UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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the Quarterly Period Ended
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Securities registered pursuant to Section 12(b) of the Act:
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Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934
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SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY
March 31, 2023 Form 10-Q
INDEX
| i |
PART I. CONSOLIDATED FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
| March 31, | December 31, | |||||||
| (dollars in thousands, except share data) | 2023 | 2022 | ||||||
| (Unaudited) | (Audited) | |||||||
| ASSETS | ||||||||
| Cash and cash equivalents: | ||||||||
| Cash and due from banks | $ | |||||||
| Federal funds sold | ||||||||
| Interest-bearing deposits with banks | ||||||||
| Total cash and cash equivalents | ||||||||
| Investment securities: | ||||||||
| Investment securities available for sale | ||||||||
| Other investments | ||||||||
| Total investment securities | ||||||||
| Mortgage loans held for sale | ||||||||
| Loans | ||||||||
| Less allowance for credit losses | ( | ) | ( | ) | ||||
| Loans, net | ||||||||
| Bank owned life insurance | ||||||||
| Property and equipment, net | ||||||||
| Deferred income taxes, net | ||||||||
| Other assets | ||||||||
| Total assets | $ | |||||||
| LIABILITIES | ||||||||
| Deposits | $ | |||||||
| FHLB advances and related debt | ||||||||
| Subordinated debentures | ||||||||
| Other liabilities | ||||||||
| Total liabilities | ||||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| Preferred stock, par value $ | ||||||||
| Common stock, par value $ | ||||||||
| Nonvested restricted stock | ( | ) | ( | ) | ||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Retained earnings | ||||||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | |||||||
See notes to consolidated financial statements that are an integral part of these consolidated statements.
1
SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| For the three months | ||||||||
| ended March 31, | ||||||||
| (dollars in thousands, except share data) | 2023 | 2022 | ||||||
| Interest income | ||||||||
| Loans | $ | |||||||
| Investment securities | ||||||||
| Federal funds sold and interest-bearing deposits with banks | ||||||||
| Total interest income | ||||||||
| Interest expense | ||||||||
| Deposits | ||||||||
| Borrowings | ||||||||
| Total interest expense | ||||||||
| Net interest income | ||||||||
| Provision for credit losses | ||||||||
| Net interest income after provision for credit losses | ||||||||
| Noninterest income | ||||||||
| Mortgage banking income | ||||||||
| Service fees on deposit accounts | ||||||||
| ATM and debit card income | ||||||||
| Income from bank owned life insurance | ||||||||
| Other income | ||||||||
| Total noninterest income | ||||||||
| Noninterest expenses | ||||||||
| Compensation and benefits | ||||||||
| Occupancy | ||||||||
| Outside service and data processing costs | ||||||||
| Insurance | ||||||||
| Professional fees | ||||||||
| Marketing | ||||||||
| Other | ||||||||
| Total noninterest expenses | ||||||||
| Income before income tax expense | ||||||||
| Income tax expense | ||||||||
| Net income | $ | |||||||
| Earnings per common share | ||||||||
| Basic | $ | |||||||
| Diluted | ||||||||
| Weighted average common shares outstanding | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
See notes to consolidated financial statements that are an integral part of these consolidated statements.
2
SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| For
the three months ended March 31, | ||||||||
| (dollars in thousands) | 2023 | 2022 | ||||||
| Net income | $ | |||||||
| Other comprehensive income (loss): | ||||||||
| Unrealized gain (loss) on securities available for sale: | ||||||||
| Unrealized holding gain (loss) arising during the period, pretax | ( | ) | ||||||
| Tax benefit (expense) | ( | ) | ||||||
| Reclassification of realized gain | - | ( | ) | |||||
| Tax expense | - | |||||||
| Other comprehensive income (loss) | ( | ) | ||||||
| Comprehensive income | $ | |||||||
See notes to consolidated financial statements that are an integral part of these consolidated statements.
3
SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
| For the three months ended March 31, | ||||||||||||||||||||||||||||||||||||
| Common stock | Preferred stock | Nonvested restricted | Additional paid-in | Accumulated other comprehensive | Retained | |||||||||||||||||||||||||||||||
| (dollars in thousands, except share data) | Shares | Amount | Shares | Amount | stock | capital | income (loss) | earnings | Total | |||||||||||||||||||||||||||
| December 31, 2021 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||
| Net income | - | - | - | |||||||||||||||||||||||||||||||||
| Proceeds from exercise of stock options | - | |||||||||||||||||||||||||||||||||||
| Issuance of restricted stock | ( | ) | ||||||||||||||||||||||||||||||||||
| Adoption of ASU 2016-13 | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Compensation expense related to restricted stock, net of tax | - | - | ||||||||||||||||||||||||||||||||||
| Compensation expense related to stock options, net of tax | - | - | ||||||||||||||||||||||||||||||||||
| Other comprehensive loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| March 31, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||
| December 31, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||||||||||
| Proceeds from exercise of stock options | - | |||||||||||||||||||||||||||||||||||
| Issuance of restricted stock | ( | ) | ||||||||||||||||||||||||||||||||||
| Compensation expense related to restricted stock, net of tax | - | - | ||||||||||||||||||||||||||||||||||
| Compensation expense related to stock options, net of tax | - | - | ||||||||||||||||||||||||||||||||||
| Other comprehensive income | - | - | ||||||||||||||||||||||||||||||||||
| March 31, 2023 | $ | | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
See notes to consolidated financial statements that are an integral part of these consolidated statements.
4
SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the three months ended March 31, | ||||||||
| (dollars in thousands) | 2023 | 2022 | ||||||
| Operating activities | ||||||||
| Net income | $ | |||||||
| Adjustments to reconcile net income to cash provided by operating activities: | ||||||||
| Provision for credit losses | ||||||||
| Depreciation and other amortization | ||||||||
| Accretion and amortization of securities discounts and premium, net | ||||||||
| Gain on sale of securities | ( | ) | ||||||
| Net change in operating leases | ||||||||
| Compensation expense related to stock options and restricted stock grants | ||||||||
| Gain on sale of loans held for sale | ( | ) | ( | ) | ||||
| Loans originated and held for sale | ( | ) | ( | ) | ||||
| Proceeds from sale of loans held for sale | ||||||||
| Increase in cash surrender value of bank owned life insurance | ( | ) | ( | ) | ||||
| Increase in other assets | ( | ) | ( | ) | ||||
| Increase (decrease) in other liabilities | ( | ) | ||||||
| Net cash provided by operating activities | ||||||||
| Investing activities | ||||||||
| Increase (decrease) in cash realized from: | ||||||||
| Increase in loans, net | ( | ) | ( | ) | ||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Purchase of investment securities: | ||||||||
| Available for sale | - | ( | ) | |||||
| Other investments | ( | ) | ( | ) | ||||
| Payments and maturities, calls and repayments of investment securities: | ||||||||
| Available for sale | ||||||||
| Other investments | ||||||||
| Net cash used for investing activities | ( | ) | ( | ) | ||||
| Financing activities | ||||||||
| Increase (decrease) in cash realized from: | ||||||||
| Increase in deposits, net | ||||||||
| Decrease in Federal Home Loan Bank advances and other borrowings, net | ( | ) | - | |||||
| Proceeds from the exercise of stock options | ||||||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents at beginning of the period | ||||||||
| Cash and cash equivalents at end of the period | $ | |||||||
| Supplemental information | ||||||||
| Cash paid for | ||||||||
| Interest | $ | |||||||
| Income taxes | ||||||||
| Schedule of non-cash transactions | ||||||||
| Unrealized gain (loss) on securities, net of income taxes | ( | ) | ||||||
See notes to consolidated financial statements that are an integral part of these consolidated statements.
5
SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – Summary of Significant Accounting Policies
Nature of Business
Southern First Bancshares, Inc. (the “Company”) is a South Carolina corporation that owns all of the capital stock of Southern First Bank (the “Bank”) and all of the stock of Greenville First Statutory Trusts I and II (collectively, the “Trusts”). The Trusts are special purpose non-consolidated entities organized for the sole purpose of issuing trust preferred securities. The Bank’s primary federal regulator is the Federal Deposit Insurance Corporation (the “FDIC”). The Bank is also regulated and examined by the South Carolina Board of Financial Institutions. The Bank is primarily engaged in the business of accepting demand deposits and savings deposits insured by the FDIC, and providing commercial, consumer and mortgage loans to the general public.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 as filed with the U.S. Securities and Exchange Commission (“SEC”) on February 13, 2023. The consolidated financial statements include the accounts of the Company and the Bank. In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, “Consolidation,” the financial statements related to the Trusts have not been consolidated.
Business Segments
The Company, through the Bank, provides a broad range of financial services to individuals and companies in South Carolina, North Carolina, and Georgia. These services include demand, time and savings deposits; lending services; ATM processing and mortgage banking services. While the Company’s management periodically reviews limited production information for these revenue streams, that information is not complete as it does not include a full allocation of revenue, costs and capital from key corporate functions. Management will continue to evaluate these lines of business for separate reporting as facts and circumstances change. Accordingly, the Company’s various banking operations are not considered by management to constitute more than one reportable operating segment.
Risk and Uncertainties
There were two significant bank failures in the first part of March 2023, primarily due to the failed banks’ lack of liquidity as depositors sought to withdraw their deposits. Due to rising interest rates, the failed banks were unable to sell investment securities held to meet liquidity needs without realizing substantial losses. As a result of the March 2023 bank closures and in an effort to strengthen public confidence in the banking system and protect depositors, regulators have announced that any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law, which could increase the cost of our FDIC insurance assessments. Additionally, the Federal Reserve announced the creation of a new Bank Term Funding Program in an effort to minimize the need for banks to sell securities at a loss in times of stress. The future impact of these failures on the economy, financial institutions and their depositors, as well as any governmental regulatory responses or actions resulting from the same, is difficult to predict at this time.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amount of income and expenses during the reporting periods. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for credit losses, real estate acquired in the settlement of loans, fair value of financial instruments, and valuation of deferred tax assets.
6
Reclassifications
Certain amounts, previously reported, have been reclassified to state all periods on a comparable basis and had no effect on shareholders’ equity or net income.
Subsequent Events
Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. Non-recognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date.
Adoption of New Accounting Standard
In January 2023, the Company adopted ASU 2022-02, “Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” (“ASU 2022-02”), which eliminated the accounting guidance for troubled debt restructurings (“TDRs”) while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. In addition, for public business entities, the guidance requires disclosure of current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20. The Company adopted the guidance using the modified retrospective method. Upon adoption of this guidance, the Company no longer establishes a specific reserve for modifications to borrowers experiencing financial difficulty. Instead, these modifications are included in their respective cohort and a historical loss rate is applied to the current loan balance to arrive at the quantitative baseline portion of the allowance. The difference between the allowance previously determined and the current allowance was not material to the Company’s financial statements.
Newly Issued, But Not Yet Effective Accounting Standards
In December 2022, the FASB issued amendments to defer the sunset date of the Reference Rate Reform Topic of the Accounting Standards Codification from December 31, 2022 to December 31, 2024, because the current relief in Reference Rate Reform Topic may not cover a period of time during which a significant number of modifications may take place. The amendments were effective upon issuance. The Company does not expect these amendments to have a material effect on its financial statements.
NOTE 2 – Investment Securities
The amortized costs and fair value of investment securities are as follows:
| March 31, 2023 | ||||||||||||||||
| Amortized | Gross Unrealized | Fair | ||||||||||||||
| (dollars in thousands) | Cost | Gains | Losses | Value | ||||||||||||
| Available for sale | ||||||||||||||||
| Corporate bonds | $ | |||||||||||||||
| US treasuries | ||||||||||||||||
| US government agencies | ||||||||||||||||
| State and political subdivisions | ||||||||||||||||
| Asset-backed securities | ||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||
| FHLMC | ||||||||||||||||
| FNMA | ||||||||||||||||
| GNMA | ||||||||||||||||
| Total mortgage-backed securities | ||||||||||||||||
| Total investment securities available for sale | $ | |||||||||||||||
7
| December 31, 2022 | ||||||||||||||||
| Amortized | Gross Unrealized | Fair | ||||||||||||||
| Cost | Gains | Losses | Value | |||||||||||||
| Available for sale | ||||||||||||||||
| Corporate bonds | $ | |||||||||||||||
| US treasuries | ||||||||||||||||
| US government agencies | ||||||||||||||||
| State and political subdivisions | ||||||||||||||||
| Asset-backed securities | ||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||
| FHLMC | ||||||||||||||||
| FNMA | ||||||||||||||||
| GNMA | ||||||||||||||||
| Total mortgage-backed securities | ||||||||||||||||
| Total investment securities available for sale | $ | |||||||||||||||
Contractual maturities and yields on the Company’s investment securities at March 31, 2023 and December 31, 2022 are shown in the following table. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
| March 31, 2023 | ||||||||||||||||||||||||||||||||||||||||
| Less than one year | One to five years | Five to ten years | Over ten years | Total | ||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | ||||||||||||||||||||||||||||||
| Available for sale | ||||||||||||||||||||||||||||||||||||||||
| Corporate bonds | $ | $ | $ | % | $ | $ | % | |||||||||||||||||||||||||||||||||
| US treasuries | % | % | ||||||||||||||||||||||||||||||||||||||
| US government agencies | % | % | % | |||||||||||||||||||||||||||||||||||||
| State and political subdivisions | % | % | % | % | ||||||||||||||||||||||||||||||||||||
| Asset-backed securities | % | % | % | |||||||||||||||||||||||||||||||||||||
| Mortgage-backed securities | % | % | % | % | ||||||||||||||||||||||||||||||||||||
| Total investment securities | $ | $ | % | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||
| Less than one year | One to five years | Five to ten years | Over ten years | Total | ||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | ||||||||||||||||||||||||||||||
| Available for sale | ||||||||||||||||||||||||||||||||||||||||
| Corporate bonds | $ | $ | $ | % | $ | $ | % | |||||||||||||||||||||||||||||||||
| US treasuries | % | % | ||||||||||||||||||||||||||||||||||||||
| US government agencies | % | % | % | |||||||||||||||||||||||||||||||||||||
| State and political subdivisions | % | % | % | % | ||||||||||||||||||||||||||||||||||||
| Asset-backed securities | % | % | % | |||||||||||||||||||||||||||||||||||||
| Mortgage-backed securities | % | % | % | % | ||||||||||||||||||||||||||||||||||||
| Total investment securities | $ | $ | % | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||||
The tables below summarize gross unrealized losses on investment securities and the fair market value of the related securities at March 31, 2023 and December 31, 2022, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.
8
| March 31, 2023 | ||||||||||||||||||||||||||||||||||||
| Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||||||||||||||
| (dollars in thousands) | # | Fair value | Unrealized losses | # | Fair value | Unrealized losses | # | Fair value | Unrealized losses | |||||||||||||||||||||||||||
| Available for sale | ||||||||||||||||||||||||||||||||||||
| Corporate bonds | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| US treasuries | ||||||||||||||||||||||||||||||||||||
| US government agencies | ||||||||||||||||||||||||||||||||||||
| State and political subdivisions | ||||||||||||||||||||||||||||||||||||
| Asset-backed | ||||||||||||||||||||||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||||||||||||||||||||||
| FHLMC | ||||||||||||||||||||||||||||||||||||
| FNMA | ||||||||||||||||||||||||||||||||||||
| GNMA | ||||||||||||||||||||||||||||||||||||
| Total investment securities | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||||||||||||||||||
| Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||||||||||||||
| (dollars in thousands) | # | Fair value | Unrealized losses | # | Fair value | Unrealized losses | # | Fair value | Unrealized losses | |||||||||||||||||||||||||||
| Available for sale | ||||||||||||||||||||||||||||||||||||
| Corporate bonds | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| US treasuries | ||||||||||||||||||||||||||||||||||||
| US government agencies | ||||||||||||||||||||||||||||||||||||
| State and political subdivisions | ||||||||||||||||||||||||||||||||||||
| Asset-backed | ||||||||||||||||||||||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||||||||||||||||||||||
| FHLMC | ||||||||||||||||||||||||||||||||||||
| FNMA | ||||||||||||||||||||||||||||||||||||
| GNMA | ||||||||||||||||||||||||||||||||||||
| Total investment securities | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
At
March 31, 2023 the Company had
Other investments are comprised of the following and are recorded at cost which approximates fair value.
| (dollars in thousands) | March 31, 2023 | December 31, 2022 | ||||||
| Federal Home Loan Bank stock | $ | |||||||
| Other nonmarketable investments | ||||||||
| Investment in Trust Preferred subsidiaries | ||||||||
| Total other investments | $ | |||||||
The Company has evaluated other investments for impairment and determined that the other investments are not impaired as of March 31, 2023 and that ultimate recoverability of the par value of the investments is probable. All of the FHLB stock is used to collateralize advances with the FHLB.
9
NOTE 3 – Mortgage Loans Held for Sale
Mortgage
loans originated and intended for sale in the secondary market are reported as loans held for sale and carried at fair value under the
fair value option with changes in fair value recognized in current period earnings. At the date of funding of the mortgage loan held
for sale, the funded amount of the loan, the related derivative asset or liability of the associated interest rate lock commitment, less
direct loan costs becomes the initial recorded investment in the loan held for sale. Such amount approximates the fair value of the loan.
At March 31 2023, mortgage loans held for sale totaled $
NOTE 4 – Loans and Allowance for Credit Losses
The
following table summarizes the composition of our loan portfolio. Total gross loans are recorded net of deferred loan fees and costs,
which totaled $
| March 31, 2023 | December 31, 2022 | |||||||||||||||
| (dollars in thousands) | Amount | % of Total | Amount | % of Total | ||||||||||||
| Commercial | ||||||||||||||||
| Owner occupied RE | $ | % | $ | % | ||||||||||||
| Non-owner occupied RE | % | % | ||||||||||||||
| Construction | % | % | ||||||||||||||
| Business | % | % | ||||||||||||||
| Total commercial loans | % | % | ||||||||||||||
| Consumer | ||||||||||||||||
| Real estate | % | % | ||||||||||||||
| Home equity | % | % | ||||||||||||||
| Construction | % | % | ||||||||||||||
| Other | % | % | ||||||||||||||
| Total consumer loans | % | % | ||||||||||||||
| Total gross loans, net of deferred fees | % | % | ||||||||||||||
| Less—allowance for credit losses | ( | ) | ( | ) | ||||||||||||
| Total loans, net | $ | $ | ||||||||||||||
Maturities
and Sensitivity of Loans to Changes in Interest Rates
The information in the following tables summarizes the loan maturity distribution by type and related interest rate characteristics based on the contractual maturities of individual loans, including loans which may be subject to renewal at their contractual maturity. Renewal of such loans is subject to review and credit approval, as well as modification of terms upon maturity. Actual repayments of loans may differ from the maturities reflected below, because borrowers have the right to prepay obligations with or without prepayment penalties.
| March 31, 2023 | ||||||||||||||||||||
| (dollars in thousands) | One year or less | After one but within five years | After five but within fifteen years | After fifteen years | Total | |||||||||||||||
| Commercial | ||||||||||||||||||||
| Owner occupied RE | $ | |||||||||||||||||||
| Non-owner occupied RE | ||||||||||||||||||||
| Construction | ||||||||||||||||||||
| Business | ||||||||||||||||||||
| Total commercial loans | ||||||||||||||||||||
| Consumer | ||||||||||||||||||||
| Real estate | ||||||||||||||||||||
| Home equity | ||||||||||||||||||||
| Construction | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Total consumer loans | ||||||||||||||||||||
| Total gross loans, net of deferred fees | $ | |||||||||||||||||||
10
| December 31, 2022 | ||||||||||||||||||||
| (dollars in thousands) | One year or less | After one but within five years | After five but within fifteen years | After fifteen years | Total | |||||||||||||||
| Commercial | ||||||||||||||||||||
| Owner occupied RE | $ | |||||||||||||||||||
| Non-owner occupied RE | ||||||||||||||||||||
| Construction | ||||||||||||||||||||
| Business | ||||||||||||||||||||
| Total commercial loans | ||||||||||||||||||||
| Consumer | ||||||||||||||||||||
| Real estate | ||||||||||||||||||||
| Home equity | ||||||||||||||||||||
| Construction | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Total consumer loans | ||||||||||||||||||||
| Total gross loans, net of deferred fees | $ | |||||||||||||||||||
The following table summarizes the loans due after one year by category.
| March 31, 2023 | December 31, 2022 | |||||||||||||||
| Interest Rate | Interest Rate | |||||||||||||||
| (dollars in thousands) | Fixed | Floating or Adjustable | Fixed | Floating or Adjustable | ||||||||||||
| Commercial | ||||||||||||||||
| Owner occupied RE | $ | |||||||||||||||
| Non-owner occupied RE | ||||||||||||||||
| Construction | ||||||||||||||||
| Business | ||||||||||||||||
| Total commercial loans | ||||||||||||||||
| Consumer | ||||||||||||||||
| Real estate | ||||||||||||||||
| Home equity | ||||||||||||||||
| Construction | ||||||||||||||||
| Other | ||||||||||||||||
| Total consumer loans | ||||||||||||||||
| Total gross loans, net of deferred fees | $ | |||||||||||||||
Credit Quality Indicators
The Company tracks credit quality based on its internal risk ratings. Upon origination, a loan is assigned an initial risk grade, which is generally based on several factors such as the borrower’s credit score, the loan-to-value ratio, the debt-to-income ratio, etc. After loans are initially graded, they are monitored regularly for credit quality based on many factors, such as payment history, the borrower’s financial status, and changes in collateral value. Loans can be downgraded or upgraded depending on management’s evaluation of these factors. Internal risk-grading policies are consistent throughout each loan type.
A description of the general characteristics of the risk grades is as follows:
| ● | Pass— A pass loan ranges from minimal to average credit risk; however, still has acceptable credit risk. |
| ● | Watch—A watch loan exhibits above average credit risk due to minor weaknesses and warrants closer scrutiny by management. |
| ● | Special mention—A special mention loan 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 loan or the institution’s credit position at some future date. |
| ● | Substandard—A substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses, that may jeopardize the liquidation of the debt. A substandard loan is characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. |
| ● | Doubtful—A doubtful loan has all of the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of the currently existing facts, conditions and values, highly questionable and improbable. |
11
The following table presents loan balances classified by credit quality indicators by year of origination as of March 31, 2023.
| March 31, 2023 | |||||||||||||||||||||||||||||||||||
| (dollars in thousands) | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Revolving | Revolving Converted to Term | Total | ||||||||||||||||||||||||||
| Commercial | |||||||||||||||||||||||||||||||||||
| Owner occupied RE | |||||||||||||||||||||||||||||||||||
| Pass | $ | ||||||||||||||||||||||||||||||||||
| Watch | |||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||
| Total Owner occupied RE | |||||||||||||||||||||||||||||||||||
| Non-owner occupied RE | |||||||||||||||||||||||||||||||||||
| Pass | |||||||||||||||||||||||||||||||||||
| Watch | |||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||
| Total Non-owner occupied RE | |||||||||||||||||||||||||||||||||||
| Construction | |||||||||||||||||||||||||||||||||||
| Pass | |||||||||||||||||||||||||||||||||||
| Watch | |||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||
| Total Construction | |||||||||||||||||||||||||||||||||||
| Business | |||||||||||||||||||||||||||||||||||
| Pass | |||||||||||||||||||||||||||||||||||
| Watch | |||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||
| Total Business | |||||||||||||||||||||||||||||||||||
| Total Commercial loans | |||||||||||||||||||||||||||||||||||
| Consumer | |||||||||||||||||||||||||||||||||||
| Real estate | |||||||||||||||||||||||||||||||||||
| Pass | |||||||||||||||||||||||||||||||||||
| Watch | |||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||
| Total Real estate | |||||||||||||||||||||||||||||||||||
| Home equity | |||||||||||||||||||||||||||||||||||
| Pass | |||||||||||||||||||||||||||||||||||
| Watch | |||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||
| Total Home equity | |||||||||||||||||||||||||||||||||||
| Construction | |||||||||||||||||||||||||||||||||||
| Pass | |||||||||||||||||||||||||||||||||||
| Watch | |||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||
| Total Construction | |||||||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||
| Pass | |||||||||||||||||||||||||||||||||||
| Watch | |||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||
| Total Other | |||||||||||||||||||||||||||||||||||
| Total Consumer loans | |||||||||||||||||||||||||||||||||||
| Total loans | $ | ||||||||||||||||||||||||||||||||||
| Current period gross write-offs | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
12
The following table presents loan balances classified by credit quality indicators by year of origination as of December 31, 2022.
| December 31, 2022 | ||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Revolving | Revolving Converted to Term | Total | |||||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||||||||||||||
| Owner occupied RE | ||||||||||||||||||||||||||||||||||||
| Pass | $ | |||||||||||||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total Owner occupied RE | ||||||||||||||||||||||||||||||||||||
| Non-owner occupied RE | ||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total Non-owner occupied RE | ||||||||||||||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total Construction | ||||||||||||||||||||||||||||||||||||
| Business | ||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total Business | ||||||||||||||||||||||||||||||||||||
| Total Commercial loans | ||||||||||||||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||||||||||||||
| Real estate | ||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total Real estate | ||||||||||||||||||||||||||||||||||||
| Home equity | ||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||||||