STOCK YARDS BANCORP, INC. – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations
Stock Yards Bancorp, Inc. ("Bancorp" or "the Company"), is a FHC headquartered inLouisville, Kentucky and is engaged in the business of banking through its wholly owned subsidiaries,Stock Yards Bank & Trust Company ("SYB" or "the Bank") andSYB Insurance Company, Inc. ("the Captive"). Bancorp, which was incorporated in 1988 inKentucky , is registered with, and subject to supervision, regulation and examination by, theBoard of Governors of theFederal Reserve System . As Bancorp has no significant operations of its own, its business is essentially that of SYB and the Captive. The operations of SYB and the Captive are fully reflected in the consolidated financial statements of Bancorp. Accordingly, references to "Bancorp" in this document may encompass both the holding company and its subsidiaries, but it should be noted that the business of the Captive is immaterial to the overall results of operations and financial condition of Bancorp. All significant inter-company transactions and accounts have been eliminated in consolidation. SYB, established in 1904, is a state-chartered non-member financial institution that provides services inLouisville , central, eastern and northernKentucky , as well as theIndianapolis, Indiana andCincinnati, Ohio MSAs through 73 full service banking center locations. The Bank is registered with, and subject to supervision, regulation and examination by theFDIC and theKentucky Department of Financial Institutions . The Captive, a wholly owned subsidiary of the Company, is aNevada -based captive insurance company that provides insurance against certain risks unique to operations of the Company and its subsidiaries for which insurance may not be currently available or economically feasible in today's insurance marketplace. The Captive pools resources with several other similar insurance company subsidiaries of financial institutions to spread a limited amount of risk among themselves. The Captive is subject to regulations of theState of Nevada and undergoes periodic examinations by theNevada Division of Insurance . It has elected to be taxed under Section 831(b) of the Internal Revenue Code. Pursuant to Section 831(b), if gross premiums do not exceed$2,400,000 , then the Captive is taxable solely on its investment income. The Captive is included in the Company's consolidated financial statements and its federal income tax return. As a result of its acquisition ofCommonwealth Bancshares, Inc. onMarch 7, 2022 , Bancorp became the 100% successor owner of the following unconsolidatedDelaware trust subsidiaries: Commonwealth Statutory Trust III,Commonwealth Statutory Trust IV and Commonwealth Statutory Trust V. The sole assets of the trust subsidiaries represent the proceeds of offerings loaned in exchange for subordinated debentures with similar terms to the TPS. Also, as a result of its acquisition ofCommonwealth Bancshares, Inc. , the Company acquired a 60% interest inLandmark Financial Advisors, LLC (LFA), which is based inBowling Green, Kentucky and provides wealth management services. LFA is consolidated into the Company. The noncontrolling interest within the consolidated financial statements represents the interest in LFA not owned by the Company. Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements and accompanying Footnotes presented in Part 1 Item 1 "Financial Statements" and other information appearing in Bancorp's Annual Report on Form 10-K for the year endedDecember 31, 2021 . To the extent that this discussion describes prior performance, the descriptions relate only to the periods listed, which may not be indicative of Bancorp's future financial outcomes. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause results to differ materially from management's expectations.
Cautionary Statement Regarding Forward-Looking Statements
This document contains statements relating to future results of Bancorp that are
considered "forward-looking" as defined by Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. The forward-looking statements are principally, but not exclusively,
contained in Part I Item 2 "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Forward-looking statements involve known and unknown risks, uncertainties, and
other factors that may cause actual results, performance, or achievements to be
materially different from future results, performance, or achievements expressed
or implied by the statement. These statements are often, but not always, made
through the use of words or phrases such as "anticipate," "believe," "aim,"
"can," "conclude," "continue," "could," "estimate," "expect," "foresee," "goal,"
"intend," "may," "might," "outlook," "possible," "plan," "predict," "project,"
"potential," "seek," "should," "target," "will," "will likely," "would," or
other similar expressions. These forward-looking statements are not historical
facts and are based on current expectations, estimates and projections about our
industry, management's beliefs and certain assumptions made by management, many
of which, by their nature, are inherently uncertain and beyond our control.
Forward-looking statements detail management's expectations regarding the future
and are based on information known to management only as of the date the
statements are made and management undertakes no obligation to update
forward-looking statements to reflect events or circumstances that occur after
the date forward-looking statements are made, except as required by applicable
regulation.
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There is no assurance that any list of risks and uncertainties or risk factors is complete. Factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements include, among other things:
? Residual impact, if any, of the COVID-19 pandemic of the COVID-19 pandemic on
Bancorp's business, including the impact of the actions taken by governmental
authorities to try and contain the pandemic or address the impact of the
pandemic on the
efforts), and the resulting effect of all such items on our operations,
liquidity and capital position, and on the financial condition of Bancorp's
borrowers and other customers;
? changes in, or forecasts of, future political and economic conditions,
inflation and efforts to control it;
? accuracy of assumptions and estimates used in establishing the ACL on loans,
ACL for off-balance sheet credit exposures and other estimates;
? impairment of investment securities, goodwill, MSRs, other intangible assets
or DTAs;
? ability to effectively navigate an economic slowdown or other economic or
market disruptions; ? changes in laws and regulations or the interpretation thereof; ? changes in fiscal, monetary, and/or regulatory policies;
? changes in tax polices including but not limited to changes in federal and
state statutory rates;
? behavior of securities and capital markets, including changes in interest
rates, market volatility and liquidity; ? ability to effectively manage capital and liquidity;
? long-term and short-term interest rate fluctuations, as well as the shape of
the
? the magnitude and frequency of changes to the FFTR implemented by the Federal
Open Market Committee of the FRB ; ? competitive product and pricing pressures; ? projections of revenue, expenses, capital expenditures, losses, EPS, dividends, capital structure, etc.; ? descriptions of plans or objectives for future operations, products, or services; ? integration of acquired financial institutions, businesses or future acquisitions;
? changes in the credit quality of Bancorp's customers and counterparties,
deteriorating asset quality and charge-off levels;
? changes in technology instituted by Bancorp, its counterparties or
competitors;
? changes to or the effectiveness of Bancorp's overall internal control
environment;
? adequacy of Bancorp's risk management framework, disclosure controls and
procedures and internal control over financial reporting;
? changes in applicable accounting standards, including the introduction of new
accounting standards; ? changes in investor sentiment or behavior; ? changes in consumer/business spending or savings behavior;
? ability to appropriately address social, environmental and sustainability
concerns that may arise from business activities;
? occurrence of natural or man-made disasters or calamities, including health
emergencies, the spread of infectious diseases, pandemics or outbreaks of
hostilities, and Bancorp's ability to deal effectively with disruptions caused
by the foregoing;
? ability to maintain the security of its financial, accounting, technology,
data processing and other operational systems and facilities;
? ability to withstand disruptions that may be caused by any failure of its
operational systems or those of third parties;
? ability to effectively defend itself against cyberattacks or other attempts by
unauthorized parties to access information of Bancorp, its vendors or its
customers or to disrupt systems; and
? other risks and uncertainties reported from time-to-time in Bancorp's filings
with the
Report on Form 10-K for the year endedDecember 31, 2021 . 69
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Acquisition of
Bank & Trust Company
OnMarch 7, 2022 , Bancorp completed its acquisition ofCommonwealth Bancshares, Inc. and its wholly owned subsidiary,Commonwealth Bank & Trust Company , collectively defined as "CB," aLouisville, Kentucky -based commercial bank and trust company, which operated 15 retail branches, including nine inJefferson County , four inShelby County , and two inNorthern Kentucky . At the time of acquisition and net of purchase accounting adjustments, Commonwealth had$1.34 billion in assets,$632 million in loans (net of purchase accounting adjustments),$247 million in investment securities and$1.12 billion in deposits in addition to maintaining aWealth Management and Trust Department with total assets under management of approximately$2.93 billion . Bancorp acquired all outstanding common stock ofCommonwealth Bancshares, Inc. in a combined stock and cash transaction that resulted in total consideration paid toCommonwealth Bancshares, Inc. shareholders of$168 million . Bancorp recorded goodwill of$67 million and incurred pre-tax merger related expenses totaling$19.5 million for the three months endedMarch 31, 2022 as a result of the CB acquisition. Further, the CB acquisition served to increase the ACL on loans by$14 million at acquisition date. This increase consisted of$10 million attributed to the acquired PCD loan portfolio, with the corresponding offset recorded to goodwill (as opposed to provision for credit loss expense), and$4 million of provision for credit loss expense recorded in relation to the acquired loan portfolio for the three months endedMarch 31, 2022 .
OnMay 31, 2021 , Bancorp completed its acquisition ofKentucky Bancshares, Inc. and its wholly owned subsidiary,Kentucky Bank , collectively defined as "KB," aParis, Kentucky -based commercial bank and trust company, which operated 19 retail branches throughout central and easternKentucky with$1.27 billion in assets,$755 million in loans (including PPP),$396 million in investment securities and$1.04 billion in deposits at the time of acquisition.Kentucky Bancshares, Inc. was also the holding company for an insurance captive, which Bancorp acquired and retained. Bancorp acquired all outstanding common stock ofKentucky Bancshares, Inc. in a combined stock and cash transaction that resulted in total consideration paid toKentucky Bancshares, Inc. shareholders of$233 million . Bancorp recorded goodwill of$123 million and incurred pre-tax merger related expenses totaling$18.1 million for the year endedDecember 31, 2021 as a result of the KB acquisition. The acquisition of KB had a significant impact on the ACL and credit loss provisioning for the year endedDecember 31, 2021 . In total, acquisition-related activity served to increase the ACL by$14 million for the year endedDecember 31, 2021 . This increase consisted of$7 million attributed to the acquired PCD loan portfolio, with the corresponding offset recorded to goodwill (as opposed to provision for credit loss expense), and$7 million attributed to the acquired non-PCD portfolio, which represented the acquisition-related credit loss expense at the time of acquisition.
Issued but Not Yet Effective Accounting Standards Updates
For disclosure regarding the impact to Bancorp's financial statements of
issued-but-not-yet-effective ASUs, see the footnote titled "Summary of
Significant Accounting Policies" of Part I Item 1 "Financial Statements."
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Table of Contents Business Segment Overview
Bancorp is divided into two reportable segments: Commercial Banking and WM&T:
Commercial Banking provides a full range of loan and deposit products to individual consumers and businesses in all its markets through retail lending, mortgage banking, deposit services, online banking, mobile banking, private banking, commercial lending, commercial real estate lending, treasury management services, merchant services, international banking, correspondent banking and other banking services. The Bank also offers securities brokerage services via its banking center network through an arrangement with a third party broker-dealer in the Commercial Banking segment. WM&T provides investment management, financial & retirement planning and trust & estate services, as well as retirement plan management for businesses and corporations in all markets in which Bancorp operates. The magnitude of WM&T revenue distinguishes Bancorp from other community banks of similar asset size.
Overview - Operating Results (FTE)
The following table presents an overview of Bancorp's financial performance for
the three months ended
(dollars in thousands, except per share data)
Variance
Three months ended March 31, 2022 2021 $/bp % Net income attributed to stockholders$ 7,906 $ 22,710 $ (14,804 ) -65 % Diluted earnings per share$ 0.29 $ 0.99 $ (0.70 ) -71 % ROA 0.47 % 1.96 % (149) bps -76 % ROE 4.55 % 20.71 % (1616) bps -78 %
Additional discussion follows under the section titled "Results of Operations."
General highlights for the three months ended
31, 2021
? Bancorp completed its acquisition of
first quarter of 2022. At the time of acquisition, CB had approximately
billion in assets,
adjustments),
deposits.
? Bancorp also completed its acquisition
second quarter of 2021, which resulted in the addition of approximately
billion in assets,
adjustments),
deposits at the time of acquisition last year, further contributing to the
substantial balance sheet growth experienced over the past twelve months.
? Net income totaled
three months ended
period of 2021. Significant factors affecting the results for the three months
ended
o The acquisition of Commonwealth included
o Net interest income increased
ended
acquisition-related growth (primarily from the
and organic growth in loans and investment securities overcame a substantial
decline in PPP-related fee recognition.
o Total provision for credit loss expense was
ended
period of last year, the increase resulting entirely from expense recorded in
association with the CB acquisition.
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Table of Contents ? NIM decreased 28 bps to 3.11% for the three months endedMarch 31, 2022
compared to 3.39% for the same period in 2021. Substantial growth in federal
funds sold, interest bearing due from banks and the investment securities
portfolio resulting from excess liquidity and efforts to deploy it, coupled
with a sustained low rate environment that has continued to put pressure on
loan yields, drove NIM compression for the three months ended
compared to the same period of 2021. While the interest rate environment began
showing improvement during the first quarter on the heels of the FRB's 25 bps
FFTR increase, Bancorp did not experience the full benefit of rising rates
during the three months ended
? Total loans (excluding PPP loans) increased
purchase accounting adjustments) during the first quarter in relation to the
CB acquisition,
growth. Average loans (excluding PPP loans) also increased
43%, for the three months ended
2021.
? The PPP loan portfolio decreased
2021 as the result of anticipated forgiveness activity, driving a
million, or 60%, decline in PPP-related interest and fee income for the three
months ended
? Total provision for credit loss expense of
three months ended
for the same period of the prior year. Expense of
relation to the loan portfolio acquired from CB, which was partially offset by
a net benefit of
the unemployment forecast, updates to Bancorp's CECL modeling, net recoveries
and strong historic credit metrics.
? Bancorp's ACL on loans to total loans was 1.38% at
1.29% at
activity within the ACL on loans.
? Deposit balances increased
result of assuming approximately
quarter in relation to the CB acquisition, the addition of
deposits related to expansion into the
second quarter of 2021 and the general trend of customers maintaining elevated
levels of liquidity recently.
? Total non-interest income increased
period ended
quarter of 2022 benefitted from both significant contributions stemming from
acquisition-related activity and organic growth over the past twelve months.
All non-interest income revenue streams experienced significant increases over
the same quarter of the prior year, with the exception of mortgage banking,
which experienced a significant decrease as a result of slowing volumes
compared to the re-finance rush that benefitted 2020 and 2021.
? Non-interest expenses increased
31, 2022 compared to the same period of 2021. Merger expenses of
drove the large increase along with acquisition-related growth in full-time
equivalent employees, technology expenses and premises and equipment.
? Bancorp's efficiency ratio (FTE) for the three months ended
82.61% compared to 48.29% for the same period of 2021, the large fluctuation
being the result of one-time merger-related expenses incurred as a result of
the CB acquisition. Excluding one-time merger costs and expenses related to
the amortization of tax credit partnerships, Bancorp's non-GAAP efficiency
ratio for the three months ended
for the same period of 2021. See the section titled "Non-GAAP Financial
Measures" for a reconcilement of non-GAAP to GAAP measures.
Results of Operations
Net Interest Income - Overview
As is the case with most banks, Bancorp's primary revenue sources are net
interest income and fee income from various financial services provided to
customers. Net interest income is the difference between interest income earned
on loans, investment securities and other interest earning assets less interest
expense on deposit accounts and other interest bearing liabilities. Loan volume
and interest rates earned on those loans are critical to overall profitability.
Similarly, deposit volume is crucial to funding loans and rates paid on deposits
directly impact profitability. New business volume is influenced by economic
factors including market interest rates, business spending, consumer confidence
and competitive conditions within the marketplace. The discussion that follows
is based on FTE interest data.
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Comparative information regarding net interest income follows:
(dollars in thousands)
Variance
As of and for the three months ended March 31, 2022 2021 $/bp % Net interest income$ 48,760 $ 37,825 $ 10,935 29 % Net interest income (FTE)* 48,944 37,874 11,070 29 % Net interest spread 3.06 % 3.30 % (24) bps -7 % Net interest margin 3.11 % 3.39 % (28) bps -8 % Average interest earning assets$ 6,389,882 $ 4,527,563 $ 1,862,319 41 %
*See table titled, "Average Balance Sheets and Interest Rates (FTE)," for detail of net
interest income (FTE).
NIM and net interest spread calculations above exclude the sold portion of certain participation loans, which totaled$5 million at bothMarch 31, 2022 andDecember 31, 2021 . These sold loans are on Bancorp's balance sheet as required by GAAP because Bancorp retains some form of effective control; however, Bancorp receives no interest income on the sold portion. These participation loans sold are excluded from NIM and spread analysis, because Bancorp believes it provides a more accurate depiction of loan portfolio performance. The following table details the volatility experienced within the interest rate environment over the past twelve months by comparing period end and quarterly average rates: March 31, December 31, September 30, June 30, March 31, 2022 2021 2021 2021 2021 Five yearTreasury note - quarter end 2.42 % 1.26 % 0.98 % 0.87 % 0.92 % Five yearTreasury note - quarterly average 1.83 % 1.18 % 0.80 % 0.84 % 0.62 % Prime rate - quarter end 3.50 % 3.25 % 3.25 % 3.25 % 3.25 % Prime rate - quarterly average 3.29 % 3.25 % 3.25 % 3.25 % 3.25 % One-month LIBOR - quarter end 0.45 % 0.08 % 0.08 % 0.10 % 0.12 % One-month LIBOR - quarterly average 0.23 % 0.09 % 0.09 % 0.10 % 0.12 % Overnight SOFR - quarter end 0.29 % 0.05 % 0.05 % 0.03 % 0.02 % Overnight SOFR - quarterly average 0.09 % 0.05 % 0.05 % 0.01 % 0.05 % Prime rate, the five yearTreasury note rate and the one month LIBOR are included in the table above to provide a general indication of the interest rate environment in which Bancorp has operated during the past several quarters. Approximately$1.4 billion , or 29%, of Bancorp's loans are variable rate and are indexed to either Prime, LIBOR or SOFR, generally repricing as those rates change. At inception, most of Bancorp's fixed rate loans are priced in relation to the five yearTreasury rate. OnMarch 16, 2022 , the FRB increased the FFTR to a range of 0.25%-0.50%, an increase of 25 bps, which resulted in Prime increasing to 3.50%. The hike represented the FRB's first interest rate action since it cut the FFTR 150 bps in March of 2020 in response to the pandemic, which took Prime from 4.75% to 3.25%. While the hike drove increases in key benchmark rates, the interest rate environment remains below pre-pandemic levels in general, with the exception of the five-year treasury. Given the timing of the FRB's increase, the average interest rate environment experienced for the three month period endedMarch 31, 2022 did not capture the full benefit of rising rates. AtMarch 31, 2022 , Bancorp's loan portfolio consisted of approximately 71% fixed and 29% variable rate loans, with the fixed rate portion pricing generally based on a spread to the five year treasury curve at the time of origination and the variable portion pricing based on an on-going spread to Prime (approximately 68%) or one-month LIBOR (approximately 32%). With 68% of the variable rate loan portfolio tied to Prime and the majority with floor rates of 4.00%, short-term rates would have to increase over 50 bps for these loans to move above their floor rates given Prime is at 3.50% as ofMarch 31, 2022 . While the current economic outlook suggests continued interest rate action from the FRB and prospects of a rising rate environment, concerns remain regarding potential ongoing pricing pressure/competition, the possibility of a flattening yield curve and the impact these factors will have on NIM. 73
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Net Interest Income (FTE) - Three months ended
31, 2021
Net interest spread (FTE) and NIM were 3.06% and 3.11%, for the three months endedMarch 31, 2022 compared to 3.30% and 3.39% for the same period in 2021, respectively. NIM during the three months endedMarch 31, 2022 was significantly impacted by the following:
? An interest rate environment that is just beginning to evolve from sustained,
pandemic-driven lows experienced over the last two years. The FFTR was lowered
to a range of 0% - 0.25% in March of 2020, which resulted in Prime dropping to
3.25%, where it remained until the FRB's most recent hike in mid-March. The
FFTR stood at a range of 0.25%-0.50%, and Prime at 3.50%, as of
2022. ? Substantial balance sheet growth stemming from both acquisition-related
activity and organic growth, which resulted in total average earning asset
growth of
of
to the same period of 2021.
? Overall excess balance sheet liquidity, which contributed approximately 30 bps
of NIM compression for the three months ended
approximately 13 bps of NIM compression for the same period of 2021. Excess
liquidity within the banking system in general has also led to a highly
competitive loan rate environment.
? PPP originations, which began in the second quarter of 2020 and continued
through expiration of the program on
forgiveness activity, which accelerates the recognition of fee income on these
loans and continues to have a significant effect on NIM. The average balance
of the PPP loan portfolio decreased
period of 2021. The PPP portfolio contributed a 13 bps benefit to NIM for the
three months ended
months ended
? The lowering of deposit rates in tandem with FRB interest rate actions and the
benefit of paying off all FHLB advances during 2021. Net interest income (FTE) increased$11.1 million , or 29%, for the three months endedMarch 31, 2022 compared to the same period of 2021, largely as a result of acquisition-related activity, but also driven in part by strong organic loan growth and substantial investment in the investment securities portfolio. Total average interest earning assets increased$1.86 billion , or 41%, to$6.40 billion for the three months endedMarch 31, 2022 , as compared to the same period of 2021, with the average rate earned on total interest earning assets contracting 36 bps to 3.18%.
? Average total loan balances increased
months ended
non-PPP loan growth of
acquisition-related expansion and strong organic growth, which was partially
offset by a
forgiveness activity accelerated has increased.
? Average investment securities grew
combination of strategically deploying excess liquidity through further
investment and acquisition-related activity.
Total interest income (FTE) increased $10.6 million , or 27%, to $50.2 million
for the three months ended March 31, 2022 , as compared to the same period of
2021.
? Interest and fee income (FTE) on loans increased
period of 2021, driven by both organic and acquisition-related growth in the
non-PPP portfolio, which more than offset a
PPP-related income. The yield on the overall loan portfolio declined 1 bp to
4.16% for the three months ended
period of the prior year.
? Significant growth in average investment securities led to a
increase interest income (FTE) on the portfolio for the three months ended
increase in the corresponding yield on the portfolio. Substantial deployment
of excess liquidity during the first quarter benefitted the investment
portfolio as the yields earned on recent purchases have improved dramatically
in tandem with rising rates.
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Total average interest bearing liabilities increased$1.36 billion , or 47%, to$4.26 billion for the three-month period endedMarch 31, 2022 compared with the same period in 2021, with the total average cost declining 12 bps to 0.12%.
? Average interest bearing deposits increased
three months ended
interest-bearing demand deposits accounting for
The significant growth was attributed to both acquisition-related activity and
organic growth stemming from the general trend of customers maintaining higher
levels of liquidity over the past several quarters.
? Consistent with the higher interest bearing deposit balances noted above,
average SSUAR balances increased
endedMarch 31, 2022 compared to the same period of 2021.
? Average FHLB advances decreased
31, 2022 compared to the same period of the prior year, as all outstanding
FHLB advances either matured or were paid off in 2021.
? Subordinated debentures totaling
acquisition, the average balances of which totaled
months endedMarch 31, 2022 . Total interest expense decreased$469,000 , or 28%, for the three months endedMarch 31, 2022 compared to the same period of 2021, a direct result of lowering deposit rates in response to FRB rate reductions in March of 2020 to levels at or near those offered during the Great Recession, where they remained as ofMarch 31, 2022 . These reductions have had a significant impact on time deposit rates in particular, as the benefit of lower rates has been experienced as the time deposit portfolio has matured or renewed. Further, the three months endedMarch 31, 2022 benefitted from all FHLB advances either maturing or paying off in 2021.
? Total interest bearing deposit expense decreased
11 bps decrease in the cost of average total interest bearing deposits.
? No interest expense on FHLB advances was recorded for the three months ended
resulting in a decline of
year.
? Interest expense totaling
acquisition.
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Average Balance Sheets and Interest Rates (FTE) - Three-Month Comparison
Three months ended March 31,
2022 2021
Average Average Average Average
(dollars in thousands) Balance Interest Rate Balance Interest Rate
Interest earning assets:
Federal funds sold and
interest bearing due from
banks $ 671,263 $ 282 0.17 % $ 235,370 $ 66 0.11 %
Mortgage loans held for
sale 8,629 24 1.13 14,618 64 1.78
Investment securities:
Taxable 1,278,160 4,680 1.48 654,733 2,295 1.42
Tax-exempt 43,391 252 2.36 6,442 45 2.83
Total securities 1,321,551 4,932 1.51 661,175 2,340 1.44
Federal Home Loan Bank
stock 10,509 54 2.08 10,640 57 2.17
SBA Paycheck Protection
Program (PPP) loans 103,850 2,821 11.02 627,173 7,025 4.54
Non-PPP loans 4,274,080 42,055 3.99 2,978,587 30,015 4.09
Total loans 4,377,930 44,876 4.16 3,605,760 37,040 4.17
Total interest earning
assets 6,389,882 50,168 3.18 4,527,563 39,567 3.54
Less allowance for credit
losses on loans 56,035 53,856
Non-interest earning
assets:
Cash and due from banks 91,235 47,720
Premises and equipment, net 86,056 57,652
Bank owned life insurance 53,177 33,320
Goodwill 153,803 12,513
Accrued interest receivable
and other 154,155 85,924
Total assets $ 6,872,273 $ 4,710,836
Interest bearing
liabilities:
Deposits:
Interest bearing demand $ 2,136,188 $ 649 0.12 % $ 1,368,855 $ 357 0.11 %
Savings 467,299 55 0.05 218,119 5 0.01
Money market 1,083,961 190 0.07 848,726 115 0.05
Time 461,268 277 0.24 380,286 1,033 1.10
Total interest bearing
deposits 4,148,716 1,171 0.11 2,815,986 1,510 0.22
Securities sold under
agreements to repurchase 91,082 17 0.08 46,937 5 0.04
Federal funds purchased 9,993 3 0.12 9,599 2 0.08
Federal Home Loan Bank
advances - - 0.00 29,270 176 2.44
Subordinated debentures 8,052 33 1.66 - - 0.00
Total interest bearing
liabilities 4,257,843 1,224 0.12 2,901,792 1,693 0.24
Non-interest bearing
liabilities:
Non-interest bearing demand
deposits 1,817,462 1,278,193
Accrued interest payable
and other 93,039 86,030
Total liabilities 6,168,344 4,266,015
Stockholders' equity 703,929 444,821
Total liabilities and
stockholder's equity $ 6,872,273 $ 4,710,836
Net interest income $ 48,944 $ 37,874
Net interest spread 3.06 % 3.30 %
Net interest margin 3.11 % 3.39 %
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Supplemental Information - Average Balance Sheets and Interest Rates (FTE)
? Average loan balances include the principal balance of non-accrual loans, as
well as unearned income such as loan premiums, discounts, fees/costs and
exclude participation loans accounted for as secured borrowings. Participation
loans averaged
2022 and 2021, respectively.
? Interest income on a FTE basis includes additional amounts of interest income
that would have been earned if investments in certain tax-exempt interest
earning assets had been made in assets subject to federal taxes yielding the
same after-tax income. Interest income on municipal securities and tax-exempt
loans has been calculated on a FTE basis using a federal income tax rate of
21%. Approximate tax equivalent adjustments to interest income were
and$49,000 for the three-month periods endedMarch 31, 2022 and 2021, respectively.
? Interest income includes loan fees of
with the PPP) and
three-month periods ended
income on loans may be impacted by the level of prepayment fees collected and
accretion related to purchased loans.
? Net interest income, the most significant component of Bancorp's earnings,
represents total interest income less total interest expense. The level of net
interest income is determined by mix and volume of interest earning assets,
interest bearing deposits and borrowed funds, and changes in interest rates.
? NIM represents net interest income on a FTE basis as a percentage of total
average interest earning assets.
? Net interest spread (FTE) is the difference between taxable equivalent rates
earned on total interest earning assets less the cost of interest bearing
liabilities.
? The fair market value adjustment on investment securities resulting from ASC
320, "Investments - Debt and Equity Securities" is included as a component of
other assets.
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Asset/Liability Management and Interest Rate Risk
Managing interest rate risk is fundamental for the financial services industry. The primary objective of interest rate risk management is to neutralize effects of interest rate changes on net income. By considering both on and off-balance sheet financial instruments, management evaluates interest rate sensitivity with the goal of optimizing net interest income within the constraints of prudent capital adequacy, liquidity needs, market opportunities and customer requirements.
Interest Rate Simulation Sensitivity Analysis
Bancorp uses an earnings simulation model to estimate and evaluate the impact of an immediate change in interest rates on earnings in a one-year forecast. The simulation model is designed to reflect dynamics of interest earning assets and interest bearing liabilities. By estimating effects of interest rate fluctuations, the model can approximate interest rate risk exposure. This simulation model is used by management to gauge approximate results given a specific change in interest rates at a given point in time. The model is therefore a tool to indicate earnings trends in given interest rate scenarios and may not indicate actual or expected results. Bancorp's interest rate simulation sensitivity analysis details that increases in interest rates of 100 and 200 bps would have a negative effect on interest income, respectively. These results are attributed to over half of the variable rate loan portfolio being currently at or near floor rates, as these yields will not increase until short-term rates exceed these floor rates. For example, a significant portion of the variable rate loan portfolio is tied to Prime, with floor rates of 4.00%. Given Prime is at 3.50% as ofMarch 31, 2022 , short-term rates would have to increase over 50 bps for these loans to move above their floor rates. The decrease in net interest income in the rising rate scenarios is primarily due to variable rate loans and short-term investments repricing slower than deposits and short-term borrowings. Asset balances subject to immediate repricing cause an estimated decline in net interest income in the down 100 bps scenario, as rates on non-maturity deposits cannot be lowered sufficiently to offset declining interest income. These estimates are summarized below. Change in Rates -200 -100 +100 +200 Basis Points Basis Points Basis Points Basis Points % Change from base net interest income at March 31, 2022 N/A -3.15 % -2.44 % -2.96 % Bancorp's interest rate risk profile is generally neutral. The results of the interest rate sensitivity analysis performed as ofDecember 31, 2021 suggest a slightly liability sensitive profile as a result of the long-term, conservative assumptions Bancorp uses in the model, particularly in relation to deposit betas, which measure how responsive management's deposit repricing may be to changes in market rates. However, given the historic levels of liquidity currently held by Bancorp and in the banking system generally, the Company anticipates actual deposit betas will remain well below long-term averages through 2022 despite forecasted interest rate hikes from the FRB. In a scenario where deposit betas are well below long-term averages, Bancorp's interest rate risk profile shifts to a slightly asset sensitive position, but remains generally neutral. Bancorp's loan portfolio is currently composed of approximately 71% fixed and 29% variable rate loans, with the fixed rate portion pricing generally based on a spread to the five-year treasury curve at the time of origination and the variable portion pricing based on an on-going spread to Prime (approximately 68%) or one month LIBOR/SOFR (approximately 32%). InJuly 2017 , theFinancial Conduct Authority (the "FCA"), the authority regulating LIBOR, along with various other regulatory bodies, announced that LIBOR would likely be discontinued at the end of 2021. Subsequent to that announcement, inNovember 2020 , theFCA announced that many tenors of LIBOR would continue to be published throughJune 2023 . Subsequent to this, Bank regulators instructed banks to discontinue new originations referencing LIBOR as soon as possible, but no later thanDecember 2021 . EffectiveDecember 31, 2021 , Libor will no longer be used to issue new loans in theU.S. It is expected to be replaced primarily by the Secured Overnight Financing Rate (SOFR), which many experts consider a more accurate and more secure pricing benchmark. To facilitate the transition process, management has instituted an enterprise-wide program to identify, assess, and monitor risks associated with the expected discontinuance or unavailability of LIBOR. 78
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OnMarch 15, 2022 , the Adjustable Interest Rate (LIBOR) Act was signed into law as part of the Consolidated Appropriations Act of 2022. This legislation established a uniform benchmark replacement process for financial contracts that mature after the cessation of LIBOR (scheduled forJune 2023 ) that do not contain clearly defined or practicable fallback provisions. The legislation also established a safe harbor for lenders, providing protection from litigation associated with choosing a replacement rate recommended by the FRB, such as SOFR, and also allows for the continued use of any appropriate benchmark rate for new contracts. As ofMarch 31 2022 , the Company had approximately$456 million in loans and$150 million (notional amount) in interest rate derivative contracts that reference LIBOR. Each of the LIBOR-referenced amounts discussed above will vary in future periods as current contracts expire with potential replacement contracts using either LIBOR or an alternative reference rate. The Company, and other industry participants, continue to review alternative reference rates that could be utilized as a replacement for LIBOR. The Company had$46 million in loans that were indexed to SOFR atMarch 31, 2022 . Periodically, Bancorp enters into interest rate swap transactions with borrowers who desire to hedge exposure to rising interest rates, while at the same time entering into an offsetting interest rate swap, with substantially matching terms, with another approved independent counterparty. These are undesignated derivative instruments and are recognized on the balance sheet at fair value, with changes in fair value recorded in other non-interest income as interest rates fluctuate. Because of matching terms of offsetting contracts, in addition to collateral provisions which mitigate the impact of non-performance risk, changes in fair value subsequent to initial recognition have a minimal effect on earnings, and are therefore not included in the simulation analysis results above. For additional information, see the Footnote titled "Assets and Liabilities Measured and Reported at Fair Value." In addition, Bancorp uses derivative financial instruments as part of its interest rate risk management, including interest rate swaps. These interest rate swaps are designated as cash flow hedges as described in the Footnote titled "Derivative Financial Instruments." For these derivatives, the effective portion of gains or losses is reported as a component of AOCI, and is subsequently reclassified into earnings as an adjustment to interest expense in periods in which the hedged forecasted transaction impacts earnings. As ofMarch 31, 2022 , Bancorp had no outstanding interest rate swaps designated as cash flow hedges. 79
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Table of Contents Provision for Credit Losses Provision for credit losses on loans atMarch 31, 2022 represents the amount of expense that, based on Management's judgment, is required to maintain the ACL for loans at an appropriate level under the CECL model. The determination of the amount of the ACL for loans is complex and involves a high degree of judgment and subjectivity. See the Footnote titled "Basis of Presentation and Summary of Significant Accounting Policies" for detailed discussion regarding Bancorp's ACL methodology by loan segment in this document and Bancorp's Annual Report on Form 10-K for the year endedDecember 31, 2021 . An analysis of the changes in the ACL for loans, including provision, and selected ratios follow: Three months ended March 31, (dollars in thousands) 2022 2021 Beginning balance$ 53,898 $ 51,920 Acquisition - PCD loans (goodwill adjustment) 9,950
-
Adjusted beginning balance 63,848
51,920
Provision for credit losses - loans (1,750 ) (1,200 ) Provision for credit losses - acquired loans 4,429
-
Total provision for credit losses on loans 2,679 (1,200 ) Total charge-offs (409 ) (122 ) Total recoveries 949 116 Net loan (charge-offs) recoveries 540 (6 ) Ending balance$ 67,067 $ 50,714 Average total loans$ 4,377,930 $ 3,605,760 Provision for credit losses on loans to average total loans (1) 0.06 %
-0.03 %
Net loan (charge-offs) recoveries to average total
loans (1)
0.01 % 0.00 % ACL on loans to total loans 1.38 % 1.40 % ACL on loans to total loans (excluding PPP) (2) 1.40 % 1.68 % ACL on loans to average total loans 1.53 % 1.41 % (1) Ratios are not annualized (2) See the section titled "Non-GAAP Financial Measures" for reconcilement of Non-GAAP to GAAP measures The ACL for loans totaled$67 million as ofMarch 31, 2022 compared to$54 million atDecember 31, 2021 , representing an ACL to total loans ratio of 1.38% and 1.29% for those periods, respectively. The ACL to total loans (excluding PPP loans) was 1.40% atMarch 31, 2022 compared to 1.34% atDecember 31, 2021 . Based on the 100% SBA guarantee of the PPP loan portfolio, which totaled$71 million (net of unamortized deferred fees) atMarch 31, 2022 and$141 million atDecember 31, 2021 , Bancorp did not generally reserve for potential losses for these loans within the ACL. See the section titled "Non-GAAP Financial Measures" for reconcilement of non-GAAP to GAAP measures. Due to continued improvement in the unemployment forecast, updates to Bancorp's CECL modeling, net recoveries and strong historic credit metrics, benefits (excluding acquisition-related activity) of$1.8 million and$1.2 million were recorded to provision for credit losses on loans expense for the three month periods endedMarch 31, 2022 and 2021, respectively. Offsetting the reduction for the three month period endedMarch 31, 2022 was credit loss expense recorded for the loan portfolio acquired from CB, which totaled$4.4 million . In addition to the provision activity noted above for the first three months of 2022, the ACL for loans was also increased$10 million as a result of the PCD loan portfolio added through the CB acquisition during the three months endedMarch 31, 2022 , with the corresponding offset recorded to goodwill (as opposed to provision expense). Further, net recovery activity of$540,000 million for the three month period endedMarch 31, 2022 also served to increase the ACL for loans, driven by a$711,000 recovery of a C&I relationship that was fully charged off in the fourth quarter of 2021. 80
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While separate from the ACL for loans and recorded in other liabilities on the consolidated balance sheets, the ACL for off balance sheet credit exposures also experienced an increase betweenDecember 31, 2021 andMarch 31, 2022 . The CB acquisition resulted in a$500,000 increase to the ACL for off balance sheet credit exposures, with the corresponding offset recorded to goodwill (as opposed to provision for credit loss expense). This increase was partially offset by a$400,000 benefit to provision for credit loss expense recorded for the three period endedMarch 31, 2022 , as nearly all applicable loan segments experienced declines in their reserve loss percentage consistent with generally improving model factors and improvement in line of credit utilization. The ACL for off balance sheet credit exposures stood at$3.6 million as ofMarch 31, 2022 compared to$3.5 million as ofDecember 31, 2021 . Bancorp's loan portfolio is diversified with no significant concentrations of credit. Geographically, most loans are extended to borrowers inLouisville , central, eastern and northernKentucky , as well as theIndianapolis, Indiana andCincinnati, Ohio metropolitan markets. The adequacy of the allowance is monitored on an ongoing basis and it is the opinion of management that the balance of the allowance atMarch 31, 2022 is adequate to absorb probable losses inherent in the loan portfolio as of the financial statement date. Non-interest Income Three months ended March 31, (dollars in thousands) 2022 2021 $ Variance % Variance Wealth management and trust services$ 8,469 $ 6,248 $ 2,221 36 % Deposit service charges 1,863 944 919 97 Debit and credit card income 4,119 2,273 1,846 81 Treasury management fees 1,904 1,540 364 24 Mortgage banking income 1,003 1,444 (441 ) (31 ) Net investment product sales commissions and fees 607 464 143 31 Bank owned life insurance 266 161 105 65 Other 972 770 202 26 Total non-interest income$ 19,203 $ 13,844 $ 5,359 39 % Total non-interest income increased$5.4 million , or 39%, for the three month period endedMarch 31, 2022 compared to the same period of 2021, respectively. Non-interest income comprised 28.3% of total revenues, defined as net interest income and non-interest income, for the three month periodMarch 31, 2022 compared to 26.8% for the same period of 2021. WM&T services comprised 44.1% of total non-interest income for the three month period endedMarch 31, 2022 compared to 45.1% for the same period of 2021. Acquisition-related activity drove a significant portion of the non-interest income increase for the three months endedMarch 31, 2022 compared to the same period of the prior year. WM&T Services: The magnitude of WM&T revenue distinguishes Bancorp from other community banks of similar asset size. WM&T revenue increased$2.2 million , or 36%, for the three month period endedMarch 31, 2022 , as compared with the same period of 2021. Significant growth in asset-based income drove the increase, consistent with both acquisition-related activity and organic new business development, which served to offset stock market declines during the first quarter of 2022. Recurring fees earned for managing accounts are based on a percentage of market value of AUM and are typically assessed on a monthly basis. Recurring fees, which generally comprise the vast majority of WM&T revenue, increased$2.2 million , or 37%, for the three month period endedMarch 31, 2022 , as compared with the same period of 2021. The increase was driven by both acquisition-related activity and organic new business development. A portion of WM&T revenue, most notably executor and certain employee benefit plan-related fees, are non-recurring in nature and the timing of these revenues corresponds with the related administrative activities. For this reason, such fees are subject to greater period over period fluctuation. Total non-recurring fees decreased$23,000 for the three month period endedMarch 31, 2022 , as compared with the same period of 2021, which was driven by lower estate fee income earned. 81
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AUM, stated at market value, totaled$7.59 billion atMarch 31, 2022 compared with$3.99 billion atMarch 31, 2021 and$4.80 billion atDecember 31, 2021 . The large increase in AUM betweenMarch 31, 2021 andMarch 31, 2022 is attributed mainly to AUM of$2.93 billion added through the CB acquisition, as well as net new business growth stock market appreciation over the past twelve months. Contracts between WM&T and their customers do not permit performance-based fees and accordingly, none of the WM&T revenue is performance based. Management believes the WM&T department will continue to factor significantly in Bancorp's financial results and provide strategic diversity to revenue streams.
Detail of WM&T Service Income by Account Type:
Three months ended March 31,
(in thousands) 2022 2021
Investment advisory $ 3,641 $ 2,740
Personal trust 2,378 1,678
Personal investment retirement 1,639 1,216
Company retirement 442 372
Foundation and endowment 261 176
Custody and safekeeping 64 35
Brokerage and insurance services 40 20
Other 4 11
Total WM&T services income $ 8,469 $ 6,248
The preceding table demonstrates that WM&T fee revenue is concentrated within
investment advisory and personal trust accounts. WM&T fees are predominantly
based on AUM and tailored for individual/company accounts and/or relationships
with fee structures customized based on account type and other factors with
larger relationships paying a lower percentage of AUM in fees. For example,
recurring AUM fee structures are in place for investment management, irrevocable
trusts, revocable trusts, personal investment retirement accounts and accounts
holding only fixed income securities. Company retirement plan services can
consist of a one-time conversion fee with recurring AUM fees to follow. While
there are also fee structures for estate settlements, income received is often
non-recurring in nature. Fee structures are agreed upon at the time of account
opening and any subsequent revisions are communicated in writing to the
customer. Fees earned are not performance-based nor are they based on investment
strategy or transactions.
Assets Under Management by Account Type:
AUM (not included on balance sheet) increased from
2021
March 31, 2022 December 31, 2021
(in thousands) Managed Non-managed (1) Total Managed Non-managed (1) Total
Investment advisory $ 2,578,355 $ 30,641 $ 2,608,996 $ 1,919,593 $ 34,879 $ 1,954,472
Personal trust 2,009,092 562,272 2,571,364 939,703 150,221 1,089,924
Personal investment
retirement 943,345 25,668 969,013 620,312 3,478 623,790
Company retirement 52,646 641,823 694,469 35,234 599,129 634,363
Foundation and endowment 398,826 1,372 400,198 368,572 1,532 370,104
Subtotal $ 5,982,264 $ 1,261,776 $ 7,244,040 $ 3,883,414 $ 789,239 $ 4,672,653
Custody and safekeeping - 343,171 343,171 - 128,178 128,178
Total $ 5,982,264 $ 1,604,947 $ 7,587,211 $ 3,883,414 $ 917,417 $ 4,800,831
(1) Non-managed assets represent those for which the WM&T department does not hold investment discretion.
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As of
respectively, of AUM were actively managed. Company retirement plan accounts
primarily consist of participant-directed assets. The amount of custody and
safekeeping accounts are insignificant.
Managed Trust Assets under Management by Class of Investment:
December 31,
(in thousands) March 31, 2022 2021
Interest bearing deposits $ 178,268 $ 173,603
Treasury and government agency obligations 49,155
39,736
State, county and municipal obligations 209,279 110,795 Money market mutual funds 119,895 7,299 Equity mutual funds 1,161,355 944,500 Other mutual funds - fixed, balanced and municipal 1,032,160 612,913 Other notes and bonds 204,272 171,087 Common and preferred stocks 2,749,460 1,681,006 Real estate mortgages 791 - Real estate 107,596 58,344 Other miscellaneous assets (1) 170,033 84,131 Total managed assets$ 5,982,264 $ 3,883,414
(1) Includes client directed instruments including rights, warrants,
annuities, insurance policies, unit investment trusts, and oil and gas
rights.
Managed assets are invested in instruments for which market values can be readily determined, the majority of which are sensitive to market fluctuations and consist of approximately 65% in equities and 35% in fixed income securities as ofMarch 31, 2022 compared to 68% and 32% as ofDecember 31, 2021 . This composition has been relatively consistent from period to period and theWM&T Department holds no proprietary mutual funds.
Additional Sources of Non-interest income:
Deposit service charges, which consist of non-sufficient funds charges and to a lesser extent, other activity based charges, increased$919,000 , or 97%, for the three period endedMarch 31, 2022 , as compared with the same period of 2021, mainly as a result of the contribution associated with acquisition-related activity over the past twelve months. Excluding acquisition-related activity, an industry-wide decline in the volume of fees earned on overdrawn checking accounts has been experienced over the past several years, a trend that has been exacerbated by the elevated deposit levels maintained by customers over the past several quarters, which has in turned led to fewer overdrawn accounts. Further, Bancorp anticipates that future growth of this revenue stream will be significantly impacted by changing industry practices, as many larger financial institutions have opted to greatly reduce, or completely eliminate, certain deposit service charges, particularly overdraft-related fees. Bancorp could be faced with strategic decisions surrounding deposit-related service charges in the future, which could negatively impact the contributions made by this revenue stream to total non-interest income. Debit and credit card income consists of interchange revenue, ancillary fees and incentives received from card processors. Debit and credit card revenue increased$1.8 million , or 81%, for the three period endedMarch 31, 2022 , as compared with the same period of 2021, as a result of increased transaction volume and continued expansion of the customer bases, both organically and through acquisition-related activity. Total debit card income increased$1.4 million , or 90%, and total credit card income increased$459,000 , or 62%, for the three month period endedMarch 31, 2022 , compared the same period of the prior year. Bancorp expects this revenue stream will continue to grow with the expansion of the customer base and further development of the debit and credit card businesses.Treasury management fees primarily consist of fees earned for cash management services provided to commercial customers. This category continues to stand out as a consistent, growing source of revenue for Bancorp and increased$364,000 , or 24%, for the three month period endingMarch 31, 2022 , as compared with the same period of 2021, driven by increased transaction volume, new product sales and customer base expansion. In addition, sales efforts involving existing customers has led to increases in online services, reporting, ACH origination, remote deposit and fraud mitigation services over the past twelve months. Bancorp anticipates this income category will continue to increase based on continued customer base growth and the expanding suite of services offered within Bancorp's treasury management platform. 83
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Mortgage banking income primarily includes gains on sales of mortgage loans and loan servicing income offset by MSR amortization. Bancorp's mortgage banking department predominantly originates residential mortgage loans to be sold in the secondary market, primarily toFNMA and FHLMC. Bancorp offers conventional,VA , FHA and GNMA financing for purchases and refinances, as well as programs for first-time homebuyers. Interest rates on mortgage loans directly influence the volume of business transacted by the mortgage-banking department. Mortgage banking revenue decreased$441,000 , or 31%, for the three month periods endedMarch 31, 2022 , as compared with the same period of 2021, the decline stemming from rising mortgage rates and limited housing inventory, which have slowed refinance and purchasing activity. Bancorp anticipates that both factors will continue to limit mortgage banking revenue growth in 2022. Net investment product sales commissions and fees are generated primarily on stock, bond and mutual fund sales, as well as wrap fees on brokerage accounts. Wrap fees represent charges for investment programs that bundle together a suite of services, such as brokerage, advisory, research and management and are based on a percentage of assets. Bancorp deploys its financial advisors primarily through its branch network via an arrangement with a third party broker-dealer, while larger managed accounts are serviced by Bancorp'sWM&T Department . Net investment product sales commissions and fees increased$143,000 , or 31%, for the three and month period endedMarch 31, 2022 , as compared with the same period of 2021, driven by acquisition-related growth and increased trading activity. BOLI assets represent the cash surrender value of life insurance policies on certain active and non-active employees who have provided consent for Bancorp to be the beneficiary for a portion of such policies. The related change in cash surrender value and any death benefits received under the policies are recorded as non-interest income. This income serves to offset the cost of various employee benefits. BOLI income increased$105,000 , or 65%, for the three month period endingMarch 31, 2022 compared to the same period of the prior year, which was attributed mainly to the contribution of the BOLI portfolio added as a result of the KB acquisition in May of 2021. Other non-interest income increased$202,000 , or 26%, for the three month period endedMarch 31, 2022 compared with the same period of 2021, driven largely by the contribution from the insurance captive acquired through the KB acquisition in May of 2021 and an increase in swap fee income. Non-interest Expenses Three months ended March 31, (dollars in thousands) 2022 2021 $ Variance % Variance Compensation$ 17,969 $ 12,827 $ 5,142 40 % Employee benefits 4,539 3,261 1,278 39 Net occupancy and equipment 3,025 2,045 980 48 Technology and communication 3,419 2,346 1,073 46 Debit and credit card processing 1,337 705 632 90 Marketing and business development 772 524 248 47 Postage, printing and supplies 733 409 324 79 Legal and professional 650 462 188 41 FDIC insurance 645 405 240 59 Amortization of investments in tax credit partnerships 88 31 57 184 Capital and deposit based taxes 518 458 60 13 Merger expenses 19,500 400 19,100 4,775 Intangible amortization 713 77 636 826 Other 2,389 1,023 1,366 134 Total non-interest expenses$ 56,297 $ 24,973 $ 31,324 125 % 84
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Total non-interest expenses increased$31.3 million for the three period endedMarch 31, 2022 compared to the same period of 2021. Compensation and employee benefits comprised 40.0% of Bancorp's total non-interest expenses for the three month period endedMarch 31, 2022 , compared to 64.4% for the same periods of 2021. Excluding merger expenses, compensation and employee benefits comprised 61.2% for the three month period endedMarch 31, 2022 . Compensation, which includes salaries, incentives, bonuses and stock based compensation, increased$5.1 million , or 40%, for the three month period endedMarch 31, 2022 , as compared with the same period of 2021. The increase was attributed largely to growth in full time equivalent employees, as well as annual merit-based salary increases. Net full time equivalent employees totaled 997 atMarch 31, 2022 compared to 820 atDecember 31, 2021 and 638 atMarch 31, 2021 . The acquisitions of KB in May of 2021 and CB in the first quarter of 2022 have resulted in the addition of 372 full time equivalent employees over the past twelve months and a significant correlating increase in compensation expense. Employee benefits consists of all personnel-related expense not included in compensation, with the most significant items being health insurance, payroll taxes and employee retirement plan contributions. Employee benefits increased$1.3 million , or 39%, for the three month period endedMarch 31, 2022 , as compared with the same period of 2021, consistent with the overall increase in full time equivalent employees noted above. Net occupancy and equipment expenses primarily include depreciation, rent, property taxes, utilities and maintenance. Costs of capital asset additions flow through the statement of income over the lives of the assets in the form of depreciation expense. Net occupancy increased$980,000 , or 48%, for the three month period endedMarch 31, 2022 , as compared with the same period of 2021, driven by the two acquisitions completed over the past twelve months. In connection with the CB acquisition, 15 branches were acquired, four of which were closed shortly after acquisition in addition to one existing SYB location, as a result of branch overlap. Further, two operational buildings were also acquired and are currently listed for sale. The KB acquisition in May of 2021 resulted in the addition of 19 branch locations. AtMarch 31, 2022 , Bancorp's branch network consists of 73 locations throughoutLouisville , Central, Eastern andNorthern Kentucky , as well as the MSAs ofIndianapolis, Indiana andCincinnati, Ohio . Technology and communication expenses include computer software amortization, equipment depreciation and expenditures related to investments in technology needed to maintain and improve the quality of customer delivery channels, information security and internal resources. Technology expense increased$1.1 million , or 46%, for the three month period endedMarch 31, 2022 compared to the same period of 2021, consistent with acquisition-related activity and core system upgrades. The CB system conversion occurred inlate-March 2022 and total technology expenses are expected to moderate over the rest of 2022. Bancorp outsources processing for debit and commercial credit card operations, which generate significant revenue for the Company. These expenses fluctuate consistent with transaction volumes. Debit and credit card processing expense increased$632,000 , or 90%, for the three month period endingMarch 31, 2022 compared to the same period of last year, correlating in part with the increase in transaction volume and customer base expansion resulting from both organic and acquisition-related growth that served to increase debit and credit card non-interest income. Marketing and business development expenses include all costs associated with promoting Bancorp including community support, retaining customers and acquiring new business. Marketing and business development expenses increased$248,000 , or 47%, for the three month period endingMarch 31, 2022 , as compared to the same period of 2021. The increases correspond with strategic decisions to advertise and promote in Bancorp's new markets, as well as the general expansion and growth of the Company's existing and prospective customer base. Postage, printing and supplies expense increased$324,000 , or 79%, for the three months endedMarch 31, 2022 compared to the same period of 2021, consistent with increased customer communication and Bancorp's expansion tied to acquisition-related activity over the past twelve months.
Legal and professional fees increased
period ended
increase being attributed to various consulting engagements and litigation costs
arising through the normal course of business. Legal and professional fees
associated with merger-related activity are captured in merger expenses below.
acquisition-related balance sheet growth.
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Tax credit partnerships generate federal income tax credits, and for each of Bancorp's investments in tax credit partnerships, the tax benefit, net of related expenses, results in a positive effect on net income. Amounts of credits and corresponding expenses can vary widely depending upon the timing and magnitude of the underlying investments. Amortization expense associated with these investments increased$57,000 for the three month period endingMarch 31, 2022 compared to the same period of last year. Capital and deposit based taxes, which consist primarily of capital-based local income taxes and franchise taxes, increased$60,000 , or 13%, for the three month period endedMarch 31, 2022 compared to the same period of 2021, attributed to both organic and acquisition-related growth. Merger expenses represent non-recurring expenses associated with completion of the CB acquisition and consist primarily of investment banker fees, various compensation-related expenses, legal fees, early termination fees relating to various contracts and system conversion expenses. Merger expenses totaled$19.5 million for the three months endedMarch 31, 2022 , primarily in relation to the CB acquisition. Intangible amortization expense consists of amortization associated with the CDI of acquired deposit portfolios, as well as other intangibles related to customer lists of the WM&T and investment advisory business lines added through the CB acquisition. The intangibles amortized through this category of non-interest expense are generally amortized over a period of approximately ten years. Intangible amortization for the three months endedMarch 31, 2022 totaled$713,000 compared to$77,000 for the same period of the prior year, the increase stemming from the CB and KB acquisitions. Other non-interest expenses increased$1.4 million for the three month period endedMarch 31, 2022 , as compared to the same period of 2020. These increases were driven by a number of factors, mainly expenses associated with the addition of the insurance captive as a result of the KB acquisition in May of 2021, increased card reward expense correlating with growth in the debit and credit card business lines, and other ancillary expenses tied to Bancorp's general growth over the past twelve months. Bancorp's efficiency ratio (FTE) for the three months endedMarch 31, 2022 of 82.61% reflects one-time merger-related expenses attributed to the CB acquisition. Excluding these non-recurring expenses and amortization of investments in tax credit partnerships, the adjusted efficiency ratio, a non-GAAP measure, would have been 53.87% forMarch 31, 2022 . By comparison, Bancorp's efficiency ratio (FTE) and adjusted efficiency ratio for the three months endedMarch 31, 2021 were 48.29% and 47.45%, respectively. See the section titled "Non-GAAP Financial Measures" for reconcilement of non-GAAP to GAAP measures. Income Tax Expense
A comparison of income tax expense and ETR follows:
Three months ended March 31,
(dollars in thousands) 2022 2021 $ Variance % Variance
Income before income tax expense
(67 )% Income tax expense 1,445 5,461 (4,016 ) (74 ) Effective tax rate 15.4 % 19.4 % (400) bps (21 )
Fluctuations in the ETR are primarily attributed to the following:
? Bancorp invests in certain partnerships that yield federal income tax credits.
Taken as a whole, the tax benefit of these investments exceeds amortization
expense, resulting in a positive impact on net income. The timing and
magnitude of these transactions may vary widely from period to period.
Activity for the three months ended
the ETR of 1.7% compared to a reduction of 0.5% for the same period of 2021.
? The stock based compensation component of the ETR fluctuates consistent with
the level of SAR exercise activity. The ETR was reduced 5.9% for the three
month period ended
period of 2021, as a result of increased levels of exercise activity.
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? Tax-exempt interest income earned on loans and investment securities reduced
the ETR 1.6% for the three months ended
of 0.1% for the same period of the prior year, the larger reduction being
attributed to tax-exempt loans and securities add through the CB and KB
acquisitions.
? As a result of the KB acquisition in May of 2021, Bancorp acquired an
insurance captive. The Captive provides insurance against certain risks for
which insurance may not currently be available or economically feasible to
Bancorp and SYB, as well as a group of third-party insurance captives. The tax
advantages of the Captive, including the tax-deductible nature of premiums
paid to the Captive as well as the tax-exemption for premiums received by the
Captive, serve to reduce income tax expense. Related activity reduced the ETR
0.9% for the three months ended
? Non-deductible merger expenses recorded during the first quarter served to
increase the ETR 1.1% for the three months ended
expense was recorded for the three months endedMarch 31, 2022 .
Financial Condition -
Overview Total assets increased$1.13 billion , or 17%, to$7.78 billion atMarch 31, 2022 from$6.65 billion atDecember 31, 2021 . Total assets of$1.34 billion were added onMarch 7, 2022 as a result of the CB acquisition, including loans of$632 million (net of purchase accounting adjustments) and total investment securities of$247 million . In addition, goodwill of$67 million was recorded in relation to the transaction. Further, total loans (excluding loans added through the CB acquisition and the PPP portfolio) grew$118 million , or 3%, betweenDecember 31, 2021 andMarch 31, 2022 . Total liabilities increased$1.05 billion , or 18%, to$7.02 billion atMarch 31, 2022 from$5.97 billion atDecember 31, 2021 . Total liabilities of$1.24 billion were assumed onMarch 7, 2022 as a result of the CB acquisition, including total deposits of$1.12 billion . Both period end and average deposit balances finished at record levels as ofMarch 31, 2022 due to the acquisition. Further, SSUAR totaling$66 million and subordinated debentures of$26 million were also assumed as a result of the CB acquisition. Cash and Cash Equivalents Cash and cash equivalents declined$209 million , or 22%, ending at$752 million atMarch 31, 2022 compared to$961 million atDecember 31, 2021 . The average balance of cash and cash equivalents increased$436 million over the past twelve months, as Bancorp continues to maintain higher levels of liquidity attributable to the PPP, continued growth in deposits and the overall interest rate environment.Investment Securities Investment securities increased$518 million , or 44%, to$1.70 billion atMarch 31, 2022 compared to$1.18 billion atDecember 31, 2021 . Securities totaling$247 million were added as a result of the CB acquisition. In addition, Bancorp continued to actively invest in the securities portfolio during the first quarter of 2022 in an effort to deploy excess liquidity by purchasing$481 million of debt securities for the three months endedMarch 31, 2022 . Partially offsetting growth associated with purchasing and acquisition-related activity was scheduled amortization and prepayment activity, largely within the MBS portfolio, as well as market depreciation of approximately$65 million stemming from an upward move in the interest rate environment experienced through the during the three months endedMarch 31, 2022 . A portion of the securities added during the first quarter of 2022, through both acquisition and normal investment activity, were classified as HTM. As ofMarch 31, 2022 , Bancorp's investment security portfolio consisted of AFS and HTM securities as detailed below: AFS HTM Total (in thousands) Carrying Investment March 31, 2022 Fair Value Value SecuritiesU.S. Treasury and otherU.S. Government obligations$ 116,338 $ 277,491 $ 393,829 Government sponsored enterprise obligations 124,651 27,996
152,647
Mortgage backed securities - government agencies 759,413 242,704
1,002,117
Obligations of states and political subdivisions 143,835 - 143,835 Other 6,118 - 6,118 Total investment securities$ 1,150,355 $ 548,191 $ 1,698,546 87
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Table of Contents Premises and Equipment Premises and equipment are presented on the consolidated balance sheets net of related depreciation on the respective assets as well as fair value adjustments associated with purchase accounting. Premises and equipment increased$32 million , or 42%, betweenDecember 31, 2021 andMarch 31, 2022 , driven by the CB acquisition. As a result of the acquisition, 15 branches were acquired, four of which were closed shortly acquisition as a result of overlapping with existing locations of the Bank. In addition, two operational buildings were also acquired through CB and are currently listed for sale. Bancorp's branch network now consists of 73 locations throughoutLouisville , Central, Eastern and Northern,Kentucky , includingShelby County , as well as theIndianapolis, Indiana andCincinnati, Ohio MSAs.Goodwill AtMarch 31, 2022 , Bancorp had$203 million in goodwill recorded on its balance sheet, including$67 million recorded in association with the acquisition of CB. As permitted under GAAP, management has up to 12 months following the date of acquisition to finalize the fair values of the acquired assets and assumed liabilities related to the CB acquisition. During this measurement period, Bancorp may record subsequent adjustments to goodwill for provisional amounts recorded at the acquisition date. Events that may trigger goodwill impairment include deterioration in economic conditions, a decline in market-dependent multiples or metrics (i.e. stock price falling below tangible book value), negative trends in overall financial performance and regulatory action. AtSeptember 30, 2021 , Bancorp elected to perform a qualitative assessment to determine if it was more-likely-than-not that the fair value of the Commercial Banking reporting unit exceeded its carrying value, including goodwill. The qualitative assessment indicated that it was not more-likely-than-not that the carrying value of the reporting unit exceeded its fair value.
Core Deposit and Customer List Intangibles
Core deposit and customer relationships intangibles arising from business acquisitions are initially measured at fair value and are then amortized on an accelerated method based on their useful lives. As a result of the CB acquisition, a CDI asset of$13 million was recorded, bringing Bancorp's total CDI assets to$18 million as ofMarch 31, 2022 .
Customer list intangible assets totaling
association with the CB acquisition. Of this total,
WM&T segment and
Other Assets and Other Liabilities
Other assets increased
Other liabilities decreased
The increase in other assets was attributed to the addition of$13 million in MSR assets related to the CB acquisition and an$11 million increase in deferred tax assets driven by the significant market depreciation experienced within the AFS debt securities portfolio for the three months endedMarch 31, 2022 as a result of rising rates.
The decrease in other liabilities was attributed mainly to the reduction of
various accrued liabilities, such as employee incentive compensation and
benefits.
As of
intangible assets or other long-lived assets.
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Loans
Composition of loans, net of deferred fees and costs, by primary loan portfolio
class follows:
December 31,
(dollars in thousands) March 31, 2022 2021 $ Variance % Variance
Commercial real estate - non-owner occupied
24 % Commercial real estate - owner occupied 803,181 678,405 124,776 18 % Total commercial real estate 2,200,814 1,806,649 394,165 22 % Commercial and industrial - term 669,241 596,710 72,531 12 % Commercial and industrial - term - PPP 71,361 140,734 (69,373 ) -49 % Commercial and industrial - lines of credit 414,739 370,312 44,427 12 % Total commercial and industrial 1,155,341 1,107,756 47,585 4 % Residential real estate - owner occupied 492,123 400,695 91,428 23 % Residential real estate - non-owner occupied 297,127 281,018 16,109 6 % Total residential real estate 789,250 681,713 107,537 16 % Construction and land development 346,372 299,206 47,166 16 % Home equity lines of credit 186,024 138,976 47,048 34 % Consumer 135,198 104,294 30,904 30 % Leases 13,952 13,622 330 2 % Credits cards 20,732 17,087 3,645 21 % Total loans (1)$ 4,847,683 $ 4,169,303 $ 678,380 16 %
(1) Total loans are presented inclusive of premiums, discounts, and net
loan origination fees and costs.
The composition of loans as ofMarch 31, 2022 , net of deferred fees and costs, by primary loan portfolio class and bifurcated between Bancorp's historic loan portfolio and the loan portfolio acquired through the CB acquisition follows: As of March 31, 2022 (dollars in thousands) Bancorp CB Total
Commercial real estate - non-owner occupied
$ 1,397,633 Commercial real estate - owner occupied 685,696 117,485
803,181
Total commercial real estate 1,859,821 340,993
2,200,814
Commercial and industrial - term 628,367 40,874
669,241
Commercial and industrial - term - PPP 70,603 758
71,361
Commercial and industrial - lines of credit 384,761 29,978
414,739
Total commercial and industrial 1,083,731 71,610
1,155,341
Residential real estate - owner occupied 405,850 86,273
492,123
Residential real estate - non-owner occupied 285,288 11,839
297,127
Total residential real estate 691,138 98,112
789,250
Construction and land development 312,162 34,210 346,372 Home equity lines of credit 135,526 50,498 186,024 Consumer 102,996 32,202 135,198 Leases 13,952 - 13,952 Credits cards 18,290 2,442 20,732 Total loans (1)$ 4,217,616 $ 630,067 $ 4,847,683
(1) Total loans are presented inclusive of premiums, discounts, and net loan
origination fees and costs.
Total loans increased$678 million , or 16%, fromDecember 31, 2021 toMarch 31, 2022 , driven by the addition of$630 million in loans related to acquisition-related expansion and strong organic loan growth, which more than offset a$69 million decline in the PPP loan portfolio. 89
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Excluding the loans acquired through the CB acquisition and the PPP portfolio, loan growth of$118 million , or 3%, was experienced betweenDecember 31, 2021 andMarch 31, 2022 , driven largely by increases of$53 million and$46 million in the CRE and C&I portfolios, respectively. After hitting a pandemic-era low of 36.5% atMarch 31, 2021 , total line of credit utilization has improved significantly, reaching 41.0% atMarch 31, 2022 , led by C&I utilization, which strengthened from 23.9% to 31.6% over that same period, respectively. However, line of credit usage has remained below pre-pandemic levels, as the availability of the more favorable PPP lending facility hurt utilization for much of 2021 and customers continue to maintain elevated levels of liquidity. PPP loans of$71 million ($73 million gross of unamortized deferred fees and costs) were outstanding atMarch 31, 2022 . Bancorp has$2 million in net unrecognized fees related to the PPP as ofMarch 31, 2022 , which will be recognized immediately once the loans are paid off or forgiven by the SBA. While forgiveness activity will continue to impact results, the related fee recognition is becoming less significant as the balance of the overall portfolio shrinks. AtMarch 31, 2022 , approximately 92% of the dollars originated through the PPP have been forgiven and approximately 94% of the fee income received in relation to the PPP has been recognized. Bancorp's credit exposure is diversified with secured and unsecured loans to individuals and businesses. No specific industry concentration exceeds 10% of loans outstanding. While Bancorp has a diversified loan portfolio, a customer's ability to honor contracts is somewhat dependent upon the economic stability and/or industry in which that customer does business. Loans outstanding and related unfunded commitments are primarily concentrated within Bancorp's current market areas, which encompassLouisville, Kentucky , central and easternKentucky ,Indianapolis, Indiana andCincinnati, Ohio . Bancorp occasionally enters into loan participation agreements with other banks to diversify credit risk. For certain participation loans sold, Bancorp has retained effective control of the loans, typically by restricting the participating institutions from pledging or selling their ownership share of the loan without permission from Bancorp. GAAP requires the participated portion of these loans to be recorded as secured borrowings. These participated loans are included in the C&I and CRE loan portfolio segments with a corresponding liability recorded in other liabilities. At bothMarch 31, 2022 andDecember 31, 2021 , the total participated portion of loans of this nature totaled$5 million .
The following table presents the maturity distribution and rate sensitivity of
the total loan portfolio as of
Maturity
After one After five
Ater fifteen thousands) year five years fifteen years years Total % of Total Total Loans Fixed rate$ 197,147 $ 1,465,746 $ 1,042,066 $ 730,825 $ 3,435,784 71 % Variable rate 494,923 538,381 328,508 50,087 1,411,899 29 % Total$ 692,070 $ 2,004,127 $ 1,370,574 $ 780,912 $ 4,847,683 100 %
In the event where Bancorp structures a loan with a maturity exceeding five
years (typically CRE loans), an automatic rate adjustment will typically be set
in place at five years from origination date to limit interest rate sensitivity.
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Non-performing Loans and Assets
Information summarizing non-performing loans and assets follows:
(dollars in thousands) March 31, 2022 December 31, 2021 Non-accrual loans$ 12,494 $ 6,712 Troubled debt restructurings 10 12 Loans past due 90 days or more and still accruing 300 684 Total non-performing loans 12,804 7,408 Other real estate owned 7,156 7,212 Total non-performing assets$ 19,960 $ 14,620 Non-performing loans to total loans 0.26 % 0.18 % Non-performing loans to total loans (excluding PPP) (1) 0.27 % 0.18 % Non-performing assets to total assets 0.26 % 0.22 % ACL for loans to total non-performing loans 524 % 728 %
(1) See the section titled "Non-GAAP Financial Measures" for reconcilement of
non-GAAP to GAAP measures.
In total, non-performing assets as ofMarch 31, 2022 were comprised of 138 loans, ranging in individual amounts up to$2 million , one nominal accruing TDR loan and foreclosed real estate held for sale. Foreclosed real estate held atMarch 31, 2022 included two CRE properties and one residential real estate property. Non-performing loans totaling$6 million were added as a result of the CB acquisition. The following table presents the recorded investment in non-accrual loans by portfolio: (in thousands) March 31, 2022 December 31, 2021 Commercial real estate - non-owner occupied $ 1,117 $ 720 Commercial real estate - owner occupied 3,912 1,748 Total commercial real estate 5,029 2,468 Commercial and industrial - term 3,053 670 Commercial and industrial - PPP - - Commercial and industrial - lines of credit 663 228 Total commercial and industrial 3,716 898 Residential real estate - owner occupied 2,636 1,997 Residential real estate - non-owner occupied 282 293 Total residential real estate 2,918 2,290 Construction and land development - - Home equity lines of credit 481 646 Consumer 350 410 Leases - - Credit cards - - Total non-accrual loans$ 12,494 $ 6,712 As ofMarch 31, 2022 , non-accrual loans totaled$12 million . The increase in total non-accrual loans betweenDecember 31, 2021 andMarch 31, 2022 as a result of adding$6 million in non-accrual loans through the CB acquisition. 91
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Table of Contents Delinquent Loans Delinquent loans (consisting of all loans 30 days or more past due) totaled$11 million at bothMarch 31, 2022 andDecember 31, 2021 . Delinquent loans to total loans were 0.23% and 0.26% atMarch 31, 2022 andDecember 31, 2021 , respectively. Delinquent loans to total loans (excluding PPP loans) were 0.23% atMarch 31, 2022 compared to 0.27% atDecember 31, 2021 .
Allowance for Credit Losses on Loans
The ACL for loans is a valuation allowance for loans estimated at each balance sheet date in accordance with GAAP. When Bancorp deems all or a portion of a loan to be uncollectible, the appropriate amount is written off and the ACL is reduced by the same amount. Subsequent recoveries, if any, are credited to the ACL when received. See the Footnote titled "Summary of Significant Accounting Policies" for discussion of Bancorp's ACL methodology on loans. Allocations of the ACL may be made for specific loans, but the entire ACL for loans is available for any loan that, in Bancorp's judgment, should be charged-off. The following table reflects activity in the ACL on loans for the three months endedMarch 31, 2022 : Initial Allowance Provision for (in thousands) Beginning on PCD Credit Losses Ending Three Months Ended March 31, 2022 Balance Loans on Loans Charge-offs Recoveries Balance
Commercial real estate - non-owner occupied$ 15,960 $ 3,508 $ 1,140 $ - $ 12$ 20,620 Commercial real estate - owner occupied 9,595 2,121 (411 ) - 21 11,326 Total commercial real estate 25,555 5,629 729 - 33 31,946 Commercial and industrial - term 8,577 1,358 567 (113 ) 719 11,108 Commercial and industrial - lines of credit 4,802 1,874 (132 ) (36 ) - 6,508 Total commercial and industrial 13,379 3,232 435 (149 ) 719 17,616 Residential real estate - owner occupied 4,316 590 460 (6 ) 3 5,363 Residential real estate - non-owner occupied 3,677 - (319 ) - 3 3,361 Total residential real estate 7,993 590 141 (6 ) 6 8,724 Construction and land development 4,789 419 656 - - 5,864 Home equity lines of credit 1,044 2 421 - - 1,467 Consumer 772 78 262 (254 ) 191 1,049 Leases 204 - 7 - - 211 Credit cards 162 - 28 - - 190 Total$ 53,898 $ 9,950 $ 2,679$ (409 ) $ 949 $ 67,067 Bancorp's ACL for loans was$67 million as ofMarch 31, 2022 compared to$54 million as ofDecember 31, 2021 . The change in the ACL for loans was driven by a number of competing factors, which resulted in the$13 million , or 24%, increase experienced for the first three months of 2022. Acquisition-related activity was responsible for a total increase to the ACL for loans of$14 million at acquisition date, comprised of a$10 million day one adjustment for specific reserves placed on acquired PCD loans (offset to goodwill) and$4 million of provision for credit loss expense on loans related to the remaining acquired loan portfolio. Partially offsetting the acquisition-related increases was a net reduction of the ACL for loans of$2 million for the first three months of 2022 stemming from an improved unemployment forecast, general improvement in other underlying CECL model factors and strong credit quality metrics. Further, net recoveries totaling$540,000 were recorded for the three months endedMarch 31, 2022 , driven by a$711,000 recovery of a C&I relationship that was fully charged off during the fourth quarter of 2021. The FRB's forecast of the Seasonally Adjusted National Civilian Unemployment Rate is the primary loss driver within Bancorp's CECL model and has continued to improve over the past year. This rate stood at 3.6% as ofMarch 31, 2022 compared to 3.9% atDecember 31, 2021 and 6.0% atMarch 31, 2021 , supporting the FRB's improved outlook regarding unemployment. The ACL for loans calculation and resulting credit loss expense is significantly impacted by changes in forecasted economic conditions. Should the forecast for economic conditions change, Bancorp could experience further adjustments in its required ACL for loans credit loss expense. 92
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The following table sets forth the ACL by category of loan (excluding):
March 31, 2022 December 31, 2021
% of Total % of Total
(dollars in Allocated ACL on ACL to Total Allocated ACL on ACL to Total
thousands) Allowance loans Loans (1) Allowance loans Loans (1)
Commercial real estate - non-owner occupied$ 20,620 31 % 1.48 %$ 15,960 30 % 1.41 % Commercial real estate - owner occupied 11,326 17 % 1.41 % 9,595 18 % 1.41 % Total commercial real estate 31,946 48 % 1.45 % 25,555 48 % 1.41 % Commercial and industrial - term (1) 11,108 16 % 1.66 % 8,577 16 % 1.44 % Commercial and industrial - lines of credit 6,508 10 % 1.57 % 4,802 9 % 1.30 % Total commercial and industrial 17,616 26 % 1.63 % 13,379 25 % 1.38 % Residential real estate - owner occupied 5,363 8 % 1.09 % 4,316 8 % 1.08 % Residential real estate - non-owner occupied 3,361 5 % 1.13 % 3,677 7 % 1.31 % Total residential real estate 8,724 13 % 1.11 % 7,993 15 % 1.17 % Construction and land development 5,864 9 % 1.69 % 4,789 9 % 1.60 % Home equity lines of credit 1,467 2 % 0.79 % 1,044 2 % 0.75 % Consumer 1,049 2 % 0.78 % 772 1 % 0.74 % Leases 211 0 % 1.51 % 204 0 % 1.50 % Credit cards 190 0 % 0.91 % 162 0 % 0.95 % Total$ 67,067 100 % 1.40 %$ 53,898 100 % 1.34 %
(1) Excludes the PPP loan portfolio, which was not reserved for based on the underlying 100% SBA guarantee.
The table below details net charge-offs to average loans outstanding by category of loan for the three month periods endedMarch 31, 2022 and 2021, respectively. 2022 2021 Net (charge Net (charge offs)/ offs)/ Three months ended March recoveries Net (charge recoveries 31, Net (charge Average to average offs)/ Average to average (dollars in thousands) offs)/ recoveries Loans loans recoveries Loans loans Commercial real estate - non-owner occupied $ 12$ 1,225,492 0.00 % $ 31$ 860,339 0.00 % Commercial real estate - owner occupied 21 719,340 0.00 % - 521,230 0.00 % Total commercial real estate 33 1,944,832 0.00 % 31 1,381,569 0.00 % Commercial and industrial - term 606 614,645 0.10 % (50 ) 520,905 -0.01 % Commercial and industrial - term - PPP - 103,850 0.00 % - 585,168 0.00 % Commercial and industrial - lines of credit (36 ) 381,158 -0.01 % - 228,945 0.00 % Total commercial and industrial 570 1,099,653 0.05 % (50 ) 1,335,018 0.00 % Residential real estate - owner occupied (3 ) 433,481 0.00 % (3 ) 252,420 0.00 % Residential real estate - non-owner occupied 3 280,701 0.00 % 2 139,521 0.00 % Total residential real estate - 714,182 0.00 % (1 ) 391,941 0.00 % Construction and land development - 313,441 0.00 % - 288,581 0.00 % Home equity lines of credit - 157,794 0.00 % - 93,882 0.00 % Consumer (63 ) 116,278 -0.05 % 14 89,288 0.02 % Leases - 13,388 0.00 % - 14,541 0.00 % Credit cards - 18,362 0.00 % - 10,940 0.00 % Total $ 540$ 4,377,930 0.01 % $ (6 )$ 3,605,760 0.00 % 93
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While separate from the ACL for loans and recorded in other liabilities on Bancorp's consolidated balance sheets, the ACL for off balance sheet credit exposures also experienced an increase betweenDecember 31, 2021 andMarch 31, 2022 . As a result of the CB acquisition, the ACL for off balance sheet credit exposures was increased$500,000 (offset to goodwill) at acquisition date. A net benefit was subsequently recorded for provision for credit losses for off balance sheet exposures for the three months endedMarch 31, 2022 , as nearly all applicable loan segments experienced declines in their reserve loss percentage consistent with generally improving model factors and continued improvement in line of credit utilization. The ACL for off balance sheet credit exposures stood at$3.6 million as ofMarch 31, 2022 compared to$3.5 million as ofDecember 31, 2021 . Deposits December 31, (dollars in thousands) March 31, 2022 2021
$ Variance % Variance
Non-interest bearing demand deposits$ 2,089,072 $ 1,755,754 $ 333,318 19 % Interest bearing deposits: Interest bearing demand 2,348,718 2,131,928 216,790 10 % Savings 603,404 415,258 188,146 45 % Money market 1,158,119 1,050,352 107,767 10 % Time deposits of$250 thousand or more 115,604 89,745 25,859 29 % Other time deposits 430,574 344,477 86,097 25 % Total time deposits 546,178 434,222 111,956 26 % Total interest bearing deposits 4,656,419 4,031,760 624,659 15 % Total deposits (1)$ 6,745,491 $ 5,787,514 $ 957,977 17 %
(1) Includes
2022
The composition of deposits as ofMarch 31, 2022 , bifurcated between Bancorp's legacy deposit portfolio and the deposit portfolio acquired through the CB acquisition, follows: As of March 31, 2022 (dollars in thousands) Legacy CB Total Non-interest bearing demand deposits$ 1,802,072 $ 287,000 $ 2,089,072 Interest bearing deposits: Interest bearing demand 1,974,633 374,085 2,348,718 Savings 428,334 175,070 603,404 Money market 1,019,237 138,882 1,158,119
Time deposits of
115,604 Other time deposits(1) 346,673 83,901 430,574 Total time deposits 442,533 103,645 546,178 Total interest bearing deposits 3,864,737 791,682 4,656,419 Total deposits$ 5,666,809 $ 1,078,682 $ 6,745,491 Total deposits increased$958 million , or 17%, fromDecember 31, 2021 toMarch 31, 2022 . At acquisition date, deposits totaling$1.12 billion were assumed as a result of the CB acquisition. Excluding the deposits acquired through the CB acquisition, deposits decreased$163 million , or 3%, during the first three months of 2022, attributed mainly anticipated seasonal deposit run-off. 94
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Securities Sold Under Agreements to Repurchase
Information regarding SSUAR follows:
(dollars in thousands) March 31, 2022 December 31, 2021 Outstanding balance at end of period$ 142,146 $ 75,466 Weighted average interest rate at end of period 0.08 % 0.04 % Three months ended March 31, (dollars in thousands) 2022 2021 Average outstanding balance during the period$ 91,082 $
46,937
Average interest rate during the period 0.08 %
0.04 %
Maximum outstanding at any month end during the period
SSUARs are collateralized by securities and are treated as financings; accordingly, the securities involved with the agreements are recorded as assets and are held by a safekeeping agent and the obligations to repurchase the securities are reflected as liabilities. All securities underlying the agreements are under the Bank's control. The majority of SSUARs are indexed to immediately repricing indices such as the FFTR. SSUARs increased$67 million , or 88%, betweenDecember 31, 2021 andMarch 31, 2022 , as SSUAR totaling$66 million were assumed as part of the CB acquisition. The remaining fluctuation in SSUAR is consistent with the general trend of customers maintaining elevated deposit balances. Subordinated debentures As a result of the CB acquisition, Bancorp became the 100% successor owner of the following unconsolidated trust subsidiaries:Commonwealth Statutory Trust III,Commonwealth Statutory Trust IV and Commonwealth Statutory Trust V. The sole assets of the trust subsidiaries represent the proceeds of offerings loaned in exchange for subordinated debentures with similar terms to the TPS. The TPS are treated as part of Tier 1 Capital. The subordinated note and related interest expense are included in Bancorp's consolidated financial statements. The subordinated notes are currently redeemable at Bancorp's option on a quarterly basis. As ofMarch 31, 2022 , subordinated notes added through the CB acquisition totaled$26 million . Bancorp chose not to redeem the subordinated notes onApril 1, 2022 . Liquidity The role of liquidity management is to ensure funds are available to meet depositors' withdrawal and borrowers' credit demands while at the same time maximizing profitability. This is accomplished by balancing changes in demand for funds with changes in supply of those funds. Liquidity is provided by short-term assets that can be converted to cash, AFS debt securities, various lines of credit available to Bancorp, and the ability to attract funds from external sources, principally deposits. Management believes it has the ability to increase deposits at any time by offering rates slightly higher than market rate. Bancorp's Asset/Liability Committee is comprised of senior management and has direct oversight responsibility for Bancorp's liquidity position and profile. A combination of reports provided to management details internal liquidity metrics, composition and level of the liquid asset portfolio, timing differences in short-term cash flow obligations, and exposure to contingent draws on Bancorp's liquidity. Bancorp's most liquid assets are comprised of cash and due from banks, FFS and AFS debt securities. FFS and interest bearing deposits totaled$642 million and$899 million atMarch 31, 2022 andDecember 31, 2021 , respectively. The decrease experienced for the first three months of 2022 is attributed to significant investment in the securities portfolio and strong organic loan growth, which was partially offset by liquidity added through the CB acquisition. FFS normally have overnight maturities while interest-bearing deposits in banks are accessible on demand. These investments are used for general daily liquidity purposes. 95
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The fair value of the AFS debt security portfolio was$1.15 billion and$1.18 billion atMarch 31, 2022 andDecember 31, 2021 respectively. The lack of growth in AFS debt security portfolio for the first three months of 2022 is attributed to both classifying securities purchased and acquired during the first quarter as HTM for general capital purposes as well as significant market depreciation experienced on the AFS portfolio sinceDecember 31, 2021 due to rising rates. The investment portfolio (HTM and AFS) includes scheduled maturities of$69 million and cash flows on amortizing debt securities of approximately$266 million (based on assumed prepayment speeds as ofMarch 31, 2022 ) expected over the next twelve months. Combined with FFS and interest bearing deposits from banks, AFS debt securities offer substantial resources to meet either loan growth or reductions in Bancorp's deposit funding base. Bancorp pledges portions of its investment securities portfolio to secure public funds, cash balances of certain WM&T accounts and SSUAR. AtMarch 31, 2022 , total investment securities pledged for these purposes comprised 64% of the debt securities portfolio, leaving approximately$617 million of unpledged debt securities. Bancorp's deposit base consists mainly of core deposits, defined as time deposits less than or equal to$250,000 , demand, savings, money market deposit accounts and excludes public funds and brokered deposits. AtMarch 31, 2022 , such deposits totaled$5.85 billion and represented 87% of Bancorp's total deposits, as compared with$5.05 billion , or 87% of total deposits atDecember 31, 2021 . Because these core deposits are less volatile and are often tied to other products of Bancorp through long lasting relationships, they do not place undue pressure on liquidity. However, many of Bancorp's individual depositors are currently maintaining historically high balances. These excess balances may be more sensitive to market rates, with potential decreases possibly straining Bancorp's liquidity position. As ofMarch 31, 2022 andDecember 31, 2021 , Bancorp held brokered deposits totaling$21 million and$5 million , respectively, all of which is attributed to deposits added through the acquisition-related activity over the past twelve months. Included in total deposit balances atMarch 31, 2022 are$760 million in public funds generally comprised of accounts with local government agencies and public school districts in the markets in which Bancorp operates. AtDecember 31, 2021 , public funds deposits totaled$645 million , the increase experienced during the first three months of 2022 being attributed mainly to relationships added through the CB acquisition. Bancorp is a member of the FHLB ofCincinnati . As a member of the FHLB, Bancorp has access to credit products of the FHLB. Bancorp views these borrowings as a potential low cost alternative to brokered deposits. AtMarch 31, 2022 andDecember 31, 2021 , available credit from the FHLB totaled$1.02 billion and$1.00 billion , respectively. Additionally, Bancorp had unsecured available FFP lines with correspondent banks totaling$100 million and$80 million atMarch 31, 2022 andDecember 31, 2021 , respectively. In addition, Bancorp had borrowing capacity of$20 million available through an unsecured borrowing line of the holding company. During the normal course of business, Bancorp enters into certain forms of off-balance sheet transactions, including unfunded loan commitments and letters of credit. These transactions are managed through Bancorp's various risk management processes. Management considers both on-balance sheet and off-balance sheet transactions in its evaluation of Bancorp's liquidity. Bancorp's principal source of cash is dividends paid to it as the sole shareholder of the Bank. As discussed in the Footnote titled "Commitments and Contingent Liabilities," as ofJanuary 1st of any year, the Bank may pay dividends in an amount equal to the Bank's net income of the prior two years less any dividends paid for the same two years. AtMarch 31, 2022 , the Bank could pay an amount equal to$22 million in dividends to Bancorp without regulatory approval subject to ongoing capital requirements of the Bank. Sources and Uses of Cash Cash flow is provided primarily through financing activities of Bancorp, which include raising deposits and borrowing funds from institutional sources such as advances from FHLB and FFP, as well as scheduled loan repayments and cash flows from debt securities. These funds are primarily used to facilitate investment activities of Bancorp, which include making loans and purchasing securities for the investment portfolio. Another important source of cash is net income of the Bank from operating activities. For further detail regarding the sources and uses of cash, see the "Consolidated Statements of Cash Flows" in Bancorp's consolidated financial statements. 96
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Table of Contents Commitments In the normal course of business, Bancorp is party to activities that contain credit, market and operational risk that are not reflected in whole or in part in Bancorp's consolidated financial statements. Such activities include traditional off-balance sheet credit-related financial instruments, commitments under operating leases and long-term debt. Bancorp provides customers with off-balance sheet credit support through loan commitments and standby letters of credit. Unused loan commitments increased$355 million as ofMarch 31, 2022 compared toDecember 31, 2021 , the increase being driven by both the CB acquisition and new lines of credit. Total average line of credit utilization was essentially flat at 41.0% as ofMarch 31, 2022 as compared to 41.2% atDecember 31, 2021 , both representing significant improvement from the pandemic-era low of 36.5% experienced atMarch 31, 2021 . C&I line of credit utilization was 31.6% atMarch 31, 2022 compared to 31.8% atDecember 31, 2021 and 23.9% atMarch 31, 2021 . Commitments to extend credit are agreements to lend to customers as long as collateral is available as agreed upon and there is no violation of any condition established in the contracts. Commitments generally have fixed expiration dates or other termination clauses. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Bancorp uses the same credit and collateral policies in making commitments and conditional guarantees as for on-balance sheet instruments. Bancorp evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained is based on management's credit evaluation of the customer. Collateral held varies, but may include accounts receivable, inventory, securities, equipment and real estate. However, should the commitments be drawn upon and should our customers default on their resulting obligation to us, our maximum exposure to credit loss, without consideration of collateral, is represented by the contractual amount of those instruments. The ACL for off balance sheet credit exposures, which is separate from the ACL for loans and recorded in other liabilities on the consolidated balance sheets, stood at$3.6 million and$3.5 million as ofMarch 31, 2022 andDecember 31, 2021 , respectively. The CB acquisition resulted in a$500,000 increase to the ACL for off balance sheet credit exposures, with the corresponding offset recorded to goodwill (as opposed to provision expense). This increase was partially offset by a$400,000 benefit to provision expense recorded for the three period endedMarch 31, 2022 , as nearly all applicable loan segments experienced declines in their reserve loss percentage consistent with generally improving model factors and improvement in line of credit utilization.
Standby letters of credit are conditional commitments issued by Bancorp to
guarantee the performance of a customer to a third party beneficiary. Those
guarantees are primarily issued to support commercial transactions. Standby
letters of credit generally have maturities of one to two years.
In addition to owned banking facilities, Bancorp has entered into long-term leasing arrangements for certain branch facilities. Bancorp also has required future payments for a non-qualified defined benefit retirement plan, TPS and the maturity of time deposits.
See the footnote titled "Commitments and Contingent Liabilities" for additional
detail.
Capital AtMarch 31, 2022 , stockholders' equity totaled$758 million , representing an increase of$82 million , or 12%, compared toDecember 31, 2021 . The increase for the first three months of 2022 was attributed mainly to stock issued in relation to the CB acquisition, which totaled$134 million . Further, net income of$7.9 million was offset by a$50 million negative change in AOCI and dividends declared during the first quarter of 2022. AOCI consists of net unrealized gains or losses on AFS debt securities and a minimum pension liability, each net of income taxes. AOCI declined$50 million fromDecember 31, 2021 toMarch 31, 2022 , with the fluctuation stemming from the changing interest rate environment and corresponding valuation of the AFS debt securities portfolio. See the "Consolidated Statement of Changes in Stockholders' Equity" for further detail of changes in equity. InMay 2021 , Bancorp's Board of Directors extended its share repurchase program authorizing the repurchase of up to 1 million shares, or approximately 4% of Bancorp's total common shares outstanding at the time. The plan, which will expire inMay 2023 unless otherwise extended or completed at an earlier date, does not obligate Bancorp to repurchase any specific dollar amount or number of shares prior to the plan's expiration. Based on economic developments over the past year and the increased importance of capital preservation, no shares were repurchased in 2021, nor the first three months of 2022. Approximately 741,000 shares remain eligible for repurchase under the current repurchase plan. 97
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Bank holding companies and their subsidiary banks are required by regulators to
meet risk-based capital standards. These standards, or ratios, measure the
relationship of capital to a combination of balance sheet and off-balance sheet
risks. The value of both balance sheet and off-balance sheet items are adjusted
to reflect credit risks. See the Footnote titled "Regulatory Matters" for
additional detail regarding regulatory capital requirements, as well as capital
ratios of Bancorp and the Bank. The Bank exceeds regulatory capital ratios
required to be well-capitalized. Regulatory framework does not define well
capitalized for holding companies. Management considers the effects of growth on
capital ratios as it contemplates plans for expansion.
The following table sets forth consolidated Bancorp's and the Bank's risk based
capital ratios:
March 31, 2022 December 31, 2021
Total risk-based capital(1)
Consolidated 12.14 % 12.79 %
Bank 11.34 12.42
Common equity tier 1 risk-based capital(1)
Consolidated 10.66 11.94
Bank 10.31 11.56
Tier 1 risk-based capital(1)
Consolidated 11.12 11.94
Bank 10.31 11.56
Leverage(2)
Consolidated 9.34 8.86
Bank 8.65 8.57
(1) Under regulatory risk-based capital guidelines, assets and
credit-equivalent amounts of derivatives and off-balance sheet credit exposures
are assigned to broad risk categories. The aggregate dollar amount in each risk
category is multiplied by the associated risk weight of the category. Weighted
values are added together, resulting in Bancorp's total risk-weighted assets.
These ratios are computed in relation to average assets.
(2) Ratio is computed in relation to average assets.
Capital ratios as of March 31, 2022 decreased compared December 31, 2021 as a
result of substantial average asset and risk-weighted asset growth, driven by
both organic and acquisition-related activity. While pressure was placed on
risk-based capital and leverage ratios due to this growth, Bancorp continues to
exceed the regulatory requirements for all calculations. Bancorp and the Bank
intend to maintain a capital position that meets or exceeds the
"well-capitalized" requirements as defined by the FRB and the FDIC , in addition
to the capital conservation buffer.
Banking regulators have categorized the Bank as well-capitalized. To meet the
definition of well-capitalized for prompt corrective action requirements, a bank
must have a minimum 6.5% Common Equity Tier 1 Risk-Based Capital ratio, 8.0%
Tier 1 Risk-Based Capital ratio, 10.0% Total Risk-Based Capital ratio and 5.0%
Tier 1 Leverage ratio.
Additionally, in order to avoid limitations on capital distributions, including
dividend payments and certain discretionary bonus payments to executive
officers, Bancorp and the Bank must hold a 2.5% capital conservation buffer
composed of Common Equity Tier 1 Risk-Based Capital above the minimum risk-based
capital requirements for the Common Equity Tier 1 Risk-Based Capital ratio, Tier
1 Risk-Based Capital ratio and Total Risk-Based Capital ratio necessary to be
considered adequately-capitalized. At March 31, 2022 , the adequately-capitalized
minimums, including the capital conservation buffer, were a 6.0% Common Equity
Tier 1 Risk-Based Capital ratio, 8.5% Tier 1 Risk-Based Capital ratio and 10.5%
Total Risk-Based Capital ratio.
As a result of the CB acquisition, Bancorp became the 100% successor owner of
the following unconsolidated trust subsidiaries: Commonwealth Statutory Trust
III, Commonwealth Statutory Trust IV and Commonwealth Statutory Trust V. The
sole assets of the trust subsidiaries represent the proceeds of offerings loaned
in exchange for subordinated debentures with similar terms to the TPS. The TPS
are treated as part of Tier 1 Capital. The subordinated note and related
interest expense are included in Bancorp's consolidated financial statements.
The subordinated notes are currently redeemable at Bancorp's option on a
quarterly basis. As of March 31, 2022 , subordinated notes added through the CB
acquisition totaled $26 million . Bancorp chose not to redeem the subordinated
notes on April 1, 2022 .
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Further, Bancorp had borrowing capacity of
unsecured borrowing line of the holding company as of
added during the first quarter to allow capital flexibility at the Bank level.
As permitted by the interim final rule issued onMarch 27, 2020 by the federal banking regulatory agencies, Bancorp elected the option to delay the estimated impact on regulatory capital related to the adoption of ASC 326 "Financial Instruments - Credit Losses," or CECL, which was effectiveJanuary 1, 2020 . The initial impact of adoption of ASC 326, as well as 25% of the quarterly increases in the ACL subsequent to adoption of ASC 326 (collectively the "transition adjustments") were declared to be delayed for two years. After two years, the cumulative amount of the transition adjustments will become fixed and will be phased out of the regulatory capital calculations evenly over a three-year period, with 75% recognized in year three, 50% recognized in year four and 25% recognized in year five. After five years, the temporary regulatory capital benefits will be fully reversed.Had Bancorp not elected to defer the regulatory capital impact of CECL, the post ASC 326 adoption capital ratios of Bancorp and the Bank would have exceeded the well-capitalized level.
Non-GAAP Financial Measures
The following table provides a reconciliation of total stockholders' equity in
accordance with GAAP to tangible stockholders' equity (TCE), a non-GAAP
disclosure. Bancorp provides the TCE per share, a non-GAAP measure, in addition
to those defined by banking regulators, based on its widespread use by investors
as a means to evaluate capital adequacy:
December 31 ,
(dollars in thousands, except per share data) March 31 ,
2022 2021
Total stockholders' equity - GAAP (a)$ 758,143 $ 675,869 Less: Goodwill (202,524 ) (135,830 ) Less: Core deposit and other intangibles (31,968 ) (5,596 ) Tangible common equity - Non-GAAP (c)$ 523,651 $ 534,443 Total assets - GAAP (b)$ 7,777,152 $ 6,646,025 Less: Goodwill (202,524 ) (135,830 ) Less: Core deposit and other intangibles (31,968 ) (5,596 ) Tangible assets - Non-GAAP (d) $
7,542,660
Total stockholders' equity to total assets - GAAP (a/b) 9.75 % 10.17 % Tangible common equity to tangible assets - Non-GAAP (c/d) 6.94 % 8.22 % Total shares outstanding (e) 29,220 26,596 Book value per share - GAAP (a/e) $ 25.95$ 25.41 Tangible common equity per share - Non-GAAP (c/e) 17.92 20.09 The general decline betweenDecember 31, 2021 andMarch 31, 2022 for the ratios displayed in the table above is attributed largely to unrealized losses within the AFS debt securities portfolio stemming from the significant increase in interest rates during the first quarter, which drove a$50 million decline in AOCI and as a result, a decline in stockholders equity. Further, acquisition-related growth served to increase goodwill and total assets, which also contributed to lower ratios. 99
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ACL on loans to total non-PPP loans represents the ACL on loans, divided by
total loans less PPP loans. Non-performing loans to total non-PPP loans
represents non-performing loans, divided by total loans less PPP loans.
Delinquent loans to total non-PPP loans represents delinquent loans (consisting
of all loans 30 days or more past due), divided by total loans less PPP loans.
Bancorp believes these non-GAAP disclosures are important because they provide
comparable ratios after eliminating PPP loans, which are fully guaranteed by the
SBA and have not been allocated for within the ACL and are not at risk of
non-performance.
December 31,
(dollars in thousands) March 31, 2022 2021
Total loans - GAAP (a) $ 4,847,683 $ 4,169,303
Less: PPP loans (71,361 ) (140,734 )
Total non-PPP loans - Non-GAAP (b) $ 4,776,322 $ 4,028,569
ACL on loans (c) $ 67,067 $ 53,898
Non-performing loans (d) 12,804 7,408
Delinquent loans (e) 11,167 11,036
ACL on loans to total loans - GAAP (c/a) 1.38 % 1.29 %
ACL on loans to total loans - Non-GAAP (c/b) 1.40 % 1.34 %
Non-performing loans to total loans - GAAP (d/a) 0.26 % 0.18 %
Non-performing loans to total loans - Non-GAAP (d/b) 0.27 % 0.18 %
Delinquent loans to total loans - GAAP (e/a) 0.23 % 0.26 %
Delinquent loans to total loans - Non-GAAP (e/b) 0.23 % 0.27 %
The efficiency ratio, a non-GAAP measure, equals total non-interest expenses
divided by the sum of net interest income FTE and non-interest income. The ratio
excludes net gains (losses) on sales, calls, and impairment of investment
securities, if applicable. In addition to the efficiency ratio, Bancorp
considers an adjusted efficiency ratio. Bancorp believes it is important because
it provides a comparable ratio after eliminating the fluctuation in non-interest
expenses related to amortization of investments in tax credit partnerships and
non-recurring merger expenses.
Three months ended March 31,
(dollars in thousands) 2022 2021
Total non-interest expenses - GAAP (a) $ 56,297 $ 24,973
Less: Non-recurring merger expenses (19,500 ) (400 )
Less: Amortization of investments in tax credit
partnerships (88 ) (31 )
Total non-interest expenses - Non-GAAP (c) $ 36,709
Total net interest income, FTE$ 48,944 $ 37,874 Total non-interest income 19,203
13,844
Less: Gain/loss on sale of securities - - Total revenue - GAAP (b)$ 68,147 $ 51,718 Efficiency ratio - GAAP (a/b) 82.61 % 48.29 % Efficiency ratio - Non-GAAP (c/b) 53.87 % 47.45 % 100
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