base, loan payments, investment security maturities and short-term borrowings.
Capital Position and Dividends
At March 31, 2022, total stockholders’ equity was $379,898,000, or 9.25% of total assets, which compares with $413,717,000, or 10.37% of total assets, at December 31, 2021. The dollar decrease in stockholders’ equity during the three months ended March 31, 2022 is the result of the Company’s net income of $11,373,000, proceeds from the issuance of common stock related to exercise of stock options of $57,000, the net effect of a $44,531,000 unrealized loss on investment securities net of applicable income tax benefit of $15,755,000, cash dividends declared of $8,401,000 of which $6,511,000 was reinvested under the Company’s dividend reinvestment plan, $161,000 related to stock option compensation, and $1,011,000 related to the cumulative effect of change in accounting principle for the adoption of CECL.
Impact of Inflation and Changing Prices
Our consolidated financial statements included herein have been prepared in accordance with GAAP, which presently require us to measure financial position and operating results primarily in terms of historic dollars. Changes in the relative value of money due to inflation or recession are generally not considered. The primary effect of inflation on our operations is reflected in increased operating costs. Historically, changes in interest rates affect the financial condition of a financial institution to a far greater degree than changes in the inflation rate. While interest rates are greatly influenced by changes in the inflation rate, they do not necessarily change at the same rate or in the same magnitude as the inflation rate. Interest rates are highly sensitive to many factors that are beyond our control, including changes in the expected rate of inflation, the influence of general and local economic conditions and the monetary and fiscal policies of the U.S. government, its agencies and various other governmental regulatory authorities.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company’s primary component of market risk is interest rate volatility. Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on a large portion of the Company’s assets and liabilities, and the market value of all interest-earning assets and interest-bearing liabilities, other than those which possess a short term to maturity. Based upon the nature of the Company’s operations, the Company is not subject to foreign currency exchange or commodity price risk.
Interest rate risk (sensitivity) management focuses on the earnings risk associated with changing interest rates. Management seeks to maintain profitability in both short-term and long-term earnings through funds management/interest rate risk management. The Company’s rate sensitivity position has an important impact on earnings. Senior management of the Company meets monthly to analyze the rate sensitivity position. These meetings focus on the spread between the cost of funds and interest yields generated primarily through loans and investments.
There have been no material changes in reported market risks during the three months ended March 31, 2022.
Item 4. Controls and Procedures
The Company maintains disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Exchange Act, that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and its Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this report. Based on the evaluation of these disclosure controls and procedures, its Chief Executive Officer and its Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.
Overall, there were no changes in the Company’s internal control over financial reporting during the Company’s fiscal quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Not applicable
There were no material changes to the Company’s risk factors as previously disclosed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) None
(b) Not applicable.
(c) None
Item 3. DEFAULTS UPON SENIOR SECURITIES
(a) None
(b) Not applicable.
Item 4. MINE SAFETY DISCLOSURES
Not applicable
None
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| 101.INS |
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Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) |
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| 101.SCH |
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Inline XBRL Taxonomy Extension Schema Document. |
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| 101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
| 101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document. |
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| 101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document. |
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| 101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |
| * | Management compensatory plan or contract. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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WILSON BANK HOLDING COMPANY |
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(Registrant) |
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| DATE: May 9, 2022 |
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/s/ John C. McDearman III |
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John C. McDearman III |
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President and Chief Executive Officer |
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| DATE: May 9, 2022 |
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/s/ Lisa Pominski |
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Lisa Pominski |
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Executive Vice President & Chief Financial Officer |