EQUITY BANCSHARES, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the accompanying notes included elsewhere in this Annual Report on Form 10-K. The following discussion contains "forward-looking statements" that reflect our future plans, estimates, beliefs and expected performance. We caution that assumptions, expectations, projections, intentions or beliefs about future events may, and often do, vary from actual results and the differences can be material. See "Cautionary Statement Regarding Forward-Looking Statements." Also, see the risk factors and other cautionary statements described under the heading "Item 1A - Risk Factors" included in Item 1A of this Annual Report on Form 10-K. We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.
This discussion and analysis of our financial condition and results of operation includes the following sections:
• Table containing selected financial data and ratios for the periods; • Overview;
• Critical Accounting Policies - a discussion of accounting policies that
require critical estimates and assumptions;
• Results of Operations - an analysis of our operating results, including
disclosures about the sustainability of our earnings;
• Financial Condition - an analysis of our financial position;
• Liquidity and Capital Resources - an analysis of our cash flows and
capital position; and
• Non-GAAP Financial Measures - reconciliation of non-GAAP measures.
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Years Ended December 31,
(Dollars in thousands, except per
share data) 2021 2020 2019 2018 2017
Statement of Income Data
Interest and dividend income $ 157,368 $ 155,561 $ 175,499 $ 161,556 $ 102,693
Interest expense 14,789 22,909 49,641 36,758 16,691
Net interest income 142,579 132,652 125,858 124,798 86,002
Provision for credit losses (8,480 ) 24,255 18,354 3,961 2,953
Net gain on acquisition 585 2,145 - - -
Net gain (loss) from securities
transactions 406 11 14 (9 ) 271
Other non-interest income 31,851 23,867 24,974 19,734 15,169
Merger expense 9,189 299 915 7,462 5,352
Goodwill impairment - 104,831 - - -
Loss on extinguishment of debt 372 - - - -
Other non-interest expense 109,904 103,860 98,720 86,925 62,111
Income (loss) before income taxes 64,436 (74,570 ) 32,857 46,175 31,026
Provision for income taxes 11,956 400 7,278 10,350 10,377
Net income (loss) 52,480 (74,970 ) 25,579 35,825 20,649
Net income (loss) allocable to
common stockholders 52,480 (74,970 ) 25,579 35,825 20,649
Basic earnings (loss) per share 3.49 (4.97 ) 1.64 2.33 1.66
Diluted earnings (loss) per share 3.43 (4.97 ) 1.61 2.28 1.62
Balance Sheet Data (at period end)
Cash and cash equivalents $ 259,954 $ 280,698 $ 89,291 $ 192,818 $ 52,195
Securities available-for-sale 1,327,442 871,827 142,067 168,875 162,272
Securities held-to-maturity - - 769,059 748,356 535,462
Loans held for sale 4,214 12,394 5,933 2,972 2,353Gross loans held for investment 3,155,627 2,591,696 2,556,652 2,575,408 2,117,270 Allowance for credit losses
48,365 33,709 12,232 11,454 8,498
Loans held for investment, net of
allowance for credit losses 3,107,262 2,557,987 2,544,420 2,563,954 2,108,772
Goodwill and core deposit
intangibles, net 69,344 47,658 156,339 153,437 115,645
Mortgage servicing asset, net 276 - 5 11 17
Naming rights, net 1,087 1,130 1,174 1,217 1,260
Total assets 5,137,631 4,013,356 3,949,578 4,061,716 3,170,509
Total deposits 4,420,004 3,447,590 3,063,516 3,123,447 2,382,013
Borrowings 151,891 133,857 383,632 464,676 401,652
Total liabilities 4,637,000 3,605,707 3,471,518 3,605,775 2,796,365
Total stockholders' equity 500,631 407,649 478,060 455,941 374,144
Tangible common equity* 429,924 358,861 320,542 301,276 257,222
Performance ratios
Return on average assets (ROAA) 1.18 % (1.87 %) 0.64 % 1.00 % 0.84 %
Return on average equity (ROAE) 11.75 % (16.14 %) 5.52 % 8.52 % 7.03 %
Return on average tangible common
equity (ROATCE)* 14.10 % (21.51 %) 9.22 % 13.43 % 9.81 %
Yield on loans 4.77 % 5.00 % 5.73 % 5.74 % 5.43 %
Cost of interest-bearing deposits 0.30 % 0.66 % 1.53 % 1.15 % 0.79 %
Net interest margin 3.44 % 3.63 % 3.48 % 3.81 % 3.83 %
Efficiency ratio* 63.01 % 66.36 % 65.45 % 60.14 % 61.39 %
Non-interest income / average
assets 0.74 % 0.65 % 0.63 % 0.55 % 0.63 %
Non-interest expense / average
assets 2.70 % 5.23 % 2.50 % 2.62 % 2.74 %
Dividend payout ratio 4.84 % 0.00 % 0.00 % 0.00 % 0.00 %
Capital Ratios
Tier 1 Leverage Ratio 9.09 % 9.30 % 9.02 % 8.60 % 10.33 %
Common Equity Tier 1 Capital Ratio 12.03 % 12.82 % 11.63 % 10.95 % 11.53 %
Tier 1 Risk Based Capital Ratio 12.67 % 13.37 % 12.15 % 11.45 % 12.14 %
Total Risk Based Capital Ratio 15.96 % 17.35 % 12.59 % 11.86 % 12.51 %
Equity / Assets 9.74 % 10.16 % 12.10 % 11.23 % 11.80 %
Book value per share $ 29.87 $ 28.04 $ 30.95 $ 28.87 $ 25.62
Tangible book value per share* $ 25.65 $ 24.68 $ 20.75 $ 19.08 $ 17.61
Tangible common equity to tangible
assets* 8.48 % 9.05 % 8.45 % 7.71 % 8.42 %
* Indicates non-GAAP financial measure. Please see "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Financial Measures" for reconciliation to the most directly comparable GAAP measure.
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Overview
We are a bank holding company headquartered inWichita, Kansas . Our wholly-owned banking subsidiary,Equity Bank , provides a broad range of financial services primarily to businesses and business owners as well as individuals through our network of 69 full-service branches located inArkansas ,Kansas ,Missouri andOklahoma . As ofDecember 31, 2021 , we had, on a consolidated basis, total assets of$5.14 billion , total deposits of$4.42 billion , total loans held for investment, net of allowances, of$3.11 billion and total stockholders' equity of$500.6 million . Net income for the year endedDecember 31, 2021 , was$52.5 million , compared to a net loss of$75.0 million for the year endedDecember 31, 2020 , primarily due to a goodwill impairment charge of$104.8 million during the third quarter of 2020. History and Background From 2003 through 2021, we completed a series of twenty acquisitions and two charter consolidations. We seek to integrate the banks we acquire into our existing operational platform and enhance stockholder value through the creation of efficiencies within the combined operations. In conjunction with our strategic acquisition growth, we strive to reposition and improve the loan portfolio and deposit mix of the banks we acquire. Following our acquisitions, we focus on identifying and disposing of problematic loans and replacing them with higher quality loans generated organically. In addition, we concentrate on growth in our commercial loan portfolio, which we believe generally offers higher return opportunities than our consumer loan portfolio, primarily by hiring additional talented bankers, particularly in our metropolitan markets, and incentivizing our bankers to expand their commercial banking relationships. We also seek to increase our most attractive deposit accounts primarily by growing deposits in our community markets and cross selling our depository products to our loan customers. Our principal objective is to continually increase stockholder value and generate consistent earnings growth by expanding our commercial banking franchise both organically and through strategic acquisitions. We believe our strategy of selectively acquiring and integrating community banks has provided us with economies of scale and improved our overall franchise efficiency. We expect to continue to pursue strategic acquisitions and believe our targeted market areas present us with many and varied acquisition opportunities. We are also focused on continuing to grow organically and believe the markets in which we operate currently provide meaningful opportunities to expand our commercial customer base and increase our current market share. We believe our geographic footprint, which is strategically split between growing metropolitan markets, such asKansas City ,Tulsa andWichita , and stable community markets withinWestern Kansas ,Western Missouri ,Topeka ,Northern Arkansas andNorthern Oklahoma , provides us with access to low cost stable core deposits in community markets that we can use to fund commercial loan growth in our metropolitan markets. We strive to provide an enhanced banking experience for our customers by providing them with a comprehensive suite of sophisticated banking products and services tailored to meet their needs, while delivering the high-quality relationship-based customer service of a community bank.
Highlights for the Year Ended
• Net interest income of
2021, compared to net interest income of
• Total loans held for investment of
compared to
million, or 21.8%.
• Total deposits of
billion at December 31, 2020 , an increase of $972.4 million , or 28.2%.
• Total assets of $5.14 billion at December 31, 2021 , compared to $4.01
billion at December 31, 2020 , an increase of $1.12 billion , or 28.0%.
• Tangible book value per common share of $25.65 at December 31, 2021 ,
compared to $24.68 at December 31, 2020 , an increase of $0.97 , or 3.9%.
We completed our merger with ASBI of Wichita, Kansas on October 1, 2021 . ASBI
had total assets of $777.6 million , net loans of $441.9 million and total
deposits of $668.8 million . Also, on December 3, 2021 , we completed our purchase
of assets and assumption of deposits and certain other liabilities of three
branches in St. Joseph, Missouri , from Security Bank of Kansas City
("Security"). At closing, the Security branches had total assets of $75.8
million , net loans of $1.4 million and total deposits of $75.1 million .
The COVID-19 pandemic has caused economic and social disruption on an unprecedented scale. While some industries have been impacted more severely than others, all businesses have been impacted to some degree. This disruption resulted in the shuttering
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of businesses across the country, significant job loss and aggressive measures
by federal, state and local government during the year ended December 31, 2020 .
Throughout the year ended December 31, 2021 , the economy has opened
significantly compared to 2020; however, certain measures from governing
authorities are still in place and continue to impact operations.
Congress , the President and the Federal Reserve have taken several actions
designed to cushion the economic fallout. Most notably, the Coronavirus Aid,
Relief and Economic Security Act ("CARES Act") was signed into law on March 27,
2020 , as a $2 trillion legislative package. The goal of the CARES Act is to
prevent a severe economic downturn through various measures, including direct
financial aid to American families and economic stimulus to significantly
impacted industry sectors. The package also included extensive emergency funding
for hospitals and medical providers. In addition to the general impact of
COVID-19, certain provisions of the CARES Act as well as other recent
legislative and regulatory relief efforts have had or are expected to have a
material impact on the Company's operations. As a result of the COVID-19
pandemic and the related adverse local and national economic consequences, the
Company is subject to many risks, including but not limited to:
• credit losses resulting from financial stress being experienced by the
Company's borrowers as a result of the pandemic and related governmental
actions (including risks related to the Paycheck Protection Program or
PPP, under the CARES Act and related credit risks resulting from PPP
lending due to forbearance or failure of customers to qualify for loan
forgiveness);
• collateral for loans, such as real estate, may continue to decline in
value, which could cause credit losses to increase;
• increased demands on capital and liquidity;
• the risk that the Company's net interest income, lending activities,
deposits, swap activities, and profitability may be negatively affected
by volatility of interest rates caused by uncertainties stemming from
the pandemic; and
• cybersecurity and information security risks as the result of an
increase in the number of employees working remotely.
Financial Position and Results of Operations: Given that economic scenarios had
become less certain since the pandemic was declared in early March 2020 ,
management added additional allowance for credit losses during the year ended
December 31, 2020 . During the year ended December 31, 2021 , the allowance for
credit losses was increased further, largely due to the adoption of ASU 2016-13
(CECL) and partially offset by a release of allowance due to decrease in
reserves on specifically assessed assets and improving trends in the Company's
loss experience and economic conditions in the markets in which we operate.
Should economic conditions worsen, the Company could experience further
increases in the required allowance for credit losses and record additional
provision for credit losses expense. The execution of the payment deferral
program discussed in the following commentary improved the ratio of past due
loans to total loans. It is possible that asset quality measures could worsen at
future measurement periods if the effects of COVID-19 are prolonged. For
additional information see "NOTE 4 - LOANS AND ALLOWANCE FOR CREDIT LOSSES" in
the Notes to Consolidated Financial Statements.
Net interest income increased $9.9 million in 2021 as compared to 2020, largely
due to increased volume in interest-earning assets, fees earned on the
facilitation of government assistance programs and decreasing yields on
interest-bearing liabilities. The Company's interest and fee income could be
reduced due to COVID-19. In keeping with guidance from regulators, the Company
is actively working with COVID-19 affected borrowers to defer their payments,
interest and fees throughout 2020 and 2021. While interest and fees will still
accrue to income, through normal GAAP accounting, should eventual credit losses
on these deferred payments emerge, interest income and fees accrued would need
to be reversed. In such a scenario, interest income in future periods could be
negatively impacted. At this time, the Company is unable to project the
materiality of such an impact but recognizes the breadth of the economic impact
may affect borrowers' ability to repay in future periods.
Capital and Liquidity: As of December 31, 2021 , all the Company's capital ratios
and Equity Bank's capital ratios were in excess of all regulatory
requirements. While currently classified as well capitalized, an extended
economic recession brought about by COVID-19 could adversely impact reported and
regulatory capital ratios. The Company relies on cash on hand as well as
dividends from Equity Bank to service our debt. If Equity Bank's capital
deteriorates such that it is unable to pay dividends to the Company for an
extended period, the Company may not be able service its debt.
The Company maintains access to multiple sources of liquidity. Wholesale funding
markets have remained open to the Company, but rates for short term funding may
be volatile. If funding costs are elevated for an extended period, it could have
an adverse effect on net interest margin. If an extended recession caused large
numbers of deposit customers to withdraw their funds, the Company might become
more reliant on volatile or more expensive sources of funding.
Our Processes, Controls and Business Continuity Plan: In early March 2020 ,
management successfully deployed a modified working strategy, including emphasis
on social distancing and remote work as necessary to emphasize the safety of the
Company's teams and continuity of business processes. Prior technology planning
resulted in the successful deployment of a portion of the operational team to a
remote environment, while the remainder of the team continued to work on
location in a workspace emphasizing social distancing. In 2021, the Company has
returned to a predominantly in-person operating environment for our team. In
keeping
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with our efforts to protect the health our employees, the Company administered a
vaccination clinic in each of our markets to provide team members an opportunity
to be inoculated in line with CDC recommendations.
Since early May 2020 , all the Company's bank locations have been open to
customers with appropriate safety measures in place. The Company continues to
serve customers curbside and drive-through while offering full lobby access
during normal hours. No material operational or internal control challenges or
risks have been identified to date. As of December 31, 2021 , the Company does
not anticipate significant challenges to our ability to maintain systems and
controls considering the measures we have taken to prevent the spread of
COVID-19.
Lending Operations and Accommodations to Borrowers: During the year ended
December 31, 2020 , the Company executed a payment deferral program for our
commercial lending clients that were adversely affected by the pandemic and
keeping with the extension of associated provisions under the CARES Act,
continued the program in 2021. The majority of these deferrals have qualified
under section 4013 of the CARES Act and the CAA Act and, as such, were not
classified as troubled debt restructurings. Deferred loans are subject to
ongoing monitoring and will be downgraded or placed on nonaccrual if noted
repayment weaknesses exist. At December 31, 2021 , the Company has 20 loans,
totaling $36.3 million , that have been granted a payment deferral, and remain on
deferral, as part of our COVID-19 response.
We were an active participant in all phases of the Paycheck Protection Program
("PPP"), administered by the Small Business Administration ("SBA"), and we
helped many of our customers obtain loans through the program. PPP loans
generally have a two-or five year term and earn interest at 1.0%. As of December
31, 2021 and 2020, the Company had 144 and 1,612 loans, with outstanding
balances of $44.8 million and $253.7 million that were originated under this
program. To date, the Company has been successful in obtaining forgiveness for
these credits and it remains the Company's understanding that the remaining
loans funded through the program are fully guaranteed by the U.S.
Government . Should those circumstances change, the Company could be required to
establish additional allowance for credit losses through additional provision
for credit losses expense charged to earnings.
The Company also participated in the Main Street Lending Program ("MSL
Program"), created by the Federal Reserve to support lending to small and
medium-sized businesses and nonprofit organizations that were in sound financial
condition before the onset of the COVID-19 pandemic. There was a total of $14.3
million and $14.1 million outstanding under the MSL Program for the periods
ended December 31, 2021 and 2020.
Critical Accounting Policies
The preparation of our financial statements in accordance with GAAP requires management to make a number of judgements and assumptions that affect our reported results and disclosures. Several of our accounting policies are inherently subject to valuation assumptions and other subjective assessments and are more critical than others in terms of their importance to results. Changes in any of the estimates and assumptions underlying critical accounting policies could have a material effect on our financial statements. Our accounting policies are described in "NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES" in the Notes to Consolidated Financial Statements. The accounting policies that management believes are the most critical to an understanding of our financial condition and results of operations and require complex management judgement are described below. Allowance for Credit Losses: We adopted FASB ASU 2016-13 effectiveJanuary 1, 2021 , which requires the estimation of an allowance for credit losses in accordance with the current expected credit loss ("CECL") methodology. The allowance for credit losses for loans represents management's estimate of all expected credit losses over the expected contractual life of our loan portfolio. This assessment includes procedures to estimate the allowance and test the adequacy and appropriateness of the resulting balance. The level of the allowance is based upon management's evaluation of historical default and loss experience, current and projected economic conditions, asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay a loan (including the timing of future payments), the estimated value of any underlying collateral, composition of the loan portfolio, industry and peer bank loan quality indications and other pertinent factors, including regulatory recommendations. The level of the allowance for credit losses maintained by management is believed adequate to absorb all expected future losses inherent in the loan portfolio at the balance sheet date; however, determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. The actual realized facts and circumstances may be different than those currently estimated by management and may result in significant changes in the allowance for credit losses in future periods. The allowance for credit losses for loans, as reported in our consolidated balance sheets, is adjusted by provision for credit losses, which is recognized in earnings and is reduced by the charge-off of loan amounts, net of recoveries. The Company utilizes primarily two methods for estimating the allowance for credit losses and the method used depends on the status of the underlying loans. Non-performing loans primarily utilize a collateral specific fair value impairment method and performing loans primarily utilize a historical loss method. The performing loan method utilizes a probability of default (PD) and loss given default (LGD) modeling approach for historical loss coupled with a macroeconomic factor analysis derived from a statistical 62 -------------------------------------------------------------------------------- regression of loss experience correlated to changes in economic factors for all commercial banks operating within our geographical footprint. The macroeconomic regression is based on a multivariate approach and includes key indicators that provide the highest cumulative adjusted R-square figure. Economic factors include, but are not limited to, national unemployment, gross domestic product, market interest rates and property pricing indices. To arrive at the most predictive calculation, a lag factor was applied to these inputs, resulting in current and historic economic inputs driving the projection of loss over our reasonable and supportable forecast period, which managements has defined as 12 months for all portfolio segments. Following the reasonable and supportable forecast period, loss experience immediately reverts to the current historical loss experience of the Company. 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 but measured by objective measurements period over period. 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 quarterly trend assessments in projective economic sentiment, portfolio concentrations, policy exceptions, personnel retention, independent loan review results, collateral considerations, risk ratings and competition. 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. The resultant loss rates are applied to the estimated future exposure at default (EAD), as determined based on contractual amortization terms through an average default month and estimated prepayment experience in arriving at the quantitative reserve within our allowance for credit losses. The allowance represents management's best estimate, but significant changes in circumstances relating to loan quality and economic conditions could result in significantly different results than what is reflected in the consolidated balance sheet as ofDecember 31, 2021 . Likewise, an improvement in loan quality or economic conditions may allow for a further reduction in the required allowance. Changing credit conditions would be expected to impact realized losses driving variability in specifically assessed allowances, as well as calculated quantitative and more subjectively analyzed qualitative factors. Depending on the volatility in these conditions, material impacts could be realized within the Company's operations. Likewise, changing economic conditions, both positive and negative, to the extent significant could result in unexpected realization of provision or reversal of allowance for credit losses due to its impact on the quantitative and qualitative inputs to the Company's calculation. Under the CECL methodology, the impact of these conditions has the potential to further exacerbate periodic differences due to its life of loan perspective. The life of loans calculated under the methodology is based in contractual duration and modified for prepayment expectations, making significant variation in periodic results possible due to changing contractual or adjusted duration of the assets within the calculationGoodwill :Goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets.Goodwill is assessed at least annually for impairment and any such impairment is recognized and expensed in the period identified.Goodwill will be assessed more frequently if a triggering event occurs which indicates that the carrying value of the asset might be impaired. We have selectedDecember 31 as the date to perform our annual goodwill impairment test.Goodwill is the only intangible asset with an indefinite useful life. For the year endedDecember 31, 2021 , following recognition of a material impairment in goodwill balances during 2020, based on the improving market conditions, strong earnings performance by the Company, and improvements in market value of our stock as well the broader industry, management has determined there was not evidence of a triggering event as of or during the period then ended. Based on this qualitative analysis and conclusion, it was determined that a more robust quantitative assessment was not necessary at our measurement date.
When performing quantitative goodwill impairment assessments, management is required to estimate the fair value of the Company's equity in a change in control transaction. To complete this valuation, management is required to derive assumptions related to industry performance, reporting unit business performance, economic and market conditions and various other assumptions, many of which require significant management judgement.
For additional information see "NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES" and "NOTE 7 - GOODWILL AND CORE DEPOSIT INTANGIBLES" in the Notes to Consolidated Financial Statements.
Results of Operations
We generate most of our revenue from interest income and fees on loans, interest
and dividends on investment securities and non-interest income, such as service
charges and fees, debit card income and mortgage banking income. We incur
interest expense on deposits and other borrowed funds and non-interest expense,
such as salaries and employee benefits and occupancy expenses.
Changes in interest rates earned on interest-earning assets or incurred on
interest-bearing liabilities, as well as the volume and types of
interest-earning assets, interest-bearing and non-interest-bearing liabilities
and stockholders' equity, are usually the largest drivers of periodic change in
net interest income. Fluctuations in interest rates are driven by many factors,
including governmental
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monetary policies, inflation, deflation, macroeconomic developments, changes in
unemployment, the money supply, political and international circumstances and
domestic and foreign financial markets. Periodic changes in the volume and types
of loans in our loan portfolio are affected by, among other factors, economic
and competitive conditions in Arkansas , Kansas , Missouri and Oklahoma , as well
as developments affecting the consumer, commercial and real estate sectors
within these markets.
For information comparing our results of operations for the year ended December
31, 2020 , to year ended December 31, 2019 , see "Item 7 - Management's Discussion
and Analysis of Financial Condition and Results of Operations" in our Annual
Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on
March 9, 2021 .
Net Income
Year ended
For the year endedDecember 31, 2021 , there was net income allocable to common stockholders of$52.5 million , compared to a net loss allocable to common stockholders of$75.0 million for the year endedDecember 31, 2020 , an increase of$127.5 million . This change was primarily driven by a goodwill impairment of$104.8 million during 2020, a decrease in provision for loan losses of$32.7 million , an increase in non-interest income of$6.8 million , and a decrease in interest expense on deposits of$8.3 million , partially offset by an increase in provision for income taxes of$11.6 million . The changes in the components of net income are discussed in more detail below in the following sections of "Results of Operations."
Net Interest Income and Net Interest Margin Analysis
Net interest income is the difference between interest income on
interest-earning assets, including loans and securities, and interest expense
incurred on interest-bearing liabilities, including deposits and other borrowed
funds. To evaluate net interest income, management measures and monitors
(1) yields on loans and other interest-earning assets, (2) the costs of deposits
and other funding sources, (3) the net interest spread and (4) net interest
margin. Net interest spread is the difference between rates earned on
interest-earning assets and rates paid on interest-bearing liabilities. Net
interest margin is calculated as net interest income divided by average
interest-earning assets. Because non-interest-bearing sources of funds, such as
non-interest-bearing deposits and stockholders' equity also fund
interest-earning assets, net interest margin includes the benefit of these
non-interest-bearing sources of funds. Net interest income is affected by
changes in the amount and mix of interest-earning assets and interest-bearing
liabilities, referred to as a "volume change," and it is also affected by
changes in yields earned on interest-earning assets and rates paid on
interest-bearing deposits and other borrowed funds, referred to as a "yield/rate
change."
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The following table shows the average balance of each principal category of
assets, liabilities, and stockholders' equity and the average yields on
interest-earning assets and average rates on interest-bearing liabilities for
the years ended December 31, 2021 , 2020 and 2019. The yields and rates are
calculated by dividing income or expense by the average daily balances of the
associated assets or liabilities.
Average Balance Sheets and Net Interest Analysis
December 31, 2021 December 31, 2020 December 31, 2019
Average Interest Average Average Interest Average Average Interest Average
Outstanding Income/ Yield/ Outstanding Income/ Yield/ Outstanding Income/ Yield/ (Dollars in thousands)
Balance Expense Rate(3)(4) Balance Expense Rate(3)(4) Balance
Expense Rate(3)(4)
Interest-earning assets
Loans(1)
Commercial and industrial $ 714,561 $ 41,580 5.82 % $ 763,971 $ 35,601 4.66 % $ 567,215 $ 34,225 6.03 %
Commercial real estate 1,040,443 48,676 4.68 % 952,082 50,667 5.32 % 1,012,146 57,316 5.66 %
Real estate construction 277,307 10,256 3.70 % 238,015 10,947 4.60 % 212,658 13,776 6.48 %
Residential real estate 498,164 19,341 3.88 % 449,789 19,894 4.42 % 519,119 24,338 4.69 %
Agricultural real estate 153,607 8,122 5.29 % 133,813 8,008 5.98 % 140,365 8,496 6.05 %
Agricultural 108,276 5,361 4.95 % 88,206 4,944 5.61 % 85,747 5,584 6.51 %
Consumer 88,383 3,998 4.52 % 70,064 4,603 6.57 % 70,390 5,563 7.90 %
Total loans 2,880,741 137,334 4.77 % 2,695,940 134,664 5.00 % 2,607,640 149,298 5.73 %
Taxable securities 976,942 15,996 1.64 % 727,451 15,521 2.13 % 777,802 19,339 2.49 %
Nontaxable securities 105,522 2,843 2.69 % 122,783 3,682 3.00 % 142,816 4,180 2.93 %
Federal funds sold and other 182,443 1,195 0.65 % 112,053 1,694 1.51 % 83,887 2,682 3.20 %
Total interest-earning assets 4,145,648 157,368 3.80 % 3,658,227 155,561 4.25 % 3,612,145 175,499 4.86 %
Non-interest-earning assets
Other real estate owned, net 10,510 7,578 6,291
Premises and equipment, net 93,539 86,487 83,495
Bank-owned life insurance 103,255 75,998 74,025
Goodwill and other intangibles, net 50,831 130,329 158,410
Other non-interest-earning assets 28,017 41,089 44,704 Total assets$ 4,431,800 $ 3,999,708 $ 3,979,070 Interest-bearing liabilities Interest-bearing demand deposits$ 1,032,938 2,165 0.21 %$ 805,651 3,157 0.39 %$ 683,180 8,101 1.19 % Savings and money market 1,129,869 1,540 0.14 % 989,457 2,736 0.28 % 1,016,772 12,907 1.27 % Savings, NOW and money market 2,162,807 3,705 0.17 % 1,795,108 5,893 0.33 % 1,699,952 21,008 1.24 % Certificates of deposit 625,562 4,550 0.73 % 704,921 10,689 1.52 % 967,803 19,906 2.06 % Total interest-bearing deposits 2,788,369 8,255 0.30 % 2,500,029 16,582 0.66 % 2,667,755 40,914 1.53 % FHLB term and line of credit advances 16,797 169 1.01 % 213,155 2,292 1.08 % 277,327 6,667 2.40 % Federal Reserve Bank discount window 3 - 0.25 % 2,462 6 0.24 % - - - % Bank stock loan - - - % 12,061 415 3.44 % 12,327 654 5.31 % Subordinated borrowings 89,785 6,261 6.97 % 49,500 3,509 7.09 % 14,403 1,251 8.69 % Other borrowings 45,819 104 0.23 % 45,041 105 0.23 % 42,540 155 0.36 % Total interest-bearing liabilities 2,940,773 14,789 0.50 % 2,822,248 22,909 0.81 % 3,014,352 49,641 1.65 %
Non-interest-bearing liabilities and
stockholders' equity Non-interest-bearing checking accounts 1,021,261 678,713
478,638
Non-interest-bearing liabilities 22,971 34,139 22,635 Stockholders' equity 446,795 464,608 463,445 Total liabilities and stockholders' equity$ 4,431,800 $ 3,999,708 $ 3,979,070 Net interest income$ 142,579 $ 132,652 $ 125,858 Interest rate spread 3.30 % 3.44 % 3.21 % Net interest margin(2) 3.44 % 3.63 % 3.48 %
Total cost of deposits, including
non-interest bearing deposits$ 3,809,630 $ 8,255 0.22 %$ 3,178,742 $ 16,582 0.52 %$ 3,146,393 $ 40,914 1.30 %
Average interest-earning assets to
interest-bearing liabilities 140.97 % 129.62 % 119.83 %
(1)Average loan balances include nonaccrual loans, hedge fair value adjustments
and merger fair value adjustments.
(2)Net interest margin is calculated by dividing net interest income by average
interest-earning assets for the period.
(3)Tax exempt income is not included in the above table on a tax equivalent
basis.
(4)Actual unrounded values are used to calculate the reported yield or rate
disclosed. Accordingly, recalculations using the amounts in thousands as
disclosed in this report may not produce the same amounts.
65
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Increases and decreases in interest income and interest expense result from
changes in average balances (volume) of interest-earning assets and
interest-bearing liabilities, as well as changes in average interest
yields/rates. The following table analyzes the change in volume variances and
yield/rate variances for the year ended December 31, 2021 , as compared to the
year ended December 31, 2020 , and the year ended December 31, 2020 , as compared
to the year ended December 31, 2019 .
Analysis of Changes in Net Interest Income
2021 vs. 2020 2020 vs. 2019
Increase (Decrease) Due to: Increase (Decrease) Due to:
(Dollars in thousands) Volume(1) Yield/Rate(1) Total Volume(1) Yield/Rate(1) Total
Interest-earning assets
Loans
Commercial and industrial $ (2,421 ) $ 8,400
4,455 (6,446 ) (1,991 ) (3,300 ) (3,349 ) (6,649 )
Real estate construction 1,645 (2,336 ) (691 ) 1,504 (4,333 ) (2,829 )
Residential real estate 2,017 (2,570 ) (553 ) (3,121 ) (1,323 ) (4,444 )
Agricultural real estate 1,107 (993 ) 114 (393 ) (95 ) (488 )
Agricultural 1,038 (621 ) 417 156 (796 ) (640 )
Consumer 1,032 (1,637 ) (605 ) (26 ) (934 ) (960 )
Total loans 8,873 (6,203 ) 2,670 5,060 (19,694 ) (14,634 )
Taxable securities 4,586 (4,111 ) 475 (1,196 ) (2,622 ) (3,818 )
Nontaxable securities (487 ) (352 ) (839 ) (599 ) 101 (498 )
Federal funds sold and other 748 (1,247 ) (499 ) 716 (1,704 ) (988 )
Total interest-earning assets $ 13,720 $ (11,913 ) $ 1,079 $ (3,267 )
(1,092 ) (5,047 ) (6,139 ) (4,685 ) (4,532 ) (9,217 )
Total interest-bearing deposits (13 ) (8,314 ) (8,327 ) (3,776 ) (20,556 ) (24,332 )
FHLB term and line of credit advances (1,989 ) (134 ) (2,123 ) (1,291 ) (3,084 ) (4,375 )
Federal Reserve Bank discount window (6 ) - (6 ) 6 - 6
Bank stock loan (415 ) - (415 ) (14 ) (225 ) (239 )
Subordinated borrowings 2,810 (58 ) 2,752 2,527 (269 ) 2,258
Other borrowings 1 (2 ) (1 ) 9 (59 ) (50 )
Total interest-bearing liabilities 388 (8,508 ) (8,120 ) (2,539 ) (24,193 ) (26,732 )
Net Interest Income $ 13,332 $ (3,405 ) $ 9,927 $ 6,520 $ 274 $ 6,794
(1)The effect of changes in volume is determined by multiplying the change in
volume by the previous year's average rate. Similarly, the effect of rate
changes is calculated by multiplying the change in average rate by the prior
year's volume. The changes attributable to both volume and rate, which cannot be
segregated, have been allocated to the volume variance and the rate variance in
proportion to the relationship of the absolute dollar amount of the change in
each.
Year ended
The increase in net interest income before the provision for credit losses is primarily due to the increase in the volume of interest-earnings assets and a 31 basis point decrease in average rates of interest bearing liabilities, partially offset by a 45 basis point decrease in yields on interest-earning assets. The increase in average volume of interest-earning assets was primarily due to increases in loans. The increase in loan interest income was driven by the$184.8 million increase in average loan volume. The impact to net interest income from loan fees for the year endedDecember 31, 2021 , was$19.5 million compared to$10.4 million for the year endedDecember 31, 2020 . 66 -------------------------------------------------------------------------------- Average balances of borrowings from the FHLB decreased by$196.4 million from an average balance of$213.2 million for the year endedDecember 31, 2020 , to an average balance of$16.8 million for the year endedDecember 31, 2021 , coupled with a 7 basis point decrease in average borrowing cost resulted in a decrease in interest expense of$2.1 million . Interest expense on subordinated borrowings for the year endedDecember 31, 2021 , was$6.3 million compared to$3.5 million for the year endedDecember 31, 2020 , an increase of$2.8 million . Total cost of interest-bearing liabilities decreased 31 basis points to 0.50% for the year endedDecember 31, 2021 , from 0.81% for the year endedDecember 31, 2020 . The increase in net interest margin is largely due to the cost of interest-bearing liabilities decreasing at a faster rate than interest-earning assets. The decrease in cost of funds is primarily from the overall decrease in rates on interest-bearing liabilities, partially due to an increase in non-interest-bearing checking accounts and a decrease in the volume of borrowings.
Provision for Credit Losses
We maintain an allowance for credit losses for estimated losses in our loan portfolio. The allowance for credit losses is increased by a provision for loan losses, which is a charge to earnings, and subsequent recoveries of amounts previously charged-off, but is decreased by charge-offs when the collectability of a loan balance is unlikely. Management estimates the allowance balance required using past loan loss experience within the Company's portfolio. This historical loss calculation is then modified to reflect quantitative economic circumstances based on evidenced economic conditions and regression formulas which incorporate of lag factors in identifying a sufficiently predictive adjusted-R square as well as qualitative factors not inherently reflected in our historical loss or quantitative economic inputs. Included in our qualitative assessment is the consideration of a prospective economic conditions over the preceding 12 months, considered the Company's reasonable, supportable forecast period. As these factors change, the amount of the credit loss provision changes.
Year ended
There was an$8.5 million reversal of provision for credit losses for the period endedDecember 31, 2021 , compared to a provision of$24.3 million for the period endedDecember 31, 2020 . The release of allowance was principally due to reductions in reserves on specifically assessed assets excluding PCD loans and decreases in the calculated allowance on collectively evaluated performing loans. The decrease in impairments on specifically evaluated loans was due to resolution of a few larger relationships discussed below and general improvement in asset quality. The change in the calculated allowance on collectively evaluated loans was primarily driven by the implementation of CECL effectiveJanuary 1, 2021 resulting in the calculation of a life of loan estimate versus this historical single year approach as well as period over period growth in the portfolio partially offset by improving trends in historical loss experience and economic conditions in the markets in which the Company operates. The provision was increased significantly during the period endedDecember 31, 2020 , largely as the result of increases in qualitative loss factors brought on by the projected economic impact of COVID-19. During the period endedDecember 31, 2021 , there was a recovery of$1.9 million from a relationship previously disclosed in 2019 that also had a specific reserve of$1.9 million that was released, which resulted in a net provision reversal of$3.8 million . Another large relationship that incurred a$5.5 million provision in 2021 was moved to repossessed assets and was partially sold inJanuary 2022 . Two other separate credits resulted in a net provision increase of$1.2 million for the year endedDecember 31, 2021 . For additional detail see "Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations - Allowance for Credit Losses." Net charge-offs for the year endedDecember 31, 2021 , were$8.7 million as compared to net charge-offs of$2.8 million for the year endedDecember 31, 2020 . For the year endedDecember 31, 2021 , gross charge-offs were$11.4 million offset by gross recoveries of$2.7 million . In comparison, gross charge-offs were$3.3 million for the year endedDecember 31, 2020 , offset by gross recoveries of$544 thousand .
Non-Interest Income
The primary sources of non-interest income are service charges and fees, debit
card income, mortgage banking income, increases in the value of bank-owned life
insurance, investment referral income, the recovery of zero-basis purchased
loans, net gains on the sale of available-for-sale securities and other
securities transactions. Non-interest income does not include loan origination
or other loan fees which are recognized as an adjustment to yield using the
interest method.
67--------------------------------------------------------------------------------
The following table provides a comparison of the major components of
non-interest income for the years ended
Non-Interest Income
For the Years Ended December 31,
2021 vs. 2020 2020 vs. 2019(Dollars in thousands) 2021 2020 2019 Change
% Change %
Service charges and
fees $ 8,596 $ 6,856 $ 8,672 $ 1,740 25.4 % $ (1,816 ) (20.9 )%
Debit card income 10,236 9,136 8,230 1,100 12.0 % 906 11.0 %
Mortgage banking 3,306 3,153 2,468 153 4.9 % 685 27.8 %
Increase in value of
bank-owned life
insurance 3,506 1,941 1,998 1,565 80.6 % (57 ) (2.9 )%
Other
Investment referral
income 678 567 590 111 19.6 % (23 ) (3.9 )%
Trust income 1,140 433 243 707 163.3 % 190 78.2 %
Insurance sales
commissions 545 275 177 270 98.2 % 98 55.4 %
Recovery on zero-basis
purchased loans 85 134 143 (49 ) (36.6 )% (9 ) (6.3 )%
Income from equity
method
investments (222 ) (210 ) 26 (12 ) 5.7 % (236 ) (907.7 )%
Other non-interest
income 3,981 1,582 2,427 2,399 151.6 % (845 ) (34.8 )%
Total other 6,207 2,781 3,606 3,426 123.2 % (825 ) (22.9 )%
Subtotal 31,851 23,867 24,974 7,984
33.5 % (1,107 ) (4.4 )%
Gain on acquisition 585 2,145 - (1,560 ) (72.7 )% 2,145 (100.0 )%
Net gain (loss) from
securities
transactions 406 11 14 395 3590.9 % (3 ) (21.4 )%
Total non-interestincome$ 32,842 $ 26,023 $ 24,988 $ 6,819 26.2 %$ 1,035 4.1 %
Year ended
Non-interest income improved in 2021 by 26% driven by continued expansion of customer service charges led by deposit service fees, debit card and trust and wealth management income, as well as insurance commissions and fees, credit card fees, and loan servicing fees which are included in 'Other non-interest income' and collectively improved by$1.6 million reflecting the Company's continued emphasis on offering innovative products to our customer base. Income further improved due to increased earnings on bank owned life insurance due to an increasing asset base and the realization of benefits from utilization of the policies and improvement in the value of the Company's derivative positions. These improvement were partially offset by a decline in gain on acquisition which was driven by purchase ofAlmena in 2020. 68
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Non-Interest Expense
The following table provides a comparison of the major components of
non-interest expense for the years ended
Non-Interest Expense
For the Year Ended December 31,
2021 vs. 2020 2020 vs. 2019
(Dollars in thousands) 2021 2020 2019 Change % Change %
Salaries and employee
benefits $ 54,198 $ 54,129 $ 52,122 $ 69 0.1 % $ 2,007 3.9 %
Net occupancy and
equipment 10,137 8,784 8,674 1,353 15.4 % 110 1.3 %
Data processing 13,261 10,991 10,124 2,270 20.7 % 867 8.6 %
Professional fees 4,713 4,282 4,734 431 10.1 % (452 ) (9.5 )%
Advertising and business
development 3,370 2,498 3,075 872 34.9 % (577 ) (18.8 )%
Telecommunications 1,966 1,873 2,079 93 5.0 % (206 ) (9.9 )%
FDIC insurance 1,665 2,088 1,228 (423 ) (20.3 )% 860 70.0 %
Courier and postage 1,429 1,441 1,348 (12 ) (0.8 )% 93 6.9 %
Free nationwide ATM
expense 2,019 1,609 1,680 410 25.5 % (71 ) (4.2 )%
Amortization of core
deposit intangibles 4,174 3,850 3,168 324 8.4 % 682 21.5 %
Loan expense 934 789 875 145 18.4 % (86 ) (9.8 )%
Other real estate owned (188 ) 2,310 707 (2,498 ) (108.1 )% 1,603 226.7 %
Loss on debt
extinguishment 372 - - 372 100.0 % - - %
Other 12,226 9,216 8,906 3,010 32.7 % 310 3.5 %
Subtotal 110,276 103,860 98,720 6,416 6.2 % 5,140 5.2 %
Merger expenses 9,189 299 915 8,890 2973.2 % (616 ) (67.3 )%
Goodwill impairment - 104,831 - (104,831 ) (100.0 )% 104,831 - %
Total non-interest
expense $ 119,465 $ 208,990 $ 99,635 $ (89,525 ) (42.8 )% $ 109,355 109.8 %
Year ended
The decrease in non-interest expense was primarily due to a$104.8 million goodwill impairment charge in 2020 and gains on other real estate owned properties of$2.5 million , offset by increases in occupancy of$1.4 million , data processing of$2.3 million , and other other non-interest expense of$3.4 . These items and other changes in the various components of non-interest expense are discussed in more detail below. Salaries and employee benefits: There was a$2.5 million increase in salaries for the year endedDecember 31, 2021 , as compared to the year endedDecember 31, 2020 . This increase reflects the addition of staff related to theOctober 2021 ASBI acquisition, theDecember 2021 Security acquisition, and the full year effect of the addition of staff related to theOctober 2020 Almena acquisition. The total increase in salary expense was offset by an increase in deferred fees of$4.4 million for the period endedDecember 31, 2021 , compared to the period endedDecember 31, 2020 . Additionally, for the year endedDecember 31, 2021 , there was an increase in incentives and bonuses of$1.8 million and retirement plan expense of$127 thousand , offset by decreases in restricted stock unit expense of$365 thousand . Included in salaries and employee benefits is share-based compensation expense of$2.6 million for the year endedDecember 31, 2021 , and$3.2 million for the year endedDecember 31, 2020 . Net occupancy and equipment: Net occupancy and equipment includes expenses related to the use of premises and equipment, such as depreciation, operating lease payments, repairs and maintenance, insurance, property taxes and utilities, net of incidental rental income of excess facilities. The increase is primarily related to theOctober 2021 ASBI acquisition, theDecember 2021 Security acquisition, and the full year effect of the two additional locations related to theOctober 2020 Almena acquisition. Data processing: The increase was principally due to increased software license expenses of$1.1 million ,$717 thousand in data processing/debit card expense and online account processing expenses of$417 thousand .
Professional fees: The increase of
69
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Other real estate owned: As detailed in "NOTE 5 - OTHER REAL ESTATE OWNED" in
the Notes to Consolidated Financial Statements, other real estate owned
expenses, including provision for unrealized losses, were $1.3 million ,
partially offset by gains on sale and transfer to other real estate of $1.0
million and income from other real estate owned properties of $473 thousand , for
the year ended December 31, 2021 . For the year ended December 31, 2020 , other
real estate owned expenses including provision for unrealized losses, were $3.3
million , partially offset by gains on the sale of other real estate of $835
thousand and income from other real estate owned properties of $201 thousand .
Other: Other non-interest expenses consists of subscriptions, memberships and
dues, employee expenses, including travel, meals, entertainment and education,
supplies, printing, insurance, account related losses, correspondent bank fees,
customer program expenses, losses net of gains on the sale of fixed assets,
losses net of gains on the sale of repossessed assets other than real estate,
other operating expenses, such as settlement of claims, limited partnership tax
credits and provision for unfunded commitments.
Merger expenses: Merger expenses include legal, advisory and accounting fees
associated with services to facilitate the acquisition of other banks. Merger
expenses also include data processing conversion costs and costs associated with
the integration of personnel, processes, facilities and employee bonuses. During
2021, the company incurred merger expenses of $237 thousand related to the
Almena acquisition, $8.7 million related to the ASBI acquisition and $289
thousand related to the Security acquisition. For the year ended December 31,
2020 , merger expenses of $299 thousand are related to the Almena acquisition.
Efficiency Ratio
The efficiency ratio is a supplemental financial measure utilized in the internal evaluation of our performance and is not defined under GAAP. Our efficiency ratio is computed by dividing non-interest expense, excluding goodwill impairment, merger expenses and loss on debt extinguishment, by the sum of net interest income and non-interest income, excluding net gains on sales of and settlement of securities and gain on acquisition. Generally, an increase in the efficiency ratio indicates that more resources are being utilized to generate the same volume of income, while a decrease would indicate a more efficient allocation of resources. The ratio defined under GAAP that is most comparable to the efficiency ratio is non-interest expense to net interest income plus non-interest income which is discussed in "Results of Operations - Non-GAAP Financial Measures." The Company's non-interest expense, less goodwill impairment, to net interest income plus non-interest income increased from the period endedDecember 31, 2020 , toDecember 31, 2021 , primarily due to net interest income plus non-interest income increasing at a lower rate than non-interest expense less goodwill impairment, as discussed in "Results of Operations - Non-GAAP Financial Measures." The efficiency ratio decreased during the same time period due to non-interest expense, excluding goodwill impairment and merger expenses, increasing at a lower proportional rate than net interest income and non-interest income, excluding net gains on security transactions and gain on acquisition, as discussed in "Results of Operations - Net Interest Income and Net Interest Margin Analysis" and "Results of Operations - Non-Interest Income."
Income Taxes
The amount of income tax expense is influenced by the amount of pre-tax income, the amount of tax-exempt income, the amount of non-deductible expenses and available tax credits.
Year ended
The effective income tax rate for the year endedDecember 31, 2021 , was 18.5% as compared to theU.S. statutory rate of 21.0%. The effective income tax rate for the year endedDecember 31, 2020 , was (0.5)% as compared to theU.S. statutory rate of 21.0%. As detailed in "NOTE 15 - INCOME TAXES" in the Notes to Consolidated Financial Statements, the income tax rates differed from theU.S. statutory rates primarily due to non-taxable income, non-deductible expenses, non-deductible goodwill and tax credits. The Company made an investment in solar tax credits during the year endedDecember 31, 2021 , which materially affected the effective income tax rate for the period.
Impact of Inflation
Our consolidated financial statements and related notes included elsewhere in
this annual report have been prepared in accordance with GAAP. These require the
measurement of financial position and operating results in terms of historical
dollars, without considering changes in the relative value of money over time
due to inflation or recession.
Unlike many industrial companies, substantially all our assets and liabilities
are monetary in nature. As a result, interest rates have a more significant
impact on our performance than the effects of general levels of
inflation. Interest rates may not necessarily move in the same direction or in
the same magnitude as the prices of goods and services. However, other operating
expenses do reflect general levels of inflation.
70
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Financial ConditionOverview
Our total assets increased$1.12 billion , or 28.0%, from$4.01 billion atDecember 31, 2020 , to$5.14 billion atDecember 31, 2021 . The increase in total assets was primarily from increases in securities of$455.6 million , loans of$549.3 million and other assets of$67.4 million . Our total liabilities increased$1.03 billion , or 28.6%, from$3.61 billion atDecember 31, 2020 , to$4.64 billion atDecember 31, 2021 . The increase in total liabilities was from increases in total deposits of$972.4 million , other liabilities of$28.3 million and subordinated debt of$8.2 million , somewhat offset by decreases in FHLB advances of$10.1 million . Our total stockholders' equity increased$93.0 million , or 22.8%, from$407.6 million atDecember 31, 2020 , to$500.6 million atDecember 31, 2021 . Loan Portfolio Loans are the largest category of earning assets and typically provide higher yields than other types of earning assets. Excluding the acquired loan balances at year end, gross loans held for investment increased by$165.5 million , or 6.4%, compared withDecember 31, 2020 . Growth consisted of$133.3 million , or 11.2%, from commercial real estate,$10.4 million , or 11.0%, from agricultural,$219.9 million , or 57.6%, from residential real estate,$25.8 million , or 44.0%, from consumer, and$3.1 million , or 2.3%, from agricultural real estate, offset by a decrease of$227.0 million , or 30.9%, from commercial and industrial. We also had a decrease in loans classified as held for sale of$8.2 million , or 66.0%, fromDecember 31, 2020 . Our loan portfolio consists of various types of loans, most of which are made to borrowers located in theWichita, Kansas City and Tulsa MSAs, as well as various community markets throughoutArkansas ,Kansas ,Missouri andOklahoma . Although the portfolio is diversified and generally secured by various types of collateral, the majority of our loan portfolio consists of commercial and industrial and commercial real estate loans and a substantial portion of our borrowers' ability to honor their obligations is dependent on local economic conditions inArkansas ,Kansas ,Missouri andOklahoma . As ofDecember 31, 2021 , the only industry with a concentration of loans in excess of 10% of total loans was the hospitality industry, comprising 11.5% of total loans excluding SBA PPP.
At
The organic, or non-acquired, growth in our loan portfolio is attributable to our ability to attract new customers from other financial institutions and overall growth in our markets. Our lending staff has been successful in building banking relationships with new customers. Several new lenders have been hired in our markets and these employees have been successful in transitioning their former clients and attracting new clients. Lending activities originate from the efforts of our lenders with an emphasis on lending to individuals, professionals, small to medium-sized businesses and commercial companies located in theWichita, Kansas City and Tulsa MSAs, as well as community markets inArkansas ,Kansas ,Missouri andOklahoma . The following table summarizes our loan portfolio by type of loan as of the dates indicated. Composition of Loan Portfolio December 31, 2021 2020 2019 Amount Percent Amount Percent Amount Percent (Dollars in thousands) Commercial and industrial$ 567,497 18.0 %$ 734,495 28.3 %$ 592,052 23.2 % Real estate loans: Commercial real estate 1,486,148 47.1 % 1,188,696 45.9 % 1,158,022 45.3 % Residential real estate 638,087 20.2 % 381,958 14.7 % 503,439 19.7 % Agricultural real estate 198,330 6.3 % 133,693 5.2 % 141,868 5.5 % Total real estate loans 2,322,565 73.6 % 1,704,347 65.8 % 1,803,329 70.5 % Agricultural 166,975 5.3 % 94,322 3.6 % 92,893 3.6 % Consumer 98,590 3.1 % 58,532 2.3 % 68,378 2.7 % Total loans held for investment$ 3,155,627 94.7 %$ 2,591,696 96.4 %$ 2,556,652 96.4 % Total loans held for sale$ 4,214 100.0 %$ 12,394 100.0 %$ 5,933 100.0 % Total loans held for investment (net of allowances)$ 3,107,262 100.0 %$ 2,557,987 100.0 %$ 2,544,420 100.0 % 71
-------------------------------------------------------------------------------- Commercial and industrial: Commercial and industrial loans include loans used to purchase fixed assets, to provide working capital or meet other financing needs of the business. Commercial real estate: Commercial real estate loans include all loans secured by nonfarm nonresidential properties and multifamily residential properties, as well as 1-4 family investment-purpose real estate loans. Of the$297.5 million in growth during 2021,$164.1 million , or 55.2%, was a result of loans acquired through acquisitions. Residential real estate: Residential real estate loans include loans secured by primary or secondary personal residences. Acquisitions added$36.3 million in residential real estate loans during the year endedDecember 31, 2021 . During 2021, we purchased six pools of residential real estate mortgage loans totaling$363.9 million . Pools of mortgages are occasionally purchased to expand our loan portfolio and provide additional loan income. Agricultural real estate, Agricultural, Consumer and other: Agricultural real estate loans are loans related to farmland. Agricultural loans are primarily operating lines subject to annual farming revenues including productivity/yield of the agricultural commodities produced. Consumer loans are generally secured by consumer assets but may be unsecured. The ASBI and Security acquisitions added$62.2 million in agricultural,$61.5 million in agricultural real estate, and$14.3 million in consumer loans during the year endedDecember 31, 2021 . These three loan types represent 14.7% of our overall loan portfolio. The contractual maturity ranges of loans in our loan portfolio and the amount of such loans with predetermined interest rates and floating rates in each maturity range as ofDecember 31, 2021 , andDecember 31, 2020 , are summarized in the following tables. Loan Maturity and Sensitivity to Changes in Interest Rates
As of December 31, 2021
After one year After five After
One year through five years through fifteen
or less years fifteen years years Total
(Dollars in thousands)
Commercial and industrial $ 172,409 $ 300,312 $ 88,124 $ 6,652 $ 567,497
Real Estate:
Commercial real estate 247,339 834,277 355,479 49,053 1,486,148
Residential real estate 6,594 14,066 136,994 480,433 638,087
Agricultural real estate 53,703 83,861 47,176 13,590 198,330
Total real estate 307,636 932,204 539,649 543,076 2,322,565
Agricultural 113,138 41,003 6,809 6,025 166,975
Consumer 36,714 40,361 18,352 3,163 98,590
Total $ 629,897 $ 1,313,880 $ 652,934 $ 558,916 $ 3,155,627
Loans with a predetermined fixed
interest rate $ 258,334 $ 875,796 $ 235,609 $ 334,122 $ 1,703,861
Loans with an adjustable/floating
interest rate 371,563 438,084 417,325 224,794 1,451,766
Total $ 629,897 $ 1,313,880 $ 652,934 $ 558,916 $ 3,155,627
72--------------------------------------------------------------------------------
As of December 31, 2020
After one year After five After
One year through five years through fifteen
or less years fifteen years years Total
(Dollars in thousands)
Commercial and industrial $ 157,313 $ 487,729 $ 87,979 $ 1,474 $ 734,495
Real Estate:
Commercial real estate 220,286 645,661 288,248 34,501 1,188,696
Residential real estate 5,048 9,848 85,123 281,939 381,958
Agricultural real estate 50,527 56,514 19,381 7,271 133,693
Total real estate 275,861 712,023 392,752 323,711 1,704,347
Agricultural 62,804 25,911 2,914 2,693 94,322
Consumer 13,804 37,599 5,616 1,513 58,532
Total $ 509,782 $ 1,263,262 $ 489,261 $ 329,391 $ 2,591,696
Loans with a predetermined fixed
interest rate $ 261,736 $ 896,899 $ 193,889 $ 97,760 $ 1,450,284
Loans with an adjustable/floating
interest rate 248,046 366,363 295,372 231,631 1,141,412
Total $ 509,782 $ 1,263,262 $ 489,261 $ 329,391 $ 2,591,696
Nonperforming Assets
The following table presents information regarding nonperforming assets at the
dates indicated.
Nonperforming Assets
As of December 31,
2021 2020 2019
(Dollars in
thousands)
Nonaccrual loans $ 29,361 $ 43,689 $ 38,379
Accruing loans 90 or more days past due 256 143 -
Restructured loans-accruing - - -
OREO acquired through foreclosure, net 7,582 10,698 8,293
Other repossessed assets 28,799 67 236
Total nonperforming assets $ 65,998 $ 54,597 $ 46,908
Ratios:
Nonperforming assets to total assets 1.28 % 1.36 % 1.19 %
Nonperforming assets to total loans plus OREO 2.09 % 2.10 % 1.83 %
Nonperforming assets ("NPAs") include loans on nonaccrual status, accruing loans
90 or more days past due, restructured loans, other real estate acquired through
foreclosure and other repossessed assets.
The nonperforming loans at December 31, 2021 , consisted of 176 separate credits
and 137 separate borrowers. We had nine nonperforming loan relationships each
with outstanding balances exceeding $1.0 million as of December 31, 2021 . Of the
increase in nonperforming assets, $2.5 million was a result of the ASBI
acquisition. There are several procedures in place to assist us in maintaining
the overall quality of our loan portfolio. We have established underwriting
guidelines to be followed by lenders and we also monitor delinquency levels for
any negative or adverse trends. There can be no assurance, however, that our
loan portfolio will not become subject to increasing pressures from
deteriorating borrower credit due to general economic conditions.
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Regulatory Loan Classification
We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. Loans are analyzed individually and classified based on credit risk. Consumer loans are considered pass credits unless downgraded due to payment status or reviewed as part of a larger credit relationship. We use the following definitions for risk ratings:
Pass: Loans classified as pass include all loans that do not fall under one of the three following categories. These loans are considered unclassified.
Special Mention: Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of our credit position at some future date. These loans are considered classified. Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. These loans are considered classified. Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, based on currently existing facts, conditions and values, highly questionable and improbable. These loans are considered classified. Potential problem loans consist of loans that are performing in accordance with contractual terms, but for which management has concerns about the borrower's ability to comply with repayment terms because of the borrower's potential financial difficulties. Potential problem loans are assigned a grade of special mention or substandard. AtDecember 31, 2021 , the Company had$72.5 million in potential problem loans which were not included in either non-accrual or 90 days past due categories, compared to$52.3 million atDecember 31, 2020 . For additional information about the risk category by class of loans see "NOTE 4 - LOANS AND ALLOWANCE FOR CREDIT LOSSES" in the Notes to Consolidated Financial Statements. AtDecember 31, 2021 , loans considered unclassified increased to 96.8% of total loans from 96.3% of total loans atDecember 31, 2020 . Risk Category of Loans by Class As of December 31, 2021 Unclassified Classified Total (Dollars in thousands) Commercial and industrial$ 530,783 $ 36,714 $ 567,497 Real estate: Commercial real estate 1,454,547 31,601 1,486,148 Residential real estate 632,974 5,113 638,087 Agricultural real estate 184,428 13,902 198,330 Total real estate 2,271,949 50,616 2,322,565 Agricultural 152,498 14,477 166,975 Consumer 98,267 323 98,590 Total$ 3,053,497 $ 102,130 $ 3,155,627 As of December 31, 2020 Unclassified Classified Total (Dollars in thousands) Commercial and industrial$ 674,392 $ 60,103 $ 734,495 Real estate: Commercial real estate 1,171,961 16,735 1,188,696 Residential real estate 378,868 3,090 381,958 Agricultural real estate 125,425 8,268 133,693 Total real estate 1,676,254 28,093 1,704,347 Agricultural 86,629 7,693 94,322 Consumer 58,253 279 58,532 Total$ 2,495,528 $ 96,168 $ 2,591,696 74
-------------------------------------------------------------------------------- AtDecember 31, 2021 , the Company had$36.3 million , or 1.2%, of total loans excluding PPP loans participating in the payment deferral program. For additional information see "NOTE 4 - LOANS AND ALLOWANCE FOR CREDIT LOSSES" in the Notes to Consolidated Financial Statements. In accordance with applicable regulation, appraisals or evaluations are required to independently value real estate and, as an important element, to consider when underwriting loans secured in part or in whole by real estate. The value of real estate collateral provides additional support to the borrower's credit capacity. With respect to potential problem loans, all monitored and under-performing loans are reviewed and evaluated to determine if they are impaired. If we determine that a loan is impaired, then we evaluate the borrower's overall financial condition to determine the need, if any, for possible write downs or appropriate additions to the allowance for credit losses based on the unlikelihood of full repayment of principal and interest in accordance with the contractual terms or the net realizable value of the pledged collateral.
Allowance for credit losses
Please see "Critical Accounting Policies - Allowance for Credit Losses" for additional discussion of our allowance policy.
In connection with our review of the loan portfolio, risk elements attributable to particular loan types or categories are considered when assessing the quality of individual loans. For additional information see "NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES" in the Notes to Consolidated Financial Statements. Purchased credit deteriorated loans: Please see "Critical Accounting Policies - Allowance for Credit Losses" for additional discussion of our purchased credit deteriorated loans policy. In accordance with ASC 326, the credit impairment mark on acquired loans was reclassified from loans to the allowance for credit losses, effectiveJanuary 1, 2021 . After adoption of the standard, the allowance for credit losses is increased by the reserve calculated on newly acquired purchased credit deteriorated assets at the date of acquisition. Subsequent changes to the allowance on these loans are recorded through the provision for loan losses. For additional information about our purchased credit deteriorated loans see "NOTE 4 - LOANS AND ALLOWANCE FOR CREDIT LOSSES" in the Notes to Consolidated Financial Statements. Analysis of allowance for credit losses: AtDecember 31, 2021 , the allowance for credit losses totaled$48.4 million , or 1.53% of total loans. AtDecember 31, 2020 , the allowance for loan losses totaled$33.7 million , or 1.30% of total loans. The Company adopted CECL effectiveJanuary 1, 2021 . The adoption resulted in increases in the allowance for credit losses ("ACL") on loans held for investment of$15,732 , an ACL for unfunded commitments of$838 , a deferred tax asset of$4,167 , a reclassification of purchased-impaired discounts from loans to ACL of$10,438 and a decrease in retained earnings of$12,403 . For additional information about the adoption of CECL see "NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES" in the Notes to Consolidated Financial Statements. The allowance for credit losses on loans collectively evaluated totaled$34.3 million , or 1.14%, of the$3.1 billion in loans collectively evaluated atDecember 31, 2021 , compared to an allowance for loan losses of$23.2 million , or 0.92%, of the$2.54 billion in loans collectively evaluated atDecember 31, 2020 , and an allowance for loan losses of$11.0 million , or 0.44%, of the$2.50 billion in loans collectively evaluated atDecember 31, 2019 . The increase in allowance as a percentage of total loans and of loans collectively evaluated fromDecember 31, 2020 , toDecember 31, 2021 , was driven by the CECL which introduced a life of loan concept to the calculation and resulted in a significant increase in reserves as previously indicated. Following adoption, the level of reserve has declined due primarily to improving economic circumstances in the markets in which the Company operates as we continue to move away from the peak of the pandemic partially offset by increasing estimated exposure at default, loss experience within our historical loss calculation and extension of expected life of the underlying portfolio.
Net losses as a percentage of average loans was 0.30% for the twelve months
ended
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The following table presents, as of and for the periods indicated, an analysis of the allowance for credit losses and other related data.
Allowance for Credit Losses
(Dollars in thousands)
Commercial Commercial and Residential Agricultural
December 31, 2021 Real Estate Industrial
Real Estate Real Estate Agricultural Consumer Total
Allowance for credit losses
5,560 $ 2,235
1,486,148 567,497 638,087 198,330 166,975 98,590 3,155,627
Net charge-offs (129 ) 7,870 (52 ) 473 (21 ) 504 8,645
Average loan balance 1,317,750 714,561 491,747 153,607 108,276 88,383 2,874,324
Non-accrual loan balance 6,833 6,557 5,075 4,398 6,175 323 29,361
Loans to total loans outstanding 47.1 % 18.0 % 20.2 % 6.3 % 5.3 % 3.1 % 100.0 %
ACL to total loans 1.5 % 2.2 % 0.9 % 1.1 % 2.2 % 2.1 % 1.5 %
Net charge-offs to average loans - % 1.1 % - % 0.3 % - % 0.6 % 0.3 %
Non-accrual loans to total loans 0.5 % 1.2 % 0.8 % 2.2 % 3.7 % 0.3 % 0.9 %
ACL to non-accrual loans 329.0 % 186.8 % 109.6 % 50.8 % 60.8 % 646.4 % 164.7 %
Commercial Commercial and Residential Agricultural
December 31, 2020 Real Estate Industrial Real Estate Real Estate Agricultural Consumer Total
Allowance for loan losses $ 9,012 $ 12,456 $ 4,559 $ 904 $ 758 $ 6,020 $ 33,709
Total loans outstanding 1,188,696 734,495 381,958 133,693 94,322 58,532 2,591,696 Net charge-offs 219 1,248 401 173 3 734 2,778 Average loan balance 1,190,097 763,971 443,312 133,813 88,206 70,064 2,689,463 Non-accrual loan balance 7,582 23,457 2,955 4,111 5,312 272
43,689
Loans to total loans outstanding 45.9 % 28.3 % 14.7 % 5.2 % 3.6 % 2.3 % 100.0 %
ACL to total loans 0.8 % 1.7 % 1.2 % 0.7 % 0.8 % 10.3 % 1.3 %
Net charge-offs to average loans - % 0.2 % 0.1 % 0.1 % - % 1.0 % 0.1 %
Non-accrual loans to total loans 0.6 % 3.2 % 0.8 % 3.1 % 5.6 % 0.5 % 1.7 %
ACL to non-accrual loans 118.9 % 53.1 % 154.3 % 22.0 % 14.3 % 2213.2 % 77.2 %
Commercial Commercial and Residential Agricultural
December 31, 2019 Real Estate Industrial Real Estate Real Estate Agricultural Consumer Total
Allowance for loan losses $ 3,919 $ 3,061 $ 2,676 $ 608 $ 546 $ 1,422 $ 12,232
Total loans outstanding 1,158,022 592,052 503,439 141,868 92,893 68,378 2,556,652 Net charge-offs 2,053 13,839 585 (4 ) 1,035 68 17,576 Average loan balance 1,224,804 567,215 513,529 140,365 85,747 70,390 2,602,050 Non-accrual loan balance 6,913 16,906 8,013 4,807 1,359 381
38,379
Loans to total loans outstanding 45.3 % 23.2 % 19.7 % 5.5 % 3.6 % 2.7 % 100.0 %
ACL to total loans 0.3 % 0.5 % 0.5 % 0.4 % 0.6 % 2.1 % 0.5 %
Net charge-offs to average loans 0.2 % 2.4 % 0.1 % - % 1.2 % 0.1 % 0.7 %
Non-accrual loans to total loans 0.6 % 2.9 % 1.6 % 3.4 % 1.5 % 0.6 % 1.5 %
ACL to non-accrual loans 56.7 % 18.1 % 33.4 % 12.6 % 40.2 % 373.2 % 31.9 %
(1) Excluding loans held for sale.
76
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Management believes that the allowance for credit losses at December 31,
2021 , is adequate to cover current expected losses in the loan portfolio as of
such date. There can be no assurance, however, that we will not sustain losses
in future periods that could be substantial in relation to the size of the
allowance at December 31, 2021 .
Securities
We use our securities portfolio to provide a source of liquidity, to provide an appropriate return on funds invested, to manage interest rate risk, to meet pledging requirements and to meet regulatory capital requirements. AtDecember 31, 2021 , securities represented 25.8% of total assets compared with 21.7% atDecember 31, 2020 . At the date of purchase, debt securities are classified into one of two categories, held-to-maturity or available-for-sale. We do not purchase securities for trading purposes. At each reporting date, the appropriateness of the classification is reassessed. Investments in debt securities are classified as held-to-maturity and carried at cost, adjusted for the amortization of premiums and the accretion of discounts, in the financial statements only if management has the positive intent and ability to hold those securities to maturity. Debt securities not classified as held-to-maturity are classified as available-for-sale and measured at fair value in the financial statements with unrealized gains and losses reported, net of tax, as accumulated comprehensive income or loss until realized. Interest earned on securities is included in total interest and dividend income. Also included in total interest and dividend income are dividends received on stock investments in theFederal Reserve Bank of Kansas City and the FHLB ofTopeka . These stock investments are stated at cost.
The following table summarizes the amortized cost and fair value by classification of available-for-sale securities as of the dates shown.
Available-For-Sale Securities
December 31,
2021 2020
Amortized Fair Amortized Fair
Cost Value Cost Value
(Dollars in thousands)
157,289 155,602 4,024 4,025
Mortgage-backed securities
Government-sponsored residential
mortgage-backed securities 661,584 664,887 630,485 651,425
Private label residential mortgage-backed
securities 173,717 171,688 44,302 44,178
Corporate 52,555 53,777 52,503 53,650
Small Business Administration loan pools 16,568 16,475 1,226 1,270
State and local subdivisions 138,404 141,606
111,865 116,256
Total available-for-sale securities
77
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The following tables summarize the contractual maturity of debt securities and
their weighted average yields as of December 31, 2021 , and December 31,
2020 . Expected maturities will differ from contractual maturities because
issuers may have the right to call or prepay obligations with or without call or
prepayment penalties. Securities not due at a single maturity date, primarily
mortgage-backed securities, are shown separately. Available-for-sale securities
are shown at fair value and held-to-maturity securities are shown at cost,
adjusted for the amortization of premiums and the accretion of discounts.
December 31, 2021
Due after one Due after five
Due in one year year through years through
or less five years ten years Due after 10 years Total
Carrying Carrying Carrying Carrying Carrying
Value Yield Value Yield Value Yield Value Yield Value Yield
(Dollars in thousands)
Available-for-sale securities:
U.S. Government-sponsored entities $ 1,001 2.78 % $ 29,524 0.50 % $ 84,810 1.37 % $ 8,072 1.89 % $ 123,407 1.21 %
U.S. Treasury securities - - % 48,008 1.14 % 107,594 1.10 % - - % $ 155,602 1.11 %
Mortgage-backed securities
Government-sponsored residential
mortgage-backed securities - - %
69,734 1.35 % 211,965 1.65 % 383,188 2.05 %
mortgage-backed securities - - % - - % - - % 171,688 1.62 %$ 171,688 1.62 % Corporate - - % - - % 53,777 4.18 % - - %$ 53,777 4.18 % Small Business Administration loan pools - - %
- - % 9,669 0.93 % 6,806 1.76 %
7,259 2.60 %
21,038 2.43 % 44,640 2.26 % 68,669 2.36 %
8,260 2.62 % 168,304 1.28 % 512,455 1.79 % 638,423 1.96 %
1,327,442 1.81 % Total debt securities$ 8,260 2.62 % $
168,304 1.28 %
(1) The calculated yield is not calculated on a tax equivalent basis.
December 31, 2020
Due after one Due after five
Due in one year year through years through
or less five years ten years Due after ten years Total
Carrying Carrying Carrying Carrying Carrying
Value Yield Value Yield Value Yield Value Yield Value Yield
(Dollars in thousands)
Available-for-sale securities:
U.S. government-sponsored entities $ - - % $ 1,023 2.78 % $ - - % $ - - % $ 1,023 2.78 %
U.S. treasury securities 4,025 0.14 % - - % - - % - - % $ 4,025 0.14 %
Mortgage-backed securities
Government-sponsored residential
mortgage-backed securities 5 5.77 % 2,093
3.26 % 101,352 2.12 % 547,975 2.10 %
2.10 % Private label residential mortgage-backed securities - - % - - % - - % 44,178 0.23 %$ 44,178 0.23 % Corporate 5,050 2.17 % - - % 48,600 4.25 % - - %$ 53,650 4.05 %Small Business Administration loan pools - - % - - % - - % 1,270 2.38 %$ 1,270 2.38 % State and political subdivisions(1) 3,765 2.41 % 26,679 2.45 % 24,212 2.93 % 61,600 3.17 %$ 116,256 2.93 % Total available-for-sale securities 12,845 1.61 % 29,795 2.52 % 174,164 2.83 % 655,023 2.07 % 871,827 2.23 % Total debt securities$ 12,845 1.61 %$ 29,795 2.52 %$ 174,164 2.83 %$ 655,023 2.07 %$ 871,827 2.23 %
(1) The calculated yield is not calculated on a tax equivalent basis.
Mortgage-backed securities are securities that have been developed by pooling a number of real estate mortgages and which are principally issued by federal agencies such asGinnie Mae , Fannie Mae, Freddie Mac and non-agency private label providers. UnlikeU.S. Treasury andU.S. Government agency securities, which have a lump sum payment at maturity, mortgage-backed securities provide cash flows from regular principal and interest payments and principal prepayments throughout the lives of the securities. Premiums and discounts on mortgage-backed securities are amortized and accreted over the expected life of the security and may be impacted by prepayments. As such, mortgage-backed securities purchased at a premium will generally produce decreasing net yields as interest rates drop because homeowners tend to refinance their mortgages resulting in prepayments and an acceleration of premium amortization. Securities purchased at a discount will reflect higher net yields in a decreasing interest rate environment as prepayments result in an acceleration of discount accretion. 78 -------------------------------------------------------------------------------- The contractual maturity of mortgage-backed securities is not a reliable indicator of their expected lives because borrowers have the right to prepay their obligations at any time. Monthly pay downs on mortgage-backed securities cause the average lives of these securities to be much different than their stated lives. AtDecember 31, 2021 , andDecember 31, 2020 , 66.3% and 85.1% of the mortgage-backed securities held by us had contractual final maturities of more than ten years with a weighted average life of 4.4 years and 2.5 years and a modified duration of 4.1 years and 2.4 years.
Deposits
Our lending and investing activities are primarily funded by deposits. A variety of deposit accounts are offered with a wide range of interest rates and terms including demand, savings, money market and time deposits. We rely primarily on competitive pricing policies, convenient locations, comprehensive marketing strategy and personalized service to attract and retain these deposits. The following table shows our composition of deposits atDecember 31, 2021 , 2020 and 2019. Composition of Deposits December 31, 2021 2020 2019 2021 vs. 2020 2020 vs. 2019 Percent of Percent of Percent of Amount Total Amount Total Amount Total Change % Change % (Dollars in thousands) Non-interest-bearing demand$ 1,244,117 28.1 %$ 791,639 22.9 %$ 481,298 15.7 %$ 452,478 57.2 %$ 310,341 64.5 % Interest-bearing demand and NOW accounts 1,202,408 27.2 % 1,016,424 29.5 % 703,048 23.0 % 185,984 18.3 % 313,376 44.6 % Savings and money market 1,319,881 29.9 % 1,012,673 29.4 % 1,046,000 34.1 % 307,208 30.3 % (33,327 ) (3.2 )% Time 653,598 14.8 % 626,854 18.2 % 833,170 27.2 % 26,744 4.3 % (206,316 ) (24.8 )% Total deposits$ 4,420,004 100.0 %$ 3,447,590 100.0 %$ 3,063,516 100.0 %$ 972,414 28.2 %$ 384,074 12.5 % The following tables show deposits assumed in 2021 acquisitions, as of the time of such acquisitions. ASBI Acquisition Percent of Amount Total (Dollars in thousands) Non-interest-bearing demand$ 254,944 38.1 % Interest-bearing demand and NOW accounts 95,023 14.2 % Savings and money market 221,187 33.1 % Time 97,695 14.6 % Total deposits$ 668,849 100.0 % Security Acquisition Percent of Amount Total (Dollars in thousands) Non-interest-bearing demand$ 19,724 26.3 % Interest-bearing demand and NOW accounts 13,713 18.3 % Savings and money market 26,132 34.8 % Time 15,509 20.6 % Total deposits$ 75,078 100.0 % 79
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The following table shows deposits assumed in 2020 acquisitions, as of the time
of such acquisitions.
Almena Acquisition
Percent of
Amount Total
(Dollars in thousands)
Non-interest-bearing demand $ 11,737 18.8 %
Interest-bearing demand and NOW accounts 6,238 10.0 %
Savings and money market 5,835 9.3 %
Time 38,662 61.9 %
Total deposits $ 62,472 100.0 %
The following table shows the average deposit balance and average rate paid on
deposits for the year ended
Average Deposit Balances and Average Rate Paid
December 31,
2021 2020 2019
Average Average Average
Average Rate Average Rate Average Rate
Balance Paid Balance Paid Balance Paid
(Dollars in thousands)
Non-interest-bearing demand $ 1,021,261 - % $ 678,713 - % $ 478,638 - %
Interest-bearing demand and NOW
accounts 1,032,938 0.21 % 805,651 0.39 % 683,180 1.19 %
Savings and money market 1,129,869 0.14 % 989,457 0.28 % 1,016,772 1.27 %
Time 625,562 0.73 % 704,921 1.52 % 967,803 2.06 %
Total deposits $ 3,809,630 $ 3,178,742 $ 3,146,393
Included in interest-bearing demand deposits are Insured Cash Sweep ("ICS")
reciprocal demand deposit balances of $308.4 million at December 31, 2021 ,
$256.0 million at December 31, 2020 , and $43.8 million at December 31,
2019 . Also included in savings and money market deposits at December 31, 2021 ,
2020, and 2019, are ICS reciprocal money-market deposit balances of $52.2
million , $23.7 million , and $20.0 million . These balances represent customer
funds placed in ICS that allow Equity Bank to break large demand and
money-market deposits into smaller amounts and place them in a network of other
ICS banks to ensure FDIC insurance coverage on the entire deposit. These
deposits are placed in ICS, but are Equity Bank's customer relationships that
management views as core funding.
Included in time deposits are Certificate of Deposit Account Registry Service
("CDARS") program balances of $3.0 million , $14.9 million , and $9.5 million at
December 31, 2021 , 2020, and 2019. CDARS allows Equity Bank to break large
deposits into smaller amounts and place them in a network of other CDARS banks
to ensure FDIC insurance coverage on the entire deposit. Reciprocal deposits are
not considered brokered deposits as long as the aggregate balance is less than
the lessor of 20% of total liabilities or $5.0 billion and Equity Bank is well
capitalized and well rated. All non-reciprocal deposits and reciprocal deposits
in excess of regulatory limits are considered brokered deposits.
The following table provides information on the maturity distribution of time
deposits of $250,000 or more as of December 31, 2021 , and December 31, 2020 .
December 31,
2021 2020
(Dollars in thousands)
3 months or less $ 88,969 $ 49,240
Over 3 through 6 months 115,063 35,646
Over 6 through 12 months 14,047 41,603
Over 12 months 15,381 44,067
Total Time Deposits $ 233,460 $ 170,556
Other Borrowed Funds
We utilize borrowings to supplement deposits to fund our lending and investing
activities. Short-term borrowing and long-term borrowing consist of funds from
the FHLB, federal funds purchased and retail repurchase agreements, a bank stock
loan and
80--------------------------------------------------------------------------------
subordinated debt. The Company continually has short-term borrowings which are disclosed in "NOTE 11 - BORROWINGS" and "NOTE 12 - SUBORDINATED DEBT."
Federal funds purchased and retail repurchase agreements: We have available federal funds lines of credit with our correspondent banks. Retail repurchase agreements outstanding represent the purchase of interests in securities by banking customers. Retail repurchase agreements are stated at the amount of cash received in connection with the transaction. We do not account for any of our retail repurchase agreements as sales for accounting purposes in our financial statements. Retail repurchase agreements with banking customers are settled on the following business day. See "NOTE 11 - BORROWINGS" in the Notes to Consolidated Financial Statements for additional information. FHLB advances: FHLB advances include both draws against our line of credit and fixed rate term advances. Each term advance is payable in full at its maturity date and contains provision for prepayment penalties. The Company acquired$14.4 million in FHLB term advances in theOctober 2021 ASBI merger, all of which have subsequently been repaid. Our FHLB borrowings are used for operational liquidity needs for originating and purchasing loans, purchasing investments and general operating cash requirements. See "NOTE 11 - BORROWINGS" in the Notes to Consolidated Financial Statements for additional information. Bank stock loan: The Company maintains a borrowing facility through an unaffiliated financial institution. The terms of the loan require us andEquity Bank to maintain minimum capital ratios and other covenants. The loan and accrued interest may be pre-paid at any time without penalty. In the event of default, the lender has the option to declare all outstanding balances as immediately due. For detailed information, see "NOTE 11 - BORROWINGS" in the Notes to Consolidated Financial Statements. Subordinated debentures: In conjunction with the 2012 acquisition of First Community, we assumed certain subordinated debentures owed to special purpose unconsolidated subsidiaries that are controlled by us,FCB Capital Trust II and FCB Capital Trust III, ("CTII" and "CTIII," respectively). In conjunction with the 2016 acquisition ofCommunity First Bancshares, Inc. , we assumed certain subordinated debentures owed to a special purpose unconsolidated subsidiary that is controlled by us, Community First (AR) Statutory Trust I, ("CFSTI"). In conjunction with the 2021 acquisition of ASBI, we assumed certain subordinated debentures owed to a special purpose unconsolidated subsidiary that is controlled by us, American State Bank Statutory Trust I, ("ASBSTI"). For additional information, see "NOTE 12 - SUBORDINATED DEBT" in the Notes to Consolidated Financial Statements. Subordinated notes: In 2020, the Company entered into Subordinated Note Purchase Agreements with certain qualified institutional buyers and institutional accredited investors pursuant to which the Company issued and sold a total of$75.0 million in aggregate principal amounts of its 7.00% Fixed-to-Floating Rate Subordinated Notes due in 2030. For additional information, see "NOTE 12 - SUBORDINATED DEBT" in the Notes to Consolidated Financial Statements. Liquidity and Capital Resources
Liquidity
Market and public confidence in our financial strength and financial institutions, in general, will largely determine access to appropriate levels of liquidity. This confidence is significantly dependent on our ability to maintain sound asset quality and appropriate levels of capital reserves. Liquidity is defined as the ability to meet anticipated customer demands for future funds under credit commitments and deposit withdrawals at a reasonable cost and on a timely basis. We measure our liquidity position by giving consideration to both on- and off-balance sheet sources of and demands for funds on a daily, weekly and monthly basis. Liquidity risk involves the risk of being unable to fund assets with the appropriate duration and rate-based liabilities, as well as the risk of not being able to meet unexpected cash needs. Liquidity planning and management are necessary to ensure the ability to fund operations in a cost-effective manner and to meet current and future potential obligations such as loan commitments, lease obligations and unexpected deposit outflows. In this process, we focus on both assets and liabilities and on the manner in which they combine to provide adequate liquidity to meet our needs. During the years endedDecember 31, 2021 , 2020 and 2019, our liquidity needs have primarily been met by core deposits, security and loan maturities and amortizing investment and loan portfolios. Other funding sources include federal funds purchased, retail repurchase agreements, brokered certificates of deposit, subordinated notes and borrowings from the FHLB. 81 -------------------------------------------------------------------------------- Our largest sources of funds are deposits, fed funds sold, retail repurchase agreements, and subordinated debt, and our largest uses of funds are the origination or purchases of loans and securities purchases. Average loans were$2.88 billion for the year endedDecember 31, 2021 , an increase of 6.9% over average loans of$2.70 billion for the year endedDecember 31, 2020 . Excess deposits are primarily invested in our interest-bearing deposit account with theKansas City Federal Reserve Bank , investment securities, federal funds sold or other short-term liquid investments until the funds are needed to fund loan growth. Our securities portfolio has a weighted average life of 4.8 years and a modified duration of 4.5 years atDecember 31, 2021 . We believe that our daily funding needs can be met through cash provided by operating activities, payments and maturities on loans and investment securities, our core deposit base, FHLB advances and other borrowing relationships. OnMarch 13, 2017 , the Company entered into an agreement with an unaffiliated financial institution that provided for a maximum borrowing facility of$30.0 million , which was subsequently amended onMarch 11, 2019 , to increase the maximum borrowing facility to$40.0 million . This agreement was renewed and amended onFebruary 11, 2022 , to decrease the maximum borrowing amount from$40.0 million to$25.0 million . This agreement, which is secured byEquity Bank stock, can be used to fund future acquisitions and for general corporate purposes. There was no outstanding balance on this borrowing facility for the period endingDecember 31, 2021 . Cash Flow Overview During 2021, operating and financing activities provided$102.7 million and$191.9 million of liquidity, respectively, which was partially offset by investing activities use of$315.3 million of cash assets, ultimately decreasing total cash and cash equivalents by$20.7 million . The cash usage in investing activities was driven mostly by purchases of securities of$785.3 million , partially offset by proceeds from securities of$472.9 million . The cash provided by financing activities was primarily due to increases in deposits of$228.5 million , offset by net payments on FHLB advances of$24.5 million and purchases of treasury stock of$18.7 million . During 2020, operating activities provided$43.6 million of liquidity, investing activities infused$96.0 million of cash assets and financing activities generated$51.8 million of additional funds, ultimately increasing total cash and cash equivalents by$191.4 million . The cash provided by investing activities came primarily from$66.9 million of net proceeds from securities transactions and$25.9 million of net cash received from theAlmena acquisition. The cash provided by financing activities was principally due to a$321.5 million increase in deposits and$75.0 million from subordinated note originations, partially offset by a$314.2 million reduction in FHLB borrowings, treasury stock purchases of$19.3 million and a$9.0 million net payoff of the bank stock loan. For information related to cash flow during 2019, see "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K filed with theSEC onMarch 10, 2020 .
Off-Balance Sheet Items
In the normal course of business, we enter into various transactions, which, in accordance with GAAP, are not included in our consolidated balance sheets. We enter into these transactions to meet the financing needs of our customers. These transactions include commitments to extend credit and standby and commercial letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in the consolidated balance sheets. Our exposure to credit loss is represented by the contractual amounts of these commitments. The same credit policies and procedures are used in making these commitments as for on-balance sheet instruments.
Standby and Performance Letters of Credit: For additional information see "NOTE 22 - COMMITMENTS AND CREDIT RISK" in the Notes to Consolidated Financial Statements.
Commitments to Extend Credit: For additional information see "NOTE 22 - COMMITMENTS AND CREDIT RISK" in the Notes to Consolidated Financial Statements.
Future Debt Repayments
In the normal course of business, we enter into short-term and long-term debt obligations resulting in commitments to make future payments. For additional information see "NOTE 11 - BORROWINGS" and "NOTE 12 - SUBORDINATED DEBT."
Capital Resources
Capital management consists of providing equity to support our current and
future operations. The bank regulators view capital levels as important
indicators of an institution's financial soundness. As a general matter,
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Capital adequacy guidelines and 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. Management
believes, as of December 31, 2021 , and December 31, 2020 , the Company and Equity
Bank 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 adequately capitalized,
regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as are asset growth and
acquisitions, and capital restoration plans are required.
Failure to meet capital guidelines could subject the institution to a variety of
enforcement remedies by federal bank regulatory agencies, including termination
of deposit insurance by the FDIC , restrictions on certain business activities
and appointment of the FDIC as conservator or receiver. As of December 31, 2021 ,
the most recent notifications from the federal regulatory agencies categorized
Equity Bank as "well capitalized" under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, Equity Bank must
maintain minimum total capital, Tier 1 capital, Common Equity Tier 1 capital and
Tier 1 leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed Equity
Bank's category.
The total increase in stockholders' equity of $93.0 million was principally
attributable to the ASBI merger, which increased capital by $84.7 million , and
total comprehensive income of $34.5 million , partially offset by a retained
earnings adjustment related to ASC 326 implementation of $12.4 million and
treasury stock purchases of $18.7 million . For additional information about the
Company's capital see "NOTE 16 - REGULATORY MATTERS" in Notes to Consolidated
Financial Statements.
Non-GAAP Financial Measures
We identify certain financial measures discussed in this Annual Report on Form 10-K as being "non-GAAP financial measures." In accordance with theSEC's rules, we classify a financial measure as being a non-GAAP financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts, that are included or excluded, as the case may be, in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles as in effect from time to time inthe United States in our statements of income, balance sheets or statements of cash flows. Non-GAAP financial measures do not include operating and other statistical measures or ratios or statistical measures calculated using exclusively either financial measures calculated in accordance with GAAP, operating measures or other measures that are not non-GAAP financial measures or both. The non-GAAP financial measures that we discuss in this Annual Report on Form 10-K should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the manner in which we calculate the non-GAAP financial measures that we discuss in this Annual Report on Form 10-K may differ from that of other companies reporting measures with similar names. You should understand how such other banking organizations calculate their financial measures similar or with names similar to the non-GAAP financial measures we have discussed in this Annual Report on Form 10-K when comparing such non-GAAP financial measures. Tangible Book Value per Common Share and Tangible Book Value Per Diluted Common Share: Tangible book value is a non-GAAP measure generally used by financial analysts and investment bankers to evaluate financial institutions. We calculate: (a) tangible common equity as total stockholders' equity less preferred stock, goodwill, core deposit intangibles, net of accumulated amortization, mortgage servicing asset, net of accumulated amortization, and naming rights, net of accumulated amortization; (b) tangible book value per common share as tangible common equity (as described in clause (a)) divided by shares of common stock outstanding; and (c) tangible book value per diluted common share as tangible common equity (as described in clause (a)) divided by shares of common stock outstanding plus the period-end dilutive effects of vested restricted stock units, the assumed exercise of stock options, redemption of non-vested restricted stock units, and pending employee stock purchase plan shares at period end. For tangible book value, the most directly comparable financial measure calculated in accordance with GAAP is book value. Management believes that these measures are important to many investors who are interested in changes from period to period in book value per common share exclusive of changes in intangible assets.Goodwill and other intangible assets have the effect of increasing total book value while not increasing our tangible book value. 83 -------------------------------------------------------------------------------- The following table reconciles, as of the dates set forth below, total stockholders' equity to tangible common equity, tangible book value per common share and tangible book value per diluted common share and compares these values with book value per common share. December 31, 2021 2020 2019 2018 2017 (Dollars in thousands, except share data) Total stockholders' equity$ 500,631 $ 407,649 $ 478,060 $ 455,941 $ 374,144 Less: goodwill 54,465 31,601 136,432 131,712 104,907 Less: core deposit intangibles, net 14,879 16,057 19,907 21,725 10,738 Less: mortgage servicing asset, net 276 - 5 11 17 Less: naming rights, net 1,087 1,130 1,174 1,217 1,260 Tangible common equity$ 429,924 $ 358,861 $ 320,542 $ 301,276 $ 257,222 Common shares outstanding at period end 16,760,115 14,540,556 15,444,434 15,793,095 14,605,607 Diluted common shares outstanding at period end 17,050,115 14,540,556 15,719,810 16,085,729 14,873,257 Book value per common share$ 29.87 $ 28.04 $ 30.95 $ 28.87 $ 25.62 Tangible book value per common share$ 25.65 $ 24.68 $ 20.75 $ 19.08 $ 17.61 Tangible book value per diluted common share$ 25.22 $ 24.68 $ 20.39 $ 18.73 $ 17.29 Tangible Common Equity to Tangible Assets: Tangible common equity to tangible assets is a non-GAAP measure generally used by financial analysts and investment bankers to evaluate financial institutions. We calculate: (a) tangible common equity as total stockholders' equity less preferred stock, goodwill, core deposit intangibles, net of accumulated amortization, mortgage servicing asset, net of accumulated amortization and naming rights, net of accumulated amortization; (b) tangible assets as total assets less goodwill, core deposit intangibles, net of accumulated amortization, mortgage servicing asset, net of accumulated amortization and naming rights, net of accumulated amortization; and (c) tangible common equity to tangible assets as tangible common equity (as described in clause (a)) divided by tangible assets (as described in clause (b)). For common equity to tangible assets, the most directly comparable financial measure calculated in accordance with GAAP is total stockholders' equity to total assets. Management believes that this measure is important to many investors in the marketplace who are interested in the relative changes from period to period in common equity and total assets, each exclusive of changes in intangible assets.Goodwill and other intangible assets have the effect of increasing both total stockholders' equity and total assets while not increasing tangible common equity or tangible assets. The following table reconciles, as of the dates set forth below, total stockholders' equity to tangible common equity and total assets to tangible assets. December 31, 2021 2020 2019 2018 2017 (Dollars in thousands) Total stockholders' equity$ 500,631 $ 407,649 $ 478,060 $ 455,941 $ 374,144 Less: goodwill 54,465 31,601 136,432 131,712 104,907 Less: core deposit intangibles, net 14,879 16,057 19,907 21,725 10,738 Less: mortgage servicing asset, net 276 - 5 11 17 Less: naming rights, net 1,087 1,130 1,174 1,217 1,260 Tangible common equity$ 429,924 $ 358,861 $ 320,542 $ 301,276 $ 257,222 Total assets$ 5,137,631 $ 4,013,356 $ 3,949,578 $ 4,061,716 $ 3,170,509 Less: goodwill 54,465 31,601 136,432 131,712 104,907 Less: core deposit intangibles, net 14,879 16,057 19,907 21,725 10,738 Less: mortgage servicing asset, net 276 - 5 11 17 Less: naming rights, net 1,087 1,130 1,174 1,217 1,260 Tangible assets$ 5,066,924 $ 3,964,568 $ 3,792,060 $ 3,907,051 $ 3,053,587 Equity / assets 9.74 % 10.16 % 12.10 % 11.23 % 11.80 % Tangible common equity to tangible assets 8.48 % 9.05 % 8.45 % 7.71 % 8.42 % 84
-------------------------------------------------------------------------------- Return on Average Tangible Common Equity: Return on average tangible common equity is a non-GAAP measure generally used by financial analysts and investment bankers to evaluate financial institutions. We calculate: (a) average tangible common equity as total average stockholders' equity less average intangible assets and preferred stock; (b) adjusted net income allocable to common stockholders as net income allocable to common stockholders plus goodwill impairment, net of actual tax effect, plus amortization of intangible assets less estimated tax effect on amortization of intangible assets (tax rates used in this calculation were 21% for 2021, 2020, 2019 and 2018; 35% for 2017) (c) return on average tangible common equity as adjusted net income allocable to common stockholders (as described in clause (b)) divided by average tangible common equity (as described in clause (a)). For return on average tangible common equity, the most directly comparable financial measure calculated in accordance with GAAP is return on average equity. Management believes that this measure is important to many investors in the marketplace because it measures the return on equity, exclusive of the effects of intangible assets on earnings and capital.Goodwill and other intangible assets have the effect of increasing average stockholders' equity and, through amortization, decreasing net income allocable to common stockholders while not increasing average tangible common equity or decreasing adjusted net income allocable to common stockholders. The following table reconciles, as of the dates set forth below, total average stockholders' equity to average tangible common equity and net income allocable to common stockholders to adjusted net income allocable to common stockholders. December 31, 2021 2020 2019 2018 2017 (Dollars in thousands) Total average stockholders' equity$ 446,795 $ 464,608 $ 463,445 $ 420,453 $ 293,798 Less: average intangible assets 50,831 130,329 158,410 139,131 76,320 Average tangible common equity$ 395,964 $ 334,279 $ 305,035 $ 281,322 $ 217,478 Net income (loss) allocable to common stockholders$ 52,480 $ (74,970 ) $ 25,579 $ 35,825 $ 20,649 Plus: goodwill impairment, net of actual tax effect - 99,526 - - - Amortization of intangible assets 4,242 3,898 3,218 2,492 1,070 Less: estimated tax effect on intangible asset amortization 891 819 676 523 375 Adjusted net income allocable to common stockholders$ 55,831 $ 27,635 $ 28,121 $ 37,794 $ 21,344 Return on average equity (ROAE) 11.75 % (16.14 )% 5.52 % 8.52 % 7.03 % Return on average tangible common equity (ROATCE) 14.10 % 8.27 % 9.22 % 13.43 % 9.81 % Efficiency Ratio: The efficiency ratio is a non-GAAP measure generally used by financial analysts and investment bankers to evaluate financial institutions. We calculate the efficiency ratio by dividing non-interest expense, excluding goodwill impairment, merger expenses and loss on debt extinguishment, by the sum of net interest income and non-interest income, excluding net gains on the sale of available-for-sale securities and other securities transactions, and the net gain on acquisition. The GAAP-based efficiency ratio is non-interest expenses divided by net interest income plus non-interest income. In management's judgment, the adjustments made to non-interest expense and non-interest income allow investors and analysts to better assess operating expenses in relation to operating revenue by removing merger expenses, loss on debt extinguishment, net gains on the sale of available-for-sale securities and other securities transactions, and the net gain on acquisition. 85
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The following table reconciles, as of the dates set forth below, the efficiency ratio to the GAAP-based efficiency ratio.
December 31,
2021 2020 2019 2018 2017
(Dollars in thousands)
Non-interest expense $ 119,465 $ 208,990 $ 99,635 $ 94,387 $ 67,463
Less: goodwill impairment - 104,831 - - -
Less: merger expenses 9,189 299 915 7,462 5,352
Less: loss on debt extinguishment 372 - - - -
Non-interest expense, excluding
merger expenses and
loss on debt extinguishment
$ 86,925 $ 62,111 Net interest income$ 142,579 $ 132,652 $ 125,858 $ 124,798 $ 86,002 Non-interest income$ 32,842 $ 26,023 $ 24,988 $ 19,725 $ 15,440 Less: gain on acquisition 585 2,145 - - - Less: net gains (losses) from securities transactions 406 11 14 (9 ) 271 Non-interest income, excluding net gains (losses) from security transactions and gain on acquisition$ 31,851 $ 23,867 $ 24,974 $ 19,734 $ 15,169 Non-interest expense, less goodwill impairment, to net interest income plus non-interest income 68.10 % 65.64 % 66.05 % 65.31 % 66.50 % Efficiency Ratio 63.01 % 66.36 % 65.45 % 60.14 % 61.39 %
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