UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
or
EXCHANGE ACT OF 1934 For the transition period from ___________ to __________.
Commission File Number
Summit Financial Group, Inc.
(Exact name of registrant as specified in its charter)
| | |
| (State or other jurisdiction of | (IRS Employer |
| incorporation or organization) | Identification No.) |
| | |
| | |
| (Address of principal executive offices) | (Zip Code) |
(
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities and 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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Smaller reporting 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
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | | |
Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock as of the latest practicable date.
Common Stock, $2.50 par value
| Page |
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| Item 1. |
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| Consolidated balance sheets March 31, 2024 (unaudited) and December 31, 2023 |
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| Consolidated statements of income for the three months ended March 31, 2024 and 2023 (unaudited) |
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| Consolidated statements of cash flows for the three months ended March 31, 2024 and 2023 (unaudited) |
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| Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 3. |
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| Item 4. |
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| PART II. |
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| Item 1. |
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| Item 1A. |
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| Item 2. |
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| Item 3. |
Defaults upon Senior Securities |
None |
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| Item 4. |
Mine Safety Disclosures |
None |
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| Item 5. |
Other Information |
None |
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| Item 6. |
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Consolidated Balance Sheets (unaudited)
| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Dollars in thousands (except per share amounts) | (unaudited) | (*) | ||||||
| ASSETS | ||||||||
| Cash and due from banks | $ | $ | ||||||
| Interest bearing deposits with other banks | ||||||||
| Cash and cash equivalents | ||||||||
| Debt securities available for sale (at fair value) | ||||||||
| Debt securities held to maturity (at amortized cost; estimated fair value - $ - 2024, $ - 2023) | ||||||||
| Less: allowance for credit losses | ||||||||
| Debt securities held to maturity, net | ||||||||
| Equity investments (at fair value) | ||||||||
| Other investments | ||||||||
| Loans, net of unearned fees | ||||||||
| Less: allowance for credit losses | ( | ) | ( | ) | ||||
| Loans, net | ||||||||
| Property held for sale | ||||||||
| Premises and equipment, net | ||||||||
| Accrued interest and fees receivable | ||||||||
| Goodwill and other intangible assets, net | ||||||||
| Cash surrender value of life insurance policies and annuities | ||||||||
| Derivative financial instruments | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Liabilities | ||||||||
| Deposits | ||||||||
| Non-interest bearing | $ | $ | ||||||
| Interest bearing | ||||||||
| Total deposits | ||||||||
| Short-term borrowings | ||||||||
| Long-term borrowings | ||||||||
| Subordinated debentures, net | ||||||||
| Subordinated debentures owed to unconsolidated subsidiary trusts | ||||||||
| Other liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Shareholders' Equity | ||||||||
| Preferred stock and related surplus, $ par value, authorized shares; issued: 2024 and 2023 - shares | ||||||||
| Common stock and related surplus, $ par value; authorized shares; issued and outstanding: 2024 - shares and 2023 - shares | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total shareholders' equity | ||||||||
| Total liabilities and shareholders' equity | $ | $ | ||||||
(*) - Derived from audited consolidated financial statements
See Notes to Consolidated Financial Statements
Consolidated Statements of Income (unaudited)
| For the Three Months Ended March 31, | ||||||||
| Dollars in thousands (except per share amounts) | 2024 | 2023 | ||||||
| Interest income | ||||||||
| Loans, including fees | ||||||||
| Taxable | $ | $ | ||||||
| Tax-exempt | ||||||||
| Securities | ||||||||
| Taxable | ||||||||
| Tax-exempt | ||||||||
| Interest on interest bearing deposits with other banks | ||||||||
| Total interest income | ||||||||
| Interest expense | ||||||||
| Deposits | ||||||||
| Short-term borrowings | ||||||||
| Long-term borrowings and subordinated debentures | ||||||||
| Total interest expense | ||||||||
| Net interest income | ||||||||
| Provision for credit losses | ||||||||
| Net interest income after provision for credit losses | ||||||||
| Noninterest income | ||||||||
| Trust and wealth management fees | ||||||||
| Mortgage origination revenue | ||||||||
| Service charges on deposit accounts | ||||||||
| Bank card revenue | ||||||||
| Net realized losses on available for sale debt securities | ( | ) | ( | ) | ||||
| Net gains on equity investments | ||||||||
| Bank owned life insurance and annuities income | ||||||||
| Other | ||||||||
| Total noninterest income | ||||||||
| Noninterest expenses | ||||||||
| Salaries, commissions and employee benefits | ||||||||
| Net occupancy expense | ||||||||
| Equipment expense | ||||||||
| Professional fees | ||||||||
| Advertising and public relations | ||||||||
| Amortization of intangibles | ||||||||
| FDIC premiums | ||||||||
| Bank card expense | ||||||||
| Foreclosed properties expense, net of losses | ||||||||
| Merger-related expenses | ||||||||
| Other | ||||||||
| Total noninterest expenses | ||||||||
| Income before income tax expense | ||||||||
| Income tax expense | ||||||||
| Net income | ||||||||
| Preferred stock dividends | ||||||||
| Net income applicable to common shares | $ | $ | ||||||
| Basic earnings per common share | $ | $ | ||||||
| Diluted earnings per common share | $ | $ | ||||||
See Notes to Consolidated Financial Statements
Consolidated Statements of Comprehensive Income (unaudited)
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| Dollars in thousands | 2024 | 2023 | ||||||
| Net income | $ | $ | ||||||
| Other comprehensive (loss) income: | ||||||||
| Net unrealized gain (loss) on cashflow hedges of: | ||||||||
| 2024 - $, net of deferred taxes of $(); 2023 - $(), net of deferred taxes of $ | ( | ) | ||||||
| Net unrealized gain (loss) on fair value hedge of debt securities available for sale of: | ||||||||
| 2024 - $, net of deferred taxes of $(); 2023 - $(), net of deferred taxes of $ | ( | ) | ||||||
| Net unrealized (loss) gain on debt securities available for sale of: | ||||||||
| 2024 - $(), net of deferred taxes of $ and reclassification adjustment for net realized losses included in net income of $(), net of tax of $; 2023 - $, net of deferred taxes of $() and reclassification adjustment for net realized losses included in net income of $(), net of tax of $ | ( | ) | ||||||
| Total other comprehensive income | ||||||||
| Total comprehensive income | $ | $ | ||||||
See Notes to Consolidated Financial Statements
Consolidated Statements of Shareholders’ Equity (unaudited)
| Accumulated | ||||||||||||||||||||
| Preferred | Common | Other | Total | |||||||||||||||||
| Stock and | Stock and | Compre- | Share- | |||||||||||||||||
| Related | Related | Retained | hensive | holders' | ||||||||||||||||
| Dollars in thousands (except per share amounts) | Surplus | Surplus | Earnings | (Loss) Income | Equity | |||||||||||||||
| Balance December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Three Months Ended March 31, 2024 | ||||||||||||||||||||
| Net income | ||||||||||||||||||||
| Other comprehensive income | ||||||||||||||||||||
| Exercise of SARs - shares | — | |||||||||||||||||||
| Share-based compensation expense | ||||||||||||||||||||
| Common stock issuances from reinvested dividends - shares | ||||||||||||||||||||
| Preferred stock cash dividends declared | ( | ) | ( | ) | ||||||||||||||||
| Common stock cash dividends declared ($ per share) | ( | ) | ( | ) | ||||||||||||||||
| Balance, March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Balance December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Three Months Ended March 31, 2023 | ||||||||||||||||||||
| Net income | ||||||||||||||||||||
| Other comprehensive income | ||||||||||||||||||||
| Exercise of SARs - shares | — | |||||||||||||||||||
| Share-based compensation expense | ||||||||||||||||||||
| Common stock issuances from reinvested dividends - shares | ||||||||||||||||||||
| Preferred stock cash dividends declared | ( | ) | ( | ) | ||||||||||||||||
| Common stock cash dividends declared ($ per share) | ( | ) | ( | ) | ||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
See Notes to Consolidated Financial Statements
Consolidated Statements of Cash Flows (unaudited)
| Three Months Ended | ||||||||
| March 31, | March 31, | |||||||
| Dollars in thousands | 2024 | 2023 | ||||||
| Cash Flows from Operating Activities | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation | ||||||||
| Provision for credit losses | ||||||||
| Share-based compensation expense | ||||||||
| Deferred income tax expense (benefit) | ( | ) | ||||||
| Loans originated for sale | ( | ) | ( | ) | ||||
| Proceeds from sale of loans | ||||||||
| Gains on loans held for sale | ( | ) | ( | ) | ||||
| Realized losses on debt securities, net | ||||||||
| Gain on equity investments | ( | ) | ( | ) | ||||
| Gain on disposal of assets | ( | ) | ( | ) | ||||
| Amortization of securities premiums, net | ||||||||
| Accretion related to acquisition adjustments, net | ( | ) | ( | ) | ||||
| Amortization of intangibles | ||||||||
| Earnings on bank owned life insurance and annuities | ( | ) | ( | ) | ||||
| Increase in accrued interest receivable | ( | ) | ( | ) | ||||
| Increase in other assets | ( | ) | ( | ) | ||||
| Increase in other liabilities | ||||||||
| Net cash provided by operating activities | ||||||||
| Cash Flows from Investing Activities | ||||||||
| Proceeds from maturities and calls of debt securities available for sale | ||||||||
| Proceeds from sales of debt securities available for sale | ||||||||
| Principal payments received on debt securities available for sale | ||||||||
| Purchases of debt securities available for sale | ( | ) | ( | ) | ||||
| Purchase of equity investments | ( | ) | ( | ) | ||||
| Purchases of other investments | ( | ) | ( | ) | ||||
| Proceeds from redemptions of other investments | ||||||||
| Net loan originations | ( | ) | ( | ) | ||||
| Purchases of premises and equipment | ( | ) | ( | ) | ||||
| Proceeds from disposal of premises and equipment | ||||||||
| Improvements to property held for sale | ( | ) | ||||||
| Proceeds from sales of repossessed assets & property held for sale | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Net (decrease) increase in demand deposit, NOW and savings accounts | ( | ) | ||||||
| Net increase in time deposits | ||||||||
| Net decrease in short-term borrowings | ( | ) | ( | ) | ||||
| Repayment of long-term borrowings | ( | ) | ( | ) | ||||
| Proceeds from issuance of common stock | ||||||||
| Dividends paid on common stock | ( | ) | ( | ) | ||||
| Dividends paid on preferred stock | ( | ) | ( | ) | ||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| Increase in cash and cash equivalents | ||||||||
continued
See Notes to Consolidated Financial Statements
Consolidated Statements of Cash Flows (unaudited)(continued)
| Three Months Ended | ||||||||
| March 31, | March 31, | |||||||
| Dollars in thousands | 2024 | 2023 | ||||||
| Cash and cash equivalents: | ||||||||
| Beginning | ||||||||
| Ending | $ | $ | ||||||
| Supplemental Disclosures of Cash Flow Information | ||||||||
| Cash payments for: | ||||||||
| Interest | $ | $ | ||||||
| Supplemental Disclosures of Noncash Investing and Financing Activities | ||||||||
| Real property and other assets acquired in settlement of loans | $ | $ | ||||||
| Right of use assets obtained in exchange for lease obligations | $ | $ | ||||||
See Notes to Consolidated Financial Statements
We, Summit Financial Group, Inc. and subsidiary, prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America for interim financial information and with instructions to Form 10-Q and 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 annual year end financial statements. In our opinion, all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature.
The presentation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us 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 materially from these estimates. You should carefully consider each risk factor discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023.
The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the full year. The consolidated financial statements and notes included herein should be read in conjunction with our 2023 audited financial statements and Annual Report on Form 10-K.
NOTE 2. SIGNIFICANT NEW AUTHORITATIVE ACCOUNTING GUIDANCE
Recently Adopted
In March 2023, the FASB issued ASU 2023-02, Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. These amendments allow reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. The ASU was effective for us January 1, 2024 and did not have a material impact on our consolidated financial statements.
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The ASU was effective for us January 1, 2024 and did not have a material impact on our consolidated financial statements.
Pending Adoption
In December 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in this ASU require an entity to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold, which is greater than five percent of the amount computed by multiplying pretax income by the entity’s applicable statutory rate, on an annual basis. Additionally, the amendments in this ASU require an entity to disclose the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions that are equal to or greater than five percent of total income taxes paid (net of refunds received). Lastly, the amendments in this ASU require an entity to disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or benefit) from continuing operations disaggregated by federal, state, and foreign. This ASU is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied on a prospective basis; however, retrospective application is permitted. We do not expect the adoption of ASU 2023-09 to have a material impact on our consolidated financial statements.
In October 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative. This ASU incorporates certain SEC disclosure requirements into the FASB Accounting Standards Codification. The amendments in the ASU are expected to clarify or improve disclosure and presentation requirements of a variety of Codification Topics, allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the Codification with the SEC’s regulations. For entities subject to the SEC’s existing disclosure requirements and for entities required to file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer, the effective date for each amendment will be the date on which the SEC removes that related disclosure from its rules. For all other entities, the amendments will be effective two years later. However, if by June 30, 2027, the SEC has not removed the related disclosure from its regulations, the amendments will be removed from the Codification and not become effective for any entity. We do not expect the adoption of ASU 2023-06 to have a material impact on our consolidated financial statements.
NOTE 3. FAIR VALUE MEASUREMENTS
The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis.
| Balance at | Fair Value Measurements Using: | |||||||||||||||
| Dollars in thousands | March 31, 2024 | Level 1 | Level 2 | Level 3 | ||||||||||||
| Debt securities available for sale | ||||||||||||||||
| U.S. Government sponsored agencies and corporations | $ | $ | $ | $ | ||||||||||||
| Residential mortgage-backed securities: | ||||||||||||||||
| Government sponsored agencies | ||||||||||||||||
| Nongovernment sponsored entities | ||||||||||||||||
| State and political subdivisions | ||||||||||||||||
| Corporate debt securities | ||||||||||||||||
| Asset-backed securities | ||||||||||||||||
| Tax-exempt state and political subdivisions | ||||||||||||||||
| Total debt securities available for sale | $ | $ | $ | $ | ||||||||||||
| Equity investments | $ | $ | $ | $ | ||||||||||||
| Derivative financial assets | ||||||||||||||||
| Interest rate caps | $ | $ | $ | $ | ||||||||||||
| Interest rate swaps | ||||||||||||||||
| Balance at | Fair Value Measurements Using: | |||||||||||||||
| Dollars in thousands | December 31, 2023 | Level 1 | Level 2 | Level 3 | ||||||||||||
| Debt securities available for sale | ||||||||||||||||
| U.S. Government sponsored agencies and corporations | $ | $ | $ | $ | ||||||||||||
| Residential mortgage-backed securities: | ||||||||||||||||
| Government sponsored agencies | ||||||||||||||||
| Nongovernment sponsored entities | ||||||||||||||||
| State and political subdivisions | ||||||||||||||||
| Corporate debt securities | ||||||||||||||||
| Asset-backed securities | ||||||||||||||||
| Tax-exempt state and political subdivisions | ||||||||||||||||
| Total debt securities available for sale | $ | $ | $ | $ | ||||||||||||
| Equity investments | $ | $ | $ | $ | ||||||||||||
| Derivative financial assets | ||||||||||||||||
| Interest rate caps | $ | $ | $ | $ | ||||||||||||
| Interest rate swaps | ||||||||||||||||
We may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis are included in the table below.
| Balance at | Fair Value Measurements Using: | |||||||||||||||
| Dollars in thousands | March 31, 2024 | Level 1 | Level 2 | Level 3 | ||||||||||||
| Collateral-dependent loans with an ACLL | ||||||||||||||||
| Commercial | $ | $ | $ | $ | ||||||||||||
| Commercial real estate | ||||||||||||||||
| Construction and development | ||||||||||||||||
| Residential real estate | ||||||||||||||||
| Total collateral-dependent loans with an ACLL | $ | $ | $ | $ | ||||||||||||
| Property held for sale | ||||||||||||||||
| Commercial real estate | $ | $ | $ | $ | ||||||||||||
| Construction and development | ||||||||||||||||
| Total property held for sale | $ | $ | $ | $ | ||||||||||||
| Balance at | Fair Value Measurements Using: | |||||||||||||||
| Dollars in thousands | December 31, 2023 | Level 1 | Level 2 | Level 3 | ||||||||||||
| Collateral-dependent loans with an ACLL | ||||||||||||||||
| Commercial real estate | $ | $ | $ | $ | ||||||||||||
| Construction and development | ||||||||||||||||
| Residential real estate | ||||||||||||||||
| Total collateral-dependent loans with an ACLL | $ | $ | $ | $ | ||||||||||||
| Property held for sale | ||||||||||||||||
| Commercial real estate | $ | $ | $ | $ | ||||||||||||
| Construction and development | ||||||||||||||||
| Total property held for sale | $ | $ | $ | $ | ||||||||||||
The carrying values and estimated fair values of our financial instruments are summarized below:
| March 31, 2024 | Fair Value Measurements Using: | |||||||||||||||||||
| Estimated | ||||||||||||||||||||
| Carrying | Fair | |||||||||||||||||||
| Dollars in thousands | Value | Value | Level 1 | Level 2 | Level 3 | |||||||||||||||
| Financial assets | ||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | |||||||||||||||
| Debt securities available for sale | ||||||||||||||||||||
| Debt securities held to maturity | ||||||||||||||||||||
| Equity investments | ||||||||||||||||||||
| Other investments | ||||||||||||||||||||
| Loans, net | ||||||||||||||||||||
| Accrued interest receivable | ||||||||||||||||||||
| Cash surrender value of life insurance policies and annuities | ||||||||||||||||||||
| Derivative financial assets | ||||||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
| Financial liabilities | ||||||||||||||||||||
| Deposits | $ | $ | $ | $ | $ | |||||||||||||||
| Short-term borrowings | ||||||||||||||||||||
| Long-term borrowings | ||||||||||||||||||||
| Subordinated debentures | ||||||||||||||||||||
| Subordinated debentures owed to unconsolidated subsidiary trusts | ||||||||||||||||||||
| Accrued interest payable | ||||||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
| December 31, 2023 | Fair Value Measurements Using: | |||||||||||||||||||
| Estimated | ||||||||||||||||||||
| Carrying | Fair | |||||||||||||||||||
| Dollars in thousands | Value | Value | Level 1 | Level 2 | Level 3 | |||||||||||||||
| Financial assets | ||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | |||||||||||||||
| Debt securities available for sale | ||||||||||||||||||||
| Debt securities held to maturity | ||||||||||||||||||||
| Equity investments | ||||||||||||||||||||
| Other investments | ||||||||||||||||||||
| Loans, net | ||||||||||||||||||||
| Accrued interest receivable | ||||||||||||||||||||
| Cash surrender value of life insurance policies and annuities | ||||||||||||||||||||
| Derivative financial assets | ||||||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
| Financial liabilities | ||||||||||||||||||||
| Deposits | $ | $ | $ | $ | $ | |||||||||||||||
| Short-term borrowings | ||||||||||||||||||||
| Long-term borrowings | ||||||||||||||||||||
| Subordinated debentures | ||||||||||||||||||||
| Subordinated debentures owed to unconsolidated subsidiary trusts | ||||||||||||||||||||
| Accrued interest payable | ||||||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
The computations of basic and diluted earnings per share follow:
| For the Three Months Ended March 31, | ||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||
| Common | Common | |||||||||||||||||||||||
| Net Income | Shares | Per | Net Income | Shares | Per | |||||||||||||||||||
| Dollars in thousands,except per share amounts | (Numerator) | (Denominator) | Share | (Numerator) | (Denominator) | Share | ||||||||||||||||||
| Net income | $ | $ | ||||||||||||||||||||||
| Less preferred stock dividends | ( | ) | ( | ) | ||||||||||||||||||||
| Basic earnings per share | $ | $ | $ | $ | ||||||||||||||||||||
| Effect of dilutive securities: | ||||||||||||||||||||||||
| Stock appreciation rights ("SARs") | ||||||||||||||||||||||||
| Restricted stock units ("RSUs") | ||||||||||||||||||||||||
| Diluted earnings per share | $ | $ | $ | $ | ||||||||||||||||||||
SAR grants and RSUs are disregarded in this computation if they are determined to be anti-dilutive. Our anti-dilutive SARs totaled
NOTE 5. DEBT SECURITIES
Debt Securities Available for Sale
The amortized cost, unrealized gains, unrealized losses and estimated fair values of debt securities available for sale at March 31, 2024 and December 31, 2023 are summarized as follows:
| March 31, 2024 | ||||||||||||||||
| Amortized | Unrealized | Estimated | ||||||||||||||
| Dollars in thousands | Cost | Gains | Losses | Fair Value | ||||||||||||
| Debt Securities Available for Sale | ||||||||||||||||
| Taxable debt securities | ||||||||||||||||
| U.S. Government sponsored agencies and corporations | $ | $ | $ | $ | ||||||||||||
| Residential mortgage-backed securities: | ||||||||||||||||
| Government-sponsored agencies | ||||||||||||||||
| Nongovernment-sponsored entities | ||||||||||||||||
| State and political subdivisions | ||||||||||||||||
| General obligations | ||||||||||||||||
| Various tax revenues | ||||||||||||||||
| Other revenues | ||||||||||||||||
| Corporate debt securities | ||||||||||||||||
| Asset-backed securities | ||||||||||||||||
| Total taxable debt securities | ||||||||||||||||
| Tax-exempt debt securities | ||||||||||||||||
| State and political subdivisions | ||||||||||||||||
| General obligations | ||||||||||||||||
| Other revenues | ||||||||||||||||
| Total tax-exempt debt securities | ||||||||||||||||
| Total debt securities available for sale | $ | $ | $ | $ | ||||||||||||
| December 31, 2023 | ||||||||||||||||
| Amortized | Unrealized | Estimated | ||||||||||||||
| Dollars in thousands | Cost | Gains | Losses | Fair Value | ||||||||||||
| Debt Securities Available for Sale | ||||||||||||||||
| Taxable debt securities | ||||||||||||||||
| U.S. Government sponsored agencies and corporations | $ | $ | $ | $ | ||||||||||||
| Residential mortgage-backed securities: | ||||||||||||||||
| Government-sponsored agencies | ||||||||||||||||
| Nongovernment-sponsored entities | ||||||||||||||||
| State and political subdivisions | ||||||||||||||||
| General obligations | ||||||||||||||||
| Various tax revenues | ||||||||||||||||
| Other revenues | ||||||||||||||||
| Corporate debt securities | ||||||||||||||||
| Asset-backed securities | ||||||||||||||||
| Total taxable debt securities | ||||||||||||||||
| Tax-exempt debt securities | ||||||||||||||||
| State and political subdivisions | ||||||||||||||||
| General obligations | ||||||||||||||||
| Other revenues | ||||||||||||||||
| Total tax-exempt debt securities | ||||||||||||||||
| Total debt securities available for sale | $ | $ | $ | $ | ||||||||||||
Accrued interest receivable on debt securities available for sale totaled $
The below information is relative to the
| March 31, 2024 | ||||||||||||||||
| Amortized | Unrealized | Estimated | ||||||||||||||
| Dollars in thousands | Cost | Gains | Losses | Fair Value | ||||||||||||
| California | $ | $ | $ | $ | ||||||||||||
| Texas | ||||||||||||||||
| Oregon | ||||||||||||||||
| Michigan | ||||||||||||||||
| Pennsylvania | ||||||||||||||||
Management performs pre-purchase and ongoing analysis to confirm that all investment securities meet applicable credit quality standards.
The maturities, amortized cost and estimated fair values of debt securities available for sale at March 31, 2024, are summarized as follows:
| Amortized | Estimated | |||||||
| Dollars in thousands | Cost | Fair Value | ||||||
| Due in one year or less | $ | $ | ||||||
| Due from one to five years | ||||||||
| Due from five to ten years | ||||||||
| Due after ten years | ||||||||
| Total | $ | $ | ||||||
The proceeds from sales, calls and maturities of debt securities available for sale, including principal payments received on mortgage-backed obligations, and the related gross gains and losses realized, for the three months ended March 31, 2024 and 2023 are as follows:
| Proceeds from | Gross realized | |||||||||||||||||||
| Calls and | Principal | |||||||||||||||||||
| Dollars in thousands | Sales | Maturities | Payments | Gains | Losses | |||||||||||||||
| For the Three Months Ended | ||||||||||||||||||||
| March 31, | ||||||||||||||||||||
| 2024 | $ | $ | $ | $ | $ | |||||||||||||||
| 2023 | $ | $ | $ | $ | $ | |||||||||||||||
Provided below is a summary of debt securities available for sale which were in an unrealized loss position at March 31, 2024 and December 31, 2023.
| March 31, 2024 | ||||||||||||||||||||||||||||
| Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||||||
| # of securities | Estimated | Unrealized | Estimated | Unrealized | Estimated | Unrealized | ||||||||||||||||||||||
| Dollars in thousands | in loss position | Fair Value | Loss | Fair Value | Loss | Fair Value | Loss | |||||||||||||||||||||
| Taxable debt securities | ||||||||||||||||||||||||||||
| U.S. Government sponsored agencies and corporations | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| Residential mortgage-backed securities: | ||||||||||||||||||||||||||||
| Government-sponsored agencies | ||||||||||||||||||||||||||||
| Nongovernment-sponsored entities | ||||||||||||||||||||||||||||
| State and political subdivisions: | ||||||||||||||||||||||||||||
| General obligations | ||||||||||||||||||||||||||||
| Various tax revenues | ||||||||||||||||||||||||||||
| Other revenues | ||||||||||||||||||||||||||||
| Corporate debt securities | ||||||||||||||||||||||||||||
| Asset-backed securities | ||||||||||||||||||||||||||||
| Tax-exempt debt securities | ||||||||||||||||||||||||||||
| State and political subdivisions: | ||||||||||||||||||||||||||||
| General obligations | ||||||||||||||||||||||||||||
| Other revenues | ||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| December 31, 2023 | ||||||||||||||||||||||||||||
| Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||||||
| # of securities | Estimated | Unrealized | Estimated | Unrealized | Estimated | Unrealized | ||||||||||||||||||||||
| Dollars in thousands | in loss position | Fair Value | Loss | Fair Value | Loss | Fair Value | Loss | |||||||||||||||||||||
| Taxable debt securities | ||||||||||||||||||||||||||||
| U.S. Government sponsored agencies and corporations | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| Residential mortgage-backed securities: | ||||||||||||||||||||||||||||
| Government-sponsored agencies | ||||||||||||||||||||||||||||
| Nongovernment-sponsored entities | ||||||||||||||||||||||||||||
| State and political subdivisions: | ||||||||||||||||||||||||||||
| General obligations | ||||||||||||||||||||||||||||
| Various tax revenues | ||||||||||||||||||||||||||||
| Other revenues | ||||||||||||||||||||||||||||
| Corporate debt securities | ||||||||||||||||||||||||||||
| Asset-backed securities | ||||||||||||||||||||||||||||
| Tax-exempt debt securities | ||||||||||||||||||||||||||||
| State and political subdivisions: | ||||||||||||||||||||||||||||
| General obligations | ||||||||||||||||||||||||||||
| Other revenues | ||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
We do not intend to sell the above securities, and it is more likely than not that we will not be required to sell these securities before recovery of their amortized cost bases. We believe that this decline in value is primarily attributable to changes in market interest rates, and in some cases limited market liquidity and is not due to credit quality, as none of these securities are in default and all carry above investment grade ratings. Accordingly,
Debt Securities Held to Maturity
The amortized cost, unrealized gains, unrealized losses and estimated fair values of debt securities held to maturity at March 31, 2024 and December 31, 2023 are summarized as follows:
| March 31, 2024 | ||||||||||||||||
| Amortized | Unrealized | Estimated | ||||||||||||||
| Dollars in thousands | Cost | Gains | Losses | Fair Value | ||||||||||||
| Debt Securities Held to Maturity | ||||||||||||||||
| Tax-exempt debt securities | ||||||||||||||||
| State and political subdivisions: | ||||||||||||||||
| General obligations | $ | $ | $ | $ | ||||||||||||
| Water and sewer revenues | ||||||||||||||||
| Lease revenues | ||||||||||||||||
| Sales tax revenues | ||||||||||||||||
| Various tax revenues | ||||||||||||||||
| Other revenues | ||||||||||||||||
| Total debt securities held to maturity | $ | $ | $ | $ | ||||||||||||
| December 31, 2023 | ||||||||||||||||
| Amortized | Unrealized | Estimated | ||||||||||||||
| Dollars in thousands | Cost | Gains | Losses | Fair Value | ||||||||||||
| Debt Securities Held to Maturity | ||||||||||||||||
| Tax-exempt debt securities | ||||||||||||||||
| State and political subdivisions: | ||||||||||||||||
| General obligations | $ | $ | $ | $ | ||||||||||||
| Water and sewer revenues | ||||||||||||||||
| Lease revenues | ||||||||||||||||
| Sales tax revenues | ||||||||||||||||
| Various tax revenues | ||||||||||||||||
| Other revenues | ||||||||||||||||
| Total debt securities held to maturity | $ | $ | $ | $ | ||||||||||||
Accrued interest receivable on debt securities held to maturity totaled $
The below information is relative to the
| March 31, 2024 | ||||||||||||||||
| Amortized | Unrealized | Estimated | ||||||||||||||
| Dollars in thousands | Cost | Gains | Losses | Fair Value | ||||||||||||
| Texas | $ | $ | $ | $ | ||||||||||||
| California | ||||||||||||||||
| Pennsylvania | ||||||||||||||||
| Florida | ||||||||||||||||
| Michigan | ||||||||||||||||
The following table displays the amortized cost of held to maturity debt securities by credit rating at March 31, 2024 and December 31, 2023.
| March 31, 2024 | ||||||||||||||||||||
| Dollars in thousands | AAA | AA | A | BBB | Below Investment Grade | |||||||||||||||
| Tax-exempt state and political subdivisions | $ | $ | $ | $ | $ | |||||||||||||||
| December 31, 2023 | ||||||||||||||||||||
| Dollars in thousands | AAA | AA | A | BBB | Below Investment Grade | |||||||||||||||
| Tax-exempt state and political subdivisions | $ | $ | $ | $ | $ | |||||||||||||||
We owned
The maturities, amortized cost and estimated fair values of held to maturity debt securities at March 31, 2024, are summarized as follows:
| Amortized | Estimated | |||||||
| Dollars in thousands | Cost | Fair Value | ||||||
| Due in one year or less | $ | $ | ||||||
| Due from one to five years | ||||||||
| Due from five to ten years | ||||||||
| Due after ten years | ||||||||
| Total | $ | $ | ||||||
There were
At March 31, 2024,
NOTE 6. LOANS AND ALLOWANCE FOR CREDIT LOSSES ON LOANS (ACLL)
Loans
The following table presents the amortized cost of loans held for investment:
| March 31, | December 31, | |||||||
| Dollars in thousands | 2024 | 2023 | ||||||
| Commercial | $ | $ | ||||||
| Commercial real estate - owner occupied | ||||||||
| Professional & medical | ||||||||
| Retail | ||||||||
| Other | ||||||||
| Commercial real estate - non-owner occupied | ||||||||
| Hotels & motels | ||||||||
| Mini-storage | ||||||||
| Multifamily | ||||||||
| Retail | ||||||||
| Other | ||||||||
| Construction and development | ||||||||
| Land & land development | ||||||||
| Construction | ||||||||
| Residential 1-4 family real estate | ||||||||
| Personal residence | ||||||||
| Rental - small loan | ||||||||
| Rental - large loan | ||||||||
| Home equity | ||||||||
| Mortgage warehouse lines | ||||||||
| Consumer | ||||||||
| Other | ||||||||
| Credit cards | ||||||||
| Overdrafts | ||||||||
| Total loans, net of unearned fees | ||||||||
| Less allowance for credit losses - loans | ||||||||
| Loans, net | $ | $ | ||||||
Accrued interest and fees receivable on loans totaled $
The following table presents the contractual aging of the amortized cost basis of past due loans by class as of March 31, 2024 and December 31, 2023.
| March 31, 2024 | ||||||||||||||||||||||||
| Past Due | 90 days or more and | |||||||||||||||||||||||
| Dollars in thousands | 30-59 days | 60-89 days | 90 days or more | Total | Current | Accruing | ||||||||||||||||||
| Commercial | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Commercial real estate - owner occupied | ||||||||||||||||||||||||
| Professional & medical | ||||||||||||||||||||||||
| Retail | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Commercial real estate - non-owner occupied | ||||||||||||||||||||||||
| Hotels & motels | ||||||||||||||||||||||||
| Mini-storage | ||||||||||||||||||||||||
| Multifamily | ||||||||||||||||||||||||
| Retail | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Construction and development | ||||||||||||||||||||||||
| Land & land development | ||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||
| Residential 1-4 family real estate | ||||||||||||||||||||||||
| Personal residence | ||||||||||||||||||||||||
| Rental - small loan | ||||||||||||||||||||||||
| Rental - large loan | ||||||||||||||||||||||||
| Home equity | ||||||||||||||||||||||||
| Mortgage warehouse lines | ||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Credit cards | ||||||||||||||||||||||||
| Overdrafts | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| December 31, 2023 | ||||||||||||||||||||||||
| Past Due | 90 days or more and | |||||||||||||||||||||||
| Dollars in thousands | 30-59 days | 60-89 days | 90 days or more | Total | Current | Accruing | ||||||||||||||||||
| Commercial | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Commercial real estate - owner occupied | ||||||||||||||||||||||||
| Professional & medical | ||||||||||||||||||||||||
| Retail | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Commercial real estate - non-owner occupied | ||||||||||||||||||||||||
| Hotels & motels | ||||||||||||||||||||||||
| Mini-storage | ||||||||||||||||||||||||
| Multifamily | ||||||||||||||||||||||||
| Retail | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Construction and development | ||||||||||||||||||||||||
| Land & land development | ||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||
| Residential 1-4 family real estate | ||||||||||||||||||||||||
| Personal residence | ||||||||||||||||||||||||
| Rental - small loan | ||||||||||||||||||||||||
| Rental - large loan | ||||||||||||||||||||||||
| Home equity | ||||||||||||||||||||||||
| Mortgage warehouse lines | ||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Credit cards | ||||||||||||||||||||||||
| Overdrafts | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
The following table presents the nonaccrual loans included in the net balance of loans at March 31, 2024 and December 31, 2023.
| March 31, | December 31, | |||||||||||||||
| 2024 | 2023 | |||||||||||||||
| Nonaccrual | Nonaccrual | |||||||||||||||
| with No | with No | |||||||||||||||
| Allowance for | Allowance for | |||||||||||||||
| Credit Losses | Credit Losses | |||||||||||||||
| Dollars in thousands | Nonaccrual | - Loans | Nonaccrual | - Loans | ||||||||||||
| Commercial | $ | $ | $ | $ | ||||||||||||
| Commercial real estate - owner occupied | ||||||||||||||||
| Professional & medical | ||||||||||||||||
| Retail | ||||||||||||||||
| Other | ||||||||||||||||
| Commercial real estate - non-owner occupied | ||||||||||||||||
| Hotels & motels | ||||||||||||||||
| Mini-storage | ||||||||||||||||
| Multifamily | ||||||||||||||||
| Retail | ||||||||||||||||
| Other | ||||||||||||||||
| Construction and development | ||||||||||||||||
| Land & land development | ||||||||||||||||
| Construction | ||||||||||||||||
| Residential 1-4 family real estate | ||||||||||||||||
| Personal residence | ||||||||||||||||
| Rental - small loan | ||||||||||||||||
| Rental - large loan | ||||||||||||||||
| Home equity | ||||||||||||||||
| Mortgage warehouse lines | ||||||||||||||||
| Consumer | ||||||||||||||||
| Other | ||||||||||||||||
| Credit cards | ||||||||||||||||
| Overdrafts | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Modifications to Borrowers Experiencing Financial Difficulty
We adopted ASU 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures effective January 1, 2023. The amendments in ASU 2022-02 eliminated the recognition and measurement of troubled debt restructurings and enhanced disclosures for loan modifications to borrowers experiencing financial difficulty. Generally, the modifications we grant are extensions of terms, deferrals of payments for an extended period or interest rate reductions. Occasionally, we may modify a loan by providing principal forgiveness. In some cases, we will modify a loan by providing multiple types, or combinations, of concessions. During first quarter 2024, we modified
Credit Quality Indicators: We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. We analyze loans individually by classifying the loans as to credit risk. We internally grade all commercial loans at the time of loan origination. In addition, we perform an annual loan review on all non-homogenous commercial loan relationships with an aggregate exposure of $
Pass: Loans graded as Pass are loans to borrowers of acceptable credit quality and risk. They are higher quality loans that do not fit any of the other categories described below.
Special Mention: Commercial loans categorized as Special Mention are potentially weak. The credit risk may be relatively minor yet represent a risk given certain specific circumstances. If the potential weaknesses are not monitored or mitigated, the asset may weaken or inadequately protect our position in the future.
Substandard: Commercial loans categorized as Substandard are inadequately protected by the borrower’s ability to repay, equity and/or the collateral pledged to secure the loan. These loans have identified weaknesses that could hinder normal repayment or collection of the debt. These loans are characterized by the distinct possibility that we will sustain some loss if the identified weaknesses are not mitigated.
Doubtful: Commercial loans categorized as Doubtful have all the weaknesses inherent in those loans classified as Substandard, with the added elements that the full collection of the loan is improbable and the possibility of loss is high.
Loss: Loans classified as loss are considered to be non-collectible and of such little value that their continuance as a bankable asset is not warranted. This does not mean that the loan has absolutely no recovery value, but rather it is neither practical nor desirable to defer writing off the loan, even though partial recovery may be obtained in the future.
Management considers the guidance in ASC 310-20 when determining whether a modification, extension, or renewal of loan constitutes a current period origination. Generally, current period renewals of credit are reunderwritten at the point of renewal and considered current period originations for purposes of the table below. As of March 31, 2024 and December 31, 2023, based on the most recent analysis performed, the risk category of loans based on year of origination is as follows:
| March 31, 2024 | ||||||||||||||||||||||||||||||||||||||
| Revolvi- | Revolving- | |||||||||||||||||||||||||||||||||||||
| Dollars in thousands | Risk Rating | 2024 | 2023 | 2022 | 2021 | 2020 | Prior | ng | Term | Total | ||||||||||||||||||||||||||||
| Commercial | Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Commercial | ||||||||||||||||||||||||||||||||||||||
| Current Period Charge-Offs | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Commercial Real Estate - Owner Occupied | ||||||||||||||||||||||||||||||||||||||
| Professional & medical | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Professional & Medical | ||||||||||||||||||||||||||||||||||||||
| Current Period Charge-Offs | ||||||||||||||||||||||||||||||||||||||
| Retail | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Retail | ||||||||||||||||||||||||||||||||||||||
| Current Period Charge-Offs | ||||||||||||||||||||||||||||||||||||||
| Other | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Other | ||||||||||||||||||||||||||||||||||||||
| Current Period Charge-Offs | ||||||||||||||||||||||||||||||||||||||
| Total Commercial Real Estate - Owner Occupied | ||||||||||||||||||||||||||||||||||||||
| Commercial Real Estate - Non-Owner Occupied | ||||||||||||||||||||||||||||||||||||||
| Hotels & motels | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Hotels & Motels | ||||||||||||||||||||||||||||||||||||||
| Current Period Charge-Offs | ||||||||||||||||||||||||||||||||||||||
| Mini-storage | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Mini-storage | ||||||||||||||||||||||||||||||||||||||
| Current Period Charge-Offs | ||||||||||||||||||||||||||||||||||||||
| Multifamily | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Multifamily | ||||||||||||||||||||||||||||||||||||||
| Current Period Charge-Offs | ||||||||||||||||||||||||||||||||||||||
| March 31, 2024 | ||||||||||||||||||||||||||||||||||||||
| Revolvi- | Revolving- | |||||||||||||||||||||||||||||||||||||
| Dollars in thousands | Risk Rating | 2024 | 2023 | 2022 | 2021 | 2020 | Prior | ng | Term | Total | ||||||||||||||||||||||||||||
| Retail | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Retail | ||||||||||||||||||||||||||||||||||||||
| Current Period Charge-Offs | ||||||||||||||||||||||||||||||||||||||
| Other | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Other | ||||||||||||||||||||||||||||||||||||||
| Current Period Charge-Offs | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Total Commercial Real Estate - Non-Owner Occupied | ||||||||||||||||||||||||||||||||||||||
| Construction and Development | ||||||||||||||||||||||||||||||||||||||
| Land & land development | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Land & land development | ||||||||||||||||||||||||||||||||||||||
| Current Period Charge-Offs | ||||||||||||||||||||||||||||||||||||||
| Construction | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Construction | ||||||||||||||||||||||||||||||||||||||
| Current Period Charge-Offs | ||||||||||||||||||||||||||||||||||||||
| Total Construction and Development | ||||||||||||||||||||||||||||||||||||||
| Residential 1-4 Family Real Estate | ||||||||||||||||||||||||||||||||||||||
| Personal residence | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Personal Residence | ||||||||||||||||||||||||||||||||||||||
| Current Period Charge-Offs | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Rental - small loan | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Rental - Small Loan | ||||||||||||||||||||||||||||||||||||||
| Current Period Charge-Offs | ||||||||||||||||||||||||||||||||||||||
| Rental - large loan | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Rental - Large Loan | ||||||||||||||||||||||||||||||||||||||
| Current Period Charge-Offs | ||||||||||||||||||||||||||||||||||||||
| Home equity | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Home Equity | ||||||||||||||||||||||||||||||||||||||
| Current Period Charge-Offs | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Total Residential 1-4 Family Real Estate | ||||||||||||||||||||||||||||||||||||||
| March 31, 2024 | ||||||||||||||||||||||||||||||||||||||
| Revolvi- | Revolving- | |||||||||||||||||||||||||||||||||||||
| Dollars in thousands | Risk Rating | 2024 | 2023 | 2022 | 2021 | 2020 | Prior | ng | Term | Total | ||||||||||||||||||||||||||||
| Mortgage warehouse lines | Pass | |||||||||||||||||||||||||||||||||||||
| Total Mortgage Warehouse Lines | ||||||||||||||||||||||||||||||||||||||
| Current Period Charge-Offs | ||||||||||||||||||||||||||||||||||||||
| Consumer | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Consumer | ||||||||||||||||||||||||||||||||||||||
| Current Period Charge-Offs | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||||||||
| Credit cards | Pass | |||||||||||||||||||||||||||||||||||||
| Total Credit Cards | ||||||||||||||||||||||||||||||||||||||
| Current Period Charge-Offs | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Overdrafts | Pass | |||||||||||||||||||||||||||||||||||||
| Total Overdrafts | ||||||||||||||||||||||||||||||||||||||
| Current Period Charge-Offs | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Total Other | ||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Total Charge-Offs | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | $ | ( | ) | |||||||||||||||
| December 31, 2023 | ||||||||||||||||||||||||||||||||||||||
| Revolvi- | Revolving- | |||||||||||||||||||||||||||||||||||||
| Dollars in thousands | Risk Rating | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | ng | Term | Total | ||||||||||||||||||||||||||||
| Commercial | Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Commercial | ||||||||||||||||||||||||||||||||||||||
| Current Period Charge-Offs | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Commercial Real Estate - Owner Occupied | ||||||||||||||||||||||||||||||||||||||
| Professional & medical | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Professional & Medical | ||||||||||||||||||||||||||||||||||||||
| Current Period Charge-Offs | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Retail | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Retail | ||||||||||||||||||||||||||||||||||||||
| Current Period Charge-Offs | ||||||||||||||||||||||||||||||||||||||
| Other | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Other | ||||||||||||||||||||||||||||||||||||||
| Current Period Charge-Offs | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Total Commercial Real Estate - Owner Occupied | ||||||||||||||||||||||||||||||||||||||
| December 31, 2023 | ||||||||||||||||||||||||||||||||||||||
| Revolvi- | Revolving- | |||||||||||||||||||||||||||||||||||||
| Dollars in thousands | Risk Rating | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | ng | Term | Total | ||||||||||||||||||||||||||||
| Commercial Real Estate - Non-Owner Occupied | ||||||||||||||||||||||||||||||||||||||
| Hotels & motels | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Hotels & Motels | ||||||||||||||||||||||||||||||||||||||
| Current Period Charge-Offs | ||||||||||||||||||||||||||||||||||||||
| Mini-storage | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Mini-storage | ||||||||||||||||||||||||||||||||||||||
| Current Period Charge-Offs | ||||||||||||||||||||||||||||||||||||||
| Multifamily | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Multifamily | ||||||||||||||||||||||||||||||||||||||
| Current Period Charge-Offs | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Retail | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Retail | ||||||||||||||||||||||||||||||||||||||
| Current Period Charge-Offs | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Other | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Other | ||||||||||||||||||||||||||||||||||||||
| Current Period Charge-Offs | ||||||||||||||||||||||||||||||||||||||
| Total Commercial Real Estate - Non-Owner Occupied | ||||||||||||||||||||||||||||||||||||||
| Construction and Development | ||||||||||||||||||||||||||||||||||||||
| Land & land development | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Land & land development | ||||||||||||||||||||||||||||||||||||||
| Current Period Charge-Offs | ||||||||||||||||||||||||||||||||||||||
| Construction | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Construction | ||||||||||||||||||||||||||||||||||||||
| Current Period Charge-Offs | ||||||||||||||||||||||||||||||||||||||
| Total Construction and Development | ||||||||||||||||||||||||||||||||||||||
| Residential 1-4 Family Real Estate | ||||||||||||||||||||||||||||||||||||||
| Personal residence | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Personal Residence | ||||||||||||||||||||||||||||||||||||||
| Current Period Charge-Offs | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| December 31, 2023 | ||||||||||||||||||||||||||||||||||||||
| Revolvi- | Revolving- | |||||||||||||||||||||||||||||||||||||
| Dollars in thousands | Risk Rating | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | ng | Term | Total | ||||||||||||||||||||||||||||
| Rental - small loan | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Rental - Small Loan | ||||||||||||||||||||||||||||||||||||||
| Current Period Charge-Offs | ||||||||||||||||||||||||||||||||||||||
| Rental - large loan | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Rental - Large Loan | ||||||||||||||||||||||||||||||||||||||
| Current Period Charge-Offs | ||||||||||||||||||||||||||||||||||||||
| Home equity | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Home Equity | ||||||||||||||||||||||||||||||||||||||
| Current Period Charge-Offs | ||||||||||||||||||||||||||||||||||||||
| Total Residential 1-4 Family Real Estate | ||||||||||||||||||||||||||||||||||||||
| Mortgage warehouse lines | Pass | |||||||||||||||||||||||||||||||||||||
| Total Mortgage Warehouse Lines | ||||||||||||||||||||||||||||||||||||||
| Current Period Charge-Offs | ||||||||||||||||||||||||||||||||||||||
| Consumer | Pass | |||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||
| Total Consumer | ||||||||||||||||||||||||||||||||||||||
| Current Period Charge-Offs | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||||||||
| Credit cards | Pass | |||||||||||||||||||||||||||||||||||||
| Total Credit Cards | ||||||||||||||||||||||||||||||||||||||
| Current Period Charge-Offs | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Overdrafts | Pass | |||||||||||||||||||||||||||||||||||||
| Total Overdrafts | ||||||||||||||||||||||||||||||||||||||
| Current Period Charge-Offs | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Total Other | ||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Total Charge-Offs | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||
Allowance for Credit Losses - Loans
The following tables presents the activity in the ACLL by portfolio segment during the three months ended March 31, 2024 and 2023 and the twelve months ended December 31, 2023:
| For the Three Months Ended March 31, 2024 | ||||||||||||||||||||
| Allowance for Credit Losses - Loans | ||||||||||||||||||||
| Provision | ||||||||||||||||||||
| for | ||||||||||||||||||||
| Credit | ||||||||||||||||||||
| Beginning | Losses - | Charge- | Ending | |||||||||||||||||
| Dollars in thousands | Balance | Loans | offs | Recoveries | Balance | |||||||||||||||
| Commercial | $ | $ | $ | ( | ) | $ | $ | |||||||||||||
| Commercial real estate - owner occupied | ||||||||||||||||||||
| Professional & medical | ||||||||||||||||||||
| Retail | ( | ) | ||||||||||||||||||
| Other | ||||||||||||||||||||
| Commercial real estate - non-owner occupied | ||||||||||||||||||||
| Hotels & motels | ||||||||||||||||||||
| Mini-storage | ||||||||||||||||||||
| Multifamily | ( | ) | ||||||||||||||||||
| Retail | ||||||||||||||||||||
| Other | ( | ) | ||||||||||||||||||
| Construction and development | ||||||||||||||||||||
| Land & land development | ( | ) | ||||||||||||||||||
| Construction | ( | ) | ||||||||||||||||||
| Residential 1-4 family real estate | ||||||||||||||||||||
| Personal residence | ( | ) | ( | ) | ||||||||||||||||
| Rental - small loan | ( | ) | ||||||||||||||||||
| Rental - large loan | ( | ) | ||||||||||||||||||
| Home equity | ( | ) | ( | ) | ||||||||||||||||
| Mortgage warehouse lines | ||||||||||||||||||||
| Consumer | ( | ) | ||||||||||||||||||
| Other | ||||||||||||||||||||
| Credit cards | ( | ) | ||||||||||||||||||
| Overdrafts | ( | ) | ||||||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | $ | |||||||||||||
| For the Three Months Ended March 31, 2023 | ||||||||||||||||||||
| Allowance for Credit Losses - Loans | ||||||||||||||||||||
| Provision | ||||||||||||||||||||
| for | ||||||||||||||||||||
| Credit | ||||||||||||||||||||
| Beginning | Losses - | Charge- | Ending | |||||||||||||||||
| Dollars in thousands | Balance | Loans | offs | Recoveries | Balance | |||||||||||||||
| Commercial | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||
| Commercial real estate - owner occupied | ||||||||||||||||||||
| Professional & medical | ( | ) | ||||||||||||||||||
| Retail | ( | ) | ||||||||||||||||||
| Other | ||||||||||||||||||||
| Commercial real estate - non-owner occupied | ||||||||||||||||||||
| Hotels & motels | ( | ) | ||||||||||||||||||
| Mini-storage | ||||||||||||||||||||
| Multifamily | ||||||||||||||||||||
| Retail | ||||||||||||||||||||
| Other | ( | ) | ||||||||||||||||||
| Construction and development | ||||||||||||||||||||
| Land & land development | ||||||||||||||||||||
| Construction | ||||||||||||||||||||
| Residential 1-4 family real estate | ||||||||||||||||||||
| Personal residence | ( | ) | ( | ) | ||||||||||||||||
| Rental - small loan | ( | ) | ||||||||||||||||||
| Rental - large loan | ||||||||||||||||||||
| Home equity | ( | ) | ||||||||||||||||||
| Mortgage warehouse lines | ||||||||||||||||||||
| Consumer | ( | ) | ||||||||||||||||||
| Other | ||||||||||||||||||||
| Credit cards | ( | ) | ||||||||||||||||||
| Overdrafts | ( | ) | ( | ) | ||||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | $ | |||||||||||||
| For the Twelve Months Ended December 31, 2023 | ||||||||||||||||||||||||
| Allowance for Credit Losses - Loans | ||||||||||||||||||||||||
| Provision | ||||||||||||||||||||||||
| for | ||||||||||||||||||||||||
| Credit | Adjustment for | |||||||||||||||||||||||
| Beginning | Losses - | PCD | Charge- | Ending | ||||||||||||||||||||
| Dollars in thousands | Balance | Loans | Acquired Loans | offs | Recoveries | Balance | ||||||||||||||||||
| Commercial | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ||||||||||||||
| Commercial real estate - owner occupied | ||||||||||||||||||||||||
| Professional & medical | ( | ) | ||||||||||||||||||||||
| Retail | ( | ) | ||||||||||||||||||||||
| Other | ( | ) | ( | ) | ||||||||||||||||||||
| Commercial real estate - non-owner occupied | ||||||||||||||||||||||||
| Hotels & motels | ||||||||||||||||||||||||
| Mini-storage | ( | ) | ||||||||||||||||||||||
| Multifamily | ( | ) | ||||||||||||||||||||||
| Retail | ( | ) | ||||||||||||||||||||||
| Other | ( | ) | ||||||||||||||||||||||
| Construction and development | ||||||||||||||||||||||||
| Land & land development | ||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||
| Residential 1-4 family real estate | ||||||||||||||||||||||||
| Personal residence | ( | ) | ||||||||||||||||||||||
| Rental - small loan | ( | ) | ||||||||||||||||||||||
| Rental - large loan | ( | ) | ||||||||||||||||||||||
| Home equity | ||||||||||||||||||||||||
| Mortgage warehouse lines | ||||||||||||||||||||||||
| Consumer | ( | ) | ||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Credit cards | ( | ) | ||||||||||||||||||||||
| Overdrafts | ( | ) | ||||||||||||||||||||||
| Total | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||
The following tables presents, as of March 31, 2024 and December 31, 2023 segregated by loan portfolio segment, details of the loan portfolio and the ACLL calculated in accordance with our credit loss accounting methodology for loans.
| March 31, 2024 | ||||||||||||||||||||||||
| Loan Balances | Allowance for Credit Losses - Loans | |||||||||||||||||||||||
| Dollars in thousands | Loans Individually Evaluated | Loans Collectively Evaluated (1) | Total | Loans Individually Evaluated | Loans Collectively Evaluated | Total | ||||||||||||||||||
| Commercial | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Commercial real estate - owner occupied | ||||||||||||||||||||||||
| Professional & medical | ||||||||||||||||||||||||
| Retail | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Commercial real estate - non-owner occupied | ||||||||||||||||||||||||
| Hotels & motels | ||||||||||||||||||||||||
| Mini-storage | ||||||||||||||||||||||||
| Multifamily | ||||||||||||||||||||||||
| Retail | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Construction and development | ||||||||||||||||||||||||
| Land & land development | ||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||
| Residential 1-4 family real estate | ||||||||||||||||||||||||
| Personal residence | ||||||||||||||||||||||||
| Rental - small loan | ||||||||||||||||||||||||
| Rental - large loan | ||||||||||||||||||||||||
| Home equity | ||||||||||||||||||||||||
| Mortgage warehouse lines | ||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Credit cards | ||||||||||||||||||||||||
| Overdrafts | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
(1) Included in the loans collectively evaluated are $
| December 31, 2023 | ||||||||||||||||||||||||
| Loan Balances | Allowance for Credit Losses - Loans | |||||||||||||||||||||||
| Dollars in thousands | Loans Individually Evaluated | Loans Collectively Evaluated (1) | Total | Loans Individually Evaluated | Loans Collectively Evaluated | Total | ||||||||||||||||||
| Commercial | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Commercial real estate - owner occupied | ||||||||||||||||||||||||
| Professional & medical | ||||||||||||||||||||||||
| Retail | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Commercial real estate - non-owner occupied | ||||||||||||||||||||||||
| Hotels & motels | ||||||||||||||||||||||||
| Mini-storage | ||||||||||||||||||||||||
| Multifamily | ||||||||||||||||||||||||
| Retail | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Construction and development | ||||||||||||||||||||||||
| Land & land development | ||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||
| Residential 1-4 family real estate | ||||||||||||||||||||||||
| Personal residence | ||||||||||||||||||||||||
| Rental - small loan | ||||||||||||||||||||||||
| Rental - large loan | ||||||||||||||||||||||||
| Home equity | ||||||||||||||||||||||||
| Mortgage warehouse lines | ||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Credit cards | ||||||||||||||||||||||||
| Overdrafts | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
(1) Included in the loans collectively evaluated are $
The following tables presents the amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses, and the related ACLL allocated to those loans:
| March 31, 2024 | ||||||||||||||||
| Real Estate | Allowance for | |||||||||||||||
| Secured | Non-Real Estate | Credit Losses | ||||||||||||||
| Dollars in thousands | Loans | Secured Loans | Total Loans | - Loans | ||||||||||||
| Commercial | $ | $ | $ | $ | ||||||||||||
| Commercial real estate - owner occupied | ||||||||||||||||
| Professional & medical | ||||||||||||||||
| Retail | ||||||||||||||||
| Other | ||||||||||||||||
| Commercial real estate - non-owner occupied | ||||||||||||||||
| Hotels & motels | ||||||||||||||||
| Mini-storage | ||||||||||||||||
| Multifamily | ||||||||||||||||
| Retail | ||||||||||||||||
| Other | ||||||||||||||||
| Construction and development | ||||||||||||||||
| Land & land development | ||||||||||||||||
| Construction | ||||||||||||||||
| Residential 1-4 family real estate | ||||||||||||||||
| Personal residence | ||||||||||||||||
| Rental - small loan | ||||||||||||||||
| Rental - large loan | ||||||||||||||||
| Home equity | ||||||||||||||||
| Consumer | ||||||||||||||||
| Other | ||||||||||||||||
| Credit cards | ||||||||||||||||
| Overdrafts | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| December 31, 2023 | ||||||||||||||||
| Real Estate | Allowance for | |||||||||||||||
| Secured | Non-Real Estate | Credit Losses | ||||||||||||||
| Dollars in thousands | Loans | Secured Loans | Total Loans | - Loans | ||||||||||||
| Commercial | $ | $ | $ | $ | ||||||||||||
| Commercial real estate - owner occupied | ||||||||||||||||
| Professional & medical | ||||||||||||||||
| Retail | ||||||||||||||||
| Other | ||||||||||||||||
| Commercial real estate - non-owner occupied | ||||||||||||||||
| Hotels & motels | ||||||||||||||||
| Mini-storage | ||||||||||||||||
| Multifamily | ||||||||||||||||
| Retail | ||||||||||||||||
| Other | ||||||||||||||||
| Construction and development | ||||||||||||||||
| Land & land development | ||||||||||||||||
| Construction | ||||||||||||||||
| Residential 1-4 family real estate | ||||||||||||||||
| Personal residence | ||||||||||||||||
| Rental - small loan | ||||||||||||||||
| Rental - large loan | ||||||||||||||||
| Home equity | ||||||||||||||||
| Consumer | ||||||||||||||||
| Other | ||||||||||||||||
| Credit cards | ||||||||||||||||
| Overdrafts | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
NOTE 7. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and certain other intangible assets with indefinite useful lives are not amortized into net income over an estimated life, but rather are tested at least annually for impairment. Intangible assets determined to have definite useful lives are amortized over their estimated useful lives and also are subject to impairment testing. Our goodwill totaled $
The following table presents the balance of other intangible assets at March 31, 2024 and December 31, 2023.
| Other Intangible Assets | ||||||||
| Dollars in thousands | March 31, 2024 | December 31, 2023 | ||||||
| Identifiable intangible assets | ||||||||
| Gross carrying amount | $ | $ | ||||||
| Less: accumulated amortization | ||||||||
| Net carrying amount | $ | $ | ||||||
We recorded amortization expense of $
Amortization relative to our identifiable intangible assets is expected to approximate the following during the next five years and thereafter:
| Core Deposit | ||||
| Dollars in thousands | Intangible | |||
| Nine month period ending December 31, 2024 | $ | |||
| Year ending December 31, 2025 | ||||
| Year ending December 31, 2026 | ||||
| Year ending December 31, 2027 | ||||
| Year ending December 31, 2028 | ||||
| Thereafter | ||||
NOTE 8. DEPOSITS
The following is a summary of interest bearing deposits by type as of March 31, 2024 and December 31, 2023:
| March 31, | December 31, | |||||||
| Dollars in thousands | 2024 | 2023 | ||||||
| Demand deposits, interest bearing | $ | $ | ||||||
| Savings deposits | ||||||||
| Time deposits | ||||||||
| Total | $ | $ | ||||||
Included in time deposits are deposits acquired through a third party (“brokered deposits”) totaling $
A summary of the scheduled maturities for all time deposits as of March 31, 2024 is as follows:
| Dollars in thousands | ||||
| Nine month period ending December 31, 2024 | $ | |||
| Year ending December 31, 2025 | ||||
| Year ending December 31, 2026 | ||||
| Year ending December 31, 2027 | ||||
| Year ending December 31, 2028 | ||||
| Thereafter | ||||
| Total | $ |
The aggregate amount of time deposits in denominations that meet or exceed the FDIC insurance limit of $250,000 totaled $
NOTE 9. BORROWED FUNDS
Short-term borrowings: A summary of short-term borrowings agreements are presented below.
| Three Months Ended March 31, | ||||||||||||||||
| 2024 | 2023 | |||||||||||||||
| Dollars in thousands | Short-term FHLB Advances | Federal Funds Purchased and Short-term Repurchase Agreements | Short-term FHLB Advances | Federal Funds Purchased and Short-term Repurchase Agreements | ||||||||||||
| Balance at March 31 | $ | $ | $ | $ | ||||||||||||
| Average balance outstanding for the period | ||||||||||||||||
| Maximum balance outstanding at any month end during period | ||||||||||||||||
| Weighted average interest rate for the period (1) | % | % | % | % | ||||||||||||
| Weighted average interest rate for balances outstanding at March 31 (1) | % | % | % | % | ||||||||||||
| (1) Excludes effect of any hedging activity | ||||||||||||||||
| Year Ended December 31, 2023 | ||||||||
| Dollars in thousands | Short-term FHLB Advances | Federal Funds Purchased and Short-term Repurchase Agreements | ||||||
| Balance at December 31 | $ | $ | ||||||
| Average balance outstanding for the period | ||||||||
| Maximum balance outstanding at any month end during period | ||||||||
| Weighted average interest rate for the period (1) | % | % | ||||||
| Weighted average interest rate for balances outstanding at December 31 (1) | % | % | ||||||
| (1) Excludes effect of any hedging activity | ||||||||
Federal funds purchased and short-term repurchase agreements mature the next business day. The securities underlying the repurchase agreements are under our control and secure the total outstanding daily balances. We generally account for securities sold under agreements to repurchase as collateralized financing transactions and record them at the amounts at which the securities were sold, plus accrued interest. Securities, generally U.S. government and Federal agency securities, pledged as collateral under these financing arrangements cannot be sold or repledged by the secured party. The fair value of collateral provided is continually monitored and additional collateral is provided as needed.
Long-term borrowings: Our long-term borrowings of $
Subordinated debentures: We issued $
We issued $
Subordinated debentures owed to unconsolidated subsidiary trusts: We have statutory business trusts that were formed for the purpose of issuing mandatorily redeemable securities (the “capital securities”) for which we are obligated to third party investors and investing the proceeds from the sale of the capital securities in our junior subordinated debentures (the “debentures”). The debentures held by the trusts are their sole assets. These subordinated debentures totaled $
The capital securities held by SFG Capital Trust I, SFG Capital Trust II, and SFG Capital Trust III qualify as Tier 1 capital under Federal Reserve Board guidelines. In accordance with these Guidelines, trust preferred securities generally are limited to
A summary of the maturities of all long-term borrowings and subordinated debentures for the next five years and thereafter is as follows:
| Subordinated | |||||||||||||
| debentures owed | |||||||||||||
| Long-term | Subordinated | to unconsolidated | |||||||||||
| Dollars in thousands | borrowings | debentures | subsidiary trusts | ||||||||||
| Year Ending December 31, | 2024 | $ | $ | $ | |||||||||
| 2025 | |||||||||||||
| 2026 | |||||||||||||
| 2027 | |||||||||||||
| 2028 | |||||||||||||
| Thereafter | |||||||||||||
| $ | $ | $ | |||||||||||
NOTE 10. SHARE-BASED COMPENSATION
Under the 2014 Long-Term Incentive Plan (“2014 LTIP”), SARs and RSUs have generally been granted with an exercise price equal to the fair value of Summit's common stock on the grant date. We periodically grant SARs and RSUs to individual employees.
During first quarter 2023, we granted
The fair value of our SARs granted under the Plans 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 SARs granted but are not considered by the model. Because our SARs have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its SARs at the time of grant. The assumptions used to value SARs granted in 2023 are as follows:
| 2023 grant with 7 year expiration | 2023 grant with 5 year expiration | |||||||
| Risk-free interest rate | % | % | ||||||
| Expected dividend yield | % | % | ||||||
| Expected common stock volatility | % | % | ||||||
| Expected life (in years) | ||||||||
A summary of our SAR activity during the first three months of 2024 and 2023 is as follows:
| For the Three Months Ended March 31, 2024 | ||||||||||||||||
| Aggregate | Remaining | Weighted- | ||||||||||||||
| Intrinsic Value | Contractual | Average | ||||||||||||||
| Options/SARs | (in thousands) | Term (Yrs.) | Exercise Price | |||||||||||||
| Outstanding, January 1 | $ | |||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ( | ) | ||||||||||||||
| Forfeited | ||||||||||||||||
| Expired | ||||||||||||||||
| Outstanding, March 31 | $ | $ | ||||||||||||||
| Exercisable, March 31 | $ | $ | ||||||||||||||
| For the Three Months Ended March 31, 2023 | ||||||||||||||||
| Aggregate | Remaining | Weighted- | ||||||||||||||
| Intrinsic Value | Contractual | Average | ||||||||||||||
| Options/SARs | (in thousands) | Term (Yrs.) | Exercise Price | |||||||||||||
| Outstanding, January 1 | $ | |||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ( | ) | ||||||||||||||
| Forfeited | ||||||||||||||||
| Expired | ||||||||||||||||
| Outstanding, March 31 | $ | $ | ||||||||||||||
| Exercisable, March 31 | $ | $ | ||||||||||||||
Grants of RSUs include time-based vesting conditions that generally vest ratably over a period of
| RSUs | Weighted Average Grant Date Fair Value | |||||||
| Nonvested, December 31, 2023 | $ | |||||||
| Granted | ||||||||
| Forfeited | ||||||||
| Vested | ||||||||
| Nonvested, March 31, 2024 | $ | |||||||
| RSUs | Weighted Average Grant Date Fair Value | |||||||
| Nonvested, December 31, 2022 | $ | |||||||
| Granted | ||||||||
| Forfeited | ||||||||
| Vested | ||||||||
| Nonvested, March 31, 2023 | $ | |||||||
We recognize compensation expense based on the estimated number of stock awards expected to actually vest, exclusive of the awards expected to be forfeited. During the first three months of 2024 and 2023, total stock compensation expense for all share-based arrangements was $
NOTE 11. COMMITMENTS AND CONTINGENCIES
Off-Balance Sheet Arrangements
We are a party to certain financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of our customers. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the statement of financial position. The contract amounts of these instruments reflect the extent of involvement that we have in this class of financial instruments.
Many of our lending relationships contain both funded and unfunded elements. The funded portion is reflected on our balance sheet. The unfunded portion of these commitments is not recorded on our balance sheet until a draw is made under the loan facility. Since many of the commitments to extend credit may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash flow requirements.
A summary of the total unfunded, or off-balance sheet, credit extension commitments follows:
| March 31, | ||||
| Dollars in thousands | 2024 | |||
| Commitments to extend credit: | ||||
| Revolving home equity and credit card lines | $ | |||
| Construction loans | ||||
| Other loans | ||||
| Standby letters of credit | ||||
| Total | $ | |||
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. We evaluate each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if we deem necessary upon extension of credit, is based on our credit evaluation. Collateral held varies but may include accounts receivable, inventory, equipment or real estate.
Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party.
Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments.
Allowance For Credit Losses - Off-Balance-Sheet Credit Exposures
The provision for credit losses on unfunded commitments was $(
Litigation
We are not a party to litigation except for matters that arise in the normal course of business. While it is impossible to ascertain the ultimate resolution or range of financial liability, if any, with respect to these contingent matters, in the opinion of management, after consultation with legal counsel, the outcome of these matters will not have a significant adverse effect on the consolidated financial statements.
NOTE 12. PREFERRED STOCK
In April 2021, we sold through a private placement
NOTE 13. REGULATORY MATTERS
Our bank subsidiary, Summit Community Bank, Inc. (“Summit Community”), is subject to various regulatory capital requirements administered by the banking regulatory agencies. Under the capital adequacy guidelines and the regulatory framework for prompt corrective action, Summit Community must meet specific capital guidelines that involve quantitative measures of its assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Our bank subsidiary’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require Summit Community to maintain minimum amounts and ratios of Common Equity Tier 1("CET1"), Total capital and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). We believe, as of March 31, 2024, that our bank subsidiary met all capital adequacy requirements to which they were subject.
The most recent notifications from the banking regulatory agencies categorized Summit Community as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, Summit Community must maintain minimum CET1, Total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table below.
In December 2018, the federal bank regulatory agencies approved a final rule modifying their regulatory capital rules to provide an option to phase-in over a period of three years the day-one regulatory capital effects of the implementation of ASC 326. In March 2020, those agencies approved a final rule providing an option to delay the estimated impact on regulatory capital. We elected this optional phase-in period upon adoption of ASC 326 on January 1, 2020 and elected to delay the estimated impact. The initial impact of adoption as well as 25% of the quarterly increases in the allowance for credit losses subsequent to adoption (collectively the “transition adjustments”) will be delayed for two years. After two years, the cumulative amount of the transition adjustments will become fixed and will be phased out of the regulatory capital calculations evenly over a three year period, with 75% recognized in year three, 50% recognized in year four, and 25% recognized in year five. After five years, the temporary regulatory capital benefits will be fully reversed.
The following tables present Summit's, as well as Summit Community's, actual and required minimum regulatory capital amounts and ratios as of March 31, 2024 and December 31, 2023.
Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended.
| Actual | Minimum Required Capital - Basel III | Minimum Required To Be Well Capitalized | ||||||||||||||||||||||
| Dollars in thousands | Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||
| As of March 31, 2024 | ||||||||||||||||||||||||
| CET1 (to risk weighted assets) | ||||||||||||||||||||||||
| Summit | $ | % | $ | % | N/A | N/A | ||||||||||||||||||
| Summit Community | % | % | % | |||||||||||||||||||||
| Tier I Capital (to risk weighted assets) | ||||||||||||||||||||||||
| Summit | % | % | N/A | N/A | ||||||||||||||||||||
| Summit Community | % | % | % | |||||||||||||||||||||
| Total Capital (to risk weighted assets) | ||||||||||||||||||||||||
| Summit | % | % | N/A | N/A | ||||||||||||||||||||
| Summit Community | % | % | % | |||||||||||||||||||||
| Tier I Capital (to average assets) | ||||||||||||||||||||||||
| Summit | % | % | N/A | N/A | ||||||||||||||||||||
| Summit Community | % | % | % | |||||||||||||||||||||
| Actual | Minimum Required Capital - Basel III | Minimum Required To Be Well Capitalized | ||||||||||||||||||||||
| Dollars in thousands | Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||
| As of December 31, 2023 | ||||||||||||||||||||||||
| CET1 (to risk weighted assets) | ||||||||||||||||||||||||
| Summit | % | % | N/A | N/A | ||||||||||||||||||||
| Summit Community | % | % | % | |||||||||||||||||||||
| Tier I Capital (to risk weighted assets) | ||||||||||||||||||||||||
| Summit | % | % | N/A | N/A | ||||||||||||||||||||
| Summit Community | % | % | % | |||||||||||||||||||||
| Total Capital (to risk weighted assets) | ||||||||||||||||||||||||
| Summit | % | % | N/A | N/A | ||||||||||||||||||||
| Summit Community | % | % | % | |||||||||||||||||||||
| Tier I Capital (to average assets) | ||||||||||||||||||||||||
| Summit | % | % | N/A | N/A | ||||||||||||||||||||
| Summit Community | % | % | % | |||||||||||||||||||||
NOTE 14. DERIVATIVE FINANCIAL INSTRUMENTS
We use derivative instruments primarily to protect against the risk of adverse interest rate movements on the cash flows and fair values of certain assets and liabilities. Each of our derivative transactions qualify under the rules for “hedge accounting” in accordance with GAAP. A summary of our derivative transactions follows:
Cash flow hedges
We have entered into
| • | A $ |
| • | A $ |
| • | A $ |
In addition, we have purchased
| • | A $ |
| • | A $ |
Fair value hedges
We have entered into pay-fixed/receive variable interest rate swaps as follows:
| • | An original million (current $ |
| • | An original $ |
| • | A $ |
A summary of our derivative financial instruments as of March 31, 2024 and December 31, 2023 follows:
| March 31, 2024 | ||||||||||||||||
| Derivative Fair Value | Net Ineffective | |||||||||||||||
| Dollars in thousands | Notional Amount | Asset | Liability | Hedge Gains/(Losses) | ||||||||||||
| CASH FLOW HEDGES | ||||||||||||||||
| Pay-fixed/receive-variable interest rate swaps | ||||||||||||||||
| Short term borrowings | $ | $ | $ | $ | ||||||||||||
| Interest rate cap hedging: | ||||||||||||||||
| Short term borrowings | $ | $ | $ | $ | ||||||||||||
| Indexed interest bearing demand deposit accounts | ||||||||||||||||
| FAIR VALUE HEDGES | ||||||||||||||||
| Pay-fixed/receive-variable interest rate swaps | ||||||||||||||||
| Commercial real estate loans | $ | $ | $ | $ | ||||||||||||
| Available for sale taxable municipal securities | ( | ) | ||||||||||||||
| Total | $ | $ | $ | $ | ( | ) | ||||||||||
| December 31, 2023 | ||||||||||||||||
| Derivative Fair Value | Net Ineffective | |||||||||||||||
| Dollars in thousands | Notional Amount | Asset | Liability | Hedge Gains/(Losses) | ||||||||||||
| CASH FLOW HEDGES | ||||||||||||||||
| Pay-fixed/receive-variable interest rate swaps | ||||||||||||||||
| Short term borrowings | $ | $ | $ | $ | ||||||||||||
| Interest rate cap hedging: | ||||||||||||||||
| Short term borrowings | $ | $ | $ | $ | ||||||||||||
| Indexed interest bearing demand deposit accounts | ||||||||||||||||
| FAIR VALUE HEDGES | ||||||||||||||||
| Pay-fixed/receive-variable interest rate swaps | ||||||||||||||||
| Commercial real estate loans | $ | $ | $ | $ | ||||||||||||
| Available for sale taxable municipal securities | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Loan commitments: ASC Topic 815, Derivatives and Hedging, requires that commitments to make mortgage loans should be accounted for as derivatives if the loans are to be held for sale, because the commitment represents a written option and accordingly is recorded at the fair value of the option liability.
NOTE 15. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
The following is changes in accumulated other comprehensive (loss) income by component, net of tax, for the three and three months ending March 31, 2024 and 2023.
| For the Three Months Ended March 31, 2024 | ||||||||||||||||||||||||
| Dollars in thousands | Gains and (Losses) on Pension Plan | Gains and (Losses) on Other Post-Retirement Benefits | Gains and (Losses) on Cash Flow Hedges | Unrealized Gains (Losses) on Debt Securities Available for Sale | Unrealized Gains (Losses) on Securities Fair Value Hedge | Total | ||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||
| Other comprehensive (loss) income before reclassification | ( | ) | ||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss, net of tax | ||||||||||||||||||||||||
| Net current period other comprehensive (loss) income | ( | ) | ||||||||||||||||||||||
| Ending balance | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||
| For the Three Months Ended March 31, 2023 | ||||||||||||||||||||||||
| Dollars in thousands | Gains and (Losses) on Pension Plan | Gains and (Losses) on Other Post-Retirement Benefits | Gains and (Losses) on Cash Flow Hedges | Unrealized Gains (Losses) on Debt Securities Available for Sale | Unrealized Gains (Losses) on Securities Fair Value Hedge | Total | ||||||||||||||||||
| Beginning balance | $ | ( | ) | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||
| Other comprehensive income (loss) before reclassification | ( | ) | ( | ) | ||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss, net of tax | ||||||||||||||||||||||||
| Net current period other comprehensive income (loss) | ( | ) | ( | ) | ||||||||||||||||||||
| Ending balance | $ | ( | ) | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||
NOTE 16. INCOME TAXES
Our income tax expense for the three months ended March 31, 2024 and March 31, 2023 totaled $
| For the Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Percent | Percent | |||||||
| Applicable statutory rate | % | % | ||||||
| Increase (decrease) in rate resulting from: | ||||||||
| Tax-exempt interest and dividends, net | ( | )% | ( | )% | ||||
| State income taxes, net of Federal income tax benefit | % | % | ||||||
| Low-income housing and rehabilitation tax credits | ( | )% | ( | )% | ||||
| Other, net | % | ( | )% | |||||
| Effective income tax rate | % | % | ||||||
The components of applicable income tax expense for the three months ended March 31, 2024 and 2023 are as follows:
| For the Three Months Ended March 31, | ||||||||
| Dollars in thousands | 2024 | 2023 | ||||||
| Current | ||||||||
| Federal | $ | $ | ||||||
| State | ||||||||
| Deferred | ||||||||
| Federal | ( | ) | ||||||
| State | ( | ) | ||||||
| ( | ) | |||||||
| Total | $ | $ | ||||||
NOTE 17. REVENUE FROM CONTRACTS WITH CUSTOMERS
Interest income, loan fees, realized securities gains and losses, bank owned life insurance income and mortgage banking revenue are not in the scope of ASC Topic 606, Revenue from Contracts with Customers. With the exception of gains or losses on sales of foreclosed properties, all of our revenue from contracts with customers in the scope of ASC 606 is recognized within Noninterest Income in the Consolidated Statements of Income. Incremental costs of obtaining a contract are expensed when incurred when the amortization period is year or less.
The following table illustrates our total non-interest income segregated by revenues within the scope of ASC Topic 606 and those which are within the scope of other ASC Topics:
| Three Months Ended March 31, | ||||||||
| Dollars in thousands | 2024 | 2023 | ||||||
| Service fees on deposit accounts | $ | $ | ||||||
| Bank card revenue | ||||||||
| Trust and wealth management fees | ||||||||
| Other | ||||||||
| Net revenue from contracts with customers | ||||||||
| Non-interest income within the scope of other ASC topics | ||||||||
| Total noninterest income | $ | $ | ||||||
NOTE 18. MERGER
Pending Merger
On August 24, 2023, we entered into an Agreement and Plan of Reorganization with Burke & Herbert Financial Services Corp. (“Burke & Herbert”), a $
The merger will close , subject to customary closing conditions. Immediately following the merger, Summit Community Bank, Inc., Summit’s wholly owned banking subsidiary, will be merged with and into Burke & Herbert’s wholly-owned banking subsidiary, Burke & Herbert Bank & Trust Company, with B&H Bank the surviving bank. Refer to our 8-K filed with the SEC on August 24, 2023 for further details.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
INTRODUCTION
The following discussion and analysis focuses on significant changes in our financial condition and results of operations of Summit Financial Group, Inc. (“Company” or “Summit”) and its operating subsidiary, Summit Community Bank (“Summit Community”), for the periods indicated. This discussion and analysis should be read in conjunction with our 2023 audited consolidated financial statements and Annual Report on Form 10-K.
The Private Securities Litigation Act of 1995 indicates that the disclosure of forward-looking information is desirable for investors and encourages such disclosure by providing a safe harbor for forward-looking statements by us. This Quarterly Report on Form 10-Q contains comments or information that constitute forward-looking statements (within the meaning of the Private Securities Litigation Act of 1995) that are based on current expectations that involve a number of risks and uncertainties. Words such as “expects”, “anticipates”, “believes”, “estimates” and other similar expressions or future or conditional verbs such as “will”, “should”, “would” and “could” are intended to identify such forward-looking statements.
Although we believe the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially. Factors that might cause such a difference include: current and future economic and market conditions, including the effects of declines in housing prices, high unemployment rates, U.S. fiscal debt, budget and tax matters, geopolitical matters, and any slowdown in global economic growth; overall levels of inflation; fiscal and monetary policies of the Federal Reserve; future provisions for credit losses on loans and debt securities; changes in nonperforming assets; changes in interest rates and interest rate relationships; demand for products and services; the degree of competition by traditional and non-traditional competitors; the successful integration of operations of our mergers and acquisitions; changes in banking laws and regulations; changes in tax laws; the impact of technological advances; the outcomes of contingencies; trends in customer behavior as well as their ability to repay loans; and changes in the national and local economies. We undertake no obligation to revise these statements following the date of this filing.
OVERVIEW
On April 1, 2023, we acquired PSB Holding Corp. (“PSB”), and its subsidiary, Provident State Bank, Inc., headquartered in Preston, Maryland. PSB's results are included in our financial statements from the acquisition date forward, impacting comparisons to the prior year first quarter.
In August 2023, we entered into an Agreement and Plan of Reorganization with Burke & Herbert pursuant to which Summit will merge with and into Burke & Herbert, with Burke & Herbert as the surviving entity. Immediately following the Merger, Summit Community Bank, Inc., Summit’s wholly owned banking subsidiary, will be merged with Burke & Herbert’s wholly-owned banking subsidiary, Burke & Herbert Bank & Trust Company, with B&H Bank the surviving bank. The transaction is expected to close May 3, 2024. See Note 18 to these consolidated financial statements for further information relative to the merger.
Our primary source of income is net interest income from loans and deposits. Business volumes tend to be influenced by the overall economic factors including market interest rates, business spending, and consumer confidence, as well as competitive conditions within the marketplace.
During the first three months of 2024, Summit's Tangible Book Value Per Common Share ("TBVPCS") increased $1.02 to $24.91 primarily due to retained earrnings. Further, TBVPCS was positively impacted by unrealized net gains on interest rate caps and swaps held as hedges against higher interest rates of $0.20 per common share (net of deferred income taxes), recorded in OCI which was nearly offset by unrealized net losses on AFS debt securities of $0.18 per common share (net of deferred income taxes), also recorded in accumulated OCI, in the same period. While TBVPCS is a non-GAAP financial measure, we believe TBVPCS provides a meaningful alternative measure of capital strength and performance for investors, industry analysts and others. See reconciliation of this non-GAAP financial measure in NON-GAAP FINANCIAL MEASURES below.
Primarily due to our PSB acquisition and organic loan growth, average interest earning assets increased by 18.1% for the first three months in 2024 compared to the same period of 2023 while our net interest earnings on a tax equivalent basis increased 16.3%. Our tax equivalent net interest margin decreased 8 basis points as our yield on interest earning assets increased 49 basis points while our cost of interest bearing funds increased 70 basis points.
CRITICAL ACCOUNTING POLICIES
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America and follow general practices within the financial services industry. Application of these principles requires us to make estimates, assumptions and judgments that affect the amounts reported in our financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions and judgments. Certain policies inherently have a greater reliance on the use of estimates, assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported.
Our most significant accounting policies are presented in the notes to the consolidated financial statements of our 2023 Annual Report on Form 10-K. These policies, along with the other disclosures presented in the financial statement notes and in this financial review, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined.
Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions and estimates underlying those amounts, we have identified the determination of ACL, fair value measurements and accounting for acquired loans to be the accounting areas that require the most subjective or complex judgments and as such could be most subject to revision as new information becomes available. Refer to Note 6 of the Notes to the Consolidated Financial Statements in the 2023 Form 10-K for a discussion of the methodology we employ regarding the ACL.
For additional information regarding critical accounting policies, refer to Critical Accounting Policies section in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 2023 Form 10-K. There have been no significant changes in our application of critical accounting policies since December 31, 2023.
NON-GAAP FINANCIAL MEASURES
We prepare our financial statements in accordance with U.S. GAAP and also present certain non-GAAP financial measures that exclude certain items or otherwise include components that differ from the most directly comparable measures calculated in accordance with U.S. GAAP. Non-GAAP measures are provided as additional useful information to assess our financial condition and results of operations (including period-to-period operating performance). These non-GAAP measures are not intended as a substitute for GAAP financial measures and may not be defined or calculated the same way as non-GAAP measures with similar names used by other companies. For more information, including the reconciliation of these non-GAAP financial measures to their corresponding GAAP financial measures, see the respective sections where the measures are presented.
| Book Value and Tangible Book Value Per Common Share |
||||||||
| March 31, | December 31, | |||||||
| Dollars in thousands |
2024 |
2023 |
||||||
| Total shareholders' equity |
$ | 454,281 | $ | 440,208 | ||||
| Less preferred stock |
14,920 | 14,920 | ||||||
| Common shareholders' equity |
439,361 | 425,288 | ||||||
| Less goodwill and intangible assets |
73,443 | 74,430 | ||||||
| Tangible common equity (TCE) |
$ | 365,918 | $ | 350,858 | ||||
| Common shares outstanding |
14,686,738 | 14,683,457 | ||||||
| Book value per common share(1) |
$ | 29.92 | $ | 28.96 | ||||
| Tangible book value per common share(2) |
$ | 24.91 | $ | 23.89 | ||||
| (1) Common shareholders' equity divided by common shares outstanding |
||||||||
| (2) TCE divided by common shares outstanding |
||||||||
RESULTS OF OPERATIONS
Earnings Summary
Net income applicable to common shares for the three months ended March 31, 2024 was $16.8 million, or $1.14 per diluted share, compared to $13.9 million, or $1.08 per diluted share for the same period of 2023. The increased earnings during 2024 were primarily attributable to increased net interest income due to our growth and decreased provision for credit losses. Returns on average equity and assets for the first three months of 2024 were 15.37% and 1.47%, respectively, compared with 15.55% and 1.43% for the same period of 2023.
PSB's results of operations are included in our consolidated results of operations from the date of
, and therefore our 2024 results reflect increased levels of average balances, income and expense as compared to the same periods of 2023 results. At consummation (prior to fair value acquisition adjustments), the PSB transaction consisted primarily of $568 million assets and $528 million liabilities.
Net Interest Income
Net interest income is the principal component of our earnings and represents the difference between interest and fee income generated from earning assets and the interest expense paid on deposits and borrowed funds. Fluctuations in interest rates as well as changes in the volume and mix of earning assets and interest bearing liabilities can materially impact net interest income.
Q1 2024 compared to Q4 2023
For the quarter ended March 31, 2024, our net interest income on a fully taxable-equivalent basis decreased $950,000 to $40.2 million compared to $41.2 million for the quarter end December 31, 2023. Our taxable-equivalent earnings on interest earning assets decreased $1.1 million, while the cost of interest bearing liabilities decreased $124,000 (see Tables I and II).
For the three months ended March 31, 2024, average interest earning assets decreased to $4.32 billion compared to $4.34 billion for the three months ended December 31, 2023, while average interest bearing liabilities decreased to $3.52 billion for the three months ended March 31, 2024 from $3.57 billion for the three months ended December 31, 2023.
For the quarter ended March 31, 2024, our net interest margin decreased to 3.75%, compared to 3.76% for the linked quarter, as the yields on earning assets increased 1 basis points and the cost of our interest bearing funds increased by 6 basis points. Excluding the impact of accretion and amortization of fair value acquisition accounting adjustments related to the interest earning assets and interest bearing liabilities acquired by merger, Summit's net interest margin was 3.66% and 3.67% for the three months ended March 31, 2024 and December 31, 2023.
Q1 2024 compared to Q1 2023
For the quarter ended March 31, 2024, our net interest income on a fully taxable-equivalent basis increased $5.7 million to $40.2 million compared to $34.6 million for the quarter ended March 31, 2023. Our taxable-equivalent earnings on interest earning assets increased $15.0 million, while the cost of interest bearing liabilities increased $9.3 million (see Tables I and II).
For the three months ended March 31, 2024, average interest earning assets increased 18.07% to $4.32 billion compared to $3.66 billion for the three months ended March 31, 2023, while average interest bearing liabilities increased 19.25% from $2.98 billion for the three months ended March 31, 2023 to $3.52 billion for the three months ended March 31, 2024.
For the quarter ended March 31, 2024, our net interest margin decreased to 3.75%, compared to 3.83% for the same period of 2023, as the yields on earning assets increased 49 basis points, while the cost of our interest bearing funds increased by 70 basis points.
Excluding the impact of accretion and amortization of fair value acquisition accounting adjustments related to the interest earning assets and interest bearing liabilities acquired by merger, Summit's net interest margin was 3.82% for the three months ended March 31, 2023.
| Table I - Average Balance Sheet and Net Interest Income Analysis |
||||||||||||||||||||||||||||||||||||
| For the Quarter Ended |
||||||||||||||||||||||||||||||||||||
| March 31, 2024 |
December 31, 2023 |
March 31, 2023 |
||||||||||||||||||||||||||||||||||
| Average |
Earnings/ |
Yield/ |
Average |
Earnings/ |
Yield/ |
Average |
Earnings/ |
Yield/ |
||||||||||||||||||||||||||||
| Dollars in thousands |
Balance |
Expense |
Rate |
Balance |
Expense |
Rate |
Balance |
Expense |
Rate |
|||||||||||||||||||||||||||
| Interest earning assets |
||||||||||||||||||||||||||||||||||||
| Loans, net of unearned fees (1) |
||||||||||||||||||||||||||||||||||||
| Taxable |
3,686,788 | $ | 59,204 | 6.46 | % | $ | 3,688,505 | $ | 59,802 | 6.43 | % | $ | 3,087,068 | $ | 45,421 | 5.97 | % | |||||||||||||||||||
| Tax-exempt (2) |
4,427 | 57 | 5.18 | % | 4,357 | 68 | 6.19 | % | 6,086 | 81 | 5.40 | % | ||||||||||||||||||||||||
| Securities |
||||||||||||||||||||||||||||||||||||
| Taxable |
413,656 | 5,025 | 4.89 | % | 410,211 | 5,129 | 4.96 | % | 314,004 | 3,412 | 4.41 | % | ||||||||||||||||||||||||
| Tax-exempt (2) |
184,810 | 1,413 | 3.08 | % | 206,375 | 1,784 | 3.43 | % | 216,430 | 1,781 | 3.34 | % | ||||||||||||||||||||||||
| Federal funds sold and interest bearing deposits with other banks |
29,287 | 132 | 1.81 | % | 31,053 | 122 | 1.56 | % | 34,330 | 171 | 2.02 | % | ||||||||||||||||||||||||
| Total interest earning assets |
4,318,968 | 65,831 | 6.13 | % | 4,340,501 | 66,905 | 6.12 | % | 3,657,918 | 50,866 | 5.64 | % | ||||||||||||||||||||||||
| Noninterest earning assets |
||||||||||||||||||||||||||||||||||||
| Cash & due from banks |
24,037 | 22,485 | 17,387 | |||||||||||||||||||||||||||||||||
| Premises and equipment |
62,773 | 63,298 | 54,112 | |||||||||||||||||||||||||||||||||
| Property held for sale |
3,559 | 4,463 | 5,110 | |||||||||||||||||||||||||||||||||
| Intangible assets |
74,057 | 75,043 | 62,024 | |||||||||||||||||||||||||||||||||
| Other assets |
191,135 | 211,358 | 185,423 | |||||||||||||||||||||||||||||||||
| Allowance for credit losses-loans |
(48,897 | ) | (47,834 | ) | (39,507 | ) | ||||||||||||||||||||||||||||||
| Total assets |
$ | 4,625,632 | $ | 4,669,314 | $ | 3,942,467 | ||||||||||||||||||||||||||||||
| Interest bearing liabilities |
||||||||||||||||||||||||||||||||||||
| Interest bearing demand deposits |
$ | 2,126,722 | $ | 15,480 | 2.93 | % | $ | 2,170,953 | $ | 16,196 | 2.96 | % | $ | 1,819,505 | $ | 10,796 | 2.41 | % | ||||||||||||||||||
| Savings deposits |
442,122 | 1,822 | 1.66 | % | 459,277 | 1,986 | 1.72 | % | 480,207 | 1,917 | 1.62 | % | ||||||||||||||||||||||||
| Time deposits |
531,125 | 4,128 | 3.13 | % | 508,383 | 3,235 | 2.52 | % | 389,252 | 1,287 | 1.34 | % | ||||||||||||||||||||||||
| Short-term borrowings |
298,325 | 2,661 | 3.59 | % | 309,657 | 2,791 | 3.58 | % | 166,365 | 824 | 2.01 | % | ||||||||||||||||||||||||
| Long-term borrowings, subordinated debentures and capital trust securities |
124,060 | 1,508 | 4.89 | % | 123,954 | 1,515 | 4.85 | % | 123,599 | 1,462 | 4.80 | % | ||||||||||||||||||||||||
| Total interest bearing liabilities |
3,522,354 | 25,599 | 2.92 | % | 3,572,224 | 25,723 | 2.86 | % | 2,978,928 | 16,286 | 2.22 | % | ||||||||||||||||||||||||
| Noninterest bearing liabilities and shareholders' equity |
||||||||||||||||||||||||||||||||||||
| Demand deposits |
605,190 | 621,082 | 557,209 | |||||||||||||||||||||||||||||||||
| Other liabilities |
54,513 | 54,160 | 43,508 | |||||||||||||||||||||||||||||||||
| Total liabilities |
4,182,057 | 4,247,466 | 3,579,645 | |||||||||||||||||||||||||||||||||
| Shareholders' equity - preferred |
14,920 | 14,920 | 14,920 | |||||||||||||||||||||||||||||||||
| Shareholders' equity - common |
428,655 | 406,928 | 347,902 | |||||||||||||||||||||||||||||||||
| Total liabilities and shareholders' equity |
$ | 4,625,632 | $ | 4,669,314 | $ | 3,942,467 | ||||||||||||||||||||||||||||||
| Net interest earnings |
$ | 40,232 | $ | 41,182 | $ | 34,580 | ||||||||||||||||||||||||||||||
| Net yield on interest earning assets |
3.75 | % | 3.76 | % | 3.83 | % | ||||||||||||||||||||||||||||||
| (1) |
- For purposes of this table, nonaccrual loans are included in average loan balances. |
| (2) |
- Interest income on tax-exempt securities and loans has been adjusted assuming a Federal tax rate of 21% for all periods presented. The tax equivalent adjustment resulted in an increase in interest income of $309,000, $389,000, and $391,000 for the three months ended March 31, 2024, December 31, 2023 and March 31, 2023, respectively. |
| Table II - Changes in Net Interest Income Attributable to Rate and Volume |
||||||||||||||||||||||||
| For the Quarter Ended |
For the Quarter Ended |
|||||||||||||||||||||||
| March 31, 2024 vs. December 31, 2023 |
March 31, 2024 vs. March 31, 2023 |
|||||||||||||||||||||||
| Increase (Decrease) Due to Change in: |
Increase (Decrease) Due to Change in: |
|||||||||||||||||||||||
| Dollars in thousands |
Volume |
Rate |
Net |
Volume |
Rate |
Net |
||||||||||||||||||
| Interest earned on: |
||||||||||||||||||||||||
| Loans |
||||||||||||||||||||||||
| Taxable |
$ | (111 | ) | $ | (487 | ) | $ | (598 | ) | $ | 9,372 | $ | 4,411 | 13,783 | ||||||||||
| Tax-exempt |
1 | (12 | ) | (11 | ) | (21 | ) | (3 | ) | (24 | ) | |||||||||||||
| Securities |
||||||||||||||||||||||||
| Taxable |
18 | (122 | ) | (104 | ) | 1,176 | 437 | 1,613 | ||||||||||||||||
| Tax-exempt |
(186 | ) | (185 | ) | (371 | ) | (248 | ) | (120 | ) | (368 | ) | ||||||||||||
| Federal funds sold and interest bearing deposits with other banks |
(8 | ) | 18 | 10 | (23 | ) | (16 | ) | (39 | ) | ||||||||||||||
| Total interest earned on interest earning assets |
(286 | ) | (788 | ) | (1,074 | ) | 10,256 | 4,709 | 14,965 | |||||||||||||||
| Interest paid on: |
||||||||||||||||||||||||
| Interest bearing demand deposits |
(466 | ) | (250 | ) | (716 | ) | 1,999 | 2,685 | 4,684 | |||||||||||||||
| Savings deposits |
(86 | ) | (78 | ) | (164 | ) | (155 | ) | 60 | (95 | ) | |||||||||||||
| Time deposits |
141 | 752 | 893 | 603 | 2,238 | 2,841 | ||||||||||||||||||
| Short-term borrowings |
(136 | ) | 6 | (130 | ) | 914 | 923 | 1,837 | ||||||||||||||||
| Long-term borrowings, subordinated debentures and capital trust securities |
(1 | ) | (6 | ) | (7 | ) | 5 | 41 | 46 | |||||||||||||||
| Total interest paid on interest bearing liabilities |
(548 | ) | 424 | (124 | ) | 3,366 | 5,947 | 9,313 | ||||||||||||||||
| Net interest income |
$ | 262 | $ | (1,212 | ) | $ | (950 | ) | $ | 6,890 | $ | (1,238 | ) | $ | 5,652 | |||||||||
Provision for Credit Losses
Provision for credit losses is determined by management as the amount to be added to the allowance for credit loss accounts for various types of financial instruments including loans, securities and off-balance-sheet credit exposure after net charge-offs have been deducted to bring the allowance to a level which, in management’s best estimate, is necessary to absorb expected credit losses over the lives of the respective financial instruments.
No provision for credit losses was recorded for the three months ended March 31, 2024. We recorded $1.5 million provision for credit losses for the three months ended March 31, 2023. The following table summarizes the changes in the various factors that comprise the components of credit loss expense.
| Table V - Provision for Credit Losses |
||||||||
| For the Three Months Ended |
||||||||
| March 31, |
||||||||
| Dollars in thousands |
2024 |
2023 |
||||||
| Provision for credit losses-loans |
||||||||
| Due to changes in: |
||||||||
| Loan volume and mix |
$ | (1,636 | ) | $ | 683 | |||
| Loss experience |
(606 | ) | (802 | ) | ||||
| Reasonable and supportable economic forecasts & other qualitative adjustments |
1,927 | 2,393 | ||||||
| Individually evaluated credits |
1,365 | (399 | ) | |||||
| Total provision for credit losses - loans |
1,050 | 1,875 | ||||||
| (Recovery of) provision for credit losses-unfunded commitments |
||||||||
| Due to changes in: |
||||||||
| Loan volume and mix |
(1,110 | ) | (535 | ) | ||||
| Loss experience |
(72 | ) | (83 | ) | ||||
| Reasonable and supportable economic forecasts & other qualitative adjustments |
132 | 243 | ||||||
| Total recovery of credit losses - unfunded commitments |
(1,050 | ) | (375 | ) | ||||
| Total provision for credit losses - debt securities |
— | — | ||||||
| Total provision for credit losses |
$ | — | $ | 1,500 | ||||
Noninterest Income
Total noninterest income for the three months ended March 31, 2024 increased 15.8% compared to the same period of 2023. The increases were principally due to increased service charges on deposit accounts and higher bank card revenue. Further detail regarding noninterest income is reflected in the following table.
| Table VI - Noninterest Income |
||||||
| For the Three Months Ended |
||||||
| March 31, |
||||||
| Dollars in thousands |
2024 |
2023 |
||||
| Trust and wealth management fees |
847 | 811 | ||||
| Mortgage origination revenue |
154 | 171 | ||||
| Service charges on deposit accounts |
1,723 | 1,392 | ||||
| Bank card revenue |
1,833 | 1,568 | ||||
| Net realized losses on debt securities |
(94 | ) | (59 | ) | ||
| Net gains on equity investments |
40 | 45 | ||||
| Bank owned life insurance and annuities income |
463 | 336 | ||||
| Other |
112 | 122 | ||||
| Total |
$ | 5,078 | $ | 4,386 | ||
Noninterest Expense
Total noninterest expense increased 18.3% for the three months ended March 31, 2024 compared to the same periods of 2023, primarily due to higher salaries, commissions, and employee benefits, equipment expense, and other expenses. Table VII below shows the breakdown of the changes.
Table VII- Noninterest Expense
| For the Three Months Ended March 31, |
||||||||||||||||
| Change |
||||||||||||||||
| Dollars in thousands |
2024 |
$ |
% | 2023 |
||||||||||||
| Salaries, commissions, and employee benefits |
$ | 12,058 | $ | 1,251 | 11.6 | % | $ | 10,807 | ||||||||
| Net occupancy expense |
1,695 | 362 | 27.2 | % | 1,333 | |||||||||||
| Equipment expense |
2,508 | 478 | 23.5 | % | 2,030 | |||||||||||
| Professional fees |
385 | 9 | 2.4 | % | 376 | |||||||||||
| Advertising and public relations |
272 | 102 | 60.0 | % | 170 | |||||||||||
| Amortization of intangibles |
987 | 644 | 187.8 | % | 343 | |||||||||||
| FDIC premiums |
717 | 387 | 117.3 | % | 330 | |||||||||||
| Bank card expense |
832 | 136 | 19.5 | % | 696 | |||||||||||
| Foreclosed properties expense, net of losses/(gains) |
12 | (3 | ) | (20.0 | )% | 15 | ||||||||||
| Merger-related expenses |
53 | (278 | ) | (84.0 | )% | 331 | ||||||||||
| Other |
3,439 | 471 | 15.9 | % | 2,968 | |||||||||||
| Total |
$ | 22,958 | $ | 3,559 | 18.3 | % | $ | 19,399 | ||||||||
Salaries, commissions, and employee benefits: The increases in these expenses for the three months ended March 31, 2024 compared to the same periods of 2023 are primarily due to general merit raises, higher group health insurance premiums and an increase in the average number of full-time equivalent employees related to the PSB acquisition during second quarter 2023.
Equipment: The increase in equipment expense is primarily increased depreciation and amortization related to various technological upgrades, both hardware and software, made during the past three years including depreciation and amortization relative to equipment and software related to acquisitions.
Other: The increase in other expenses for the three months ended March 31, 2024 compared to the same period of 2023 is largely due to the following:
| • |
Deferred director compensation plan-related income of $313,000 for the three months ended March 31, 2024 compared to $164,000 in the comparable period of 2023 . Under the plan, the directors optionally defer their director fees into a "phantom" investment plan whereby the company recognizes expense or benefit relative to the phantom returns or losses of such investments. |
| • | Internet banking expense totaled $438,000 for the three months ended March 31, 2024 compared to $366,000 for the comparable period of 2023 due to increased customer usage. | |
| • | Fraud losses increased from $203,000 for the three months ended March 31, 2023 to $391,000 for the three months ended March 31, 2024. | |
| • | Debit card issuance and processing costs were $692,000 for the three months ended March 31, 2024 compared to $574,000 for the same period of 2023 due to increased customer usage. |
Income Taxes
Our income tax expense for the three months ended March 31, 2024 and March 31, 2023 totaled $5.0 million and $3.6 million, respectively. Our effective tax rate (income tax expense as a percentage of income before taxes) for the quarters ended March 31, 2024 and 2023 was 22.7% and 20.2%, respectively. Refer to Note 16 of the accompanying financial statements for further information regarding our income taxes.
FINANCIAL CONDITION
Our total assets were $ 4.64 billion at March 31, 2024 and $ 4.63 billion at December 31, 2023. Table VIII below is a summary of significant changes in our financial position between December 31, 2023 and March 31, 2024.
| Table VIII - Summary of Significant Changes in Financial Position |
||||||||||||
| Dollars in thousands |
Balance at December 31, 2023 |
Increase (Decrease) |
Balance at March 31, 2024 |
|||||||||
| Assets |
||||||||||||
| Cash and cash equivalents |
$ | 52,232 | $ | 3,424 | $ | 55,656 | ||||||
| Debt securities available for sale |
502,762 | (12,491 | ) | 490,271 | ||||||||
| Debt securities held to maturity |
94,227 | (490 | ) | 93,737 | ||||||||
| Equity investments |
10,958 | 613 | 11,571 | |||||||||
| Other investments |
21,130 | 712 | 21,842 | |||||||||
| Loans, net of unearned fees |
3,681,612 | 15,430 | 3,697,042 | |||||||||
| Less: allowance for credit losses |
(48,090 | ) | (1,142 | ) | (49,232 | ) | ||||||
| Loans, net |
3,633,522 | 14,288 | 3,647,810 | |||||||||
| Property held for sale |
3,729 | (297 | ) | 3,432 | ||||||||
| Premises and equipment |
63,038 | (745 | ) | 62,293 | ||||||||
| Accrued interest and fees receivable |
20,004 | 234 | 20,238 | |||||||||
| Goodwill and other intangibles |
74,430 | (987 | ) | 73,443 | ||||||||
| Cash surrender value of life insurance policies and annuities |
85,679 | 551 | 86,230 | |||||||||
| Derivative financial instruments |
33,145 | 3,658 | 36,803 | |||||||||
| Other assets |
39,466 | 92 | 39,558 | |||||||||
| Total assets |
$ | 4,634,322 | $ | 8,562 | $ | 4,642,884 | ||||||
| Liabilities |
||||||||||||
| Non-interest bearing deposits |
$ | 593,576 | $ | 11,933 | $ | 605,509 | ||||||
| Interest bearing deposits |
3,121,572 | 21,334 | 3,142,906 | |||||||||
| Total deposits |
3,715,148 | 33,267 | 3,748,415 | |||||||||
| Short-term borrowings |
302,957 | (40,598 | ) | 262,359 | ||||||||
| Long-term borrowings |
637 | (7 | ) | 630 | ||||||||
| Subordinated debentures |
103,782 | 122 | 103,904 | |||||||||
| Subordinated debentures owed to unconsolidated subsidiary trusts |
19,589 | — | 19,589 | |||||||||
| Other liabilities |
52,001 | 1,705 | 53,706 | |||||||||
| Shareholders' Equity - preferred |
14,920 | — | 14,920 | |||||||||
| Shareholders' Equity - common |
425,288 | 14,073 | 439,361 | |||||||||
| Total liabilities and shareholders' equity |
$ | 4,634,322 | $ | 8,562 | $ | 4,642,884 | ||||||
The following is a discussion of the significant changes in our financial position during the first three months of 2024:
Debt securities available for sale: The net decrease of $12.5 million in debt securities available for sale is principally attributable to sales of municipal securities.
Loans: Excluding mortgage warehouse lines of credit, loan growth was $15.4 million during the first three months of 2024.
Deposits: During the first three months of 2024, noninterest bearing checking deposits increased $11.9 million, interest bearing checking deposits decreased $18.7 million, savings deposits declined $12.1 million, and retail CDs increased $52.1 million.
Shareholders' equity - common: Changes in common shareholders' equity are a result of net income and common dividends. Refer to the Consolidated Statements of Shareholders' Equity of the accompanying financial statements for further details. Tangible book value per common share (“TBVPCS”) increased $1.02 to $24.91. In addition to the positive impact of retained earnings, TBVPCS was positively impacted by unrealized net gains on interest rate caps and swaps held as hedges against higher interest rates totaling $0.20 per common share (net of deferred income taxes) recorded in accumulated other comprehensive loss. However, these gains were nearly offset by unrealized net losses on AFS debt securities of $0.18 per common share (net of deferred income taxes), also recorded in accumulated other comprehensive loss, in the same period.
Refer to Notes 5, 6, 8, and 9 of the notes to the accompanying consolidated financial statements for additional information with regard to changes in the composition of our securities, loans, deposits and borrowings between March 31, 2024 and December 31, 2023.
Credit Experience
For purposes of this discussion, nonperforming assets include foreclosed properties, other repossessed assets, and nonperforming loans, which is comprised of loans 90 days or more past due and still accruing interest and nonaccrual loans.
The provision for credit losses represents charges to earnings necessary to maintain an adequate allowance to cover an estimate of the full amount of expected credit losses relative to loans. Our determination of the appropriate level of the allowance is based on an ongoing analysis of credit quality and loss potential in the loan portfolio, change in the composition and risk characteristics of the loan portfolio, and the anticipated influence of national and local economic conditions. The adequacy of the allowance for loan credit losses is reviewed quarterly and adjustments are made as considered necessary.
At March 31, 2024 and December 31, 2023, our allowance for loan credit losses totaled $49.2 million, or 1.33% of total loans and $48.1 million, or 1.31% of total loans. The allowance for loan credit losses is considered adequate to cover an estimate of the full amount of expected credit losses relative to loans.
We incurred net loan recoveries of $92,000 in the first three months of 2024 (0.01 percent of average loans annualized), compared to $63,000 net loan recoveries during the first three months of 2023 (0.01 percent of average loans annualized).
As illustrated in Table IX below, our non-performing assets have increased since year end 2023.
| Table IX - Summary of Non-Performing Assets |
||||||||||||
| March 31, |
December 31, |
|||||||||||
| Dollars in thousands |
2024 |
2023 |
2023 |
|||||||||
| Accruing loans past due 90 days or more |
$ | 506 | $ | 17 | $ | 335 | ||||||
| Nonaccrual loans |
||||||||||||
| Commercial |
7,537 | 402 | 1,088 | |||||||||
| Commercial real estate |
8,378 | 1,700 | 5,675 | |||||||||
| Commercial construction and development |
— | — | — | |||||||||
| Residential construction and development |
891 | 813 | 708 | |||||||||
| Residential real estate |
4,245 | 4,322 | 4,524 | |||||||||
| Consumer |
70 | 48 | 109 | |||||||||
| Other |
— | — | — | |||||||||
| Total nonaccrual loans |
21,121 | 7,285 | 12,104 | |||||||||
| Foreclosed properties |
||||||||||||
| Commercial |
— | — | — | |||||||||
| Commercial real estate |
— | 297 | 297 | |||||||||
| Commercial construction and development |
1,253 | 2,187 | 1,253 | |||||||||
| Residential construction and development |
1,924 | 2,293 | 1,924 | |||||||||
| Residential real estate |
255 | 351 | 255 | |||||||||
| Total foreclosed properties |
3,432 | 5,128 | 3,729 | |||||||||
| Repossessed assets |
— | — | — | |||||||||
| Total nonperforming assets |
$ | 25,059 | $ | 12,430 | $ | 16,168 | ||||||
| Total nonperforming loans as a percentage of total loans |
0.58 | % | 0.24 | % | 0.34 | % | ||||||
| Total nonperforming assets as a percentage of total assets |
0.54 | % | 0.31 | % | 0.35 | % | ||||||
| Allowance for credit losses-loans as a percentage of period end loans |
1.33 | % | 1.32 | % | 1.31 | % | ||||||
| Total nonaccrual loans as a percentage of total loans |
0.57 | % | 0.24 | % | 0.33 | % | ||||||
| Allowance for credit losses on loans as a percentage of nonaccrual loans |
233.10 | % | 560.55 | % | 397.31 | % | ||||||
Refer to Note 7 of the Notes to the Consolidated Financial Statements in the 2023 Form 10-K for a discussion of the methodology information regarding our past due loans, nonaccrual loans, modifications to borrowers experiencing financial difficulty and information regarding our methodology we employ on a quarterly basis to evaluate the overall adequacy of our allowance for credit losses.
The following table details the activity regarding our foreclosed properties for the three months ended March 31, 2024 and 2023.
| Table X - Foreclosed Property Activity |
||||||||
| For the Three Months Ended |
||||||||
| March 31, |
||||||||
| Dollars in thousands |
2024 |
2023 |
||||||
| Beginning balance |
$ | 3,729 | $ | 5,067 | ||||
| Acquisitions |
— | 59 | ||||||
| Improvements |
— | 2 | ||||||
| Disposals |
(297 | ) | — | |||||
| Balance March 31 |
$ | 3,432 | $ | 5,128 | ||||
At March 31, 2024 and December 31, 2023 we had approximately $3.4 million and $3.7 million foreclosed properties which were obtained as the result of foreclosure proceedings. Although foreclosed property is recorded at fair value less estimated costs to sell, the prices ultimately realized upon their sale may or may not result in us recognizing additional gains or losses.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity reflects our ability to ensure the availability of adequate funds to meet loan commitments and deposit withdrawals, as well as provide for other transactional requirements. Liquidity is provided primarily by funds invested in cash and due from banks (net of float and reserves), Federal funds sold, non-pledged securities, and available lines of credit with the Federal Home Loan Bank of Pittsburgh (“FHLB”) and Federal Reserve Bank of Richmond, which combined totaled approximately $1.9 billion or 39.95% of total consolidated assets at March 31, 2024.
Our liquidity strategy is to fund loan growth with deposits and other borrowed funds while maintaining an adequate level of short- and medium-term investments to meet normal daily loan and deposit activity. As a member of the FHLB, we have access to approximately $1.6 billion. As of March 31, 2024 and December 31, 2023, these advances totaled approximately $293 million and $303 million, respectively. At March 31, 2024, we had additional borrowing capacity of $1.3 billion through FHLB programs. We have established a line with the Federal Reserve Bank to be used as a contingency liquidity vehicle. The amount available on this line at March 31, 2024 was approximately $289 million, which is secured by a pledge of certain consumer and our commercial and industrial loan portfolios. We have a $6 million unsecured line of credit with a correspondent bank. Also, we have a $490 million portfolio of available for sale debt securities which can be liquidated to meet liquidity needs.
Liquidity risk represents the risk of loss due to the possibility that funds may not be available to satisfy current or future commitments based on external market issues, customer or creditor perception of financial strength, and events unrelated to Summit such as war, terrorism, pandemic or financial institution market specific issues. The Asset/Liability Management Committee (“ALCO”), comprised of members of senior management and certain members of the Board of Directors, oversees our liquidity risk management process. The ALCO develops and recommends policies and limits governing our liquidity to the Board of Directors for approval with the objective of ensuring that we can obtain cost-effective funding to meet current and future obligations, as well as maintain sufficient levels of on-hand liquidity, under both normal and “stressed” circumstances.
We continuously monitor our liquidity position to ensure that day-to-day as well as anticipated funding needs are met. We are not aware of any trends, commitments, events or uncertainties that have resulted in or are reasonably likely to result in a material change to our liquidity.
One of our continuous goals is maintenance of a strong capital position. Through management of our capital resources, we seek to provide an attractive financial return to our shareholders while retaining sufficient capital to support future growth. Shareholders’ equity at March 31, 2024 totaled $454.3 million compared to $440.2 million at December 31, 2023.
Refer to Note 13 of the notes to the accompanying consolidated financial statements for additional information regarding regulatory restrictions on our capital as well as Summit Community's capital.
CONTRACTUAL CASH OBLIGATIONS
During our normal course of business, we incur contractual cash obligations. The following table summarizes our contractual cash obligations at March 31, 2024.
| Table XI - Contractual Cash Obligations |
||||||||||||||||
| Long |
Capital |
|||||||||||||||
| Term |
Subordinated |
Trust |
Operating |
|||||||||||||
| Dollars in thousands |
Debt |
Debentures |
Securities |
Leases |
||||||||||||
| 2024 |
$ | 17 | $ | — | $ | — | $ | 1,006 | ||||||||
| 2025 |
24 | — | — | 1,282 | ||||||||||||
| 2026 |
589 | — | — | 1,201 | ||||||||||||
| 2027 |
— | — | — | 950 | ||||||||||||
| 2028 |
— | — | — | 730 | ||||||||||||
| Thereafter |
— | 105,000 | 19,589 | 2,531 | ||||||||||||
| Total |
$ | 630 | $ | 105,000 | $ | 19,589 | $ | 7,700 | ||||||||
OFF-BALANCE SHEET ARRANGEMENTS
We are involved with some off-balance sheet arrangements that have or are reasonably likely to have an effect on our financial condition, liquidity, or capital. These arrangements at March 31, 2024 are presented in the following table.
| Table XII - Off-Balance Sheet Arrangements |
March 31, |
|||
| Dollars in thousands |
2024 |
|||
| Commitments to extend credit: |
||||
| Revolving home equity and credit card lines |
$ | 116,403 | ||
| Construction loans |
250,672 | |||
| Other loans |
485,637 | |||
| Standby letters of credit |
58,420 | |||
| Total |
$ | 911,132 | ||
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market Risk Management
Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, exchange rates and equity prices. Interest rate risk is our primary market risk and results from timing differences in the repricing of assets, liabilities and off-balance sheet instruments, changes in relationships between rate indices and the potential exercise of imbedded options. The principal objective of asset/liability management is to minimize interest rate risk and our actions in this regard are taken under the guidance of our Asset/Liability Management Committee (“ALCO”), which is comprised of members of senior management and members of the Board of Directors. The ALCO actively formulates the economic assumptions that we use in our financial planning and budgeting process and establishes policies which control and monitor our sources, uses and prices of funds.
Some amount of interest rate risk is inherent and appropriate to the banking business. Our net income is affected by changes in the absolute level of interest rates. Our interest rate risk position is asset sensitive. That is, absent any changes in the volumes of our interest earning assets or interest bearing liabilities, assets are likely to reprice faster than liabilities, resulting in an increase in net income in a rising rate environment. Net income would decrease in a falling interest rate environment. Net income is also subject to changes in the shape of the yield curve. In general, a flattening yield curve would decrease our earnings due to the compression of earning asset yields and funding rates, while a steepening would increase earnings as margins widen.
Several techniques are available to monitor and control the level of interest rate risk. We control interest rate risk principally by matching the maturities of our interest earning assets with similar maturing interest bearing liabilities and by hedging adverse risk exposures with derivative financial instruments such as interest rate swaps and caps. We primarily use earnings simulations modeling to monitor interest rate risk. The earnings simulation model forecasts the effects on net interest income under a variety of interest rate scenarios that incorporate changes in the absolute level of interest rates and changes in the shape of the yield curve. Each increase or decrease in interest rates is assumed to gradually take place over the next 12 months (as footnoted in table below), and then remain stable. Assumptions used to project yields and rates for new loans and deposits are derived from historical analysis. Securities portfolio maturities and prepayments are reinvested in like instruments. Mortgage loan prepayment assumptions are developed from industry estimates of prepayment speeds. Noncontractual deposit repricings are modeled on historical patterns.
The following table presents the estimated sensitivity of our net interest income to changes in interest rates, as measured by our earnings simulation model as of March 31, 2024. The sensitivity is measured as a percentage change in net interest income given the stated changes in interest rates (change over 12 months, stable thereafter, see footnotes below) compared to net interest income with rates unchanged in the same period. The estimated changes set forth below are dependent on the assumptions discussed above.
| Estimated % Change in |
||||||||
| Net Interest Income over: |
||||||||
| Change in |
0 - 12 Months |
13 - 24 Months |
||||||
| Interest Rates |
Actual |
Actual |
||||||
| Down 100 basis points (1) |
0.9 | % | 5.7 | % | ||||
| Down 200 basis points (1) |
1.8 | % | 5.2 | % | ||||
| Down 200 basis points - steepening curve (2) |
6.0 | % | 19.3 | % | ||||
| Up 200 basis points (1) |
-1.7 | % | 2.6 | % | ||||
| (1) assumes a parallel shift in the yield curve over 12 months, with no change thereafter |
||||
| (2) assumes short-term rates move down 200 basis points over 12 months while long-term rates remain relatively unchanged over 12 months, with no change thereafter |
Item 4. Controls and Procedures
Our management, including the Chief Executive Officer and Chief Financial Officer, has conducted as of March 31, 2024, an evaluation of the effectiveness of disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures as of March 31, 2024 were effective. There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Refer to Note 11 of the Notes to the Consolidated Financial Statements in Part I, Item 1 for information regarding legal proceedings not reportable under this Item.
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In February 2020, the Board of Directors authorized the open market repurchase of up to 750,000 shares of the issued and outstanding shares of Summit's common stock ("February 2020 Repurchase Plan"). The timing and quantity of purchases under this stock repurchase plan are at the discretion of management. The plan may be discontinued, suspended, or restarted at any time at the Company's discretion.
The following table sets forth certain information regarding Summit's purchases of its common stock under the Repurchase Plan and for the benefit of Summits Employee Stock Ownership Plan for the quarter ended March 31, 2024.
| Period |
Total Number of Shares Purchased (a) |
Average Price Paid per Share |
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 |
||||||||||||
| January 1, 2024 - January 31, 2024 |
— | $ | — | — | 426,423 | |||||||||||
| February 1, 2024 - February 29, 2024 |
— | — | — | 426,423 | ||||||||||||
| March 1, 2024 - March 31, 2024 |
— | — | — | 426,423 | ||||||||||||
(a) All shares purchased for the benefit of Summit's Employee Stock Ownership Plan
Item 5. Other Information
Rule 10b5-1 and Non-Rule 10b5-1 Trading Arrangements.
| Exhibit 3.i |
Amended and Restated Articles of Incorporation of Summit Financial Group, Inc. |
| Exhibit 3.ii |
Articles of Amendment 2009 |
| Exhibit 3.iii |
Articles of Amendment 2011 |
| Exhibit 3.iv |
Amended and Restated Articles of Amendment 2021 |
| Exhibit 3.v |
Amended and Restated By-Laws of Summit Financial Group, Inc. |
| Exhibit 11 |
Statement re: Computation of Earnings per Share – Information contained in Note 4 to the Consolidated Financial Statements on page 13 of this Quarterly Report is incorporated herein by reference. |
| Exhibit 31.1 |
Sarbanes-Oxley Act Section 302 Certification of Chief Executive Officer |
| Exhibit 31.2 |
Sarbanes-Oxley Act Section 302 Certification of Chief Financial Officer |
| Exhibit 32.1 |
Sarbanes-Oxley Act Section 906 Certification of Chief Executive Officer |
| Exhibit 32.2 |
Sarbanes-Oxley Act Section 906 Certification of Chief Financial Officer |
| Exhibit 101 |
Interactive Data File (Inline XBRL) |
| Exhibit 104 |
Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101) |
| Exhibit No. |
Description |
Page Number |
| (3) |
Articles of Incorporation and By-laws: |
|
| (i) Amended and Restated Articles of Incorporation of Summit Financial Group, Inc. |
(a) |
|
| (b) |
||
| (c) |
||
| (d) |
||
| (v) Amended and Restated By-laws of Summit Financial Group, Inc. |
(e) |
|
| 11 |
14 |
|
| 31.1 |
Sarbanes-Oxley Act Section 302 Certification of Chief Executive Officer |
|
| 31.2 |
Sarbanes-Oxley Act Section 302 Certification of Chief Financial Officer |
|
| 32.1* |
Sarbanes-Oxley Act Section 906 Certification of Chief Executive Officer |
|
| 32.2* |
Sarbanes-Oxley Act Section 906 Certification of Chief Financial Officer |
|
| 101** |
Interactive data file (Inline XBRL) |
|
| 104 |
Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101) |
*Furnished, not filed.
** As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.
| (a) |
Incorporated by reference to Exhibit 3.2 of Summit Financial Group, Inc.’s filing on Form 8-K dated April 30, 2021. |
| (b) |
Incorporated by reference to Exhibit 3.1 of Summit Financial Group, Inc.’s filing on Form 8-K dated September 30, 2009. |
| (c) |
Incorporated by reference to Exhibit 3.1 of Summit Financial Group, Inc.’s filing on Form 8-K dated November 3, 2011. |
| (d) |
Incorporated by reference to Exhibit 3.1 of Summit Financial Group, Inc.’s filing on Form 8-K dated April 30, 2021. |
| (e) |
Incorporated by reference to Exhibit 3.1 of Summit Financial Group, Inc.’s filing on Form 8-K dated March 2, 2022. |
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.
| SUMMIT FINANCIAL GROUP, INC. |
|||
| (registrant) |
|||
| By: | /s/ H. Charles Maddy, III | ||
| H. Charles Maddy, III, |
|||
| President and Chief Executive Officer |
|||
| By: |
/s/ Robert S. Tissue |
||
| Robert S. Tissue, |
|||
| Executive Vice President and Chief Financial Officer |
|||
| By: |
/s/ Julie R. Markwood |
||
| Julie R. Markwood, |
|||
| Executive Vice President and Chief Accounting Officer |
|||
| Date: |
May 2, 2024 |
||