Item
2 - Management’s Discussion and Analysis of Financial
Condition and Results of Operations
Paragon Commercial
Corporation (the “Company” or “Paragon”) is
a bank holding company incorporated under the laws of North
Carolina and headquartered in Raleigh, North Carolina. The Company
conducts its business operations primarily through its wholly owned
subsidiary, Paragon Bank (the “Bank”), a full-service,
state-chartered community bank with 3 locations in Raleigh,
Charlotte and Cary, North Carolina. Paragon Bank provides banking
services to businesses and consumers across the
Carolinas.
Because the Company
has no material operations and conducts no business on its own
other than owning its subsidiary, the discussion contained in this
management’s discussion and analysis concerns primarily the
business of Paragon Bank. For ease of reading and because the
financial statements are presented on a consolidated basis, Paragon
Commercial Corporation and Paragon Bank are collectively referred
to herein as “the Company,” “we”,
“our”, or “us”, unless otherwise
noted.
Management’s
discussion and analysis is intended to assist readers in
understanding and evaluating the financial condition and
consolidated results of operations of the Company. This discussion
and analysis includes descriptions of significant transactions,
trends and other factors affecting the Company’s operating
results for the three and nine month periods ended September 30,
2016, and 2015, as well as the financial condition of the Company
as of September 30, 2016 and December 31, 2015. This discussion and
analysis should be read in conjunction with the unaudited
consolidated financial statements and accompanying notes included
in this report and the consolidated financial statements and
accompanying notes included in our final prospectus filed pursuant
to Rule 424(b) under the Securities Act of 1933 with the Securities
and Exchange Commission (the “SEC”) on June 17,
2016.
Forward-Looking
Information
This periodic
report on Form 10-Q contains certain “forward-looking
statements” that represent management’s judgments
concerning the future and are subject to risks and uncertainties
that could cause the Company’s actual operating results and
financial position to differ materially from those projected in the
forward-looking statements. Such forward-looking statements can be
identified by the use of forward-looking terminology such as
“may,” “will,” “anticipate,”
“should,” “would,” “project,”
“future,” “strategy,”
“believe,” “contemplate,”
“expect,” “estimate,”
“continue,” “intend,” “seeks,”
or other similar words and expressions of the future. Risks and
other factors that could influence the estimates include risks
associated with any change in management, strategic direction,
business plan, or operations, local economic conditions affecting
retail and commercial real estate, disruptions in the credit
markets, particularly in light of continued economic uncertainty in
the European Union and continued political unrest and instability
in the Middle East; changes in interest rates, adverse developments
in the real estate market affecting the value and marketability of
collateral securing loans made by the Bank, the failure of
assumptions underlying loan loss and other reserves, competition
and the risk of new and changing regulation, including, but not
limited to recent proposals that would change capital standards and
asset risk-weighting for financial institutions. Additional factors
that could cause actual results to differ materially are discussed
in the Company’s filings with the SEC. The forward-looking
statements in this document speak only as of the date hereof, and
the Company does not assume any obligation to update such
forward-looking statements, except as may otherwise be required by
law.
GAAP
Reconciliation and Management Explanation of Non-GAAP Financial
Measures
Some of the
financial measures included in this report are not measures of
financial performance recognized by GAAP. These non-GAAP financial
measures are “tangible stockholders’ equity,”
“tangible book value per share,” “tangible
average equity to tangible average assets,” and
“efficiency ratio.” Our management uses these non-GAAP
financial measures in its analysis of our performance and because
of market expectations of use of these ratios to evaluate the
Company. Management believes each of these non-GAAP
financial measures provides useful information about our financial
condition and results of operation. As noted below, the efficiency
ratio shows the amount of revenue generated for each dollar spent
and provides investors with a measure of our productivity. We also
believe the presentation of tangible stockholders’ equity,
tangible book value per share, tangible equity to risk-weighted
assets and tangible average equity to tangible average assets would
provide investors with a clear picture of our assets and equity.
However, because the Company has not consummated any merger
transactions and does not use any derivatives that might give rise
to an intangible asset, there is no difference in tangible equity
or assets and GAAP equity or assets.
•
“Efficiency
ratio” is defined as total non-interest expense divided by
adjusted operating revenue. Adjusted operating revenue is equal to
net interest income (taxable equivalent) plus non-interest income,
adjusted to exclude the impacts of gains and losses on the sale of
securities and gains and losses on the sale or write-down of
foreclosed real estate. We believe the efficiency ratio is
important as an indicator of productivity because it shows the
amount of revenue generated by our core operations for each dollar
spent. While the efficiency ratio is a measure of productivity, its
value reflects the attributes of the business model we
employ.
|
|
|
|
|
|
(Dollars in
thousands)
|
|
|
|
|
Efficiency Ratio
|
|
|
|
|
Non-interest
expense
|
$
6,778
|
$
6,180
|
$
19,866
|
$
18,460
|
|
|
|
|
|
Net
interest taxable equivalent income
|
$
12,026
|
$
10,853
|
$
33,878
|
$
30,518
|
Non-interest
income
|
438
|
544
|
1,085
|
1,352
|
Less
gain on investment securities
|
-
|
(145
)
|
(85
)
|
(568
)
|
Plus
loss on sale or writedown of foreclosed real estate
|
-
|
9
|
257
|
472
|
Adjusted
operating revenue
|
$
12,464
|
$
11,261
|
$
35,135
|
$
31,774
|
|
|
|
|
|
Efficiency
ratio
|
54.38
%
|
54.88
%
|
56.54
%
|
58.10
%
|
Executive
Overview of Recent Financial Performance
·
The Company
completed its initial public offering (“IPO”) which
raised gross proceeds of $28.7 million and enhanced
capital. The shares of the Company’s common stock
began trading on the Nasdaq Capital Market as of June 16,
2016.
·
Net income
available to common stockholders totaled $3.5 million, a 4.3%
improvement from $3.3 million in the third quarter
(“Q3”) of 2015. On a per share basis, income
decreased from $0.73 per diluted common share in Q3 2015 to $0.64
per diluted common share in the third quarter (“Q3”) of
2016 as a result of the new shares issued in conjunction with the
IPO.
·
Return on average
assets equaled 0.95% in Q3 2016 compared to 0.99% in Q3 2015 while
return on average equity equaled 10.35% in Q3 2016 compared to
14.17% for the same period in 2015.
·
The efficiency
ratio, which represents operating expenses to total operating
revenues, improved to 54.38% in Q3 2016 from 54.88% in Q3
2015.
·
The Company had net
charged-off loans of $452,000 in Q3 2016, compared to net
recoveries of charged-off loans of $49,000 in Q3
2015.
·
Annualized net loan
growth was 22% in Q3 2016, resulting from net loan originations
during the quarter of $60.0 million.
Analysis
of Results of Operations
Third Quarter 2016 compared to Third Quarter 2015
During the
three-month period ended September 30, 2016, the Company had net
income of $3.5 million compared to net income of $3.3 million for
the same period in 2015. Both basic and diluted net income per
share for the quarter ended September 30, 2016 were $0.64, compared
with basic and diluted net income per share of $0.73 for the same
period in 2015. On a quarter over quarter basis, net income was
impacted in 2016 by the Company recording a $391,000 loan loss
provision in the third quarter of 2016. It was the first
loan loss provision recorded by the Company since the second
quarter of 2015. Net income was also impacted by the
additional shares issued in 2016 as a result of the
IPO.
Year-to-Date 2016 compared to Year-to-Date 2015
During the
nine-month period ended September 30, 2016, the Company had net
income of $9.8 million compared to net income of $8.3 million for
the same period in 2015. Basic and diluted net income per share for
the nine months ended September 30, 2016 were $2.02 and $2.00,
respectively, compared with basic and diluted net income per share
of $1.84 and $1.82, respectively, for the same period in
2015.
As discussed in
greater detail below, the improvements in the results of operations
in the third quarter and first nine months of 2016, compared to the
respective periods of 2015, reflect the benefit of balance sheet
growth period over period as well as continued overall credit
improvement.
Net
Interest Income
Third Quarter 2016 compared to Third Quarter 2015
Like most financial
institutions, the primary component of earnings for the Company is
net interest income. Net interest income is the difference between
interest income, principally from loans and investment securities
portfolios, and interest expense, principally on customer deposits
and borrowings. Changes in net interest income result
from changes in volume, spread and margin. For this purpose, volume
refers to the average dollar level of interest-earning assets and
interest-bearing liabilities, spread refers to the difference
between the average yield on interest-earning assets and the
average cost of interest-bearing liabilities, and margin refers to
net interest income divided by average interest-earning assets.
Margin is influenced by the level and relative mix of
interest-earning assets and interest-bearing liabilities, as well
as by the levels on non-interest bearing liabilities and
capital.
Net interest income
increased by $1.1 million to $11.8 million for the three months
ended September 30, 2016 from $10.7 million in the same period in
2015. The Company’s total interest income was
impacted by an increase in interest earning assets. Average total
interest-earning assets were $1.38 billion in the third quarter of
2016 compared with $1.24 billion in the same period in
2015. The yield on those assets was 4.07% in the third
quarter of 2016 compared to 4.06% for the same period in
2015. The improvement in yield was primarily the result
of a shift in asset composition from lower yielding short-term
investments and cash into loans. Meanwhile, average
interest-bearing liabilities increased by $50.9 million from $1.07
billion for the three months ended September 30, 2015 to $1.12
billion for the same period ended September 30, 2016. The
Company’s cost of these funds increased by 5 basis points
year over year to 0.74% from 0.69% in the third quarter of
2015. The primary cause for the increase was the
escalating cost of the amortization of the interest rate
cap. During the three-month period ended September 30,
2016, the Company’s net interest margin was 3.47% and net
interest spread was 3.33%. In the third quarter of 2015,
net interest margin was 3.47% and net interest spread was
3.37%.
The following table
summarizes the major components of net interest income and the
related yields and costs for the quarterly periods
presented.
|
For the
Three Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
Loans,
net of allowance (1)
|
$
1,135,448
|
$
12,544
|
4.40
%
|
$
999,857
|
$
11,223
|
4.45
%
|
Investment
securities (2)
|
186,060
|
1,473
|
3.15
%
|
174,653
|
1,446
|
3.28
%
|
Other
interest-earning assets
|
56,573
|
97
|
0.68
%
|
66,130
|
38
|
0.23
%
|
Total interest-earning assets
|
1,378,081
|
14,114
|
4.07
%
|
1,240,640
|
12,707
|
4.06
%
|
Other
assets
|
74,443
|
|
|
101,471
|
|
|
|
$
1,452,524
|
|
|
$
1,342,111
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
Interest-bearing
checking accounts
|
$
186,369
|
167
|
0.36
%
|
$
129,297
|
165
|
0.51
%
|
Money
markets
|
491,805
|
799
|
0.65
%
|
333,957
|
562
|
0.67
%
|
Time
deposits less than $100,000
|
11,208
|
29
|
1.04
%
|
22,458
|
105
|
1.86
%
|
Time
deposits greater than or
|
|
|
|
|
|
|
|
243,150
|
559
|
0.91
%
|
367,251
|
694
|
0.75
%
|
Borrowings
|
185,211
|
534
|
1.15
%
|
213,845
|
328
|
0.61
%
|
Total interest-bearing liabilities
|
1,117,743
|
2,088
|
0.74
%
|
1,066,808
|
1,854
|
0.69
%
|
Noninterest-bearing
deposits
|
190,745
|
|
|
157,435
|
|
|
Other
liabilities
|
10,558
|
|
|
24,370
|
|
|
Stockholders
equity
|
133,478
|
|
|
93,498
|
|
|
Total liabilities and stockholders
|
|
|
|
|
|
|
|
$
1,452,524
|
|
|
$
1,342,111
|
|
|
|
|
|
|
|
|
|
Net interest income/interest rate
|
|
|
|
|
|
|
spread (taxable-equivalent basis) (3)
|
|
$
12,026
|
3.33
%
|
|
$
10,853
|
3.37
%
|
|
|
|
|
|
|
|
Net interest margin (taxable-
|
|
|
|
|
|
|
|
|
|
3.47
%
|
|
|
3.47
%
|
|
|
|
|
|
|
|
Ratio of interest-bearing assets to
|
|
|
|
|
|
|
interest-bearing liabilities
|
123.29
%
|
|
|
116.29
%
|
|
|
|
|
|
|
|
|
|
Reported net interest income
|
|
|
|
|
|
|
Net
interest income (taxable-equivalent
|
|
|
|
|
|
|
|
|
$
12,026
|
|
|
$
10,853
|
|
Less:
|
|
|
|
|
|
|
Taxable-equivalent
adjustment
|
|
259
|
|
|
197
|
|
|
|
$
11,767
|
|
|
$
10,656
|
|
(1) Loans include
nonaccrual loans.
(2) Yields related
to investment securities exempt from income taxes are stated on a
taxable-equivalent basis assuming a federal income tax rate of 30.0
percent. The taxable-equivalent adjustment was $259,000
and $197,000 for the 2016 and 2015 periods,
respectively.
(3) Net interest
spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net interest
margin represents annualized net interest income divided by average
interest-earning assets.
Changes in interest
income and interest expense can result from variances in both
volume and rates. The following table presents the relative impact
on tax-equivalent net interest income to changes in the average
outstanding balances of interest-earning assets and
interest-bearing liabilities and the rates earned and paid on such
assets and liabilities.
|
Three Months Ended
|
|
September 30, 2016 vs. 2015
|
|
Increase (Decrease) Due to
|
(in thousands)
|
|
|
|
Interest
income
|
|
|
|
|
$
1,518
|
$
(197
)
|
$
1,321
|
|
94
|
(67
)
|
27
|
Other
interest-earning assets
|
(5
)
|
64
|
59
|
Total
interest income (taxable-
|
|
|
|
|
1,607
|
(200
)
|
1,407
|
|
|
|
|
Interest
expense
|
|
|
|
|
|
|
|
Interest-bearing
checking accounts
|
73
|
(71
)
|
2
|
|
265
|
(28
)
|
237
|
Time
deposits less than $100,000
|
(53
)
|
(23
)
|
(76
)
|
Time
deposits greater than or
|
|
|
|
|
(234
)
|
99
|
(135
)
|
|
(44
)
|
250
|
206
|
|
7
|
227
|
234
|
|
|
|
|
Net
interest income increase/
|
|
|
|
(decrease)(taxable
equivalent basis)
|
$
1,600
|
$
(427
)
|
1,173
|
|
|
|
|
Less:
|
|
|
|
Taxable-equivalent
adjustment
|
|
|
62
|
Net
interest income increase/
|
|
|
|
|
|
|
$
1,111
|
Year-to-Date 2016 compared to Year-to-Date 2015
Net interest income
increased by $3.8 million to $39.6 million for the nine months
ended September 30, 2016 from $35.8 million in the same period in
2015. The Company’s total interest income was
impacted by an increase in interest earning assets. Average total
interest-earning assets were $1.31 billion for the nine-month
period ended September 30, 2016 compared with $1.18 billion in the
same period in 2015. The yield on those assets was 4.12%
in 2016 compared to 4.11% for the same period in
2015. The improvement in yield was primarily the result
of a shift in asset composition from lower yielding short-term
investments and cash into loans. Meanwhile, average
interest-bearing liabilities increased by $56.6 million from $1.03
billion for the year-to-date period ended September 30, 2015 to $
1.08 billion for the same period ended September 30, 2016. The
Company’s cost of these funds increased by 2 basis points
year over year to 0.74% from 0.72%. During the
nine-month period ended September 30, 2016, the Company’s net
interest margin was 3.51% and net interest spread was
3.38%. For the same period in 2015, net interest margin
was 3.49% and net interest spread was 3.39%.
The following table
summarizes the major components of net interest income and the
related yields and costs for the quarterly periods
presented.
|
For the Nine Months Ended September 30,
|
|
2016
|
2015
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
Loans,
net of allowance (1)
|
$
1,075,390
|
$
35,574
|
4.42
%
|
$
958,662
|
$
32,189
|
4.49
%
|
Investment
securities (2)
|
185,721
|
4,554
|
3.28
%
|
165,882
|
4,097
|
3.30
%
|
Other
interest-earning assets
|
46,832
|
218
|
0.62
%
|
58,645
|
104
|
0.24
%
|
Total interest-earning assets
|
1,307,943
|
40,346
|
4.12
%
|
1,183,189
|
36,390
|
4.11
%
|
Other
assets
|
81,939
|
|
|
91,623
|
|
|
|
$
1,389,882
|
|
|
$
1,274,812
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
Interest-bearing
checking accounts
|
$
165,655
|
515
|
0.42
%
|
$
123,377
|
454
|
0.49
%
|
Money
markets
|
432,362
|
2,144
|
0.66
%
|
301,604
|
1,533
|
0.68
%
|
Time
deposits less than $100,000
|
11,496
|
89
|
1.04
%
|
28,859
|
369
|
1.71
%
|
Time
deposits greater than or
|
|
|
|
|
|
|
|
255,407
|
1,622
|
0.85
%
|
343,462
|
2,240
|
0.87
%
|
Borrowings
|
219,461
|
1,605
|
0.98
%
|
230,458
|
924
|
0.54
%
|
Total interest-bearing liabilities
|
1,084,381
|
5,975
|
0.74
%
|
1,027,759
|
5,520
|
0.72
%
|
Noninterest-bearing
deposits
|
180,623
|
|
|
145,181
|
|
|
Other
liabilities
|
12,790
|
|
|
10,847
|
|
|
Stockholders
equity
|
112,088
|
|
|
91,025
|
|
|
Total liabilities and stockholders
|
|
|
|
|
|
|
|
$
1,389,882
|
|
|
$
1,274,812
|
|
|
|
|
|
|
|
|
|
Net interest income/interest rate
|
|
|
|
|
|
|
spread (taxable-equivalent basis) (3)
|
|
$
34,371
|
3.38
%
|
|
$
30,870
|
3.39
%
|
|
|
|
|
|
|
|
Net interest margin (taxable-
|
|
|
|
|
|
|
|
|
|
3.51
%
|
|
|
3.49
%
|
|
|
|
|
|
|
|
Ratio of interest-bearing assets to
|
|
|
|
|
|
|
interest-bearing liabilities
|
120.62
%
|
|
|
115.12
%
|
|
|
|
|
|
|
|
|
|
Reported net interest income
|
|
|
|
|
|
|
Net
interest income (taxable-equivalent
|
|
|
|
|
|
|
|
|
$
34,371
|
|
|
$
30,870
|
|
Less:
|
|
|
|
|
|
|
Taxable-equivalent
adjustment
|
|
752
|
|
|
549
|
|
|
|
$
33,619
|
|
|
$
30,321
|
|
(1) Loans include
nonaccrual loans.
(2) Yields related
to investment securities exempt from income taxes are stated on a
taxable-equivalent basis assuming a federal income tax rate of 30.0
percent. The taxable-equivalent adjustment was $752,000
and $549,000 for the 2016 and 2015 periods,
respectively.
(3) Net interest
spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net interest
margin represents annualized net interest income divided by average
interest-earning assets.
Changes in interest
income and interest expense can result from variances in both
volume and rates. The following table presents the relative impact
on tax-equivalent net interest income to changes in the average
outstanding balances of interest-earning assets and
interest-bearing liabilities and the rates earned and paid on such
assets and liabilities.
|
|
|
September 30, 2016 vs. 2015
|
|
Increase (Decrease) Due to
|
(in thousands)
|
|
|
|
Interest
income
|
|
|
|
|
$
3,923
|
$
(538
)
|
$
3,385
|
|
490
|
(33
)
|
457
|
Other
interest-earning assets
|
(21
)
|
135
|
114
|
Total
interest income (taxable-
|
|
|
|
|
4,392
|
(436
)
|
3,956
|
|
|
|
|
Interest
expense
|
|
|
|
|
|
|
|
Interest-bearing
checking accounts
|
156
|
(95
)
|
61
|
|
665
|
(54
)
|
611
|
Time
deposits less than $100,000
|
(222
)
|
(58
)
|
(280
)
|
Time
deposits greater than or
|
|
|
|
|
(575
)
|
(43
)
|
(618
)
|
|
(44
)
|
725
|
681
|
|
(20
)
|
475
|
455
|
|
|
|
|
Net
interest income increase/
|
|
|
|
(decrease)(taxable
equivalent basis)
|
$
4,412
|
$
(911
)
|
3,501
|
|
|
|
|
Less:
|
|
|
|
Taxable-equivalent
adjustment
|
|
|
203
|
Net
interest income increase/
|
|
|
|
|
|
|
$
3,298
|
Provision
for Loan Losses
Third Quarter 2016 compared to Third Quarter 2015
Provisions for loan
losses are charged to income to bring the allowance for loan losses
to a level deemed appropriate by management. In
evaluating the allowance for loan losses, management considers
factors that include growth, composition and industry
diversification of the portfolio, historical loan loss experience,
current delinquency levels, adverse situations that may affect a
borrower’s ability to repay, estimated value of any
underlying collateral, prevailing economic conditions and other
relevant factors.
In determining the
loss history to be applied to its ASC 450 loan pools within the
allowance for loan losses, the Company uses net charge-off history
for the most recent five consecutive years. Since each
of the five past years contain a declining amount of charge-offs
coupled with a large number of recoveries, the impact of the
Company’s improvement in historical credit quality has
resulted in a continually declining balance of reserves as a
percentage of the loan portfolio. However, the Company
has added qualitative factors to the reserve to account for
concerns over future trends in the economy, interest rates and
other factors. Currently, qualitative factors account
for 74% of the reserve.
The following table
summarizes the changes in the allowance for loan losses for the
three months ended September 30, 2016 and 2015:
(in thousands)
|
|
Three months ended September 30, 2016
|
|
Beginning
balance
|
$
7,986
|
Provision
for loan losses
|
391
|
Loans
charged off
|
(682
)
|
Recoveries
|
230
|
Net
chargeoffs
|
(452
)
|
Ending
balance
|
$
7,925
|
|
|
Three months ended September 30, 2015
|
|
Beginning
balance
|
$
7,569
|
Provision
for loan losses
|
-
|
Loans
charged off
|
(14
)
|
Recoveries
|
63
|
Net
recoveries
|
49
|
Ending
balance
|
$
7,618
|
The Company
recorded a provision of $391,000 in the third quarter of
2016. It did not record a provision for loan losses in
the third quarter of 2015. The increase in the provision
for 2016 was the result of continued growth in the Company’s
loan portfolio along with net charge-offs during the period of
$452,000.
Year-to-Date 2016 compared to Year-to-Date 2015
The following table
summarizes the changes in the allowance for loan losses for the
nine months ended September 30, 2016 and 2015:
(in
thousands)
|
|
Nine months ended September 30, 2016
|
|
Beginning
balance
|
$
7,641
|
Provision
for loan losses
|
391
|
Loans
charged off
|
(683
)
|
Recoveries
|
576
|
Net
chargeoffs
|
(107
)
|
Ending
balance
|
$
7,925
|
|
|
Nine months ended September 30, 2015
|
|
Beginning
balance
|
$
6,869
|
Provision
for loan losses
|
750
|
Loans
charged off
|
(290
)
|
Recoveries
|
289
|
Net
chargeoffs
|
(1
)
|
Ending
balance
|
$
7,618
|
The Company
recorded a provision for loan losses of $391,000 in the first nine
months of 2016 compared to a provision of $750,000 recorded during
the same period in 2015. The decrease in the provision
for 2016 was the result of continued credit improvement in the
Bank’s loan portfolio.
Non-Interest
Income
The following table
provides a summary of non-interest income for the periods
presented.
|
|
Nine
months
|
|
|
|
(in thousands)
|
|
|
|
|
Non-interest income
|
|
|
|
|
Increase
in cash surrender value of bank owned
|
|
|
|
|
life
insurance
|
$
220
|
$
225
|
$
669
|
$
632
|
Net
gain on sale of securities
|
-
|
145
|
85
|
568
|
Service
charges and fees
|
65
|
58
|
179
|
163
|
Mortgage
origination fees and gains on sale of loans
|
59
|
44
|
124
|
156
|
Net
loss on sale or impairment of foreclosed assets
|
-
|
(9
)
|
(257
)
|
(472
)
|
Other
fees and income
|
94
|
81
|
285
|
305
|
Total
non-interest income
|
$
438
|
$
544
|
$
1,085
|
$
1,352
|
Third Quarter 2016 compared to Third Quarter 2015
Non-interest income
for the quarter ended September 30, 2016 was $438,000, a decrease
of $106,000 from $544,000 for the same period in
2015. The primary reason for the decrease was a $145,000
gain on sale of investments due to sale of securities in
2015. There were no such securities sold for gains in
2016.
Year-to-Date 2016 compared to Year-to-Date 2015
Non-interest income
for the nine months ended September 30, 2016 was $1.1 million, a
decrease of $267,000 from $1.4 million for the same period in
2015. The primary reason for the decrease was a decrease
of $483,000 in the amount of gains on sale of held-for-sale
investment securities. This was partially offset by a
decrease in losses on sale or write-down of other real estate,
which is included in non-interest income
totals. Net losses in this category in the first
nine months of 2016 were $257,000 compared to $472,000 for the same
period in 2015.
Non-Interest
Expenses
The following table
provides a summary of non-interest expenses for the periods
presented.
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
Non-interest expense
|
|
|
|
|
Salaries
and employee benefits
|
$
3,912
|
$
3,378
|
$
11,521
|
$
9,714
|
Furniture,
equipment and software costs
|
456
|
482
|
1,450
|
1,383
|
Occupancy
|
362
|
366
|
1,048
|
1,203
|
Data
processing
|
270
|
267
|
845
|
846
|
Director
related fees and expenses
|
219
|
253
|
690
|
670
|
Professional
fees
|
208
|
159
|
627
|
614
|
FDIC
and other supervisory assessments
|
220
|
231
|
632
|
710
|
Advertising
and public relations
|
239
|
116
|
661
|
537
|
Unreimbursed
loan costs and foreclosure related expenses
|
172
|
281
|
383
|
750
|
Other
|
720
|
647
|
2,009
|
2,033
|
Total
non-interest expense
|
$
6,778
|
$
6,180
|
$
19,866
|
$
18,460
|
Third Quarter 2016 compared to Third Quarter 2015
Non-interest
expenses increased period over period by $598,000, or 9.7%, to $6.8
million for the three-month period ended September 30, 2016, from
$6.2 million for the same period in 2015. The following are
highlights of the significant changes in non-interest expenses in
the third quarter of 2016 compared to the third quarter of
2015.
·
Personnel expenses
increased $534,000 to $3.9 million due primarily to the addition of
more personnel to handle the rapid growth of the
Company.
·
Advertising and
public relations costs increased $123,000 from $116,000 to $239,000
primarily due to timing differences between quarters in several
large bank sponsorships.
·
Unreimbursed loan
costs and foreclosure related expenses decreased $109,000 primarily
due to a decrease in expenses on foreclosed properties associated
with fewer foreclosed properties being held by the
Company.
Year-to-Date 2016 compared to Year-to-Date 2015
Non-interest
expenses increased period over period by $1.4 million, or 7.6%, to
$19.9 million for the nine-month period ended September 30, 2016,
from $18.5 million for the same period in 2015. The following are
highlights of the significant changes in non-interest expenses in
the first nine months of 2016 compared to the same period in
2015.
·
Personnel expenses
increased $1.8 million to $11.5 million due primarily to the
addition of more personnel to handle the rapid growth of the
Company and due to annual salary increases.
·
Occupancy decreased
$155,000 from the same nine month period in 2015. The
2015 figure included a one-time adjustment for accrual of future
commitments of lease payments for leased space in the Charlotte
office which was no longer being used.
·
Unreimbursed loan
costs and foreclosure related expenses decreased $367,000 primarily
due to a decrease in expenses on foreclosed properties associated
with fewer foreclosed properties being held.
Provision
for Income Taxes
Income tax expense
was $1.6 million in the third quarter of 2016 and $1.7 million in
the third quarter of 2015. The Company’s effective
tax rate for the third quarter of 2016 was 31.39%, compared to
34.00% for the same period in 2015. The decrease in
effective tax rate was primarily due to a one-time adjustment made
in the third quarter of 2016 as a result of the 2015 tax return
being filed.
For the nine-month
period ended September 30, 2016, income tax expense was $4.7
million compared to $4.2 million for the same period in
2015. The Company’s effective tax rate for the
nine-month period ended September 30, 2016 was 32.39%, compared to
33.64% for the same period in 2015.
In 2016, the North
Carolina state corporate income tax rate decreased from 5% to
4%. The North Carolina state corporate income tax rate
is scheduled to decrease to 3% in 2017. The impact of
the reduced benefit for the deferred tax assets was reflected in
the third quarter 2016 tax expense.
Analysis
of Financial Condition
Overview
Total assets at
September 30, 2016 were $1.48 billion, an increase of $172.9
million or 13.2% over the balance as of December 31, 2015 of $1.31
billion. Interest earning assets at September 30, 2016
totaled $1.40 billion and consisted of $1.16 billion in net loans,
$178.6 million in investment securities, $5.4 million in Federal
Home Loan Bank of Atlanta stock, and $69.1 million in overnight
investments and interest-bearing deposits in other
banks. Interest earning assets at December 31, 2015
totaled $1.21 billion and consisted of $1.01 billion in net loans,
$168.9 million in investment securities, $8.1 million in Federal
Home Loan Bank of Atlanta stock, and $31.0 million in overnight
investments and interest-bearing deposits in other banks. Total
deposits and stockholders’ equity at September 30, 2016 were
$1.20 billion and $135.0 million, respectively. Total
deposits and stockholders’ equity at December 31, 2015 were
$982.8 million and $97.7 million, respectively.
Investment Securities
The Company's
investment portfolio plays a major role in the management of
liquidity and interest rate sensitivity and, therefore, is managed
in the context of the overall balance sheet. In general, the
primary goals of the investment portfolio are: (i) to provide a
sufficient margin of liquid assets to meet unanticipated deposit
and loan fluctuations and overall funds management objectives; (ii)
to provide eligible securities to secure public funds as prescribed
by law and other borrowings; (iii) to provide structures and terms
to enable proper interest rate risk management; and (iv) to earn
the maximum return on funds invested that is commensurate with
meeting the requirements of (i), (ii) and (iii). The Company
invests in securities as allowable under bank regulations and its
investment policy. These securities include U.S. Agency
obligations, U.S. government-sponsored entities, including
collateralized mortgage obligations and mortgage-backed securities,
bank eligible obligations of state or political subdivisions, and
limited types of permissible corporate debt and equity
securities.
Investment
securities as of September 30, 2016 and December 31, 2015 were
$178.6 million and $168.9 million, respectively. The
Company’s investment portfolio at September 30, 2016 and
December 31, 2015, consisted of U.S. government agency obligations,
collateralized mortgage obligations, mortgage-backed securities,
municipal bonds and other equity investments, and had a weighted
average taxable equivalent yield of 2.81% and 2.90% at September
30, 2016 and December 31, 2015, respectively. The
Company also held an investment of $5.4 million and $8.1 million in
Federal Home Loan Bank stock as of September 30, 2016 and December
31, 2015 with a weighted average yield of 4.64% and 4.53% for those
periods. The FHLB stock is recorded at cost and is classified
separately from investment securities on the consolidated balance
sheets.
The investment
portfolio increased $9.7 million during the first nine months of
2016, the net result of $39.4 million in purchases, $15.7 million
in sales, $16.3 million of maturities and prepayments and a
decrease of $2.8 million in the market value of securities held
available for sale.
The securities in
an unrealized loss position as of September 30, 2016 continue to
perform and are expected to perform through maturity, and the
issuers have not experienced significant adverse events that would
call into question their ability to repay these debt obligations
according to contractual terms.
The following is a
summary of the securities portfolio by major classification at
September 30, 2016 and December 31, 2015.
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
U.S.
Agency obligations
|
$
17,673
|
$
18,176
|
$
19,778
|
$
19,901
|
Collateralized
mortgage obligations
|
45,802
|
46,542
|
60,826
|
60,941
|
Mortgage-backed
securities
|
46,999
|
47,828
|
31,074
|
31,310
|
Municipal
bonds
|
61,304
|
63,590
|
53,163
|
54,434
|
Other
|
2,679
|
2,470
|
2,677
|
2,310
|
|
$
174,457
|
$
178,606
|
$
167,518
|
$
168,896
|
The following table
summarizes the securities portfolio by major classification as of
September 30, 2016 and December 31, 2015:
|
September 30, 2016
|
December
31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
U.S.
government agency obligations
|
|
|
|
|
|
|
|
$
-
|
$
-
|
-
|
$
-
|
$
-
|
-
|
Due
after one but within five years
|
-
|
-
|
-
|
-
|
-
|
-
|
Due
after five but within ten years
|
-
|
-
|
-
|
-
|
-
|
-
|
|
17,673
|
18,176
|
2.61
%
|
19,778
|
19,901
|
2.59
%
|
|
17,673
|
18,176
|
2.61
%
|
19,778
|
19,901
|
2.59
%
|
Collateralized
mortgage obligations
|
|
|
|
|
|
|
|
-
|
-
|
-
|
-
|
-
|
-
|
Due
after one but within five years
|
-
|
-
|
-
|
-
|
-
|
-
|
Due
after five but within ten years
|
-
|
-
|
-
|
-
|
-
|
-
|
|
45,802
|
46,542
|
2.17
%
|
60,826
|
60,941
|
2.34
%
|
|
45,802
|
46,542
|
2.17
%
|
60,826
|
60,941
|
2.34
%
|
Mortgage-backed
securities
|
|
|
|
|
|
|
|
-
|
-
|
-
|
-
|
-
|
-
|
Due
after one but within five years
|
-
|
-
|
-
|
-
|
-
|
-
|
Due
after five but within ten years
|
13,159
|
13,666
|
2.75
%
|
13,361
|
13,591
|
2.74
%
|
|
33,840
|
34,162
|
2.09
%
|
17,713
|
17,719
|
2.61
%
|
|
46,999
|
47,828
|
2.27
%
|
31,074
|
31,310
|
2.67
%
|
Municipal
bonds
|
|
|
|
|
|
|
|
-
|
-
|
-
|
-
|
-
|
-
|
Due
after one but within five years
|
1,735
|
1,812
|
3.23
%
|
1,740
|
1,786
|
3.23
%
|
Due
after five but within ten years
|
6,085
|
6,342
|
3.22
%
|
4,325
|
4,412
|
3.06
%
|
|
53,484
|
55,436
|
3.93
%
|
47,098
|
48,236
|
3.99
%
|
|
61,304
|
63,590
|
3.84
%
|
53,163
|
54,434
|
3.89
%
|
Other
investments
|
|
|
|
|
|
|
|
-
|
-
|
-
|
-
|
-
|
-
|
Due
after one but within five years
|
-
|
-
|
-
|
-
|
-
|
-
|
Due
after five but within ten years
|
500
|
500
|
6.50
%
|
500
|
500
|
6.50
%
|
|
2,179
|
1,970
|
0.00
%
|
2,177
|
1,810
|
0.00
%
|
|
2,679
|
2,470
|
1.21
%
|
2,677
|
2,310
|
1.21
%
|
Total
securities available for sale
|
|
|
|
|
|
|
|
-
|
-
|
-
|
-
|
-
|
-
|
Due
after one but within five years
|
1,735
|
1,812
|
3.23
%
|
1,740
|
1,786
|
3.23
%
|
Due
after five but within ten years
|
19,744
|
20,508
|
2.99
%
|
18,186
|
18,503
|
2.82
%
|
|
152,978
|
156,286
|
2.79
%
|
147,592
|
148,607
|
2.91
%
|
|
$
174,457
|
$
178,606
|
2.81
%
|
$
167,518
|
$
168,896
|
2.90
%
|
(1)
The marginal tax
rate used to calculate tax equivalent yield was
30.0%.
(2)
Includes
investments with no stated maturity date
As of September 30,
2016, the weighted average life of the Company's debt securities
was 5.2 years, and the weighted average effective duration was 4.6
years.
Loans
Receivable
The Company serves
the credit needs of commercial and private banking clients in its
markets through a range of commercial and consumer loan products.
The goal of the Company's lending function is to help clients reach
their goals. This is accomplished through loan products that best
fit the needs of each client and are profitable to the Company. The
lending process combines a thorough knowledge of each client and
the local market with the high standards of the Company’s
credit culture. Underwriting criteria governing the level of
assumed risk and a sharp focus on maintaining a well-balanced loan
portfolio play a critical role in the process.
Strict attention is
placed on balancing loan quality and profitability with loan
growth. The Company has established concentration limits by
borrower, product type, loan structure, and industry. Commercial
loans are generally secured by business assets and real estate,
supported by personal guarantees as needed. Loans to private
banking clients are primarily secured with personal assets and real
estate.
The loan portfolio
at September 30, 2016 totaled $1.16 billion and was composed of
$74.6 million in construction and land development loans, $632.1
million in commercial real estate loans, $281.6 million in consumer
real estate loans, $164.9 million in commercial and industrial
loans, and $11.6 million in consumer and other
loans. Also included in loans outstanding is $530,000 in
net deferred loan costs.
The loan portfolio
at December 31, 2015 totaled $1.02 billion and was composed of
$64.7 million in construction and land development loans, $533.9
million in commercial real estate loans, $249.7 million in consumer
real estate loans, $153.7 million in commercial and industrial
loans, and $13.5 million in consumer and other
loans. Also included in loans outstanding is $630,000 in
net deferred loan costs.
The following table
describes the Company’s loan portfolio composition by
category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
Construction
and land development
|
$
74,605
|
6.4
%
|
$
64,702
|
6.4
%
|
Commercial
real estate:
|
|
|
|
|
Non-farm,
non-residential
|
356,833
|
30.6
%
|
307,722
|
30.3
%
|
|
178,631
|
15.3
%
|
147,017
|
14.5
%
|
Multifamily,
nonresidential and junior liens
|
96,643
|
8.3
%
|
79,170
|
7.8
%
|
Total
commercial real estate
|
632,107
|
54.2
%
|
533,909
|
52.5
%
|
Consumer
real estate:
|
|
|
|
|
|
86,361
|
7.4
%
|
78,943
|
7.8
%
|
Secured
by 1-4 family residential, secured by
|
|
|
|
|
|
190,913
|
16.4
%
|
167,053
|
16.4
%
|
Secured
by 1-4 family residential, secured by
|
|
|
|
|
|
4,358
|
0.4
%
|
3,711
|
0.4
%
|
Total
consumer real estate
|
281,632
|
24.2
%
|
249,707
|
24.6
%
|
Commercial
and industrial loans (except those
|
|
|
|
|
|
164,913
|
14.2
%
|
153,669
|
15.1
%
|
Consumer
and other
|
11,558
|
1.0
%
|
13,539
|
1.3
%
|
Less:
|
|
|
|
|
Deferred
loan origination (fees) costs
|
530
|
0.0
%
|
630
|
0.1
%
|
Total
loans
|
1,165,345
|
100
%
|
1,016,156
|
100
%
|
Allowance
for loan losses
|
(7,925
)
|
|
(7,641
)
|
|
|
$
1,157,420
|
|
$
1,008,515
|
|
During the nine
months ended September 30, 2016, loans receivable increased by
$149.2 million, or 14.7%, to $1.17 billion as of period
end. The increase in loans during the quarter is
primarily attributable to new loan origination driven by the demand
in the Company’s market areas.
During 2015, loans
receivable increased by $147.8 million, or 17.0%, to $1.02 billion
as of December 31, 2015. The increase in loans during
the year is also primarily attributable to new loan origination
driven by the demand in the Company’s market
areas.
Maturities
and Sensitivities of Loans to Interest Rates
The following table
presents the maturity distribution of the Company’s loans at
September 30, 2016. The table also presents the portion
of loans that have fixed interest rates or variable interest rates
that fluctuate over the life of the loans in accordance with
changes in an interest rate index such as the prime
rate:
|
At September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
Fixed rate loans (1):
|
|
|
|
|
Construction
and land development
|
$
16,625
|
$
20,983
|
$
4,748
|
$
42,356
|
Commercial
real estate
|
18,131
|
198,694
|
63,234
|
280,059
|
Commercial
real estate owner occupied
|
4,097
|
97,096
|
68,360
|
169,553
|
Multifamily,
nonresidential and junior liens
|
2,872
|
36,502
|
24,355
|
63,729
|
Home
equity lines
|
-
|
741
|
-
|
741
|
Secured
by 1-4 family residential, secured by first
|
|
|
|
|
deeds
of trust
|
8,895
|
64,238
|
110,245
|
183,378
|
Secured
by 1-4 family residential, secured by
|
|
|
|
|
second
deeds of trust
|
148
|
2,155
|
1,194
|
3,497
|
Commercial
and industrial loans (except those
|
|
|
|
|
|
3,371
|
62,332
|
16,666
|
82,369
|
|
1,205
|
2,209
|
367
|
3,781
|
|
55,344
|
484,950
|
289,169
|
829,463
|
Variable rate loans (1):
|
|
|
|
|
Construction
and land development
|
13,557
|
18,416
|
148
|
32,121
|
|
7,011
|
49,008
|
20,755
|
76,774
|
Commercial
real estate owner occupied
|
2,569
|
3,147
|
3,362
|
9,078
|
Multifamily,
nonresidential and junior liens
|
2,911
|
14,886
|
15,117
|
32,914
|
|
2,873
|
10,464
|
72,283
|
85,620
|
Secured
by 1-4 family residential, secured by first
|
|
|
|
-
|
|
1,715
|
3,971
|
1,307
|
6,993
|
Secured
by 1-4 family residential, secured by
|
|
|
|
-
|
|
38
|
415
|
346
|
799
|
Commercial
and industrial loans (except those
|
|
|
|
-
|
|
59,926
|
22,118
|
284
|
82,328
|
|
978
|
6,671
|
128
|
7,777
|
|
91,578
|
129,096
|
113,730
|
334,404
|
Subtotal
|
146,922
|
614,046
|
402,899
|
1,163,867
|
|
208
|
740
|
-
|
948
|
Gross
Loans
|
$
147,130
|
$
614,786
|
$
402,899
|
1,164,815
|
Deferred
origination costs
|
|
|
|
530
|
Total
loans
|
|
|
|
$
1,165,345
|
(1)
Loan maturities are
presented based on the final contractual maturity of each loan and
do not reflect contractual principal payments prior to maturity on
amortizing loans.
(2)
Includes nonaccrual
restructured loans.
The Company may
renew loans at maturity when requested by a customer whose
financial strength appears to support such renewal or when such
renewal appears to be in the Company’s best
interest. In such instances, the Company generally
requires payment of accrued interest and may require a principal
reduction or modify other terms of the loan at the time of
renewal.
Past
Due Loans and Nonperforming Assets
Loans are reported
as past due when the contractual amounts due with respect to
principal and interest are not received by the contractual due
date. Loans are generally classified as nonaccrual if they are past
due for a period of 90 days or more, unless such loans are well
secured and in the process of collection. If a loan or a portion of
a loan is classified as doubtful or as partially charged off, the
loan is generally classified as nonaccrual. Loans that are on a
current payment status or past due less than 90 days may also be
classified as nonaccrual if repayment in full of principal and/or
interest is in doubt. Loans may be returned to accrual status when
all principal and interest amounts contractually due are reasonably
assured of repayment within an acceptable period of time, and there
is a sustained period of repayment performance of interest and
principal by the borrower in accordance with the contractual
terms.
While a loan is
classified as nonaccrual and the future collectability of the
recorded loan balance is doubtful, collections of interest and
principal are generally applied as a reduction to the principal
outstanding, except in the case of loans with scheduled
amortizations where the payment is generally applied to the oldest
payment due. When the future collectability of the recorded loan
balance is expected, interest income may be recognized on a cash
basis. In the case where a nonaccrual loan had been partially
charged off, recognition of interest on a cash basis is limited to
that which would have been recognized on the recorded loan balance
at the contractual interest rate. Receipts in excess of that amount
are recorded as recoveries to the allowance for loan losses until
prior charge-offs have been fully recovered.
Assets acquired as
a result of foreclosure are recorded at estimated fair value in
other real estate (or foreclosed assets). Any excess of cost over
estimated fair value at the time of foreclosure is charged to the
allowance for loan losses. Valuations are periodically performed on
these properties, and any subsequent write-downs are charged to
earnings. Routine maintenance and other holding costs are included
in non-interest expense. Loans are classified as troubled debt
restructurings (“TDR”) by the Company when certain
modifications are made to the loan terms and concessions are
granted to the borrowers due to financial difficulty experienced by
those borrowers. The Company grants concessions by (1) reduction of
the stated interest rate for the remaining original life of the
debt or (2) extension of the maturity date at a stated interest
rate lower than the current market rate for new debt with similar
risk. The Company does not generally grant concessions through
forgiveness of principal or accrued interest. The Company’s
policy with respect to accrual of interest on loans restructured in
a TDR follows relevant supervisory guidance. That is, if a borrower
has demonstrated performance under the previous loan terms and
shows capacity to perform under the restructured loan terms,
continued accrual of interest at the restructured interest rate is
likely. If a borrower was materially delinquent on payments prior
to the restructuring but shows the capacity to meet the
restructured loan terms, the loan will likely continue as
nonaccrual until there is demonstrated performance under new terms.
Lastly, if the borrower does not perform under the restructured
terms, the loan is placed on nonaccrual status. The Company closely
monitors these loans and ceases accruing interest on them if
management believes that the borrowers may not continue performing
based on the restructured note terms.
The following
tables present an age analysis of past due loans, segregated by
class of loans as of September 30, 2016 and December 31,
2015:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
At September 30, 2016
|
|
|
|
|
|
Construction
and land development
|
$
-
|
$
128
|
$
128
|
$
74,477
|
$
74,605
|
Non-farm,
non-residential
|
-
|
-
|
-
|
356,833
|
356,833
|
Owner
occupied
|
-
|
-
|
-
|
178,631
|
178,631
|
Multifamily,
nonresidential and junior liens
|
-
|
-
|
-
|
96,643
|
96,643
|
Home
equity lines
|
194
|
-
|
194
|
86,167
|
86,361
|
Secured
by 1-4 family residential, secured
|
|
|
|
|
|
|
-
|
542
|
542
|
190,371
|
190,913
|
Secured
by 1-4 family residential,
|
|
|
|
|
|
secured
by second deeds of trust
|
-
|
62
|
62
|
4,296
|
4,358
|
Commercial
and industrial loans (except
|
|
|
|
|
|
those
secured by real estate)
|
305
|
216
|
521
|
164,392
|
164,913
|
Consumer
and other
|
-
|
-
|
-
|
11,558
|
11,558
|
|
$
499
|
$
948
|
$
1,447
|
$
1,163,368
|
$
1,164,815
|
|
|
|
|
|
|
At December 31, 2015
|
|
|
|
|
|
Construction
and land development
|
$
-
|
$
238
|
$
238
|
$
64,464
|
$
64,702
|
Non-farm,
non-residential
|
-
|
-
|
-
|
453,407
|
307,722
|
Owner
occupied
|
-
|
-
|
-
|
1,332
|
147,017
|
Multifamily,
nonresidential and junior liens
|
-
|
-
|
-
|
79,170
|
79,170
|
Home
equity lines
|
-
|
-
|
-
|
78,943
|
78,943
|
Secured
by 1-4 family residential, secured
|
|
|
|
|
|
|
-
|
-
|
-
|
167,053
|
167,053
|
Secured
by 1-4 family residential,
|
|
|
|
|
|
secured
by second deeds of trust
|
-
|
65
|
65
|
3,646
|
3,711
|
Commercial
and industrial loans (except
|
|
|
|
|
|
those
secured by real estate)
|
-
|
189
|
189
|
153,480
|
153,669
|
Consumer
and other
|
-
|
21
|
21
|
13,518
|
13,539
|
|
$
-
|
$
513
|
$
513
|
$
1,015,013
|
$
1,015,526
|
The table below
sets forth, for the periods indicated, information about the
Company’s nonaccrual loans, loans past due 90 days or more
and still accruing interest, total non-performing loans (nonaccrual
loans plus nonaccrual restructured loans), and total non-performing
assets.
|
|
|
(Dollars in thousands)
|
|
|
Non-accrual
loans
|
$
760
|
$
323
|
Restructured
loans (1)
|
188
|
190
|
Total
nonperforming loans
|
948
|
513
|
Foreclosed
real estate
|
5,183
|
5,453
|
Total
nonperforming assets
|
$
6,131
|
$
5,966
|
|
|
|
Accruing
loans past due 90 days or more
|
$
-
|
$
-
|
Allowance
for loan losses
|
7,925
|
7,641
|
|
|
|
Nonperforming
loans to period end loans
|
0.08
%
|
0.05
%
|
Allowance
for loan losses to period end
|
|
|
loans
|
0.68
%
|
0.75
%
|
Allowance
for loan losses to
|
|
|
nonperforming
loans
|
835.97
%
|
1489.47
%
|
Allowance
for loan losses to
|
|
|
nonperforming
assets
|
129.26
%
|
128.08
%
|
Nonperforming
assets to total assets
|
0.41
%
|
0.46
%
|
(1)
Restructured
loans are also on nonaccrual status.
In addition to the
above, as of September 30, 2016 the Company had $2.6 million in
loans that were considered to be impaired for reasons other than
their past due, accrual or restructured status. In
total, there were $3.5 million in loans that were considered to be
impaired at period end. As of December 31, 2015, the
Company had $3.4 million in loans that were considered to be
impaired for reasons other than their past due, accrual or
restructured status. In total, there were $3.9 million
in loans that were considered to be impaired at December 31,
2015.
Allowance
for Loan Losses
The allowance for
loan losses is a reserve established through provisions for loan
losses charged to expense and represents management’s best
estimate of probable loans losses that have been incurred within
the existing portfolio of loans. The allowance, in the judgment of
management, is necessary to reserve for estimated losses and risk
inherent in the loan portfolio. The Company’s allowance for
loan loss methodology is based on historical loss experience by
type of credit and internal risk grade, specific homogeneous risk
pools and specific loss allocations, with adjustments for current
events and conditions. The Company’s process for determining
the appropriate level of reserves is designed to account for
changes in credit quality as they occur. The provision for loan
losses reflects loan quality trends, including the levels of and
trends related to past due loans and economic conditions at the
local and national levels. It also considers the quality
and risk characteristics of the Company’s loan origination
and servicing policies and practices. Included in the allowance are
specific reserves on loans that are considered to be impaired,
which are identified and measured in accordance with ASC
310.
The following table
presents the Company’s allowance for loan losses allocated to
each category of the Company’s loan portfolio and each
category of the loan portfolio as a percentage of total loans, at
September 30, 2016 and at December 31, 2015.
|
|
|
|
2016
|
2015
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
Construction
and land development
|
$
400
|
6.4
%
|
$
509
|
6.4
%
|
Commercial
real estate
|
3,409
|
54.2
%
|
3,156
|
52.6
%
|
Consumer
real estate
|
2,092
|
24.2
%
|
2,046
|
24.6
%
|
Commercial
and industrial loans (except those
|
|
|
|
|
|
1,940
|
14.2
%
|
1,786
|
15.1
%
|
Consumer
and other
|
84
|
1.0
%
|
144
|
1.3
%
|
|
$
7,925
|
100.0
%
|
$
7,641
|
100.0
%
|
The allowance for
loan losses as a percentage of gross loans outstanding decreased by
0.07% during the first nine months of 2016 to 0.68% of gross loans
at September 30, 2016. The change in the allowance during the
period resulted from net charge-offs of $107,000 and $149.2 million
of loan growth offset by loan loss provisions of
$391,000. General reserves totaled $7.2 million or 0.62%
of gross loans outstanding as of September 30, 2016, an percentage
decrease from year-end 2015 when they totaled $7.1 million or 0.70%
of loans outstanding. At September 30, 2016, specific
reserves on impaired loans constituted $756,000 or 0.06% of gross
loans outstanding compared to $509,000 or 0.05% of loans
outstanding as of December 31, 2015.
The following table
presents information regarding changes in the allowance for loan
losses in detail for the years indicated:
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
Allowance
for loan losses at beginning of the period
|
$
7,986
|
$
7,569
|
$
7,641
|
$
6,869
|
Provision
for loan losses
|
391
|
-
|
391
|
750
|
|
|
|
|
|
Loans
charged off:
|
|
|
|
|
Construction
and land development
|
-
|
(14
)
|
-
|
(14
)
|
|
-
|
-
|
-
|
(276
)
|
|
-
|
-
|
-
|
-
|
Commercial
and industrial loans (except those
|
|
|
|
|
|
(682
)
|
-
|
(682
)
|
-
|
|
-
|
-
|
(1
)
|
-
|
|
(682
)
|
(14
)
|
(683
)
|
(290
)
|
Recoveries
of loans previously charged off:
|
|
|
|
|
Construction
and land development
|
58
|
10
|
295
|
63
|
|
3
|
11
|
59
|
11
|
|
1
|
42
|
7
|
42
|
Commercial
and industrial loans (except those
|
|
|
|
|
|
168
|
-
|
204
|
173
|
|
-
|
-
|
11
|
-
|
|
230
|
63
|
576
|
289
|
Net
recoveries (charge-offs)
|
(452
)
|
49
|
(107
)
|
(1
)
|
Allowance
for loan losses at end of the period
|
$
7,925
|
$
7,618
|
$
7,925
|
$
7,618
|
|
|
|
|
|
Ratio
of net charge-offs during the period
|
|
|
|
|
to
average loans outstanding during
|
|
|
|
|
|
-0.16
%
|
0.02
%
|
-0.01
%
|
0.00
%
|
While the Company
believes that it uses the best information available to establish
the allowance for loan losses, future adjustments to the allowance
may be necessary and results of operations could be adversely
affected if circumstances differ substantially from the assumptions
used in making determinations regarding the allowance.
Management believes
the level of the allowance for loan losses as of September 30, 2016
and December 31, 2015 is appropriate in light of the risk inherent
within the Company’s loan portfolio.
Other
Assets
At September 30,
2016, non-earning assets totaled $78.3 million, a decrease of $11.1
million from $89.4 million at December 31,
2015. Non-earning assets at September 30, 2016 consisted
of: cash and due from banks of $14.6 million, premises and
equipment totaling $15.9 million, foreclosed real estate totaling
$5.2 million, accrued interest receivable of $4.0 million, bank
owned life insurance, or BOLI, of $28.7 million, net deferred taxes
of $3.4 million and other assets totaling $6.3
million.
At December 31,
2015, non-earning assets totaled $89.4
million. Non-earning assets at December 31, 2015
consisted of: cash and due from banks of $24.5 million, premises
and equipment totaling $16.4 million, foreclosed real estate
totaling $5.5 million, accrued interest receivable of $3.8 million,
bank owned life insurance of $28.3 million and other assets
totaling $6.8 million, with net deferred taxes of $4.1
million.
As of September 30,
2016, the Company had an investment in bank owned life insurance of
$28.9 million, which increased $669,000 from December 31, 2015. The
increase in BOLI was due to an increase in cash surrender
value. Since the income on this investment is included
in non-interest income, the asset is not included in the
Company’s calculation of earning assets.
Deposits
Deposits gathered
from clients represent the primary source of funding for the
Company’s lending activities. Commercial and private banking
deposit services include non-interest and interest bearing checking
accounts, money market accounts, and to a limited extent, IRAs and
CDs. Interest rates for each account type are set by the Company
within the context of marketplace factors, current deposit needs,
and a keen awareness of maintaining a strong margin.
The Company's
primary focus is on establishing long-term client relationships to
attract core deposits. However, the Company may use non-reciprocal
brokered and other wholesale deposits to supplement local funding
sources. As of September 30, 2016, non-reciprocal brokered deposits
represented 8.0 percent of total deposits.
Total deposits at
September 30, 2016 were $1.20 billion and consisted of $188.4
million in non-interest-bearing demand deposits, $767.1 million in
interest-bearing checking and money market accounts, and $243.6
million in time deposits. Total deposits increased by $216.2
million from $982.8 million as of December 31,
2015. Non-interest-bearing demand deposits increased by
$29.4 million from $159.0 million as of December 31,
2015. Interest-bearing and money market accounts
increased by $263.0 million from $504.1 million as of December 31,
2015. Time deposits decreased by $76.2 million during the
nine-month period ended September 30, 2016 from $319.8 million as
of December 31, 2015. The increase in deposits was
primarily due to a focus on growing core customer deposits and
demand in the markets in which the Company operates.
The table below
provides a summary of the Company’s deposit portfolio by
deposit type.
|
As of
|
|
|
|
Composition of Deposit Portfolio
|
|
|
Non-interest
bearing
|
15.7
%
|
16.2
%
|
Interest-bearing
checking accounts
|
19.5
%
|
21.5
%
|
Money
markets
|
44.5
%
|
29.8
%
|
Time
deposits
|
20.3
%
|
32.5
%
|
|
100.0
%
|
100.0
%
|
The following table
shows historical information regarding the average balances
outstanding and average interest rates for each major category of
deposits:
|
For the Three Month Period Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
Interest-bearing
checking accounts
|
$
186,369
|
16.6
%
|
0.36
%
|
$
129,297
|
12.8
%
|
0.51
%
|
Money
markets
|
491,805
|
43.8
%
|
0.65
%
|
333,957
|
33.1
%
|
0.67
%
|
Time
deposits
|
254,358
|
22.6
%
|
0.92
%
|
389,709
|
38.6
%
|
0.81
%
|
Total
interest-bearing deposits
|
932,532
|
83.0
%
|
0.66
%
|
852,963
|
84.4
%
|
0.71
%
|
Noninterest-bearing
deposits
|
190,745
|
17.0
%
|
-
|
157,435
|
15.6
%
|
-
|
|
$
1,123,277
|
100.0
%
|
0.55
%
|
$
1,010,398
|
100.0
%
|
0.60
%
|
|
For the Nine Month Period Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
Interest-bearing
checking accounts
|
$
165,655
|
15.8
%
|
0.42
%
|
$
123,377
|
13.1
%
|
0.49
%
|
Money
markets
|
432,362
|
41.4
%
|
0.66
%
|
301,604
|
32.0
%
|
0.68
%
|
Time
deposits
|
266,903
|
25.5
%
|
0.86
%
|
372,321
|
39.5
%
|
0.94
%
|
Total
interest-bearing deposits
|
864,920
|
82.7
%
|
0.67
%
|
797,302
|
84.6
%
|
0.77
%
|
Noninterest-bearing
deposits
|
180,623
|
17.3
%
|
-
|
145,181
|
15.4
%
|
-
|
|
$
1,045,543
|
100.0
%
|
0.56
%
|
$
942,483
|
100.0
%
|
0.65
%
|
The overall mix of
deposits has shifted to a higher percentage of non-interest demand
deposits and interest-bearing demand with reductions in the
percentage of deposits held in time deposit accounts. The Company
believes its deposit product offerings are properly structured to
attract and retain core low-cost deposit relationships. The average
cost of deposits was 0.55% in the third quarter of 2016 compared to
0.60% in the third quarter of 2015 due to changes in deposit mix
and lower deposit interest rates. The average cost of
deposits was 0.56% for the nine-month period ended September 30,
2016 compared to 0.65% in the nine month period ended September 30,
2015 due to changes in deposit mix and lower deposit interest
rates.
Short-Term
and Long-Term Debt
The Company uses
short-term borrowings and long-term debt to provide both funding
and, to a lesser extent, regulatory capital. As of
September 30, 2016, the Company had $100.0 million in short-term
debt, which consisted solely of FHLB advances compared to an
outstanding balance of $165.0 million at year-end
2015. In addition, the Company had $4.8 million
outstanding on an amortizing $10.0 million holding company loan at
December 31, 2015 which was repaid in June 2016 with a portion of
the proceeds of the Company’s initial public
offering. The decrease in short-term debt was due to the
Company’s rapid deposit growth during the first nine months
of 2016.
The Company had
issued and outstanding $18.6 million in junior subordinated
debentures as of September 30, 2016 and December 31,
2015. These junior subordinated debentures were issued
to Paragon Commercial Capital Trust I and Paragon Commercial
Capital Trust II in connection with the issuance of trust preferred
securities on May 18, 2004 and May 30, 2006,
respectively. Additional information regarding the
junior subordinated debentures can be found in Note 7 of the
Company’s 2015 audited consolidated financial
statements.
In the third
quarter of 2016, the Company entered into a $20.0 million secured
holding company line of credit with an unaffiliated
institution. The terms of the note include interest at
prime plus 0.50% and will expire in September 2017. The
line is secured by 100% of the stock of the Bank owned by the
Company. The Company has not drawn on the note and has
no balance at September 30, 2016.
Stockholders’
Equity
Total
stockholders’ equity at September 30, 2016 was $135.0
million, an increase of $37.4 million from $97.7 million as of
December 31, 2015. The change in stockholders’ equity
principally represents the proceeds of $26.4 million, net of issue
costs, from an initial public offering closed in June 2016,
combined with net income to common stockholders for the nine months
ended September 30, 2016 of $9.8 million. Other changes
in stockholders’ equity included $319,000 in stock-based
compensation and other comprehensive income of $721,000 related to
net increasing values in the Company’s available for sale
investment securities portfolio and its cash flow
hedges.
Liquidity
Market and public
confidence in the Company’s financial strength and in the
strength of financial institutions in general will largely
determine the Company’s access to appropriate levels of
liquidity. This confidence depends significantly on the
Company’s ability to maintain sound asset quality and
appropriate levels of capital resources. The term
“liquidity” refers to the Company’s ability to
generate adequate amounts of cash to meet current needs for funding
loan originations, deposit withdrawals, maturities of borrowings
and operating expenses. Investment portfolio principal
payments and maturities, loan principal payments, deposit growth,
brokered deposit sources, available borrowings from the FHLB, and
various federal funds lines from correspondent banks are the
primary sources of liquidity for the Bank. Management
measures the Bank’s liquidity position by giving
consideration to both on- and off-balance sheet sources of, and
demands for, funds on a daily and weekly basis.
Liquid assets
(consisting of cash and due from banks, interest-earning deposits
with other banks, federal funds sold and investment securities
classified as available for sale) represented 17.1% and 17.2% of
total assets at September 30, 2016 and December 31, 2015,
respectively.
The Bank has seen a
net reduction in wholesale funding, maintaining liquidity
sufficient to fund new loan demand and to reduce part of its
wholesale funding. When the need arises, the Bank has
the ability to sell securities classified as available for sale,
sell loan participations to other banks, or to borrow funds as
necessary. The Bank has established credit lines with
other financial institutions to purchase up to $102.5 million in
federal funds but had no such borrowings outstanding at September
30, 2016 or at December 31, 2015. Also, as a member of
the Federal Home Loan Bank of Atlanta, the Bank may obtain advances
of up to 30% of assets, subject to our available collateral. The
Bank had an available borrowing line at September 30, 2016 of
$363.6 million at the FHLB, secured by qualifying
loans. As of that date, the Bank had $100.0
million outstanding on the line and available borrowing capacity of
$263.6 million. In addition, the Bank may borrow up to
$140.1 million at the Federal Reserve discount window and has
pledged loans for that purpose.
As another source of short-term
borrowings, the Bank also utilizes securities sold under agreements
to repurchase. At September 30, 2016, borrowings of
securities sold under agreements to repurchase were $19.8
million.
At September 30,
2016, the Bank had undisbursed lines of credit of $202.0 million,
and letters of credit of $3.9 million. The Bank believes
that its combined aggregate liquidity position from all sources is
sufficient to meet the funding requirements of loan demand and
deposit maturities and withdrawals in the near term.
Total deposits were
$1.2 billion and $982.8 million at September 30, 2016 and December
31, 2015, respectively. Time deposits, which are the only deposit
accounts that have stated maturity dates, are generally considered
to be rate sensitive. Time deposits represented 20.3%
and 32.5% of total deposits at September 30, 2016 and December 31,
2015, respectively. Other than brokered time deposits,
management believes most other time deposits are
relationship-oriented. While competitive rates will need to be paid
to retain these deposits at their maturities, there are other
subjective factors that will determine their continued
retention.
Management believes
that current sources of funds provide adequate liquidity for the
Company’s current cash flow needs. The Bank’s parent
company maintains minimal cash balances. Management believes that
the current cash balances plus taxes receivable will provide
adequate liquidity for the Company’s current cash flow
needs.
Contractual
Obligations
The following table
presents the Company's significant fixed and determinable
contractual obligations by payment date. The payment amounts
represent those amounts contractually due to the recipient. The
table excludes liabilities recorded where management cannot
reasonably estimate the timing of any payments that may be required
in connection with these liabilities.
|
September 30, 2016
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Time
deposits
|
$
158,525
|
$
79,003
|
$
6,035
|
$
-
|
$
243,563
|
Short
term borrowings
|
100,000
|
-
|
-
|
-
|
100,000
|
Subordinated
debentures
|
-
|
-
|
-
|
18,558
|
18,558
|
Operating
leases
|
701
|
1,302
|
355
|
4,036
|
6,394
|
Total
contractual obligations
|
$
259,226
|
$
80,305
|
$
6,390
|
$
22,594
|
$
368,515
|
Capital
Our management
seeks to maintain adequate capital to support anticipated asset
growth, operating needs and unexpected risks, and to ensure that
the Company and the Bank are in compliance with all current and
anticipated regulatory capital guidelines. Our primary sources of
new capital include retained earnings and proceeds from the sale
and issuance of capital stock or other securities.
In 2013, the
Federal Reserve and the FDIC adopted final rules that implemented
the Basel III changes to the international regulatory capital
framework, referred to as the “Basel III Rules.” The
Basel III Rules apply to both depository institutions and their
holding companies. The Basel III Rules, which became effective for
both the Company and the Bank in 2015, include risk-based and
leverage capital ratio requirements which refined the definition of
what constitutes “capital” for purposes of calculating
those ratios. The minimum capital level requirements applicable to
the Company and the Bank under the Basel III Rules are: (i) a
common equity Tier 1 risk-based capital ratio of 4.5 percent; (ii)
a Tier 1 risk-based capital ratio of 6 percent; (iii) a total
risk-based capital ratio of 8 percent; and (iv) a Tier 1 leverage
ratio of 4 percent for all institutions. Common equity Tier 1
capital consists of retained earnings and common stock instruments,
subject to certain adjustments.
The Basel III Rules
also establish a “capital conservation buffer” of 2.5
percent above the new regulatory minimum risk-based capital
requirements. The conservation buffer, when added to the capital
requirements, result in the following minimum ratios: (i) a common
equity Tier 1 risk-based capital ratio of 7.0 percent, (ii) a Tier
1 risk-based capital ratio of 8.5 percent, and (iii) a total
risk-based capital ratio of 10.5 percent. The new capital
conservation buffer requirement is to be phased in beginning in
January 2016 at 0.625 percent of risk-weighted assets and will
increase by that amount each year until fully implemented in
January 2019. An institution will be subject to limitations on
certain activities including payment of dividends, share
repurchases and discretionary bonuses to executive officers if its
capital level is below the buffer amount.
The Basel III Rules
also revised the prompt corrective action framework, which is
designed to place restrictions on insured depository institutions,
including the Bank, if their capital levels do not meet certain
thresholds. The prompt corrective action rules were modified to
include a common equity Tier 1 capital component and to increase
certain other capital requirements for the various thresholds. For
example, under the proposed prompt corrective action rules, insured
depository institutions will be required to meet the following
capital levels in order to qualify as “well
capitalized:” (i) a common equity Tier 1 risk-based capital
ratio of 6.5 percent; (ii) a Tier 1 risk-based capital ratio of 8
percent; (iii) a total risk-based capital ratio of 10 percent; and
(iv) a Tier 1 leverage ratio of 5 percent. The Basel III Rules also
set forth certain changes in the methods of calculating certain
risk-weighted assets, which in turn affect the calculation of risk
based ratios.
If the Bank fails
to meet the requirements for a “well capitalized” bank,
it could increase the regulatory scrutiny on the Bank and the
Company. In addition, the Bank would not be able to renew or accept
brokered deposits without prior regulatory approval and the Bank
would not be able to offer interest rates on its deposit accounts
that are significantly higher than the average rates in the
Bank’s market area. As a result, it would be more difficult
to attract new deposits and retain or increase existing,
non-brokered deposits. If the Bank is prohibited from renewing or
accepting brokered deposits and is unable to attract new deposits,
our liquidity and our ability to fund our loan portfolio may be
adversely affected. In addition, we would be required to pay higher
insurance premiums to the FDIC, which would reduce our
earnings.
On May 18, 2004,
the Company privately issued trust preferred securities having an
aggregate liquidation amount of $10.0 million through Paragon
Commercial Capital Trust I. On May 30, 2006, we
privately issued additional floating rate trust preferred
securities having an aggregate liquidation amount of $8.0 million
through Paragon Commercial Capital Trust II. The
proceeds provided additional capital for the expansion of the Bank.
Under the current applicable regulatory guidelines, all of the
trust preferred securities qualify as Tier 1 capital.
On June 21, 2016
the Company issued 845,588 shares of its common stock in an initial
public offering. Of the $26.4 million in net proceeds,
$3.8 million were used to pay down existing debt at the holding
company, $20.5 million were contributed to the Bank as additional
capital and the remaining $2.1 million was retained at the holding
company level to service existing debt at the holding company
level.
Regulatory capital
ratios for the Bank exceeded minimum federal regulatory guidelines
for a well-capitalized depository institution as of September 30,
2016 and December 31, 2015. Management expects that the Company and
the Bank will continue to be in compliance with applicable
regulatory capital requirements, although there can be no assurance
that additional capital will not be required in the
future. The Company’s and the Bank’s
capital ratios as of September 30, 2016 are presented in the table
below.
|
|
|
Minimum Requirements To Be:
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
September 30, 2016
|
|
|
|
|
|
|
The Company
|
|
|
|
|
|
|
Common
equity Tier 1
|
$
135,078
|
11.035
%
|
$
55,083
|
4.500
%
|
N/A
|
N/A
|
Total
risk-based capital ratio
|
161,003
|
13.153
%
|
97,925
|
8.000
%
|
N/A
|
N/A
|
Tier
1 risk-based capital ratio
|
153,078
|
12.506
%
|
73,444
|
6.000
%
|
N/A
|
N/A
|
Tier
1 leverage ratio
|
153,078
|
10.378
%
|
59,000
|
4.000
%
|
N/A
|
N/A
|
Tangible
equity to tangible assets ratio
|
135,078
|
9.134
%
|
N/A
|
N/A
|
N/A
|
N/A
|
Tangible
equity to risk-weighted assets ratio
|
135,078
|
11.035
%
|
N/A
|
N/A
|
N/A
|
N/A
|
|
|
|
|
|
|
|
The Bank
|
|
|
|
|
|
|
Common
equity Tier 1
|
$
150,214
|
12.279
%
|
$
55,050
|
4.500
%
|
$
79,517
|
6.500
%
|
Total
risk-based capital ratio
|
158,139
|
12.927
%
|
97,867
|
8.000
%
|
122,334
|
10.000
%
|
Tier
1 risk-based capital ratio
|
150,214
|
12.279
%
|
73,400
|
6.000
%
|
97,867
|
8.000
%
|
Tier
1 leverage ratio
|
150,214
|
10.416
%
|
63,944
|
4.000
%
|
72,110
|
5.000
%
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
The Company
|
|
|
|
|
|
|
Common
equity Tier 1
|
$
97,853
|
8.92
%
|
$
49,384
|
4.50
%
|
N/A
|
N/A
|
Total
risk-based capital ratio
|
123,028
|
11.21
%
|
87,794
|
8.00
%
|
N/A
|
N/A
|
Tier
1 risk-based capital ratio
|
115,387
|
10.51
%
|
65,845
|
6.00
%
|
N/A
|
N/A
|
Tier
1 leverage ratio
|
115,387
|
8.66
%
|
53,274
|
4.00
%
|
N/A
|
N/A
|
|
|
|
|
|
|
|
The Bank
|
|
|
|
|
|
|
Common
equity Tier 1
|
$
119,454
|
10.90
%
|
$
50,425
|
4.50
%
|
$
71,253
|
6.50
%
|
Total
risk-based capital ratio
|
127,095
|
11.59
%
|
87,696
|
8.00
%
|
109,621
|
10.00
%
|
Tier
1 risk-based capital ratio
|
119,454
|
10.90
%
|
65,772
|
6.00
%
|
87,696
|
8.00
%
|
Tier
1 leverage ratio
|
119,454
|
9.15
%
|
52,193
|
4.00
%
|
65,241
|
5.00
%
|
1)
Total capital ratio
is defined as Tier 1 capital plus Tier 2 capital divided
by total risk-weighted assets. The Tier 1 Capital ratio is
defined as Tier 1 capital divided by total risk-weighted
assets. Common equity Tier 1 is defined as Tier 1 capital excluding
qualifying trust preferred securities divided by total risk
weighted assets. The leverage ratio is defined as Tier 1
capital divided by the most recent quarter’s average total
assets.
2)
Prompt corrective
action provisions are not applicable at the bank holding company
level.