HAWTHORN BANCSHARES, INC. Forward-Looking Statements
This report contains certain forward-looking statements with respect to the
financial condition, results of operations, plans, objectives, future
performance and business of
? statements that are not historical in nature, and
statements preceded by, followed by or that include the words believes,
? expects, may, will, should, could, anticipates, estimates, intends, plans,
hopes or similar expressions.
Forward-looking statements are not guarantees of future performance or results. They involve risks, uncertainties and assumptions. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the following factors:
? competitive pressures among financial services companies may increase
significantly,
? changes in the interest rate environment may reduce interest margins,
general economic conditions, either nationally or in
? favorable than expected and may adversely affect the quality of our loans and
other assets,
increases in non-performing assets in the Company's loan portfolios and adverse
? economic conditions may necessitate increases to our provisions for loan
losses,
? costs or difficulties related to any integration of any business of the Company
and its acquisition targets may be greater than expected,
? legislative, regulatory or tax law changes may adversely affect the business in
which the Company and its subsidiaries are engaged,
? changes may occur in the securities markets and,
? effects of the COVID-19 pandemic, or any resurgence thereof, or other adverse
external events.
We have described under the caption Risk Factors in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2020 , and in other reports filed with theSEC from time to time, additional factors that could cause actual results to be materially different from those described in the forward-looking statements. Other factors that have not been identified in this report could also have this effect. You are cautioned not to put undue reliance on any forward-looking statement, which speak only as of the date they were made. Except as required by law, the Company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events, or changes in its business, results of operations or financial condition over time.
Overview
Crucial to the Company's community banking strategy is growth in its commercial banking services, retail mortgage lending and retail banking services. Through the branch network of its subsidiary bank,Hawthorn Bank (the Bank), the Company, with$1.7 billion in assets atJune 30, 2021 , provides a broad range of commercial and personal banking services. The Bank's specialties include commercial banking for small and mid-sized businesses, including equipment, operating, commercial real estate,Small Business Administration (SBA) loans, and personal banking services including real estate mortgage lending, installment and consumer loans, certificates of deposit, individual retirement and other time deposit accounts, checking accounts, savings accounts, and money market accounts. Other financial services that the Company provides include trust services that include estate planning, investment and asset management services and a comprehensive suite of cash management services. The geographic areas in which the Company provides products and services include theMissouri communities in and surroundingJefferson City ,Columbia ,Clinton ,Warsaw ,Springfield ,St. Louis , and the greaterKansas City metropolitan area. 38 The Company's primary source of revenue is net interest income derived primarily from lending and deposit taking activities. Much of the Company's business is commercial, commercial real estate development, and residential mortgage lending. The Company's income from mortgage brokerage activities is directly dependent on mortgage rates and the level of home purchases and refinancing activity. The success of the Company's growth strategy depends primarily on the ability of the Bank to generate an increasing level of loans and deposits at acceptable risk levels and on acceptable terms without significant increases in non-interest expenses relative to revenues generated. The Company's financial performance also depends, in part, on its ability to manage various portfolios and to successfully introduce additional financial products and services by expanding new and existing customer relationships, utilizing improved technology, and enhancing customer satisfaction. Furthermore, the success of the Company's growth strategy depends on its ability to maintain sufficient regulatory capital levels during periods in which general economic conditions are unfavorable and despite economic conditions being beyond its control. The Bank is a full-service bank conducting a general banking business, offering its customers checking and savings accounts, debit cards, certificates of deposit, safety deposit boxes and a wide range of lending services, including commercial and industrial loans, residential real estate loans, single payment personal loans, installment loans and credit card accounts. In addition, the Bank provides trust services. The deposit accounts of the Bank are insured by theFederal Deposit Insurance Corporation (FDIC) to the extent provided by law. The operations of the Bank are supervised and regulated by theFDIC and theMissouri Division of Finance . Periodic examinations of the Bank are conducted by representatives of theFDIC and theMissouri Division of Finance . Such regulations, supervision and examinations are principally for the benefit of depositors, rather than for the benefit of shareholders. The Company is subject to supervision and examination by theBoard of Governors of theFederal Reserve System .
Significant Developments and Transactions
Each item listed below materially affects the comparability of our results of operations for the three and six months endedJune 30, 2021 and 2020, respectively, and our financial condition as ofJune 30, 2021 andDecember 31, 2020 , and may affect the comparability of financial information we report in future fiscal periods. Impact of COVID-19. The COVID-19 pandemic and related restrictive measures taken by governments, businesses and individuals caused unprecedented uncertainty, volatility and disruption in financial markets and in governmental, commercial and consumer activity inthe United States and globally, including the markets that we serve. Although many of the restrictive measures have been eased during 2020 and into 2021, and theU.S. economy has begun to recover and with the availability and distribution of a COVID-19 vaccine, the extent of the impact of the COVID-19 pandemic on the Company's business remains highly uncertain and difficult to predict. If the COVID-19 pandemic subsides, we anticipate continued improvements in commercial and consumer activity and theU.S. economy. The continuing impact of the COVID-19 pandemic on the Company's business will depend on a number of factors, including, but not limited to, the scope, severity and duration of any resurgence of the pandemic (including COVID-19 variants), the actions taken to contain the outbreak or any resurgence or mitigate their impacts, the distribution of vaccines and the efficacy of those vaccines, the ability of communities to achieve herd immunity, the public's confidence in the health and safety measures implemented by the Company's customers, the continuing direct and indirect economic effects of the outbreak and containment measures, and the ability of the Company's customers to recover from the negative economic impacts of the pandemic as it subsides, all of which are uncertain and cannot be predicted. Effects on Our Market Areas. Our commercial and consumer banking products and services are delivered primarily inMissouri , where individual and governmental responses to the COVID-19 pandemic have led to a broad curtailment of economic activity While positive tailwinds exist, we recognize that our business and consumer customers are experiencing varying degrees of financial distress, which is expected to continue into the third quarter of 2021, especially as new COVID-19 variant infections increase and new health and safety measures are implemented. Commercial activity has improved, but has not returned to the levels existing prior to the outbreak of the pandemic. In addition, the economic pressures and uncertainties related to the COVID-19 pandemic have resulted in changes in consumer spending behaviors, 39 which may negatively impact the demand for loans and other services we offer. Our borrowing base includes customers in industries such as hotel/lodging, restaurants, entertainment, retail and commercial real estate, all of which have been significantly impacted by the COVID-19 pandemic. We recognize that these industries may take longer to recover as consumers may be hesitant to return to full social interaction or may change their spending habits on a more permanent basis as a result of the pandemic. We continue to monitor these customers closely. Effects on Our Business. The COVID-19 pandemic and the specific developments referred to above may continue to have a significant impact on our business. In particular, we anticipate that a significant portion of the Bank's borrowers in the hotel, restaurant, gaming, long-term healthcare and retail industries will continue to endure significant economic distress, which has caused, and may continue to cause them to draw on their existing lines of credit and adversely affect their ability to repay existing indebtedness. These developments, together with economic conditions generally, are also expected to impact our commercial real estate portfolio, particularly with respect to real estate with exposure to these industries, our consumer loan business and loan portfolio, and the value of certain collateral securing our loans. The Company continues to lend to qualified consumer and commercial customers. We continue to participate in the SBA's Small Business Paycheck Protection Program (PPP). As ofJune 30, 2021 , the net balance of the PPP loans totaled$49.6 million . Beginning in 2020, as provided for by the CARES Act, the Company offered payment modifications to borrowers. AtDecember 31, 2020 , these modifications totaled$86.7 million , or 6.7% of total loans. AtJune 30, 2021 ,$42.8 million , or 3.3% of total loans, remained in some form of a modification. These loan modifications include$11.4 million on interest only,$26.4 million on full deferral and$5.0 million with extended amortization. As permitted by the CARES Act and other regulatory guidance, the Company has elected to suspend accounting principles generally accepted inthe United States of America (U.S. GAAP) and regulatory determinations for loan modifications relating to the COVID-19 pandemic that would otherwise require evaluation as troubled debt restructurings (TDRs). The Company expects most of these modified loans to recover from the pandemic, but uncertainty regarding the short-term and long-term effects of the COVID-19 pandemic remain that may require the Company to downgrade modified loans which may increase our allowance for loan losses, reverse interest income previously recognized but not received, or charge-off modified loans.
CRITICAL ACCOUNTING POLICIES
The following accounting policies are considered most critical to the understanding of the Company's financial condition and results of operations. These critical accounting policies require management's most difficult, subjective and complex judgments about matters that are inherently uncertain. Because these estimates and judgments are based on current circumstances, they may change over time or prove to be inaccurate based on actual experiences. In the event that different assumptions or conditions were to prevail, and depending upon the severity of such changes, the possibility of a materially different financial condition and/or results of operations could reasonably be expected. The impact and any associated risks related to the critical accounting policies on the business operations are discussed throughout Management's Discussion and Analysis of Financial Condition and Results of Operations, where such policies affect the reported and expected financial results.
Allowance for Loan Losses
Management has identified the accounting policy related to the allowance for
loan losses as critical to the understanding of the Company's results of
operations, since the application of this policy requires significant management
assumptions and estimates that could result in materially different amounts to
be reported if conditions or underlying circumstances were to change. Further
discussion of the methodology used in establishing the allowance and the impact
of any associated risks related to these policies on the Company's business
operations is provided in note 1 to the Company's unaudited consolidated
financial statements and is also discussed in the Lending and Credit Management
section below. Many of the loans are deemed collateral dependent for purposes of
the measurement of the impairment loss, thus the fair value of the underlying
collateral and sensitivity of such fair values due to changing market
conditions, supply and demand, condition of the collateral and other factors can
be volatile over periods of time. Such volatility can have an impact on the
financial performance of the Company.
40
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial information for the Company as of and for each of the three and six months endedJune 30, 2021 and 2020, respectively. The selected consolidated financial data should be read in conjunction with the unaudited consolidated financial statements of the Company, including the related notes, presented elsewhere herein. Selected Financial Data Three Months Ended Six Months EndedJune 30 ,June 30 ,
(In thousands, except per share data) 2021 2020 2021
2020
Per Share Data
Basic earnings per share $ 0.74 $ 0.49 $ 1.62 $ 0.61
Diluted earnings per share 0.74 0.49 1.62 0.61Cash dividends paid on common stock 828 750 1,670
1,503
Book value per share 20.63 17.78
Market price per share 22.93 18.93
Selected Ratios
(Based on average balance sheet data)
Return on total assets 1.14 % 0.81 % 1.26 % 0.53 %
Return on stockholders' equity 14.64 % 11.12 % 16.31 % 7.06 %
Stockholders' equity to total assets 7.76 % 7.24 % 7.70% 7.51 % Efficiency ratio (1) 64.45 % 69.59 % 63.14 % 70.17 % Net interest spread 3.24 % 3.25 % 3.34 % 3.26 % Net interest margin 3.40 % 3.46 % 3.51 % 3.51 % (Based on end-of-period data) Stockholders' equity to assets 7.99 % 7.13 % Total risk-based capital ratio 14.66 % 14.64 % Tier 1 risk-based capital ratio 13.20
% 12.76 % Common equity Tier 1 capital 9.91 % 9.58 % Tier 1 leverage ratio (2) 10.49 % 9.82 %
(1) Efficiency ratio is calculated as non-interest expense as a percentage of
revenue. Total revenue includes net interest income and non-interest income.
(2) Tier 1 leverage ratio is calculated by dividing Tier 1 capital by average
total consolidated assets.
RESULTS OF OPERATIONS ANALYSIS
The Company has prepared all of the consolidated financial information in this report in accordance withU.S. GAAP. In preparing the consolidated financial statements in accordance withU.S. GAAP, the Company makes estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the 41
date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurances that actual results will not differ from those estimates.
Three Months Ended June 30, Six Months Ended June 30,
(In thousands) 2021 2020 $ Change % Change 2021 2020 $ Change % Change Net interest income
$ 13,671 $ 13,339 $ 332 2.5 %$ 28,062 $ 25,865 $ 2,197 8.5 % Provision for loan losses 400 900 (500) (55.6) 400 4,200 (3,800) (90.5) Non-interest income 4,589 2,856 1,733 60.7 9,031 5,147 3,884 75.5 Investment securities gains, net - 7 (7) (100.0) 15 6 9 150.0 Non-interest expense 11,769 11,270 499 4.4 23,420 21,761 1,659 7.6 Income before income taxes 6,091 4,032 2,059 51.1 13,288 5,057 8,231 162.8 Income tax expense 1,199 750 449 59.9 2,557 907 1,650 181.9 Net income$ 4,892 $ 3,282 $ 1,610 49.1 %$ 10,731 $ 4,150 $ 6,581 158.6 % Consolidated net income of$4.9 million , or$0.74 per diluted share, for the three months endedJune 30, 2021 increased$1.6 million compared to$3.3 million , or$0.49 per diluted share, for the three months endedJune 30, 2020 . For the three months endedJune 30, 2021 , the return on average assets was 1.14%, the return on average stockholders' equity was 14.64%, and the efficiency ratio was 64.5%. Consolidated net income of$10.7 million , or$1.62 per diluted share, for the six months endedJune 30, 2021 increased$6.6 million compared to$4.1 million , or$0.61 per diluted share, for the six months endedJune 30, 2020 . For the six months endedJune 30, 2021 , the return on average assets was 1.26%, the return on average stockholders' equity was 16.31%, and the efficiency ratio was 63.1%. Net interest income was$13.7 million and$28.1 million for the three and six months endedJune 30, 2021 , respectively, compared to$13.3 million and$25.9 million for the three and six months endedJune 30, 2020 , respectively. The net interest margin (expressed on a fully taxable equivalent basis) decreased to 3.40% for the three months endedJune 30, 2021 compared to 3.46% for the three months endedJune 30, 2020 , and was consistent at 3.51% for both the six months endedJune 30, 2021 and 2020. These changes are discussed in greater detail under the Average Balance Sheet Data and Rate and Volume Analysis section below. A$0.4 million provision for loan losses was required for both the three and six months endedJune 30, 2021 compared to a$0.9 million and$4.2 million provision for the three and six months endedJune 30, 2020 , respectively. The decreased provision in the three and six months endedJune 30, 2021 compared to the three and six months endedJune 30, 2020 resulted primarily from the impact of net recoveries and improvement in the economic outlook as the economy begins to recover from the impacts of the COVID-19 pandemic. Criticized loan levels remain elevated when compared to pre-pandemic levels due to the downgrade of loans to borrowers that have been impacted by the COVID-19 pandemic. The Company's net loan charge-offs (recoveries) were$26,000 and$(222,000) for the three and six months endedJune 30, 2021 , respectively, compared to net loan (recoveries) charge-offs of$(29,000) and$55,000 for the three and six months endedJune 30, 2020 , respectively. Non-performing loans totaled$33.8 million , or 2.61% of total loans, atJune 30, 2021 compared to$34.6 million , or 2.69% of total loans, atDecember 31, 2020 , and$8.9 million , or 0.70% of total loans, atJune 30, 2020 . These changes are discussed in greater detail under the Lending and Credit Management section below. Non-interest income increased$1.7 million , or 60.7%, for the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 , and increased$3.9 million , or 75.5%, for the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 . These changes are discussed in greater detail under the Non-interest Income and Expense section below. Non-interest expense increased$0.5 million , or 4.4%, for the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 , and increased$1.7 million , or 7.6%, for the six months endedJune 30, 2021 compared 42
to the six months ended
Average Balance Sheet Data
Net interest income is the largest source of revenue resulting from the
Company's lending, investing, borrowing, and deposit gathering activities. It is
affected by both changes in the level of interest rates and changes in the
amounts and mix of interest earning assets and interest bearing liabilities. The
following table presents average balance sheet data, net interest income,
average yields of earning assets, average costs of interest bearing liabilities,
net interest spread and net
43
interest margin on a fully taxable equivalent basis for each of the three and
six month periods ended
Three Months Ended June 30,
2021 2020
Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/
(In thousands) Balance Expense(1) Paid(1) Balance Expense(1) Paid(1)
ASSETS
Loans: (2) (3)
Commercial $ 256,557 $ 2,999 4.69 % $ 280,867 $ 3,121 4.47 %
Real estate construction -
residential 35,005 427 4.89 25,993 331 5.12
Real estate construction -
commercial 77,726 913 4.71 84,824 962 4.56
Real estate mortgage - residential 263,477 2,843 4.33 248,852 2,922 4.72
Real estate mortgage - commercial 618,126 6,620 4.30 586,043 6,992 4.80
Installment and other consumer 24,794 242 3.91 30,071 307 4.11
Total loans $ 1,275,685 $ 14,044 4.42 % $ 1,256,650 $ 14,635 4.68 %
Loans held for sale $ 4,222 $ 29 2.76 % $ 11,513 $ 50 1.75 %
Investment securities:
U.S. Treasury $ 3,039 $ 8 1.06 % $ 776 $ 4 2.07 %
U.S. government and federal agency
obligations 22,730 99 1.75 46,981 245 2.10
Obligations of states and political
subdivisions 88,153 670 3.05 43,833 318 2.92
Mortgage-backed securities 131,134 416 1.27 100,558 413 1.65
Other debt securities 12,886 158 4.92 6,111 81 5.33
Total investment securities $ 257,942 $ 1,351 2.10 % $ 198,259 $ 1,061 2.15 %
Other investment securities 6,069 81 5.35 7,421 72 3.90
Federal funds sold and interest
bearing deposits in other financial
institutions 116,655 88 0.30 99,629 117 0.47
Total interest earning assets $ 1,660,573 $ 15,593 3.77 % $ 1,573,472 $ 15,935 4.07 %
All other assets 85,077 82,098
Allowance for loan losses (18,467) (15,854)
Total assets $ 1,727,183 $ 1,639,716
LIABILITIES AND STOCKHOLDERS' EQUITY
NOW accounts $ 227,179 $ 134 0.24 % $ 187,559 $ 120 0.26 %
Savings 156,944 14 0.04 114,369 10 0.04
Interest checking 41,336 47 0.46 45,996 75 0.66
Money market 281,831 81 0.12 282,722 85 0.12
Time deposits 246,862 504 0.82 304,986 1,040 1.37
Total interest bearing deposits $ 954,152 $ 780 0.33 % $ 935,632 $ 1,330 0.57 %
Federal funds purchased and
securities sold under agreements to
repurchase 45,261 26 0.23 39,355 59 0.60
Federal Home Loan Bank advances and
other borrowings 94,823 385 1.63 136,983 612 1.80
Subordinated notes 49,486 307 2.49 49,486 381 3.10
Total borrowings $ 189,570 $ 718 1.52 % $ 225,824 $ 1,052 1.87 %
Total interest bearing liabilities $ 1,143,722 $ 1,498 0.53 % $ 1,161,456 $ 2,382 0.82 %
Demand deposits 433,879 343,000
Other liabilities 15,582 16,563
Total liabilities 1,593,183 1,521,019
Stockholders' equity 134,000 118,697
Total liabilities and stockholders'
equity $ 1,727,183 $ 1,639,716
Net interest income (FTE) $ 14,095 $ 13,553
Net interest spread 3.24 % 3.25 %
Net interest margin 3.40 % 3.46 %
Interest income and yields are presented on a fully taxable equivalent basis
using the federal statutory income tax rate of 21%, net of nondeductible
(1) interest expense, for the three months ended
adjustments totaled
2021 and 2020, respectively.
(2) Non-accruing loans are included in the average amounts outstanding.
Fees and costs on loans are included in interest income (
three months ended June 30, 2021 and 2020, respectively).
44
Six Months Ended June 30,
2021 2020
Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/
(In thousands) Balance Expense(1) Paid(1) Balance Expense(1) Paid(1)
ASSETS
Loans: (2) (3)
Commercial $ 257,087 $ 7,156 5.61 % $ 239,975 $ 5,692 4.77 %
Real estate construction -
residential 34,252 822 4.84 24,730 654 5.32
Real estate construction -
commercial 78,150 1,791 4.62 85,199 2,070 4.89
Real estate mortgage - residential 261,768 5,684 4.38 249,804 6,064 4.88
Real estate mortgage - commercial 619,991 13,219 4.30 579,588 13,997 4.86
Installment and other consumer 25,390 508 4.03 30,756 652 4.26
Total loans $ 1,276,638 $ 29,180 4.61 % $ 1,210,052 $ 29,129 4.84 %
Loans held for sale $ 4,858 $ 54 2.24 % $ 6,702 $ 55 1.65 %
Investment securities:
U.S. Treasury $ 3,023 $ 16 1.07 % $ 768 $ 7 1.83 %
U.S. government and federal agency
obligations 23,473 201 1.73 42,074 440 2.10
Obligations of states and political
subdivisions 74,878 1,122 3.02 40,309 589 2.94
Mortgage-backed securities 123,351 798 1.30 102,293 938 1.84
Other debt securities 12,216 301 4.97 5,256 141 5.39
Total investment securities $ 236,941 $ 2,438 2.08 % $ 190,700 $ 2,115 2.23 %
Other investment securities 6,026 165 5.52 6,837 173 5.09
Federal funds sold and interest
bearing deposits in other financial
institutions 132,899 190 0.29 90,922 442 0.98
Total interest earning assets $ 1,657,362 $ 32,027 3.90 % $ 1,505,213 $ 31,914 4.26 %
All other assets 84,905 82,617
Allowance for loan losses (18,466) (14,219)
Total assets $ 1,723,801 $ 1,573,611
LIABILITIES AND STOCKHOLDERS' EQUITY
NOW accounts $ 229,234 $ 272 0.24 % $ 186,601 $ 409 0.44 %
Savings 149,879 26 0.04 107,615 32 0.06
Interest checking 51,373 122 0.48 46,646 248 1.07
Money market 280,539 164 0.12 276,621 548 0.40
Time deposits 256,899 1,176 0.92 314,045 2,205 1.41
Total interest bearing deposits $ 967,924 $ 1,760 0.37 % $ 931,528 $ 3,442 0.74 %
Federal funds purchased and
securities sold under agreements to
repurchase 43,394 52 0.24 32,822 96 0.59
Federal Home Loan Bank advances and
other borrowings 96,479 781 1.63 122,507 1,244 2.04
Subordinated notes 49,486 617 2.51 49,486 882 3.58
Total borrowings $ 189,359 $ 1,450 1.54 % $ 204,815 $ 2,222 2.18 %
Total interest bearing liabilities $ 1,157,283 $ 3,210 0.56 % $ 1,136,343 $ 5,664 1.00 %
Demand deposits 416,749 302,122
Other liabilities 17,083 16,998
Total liabilities $ 1,591,115 $ 1,455,463
Stockholders' equity 132,686 118,148
Total liabilities and stockholders'
equity $ 1,723,801 $ 1,573,611
Net interest income (FTE) $ 28,817 $ 26,250
Net interest spread 3.34 % 3.26 %
Net interest margin 3.51 % 3.51 %
Interest income and yields are presented on a fully taxable equivalent basis
using the federal statutory income tax rate of 21%, net of nondeductible
(1) interest expense, for the six months ended
adjustments totaled
2021 and 2020, respectively.
(2) Non-accruing loans are included in the average amounts outstanding.
Fees and costs on loans are included in interest income (
months ended
Rate and Volume Analysis
The following table summarizes the changes in net interest income on a fully taxable equivalent basis, by major category of interest earning assets and interest bearing liabilities, identifying changes related to volumes and rates for the three and six months endedJune 30, 2021 compared to the three and six months endedJune 30, 2020 , respectively. The change in 45 interest due to the combined rate/volume variance has been allocated to rate and volume changes in proportion to the absolute dollar amounts of change in each. Three Months Ended June 30, Six Months Ended June 30, 2021 vs. 2020 2021 vs. 2020 Change due to Change due to Total Average Average Total Average Average (In thousands) Change Volume Rate Change Volume Rate Interest income on a fully taxable equivalent basis: (1) Loans: (2) (3) Commercial$ (122) $ (279) $ 157 $ 1,464 $ 427 $ 1,037 Real estate construction - residential 96 111 (15) 168 233 (65) Real estate construction - commercial (49) (82) 33 (279) (165) (114) Real estate mortgage - residential (79) 166 (245) (380) 280 (660) Real estate mortgage - commercial (372) 369 (741) (778) 933 (1,711) Installment and other consumer (65) (52)
(13) (144) (109) (35) Loans held for sale (21) (42) 21 (1) (17) 16 Investment securities: U.S. Treasury 4 7 (3) 9 13 (4)U.S. government and federal agency obligations (146) (110) (36) (239) (170) (69) Obligations of states and political subdivisions 352 337 15 533 517 16 Mortgage-backed securities 3 110 (107) (140) 170 (310) Other debt securities 77 84 (7) 160 173 (13) Other investment securities 9 (15) 24 (8) (22) 14 Federal funds sold and interest bearing deposits in other financial institutions (29) 18
(47) (252) 147 (399) Total interest income$ (342) $ 622 $ (964) $ 113 $ 2,410 $ (2,297) Interest expense: NOW accounts 14 24 (10) (137) 79 (216) Savings 4 4 - (6) 10 (16) Interest checking (28) (7) (21) (126) 23 (149) Money market (4) - (4) (384) 8 (392) Time deposits (536) (172) (364) (1,029) (353) (676) Federal funds purchased and securities sold under agreements to repurchase (33) 8 (41) (44) 25 (69)Federal Home Loan Bank advances and other borrowings (227) (175) (52) (463) (237) (226) Subordinated notes (74) - (74) (265) - (265) Total interest expense$ (884) $ (318) $ (566) $ (2,454) $ (445) $ (2,009) Net interest income on a fully taxable equivalent basis$ 542 $ 940 $
(398)
Interest income and yields are presented on a fully taxable equivalent basis
using the Federal statutory income tax rate of 21%, net of nondeductible
(1) interest expense, for the three and six months ended
Such adjustments totaled
ended
three and six months ended
(2) Non-accruing loans are included in the average amounts outstanding.
Fees and costs on loans are included in interest income (
respectively, compared to
ended
Financial results for the quarter endedJune 30, 2021 compared to the quarter endedJune 30, 2020 reflected an increase in net interest income, on a tax equivalent basis, of$0.5 million , or 4.0%, and the financial results for the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 reflected an increase of$2.6 million , or 9.8%. Measured as a percentage of average earning assets, the net interest margin (expressed on a fully taxable equivalent basis) decreased to 3.40% for the quarter endedJune 30, 2021 compared to 3.46% for the quarter endedJune 30, 2020 , and remained consistent at 3.51% for both the six months endedJune 30, 2021 and 2020, respectively. Net interest income increased primarily due to an increase in average earning assets and a decrease in rates paid on average interest bearing liabilities in both the three and six month comparative periods. Although average earning assets increased for both the three and six 46 month comparative periods, net interest margin decreased quarter-over-quarter primarily due to a decrease in rates earned, while net interest margin remained consistent for the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 primarily due to$2.0 million in PPP income earned in 2021 compared to$0.4 million in 2020. Average interest-earning assets increased$87.1 million , or 5.5%, to$1.66 billion for the quarter endedJune 30, 2021 compared to$1.57 billion for the quarter endedJune 30, 2020 , and average interest bearing liabilities decreased$17.7 million , or 1.5%, to$1.14 billion for the quarter endedJune 30, 2021 compared to$1.16 billion for the quarter endedJune 30, 2020 . Average interest-earning assets increased$152.1 million , or 10.1%, to$1.66 billion for the six months endedJune 30, 2021 compared to$1.50 billion for the six months endedJune 30, 2020 , average interest bearing liabilities increased$20.9 million , or 1.8%, to$1.16 billion for the six months endedJune 30, 2021 compared to$1.14 billion for the six months endedJune 30, 2020 . Total interest income (expressed on a fully taxable equivalent basis) was$15.6 million and$32.0 million for the three and six months endedJune 30, 2021 , respectively, compared to$15.9 million and$31.9 million for the three and six months endedJune 30, 2020 , respectively. The Company's rates earned on interest earning assets were 3.77% and 3.90% for the three and six months endedJune 30, 2021 , respectively, compared to 4.07% and 4.26% for the three and six months endedJune 30, 2020 , respectively.
Interest income on loans held for investment was
Average loans outstanding increased$19.0 million , or 1.5%, to$1.28 billion for the quarter endedJune 30, 2021 compared to$1.26 billion for the quarter endedJune 30, 2020 . The average yield on loans decreased to 4.42% for the quarter endedJune 30, 2021 compared to 4.68% for the quarter endedJune 30, 2020 . Average loans outstanding increased$66.6 million , or 5.5%, to$1.28 billion for the six months endedJune 30, 2021 compared to$1.21 billion for the six months endedJune 30, 2020 . The average yield on loans decreased to 4.61% for the six months endedJune 30, 2021 compared to 4.84% for the six months endedJune 30, 2020 . See the Lending and Credit Management section for further discussion of changes in the composition of the lending portfolio. Interest income on available-for-sale securities was$1.4 million and$2.4 million for the three and six months endedJune 30, 2021 , respectively, compared to$1.1 million and$2.1 million for the three and six months endedJune 30, 2020 , respectively. Average securities increased$59.7 million , or 30.1%, to$257.9 million for the quarter endedJune 30, 2021 compared to$198.3 million for the quarter endedJune 30, 2020 . The average yield on securities decreased to 2.10% for the quarter endedJune 30, 2021 compared to 2.15% for the quarter endedJune 30, 2020 . Average securities increased$46.2 million , or 24.3%, to$236.9 million for the six months endedJune 30, 2021 compared to$190.7 million for the six months endedJune 30, 2020 . The average yield on securities decreased to 2.08% for the six months endedJune 30, 2021 compared to 2.23% for the six months endedJune 30, 2020 . Management plans to continue to grow the investment portfolio based on available liquidity. See the Liquidity Management section for further discussion. Total interest expense decreased to$1.5 million and$3.2 million for the three and six months endedJune 30, 2021 , respectively, compared to$2.4 million and$5.7 million for the three and six months endedJune 30, 2020 , respectively. The Company's rates paid on interest bearing liabilities were 0.53% and 0.56% for the three and six months endedJune 30, 2021 , respectively, compared to 0.82% and 1.0% for the three and six months endedJune 30, 2020 , respectively. See the Liquidity Management section for further discussion. 47 Interest expense on deposits decreased to$0.8 million and$1.8 million for the three and six months endedJune 30, 2021 , respectively, compared to$1.3 million and$3.4 million for the three and six months endedJune 30, 2020 , respectively. Average interest bearing deposits increased$18.5 million , or 2.0%, to$954.1 million for the quarter endedJune 30, 2021 compared to$935.6 million for the quarter endedJune 30, 2020 . The average cost of deposits decreased to 0.33% for the quarter endedJune 30, 2021 compared to 0.57% for the quarter endedJune 30, 2020 . Average interest bearing deposits increased$36.4 million , or 3.9%, to$967.9 million for the six months endedJune 30, 2021 compared to$931.5 million for the six months endedJune 30, 2020 . The average cost of deposits decreased to 0.37% for the six months endedJune 30, 2021 compared to 0.74% for the six months endedJune 30, 2020 . Although offering rates remain low in response to lower market interest rates, growth in deposits was positively impacted in part by customers who deposited both economic stimulus payments and PPP loan proceeds. Interest expense on borrowings was$0.7 million and$1.5 million for the three and six months endedJune 30, 2021 , respectively, compared to$1.1 million and$2.2 million for the three and six months endedJune 30, 2020 , respectively. Average borrowings decreased to$189.6 million for the quarter endedJune 30, 2021 compared to$225.8 million for the quarter endedJune 30, 2020 . The average cost of borrowings decreased to 1.52% for the quarter endedJune 30, 2021 compared to 1.87% for the quarter endedJune 30, 2020 . Average borrowings decreased to$189.4 million for the six months endedJune 30, 2021 compared to$204.8 million for the six months endedJune 30, 2020 . The average cost of borrowings decreased to 1.54% for the six months endedJune 30, 2021 compared to 2.18% for the six months endedJune 30, 2020 . The decrease in cost of funds primarily resulted from lower market interest rates. The decrease in average borrowings during 2021 compared to 2020 was primarily due to a decrease in FHLB advances. The Company used FHLB advances to fund liquidity needs as refinancing activity increased when rates dropped during the first quarter of 2020. This in turn was offset beginning in April of 2020 when the Company had an increase in liquidity due to participation in the CARES Act economic stimulus programs. The Company experienced significant deposit growth primarily due to stimulus checks, proceeds from PPP loan funding, deferral of income tax payments, and customers holding on to savings due to economic uncertainty, and the Company has been repaying these FHLB advances as they come due since May of 2020. See the Liquidity Management section for further discussion.
Non-interest Income and Expense
Non-interest income for the periods indicated was as follows:
Three Months Ended June 30, Six Months Ended June 30,
(In thousands) 2021 2020 $ Change % Change 2021 2020 $ Change % Change
Non-interest income
Service charges and 35.2 10.2
other fees $ 765 $ 566 $ 199 % $ 1,503 $ 1,364 $ 139 %
Bank card income and 25.9
25.0
fees 1,022 812 210 1,882 1,505 377
Trust department 10.4 (8.5)
income 308 279 29 602 658 (56)
Real estate NM (511.7)servicing fees, net 351 (16) 367 424 (103) 527 Gain on sales of mortgage loans, net 2,042 924 1,118 121.0 4,511 1,344 3,167 235.6 Other 101 291 (190) (65.3) 109 379 (270) (71.2) Total non-interest 60.7 75.5 income$ 4,589 $ 2,856 $ 1,733 %$ 9,031 $ 5,147 $ 3,884 % Non-interest income as a % of total revenue * 25.1 % 17.6 % 24.3 % 16.6 %
* Total revenue is calculated as net interest income plus non-interest income.
NM = Not meaningful
48
Total non-interest income increased $1.7 million , or 60.7%, to $4.6 million for
the quarter ended June 30, 2021 compared to $2.9 million for the quarter ended
June 30, 2020 , and increased $3.9 million , or 75.5%, to $9.0 million for the six
months ended June 30, 2021 compared to $5.1 million for the six months ended
June 30, 2020 .
Service charges and fees increased $0.2 million , or 35.2%, to $0.8 million for
the quarter ended June 30, 2021 compared to $0.6 million for the quarter ended
June 30, 2020 , and increased $0.1 million , or 10.2%, to $1.5 million for the six
months ended June 30, 2021 , compared to $1.4 million for the six months ended
June 30, 2020 . The Company experienced lower service charge income during 2020
primarily due to a decrease in nonsufficient fund service charges (NSF)
collected resulting from both a decrease in volume, in addition to temporary fee
waivers for customers related to the COVID-19 pandemic.
Bank Card and Credit card transaction fees increased $0.2 million , or 25.9%, to
$1.0 million for the quarter ended June 30, 2021 compared to $0.8 million for
the quarter ended June 30, 2020 , and increased $0.4 million , or 25.0%, to $1.9
million for the six months ended June 30, 2021 , compared to $1.5 million for the
six months ended June 30, 2020 . The increases were primarily related to
increases in debit card usage and interchange fees. As the economy began to
recover from the COVID 19 pandemic, the Company began to see an increase in
spending due to both stimulus income and a reduction of conservative savings due
to the uncertainty of the pandemic.
Real estate servicing fees, net of the change in valuation of mortgage servicing
rights (MSRs) increased $0.4 million to $0.4 million for the quarter ended June
30, 2021 compared to $(16,000) for the quarter ended June 30, 2020 , and
increased $0.5 million to $0.4 million for the six months ended June 30, 2021
compared to $(0.1) million for the six months ended June 30, 2020 .
Mortgage loan servicing fees earned on loans sold were $0.2 million and $0.4
million for the three and six months ended June 30, 2021 , respectively, compared
to $0.2 million and $0.4 million for the three and six months ended June 30,
2020 , respectively. The current quarter's MSR valuation increased $0.3 million
from the prior linked quarter primarily due to decreased prepayment assumptions.
The dramatic drop in market interest rates created an economic incentive for
borrowers to refinance their existing home mortgage loans during 2020 that has
slowed down in 2021.
The Company was servicing
Gain on sales of mortgage loans increased$1.1 million to$2.0 million for the quarter endedJune 30, 2021 compared to$0.9 million for the quarter endedJune 30, 2020 , and increased$3.2 million to$4.5 million for the six months endedJune 30, 2021 compared to$1.3 million for the six months endedJune 30, 2020 . The Company sold$61.9 million and$128.5 million of loans for the three and six months endedJune 30, 2021 , respectively, compared to$35.5 million and$47.7 million for the three and six months endedJune 30, 2020 , respectively. The increase in loans sales is directly attributed to the formation of the mortgage loan group in the fourth quarter of 2019, and significant growth in 2020. Other Income decreased$0.2 million , or 65.3%, to$0.1 million for the quarter endedJune 30, 2021 compared to$0.3 million for the quarter endedJune 30, 2020 , and decreased$0.3 million , or 71.2%, to$0.1 million for the six months endedJune 30, 2021 compared to$0.4 million for the six months endedJune 30, 2020 . The decreases resulted from a decrease in net gains on sales of other real estate owned and net losses on disposal of fixed assets, and a reduction in rent received on foreclosed properties. In the quarter endedJune 30, 2020 , the Company sold an out-of-service branch building being held as other real estate owned (OREO) to a non-profit organization. This transaction consisted of a$266,000 donation expense and the Company realized a net gain of$210,000 . These decreases were partially offset by an increase in brokerage income. 49
The following table presents the gross realized gains and losses from sales and
calls of available-for-sale securities, as well as gains and losses on equity
securities from fair value adjustments which have been recognized in earnings:
Three Months Ended June 30, Six Months Ended June 30,
(in thousands) 2021 2020 2021 2020
Investment securities gains, net
Available-for-sale securities:
Gross realized gains $ - $ 6 $ 2 $ 6
Gross realized losses - - - -
Other-than-temporary impairment recognized - - - -
Other investment securities:
Fair value adjustments, net - 1 13 -
Investment securities gains, net $ - $
7 $ 15 $ 6
Non-interest expense for the periods indicated was as follows:
Three Months Ended June 30, Six Months Ended June 30,
(In thousands) 2021 2020 $ Change % Change 2021 2020 $ Change % Change
Non-interest expense
Salaries $ 5,151 $ 4,992 $ 159 3.2 % $ 10,492 $ 9,505 $ 987 10.4 %
Employee benefits 1,804 1,519 285 18.8 3,608 3,128 480 15.3
Occupancy expense, net 719 757 (38) (5.0) 1,490 1,522 (32) (2.1)
Furniture and
equipment expense 753 763 (10) (1.3) 1,497 1,514 (17) (1.1)
Processing, network
and bank card expense 1,225 954 271 28.4 2,233 1,929 304 15.8
Legal, examination,
and professional fees 385 407 (22) (5.4) 789 774 15 1.9
Advertising and
promotion 309 222 87 39.2 552 470 82 17.4
Postage, printing, and
supplies 186 193 (7) (3.6) 390 434 (44) (10.1)
Loan expense 229 303 (74) (24.4) 403 427 (24) (5.6)
Other 1,008 1,160 (152) (13.1) 1,966 2,058 (92) (4.5)
Total non-interest
expense $ 11,769 $ 11,270 $ 499 4.4 % $ 23,420 $ 21,761 $ 1,659 7.6 %
Efficiency ratio* 64.5 % 69.6 % 63.1 % 70.2 %
Number of full-time
equivalent employees 306 305 306 305
* Efficiency ratio is calculated as non-interest expense as a percent of revenue.
Total revenue includes net interest income and non-interest income.
Total non-interest expense increased$0.5 million , or 4.4%, to$11.8 million for the quarter endedJune 30, 2021 compared to$11.3 million for the quarter endedJune 30, 2020 , and increased$1.7 million , or 7.6%, to$23.4 million for the six months endedJune 30, 2021 compared to$21.8 million for the six months endedJune 30, 2020 . Salaries increased$0.2 million , or 3.2%, to$5.2 million for the quarter endedJune 30, 2021 compared to$5.0 million for the quarter endedJune 30, 2020 , and increased$1.0 million , or 10.4%, to$10.5 million for the six months endedJune 30, 2021 compared to$9.5 million for the six months endedJune 30, 2020 . The increases were primarily due to adding additional personnel to the new mortgage loan department. In addition, annual merit increases average approximately 4.0% each year and were awarded in the first quarter of each year. Employee benefits increased$0.3 million , or 18.8%, to$1.8 million for the quarter endedJune 30, 2021 compared to$1.5 million for the quarter endedJune 30, 2020 , and increased$0.5 million , or 15.3%, to$3.6 million for the six months endedJune 30, 2021 compared to$3.1 million for the six months endedJune 30, 2020 . The increases were primarily due to an 50
increase in 401(k) plan contributions, payroll taxes, medical premiums, and pension cost due to lower annual discount rate assumptions compared to the prior year's annual assumptions.
Processing, network, and bank card expense increased$0.3 million , or 28.4%, to$1.2 million for the quarter endedJune 30, 2021 compared to$1.0 million for the quarter endedJune 30, 2020 , and increased$0.3 million , or 15.8%, to$2.2 million for the six months endedJune 30, 2021 compared to$1.9 million for the six months endedJune 30, 2020 . These increases were primarily related to increases in network, processing, and debit card processing expenses, partially offset by decreases in credit card and ATM interchange expenses. Loan expense decreased$74,000 , or 24.4%, to$0.2 million for the quarter endedJune 30, 2021 compared to$0.3 million for the quarter endedJune 30, 2020 , and decreased$24,000 , or 5.6%, to$0.4 million for the six months endedJune 30, 2021 compared to$0.4 million for the six months endedJune 30, 2020 . The decreases in loan expense primarily resulted from decreases in commercial and real estate third-party loan expenses. The Company experienced a decrease in commercial loan growth during the three and six months endedJune 30, 2021 compared to the three and six months endedJune 30, 2020 . Also during 2020, the Company experienced significant real estate mortgage refinancing activity and growth in loan volume sold to the secondary market. Other non-interest expense decreased$0.2 million , or 13.1%, to$1.0 million for the quarter endedJune 30, 2021 compared to$1.2 million for the quarter endedJune 30, 2020 , and decreased$92,000 , or 4.5%, to$2.0 million for the six months endedJune 30, 2021 compared to$2.1 million for the six months endedJune 30, 2020 . The decreases were primarily related to a decrease in donations, pension net interest cost, and insurance reserves. In the quarter endedJune 30, 2020 , the Company sold an out-of-service branch building being held as other real estate owned (OREO) to a non-profit organization. This transaction consisted of a$266,000 donation expense and the Company realized a net gain of$210,000 . These decreases were partially offset by an increase in theFDIC assessment expense and software expense due to new mortgage loan software. The increase in theFDIC assessment was due to the Company having received the remainingFDIC assessment credit during the first quarter of 2020 that reduced the overall assessment due in addition to an increase in deposits.
Income taxes
Income taxes as a percentage of earnings before income taxes as reported in the consolidated financial statements were 19.7% and 19.2% for the three and six months endedJune 30, 2021 , respectively, compared to 18.6% and 17.9% for the three and six months endedJune 30, 2020 , respectively. The increase in the effective tax rate for each of the three and six months endedJune 30, 2021 compared to the three and six months endedJune 30, 2020 was primarily attributable to the increase in earnings and an increase in state taxes attributed to elevated earnings. The effective tax rate for each of the three and six months endedJune 30, 2021 and 2020, respectively, is lower than theU.S. federal statutory rate of 21% primarily due to tax-free revenues.
Lending and Credit Management
Interest earned on the loan portfolio is a primary source of interest income for the Company. Net loans represented 74.6% of total assets as ofJune 30, 2021 compared to 73.2% as ofDecember 31, 2020 . Lending activities are conducted pursuant to an established loan policy approved by the Bank's Board of Directors. The Bank's credit review process is overseen by regional loan committees with established loan approval limits. In addition, a senior loan committee reviews all credit relationships in aggregate over an established dollar amount. The senior loan committee meets weekly and is comprised of senior managers of the Bank. 51
Major classifications within the Company's held for investment loan portfolio as of the dates indicated is as follows:
June 30, 2021 December 31, 2020
(In thousands) Amount % of Loans 2020 % of LoansCommercial, financial, and agricultural (a)$ 263,511 20.4 %$ 272,918 21.2 % Real estate construction - residential 35,760 2.8 29,692 2.3 Real estate construction - commercial 74,788 5.8 78,144 6.1 Real estate mortgage - residential 267,264 20.7 262,339 20.4 Real estate mortgage - commercial 628,075 48.5 617,133 48.0 Installment and other consumer 24,496 1.9 26,741 2.1 Total loans held for investment$ 1,293,894 100.0 %
(a) Includes
2021 and
The Company extends credit to its local community markets through traditional real estate mortgage products. The Company does not participate in extending credit to sub-prime residential real estate markets. The Company does not lend funds for transactions defined as "highly leveraged" by bank regulatory authorities or for foreign loans. Additionally, the Company does not have any concentrations of loans exceeding 10% of total loans that are not otherwise disclosed in the loan portfolio composition table. The Company does not have any interest-earning assets that would have been included in non-accrual, past due, or restructured loans if such assets were loans. The Company generally does not retain long-term fixed rate residential mortgage loans in its portfolio. Fixed rate loans conforming to standards required by the secondary market are offered to qualified borrowers but are not funded until the Company has a non-recourse purchase commitment from the secondary market at a predetermined price. During the six months endedJune 30, 2021 , the Company sold approximately$128.5 million of loans to investors compared to$47.7 million for the six months endedJune 30, 2020 . AtJune 30, 2021 , the Company was servicing approximately$286.6 million of loans sold to the secondary market compared to$292.7 million atDecember 31, 2020 , and$273.8 million atJune 30, 2020 .
Risk Elements of the Loan Portfolio
Management, the senior loan committee, and internal loan review, formally review all loans in excess of certain dollar amounts (periodically established) at least annually. Loans in excess of$2.0 million in aggregate and all adversely classified credits identified by management are reviewed by the senior loan committee. In addition, all other loans are reviewed on a risk weighted selection process. The senior loan committee reviews and reports to the Board of Directors, at scheduled meetings: past due, classified, and watch list loans in order to classify or reclassify loans as loans requiring attention, substandard, doubtful, or loss. During this review, management also determines which loans should be considered impaired. Management follows the guidance provided in theFinancial Accounting Standards Board's (FASB) ASC Topic 310-10-35 in identifying and measuring loan impairment. If management determines that it is probable that all amounts due on a loan will not be collected under the original terms of the loan agreement, the loan is considered impaired. These loans are evaluated individually for impairment, and in conjunction with current economic conditions and loss experience, specific reserves are estimated as further discussed below. Loans not individually evaluated are aggregated and reserves are recorded using a consistent methodology that considers historical loan loss experience by loan type, delinquencies, current economic conditions, loan risk ratings and industry concentration. Management believes, but there can be no assurance, that these procedures keep management informed of potential problem loans. Based upon these procedures, both the allowance and provision for loan losses are adjusted to maintain the allowance at a level considered necessary by management to provide for probable losses inherent in the loan portfolio. 52 Non-performing Assets The following table summarizes non-performing assets at the dates indicated: June 30, December 31, June 30, (In thousands) 2021 2020 2020 Non-accrual loans: Commercial, financial, and agricultural$ 6,564 $ 6,717$ 3,022 Real estate construction - residential - 192 - Real estate construction - commercial 112 200 959 Real estate mortgage - residential 1,773 2,105 3,310 Real estate mortgage - commercial 25,313 25,314 1,521 Installment and other consumer 21 31 37 Total$ 33,783 $ 34,559 $ 8,849 Loans contractually past - due 90 days or more and still accruing: Real estate mortgage - residential $ - $ -$ 51 Installment and other consumer 5 17 7 Total $ 5 $ 17$ 58 Total non-performing loans (a) 33,788 34,576 8,907 Other real estate owned and repossessed assets 11,938 12,291 12,520 Total non-performing assets$ 45,726 $ 46,867 $ 21,427 Loans held for investment$ 1,293,894 $ 1,286,967 $ 1,280,615 Allowance for loan losses to loans 1.45 % 1.41 % 1.30 % Non-performing loans to loans (a) 2.61 % 2.69 % 0.70 % Non-performing assets to loans (b) 3.53 % 3.64 % 1.67 % Non-performing assets to assets (b) 2.68 % 2.70 % 1.27 % Allowance for loan losses to non-performing loans 55.45 %
52.39 % 186.62 %
Non-performing loans include loans 90 days past due and accruing, non-accrual (a) loans, and non-performing TDRs included in non-accrual loans and 90 days past
due.
(b) Non-performing assets include non-performing loans and other real estate
owned and repossessed assets.
Total non-performing assets were$45.7 million , or 3.53% of total loans, atJune 30, 2021 compared to$46.9 million , or 3.64% of total loans, atDecember 31, 2020 , and$21.4 million , or 1.67% of total loans, atJune 30, 2020 , respectively. Total non-accrual loans atJune 30, 2021 decreased$0.8 million , or 2.2%, to$33.8 million compared to$34.6 million atDecember 31, 2020 . Loans past due 90 days and still accruing interest atJune 30, 2021 were$5,000 compared to$17,000 atDecember 31, 2020 . Other real estate and repossessed assets were$11.9 million and$12.3 million atJune 30, 2021 andDecember 31, 2020 , respectively. During the six months endedJune 30, 2021 ,$30,000 of non-accrual loans, net of charge-offs taken, moved to other real estate owned and repossessed assets compared to no such loan movements during the six months endedJune 30, 2020 . As ofJune 30, 2021 , approximately$6.9 million of loans classified as substandard, which include performing TDRs, and not included in the non-performing asset table, were identified as potential problem loans having more than normal risk which raised doubts as to the ability of the borrower to comply with present loan repayment terms compared to$6.0 million and$5.7 million atDecember 31, 2020 andJune 30, 2020 , respectively. Management believes the allowance for loan losses was sufficient to cover the risks and probable losses related to such loans atJune 30, 2021 andDecember 31, 2020 , respectively. 53
The following table summarizes the Company's TDRs at the dates indicated:
June 30, 2021 December 31, 2020
Number of Recorded Specific Number of Recorded Specific
(In thousands) contracts Investment Reserves contracts Investment Reserves
Performing TDRsCommercial, financial and agricultural 7$ 798 $ 36 7$ 835 $ 90 Real estate mortgage - residential 5 1,136 46 5 1,521 28 Real estate mortgage - commercial 2 334 7 2 343 7 Installment and other consumer 4 40 5 5 77 10 Total performing TDRs 18$ 2,308 $ 94 19$ 2,776 $ 135 Non-performing TDRs Commercial, financial and agricultural * 1 $ - $ - 1 $ 4$ 1 Real estate mortgage - residential 6 748 60 8 895 78 Total non-performing TDRs 7$ 748 $
60 9$ 899 $ 79 Total TDRs 25$ 3,056 $ 154 28$ 3,675 $ 214
* Amounts less than
AtJune 30, 2021 , loans classified as TDRs totaled$3.1 million , with$154,000 of specific reserves compared to$3.7 million of loans classified as TDRs, with$214,000 of specific reserves atDecember 31, 2020 . Non-performing loans, included$0.8 million of loans classified as TDRs atJune 30, 2021 compared to$0.9 million atDecember 31, 2020 . Both performing and non-performing TDRs are considered impaired loans. When an individual loan is determined to be a TDR, the amount of impairment is based upon the present value of expected future cash flows discounted at the loan's effective interest rate or the fair value of the underlying collateral less applicable selling costs if the loan is collateral dependent. The net decrease in total TDRs fromDecember 31, 2020 toJune 30, 2021 was primarily due to$620,000 of payments received on TDRs.
Allowance for Loan Losses and Provision
Allowance for Loan Losses
The following table is a summary of the allocation of the allowance for loan
losses:
June 30, December 31,
(In thousands) 2021 2020Allocation of allowance for loan losses at end of period: Commercial, financial, and agricultural
$ 5,336 $ 5,121 Real estate construction - residential 251 213 Real estate construction - commercial 495 475 Real estate mortgage - residential 2,467 2,679 Real estate mortgage - commercial 9,915 9,354 Installment and other consumer 252
264
Unallocated 19 7
Total $ 18,735 $ 18,113
The allowance for loan losses (ALL) was $18.7 million , or 1.45% of loans
outstanding, at June 30, 2021 compared to $18.1 million , or 1.41%, at December
31, 2020 , and $16.6 million , or 1.30% at June 30, 2020 . The ratio of the ALL to
non-performing loans was 55.45% at June 30, 2021 , compared to 52.39% at December
31, 2020 , and 186.62% at June 30, 2020 .
54
The following table is a summary of the general and specific allocations of the
ALL:
June 30, December 31,
(In thousands) 2021 2020
Allocation of allowance for loan losses:
Individually evaluated for impairment - specific reserves $ 5,355 $ 5,113
Collectively evaluated for impairment - general reserves 13,380
13,000
Total $ 18,735 $ 18,113 The specific reserve component applies to loans evaluated individually for impairment. The net carrying value of impaired loans is generally based on the fair values of collateral obtained through independent appraisals and/or internal evaluations, or by discounting the total expected future cash flows. Once the impairment amount is calculated, a specific reserve allocation is recorded. AtJune 30, 2021 ,$5.4 million of the Company's ALL was allocated to impaired loans totaling approximately$36.1 million compared to$5.1 million of the Company's ALL allocated to impaired loans totaling approximately$37.3 million atDecember 31, 2020 . Management determined that$12.4 million , or 34%, of total impaired loans required no reserve allocation atJune 30, 2021 compared to$11.9 million , or 32%, atDecember 31, 2020 , primarily due to adequate collateral values, acceptable payment history and adequate cash flow ability. The incurred loss component of the general reserve, or loans collectively evaluated for impairment, is determined by applying loss rates to pools of loans by asset type. Loans not individually evaluated are aggregated by risk characteristics and reserves are recorded using a consistent methodology that considers historical loan loss experience by loan type. The look-back period begins with loss history in the first quarter 2012 as the starting point through the current quarter and it will continue to include this starting point going forward. Management determined that the look-back period should be expanded until a loss producing downturn is recognized. This would be accomplished by allowing the look-back period to shift forward by eliminating the earliest loss period and replenishing it with losses from the most recent period. The look-back period is consistently evaluated for relevance given the current facts and circumstances. These historical loss rates for each risk group are used as the starting point to determine loss rates for measurement purposes. The historical loan loss rates are multiplied by loss emergence periods (LEP) which represent the estimated time period between a borrower first experiencing financial difficulty and the recognition of a loss. The Company's methodology includes qualitative risk factors that allow management to adjust its estimates of losses based on the most recent information available and to address other limitations in the quantitative component that is based on historical loss rates. Such risk factors are generally reviewed and updated quarterly, as appropriate, and are adjusted to reflect changes in national and local economic conditions and developments, the nature, volume and terms of loans in the portfolio, including changes in volume and severity of past due loans, the volume of non-accrual loans, and the volume and severity of adversely classified or graded loans, loan concentrations, assessment of trends in collateral values, assessment of changes in the quality of the Company's internal loan review department, and changes in lending policies and procedures, including underwriting standards and collections, charge-off and recovery practices. The specific and general reserve allocations represent management's best estimate of probable losses inherent in the loan portfolio at the evaluation date. Although the ALL is comprised of specific and general allocations, the entire ALL is available to absorb any credit losses. The ALL changes fromDecember 31, 2020 toJune 30, 2021 primarily resulted from net recovery activity, in addition to organic loan growth. The Company continues to monitor the risks associated with its non-performing loans and the remaining loans modified under the CARES Act.
Provision
A$0.4 million provision for loan losses was required for both the three and six months endedJune 30, 2021 compared to a$0.9 million and$4.2 million provision for the three and six months endedJune 30, 2020 , respectively. The decreased provision in the three and six months endedJune 30, 2021 compared to the three and six months endedJune 30, 2020 55
resulted primarily from the impact of net recoveries and improvement in the economic outlook as the economy begins to recover from the impacts of the COVID-19 pandemic, which significantly impacted provision in 2020. Criticized loan levels remain elevated when compared to pre-pandemic levels due to the downgrade of loans to borrowers that have been impacted by the COVID-19 pandemic.
The following table summarizes loan loss experience for the periods indicated:
Three Months Ended Six Months Ended
June 30, June 30,
(In thousands) 2021 2020 2021 2020
Analysis of allowance for loan losses:
Balance beginning of period $ 18,361 $ 15,693 $ 18,113 $ 12,477
Charge-offs:
Commercial, financial, and agricultural 28 43 55 84
Real estate mortgage - residential 4 33 3 52
Real estate mortgage - commercial 3 2 26 24
Installment and other consumer 46 39 104 91
Total charge-offs $ 81 $ 117 $ 188 $ 251
Recoveries:
Commercial, financial, and agricultural $ 33 $ 66 $ 183 $ 91
Real estate construction - residential - 32 13 32
Real estate mortgage - residential 7 27 175 36
Real estate mortgage - commercial - 1 - 3
Installment and other consumer 15 20 39 34 Total recoveries$ 55 $ 146 $ 410 $ 196 Net charge-offs (recoveries) 26 (29) (222) 55 Provision for loan losses 400 900 400 4,200 Balance end of period$ 18,735 $ 16,622 $ 18,735 $ 16,622
Net Loan Charge-offs (recoveries)
The Company's net charge-offs were$26,000 for the three months endedJune 30, 2021 compared to net recoveries of$29,000 for the three months endedJune 30, 2020 , and net recoveries were$222,000 for the six months endedJune 30, 2021 compared to net charge-offs of$55,000 for the six months endedJune 30, 2020 . During the first quarter of 2021 the Company received commercial and a real estate mortgage recoveries primarily related to two loan relationships
Loans Held For Sale
The Company designates certain long-term fixed rate personal real estate loans as held for sale, and the Company carries them at the lower of cost or fair value. The loans are primarily sold to Freddie Mac, Fannie Mae, andPennyMac and other various secondary market investors. AtJune 30, 2021 , the carrying amount of these loans was$2.5 million compared to$5.1 million atDecember 31, 2020 . In the fourth quarter of 2019 the Company expanded its current home mortgage loan program to better serve its customers. This expansion began with hiring new mortgage lending personnel and expanding the Bank's available loan products and upgrading the Company's operating systems. New home loan programs for its customers include:VA loans, designed for military families and veterans;USDA loans for those buying homes in rural communities; and FHA loans, which offer low down payments and flexible underwriting guidelines. In addition, we have added several secondary market investors, allowing us to sell loans on the secondary market versus servicing them at the Company. This provides us with the ability to offer clients more aggressive pricing and at the same time improve the Company's financial return. 56
Liquidity and Capital Resources
Liquidity Management
The role of liquidity management is to ensure funds are available to meet depositors' withdrawal and borrowers' credit demands while at the same time maximizing profitability. This is accomplished by balancing changes in demand for funds with changes in the supply of those funds. Liquidity to meet these demands is provided by maturing assets, short-term liquid assets that can be converted to cash and the ability to attract funds from external sources, principally depositors. Due to the nature of services offered by the Company, management prefers to focus on transaction accounts and full service relationships with customers as the primary sources of funding. The Company's Asset/Liability Committee (ALCO), primarily made up of senior management, has direct oversight responsibility for the Company's liquidity position and profile. A combination of daily, weekly, and monthly reports provided to management detail the following: internal liquidity metrics, composition and level of the liquid asset portfolio, timing differences in short-term cash flow obligations, available pricing and market access to the financial markets for capital, and exposure to contingent draws on the Company's liquidity. The Company has a number of sources of funds to meet liquidity needs on a daily basis. The Company's most liquid assets are comprised of available-for-sale investment securities, not including other debt securities, federal funds sold, and excess reserves held at theFederal Reserve . June 30, December 31, (In thousands) 2021 2020
Federal funds sold and other interest-bearing deposits
7,165 9,376
Available-for-sale investment securities 276,013
198,030
Total $ 341,692 $ 368,534 Federal funds sold and resale agreements normally have overnight maturities and are used for general daily liquidity purposes. The fair value of the available-for-sale investment portfolio was$276.0 million atJune 30, 2021 and included an unrealized net gain of$2.9 million . The portfolio includes projected maturities and mortgage-backed securities pay-downs of approximately$4.9 million over the next twelve months, which offer resources to meet either new loan demand or reductions in the Company's deposit base. The Company pledges portions of its investment securities portfolio to secure public fund deposits, federal funds purchase lines, securities sold under agreements to repurchase, borrowing capacity at theFederal Reserve Bank , and for other purposes required by law. AtJune 30, 2021 andDecember 31, 2020 , the Company's unpledged securities in the available-for-sale portfolio totaled approximately$66.6 million and$44.1 million , respectively.
Total investment securities pledged for these purposes were as follows:
June 30, December 31,
(In thousands) 2021 2020
Investment securities pledged for the purpose of
securing:
Federal Reserve Bank borrowings $ 10,882 $ 9,115
Federal funds purchased and securities sold under
agreements to repurchase 53,654 59,695
Other deposits 144,918 85,130
Total pledged, at fair value $ 209,454 $ 153,940
Liquidity is available from the Company's base of core customer deposits,
defined as demand, interest checking, savings, money market deposit accounts,
and time deposits less than $250,000 , less all brokered deposits under $250,000 .
At June 30, 2021 , such deposits totaled $1.3 billion and represented 92.9% of
the Company's total deposits. These core deposits are normally less volatile and
are often tied to other products of the Company through long lasting
relationships.
57
Core deposits at
June 30, December 31,
(In thousands) 2021 2020
Core deposit base:
Non-interest bearing demand $ 433,288 $ 382,492
Interest checking 252,600 292,375
Savings and money market 421,442 391,248
Other time deposits 175,666 183,072
Total $ 1,282,996 $ 1,249,187
Time deposits and certificates of deposit of $250,000 and greater at June 30,
2021 and December 31, 2020 were $66.6 million and $91.3 million , respectively.
The Company had brokered deposits totaling $30.2 million and $40.2 million at
June 30, 2021 and December 31, 2020 , respectively.
Other components of liquidity are the level of borrowings from third-party
sources and the availability of future credit. The Company's outside borrowings
are comprised of securities sold under agreements to repurchase, Federal Home
Loan Bank advances, and subordinated notes. Federal funds purchased are
overnight borrowings obtained mainly from upstream correspondent banks with
which the Company maintains approved credit lines. As of June 30, 2021 ,
under agreements with these unaffiliated banks, the Bank may borrow up to $60.0
million in federal funds on an unsecured basis and $10.5 million on a secured
basis. There were no federal funds purchased outstanding at June 30, 2021 .
Securities sold under agreements to repurchase are generally borrowed overnight
and are secured by a portion of the Company's investment portfolio. At June 30,
2021 , there were $32.0 million in repurchase agreements. The Company may
periodically borrow additional short-term funds from the Federal Reserve Bank
through the discount window, although no such borrowings were outstanding at
June 30, 2021 .
The Bank is a member of the Federal Home Loan Bank of Des Moines (FHLB) and has
access to credit products of the FHLB. As of June 30, 2021 , the Bank had $93.5
million in outstanding borrowings with the FHLB. In addition, the Company has
$49.5 million in outstanding subordinated notes issued to wholly-owned grantor
trusts, funded by preferred securities issued by the trusts.
Borrowings outstanding at June 30, 2021 and December 31, 2020 were as follows:
June 30, December 31,
(In thousands) 2021 2020
Borrowings:
Federal funds purchased and securities sold under
agreements to repurchase $ 32,018 $ 45,154
Federal Home Loan Bank advances 93,540
106,660
Subordinated notes 49,486 49,486
Other borrowings 14 14
Total $ 175,058 $ 201,314
The Company pledges certain assets, including loans and investment securities to
the Federal Reserve Bank , FHLB, and other correspondent banks as security to
establish lines of credit and borrow from these entities. Based on the type and
value of collateral pledged, the FHLB establishes a collateral value from which
the Company may draw advances against this collateral. This collateral is also
used to enable the FHLB to issue letters of credit in favor of public fund
depositors of the Company. The Federal Reserve Bank also establishes a
collateral value of assets pledged to support borrowings
58
from the discount window. The following table reflects collateral value of assets pledged, borrowings, and letters of credit outstanding, in addition to the estimated future funding capacity available to the Company as follows:
June 30, December 31,
2021 2020
Federal Federal
Funds Funds
Federal Purchased Federal Purchased
(In thousands) FHLB Reserve Bank Lines
Total FHLB
- - (1,000) (123,000) - - (123,000)
Advances outstanding (93,540) - - (93,540) (106,660) - - (106,660)
Total available
AtJune 30, 2021 , loans of$537.1 million were pledged at the FHLB as collateral for borrowings and letters of credit. AtJune 30, 2021 , investments totaling$10.9 million were pledged to secure federal funds purchase lines and borrowing capacity at theFederal Reserve Bank . Based upon the above, management believes the Company has more than adequate liquidity, both on balance sheet and through the additional funding capacity with the FHLB, theFederal Reserve Bank and Federal funds purchased lines to meet future anticipated needs in both the short and long-term; this includes accounting for the impact of the COVID-19 pandemic, which is difficult to currently measure. Management believes the most significant impact to the Company's liquidity position in the short-term may be related to the PPP as loans are expected to be forgiven and depositors may choose to redirect their funds. The longer-term impact on the Company's liquidity from the pandemic will be closely monitored and addressed as needs arise.
The Company also has available additional liquidity having pledged the PPP loans to the FHLB as collateral for available advances.
Sources and Uses of Funds
Cash and cash equivalents were$76.4 million atJune 30, 2021 compared to$180.4 million atDecember 31, 2020 . The$103.9 million decrease resulted from changes in the various cash flows produced by operating, investing, and financing activities of the Company, as shown in the accompanying consolidated statement of cash flows for the six months endedJune 30, 2021 . Cash flow provided from operating activities consists mainly of net income adjusted for certain non-cash items. Operating activities provided cash flow of$13.0 million for the six months endedJune 30, 2021 . Investing activities consisting mainly of purchases, sales and maturities of available-for-sale securities, and changes in the level of the loan portfolio used total cash of$84.2 million during the six months endedJune 30, 2021 . The cash outflow primarily consisted of$114.5 million in purchases of investment securities partially offset by$34.3 million from maturities and calls of investment securities. Management intends to continue to grow the investment portfolio based on available liquidity. Financing activities used total cash of$32.7 million during the six months endedJune 30, 2021 , resulting primarily from a$53.4 million decrease in interest-bearing transaction accounts and time deposits, a$13.1 million decrease in securities sold under agreements to repurchase, and a$13.1 million repayment of FHLB advances, partially offset by a$50.8 million increase in demand deposits. The growth in demand deposits was positively impacted by customers who deposited both economic stimulus payments and PPP loan proceeds into demand accounts. Future short-term liquidity needs arising from daily operations are not expected to vary significantly during 2021. 59 In the normal course of business, the Company enters into certain forms of off-balance sheet transactions, including unfunded loan commitments and letters of credit. These transactions are managed through the Company's various risk management processes. Management considers both on-balance sheet and off-balance sheet transactions in its evaluation of the Company's liquidity. The Company had$297.2 million in unused loan commitments and standby letters of credit as ofJune 30, 2021 . Although the Company's current liquidity resources are adequate to fund this commitment level the nature of these commitments is such that the likelihood of such a funding demand is very low. The Company is a legal entity, separate and distinct from the Bank, which must provide its own liquidity to meet its operating needs. The Company's ongoing liquidity needs primarily include funding its operating expenses, paying cash dividends to its shareholders and, to a lesser extent, repurchasing its shares of common stock. The Company paid cash dividends to its shareholders totaling approximately$1.7 million and$1.5 million for the six months endedJune 30, 2021 and 2020, respectively. A large portion of the Company's liquidity is obtained from the Bank in the form of dividends. The Bank declared and paid$4.5 million and$2.5 million in dividends to the Company during the six months endedJune 30, 2021 and 2020, respectively. AtJune 30, 2021 andDecember 31, 2020 , the Company had cash and cash equivalents totaling$1.8 million and$2.0 million , respectively. Subject to declaration by the Company's Board of Directors, the Company expects to continue paying quarterly cash dividends as a part of its current capital allocation strategy. Future dividends will be subject to the determination, declaration and discretion of the Company's Board of Directors and compliance with applicable regulatory capital requirements. In 2019, the Company's Board of Directors authorized the purchase of up to$5.0 million market value of the Company's common stock. The Company repurchased 117,632 shares at an average cost of$18.26 per share totaling$2.1 million during the first quarter of 2021. During the second quarter of 2021, the Company's Board of Directors reauthorized the purchase of up to$5.0 million market value of the Company's common stock. There were no shares repurchased during the second quarter of 2021. The repurchases under these authorizations may be effectuated in the open market, by block purchase, in privately negotiated transactions, or through other transactions managed by broker-dealers, or any combination thereof. No time limit was set for the completion of these authorized share repurchases. As ofJune 30, 2021 ,$5.0 million remained available for the repurchase of shares pursuant to the share repurchase authorizations. The Company may continue to repurchase shares under its share repurchase authorizations, but the amount and timing of such repurchases will be dependent on a number of factors, including the price of its common stock and other cash flow needs. There is no assurance that the Company will repurchase up to the full amount remaining under its share repurchase
authorizations. Capital Management The Company and the Bank are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company's consolidated financial statements. Under capital adequacy guidelines, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification of the Company and the Bank are subject to qualitative judgments by the regulators about components, risk-weightings, and other factors. The Basel III regulatory capital framework (the "Basel III Capital Rules") adopted byU.S. federal regulatory authorities, among other things, (i) establishes the capital measure called "Common Equity Tier 1" ("CET1"), (ii) specifies that Tier 1 capital consist of CET1 and "Additional Tier 1 Capital" instruments meeting stated requirements, (iii) requires that most deductions/adjustments to regulatory capital measures be made to CET1 and not to other components of capital and (iv) defines the scope of the deductions/adjustments to the capital measures. Additionally, the Basel III Capital Rules require that the Company maintain a 2.5% capital conservation buffer with respect to each of CET1, Tier 1 and total capital to risk-weighted assets, which provides for capital levels that exceed the minimum risk-based capital adequacy requirements. A financial institution with a conservation buffer of less than the required amount is subject to limitations on capital distributions, including dividend payments and stock repurchases, and certain discretionary bonus payments to executive officers. 60
Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of CET1, Tier 1 and total capital to risk-weighted assets, and of Tier 1 capital to average assets, each as defined in the regulations. Management believes, as ofJune 30, 2021 , that the Company and the Bank meet all capital adequacy requirements to which they are subject. Financial institutions are categorized as well capitalized or adequately capitalized, based on minimum total risk-based, Tier 1 risk-based, CET1 and Tier 1 leverage ratios. As shown in the table below, the Company's capital ratios exceeded the regulatory definition of adequately capitalized as ofJune 30, 2021 andDecember 31, 2020 . Based upon the information in its most recently filed call report, the Bank met the capital ratios necessary to be well capitalized. The regulatory authorities can apply changes in classification of assets and such changes may retroactively subject the Company to changes in capital ratios. Any such change could reduce one or more capital ratios below well-capitalized status. In addition, a change may result in imposition of additional assessments by theFDIC or could result in regulatory actions that could have a material effect on our condition and results of operations. In addition, bank holding companies generally are required to maintain a Tier 1 leverage ratio of at least 4%. Because the Bank had less than$15.0 billion in total consolidated assets as ofDecember 31, 2009 , the Company is allowed to continue to classify our trust preferred securities, all of which were issued prior toMay 19, 2010 , as Tier 1 capital. 61 Under the Basel III requirements, atJune 30, 2021 andDecember 31, 2020 , the Company met all capital adequacy requirements and had regulatory capital ratios in excess of the levels established for well-capitalized institutions, as shown in the following table as of periods indicated: Minimum Capital Required to be Required - Basel III Considered Well- Actual Fully Phased-In Capitalized (in thousands) Amount Ratio Amount Ratio Amount Ratio June 30, 2021 Total Capital (to risk-weighted assets): Company$ 201,020 14.66 %$ 143,944 10.50 % $ - N.A % Bank 199,684 14.60 143,562 10.50 136,725 10.00 Tier 1 Capital (to risk-weighted assets): Company$ 180,936 13.20 %$ 116,526 8.50 % $ - N.A % Bank 182,572 13.35 116,217 8.50 109,380 8.00 Common Equity Tier 1 Capital (to risk-weighted assets): Company$ 135,862 9.91 %$ 95,963 7.00 % $ - N.A % Bank 182,572 13.35 95,708 7.00 88,872 6.50 Tier 1 leverage ratio (to adjusted average assets): Company$ 180,936 10.49 %$ 68,981 4.00 % $ - N.A % Bank 182,572 10.63 68,680 4.00 85,850 5.00 December 31, 2020 Total Capital (to risk-weighted assets): Company$ 193,220 14.97 %$ 135,518 10.50 % $ - N.A % Bank 191,504 14.87 135,186 10.50 128,748 10.00 Tier 1 Capital (to risk-weighted assets): Company$ 172,591 13.37 %$ 109,705 8.50 % $ - N.A % Bank 175,384 13.62 109,436 8.50 102,999 8.00 Common Equity Tier 1 Capital (to risk-weighted assets) Company$ 129,061 10.00 %$ 90,345 7.00 % $ - N.A % Bank 175,384 13.62 90,124 7.00 83,686 6.50 Tier 1 leverage ratio: Company$ 172,591 10.19 %$ 67,724 4.00 % $ - N.A % Bank 175,384 10.41 67,394 4.00 84,243 5.00
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