UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended March 31, 2023
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ______ to ______
Commission File Number: 001-38895
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s telephone number, including area code: (806 )
792-7101
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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The
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§
232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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☐
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☒
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Non-accelerated filer
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☐
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Smaller reporting company
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Emerging growth company
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of May 5, 2023, the registrant had 17,063,394 shares
of common stock, par value $1.00 per share, outstanding.
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Page
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PART I.
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3
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Item 1.
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3
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3
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4
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6
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Item 2.
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30
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Item 3.
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51
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Item 4.
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51
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PART II.
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52
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Item 1.
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52
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Item 1A.
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52
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Item 2.
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52 | |
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Item 3.
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52
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Item 4.
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52
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Item 5.
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52
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Item 6.
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53
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54
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| Item 1. |
Consolidated
Financial Statements
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SOUTH PLAINS FINANCIAL, INC. AND SUBSIDIARIES
(Dollars in thousands, except per share data)
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March 31,
2023
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December 31,
2022
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(Unaudited)
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ASSETS
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Cash and due from banks
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$
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$
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Interest-bearing deposits in banks
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Cash and cash equivalents
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Securities available for sale
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Loans held for sale ($
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Loans held for investment
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Allowance for credit losses on loans
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(
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)
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(
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Loans held for investment, net
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Accrued interest receivable
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Premises and equipment, net
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Bank-owned life insurance
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Goodwill
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Intangible assets, net
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Mortgage servicing rights
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Deferred tax asset, net
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Other assets
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Total assets
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$
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$
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Deposits:
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Noninterest-bearing
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$
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$
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Interest-bearing
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Total deposits
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Accrued expenses and other liabilities
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Subordinated debt
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Junior subordinated deferrable interest debentures
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Total liabilities
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Stockholders’ equity:
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Common stock, $
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Additional paid-in capital
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Retained earnings
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Accumulated other comprehensive loss
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(
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)
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(
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)
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Total stockholders’ equity
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Total liabilities and stockholders’ equity
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$
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$
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The accompanying notes are an integral part of these consolidated financial statements.
SOUTH PLAINS FINANCIAL, INC. AND SUBSIDIARIES
(Unaudited)
(Dollars in thousands, except per share data)
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Three Months Ended
March 31,
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2023
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2022
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Interest income:
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Loans, including fees
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$
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$
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Securities:
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Taxable
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Non-taxable
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Federal funds sold and interest-bearing deposits in banks
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Total interest income
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Interest expense:
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Deposits
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Notes payable & other borrowings
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Subordinated debt
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Junior subordinated deferrable interest debentures
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Total interest expense
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Net interest income
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Provision for credit losses
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(
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)
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Net interest income, after provision for credit losses
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Noninterest income:
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Service charges on deposit accounts
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Income from insurance activities
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Net gain on sales of loans
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Bank card services and interchange fees
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Other mortgage banking income (loss)
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( |
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Investment commissions
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Fiduciary fees
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Other
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Total noninterest income
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Noninterest expense:
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Salaries and employee benefits
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Occupancy and equipment, net
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Professional services
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Marketing and development
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IT and data services
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Bank card expenses
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Appraisal expenses
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Other
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Total noninterest expense
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Income before income taxes
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Income tax expense
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Net income
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$
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$
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The accompanying notes are an integral part of these consolidated financial statements.
SOUTH PLAINS FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (CONTINUED)
(Unaudited)
(Dollars in thousands, except per share data)
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Three Months Ended
March 31,
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2023
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2022
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Earnings per share:
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Basic
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$
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$
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Diluted
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$
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$
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Net income
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$
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$
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Other comprehensive income (loss):
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Unrealized gains (losses) on securities available for sale
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(
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)
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Less: Change in fair value on hedged state and municipal securities
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(
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)
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Tax effect
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(
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)
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Other comprehensive income (loss)
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(
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)
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Comprehensive income (loss)
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$
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$
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(
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)
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The accompanying notes are an integral part of these consolidated financial statements.
SOUTH PLAINS FINANCIAL, INC. AND SUBSIDIARIES
(Unaudited)
(Dollars in thousands, except per share data)
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Common Stock
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Additional
Paid-in
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Retained
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Accumulated
Other
Comprehensive
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|||||||||||||||||||||
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Shares
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Amount
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Capital
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Earnings
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Income (Loss)
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Total
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Three
Months Ended March 31,
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Balance at January 1, 2022
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$ | $ | $ | $ | $ | |||||||||||||||||||
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Net income
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— | |||||||||||||||||||||||
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Cash dividends declared - $
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— | ( |
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Other comprehensive loss
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— | ( |
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Exercise of employee stock options and vesting of restricted stock units, net of
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( |
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| Repurchases of common stock | ( |
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) | ( |
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Stock-based compensation
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— | |||||||||||||||||||||||
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Balance at March 31, 2022
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$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
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Balance at January 1, 2023
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$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
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Net income
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— | |||||||||||||||||||||||
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Cash dividends declared - $
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— | ( |
) | ( |
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Other comprehensive income
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— | |||||||||||||||||||||||
| Impact of adoption of ASU 2016-13 - CECL | — | ( |
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Exercise of employee stock options and vesting of restricted stock units, net of
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( |
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Stock-based compensation
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— | |||||||||||||||||||||||
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Balance at March 31, 2023
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$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
SOUTH PLAINS FINANCIAL, INC. AND SUBSIDIARIES
(Unaudited)
(Dollars in thousands)
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Three Months Ended
March 31,
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||||||||
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2023
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2022
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Cash flows from operating activities:
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Net income
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$
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$
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Adjustments to reconcile net income to net cash from operating activities:
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Provision for credit losses
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(
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)
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Depreciation and amortization
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Accretion and amortization
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Other gains, net
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(
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)
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Net gain on sales of loans
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(
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)
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(
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)
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Proceeds from sales of loans held for sale
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Loans originated for sale
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(
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)
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(
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)
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Deferred income tax expense
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Earnings on bank-owned life insurance
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(
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)
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(
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)
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Stock-based compensation
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Change in valuation of mortgage servicing rights
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(
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)
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Net change in:
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Accrued interest receivable and other assets
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Accrued expenses and other liabilities
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(
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)
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Net cash provided by operating activities
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Cash flows from investing activities:
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Activity in securities available for sale:
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Purchases
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(
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)
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Maturities, prepayments, and calls
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Loan originations and principal collections, net
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(
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)
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(
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)
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Purchases of premises and equipment
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(
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)
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(
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)
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Proceeds from sales of premises and equipment
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Proceeds from sales of foreclosed assets
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Net cash used in investing activities
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(
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)
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(
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)
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Cash flows from financing activities:
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Net change in deposits
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Payments to tax authorities for stock-based compensation
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(
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)
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(
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)
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Cash dividends paid on common stock
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(
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)
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(
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)
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Payments to repurchase common stock
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(
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)
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Net cash provided by financing activities
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Net change in cash and cash equivalents
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Beginning cash and cash equivalents
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Ending cash and cash equivalents
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$
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$
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Supplemental disclosures of cash flow information:
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Interest paid on deposits and borrowed funds
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$
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$
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Income taxes paid
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Supplemental schedule of noncash activities:
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Loans transferred to foreclosed assets
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$
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$
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Additions to mortgage servicing rights
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The accompanying notes are an integral part of these consolidated financial statements.
SOUTH PLAINS FINANCIAL, INC. AND SUBSIDIARIES
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations – South Plains Financial, Inc.
(“SPFI”) is a Texas corporation and registered bank holding company that conducts its principal activities through its subsidiaries from offices located throughout Texas and Eastern New Mexico. Principal activities include commercial and retail
banking, along with investment, trust, and mortgage services. The following were subsidiaries of SPFI as of March 31, 2023:
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Wholly-Owned, Consolidated Subsidiaries:
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Bank subsidiary
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Non-bank subsidiary
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Non-bank subsidiary
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Non-bank subsidiary
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Non-bank subsidiary
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Non-bank subsidiary
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Wholly-Owned, Equity Method Subsidiaries:
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Non-bank subsidiaries
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Basis of Presentation and Consolidation – The consolidated financial statements in
this Quarterly Report on Form 10-Q for the three months ended March 31, 2023 (this “Form 10-Q”) include the accounts of SPFI and its wholly-owned consolidated subsidiaries (collectively referred to as the “Company”) identified above. All significant
intercompany balances and transactions have been eliminated in consolidation.
The interim consolidated financial statements in this Form 10-Q have not been audited by an independent registered public accounting firm, but in the opinion of
management, reflect all adjustments necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows. All such adjustments were of a normal and recurring nature. The consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission (“SEC”).
Accordingly, the financial statements do not include all of the information and notes required by GAAP for complete financial statements and should be read in conjunction with the Company’s audited consolidated financial statements, and notes thereto
in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.
Use of Estimates – The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those estimates. Determination of the adequacy of the allowance for credit losses (“ACL”) is a
material estimate that is particularly susceptible to significant change in the near term; the assumptions used in stock-based compensation, derivatives, mortgage servicing rights, and fair values of financial instruments can also involve significant
management estimates.
Accounting Changes – Updates to the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) are prescribed in Accounting Standards Updates (“ASUs”), which are not authoritative
until incorporated into the ASC.
ASU 2016-13 Financial Instruments - Credit Losses (Topic 326). The FASB issued guidance to replace the incurred loss model with an expected loss model, which is
referred to as the current expected credit loss (“CECL”) model. The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables and held to maturity debt securities. The
CECL model also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby
letters of credit, financial guarantees, and other similar instruments) and net investments in sales type and direct financing leases recognized by a lessor in accordance with Topic 842 on leases. In addition, Topic 326 made changes to the
accounting for securities available for sale. One such change is to require credit losses to be presented as an allowance rather than as a write-down on securities available for sale management does not intend to sell or believes that it is more
likely than not they will be required to sell. The Company adopted the CECL model on January 1, 2023 using the modified retrospective approach, as a result, the Company recognized a one-time, after tax cumulative effect debit adjustment of $997 thousand to retained earnings, increased the ACL for loans by approximately $100 thousand and increased the ACL for off-balance sheet credit exposures by approximately $1.2
million. Results for reporting periods beginning after January 1, 2023 are presented under Topic 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP.
The Company made the following policy elections related to the adoption of the
CECL model: (i) accrued interest will be written off against interest income when financial assets are placed into nonaccrual status. Therefore, accrued interest will be excluded from the amortized cost basis for purposes of calculating the
ACL. Accrued interest receivable is presented in a separate line item in the Company’s Consolidated Balance Sheets. (ii) The fair value of collateral practical expedient has been elected on certain loans in determining the ACL, for which the
repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty.
The impact on the ACL resulting from the adoption of the CECL model is shown below.
| (Dollars in thousands) |
January 1, 2023
|
|||||||||||
Pre-Adoption
|
Impact of
Adoption
|
Post-Adoption
|
||||||||||
|
Commercial real estate
|
$
|
|
$
|
|
$
|
|
||||||
|
Commercial – specialized
|
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|
|||||||||
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Commercial - general
|
|
(
|
)
|
|
||||||||
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Consumer:
|
||||||||||||
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1-4 family
residential
|
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|
|||||||||
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Auto loans
|
|
(
|
)
|
|
||||||||
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Other consumer
|
|
(
|
)
|
|
||||||||
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Construction
|
|
|
|
|||||||||
|
Total allowance for credit losses on loans
|
$
|
|
$
|
|
$
|
|
||||||
|
Allowance for credit losses for off-balance sheet exposures
|
$
|
|
$
|
|
$
|
|
||||||
ASU 2022-02 Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. This ASU eliminates guidance for troubled debt restructurings by creditors and enhances disclosure requirements for certain loan modifications by creditors for borrowers experiencing financial distress. This ASU defines types of modifications as principal forgiveness, interest rate reduction, other than insignificant payment delays, or a term extension. In addition, the ASU requires disclosure of current-period gross charge-offs, by year of origination, in the vintage disclosure. The Company adopted the provisions of ASU 2022-02 as of January 1, 2023 on a prospective basis. The adoption of this amendment did not have a material impact on the Company’s consolidated financial statements.
In
connection with the adoption of the CECL model, the Company revised certain accounting policies and implemented certain accounting policy elections.
Securities – Investment securities may be classified into trading, held to maturity (“HTM”) or available for sale
(“AFS”) portfolios. Securities that are held principally for resale in the near term are classified as trading. Securities that management has the ability and positive intent to hold to maturity are classified as HTM and recorded at amortized
cost. Securities not classified as trading or HTM are AFS and are carried at fair value with unrealized gains and losses reported as a component of other comprehensive income (loss), net of tax. Management uses these assets as part of its
asset/liability management strategy; they may be sold in response to changes in liquidity needs, interest rates, resultant prepayment risk changes, and other factors. Management determines the appropriate classification of securities at the
time of purchase. Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Gains and losses on sales are recorded on the trade date, are derived from the amortized cost of
the security sold and are determined using the specific identification method. A security is placed on nonaccrual status if principal or interest has been in default for a period of 90 days or more, or if full payment of principal and interest is not expected. The Company has made a policy election to exclude accrued interest receivable from the
amortized cost basis of AFS securities and report the accrued interest in accrued interest receivable in the Company’s Consolidated Balance Sheets. Interest accrued but not received for a security placed on nonaccrual status is reversed
against interest income.
ACL (AFS Securities) – For AFS securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to
sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized costs basis is written down to fair value through income. For AFS securities
that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than
amortized cost, any changes to the rating of the security by rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash
flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACL is
recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an ACL is recognized in other comprehensive income (loss). Changes in the ACL are
recorded as provision for credit losses. Losses are charged against the allowance when management believes the uncollectibility of an AFS security is confirmed or when either of the criteria regarding intent or requirement to sell is met.
Accrued interest is excluded from the estimate of credit losses.
Loans – Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their
amortized cost. Amortized cost is the outstanding unpaid principal balances, net of any unearned income, charge-offs, unamortized deferred fees and costs on originated loans, and unamortized premiums or discounts on purchased loans. The Company
has made a policy election to exclude accrued interest from the amortized cost basis of loans and report accrued interest separately from the related loan balance in accrued interest receivable on the Company’s Consolidated Balance Sheets.
Accrued interest receivable is excluded from the estimate of credit losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment
of the related loan yield using the straight-line method, which is not materially different from the effective interest method required by GAAP.
Loans are placed on nonaccrual status when, in management’s
opinion, collection of interest is unlikely, which typically occurs when principal or interest payments are more than ninety days past
due. When interest accrual is discontinued, all unpaid accrued interest is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are
returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
ACL (Loans) – The ACL is a valuation account established by management as an estimate to cover expected credit losses through a provision for credit losses charged to earnings. Credit losses on loans are charged
against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Expected losses are calculated using comparable and quantifiable information from
both internal and external sources about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. Expected credit losses are estimated over
the contractual term of the loans and adjusted for expected prepayments.
The ACL is evaluated on a quarterly basis by management. The Company applied a dual credit risk rating
(“DCRR”) methodology that estimates each loan’s probability of default and loss given default to calculate the expected credit loss to non-analyzed loans at January 1 and March 31, 2023. The DCRR process quantifies the expected credit loss at
the loan level for the entire loan portfolio. Loan grades are assigned by a customized scorecard that risk rates each loan based on multiple probability of default and loss given default elements to measure the credit risk of the loan
portfolio. The ACL estimate incorporates the Company’s DCRR loan level risk rating methodology and the expected default rate frequency term structure to derive loan level life of loan estimates of credit losses for every loan in the portfolio.
The estimated credit loss for each loan is adjusted based on its one-year through the cycle estimate of expected credit loss to a life
of loan measurement that reflects current conditions and reasonable and supportable forecasts. The life of loan expected loss is determined using the contractual weighted average life of the loan adjusted for prepayments. Prepayment speeds are
determined by grouping the loans into pools based on segments and risk rating. After the life of loan expected losses are determined, they are adjusted to reflect the Company’s reasonable and supportable economic forecast over a selected range of to two years . The Company has developed regression models to project net
charge-off rates based on macroeconomic variables (“MEVs”), typically a one-year forecast period is used. MEV’s considered in the analysis consist of
data gathered from the St. Louis Federal Reserve Research Database (“FRED”), such as, federal funds rate, 10-year treasury rates, 30-year mortgage rates, crude oil prices, consumer price index, housing price index, unemployment rates, housing
starts, gross domestic product, and disposable personal income. These regression models are applied to the Company’s economic forecast to determine the corresponding net charge-off rates. The projected net charge-off rates for the given economic scenario are used to adjust the life
of loan expected losses. Qualitative adjustments are also made to ACL results for additional risk factors that are relevant in assessing the expected credit losses within our loan segments. These qualitative factor (“Q-Factor”) adjustments may
increase or decrease management’s estimate of the ACL by a calculated percentage based upon the estimated level of risk within a particular segment. Q-Factor risk decisions consider concentrations of the loan portfolio, expected changes to the
economic forecasts, large relationships, and other factors related to credit administration, such as borrower’s risk rating and the potential effect of delayed credit score migrations. Management quantifiably identifies segment percentage
Q-Factor adjustments using a scorecard risk rating system scaled to historical loss experience within a segment and management’s perceived risk for that particular segment.
While management uses available information to recognize credit losses on loans,
further reductions in the carrying amounts of loans may be necessary based on various factors. In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated credit losses on loans. Such agencies
may require the bank subsidiary to recognize additional credit losses based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the estimated credit losses
on loans may change materially in the near term. However, the amount of the change that is reasonably possible cannot be estimated.
Loans that exhibit
characteristics different from their pool characteristics are evaluated on an individual basis. Loans evaluated individually are not included in the collective ACL evaluation. When management determines that foreclosure is probable, or if certain
of these loans are considered to be collateral dependent with the borrower experiencing financial difficulty, the Company elects the fair value of collateral practical expedient, whereby the allowance is calculated as the amount by which the
amortized cost exceeds the fair value of collateral, less costs to sell.
ACL (Off-Balance Sheet Credit Exposures) – The Company estimates expected credit losses over the contractual period in
which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The ACL for off-balance sheet credit exposures is adjusted through provision for
credit losses. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. Utilization rates are determined based on a two-year rolling average of historical usage. Expected loss rates for all pass rated loans are used to determine the ACL for off-balance sheet credit
exposures. The ACL for off-balance sheet credit exposures is included in accrued expenses and other liabilities on the Company’s Consolidated Balance Sheets.
Acquired Loans – Loans that the Company acquires in connection with business combinations are recorded at fair value with no carryover of the acquired entity’s related ACL. The fair value of the acquired loans involves estimating the
amount and timing of principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest, adjusted for estimated prepayments and credit losses. In accordance with Topic 326, the
fair value adjustment is recorded as premium or discount to the unpaid principal balance of each acquired loan. In addition, the Company also records an ACL on each acquired loan.
Any acquired loans the Company determines have evidence of a more than insignificant deterioration in credit quality since origination, are considered to be purchase
credit deteriorated (“PCD”) loans. The Company evaluates acquired loans for deterioration in credit quality based on any of, but not limited to, the following: (i) non-accrual status; (ii) risk rating, (iii) watchlist credits; and (iv) delinquency
status. An ACL is determined using the same methodology as other individually evaluated loans. The sum of the PCD loan’s purchase price and ACL becomes its initial amortized cost basis. The difference between the initial amortized cost basis and
the par value of the loan is a non-credit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the ACL are recorded through provision for credit losses.
Goodwill and Other Intangible Assets – Goodwill resulting from business
combinations is generally determined as the excess of the fair value of the consideration transferred over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill is not amortized, but is tested for
impairment on October 31 of each year or more frequently if events and circumstances exist that indicate that an impairment test should be performed. During the three months ended March 31, 2023, economic uncertainty and liquidity concerns
surrounding the Company’s industry of operations resulted in a decrease in the Company’s stock price. The Company believed this resulted in a triggering event requiring an interim goodwill impairment quantitative analysis. The Company’s
estimated fair value as of March 31, 2023 exceeded its carrying amount resulting in no impairment charge for the three months ended
March 31, 2023. In addition, there was no goodwill impairment recorded for the year ended December 31, 2022.
Core deposit intangible (“CDI”) is a measure of the value of checking and savings
deposit relationships acquired in a business combination. The fair value of the CDI stemming from any given business combination is based on the present value of the expected cost savings attributable to the core deposit funding relative to an
alternative source of funding. CDI is amortized over the estimated useful lives of the existing deposit relationships acquired, but does not exceed 10
years. Substantially all CDI is amortized using the sum of the years’ digits method.
Earnings per Share – Basic earnings per share is net income divided by the weighted average number of
common shares outstanding during the period. Diluted earnings per share includes the dilutive effect of additional potential shares issuable under stock options. Earnings and dividends per share are restated for all stock splits and stock dividends
through the date of issuance of the consolidated financial statements.
Segment Information – The Company previously identified two operating segments: banking and insurance. The accounting policies for each of the segments were the same as those described in the summary of significant accounting
policies. Effective January 1, 2023, operations and financial performance of the insurance segment were being performed and evaluated on a Company-wide basis based on not being significant to the operating results of the Company. Furthermore, the
insurance segment was sold on April 1, 2023 (see Note 14). As a result, segment reporting disclosures have been removed.
Subsequent Events – The
Company has evaluated subsequent events and transactions from March 31,2023 through the date this Form 10-Q was filed with the SEC for potential recognition or disclosure as required by GAAP.
2. SECURITIES
The amortized cost, related gross unrealized gains and losses, allowance for credit losses, and estimated fair value of securities available for sale at the dates indicated follows (dollars in
thousands):
|
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Allowance
for Credit
Losses
|
Fair
Value
|
||||||||||||||||
|
March 31, 2023
|
||||||||||||||||||||
|
Available for sale:
|
||||||||||||||||||||
|
State and municipal
|
$
|
|
$
|
|
$
|
(
|
)
|
$ |
$
|
|
||||||||||
|
Residential mortgage-backed
securities
|
( |
) | ||||||||||||||||||
|
Commercial mortgage-backed securities
|
( |
) | ||||||||||||||||||
|
Commercial collateralized mortgage obligations
|
|
|
(
|
)
|
|
|||||||||||||||
|
Asset-backed and other amortizing securities
|
|
|
(
|
)
|
|
|||||||||||||||
|
Other securities
|
|
|
(
|
)
|
|
|||||||||||||||
|
$
|
|
$
|
|
$
|
(
|
)
|
$ |
$
|
|
|||||||||||
|
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Fair
Value
|
|||||||||||||
|
December 31, 2022
|
||||||||||||||||
|
Available for sale:
|
||||||||||||||||
|
State and municipal
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||
|
Residential mortgage-backed securities
|
( |
) | ||||||||||||||
|
Commercial mortgage-backed securities
|
( |
) | ||||||||||||||
|
Commercial collateralized mortgage obligations
|
|
|
(
|
)
|
|
|||||||||||
|
Asset-backed and other amortizing securities
|
|
|
(
|
)
|
|
|||||||||||
|
Other securities
|
|
|
(
|
)
|
|
|||||||||||
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||||
The amortized cost and estimated fair value of securities at March 31, 2023 are presented below by contractual maturity (dollars in thousands). Expected maturities may
differ from contractual maturities because issuers may have the right to call or prepay obligations. Other securities are shown separately since they are not due at a single maturity date.
|
Available for Sale
|
||||||||
|
Amortized
Cost
|
Fair
Value
|
|||||||
|
Within 1 year
|
$
|
|
$
|
|
||||
|
After 1 year through 5 years
|
|
|
||||||
|
After 5 years through 10 years
|
|
|
||||||
|
After 10 years
|
|
|
||||||
|
Other
|
|
|
||||||
|
$
|
|
$
|
|
|||||
At both March 31, 2023 and December 31, 2022, there were no
Securities with a carrying value of approximately $496.2
million and $464.1 million at March 31, 2023 and December 31, 2022, respectively, were pledged to collateralize public deposits and for
other purposes as required or permitted by law.
The following table segregates securities with unrealized losses at the periods indicated, by the duration they have been in a loss position for which an allowance for
credit losses has not been recorded (dollars in thousands):
|
Less than 12 Months
|
12 Months or More
|
Total
|
||||||||||||||||||||||
|
Fair
Value
|
Unrealized
Loss
|
Fair
Value
|
Unrealized
Loss
|
Fair
Value
|
Unrealized
Loss
|
|||||||||||||||||||
|
March 31, 2023
|
||||||||||||||||||||||||
|
State and municipal
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Residential mortgage-backed securities
|
||||||||||||||||||||||||
|
Commercial mortgage-backed securities
|
||||||||||||||||||||||||
|
Commercial collateralized mortgage obligations
|
|
|
|
|
|
|
||||||||||||||||||
|
Asset-backed and other amortizing securities
|
|
|
|
|
|
|
||||||||||||||||||
|
Other securities
|
|
|
|
|
|
|
||||||||||||||||||
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|||||||||||||
|
December 31, 2022
|
||||||||||||||||||||||||
|
State and municipal
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
| Residential mortgage-backed securities |
||||||||||||||||||||||||
| Commercial mortgage-backed securities |
||||||||||||||||||||||||