Annual Statements Open main menu

HOME BANCSHARES INC - Quarter Report: 2021 March (Form 10-Q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

FORM 10-Q

(Mark One)

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the Quarterly Period Ended March 31, 2021

or

 

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the Transition period from            to           

Commission File Number:  000-51904

HOME BANCSHARES, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Arkansas

 

71-0682831

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

719 Harkrider, Suite 100, Conway, Arkansas

 

72032

(Address of principal executive offices)

 

(Zip Code)

 

 

 

(501) 339-2929

(Registrant's telephone number, including area code)

 

Not Applicable

Former name, former address and former fiscal year, if changed since last report

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.01 per share

 

HOMB

 

NASDAQ Global Select Market

 

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 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 definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:  

 

Large accelerated filer

Accelerated filer  

Non-accelerated filer

Smaller reporting company  

 

 

Emerging growth company  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes       No  

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.  

Common Stock Issued and Outstanding: 164,842,385 shares as of May 5, 2021.


HOME BANCSHARES, INC.

FORM 10-Q

March 31, 2021

 

 

 

INDEX

 

 

 

 

 

Page No.

Part I:

Financial Information

 

 

 

 

Item 1:

Financial Statements

 

 

 

 

 

Consolidated Balance Sheets –

 

 

March 31, 2021 (Unaudited) and December 31, 2020

4

 

 

 

 

Consolidated Statements of Income (Unaudited) –

 

 

Three months ended March 31, 2021 and 2020

5

 

 

 

 

Consolidated Statements of Comprehensive Income (Unaudited) –

 

 

Three months ended March 31, 2021 and 2020

6

 

 

 

 

Consolidated Statements of Stockholders’ Equity (Unaudited) –

 

 

Three months ended March 31, 2021 and 2020

7-8

 

 

 

 

Consolidated Statements of Cash Flows (Unaudited) –

 

 

Three months ended March 31, 2021 and 2020

9

 

 

 

 

Condensed Notes to Consolidated Financial Statements (Unaudited)

10-48

 

 

 

 

Report of Independent Registered Public Accounting Firm

49

 

 

 

Item 2:

Management’s Discussion and Analysis of Financial Condition and Results of Operations

50-86

 

 

 

Item 3:

Quantitative and Qualitative Disclosures About Market Risk

86-89

 

 

 

Item 4:

Controls and Procedures

89

 

 

 

Part II:

Other Information

 

 

 

 

Item 1:

Legal Proceedings

90

 

 

 

Item 1A:

Risk Factors

90

 

 

 

Item 2:

Unregistered Sales of Equity Securities and Use of Proceeds

90

 

 

 

Item 3:

Defaults Upon Senior Securities

90

 

 

 

Item 4:

Mine Safety Disclosures

90

 

 

 

Item 5:

Other Information

90

 

 

 

Item 6:

Exhibits

91-92

 

 

 

Signatures

 

93

 

 

 

 

 


 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of our statements contained in this document, including matters discussed under the caption “Management's Discussion and Analysis of Financial Condition and Results of Operation,” are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements relate to future events or our future financial performance and include statements about the competitiveness of the banking industry, potential regulatory obligations, our entrance and expansion into other markets, including through potential acquisitions, our other business strategies and other statements that are not historical facts. Forward-looking statements are not guarantees of performance or results. When we use words like “may,” “plan,” “contemplate,” “anticipate,” “believe,” “intend,” “continue,” “expect,” “project,” “predict,” “estimate,” “could,” “should,” “would,” and similar expressions, you should consider them as identifying forward-looking statements, although we may use other phrasing. These forward-looking statements involve risks and uncertainties and are based on our beliefs and assumptions, and on the information available to us at the time that these disclosures were prepared. These forward-looking statements involve risks and uncertainties and may not be realized due to a variety of factors, including, but not limited to, the following:

 

the effects of future local, regional, national and international economic conditions, including inflation, a decrease in commercial real estate and residential housing values and unemployment;

 

changes in the level of nonperforming assets and charge-offs, and credit risk generally; 

 

the risks of changes in interest rates or the level and composition of deposits, loan demand and the values of loan collateral, securities and interest-sensitive assets and liabilities;

 

disruptions, uncertainties and related effects on our business and operations as a result of the ongoing COVID-19 pandemic and measures that have been or may be implemented or imposed in response to the pandemic, including the impact on, among other things, credit quality and liquidity;

 

the effect of any mergers, acquisitions or other transactions to which we or our bank subsidiary may from time to time be a party, including our ability to successfully integrate any businesses that we acquire;

 

the risk that expected cost savings and other benefits from acquisitions may not be fully realized or may take longer to realize than expected;

 

the possibility that an acquisition does not close when expected or at all because required regulatory, shareholder or other approvals and other conditions to closing are not received or satisfied on a timely basis or at all;

 

the reaction to a proposed acquisition transaction of the respective companies’ customers, employees and counterparties;

 

diversion of management time on acquisition-related issues;

 

the ability to enter into and/or close additional acquisitions;

 

the availability of and access to capital on terms acceptable to us;

 

increased regulatory requirements and supervision that applies as a result of our exceeding $10 billion in total assets;

 

legislation and regulation affecting the financial services industry as a whole, and the Company and its subsidiaries in particular, including the effects resulting from the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), recent reforms to the Dodd-Frank Act, legislation and regulations in response to the COVID-19 pandemic and other future legislative and regulatory changes;

 

changes in governmental monetary and fiscal policies;

 

the effects of terrorism and efforts to combat it;

 

political instability;

 

risks associated with our customer relationship with the Cuban government and our correspondent banking relationship with Banco Internacional de Comercio, S.A. (BICSA), a Cuban commercial bank;

 

adverse weather events, including hurricanes, and other natural disasters;

 

the ability to keep pace with technological changes, including changes regarding cybersecurity;

 

an increase in the incidence or severity of fraud, illegal payments, cybersecurity breaches or other illegal acts impacting our bank subsidiary, our vendors or our customers;

 

the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in our market area and elsewhere, including institutions operating regionally, nationally and internationally, together with competitors offering banking products and services by mail, telephone and the Internet;

 


 

potential claims, expenses and other adverse effects related to current or future litigation, regulatory examinations or other government actions;

 

the effect of changes in accounting policies and practices and auditing requirements, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board, and other accounting standard setters;

 

higher defaults on our loan portfolio than we expect; and

 

the failure of assumptions underlying the establishment of our allowance for credit losses or changes in our estimate of the adequacy of the allowance for credit losses.

All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by this Cautionary Note. Our actual results may differ significantly from those we discuss in these forward-looking statements. For other factors, risks and uncertainties that could cause our actual results to differ materially from estimates and projections contained in these forward-looking statements, see the “Risk Factors” section of our Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 26, 2021.

 

 

 


 

 

PART I: FINANCIAL INFORMATION

Item 1: Financial Statements

Home BancShares, Inc.

Consolidated Balance Sheets

 

(In thousands, except share data)

 

March 31, 2021

 

 

December 31, 2020

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

218,814

 

 

$

242,173

 

Interest-bearing deposits with other banks

 

 

2,259,734

 

 

 

1,021,615

 

Cash and cash equivalents

 

 

2,478,548

 

 

 

1,263,788

 

Investment securities – available-for-sale, net of allowance for credit losses

 

 

2,539,123

 

 

 

2,473,781

 

Loans receivable

 

 

10,778,493

 

 

 

11,220,721

 

Allowance for credit losses

 

 

(242,932

)

 

 

(245,473

)

Loans receivable, net

 

 

10,535,561

 

 

 

10,975,248

 

Bank premises and equipment, net

 

 

278,620

 

 

 

278,614

 

Foreclosed assets held for sale

 

 

3,004

 

 

 

4,420

 

Cash value of life insurance

 

 

103,599

 

 

 

103,519

 

Accrued interest receivable

 

 

55,495

 

 

 

60,528

 

Deferred tax asset, net

 

 

77,145

 

 

 

70,249

 

Goodwill

 

 

973,025

 

 

 

973,025

 

Core deposit and other intangibles

 

 

29,307

 

 

 

30,728

 

Other assets

 

 

166,814

 

 

 

164,904

 

Total assets

 

$

17,240,241

 

 

$

16,398,804

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

Demand and non-interest-bearing

 

$

3,859,722

 

 

$

3,266,753

 

Savings and interest-bearing transaction accounts

 

 

8,477,208

 

 

 

8,212,240

 

Time deposits

 

 

1,175,664

 

 

 

1,246,797

 

Total deposits

 

 

13,512,594

 

 

 

12,725,790

 

Federal funds purchased

 

 

 

 

 

 

Securities sold under agreements to repurchase

 

 

162,929

 

 

 

168,931

 

FHLB and other borrowed funds

 

 

400,000

 

 

 

400,000

 

Accrued interest payable and other liabilities

 

 

148,999

 

 

 

127,999

 

Subordinated debentures

 

 

370,515

 

 

 

370,326

 

Total liabilities

 

 

14,595,037

 

 

 

13,793,046

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock, par value $0.01; shares authorized 300,000,000 in 2021 and

   2020; shares issued and outstanding 165,141,370 in 2021 and 165,095,252 in 2020

 

 

1,651

 

 

 

1,651

 

Capital surplus

 

 

1,516,286

 

 

 

1,520,617

 

Retained earnings

 

 

1,107,818

 

 

 

1,039,370

 

Accumulated other comprehensive income

 

 

19,449

 

 

 

44,120

 

Total stockholders’ equity

 

 

2,645,204

 

 

 

2,605,758

 

Total liabilities and stockholders’ equity

 

$

17,240,241

 

 

$

16,398,804

 

 

See Condensed Notes to Consolidated Financial Statements.

 

4

 


 

Home BancShares, Inc.

Consolidated Statements of Income

 

 

 

Three Months Ended

March 31,

 

(In thousands, except per share data)

 

2021

 

 

2020

 

 

 

(Unaudited)

 

Interest income:

 

 

 

 

 

 

 

 

Loans

 

$

150,917

 

 

$

158,148

 

Investment securities

 

 

 

 

 

 

 

 

Taxable

 

 

6,253

 

 

 

9,776

 

Tax-exempt

 

 

5,071

 

 

 

3,114

 

Deposits – other banks

 

 

410

 

 

 

1,116

 

Federal funds sold

 

 

 

 

 

21

 

Total interest income

 

 

162,651

 

 

 

172,175

 

Interest expense:

 

 

 

 

 

 

 

 

Interest on deposits

 

 

7,705

 

 

 

24,198

 

Federal funds purchased

 

 

 

 

 

13

 

FHLB and other borrowed funds

 

 

1,875

 

 

 

2,698

 

Securities sold under agreements to repurchase

 

 

190

 

 

 

462

 

Subordinated debentures

 

 

4,793

 

 

 

5,079

 

Total interest expense

 

 

14,563

 

 

 

32,450

 

Net interest income

 

 

148,088

 

 

 

139,725

 

Provision for credit losses

 

 

 

 

 

94,598

 

Net interest income after provision for credit losses

 

 

148,088

 

 

 

45,127

 

Non-interest income:

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

 

5,002

 

 

 

6,631

 

Other service charges and fees

 

 

7,608

 

 

 

6,056

 

Trust fees

 

 

522

 

 

 

438

 

Mortgage lending income

 

 

8,167

 

 

 

2,621

 

Insurance commissions

 

 

492

 

 

 

678

 

Increase in cash value of life insurance

 

 

502

 

 

 

560

 

Dividends from FHLB, FRB, FNBB & other

 

 

8,609

 

 

 

7,842

 

Gain on sale of SBA loans

 

 

 

 

 

341

 

(Loss) gain on sale of branches, equipment and other assets, net

 

 

(29

)

 

 

82

 

Gain on OREO, net

 

 

401

 

 

 

277

 

Gain on securities, net

 

 

219

 

 

 

 

Fair value adjustment for marketable securities

 

 

5,782

 

 

 

(5,818

)

Other income

 

 

8,001

 

 

 

3,219

 

Total non-interest income

 

 

45,276

 

 

 

22,927

 

Non-interest expense:

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

42,059

 

 

 

39,329

 

Occupancy and equipment

 

 

9,237

 

 

 

8,873

 

Data processing expense

 

 

5,870

 

 

 

4,326

 

Other operating expenses

 

 

15,700

 

 

 

17,946

 

Total non-interest expense

 

 

72,866

 

 

 

70,474

 

Income (loss) before income taxes

 

 

120,498

 

 

 

(2,420

)

Income tax expense (benefit)

 

 

28,896

 

 

 

(2,927

)

Net income

 

$

91,602

 

 

$

507

 

Basic earnings per share

 

$

0.55

 

 

$

0.00

 

Diluted earnings per share

 

$

0.55

 

 

$

0.00

 

 

See Condensed Notes to Consolidated Financial Statements.

 

5

 


 

Home BancShares, Inc.

Consolidated Statements of Comprehensive Income

 

 

 

Three Months Ended

March 31,

 

(In thousands)

 

2021

 

 

2020

 

 

 

(Unaudited)

 

Net income

 

$

91,602

 

 

$

507

 

Net unrealized (loss) gain on available-for-sale securities

 

 

(33,400

)

 

 

6,430

 

Other comprehensive (loss) income, before tax effect

 

 

(33,400

)

 

 

6,430

 

Tax effect on other comprehensive income (loss)

 

 

8,729

 

 

 

(1,680

)

Other comprehensive (loss) income

 

 

(24,671

)

 

 

4,750

 

Comprehensive income

 

$

66,931

 

 

$

5,257

 

 

See Condensed Notes to Consolidated Financial Statements.

 

 

 

 

 

 

6

 


 

 

Home BancShares, Inc.

Consolidated Statements of Stockholders’ Equity

 

For the Three Months Ended March 31, 2021

 

(In thousands, except share data)

 

Common

Stock

 

 

Capital

Surplus

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

Income

 

 

Total

 

Balances at January 1, 2021

 

$

1,651

 

 

$

1,520,617

 

 

$

1,039,370

 

 

$

44,120

 

 

$

2,605,758

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

91,602

 

 

 

 

 

 

91,602

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

(24,671

)

 

 

(24,671

)

Net issuance of 161,434 shares of common stock

   from exercise of stock options

 

 

1

 

 

 

2,321

 

 

 

 

 

 

 

 

 

2,322

 

Repurchase of 330,000 shares of common stock

 

 

(3

)

 

 

(8,767

)

 

 

 

 

 

 

 

 

(8,770

)

Share-based compensation net issuance of 214,684

   shares of restricted common stock

 

 

2

 

 

 

2,115

 

 

 

 

 

 

 

 

 

2,117

 

Cash dividends – Common Stock, $0.14

   per share

 

 

 

 

 

 

 

 

(23,154

)

 

 

 

 

 

(23,154

)

Balances at March 31, 2021 (unaudited)

 

$

1,651

 

 

$

1,516,286

 

 

$

1,107,818

 

 

$

19,449

 

 

$

2,645,204

 

 

See Condensed Notes to Consolidated Financial Statements.

 

7

 


 

Home BancShares, Inc.

Consolidated Statements of Stockholders’ Equity

 

For the Three Months Ended March 31, 2020

 

(In thousands, except share data)

 

Common

Stock

 

 

Capital

Surplus

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Total

 

Balances at January 1, 2020

 

$

1,664

 

 

$

1,537,091

 

 

$

956,555

 

 

$

16,221

 

 

$

2,511,531

 

Cumulative change in accounting principle (adoption of ASC 326)

 

 

 

 

 

 

 

 

(43,956

)

 

 

 

 

 

(43,956

)

Balance at January 1, 2020 (as adjusted for change in accounting principle)

 

$

1,664

 

 

$

1,537,091

 

 

$

912,599

 

 

$

16,221

 

 

$

2,467,575

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

507

 

 

 

 

 

 

507

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

4,750

 

 

 

4,750

 

Net issuance of 22,864 shares of common

   stock from exercise of stock options

 

 

 

 

 

422

 

 

 

 

 

 

 

 

 

422

 

Repurchase of 1,423,560 shares of common

   stock

 

 

(14

)

 

 

(23,843

)

 

 

 

 

 

 

 

 

(23,857

)

Share-based compensation net issuance of

   175,249 shares of restricted common stock

 

 

1

 

 

 

2,481

 

 

 

 

 

 

 

 

 

2,482

 

Cash dividends – Common Stock, $0.13 per

   share

 

 

 

 

 

 

 

 

(21,608

)

 

 

 

 

 

(21,608

)

Balances at March 31, 2020 (unaudited)

 

$

1,651

 

 

$

1,516,151

 

 

$

891,498

 

 

$

20,971

 

 

$

2,430,271

 

 

See Condensed Notes to Consolidated Financial Statements.

 

8

 


 

Home BancShares, Inc.

Consolidated Statements of Cash Flows

 

 

 

Three Months Ended

March 31,

 

(In thousands)

 

2021

 

 

2020

 

 

 

(Unaudited)

 

Operating Activities

 

 

 

 

 

 

 

 

Net income

 

$

91,602

 

 

$

507

 

Adjustments to reconcile net income to net cash provided by operating

   activities:

 

 

 

 

 

 

 

 

Depreciation & amortization

 

 

4,728

 

 

 

4,750

 

(Increase) decrease in value of equity securities

 

 

(5,782

)

 

 

5,818

 

Amortization of securities, net

 

 

6,618

 

 

 

3,936

 

Accretion of purchased loans

 

 

(5,485

)

 

 

(7,647

)

Share-based compensation

 

 

2,117

 

 

 

2,482

 

Gain on assets

 

 

(591

)

 

 

(700

)

Provision for credit losses

 

 

 

 

 

94,598

 

Deferred income tax effect

 

 

(13,078

)

 

 

(32,809

)

Increase in cash value of life insurance

 

 

(502

)

 

 

(560

)

Originations of mortgage loans held for sale

 

 

(202,455

)

 

 

(137,945

)

Proceeds from sales of mortgage loans held for sale

 

 

203,936

 

 

 

139,915

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accrued interest receivable

 

 

5,033

 

 

 

(4,979

)

Other assets

 

 

13,943

 

 

 

16,458

 

Accrued interest payable and other liabilities

 

 

21,000

 

 

 

28,294

 

Net cash provided by operating activities

 

 

121,084

 

 

 

112,118

 

Investing Activities

 

 

 

 

 

 

 

 

Net decrease (increase) in loans, excluding purchased loans

 

 

441,905

 

 

 

(111,479

)

Purchases of investment securities – available-for-sale

 

 

(299,058

)

 

 

(157,808

)

Proceeds from maturities of investment securities – available-for-sale

 

 

175,805

 

 

 

137,960

 

Proceeds from sales of investment securities – available-for-sale

 

 

18,112

 

 

 

 

Purchases of equity securities

 

 

(10,460

)

 

 

(15,015

)

Proceeds from sales of equity securities

 

 

15,354

 

 

 

 

Redemptions of other investments

 

 

(50

)

 

 

(11,384

)

Proceeds from foreclosed assets held for sale

 

 

3,603

 

 

 

2,471

 

Proceeds from sale of SBA loans

 

 

 

 

 

4,057

 

Purchases of premises and equipment, net

 

 

(3,153

)

 

 

(4,545

)

Return of investment on cash value of life insurance

 

 

418

 

 

 

46,028

 

Net cash paid – market acquisitions

 

 

 

 

 

(421,211

)

Net cash provided by (used in) investing activities

 

 

342,476

 

 

 

(530,926

)

Financing Activities

 

 

 

 

 

 

 

 

Net increase in deposits

 

 

786,804

 

 

 

236,531

 

Net decrease in securities sold under agreements to repurchase

 

 

(6,002

)

 

 

(16,843

)

Net decrease in federal funds purchased

 

 

 

 

 

(5,000

)

Net increase in FHLB and other borrowed funds

 

 

 

 

 

329,997

 

Proceeds from exercise of stock options

 

 

2,322

 

 

 

422

 

Repurchase of common stock

 

 

(8,770

)

 

 

(23,857

)

Dividends paid on common stock

 

 

(23,154

)

 

 

(21,608

)

Net cash provided by financing activities

 

 

751,200

 

 

 

499,642

 

Net change in cash and cash equivalents

 

 

1,214,760

 

 

 

80,834

 

Cash and cash equivalents – beginning of year

 

 

1,263,788

 

 

 

490,601

 

Cash and cash equivalents – end of period

 

$

2,478,548

 

 

$

571,435

 

 

See Condensed Notes to Consolidated Financial Statements.

 

 

 

9

 


 

 

Home BancShares, Inc.

Condensed Notes to Consolidated Financial Statements

(Unaudited)

 

1.  Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations

Home BancShares, Inc. (the “Company” or “HBI”) is a bank holding company headquartered in Conway, Arkansas. The Company is primarily engaged in providing a full range of banking services to individual and corporate customers through its wholly-owned community bank subsidiary – Centennial Bank (sometimes referred to as “Centennial” or the “Bank”).  The Bank has branch locations in Arkansas, Florida, South Alabama and New York City.  The Company is subject to competition from other financial institutions. The Company also is subject to the regulation of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities.

A summary of the significant accounting policies of the Company follows:

Operating Segments

Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.  The Bank is the only significant subsidiary upon which management makes decisions regarding how to allocate resources and assess performance. Each of the branches of the Bank provide a group of similar banking services, including such products and services as commercial, real estate and consumer loans, time deposits, checking and savings accounts. The individual bank branches have similar operating and economic characteristics.  While the chief decision maker monitors the revenue streams of the various products, services and branch locations, operations are managed, and financial performance is evaluated on a Company-wide basis.  Accordingly, all of the banking services and branch locations are considered by management to be aggregated into one reportable operating segment.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for credit losses, the valuation of investment securities, the valuation of foreclosed assets and the valuations of assets acquired, and liabilities assumed in business combinations. In connection with the determination of the allowance for credit losses and the valuation of foreclosed assets, management obtains independent appraisals for significant properties.

Principles of Consolidation

The consolidated financial statements include the accounts of HBI and its subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation.

Reclassifications

Various items within the accompanying consolidated financial statements for previous years have been reclassified to provide more comparative information. These reclassifications had no effect on net earnings or stockholders’ equity.

Interim financial information

The accompanying unaudited consolidated financial statements as of March 31, 2021 and 2020 have been prepared in condensed format, and therefore do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

The information furnished in these interim statements reflects all adjustments which are, in the opinion of management, necessary for a fair statement of the results for each respective period presented. Such adjustments are of a normal recurring nature. The results of operations in the interim statements are not necessarily indicative of the results that may be expected for any other quarter or for the full year. The interim financial information should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2020 Form 10-K, filed with the Securities and Exchange Commission.

 

10

 


 

New Accounting Pronouncements

The Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASC 326”), effective January 1, 2020. The guidance replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology.  The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credits, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases. ASC 326 requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses as well as the credit quality and underwriting standards of a company’s portfolio.  In addition, ASC 326 made changes to the accounting for available-for-sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt securities management does not intend to sell or believes that it is more likely than not they will be required to sell.

The Company adopted ASC 326 using the modified retrospective method for loans and off-balance-sheet (“OBS”) credit exposures.  Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP.  The Company recorded a one-time cumulative-effect adjustment to the allowance for credit losses of $44.0 million which was recognized through a $32.5 million adjustment to retained earnings, net of tax. This adjustment brought the beginning balance of the allowance for credit losses to $146.1 million  as of January 1, 2020.  In addition, the Company recorded a $15.5 million reserve on unfunded commitments which was recognized through an $11.5 million adjustment to retained earnings, net of tax.

The Company adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration (“PCD”) that were previously classified as purchased credit impaired (“PCI”) and accounted for under ASC 310-30.  In 2019, the Company reevaluated its loan pools of purchased loans with deteriorated credit quality. These loans pools related specifically to acquired loans from the Heritage, Liberty, Landmark, Bay Cities, Bank of Commerce, Premier Bank, Stonegate and Shore Premier Finance acquisitions. At acquisition, a portion of these loans was recorded as purchased credit impaired loans on a pool by pool basis. Through the reevaluation of these loan pools, management determined that estimated losses for purchase credit impaired loans should be processed against the credit mark of the applicable pools.  The remaining non-accretable mark was then moved to accretable mark to be recognized over the remaining weighted average life of the loan pools.  The projected losses for these loans were less than the total credit mark.  As such, the remaining $107.6 million of loans in these pools along with the $29.3 million in accretable yield was deemed to be immaterial and was reclassified out of the purchased credit impaired loans category.  As of December 31, 2019, the Company no longer held any purchased loans with deteriorated credit quality. Therefore, the Company did not have any PCI loans upon adoption on of ASC 326 as of January 1, 2020.

The Company has purchased loans, some of which have experienced more than insignificant credit deterioration since origination.  PCD loans are recorded at the amount paid. An allowance for credit losses is determined using the same methodology as other loans. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through the provision for credit loss.

The Company adopted ASC 326 using the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2020. As of December 31, 2019, the Company did not have any other-than-temporarily impaired investment securities. Therefore, upon adoption of ASC 326, the Company determined than an allowance for credit losses on available-for-sale securities was not deemed material. However, the Company evaluated the investment portfolio during the first quarter of 2020 and determined that an $842,000 provision for credit losses was necessary. No additional provision was deemed necessary during the remaining quarters of 2020 or the first quarter of 2021. See Note 3 for further discussion.

 


 

11

 


 

 

The following table illustrates the impact of the adoption of ASC 326 on the Company’s 2020 consolidated balance sheet.

 

 

 

January 1, 2020

 

 

 

As Reported Under ASC 326

 

 

Pre-ASC 326 Adoption

 

 

Impact of ASC 326 Adoption

 

 

 

(In thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

    Allowance for credit losses on loans

 

$

146,110

 

 

$

102,122

 

 

$

43,988

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

    Allowance for credit losses on OBS

       credit exposures

       (included in other liabilities)

 

 

15,521

 

 

 

 

 

 

15,521

 

 

Revenue Recognition

Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers ("ASC Topic 606"), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity's contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied. The majority of our revenue-generating transactions are not subject to ASC Topic 606, including revenue generated from financial instruments, such as our loans, letters of credit, investment securities and mortgage lending income, as these activities are subject to other GAAP discussed elsewhere within our disclosures. Descriptions of our significant revenue-generating activities that are within the scope of ASC Topic 606, which are presented in our income statements as components of non-interest income are as follows:

 

Service charges on deposit accounts – These represent general service fees for monthly account maintenance and activity or transaction-based fees and consist of transaction-based revenue, time-based revenue (service period), item-based revenue or some other individual attribute-based revenue. Revenue is recognized when our performance obligation is completed which is generally monthly for account maintenance services or when a transaction has been completed (such as a wire transfer). Payment for such performance obligations are generally received at the time the performance obligations are satisfied.

 

Other service charges and fees – These represent credit card interchange fees and Centennial Commercial Finance Group (“Centennial CFG”) loan fees. The interchange fees are recorded in the period the performance obligation is satisfied which is generally the cash basis based on agreed upon contracts. The Centennial CFG loan fees are based on loan or other negotiated agreements with customers and are accounted for under ASC Topic 310.  

Earnings per Share

Basic earnings per share is computed based on the weighted-average number of shares outstanding during each year.  Diluted earnings per share is computed using the weighted-average shares and all potential dilutive shares outstanding during the period.  The following table sets forth the computation of basic and diluted earnings per share (“EPS”) for the following periods:

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

 

 

(In thousands)

 

Net income

 

$

91,602

 

 

$

507

 

Average shares outstanding

 

 

165,257

 

 

 

166,014

 

Effect of common stock options

 

 

189

 

 

 

 

Average diluted shares outstanding

 

 

165,446

 

 

 

166,014

 

Basic earnings per share

 

$

0.55

 

 

$

0.00

 

Diluted earnings per share

 

$

0.55

 

 

$

0.00

 

 

As of March 31, 2020, options to purchase 3.3 million shares of common stock with a weighted average exercise price of $19.57 were excluded from the computation of diluted earnings per share as the majority of the options had an exercise price which was greater than the average market price of the common stock.

 

12

 


 

2.  Business Combinations

Acquisition of LH-Finance

On February 29, 2020, the Company completed the acquisition of LH-Finance, the marine lending division of People’s United Bank, N.A. The Company paid a purchase price of approximately $421.2 million in cash. LH-Finance provides direct consumer financing for United States Coast Guard (“USCG”) registered high-end sail and power boats. Additionally, LH-Finance provides inventory floor plan lines of credit to marine dealers, primarily those selling USCG documented vessels.

Including the purchase accounting adjustments, as of the acquisition date, LH-Finance had approximately $409.1 million in total assets, including $407.4 million in total loans, which resulted in goodwill of $14.6 million being recorded.

The acquired portfolio of loans is now housed in the Shore Premier Finance (“SPF”) division.  The SPF division of Centennial is responsible for servicing the acquired loan portfolio and originating new loan production. In connection with this acquisition, Centennial opened a loan production office in Baltimore, Maryland.

3.  Investment Securities

  The following table summarizes the amortized cost and fair value of securities available-for-sale and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss):

 

 

 

March 31, 2021

 

 

 

Available-for-Sale

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

(Losses)

 

 

Estimated

Fair Value

 

 

 

(In thousands)

 

U.S. government-sponsored enterprises

 

$

333,291

 

 

$

2,004

 

 

$

(2,321

)

 

$

332,974

 

Residential mortgage-backed securities

 

 

751,372

 

 

 

8,731

 

 

 

(8,093

)

 

 

752,010

 

Commercial mortgage-backed securities

 

 

435,269

 

 

 

13,610

 

 

 

(1,042

)

 

 

447,837

 

State and political subdivisions

 

 

951,293

 

 

 

19,677

 

 

 

(7,167

)

 

 

963,803

 

Other securities

 

 

42,407

 

 

 

449

 

 

 

(357

)

 

 

42,499

 

Total

 

$

2,513,632

 

 

$

44,471

 

 

$

(18,980

)

 

$

2,539,123

 

 

 

 

December 31, 2020

 

 

 

Available-for-Sale

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

(Losses)

 

 

Estimated

Fair Value

 

 

 

(In thousands)

 

U.S. government-sponsored enterprises

 

$

325,860

 

 

$

2,338

 

 

$

(1,207

)

 

$

326,991

 

Residential mortgage-backed securities

 

 

703,138

 

 

 

10,607

 

 

 

(688

)

 

 

713,057

 

Commercial mortgage-backed securities

 

 

446,964

 

 

 

18,048

 

 

 

(126

)

 

 

464,886

 

State and political subdivisions

 

 

898,174

 

 

 

31,173

 

 

 

(1,454

)

 

 

927,893

 

Other securities

 

 

40,755

 

 

 

434

 

 

 

(235

)

 

 

40,954

 

Total

 

$

2,414,891

 

 

$

62,600

 

 

$

(3,710

)

 

$

2,473,781

 

 

 


 

13

 


 

 

Assets, principally investment securities, having a carrying value of approximately $1.08 billion at March 31, 2021 and December 31, 2020, respectively, were pledged to secure public deposits, as collateral for repurchase agreements, and for other purposes required or permitted by law. Investment securities pledged as collateral for repurchase agreements totaled approximately $162.9 million and $168.9 million at March 31, 2021 and December 31, 2020, respectively.

The amortized cost and estimated fair value of securities classified as available-for-sale at March 31, 2021, by contractual maturity, are shown below. Expected maturities could differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.

 

 

 

Available-for-Sale

 

 

 

Amortized

Cost

 

 

Estimated

Fair Value

 

 

 

(In thousands)

 

Due in one year or less

 

$

8,651

 

 

$

8,690

 

Due after one year through five years

 

 

47,161

 

 

 

48,038

 

Due after five years through ten years

 

 

232,035

 

 

 

232,163

 

Due after ten years

 

 

1,037,144

 

 

 

1,048,385

 

Mortgage - backed securities: Residential

 

 

751,372

 

 

 

752,010

 

Mortgage - backed securities: Commercial

 

 

435,269

 

 

 

447,837

 

Other

 

 

2,000

 

 

 

2,000

 

Total

 

$

2,513,632

 

 

$

2,539,123

 

During the three months ended March 31, 2021, $17.9 million in available-for-sale securities were sold. The gross realized gains on the sales totaled $219,000 for the three months ended March 31, 2021.

During the three-month period ended March 31, 2020, no available-for-sale securities were sold.

The following shows gross unrealized losses and estimated fair value of investment securities classified as available-for-sale, aggregated by investment category and length of time that individual investment securities have been in a continuous loss position as of March 31, 2021 and December 31, 2020.

 

 

 

March 31, 2021

 

 

 

Less Than 12 Months

 

 

12 Months or More

 

 

Total

 

 

 

Fair

Value

 

 

Unrealized

Losses

 

 

Fair

Value

 

 

Unrealized

Losses

 

 

Fair

Value

 

 

Unrealized

Losses

 

 

 

(In thousands)

 

U.S. government-sponsored enterprises

 

$

60,870

 

 

$

(1,637

)

 

$

77,145

 

 

$

(684

)

 

$

138,015

 

 

$

(2,321

)

Residential mortgage-backed securities

 

 

338,020

 

 

 

(8,016

)

 

 

10,938

 

 

 

(77

)

 

 

348,958

 

 

 

(8,093

)

Commercial mortgage-backed securities

 

 

68,953

 

 

 

(1,042

)

 

 

 

 

 

 

 

 

68,953

 

 

 

(1,042

)

State and political subdivisions

 

 

377,950

 

 

 

(6,217

)

 

 

13,133

 

 

 

(950

)

 

 

391,083

 

 

 

(7,167

)

Other securities

 

 

9,302

 

 

 

(250

)

 

 

8,258

 

 

 

(107

)

 

 

17,560

 

 

 

(357

)

Total

 

$

855,095

 

 

$

(17,162

)

 

$

109,474

 

 

$

(1,818

)

 

$

964,569

 

 

$

(18,980

)

 

 

 

December 31, 2020

 

 

 

Less Than 12 Months

 

 

12 Months or More

 

 

Total

 

 

 

Fair

Value

 

 

Unrealized

Losses

 

 

Fair

Value

 

 

Unrealized

Losses

 

 

Fair

Value

 

 

Unrealized

Losses

 

 

 

(In thousands)

 

U.S. government-sponsored enterprises

 

$

54,611

 

 

$

(383

)

 

$

95,249

 

 

$

(824

)

 

$

149,860

 

 

$

(1,207

)

Residential mortgage-backed securities

 

 

143,458

 

 

 

(643

)

 

 

4,900

 

 

 

(45

)

 

 

148,358

 

 

 

(688

)

Commercial mortgage-backed securities

 

 

26,886

 

 

 

(126

)

 

 

 

 

 

 

 

 

26,886

 

 

 

(126

)

State and political subdivisions

 

 

78,349

 

 

 

(1,454

)

 

 

 

 

 

 

 

 

78,349

 

 

 

(1,454

)

Other securities

 

 

5,434

 

 

 

(100

)

 

 

8,748

 

 

 

(135

)

 

 

14,182

 

 

 

(235

)

Total

 

$

308,738

 

 

$

(2,706

)

 

$

108,897

 

 

$

(1,004

)

 

$

417,635

 

 

$

(3,710

)

 


 

14

 


 

 

The Company evaluates all securities quarterly to determine if any debt securities in a loss position require a provision for credit losses in accordance with ASC 326, Measurement of Credit Losses on Financial Instruments. The Company first assesses whether it intends to sell or is more likely than not that the Company 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 cost basis is written down to fair value through income. For securities that do not meet this criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, changes to the rating of the security by a 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 allowance for credit losses 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 allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectability of a security is confirmed or when either of the criteria regarding intent or requirement to sell is met. At March 31, 2021, the Company determined that the allowance for credit losses of $842,000, resulting from economic uncertainties related to the COVID-19 pandemic, was adequate for the investment portfolio. No additional provision for credit losses was considered necessary for the portfolio.

 

 

March 31, 2021

 

 

December 31, 2020

 

 

 

 

 

 

(In thousands)

 

Allowance for credit losses:

 

 

 

 

 

 

 

Beginning balance

$

842

 

 

$

 

Provision for credit loss - investment securities

 

 

 

 

842

 

Balance, March 31

$

842

 

 

$

842

 

Provision for credit loss - investment securities

 

 

 

 

 

 

Balance, December 31, 2020

 

 

 

 

$

842

 

 

For the three months ended March 31, 2021, the Company had investment securities with approximately $1.8 million in unrealized losses, which have been in continuous loss positions for more than twelve months.  The Company’s assessments indicated that the cause of the market depreciation was primarily due to the change in interest rates and not the issuer’s financial condition or downgrades by rating agencies. In addition, approximately 52.9% of the principal balance from the Company’s investment portfolio will mature and be repaid to the Company within five years or less. As a result, the Company has the ability and intent to hold such securities until maturity.

As of March 31, 2021, the Company's securities portfolio consisted of 1,296 investment securities, 321 of which were in an unrealized loss position. As noted in the table above, the total amount of the unrealized loss was $19.0 million. The U.S government-sponsored enterprises portfolio contained unrealized losses of $2.3 million on 51 securities. The residential mortgage-backed securities portfolio contained $8.1 million of unrealized losses on 110 securities, and the commercial mortgage-backed securities portfolio contained $1.0 million of unrealized losses on 27 securities. The state and political subdivisions portfolio contained $7.2 million of unrealized losses on 125 securities. In addition, the other securities portfolio contained $357,000 of unrealized losses on 8 securities. The unrealized losses on the Company's investments were a result of interest rate changes. The Company expects to recover the amortized cost basis over the term of the securities. Because the decline in market value was attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider an allowance for credit losses on the other portions of the investment portfolio necessary as of March 31, 2021.

Income earned on available-for sale securities for the three months ended March 31, 2021 and 2020, is as follows:

 

 

 

For the Three Months

Ended March 31,

 

 

 

2021

 

 

2020

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

Taxable

 

$

6,253

 

 

$

9,776

 

Non-taxable

 

 

5,071

 

 

 

3,114

 

Total

 

$

11,324

 

 

$

12,890

 

 

 

15

 


 

 

4.  Loans Receivable

The various categories of loans receivable are summarized as follows:

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

(In thousands)

 

Real estate:

 

 

 

 

 

 

 

 

Commercial real estate loans

 

 

 

 

 

 

 

 

Non-farm/non-residential

 

$

4,289,142

 

 

$

4,429,060

 

Construction/land development

 

 

1,612,973

 

 

 

1,562,298

 

Agricultural

 

 

113,382

 

 

 

114,431

 

Residential real estate loans

 

 

 

 

 

 

 

 

Residential 1-4 family

 

 

1,437,546

 

 

 

1,536,257

 

Multifamily residential

 

 

377,661

 

 

 

536,538

 

Total real estate

 

 

7,830,704

 

 

 

8,178,584

 

Consumer

 

 

839,819

 

 

 

864,690

 

Commercial and industrial

 

 

1,794,787

 

 

 

1,896,442

 

Agricultural

 

 

65,017

 

 

 

66,869

 

Other

 

 

248,166

 

 

 

214,136

 

Total loans receivable

 

 

10,778,493

 

 

 

11,220,721

 

Allowance for credit losses

 

 

(242,932

)

 

 

(245,473

)

Loans receivable, net

 

$

10,535,561

 

 

$

10,975,248

 

 

During the three months ended March 31, 2021, the Company did not sell any guaranteed portions of Small Business Administration (“SBA”) loans.  During the three months ended March 31, 2020, the Company sold $3.7  million of the guaranteed portion of certain SBA loans, which resulted in gains of approximately $341,000.

Mortgage loans held for sale of approximately $113.4 million and $114.8 million at March 31, 2021 and December 31, 2020, respectively, are included in residential 1-4 family loans.   Mortgage loans held for sale are carried at the lower of cost or fair value, determined using an aggregate basis.  Gains and losses resulting from sales of mortgage loans are recognized when the respective loans are sold to investors.  Gains and losses are determined by the difference between the selling price and the carrying amount of the loans sold, net of discounts collected or paid.  The Company obtains forward commitments to sell mortgage loans to reduce market risk on mortgage loans in the process of origination and mortgage loans held for sale.  The forward commitments acquired by the Company for mortgage loans in process of origination are considered mandatory forward commitments.  Because these commitments are structured on a mandatory basis, the Company is required to substitute another loan or to buy back the commitment if the original loan does not fund.  These commitments are derivative instruments and their fair values at March 31, 2021 and December 31, 2020 were not material.

The Company adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration (“PCD”) that were previously classified as purchased credit impaired (“PCI”) and accounted for under ASC 310-30.  In 2019, the Company reevaluated its loan pools of purchased loans with deteriorated credit quality. These loans pools related specifically to acquired loans from the Heritage, Liberty, Landmark, Bay Cities, Bank of Commerce, Premier Bank, Stonegate and Shore Premier Finance acquisitions. At acquisition, a portion of these loans was recorded as purchased credit impaired loans on a pool by pool basis. Through the reevaluation of these loan pools, management determined that estimated losses for purchase credit impaired loans should be processed against the credit mark of the applicable pools.  The remaining non-accretable mark was then moved to accretable mark to be recognized over the remaining weighted average life of the loan pools.  The projected losses for these loans were less than the total credit mark.  As such, the remaining $107.6 million of loans in these pools along with the $29.3 million in accretable yield was deemed to be immaterial and was reclassified out of the purchased credit impaired loans category.  As of December 31, 2019, the Company no longer held any purchased loans with deteriorated credit quality. Therefore, the Company did not have any PCI loans upon adoption on of ASC 326 as of January 1, 2020.

The Company has purchased loans, some of which have experienced more than insignificant credit deterioration since origination.  PCD loans are recorded at the amount paid. An allowance for credit losses is determined using the same methodology as other loans. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through the provision for credit losses. As a result of the acquisition of LH-Finance in 2020, the Company held approximately $605,000 and $760,000 in PCD loans, as of March 31, 2021 and  December 31, 2020, respectively.

 

16

 


 

A description of our accounting policies for loans, impaired loans and non-accrual loans are set forth in our 2020 Form 10-K filed with the SEC on February 26, 2020. The Company adopted ASC 326 effective January 1, 2020. See Notes 1 and 5 for further discussion.

5.  Allowance for Credit Losses, Credit Quality and Other

The Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, effective January 1, 2020. The guidance replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology.  The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables. It also applies to off-balance sheet credit exposures not accounted for as insurance, including loan commitments, standby letters of credits, financial guarantees, and other similar instruments. The Company adopted ASC 326 using the modified retrospective method for loans and off-balance-sheet credit exposures.  Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP.  The Company recorded a one-time cumulative-effect adjustment to the allowance for credit losses of $44.0 million which was recognized through a $32.5 million adjustment to retained earnings, net of tax. This adjustment brought the beginning balance of the allowance for credit losses to $146.1 million  as of January 1, 2020.  In addition, the Company recorded a $15.5 million reserve on unfunded commitments as of January 1, 2020, which was recognized through an $11.5 million adjustment to retained earnings, net of tax.

The Company uses the discounted cash flow (“DCF”) method to estimate expected losses for all of Company’s loan pools. These pools are as follows: construction & land development; other commercial real estate; residential real estate; commercial & industrial; and consumer & other. The loan portfolio pools were selected in order to generally align with the loan categories specified in the quarterly call reports required to be filed with the Federal Financial Institutions Examination Council. For each of these loan pools, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, curtailments, time to recovery, probability of default, and loss given default. The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on historical internal data. The Company uses regression analysis of historical internal and peer data to determine suitable loss drivers to utilize when modeling lifetime probability of default and loss given default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the loss drivers.

Each year management evaluates the performance of the selected models used in the CECL calculation through backtesting. Based on the results of the testing, management determines if the various models produced accurate results compared to the actual losses incurred for the current economic environment. Management then determines if changes to the input assumptions and economic factors would produce a stronger overall calculation that is more responsive to changes in economic conditions. The Company continues to use regression analysis to determine suitable loss drives to utilize when modeling lifetime probability of default and loss given default for the changes in the economic factors for the loss driver segments. Based on this analysis, management determined that changes to several of the economic factors for the various loss driver segments were necessary. The identified loss drivers by segment are included below as of March 31, 2021 and December 31, 2020, respectively.

 

March 31, 2021

 

 

 

Loss Driver Segment

Call Report Segment(s)

Modeled Economic Factors

1-4 Family Construction

1a1

National Unemployment (%) & Housing Price Index (%)

All Other Construction

1a2

National Unemployment (%)  & Gross Domestic Product (%)

1-4 Family Revolving HELOC & Junior Liens

1c1

National Unemployment (%) & Housing Price Index – CoreLogic (%)

1-4 Family Revolving HELOC & Junior Liens

1c2b

National Unemployment (%)  & Gross Domestic Product (%)

1-4 Family Senior Liens

1c2a

National Unemployment (%) & Gross Domestic Product (%)

Multifamily

1d

Rental Vacancy Rate (%) & Housing Price Index – Case-Schiller (%)

Owner Occupied CRE

1e1

National Unemployment (%) & Gross Domestic Product (%)

Non-Owner Occupied CRE

1e2,1b,8

National Unemployment (%) & Gross Domestic Product (%)

Commercial & Industrial, Agricultural, Non-Depository Financial Institutions, Purchase/Carry Securities, Other

4a, 3, 9a, 9b1, 9b2, Other

National Unemployment (%) & National Retail Sales (%)

Consumer Auto

6c

National Unemployment (%) & National Retail Sales (%)

Other Consumer

6b, 6d

National Unemployment (%) & National Retail Sales (%)

Other Consumer - SPF

6d

National Unemployment (%)

 

17

 


 

 

December 31, 2020

 

 

 

 

Loss Driver Segment

Call Report Segment(s)

Modeled Economic Factors

1-4 Family Construction

1a1

National Unemployment (%) & Housing Price Index (%)

All Other Construction

1a2

National Unemployment (%)  & Commercial Real Estate Price Index (%)

1-4 Family Revolving HELOC & Junior Liens

1c1, 1c2b

National Unemployment (%) & Housing Price Index (%)

1-4 Family Senior Liens

1c2a

National Unemployment (%) & Housing Price Index (%)

Multifamily

1d

National Unemployment (%) & Housing Price Index (%)

Owner Occupied CRE

1e1

National Unemployment (%) & Commercial Real Estate Price Index (%)

Non-Owner Occupied CRE

1e2,1b,8

National Unemployment (%) & Commercial Real Estate Price Index (%)

Commercial & Industrial, Agricultural, Non-Depository Financial Institutions, Purchase/Carry Securities, Other

4a, 3, 9a, 9b1, 9b2, Other

National Unemployment (%) & National Retail Sales (%)

Consumer Auto

6c

National Unemployment (%) & National Retail Sales (%)

Other Consumer

6b, 6d

National Unemployment (%) & National Retail Sales (%)

Other Consumer - SPF

6d

National Unemployment (%)

For all DCF models, management has determined that four quarters represents a reasonable and supportable forecast period and reverts back to a historical loss rate over four quarters on a straight-line basis. Management leverages economic projections from a reputable and independent third party to inform its loss driver forecasts over the four-quarter forecast period. Other internal and external indicators of economic forecasts are also considered by management when developing the forecast metrics.

The combination of adjustments for credit expectations (default and loss) and time expectations prepayment, curtailment, and time to recovery produces an expected cash flow stream at the instrument level. Instrument effective yield is calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce an instrument-level net present value of expected cash flows (“NPV”). An allowance for credit loss is established for the difference between the instrument’s NPV and amortized cost basis.  

Construction/Land Development and Other Commercial Real Estate Loans.  We originate non-farm and non-residential loans (primarily secured by commercial real estate), construction/land development loans, and agricultural loans, which are generally secured by real estate located in our market areas. Our commercial mortgage loans are generally collateralized by first liens on real estate and amortized (where defined) over a 15 to 30 year period with balloon payments due at the end of one to five years. These loans are generally underwritten by assessing cash flow (debt service coverage), primary and secondary source of repayment, the financial strength of any guarantor, the strength of the tenant (if any), the borrower’s liquidity and leverage, management experience, ownership structure, economic conditions and industry specific trends and collateral. Generally, we will loan up to 85% of the value of improved property, 65% of the value of raw land and 75% of the value of land to be acquired and developed. A first lien on the property and assignment of lease is required if the collateral is rental property, with second lien positions considered on a case-by-case basis.

Residential Real Estate Loans.  We originate one to four family, residential mortgage loans generally secured by property located in our primary market areas.  Residential real estate loans generally have a loan-to-value ratio of up to 90%. These loans are underwritten by giving consideration to many factors including the borrower’s ability to pay, stability of employment or source of income, debt-to-income ratio, credit history and loan-to-value ratio.

Commercial and Industrial Loans.  Commercial and industrial loans are made for a variety of business purposes, including working capital, inventory, equipment and capital expansion. The terms for commercial loans are generally one to seven years. Commercial loan applications must be supported by current financial information on the borrower and, where appropriate, by adequate collateral. Commercial loans are generally underwritten by addressing cash flow (debt service coverage), primary and secondary sources of repayment, the financial strength of any guarantor, the borrower’s liquidity and leverage, management experience, ownership structure, economic conditions and industry specific trends and collateral. The loan to value ratio depends on the type of collateral. Generally, accounts receivable are financed at between 50% and 80% of accounts receivable less than 60 days past due. Inventory financing will range between 50% and 80% (with no work in process) depending on the borrower and nature of inventory. We require a first lien position for those loans.

 

18

 


 

Consumer & Other Loans.  Our consumer & other loans are primarily composed of loans to finance USCG registered high-end sail and power boats as a result of our acquisitions of SPF on June 30, 2018 and LH-Finance on February 29, 2020. The performance of consumer & other loans will be affected by the local and regional economies as well as the rates of personal bankruptcies, job loss, divorce and other individual-specific characteristics.

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 allowance for credit loss on off-balance sheet credit exposures is adjusted as a provision for credit loss expense. 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. The Company uses the DCF method to estimate expected losses for all of Company’s off-balance sheet credit exposures through the use of the existing DCF models for the Company’s loan portfolio pools. The off-balance sheet credit exposures exhibit similar risk characteristics as loans currently in the Company’s loan portfolio.

As of March 31, 2021, the markets in which we operate have begun to experience economic recovery as unemployment rates have declined, COVID-19 vaccination rates have increased, and communities have begun to reopen for business activity.  However, there is still a significant amount of uncertainty related to the COVID-19 pandemic which may slow the anticipated economic recovery. The Company determined that an additional provision for credit losses on loans was not necessary as the current level of the allowance for credit losses was considered adequate as of March 31, 2021. In addition, the Company determined that the current level of  the unfunded commitment reserve was adequate and no additional unfunded commitments expense was necessary as of March 31, 2021.

ASC 326 requires that both a discount and an allowance for credit losses be recorded on loans during an acquisition.  During the first quarter of 2020, we completed the acquisition of $406.2 million of loans from LH-Finance.  As a result, the Company recorded a $6.6 million loan discount and a $9.3 million increase in the allowance for credit losses for this acquisition. A small portion of the loans acquired during the quarter were purchase credit deteriorated (“PCD”) loans, so the Company recorded a $357,000 allowance for credit losses on these loans.

The following tables present the activity in the allowance for credit losses for the three months ended March 31, 2021:

 

 

 

Three Months Ended March 31, 2021

 

 

 

Construction/

Land

Development

 

 

Other

Commercial

Real Estate

 

 

Residential

Real Estate

 

 

Commercial

& Industrial

 

 

Consumer

& Other

 

 

Total

 

 

 

(In thousands)

 

Allowance for credit losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

32,861

 

 

$

88,453

 

 

$

53,216

 

 

$

46,530

 

 

$

24,413

 

 

$

245,473

 

Loans charged off

 

 

 

 

 

(19

)

 

 

(226

)

 

 

(2,279

)

 

 

(523

)

 

 

(3,047

)

Recoveries of loans previously charged off

 

 

22

 

 

 

14

 

 

 

62

 

 

 

76

 

 

 

332

 

 

 

506

 

Net loans (charged off) recovered

 

 

22

 

 

 

(5

)

 

 

(164

)

 

 

(2,203

)

 

 

(191

)

 

 

(2,541

)

Provision for credit losses

 

 

(9,946

)

 

 

5,421

 

 

 

1,545

 

 

 

5,497

 

 

 

(2,517

)

 

 

 

Balance, March 31

 

$

22,937

 

 

$

93,869

 

 

$

54,597

 

 

$

49,824

 

 

$

21,705

 

 

$

242,932

 

 

19

 


 

 

The following tables present the balances in the allowance for loan losses for the three month period ended March 31, 2020 and the year ended December 31, 2020.

 

 

 

Three Months Ended March 31, 2020 and Year Ended December 31, 2020

 

 

 

Construction/

Land

Development

 

 

Other

Commercial

Real Estate

 

 

Residential

Real Estate

 

 

Commercial

& Industrial

 

 

Consumer

& Other

 

 

Total

 

 

 

(In thousands)

 

Allowance for credit losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

26,433

 

 

$

33,529

 

 

$

20,135

 

 

$

16,615

 

 

$

5,410

 

 

$

102,122

 

Impact of adoption ASC 326

 

 

(5,296

)

 

 

15,912

 

 

 

16,680

 

 

 

11,584

 

 

 

5,108

 

 

 

43,988

 

Allowance for credit losses on PCD loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

357

 

 

 

357

 

Loans charged off

 

 

(45

)

 

 

(519

)

 

 

(339

)

 

 

(2,804

)

 

 

(558

)

 

 

(4,265

)

Recoveries of loans previously charged off

 

 

10

 

 

 

250

 

 

 

160

 

 

 

65

 

 

 

255

 

 

 

740

 

Net loans charged off

 

 

(35

)

 

 

(269

)

 

 

(179

)

 

 

(2,739

)

 

 

(303

)

 

 

(3,525

)

Provision for credit loss - loans

 

 

13,309

 

 

 

23,483

 

 

 

6,144

 

 

 

28,940

 

 

 

4,796

 

 

 

76,672

 

Provision for credit loss - acquired loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,309

 

 

 

9,309

 

Balance, March 31

 

 

34,411

 

 

 

72,655

 

 

 

42,780

 

 

 

54,400

 

 

 

24,677

 

 

 

228,923

 

Loans charged off

 

 

(1,173

)

 

 

(2,522

)

 

 

(146

)

 

 

(4,960

)

 

 

(1,420

)

 

 

(10,221

)

Recoveries of loans previously charged off

 

 

97

 

 

 

397

 

 

 

177

 

 

 

153

 

 

 

506

 

 

 

1,330

 

Net loans charged off

 

 

(1,076

)

 

 

(2,125

)

 

 

31

 

 

 

(4,807

)

 

 

(914

)

 

 

(8,891

)

Provision for credit loss - loans

 

 

(474

)

 

 

17,923

 

 

 

10,405

 

 

 

(3,063

)

 

 

650

 

 

 

25,441

 

Balance, December 31

 

$

32,861

 

 

$

88,453

 

 

$

53,216

 

 

$

46,530

 

 

$

24,413

 

 

$

245,473

 

 

The following table presents the amortized cost basis of loans on nonaccrual status and loans past due over 90 days still accruing as of March 31, 2021 and December 31, 2020:

 

 

 

March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

Loans Past Due

 

 

 

 

 

 

 

Nonaccrual

 

 

Over 90 Days

 

 

 

Nonaccrual

 

 

With Reserve

 

 

Still Accruing

 

 

(In thousands)

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

Non-farm/non-residential

 

$

19,945

 

 

$

9,085

 

 

$

2,718

 

Construction/land development

 

 

1,252

 

 

 

7,826

 

 

 

1

 

Agricultural

 

 

862

 

 

 

 

 

 

 

Residential real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

Residential 1-4 family

 

 

19,166

 

 

 

3,000

 

 

 

1,180

 

Multifamily residential

 

 

172

 

 

 

 

 

 

 

Total real estate

 

 

41,397

 

 

 

19,911

 

 

 

3,899

 

Consumer

 

 

1,902

 

 

 

 

 

 

230

 

Commercial and industrial

 

 

14,755

 

 

 

 

 

 

80

 

Agricultural & other

 

 

1,088

 

 

 

 

 

 

 

Total

 

$

59,142

 

 

$

19,911

 

 

$

4,209

 

 

20

 


 

 

 

 

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

Loans Past Due

 

 

 

 

 

 

 

Nonaccrual

 

 

Over 90 Days

 

 

 

Nonaccrual

 

 

With Reserve

 

 

Still Accruing

 

 

(In thousands)

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

Non-farm/non-residential

 

$

20,947

 

 

$

6,794

 

 

$

6,088

 

Construction/land development

 

 

1,381

 

 

 

2,089

 

 

 

1,296

 

Agricultural

 

 

879

 

 

 

 

 

 

 

Residential real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

Residential 1-4 family

 

 

19,334

 

 

 

3,000

 

 

 

1,821

 

Multifamily residential

 

 

173

 

 

 

 

 

 

 

Total real estate

 

 

42,714

 

 

 

11,883

 

 

 

9,205

 

Consumer

 

 

3,506

 

 

 

 

 

 

174

 

Commercial and industrial

 

 

17,251

 

 

 

 

 

 

231

 

Agricultural & other

 

 

1,057

 

 

 

 

 

 

 

Total

 

$

64,528

 

 

$

11,883

 

 

$

9,610

 

 

The Company had $59.1 million and $64.5 million in nonaccrual loans for the periods ended March 31, 2021 and December 31, 2020, respectively. In addition, the Company had $4.2 million and $9.6 million in loans past due 90 days or more and still accruing for the periods ended March 31, 2021 and December 31, 2020, respectively.  

The Company had $19.9 million and $11.9 million in nonaccrual loans with a specific reserve as of March 31, 2021 and December 31, 2020, respectively. The Company did not recognize any interest income on nonaccrual loans during the period ended March 31, 2021 or March 31, 2020.

The following table presents the amortized cost basis of collateral-dependent impaired loans by class of loans as of March 31, 2021 and December 31, 2020:

 

 

 

March 31, 2021

 

 

 

Commercial

 

 

Residential

 

 

 

 

 

 

 

Real Estate

 

 

Real Estate

 

 

Other

 

 

 

(In thousands)

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

Non-farm/non-residential

 

$

307,946

 

 

$

 

 

$

 

Construction/land development

 

 

4,587

 

 

 

 

 

 

 

Agricultural

 

 

862

 

 

 

 

 

 

 

Residential real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

Residential 1-4 family

 

 

 

 

 

27,459

 

 

 

 

Multifamily residential

 

 

 

 

 

172

 

 

 

 

Total real estate

 

 

313,395

 

 

 

27,631

 

 

 

 

Consumer

 

 

 

 

 

 

 

 

2,146

 

Commercial and industrial

 

 

 

 

 

 

 

 

19,077

 

Agricultural & other

 

 

 

 

 

 

 

 

1,088

 

Total

 

$

313,395

 

 

$

27,631

 

 

$

22,311

 

 

21

 


 

 

 

 

 

December 31, 2020

 

 

 

Commercial

 

 

Residential

 

 

 

 

 

 

 

Real Estate

 

 

Real Estate

 

 

Other

 

 

 

(In thousands)

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

Non-farm/non-residential

 

$

47,429

 

 

$

 

 

$

 

Construction/land development

 

 

6,012

 

 

 

 

 

 

 

Agricultural

 

 

879

 

 

 

 

 

 

 

Residential real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

Residential 1-4 family

 

 

 

 

 

32,413

 

 

 

 

Multifamily residential

 

 

 

 

 

173

 

 

 

 

Total real estate

 

 

54,320

 

 

 

32,586

 

 

 

 

Consumer

 

 

 

 

 

 

 

 

3,694

 

Commercial and industrial

 

 

 

 

 

 

 

 

21,027

 

Agricultural & other

 

 

 

 

 

 

 

 

1,057

 

Total

 

$

54,320

 

 

$

32,586

 

 

$

25,778

 

The Company had $363.3 million and $112.7 million in collateral-dependent impaired loans for the periods ended March 31, 2021 and December 31, 2020, respectively. The increase in collateral-dependent impaired loans was due to the Company changing the valuation method for lodging and assisted living loans to a market price valuation methodology. This involved assigning a 15% discount of par for these impaired loans. The 15% figure was derived based on knowledge of current hotel and assisted living offerings in the loan sale market. In the event of default, liquidation would be achieved through a loan sale. The Company is continuing to monitor these impaired loans and will adjust the discount as necessary.

Loans that do not share risk characteristics are evaluated on an individual basis. For collateral-dependent impaired loans, excluding lodging and assisted living loans, where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the financial asset to be provided substantially through the operation or sale of the collateral, the allowance for credit losses is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date. When repayment is expected to be from the operation of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the loan exceeds the present value of expected cash flows from the operation of the collateral. When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the loan exceeds the fair value of the underlying collateral less estimated costs to sell. The allowance for credit losses may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the loan.

 


 

22

 


 

 

The following is an aging analysis for loans receivable as of March 31, 2021 and December 31, 2020:

 

 

 

March 31, 2021

 

 

 

Loans

Past Due

30-59 Days

 

 

Loans

Past Due

60-89 Days

 

 

Loans

Past Due

90 Days

or More

 

 

Total

Past Due

 

 

Current

Loans

 

 

Total

Loans

Receivable

 

 

Accruing

Loans

Past Due

90 Days

or More

 

 

 

(In thousands)

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-farm/non-residential

 

$

4,540

 

 

$

3,038

 

 

$

22,663

 

 

$

30,241

 

 

$

4,258,901

 

 

$

4,289,142

 

 

$

2,718

 

Construction/land development

 

 

562

 

 

 

35

 

 

 

1,253

 

 

 

1,850

 

 

 

1,611,123

 

 

 

1,612,973

 

 

 

1

 

Agricultural

 

 

 

 

 

130

 

 

 

862

 

 

 

992

 

 

 

112,390

 

 

 

113,382

 

 

 

 

Residential real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential 1-4 family

 

 

6,022

 

 

 

1,477

 

 

 

20,346

 

 

 

27,845

 

 

 

1,409,701

 

 

 

1,437,546

 

 

 

1,180

 

Multifamily residential

 

 

 

 

 

 

 

 

172

 

 

 

172

 

 

 

377,489

 

 

 

377,661

 

 

 

 

Total real estate

 

 

11,124

 

 

 

4,680

 

 

 

45,296

 

 

 

61,100

 

 

 

7,769,604

 

 

 

7,830,704

 

 

 

3,899

 

Consumer

 

 

984

 

 

 

456

 

 

 

2,132

 

 

 

3,572

 

 

 

836,247

 

 

 

839,819

 

 

 

230

 

Commercial and industrial

 

 

1,132

 

 

 

351

 

 

 

14,835

 

 

 

16,318

 

 

 

1,778,469

 

 

 

1,794,787

 

 

 

80

 

Agricultural & other

 

 

691

 

 

 

86

 

 

 

1,088

 

 

 

1,865

 

 

 

311,318

 

 

 

313,183

 

 

 

 

Total

 

$

13,931

 

 

$

5,573

 

 

$

63,351

 

 

$

82,855

 

 

$

10,695,638

 

 

$

10,778,493

 

 

$

4,209

 

 

 

 

December 31, 2020

 

 

 

Loans

Past Due

30-59

Days

 

 

Loans

Past Due

60-89

Days

 

 

Loans

Past Due

90 Days

or More

 

 

Total

Past Due

 

 

Current

Loans

 

 

Total

Loans

Receivable

 

 

Accruing

Loans

Past Due

90 Days

or More

 

 

 

(In thousands)

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-farm/non-residential

 

$

3,856

 

 

$

68

 

 

$

27,035

 

 

$

30,959

 

 

$

4,398,101

 

 

$

4,429,060

 

 

$

6,088

 

Construction/land development

 

 

178

 

 

 

44

 

 

 

2,677

 

 

$

2,899

 

 

 

1,559,399

 

 

 

1,562,298

 

 

 

1,296

 

Agricultural

 

 

522

 

 

 

 

 

 

879

 

 

 

1,401

 

 

 

113,030

 

 

 

114,431

 

 

 

 

Residential real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential 1-4 family

 

 

4,833

 

 

 

7,787

 

 

 

21,155

 

 

 

33,775

 

 

 

1,502,482

 

 

 

1,536,257

 

 

 

1,821

 

Multifamily residential

 

 

111

 

 

 

 

 

 

173

 

 

 

284

 

 

 

536,254

 

 

 

536,538

 

 

 

 

Total real estate

 

 

9,500

 

 

 

7,899

 

 

 

51,919

 

 

 

69,318

 

 

 

8,109,266

 

 

 

8,178,584

 

 

 

9,205

 

Consumer

 

 

2,899

 

 

 

802

 

 

 

3,680

 

 

 

7,381

 

 

 

857,309

 

 

 

864,690

 

 

 

174

 

Commercial and industrial

 

 

960

 

 

 

515

 

 

 

17,482

 

 

 

18,957

 

 

 

1,877,485

 

 

 

1,896,442

 

 

 

231

 

Agricultural and other

 

 

1,125

 

 

 

3,713

 

 

 

1,057

 

 

 

5,895

 

 

 

275,110

 

 

 

281,005

 

 

 

 

Total

 

$

14,484

 

 

$

12,929

 

 

$

74,138

 

 

$

101,551

 

 

$

11,119,170

 

 

$

11,220,721

 

 

$

9,610

 

 

Non-accruing loans at March 31, 2021 and December 31, 2020 were $59.1 million and $64.5 million, respectively.

Interest recognized on impaired loans during the three months ended March 31, 2021 and 2020 was approximately $267,000 and $399,000, respectively. The amount of interest recognized on impaired loans on the cash basis is not materially different than the accrual basis.


 

23

 


 

 

Credit Quality Indicators. As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends related to (i) the risk rating of loans, (ii) the level of classified loans, (iii) net charge-offs, (iv) non-performing loans and (v) the general economic conditions in Arkansas, Florida, Alabama and New York.

The Company utilizes a risk rating matrix to assign a risk rating to each of its loans. Loans are rated on a scale from 1 to 8. Descriptions of the general characteristics of the 8 risk ratings are as follows:

 

Risk rating 1 – Excellent.  Loans in this category are to persons or entities of unquestionable financial strength, a highly liquid financial position, with collateral that is liquid and well margined.  These borrowers have performed without question on past obligations, and the Bank expects their performance to continue.  Internally generated cash flow covers current maturities of long-term debt by a substantial margin.  Loans secured by bank certificates of deposit and savings accounts, with appropriate holds placed on the accounts, are to be rated in this category.

 

Risk rating 2 – Good.  These are loans to persons or entities with strong financial condition and above-average liquidity that have previously satisfactorily handled their obligations with the Bank.  Collateral securing the Bank’s debt is margined in accordance with policy guidelines.  Internally generated cash flow covers current maturities of long-term debt more than adequately.  Unsecured loans to individuals supported by strong financial statements and on which repayment is satisfactory may be included in this classification.

 

Risk rating 3 – Satisfactory.  Loans to persons or entities with an average financial condition, adequate collateral margins, adequate cash flow to service long-term debt, and net worth comprised mainly of fixed assets are included in this category.  These entities are minimally profitable now, with projections indicating continued profitability into the foreseeable future.  Closely held corporations or businesses where a majority of the profits are withdrawn by the owners or paid in dividends are included in this rating category.  Overall, these loans are basically sound.

 

Risk rating 4 – Watch.  Borrowers who have marginal cash flow, marginal profitability or have experienced an unprofitable year and a declining financial condition characterize these loans.  The borrower has in the past satisfactorily handled debts with the Bank, but in recent months has either been late, delinquent in making payments, or made sporadic payments.  While the Bank continues to be adequately secured, margins have decreased or are decreasing, despite the borrower’s continued satisfactory condition.  Other characteristics of borrowers in this class include inadequate credit information, weakness of financial statement and repayment capacity, but with collateral that appears to limit exposure. 

 

Risk rating 5 – Other Loans Especially Mentioned (“OLEM”).  A loan criticized as OLEM has potential weaknesses that deserve management’s close attention.  If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date.  OLEM assets are not adversely classified and do not expose the institution to sufficient risk to warrant adverse classification.

 

Risk rating 6 – Substandard.  A loan classified as substandard is inadequately protected by the sound worth and paying capacity of the borrower or the collateral pledged.  Loss potential, while existing in the aggregate amount of substandard loans, does not have to exist in individual assets.

 

Risk rating 7 – Doubtful.  A loan classified as doubtful has all the weaknesses inherent in a loan classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.  These are poor quality loans in which neither the collateral, if any, nor the financial condition of the borrower presently ensure collectability in full in a reasonable period of time; in fact, there is permanent impairment in the collateral securing the loan.

 

Risk rating 8 – Loss. Assets classified as loss are considered uncollectible and of such little value that the continuance as bankable assets is not warranted.  This classification does not mean that the asset has absolutely no recovery or salvage value, but rather, it is not practical or desirable to defer writing off this basically worthless asset, even though partial recovery may occur in the future.  This classification is based upon current facts, not probabilities.  Assets classified as loss should be charged-off in the period in which they became uncollectible.

The Company’s classified loans include loans in risk ratings 6, 7 and 8. The following is a presentation of classified loans by class as of March 31, 2021 and December 31, 2020:

 

Loans may be classified, but not considered impaired, due to one of the following reasons: (1) The Company has established minimum dollar amount thresholds for loan impairment testing. All loans over $2.0 million that are rated 5 – 8 are individually assessed for impairment on a quarterly basis.  Loans rated 5 – 8 that fall under the threshold amount are not individually tested for impairment and therefore are not included in impaired loans; (2) of the loans that are above the threshold amount and tested for impairment, after testing, some are considered to not be impaired and are not included in impaired loans.

 

24

 


 

Based on the most recent analysis performed, the risk category of loans by class of loans as of March 31, 2021 and December 31, 2020 is as follows:

 

 

 

March 31, 2021

 

 

 

Term Loans Amortized Cost Basis by Origination Year

 

 

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

Prior

 

 

 

 

Revolving Loans Amortized Cost Basis

 

 

Total

 

 

 

(In thousands)

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-farm/non-residential

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Risk rating 1

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

 

 

$

 

 

$

 

    Risk rating 2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

25

 

 

 

25

 

    Risk rating 3

 

 

44,038

 

 

 

293,351

 

 

 

332,244

 

 

 

449,435

 

 

 

268,007

 

 

 

1,188,602

 

 

 

 

 

261,698

 

 

 

2,837,375

 

    Risk rating 4

 

 

1,034

 

 

 

26,988

 

 

 

151,064

 

 

 

202,071

 

 

 

192,571

 

 

 

393,141

 

 

 

 

 

40,386

 

 

 

1,007,255

 

    Risk rating 5

 

 

 

 

 

10,589

 

 

 

2,083

 

 

 

86,174

 

 

 

38,542

 

 

 

228,508

 

 

 

 

 

124

 

 

 

366,020

 

    Risk rating 6

 

 

 

 

 

 

 

 

15,629

 

 

 

1,763

 

 

 

14,048

 

 

 

46,292

 

 

 

 

 

84

 

 

 

77,816

 

    Risk rating 7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

557

 

 

 

 

 

 

 

 

557

 

    Risk rating 8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

94

 

 

 

 

 

 

 

 

94

 

Total non-farm/non-residential

 

 

45,072

 

 

 

330,928

 

 

 

501,020

 

 

 

739,443

 

 

 

513,168

 

 

 

1,857,194

 

 

 

 

 

302,317

 

 

 

4,289,142

 

Construction/land development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Risk rating 1

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

 

 

$

 

 

$

 

    Risk rating 2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

243

 

 

 

 

 

 

 

 

243

 

    Risk rating 3

 

 

31,274

 

 

 

241,608

 

 

 

144,498

 

 

 

68,865

 

 

 

29,756

 

 

 

73,258

 

 

 

 

 

134,788

 

 

 

724,047

 

    Risk rating 4

 

 

10,728

 

 

 

174,120

 

 

 

452,731

 

 

 

73,793

 

 

 

41,076

 

 

 

46,437

 

 

 

 

 

54,926

 

 

 

853,811

 

    Risk rating 5

 

 

 

 

 

 

 

 

457

 

 

 

388

 

 

 

21,902

 

 

 

1,224

 

 

 

 

 

1

 

 

 

23,972

 

    Risk rating 6

 

 

 

 

 

 

 

 

734

 

 

 

82

 

 

 

 

 

 

10,084

 

 

 

 

 

 

 

 

10,900

 

    Risk rating 7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Risk rating 8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total construction/land development

 

 

42,002

 

 

 

415,728

 

 

 

598,420

 

 

 

143,128

 

 

 

92,734

 

 

 

131,246

 

 

 

 

 

189,715

 

 

 

1,612,973

 

Agricultural

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Risk rating 1

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

 

 

$

 

 

$

 

    Risk rating 2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Risk rating 3

 

 

2,084

 

 

 

31,979

 

 

 

8,338

 

 

 

8,549

 

 

 

5,648

 

 

 

27,993

 

 

 

 

 

5,601

 

 

 

90,192

 

    Risk rating 4

 

 

66

 

 

 

2,142

 

 

 

520

 

 

 

1,192

 

 

 

876

 

 

 

16,066

 

 

 

 

 

848

 

 

 

21,710

 

    Risk rating 5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

116

 

 

 

 

 

 

 

 

116

 

    Risk rating 6

 

 

 

 

 

46

 

 

 

 

 

 

 

 

 

 

 

 

1,318

 

 

 

 

 

 

 

 

1,364

 

    Risk rating 7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Risk rating 8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total agricultural

 

 

2,150

 

 

 

34,167

 

 

 

8,858

 

 

 

9,741

 

 

 

6,524

 

 

 

45,493

 

 

 

 

 

6,449

 

 

 

113,382

 

Total commercial real estate loans

 

$

89,224

 

 

$

780,823

 

 

$

1,108,298

 

 

$

892,312

 

 

$

612,426

 

 

$

2,033,933

 

 

 

 

$

498,481

 

 

$

6,015,497

 

Residential real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential 1-4 family

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Risk rating 1

 

$

 

 

$

 

 

$

47

 

 

$

 

 

$

 

 

$

86

 

 

 

 

$

118

 

 

$

251

 

    Risk rating 2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

62

 

 

 

 

 

1

 

 

 

63

 

    Risk rating 3

 

 

86,245

 

 

 

175,228

 

 

 

175,063

 

 

 

141,871

 

 

 

125,404

 

 

 

411,607

 

 

 

 

 

106,087

 

 

 

1,221,505

 

    Risk rating 4

 

 

 

 

 

4,250

 

 

 

11,630

 

 

 

26,214

 

 

 

19,651

 

 

 

74,481

 

 

 

 

 

30,766

 

 

 

166,992

 

    Risk rating 5

 

 

 

 

 

 

 

 

1,178

 

 

 

1,359

 

 

 

4,662

 

 

 

6,334

 

 

 

 

 

964

 

 

 

14,497

 

    Risk rating 6

 

 

290

 

 

 

1,976

 

 

 

2,681

 

 

 

1,339

 

 

 

1,466

 

 

 

19,512

 

 

 

 

 

6,950

 

 

 

34,214

 

    Risk rating 7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Risk rating 8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

18

 

 

 

 

 

 

 

 

24

 

Total residential 1-4 family

 

 

86,535

 

 

 

181,454

 

 

 

190,599

 

 

 

170,783

 

 

 

151,189

 

 

 

512,100

 

 

 

 

 

144,886

 

 

 

1,437,546

 

Multifamily residential

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Risk rating 1

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

 

 

$

 

 

$

 

    Risk rating 2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Risk rating 3

 

 

161

 

 

 

19,461

 

 

 

23,518

 

 

 

55,875

 

 

 

10,815

 

 

 

59,652

 

 

 

 

 

6,467

 

 

 

175,949

 

    Risk rating 4

 

 

 

 

 

478

 

 

 

3,985

 

 

 

101,146

 

 

 

11,328

 

 

 

20,981

 

 

 

 

 

37,799

 

 

 

175,717

 

    Risk rating 5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24,928

 

 

 

 

 

 

 

 

24,928

 

    Risk rating 6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

895

 

 

 

172

 

 

 

 

 

 

 

 

1,067

 

    Risk rating 7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Risk rating 8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total multifamily residential

 

 

161

 

 

 

19,939

 

 

 

27,503

 

 

 

157,021

 

 

 

23,038

 

 

 

105,733

 

 

 

 

 

44,266

 

 

 

377,661

 

Total real estate

 

$

175,920

 

 

$

982,216

 

 

$

1,326,400

 

 

$

1,220,116

 

 

$

786,653

 

 

$

2,651,766

 

 

 

 

$

687,633

 

 

$

7,830,704

 

 

25

 


 

 

 

 

 

March 31, 2021

 

 

 

Term Loans Amortized Cost Basis by Origination Year, Continued

 

 

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

 

 

Prior

 

 

 

 

Revolving Loans Amortized Cost Basis

 

 

Total

 

 

 

(In thousands)

 

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Risk rating 1

 

$

735

 

 

$

2,721

 

 

$

1,988

 

 

$

1,418

 

 

$

361

 

 

 

 

$

2,088

 

 

 

 

$

1,864

 

 

$

11,175

 

    Risk rating 2

 

 

 

 

 

 

 

 

47

 

 

 

759

 

 

 

 

 

 

 

 

11

 

 

 

 

 

57

 

 

 

874

 

    Risk rating 3

 

 

53,370

 

 

 

218,205

 

 

 

174,945

 

 

 

142,314

 

 

 

86,467

 

 

 

 

 

125,075

 

 

 

 

 

12,315

 

 

 

812,691

 

    Risk rating 4

 

 

374

 

 

 

1,882

 

 

 

3,717

 

 

 

2,082

 

 

 

148

 

 

 

 

 

3,236

 

 

 

 

 

92

 

 

 

11,531

 

    Risk rating 5

 

 

 

 

 

120

 

 

 

 

 

 

105

 

 

 

198

 

 

 

 

 

788

 

 

 

 

 

 

 

 

1,211

 

    Risk rating 6

 

 

 

 

 

29

 

 

 

397

 

 

 

478

 

 

 

1

 

 

 

 

 

1,388

 

 

 

 

 

44

 

 

 

2,337

 

    Risk rating 7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Risk rating 8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total consumer

 

 

54,479

 

 

 

222,957

 

 

 

181,094

 

 

 

147,156

 

 

 

87,175

 

 

 

 

 

132,586

 

 

 

 

 

14,372

 

 

 

839,819

 

Commercial and industrial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Risk rating 1

 

$

270,945

 

 

$

342,512

 

 

$

421

 

 

$

233

 

 

$

175

 

 

 

 

$

21,627

 

 

 

 

$

11,177

 

 

$

647,090

 

    Risk rating 2

 

 

30

 

 

 

25

 

 

 

180

 

 

 

 

 

 

93

 

 

 

 

 

579

 

 

 

 

 

297

 

 

 

1,204

 

    Risk rating 3

 

 

20,700

 

 

 

92,131

 

 

 

117,920

 

 

 

64,027

 

 

 

35,759

 

 

 

 

 

74,584

 

 

 

 

 

132,787

 

 

 

537,908

 

    Risk rating 4

 

 

33,864

 

 

 

35,042

 

 

 

119,236

 

 

 

143,526

 

 

 

37,659

 

 

 

 

 

45,436

 

 

 

 

 

81,276

 

 

 

496,039

 

    Risk rating 5

 

 

 

 

 

3,143

 

 

 

16,592

 

 

 

11,257

 

 

 

6,097

 

 

 

 

 

3,653

 

 

 

 

 

10,526

 

 

 

51,268

 

    Risk rating 6

 

 

 

 

 

15,502

 

 

 

4,767

 

 

 

28,608

 

 

 

3,207

 

 

 

 

 

6,221

 

 

 

 

 

2,955

 

 

 

61,260

 

    Risk rating 7

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

    Risk rating 8

 

 

 

 

 

2

 

 

 

1

 

 

 

1

 

 

 

 

 

 

 

 

9

 

 

 

 

 

3

 

 

 

16

 

Total commercial and industrial

 

 

325,539

 

 

 

488,357

 

 

 

259,119

 

 

 

247,652

 

 

 

82,990

 

 

 

 

 

152,109

 

 

 

 

 

239,021

 

 

 

1,794,787

 

Agricultural and other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Risk rating 1

 

$

18,659

 

 

$

35,633

 

 

$

49

 

 

$

53

 

 

$

 

 

 

 

$

131

 

 

 

 

$

1,260

 

 

$

55,785

 

    Risk rating 2

 

 

 

 

 

15

 

 

 

4,571

 

 

 

 

 

 

 

 

 

 

 

2,118

 

 

 

 

 

1,106

 

 

 

7,810

 

    Risk rating 3

 

 

15,492

 

 

 

70,196

 

 

 

6,601

 

 

 

4,780

 

 

 

4,819

 

 

 

 

 

52,180

 

 

 

 

 

28,287

 

 

 

182,355

 

    Risk rating 4

 

 

2,382

 

 

 

442

 

 

 

4,525

 

 

 

1,560

 

 

 

1,081

 

 

 

 

 

2,597

 

 

 

 

 

52,147

 

 

 

64,734

 

    Risk rating 5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

605

 

 

 

 

 

 

 

 

605

 

    Risk rating 6

 

 

 

 

 

 

 

 

30

 

 

 

17

 

 

 

34

 

 

 

 

 

1,756

 

 

 

 

 

57

 

 

 

1,894

 

    Risk rating 7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Risk rating 8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total agricultural and other

 

 

36,533

 

 

 

106,286

 

 

 

15,776

 

 

 

6,410

 

 

 

5,934

 

 

 

 

 

59,387

 

 

 

 

 

82,857

 

 

 

313,183

 

Total

 

$

592,471

 

 

$

1,799,816

 

 

$

1,782,389

 

 

$

1,621,334

 

 

$

962,752

 

 

 

 

$

2,995,848

 

 

 

 

$

1,023,883

 

 

$

10,778,493

 

 

26

 


 

 

 

 

 

December 31, 2020

 

 

 

Term Loans Amortized Cost Basis by Origination Year

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

 

Prior

 

 

 

 

Revolving Loans Amortized Cost Basis

 

 

Total

 

 

 

(In thousands)

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-farm/non-residential

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Risk rating 1

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

 

 

$

 

 

$

 

    Risk rating 2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

25

 

 

 

25

 

    Risk rating 3

 

 

301,237

 

 

 

340,562

 

 

 

546,670

 

 

 

286,173

 

 

 

289,483

 

 

 

942,449

 

 

 

 

 

266,867

 

 

 

2,973,441

 

    Risk rating 4

 

 

27,239

 

 

 

139,354

 

 

 

161,461

 

 

 

265,684

 

 

 

197,979

 

 

 

300,055

 

 

 

 

 

17,305

 

 

 

1,109,077

 

    Risk rating 5

 

 

10,591

 

 

 

16,865

 

 

 

67,089

 

 

 

7,764

 

 

 

108,885

 

 

 

84,609

 

 

 

 

 

750

 

 

 

296,553

 

    Risk rating 6

 

 

 

 

 

859

 

 

 

2,289

 

 

 

987

 

 

 

4,577

 

 

 

40,600

 

 

 

 

 

86

 

 

 

49,398

 

    Risk rating 7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

552

 

 

 

 

 

 

 

 

552

 

    Risk rating 8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14

 

 

 

 

 

 

 

 

14

 

Total non-farm/non-residential

 

 

339,067

 

 

 

497,640

 

 

 

777,509

 

 

 

560,608

 

 

 

600,924

 

 

 

1,368,279

 

 

 

 

 

285,033

 

 

 

4,429,060

 

Construction/land development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Risk rating 1

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

 

 

$

 

 

$

 

    Risk rating 2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

283

 

 

 

 

 

 

 

 

283

 

    Risk rating 3

 

 

211,567

 

 

 

181,257

 

 

 

91,323

 

 

 

33,986

 

 

 

25,600

 

 

 

54,245

 

 

 

 

 

115,120

 

 

 

713,098

 

    Risk rating 4

 

 

129,599

 

 

 

417,737

 

 

 

92,032

 

 

 

46,249

 

 

 

17,161

 

 

 

32,060

 

 

 

 

 

76,845

 

 

 

811,683

 

    Risk rating 5

 

 

 

 

 

 

 

 

392

 

 

 

21,892

 

 

 

 

 

 

1,227

 

 

 

 

 

545

 

 

 

24,056

 

    Risk rating 6

 

 

 

 

 

763

 

 

 

98

 

 

 

63

 

 

 

157

 

 

 

12,065

 

 

 

 

 

 

 

 

13,146

 

    Risk rating 7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Risk rating 8

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

31

 

 

 

 

 

 

 

 

32

 

Total construction/land development

 

 

341,166

 

 

 

599,757

 

 

 

183,845

 

 

 

102,191

 

 

 

42,918

 

 

 

99,911

 

 

 

 

 

192,510

 

 

 

1,562,298

 

Agricultural

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Risk rating 1

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

 

 

$

 

 

$

 

    Risk rating 2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Risk rating 3

 

 

33,428

 

 

 

8,885

 

 

 

9,119

 

 

 

5,397

 

 

 

3,935

 

 

 

25,159

 

 

 

 

 

5,538

 

 

 

91,461

 

    Risk rating 4

 

 

2,141

 

 

 

535

 

 

 

1,206

 

 

 

681

 

 

 

5,499

 

 

 

10,735

 

 

 

 

 

665

 

 

 

21,462

 

    Risk rating 5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

116

 

 

 

 

 

 

 

 

116

 

    Risk rating 6

 

 

47

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,345

 

 

 

 

 

 

 

 

1,392

 

    Risk rating 7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Risk rating 8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total agricultural

 

 

35,616

 

 

 

9,420

 

 

 

10,325

 

 

 

6,078

 

 

 

9,434

 

 

 

37,355

 

 

 

 

 

6,203

 

 

 

114,431

 

Total commercial real estate loans

 

$

715,849

 

 

$

1,106,817

 

 

$

971,679

 

 

$

668,877

 

 

$

653,276

 

 

$

1,505,545

 

 

 

 

$

483,746

 

 

$

6,105,789

 

Residential real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential 1-4 family

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Risk rating 1

 

$

 

 

$

47

 

 

$

 

 

$

 

 

$

76

 

 

$

12

 

 

 

 

$

120

 

 

$

255

 

    Risk rating 2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

423

 

 

 

 

 

1,540

 

 

 

1,963

 

    Risk rating 3

 

 

237,991

 

 

 

184,578

 

 

 

151,478

 

 

 

139,096

 

 

 

119,642

 

 

 

343,381

 

 

 

 

 

119,186

 

 

 

1,295,352

 

    Risk rating 4

 

 

4,626

 

 

 

12,716

 

 

 

32,594

 

 

 

20,687

 

 

 

16,148

 

 

 

68,328

 

 

 

 

 

30,137

 

 

 

185,236

 

    Risk rating 5

 

 

 

 

 

 

 

 

1,363

 

 

 

4,700

 

 

 

383

 

 

 

5,344

 

 

 

 

 

516

 

 

 

12,306

 

    Risk rating 6

 

 

554

 

 

 

5,973

 

 

 

829

 

 

 

2,084

 

 

 

3,222

 

 

 

18,074

 

 

 

 

 

10,257

 

 

 

40,993

 

    Risk rating 7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Risk rating 8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8

 

 

 

 

 

144

 

 

 

152

 

Total residential 1-4 family

 

 

243,171

 

 

 

203,314

 

 

 

186,264

 

 

 

166,567

 

 

 

139,471

 

 

 

435,570

 

 

 

 

 

161,900

 

 

 

1,536,257

 

Multifamily residential

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Risk rating 1

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

 

 

$

 

 

$

 

    Risk rating 2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Risk rating 3

 

 

19,033

 

 

 

60,175

 

 

 

87,104

 

 

 

11,477

 

 

 

8,092

 

 

 

59,592

 

 

 

 

 

6,386

 

 

 

251,859

 

    Risk rating 4

 

 

477

 

 

 

6,358

 

 

 

101,364

 

 

 

93,475

 

 

 

1,924

 

 

 

17,672

 

 

 

 

 

37,286

 

 

 

258,556

 

    Risk rating 5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24,945

 

 

 

 

 

 

 

 

24,945

 

    Risk rating 6

 

 

 

 

 

 

 

 

 

 

 

894

 

 

 

 

 

 

284

 

 

 

 

 

 

 

 

1,178

 

    Risk rating 7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Risk rating 8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total multifamily residential

 

 

19,510

 

 

 

66,533

 

 

 

188,468

 

 

 

105,846

 

 

 

10,016

 

 

 

102,493

 

 

 

 

 

43,672

 

 

 

536,538

 

Total real estate

 

$

978,530

 

 

$

1,376,664

 

 

$

1,346,411

 

 

$

941,290

 

 

$

802,763

 

 

$

2,043,608

 

 

 

 

$

689,318

 

 

$

8,178,584

 

 

27

 


 

 

 

 

 

December 31, 2020

 

 

 

Term Loans Amortized Cost Basis by Origination Year, Continued

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

 

 

 

Prior

 

 

 

 

Revolving Loans Amortized Cost Basis

 

 

Total

 

 

 

(In thousands)

 

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Risk rating 1

 

$

3,389

 

 

$

2,375

 

 

$

1,596

 

 

$

485

 

 

$

828

 

 

 

 

$

1,428

 

 

 

 

$

1,957

 

 

$

12,058

 

    Risk rating 2

 

 

 

 

 

47

 

 

 

931

 

 

 

 

 

 

 

 

 

 

 

12

 

 

 

 

 

57

 

 

 

1,047

 

    Risk rating 3

 

 

229,189

 

 

 

192,054

 

 

 

152,646

 

 

 

97,812

 

 

 

68,585

 

 

 

 

 

68,871

 

 

 

 

 

20,094

 

 

 

829,251

 

    Risk rating 4

 

 

3,699

 

 

 

3,479

 

 

 

2,769

 

 

 

1,411

 

 

 

1,371

 

 

 

 

 

1,991

 

 

 

 

 

117

 

 

 

14,837

 

    Risk rating 5

 

 

144

 

 

 

737

 

 

 

22

 

 

 

198

 

 

 

568

 

 

 

 

 

321

 

 

 

 

 

 

 

 

1,990

 

    Risk rating 6

 

 

12

 

 

 

361

 

 

 

566

 

 

 

3

 

 

 

2,052

 

 

 

 

 

2,468

 

 

 

 

 

45

 

 

 

5,507

 

    Risk rating 7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Risk rating 8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total consumer

 

 

236,433

 

 

 

199,053

 

 

 

158,530

 

 

 

99,909

 

 

 

73,404

 

 

 

 

 

75,091

 

 

 

 

 

22,270

 

 

 

864,690

 

Commercial and industrial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Risk rating 1

 

$

632,735

 

 

$

506

 

 

$

271

 

 

$

183

 

 

$

20,199

 

 

 

 

$

1,445

 

 

 

 

$

10,023

 

 

$

665,362

 

    Risk rating 2

 

 

29

 

 

 

187

 

 

 

2

 

 

 

96

 

 

 

67

 

 

 

 

 

623

 

 

 

 

 

268

 

 

 

1,272

 

    Risk rating 3

 

 

80,586

 

 

 

131,717

 

 

 

62,814

 

 

 

35,651

 

 

 

39,502

 

 

 

 

 

52,743

 

 

 

 

 

135,590

 

 

 

538,603

 

    Risk rating 4

 

 

68,032

 

 

 

144,867

 

 

 

149,445

 

 

 

42,416

 

 

 

15,138

 

 

 

 

 

43,065

 

 

 

 

 

115,341

 

 

 

578,304

 

    Risk rating 5

 

 

3,195

 

 

 

16,341

 

 

 

11,283

 

 

 

346

 

 

 

251

 

 

 

 

 

448

 

 

 

 

 

10,637

 

 

 

42,501

 

    Risk rating 6

 

 

1,261

 

 

 

4,086

 

 

 

30,834

 

 

 

22,992

 

 

 

2,615

 

 

 

 

 

5,198

 

 

 

 

 

3,405

 

 

 

70,391

 

    Risk rating 7

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 

    Risk rating 8

 

 

1

 

 

 

 

 

 

1

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

6

 

Total commercial and industrial

 

 

785,839

 

 

 

297,707

 

 

 

254,650

 

 

 

101,684

 

 

 

77,776

 

 

 

 

 

103,522

 

 

 

 

 

275,264

 

 

 

1,896,442

 

Agricultural and other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Risk rating 1

 

$

59,248

 

 

$

51

 

 

$

53

 

 

$

 

 

$

110

 

 

 

 

$

27

 

 

 

 

$

1,036

 

 

$

60,525

 

    Risk rating 2

 

 

16

 

 

 

4,571

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,859

 

 

 

 

 

1,159

 

 

 

8,605

 

    Risk rating 3

 

 

78,305

 

 

 

7,045

 

 

 

5,050

 

 

 

5,045

 

 

 

18,445

 

 

 

 

 

36,925

 

 

 

 

 

42,401

 

 

 

193,216

 

    Risk rating 4

 

 

1,043

 

 

 

5,041

 

 

 

1,592

 

 

 

1,096

 

 

 

895

 

 

 

 

 

1,703

 

 

 

 

 

4,600

 

 

 

15,970

 

    Risk rating 5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

605

 

 

 

 

 

 

 

 

605

 

    Risk rating 6

 

 

 

 

 

219

 

 

 

18

 

 

 

 

 

 

223

 

 

 

 

 

1,624

 

 

 

 

 

 

 

 

2,084

 

    Risk rating 7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Risk rating 8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total agricultural and other

 

 

138,612

 

 

 

16,927

 

 

 

6,713

 

 

 

6,141

 

 

 

19,673

 

 

 

 

 

43,743

 

 

 

 

 

49,196

 

 

 

281,005

 

Total

 

$

2,139,414

 

 

$

1,890,351

 

 

$

1,766,304

 

 

$

1,149,024

 

 

$

973,616

 

 

 

 

$

2,265,964

 

 

 

 

$

1,036,048

 

 

$

11,220,721

 

 

28

 


 

 

The Company considers the performance of the loan portfolio and its impact on the allowance for credit losses. The Company also evaluates credit quality based on the aging status of the loan, which was previously presented and by payment activity. The following tables present the amortized cost of performing and nonperforming loans as of March 31, 2021 and December 31, 2020.

 

 

 

March 31, 2021

 

 

 

Term Loans Amortized Cost Basis by Origination Year

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

Prior

 

 

Revolving Loans Amortized Cost Basis

 

 

Total

 

 

 

(In thousands)

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-farm/non-residential

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Performing

 

$

45,072

 

 

$

320,787

 

 

$

486,244

 

 

$

714,285

 

 

$

476,750

 

 

$

1,635,825

 

 

$

302,233

 

 

$

3,981,196

 

    Non-performing

 

 

 

 

 

10,141

 

 

 

14,776

 

 

 

25,158

 

 

 

36,418

 

 

 

221,369

 

 

 

84

 

 

 

307,946

 

Total non-farm/

    non-residential

 

 

45,072

 

 

 

330,928

 

 

 

501,020

 

 

 

739,443

 

 

 

513,168

 

 

 

1,857,194

 

 

 

302,317

 

 

 

4,289,142

 

Construction/land

    development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Performing

 

$

42,002

 

 

$

415,728

 

 

$

597,686

 

 

$

143,105

 

 

$

92,672

 

 

$

127,478

 

 

$

189,715

 

 

$

1,608,386

 

    Non-performing

 

 

 

 

 

 

 

 

734

 

 

 

23

 

 

 

62

 

 

 

3,768

 

 

 

 

 

 

4,587

 

Total construction/

    land development

 

 

42,002

 

 

 

415,728

 

 

 

598,420

 

 

 

143,128

 

 

 

92,734

 

 

 

131,246

 

 

 

189,715

 

 

 

1,612,973

 

Agricultural

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Performing

 

$

2,150

 

 

$

34,167

 

 

$

8,858

 

 

$

9,741

 

 

$

6,524

 

 

$

44,631

 

 

$

6,449

 

 

$

112,520

 

    Non-performing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

862

 

 

 

 

 

 

862

 

Total agricultural

 

 

2,150

 

 

 

34,167

 

 

 

8,858

 

 

 

9,741

 

 

 

6,524

 

 

 

45,493

 

 

 

6,449

 

 

 

113,382

 

Total commercial real estate

    loans

 

$

89,224

 

 

$

780,823

 

 

$

1,108,298

 

 

$

892,312

 

 

$

612,426

 

 

$

2,033,933

 

 

$

498,481

 

 

$

6,015,497

 

Residential real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential 1-4 family

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Performing

 

$

86,535

 

 

$

179,180

 

 

$

188,053

 

 

$

170,012

 

 

$

146,071

 

 

$

501,478

 

 

$

138,758

 

 

$

1,410,087

 

    Non-performing

 

 

 

 

 

2,274

 

 

 

2,546

 

 

 

771

 

 

 

5,118

 

 

 

10,622

 

 

 

6,128

 

 

 

27,459

 

Total residential 1-4

    family

 

 

86,535

 

 

 

181,454

 

 

 

190,599

 

 

 

170,783

 

 

 

151,189

 

 

 

512,100

 

 

 

144,886

 

 

 

1,437,546

 

Multifamily residential

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Performing

 

$

161

 

 

$

19,939

 

 

$

27,503

 

 

$

157,021

 

 

$

23,038

 

 

$

105,561

 

 

$

44,266

 

 

$

377,489

 

    Non-performing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

172

 

 

 

 

 

 

172

 

Total multifamily

    residential

 

 

161

 

 

 

19,939

 

 

 

27,503

 

 

 

157,021

 

 

 

23,038

 

 

 

105,733

 

 

 

44,266

 

 

 

377,661

 

Total real estate

 

$

175,920

 

 

$

982,216

 

 

$

1,326,400

 

 

$

1,220,116

 

 

$

786,653

 

 

$

2,651,766

 

 

$

687,633

 

 

$

7,830,704

 

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Performing

 

$

54,479

 

 

$

222,930

 

 

$

180,740

 

 

$

147,038

 

 

$

87,173

 

 

$

130,948

 

 

$

14,365

 

 

$

837,673

 

    Non-performing

 

 

 

 

 

27

 

 

 

354

 

 

 

118

 

 

 

2

 

 

 

1,638

 

 

 

7

 

 

 

2,146

 

Total consumer

 

 

54,479

 

 

 

222,957

 

 

 

181,094

 

 

 

147,156

 

 

 

87,175

 

 

 

132,586

 

 

 

14,372

 

 

 

839,819

 

Commercial and industrial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Performing

 

$

325,539

 

 

$

488,294

 

 

$

254,644

 

 

$

241,302

 

 

$

80,014

 

 

$

147,647

 

 

$

238,270

 

 

$

1,775,710

 

    Non-performing

 

 

 

 

 

63

 

 

 

4,475

 

 

 

6,350

 

 

 

2,976

 

 

 

4,462

 

 

 

751

 

 

 

19,077

 

Total commercial and industrial

 

 

325,539

 

 

 

488,357

 

 

 

259,119

 

 

 

247,652

 

 

 

82,990

 

 

 

152,109

 

 

 

239,021

 

 

 

1,794,787

 

Agricultural and other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Performing

 

$

36,533

 

 

$

106,286

 

 

$

15,776

 

 

$

6,393

 

 

$

5,900

 

 

$

58,350

 

 

$

82,857

 

 

$

312,095

 

    Non-performing

 

 

 

 

 

 

 

 

 

 

 

17

 

 

 

34

 

 

 

1,037

 

 

 

 

 

 

1,088

 

Total agricultural and other

 

 

36,533

 

 

 

106,286

 

 

 

15,776

 

 

 

6,410

 

 

 

5,934

 

 

 

59,387

 

 

 

82,857

 

 

 

313,183

 

Total

 

$

592,471

 

 

$

1,799,816

 

 

$

1,782,389

 

 

$

1,621,334

 

 

$

962,752

 

 

$

2,995,848

 

 

$

1,023,883

 

 

$

10,778,493

 

 

29

 


 

 

 

 

 

December 31, 2020

 

 

 

Term Loans Amortized Cost Basis by Origination Year

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

 

Prior

 

 

Revolving Loans Amortized Cost Basis

 

 

Total

 

 

 

(In thousands)

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-farm/non-residential

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Performing

 

$

339,067

 

 

$

497,640

 

 

$

775,220

 

 

$

560,279

 

 

$

598,074

 

 

$

1,326,404

 

 

$

284,947

 

 

$

4,381,631

 

    Non-performing

 

 

 

 

 

 

 

 

2,289

 

 

 

329

 

 

 

2,850

 

 

 

41,875

 

 

 

86

 

 

 

47,429

 

Total non-farm/

    non-residential

 

 

339,067

 

 

 

497,640

 

 

 

777,509

 

 

 

560,608

 

 

 

600,924

 

 

 

1,368,279

 

 

 

285,033

 

 

 

4,429,060

 

Construction/land

    development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Performing

 

$

341,166

 

 

$

598,995

 

 

$

183,821

 

 

$

102,127

 

 

$

42,779

 

 

$

94,888

 

 

$

192,510

 

 

$

1,556,286

 

    Non-performing

 

 

 

 

 

762

 

 

 

24

 

 

 

64

 

 

 

139

 

 

 

5,023

 

 

 

 

 

 

6,012

 

Total construction/

    land development

 

 

341,166

 

 

 

599,757

 

 

 

183,845

 

 

 

102,191

 

 

 

42,918

 

 

 

99,911

 

 

 

192,510

 

 

 

1,562,298

 

Agricultural

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Performing

 

$

35,616

 

 

$

9,420

 

 

$

10,325

 

 

$

6,078

 

 

$

9,434

 

 

$

36,476

 

 

$

6,203

 

 

$

113,552

 

    Non-performing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

879

 

 

 

 

 

 

879

 

Total agricultural

 

 

35,616

 

 

 

9,420

 

 

 

10,325

 

 

 

6,078

 

 

 

9,434

 

 

 

37,355

 

 

 

6,203

 

 

 

114,431

 

Total commercial real estate

    loans

 

$

715,849

 

 

$

1,106,817

 

 

$

971,679

 

 

$

668,877

 

 

$

653,276

 

 

$

1,505,545

 

 

$

483,746

 

 

$

6,105,789

 

Residential real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential 1-4 family

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Performing

 

$

242,505

 

 

$

196,951

 

 

$

185,316

 

 

$

161,274

 

 

$

137,840

 

 

$

425,056

 

 

$

154,902

 

 

$

1,503,844

 

    Non-performing

 

 

666

 

 

 

6,363

 

 

 

948

 

 

 

5,293

 

 

 

1,631

 

 

 

10,514

 

 

 

6,998

 

 

 

32,413

 

Total residential 1-4

    family

 

 

243,171

 

 

 

203,314

 

 

 

186,264

 

 

 

166,567

 

 

 

139,471

 

 

 

435,570

 

 

 

161,900

 

 

 

1,536,257

 

Multifamily residential

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Performing

 

$

19,510

 

 

$

66,533

 

 

$

188,468

 

 

$

105,846

 

 

$

10,016

 

 

$

102,320

 

 

$

43,672

 

 

$

536,365

 

    Non-performing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

173

 

 

 

 

 

 

173

 

Total multifamily

    residential

 

 

19,510

 

 

 

66,533

 

 

 

188,468

 

 

 

105,846

 

 

 

10,016

 

 

 

102,493

 

 

 

43,672

 

 

 

536,538

 

Total real estate

 

$

978,530

 

 

$

1,376,664

 

 

$

1,346,411

 

 

$

941,290

 

 

$

802,763

 

 

$

2,043,608

 

 

$

689,318

 

 

$

8,178,584

 

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Performing

 

$

236,395

 

 

$

198,737

 

 

$

158,324

 

 

$

99,905

 

 

$

71,924

 

 

$

73,448

 

 

$

22,263

 

 

$

860,996

 

    Non-performing

 

 

38

 

 

 

316

 

 

 

206

 

 

 

4

 

 

 

1,480

 

 

 

1,643

 

 

 

7

 

 

 

3,694

 

Total consumer

 

 

236,433

 

 

 

199,053

 

 

 

158,530

 

 

 

99,909

 

 

 

73,404

 

 

 

75,091

 

 

 

22,270

 

 

 

864,690

 

Commercial and industrial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Performing

 

$

785,776

 

 

$

293,938

 

 

$

246,177

 

 

$

98,664

 

 

$

76,427

 

 

$

100,050

 

 

$

274,383

 

 

$

1,875,415

 

    Non-performing

 

 

63

 

 

 

3,769

 

 

 

8,473

 

 

 

3,020

 

 

 

1,349

 

 

 

3,472

 

 

 

881

 

 

 

21,027

 

Total commercial and industrial

 

 

785,839

 

 

 

297,707

 

 

 

254,650

 

 

 

101,684

 

 

 

77,776

 

 

 

103,522

 

 

 

275,264

 

 

 

1,896,442

 

Agricultural and other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Performing

 

$

138,612

 

 

$

16,927

 

 

$

6,695

 

 

$

6,141

 

 

$

19,450

 

 

$

42,927

 

 

$

49,196

 

 

$

279,948

 

    Non-performing

 

 

 

 

 

 

 

 

18

 

 

 

 

 

 

223

 

 

 

816

 

 

 

 

 

 

1,057

 

Total agricultural and other

 

 

138,612

 

 

 

16,927

 

 

 

6,713

 

 

 

6,141

 

 

 

19,673

 

 

 

43,743

 

 

 

49,196

 

 

 

281,005

 

Total

 

$

2,139,414

 

 

$

1,890,351

 

 

$

1,766,304

 

 

$

1,149,024

 

 

$

973,616

 

 

$

2,265,964

 

 

$

1,036,048

 

 

$

11,220,721

 

 

The Company had approximately $8.6 million or 72 total revolving loans convert to term loans for the three months ended March 31, 2021 compared to $50.8 million or 109 total revolving loans convert to term loans for the three months ended March 31, 2020.  These loans were considered immaterial for vintage disclosure inclusion.

 

 

30

 


 

 

The following is a presentation of troubled debt restructurings (“TDRs”) by class as of March 31, 2021 and December 31, 2020:

 

 

 

March 31, 2021

 

 

 

Number

of Loans

 

 

Pre-

Modification

Outstanding

Balance

 

 

Rate

Modification

 

 

Term

Modification

 

 

Rate

& Term

Modification

 

 

Post-

Modification

Outstanding

Balance

 

 

 

(Dollars in thousands)

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-farm/non-residential

 

$

14

 

 

$

11,396

 

 

$

4,069

 

 

$

616

 

 

$

4,353

 

 

$

9,038

 

Construction/land development

 

 

2

 

 

 

58

 

 

 

 

 

 

5

 

 

 

8

 

 

 

13

 

Agricultural

 

 

1

 

 

 

282

 

 

 

265

 

 

 

 

 

 

 

 

 

265

 

Residential real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential 1-4 family

 

 

21

 

 

 

2,913

 

 

 

1,417

 

 

 

162

 

 

 

405

 

 

 

1,984

 

Total real estate

 

 

38

 

 

 

14,649

 

 

 

5,751

 

 

 

783

 

 

 

4,766

 

 

 

11,300

 

Consumer

 

 

1

 

 

 

17

 

 

 

14

 

 

 

 

 

 

 

 

 

14

 

Commercial and industrial

 

 

10

 

 

 

2,389

 

 

 

262

 

 

 

112

 

 

 

91

 

 

 

465

 

Total

 

$

49

 

 

$

17,055

 

 

$

6,027

 

 

$

895

 

 

$

4,857

 

 

$

11,779

 

 

 

 

December 31, 2020

 

 

 

Number

of Loans

 

 

Pre-

Modification

Outstanding

Balance

 

 

Rate

Modification

 

 

Term

Modification

 

 

Rate

& Term

Modification

 

 

Post-

Modification

Outstanding

Balance

 

 

 

(Dollars in thousands)

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-farm/non-residential

 

 

14

 

 

$

11,510

 

 

$

4,350

 

 

$

383

 

 

$

4,723

 

 

$

9,456

 

Construction/land development

 

 

2

 

 

 

58

 

 

 

 

 

 

7

 

 

 

9

 

 

 

16

 

Agricultural

 

 

1

 

 

 

282

 

 

 

267

 

 

 

 

 

 

 

 

 

267

 

Residential real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential 1-4 family

 

 

21

 

 

 

2,913

 

 

 

1,441

 

 

 

165

 

 

 

431

 

 

 

2,037

 

Multifamily residential

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total real estate

 

 

38

 

 

 

14,763

 

 

 

6,058

 

 

 

555

 

 

 

5,163

 

 

 

11,776

 

Consumer

 

 

1

 

 

 

17

 

 

 

14

 

 

 

 

 

 

 

 

 

14

 

Commercial and industrial

 

 

12

 

 

 

2,470

 

 

 

308

 

 

 

127

 

 

 

91

 

 

 

526

 

Total

 

 

51

 

 

$

17,250

 

 

$

6,380

 

 

$

682

 

 

$

5,254

 

 

$

12,316

 

 

The following is a presentation of TDRs on non-accrual status as of March 31, 2021 and December 31, 2020 because they are not in compliance with the modified terms:

 

 

 

March 31, 2021

 

 

December 31, 2020

 

 

 

Number of

Loans

 

 

Recorded

Balance

 

 

Number of

Loans

 

 

Recorded

Balance

 

 

 

(Dollars in thousands)

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-farm/non-residential

 

 

2

 

 

$

248

 

 

 

2

 

 

$

350

 

Construction/land development

 

 

1

 

 

 

8

 

 

 

1

 

 

 

9

 

Agricultural

 

 

1

 

 

 

265

 

 

 

1

 

 

 

267

 

Residential real estate loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential 1-4 family

 

 

7

 

 

 

524

 

 

 

7

 

 

 

547

 

Total real estate

 

 

11

 

 

 

1,045

 

 

 

11

 

 

 

1,173

 

Commercial and industrial

 

 

7

 

 

 

355

 

 

 

8

 

 

 

414

 

Total

 

 

18

 

 

$

1,400

 

 

 

19

 

 

$

1,587

 

 

 

31

 


 

 

The following is a presentation of total foreclosed assets as of March 31, 2021 and December 31, 2020:

 

 

 

March 31, 2021

 

 

December 31, 2020

 

 

 

(In thousands)

 

Commercial real estate loans

 

 

 

 

 

 

 

 

Non-farm/non-residential

 

$

953

 

 

$

438

 

Construction/land development

 

 

910

 

 

 

3,189

 

Residential real estate loans

 

 

 

 

 

 

 

 

Residential 1-4 family

 

 

1,141

 

 

 

793

 

Total foreclosed assets held for sale

 

$

3,004

 

 

$

4,420

 

 

The Company has purchased loans for which there was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination. The purchase price of the loans at acquisition was $1.3 million, and a $357,000 allowance for credit losses was recorded on these loans at acquisition along with a $17,000 non-credit premium. The allowance and non-credit premium resulted in a par value of $1.0 million for these loans at acquisition. As of March 31, 2021 and December 31, 2020, the balance of purchase credit deteriorated loans was approximately $605,000 and $760,000, respectively.

6.  Goodwill and Core Deposits and Other Intangibles

Changes in the carrying amount and accumulated amortization of the Company’s goodwill and core deposits and other intangibles at March 31, 2021 and December 31, 2020, were as follows:

 

 

 

March 31, 2021

 

 

December 31, 2020

 

 

 

(In thousands)

 

Goodwill

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

973,025

 

 

$

958,408

 

Acquisitions

 

 

 

 

 

14,617

 

Balance, end of period

 

$

973,025

 

 

$

973,025

 

 

 

 

March 31, 2021

 

 

December 31, 2020

 

 

 

(In thousands)

 

Core Deposit and Other Intangibles

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

30,728

 

 

$

36,572

 

Amortization expense

 

 

(1,421

)

 

 

(1,517

)

Balance, March 31

 

 

29,307

 

 

 

35,055

 

Amortization expense

 

 

 

 

 

 

(4,327

)

Balance, end of year

 

 

 

 

 

$

30,728

 

 

The carrying basis and accumulated amortization of core deposits and other intangibles at March 31, 2021 and December 31, 2020 were:

 

 

 

March 31, 2021

 

 

December 31, 2020

 

 

 

(In thousands)

 

Gross carrying basis

 

$

86,625

 

 

$

86,625

 

Accumulated amortization

 

 

(57,318

)

 

 

(55,897

)

Net carrying amount

 

$

29,307

 

 

$

30,728

 

 

 Core deposit and other intangible amortization expense was approximately $1.4 million and $1.5 million for the three months ended March 31, 2021 and 2020, respectively. The Company’s estimated amortization expense of core deposits and other intangibles for each of the years 2021 through 2025 is approximately: 2021 – $5.7 million; 2022 – $5.7 million; 2023 – $5.5 million; 2024 – $4.3 million; 2025 - $3.9 million.


 

32

 


 

 

The carrying amount of the Company’s goodwill was $973.0 million at both March 31, 2021 and December 31, 2020.  Goodwill is tested annually for impairment during the fourth quarter or more often if events and circumstances indicate there may be an impairment.  If the implied fair value of goodwill is lower than its carrying amount, goodwill impairment is indicated, and goodwill is written down to its implied fair value.  Subsequent increases in goodwill value are not recognized in the consolidated financial statements.

7.  Other Assets

Other assets consist primarily of equity securities without a readily determinable fair value and other miscellaneous assets.  As of March 31, 2021 and December 31, 2020, other assets were $166.8 million and $164.9 million, respectively.

The Company has equity securities without readily determinable fair values such as stock holdings in the Federal Home Loan Bank (“FHLB”) and the Federal Reserve Bank (“Federal Reserve”) which are outside the scope of ASC Topic 321, Investments – Equity Securities (“ASC Topic 321”).  These equity securities without a readily determinable fair value were $86.7 million at March 31, 2021 and December 31, 2020, and are accounted for at cost.

 

The Company has equity securities such as stock holdings in First National Bankers’ Bank and other miscellaneous holdings which are accounted for under ASC Topic 321.  These equity securities without a readily determinable fair value were $28.2 million at March 31, 2021 and December 31, 2020.  There were no observable transactions during the period that would indicate a material change in fair value. Therefore, these investments were accounted for at cost, less impairment.

8.  Deposits

The aggregate amount of time deposits with a minimum denomination of $250,000 was $558.0 million at March 31, 2021 and December 31, 2020.  The aggregate amount of time deposits with a minimum denomination of $100,000 was $809.6 million and $864.3 million at March 31, 2021 and December 31, 2020, respectively.  Interest expense applicable to certificates in excess of $100,000 totaled $2.4 million and $7.1 million for the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021 and December 31, 2020, brokered deposits were $625.7 million and $635.7 million, respectively.

Deposits totaling approximately $1.97 billion and $1.98 billion at March 31, 2021 and December 31, 2020, respectively, were public funds obtained primarily from state and political subdivisions in the United States.

9.  Securities Sold Under Agreements to Repurchase

At March 31, 2021 and December 31, 2020, securities sold under agreements to repurchase totaled $162.9 million and $168.9 million, respectively. For the three-month periods ended March 31, 2021 and 2020, securities sold under agreements to repurchase daily weighted-average totaled $159.7 million and $138.2 million, respectively.

The remaining contractual maturity of securities sold under agreements to repurchase in the consolidated balance sheets as of March 31, 2021 and December 31, 2020 is presented in the following tables:

 

 

 

March 31, 2021

 

 

 

Overnight and

Continuous

 

 

Up to 30 Days

 

 

30-90

Days

 

 

Greater than

90 Days

 

 

Total

 

 

 

(In thousands)

 

Securities sold under agreements to repurchase:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government-sponsored enterprises

 

$

10,596

 

 

$

 

 

$

 

 

$

 

 

$

10,596

 

Mortgage-backed securities

 

 

14,005

 

 

 

 

 

 

 

 

 

 

 

 

14,005

 

State and political subdivisions

 

 

134,847

 

 

 

 

 

 

 

 

 

 

 

 

134,847

 

Other securities

 

 

3,481

 

 

 

 

 

 

 

 

 

 

 

 

3,481

 

Total borrowings

 

$

162,929

 

 

$

 

 

$

 

 

$

 

 

$

162,929

 

 

33

 


 

 

 

 

 

December 31, 2020

 

 

 

Overnight and

Continuous

 

 

Up to 30 Days

 

 

30-90

Days

 

 

Greater than

90 Days

 

 

Total

 

 

 

(In thousands)

 

Securities sold under agreements to repurchase:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government-sponsored enterprises

 

$

11,166

 

 

$

 

 

$

 

 

$

 

 

$

11,166

 

Mortgage-backed securities

 

 

18,830

 

 

 

 

 

 

 

 

 

 

 

 

18,830

 

State and political subdivisions

 

 

135,308

 

 

 

 

 

 

 

 

 

 

 

 

135,308

 

Other securities

 

 

3,627

 

 

 

 

 

 

 

 

 

 

 

 

3,627

 

Total borrowings

 

$

168,931

 

 

$

 

 

$

 

 

$

 

 

$

168,931

 

 

 

10.  FHLB and Other Borrowed Funds

The Company’s FHLB borrowed funds, which are secured by our loan portfolio, were $400.0 million at both March 31, 2021 and December 31, 2020. The Company had no other borrowed funds as of March 31, 2021 or December 31, 2020. At March 31, 2021 and December 31, 2020, all of the outstanding balances were classified as long-term advances.  The FHLB advances mature in 2033 with fixed interest rates ranging from 1.76% to 2.26%.  Maturities of borrowings as of March 31, 2021 include: 2021 – zero; 2022 – zero; 2023 – zero; 2024 – zero; 2025 – zero; after 2025 – $400.0 million. Expected maturities could differ from contractual maturities because FHLB may have the right to call or HBI the right to prepay certain obligations.

Additionally, the Company had $1.15 billion and $1.11 billion at March 31, 2021 and December 31, 2020, in letters of credit under a FHLB blanket borrowing line of credit, which are used to collateralize public deposits at March 31, 2021 and December 31, 2020, respectively.

The parent company took out a $20.0 million line of credit for general corporate purposes during 2015. The balance on this line of credit at March 31, 2021 and December 31, 2020 was zero.  

 

34

 


 

11.  Subordinated Debentures

Subordinated debentures at March 31, 2021 and December 31, 2020 consisted of subordinated debt securities and guaranteed payments on trust preferred securities with the following components:

 

 

 

As of March 31,

 

 

As of

December 31,

 

 

 

2021

 

 

2020

 

 

 

(In thousands)

 

Trust preferred securities

 

 

 

 

 

 

 

 

Subordinated debentures, issued in 2006, due 2036, fixed rate of 6.75%

   during the first five years and at a floating rate of 1.85% above the

   three-month LIBOR rate, reset quarterly, thereafter, currently

   callable without penalty

 

$

3,093

 

 

$

3,093

 

Subordinated debentures, issued in 2004, due 2034, fixed rate of 6.00%

   during the first five years and at a floating rate of 2.00% above the

   three-month LIBOR rate, reset quarterly, thereafter, currently

   callable without penalty

 

 

15,464

 

 

 

15,464

 

Subordinated debentures, issued in 2005, due 2035, fixed rate of 5.84%

   during the first five years and at a floating rate of 1.45% above the

   three-month LIBOR rate, reset quarterly, thereafter, currently

   callable without penalty

 

 

25,774

 

 

 

25,774

 

Subordinated debentures, issued in 2004, due 2034, fixed rate of 4.29%

   during the first five years and at a floating rate of 2.50% above the

   three-month LIBOR rate, reset quarterly, thereafter, currently

   callable without penalty

 

 

16,495

 

 

 

16,495

 

Subordinated debentures, issued in 2005, due 2035, floating rate of 2.15%

   above the three-month LIBOR rate, reset quarterly, currently callable

   without penalty

 

 

4,464

 

 

 

4,452

 

Subordinated debentures, issued in 2006, due 2036, fixed rate of 7.38%

   during the first five years and at a floating rate of 1.62% above the

   three-month LIBOR rate, reset quarterly, thereafter, currently

   callable without penalty

 

 

5,872

 

 

 

5,849

 

Subordinated debt securities

 

 

 

 

 

 

 

 

Subordinated notes, net of issuance costs, issued in 2017, due 2027, fixed

   rate of 5.625% during the first five years and at a floating rate of

   3.575% above the then three-month LIBOR rate, reset quarterly,

   thereafter, callable in 2022 without penalty

 

 

299,353

 

 

 

299,199

 

Total

 

$

370,515

 

 

$

370,326

 

 

Trust Preferred Securities. The Company holds trust preferred securities with a face amount of $73.3 million which are currently callable without penalty based on the terms of the specific agreements.  The trust preferred securities are tax-advantaged issues that qualify for Tier 1 capital treatment subject to certain limitations. Distributions on these securities are included in interest expense. Each of the trusts is a statutory business trust organized for the sole purpose of issuing trust securities and investing the proceeds in the Company’s subordinated debentures, the sole asset of each trust. The trust preferred securities of each trust represent preferred beneficial interests in the assets of the respective trusts and are subject to mandatory redemption upon payment of the subordinated debentures held by the trust. The Company wholly owns the common securities of each trust. Each trust’s ability to pay amounts due on the trust preferred securities is solely dependent upon the Company making payment on the related subordinated debentures. The Company’s obligations under the subordinated securities and other relevant trust agreements, in aggregate, constitute a full and unconditional guarantee by the Company of each respective trust’s obligations under the trust securities issued by each respective trust.

The Bank acquired $12.5 million in trust preferred securities with a fair value of $9.8 million from the Stonegate acquisition. The difference between the fair value purchased of $9.8 million and the $12.5 million face amount, is being amortized into interest expense over the remaining life of the debentures.  The associated subordinated debentures are redeemable, in whole or in part, prior to maturity at our option on a quarterly basis when interest is due and payable and in whole at any time within 90 days following the occurrence and continuation of certain changes in the tax treatment or capital treatment of the debentures.

 

Subordinated Debt Securities.  On April 3, 2017, the Company completed an underwritten public offering of $300.0 million in aggregate principal amount of its 5.625% Fixed-to-Floating Rate Subordinated Notes due 2027 (the “Notes”) for net proceeds, after underwriting discounts and issuance costs, of approximately $297.0 million. The Notes are unsecured, subordinated debt obligations and mature on April 15, 2027.  From and including the date of issuance to, but excluding April 15, 2022, the Notes bear interest at an initial rate of 5.625% per annum.  From and including April 15, 2022 to, but excluding the maturity date or earlier redemption, the Notes will bear interest at a floating rate equal to three-month LIBOR as calculated on each applicable date of determination plus a spread of 3.575%; provided, however, that in the event three-month LIBOR is less than zero, then three-month LIBOR shall be deemed to be zero.

 

 

35

 


 

 

The Company may, beginning with the interest payment date of April 15, 2022, and on any interest payment date thereafter, redeem the Notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the Notes to be redeemed plus accrued and unpaid interest to but excluding the date of redemption. The Company may also redeem the Notes at any time, including prior to April 15, 2022, at its option, in whole but not in part, if: (i) a change or prospective change in law occurs that could prevent the Company from deducting interest payable on the Notes for U.S. federal income tax purposes; (ii) a subsequent event occurs that could preclude the Notes from being recognized as Tier 2 capital for regulatory capital purposes; or (iii) the Company is required to register as an investment company under the Investment Company Act of 1940, as amended; in each case, at a redemption price equal to 100% of the principal amount of the Notes plus any accrued and unpaid interest to but excluding the redemption date. The Notes provide the Company with additional Tier 2 regulatory capital to support expected future growth.

12.  Income Taxes

The following is a summary of the components of the provision (benefit) for income taxes for the three months ended March 31, 2021 and 2020:

 

 

 

For the Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

 

 

(In thousands)

 

Current:

 

 

 

 

 

 

 

 

Federal

 

$

31,535

 

 

$

22,450

 

State

 

 

10,439

 

 

 

7,432

 

Total current

 

 

41,974

 

 

 

29,882

 

Deferred:

 

 

 

 

 

 

 

 

Federal

 

 

(9,825

)

 

 

(24,649

)

State

 

 

(3,253

)

 

 

(8,160

)

Total deferred

 

 

(13,078

)

 

 

(32,809

)

Income tax (benefit) expense

 

$

28,896

 

 

$

(2,927

)

 

The reconciliation between the statutory federal income tax rate and effective income tax rate is as follows for the three months ended March 31, 2021 and 2020:

 

 

 

Three Months Ended

 

 

 

 

March 31,

 

 

 

 

2021

 

 

2020

 

 

Statutory federal income tax rate

 

 

21.00

 

%

 

21.00

 

%

Effect of non-taxable interest income

 

 

(0.91

)

 

 

30.08

 

 

Stock compensation

 

 

0.33

 

 

 

6.78

 

 

State income taxes, net of federal benefit

 

 

4.26

 

 

 

55.74

 

 

Executive officer compensation & other

 

 

(0.70

)

 

 

7.35

 

 

Effective income tax rate

 

 

23.98

 

%

 

120.95

 

%

 

 

36

 


 

 

The types of temporary differences between the tax basis of assets and liabilities and their financial reporting amounts that give rise to deferred income tax assets and liabilities, and their approximate tax effects, are as follows:

 

 

 

March 31,

2021

 

 

December 31,

2020

 

 

 

(In thousands)

 

Deferred tax assets:

 

 

 

 

 

 

 

 

Allowance for credit losses

 

$

71,483

 

 

$

72,445

 

Deferred compensation

 

 

2,701

 

 

 

4,741

 

Stock compensation

 

 

4,806

 

 

 

4,768

 

Non-accrual interest income

 

 

941

 

 

 

775

 

Real estate owned

 

 

131

 

 

 

620

 

Loan discounts

 

 

5,077

 

 

 

6,806

 

Tax basis premium/discount on acquisitions

 

 

4,639

 

 

 

5,101

 

Investments

 

 

320

 

 

 

502

 

Deposits

 

 

(41

)

 

 

(33

)

Other

 

 

5,424

 

 

 

5,855

 

Gross deferred tax assets

 

 

95,481

 

 

 

101,580

 

Deferred tax liabilities:

 

 

 

 

 

 

 

 

Accelerated depreciation on premises and equipment

 

 

232

 

 

 

1,929

 

Unrealized gain on securities available-for-sale

 

 

3,841

 

 

 

15,072

 

Core deposit intangibles

 

 

6,726

 

 

 

7,056

 

FHLB dividends

 

 

2,783

 

 

 

2,711

 

Other

 

 

4,754

 

 

 

4,563

 

Gross deferred tax liabilities

 

 

18,336

 

 

 

31,331

 

Net deferred tax assets

 

$

77,145

 

 

$

70,249

 

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and the states of Alabama, Arizona, Arkansas, California, Florida, Georgia, Illinois, Kentucky, Maryland, New York, Oklahoma, Missouri, Pennsylvania, Tennessee, Texas and Wisconsin.  The Company is no longer subject to U.S. federal and state tax examinations by tax authorities for years before 2018.

13. Common Stock, Compensation Plans and Other

Common Stock

As of March 31, 2021, the Company’s Restated Articles of Incorporation, as amended, authorize the issuance of up to 300,000,000 shares of common stock, par value $0.01 per share.

The Company also has the authority to issue up to 5,500,000 shares of preferred stock, par value $0.01 per share under the Company’s Restated Articles of Incorporation, as amended.

Stock Repurchases

During the first three months of 2021, the Company repurchased a total of 330,000 shares with a weighted-average stock price of $26.55 per share. Shares repurchased under the program as of March 31, 2021 since its inception total 16,238,335 shares. The remaining balance available for repurchase is 23,513,665 shares at March 31, 2021.

Stock Compensation Plans

The Company has a stock option and performance incentive plan known as the Amended and Restated 2006 Stock Option and Performance Incentive Plan (the “Plan”). The purpose of the Plan is to attract and retain highly qualified officers, directors, key employees, and other persons, and to motivate those persons to improve the Company’s business results. As of March 31, 2021, the maximum total number of shares of the Company’s common stock available for issuance under the Plan was 13,288,000.  At March 31, 2021, the Company had approximately 1,515,000 shares of common stock remaining available for future grants and approximately 4,614,000 shares of common stock reserved for issuance pursuant to outstanding awards under the Plan.  


 

37

 


 

 

The intrinsic value of the stock options outstanding and stock options vested at March 31, 2021 was $21.7 million and $13.7 million. The intrinsic value of stock options exercised during the three months ended March 31, 2021 was approximately $1.6 million. Total unrecognized compensation cost, net of income tax benefit, related to non-vested stock option awards, which are expected to be recognized over the vesting periods, was approximately $6.7 million as of March 31, 2021.

The table below summarizes the stock option transactions under the Plan at March 31, 2021 and December 31, 2020 and changes during the three-month period and year then ended:

 

 

 

For the Three Months

Ended March 31, 2021

 

 

For the Year Ended

December 31, 2020

 

 

 

Shares (000)

 

 

Weighted-

Average

Exercisable

Price

 

 

Shares (000)

 

 

Weighted-

Average

Exercisable

Price

 

Outstanding, beginning of year

 

 

3,254

 

 

$

19.77

 

 

 

3,411

 

 

$

19.60

 

Granted

 

 

14

 

 

 

21.68

 

 

 

 

 

 

 

Forfeited/Expired

 

 

(1

)

 

 

23.51

 

 

 

(76

)

 

 

21.95

 

Exercised

 

 

(168

)

 

 

14.91

 

 

 

(81

)

 

 

10.61

 

Outstanding, end of period

 

 

3,099

 

 

 

20.04

 

 

 

3,254

 

 

 

19.77

 

Exercisable, end of period

 

 

1,368

 

 

$

17.04

 

 

 

1,537

 

 

$

16.82

 

 

Stock-based compensation expense for stock-based compensation awards granted is based on the grant-date fair value.  For stock option awards, the fair value is estimated at the date of grant using the Black-Scholes option-pricing model.  This model requires the input of highly subjective assumptions, changes to which can materially affect the fair value estimate.  Additionally, there may be other factors that would otherwise have a significant effect on the value of employee stock options granted but are not considered by the model.  Accordingly, while management believes that the Black-Scholes option-pricing model provides a reasonable estimate of fair value, the model does not necessarily provide the best single measure of fair value for the Company's employee stock options.  The weighted-average fair value of options granted during the three months ended March 31, 2021 was $11.11 per share. There were no options granted during the year ended December 31, 2020.  The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model based on the weighted-average assumptions for expected dividend yield, expected stock price volatility, risk-free interest rate, and expected life of options granted.  

 

The assumptions used in determining the fair value of the 2021 and 2020 stock option grants were as follows:

 

 

 

For the Three Months Ended March 31, 2021

 

 

For the Year Ended December 31, 2020

 

Expected dividend yield

 

 

2.59

%

 

Not Applicable

 

Expected stock price volatility

 

 

70.13

%

 

Not Applicable

 

Risk-free interest rate

 

 

0.75

%

 

Not Applicable

 

Expected life of options

 

6.5 years

 

 

Not Applicable

 

The following is a summary of currently outstanding and exercisable options at March 31, 2021:

 

Options Outstanding

 

 

Options Exercisable

 

Exercise Prices

 

Options

Outstanding

Shares

(000)

 

 

Weighted-

Average

Remaining

Contractual

Life (in years)

 

 

Weighted-

Average

Exercise

Price

 

 

Options

Exercisable

Shares (000)

 

 

Weighted-

Average

Exercise

Price

 

$6.56 to $8.62

 

 

164

 

 

 

1.65

 

 

$

8.32

 

 

 

164

 

 

$

8.32

 

$9.54 to $14.71

 

 

140

 

 

 

3.30

 

 

 

13.23

 

 

 

140

 

 

 

13.23

 

$16.77 to $16.86

 

 

130

 

 

 

3.39

 

 

 

16.80

 

 

 

130

 

 

 

16.80

 

$17.12 to $17.36

 

 

102

 

 

 

3.97

 

 

 

17.14

 

 

 

102

 

 

 

17.14

 

$17.40 to $18.46

 

 

870

 

 

 

4.38

 

 

 

18.45

 

 

 

605

 

 

 

18.45

 

$18.50 to $20.16

 

 

63

 

 

 

7.58

 

 

 

19.21

 

 

 

19

 

 

 

19.48

 

$20.58 to $21.25

 

 

163

 

 

 

5.01

 

 

 

21.08

 

 

 

125

 

 

 

21.10

 

$21.31 to $22.22

 

 

112

 

 

 

7.35

 

 

 

22.18

 

 

 

40

 

 

 

22.22

 

$22.70 to $23.32

 

 

1,274

 

 

 

7.31

 

 

 

23.32

 

 

 

1

 

 

 

22.70

 

$23.51 to $25.96

 

 

81

 

 

 

6.23

 

 

 

25.63

 

 

 

42

 

 

 

25.96

 

 

 

 

3,099

 

 

 

 

 

 

 

 

 

 

 

1,368

 

 

 

 

 

 

38

 


 

 

The table below summarized the activity for the Company’s restricted stock issued and outstanding at March 31, 2021 and December 31, 2020 and changes during the period and year then ended:

 

 

 

As of

March 31, 2021

 

 

As of

December 31, 2020

 

 

 

(In thousands)

 

Beginning of year

 

 

1,371

 

 

 

1,636

 

Issued

 

 

215

 

 

 

264

 

Vested

 

 

(235

)

 

 

(453

)

Forfeited

 

 

 

 

 

(76

)

End of period

 

 

1,351

 

 

 

1,371

 

Amount of expense for three months and twelve

    months ended, respectively

 

$

1,664

 

 

$

6,824

 

 

Total unrecognized compensation cost, net of income tax benefit, related to non-vested restricted stock awards, which are expected to be recognized over the vesting periods, was approximately $20.9 million as of March 31, 2021.  

14.  Non-Interest Expense

The table below shows the components of non-interest expense for the three months ended March 31, 2021 and 2020:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

 

 

(In thousands)

 

Salaries and employee benefits

 

$

42,059

 

 

$

39,329

 

Occupancy and equipment

 

 

9,237

 

 

 

8,873

 

Data processing expense

 

 

5,870

 

 

 

4,326

 

Other operating expenses:

 

 

 

 

 

 

 

 

Advertising

 

 

1,046

 

 

 

1,226

 

Merger and acquisition expenses

 

 

 

 

 

711

 

Amortization of intangibles

 

 

1,421

 

 

 

1,517

 

Electronic banking expense

 

 

2,238

 

 

 

1,715

 

Directors’ fees

 

 

383

 

 

 

424

 

Due from bank service charges

 

 

249

 

 

 

223

 

FDIC and state assessment

 

 

1,363

 

 

 

1,548

 

Insurance

 

 

781

 

 

 

746

 

Legal and accounting

 

 

846

 

 

 

919

 

Other professional fees

 

 

1,613

 

 

 

3,226

 

Operating supplies

 

 

487

 

 

 

535

 

Postage

 

 

338

 

 

 

327

 

Telephone

 

 

346

 

 

 

324

 

Other expense

 

 

4,589

 

 

 

4,505

 

Total other operating expenses

 

 

15,700

 

 

 

17,946

 

Total non-interest expense

 

$

72,866

 

 

$

70,474

 

 

 


 

39

 


 

 

15. Leases

The Company leases land and office facilities under long-term, non-cancelable operating lease agreements. The leases expire at various dates through 2042 and do not include renewal options based on economic factors that would have implied that continuation of the lease was reasonably certain. Certain leases provide for increases in future minimum annual rental payments as defined in the lease agreements. The leases generally include real estate taxes and common area maintenance (“CAM”) charges in the rental payments. Short-term leases are leases having a term of twelve months or less. As part of the standard adoption, the Company elected the package of practical expedients whereby we did not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases. In accordance with ASU 2018-11, the Company elected the practical expedient whereby we elected to not separate nonlease components from the associated lease component of our operating leases. As a result, we account for these components as a single component under Topic 842 since (i) the timing and pattern of transfer of the nonlease components and the associated lease component are the same and (ii) the lease component, if accounted for separately, would be classified as an operating lease. The Company recognizes short term leases on a straight-line basis and does not record a related ROU asset and liability for such leases. In addition, equipment leases were determined to be immaterial and a related ROU asset and liability for such leases is not recorded.

As of March 31, 2021, the balances of the right-of-use asset and lease liability was $39.6 million and $42.4 million, respectively. As of December 31, 2020, the balances of the right-of-use asset and lease liability was $40.2 million and $43.0 million, respectively The right-of-use asset is included in bank premises and equipment, net, and the lease liability is included in accrued interest payable and other liabilities.

 

The minimum rental commitments under these noncancelable operating leases are as follows (in thousands) as of March 31, 2021 and December 31, 2020:

 

 

 

March 31, 2021

 

 

December 31, 2020

 

2021

 

$

8,303

 

 

$

8,235

 

2022

 

 

6,776

 

 

 

6,486

 

2023

 

 

6,178

 

 

 

5,714

 

2024

 

 

5,601

 

 

 

5,262

 

2025

 

 

5,301

 

 

 

4,818

 

Thereafter

 

 

28,056

 

 

 

27,453

 

Total future minimum lease payments

 

$

60,215

 

 

$

57,968

 

    Discount effect of cash flows

 

 

(17,812

)

 

 

(14,922

)

Present value of net future minimum lease payments

 

$

42,403

 

 

$

43,046

 

 

 

Additional information (dollar amounts in thousands):

 

 

 

For the Three Months

Ended March 31,

 

 

For the Three Months

Ended March 31,

 

Lease expense:

 

2021

 

 

2020

 

Operating lease expense

 

$

2,009

 

 

$

2,014

 

Short-term lease expense

 

 

4

 

 

 

17

 

Variable lease expense

 

 

256

 

 

 

255

 

Total lease expense

 

$

2,269

 

 

$

2,286

 

Other information:

 

 

 

 

 

 

 

 

Cash paid for amounts included in the

   measurement of lease liabilities

 

$

1,994

 

 

$

1,974

 

Weighted-average remaining lease term

   (in years)

 

 

11.87

 

 

 

10.31

 

Weighted-average discount rate

 

 

3.52

%

 

 

3.61

%

 

The Company currently leases three properties from three related parties. Total rent expense from the leases was $35,000 or 1.54% of total lease expense and $35,000 or 1.55% of total lease expense for the three months ended March 31, 2021 and 2020, respectively.

 

40

 


 

16. Significant Estimates and Concentrations of Credit Risks

Accounting principles generally accepted in the United States of America require disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Estimates related to the allowance for credit losses and certain concentrations of credit risk are reflected in Note 5, while deposit concentrations are reflected in Note 8.

The Company’s primary market areas are in Arkansas, Florida, South Alabama and New York. The Company primarily grants loans to customers located within these markets unless the borrower has an established relationship with the Company.

The diversity of the Company’s economic base tends to provide a stable lending environment. Although the Company has a loan portfolio that is diversified in both industry and geographic area, a substantial portion of its debtors’ ability to honor their contracts is dependent upon real estate values, tourism demand and the economic conditions prevailing in its market areas.

Although the Company has a diversified loan portfolio, at March 31, 2021 and December 31, 2020, commercial real estate loans represented 55.8% and 54.4% of total loans receivable, respectively, and 227.4% and 234.3% of total stockholders’ equity at March 31, 2021 and December 31, 2020, respectively.  Residential real estate loans represented 16.8% and 18.5% of total loans receivable and 68.6% and 79.6% of total stockholders’ equity at March 31, 2021 and December 31, 2020, respectively.

Approximately 73.0% of the Company’s total loans and 76.2% of the Company’s real estate loans as of March 31, 2021, are to borrowers whose collateral is located in Alabama, Arkansas, Florida and New York, the states in which the Company has its branch locations.  

 

Beginning in the first quarter of 2020, the COVID-19 pandemic negatively impacted the U.S. and global economy; disrupted U.S. and global supply chains; lowered equity market valuations; created significant volatility and disruption in financial markets; contributed to a decrease in the rates and yields on U.S. Treasury securities; resulted in ratings downgrades, credit deterioration, and defaults in many industries; increased demands on capital and liquidity; increased unemployment levels and decreased consumer confidence. In addition, the pandemic resulted in temporary closures of many businesses and the institution of social distancing and sheltering in place requirements in many states and communities, including those in our footprint. The pandemic has caused the Company, and could continue to cause the Company, to recognize credit losses in our loan portfolios and increases in our allowance for credit losses and could cause further volatility in the valuation of real estate and other collateral supporting loans. As of March 31, 2021, the markets in which we operate have begun to experience economic recovery as unemployment rates have declined, COVID-19 vaccination rates have increased, and communities have begun to reopen for business activity.  However, there is still a significant amount of uncertainty related to the COVID-19 pandemic which may slow the anticipated economic recovery.  The Company determined that an additional provision for credit losses on loans was not necessary as the current level of the allowance for credit losses was considered adequate as of March 31, 2021. In addition, the Company determined that the current level of  the unfunded commitment reserve was adequate, and no additional unfunded commitments expense was necessary as of March 31, 2021. The financial statements have been prepared using values and information currently available to the Company. The Company is continuing to closely monitor the situation.

Any future volatility in the economy could cause the values of assets and liabilities recorded in the financial statements to change rapidly, resulting in material future adjustments in asset values, the allowance for credit losses and capital that could negatively impact the Company’s ability to meet regulatory capital requirements and maintain sufficient liquidity.

17.  Commitments and Contingencies

In the ordinary course of business, the Company makes various commitments and incurs certain contingent liabilities to fulfill the financing needs of their customers. These commitments and contingent liabilities include lines of credit and commitments to extend credit and issue standby letters of credit. The Company applies the same credit policies and standards as they do in the lending process when making these commitments. The collateral obtained is based on the assessed creditworthiness of the borrower.

At March 31, 2021 and December 31, 2020, commitments to extend credit of $2.78 billion and $2.82 billion, respectively, were outstanding.  A percentage of these balances are participated out to other banks; therefore, the Company can call on the participating banks to fund future draws.  Since some of these commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements.

 


 

41

 


 

 

Outstanding standby letters of credit are contingent commitments issued by the Company, generally to guarantee the performance of a customer in third-party borrowing arrangements. The term of the guarantee is dependent upon the creditworthiness of the borrower, some of which are long-term. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the counterparty.  Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate.  Management uses the same credit policies in granting lines of credit as it does for on-balance-sheet instruments.  The maximum amount of future payments the Company could be required to make under these guarantees at March 31, 2021 and December 31, 2020, is $56.3 million and $56.1 million, respectively.

The Company and/or its bank subsidiary have various unrelated legal proceedings, most of which involve loan foreclosure activity pending, which, in the aggregate, are not expected to have a material adverse effect on the financial position or results of operations or cash flows of the Company and its subsidiary.

18.  Regulatory Matters

The Bank is subject to a legal limitation on dividends that can be paid to the parent company without prior approval of the applicable regulatory agencies. Arkansas bank regulators have specified that the maximum dividend limit state banks may pay to the parent company without prior approval is 75% of the current year earnings plus 75% of the retained net earnings of the preceding year. Since the Bank is also under supervision of the Federal Reserve, it is further limited if the total of all dividends declared in any calendar year by the Bank exceeds the Bank’s net profits to date for that year combined with its retained net profits for the preceding two years.  During the first three months of 2021, the Company requested approximately $66.0 million in regular dividends from its banking subsidiary.  

The Company’s banking subsidiary is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.  Furthermore, the Company’s regulators could require adjustments to regulatory capital not reflected in the consolidated financial statements.

Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of total, common Tier 1 equity and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined).  Management believes that, as of March 31, 2021, the Company meets all capital adequacy requirements to which it is subject.

On December 21, 2018, the federal banking agencies issued a joint final rule to revise their regulatory capital rules to permit bank holding companies and banks to phase-in, for regulatory capital purposes, the day-one impact of the new CECL accounting rule on retained earnings over a period of three years. As part of its response to the impact of COVID-19, on March 27, 2020, the federal banking regulatory agencies issued an interim final rule that provided the option to temporarily delay certain effects of CECL on regulatory capital for two years, followed by a three-year transition period. The interim final rule allows bank holding companies and banks to delay for two years 100% of the day-one impact of adopting CECL and 25% of the cumulative change in the reported allowance for credit losses since adopting CECL. The Company elected to adopt the interim final rule, which is reflected in the risk-based capital ratios presented below

 


 

42

 


 

 

In July 2013, the Federal Reserve Board and the other federal bank regulatory agencies issued a final rule to revise their risk-based and leverage capital requirements and their method for calculating risk-weighted assets to make them consistent with the agreements that were reached by the Basel Committee on Banking Supervision in “Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems” and certain provisions of the Dodd-Frank Act (“Basel III”). Basel III applies to all depository institutions, bank holding companies with total consolidated assets of $500 million or more, and savings and loan holding companies. Basel III became effective for the Company and its bank subsidiary on January 1, 2015. Basel III limits a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” of 2.5% of common equity Tier 1 capital to risk-weighted assets, which is in addition to the amount necessary to meet its minimum risk-based capital requirements. The capital conservation buffer requirement began being phased in beginning January 1, 2016 at the 0.625% level and increased by 0.625% on each subsequent January 1, until it reached 2.5% on January 1, 2019 when the phase-in period ended, and the full capital conservation buffer requirement became effective.

Basel III permanently grandfathers trust preferred securities and other non-qualifying capital instruments that were issued and outstanding as of May 19, 2010 in the Tier 1 capital of bank holding companies with total consolidated assets of less than $15 billion as of December 31, 2009. The rule phases out of Tier 1 capital these non-qualifying capital instruments issued before May 19, 2010 by all other bank holding companies. Because our total consolidated assets were less than $15 billion as of December 31, 2009, our outstanding trust preferred securities continue to be treated as Tier 1 capital.  However, now that the Company has exceeded $15 billion in assets, if the Company acquires another financial institution in the future, then the Tier 1 treatment of the Company’s outstanding trust preferred securities will be phased out, but those securities will still be treated as Tier 2 capital.

 

Basel III also amended the prompt corrective action rules to incorporate a “common equity Tier 1 capital” requirement and to raise the capital requirements for certain capital categories.  In order to be adequately capitalized for purposes of the prompt corrective action rules, a banking organization will be required to have at least a 4.5% “common equity Tier 1 risk-based capital” ratio, a 4% “Tier 1 leverage capital” ratio, a 6% “Tier 1 risk-based capital” ratio and an 8% “total risk-based capital” ratio.

The Federal Reserve Board’s risk-based capital guidelines include the definitions for (1) a well-capitalized institution, (2) an adequately-capitalized institution, and (3) an undercapitalized institution.  Under Basel III, the criteria for a well-capitalized institution are now: a 6.5% “common equity Tier 1 risk-based capital” ratio, a 5% “Tier 1 leverage capital” ratio, an 8% “Tier 1 risk-based capital” ratio, and a 10% “total risk-based capital” ratio.  As of March 31, 2021, the Bank met the capital standards for a well-capitalized institution.  The Company’s “common equity Tier 1 risk-based capital” ratio, “Tier 1 leverage capital” ratio, “Tier 1 risk-based capital” ratio, and “total risk-based capital” ratio were 14.34%, 11.13%, 14.95%, and 18.76%, respectively, as of March 31, 2021.

19.  Additional Cash Flow Information

In connection with the LH-Finance acquisition, accounted for using the purchase method, the Company acquired approximately $409.1 million in assets, including $407.4 million in loans as of February 29, 2020, and paid $421.2 million in cash.

The following is a summary of the Company’s additional cash flow information during the three-month periods ended:

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

 

 

(In thousands)

 

Interest paid

 

$

10,719

 

 

$

28,342

 

Income taxes paid

 

 

1,205

 

 

 

1,502

 

Assets acquired by foreclosure

 

 

1,786

 

 

 

1,255

 

 

20.  Financial Instruments

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There is a hierarchy of three levels of inputs that may be used to measure fair values:

 

Level 1

Quoted prices in active markets for identical assets or liabilities

 

Level 2

Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

 

Level 3

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

 

43

 


 

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Transfers of financial instruments between levels within the fair value hierarchy are recognized on the date management determines that the underlying circumstances or assumptions have changed.

Financial Assets and Liabilities Measured on a Recurring Basis

Available-for-sale securities are the only material instruments valued on a recurring basis which are held by the Company at fair value.  The Company does not have any Level 1 securities.  Primarily all of the Company's securities are considered to be Level 2 securities.  These Level 2 securities consist primarily of U.S. government-sponsored enterprises, mortgage-backed securities plus state and political subdivisions.  For these securities, the Company obtains fair value measurements from an independent pricing service.  The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.  As of March 31, 2021 and December 31, 2020, Level 3 securities were immaterial. In addition, there were no material transfers between hierarchy levels during 2021 and 2020. See Note 3 for additional detail related to investment securities.

The Company reviews the prices supplied by the independent pricing service, as well as their underlying pricing methodologies, for reasonableness and to ensure such prices are aligned with traditional pricing matrices.  In general, the Company does not purchase investment portfolio securities with complicated structures.  Pricing for the Company’s investment securities is fairly generic and is easily obtained.  The Company uses a third-party comparison pricing vendor in order to reflect consistency in the fair values of the investment securities sampled by the Company each quarter.

Financial Assets and Liabilities Measured on a Nonrecurring Basis

Impaired loans that are collateral dependent are the only material financial assets valued on a non-recurring basis which are held by the Company at fair value.  Loan impairment is reported when full payment under the loan terms is not expected.  Impaired loans are carried at the net realizable value of the collateral if the loan is collateral dependent.  A portion of the allowance for credit losses is allocated to impaired loans if the value of such loans is deemed to be less than the unpaid balance.  If these allocations cause the allowance for credit losses to require an increase, such increase is reported as a component of the provision for credit losses.  The fair value of loans with specific allocated losses was $307.2 million  and $102.1 million as of March 31, 2021 and December 31, 2020, respectively.  The increase in collateral-dependent impaired loans was due to the Company changing the valuation for lodging and assisted living loans to a market price valuation methodology. This involved assigning a 15% discount of par for these impaired loans. The 15% figure was derived based on knowledge of current hotel and assisted living offerings in the loan sale market. In the event of default, liquidation would be achieved through a loan sale. The Company is continuing to monitor these impaired loans and will adjust the discount as necessary. This valuation is considered Level 3, consisting of appraisals of underlying collateral. The Company reversed approximately $58,000 and $242,000 of accrued interest receivable when impaired loans were put on non-accrual status during the three months ended March 31, 2021 and 2020, respectively.

Nonfinancial Assets and Liabilities Measured on a Nonrecurring Basis

Foreclosed assets held for sale are the only material non-financial assets valued on a non-recurring basis which are held by the Company at fair value, less estimated costs to sell.  At foreclosure, if the fair value, less estimated costs to sell, of the real estate acquired is less than the Company’s recorded investment in the related loan, a write-down is recognized through a charge to the allowance for credit losses. Additionally, valuations are periodically performed by management and any subsequent reduction in value is recognized by a charge to income. The fair value of foreclosed assets held for sale is estimated using Level 3 inputs based on appraisals of underlying collateral.  As of March 31, 2021 and December 31, 2020, the fair value of foreclosed assets held for sale, less estimated costs to sell, was $3.0 million and $4.4 million, respectively.

No foreclosed assets held for sale were remeasured during the three months ended March 31, 2021. Regulatory guidelines require the Company to reevaluate the fair value of foreclosed assets held for sale on at least an annual basis. The Company’s policy is to comply with the regulatory guidelines.

The significant unobservable (Level 3) inputs used in the fair value measurement of collateral for collateral-dependent impaired loans and foreclosed assets primarily relate to customized discounting criteria applied to the customer’s reported amount of collateral.  The amount of the collateral discount depends upon the condition and marketability of the underlying collateral.  As the Company’s primary objective in the event of default would be to monetize the collateral to settle the outstanding balance of the loan, less marketable collateral would receive a larger discount. During the reported periods, collateral discounts ranged from 20% to 80% for commercial and residential real estate collateral.

 

44

 


 

Fair Values of Financial Instruments

The following table presents the estimated fair values of the Company’s financial instruments. Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  

 

 

 

March 31, 2021

 

 

Carrying

 

 

 

 

 

 

 

 

 

Amount

 

 

Fair Value

 

 

Level

 

 

(In thousands)

 

 

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,478,548

 

 

$

2,478,548

 

 

1

Loans receivable, net of impaired loans and allowance

 

 

10,228,319

 

 

 

10,568,244

 

 

3

Accrued interest receivable

 

 

55,495

 

 

 

55,495

 

 

1

FHLB, Federal Reserve & First National Bankers Bank

   stock; other equity investments

 

 

114,915

 

 

 

114,915

 

 

3

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

Demand and non-interest bearing

 

$

3,859,722

 

 

$

3,859,722

 

 

1

Savings and interest-bearing transaction accounts

 

 

8,477,208

 

 

 

8,477,208

 

 

1

Time deposits

 

 

1,175,664

 

 

 

1,196,743

 

 

3

Securities sold under agreements to repurchase

 

 

162,929

 

 

 

162,929

 

 

1

FHLB and other borrowed funds

 

 

400,000

 

 

 

402,342

 

 

2

Accrued interest payable

 

 

9,769

 

 

 

9,769

 

 

1

Subordinated debentures

 

 

370,515

 

 

 

377,889

 

 

3

 

 

 

December 31, 2020

 

 

Carrying

 

 

 

 

 

 

 

 

 

Amount

 

 

Fair Value

 

 

Level

 

 

(In thousands)

 

 

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,263,788

 

 

$

1,263,788

 

 

1

Loans receivable, net of impaired loans and allowance

 

 

10,873,120

 

 

 

11,292,004

 

 

3

Accrued interest receivable

 

 

60,528

 

 

 

60,528

 

 

1

FHLB, Federal Reserve & First National Bankers Bank

   stock; other equity investments

 

 

114,854

 

 

 

114,854

 

 

3

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

Demand and non-interest bearing

 

$

3,266,753

 

 

$

3,266,753

 

 

1

Savings and interest-bearing transaction accounts

 

 

8,212,240

 

 

 

8,212,240

 

 

1

Time deposits

 

 

1,246,797

 

 

 

1,266,430

 

 

3

Securities sold under agreements to repurchase

 

 

168,931

 

 

 

168,931

 

 

1

FHLB and other borrowed funds

 

 

400,000

 

 

 

414,207

 

 

2

Accrued interest payable

 

 

5,925

 

 

 

5,925

 

 

1

Subordinated debentures

 

 

370,326

 

 

 

378,981

 

 

3

 

 

45

 


 

 

21.  Recent Accounting Pronouncements

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminates the requirement to determine the fair value of individual assets and liabilities of a reporting unit to measure goodwill impairment.  Under the amendments in the new ASU, goodwill impairment testing will be performed by comparing the fair value of the reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss should not exceed the total amount of goodwill allocated to that reporting unit.  The new standard is effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and should be applied on a prospective basis. Early adoption was permitted for annual or interim goodwill impairment testing performed after January 1, 2017.  The Company has goodwill from prior business combinations and performs an annual impairment test or more frequently if changes or circumstances occur that would more-likely-than-not reduce the fair value of the reporting unit below its carrying value.  During 2020, the Company performed its impairment assessment and determined the fair value of the aggregated reporting units exceed the carrying value, such that the Company’s goodwill was not considered impaired.  The Company adopted the guidance effective January 1, 2020, and its adoption did not have a significant impact on our financial position or financial statement disclosures. The current accounting policies and processes have not changed, except for the elimination of the Step 2 analysis.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement.  The new guidance modifies disclosure requirements related to fair value measurement.  The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.  Implementation on a prospective or retrospective basis varies by specific disclosure requirement. The Company adopted the guidance effective January 1, 2020, and its adoption did not have a significant impact on our financial position or financial statement disclosures.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, that amends the definition of a hosting arrangement and requires a customer in a hosting arrangement that is a service contract to capitalize certain implementation costs as if the arrangement was an internal-use software project. The internal-use software guidance states that only qualifying costs incurred during the application development stage can be capitalized. The effective date is for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Entities have the option to apply the guidance prospectively to all implementation costs incurred after the date of adoption or retrospectively in accordance with the applicable guidance. The Company adopted the guidance effective January 1, 2020, and its adoption did not have a significant impact on our financial position or financial statement disclosures.

In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses. The amendment clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases. The effective date and transition requirements for the amendments in this update are the same as the effective dates and transition requirements in ASU 2016-13.

In March 2019, the FASB issued ASU 2019-01, Leases (Topic 842) Codification Improvements. The amendments in this Update reinstate the exception in Topic 842 for lessors that are not manufacturers or dealers. Specifically, those lessors will use their cost, reflecting any volume or trade discounts that may apply, as the fair value of the underlying asset. However, if significant time lapses between the acquisition of the underlying asset and lease commencement, those lessors will be required to apply the definition of fair value (exit price) in Topic 820. In addition, the amendments in this Update address the concerns of lessors within the scope of Topic 942 about where “principal payments received under leases” should be presented. Specifically, lessors that are depository and lending institutions within the scope of Topic 942 will present all “principal payments received under leases” within investing activities. Finally, the amendments in this Update clarify the FASB’s original intent by explicitly providing an exception to the paragraph 250-10-50-3 interim disclosure requirements in the Topic 842 transition disclosure requirements. The effective date for the amendments in this update is for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The Company adopted the guidance effective January 1, 2020, and its adoption did not have a significant impact on our financial position or financial statement disclosures.

 

46

 


 

In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The amendments clarify certain aspects of the accounting for credit losses, hedging activities, and financial instruments (addressed by ASUs 2016-13, 2017-12 and 2016-01, respectively). The amendments made to the provisions of ASU 2016-13 are related to accrued interest, transfers between classifications or categories for loans and debt securities, recoveries, reinsurance recoverables, projections of interest rate environments for variable-rate financial instruments, cost to sell financial assets when foreclosure is probable, consideration of expected prepayments when determining the effective interest rate,  amortized cost basis of line of credit arrangements that are converted to term loans and extension and renewal options that are not unconditionally cancelable by the entity. The effective date and transition requirements for the amendments in this update are the same as the effective dates and transition requirements in ASU 2016-13. The significant amendments made to the provisions of ASU 2017-12 are related to partial-term fair value hedges of interest rate risk, amortization of fair value hedge basis adjustments, disclosure of fair value hedge basis adjustments, consideration of the hedged contractually specified interest rate under the hypothetical derivative method, application of a first-payments-received cash flow hedging technique to overall cash flows on a group of variable interest payments and transition guidance for reclassifying prepayable debt securities from HTM to available-for-sale. The amendments to ASU 2017-12 are effective as of the beginning of the first annual reporting period beginning after the date of issuance of ASU 2019-04. The amendments made to the provisions of ASU 2016-01 indicate that the measurement alternative for equity securities without readily determinable fair values represent a nonrecurring fair value measurement under ASC 820, and therefore, such securities should be remeasured at fair value when an entity identifies an orderly transaction “for an identical or similar investment of the same issuer.” The amendments related to ASU 2016-01 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted the guidance effective January 1, 2020, and its adoption did not have a significant impact on our financial position or financial statement disclosures.

In May 2019, the FASB issued ASU 2019-05, Financial Instruments – Credit Losses (Topic 326): Targeted Transition Relief. The amendments provide transition relief for entities adopting the Board’s credit losses standard, ASU 2016-13. Specifically, ASU 2019-05 amends ASU 2016-13 to allow companies to irrevocably elect, upon adoption of ASU 2016-13, the fair value option for financial instruments that were previously recorded at amortized cost and are within the scope of the credit losses guidance in ASC 326-20, are eligible for the fair value option under ASC 825-10, and are not held-to-maturity debt securities. The amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted the standard guidance effective January 1, 2020, and its adoption did not have a significant impact on our financial position or financial statement disclosures.

 

In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses. The amendments clarify that the allowance for credit losses for purchased financial assets with credit deterioration should include expected recoveries of amounts previously written off and expected to be written off by the entity and should not exceed the aggregate of amounts of the amortized cost basis previously written off and expected to be written off by an entity. The amendments also clarify that when a method other than a discounted cash flow method is used to estimate expected credit losses, the expected recoveries should not include any amounts that result in an acceleration of the noncredit discount. An entity may include increases in expected cash flows after acquisition. Also, the amendments provide transition relief by permitting entities an accounting policy election to adjust the effective interest rate on existing TDRs using prepayment assumptions on the date of adoption of Topic 326 rather than the prepayment assumption in effect immediately before the restructuring. The amendments extend the disclosure relief for accrued interest receivable balances to additional relevant disclosures involving amortized cost basis. In addition, the amendments clarify that an entity should assess whether it reasonably expects the borrower will be able to continually replenish collateral securing financial asset to apply the practical expedient. The entity applying the practical expedient should estimate the expected credit losses for any difference between the amount of the amortized cost basis that is greater than the fair value of the collateral that is greater than the fair value of the collateral securing the financial asset. An entity may determine that the expectation of nonpayment for the amount of the amortized cost basis equal to the fair value of the collateral securing the financial asset is zero. The amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted the standard guidance effective January 1, 2020, and its adoption did not have a significant impact on our financial position or financial statement disclosures.

 

47

 


 

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in the update simplify the accounting for income taxes by removing the exception to the incremental approach  for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items and the exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The amendments in the update also simplify the accounting for income taxes by requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction, specifying that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements; however, an entity may elect to do so on an entity-by-entity basis for a legal entity that is both not subject to tax and disregarded by the taxing authority. The amendments require that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date.  The Company adopted the guidance effective January 1, 2021, and its adoption did not have a significant impact on our financial position or financial statement disclosures.

In March 2020, the FASB issued ASU 2020-04,“Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU 2020-04 provides optional expedients and exceptions for accounting related to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 applies only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform and do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. ASU 2020-04 was effective upon issuance and generally can be applied through December 31, 2022.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. Section 4013 of the CARES Act provides financial institutions the temporary option to not apply ASC Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors, to certain loan modifications related to COVID-19 made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after termination of the President’s national emergency declaration for COVID-19. On December 28, 2020, an extension of section 4013 of the CARES Act, provided institutions with an extension of the temporary option to not apply ASC Subtopic 310-40 until January 1, 2022. Further, financial institutions do not need to determine impairment associated with certain loan concessions that would otherwise have been required for TDRs (e.g., interest rate concessions, payment deferrals, or loan extensions). The Company has relied on Section 4013 of the CARES Act in accounting for loan modifications since the 4th quarter 2020. The Company has granted loan modification to 49 outstanding loans for a total of $326.1 million as of March 31, 2021.  All of the customers currently on deferment chose principal deferment only and now have returned to paying interest monthly

 

 

 

 

48

 


 

 

Report of Independent Registered Public Accounting Firm

Audit Committee, Board of Directors and Stockholders

Home BancShares, Inc.

Conway, Arkansas

Results of Review of Interim Consolidated Financial Statements

We have reviewed the condensed consolidated balance sheet of Home BancShares, Inc. and subsidiaries (the "Company") as of March 31, 2021, and the related condensed consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for the three-month periods ended March 31, 2021 and 2020, and the related notes (collectively referred to as the "interim financial information” or “statements").  Based on our reviews, we are not aware of any material modifications that should be made to the condensed financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the consolidated balance sheet of the Company and subsidiaries as of December 31, 2020, and the related consolidated statements of income, comprehensive income, stockholders' equity and cash flows for the year then ended (not presented herein), and in our report dated February 26, 2021, we expressed an unqualified opinion on those consolidated financial statements.  In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2020, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

These financial statements are the responsibility of the Company’s management.  We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our review in accordance with the standards of the PCAOB.  A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters.  It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole.  Accordingly, we do not express such an opinion.

/s/ BKD, LLP

Little Rock, Arkansas

May 6, 2021

 

49

 


 

Item 2:  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our Form 10-K, filed with the Securities and Exchange Commission on February 26, 2021, which includes the audited financial statements for the year ended December 31, 2020. Unless the context requires otherwise, the terms “Company,” “us,” “we,” and “our” refer to Home BancShares, Inc. on a consolidated basis.

General

We are a bank holding company headquartered in Conway, Arkansas, offering a broad array of financial services through our wholly-owned bank subsidiary, Centennial Bank (sometimes referred to as “Centennial” or the “Bank”). As of March 31, 2021, we had, on a consolidated basis, total assets of $17.24 billion, loans receivable, net of $10.54 billion, total deposits of $13.51 billion, and stockholders’ equity of $2.65 billion.

We generate most of our revenue from interest on loans and investments, service charges, and mortgage banking income.  Deposits and Federal Home Loan Bank (“FHLB”) and other borrowed funds are our primary source of funding. Our largest expenses are interest on our funding sources, salaries and related employee benefits and occupancy and equipment. We measure our performance by calculating our return on average common equity, return on average assets and net interest margin. We also measure our performance by our efficiency ratio, which is calculated by dividing non-interest expense less amortization of core deposit intangibles by the sum of net interest income on a tax equivalent basis and non-interest income. The efficiency ratio, as adjusted, is a non-GAAP measure and is calculated by dividing non-interest expense less amortization of core deposit intangibles by the sum of net interest income on a tax equivalent basis and non-interest income excluding adjustments such as merger expenses and/or certain gains, losses and other non-interest income and expenses.

Table 1:  Key Financial Measures

 

 

 

As of or for the Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

 

 

(Dollars in thousands, except per share data)

 

Total assets

 

$

17,240,241

 

 

$

15,531,732

 

Loans receivable

 

 

10,778,493

 

 

 

11,384,982

 

Allowance for credit losses

 

 

242,932

 

 

 

228,923

 

Total deposits

 

 

13,512,594

 

 

 

11,514,914

 

Total stockholders’ equity

 

 

2,645,204

 

 

 

2,430,271

 

Net income

 

 

91,602

 

 

 

507

 

Basic earnings per share

 

 

0.55

 

 

 

0.00

 

Diluted earnings per share

 

 

0.55

 

 

 

0.00

 

Book value per share

 

 

16.02

 

 

 

14.72

 

Tangible book value per share (non-GAAP)(1)

 

 

9.95

 

 

 

8.61

 

Annualized net interest margin – FTE

 

 

4.02

%

 

 

4.22

%

Efficiency ratio

 

 

36.60

 

 

 

42.08

 

Efficiency ratio, as adjusted (non-GAAP)(2)

 

 

40.67

 

 

 

41.37

 

Annualized return on average assets

 

 

2.22

 

 

 

0.01

 

Annualized return on average common equity

 

 

14.15

 

 

 

0.08

 

 

(1)

See Table 19 for the non-GAAP tabular reconciliation.

(2)

See Table 23 for the non-GAAP tabular reconciliation.

 


 

50

 


 

 

Overview

Recent Developments – COVID-19

The rapid spread of the novel coronavirus (“COVID-19”) hit the United States during the first quarter of 2020 and the effects have continued throughout the first quarter of 2021. In March 2020, the World Health Organization declared COVID-19 a global pandemic and the United States declared a National Public Health Emergency. The Company has been, and may continue to be, impacted by the pandemic. In recent months, COVID-19 vaccination rates have been increasing and restrictive measures have eased in the majority of our market areas. However, uncertainty remains about the duration of the pandemic as well as the timing and extent of the economic recovery. To address the economic impact of the pandemic, multiple stimulus packages have been enacted to provide economic relief to individuals and businesses.

As the pandemic continues to evolve, we will continue to evaluate protocols and processes in place to execute our business continuity plans and help promote the health and safety of our employees and customers. We have reopened our banking lobbies in order to serve customers in person, while still offering service through drive-thru tellers as well as electronic and online means. To support the health and well-being of our employees, we continue to support working remotely.  To support our customers or to comply with law, we have deferred loan payments for certain consumer and commercial customers, and we have suspended residential property foreclosure sales, evictions, and involuntary automobile repossessions, and are offering fee waivers, payment deferrals, and other expanded assistance for automobile, mortgage, small business and personal lending customers. Future governmental actions may require these and other types of customer-related responses.

As of  March 31, 2021, the markets in which we operate have begun to experience economic recovery as unemployment rates have declined, COVID-19 vaccination rates have increased, and communities have begun to reopen for business activity.  Our loan deferrals decreased to $326.1 million on 49 loans, as of March 31, 2021, from the December 31, 2020 balance of $330.7 million on 56 loans, with approximately 11% of the initially deferred loan balances returning to full payments of principal and interest following the initial deferral period.  All of the customers currently on deferment totaling $326.1 million chose principal deferment only and now have returned to paying interest monthly.  The hospitality sector has been most negatively impacted by COVID-19 and represents nearly half of the deferment balance as of March 31, 2021. The geographic distribution of these deferrals is similar through all of our markets.  Our review of deferment requests required updated interim operating statements, balance sheet and liquidity verifications, and validation of the current risk rating.

In April 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES” Act) established a new federal economic relief program administered by the Small Business Administration (“SBA”) called the Paycheck Protection Program (“PPP”), which provides for 100% federally guaranteed loans to be issued by participating private financial institutions to small businesses for payroll and certain other permitted expenses.  PPP loans are forgivable, in whole or in part, so long as employee and compensation levels of the borrower are maintained, and the proceeds are used for payroll and other permitted purposes in accordance with the requirements of the PPP. These loans carry a fixed rate of 1.00% and a term of two years, if not forgiven, in whole or in part. Payments are deferred for the first six months of the loan. The Paycheck Protection Program and Health Care Enhancement Act (“PPP/HCEA Act”) was passed by Congress on April 23, 2020 and signed into law on April 24, 2020. The PPP/HCEA Act authorizes additional funds under the CARES Act for PPP loans to be issued by financial institutions through the SBA. The Consolidated Appropriations Act (“CAA”) was signed into law on December 27, 2020. The CAA also authorizes additional funds under the CARES Act for PPP loans to be issued by financial institutions through the SBA.  As of March 31, 2021, as a participating lender, we have generated 11,661 loans to both existing and new customers totaling $1.20 billion. As of March 31, 2021, the outstanding gross PPP loan balances were $667.3 million. The average loan size was $99,600.

Although the economic and public health outlooks have improved in the United States during the first quarter of 2021, the future impact of the pandemic on our business, results of operations and financial condition remains uncertain. Should current economic conditions deteriorate or if the pandemic intensifies through the spread of more contagious or severe strains of COVID-19, the pandemic could have an adverse effect on our business and results of operations and financial condition.


 

51

 


 

 

Results of Operations for the Three Months Ended March 31, 2021 and 2020

Our net income increased $91.1 million, or 17,967.5%, to $91.6 million for the three-month period ended March 31, 2021, from $507,000 for the same period in 2020.  On a diluted earnings per share basis, our earnings were $0.55 per share for the three-month period ended March 31, 2021 and $0.00 per share for the three-month period ended March 31, 2020.  During the three-month period ended March 31, 2021, the Company did not record any provision for credit losses compared to $94.6 million for the three-month period ended March 31, 2020.  The $94.6 million of provision for credit losses was primarily due to the COVID-19 pandemic, with $9.3 million for the acquisition of LH-Finance on February 29, 2020. The Company’s provisioning model is closely tied to unemployment rate projections which have continued to improve since the fourth quarter of 2020. The Company determined that an additional provision for credit losses on loans was not necessary as the current level of the allowance for credit losses was considered adequate as of March 31, 2021.  In addition, the Company determined that the current level of the unfunded commitment reserve was adequate and no additional provision for unfunded commitments was necessary as of March 31, 2021. The Company also recorded a $5.8 million adjustment for the increase in fair market value of marketable securities, $8.1 million of special dividend income from one of our equity investments and a $5.1 million recovery on historic losses from loans charged-off prior to acquisition.

Total interest expense decreased by $17.9 million, or 55.1%, and non-interest income increased by $22.3 million, or 97.5%. This was partially offset by a $9.5 million or, 5.5%, decrease in total interest income and a $2.4 million or, 3.4%, increase in non-interest expense. The decrease in interest expense was primarily due to a $16.5 million decrease in interest on deposits and an $823,000 decrease in interest on FHLB borrowed funds.  The increase in non-interest income was primarily due to an $11.6 million increase in the fair value adjustment on marketable securities, a $5.5 million increase in mortgage lending income, a $1.6 million increase in other service charges and fees, and a $4.8 million increase in other income, which was partially offset by a $1.6 million decrease in service charges on deposit accounts. The primary drivers of the decrease in interest income were a $7.2 million decrease in loan interest income, a $1.6 million decrease in investment security income and a $706,000 decrease in interest income on deposits with other banks. The increase in non-interest expense was due to a $2.7 million increase in salaries and employee benefits, a $364,000 increase in occupancy and equipment expense, a $1.5 million increase in data processing expense and was partially offset by a $2.2 million decrease in other operating expenses.  Income tax expense increased by $31.8 million during the quarter due to an increase in net income.

 Our net interest margin decreased from 4.22% for the three-month period ended March 31, 2020 to 4.02% for the three-month period ended March 31, 2021.  The yield on interest earning assets was 4.41% and 5.19% for the three months ended March 31, 2021 and 2020, respectively, as average interest earning assets increased from $13.43 billion to $15.12 billion. The increase in average earning assets is primarily the result of a $1.28 billion increase in average interest-bearing balances due from banks, a $400.7 million increase in average investment securities, and a $15.2 million increase in average loans receivable. Average PPP loan balances were $633.8 million for the three months ended March 31, 2021. These loans bear interest at 1.00% plus the accretion of the origination fee. We recognized total interest income of $11.9 million on PPP loans for the three months ended March 31, 2021. The PPP loans were accretive to the net interest margin by 16 basis points for the three months ended March 31, 2021. This was primarily due to approximately $313.8 million of the Company’s PPP loans being forgiven during the first quarter of 2021 as well as the acceleration of deferred fees for the loans that were forgiven. The COVID-19 pandemic and the resulting governmental response have created a significant amount of excess liquidity in the market.  As a result, we had an increase of $1.28 billion in average interest-bearing cash balances for the three months ended March 31, 2021 compared to the three months ended March 31, 2020.  This excess liquidity was dilutive to the net interest margin by 37 basis points. For the three months ended March 31, 2021 and 2020, we recognized $5.5 million and $7.6 million, respectively, in total net accretion for acquired loans and deposits. The reduction in accretion was dilutive to the net interest margin by 6 basis points. We recognized $1.1 million in event interest income for the three months ended March 31, 2021 compared to $558,000 for the three months ended March 31, 2020. This increased the net interest margin by 2 basis points.        

Our efficiency ratio was 36.60% for the three months ended March 31, 2021, compared to 42.08% for the same period in 2020.  For the first quarter of 2021, our efficiency ratio, as adjusted (non-GAAP), was 40.67%, an improvement of 70 basis points from the 41.37% reported for the first quarter of 2020. (See Table 23 for the non-GAAP tabular reconciliation).  

Our annualized return on average assets was 2.22% for the three months ended March 31, 2021, compared to 0.01% for the same period in 2020.  Our annualized return on average common equity was 14.15% for the three months ended March 31, 2021, compared to 0.08% for the same period in 2020.


 

52

 


 

 

Financial Condition as of and for the Period Ended March 31, 2021 and December 31, 2020

Our total assets as of March 31, 2021 increased $841.4 million to $17.24 billion from the $16.40 billion reported as of December 31, 2020.  Cash and cash equivalents increased $1.21 billion, or 96.1%, for the three months ended March 31, 2021. The increase in cash and cash equivalents is primarily due to the significant amount of excess liquidity in the market as a continued result of the COVID-19 pandemic and the accompanying governmental response. Our loan portfolio balance decreased to $10.78 billion as of March 31, 2021 from $11.22 billion at December 31, 2020 due to organic loan decline of $417.8 million and $313.8 million of the Company’s PPP loans being forgiven during the first quarter of 2021, which was partially offset by $289.4 million in new PPP loan originations during the quarter. Total deposits increased $786.8 million to $13.51 billion as of March 31, 2021 from $12.73 billion as of December 31, 2020, which was due customers holding higher deposit balances in response to the COVID-19 pandemic as well as the accompanying governmental response to the pandemic. Stockholders’ equity increased $39.4 million to $2.65 billion as of March 31, 2021, compared to $2.61 billion as of December 31, 2020.  The $39.4 million increase in stockholders’ equity is primarily associated with the $91.6 million in net income for the three months ended March 31, 2021, which was partially offset by the $24.7 million in other comprehensive loss for the three months ended March 31, 2021, $23.2 million of shareholder dividends paid and stock repurchases of $8.8 million in 2021.

Our non-performing loans were $63.4 million, or 0.59% of total loans as of March 31, 2021, compared to $74.1 million, or 0.66% of total loans as of December 31, 2020.  The allowance for credit losses as a percent of non-performing loans increased to 383.47% as of March 31, 2021, from 331.1% as of December 31, 2020.  Non-performing loans from our Arkansas franchise were $23.0 million at March 31, 2021 compared to $24.1 million as of December 31, 2020.  Non-performing loans from our Florida franchise were $35.1 million at March 31, 2021 compared to $43.1 million as of December 31, 2020.  Non-performing loans from our Alabama franchise were $516,000 at March 31, 2021 compared to $530,000 as of December 31, 2020.  Non-performing loans from our SPF franchise were $2.0 million at March 31, 2021 compared to $3.6 million as of December 31, 2020.  Non-performing loans from our Centennial Commercial Finance Group (“CFG”) franchise were $2.8 million at March 31, 2021 and December 31, 2020.  

As of March 31, 2021, our non-performing assets decreased to $66.4 million, or 0.38% of total assets, from $78.6 million, or 0.48% of total assets, as of December 31, 2020.  Non-performing assets from our Arkansas franchise were $24.9 million at March 31, 2021 compared to $25.6 million as of December 31, 2020.  Non-performing assets from our Florida franchise were $36.1 million at March 31, 2021 compared to $46.0 million as of December 31, 2020.  Non-performing assets from our Alabama franchise were $550,000 at March 31, 2021 compared to $564,000 as of December 31, 2020.  Non-performing assets from our SPF franchise were $2.0 million at March 31, 2021 compared to $3.6 million as of December 31, 2020.  Non-performing assets from our CFG franchise were $2.8 million at March 31, 2021 and December 31, 2020.  

The $2.8 million balance of non-accrual loans for our Centennial CFG market consists of one loan that is assessed for credit risk by the Federal Reserve under the Shared National Credit Program. The decision to place this loan on non-accrual status was made by the Federal Reserve and not the Company. The loan that makes up the total balance is still current on both principal and interest. However, all interest payments are currently being applied to the principal balance. Because the Federal Reserve required us to place this loan on non-accrual status, we have reversed any interest that had accrued subsequent to the non-accrual date designated by the Federal Reserve.

Critical Accounting Policies

Overview.  We prepare our consolidated financial statements based on the selection of certain accounting policies, generally accepted accounting principles and customary practices in the banking industry. These policies, in certain areas, require us to make significant estimates and assumptions. Our accounting policies are described in detail in the notes to our consolidated financial statements included as part of this document.

We consider a policy critical if (i) the accounting estimate requires assumptions about matters that are highly uncertain at the time of the accounting estimate; and (ii) different estimates that could reasonably have been used in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, would have a material impact on our financial statements. Using these criteria, we believe that the accounting policies most critical to us are those associated with our lending practices, including revenue recognition and the accounting for the allowance for credit losses, foreclosed assets, investments, intangible assets, income taxes and stock options.

 

53

 


 

Revenue Recognition.  Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers ("ASC Topic 606"), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity's contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied. The majority of our revenue-generating transactions are not subject to ASC Topic 606, including revenue generated from financial instruments, such as our loans, letters of credit and investment securities, as these activities are subject to other GAAP discussed elsewhere within our disclosures. Descriptions of our revenue-generating activities that are within the scope of ASC Topic 606, which are presented in our income statements as components of non-interest income are as follows:

 

Service charges on deposit accounts – These represent general service fees for monthly account maintenance and activity or transaction-based fees and consist of transaction-based revenue, time-based revenue (service period), item-based revenue or some other individual attribute-based revenue. Revenue is recognized when our performance obligation is completed which is generally monthly for account maintenance services or when a transaction has been completed (such as a wire transfer). Payment for such performance obligations are generally received at the time the performance obligations are satisfied.

 

Other service charges and fees – These represent credit card interchange fees and Centennial CFG loan fees. The interchange fees are recorded in the period the performance obligation is satisfied which is generally the cash basis based on agreed upon contracts. Centennial CFG loan fees are based on loan or other negotiated agreements with customers and are accounted for under ASC Topic 310.  Interchange fees were $3.8 million and $3.5 million for the three months ended March 31, 2021 and 2020, respectively. Centennial CFG loan fees were $2.0 million and $733,000 for the three months ended March 31, 2021 and 2020, respectively.

Credit Losses.  The Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, effective January 1, 2020. The guidance replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology.  The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credits, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases. ASC 326 requires enhanced disclosures related to the significant  estimates and judgments used in estimating credit losses as well as the credit quality and underwriting standards of a company’s portfolio. In addition, ASC 326 made changes to the accounting for available-for-sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available for sale debt securities management does not intend to sell or believes that it is more likely than not, they will be required to sell.

The Company adopted ASC 326 using the modified retrospective method for loans and off-balance-sheet (“OBS”) credit exposures.  Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP.  The Company recorded a one-time cumulative-effect adjustment to the allowance for credit losses of $44.0 million which was recognized through a $32.5 million adjustment to retained earnings, net of tax. This adjustment brought the beginning balance of the allowance for credit losses to $146.1 million  as of January 1, 2020.  In addition, the Company recorded a $15.5 million reserve on unfunded commitments as of January 1, 2020, which was recognized through an $11.5 million adjustment to retained earnings, net of tax.

The Company adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration (“PCD”) that were previously classified as purchased credit impaired (“PCI”) and accounted for under ASC 310-30.  In 2019, the Company reevaluated its loan pools of purchased loans with deteriorated credit quality. These loans pools related specifically to acquired loans from the Heritage, Liberty, Landmark, Bay Cities, Bank of Commerce, Premier Bank, Stonegate and Shore Premier Finance acquisitions. At acquisition, a portion of these loans were recorded as purchased credit impaired loans on a pool by pool basis. Through the reevaluation of these loan pools, management determined that estimated losses for purchase credit impaired loans should be processed against the credit mark of the applicable pools.  The remaining non-accretable mark was then moved to accretable mark to be recognized over the remaining weighted average life of the loan pools.  The projected losses for these loans were less than the total credit mark.  As such, the remaining $107.6 million of loans in these pools along with the $29.3 million in accretable yield was deemed to be immaterial and was reclassified out of the purchased credit impaired loans category.  As of December 31, 2020, the Company no longer held any purchased loans with deteriorated credit quality. Therefore, the Company did not have any PCI loans upon adoption on of ASC 326 as of January 1, 2020.

 

54

 


 

The Company adopted ASC 326 using the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2020. As of December 31, 2019, the Company did not have any other-than-temporarily impaired investment securities. Therefore, upon adoption of ASC 326, the Company determined than an allowance for credit losses on available-for-sale securities was not deemed material. However, the Company evaluated the investment portfolio during the first quarter of 2020 and determined that an $842,000 provision for credit losses was necessary. No additional provision was deemed necessary during the remaining quarters of 2020 or the first quarter of 2021. See Note 3  “Investment Securities” in the Condensed Notes to Consolidated Financial Statements for further discussion.

Investments – Available-for-sale.  Securities available-for-sale are reported at fair value with unrealized holding gains and losses reported as a separate component of stockholders’ equity and other comprehensive income (loss), net of taxes. Securities that are held as available-for-sale are used as a part of our asset/liability management strategy. Securities that may be sold in response to interest rate changes, changes in prepayment risk, the need to increase regulatory capital, and other similar factors are classified as available-for-sale. The Company evaluates all securities quarterly to determine if any securities in a loss position require a provision for credit losses in accordance with ASC 326, Measurement of Credit Losses on Financial Instruments. The Company first assesses whether it intends to sell or is more likely than not that the Company 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 cost basis is written down to fair value through income. For securities that do not meet this criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, and changes to the rating of the security by a 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 allowance for credit losses 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 allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectability of a security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

Loans Receivable and Allowance for Credit Losses.  Except for loans acquired during our acquisitions, substantially all of our loans receivable are reported at their outstanding principal balance adjusted for any charge-offs, as it is management’s intent to hold them for the foreseeable future or until maturity or payoff, except for mortgage loans held for sale.  Interest income on loans is accrued over the term of the loans based on the principal balance outstanding.

The allowance for credit losses on loans receivable is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectability of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in the national unemployment rate, gross domestic product, rental vacancy rate, housing price index and national retail sales index.

The allowance for credit losses is measured based on call report segment as these types of loan exhibit similar risk characteristics. The identified loan segments are as follows:

 

1-4 family construction

 

All other construction

 

1-4 family revolving home equity lines of credit (“HELOC”) & junior liens

 

1-4 family senior liens

 

Multifamily

 

Owner occupies commercial real estate

 

Non-owner occupied commercial real estate

 

Commercial & industrial, agricultural, non-depository financial institutions, purchase/carry securities, other

 

Consumer auto

 

Other consumer

 

Other consumer - SPF


 

55

 


 

 

The allowance for credit losses for each segment is measured through the use of the discounted cash flow method. Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. For those loans that are classified as impaired, an allowance is established when the discounted cash flows, collateral value or observable market price of the impaired loan is lower than the carrying value of that loan.

Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies:

 

Management has a reasonable expectation at the reporting date that troubled debt restructuring will be executed with an individual borrower.

 

The extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.

Loans considered impaired, according to ASC 326, are loans for which, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. The aggregate amount of impairment of loans is utilized in evaluating the adequacy of the allowance for credit losses and amount of provisions thereto. Losses on impaired loans are charged against the allowance for credit losses when in the process of collection, it appears likely that such losses will be realized. The accrual of interest on impaired loans is discontinued when, in management’s opinion the collection of interest is doubtful or generally when loans are 90 days or more past due. When accrual of interest is discontinued, all unpaid accrued interest is reversed.  Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due.  Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Loans are placed on non-accrual status when management believes that the borrower’s financial condition, after giving consideration to economic and business conditions and collection efforts, is such that collection of interest is doubtful, or generally when loans are 90 days or more past due. Loans are charged against the allowance for credit losses when management believes that the collectability of the principal is unlikely. Accrued interest related to non-accrual loans is generally charged against the allowance for credit losses when accrued in prior years and reversed from interest income if accrued in the current year. Interest income on non-accrual loans may be recognized to the extent cash payments are received, although the majority of payments received are usually applied to principal. Non-accrual loans are generally returned to accrual status when principal and interest payments are less than 90 days past due, the customer has made required payments for at least six months, and we reasonably expect to collect all principal and interest.

Acquisition Accounting and Acquired Loans.  We account for our acquisitions under FASB ASC Topic 805, Business Combinations, which requires the use of the acquisition method of accounting. All identifiable assets acquired, including loans, are recorded at fair value. In accordance with ASC 326, the Company records both a discount and an allowance for credit losses on acquired loans.  All purchased loans are recorded at fair value in accordance with the fair value methodology prescribed in FASB ASC Topic 820, Fair Value Measurements.  The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows.

The Company has purchased loans, some of which have experienced more than insignificant credit deterioration since origination. Purchase credit deteriorated (“PCD”) loans are recorded at the amount paid. An allowance for credit losses is determined using the same methodology as other loans. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through the provision for credit loss.

Allowance for Credit Losses on 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 allowance for credit losses on off-balance sheet credit exposures is adjusted as a provision for credit loss expense. 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.

Foreclosed Assets Held for Sale. Real estate and personal properties acquired through or in lieu of loan foreclosure are to be sold and are initially recorded at fair value at the date of foreclosure, establishing a new cost basis.  Valuations are periodically performed by management, and the real estate and personal properties are carried at fair value less costs to sell. Gains and losses from the sale of other real estate and personal properties are recorded in non-interest income, and expenses used to maintain the properties are included in non-interest expenses.

 


 

56

 


 

 

Intangible Assets.  Intangible assets consist of goodwill and core deposit intangibles. Goodwill represents the excess purchase price over the fair value of net assets acquired in business acquisitions. The core deposit intangible represents the excess intangible value of acquired deposit customer relationships as determined by valuation specialists. The core deposit intangibles are being amortized over 48 to 121 months on a straight-line basis. Goodwill is not amortized but rather is evaluated for impairment on at least an annual basis. We perform an annual impairment test of goodwill and core deposit intangibles as required by FASB ASC 350, Intangibles - Goodwill and Other, in the fourth quarter or more often if events and circumstances indicate there may be an impairment.

Income Taxes.  We account for income taxes in accordance with income tax accounting guidance (ASC 740, Income Taxes).  The income tax accounting guidance results in two components of income tax expense:  current and deferred.  Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues.  We determine deferred income taxes using the liability (or balance sheet) method.  Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax basis of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.

Deferred income tax expense results from changes in deferred tax assets and liabilities between periods.  Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination.  The term “more likely than not” means a likelihood of more than 50 percent; the terms “examined” and “upon examination” also include resolution of the related appeals or litigation processes, if any.  A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information.  The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances and information available at the reporting date and is subject to the management’s judgment.  Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.

Both we and our subsidiary file consolidated tax returns.  Our subsidiary provides for income taxes on a separate return basis, and remits to us amounts determined to be currently payable.

Stock Compensation.  In accordance with FASB ASC 718, Compensation - Stock Compensation, and FASB ASC 505-50, Equity-Based Payments to Non-Employees, the fair value of each option award is estimated on the date of grant.  We recognize compensation expense for the grant-date fair value of the option award over the vesting period of the award.

 

Acquisitions

 

Acquisition of LH-Finance

On February 29, 2020, the Company completed the acquisition of LH-Finance, the marine lending division of People’s United Bank, N.A. The Company paid a purchase price of approximately $421.2 million in cash. LH-Finance provides direct consumer financing for United States Coast Guard (“USCG”) registered high-end sail and power boats. Additionally, LH-Finance provides inventory floor plan lines of credit to marine dealers, primarily those selling USCG documented vessels.

Including the purchase accounting adjustments, as of the acquisition date, LH-Finance had approximately $409.1 million in total assets, including $407.4 million in total loans, which resulted in goodwill of $14.6 million being recorded.

The acquired portfolio of loans is now housed in our SPF division.  The SPF division is responsible for servicing the acquired loan portfolio and originating new loan production. In connection with this acquisition, we opened a loan production office in Baltimore, Maryland.

See Note 2 “Business Combinations” in the Condensed Notes to Consolidated Financial Statements for additional information regarding the acquisition of LH-Finance.  

Future Acquisitions

In our continuing evaluation of our growth plans, we believe properly priced bank acquisitions can complement our organic growth and de novo branching growth strategies.  We anticipate that our principal acquisition focus will be to continue to expand our presence in Arkansas, Florida and Alabama and into other contiguous markets.  However, as financial opportunities in other market areas arise, we may seek to expand into those areas.

 

57

 


 

We will continue evaluating all types of potential bank acquisitions, which may include FDIC-assisted acquisitions as opportunities arise, to determine what is in the best interest of our Company.  Our goal in making these decisions is to maximize the return to our investors.

Branches

As opportunities arise, we will continue to open new (commonly referred to as de novo) branches in our current markets and in other attractive market areas.  

As of March 31, 2021, we had 160 branch locations.  There were 76 branches in Arkansas, 78 branches in Florida, five branches in Alabama and one branch in New York City.

Results of Operations

For the three months ended March 31, 2021 and 2020

Our net income increased $91.1 million, or 17,967.5%, to $91.6 million for the three-month period ended March 31, 2021, from $507,000 for the same period in 2020.  On a diluted earnings per share basis, our earnings were $0.55 per share for the three-month period ended March 31, 2021 and $0.00 per share for the three-month period ended March 31, 2020.  During the three-month period ended March 31, 2021, the Company did not record any provision for credit losses compared to $94.6 million for the three-month period ended March 31, 2020.  The $94.6 million of provision for credit losses was primarily due to the COVID-19 pandemic, with $9.3 million for the acquisition of LH-Finance on February 29, 2020. The Company’s provisioning model is closely tied to unemployment rate projections which have continued to improve since the fourth quarter of 2020. The Company determined that an additional provision for credit losses on loans was not necessary as the current level of the allowance for credit losses was considered adequate as of March 31, 2021.  In addition, the Company determined that the current level of the unfunded commitment reserve was adequate and no additional provision for unfunded commitments was necessary as of March 31, 2021. The Company also recorded a $5.8 million adjustment for the increase in fair market value of marketable securities, $8.1 million of special dividend income from one of our equity investments and a $5.1 million recovery on historic losses from loans charged-off prior to acquisition.

     Net Interest Income  

Net interest income, our principal source of earnings, is the difference between the interest income generated by earning assets and the total interest cost of the deposits and borrowings obtained to fund those assets. Factors affecting the level of net interest income include the volume of earning assets and interest-bearing liabilities, yields earned on loans and investments, rates paid on deposits and other borrowings, the level of non-performing loans and the amount of non-interest-bearing liabilities supporting earning assets. Net interest income is analyzed in the discussion and tables below on a fully taxable equivalent basis. The adjustment to convert certain income to a fully taxable equivalent basis consists of dividing tax-exempt income by one minus the combined federal and state income tax rate of 26.135% .

The Federal Reserve Board sets various benchmark rates, including the Federal Funds rate, and thereby influences the general market rates of interest, including the deposit and loan rates offered by financial institutions. The Federal reserve lowered the target rate two times in 2020. First, the target rate was lowered to 1.00% to 1.25% on March 3, 2020; second, the rate was lowered to 0.00% to 0.25% on March 15, 2020. The target rate remains at 0.00% to 0.25% as of March 31, 2021.


 

58

 


 

 

Our net interest margin decreased from 4.22% for the three-month period ended March 31, 2020 to 4.02% for the three-month period ended March 31, 2021.  The yield on interest earning assets was 4.41% and 5.19% for the three months ended March 31, 2021 and 2020, respectively, as average interest earning assets increased from $13.43 billion to $15.12 billion. The increase in average earning assets is primarily the result of a $1.28 billion increase in average interest-bearing balances due from banks, a $400.7 million increase in average investment securities, and an $15.2 million increase in average loans receivable. Average PPP loan balances were $633.8 million for the three months ended March 31, 2021. These loans bear interest at 1.00% plus the accretion of the origination fee. We recognized total interest income of $11.9 million on PPP loans for the three months ended March 31, 2021. The PPP loans were accretive to the net interest margin by 16 basis points for the three months ended March 31, 2021. This was primarily due to approximately $313.8 million of the Company’s PPP loans being forgiven during the first quarter of 2021 as well as the acceleration of deferred fees for the loans that were forgiven. The COVID-19 pandemic and the resulting governmental response have created a significant amount of excess liquidity in the market.  As a result, we had an increase of $1.28 billion in average interest-bearing cash balances for the three months ended March 31, 2021 compared to the three months ended March 31, 2020.  This excess liquidity was dilutive to the net interest margin by 37 basis points. For the three months ended March 31, 2021 and 2020, we recognized $5.5 million and $7.6 million, respectively, in total net accretion for acquired loans and deposits. The reduction in accretion was dilutive to the net interest margin by 6 basis points. We recognized $1.1 million in event interest income for the three months ended March 31, 2021 compared to $558,000 for the three months ended March 31, 2020. This increased the net interest margin by 2 basis points.        

Net interest income on a fully taxable equivalent basis increased $9.0 million, or 6.4%, to $149.9 million for the three-month period ended March 31, 2021, from $141.0 million for the same period in 2020.  This increase in net interest income for the three-month period ended March 31, 2021 was the result of a $17.9 million decrease in interest expense which was partially offset by a $8.9 million decrease in interest income, on a fully taxable equivalent basis. The $8.9 million decrease in interest income was primarily the result of  lower yields on our earning assets, partially offset by a higher level of earning assets. The lower yield on earning assets resulted in a decrease in interest income of approximately $13.8 million, and the higher level of earning assets resulted in an increase in interest income of approximately $4.9 million. The lower yield was primarily driven by the decrease in income on loans of $7.3 million, a decrease in income on investment securities of $881,000 and a $706,000 decrease in income on interest-bearing balances due from banks. The decrease in interest income also reflected a $2.2 million decrease in loan accretion income.  The $17.9 million decrease in interest expense for the three-month period ended March 31, 2021 is primarily the result of interest-bearing liabilities repricing in a decreasing interest rate environment which lowered interest expense by $16.9 million as well as a $1.0 million decrease in interest expense resulting from a change in the composition of  average interest bearing liabilities. The decrease in interest expense was primarily driven by a $16.5 million decrease in interest expense on deposits and an $823,000 decrease in interest expense on FHLB borrowed funds.


 

59

 


 

 

Tables 2 and 3 reflect an analysis of net interest income on a fully taxable equivalent basis for the three months ended March 31, 2021 and 2020, as well as changes in fully taxable equivalent net interest margin for the three months ended March 31, 2021 compared to the same period in 2020.

Table 2: Analysis of Net Interest Income

 

 

 

Three Months Ended

March 31,

 

 

 

 

2021

 

 

2020

 

 

 

 

(Dollars in thousands)

Interest income

 

$

162,651

 

 

$

172,175

 

 

Fully taxable equivalent adjustment

 

 

1,857

 

 

 

1,227

 

 

Interest income – fully taxable equivalent

 

 

164,508

 

 

 

173,402

 

 

Interest expense

 

 

14,563

 

 

 

32,450

 

 

Net interest income – fully taxable equivalent

 

$

149,945

 

 

$

140,952

 

 

Yield on earning assets – fully taxable equivalent

 

 

4.41

 

%

 

5.19

 

%

Cost of interest-bearing liabilities

 

 

0.56

 

 

 

1.29

 

 

Net interest spread – fully taxable equivalent

 

 

3.85

 

 

 

3.90

 

 

Net interest margin – fully taxable equivalent

 

 

4.02

 

 

 

4.22

 

 

Table 3: Changes in Fully Taxable Equivalent Net Interest Margin

 

 

 

Three Months Ended

March 31,

 

 

 

2021 vs. 2020

 

 

 

(In thousands)

 

Increase (decrease) in interest income due to change

   in earning assets

 

$

4,914

 

Increase (decrease) in interest income due to change

   in earning asset yields

 

 

(13,808

)

(Increase) decrease in interest expense due to change in

   interest-bearing liabilities

 

 

1,019

 

(Increase) decrease in interest expense due to change in

   interest rates paid on interest-bearing liabilities

 

 

16,868

 

Increase (decrease) in net interest income

 

$

8,993

 

 

60

 


 

 

Table 4 shows, for each major category of earning assets and interest-bearing liabilities, the average amount outstanding, the interest income or expense on that amount and the average rate earned or expensed for the three months ended March 31, 2021 and 2020, respectively. The table also shows the average rate earned on all earning assets, the average rate expensed on all interest-bearing liabilities, the net interest spread and the net interest margin for the same periods. The analysis is presented on a fully taxable equivalent basis. Non-accrual loans were included in average loans for the purpose of calculating the rate earned on total loans.

Table 4: Average Balance Sheets and Net Interest Income Analysis

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

 

 

Average

Balance

 

 

Income /

Expense

 

 

Yield /

Rate

 

 

Average

Balance

 

 

Income /

Expense

 

 

Yield /

Rate

 

 

 

(Dollars in thousands)

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing balances due from banks

 

$

1,610,463

 

 

$

410

 

 

 

0.10

%

 

$

331,038

 

 

$

1,116

 

 

 

1.36

%

Federal funds sold

 

 

119

 

 

 

 

 

 

0.00

 

 

 

5,218

 

 

 

21

 

 

 

1.62

 

Investment securities – taxable

 

 

1,637,061

 

 

 

6,253

 

 

 

1.55

 

 

 

1,710,288

 

 

 

9,776

 

 

 

2.30

 

Investment securities – non-taxable

 

 

848,158

 

 

 

6,732

 

 

 

3.22

 

 

 

374,198

 

 

 

4,090

 

 

 

4.40

 

Loans receivable

 

 

11,023,139

 

 

 

151,113

 

 

 

5.56

 

 

 

11,007,958

 

 

 

158,399

 

 

 

5.79

 

Total interest-earning assets

 

 

15,118,940

 

 

 

164,508

 

 

 

4.41

 

 

 

13,428,700

 

 

 

173,402

 

 

 

5.19

 

Non-earning assets

 

 

1,599,950

 

 

 

 

 

 

 

 

 

 

 

1,704,775

 

 

 

 

 

 

 

 

 

Total assets

 

$

16,718,890

 

 

 

 

 

 

 

 

 

 

$

15,133,475

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings and interest-bearing transaction accounts

 

$

8,338,791

 

 

$

4,716

 

 

 

0.23

%

 

$

7,041,303

 

 

$

15,803

 

 

 

0.90

%

Time deposits

 

 

1,209,431

 

 

 

2,989

 

 

 

1.00

 

 

 

1,943,721

 

 

 

8,395

 

 

 

1.74

 

Total interest-bearing deposits

 

 

9,548,222

 

 

 

7,705

 

 

 

0.33

 

 

 

8,985,024

 

 

 

24,198

 

 

 

1.08

 

Federal funds purchased

 

 

 

 

 

 

 

0.00

 

 

 

6,264

 

 

 

13

 

 

 

0.83

 

Securities sold under agreement to repurchase

 

 

159,697

 

 

 

190

 

 

 

0.48

 

 

 

138,180

 

 

 

462

 

 

 

1.34

 

FHLB and other borrowed funds

 

 

400,000

 

 

 

1,875

 

 

 

1.90

 

 

 

623,525

 

 

 

2,698

 

 

 

1.74

 

Subordinated debentures

 

 

370,421

 

 

 

4,793

 

 

 

5.25

 

 

 

369,652

 

 

 

5,079

 

 

 

5.53

 

Total interest-bearing liabilities

 

 

10,478,340

 

 

 

14,563

 

 

 

0.56

 

 

 

10,122,645

 

 

 

32,450

 

 

 

1.29

 

Non-interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest-bearing deposits

 

 

3,480,050

 

 

 

 

 

 

 

 

 

 

 

2,410,583

 

 

 

 

 

 

 

 

 

Other liabilities

 

 

134,882

 

 

 

 

 

 

 

 

 

 

 

119,143

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

14,093,272

 

 

 

 

 

 

 

 

 

 

 

12,652,371

 

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

2,625,618

 

 

 

 

 

 

 

 

 

 

 

2,481,104

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

16,718,890

 

 

 

 

 

 

 

 

 

 

$

15,133,475

 

 

 

 

 

 

 

 

 

Net interest spread

 

 

 

 

 

 

 

 

 

 

3.85

%

 

 

 

 

 

 

 

 

 

 

3.90

%

Net interest income and margin

 

 

 

 

 

$

149,945

 

 

 

4.02

 

 

 

 

 

 

$

140,952

 

 

 

4.22

 

 

61

 


 

 

Table 5 shows changes in interest income and interest expense resulting from changes in volume and changes in interest rates for the three months ended March 31, 2021 compared to the same period in 2020, on a fully taxable basis. The changes in interest rate and volume have been allocated to changes in average volume and changes in average rates, in proportion to the relationship of absolute dollar amounts of the changes in rates and volume.

Table 5: Volume/Rate Analysis

 

 

 

Three Months Ended March 31,

 

 

 

2021 over 2020

 

 

 

Volume

 

 

Yield/Rate

 

 

Total

 

 

 

(In thousands)

 

Increase (decrease) in:

 

 

 

 

 

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing balances due from banks

 

$

1,096

 

 

$

(1,802

)

 

$

(706

)

Federal funds sold

 

 

(11

)

 

 

(10

)

 

 

(21

)

Investment securities – taxable

 

 

(403

)

 

 

(3,120

)

 

 

(3,523

)

Investment securities – non-taxable

 

 

4,014

 

 

 

(1,372

)

 

 

2,642

 

Loans receivable

 

 

218

 

 

 

(7,504

)

 

 

(7,286

)

Total interest income

 

 

4,914

 

 

 

(13,808

)

 

 

(8,894

)

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing transaction and savings deposits

 

 

2,482

 

 

 

(13,569

)

 

 

(11,087

)

Time deposits

 

 

(2,535

)

 

 

(2,871

)

 

 

(5,406

)

Federal funds purchased

 

 

(7

)

 

 

(6

)

 

 

(13

)

Securities sold under agreement to repurchase

 

 

63

 

 

 

(335

)

 

 

(272

)

FHLB borrowed funds

 

 

(1,033

)

 

 

210

 

 

 

(823

)

Subordinated debentures

 

 

11

 

 

 

(297

)

 

 

(286

)

Total interest expense

 

 

(1,019

)

 

 

(16,868

)

 

 

(17,887

)

Increase (decrease) in net interest income

 

$

5,933

 

 

$

3,060

 

 

$

8,993

 

 

Provision for Credit Losses  

The Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, effective January 1, 2020. The guidance replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss methodology.  The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credits, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases. ASC 326 requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses as well as the credit quality and underwriting standards of a company’s portfolio. In addition, ASC 326 made changes to the accounting for available-for-sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available for sale debt securities management does not intend to sell or believes that it is more likely than not, they will be required to sell.

During the three months ended March 31, 2021, we recorded no provision for credit losses compared to recording $94.6 million provision for credit losses for the three months ended March 31, 2020.  As a result of improving economic conditions, the Company determined that an additional provision for credit losses on loans was not necessary as the current level of the allowance for credit losses was considered adequate as of March 31, 2021. In addition, the Company determined that the current level of  the unfunded commitment reserve was adequate, and no additional unfunded commitments expense was necessary as of March 31, 2021. The $94.6 million in provision expense for the three months ended March 31, 2020 was comprised of the following components – investment securities, CECL double accounting for LH-Finance, provision for credit losses on loans and provision for credit losses on unfunded commitments. During the three months ended March 31, 2020, we recorded $842,000 for credit losses on the investment portfolio as a result of economic uncertainties related to COVID-19, $9.3 million for CECL double accounting for LH-Finance, $76.7 million provision for credit losses on loans primarily as a result of COVID-19 and $7.8 million provision for credit losses on unfunded commitments primarily as a result of COVID-19. Net charge-offs to average total loans decreased to 0.09% for the three months ended March 31, 2021 from 0.13% for the three months ended March 31, 2020.  


 

62

 


 

 

Loans. Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in the national unemployment rate, gross domestic product, rental vacancy rate, housing price index and national retail sales index.

Acquired loans. In accordance with ASC 326, the Company records both a discount and an allowance for credit losses on acquired loans. This is commonly referred to as “double accounting.”

The allowance for credit losses is measured based on call report segment as these types of loan exhibit similar risk characteristics. The identified loan segments are as follows:

 

1-4 family construction

 

All other construction

 

1-4 family revolving home equity lines of credit (“HELOC”) & junior liens

 

1-4 family senior liens

 

Multifamily

 

Owner occupies commercial real estate

 

Non-owner occupied commercial real estate

 

Commercial & industrial, agricultural, non-depository financial institutions, purchase/carry securities, other

 

Consumer auto

 

Other consumer

 

Other consumer - SPF

The allowance for credit losses for each segment is measured through the use of the discounted cash flow method. Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. For those loans that are classified as impaired, an allowance is established when the discounted cash flows, collateral value or observable market price of the impaired loan is lower than the carrying value of that loan.

Investments – Available-for-sale: The Company evaluates all securities quarterly to determine if any securities in a loss position require a provision for credit losses in accordance with ASC 326, Measurement of Credit Losses on Financial Instruments. The Company first assesses whether it intends to sell or is more likely than not that the Company 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 cost basis is written down to fair value through income. For securities that do not meet this criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, and changes to the rating of the security by a 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 allowance for credit losses 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 allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectability of a security is confirmed or when either of the criteria regarding intent or requirement to sell is met.     

Non-Interest Income

Total non-interest income was $45.3 million for the three months ended March 31, 2021, compared to $22.9 million for the same period in 2020.  Our recurring non-interest income includes service charges on deposit accounts, other service charges and fees, trust fees, mortgage lending, insurance, increase in cash value of life insurance and dividends.


 

63

 


 

 

Table 6 measures the various components of our non-interest income for the three months ended March 31, 2021 and 2020, respectively, as well as changes for the three months ended March 31, 2021 compared to the same period in 2020.

Table 6: Non-Interest Income

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

 

2021 Change

 

 

 

2021

 

 

2020

 

 

from 2020

 

 

 

(Dollars in thousands)

 

Service charges on deposit accounts

 

$

5,002

 

 

$

6,631

 

 

$

(1,629

)

 

 

(24.6

)%

Other service charges and fees

 

 

7,608

 

 

 

6,056

 

 

 

1,552

 

 

 

25.6

 

Trust fees

 

 

522

 

 

 

438

 

 

 

84

 

 

 

19.2

 

Mortgage lending income

 

 

8,167

 

 

 

2,621

 

 

 

5,546

 

 

 

211.6

 

Insurance commissions

 

 

492

 

 

 

678

 

 

 

(186

)

 

 

(27.4

)

Increase in cash value of life insurance

 

 

502

 

 

 

560

 

 

 

(58

)

 

 

(10.4

)

Dividends from FHLB, FRB, FNBB &

   other

 

 

8,609

 

 

 

7,842

 

 

 

767

 

 

 

9.8

 

Gain on sale of SBA loans

 

 

 

 

 

341

 

 

 

(341

)

 

 

(100.0

)

(Loss) gain on sale of branches,

   equipment and other assets, net

 

 

(29

)

 

 

82

 

 

 

(111

)

 

 

(135.4

)

Gain on OREO, net

 

 

401

 

 

 

277

 

 

 

124

 

 

 

44.8

 

Gain on securities, net

 

 

219

 

 

 

 

 

 

219

 

 

 

100.0

 

Fair value adjustment for marketable securities

 

 

5,782

 

 

 

(5,818

)

 

 

11,600

 

 

 

199.4

 

Other income

 

 

8,001

 

 

 

3,219

 

 

 

4,782

 

 

 

148.6

 

Total non-interest income

 

$

45,276

 

 

$

22,927

 

 

$

22,349

 

 

 

97.5

%

 

Non-interest income increased $22.3 million, or 97.5%, to $45.3 million for three months ended March 31, 2021 from $22.9 million for the same period in 2020.  The primary factors that resulted in this increase were the impact of fair value adjustment for marketable securities which increased non-interest income by $11.6 million and the $5.5 million increase in mortgage lending income. Other factors were changes related to service charges on deposit accounts, other service charges and fees and other income.

Additional details for the three months ended March 31, 2021 on some of the more significant changes are as follows:

 

The $1.6 million decrease in service charges on deposit accounts is primarily related to a decrease in overdraft fees resulting from changes in consumer spending habits leading consumers to hold higher deposit balances in response to the COVID-19 pandemic.

 

The $1.6 million increase in other service charges and fees is primarily due to an increase in Centennial CFG property finance loan fees.

 

The $5.5 million increase in mortgage lending income is primarily due to the increase in volume of secondary market loan sales driven by the current low interest rate environment.

 

The $767,000 increase for dividends from FHLB, FRB, FNBB & other is primarily due to an increase in special dividends from equity investments.

 

The $11.6 million gain on the fair value adjustment for marketable securities is related to the increase in the fair market value of marketable securities held by the Company.

 

The $4.8 million increase in other income is primarily due to a $5.1 million recovery on historic losses.

 

 

 


 

64

 


 

 

Non-Interest Expense  

Non-interest expense primarily consists of salaries and employee benefits, occupancy and equipment, data processing, and other expenses such as advertising, merger and acquisition expenses, amortization of intangibles, electronic banking expense, FDIC and state assessment, insurance, legal and accounting fees, other professional fees and unfunded commitments expense.

Table 7 below sets forth a summary of non-interest expense for the three months ended March 31, 2021 and 2020, as well as changes for the three months ended March 31, 2021 compared to the same period in 2020.

Table 7: Non-Interest Expense

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

 

2021 Change

 

 

 

2021

 

 

2020

 

 

from 2020

 

 

 

(Dollars in thousands)

 

Salaries and employee benefits

 

$

42,059

 

 

$

39,329

 

 

$

2,730

 

 

 

6.9

%

Occupancy and equipment

 

 

9,237

 

 

 

8,873

 

 

 

364

 

 

 

4.1

 

Data processing expense

 

 

5,870

 

 

 

4,326

 

 

 

1,544

 

 

 

35.7

 

Other operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Advertising

 

 

1,046

 

 

 

1,226

 

 

 

(180

)

 

 

(14.7

)

Merger and acquisition expense

 

 

 

 

 

711

 

 

 

(711

)

 

 

(100.0

)

Amortization of intangibles

 

 

1,421

 

 

 

1,517

 

 

 

(96

)

 

 

(6.3

)

Electronic banking expense

 

 

2,238

 

 

 

1,715

 

 

 

523

 

 

 

30.5

 

Directors’ fees

 

 

383

 

 

 

424

 

 

 

(41

)

 

 

(9.7

)

Due from bank service charges

 

 

249

 

 

 

223

 

 

 

26

 

 

 

11.7

 

FDIC and state assessment

 

 

1,363

 

 

 

1,548

 

 

 

(185

)

 

 

(12.0

)

Insurance

 

 

781

 

 

 

746

 

 

 

35

 

 

 

4.7

 

Legal and accounting

 

 

846

 

 

 

919

 

 

 

(73

)

 

 

(7.9

)

Other professional fees

 

 

1,613

 

 

 

3,226

 

 

 

(1,613

)

 

 

(50.0

)

Operating supplies

 

 

487

 

 

 

535

 

 

 

(48

)

 

 

(9.0

)

Postage

 

 

338

 

 

 

327

 

 

 

11

 

 

 

3.4

 

Telephone

 

 

346

 

 

 

324

 

 

 

22

 

 

 

6.8

 

Other expense

 

 

4,589

 

 

 

4,505

 

 

 

84

 

 

 

1.9

 

Total non-interest expense

 

$

72,866

 

 

$

70,474

 

 

$

2,392

 

 

 

3.4

%

 

Non-interest expense increased $2.4 million, or 3.4%, to $72.9 million for the three months ended March 31, 2021 from $70.5 million for the same period in 2020.  The primary factor that resulted in this increase was the changes related to salaries and employee benefits. Other factors were changes related data processing expenses, merger and acquisition expenses and other professional fees.

Additional details for the three months ended March 31, 2021 on some of the more significant changes are as follows:

 

The $2.7 million increase in salaries and employee benefits expense is primarily due to increased salary expenses related to the normal increased cost of doing business.

 

The $1.5 million increase in data processing expense is primarily related to an increase in software, licensing, software maintenance and bill pay conversion expenses.

 

The $711,000 decrease in merger and acquisition expense is due to the acquisition of LH-Finance during the first quarter of 2020.

 

The $1.6 million decrease in other professional fees is primarily due to a reduction in consulting fees, outsourced special projects and professional fees for the Bank.

 


 

65

 


 

 

Income Taxes  

Income tax expense increased $31.8 million, or 1,087.2%, to $28.9 million for the three-month period ended March 31, 2021, from an income tax benefit of $2.9 million for the same period in 2020. The effective income tax rate was 23.98% for the three-month period ended March 31, 2021, compared to 120.95% for the same period in 2020.  Two main factors caused the unusual effective income tax rate for the three-month period ended March 31, 2020. First, the Company reported a net loss before taxes, converting income tax expense to an income tax benefit for the period.  Second, during the three-month period ended March 31, 2020, the Company booked additional income tax benefit related to amended income tax returns filed for the tax year ended December 31, 2016. This benefit further decreased income tax expense, causing the final income tax benefit to exceed net loss before taxes for the three-month period ended March 31, 2020.   

Financial Condition as of and for the Period Ended March 31, 2021 and December 31, 2020

Our total assets as of March 31, 2021 increased $841.4 million to $17.24 billion from the $16.40 billion reported as of December 31, 2020.  Cash and cash equivalents increased $1.21 billion, or 96.1%, for the three months ended March 31, 2021. The increase in cash and cash equivalents is primarily due to the significant amount of excess liquidity in the market as a continued result of the COVID-19 pandemic and the accompanying governmental response. Our loan portfolio balance decreased to $10.78 billion as of March 31, 2021 from $11.22 billion at December 31, 2020 due to organic loan decline of $417.8 million and $313.8 million of the Company’s PPP loans being forgiven during the first quarter of 2021, which was partially offset by $289.4 million in new PPP loan originations during the quarter. Total deposits increased $786.8 million to $13.51 billion as of March 31, 2021 from $12.73 billion as of December 31, 2020, which was due customers holding higher deposit balances in response to the COVID-19 pandemic as well as the accompanying governmental response to the pandemic.  Stockholders’ equity increased $39.4 million to $2.65 billion as of March 31, 2021, compared to $2.61 billion as of December 31, 2020.  The $39.4 million increase in stockholders’ equity is primarily associated with the $91.6 million in net income for the three months ended March 31, 2021, which was partially offset by the $24.7 million in other comprehensive loss for the three months ended March 31, 2021, $23.2 million of shareholder dividends paid and stock repurchases of $8.8 million in 2021.

 

Loan Portfolio

Loans Receivable

Our loan portfolio averaged $11.02 billion and $11.01 billion during the three months ended March 31, 2021 and 2020, respectively. Loans receivable were $10.78 billion and $11.22 billion as of March 31, 2021 and December 31, 2020, respectively.  

The CARES Act was passed by Congress and signed into law on March 27, 2020. The CARES Act includes an allocation for loans to be issued by financial institutions through the Small Business Administration (“SBA”). This program is known as the Paycheck Protection Program (“PPP”). PPP loans are forgivable, in whole or in part, so long as employee and compensation levels of the borrower are maintained, and the proceeds are used for payroll and other permitted purposes in accordance with the requirements of the PPP. These loans carry a fixed rate of 1.00% and a term of two years, if not forgiven, in whole or in part. Payments are deferred for the first six months of the loan. The loans are 100% guaranteed by the SBA. The SBA pays the originating bank a processing fee ranging from 1.00% to 5.00%, based on the size of the loan. The Paycheck Protection Program and Health Care Enhancement Act (“PPP/HCEA Act”) was enacted on April 24, 2020. The PPP/HCEA Act authorizes additional funds under the CARES Act for PPP loans to be issued by financial institutions through the SBA. The Consolidated Appropriations Act (“CAA”) was signed into law on December 27, 2020. The CAA also authorizes additional funds under the CARES Act for PPP loans to be issued by financial institutions through the SBA.  As of March 31, 2021, the Company had $667.3 million of gross PPP loans. This balance consists of $613.0 million in commercial and industrial loans and $54.3 million in other loans. From December 31, 2020 to March 31, 2021, the Company experienced a decline of approximately $442.2 million in loans.  The decrease in the loan portfolio is primarily due to $417.8 million in organic loan decline as well as $24.4 million in PPP loan decline. The $417.8 million in organic loan decline included $17.6 million in loan decline for Centennial CFG, while the remaining footprint experienced $400.2 million in loan decline during the first quarter of 2021. The $24.4 million in PPP loan decline was the result of $313.8 million of PPP loans being forgiven during the first quarter of 2021, partially offset by $289.4 million in new PPP loans during the first quarter of 2021.

The most significant components of the loan portfolio were commercial real estate, residential real estate, consumer and commercial and industrial loans. These loans are generally secured by residential or commercial real estate or business or personal property.  Although these loans are primarily originated within our franchises in Arkansas, Florida, South Alabama and Centennial CFG, the property securing these loans may not physically be located within our market areas of Arkansas, Florida, Alabama and New York.  Loans receivable were approximately $3.53 billion, $4.61 billion, $235.5 million, $876.1 million and $1.52 billion as of March 31, 2021 in Arkansas, Florida, Alabama, SPF and Centennial CFG, respectively.

 

66

 


 

As of March 31, 2021, we had approximately $448.7 million of construction land development loans which were collateralized by land.  This consisted of approximately $64.5 million for raw land and approximately $384.2 million for land with commercial and or residential lots.

Table 8 presents our loans receivable balances by category as of March 31, 2021 and December 31, 2020.

Table 8: Loans Receivable

 

 

 

As of

 

 

As of

 

 

 

March 31, 2021

 

 

December 31, 2020

 

 

 

(In thousands)

 

Real estate:

 

 

 

 

 

 

 

 

Commercial real estate loans:

 

 

 

 

 

 

 

 

Non-farm/non-residential

 

$

4,289,142

 

 

$

4,429,060

 

Construction/land development

 

 

1,612,973

 

 

 

1,562,298

 

Agricultural

 

 

113,382

 

 

 

114,431

 

Residential real estate loans:

 

 

 

 

 

 

 

 

Residential 1-4 family

 

 

1,437,546

 

 

 

1,536,257

 

Multifamily residential

 

 

377,661

 

 

 

536,538

 

Total real estate

 

 

7,830,704

 

 

 

8,178,584

 

Consumer

 

 

839,819

 

 

 

864,690

 

Commercial and industrial

 

 

1,794,787

 

 

 

1,896,442

 

Agricultural

 

 

65,017

 

 

 

66,869

 

Other

 

 

248,166

 

 

 

214,136

 

Total loans receivable

 

$

10,778,493

 

 

$

11,220,721

 

 

Commercial Real Estate Loans.  We originate non-farm and non-residential loans (primarily secured by commercial real estate), construction/land development loans, and agricultural loans, which are generally secured by real estate located in our market areas. Our commercial mortgage loans are generally collateralized by first liens on real estate and amortized (where defined) over a 15 to 30-year period with balloon payments due at the end of one to five years. These loans are generally underwritten by assessing cash flow (debt service coverage), primary and secondary source of repayment, the financial strength of any guarantor, the strength of the tenant (if any), the borrower’s liquidity and leverage, management experience, ownership structure, economic conditions and industry specific trends and collateral. Generally, we will loan up to 85% of the value of improved property, 65% of the value of raw land and 75% of the value of land to be acquired and developed. A first lien on the property and assignment of lease is required if the collateral is rental property, with second lien positions considered on a case-by-case basis.

As of March 31, 2021, commercial real estate loans totaled $6.02 billion, or 55.8% of loans receivable, as compared to $6.11 billion, or 54.4% of loans receivable, as of December 31, 2020.  Commercial real estate loans originated in our Arkansas, Florida, Alabama, SPF and Centennial CFG markets were $2.14 billion, $2.60 billion, $119.1 million, zero and $1.15 billion at March 31, 2021, respectively.

Residential Real Estate Loans.  We originate one to four family, residential mortgage loans generally secured by property located in our primary market areas.  Approximately 36.0% and 52.5% of our residential mortgage loans consist of owner occupied 1-4 family properties and non-owner occupied 1-4 family properties (rental), respectively, as of March 31, 2021, with the remaining 11.5% relating to condos and mobile homes.  Residential real estate loans generally have a loan-to-value ratio of up to 90%. These loans are underwritten by giving consideration to the borrower’s ability to pay, stability of employment or source of income, debt-to-income ratio, credit history and loan-to-value ratio.

As of March 31, 2021, residential real estate loans totaled $1.82 billion, or 16.8% of loans receivable, compared to $2.07 billion, or 18.5% of loans receivable, as of December 31, 2020.  Residential real estate loans originated in our Arkansas, Florida, Alabama, SPF and Centennial CFG markets were $622.4 million, $1.09 billion, $64.6 million, zero and $39.3 million at March 31, 2021, respectively.

Consumer Loans.  Our consumer loans are composed of secured and unsecured loans originated by our bank, the primary portion of which consists of loans to finance USCG registered high-end sail and power boats as a result of our acquisition of SPF on June 30, 2018 as well as our acquisition of LH-Finance on February 29, 2020. The performance of consumer loans will be affected by the local and regional economies as well as the rates of personal bankruptcies, job loss, divorce and other individual-specific characteristics.

 

67

 


 

As of March 31, 2021, consumer loans totaled $839.8 million, or 7.8% of loans receivable, compared to $864.7 million, or 7.7% of loans receivable, as of December 31, 2020.  Consumer loans originated in our Arkansas, Florida, Alabama, SPF and Centennial CFG markets were $31.3 million, $8.8 million, $931,000, $798.8 million and zero at March 31, 2021, respectively.

Commercial and Industrial Loans.  Commercial and industrial loans are made for a variety of business purposes, including working capital, inventory, equipment and capital expansion. The terms for commercial loans are generally one to seven years. Commercial loan applications must be supported by current financial information on the borrower and, where appropriate, by adequate collateral. Commercial loans are generally underwritten by addressing cash flow (debt service coverage), primary and secondary sources of repayment, the financial strength of any guarantor, the borrower’s liquidity and leverage, management experience, ownership structure, economic conditions and industry specific trends and collateral. The loan to value ratio depends on the type of collateral. Generally, accounts receivable are financed at between 50% and 80% of accounts receivable less than 60 days past due. Inventory financing will range between 50% and 80% (with no work in process) depending on the borrower and nature of inventory. We require a first lien position for those loans.

As of March 31, 2021, commercial and industrial loans totaled $1.79 billion, or 16.6% of loans receivable, compared to $1.90 billion, or 16.9% of loans receivable, as of December 31, 2020.  Commercial and industrial loans originated in our Arkansas, Florida, Alabama, SPF and Centennial CFG markets were $609.2 million, $803.0 million, $42.4 million, $77.3 million and $262.9 million at March 31, 2021, respectively.

Non-Performing Assets

We classify our problem loans into three categories: past due loans, special mention loans and classified loans (accruing and non-accruing).

When management determines that a loan is no longer performing, and that collection of interest appears doubtful, the loan is placed on non-accrual status. Loans that are 90 days past due are placed on non-accrual status unless they are adequately secured and there is reasonable assurance of full collection of both principal and interest. Our management closely monitors all loans that are contractually 90 days past due, treated as “special mention” or otherwise classified or on non-accrual status.

The Company adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration  that were previously classified as PCI and accounted for under ASC 310-30.  In 2019, the Company reevaluated its loan pools of purchased loans with deteriorated credit quality. These loans pools related specifically to acquired loans from the Heritage, Liberty, Landmark, Bay Cities, Bank of Commerce, Premier Bank, Stonegate and Shore Premier Finance acquisitions. At acquisition, a portion of these loans were recorded as purchased credit impaired loans on a pool by pool basis. Through the reevaluation of these loan pools, management determined that estimated losses for purchase credit impaired loans should be processed against the credit mark of the applicable pools.  The remaining non-accretable mark was then moved to accretable mark to be recognized over the remaining weighted average life of the loan pools.  The projected losses for these loans were less than the total credit mark.  As such, the remaining $107.6 million of loans in these pools along with the $29.3 million in accretable yield was deemed to be immaterial and was reclassified out of the purchased credit impaired loans category.  As of December 31, 2019, the Company no longer held any purchased loans with deteriorated credit quality. Therefore, the Company did not have any PCI loans upon adoption on of ASC 326 as of January 1, 2020.

The Company has purchased loans, some of which have experienced more than insignificant credit deterioration since origination. PCD loans are recorded at the amount paid. An allowance for credit losses is determined using the same methodology as other loans. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through provision expense.


 

68

 


 

 

Table 9 sets forth information with respect to our non-performing assets as of March 31, 2021 and December 31, 2020.  As of these dates, all non-performing restructured loans are included in non-accrual loans.

Table 9: Non-performing Assets

 

 

 

As of

 

 

As of

 

 

 

March 31,

2021

 

 

December 31,

2020

 

 

 

(Dollars in thousands)

 

Non-accrual loans

 

$

59,142

 

 

$

64,528

 

Loans past due 90 days or more (principal or interest

   payments)

 

 

4,209

 

 

 

9,610

 

Total non-performing loans

 

 

63,351

 

 

 

74,138

 

Other non-performing assets

 

 

 

 

 

 

 

 

Foreclosed assets held for sale, net

 

 

3,004

 

 

 

4,420

 

Total non-performing assets

 

$

66,355

 

 

$

78,558

 

Allowance for credit losses to non-performing loans

 

 

383.47

%

 

 

331.10

%

Non-performing loans to total loans

 

 

0.59

 

 

 

0.66

 

Non-performing assets to total assets

 

 

0.38

 

 

 

0.48

 

 

Our non-performing loans are comprised of non-accrual loans and accruing loans that are contractually past due 90 days. Our bank subsidiary recognizes income principally on the accrual basis of accounting. When loans are classified as non-accrual, the accrued interest is charged off and no further interest is accrued, unless the credit characteristics of the loan improve. If a loan is determined by management to be uncollectible, the portion of the loan determined to be uncollectible is then charged to the allowance for credit losses.

Total non-performing loans were $63.4 million and $74.1 million as of March 31, 2021 and December 31, 2020, respectively.  Non-performing loans at March 31, 2021 were $23.0 million, $35.1 million, $516,000, $2.0 million and $2.8 million in the Arkansas, Florida, Alabama, SPF and Centennial CFG markets, respectively.  

The $2.8 million balance of non-accrual loans for our Centennial CFG market consists of one loan that is assessed for credit risk by the Federal Reserve under the Shared National Credit Program.  The decision to place this loan on non-accrual status was made by the Federal Reserve and not the Company. The loan that makes up the total balance is still current on both principal and interest.  However, all interest payments are currently being applied to the principal balance.  Because the Federal Reserve required us to place this loan on non-accrual status, we have reversed any interest that had accrued subsequent to the non-accrual date designated by the Federal Reserve.

As of March 31, 2021, the Company expects that the markets in which it operates will experience economic recovery as unemployment rates decline, COVID-19 vaccination rates increase, and communities continue to reopen for business activity.  However, there is still a significant amount of uncertainty related to the COVID-19 pandemic which may slow the anticipated economic recovery.  The Company determined that an additional provision for credit losses on loans was not necessary as the current level of the allowance for credit losses was considered adequate as of March 31, 2021. In addition, the Company determined that the current level of  the unfunded commitment reserve was adequate, and no additional unfunded commitments expense was necessary as of March 31, 2021. The global and economic impacts of the coronavirus continue to evolve, and the Company is continuing to closely monitor the situation.

Troubled debt restructurings (“TDRs”) generally occur when a borrower is experiencing, or is expected to experience, financial difficulties in the near term. As a result, we will work with the borrower to prevent further difficulties, and ultimately to improve the likelihood of recovery on the loan.  In those circumstances it may be beneficial to restructure the terms of a loan and work with the borrower for the benefit of both parties, versus forcing the property into foreclosure and having to dispose of it in an unfavorable and depressed real estate market. When we have modified the terms of a loan, we usually either reduce the monthly payment and/or interest rate for generally about three to twelve months.  For our TDRs that accrue interest at the time the loan is restructured, it would be a rare exception to have charged-off any portion of the loan.  Only non-performing restructured loans are included in our non-performing loans.  As of March 31, 2021, we had $10.4 million of restructured loans that are in compliance with the modified terms and are not reported as past due or non-accrual in Table 9. Our Florida market contains $8.4 million and our Arkansas market contains $2.0 million of these restructured loans.


 

69

 


 

 

A loan modification that might not otherwise be considered may be granted resulting in classification as a TDR. These loans can involve loans remaining on non-accrual, moving to non-accrual, or continuing on an accrual status, depending on the individual facts and circumstances of the borrower. Generally, a non-accrual loan that is restructured remains on non-accrual for a period of nine months to demonstrate that the borrower can meet the restructured terms. However, performance prior to the restructuring, or significant events that coincide with the restructuring, are considered in assessing whether the borrower can pay under the new terms and may result in the loan being returned to an accrual status after a shorter performance period. If the borrower’s ability to meet the revised payment schedule is not reasonably assured, the loan will remain in a non-accrual status.

Section 4013 of the CARES Act enacted in March 2020 provides financial institutions optional temporary relief from the TDR classification requirements for certain COVID-19 related loan modifications. Specifically, financial institutions may elect to suspend TDR classification for certain loan modifications related to COVID-19 made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after termination of the President’s national emergency declaration for COVID-19. On December 28, 2020, an extension of section 4013 of the CARES Act, provided institutions with an extension of the temporary option to not apply ASC Subtopic 310-40 until January 1, 2022. Further, financial institutions do not need to determine impairment associated with certain loan concessions that would otherwise have been required for TDRs (e.g., interest rate concessions, payment deferrals, or loan extensions). On April 7, 2020, the Federal Reserve Board and the other federal bank regulatory agencies issued an interagency statement clarifying the relationship between the Section 4013 of the CARES Act and previous guidance issued by the agencies on March 22, 2020. This interagency statement encourages financial institutions to work prudently with borrowers who are or may be unable to meet their payment obligations because of COVID-19 and states that the agencies view loan modification programs as positive actions that can mitigate adverse effects on borrowers due to COVID-19. The Company relied on Section 4013 of the CARES Act in accounting for loan modifications as of March 31, 2021.  The Company has granted loan modifications to 49 loans for a total of $326.1 million.  All of the customers currently on deferment totaling $326.1 million chose principal deferment only and now have returned to paying interest monthly.

The majority of the Bank’s loan modifications relates to commercial lending and involves reducing the interest rate, changing from a principal and interest payment to interest-only, lengthening the amortization period, or a combination of some or all of the three. In addition, it is common for the Bank to seek additional collateral or guarantor support when modifying a loan.  At March 31, 2021 and December 31, 2020, the amount of TDRs was $11.8 million and $12.3 million, respectively. As of March 31, 2021 and December 31, 2020, 88.1% and 87.1%, respectively, of all restructured loans were performing to the terms of the restructure.

Total foreclosed assets held for sale were $3.0 million as of March 31, 2021, compared to $4.4 million as of December 31, 2020 for a decrease of $1.4 million.  The foreclosed assets held for sale as of March 31, 2021 are comprised of $2.0 million of assets located in Arkansas, $985,000 located in Florida, $34,000 located in Alabama and zero from SPF and Centennial CFG.

During the first three months of 2021, we had no foreclosed properties with a carrying value greater than $1.0 million.  

Table 10 shows the summary of foreclosed assets held for sale as of March 31, 2021 and December 31, 2020.

Table 10: Foreclosed Assets Held For Sale

 

 

 

As of

 

 

As of

 

 

 

March 31, 2021

 

 

December 31, 2020

 

 

 

(In thousands)

 

Real estate:

 

 

 

 

 

 

 

 

Commercial real estate loans

 

 

 

 

 

 

 

 

Non-farm/non-residential

 

$

953

 

 

$

438

 

Construction/land development

 

 

910

 

 

 

3,189

 

Residential real estate loans

 

 

 

 

 

 

 

 

Residential 1-4 family

 

 

1,141

 

 

 

793

 

Total foreclosed assets held for sale

 

$

3,004

 

 

$

4,420

 

 


 

70

 


 

 

A loan is considered impaired when it is probable that we will not receive all amounts due according to the contracted terms of the loans. Impaired loans include non-performing loans (loans past due 90 days or more and non-accrual loans), criticized and/or classified loans with a specific allocation, loans categorized as TDRs and certain other loans identified by management that are still performing (loans included in multiple categories are only included once). As of March 31, 2021 and December 31, 2020, impaired loans were $363.3 million and $112.7 million, respectively.  The amortized cost balance for loans with a specific allocation increased from $39.5 million to $309.3 million, and the specific allocation for impaired loans increased by approximately $45.5 million for the period ended March 31, 2021 compared to the period ended December 31, 2020.  The increase in collateral-dependent impaired loans was due to the Company changing the valuation method for lodging and assisted living loans to a market price valuation methodology. This involved assigning a 15% discount of par for these impaired loans. The 15% figure was derived based on knowledge of current hotel and assisted living offerings in the loan sale market. In the event of default, liquidation would be achieved through a loan sale. The Company is continuing to monitor these impaired loans and will adjust the discount as necessary. As of March 31, 2021, our Arkansas, Florida, Alabama, SPF and Centennial CFG markets accounted for approximately $196.5 million, $161.5 million, $516,000, $2.0 million and $2.8 million of the impaired loans, respectively.

The Company has purchased loans, some of which have experienced more than insignificant credit deterioration since origination.  PCD loans are recorded at the amount paid. An allowance for credit losses is determined using the same methodology as other loans. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through the provision for credit losses. As a result of the acquisition of LH-Finance in 2020, the Company held approximately $605,000 and $760,000 in PCD loans, as of March 31, 2021 and  December 31, 2020, respectively.

Past Due and Non-Accrual Loans

Table 11 shows the summary of non-accrual loans as of March 31, 2021 and December 31, 2020:

Table 11: Total Non-Accrual Loans

 

 

 

As of

 

 

As of

 

 

 

March 31, 2021

 

 

December 31, 2020

 

 

 

(In thousands)

 

Real estate:

 

 

 

 

 

 

 

 

Commercial real estate loans

 

 

 

 

 

 

 

 

Non-farm/non-residential

 

$

19,945

 

 

$

20,947

 

Construction/land development

 

 

1,252

 

 

 

1,381

 

Agricultural

 

 

862

 

 

 

879

 

Residential real estate loans

 

 

 

 

 

 

 

 

Residential 1-4 family

 

 

19,166

 

 

 

19,334

 

Multifamily residential

 

 

172

 

 

 

173

 

Total real estate

 

 

41,397

 

 

 

42,714

 

Consumer

 

 

1,902

 

 

 

3,506

 

Commercial and industrial

 

 

14,755

 

 

 

17,251

 

Agricultural

 

 

1,088

 

 

 

1,057

 

Total non-accrual loans

 

$

59,142

 

 

$

64,528

 

 

If non-accrual loans had been accruing interest in accordance with the original terms of their respective agreements, interest income of approximately $904,000 and $399,000, respectively, would have been recorded for the three-month periods ended March 31, 2021 and 2020. The interest income recognized on non-accrual loans for the three months ended March 31, 2021 and 2020 was considered immaterial.

 

71

 


 

Table 12 shows the summary of accruing past due loans 90 days or more as of March 31, 2021 and December 31, 2020:

Table 12: Loans Accruing Past Due 90 Days or More

 

 

 

As of

 

 

As of

 

 

 

March 31, 2021

 

 

December 31, 2020

 

 

 

(In thousands)

 

Real estate:

 

 

 

 

 

 

 

 

Commercial real estate loans

 

 

 

 

 

 

 

 

Non-farm/non-residential

 

$

2,718

 

 

$

6,088

 

Construction/land development

 

 

1

 

 

 

1,296

 

Residential real estate loans

 

 

 

 

 

 

 

 

Residential 1-4 family

 

 

1,180

 

 

 

1,821

 

Total real estate

 

 

3,899

 

 

 

9,205

 

Consumer

 

 

230

 

 

 

174

 

Commercial and industrial

 

 

80

 

 

 

231

 

Total loans accruing past due 90 days or more

 

$

4,209

 

 

$

9,610

 

 

Our ratio of total loans accruing past due 90 days or more and non-accrual loans to total loans was 0.59% and 0.66% at March 31, 2021 and December 31, 2020, respectively.

Allowance for Credit Losses

The Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, effective January 1, 2020. The guidance replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss methodology.  The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables. It also applies to off-balance sheet credit exposures not accounted for as insurance, including loan commitments, standby letters of credits, financial guarantees, and other similar instruments. The Company adopted ASC 326 using the modified retrospective method for loans and off-balance-sheet credit exposures.  Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP.  The Company recorded a one-time cumulative-effect adjustment to the allowance for credit losses of $44.0 million, which was recognized through a $32.5 million adjustment to retained earnings, net of tax. This adjustment brought the beginning balance of the allowance for credit losses to $146.1 million  as of January 1, 2020.  In addition, the Company recorded a $15.5 million reserve on unfunded commitments, as of January 1, 2020, which was recognized through an $11.5 million adjustment to retained earnings, net of tax.

Overview.  The allowance for credit losses on loans receivable is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectability of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

The Company uses the discounted cash flow (“DCF”) method to estimate expected losses for all of Company’s loan pools. These pools are as follows: construction & land development; other commercial real estate; residential real estate; commercial & industrial; and consumer & other. The loan portfolio pools were selected in order to generally align with the loan categories specified in the quarterly call reports required to be filed with the Federal Financial Institutions Examination Council. For each of these loan pools, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, curtailments, time to recovery, probability of default, and loss given default. The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on historical internal data. The Company uses regression analysis of historical internal and peer data to determine suitable loss drivers to utilize when modeling lifetime probability of default and loss given default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the loss drivers.

For all DCF models, management has determined that four quarters represents a reasonable and supportable forecast period and reverts back to a historical loss rate over four quarters on a straight-line basis. Management leverages economic projections from a reputable and independent third party to inform its loss driver forecasts over the four-quarter forecast period. Other internal and external indicators of economic forecasts are also considered by management when developing the forecast metrics.


 

72

 


 

 

Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in the national unemployment rate, gross domestic product, rental vacancy rate, housing price index and national retail sales index.

The allowance for credit losses is measured based on call report segment as these types of loan exhibit similar risk characteristics. The identified loan segments are as follows:

 

1-4 family construction

 

All other construction

 

1-4 family revolving home equity lines of credit (“HELOC”) & junior liens

 

1-4 family senior liens

 

Multifamily

 

Owner occupies commercial real estate

 

Non-owner occupied commercial real estate

 

Commercial & industrial, agricultural, non-depository financial institutions, purchase/carry securities, other

 

Consumer auto

 

Other consumer

 

Other consumer - SPF

The combination of adjustments for credit expectations (default and loss) and time expectations prepayment, curtailment, and time to recovery) produces an expected cash flow stream at the instrument level. Instrument effective yield is calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce an instrument-level net present value of expected cash flows (“NPV”). An allowance for credit loss is established for the difference between the instrument’s NPV and amortized cost basis.  

The allowance for credit losses for each segment is measured through the use of the discounted cash flow method. Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. For those loans that are classified as impaired, an allowance is established when the discounted cash flows, collateral value or observable market price of the impaired loan is lower than the carrying value of that loan.

Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies:

 

Management has a reasonable expectation at the reporting date that troubled debt restructuring will be executed with an individual borrower.

 

The extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.

Loans considered impaired, according to ASC 326, are loans for which, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. The aggregate amount of impairment of loans is utilized in evaluating the adequacy of the allowance for credit losses and amount of provisions thereto. Losses on impaired loans are charged against the allowance for credit losses when in the process of collection, it appears likely that such losses will be realized. The accrual of interest on impaired loans is discontinued when, in management’s opinion the collection of interest is doubtful or generally when loans are 90 days or more past due. When accrual of interest is discontinued, all unpaid accrued interest is reversed.  Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due.  Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Loans are placed on non-accrual status when management believes that the borrower’s financial condition, after giving consideration to economic and business conditions and collection efforts, is such that collection of interest is doubtful, or generally when loans are 90 days or more past due. Loans are charged against the allowance for credit losses when management believes that the collectability of the principal is unlikely. Accrued interest related to non-accrual loans is generally charged against the allowance for credit losses when accrued in prior years and reversed from interest income if accrued in the current year. Interest income on non-accrual loans may be recognized to the extent cash payments are received, although the majority of payments received are usually applied to principal. Non-accrual loans are generally returned to accrual status when principal and interest payments are less than 90 days past due, the customer has made required payments for at least six months, and we reasonably expect to collect all principal and interest.

 

73

 


 

Acquisition Accounting and Acquired Loans.  We account for our acquisitions under FASB ASC Topic 805, Business Combinations, which requires the use of the acquisition method of accounting. All identifiable assets acquired, including loans, are recorded at fair value.  In accordance with ASC 326, the Company records both a discount and an allowance for credit losses on acquired loans.  All purchased loans are recorded at fair value in accordance with the fair value methodology prescribed in FASB ASC Topic 820, Fair Value Measurements.  The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows.

The Company has purchased loans, some of which have experienced more than insignificant credit deterioration since origination. PCD loans are recorded at the amount paid. An allowance for credit losses is determined using the same methodology as other loans. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through provision for credit loss.

Allowance for Credit Losses on 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 allowance for credit losses on off-balance sheet credit exposures is adjusted as a provision for credit loss expense. 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.

Specific Allocations. As a general rule, if a specific allocation is warranted, it is the result of an analysis of a previously classified credit or relationship. Typically, when it becomes evident through the payment history or a financial statement review that a loan or relationship is no longer supported by the cash flows of the asset and/or borrower and has become collateral dependent, we will use appraisals or other collateral analysis to determine if collateral impairment has occurred. The amount or likelihood of loss on this credit may not yet be evident, so a charge-off would not be prudent. However, if the analysis indicates that an impairment has occurred, then a specific allocation will be determined for this loan. If our existing appraisal is outdated or the collateral has been subject to significant market changes, we will obtain a new appraisal for this impairment analysis. The majority of our impaired loans are collateral dependent at the present time, so third-party appraisals were used to determine the necessary impairment for these loans. Cash flow available to service debt was used for the other impaired loans. This analysis is performed each quarter in connection with the preparation of the analysis of the adequacy of the allowance for credit losses, and if necessary, adjustments are made to the specific allocation provided for a particular loan.

For collateral dependent loans, we do not consider an appraisal outdated simply due to the passage of time. However, if an appraisal is older than 13 months and if market or other conditions have deteriorated and we believe that the current market value of the property is not within approximately 20% of the appraised value, we will consider the appraisal outdated and order either a new appraisal or an internal validation report for the impairment analysis. The recognition of any provision or related charge-off on a collateral dependent loan is either through annual credit analysis or, many times, when the relationship becomes delinquent. If the borrower is not current, we will update our credit and cash flow analysis to determine the borrower's repayment ability. If we determine this ability does not exist and it appears that the collection of the entire principal and interest is not likely, then the loan could be placed on non-accrual status. In any case, loans are classified as non-accrual no later than 105 days past due. If the loan requires a quarterly impairment analysis, this analysis is completed in conjunction with the completion of the analysis of the adequacy of the allowance for credit losses. Any exposure identified through the impairment analysis is shown as a specific reserve on the individual impairment. If it is determined that a new appraisal or internal validation report is required, it is ordered and will be taken into consideration during completion of the next impairment analysis.

In estimating the net realizable value of the collateral, management may deem it appropriate to discount the appraisal based on the applicable circumstances. In such case, the amount charged off may result in loan principal outstanding being below fair value as presented in the appraisal.

Between the receipt of the original appraisal and the updated appraisal, we monitor the loan's repayment history. If the loan is $3.0 million or greater or the total loan relationship is $5.0 million or greater, our policy requires an annual credit review.  For these loans, our policy requires financial statements from the borrowers and guarantors at least annually. In addition, we calculate the global repayment ability of the borrower/guarantors at least annually on these loans.

As a general rule, when it becomes evident that the full principal and accrued interest of a loan may not be collected, or by law at 105 days past due, we will reflect that loan as non-performing. It will remain non-performing until it performs in a manner that it is reasonable to expect that we will collect the full principal and accrued interest.

 

74

 


 

When the amount or likelihood of a loss on a loan has been determined, a charge-off should be taken in the period it is determined. If a partial charge-off occurs, the quarterly impairment analysis will determine if the loan is still impaired, and thus continues to require a specific allocation.

The Company had $363.3 million and $112.7 million in collateral-dependent impaired loans for the periods ended March 31, 2021 and December 31, 2020, respectively. The increase in collateral-dependent impaired loans was due to the Company changing the valuation method for lodging and assisted living loans to a market price valuation methodology. This involved assigning a 15% discount of par for these impaired loans. The 15% figure was derived based on knowledge of current hotel and assisted living offerings in the loan sale market. In the event of default, liquidation would be achieved through a loan sale. The Company is continuing to monitor these impaired loans and will adjust the discount as necessary.

Loans Collectively Evaluated for Impairment.  Loans receivable collectively evaluated for impairment decreased by approximately $538.3 million from $10.76 billion at December 31, 2020 to $10.22 billion at March 31, 2021. The percentage of the allowance for credit losses allocated to loans receivable collectively evaluated for impairment to the total loans collectively evaluated for impairment was 1.83% and 2.18% at March 31, 2021 and December 31, 2020, respectively.  

Charge-offs and Recoveries.  Total charge-offs increased to $3.0 million for the three months ended March 31, 2021, compared to $4.3 million for the same period in 2020. Total recoveries decreased to $506,000 for the three months ended March 31, 2021, compared to $740,000 for the same period in 2020.  For the three months ended March 31, 2021, net charge-offs were $546,000 for Arkansas, $1.9 million for Florida, $1,000 for Alabama, $46,000 for SPF and zero for Centennial CFG. These equal a net charge-off position of $2.5 million.

We have not charged off an amount less than what was determined to be the fair value of the collateral as presented in the appraisal, less estimated costs to sell (for collateral dependent loans), for any period presented.  Loans partially charged-off are placed on non-accrual status until it is proven that the borrower's repayment ability with respect to the remaining principal balance can be reasonably assured.  This is usually established over a period of 6-12 months of timely payment performance.

 

75

 


 

Table 13 shows the allowance for credit losses, charge-offs and recoveries as of and for the three months ended March 31, 2021 and 2020.

Table 13: Analysis of Allowance for Credit Losses

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

 

 

(Dollars in thousands)

 

Balance, beginning of period

 

$

245,473

 

 

$

102,122

 

Impact of adopting ASC 326

 

 

 

 

 

43,988

 

Allowance for credit losses on acquired loans

 

 

 

 

 

357

 

Loans charged off

 

 

 

 

 

 

 

 

Real estate:

 

 

 

 

 

 

 

 

Commercial real estate loans:

 

 

 

 

 

 

 

 

Non-farm/non-residential

 

 

19

 

 

 

519

 

Construction/land development

 

 

 

 

 

45

 

Residential real estate loans:

 

 

 

 

 

 

 

 

Residential 1-4 family

 

 

226

 

 

 

339

 

Multifamily residential

 

 

 

 

 

 

Total real estate

 

 

245

 

 

 

903

 

Consumer

 

 

67

 

 

 

16

 

Commercial and industrial

 

 

2,279

 

 

 

2,804

 

Other

 

 

456

 

 

 

542

 

Total loans charged off

 

 

3,047

 

 

 

4,265

 

Recoveries of loans previously charged off

 

 

 

 

 

 

 

 

Real estate:

 

 

 

 

 

 

 

 

Commercial real estate loans:

 

 

 

 

 

 

 

 

Non-farm/non-residential

 

 

14

 

 

 

250

 

Construction/land development

 

 

22

 

 

 

10

 

Residential real estate loans:

 

 

 

 

 

 

 

 

Residential 1-4 family

 

 

62

 

 

 

160

 

Total real estate

 

 

98

 

 

 

420

 

Consumer

 

 

46

 

 

 

43

 

Commercial and industrial

 

 

76

 

 

 

65

 

Other

 

 

286

 

 

 

212

 

Total recoveries

 

 

506

 

 

 

740

 

Net loans charged off (recovered)

 

 

2,541

 

 

 

3,525

 

Provision for credit losses

 

 

 

 

 

85,981

 

Balance, March 31

 

$

242,932

 

 

$

228,923

 

Net charge-offs (recoveries) to average loans receivable

 

 

0.09

%

 

 

0.13

%

Allowance for credit losses to total loans

 

 

2.25

 

 

 

2.01

 

Allowance for credit losses to net charge-offs (recoveries)

 

 

2,357

 

 

 

1,615

 

 

 

76

 


 

 

Table 14 presents the allocation of allowance for credit losses as of March 31, 2021 and December 31, 2020.

Table 14: Allocation of Allowance for Credit Losses

 

 

 

As of March 31, 2021

 

 

As of December 31, 2020

 

 

 

Allowance Amount

 

 

% of loans(1)

 

 

Allowance Amount

 

 

% of loans(1)

 

 

 

(Dollars in thousands)

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-farm/non-residential

 

$

93,653

 

 

 

39.8

%

 

$

87,043

 

 

 

39.5

%

Construction/land development

 

 

22,937

 

 

 

15.0

 

 

 

32,861

 

 

 

13.9

 

Agricultural

 

 

216

 

 

 

1.1

 

 

 

1,410

 

 

 

1.0

 

Residential real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential 1-4 family

 

 

50,140

 

 

 

13.3

 

 

 

47,754

 

 

 

13.7

 

Multifamily residential

 

 

4,457

 

 

 

3.5

 

 

 

5,462

 

 

 

4.8

 

Total real estate

 

 

171,403

 

 

 

72.7

 

 

 

174,530

 

 

 

72.9

 

Consumer

 

 

19,268

 

 

 

7.8

 

 

 

21,905

 

 

 

7.7

 

Commercial and industrial

 

 

49,580

 

 

 

16.6

 

 

 

46,061

 

 

 

16.9

 

Agricultural

 

 

244

 

 

 

0.6

 

 

 

469

 

 

 

0.6

 

Other

 

 

2,437

 

 

 

2.3

 

 

 

2,508

 

 

 

1.9

 

Total allowance for credit losses

 

$

242,932

 

 

 

100.0

%

 

$

245,473

 

 

 

100.0

%

 

 

(1)

Percentage of loans in each category to total loans receivable.

Investment Securities

Our securities portfolio is the second largest component of earning assets and provides a significant source of revenue.  Securities within the portfolio are classified as held-to-maturity, available-for-sale, or trading based on the intent and objective of the investment and the ability to hold to maturity.  Fair values of securities are based on quoted market prices where available.  If quoted market prices are not available, estimated fair values are based on quoted market prices of comparable securities.  The estimated effective duration of our securities portfolio was 4.0 years as of March 31, 2021.

Securities available-for-sale are reported at fair value with unrealized holding gains and losses reported as a separate component of stockholders’ equity as other comprehensive income. Securities that are held as available-for-sale are used as a part of our asset/liability management strategy. Securities that may be sold in response to interest rate changes, changes in prepayment risk, the need to increase regulatory capital, and other similar factors are classified as available-for-sale.  Available-for-sale securities were $2.54 billion and $2.47 billion as March 31, 2021 and December 31, 2020, respectively.

As of March 31, 2021, $1.20 billion, or 47.2%, of our available-for-sale securities were invested in mortgage-backed securities, compared to $1.18 billion, or 47.6%, of our available-for-sale securities as of December 31, 2020.  To reduce our income tax burden, $963.8 million, or 38.0%, of our available-for-sale securities portfolio as of March 31, 2021, were primarily invested in tax-exempt obligations of state and political subdivisions, compared to $927.9 million, or 37.5%, of our available-for-sale securities as of December 31, 2020. We had $333.0 million, or 13.1%, invested in obligations of U.S. Government-sponsored enterprises as of March 31, 2021, compared to $327.0 million, or 13.2%, of our available-for-sale securities as of December 31, 2020. Also, we had approximately $42.5 million, or 1.7%, invested in other securities as of March 31, 2021, compared to $41.0 million, or 1.7% of our available-for-sale securities as of December 31, 2020.

 

77

 


 

The Company evaluates all securities quarterly to determine if any securities in a loss position require a provision for credit losses in accordance with ASC 326, Measurement of Credit Losses on Financial Instruments. The Company first assesses whether it intends to sell or is more likely than not that the Company 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 cost basis is written down to fair value through income. For securities that do not meet this criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, changes to the rating of the security by a 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 allowance for credit losses 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 been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectability of a security is confirmed or when either of the criteria regarding intent or requirement to sell is met. At March 31, 2021, the Company determined that the allowance for credit losses of $842,000, resulting from economic uncertainties related to the COVID-19 pandemic, was adequate for the investment portfolio. No additional provision for credit losses was considered necessary for the portfolio.

See Note 3 “Investment Securities” in the Condensed Notes to Consolidated Financial Statements for the carrying value and fair value of investment securities.

Deposits

Our deposits averaged $13.03 billion and $12.87 billion for the three months ended March 31, 2021 and December 31, 2020, respectively.  Total deposits were $13.51 billion as of March 31, 2021, and $12.73 billion as of December 31, 2020.  Deposits are our primary source of funds. We offer a variety of products designed to attract and retain deposit customers.  Those products consist of checking accounts, regular savings deposits, NOW accounts, money market accounts and certificates of deposit.  Deposits are gathered from individuals, partnerships and corporations in our market areas.  In addition, we obtain deposits from state and local entities and, to a lesser extent, U.S. Government and other depository institutions.

Our policy also permits the acceptance of brokered deposits.  From time to time, when appropriate in order to fund strong loan demand, we accept brokered time deposits, generally in denominations of less than $250,000, from a regional brokerage firm, and other national brokerage networks.  We also participate in the One-Way Buy Insured Cash Sweep (“ICS”) service and similar services, which provide for one-way buy transactions among banks for the purpose of purchasing cost-effective floating-rate funding without collateralization or stock purchase requirements.  Management believes these sources represent a reliable and cost-efficient alternative funding source for the Company.  However, to the extent that our condition or reputation deteriorates, or to the extent that there are significant changes in market interest rates which we do not elect to match, we may experience an outflow of brokered deposits.  In that event we would be required to obtain alternate sources for funding.

Table 15 reflects the classification of the brokered deposits as of March 31, 2021 and December 31, 2020.

Table 15: Brokered Deposits

 

 

 

March 31, 2021

 

 

December 31, 2020

 

 

 

(In thousands)

 

Time Deposits

 

$

 

 

$

10,000

 

Insured Cash Sweep and Other Transaction Accounts

 

 

625,674

 

 

 

625,681

 

Total Brokered Deposits

 

$

625,674

 

 

$

635,681

 

 

The interest rates paid are competitively priced for each particular deposit product and structured to meet our funding requirements. We will continue to manage interest expense through deposit pricing. We may allow higher rate deposits to run off during periods of limited loan demand. We believe that additional funds can be attracted, and deposit growth can be realized through deposit pricing if we experience increased loan demand or other liquidity needs.  


 

78

 


 

 

The Federal Reserve Board sets various benchmark rates, including the Federal Funds rate, and thereby influences the general market rates of interest, including the deposit and loan rates offered by financial institutions. The Federal reserve lowered the target rate two times in 2020. First, the target rate was lowered to 1.00% to 1.25% on March 3, 2020; second, the rate was lowered to 0.00% to 0.25% on March 15, 2020. The target rate is currently at 0.00% to 0.25% as of March 31, 2021, which remains unchanged from the target rate as of March 31, 2020.

Table 16 reflects the classification of the average deposits and the average rate paid on each deposit category, which are in excess of 10 percent of average total deposits, for the three months ended March 31, 2021 and 2020.

Table 16: Average Deposit Balances and Rates

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

 

 

Average

Amount

 

 

Average

Rate Paid

 

 

Average

Amount

 

 

Average

Rate Paid

 

 

 

(Dollars in thousands)

 

Non-interest-bearing transaction accounts

 

$

3,480,050

 

 

 

%

 

$

2,410,583

 

 

 

%

Interest-bearing transaction accounts

 

 

7,547,556

 

 

 

0.25

 

 

 

6,392,385

 

 

 

0.97

 

Savings deposits

 

 

791,235

 

 

 

0.07

 

 

 

648,918

 

 

 

0.22

 

Time deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$100,000 or more

 

 

834,628

 

 

 

1.17

 

 

 

1,511,447

 

 

 

1.88

 

Other time deposits

 

 

374,803

 

 

 

0.62

 

 

 

432,274

 

 

 

1.24

 

Total

 

$

13,028,272

 

 

 

0.24

%

 

$

11,395,607

 

 

 

0.85

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities Sold Under Agreements to Repurchase

We enter into short-term purchases of securities under agreements to resell (resale agreements) and sales of securities under agreements to repurchase (repurchase agreements) of substantially identical securities. The amounts advanced under resale agreements and the amounts borrowed under repurchase agreements are carried on the balance sheet at the amount advanced.  Interest incurred on repurchase agreements is reported as interest expense. Securities sold under agreements to repurchase decreased $6.0 million, or 3.6%, from $168.9 million as of December 31, 2020 to $162.9 million as of March 31, 2021.

FHLB and Other Borrowed Funds

The Company’s FHLB borrowed funds, which are secured by our loan portfolio, were $400.0 million at March 31, 2021 and December 31, 2020. The Company had no other borrowed funds as of March 31, 2021 or December 31, 2020. At March 31, 2021, and December 31, 2020 all of the outstanding balances were classified as long-term advances.  Our remaining FHLB borrowing capacity was $3.33 billion and $3.32 billion as of March 31, 2021 and December 31, 2020, respectively. The FHLB advances mature in 2033 with fixed interest rates ranging from 1.76% to 2.26%. Maturities of borrowings as of March 31, 2021 include: 2021 –zero; 2022 – zero; 2023 – zero; 2024 – zero; 2025 – zero; after 2025 – $400.0 million.  Expected maturities could differ from contractual maturities because FHLB may have the right to call or HBI the right to prepay certain obligations.

    Subordinated Debentures

Subordinated debentures, which consist of subordinated debt securities and guaranteed payments on trust preferred securities, were $370.5 million and $370.3 million as of March 31, 2021 and December 31, 2020, respectively.  

The trust preferred securities are tax-advantaged issues that qualify for Tier 1 capital treatment subject to certain limitations.  Distributions on these securities are included in interest expense.  Each of the trusts is a statutory business trust organized for the sole purpose of issuing trust securities and investing the proceeds in our subordinated debentures, the sole asset of each trust. The trust preferred securities of each trust represent preferred beneficial interests in the assets of the respective trusts and are subject to mandatory redemption upon payment of the subordinated debentures held by the trust. We wholly own the common securities of each trust. Each trust’s ability to pay amounts due on the trust preferred securities is solely dependent upon our making payment on the related subordinated debentures. Our obligations under the subordinated securities and other relevant trust agreements, in the aggregate, constitute a full and unconditional guarantee by us of each respective trust’s obligations under the trust securities issued by each respective trust.


 

79

 


 

 

The Bank acquired $12.5 million in trust preferred securities with a fair value of $9.8 million from the Stonegate acquisition. The difference between the fair value purchased of $9.8 million and the $12.5 million face amount, is being amortized into interest expense over the remaining life of the debentures.  The associated subordinated debentures are redeemable, in whole or in part, prior to maturity at our option on a quarterly basis when interest is due and payable and in whole at any time within 90 days following the occurrence and continuation of certain changes in the tax treatment or capital treatment of the debentures.

On April 3, 2017, the Company completed an underwritten public offering of $300 million in aggregate principal amount of its 5.625% Fixed-to-Floating Rate Subordinated Notes due 2027 (the “Notes”). The Notes were issued at 99.997% of par, resulting in net proceeds, after underwriting discounts and issuance costs, of approximately $297.0 million. The Notes are unsecured, subordinated debt obligations of the Company and will mature on April 15, 2027. The Notes qualify as Tier 2 capital for regulatory purposes.

Stockholders’ Equity

Stockholders’ equity was $2.65 billion at March 31, 2021 compared to $2.61 billion at December 31, 2020. The $39.4 million increase in stockholders’ equity is primarily associated with the $91.6 million in net income for three months ended March 31, 2021, which was partially offset by the $24.7 million in other comprehensive loss for the three months ended March 31, 2021, the $23.2 million of shareholder dividends paid and stock repurchases of $8.8 million in 2021.   The annualized increase in stockholders’ equity for the first three months of 2021 was 6.1%. As of March 31, 2021 and December 31, 2020, our equity to asset ratio was 15.34% and 15.89%, respectively. Book value per share was $16.02 as of March 31, 2021, compared to $15.78 as of December 31, 2020, a 6.2% annualized increase.

Common Stock Cash Dividends.  We declared cash dividends on our common stock of $0.14 per share and $0.13 per share for the three months ended March 31, 2021 and 2020, respectively.  The common stock dividend payout ratio for the three months ended March 31, 2021 and 2020 was 25.3% and 4,261.9%, respectively. On April 15, 2021, the Board of Directors declared a regular $0.14 per share quarterly cash dividend payable June 2, 2021, to shareholders of record May 12, 2021.

Stock Repurchase Program.  On January 22, 2021, the Company’s Board of Directors authorized the repurchase of up to an additional 20,000,000 shares of its common stock under the previously approved stock repurchase program, which brought the amount of authorized shares available to repurchase to 23,843,665 shares. We repurchased a total of 330,000 shares with a weighted-average stock price of $26.55 per share during the first three months of 2021.  The remaining balance available for repurchase was 23,513,665 shares at March 31, 2021.

Liquidity and Capital Adequacy Requirements

Risk-Based Capital.  We, as well as our bank subsidiary, are subject to various regulatory capital requirements administered by the federal banking agencies.  Failure to meet minimum capital requirements can initiate certain mandatory and other discretionary actions by regulators that, if enforced, could have a direct material effect on our financial statements.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices.  Our capital amounts and classifications are also subject to qualitative judgments by the regulators as to components, risk weightings and other factors.

In July 2013, the Federal Reserve Board and the other federal bank regulatory agencies issued a final rule to revise their risk-based and leverage capital requirements and their method for calculating risk-weighted assets to make them consistent with the agreements that were reached by the Basel Committee on Banking Supervision in “Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems” and certain provisions of the Dodd-Frank Act (“Basel III”). Basel III applies to all depository institutions, bank holding companies with total consolidated assets of $500 million or more, and savings and loan holding companies. Basel III became effective for the Company and its bank subsidiary on January 1, 2015.  The capital conservation buffer requirement began being phased in beginning January 1, 2016 at the 0.625% level and increased by 0.625% on each subsequent January 1, until it reached 2.5% on January 1, 2019 when the phase-in period ended, and the full capital conservation buffer requirement became effective.

Basel III permanently grandfathers trust preferred securities and other non-qualifying capital instruments that were issued and outstanding as of May 19, 2010 in the Tier 1 capital of bank holding companies with total consolidated assets of less than $15 billion as of December 31, 2009. The rule phases out of Tier 1 capital these non-qualifying capital instruments issued before May 19, 2010 by all other bank holding companies. Because our total consolidated assets were less than $15 billion as of December 31, 2009, our outstanding trust preferred securities continue to be treated as Tier 1 capital.  However, now that the Company has exceeded $15 billion in assets, if the Company acquires another financial institution in the future, then the Tier 1 treatment of the Company’s outstanding trust preferred securities will be phased out, but those securities will still be treated as Tier 2 capital.


 

80

 


 

 

Basel III amended the prompt corrective action rules to incorporate a “common equity Tier 1 capital” requirement and to raise the capital requirements for certain capital categories.  In order to be adequately capitalized for purposes of the prompt corrective action rules, a banking organization will be required to have at least a 4.5% “common equity Tier 1 risk-based capital” ratio, a 4% “Tier 1 leverage capital” ratio, a 6% “Tier 1 risk-based capital” ratio and an 8% “total risk-based capital” ratio.  

Quantitative measures established by regulation to ensure capital adequacy require us to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. Management believes that, as of March 31, 2021 and December 31, 2020, we met all regulatory capital adequacy requirements to which we were subject.

On December 21, 2018, the federal banking agencies issued a joint final rule to revise their regulatory capital rules to permit bank holding companies and banks to phase-in, for regulatory capital purposes, the day-one impact of the new CECL accounting rule on retained earnings over a period of three years. As part of its response to the impact of COVID-19, on March 27, 2020, the federal banking regulatory agencies issued an interim final rule that provided the option to temporarily delay certain effects of CECL on regulatory capital for two years, followed by a three-year transition period. The interim final rule allows bank holding companies and banks to delay for two years 100% of the day-one impact of adopting CECL and 25% of the cumulative change in the reported allowance for credit losses since adopting CECL. The Company has elected to adopt the interim final rule, which is reflected in the risk-based capital ratios presented below.

 

81

 


 

Table 17 presents our risk-based capital ratios on a consolidated basis as of March 31, 2021 and December 31, 2020.

Table 17: Risk-Based Capital

 

 

 

As of

March 31,

2021

 

 

As of

December 31,

2020

 

 

 

(Dollars in thousands)

 

Tier 1 capital

 

 

 

 

 

 

 

 

Stockholders’ equity

 

$

2,645,204

 

 

$

2,605,758

 

ASC 326 transitional period adjustment

 

 

56,698

 

 

 

57,333

 

Goodwill and core deposit intangibles, net

 

 

(1,001,867

)

 

 

(1,003,288

)

Unrealized gain on available-for-sale securities

 

 

(19,449

)

 

 

(44,120

)

Total common equity Tier 1 capital

 

 

1,680,586

 

 

 

1,615,683

 

Qualifying trust preferred securities

 

 

71,162

 

 

 

71,127

 

Total Tier 1 capital

 

 

1,751,748

 

 

 

1,686,810

 

Tier 2 capital

 

 

 

 

 

 

 

 

      Allowance for credit losses

 

 

242,932

 

 

 

245,473

 

ASC 326 transitional period adjustment

 

 

(56,698

)

 

 

(57,333

)

      Disallowed allowance for credit losses (limited to 1.25%

          of risk weighted assets)

 

 

(39,000

)

 

 

(36,911

)

Qualifying allowance for credit losses

 

 

147,234

 

 

 

151,229

 

Qualifying subordinated notes

 

 

299,353

 

 

 

299,199

 

Total Tier 2 capital

 

 

446,587

 

 

 

450,428

 

Total risk-based capital

 

$

2,198,335

 

 

$

2,137,238

 

Average total assets for leverage ratio

 

$

15,734,834

 

 

$

15,547,111

 

Risk weighted assets

 

$

11,717,441

 

 

$

12,039,156

 

Ratios at end of period

 

 

 

 

 

 

 

 

Common equity Tier 1 capital

 

 

14.34

%

 

 

13.42

%

Leverage ratio

 

 

11.13

 

 

 

10.85

 

Tier 1 risk-based capital

 

 

14.95

 

 

 

14.01

 

Total risk-based capital

 

 

18.76

 

 

 

17.75

 

Minimum guidelines – Basel III

 

 

 

 

 

 

 

 

Common equity Tier 1 capital

 

 

7.00

%

 

 

7.00

%

Leverage ratio

 

 

4.00

 

 

 

4.00

 

Tier 1 risk-based capital

 

 

8.50

 

 

 

8.50

 

Total risk-based capital

 

 

10.50

 

 

 

10.50

 

Well-capitalized guidelines

 

 

 

 

 

 

 

 

Common equity Tier 1 capital

 

 

6.50

%

 

 

6.50

%

Leverage ratio

 

 

5.00

 

 

 

5.00

 

Tier 1 risk-based capital

 

 

8.00

 

 

 

8.00

 

Total risk-based capital

 

 

10.00

 

 

 

10.00

 

 

As of the most recent notification from regulatory agencies, our bank subsidiary was “well-capitalized” under the regulatory framework for prompt corrective action.  To be categorized as “well-capitalized,” we, as well as our banking subsidiary, must maintain minimum common equity Tier 1 capital, leverage, Tier 1 risk-based capital, and total risk-based capital ratios as set forth in the table.  There are no conditions or events since that notification that we believe have changed the bank subsidiary’s category.


 

82

 


 

 

Non-GAAP Financial Measurements

Our accounting and reporting policies conform to generally accepted accounting principles in the United States (“GAAP”) and the prevailing practices in the banking industry. However, this report contains financial information determined by methods other than in accordance with GAAP, including earnings, as adjusted; diluted earnings per common share, as adjusted; tangible book value per share; return on average assets excluding intangible amortization; return on average assets, as adjusted; return on average tangible equity, excluding intangible amortization; return on average tangible equity, as adjusted; tangible equity to tangible assets; and efficiency ratio, as adjusted.

We believe these non-GAAP measures and ratios, when taken together with the corresponding GAAP measures and ratios, provide meaningful supplemental information regarding our performance. We believe investors benefit from referring to these non-GAAP measures and ratios in assessing our operating results and related trends, and when planning and forecasting future periods. However, these non-GAAP measures and ratios should be considered in addition to, and not as a substitute for or preferable to, ratios prepared in accordance with GAAP.

The tables below present non-GAAP reconciliations of earnings, as adjusted, and diluted earnings per share, as adjusted as well as the non-GAAP computations of tangible book value per share, return on average assets, return on average tangible equity excluding intangible amortization, tangible equity to tangible assets and the efficiency ratio, as adjusted. The items used in these calculations are included in financial results presented in accordance with GAAP.

Earnings, as adjusted, and diluted earnings per common share, as adjusted, are meaningful non-GAAP financial measures for management, as they exclude items such as certain non-interest income and expenses that management believes are not indicative of our primary business operating results. Management believes the exclusion of these items in expressing earnings provides a meaningful foundation for period-to-period and company-to-company comparisons, which management believes will aid both investors and analysts in analyzing our financial measures and predicting future performance. These non-GAAP financial measures are also used by management to assess the performance of our business.

In Table 18 below, we have provided a reconciliation of the non-GAAP calculation of the financial measure for the periods indicated.

Table 18: Earnings, As Adjusted

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

 

 

(Dollars in thousands)

 

GAAP net income available to common shareholders (A)

 

$

91,602

 

 

$

507

 

Adjustments:

 

 

 

 

 

 

 

 

Outsourced special project

 

 

 

 

 

1,092

 

Merger and acquisition expense

 

 

 

 

 

711

 

Fair value adjustment for marketable securities

 

 

(5,782

)

 

 

5,818

 

Special dividend from equity investment

 

 

(8,073

)

 

 

(7,004

)

Gain on securities

 

 

(219

)

 

 

 

Recoveries on historic losses

 

 

(5,107

)

 

 

 

Total adjustments

 

 

(19,181

)

 

 

617

 

Tax-effect of adjustments

 

 

(5,013

)

 

 

161

 

Total adjustments after-tax (B)

 

 

(14,168

)

 

 

456

 

Earnings, as adjusted (C)

 

$

77,434

 

 

$

963

 

Average diluted shares outstanding (D)

 

 

165,446

 

 

 

166,014

 

GAAP diluted earnings per share: A/D

 

$

0.55

 

 

$

 

Adjustments after-tax B/D

 

 

(0.08

)

 

 

0.01

 

Diluted earnings per common share, as adjusted: C/D

 

$

0.47

 

 

$

0.01

 

 


 

83

 


 

 

 We had $1.00 billion, $1.00 billion, and $1.01 billion total goodwill, core deposit intangibles and other intangible assets as of March 31, 2021, December 31, 2020 and March 31, 2020, respectively. Because of our level of intangible assets and related amortization expenses, management believes tangible book value per share, return on average assets, as adjusted; return on average assets, excluding intangible amortization; return on average tangible equity excluding intangible amortization; return on average tangible equity, as adjusted; and tangible equity to tangible assets are useful in evaluating our company. These calculations, which are similar to the GAAP calculations of book value per share, return on average assets, return on average equity, and equity to assets, are presented in Tables 19 through 22, respectively.  

Table 19: Tangible Book Value Per Share

 

 

 

As of

March 31,

2021

 

 

As of

December 31,

2020

 

 

 

(In thousands, except per share data)

 

Book value per share: A/B

 

$

16.02

 

 

$

15.78

 

Tangible book value per share: (A-C-D)/B

 

 

9.95

 

 

 

9.70

 

(A) Total equity

 

$

2,645,204

 

 

$

2,605,758

 

(B) Shares outstanding

 

 

165,141

 

 

 

165,095

 

(C) Goodwill

 

 

973,025

 

 

 

973,025

 

(D) Core deposit and other intangibles

 

 

29,307

 

 

 

30,728

 

Table 20: Return on Average Assets

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

 

 

(Dollars in thousands)

 

Return on average assets:  A/D

 

 

2.22

%

 

 

0.01

%

Return on average assets excluding intangible

   amortization: B/(D-E)

 

 

2.39

 

 

 

0.05

 

Return on average assets excluding fair value adjustment

   for marketable securities, special dividend from equity

   investment, gain on securities, recoveries on historic

   losses, outsourced special project expense and merger

   expenses: (ROA, as adjusted): (A+C)/D

 

 

1.88

 

 

 

0.03

 

(A) Net income

 

$

91,602

 

 

$

507

 

Intangible amortization after-tax

 

 

1,049

 

 

 

1,121

 

(B) Earnings excluding intangible amortization

 

$

92,651

 

 

$

1,628

 

(C) Adjustments after-tax

 

$

(14,168

)

 

$

456

 

(D) Average assets

 

 

16,718,890

 

 

 

15,133,475

 

(E) Average goodwill, core deposits and other intangible

   assets

 

 

1,003,011

 

 

 

999,004

 

 

 

84

 


 

 

Table 21: Return on Average Tangible Equity Excluding Intangible Amortization

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

 

 

(Dollars in thousands)

 

Return on average equity: A/D

 

 

14.15

%

 

 

0.08

%

Return on average common equity excluding fair value

   adjustment for marketable securities, special dividend

   from equity investment, gain on securities, recoveries

   on historic losses, outsourced special project expense

   and merger expenses: (ROE, as adjusted) ((A+C)/D)

 

 

11.96

 

 

 

0.16

 

Return on average tangible common equity: (A/(D-E))

 

 

22.90

 

 

 

0.14

 

Return on average tangible equity excluding intangible

   amortization: B/(D-E)

 

 

23.16

 

 

 

0.44

 

Return on average tangible common equity excluding fair

   value adjustment for marketable securities, special

   dividend from equity investment, gain on securities,

   recoveries on historic losses, outsourced special project

   expense and merger expenses: (ROTCE, as adjusted)

   ((A+C)/(D-E))

 

 

19.35

 

 

 

0.26

 

(A) Net income

 

$

91,602

 

 

$

507

 

(B) Earnings excluding intangible amortization

 

 

92,651

 

 

 

1,628

 

(C) Adjustments after-tax

 

 

(14,168

)

 

 

456

 

(D) Average equity

 

 

2,625,618

 

 

 

2,481,104

 

(E) Average goodwill, core deposits and other intangible

   assets

 

 

1,003,011

 

 

 

999,004

 

Table 22: Tangible Equity to Tangible Assets

 

 

 

As of

March 31,

2021

 

 

As of

December 31,

2020

 

 

 

(Dollars in thousands)

 

Equity to assets: B/A

 

 

15.34

%

 

 

15.89

%

Tangible equity to tangible assets: (B-C-D)/(A-C-D)

 

 

10.12

 

 

 

10.41

 

(A) Total assets

 

$

17,240,241

 

 

$

16,398,804

 

(B) Total equity

 

 

2,645,204

 

 

 

2,605,758

 

(C) Goodwill

 

 

973,025

 

 

 

973,025

 

(D) Core deposit and other intangibles

 

 

29,307

 

 

 

30,728

 

 

The efficiency ratio is a standard measure used in the banking industry and is calculated by dividing non-interest expense less amortization of core deposit intangibles by the sum of net interest income on a tax equivalent basis and non-interest income.  The  efficiency ratio, as adjusted, is a meaningful non-GAAP measure for management, as it excludes certain items and is calculated by dividing non-interest expense less amortization of core deposit intangibles by the sum of net interest income on a tax equivalent basis and non-interest income excluding items such as merger expenses and/or certain gains, losses and other non-interest income and expenses.  In Table 23 below, we have provided a reconciliation of the non-GAAP calculation of the financial measure for the periods indicated.

 

85

 


 

Table 23: Efficiency Ratio, As Adjusted

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

 

 

(Dollars in thousands)

 

Net interest income (A)

 

$

148,088

 

 

$

139,725

 

Non-interest income (B)

 

 

45,276

 

 

 

22,927

 

Non-interest expense (C)

 

 

72,866

 

 

 

70,474

 

FTE Adjustment (D)

 

 

1,857

 

 

 

1,227

 

Amortization of intangibles (E)

 

 

1,421

 

 

 

1,517

 

Adjustments:

 

 

 

 

 

 

 

 

Non-interest income:

 

 

 

 

 

 

 

 

Special dividend from equity investments

 

$

8,073

 

 

$

7,004

 

Fair value adjustment for marketable securities

 

 

5,782

 

 

 

(5,818

)

Gain on OREO, net

 

 

401

 

 

 

277

 

(Loss) gain on sale of branches, equipment and

   other assets, net

 

 

(29

)

 

 

82

 

Gain on securities

 

 

219

 

 

 

 

Recoveries on historic losses

 

 

5,107

 

 

 

 

Total non-interest income adjustments (F)

 

$

19,553

 

 

$

1,545

 

Non-interest expense:

 

 

 

 

 

 

 

 

Merger expense

 

 

 

 

 

711

 

Outsourced special project expense

 

 

 

 

 

1,092

 

Total non-interest expense adjustments (G)

 

$

 

 

$

1,803

 

Efficiency ratio (reported):  ((C-E)/(A+B+D))

 

 

36.60

%

 

 

42.08

%

Efficiency ratio, as adjusted (non-GAAP):

   ((C-E-G)/(A+B+D-F))

 

 

40.67

 

 

 

41.37

 

 

Recently Issued Accounting Pronouncements

See Note 21 in the Condensed Notes to Consolidated Financial Statements for a discussion of certain recently issued and recently adopted accounting pronouncements.

 

 

Item 3:  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Liquidity and Market Risk Management

Liquidity Management.  Liquidity refers to the ability or the financial flexibility to manage future cash flows to meet the needs of depositors and borrowers and fund operations. Maintaining appropriate levels of liquidity allows us to have sufficient funds available for reserve requirements, customer demand for loans, withdrawal of deposit balances and maturities of deposits and other liabilities. Our primary source of liquidity at our holding company is dividends paid by our bank subsidiary. Applicable statutes and regulations impose restrictions on the amount of dividends that may be declared by our bank subsidiary. Further, any dividend payments are subject to the continuing ability of the bank subsidiary to maintain compliance with minimum federal regulatory capital requirements and to retain its characterization under federal regulations as a “well-capitalized” institution.

Our bank subsidiary has potential obligations resulting from the issuance of standby letters of credit and commitments to fund future borrowings to our loan customers. Many of these obligations and commitments to fund future borrowings to our loan customers are expected to expire without being drawn upon; therefore, the total commitment amounts do not necessarily represent future cash requirements affecting our liquidity position.

Due to the continuing effects of the COVID-19 pandemic, the Company continued to increase its liquidity position for the period ended March 31, 2021. Liquidity needs can be met from either assets or liabilities. On the asset side, our primary sources of liquidity include cash and due from banks, federal funds sold, unpledged available-for-sale investment securities and scheduled repayments and maturities of loans. We maintain adequate levels of cash and cash equivalents to meet our day-to-day needs.  As of March 31, 2021, our cash and cash equivalents were $2.48 billion, or 14.4% of total assets, compared to $1.26 billion, or 7.7% of total assets, as of December 31, 2020.  Our unpledged available-for-sale investment securities and federal funds sold were $1.46 billion and $1.39 billion as of March 31, 2021 and December 31, 2020, respectively.

 

86

 


 

         As of March 31, 2021, our investment portfolio was comprised of approximately $1.33 billion, or 52.9%, of securities which mature or are expected to paydown within five years.  As of March 31, 2021 and December 31, 2020, $1.08 billion were pledged to secure public deposits, as collateral for repurchase agreements, and for other purposes required or permitted by law. The Company defines the liquidity ratio as the sum of cash, unpledged securities and federal funds sold divided by total liabilities. The Company’s liquidity ratio was 26.95% as of March 31, 2021 compared to 19.22% as of December 31, 2020.

On the liability side, our principal sources of liquidity are deposits, borrowed funds, and access to capital markets. Customer deposits are our largest sources of funds. As of March 31, 2021, our total deposits were $13.51 billion, or 78.4% of total assets, compared to $12.73 billion, or 77.6% of total assets, as of December 31, 2020. We attract our deposits primarily from individuals, business, and municipalities located in our market areas.

In the event that additional short-term liquidity is needed to temporarily satisfy our liquidity needs, we have established and currently maintain lines of credit with the Federal Reserve Bank (“Federal Reserve”) and First National Bankers Bank to provide short-term borrowings in the form of federal funds purchases.  In addition, we maintain lines of credit with two other financial institutions.  

As of March 31, 2021 and December 31, 2020, we could have borrowed under these lines of credit up to $446.3 million and $441.8 million, respectively, on a secured basis from the Federal Reserve, up to $30.0 million from First National Bankers’ Bank on an unsecured basis, up to $20.0 million from First National Bankers Bank on a secured basis and up to $45.0 million in the aggregate from other financial institutions on an unsecured basis. The unsecured lines may be terminated by the respective institutions at any time.

The lines of credit we maintain with the FHLB can provide us with both short-term and long-term forms of liquidity on a secured basis. FHLB borrowed funds were $400.0 million at March 31, 2021 and December 31, 2020, respectively. At March 31, 2021 and December 31, 2020, all of the outstanding balances were classified as long-term advances. Our FHLB borrowing capacity was $3.33 billion as of March 31, 2021 and December 31, 2020, respectively.

We also have the ability to borrow funds under the Federal Reserve’s Paycheck Protection Program Liquidity Facility (the “PPPLF”) which was established to facilitate lending by financial institutions to small businesses under the PPP by providing term financing to participating financial institutions. Under the PPPLF, the Federal Reserve will lend to eligible and participating financial institutions on a non-recourse basis up to the aggregate principal balance of the PPP loans originated or purchased by the financial institution, with the PPP loans serving as collateral for the PPPLF borrowing.  As of March 31, 2021, we could have borrowed up to $667.3 million from the Federal Reserve under the PPPLF.  Borrowings under the PPPLF mature upon the maturity of each underlying PPP loan and will be accelerated in the event the underlying PPP loan goes into default or the eligible borrower sells the PPP loan to the SBA to realize on the SBA guarantee, and to the extent the eligible borrower receives any loan forgiveness reimbursement from the SBA.

We believe that we have sufficient liquidity to satisfy our current operations.

Market Risk Management.  Our primary component of market risk is interest rate volatility. Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on a large portion of our assets and liabilities, and the market value of all interest-earning assets and interest-bearing liabilities, other than those which possess a short term to maturity. We do not hold market risk sensitive instruments for trading purposes.

Asset/Liability Management.  Our management actively measures and manages interest rate risk. The asset/liability committees of the boards of directors of our holding company and bank subsidiary are also responsible for approving our asset/liability management policies, overseeing the formulation and implementation of strategies to improve balance sheet positioning and earnings, and reviewing our interest rate sensitivity position.

One of the tools that our management uses to measure short-term interest rate risk is a net interest income simulation model. This analysis calculates the difference between net interest income forecasted using base market rates and using a rising and a falling interest rate scenario. The income simulation model includes various assumptions regarding the re-pricing relationships for each of our products. Many of our assets are floating rate loans, which are assumed to re-price immediately, and proportionally to the change in market rates, depending on their contracted index. Some loans and investments include the opportunity of prepayment (embedded options), and accordingly the simulation model uses indexes to estimate these prepayments and reinvest their proceeds at current yields. Our non-term deposit products re-price more slowly, usually changing less than the change in market rates and at our discretion.

This analysis indicates the impact of changes in net interest income for the given set of rate changes and assumptions. It assumes the balance sheet remains static and that its structure does not change over the course of the year. It does not account for all factors that impact this analysis, including changes by management to mitigate the impact of interest rate changes or secondary impacts such as changes to our credit risk profile as interest rates change.

 

87

 


 

Furthermore, loan prepayment rate estimates and spread relationships change regularly. Interest rate changes create changes in actual loan prepayment rates that will differ from the market estimates incorporated in this analysis. Changes that vary significantly from the assumptions may have significant effects on our net interest income.

For the rising and falling interest rate scenarios, the base market interest rate forecast was increased and decreased over twelve months by 200 and 100 basis points, respectively.  At March 31, 2021, our net interest margin exposure related to these hypothetical changes in market interest rates was within the current guidelines established by us.

Table 24 presents our sensitivity to net interest income as of March 31, 2021.

Table 24: Sensitivity of Net Interest Income

 

 

 

Percentage

 

 

 

Change

 

Interest Rate Scenario

 

from Base

 

Up 200 basis points

 

 

14.14

%

Up 100 basis points

 

 

6.94

 

Down 100 basis points

 

 

(4.36

)

Down 200 basis points

 

 

(7.58

)

 

Interest Rate Sensitivity.  Our primary business is banking and the resulting earnings, primarily net interest income, are susceptible to changes in market interest rates. Management’s goal is to maximize net interest income within acceptable levels of interest rate and liquidity risks.

A key element in the financial performance of financial institutions is the level and type of interest rate risk assumed. The single most significant measure of interest rate risk is the relationship of the repricing periods of earning assets and interest-bearing liabilities. The more closely the repricing periods are correlated, the less interest rate risk we assume. We use repricing gap and simulation modeling as the primary methods in analyzing and managing interest rate risk.

Gap analysis attempts to capture the amounts and timing of balances exposed to changes in interest rates at a given point in time. As of March 31, 2021, our gap position was asset sensitive with a one-year cumulative repricing gap as a percentage of total earning assets of 20.3%. During the COVID-19 pandemic, the Company has participated in the PPP loan program under the CARES Act. The Company had $667.3 million of gross PPP loans as of March 31, 2021. In addition, total deposits have increased by $786.8 million, $593.0 million of which were demand and non-interest-bearing deposits, for the three months ended March 31, 2021. This has left the Company with $2.23 billion at the Federal Reserve as of March 31, 2021. For the Company’s gap analysis, the PPP loans fell into the 0-12 months and 1-2 year time periods due to maturities and prepayment factors applied to PPP loans. The outflow of PPP funds from the Bank has been slow and, in some cases, has been offset by inflows of other non-interest-bearing deposits. This, along with the rise in demand and non-interest-bearing deposits and the resulting increase in cash on hand, has caused an uneven shift in the sensitivity of the repricing gap between short-term assets and liabilities. Although PPP loans have maturities of two years, a large percentage of these loans are anticipated to receive SBA forgiveness and be repaid in advance of stated maturities. The Company feels that funding these loans was both beneficial and necessary for our customers in light of the current economic environment and believes the one-year repricing gap increase is temporary in nature. The Company believes the repricing gap would have been more in line with historical experiences had it not been for the funding of the PPP loans, and the excess liquidity that we have with the Federal Reserve.

During this period, the amount of change our asset base realizes in relation to the total change in market interest rates is higher than that of the liability base.  As a result, our net interest income will have a negative effect in an environment of decreasing rates.

We have a portion of our securities portfolio invested in mortgage-backed securities. Mortgage-backed securities are included based on their final maturity date. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

88

 


 

Table 25 presents a summary of the repricing schedule of our interest-earning assets and interest-bearing liabilities (gap) as of March 31, 2021.

Table 25: Interest Rate Sensitivity

 

 

 

Interest Rate Sensitivity Period

 

 

 

0-30

Days

 

 

31-90

Days

 

 

91-180

Days

 

 

181-365

Days

 

 

1-2

Years

 

 

2-5

Years

 

 

Over 5

Years

 

 

Total

 

 

 

(Dollars in thousands)

 

Earning assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits due from banks

 

$

2,259,734

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

2,259,734

 

Federal funds sold

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities

 

 

372,968

 

 

 

95,224

 

 

 

99,582

 

 

 

182,176

 

 

 

326,916

 

 

 

614,301

 

 

 

847,956

 

 

 

2,539,123

 

Loans receivable

 

 

3,301,702

 

 

 

735,448

 

 

 

951,472

 

 

 

1,708,337

 

 

 

1,769,467

 

 

 

1,965,610

 

 

 

346,457

 

 

 

10,778,493

 

Total earning assets

 

 

5,934,404

 

 

 

830,672

 

 

 

1,051,054

 

 

 

1,890,513

 

 

 

2,096,383

 

 

 

2,579,911

 

 

 

1,194,413

 

 

 

15,577,350

 

Interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing transaction and savings

   deposits

 

$

1,821,712

 

 

$

639,374

 

 

$

959,061

 

 

$

1,918,123

 

 

$

977,958

 

 

$

809,854

 

 

$

1,351,126

 

 

$

8,477,208

 

Time deposits

 

 

155,307

 

 

 

183,879

 

 

 

183,076

 

 

 

443,201

 

 

 

161,643

 

 

 

48,558

 

 

 

 

 

 

1,175,664

 

Federal funds purchased

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities sold under repurchase agreements

 

 

162,929

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

162,929

 

FHLB and other borrowed funds

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

400,000

 

 

 

400,000

 

Subordinated debentures

 

 

71,162

 

 

 

 

 

 

 

 

 

 

 

 

299,353

 

 

 

 

 

 

 

 

 

370,515

 

Total interest-bearing liabilities

 

 

2,211,110

 

 

 

823,253

 

 

 

1,142,137

 

 

 

2,361,324

 

 

 

1,438,954

 

 

 

858,412

 

 

 

1,751,126

 

 

 

10,586,316

 

Interest rate sensitivity gap

 

$

3,723,294

 

 

$

7,419

 

 

$

(91,083

)

 

$

(470,811

)

 

$

657,429

 

 

$

1,721,499

 

 

$

(556,713

)

 

$

4,991,034

 

Cumulative interest rate sensitivity gap

 

$

3,723,294

 

 

$

3,730,713

 

 

$

3,639,630

 

 

$

3,168,819

 

 

$

3,826,248

 

 

$

5,547,747

 

 

$

4,991,034

 

 

 

 

 

Cumulative rate sensitive assets to rate

   sensitive liabilities

 

 

268.4

%

 

 

222.9

%

 

 

187.1

%

 

 

148.5

%

 

 

148.0

%

 

 

162.8

%

 

 

147.1

%

 

 

 

 

Cumulative gap as a % of total earning

   assets

 

 

23.9

%

 

 

23.9

%

 

 

23.4

%

 

 

20.3

%

 

 

24.6

%

 

 

35.6

%

 

 

32.0

%

 

 

 

 

 

Item 4:CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls

Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, the Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.  Additionally, our disclosure controls and procedures were also effective in ensuring that information required to be disclosed in our Exchange Act report is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

Changes in Internal Control Over Financial Reporting

There have not been any changes in the Company’s internal controls over financial reporting during the quarter ended March 31, 2021, which have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 

 

89

 


 

 

PART II:  OTHER INFORMATION

There are no material pending legal proceedings, other than ordinary routine litigation incidental to its business, to which the Company or its subsidiaries are a party or of which any of their property is the subject.

Item 1A: Risk Factors

There were no material changes from the risk factors set forth in Part I, Item 1A, “Risk Factors,” of our Form 10-K for the year ended December 31, 2020.  See the discussion of our risk factors in the Form 10-K, as filed with the SEC.  The risks described are not the only risks facing the Company.  Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2:  Unregistered Sales of Equity Securities and Use of Proceeds

On January 22, 2021, the Company’s Board of Directors authorized the repurchase of up to an additional 20,000,000 shares of its common stock under the previously approved stock repurchase program, which was last amended and approved on January 18, 2019. This authorization brought the total amount of authorized shares available to repurchase to 23,843,665 shares. The following table sets forth information with respect to purchases made by or on behalf of the Company of shares of the Company’s common stock during the periods indicated:

 

Period

 

Number of

Shares

Purchased

 

 

Average Price

Paid Per Share

Purchased

 

 

Total Number of

Shares Purchased

as Part of Publicly

Announced Plans

or Programs

 

 

Maximum Number

of Shares That May

Yet Be Purchased

Under the Plans or

Programs(1)

 

January 1 through January 31, 2021

 

 

 

 

 

 

 

 

 

 

 

23,843,665

 

February 1 through February 28, 2021

 

 

 

 

 

 

 

 

 

 

 

23,843,665

 

March 1 through March 31, 2021

 

 

330,000

 

 

$

26.55

 

 

 

330,000

 

 

 

23,513,665

 

Total

 

 

330,000

 

 

 

 

 

 

 

330,000

 

 

 

 

 

 

 

(1)

The above described stock repurchase program has no expiration date.

Item 3:  Defaults Upon Senior Securities

Not applicable.

Item 4:  Mine Safety Disclosures

Not applicable.

Item 5:  Other Information

Not applicable.

 

90

 


 

Item 6:   Exhibits

 

Exhibit No.

 

Description of Exhibit

 

 

 

3.1

 

Restated Articles of Incorporation of Home BancShares, Inc. (incorporated by reference to Exhibit 3.1 of Home BancShares’s registration statement on Form S-1 (File No. 333-132427), as amended)

 

 

 

3.2

 

Amendment to the Restated Articles of Incorporation of Home BancShares, Inc. (incorporated by reference to Exhibit 3.2 of Home BancShares’s registration statement on Form S-1 (File No. 333-132427), as amended)

 

 

 

3.3

 

Second Amendment to the Restated Articles of Incorporation of Home BancShares, Inc. (incorporated by reference to Exhibit 3.3 of Home BancShares’s registration statement on Form S-1 (File No. 333-132427), as amended)

 

 

 

3.4

 

Third Amendment to the Restated Articles of Incorporation of Home BancShares, Inc. (incorporated by reference to Exhibit 3.4 of Home BancShares’s registration statement on Form S-1 (File No. 333-132427), as amended)

 

 

 

3.5

 

Fourth Amendment to the Restated Articles of Incorporation of Home BancShares, Inc. (incorporated by reference to Exhibit 3.1 of Home BancShares’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007, filed on August 8, 2007)

 

 

 

3.6

 

Fifth Amendment to the Restated Articles of Incorporation of Home BancShares, Inc. (incorporated by reference to Exhibit 4.6 of Home BancShares’s registration statement on Form S-3 (File No. 333-157165))

 

 

 

3.7

 

Certificate of Designations of Fixed Rate Cumulative Perpetual Preferred Stock, Series A, filed with the Secretary of State of the State of Arkansas on January 14, 2009 (incorporated by reference to Exhibit 3.1 of Home BancShares’s Current Report on Form 8-K, filed on January 21, 2009)

 

 

 

3.8

 

Seventh Amendment to the Restated Articles of Incorporation of Home BancShares, Inc. (incorporated by reference to Exhibit 3.1 of Home BancShares’s Current Report on Form 8-K filed on April 19, 2013)

 

 

 

3.9

 

Eighth Amendment to the Restated Articles of Incorporation of Home BancShares, Inc. (incorporated by reference to Exhibit 3.1 of Home BancShares’s Current Report on Form 8-K filed on April 22, 2016)

 

 

 

3.10

 

Ninth Amendment to the Restated Articles of Incorporation of Home BancShares, Inc. (incorporated by reference to Exhibit 3.1 of Home BancShares’s Current Report on Form 8-K filed on April 23, 2019)

 

 

 

3.11

 

Amended and Restated Bylaws of Home BancShares, Inc. (incorporated by reference to Exhibit 3.1 of Home BancShares’s Current Report on Form 8-K filed on January 28, 2021)

 

 

 

4.1

 

Specimen Stock Certificate representing Home BancShares, Inc. Common Stock (incorporated by reference to Exhibit 4.6 of Home BancShares’s registration statement on Form S-1 (File No. 333-132427), as amended)

 

 

 

4.2

 

Instruments defining the rights of security holders including indentures. Home BancShares hereby agrees to furnish to the SEC upon request copies of instruments defining the rights of holders of long-term debt of Home BancShares and its consolidated subsidiaries. No issuance of debt exceeds ten percent of the assets of Home BancShares and its subsidiaries on a consolidated basis.

 

 

 

10.1

 

Executive Chairman Agreement by and between John W. Allison and Home BancShares, Inc., dated March 1, 2021 (incorporated by reference to Exhibit 10.1 of Home BancShares’s Current Report on Form 8-K filed on March 5, 2021)

 

 

 

10.2

 

Home BancShares, Inc. 2021 Performance-Based Executive Incentive Plan (incorporated by reference to Exhibit 10.2 of Home BancShares’s Current Report on Form 8-K filed on March 5, 2021)

 

 

 

15

 

Awareness of Independent Registered Public Accounting Firm*

 

 

 

31.1

 

CEO Certification Pursuant Rule 13a-14(a)/15d-14(a)*

 

 

 

31.2

 

CFO Certification Pursuant Rule 13a-14(a)/15d-14(a)*

 

91

 


 

 

 

 

32.1

 

CEO Certification Pursuant 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes – Oxley Act of 2002*

 

 

 

32.2

 

CFO Certification Pursuant 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes – Oxley Act of 2002*

 

 

 

101.INS

 

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.*

 

 

 

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document*

 

 

 

101.CAL

 

InlineXBRL Taxonomy Extension Calculation Linkbase Document*

 

 

 

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document*

 

 

 

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document*

 

 

 

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document*

104

 

Cover Page Interactive Data File (embedded within the Inline XBRL document)

*

Filed herewith

 

92

 


 

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

HOME BANCSHARES, INC.

(Registrant)

 

Date:

May 6, 2021

 

/s/ John W. Allison

 

 

 

John W. Allison, Chairman and Chief Executive Officer

 

 

 

 

Date:

May 6, 2021

 

/s/ Brian S. Davis

 

 

 

Brian S. Davis, Chief Financial Officer

 

 

 

 

Date:

May 6, 2021

 

/s/ Jennifer C. Floyd

 

 

 

Jennifer C. Floyd, Chief Accounting Officer

 

 

93