THE FIRST BANCSHARES, INC. The following provides a narrative discussion and analysis ofThe First Bancshares' financial condition and results of operations for the years endedDecember 31, 2020 , 2019, and 2018. This discussion should be read in conjunction with the consolidated financial statements and the supplemental financial data included in Part II. Item 8. Financial Statements and Supplementary Data included elsewhere in this report.
Critical Accounting Policies
Management's Discussion and Analysis of Financial Condition and Results of Operations is based on our consolidated financial statements, which have been prepared in accordance withU.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgements that affect the reported amounts of assets, liabilities, revenues and expenses. Accounting policies considered critical to our financial results include the allowance for loan losses and related provision, income taxes, goodwill and business combinations. The most critical of these is the accounting policy related to the allowance for loan losses. The allowance is based in large measure upon management's evaluation of borrowers' abilities to make loan 31
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payments, local and national economic conditions, and other subjective factors. If any of these factors were to deteriorate, management would update its estimates and judgments which may require additional loss provisions.
As a result of the Company's immediate response to COVID-19, including loan modifications/payment deferral programs and the PPP, as well as acquisition and integration of SWG, and increased uncertainty related to certain judgments and estimates, the Company has elected to temporarily defer or suspend the application of two provisions ofU.S. Generally Accepted Accounting Principles (GAAP), as allowed by the CARES Act, which was signed into law by the President onMarch 27, 2020 . Sections 4013 and 4014 of the CARES Act provide the Company with temporary relief from troubled debt restructurings and from CECL, which the Company believes prudent to elect in these challenging times to allow us time to provide consistent, high-quality financial information to our investors and other stakeholders.
COVID-19 IMPACT
InMarch 2020 , theWorld Health Organization recognized the novel COVID-19 as a pandemic. The spread of COVID-19 has created a global public health crisis that has resulted in unprecedented uncertainty, volatility and disruption in financial markets and in governmental, commercial and consumer activity inthe United States and globally. In response to the outbreak, federal and state authorities in theU.S. introduced various measures to try to limit or slow the spread of the virus, including travel restrictions, nonessential business closures, stay-at-home orders, and strict social distancing and shelter in place. These actions, together with responses to the pandemic by businesses and individuals, have resulted in rapid decreases in commercial and consumer activity, temporary closures of many businesses that have led to a loss of revenues and a rapid increase in unemployment, material decreases in oil and gas prices and in business valuations, disrupted global supply chains, market downturns and volatility, changes in consumer behavior related to pandemic fears, related emergency response legislation and an expectation thatFederal Reserve policy will maintain a low interest rate environment for the foreseeable future. These disruptions may result in a decline in demand for banking products or services, including loans and deposits, which could impact our future financial condition, result of operations and liquidity. The impacts of the COVID-19 pandemic on the economy and the banking industry are rapidly evolving and the future effects are unknown at this time. The Company is working to adapt to the changing environment and proactively plan for contingencies. To that end, the Company has and is taking steps to protect the health of our employees and to work with our customers experiencing difficulties as a result of this virus. The Company has many non-branch personnel working remotely. We have also been working through loan modifications and payment deferral programs to assist affected customers, and have increased our allowance for loan and lease losses. The pandemic is having an adverse impact on certain industries the Company serves, including hotels, restaurants, retail, and direct energy. As ofDecember 31, 2020 , the Company's aggregate outstanding exposure in these segments was$436.9 million , or 14.0% of total loans. While it is not yet possible to know the full effect that the pandemic will have on the economy, or to what extent this crisis will impact the Company, all available current industry statistics and internal monitoring of loan repayment ability and payment forgiveness across the portfolio has been analyzed in an attempt to understand the correlation with asset quality and degree of possible deterioration. This analysis of the possibility of increasing credit losses resulted in the need for a higher than normal provision expense to provide the required allowance reserve for this situation. Based on management's current assessment of the increased inherent risk in the loan portfolio, the provision for loan and leases losses as ofDecember 31, 2020 totaled$25.2 million of which$20.5 million was related to the anticipated economic effects of COVID-19. If economic conditions continue to worsen, further funding to the allowance may be required in future periods. OnMarch 27, 2020 , the CARES Act was signed into law. The CARES Act is a$2 trillion stimulus package that is intended to provide relief toU.S businesses and consumers struggling as a result of the pandemic. A provision in the CARES Act includes a$349 billion fund for the creation of the PPP through theSmall Business Administration ("SBA") andTreasury Department . The PPP is intended to provide loans to small businesses to pay their employees, rent, mortgage interest, and utilities. The loans may be forgiven conditioned upon the client providing payroll deductions evidencing their compliant use of funds and otherwise complying with the terms of the program. The PPP was amended in April to include an additional$320 billion in funding. OnJune 5, 2020 ,President Trump signed into law the Paycheck Protection Program Flexibility Act of 2020 ("PPPFA") that amends the CARES Act. The PPPFA extended the covered period in which to use PPP loans, extended the forgiveness period from eight weeks to a maximum of 24 weeks and increased flexibility for small businesses that have had issues with rehiring employees and attempting to fill vacant positions due to COVID-19. The program reduced the proportion of proceeds that must be spent on payroll costs from 75% to 60%. In addition, the PPPFA also extended the payment deferral period for the PPP loans until the date when the amount of loan forgiveness is determined and remitted to the lender. For PPP recipients who do not apply for forgiveness, the loan deferral period is 10 months after the applicable forgiveness period ends. 32
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Section 4013 of the CARES Act, "Temporary Relief from Troubled Debt Restructurings," provides banks the option to temporarily suspend certain requirements underU.S. GAAP related to troubled debt restructurings ("TDRs") for a limited period of time to account for the effects of COVID-19. To qualify for Section 4013 of the CARES Act, borrowers must have been current atDecember 31, 2019 . All modifications are eligible as long as they are executed betweenMarch 1, 2020 and the earlier of (i)December 31, 2020 , or (ii) the 60th day after the end of the COVID-19 national emergency declared by the President of theU.S. Loans that were current as ofDecember 31, 2019 are not TDRs. In addition, under guidance from the federal banking agencies, other short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs under ASC Subtopic 310-40, "Troubled Debt Restructuring by Creditors." These modifications include short-term (e.g., up to six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. We began receiving requests from our borrowers for loan and lease deferrals in March. Payment modifications include the deferral of principal payments or the deferral of principal and interest payments for terms generally 90-180 days. Requests are evaluated individually and approved modifications are based on the unique circumstances of each borrower. For the year endedDecember 31, 2020 , we have modified approximately 1,627 loans for$672.3 million , of which 1,390 loans for$512.6 million were modified to defer monthly principal and interest payments and 237 loans for$159.7 million were modified from monthly principal and interest payments to interest only. For the year endedDecember 31, 2020 , we have approximately 2,961 PPP loans approved through the SBA for$239.7 million .
During the first quarter of 2020, the Company elected to delay the adoption of
CECL afforded through the CARES Act. The Company currently anticipates CECL
adoption to occur as of
EffectiveJanuary 1, 2021 , the Company adopted ASU 2016-13, Financial Instruments - Measurement of Current Expected Credit Losses on Financial Instruments ("CECL"), which will modify the accounting for the allowance for loan losses from an incurred loss model to an expected loss model, as discussed more fully under "Part II - Item 8. Financial Statements and Supplementary Data - Note B - Summary of Significant Accounting Policies" of this report. Companies are required to perform periodic reviews of individual securities in their investment portfolios to determine whether decline in the value of a security is other than temporary. A review of other-than-temporary impairment requires companies to make certain judgments regarding the materiality of the decline, its effect on the financial statements and the probability, extent and timing of a valuation recovery and the company's intent and ability to hold the security. Pursuant to these requirements, Management assesses valuation declines to determine the extent to which such changes are attributable to fundamental factors specific to the issuer, such as financial condition, business prospects or other factors or market-related factors, such as interest rates. Declines in the fair value of securities below their cost that are deemed to be other-than-temporary are recorded in earnings as realized losses.Goodwill is assessed for impairment both annually and when events or circumstances occur that make it more likely than not that impairment has occurred. As part of its testing, the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company determines the fair value of a reporting unit is less than its carrying amount using these qualitative factors, the Company compares the fair value of goodwill with its carrying amount, and then measures impaired loss by comparing the implied fair value of goodwill with the carrying amount of that goodwill. Other intangibles are also assessed for impairment, both annually and when events or circumstances occur, that make it more likely than not that impairment has occurred. During the first quarter of 2020, management determined that the deterioration in the general economic conditions as a result of the COVID-19 pandemic represented a triggering event prompting an evaluation of goodwill impairment. Based on the analyses performed in the first quarter of 2020, we determined that goodwill was not impaired. Due to the ongoing economic uncertainty present at the end of the second quarter, the Company prepared a Step 1 goodwill impairment analysis as ofJune 30, 2020 . In testing goodwill for impairment, the Company compared the estimated fair value of its reporting unit to its carrying amount, including goodwill. The estimated fair value of the reporting unit exceeded its book value. InDecember 2020 , the Company assessed the qualitative factors and determined that it was not more likely than not that fair value of the reporting unit was less than the carrying amount. As a result, we do not believe there exists any impairment to goodwill and intangible assets, long-lived assets, or available-for-sale securities due to the COVID-19 pandemic. In addition, in future periods the Company will be required to evaluate the impact of COVID-19 on the carrying value of certain of its assets, including goodwill, and to conduct impairments tests on those assets, which may result in impairment charges on these assets in future periods that could be material. 33 Table of Contents Overview
The First Bancshares, Inc. (the Company) was incorporated onJune 23, 1995 , and serves as a bank holding company for The First, ANational Banking Association ("The First"), located inHattiesburg, Mississippi . The First began operations onAugust 5, 1996 , from its main office in theOak Grove community, which is now incorporated within the city ofHattiesburg . Currently, the First has 84 locations inMississippi ,Alabama ,Florida ,Georgia andLouisiana . The Company and The First engage in a general commercial and retail banking business characterized by personalized service and local decision-making, emphasizing the banking needs of small to medium-sized businesses, professional concerns, and individuals. The Company's primary source of revenue is interest income and fees, which it earns by lending and investing the funds which are held on deposit. Because loans generally earn higher rates of interest than investments, the Company seeks to employ as much of its deposit funds as possible in the form of loans to individuals, businesses, and other organizations. To ensure sufficient liquidity, the Company also maintains a portion of its deposits in cash, government securities, deposits with other financial institutions, and overnight loans of excess reserves (known as "Federal Funds Sold") to correspondent banks. The revenue which the Company earns (prior to deducting its overhead expenses) is essentially a function of the amount of the Company's loans and deposits, as well as the profit margin ("interest spread") and fee income which can be generated on these amounts.
Highlights for the year ended
On
? full service offices servicing the areas of
of 2020.
In year-over-year comparison, net income available to common shareholders
? increased
Excluding the bargain purchase and the sale of land gain of
? of tax, and the increased provision expense of
income available to common shareholders increased$17.0 million in year-over-year comparison.
Provision for loan losses totaled
? 2020 as compared to
increase of
effects of the COVID-19 pandemic.
On
? placement of
notes due 2030 to certain qualified institutional buyers.
As of
? representing 2.6% of the loan portfolio and down from a peak of
21% of the loan portfolio.
During the first quarter of 2020, the Company elected to delay the adoption of
? CECL afforded through the CARES Act. The Company currently anticipates CECL
adoption to occur as of
AtDecember 31, 2020 , the Company had approximately$5.153 billion in total assets, an increase of$1.211 billion compared to$3.942 billion atDecember 31, 2019 . Loans, including mortgage loans held for sale and net of the allowance for loan losses, increased to$3.109 billion atDecember 31, 2020 from$2.597 billion atDecember 31, 2019 . Deposits increased to$4.215 billion atDecember 31, 2020 from$3.077 billion atDecember 31, 2019 . Stockholders' equity increased to$644.8 million atDecember 31, 2020 from$543.7 million atDecember 31, 2019 . The addition ofSouthwest Georgia Bank during 2020 contributed, at acquisition,$543.9 million ,$392.3 million and$476.1 million in assets, loans, and deposits, respectively.The First (Bank only) reported net income of$60.0 million ,$51.1 million and$26.9 million for the years endedDecember 31, 2020 , 2019, and 2018, respectively. For the years endedDecember 31, 2020 , 2019 and 2018, the Company reported consolidated net income available to common stockholders of$52.5 million ,$43.7 million and$21.2 million , respectively. The following discussion 34 Table of Contents should be read in conjunction with the "Selected Consolidated Financial Data" and the Company's consolidated financial statements and the Notes thereto and the other financial data included elsewhere. Results of Operations
The following is a summary of the results of operations for
2020 2019 2018
Interest income $ 179,328 $ 148,503 $ 99,967
Interest expense 21,071 21,805 11,637
Net interest income 158,257 126,698 88,330
Provision for loan losses 25,151 3,738 2,120
Net interest income after provision for loan losses 133,106 122,960 86,210
Non-interest income 40,984 25,885 18,697
Non-interest expense 100,966 82,750 70,724
Income tax expense 13,108 15,085 7,288
Net income $ 60,016 $ 51,010 $ 26,895 The following reconciles the above table to the amounts reflected in the
consolidated financial statements of the Company at
2020 2019 2018
Net interest income:Net interest income of The First$ 158,257 $ 126,699 $
88,330
Interest expense (5,573) (4,893) (3,443)
$ 152,684 $ 121,806 $ 84,887
Net income available to common shareholders:
Net income of The First $ 60,016 $ 51,103 $ 26,895
Net loss of the Company (7,511) (7,358) (5,670)
$ 52,505 $ 43,745 $ 21,225
Consolidated Net Income
The Company reported consolidated net income available to common stockholders of
$52.5 million for the year ended December 31, 2020 , compared to a consolidated
net income of $43.7 million for the year ended December 31, 2019 . Excluding the
bargain purchase and sale of land gains of $8.3 million , net of tax, and the
increased provision expense of $16.5 million , net of tax, net income available
to common shareholders increased $17.0 million in year-over-year comparison.
Net interest income increased $30.9 million in year-over-year comparison,
primarily due to interest income earned on a higher volume of loans and
securities. Non-interest income increased $6.5 million in year-over-year
comparison excluding the awards and gains mentioned above. Mortgage income
increased $4.5 million and interchange fee income increased $1.4 million in the
year-over-year comparison. Non-interest expense was $106.3 million at December
31, 2020 , an increase of $17.8 million in year-over-year comparison, of which
$12.3 million is related to the operations of First Florida Bank ("FFB") and
SWG.
The Company reported consolidated net income available to common stockholders of
$43.7 million for the year ended December 31, 2019 , compared to a consolidated
net income of $21.2 million for the year ended December 31, 2018 . Operating net
earnings increased $18.0 million or 59.9% from $30.0 million for the twelve
months ended December 31, 2018 to $48.0 million for the same period ended
December 31, 2019 . Operating net earnings excludes merger-related costs of $4.9
million , net of tax, and financial
35
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assistance grants of$697 thousand , net of tax, for the year endedDecember 31, 2019 , and merger-related costs of$10.6 million , net of tax, financial assistance grants of$1.6 million , net of tax, and gain on sale of securities of$256 thousand , net of tax, for the year endedDecember 31, 2018 . Net interest income increased$36.9 million in year-over-year comparison, primarily due to interest income earned on a higher volume of loans and securities. Non-interest income was$26.9 million atDecember 31, 2019 , an increase of$6.4 million in year-over-year comparison consisting of increases in service charges on deposit accounts, interchange fee income, mortgage income, as well as other charges and fees. Non-interest expense was$88.6 million atDecember 31, 2019 , an increase of$12.3 million in year-over-year comparison, of which$4.3 million is related to the operations of Southwest Banc Shares ("Southwest"),Sunshine Financial, Inc. ("Sunshine"), Farmers and Merchants Bank ("FMB"),Florida Parish Bank ("FPB") and FFB. The remaining increase of$8.0 million in expenses are related to increases in salaries and employee benefits of$3.7 million and increases in other expenses of$4.3 million . See Note C - Business Combinations in the accompanying notes to the consolidated financial statements included elsewhere in this report for more information on how the Company accounts for business combinations.
Consolidated Net Interest Income
The largest component of net income for the Company is net interest income, which is the difference between the income earned on assets and interest paid on deposits and borrowings used to support such assets. Net interest income is determined by the rates earned on the Company's interest-earning assets and the rates paid on its interest-bearing liabilities, the relative amounts of interest-earning assets and interest-bearing liabilities, and the degree of mismatch and the maturity and repricing characteristics of its interest-earning assets and interest-bearing liabilities. Consolidated net interest income was approximately$152.7 million for the year endedDecember 31, 2020 , as compared to$121.8 million for the year endedDecember 31, 2019 . This increase was the direct result of higher volume of loans and securities during 2020 as compared to 2019. Average interest-bearing liabilities for the year 2020 were$3.902 billion compared to$2.345 billion for the year 2019. AtDecember 31, 2020 , the fully tax equivalent ("FTE") net interest spread, which is the difference between the yield on earning assets and the rates paid on interest-bearing liabilities, was 3.59% compared to 3.75% atDecember 31, 2019 . Net interest margin, which is net interest income divided by average earning assets, was 3.64% for the year 2020 compared to 4.02% for the year 2019. AtDecember 31, 2020 , the FTE average yield on all earning assets decreased 62 basis points to 4.27% compared to 4.89% atDecember 31, 2019 . Rates paid on average interest-bearing liabilities decreased to 0.68% for the year 2020 compared to 1.14% for the year 2019. Interest earned on assets and interest accrued on liabilities is significantly influenced by market factors, specifically interest rates as set by Federal agencies. Average loans comprised 71.0% of average earnings assets for the year 2020 compared to 76.5% for the year 2019. Consolidated net interest income was approximately$121.8 million for the year endedDecember 31, 2019 , as compared to$84.9 million for the year endedDecember 31, 2018 . This increase was the direct result of higher volume of loans and securities during 2019 as compared to 2018. Average interest-bearing liabilities for the year 2019 were$2.345 billion compared to$1.712 billion for the year 2018. AtDecember 31, 2019 , the FTE net interest spread, which is the difference between the yield on earning assets and the rates paid on interest-bearing liabilities, was 3.75% compared to 3.75% atDecember 31, 2018 . Net interest margin, which is net interest income divided by average earning assets, was 4.02% for the year 2019 compared to 3.94% for the year 2018. AtDecember 31, 2019 , the FTE average yield on all earning assets increased 26 basis points to 4.89% compared to 4.63% atDecember 31, 2018 . Rates paid on average interest-bearing liabilities increased to 1.14% for the year 2019 compared to 0.88% for the year 2018. Interest earned on assets and interest accrued on liabilities is significantly influenced by market factors, specifically interest rates as set by Federal agencies. Average loans comprised 76.5% of average earnings assets for the year 2019 compared to 77.0% the year 2018. Average Balances, Income and Expenses, and Rates. The following tables depict, for the periods indicated, certain information related to the average balance sheet and average yields on assets and average costs of liabilities. Such yields are derived by dividing income or expense by the average balance of the corresponding assets or liabilities. Average balances have been derived from daily averages. 36 Table of Contents Average Balances, Income and Expenses, and Rates Years Ended December 31, 2020 2019 2018 Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ ($ in thousands) Balance Expenses Rate Balance Expenses Rate Balance Expenses Rate Assets Earning Assets Loans (1)(2)$ 3,020,280 $ 157,564 5.22 %$ 2,341,202 $ 128,857 5.50 %$ 1,678,746 $ 86,822 5.17 % Securities (4) 917,858 23,747 2.59 % 635,967 20,616 3.24 % 442,722 13,521 3.05 % Federal funds sold and interest bearing deposits with other banks (3) 317,848 378 0.12 % 84,171 264 0.31 % 58,900 631 1.07 % Total earning assets 4,255,986 181,689 4.27 % 3,061,340 149,737 4.89 % 2,180,368 100,974 4.63 % Other 523,412 401,614 248,289 Total assets$ 4,779,398 $ 3,462,954 $ 2,428,657 Liabilities Interest-bearing liabilities$ 3,901,797 $ 26,664 0.68 %$ 2,344,755 $ 26,723 1.14 %$ 1,712,255 $ 15,091 0.88 % Demand deposits (1) 260,435 327,805 254,118 Other liabilities 10,056 331,693 182,525 Stockholders' equity 607,110 458,701 279,759 Total liabilities and stockholders' equity$ 4,779,398 $ 3,462,954 $ 2,428,657 Net interest spread 3.59 % 3.75 % 3.75 % Net yield on interest-earning assets$ 155,025 3.64 %$ 123,014 4.02 %$ 85,883 3.94 %
All loans and deposits were made to borrowers or received from depositors in
(1)
Loans include held for sale loans.
(2) Includes loan fees of
31, 2020, 2019, and 2018, respectively.
(3) Includes Excess Balance Account-Mississippi National Banker's Bank.
(4) Fully tax equivalent yield assuming a 25.3% tax rate.
Analysis of Changes in Net Interest Income. The following table presents the
consolidated dollar amount of changes in interest income and interest expense
attributable to changes in volume and to changes in rate. The combined effect in
both volume and rate which cannot be separately identified has been allocated
proportionately to the change due to volume and due to rate.
Analysis of Changes in Consolidated Net Interest Income
Year Ended December 31, Year Ended December 31,
2020 versus 2019 2019 versus 2018
Increase (decrease) due to Increase (decrease) due to
($ in thousands) Volume Rate Net Volume Rate Net
Earning Assets
Loans $ 37,283 $ (8,576) $ 28,707 $ 34,294 $ 7,737 $ 42,031
Securities (1) 9,122 (5,991) 3,131 5,894 1,208 7,102
Federal funds sold and interest bearing deposits with other banks 721 (607) 114 270 (640) (370) Total interest income 47,126 (15,174) 31,952 40,458 8,305 48,763 Interest-Bearing Liabilities Interest-bearing transaction accounts (1,202) 1,835 633 1,489 1,821 3,310 Money market accounts and savings 1,992 (1,901) 91 424 1,828 2,252 Time deposits 1,487 (2,345) (858) 1,953 1,579 3,532 Borrowed funds 1,443 (1,368) 75 2,299 239 2,538
Total interest expense 3,720 (3,779) (59)
6,165 5,467 11,632 Net interest income$ 43,406 $ (11,395) $ 32,011 $ 34,303 $ 2,828 $ 37,131 37 Table of Contents
(1) Fully tax equivalent yield assuming a 25.3% tax rate.
Interest Sensitivity. The Company monitors and manages the pricing and maturity of its assets and liabilities in order to diminish the potential adverse impact that changes in interest rates could have on its net interest income. A monitoring technique employed by the Company is the measurement of the Company's interest sensitivity "gap," which is the positive or negative dollar difference between assets and liabilities that are subject to interest rate repricing within a given period of time. The Company also performs asset/liability modeling to assess the impact varying interest rates and balance sheet mix assumptions will have on net interest income. Interest rate sensitivity can be managed by repricing assets or liabilities, selling securities available-for-sale, replacing an asset or liability at maturity, or adjusting the interest rate during the life of an asset or liability. Managing the amount of assets and liabilities repricing in the same time interval helps to hedge the risk and minimize the impact on net interest income of rising or falling interest rates. The Company evaluates interest sensitivity risk and then formulates guidelines regarding asset generation and repricing, funding sources and pricing, and off-balance sheet commitments in order to decrease interest rate sensitivity risk.
The following tables illustrate the Company's consolidated interest rate
sensitivity and consolidated cumulative gap position by maturity at
December 31, 2020
After Three
Within Through Within Greater Than
Three Twelve One One Year or
Months Months Year Nonsensitive Total
Assets
Earning Assets:
Loans $ 220,572 $ 222,176 $ 442,748 $ 2,702,362 $ 3,145,110
Securities (2) 9,211 24,012 33,223 1,016,434 1,049,657
Funds sold and other - 424,870 424,870 - 424,870
Total earning assets $ 229,783 $ 671,058 $ 900,841 $ 3,718,796 $ 4,619,637
Liabilities
Interest-bearing liabilities:
Interest-bearing deposits:
NOW accounts (1) $ - $ 664,626 $ 664,626 $ - $ 664,626
Money market accounts 2,003,410 - 2,003,410 - 2,003,410
Savings deposits (1) - 395,116 395,116 - 395,116
Time deposits 116,796 303,571 420,367 160,682 581,049Total interest-bearing deposits 2,120,206 1,363,313 3,483,519 160,682 3,644,201 Borrowed funds (3) 110,182 554 110,736 3,911 114,647 Total interest-bearing liabilities 2,230,388 1,363,867 3,594,255 164,593 3,758,848
Interest-sensitivity gap per period
Cumulative gap at December 31, 2020$ (2,000,605) $ (2,693,414) $ (2,693,414) $ 860,789 $ 860,789 Ratio of cumulative gap to total earning assets at December 31, 2020 (43.3) % (58.3) % (58.3) % 18.6 % - 38 Table of Contents December 31, 2019 After Three Within Through Within Greater Than Three Twelve One One Year or Months Months Year Nonsensitive Total Assets Earning Assets: Loans$ 179,998 $ 272,741 $ 452,739 $ 2,158,429 $ 2,611,168 Securities (2) 9,125 25,282 34,407 757,370 791,777 Funds sold and other - 79,128 79,128 - 79,128 Total earning assets$ 189,123 $ 377,151 $ 566,274 $ 2,915,799 $ 3,482,073 Liabilities Interest-bearing liabilities: Interest-bearing deposits: NOW accounts (1) $ -$ 941,597 $ 941,597 $ -$ 941,517 Money market accounts 462,810 - 462,810 - 462,810 Savings deposits (1) - 287,200 287,200 - 287,200 Time deposits 123,978 378,170 502,148 159,570 661,718
Total interest-bearing deposits 586,788 1,606,967 2,193,755 159,570 2,353,325 Borrowed funds (3) 207,965 1,000 208,965 5,354 214,319
Total interest-bearing liabilities 794,753 1,607,967 2,402,720
164,924 2,567,644
Interest-sensitivity gap per period $ (605,630) $ (1,230,816) $ (1,836,446) $ 2,750,875 $ 914,429
Cumulative gap at December 31, 2019 $ (605,630) $ (1,836,466) $ (1,836,446) $ 914,429 $ 914,429
Ratio of cumulative gap to total
earning assets at December 31, 2019 (17.4) % (52.7) % (52.7) % 26.3 %
December 31, 2018
After Three
Within Through Within Greater Than
Three Twelve One One Year or
Months Months Year Nonsensitive Total
Assets
Earning Assets:
Loans $ 345,703 $ 175,228 $ 520,931 $ 1,544,329 $ 2,065,260
Securities (2) 18,627 19,616 38,243 476,685 514,928
Funds sold and other - 87,751 87,751 - 87,751
Total earning assets $ 364,330 $ 282,595 $ 646,925 $ 2,021,014 $ 2,667,939
Liabilities
Interest-bearing liabilities:
Interest-bearing deposits:
NOW accounts (1) $ - $ 835,433 $ 835,433 $ - $ 835,433
Money market accounts 312,552 - 312,552 - 312,552
Savings deposits (1) - 253,724 253,724 - 253,724
Time deposits 69,655 228,930 298,585 187,017 485,602Total interest-bearing deposits 382,207 1,318,087 1,700,294 187,017 1,887,311 Borrowed funds (3) 75,000 10,500 85,500 - 85,500
Total interest-bearing liabilities 457,207 1,328,587 1,785,794
187,017 1,972,811
Interest-sensitivity gap per period $ (92,877) $ (1,045,992) $ (1,138,869) $ 1,833,997 $ 695,128
Cumulative gap at December 31, 2018 $ (92,877) $ (1,138,869) $ (1,138,869) $ 695,128 $ 695,128
Ratio of cumulative gap to total
earning assets at December 31, 2018 (3.5) % (42.7) % (42.7) % 26.1 %
NOW and savings accounts are subject to immediate withdrawal and repricing. (1) These deposits do not tend to immediately react to changes in interest rates
and the Company believes these deposits are fairly stable. Therefore, these
deposits are included in the
39
Table of Contents
repricing period that management believes most closely matches the periods in
which they are likely to reprice rather than the period in which the funds can
be withdrawn contractually.
(2) Securities include mortgage backed and other installment paying obligations
based upon stated maturity dates.
(3) Does not include subordinated debentures of
the years ended
The Company generally would benefit from increasing market rates of interest when it has an asset-sensitive gap and generally from decreasing market rates of interest when it is liability sensitive. The Company currently is asset sensitive within the one-year time frame based on effective GAP which uses behavioral assumptions that model the rate sensitivity of non-maturity deposits by looking at the deposits' behavior rather than their contractual ability to re-price. The cash flows used in the analysis are the projected dollars of assets and liabilities that "reprice" (including maturities, repricing, likely calls, prepayments, etc.). However, the Company's gap analysis is not a precise indicator of its interest sensitivity position. The analysis presents only a static view of the timing of maturities and repricing opportunities, without taking into consideration that changes in interest rates do not affect all assets and liabilities equally. For example, rates paid on a substantial portion of core deposits may change contractually within a relatively short time frame, but those rates are viewed by management as significantly less interest-sensitive than market-based rates such as those paid on non-core deposits. Accordingly, management believes a liability sensitive-position within one year would not be as indicative of the Company's true interest sensitivity as it would be for an organization which depends to a greater extent on purchased funds to support earning assets. Net interest income is also affected by other significant factors, including changes in the volume and mix of earning assets and interest-bearing liabilities. The following tables depict, for the periods indicated, certain information related to interest rate sensitivity in net interest income and market value of equity:December 31, 2020 Net Interest Income at Risk Market Value of Equity Change in Interest % Change Bank % Change Bank Rates from Base Policy Limit from Base Policy Limit Up 400 bps 14.7 % (20.0) % 36.5 % (40.0) % Up 300 bps 12.4 % (15.0) % 31.9 % (30.0) % Up 200 bps 9.2 % (10.0) % 24.6 % (20.0) % Up 100 bps 5.1 % (5.0) % 14.1 % (10.0) % Down 100 bps (2.1) % (5.0) % (19.7) % (10.0) % Down 200 bps (3.0) % (10.0) % (31.2) % (20.0) % December 31, 2019 Net Interest Income at Risk Market Value of Equity Change in Interest % Change % Change Rates from Base Policy Limit from Base Policy Limit Up 400 bps 0.7 % (20.0) % 21.3 % (40.0) % Up 300 bps 2.1 % (15.0) % 19.9 % (30.0) % Up 200 bps 2.3 % (10.0) % 16.3 % (20.0) % Up 100 bps 1.6 % (5.0) % 9.8 % (10.0) % Down 100 bps (3.0) % (5.0) % (6.4) % (10.0) % Down 200 bps (5.1) % (10.0) % 0.1 % (20.0) % 40 Table of Contents December 31, 2018 Net Interest Income at Risk Market Value of Equity Change in Interest % Change % Change Rates from Base Policy Limit from Base Policy Limit Up 400 bps 3.1 % (20.0) % 19.0 % (40.0) % Up 300 bps 4.2 % (15.0) % 17.9 % (30.0) % Up 200 bps 3.9 % (10.0) % 14.6 % (20.0) % Up 100 bps 2.5 % (5.0) % 8.8 % (10.0) % Down 100 bps (4.8) % (5.0) % (13.7) % (10.0) % Down 200 bps (9.6) % (10.0) % (20.8) % (20.0) %
Provision and Allowance for Loan Losses
The Company has developed policies and procedures for evaluating the overall quality of its credit portfolio and the timely identification of potential problem loans. Management's judgment as to the adequacy of the allowance for loan losses is based upon a number of assumptions about future events which it believes to be reasonable, but which may not prove to be accurate. Thus, there can be no assurance that charge-offs in future periods will not exceed the allowance for loan losses or that additional increases in the loan loss allowance will not be required. The Company's allowance consists of two parts. The first part is determined in accordance with authoritative guidance issued by the FASB regarding the allowance. The Company's determination of this part of the allowance is based upon quantitative and qualitative factors. The Company uses a loan loss history based upon the prior eleven years to determine the appropriate allowance. Historical loss factors are calculated and allocated to loans by loan type. These historical loss factors are applied to the loans by loan type to determine an indicated allowance. The loss factors of peer groups are considered in the determination of the allowance and are used to assist in the establishment of a long-term loss history for areas in which this data is unavailable and incorporated into the qualitative factors to be considered. The historical loss factors may also be modified based upon other qualitative factors including but not limited to local and national economic conditions, trends of delinquent and problem loans, changes in lending policies and underwriting standards, concentrations, and management's knowledge of the loan portfolio. These factors require judgment on the part of management and are based upon state and national economic reports received from various institutions and agencies including theFederal Reserve Bank ,United States Bureau of Economic Analysis ,Bureau of Labor Statistics , meetings with the Company's loan officers and loan committees, and data and guidance received or obtained from the Company's regulatory authorities. The second part of the allowance is determined in accordance with guidance issued by the FASB regarding impaired loans. Impaired loans are determined based upon ongoing review by senior management in the areas ofCredit Administration and Portfolio Management. Impaired loans are loans for which the Bank does not expect to receive all contractually obligated repayment by the due date. A specific allowance is assigned to each loan determined to be impaired based upon the value of the loan's underlying collateral. Appraisals are used by management to determine the value of the collateral.
The sum of the two parts constitutes management's best estimate of an
appropriate allowance for loan losses. When the estimated allowance is
determined, it is presented to the Company's
Our allowance for loan loss model's quantitative methodology is focused on
establishing a loss probability using the Bank's historical default and net
charge off data. The quantitative portion of the loss estimation model also
includes specific impairments individually reserved for credits that the Bank
determines the ultimate repayment source will be liquidation of the subject
collateral. The other qualitative component used in calculating a loss estimate
takes into account other factors such as local and national economic factors,
portfolio composition and collateral concentrations, asset quality, lending
personnel knowledge and experience, as well as loan policy guidelines and their
effect on underwriting standards. These trends are measured by analyzing the
following variables:
41
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Local Trends:
Local Unemployment Rate
Insurance Issues (Windpool Areas)
Bankruptcy Rates (Increasing/Declining)
Local Commercial R/E Vacancy Rates
Established Market/New Market
Hurricane Threat
National Trends:
Gross Domestic Product (GDP)
Home Sales
Consumer Price Index (CPI)
Interest Rate Environment (Increasing/Steady/Declining)
Single Family Construction Starts
Inflation Rate
Retail Sales
Portfolio Trends:
Second Mortgages
Single Pay Loans
Non-Recourse Loans
Limited Guaranty Loans
Loan to Value Exceptions
Secured by Non-Owner Occupied Property
Raw Land Loans
Unsecured Loans
Measurable Bank Trends:
Delinquency Trends
Nonaccrual Trends
Net Charge Offs
Loan Volume Trends
Non-Performing Assets
Underwriting Standards/Lending Policies
Experience/Depth of Bank Lending
Management
The bank wide information and metrics, along with the local and national
economic trends listed above, are all measured quarterly. As of December 31,
2020 , the economy showed continued signs of a gradual return to pre-pandemic
performance levels through the 4th quarter. The rollout of a COVID vaccine
helped in this progress, but the uncertainty in the upcoming change of the
presidential administration and possible new waves of COVID infections continued
to slow down any chance for a total economic recovery. This warranted the
overall Qualitative and Environmental ("Q&E") adjustment factor to remain higher
than normal, but it was a decrease in the adjustment from the three previous
quarters.
At December 31, 2020 , the consolidated allowance for loan losses was
approximately $35.8 million , or 1.16% of outstanding loans excluding mortgage
loans held for sale. At December 31, 2019 , the allowance for loan losses
amounted to approximately $13.9 million , which was 0.53% of outstanding loans
excluding mortgage loans held for sale. The provision for loan losses is a
charge to earnings to maintain the allowance for loan losses at a level
consistent with management's assessment of the collectability of the loan
portfolio in light of current economic conditions and market trends. The
Company maintains the allowance at a level that management believes is adequate
to absorb probable incurred losses inherent in the loan portfolio.
Specifically, identifiable and quantifiable losses
42
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are immediately charged-off against the allowance; recoveries are generally recorded only when sufficient cash payments are received subsequent to the charge off. The Company's provision for loan losses was$25.2 million for the year endedDecember 31, 2020 ,$3.7 million for the year endedDecember 31, 2019 , and$2.1 million for the year endedDecember 31, 2018 . The increase of$21.4 million in 2020 was primarily related to the economic effects of the COVID-19 pandemic. The$1.6 million increase in 2019 was primarily related to our internal assessment of the credit quality of the loan portfolio which included additional impairments of certain loans. The overall allowance for loan losses results from consistent application of our loan loss reserve methodology as described above. AtDecember 31, 2020 , management believes the allowance is appropriate and has been derived from consistent application of our methodology. Should any of the factors considered by management in evaluating the appropriateness of the allowance for loan losses change, management's estimate of inherent losses in the portfolio could also change, which would affect the level of future provisions for loan losses. During the first quarter of 2020, theWorld Health Organization declared the spread of the COVID-19 virus to be a global pandemic. That has caused significant disruptions to theU.S. economy across all industries. With the number of diagnosed cases of the virus rising throughout the year, it is still impossible to foresee how long the pandemic will last and what effect it will have on the economy, or to what extent this crisis will impact the Company.
All
available industry statistics and trends, as well as internal tracking of loan repayment ability and payment forgiveness across the portfolio is being analyzed in an attempt to understand the correlation with asset quality and degree of possible deterioration. This ongoing analysis of the possibility of increasing credit losses resulted in the need for a provision expense that will continue to provide an adequate allowance reserve for this situation. If economic conditions continue to worsen, further funding to the allowance may be required in future periods. During the first quarter of 2020, the Company elected to delay the adoption of CECL afforded through the CARES Act. The Company currently anticipates CECL adoption to occur as ofJanuary 1, 2021 .
Non-Performing Assets
A loan is reviewed for impairment when, based on all available information and
events, it displays characteristics causing management to determine that the
collection of all principal, interest, and other related fees due according to
the contractual terms of the loan agreement is not probable. Also at this time,
the accrual of interest is discontinued. Along with these loans in nonaccrual
status, all loans determined by management to be labelled as "troubled debt
restructure" based on regulatory guidance are reviewed for impairment. Loans
that are identified as criticized or classified based on unsatisfactory
repayment performance, or other evidence of deteriorating credit quality, are
not reviewed until being placed in nonaccrual status or when considered to be
troubled debt restructure.
Once these loans are identified, they are analyzed to determine whether the
ultimate repayment source will be liquidation of collateral or some future
source of cash flow. If the only source of repayment will come from the
liquidation of collateral, impairment worksheets are prepared to document the
amount of impairment that exists. This method takes into account collateral
exposure, as well as all expected expenses related to the disposal of the
collateral. Specific allowances for these loans are then accounted for on a per
loan basis.
The following tables illustrate the Company's past due and nonaccrual loans,
including purchased credit impaired ("PCI") loans, at December 31, 2020 , 2019
and 2018 ($ in thousands):
December 31, 2020
Past Due 90
Past Due 30 to Days or more and
89 Days still accruing NonaccrualCommercial, financial and agriculture $ 1,007 $
244 $ 2,418
Commercial real estate 2,116 1,553 22,887
Consumer real estate 5,389 895 8,434
Consumer installment 419 - 35
Total $ 8,931 $ 2,692 $ 33,774
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December 31, 2019
Past Due 90
Past Due 30 to Days or more and
89 Days still accruing Nonaccrual
Commercial, financial and agriculture $ 515 $
61 $ 2,234
Commercial real estate 2,447 1,046 26,286
Consumer real estate 4,569 1,608 10,050
Consumer installment 226 - 265
Total $ 7,757 $ 2,715 $ 38,835
December 31, 2018
Past Due 90
Past Due 30 to Dys or more and
89 Days still accruing NonaccrualCommercial, financial and agriculture $ 1,650 $
- $ 1,208
Commercial real estate 5,137 570 14,592
Consumer real estate 5,529 650 9,192
Consumer installment 506 45 81
Total $ 12,822 $ 1,265 $ 25,073 Total nonaccrual loans atDecember 31, 2020 , were$33.8 million , a decrease of$5.0 million compared to$38.8 million atDecember 31, 2019 . Total nonaccrual loans atDecember 31, 2019 increased$13.7 million from$25.1 million atDecember 31, 2018 . The majority of the increase was related to two legacy relationships that were moved to nonaccrual status during 2019. Management believes these relationships were adequately reserved atDecember 31, 2020 .
Restructured loans not reported as past due or nonaccrual at
A potential problem loan is one in which management has serious doubts about the borrower's future performance under the terms of the loan contract and does not include the category of special mention. These loans are current as to principal and interest and, accordingly, they are not included in nonperforming asset categories. The level of potential problem loans is one factor used in the determination of the adequacy of the allowance for loan losses. AtDecember 31, 2020 , 2019 and 2018, The First had potential problem loans of$161.7 million ,$67.9 million and$55.2 million , respectively. The increase of$93.8 million during 2020 was largely attributable to loans that were modified interest only or deferred monthly principal and interest related to the COVID-19 pandemic and certain loans acquired in the SWG transaction that were identified as classified or criticized based on repayment performance or credit quality. Summary of Loan Loss Experience Consolidated Allowance For Loan Losses Years Ended December 31, ($in thousands) 2020 2019 2018 2017 2016 Average loans outstanding, excluding mortgage loans held for sale$ 3,020,280 $ 2,341,202 $ 1,678,746 $ 1,168,882 $ 820,881 Loans outstanding at year end$ 3,145,110 $ 2,611,168 $ 2,065,260 $ 1,230,096 $ 872,934 Total nonaccrual loans$ 33,774 $ 38,835 $ 25,073 $ 5,673 $ 3,264
Beginning balance of allowance$ 13,908 $ 10,065 $ 8,288 $ 7,510 $ 6,747 Prior period reclassification - Mortgage Reserve Funding - - (181) - - Beginning balance of allowance restated 13,908 10,065 8,107 7,510 6,747 Loans charged-off (4,479) (664) (581) (405) (771) Total recoveries 1,240 769 419 677 909
Net loans (charged-off) recoveries (3,239) 105
(162) 272 138 Provision for loan losses 25,151 3,738 2,120 506 625 Balance at year end$ 35,820 $ 13,908 $ 10,065 $ 8,288 $ 7,510 Net charge-offs (recoveries) to average loans 0.11 % (0.004) % 0.01 % (0.02) % (0.02) % Allowance as percent of total loans 1.14 % 0.53 % 0.49 % 0.67 % 0.86 % Nonaccrual loans as a percentage of total loans 1.07 % 1.47 % 1.06 % 0.46 % 0.37 % Allowance as a multiple of nonaccrual loans 1.06 X 0.36 X 0.46 X 1.5 X 2.3 X 44 Table of Contents
At
Allowance
Allocated:
Impaired loans $ 5,669
Loans collectively evaluated 30,151
$ 35,820 Loan collectively evaluated are those loans or pools of loans assigned a grade by internal loan review.
The following table represents the activity of the allowance for loan losses for the years 2020, 2019, 2018, 2017, and 2016 ($ in thousands):
Analysis of the Allowance for Loan Losses
($ in thousands) 2020 2019 2018 2017 2016
Balance at beginning of period $ 13,908 $ 10,065 $ 8,288 $ 7,510 $ 6,747
Prior period reclassification -
Mortgage Reserve Funding - - (181) - -
Beginning balance of allowance
restated 13,908 10,065 8,107 7,510 6,747
Loans charged-off:
Commercial, financial and
agriculture (1,496) (141) (265) (62) (71)
Commercial real estate (2,256) (54) (222) (111) (274)
Consumer real estate (280) (163) (7) (151) (353)
Consumer installment (447) (306) (87) (81) (73)
Total (4,479) (664) (581) (405) (771)
Recoveries on loans previously
charged-off:
Commercial, financial and
agriculture 169 85 44 50 84
Commercial real estate 418 142 44 294 236
Consumer real estate 251 240 183 228 519
Consumer installment 402 302 148 105 70
Total 1,240 769 419 677 909
Net (Charge-offs) Recoveries (3,239) 105 (162) 272 138
Provision for Loan Losses 25,151 3,738 2,120 506 625
Balance at end of period $ 35,820 $ 13,908 $ 10,065 $ 8,288 $ 7,510
The following tables represents how the allowance for loan losses is allocated
to a particular loan type as well as the percentage of the category to total
loans, gross of purchase discounts at December 31, 2020 , 2019 and 2018 ($ in
thousands):
Allocation of the Allowance for Loan Losses
December 31, 2020
% of loans
in each
category
Amount to total loans
Commercial, financial and agriculture $ 6,214 18.4 %
Commercial real estate 24,319 63.0 %
Consumer real estate 4,736 17.3 %
Installment and other 551 1.3 %
Total $ 35,820 100 %
45
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December 31, 2019
% of loans
in each
category
Amount to total loans
Commercial, financial and agriculture $ 3,043 13.1 %
Commercial real estate 8,836 65.5 %
Consumer real estate 1,694 19.8 %
Installment and other 296 1.6 %
Unallocated 39 -
Total $ 13,908 100 %
December 31, 2018
% of loans
in each
category
Amount to total loans
Commercial, financial and agriculture $ 2,060 14.8 %
Commercial real estate 6,258 64.6 %
Consumer real estate 1,743 18.9 %
Installment and other 201 1.7 %
Unallocated (197) -
Total $ 10,065 100 %
Non-interest Income
The Company's primary sources of non-interest income are mortgage banking operations and service charges on deposit accounts. Other sources of non-interest income include bankcard fees, commissions on check sales, safe deposit box rent, wire transfer fees, official check fees and bank owned life insurance income.
Non-interest income was$41.9 million atDecember 31, 2020 , an increase of$14.9 million or 55.4% compared toDecember 31, 2019 . The increase includes an$8.3 million , net of tax, bargain purchase gain and sale of land, an increase in mortgage income of$4.5 million and an increase in interchange fee income of$1.4 million . Non-interest income was$26.9 million atDecember 31, 2019 , an increase of$6.4 million or 31.1% compared toDecember 31, 2018 , primarily consisting of increases in service charges on deposit accounts of$2.0 million , interchange fee income of$2.8 million on the increased deposit base related to the acquisitions, as well as mortgage income and other charges and fees. Other service charges increased by$308 thousand or 29.4% for the year ended 2020 to$1.4 million from$1.0 million for the year endedDecember 31, 2019 and other service charges increased$51 thousand or 5.1% for the year endedDecember 31, 2019 , compared to$996 thousand for the year endedDecember 31, 2018 .
Non-interest Expense
Non-interest expense was$106.3 million atDecember 31, 2020 , an increase of$17.8 million in year-over-year comparison, of which$12.3 million is related to the operations of FFB and SWG. The remaining increase of$5.5 million in expenses are related to increases in salaries and employee benefits of$6.3 million and increases in occupancy of$386 thousand . Other expenses decreased$1.2 million in the year-over-year comparison. Non-interest expense was$88.6 million atDecember 31, 2019 , an increase of$12.3 million in year-over-year comparison, of which$4.3 million is related to the operations of Southwest, Sunshine, FMB, FPB and FFB. The remaining increase of$8.0 million in expenses are related to increases in salaries and employee benefits of$3.7 million and increases in other expenses of$4.3 million . 46
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The following table sets forth the primary components of non-interest expense for the periods indicated ($ in thousands):
Non-interest Expense
Years ended December 31,
2020 2019 2018
Salaries and employee benefits
11,282 8,775 6,575
Furniture and equipment 2,551 2,021 1,551
Supplies and printing 925 798 553
Professional and consulting fees 3,897 3,558 1,926 Marketing and public relations
512 859 508
FDIC and OCC assessments 1,351 632 1,382
ATM expense 3,042 2,794 1,811
Bank communications 2,028 1,779 1,664
Data processing 1,137 898 1,051
Acquisition expense 3,315 6,275 13,810
Other 15,071 13,164 8,587
Total $ 106,341 $ 88,569 $ 76,311 Amounts previously reported have been adjusted to reflect the breakout of acquisition expenses. Total non-interest expense did not change.
Income Tax Expense
Income tax expense consists of two components. The first is the current tax expense which represents the expected income tax to be paid to taxing authorities. The Company also recognizes deferred tax for future income/deductible amounts resulting from differences in the financial statement and tax bases of assets and liabilities. Income tax expense was$10.6 million atDecember 31, 2020 ,$12.7 million atDecember 31, 2019 and$5.8 million atDecember 31, 2018 . The Company's effective income tax rate was 16.8%, 22.5% and 21.4% for the years endedDecember 31, 2020 , 2019 and 2018, respectively. The effective tax rate differs each year primarily due to our investments in bank-qualified municipal securities, bank-owed life insurance, and certain merger related expenses. The reduction in the Company's effective rate for 2020 compared to 2019 was primarily due to the$7.8 million , non-taxable, bargain purchase gain related to the SWG acquisition and the CARES Act that was signed into law onMarch 27, 2020 . The CARES Act includes several significant provisions for corporations including increasing the amount of deductible interest under section 163(j), allowing companies to carryback certain net operating losses, and increasing the amount of net operating loss that corporations can use to offset income. Income taxes are discussed more fully under Note K - Income Tax of this report. Analysis of Financial Condition
Earning Assets
Loans. Loans typically provide higher yields than the other types of earning assets, and thus one of the Company's goals is for loans to be the largest category of the Company's earning assets. AtDecember 31, 2020 , 2019 and 2018, respectively, average loans accounted for 71.0%, 76.5% and 77.0% of average earning assets. Management attempts to control and counterbalance the inherent credit and liquidity risks associated with the higher loan yields without sacrificing asset quality to achieve its asset mix goals. Loans , excluding mortgage loans held for sale, averaged$3.020 billion during 2020 and$2.341 billion during 2019, as compared to$1.679 billion during 2018. 47
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The following table shows the composition of the loan portfolio by category ($
in thousands):
Composition of Loan Portfolio
December 31,
2020 2019 2018
Percent Percent Percent
Amount of Total Amount of Total Amount of TotalMortgage loans held for sale$ 21,432 0.7 %$ 10,810 0.4 %$ 4,838 0.3 % Commercial, financial and agriculture (1) 561,341 17.8 % 332,600 12.7 % 301,182 14.6 % Commercial real estate 1,652,993 52.6 % 1,387,207 53.2 % 1,100,142 53.3 % Consumer real estate 850,206 27.0 % 814,282 31.2 % 593,260 28.7 % Consumer installment 41,036 1.3 % 42,458 1.6 % 46,006 2.2 % Lease financing receivable 2,733 0.1 % 3,095 0.1 % 2,891 0.1 % Obligation of states and subdivisions 15,369 0.5 % 20,716 0.8 % 16,941 0.8 % Total loans 3,145,110 100 % 2,611,168 100 % 2,065,260 100 % Allowance for loan losses (35,820) (13,908)
(10,065)
Net loans $ 3,109,290 $ 2,597,260 $ 2,055,195 (1) Loan amount as of
In the context of this discussion, a "real estate mortgage loan" is defined as any loan, other than loans for construction purposes, secured by real estate, regardless of the purpose of the loan. The Company follows the common practice of financial institutions in the Company's market area of obtaining a security interest in real estate whenever possible, in addition to any other available collateral. This collateral is taken to reinforce the likelihood of the ultimate repayment of the loan and tends to increase the magnitude of the real estate loan portfolio component. Generally, the Company limits its loan-to-value ratio to 80%. Management attempts to maintain a conservative philosophy regarding its underwriting guidelines and believes it will reduce the risk elements of its loan portfolio through strategies that diversify the lending mix. Loans held for sale consist of mortgage loans originated by the Bank and sold into the secondary market. Commitments from investors to purchase the loans are obtained upon origination.
The following table sets forth the Company's commercial and construction real
estate loans maturing within specified intervals at
Loan Maturity Schedule and Sensitivity to Changes in Interest Rates
Over One
Year
One Year Through Over Five
Type or Less Five Years Years TotalCommercial, financial and agricultural$ 66,898 $ 409,497 $ 84,946 $ 561,341 Real estate - commercial and consumer construction 117,538 99,283 84,463 301,284 Total$ 184,436 $ 508,780 $ 169,409 $ 862,625 Loans maturing after one year with: Commercial, financial and agricultural Fixed interest rates$ 456,716 Floating interest rates 37,727 Total$ 494,443 48 Table of Contents Real estate - commercial and consumer construction Fixed interest rates$ 124,387 Floating interest rates 59,359 Total$ 183,746
The information presented in the above table is based on the contractual maturities of the individual loans, including loans which may be subject to renewal at their contractual maturity. Renewal of such loans is subject to review and credit approval, as well as modification of terms upon their maturity.
Investment Securities . The investment securities portfolio is a significant component of the Company's total earning assets. Total securities averaged$917.9 million in 2020, as compared to$636.0 million in 2019, and$442.7 million in 2018. This represents 21.6%, 20.8%, and 20.3% of the average earning assets for the years endedDecember 31, 2020 , 2019 and 2018, respectively. AtDecember 31, 2020 , investment securities, including equity securities, were$1.050 billion and represented 21.1% of earning assets. The Company attempts to maintain a portfolio of high quality, highly liquid investments with returns competitive with short-termU.S. Treasury or agency obligations. This objective is particularly important as the Company focuses on growing its loan portfolio. The Company primarily invests in securities ofU.S. Government agencies, municipals, and corporate obligations with maturities up to ten years.
The following table summarizes the carrying value of securities, excluding other securities, for the dates indicated ($ in thousands):
Securities Portfolio
December 31,
2020 2019 2018
Available-for-sale
U.S. Treasury $ 9,383 $ 4,894 $ -U. S. Government agencies and Mortgage-backed Securities 501,402 473,265 334,812 States and municipal subdivisions 480,374
258,982 150,064 Corporate obligations 31,023 27,946 7,348 Total available-for-sale 1,022,182 765,087 492,224 Held-to-maturity U.S. Government agencies - -
States and municipal subdivisions -
- 6,000
Total held-to-maturity - - 6,000
Total $ 1,022,182 $ 765,087 $ 498,224 The following table shows, at carrying value, the scheduled maturities and
average yields of securities held at
Investment Securities Maturity Distribution and Yields
After One But After Five But
Within One Year Within Five Years Within Ten Years After Ten Years
Amount Yield Amount Yield Amount Yield Amount YieldAvailable-for-sale (1): U.S. Treasury$ 3,006 0.2 % $ - -$ 6,377 1.1 % $ - - U.S. Government agencies (2) 7,423 0.9 % 42,482 1.9 % 48,955 2.5 % 1,310 0.7 % States and municipal subdivisions 27,310 2.8 % 88,809 2.7 % 135,216 2.8 % 229,039 2.8 % Corporate obligations and other - - 16,368 2.1 % 14,420 3.3 % 235 2.1 % Total investment securities available-for-sale$ 37,739 $ 147,659
$ 204,968 $ 230,584 49 Table of Contents
(1) Investments with a call feature are shown as of the contractual maturity
date.
(2) Excludes mortgage-backed securities totaling
2.3%.
Short-Term Investments. Short-term investments, consisting of Federal Funds Sold, funds due from banks and interest-bearing deposits with banks, averaged$317.8 million in 2020,$84.2 million in 2019, and$58.9 million in 2018. There were no federal funds sold atDecember 31, 2020 , 2019, and 2018. These funds are a primary source of the Company's liquidity and are generally invested in an earning capacity on an overnight basis.
Deposits
Deposits. Average total deposits atDecember 31, 2020 were$3.918 billion , an increase of$1.118 billion , or 39.9% compared to 2019. Average total deposits atDecember 31, 2019 were$2.799 billion , an increase of$756.0 million , or 37.0% compared to$2.043 billion in 2018. AtDecember 31, 2020 , total deposits were$4.215 billion , compared to$3.077 billion atDecember 31, 2019 , an increase of$1.139 billion , or 37.0%, and$2.457 billion atDecember 31, 2018 . Deposits of$476.1 million were acquired in 2020 with the acquisition of SWG. Deposits of$686.4 million were acquired in 2019 with the acquisitions of FPB and FFB. The Company implemented Deposit Reclassification at the beginning of 2020. This program reclassifies non-interest bearing deposits and NOW deposit balances to money market accounts. This program reduces our reserve balance required at theFederal Reserve Bank of Atlanta and provides additional funds for liquidity or lending. AtDecember 31, 2020 ,$614.9 million in non-interest deposit balances and$683.2 million in NOW deposit accounts were reclassified as money market accounts. A distribution of the Company's deposits without reclassification showing the balance and percentage of total deposits by type is presented for the noted periods in the following table: Deposits ($ in thousand) December 31, 2020 2019 2018 Percent of Percent of Percent of Amount Deposits
Amount Deposits Amount Deposits Non-interest-bearing accounts
$ 1,185,980 28.1 %$ 723,208 23.5 %$ 570,148 23.2 % NOW accounts 1,347,778 32.0 % 941,598 30.6 % 835,434 34.0 % Money market accounts 705,357 16.7 % 462,810 15.1 % 312,552 12.7 % Savings accounts 395,116 9.4 % 287,200 9.3 % 253,724 10.3 % Time deposits less than$100,000 218,418 5.2 % 235,367 7.6 % 194,006 7.9 % Time deposits of$100,000 or over 362,631 8.6 % 426,350 13.9 % 291,595 11.9 % Total deposits$ 4,215,280 100 %$ 3,076,533 100 %$ 2,457,459 100 %
The Company's loan-to-deposit ratio,which excludes mortgage loans held for sale, was 74.1% atDecember 31, 2020 , 84.5% atDecember 31, 2019 and 83.8% atDecember 31, 2018 . The loan-to-deposit ratio averaged 77.1% during 2020. Core deposits, which exclude time deposits of$100,000 or more, provide a relatively stable funding source for the Company's loan portfolio and other earning assets. The Company's core deposits were$3.853 billion atDecember 31, 2020 ,$2.650 billion atDecember 31, 2019 , and$2.166 billion atDecember 31, 2018 . Management anticipates that a stable base of deposits will be the Company's primary source of funding to meet both its short-term and long-term liquidity needs in the future. The Company has purchased brokered deposits from time to time to help fund loan growth. Brokered deposits and jumbo certificates of deposit generally carry a higher interest rate than traditional core deposits. Further, brokered deposit customers typically do not have loan or other relationships with the Company. The Company has adopted a policy not to permit brokered deposits to represent more than 10% of all of the Company's deposits. Transaction account balances were above normal as ofDecember 31, 2020 , due to PPP loan proceeds. 50 Table of Contents Maturities of Certificates of Deposit of$100,000 or More After Three Within Three Through After Twelve ($ in thousands) Months Twelve Months Months Total December 31, 2020$ 71,761 $ 198,397 $ 92,473 $ 362,631 Borrowed Funds Borrowed funds consist of advances from theFederal Home Loan Bank of Dallas ("FHLB"), loans fromFirst Horizon Bank , federal funds purchased and reverse repurchase agreements. AtDecember 31, 2020 , advances from the FHLB totaled$110.0 million compared to$206.3 million atDecember 31, 2019 and$85.5 million atDecember 31, 2018 . The advances are collateralized by a blanket lien on the first mortgage loans in the amount of the outstanding borrowings, FHLB capital stock, and amounts on deposit with the FHLB. There were$0 ,$2.7 million and$0 federal funds purchased atDecember 31, 2020 , 2019, and 2018, respectively. As part of the FFB acquisition, the Company assumed two loans in the amount of$3.5 million and$2.0 million withFirst Horizon Bank . Principal and interest is payable quarterly at rates ranging from 3.80% - 4.10%.
Subordinated Debentures
In 2006, the Company issued subordinated debentures of$4.1 million toThe First Bancshares, Inc. Statutory Trust 2 ("Trust 2"). The Company is the sole owner of the equity of the Trust 2. The Trust 2 issued$4,000,000 of preferred securities to investors. The Company makes interest payments and will make principal payments on the debentures to the Trust 2. These payments will be the source of funds used to retire the preferred securities, which are redeemable at any time beginning in 2011 and thereafter, and mature in 2036. The Company entered into this arrangement to provide funding for expected growth. In 2007, the Company issued subordinated debentures of$6.2 million toThe First Bancshares, Inc. Statutory Trust 3 ("Trust 3"). The Company is the sole owner of the equity of the Trust 3. The Trust 3 issued$6,000,000 of preferred securities to investors. The Company makes interest payments and will make principal payments on the debentures to the Trust 3. These payments will be the source of funds used to retire the preferred securities, which are redeemable at any time beginning in 2012 and thereafter, and mature in 2037. The Company entered into this arrangement to provide funding for expected growth. In 2018, the Company acquiredFMB's Capital Trust 1 ("Trust 1"), which consisted of$6.1 million of floating rate junior subordinated deferrable interest debentures in which the Company owns all of the common equity. The Company is the sole owner of the equity of Trust 1. The Trust 1 issued$6,000,000 of preferred securities to investors. The Company makes interest payments and will make principal payments on the debentures to the Trust 1. These payments will be the source of funds used to retire the preferred securities, which are redeemable at any time beginning in 2008 and thereafter, and mature in 2033.
Subordinated Notes
April 30, 2018 , The Company entered into two Subordinated Note Purchase Agreements pursuant to which the Company sold and issued$24.0 million in aggregate principal amount of 5.875% fixed-to-floating rate subordinated notes due 2028 and$42.0 million in aggregate principal amount of 6.40% fixed-to-floating rate subordinated notes due 2033 (collectively, the "Notes"). Deferred issuance costs included in the subordinated debt were$961 thousand and$1.1 million atDecember 31, 2020 andDecember 31, 2019 . The Notes are not convertible into or exchangeable for any other securities or assets of the Company or any of its subsidiaries. The Notes are not subject to redemption at the option of the holder. Principal and interest on the Notes are subject to acceleration only in limited circumstances. The Notes are unsecured, subordinated obligations of the Company and rank junior in right to payment to the Company's current and future senior indebtedness, and each Note is pari passu in right to payment with respect to the other Notes. The Company entered into this arrangement to provide funding for expected growth. OnSeptember 25, 2020 , The Company entered into a Subordinated Note Purchase Agreement with certain qualified institutional buyers pursuant to which the Company sold and issued$65.0 million in aggregate principal amount of its 4.25% Fixed to Floating Rate Subordinated Notes due 2030. The Notes are unsecured and have a ten-year term, maturingOctober 1, 2030 , and will bear 51
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interest at a fixed annual rate of 4.25%, payable semi-annually in arrears, for
the first five years of the term. Thereafter, the interest rate will reset
quarterly to an interest rate per annum equal to a benchmark rate (which is
expected to be the Three-Month Term Secured Overnight Financing Rate ("SOFR")
plus 412.6 basis points, payable quarterly in arrears. As provided in the Notes,
under specified conditions the interest rate on the Notes during the applicable
floating rate period may be determined based on a rate other than Three-Month
Term SOFR. The Company is entitled to redeem the Notes, in whole or in part, on
any interest payment date on or after October 1, 2025 , and to redeem the Notes
at any time in whole upon certain other specified events.
The Company had $144.6 million of subordinated debt, net of deferred issuance
costs $2.2 million and unamortized fair value mark $700 thousand , at December
31, 2020 , compared to $80.7 million , net of deferred issuance costs $1.1 million
and unamortized fair value mark $754 thousand , at December 31, 2019 .
Capital
TheFederal Reserve Board and bank regulatory agencies require bank holding companies and financial institutions to maintain capital at adequate levels based on a percentage of assets and off-balance sheet exposures, adjusted for risk weights ranging from 0% forU.S government and agency securities, to 600% for certain equity exposures. InNovember 2019 , the federal banking agencies adopted a rule revising the scope of commercial real estate mortgages subject to a 150% risk weight. Under the risk-based standard, capital is classified into two tiers. Tier 1 capital consists of common stockholders' equity, excluding the unrealized gain (loss) on available-for-sale securities, minus certain intangible assets. Tier 2 capital consists of the general reserve for loan losses, subject to certain limitations. An institution's total risk-based capital for purposes of its risk-based capital ratio consists of the sum of its Tier 1 and Tier 2 capital. The risk-based regulatory minimum requirements are 6% for Tier 1 and 8% for total risk-based capital. Bank holding companies and banks are also required to maintain capital at a minimum level based on total assets, which is known as the leverage ratio. The minimum requirement for the leverage ratio is 4%. All but the highest rated institutions are required to maintain ratios 100 to 200 basis points above the minimum. The Company and The First exceeded their minimum regulatory capital ratios as ofDecember 31, 2020 , 2019 and 2018. TheFederal Reserve and theFederal Deposit Insurance Corporation approved final capital rules inJuly 2013 , that substantially amended the existing capital rules for banks. These new rules reflect, in part, certain standards initially adopted by theBasel Committee on Banking Supervision inDecember 2010 (which standards are commonly referred to as "Basel III") as well as requirements contemplated by the Dodd-Frank Act. Under the Basel III capital rules, the Company is required to meet certain minimum capital requirements that differ from past capital requirements. The rules implement a new capital ratio of common equity Tier 1 capital to risk-weighted assets. Common equity Tier 1 capital generally consists of retained earnings and common stock (subject to certain adjustments) as well as accumulated other comprehensive income ("AOCI"), however, the Company exercised a one-time irrevocable option to exclude certain components of AOCI as ofMarch 31, 2015 . The Company is required to establish a "conservation buffer," consisting of a common equity Tier 1 capital amount equal to 2.5% of risk-weighted assets effectiveJanuary 2019 . An institution that does not meet the conservation buffer will be subject to restrictions on certain activities including payment of dividends, stock repurchases, and discretionary bonuses to executive officers. The prompt corrective action rules have been modified to include the common equity Tier 1 capital ratio and to increase the Tier 1 capital ratio requirements for the various thresholds. For example, the requirements for the Company to be considered well-capitalized under the rules include a 5.0% leverage ratio, a 6.5% common equity Tier 1capital ratio, an 8.0% Tier 1 capital ratio, and a 10.0% total capital ratio. The rules modify the manner in which certain capital elements are determined. The rules make changes to the methods of calculating the risk-weighting of certain assets, which in turn affects the calculation of the risk-weighted capital ratios. Higher risk weights are assigned to various categories of assets, including commercial real estate loans, credit facilities that finance the acquisition, development or construction of real property, certain exposures or credit that are 90 days past due or are nonaccrual, securitization exposures, and in certain cases mortgage servicing rights and deferred tax assets. The Company was required to comply with the new capital rules onJanuary 1, 2015 , with a measurement date ofMarch 31, 2015 . The conservation buffer was phased-in beginning in 2016, and took full effect onJanuary 1, 2019 . Certain calculations under the 52 Table of Contents rules will also have phase-in periods. Under this guidance banking institutions with a CETI, Tier 1Capital Ratio and Total Risk Based Capital above the minimum regulatory adequate capital ratios but below the capital conservation buffer will face constraints on their ability to pay dividends, repurchase equity and pay discretionary bonuses to executive officers, based on the amount of the shortfall. The Company has elected to delay its adoption of ASU 2016-13, as provided by the CARES Act. The Company currently anticipates adoption of ASU 2016-13 to occur as ofJanuary 1, 2021 . In the first quarter of 2020,U.S. federal regulatory authorities issued an interim final rule that provides banking organizations that adopt CECL during the 2020 calendar year with the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay (i.e., a five-year transition in total). Analysis of Capital The Company The First Adequately Well December 31, December 31, Capital Ratios Capitalized Capitalized 2020 2019 2018 2020 2019 2018 Leverage 4.0 % 5.0 % 9.2 % 10.3 % 10.2 % 10.4 % 11.8 % 12.2 % Risk-based capital: Common equity Tier 1 4.5 % 6.5 % 13.5 % 12.5 % 11.5 % 15.8 % 15.1 % 14.8 % Tier 1 6.0 % 8.0 % 14.0 % 13.0 % 12.2 % 15.8 % 15.1 % 14.8 % Total 8.0 % 10.0 % 19.1 % 15.8 % 15.6 % 16.9 % 15.6 % 15.2 % Ratios 2020 2019 2018 Return on assets (net income available to common stockholders divided by average total assets) 1.1 % 1.3 %
0.9 %
Return on equity (net income available to common stockholders divided by average equity) 8.7 % 9.5 %
7.6 %
Dividend payout ratio (dividends per share divided by net income per common share)
16.7 % 12.2 % 12.3 %
Equity to asset ratio (average equity divided by average total assets) 12.7 % 13.3 % 11.5 %
Liquidity and Capital Resources
Liquidity management involves monitoring the Company's sources and uses of funds in order to meet its day-to-day cash flow requirements while maximizing profits. Liquidity represents the ability of a company to convert assets into cash or cash equivalents without significant loss and to raise additional funds by increasing liabilities. Liquidity management is made more complicated because different balance sheet components are subject to varying degrees of management control. For example, the timing of maturities of the investment portfolio is very predictable and subject to a high degree of control at the time investment decisions are made; however, net deposit inflows and outflows are far less predictable and are not subject to the same degree of control. Asset liquidity is provided by cash and assets which are readily marketable, which can be pledged, or which will mature in the near future. Liability liquidity is provided by access to core funding sources, principally the ability to generate customer deposits in the Company's market area. The Company's federal funds sold position, which includes funds due from banks and interest-bearing deposits with banks, is typically its primary source of liquidity. Federal funds sold averaged$317.8 million during the year endedDecember 31, 2020 and averaged$84.2 million atDecember 31, 2019 . In addition, the Company has available advances from the FHLB. Advances available are generally based upon the amount of qualified first mortgage loans which can be used for collateral. AtDecember 31, 2020 , advances available totaled approximately$1.198 billion , of which$215.2 million had been drawn, or used for letters of credit.
As of
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increase in unpledged debt from December 2020 compared to December 2019 is
primarily due to an increase in acquired deposits. Other forms of balance sheet
liquidity include but are not necessarily limited to any outstanding federal
funds sold and vault cash. Management believes that available investments and
other potentially liquid assets, along with the standby funding sources it has
arranged, are more than sufficient to meet the Company's current and anticipated
short-term liquidity needs.
The Company's liquidity ratio as of
December 31, 2020 Policy Maximum
Loans to Deposits (including FHLB advances) 70.9 % 90.0 % In Policy
Net Non-core Funding Dependency Ratio (4.4) % 20.0 % In Policy
Fed Funds Purchased / Total Assets 0.0 %
10.0 % In Policy
FHLB Advances / Total Assets 2.1 % 20.0 % In Policy
FRB Advances / Total Assets 0.0 % 10.0 % In PolicyPledged Securities toTotal Securities 54.9 %
90.0 % In Policy
December 31, 2019 Policy MaximumLoans to Deposits (including FHLB advances) 79.2 % 90.0 % In Policy Net Non-core Funding Dependency Ratio 8.9 % 20.0 % In Policy Fed Funds Purchased / Total Assets 0.1 %
10.0 % In Policy
FHLB Advances / Total Assets 5.2 % 20.0 % In Policy
FRB Advances / Total Assets 0.0 % 10.0 % In PolicyPledged Securities toTotal Securities 56.5 %
90.0 % In Policy
December 31, 2018 Policy MaximumLoans to Deposits (including FHLB advances) 80.5 % 90.0 % In Policy Net Non-core Funding Dependency Ratio 3.8 % 20.0 % In Policy Fed Funds Purchased / Total Assets 0.0 %
10.0 % In Policy
FHLB Advances / Total Assets 2.9 % 20.0 % In Policy
FRB Advances / Total Assets 0.0 % 10.0 % In PolicyPledged Securities toTotal Securities 77.8 %
90.0 % In Policy
Continued growth in core deposits and relatively high levels of potentially liquid investments have had a positive impact on our liquidity position in recent periods, but no assurance can be provided that our liquidity will continue at current robust levels.
The holding company's primary uses of funds are ordinary operating expenses and stockholder dividends, and its primary source of funds is dividends from the Bank since the holding company does not conduct regular banking operations. Management anticipates that the Bank will have sufficient earnings to provide dividends to the holding company to meet its funding requirements for the foreseeable future.
Management regularly reviews the liquidity position of the Company and has implemented internal policies which establish guidelines for sources of asset-based liquidity and limit the total amount of purchased funds used to support the balance sheet and funding from non-core sources.
DuringMarch 2020 , in response to COVID-19, theFederal Reserve lowered the primary credit rate by 150 basis points to 0.25 percent and extended terms to 90 days to enhance market liquidity and encourage use of the discount window. In addition, theFederal Reserve announced it would begin quantitative easing, or large-scale asset purchases, consisting primarily ofTreasury securities and mortgage-backed securities to stem the effects of the pandemic on the financial markets. A prolonged outbreak of the COVID-19 pandemic could cause a widespread liquidity crisis, and the availability of these funds or the options to sell securities currently held could be hindered. The full impact and duration of COVID-19 on our business is unknown but if it continues to curtail economic activity, it could impact our ability to obtain funding and result in the reduction of or the cessation of dividends. OnMarch 28, 2019 , the Company announced that its Board of Directors authorized a share repurchase program to purchase up to an aggregate of$20 million of the Company's common stock (the "March 2019 program"). This share repurchase program had an 54 Table of Contents expiration date ofDecember 31, 2019 . Under theMarch 2019 program, the Company could repurchase shares of its common stock periodically in a manner determined by the Company's management. The actual means and timing of purchase, target number of shares and maximum price or range of prices under the program was determined by management at its discretion and depended on a number of factors, including the market price of the Company's common stock, general market and economic conditions, and applicable legal and regulatory requirements. The Company repurchased 168,188 shares under theMarch 2019 program in 2019. OnMay 7, 2020 , the Company announced the renewal of its share repurchase program that previously expired onDecember 31, 2019 . Under the program, the Company could from time to time repurchase up to$15 million of shares of its common stock in any manner determined appropriate by the Company's management. The actual timing and method of any purchases, the target number of shares and the maximum price (or range of prices) under the program, was determined by management at its discretion and depended on a number of factors, including the market price of the Company's common stock, general market and economic conditions, and applicable legal and regulatory requirements. The renewed share repurchase program expired onDecember 31, 2020 . The Company repurchased 289,302 shares in 2020 pursuant to the program. OnDecember 16, 2020 , the Company announced that its Board of Directors has authorized a share repurchase program (the "Repurchase Program"), pursuant to which the Company may purchase up to an aggregate of$30 million in shares of the Company's issued and outstanding common stock. Under the program, the Company may, but is not required to, from time to time repurchase up$30 million of shares of its own common stock in any manner determined appropriate by the Company's management. The actual timing and method of any purchases, the target number of shares and the maximum price (or range of prices) under the program, will be determined by management at is discretion and will depend on a number of factors, including the market price of the Company's common stock, general market and economic conditions, and applicable legal and regulatory requirements. The Repurchase Program will have an expiration date ofDecember 31, 2021 .
Commitments and Contractual Obligations
The following table presents, as ofDecember 31, 2020 , fixed and determinable contractual obligations to third parties by payment date. Amounts in the table do not include accrued or accruing interest. Payments related to leases are based on actual payments specified in the underlying contracts. Further discussion of the nature of each obligation is included in the referenced note to the consolidated financial statements included elsewhere in this Form 10-K. After One After Three Note Within One But Within But Within After Five ($ in thousands) Reference Year Three Years Five Years Years Total
Deposits without a stated maturity G$ 3,634,231 $
- $ - $ - $ 3,634,231
Time deposits G 420,367 126,027 23,316 11,339 581,049
Borrowings H 110,735 1,560 1,685 667 114,647
Lease obligations I 1,807 2,841 1,822 1,842 8,312Trust preferred subordinated debentures N - - - 15,796 15,796 Subordinated note purchase agreement N - - - 128,796 128,796 Total Contractual obligations$ 4,166,980 $
130,428$ 26,823 $ 158,440 $ 4,482,671 Subprime Assets
The Bank does not engage in subprime lending activities targeted towards borrowers in high risk categories.
Accounting Matters
Information on new accounting matters is set forth in Note B - Summary of Significant Accounting Policies in the accompanying notes to the consolidated financial statements included elsewhere in this report. This information is incorporated herein by reference.
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Impact of Inflation
Unlike most industrial companies, the assets and liabilities of financial
institutions such as the Company are primarily monetary in nature. Therefore,
interest rates have a more significant effect on the Company's performance than
do the effects of changes in the general rate of inflation and change in prices.
In addition, interest rates do not necessarily move in the same direction or in
the same magnitude as the prices of goods and services. As discussed previously,
management seeks to manage the relationships between interest sensitive assets
and liabilities in order to protect against wide interest rate fluctuations,
including those resulting from inflation.
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