NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Nature of Operations
Community West Bancshares (“CWBC”), incorporated under the laws of the state of California, is a bank holding company providing full service banking through its wholly-owned subsidiary Community West
Bank, N.A. (“CWB” or the “Bank”). Unless indicated otherwise or unless the context suggests otherwise, these entities are referred to herein collectively and on a consolidated basis as the “Company.”
Basis of Presentation
The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in the United States (“GAAP”) and conform to practices within the financial services
industry. The accounts of the Company and its consolidated subsidiary are included in these Consolidated Financial Statements. All significant intercompany balances and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly
susceptible to significant changes in the near term relate to the determination of the allowance for loan losses and the fair value of securities available for sale. Although Management believes these estimates to be reasonably accurate, actual
amounts may differ. In the opinion of Management, all necessary adjustments have been reflected in the financial statements during their preparation.
Interim Financial Information
The accompanying unaudited consolidated financial statements as of and for the three and nine months ended September 30, 2019 and 2018 have been prepared in a condensed format, and therefore do not
include all of the information and footnotes required by GAAP for complete financial statements. These statements have been prepared on a basis that is substantially consistent with the accounting principles applied to our audited consolidated
financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018.
The information furnished in these interim statements reflects all adjustments which are, in the opinion of management, necessary for a fair statement of the results for each respective period
presented. Such adjustments are of a normal recurring nature. The results of operations in the interim statements are not necessarily indicative of the results that may be expected for any other quarter or for the full year. The interim financial
information should be read in conjunction with the Company’s audited consolidated financial statements.
Reclassifications
Certain amounts in the consolidated financial statements as of December 31, 2018 and for the three and nine months ended September 30, 2018 have been reclassified to conform to the current
presentation. The reclassifications have no effect on net income, comprehensive income or stockholders’ equity as previously reported.
Loans Held For Sale
Loans which are originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value determined on an aggregate basis. Valuation adjustments, if any, are
recognized through a valuation allowance by charges to lower of cost or fair value provision. Loans held for sale are mostly comprised of commercial agriculture and Small Business Association (“SBA”). The Company did not incur any lower of cost or
fair value provision in the three and nine months ended September 30, 2019 and 2018.
Loans Held for Investment and Interest and Fees from Loans
Loans are recognized at the principal amount outstanding, net of unearned income, loan participations and amounts charged off. Unearned income includes deferred loan origination fees reduced by loan
origination costs. Unearned income on loans is amortized to interest income over the life of the related loan using the level yield method.
Interest income on loans is accrued daily using the effective interest method and recognized over the terms of the loans. Loan fees collected for the origination of loans less direct loan origination
costs (net deferred loan fees) are amortized over the contractual life of the loan through interest income. If the loan has scheduled payments, the amortization of the net deferred loan fee is calculated using the interest method over the
contractual life of the loan. If the loan does not have scheduled payments, such as a line of credit, the net deferred loan fee is recognized as interest income on a straight-line basis over the contractual life of the loan commitment. Commitment
fees based on a percentage of a customer’s unused line of credit and fees related to standby letters of credit are recognized over the commitment period.
When loans are repaid, any remaining unamortized balances of unearned fees, deferred fees and costs and premiums and discounts paid on purchased loans are accounted for through interest income.
Nonaccrual loans: For all loan types, when a borrower discontinues making payments as contractually required by the note, the Company must determine whether it
is appropriate to continue to accrue interest. Generally, the Company places loans in a nonaccrual status and ceases recognizing interest income when the loan has become delinquent by more than 90 days or when Management determines that the full
repayment of principal and collection of interest is unlikely. The Company may decide to continue to accrue interest on certain loans more than 90 days delinquent if they are well secured by collateral and in the process of collection. Other
personal loans are typically charged off no later than 120 days delinquent.
For all loan types, when a loan is placed on nonaccrual status, all interest accrued but uncollected is reversed against interest income in the period in which the status is changed. Subsequent
payments received from the customer are applied to principal and no further interest income is recognized until the principal has been paid in full or until circumstances have changed such that payments are again consistently received as
contractually required. The Company occasionally recognizes income on a cash basis for non-accrual loans in which the collection of the remaining principal balance is not in doubt.
Impaired loans: A loan is considered impaired when, based on current information, it is probable that the Company will be unable to collect the scheduled
payments of principal and/or interest under the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and/or
interest payments. Loans that experience insignificant payment delays or payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays or payment shortfalls on a case-by-case basis. When
determining the possibility of impairment, management considers the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall
in relation to the principal and interest owed. For collateral-dependent loans, the Company uses the fair value of collateral method to measure impairment. The collateral-dependent loans that recognize impairment are charged down to the fair value
less costs to sell. All other loans are measured for impairment either based on the present value of future cash flows or the loan’s observable market price.
Troubled debt restructured loan (“TDR”): A TDR is a loan on which the Company, for reasons related to the borrower’s financial difficulties, grants a concession
to the borrower that the Company would not otherwise consider. These concessions include but are not limited to term extensions, rate reductions and principal reductions. Forgiveness of principal is rarely granted and modifications for all classes
of loans are predominately term extensions. A TDR loan is also considered impaired. Generally, a loan that is modified at an effective market rate of interest may no longer be disclosed as a troubled debt restructuring in years subsequent to the
restructuring if it is not impaired based on the terms specified by the restructuring agreement.
Allowance for Loan Losses and Provision for Loan Losses
The Company maintains a detailed, systematic analysis and procedural discipline to determine the amount of the allowance for loan losses (“ALL”). The ALL is based on estimates and is intended to be
appropriate to provide for probable losses inherent in the loan portfolio. This process involves deriving probable loss estimates that are based on migration analysis and historical loss rates, in addition to qualitative factors that are based on
management’s judgment. The migration analysis and historical loss rate calculations are based on the annualized loss rates utilizing a twelve-quarter loss history. Migration analysis is utilized for the Commercial Real Estate (“CRE”), Commercial,
Commercial Agriculture, SBA, Home Equity Line of Credit (“HELOC”), Single Family Residential, and Consumer portfolios. The historical loss rate method is utilized primarily for the Manufactured Housing portfolio. The migration analysis takes into
account the risk rating of loans that are charged off in each loan category. Loans that are considered Doubtful are typically charged off. The following is a description of the characteristics of loan ratings. Loan ratings are reviewed as part of
our normal loan monitoring process, but, at a minimum, updated on an annual basis.
Substantially Risk Free – These borrowers have virtually no probability of default or loss
given default and present no identifiable or potential adverse risk to the Company. Documented repayment is either backed by the full faith and credit of the United States Government, or secured by cash collateral of the principal borrowed. The
collateral must be in the possession of the Company and free from potential claim. In addition, these credits will conform in all aspects to established loan policies and procedures, laws, rules, and regulations.
Nominal Risk – This rating is for the highest quality borrowers with nominal probability of default or loss given default from the transaction. Typically this is
a borrower with a well-established record of financial performance, a strong equity position, abundant liquidity and excellent debt service ability. The Borrower’s financial outlook is stable due to a broad range of operations or products and is
able to weather an economic downturn without significant impact to liquidity or net worth. Typically, this borrower will be publicly owned or have access to public debt or equity, all investment grade. In addition, these credits will conform in all
aspects to established loan policies and procedures, laws, rules, and regulations. Transaction can include marketable securities as collateral, properly margined.
Pass/Management Attention Risk – The loans in the four remaining pass categories range from minimal risk to moderate risk to acceptable risk to management attention risk. Loans
rated in the first three categories are acceptable loans, appropriately underwritten, bearing an ordinary risk of loss to the Company. Loans in the minimal and moderate risk categories are loans to quality borrowers with financial statements
presenting a good primary source as well as an adequate secondary source of repayment. In the case of individuals, borrowers with this rating are quality borrowers demonstrating a reasonable level of secure income, a net worth adequate to support the
loan and presenting a good primary source as well as an adequate secondary source of repayment. Loans rated management attention risk indicate that although the borrower meets the criteria for a rating of acceptable risk or better, the credit
possesses an identified and elevated risk level that should be resolved in a short period of time. Technical risks include, but are not limited to, inadequate or improperly executed documentation, which may be material, serious delays in the
submission of financial reporting or covenant violations that are not indicative of a protracted trend.
Special Mention - A Special Mention loan has potential weaknesses that require management’s close attention. If left uncorrected, these potential weaknesses may
result in deterioration of the repayment prospects for the loan or in the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse
classification.
Substandard - A Substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if
any. These loans have a well-defined weakness or weaknesses that jeopardize full collection of amounts due. They are characterized by the distinct possibility that the Company will sustain some loss if the borrower’s deficiencies are not corrected.
Doubtful - A loan classified Doubtful has all the weaknesses inherent in one classified Substandard with the added characteristic that the weaknesses make
collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending
factors, which may work to the advantage and strengthening of the loan, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include proposed merger, acquisition or liquidation
procedures, capital injection, perfecting liens on additional collateral and refinancing plans.
Loss - Loans classified Loss are considered uncollectible and of such little value that their continuance as bankable loans is not warranted. This
classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this loan even though partial recovery may be realized in the future. Losses are taken in the
period in which they are considered uncollectible.
The Company’s ALL is maintained at a level believed appropriate by management to absorb known and inherent probable losses on existing loans. The allowance is charged for losses when management
believes that full recovery on the loan is unlikely. The following is the Company’s policy regarding charging off loans.
Commercial, CRE and SBA Loans
Charge-offs on these loan categories are taken as soon as all or a portion of any loan balance is deemed to be uncollectible. A loan is considered impaired when, based on current information, it is
probable that the Company will be unable to collect the scheduled payments of principal and/or interest under the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral
value and the probability of collecting scheduled principal and/or interest payments. Loans that experience insignificant payment delays or payment shortfalls generally are not classified as impaired. Generally, loan balances are charged-down to the
fair value of the collateral, if, based on a current assessment of the value, an apparent deficiency exists. In the event there is no perceived equity, the loan is charged-off in full. Unsecured loans which are delinquent over 90 days are, without
clear support, also charged-off in full.
Single Family Real Estate, HELOC’s and Manufactured Housing Loans
Consumer loans and residential mortgages secured by one-to-four family residential properties, HELOC and manufactured housing loans in which principal or interest is due and unpaid for 90 days, are
evaluated for impairment. Loan balances are charged-off to the fair value of the property, less estimated selling costs, if, based on a current appraisal, an apparent deficiency exists. In the event there is no perceived equity, the loan is
generally fully charged-off.
Consumer Loans
All consumer loans (excluding real estate mortgages, HELOCs and savings secured loans) are charged-off or charged-down to net recoverable value before becoming 120 days or five payments delinquent.
The ALL calculation for the different loan portfolios is as follows:
|
•
|
Commercial Real Estate, Commercial, Commercial Agriculture, SBA, HELOC, Single Family Residential, and Consumer – Migration analysis combined with risk rating is used to determine the required ALL for all
non-impaired loans. In addition, the migration results are adjusted based upon qualitative factors that affect the specific portfolio category. Reserves on impaired loans are determined based upon the individual characteristics of the
loan.
|
|
•
|
Manufactured Housing – The ALL is calculated on the basis of loss history and risk rating, which is primarily a function of delinquency. In addition, the loss results are adjusted based upon qualitative factors
that affect this specific portfolio.
|
The Company evaluates and individually assesses for impairment loans classified as substandard or doubtful in addition to loans either on nonaccrual, considered a TDR or when other conditions exist
which lead management to review for possible impairment. Measurement of impairment on impaired loans is determined on a loan-by-loan basis and in total establishes a specific reserve for impaired loans. The amount of impairment is determined by
comparing the recorded investment in each loan with its value measured by one of three methods:
|
•
|
The expected future cash flows are estimated and then discounted at the effective interest rate.
|
|
•
|
The value of the underlying collateral net of selling costs. Selling costs are estimated based on industry standards, the Company’s actual experience or actual costs incurred as appropriate. When evaluating
real estate collateral, the Company typically uses appraisals or valuations, no more than twelve months old at time of evaluation. When evaluating non-real estate collateral securing the loan, the Company will use audited financial
statements or appraisals no more than twelve months old at time of evaluation. Additionally, for both real estate and non-real estate collateral, the Company may use other sources to determine value as deemed appropriate.
|
|
•
|
The loan’s observable market price.
|
Interest income is not recognized on impaired loans except for limited circumstances in which a loan, although impaired, continues to perform in accordance with the loan contract and the borrower
provides financial information to support maintaining the loan on accrual.
The Company determines the appropriate ALL on a monthly basis. Any differences between estimated and actual observed losses from the prior month are reflected in the current period in determining the
appropriate ALL determination and adjusted as deemed necessary. The review of the appropriateness of the allowance takes into consideration such factors as concentrations of credit, changes in the growth, size and composition of the loan portfolio,
overall and individual portfolio quality, review of specific problem loans, collateral, guarantees and economic and environmental conditions that may affect the borrowers’ ability to pay and/or the value of the underlying collateral. Additional
factors considered include: geographic location of borrowers, changes in the Company’s product-specific credit policy and lending staff experience. These estimates depend on the outcome of future events and, therefore, contain inherent
uncertainties.
Another component of the ALL considers qualitative factors related to non-impaired loans. The qualitative portion of the allowance on each of the loan pools is based on changes in any of the following
factors:
|
•
|
Concentrations of credit
|
|
•
|
Trends in volume, maturity, and composition of loans
|
|
•
|
Volume and trend in delinquency, nonaccrual, and classified assets
|
|
•
|
Policy and procedures or underwriting standards
|
|
•
|
Staff experience and ability
|
|
•
|
Value of underlying collateral
|
|
•
|
Competition, legal, or regulatory environment
|
|
•
|
Results of outside exams and quality of loan review and Board oversight
|
Off Balance Sheet and Credit Exposure
In the ordinary course of business, the Company has entered into off-balance sheet financial instruments consisting of commitments to extend credit and standby letters of credit. Such financial
instruments are recorded in the consolidated financial statements when they are funded. They involve, to varying degrees, elements of credit risk in excess of amounts recognized in the consolidated balance sheets. Losses would be experienced when
the Company is contractually obligated to make a payment under these instruments and must seek repayment from the borrower, which may not be as financially sound in the current period as they were when the commitment was originally made. Commitments
to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.
The Company enters into credit arrangements that generally provide for the termination of advances in the event of a covenant violation or other event of default. Since many of the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of
credit, is based on management’s credit evaluation of the party. The commitments are collateralized by the same types of assets used as loan collateral.
As with outstanding loans, the Company applies qualitative factors to its off-balance sheet obligations in determining an estimate of losses inherent in these contractual obligations. The estimate for
loan losses on off-balance sheet instruments is included within other liabilities and the charge to income that establishes this liability is included in non-interest expense.
Foreclosed Real Estate and Repossessed Assets
Foreclosed real estate and other repossessed assets are recorded at fair value at the time of foreclosure less estimated costs to sell. Any excess of loan balance over the fair value less estimated
costs to sell of the other assets is charged-off against the allowance for loan losses. Any excess of the fair value less estimated costs to sell over the loan balance is recorded as a loan loss recovery to the extent of the loan loss previously
charged-off against the allowance for loan losses; and, if greater, recorded as a gain on foreclosed assets. Subsequent to the legal ownership date, the Company periodically performs a new valuation and the asset is carried at the lower of carrying
amount or fair value less estimated costs to sell. Operating expenses or income, and gains or losses on disposition of such properties, are recorded in current operations.
Income Taxes
The Company uses the asset and liability method, which recognizes an asset or liability representing the tax effects of future deductible or taxable amounts that have been recognized in the consolidated
financial statements. Due to tax regulations, certain items of income and expense are recognized in different periods for tax return purposes than for financial statement reporting. These items represent “temporary differences.” Deferred income
taxes are recognized for the tax effect of temporary differences between the tax basis of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in
which the differences are expected to affect taxable income. A valuation allowance is established for deferred tax assets if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets
may not be realized. Any interest or penalties assessed by the taxing authorities is classified in the financial statements as income tax expense. Deferred tax assets are included in other assets on the consolidated balance sheets.
Management evaluates the Company’s deferred tax asset for recoverability using a consistent approach which considers the relative impact of negative and positive evidence, including the Company’s
historical profitability and projections of future taxable income. The Company is required to establish a valuation allowance for deferred tax assets and record a charge to income if management determines, based on available evidence at the time the
determination is made, that it is more likely than not that some portion or all of the deferred tax assets may not be realized.
The Company is subject to the provisions of ASC 740, Income Taxes (“ASC 740”). ASC 740 prescribes a more likely than not threshold for the financial statement
recognition of uncertain tax positions. ASC 740 clarifies the accounting for income taxes by prescribing a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. On a quarterly basis, the Company evaluates income tax accruals in accordance with ASC 740 guidance on uncertain tax positions.
Earnings Per Share
Basic earnings per common share is computed using the weighted average number of common shares outstanding for the period divided into the net income. Diluted earnings per share include the effect of
all dilutive potential common shares for the period. Potentially dilutive common shares include stock options.
Recent Accounting Pronouncements
Effective January 1, 2019, we adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2016-02, Leases (Topic 842). This update amends the accounting requirements for leases by requiring
recognition of lease liabilities and related right-of-use assets on the balance sheet. Lessees are required to recognize a lease liability measured on a discounted basis, which is the lessee’s right to use, or control the use of, a specified asset
for the lease term. We adopted Topic 842 using the modified retrospective approach as of the effective date, January 1, 2019. We have recorded the cumulative effects on our balance sheet as of the effective date. No adjustments were made to prior
comparative periods. As a result of the adoption, there was no impact on net income. We recorded operating lease right-of-use assets of $8.4 million and lease liabilities of $8.4 million. As part of the adoption, we elected the package of
practical expedients permitted under the transition guidance within Topic 842, which among other things, allowed us to carry forward the historical lease classifications. Leases with a term of 12 months or less are not recorded on the balance
sheet. See Note 11, Leases for further information.
In June of 2016, the FASB issued update guidance codified within ASU-2016-13, “Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” which amends the
guidance for recognizing credit losses from an “incurred loss” methodology that delays recognition of credit losses until it is probable a loss has been incurred to an expected credit loss methodology. The guidance requires the use of the modified
retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted. On October 16, 2019, FASB voted to delay the effective date of this ASU for smaller reporting
companies, such as the Company, until fiscal years beginning after December 15, 2022, pending final approval. The Company is currently evaluating the impact of the amended guidance and has not yet determined the effect of the standard on its ongoing
financial reporting.
In March 2017, the FASB issued updated guidance codified within ASU-2017-08, “Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20),” which is intended to enhance the accounting for the
amortization of premiums for purchased callable debt securities. The standard is effective for the Company as of January 1, 2019. The Company adopted this guidance as of January 1, 2019, which did not have a material impact on the Company’s
Consolidated Financial Statements.
The amortized cost and estimated fair value of investment securities are as follows:
|
|
September 30, 2019
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
(Losses)
|
|
|
Fair
Value
|
|
Securities available-for-sale
|
|
(in thousands)
|
|
U.S. government agency notes
|
|
$
|
10,240
|
|
|
$
|
—
|
|
|
$
|
(67
|
)
|
|
$
|
10,173
|
|
U.S. government agency collateralized mortgage obligations (“CMO”)
|
|
|
11,766
|
|
|
|
31
|
|
|
|
(63
|
)
|
|
|
11,734
|
|
Total
|
|
$
|
22,006
|
|
|
$
|
31
|
|
|
$
|
(130
|
)
|
|
$
|
21,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency mortgage backed securities (“MBS”)
|
|
$
|
6,637
|
|
|
$
|
222
|
|
|
$
|
(22
|
)
|
|
$
|
6,837
|
|
Total
|
|
$
|
6,637
|
|
|
$
|
222
|
|
|
$
|
(22
|
)
|
|
$
|
6,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities measured at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities: Farmer Mac class A stock
|
|
$
|
66
|
|
|
$
|
97
|
|
|
$
|
—
|
|
|
$
|
163
|
|
Total
|
|
$
|
66
|
|
|
$
|
97
|
|
|
$
|
—
|
|
|
$
|
163
|
|
|
|
December 31, 2018
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
(Losses)
|
|
|
Fair
Value
|
|
Securities available-for-sale
|
|
(in thousands)
|
|
U.S. government agency notes
|
|
$
|
12,225
|
|
|
$
|
—
|
|
|
$
|
(155
|
)
|
|
$
|
12,070
|
|
U.S. government agency collateralized mortgage obligations (“CMO”)
|
|
|
12,931
|
|
|
|
9
|
|
|
|
(79
|
)
|
|
|
12,861
|
|
Total
|
|
$
|
25,156
|
|
|
$
|
9
|
|
|
$
|
(234
|
)
|
|
$
|
24,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency mortgage backed securities (“MBS”)
|
|
$
|
7,301
|
|
|
$
|
118
|
|
|
$
|
(150
|
)
|
|
$
|
7,269
|
|
Total
|
|
$
|
7,301
|
|
|
$
|
118
|
|
|
$
|
(150
|
)
|
|
$
|
7,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities measured at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities: Farmer Mac class A stock
|
|
$
|
66
|
|
|
$
|
55
|
|
|
$
|
—
|
|
|
$
|
121
|
|
Total
|
|
$
|
66
|
|
|
$
|
55
|
|
|
$
|
—
|
|
|
$
|
121
|
|
At September 30, 2019 and December 31, 2018, $28.5 million and $32.2 million of securities at carrying value, respectively, were pledged to the Federal Home Loan Bank (“FHLB”), as collateral for current
and future advances.
The maturity periods and weighted average yields of investment securities at the period ends indicated were as follows:
|
|
September 30, 2019
|
|
|
|
Less than One Year
|
|
|
One to Five Years
|
|
|
Five to Ten Years
|
|
|
Over Ten Years
|
|
|
Total
|
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
Securities available-for-sale
|
|
(dollars in thousands)
|
|
U.S. government agency notes
|
|
$
|
1,992
|
|
|
|
2.6
|
%
|
|
$
|
1,116
|
|
|
|
2.8
|
%
|
|
$
|
7,065
|
|
|
|
3.3
|
%
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
10,173
|
|
|
|
3.1
|
%
|
U.S. government agency CMO
|
|
|
—
|
|
|
|
—
|
|
|
|
2,651
|
|
|
|
2.4
|
%
|
|
|
6,465
|
|
|
|
2.5
|
%
|
|
|
2,618
|
|
|
|
3
|
%
|
|
|
11,734
|
|
|
|
2.6
|
%
|
Total
|
|
$
|
1,992
|
|
|
|
2.6
|
%
|
|
$
|
3,767
|
|
|
|
2.5
|
%
|
|
$
|
13,530
|
|
|
|
2.9
|
%
|
|
$
|
2,618
|
|
|
|
3.0
|
%
|
|
$
|
21,907
|
|
|
|
2.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency MBS
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
1,907
|
|
|
|
4.7
|
%
|
|
$
|
3,947
|
|
|
|
3.1
|
%
|
|
$
|
783
|
|
|
|
3.6
|
%
|
|
$
|
6,637
|
|
|
|
3.6
|
%
|
Total
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
1,907
|
|
|
|
4.7
|
%
|
|
$
|
3,947
|
|
|
|
3.1
|
%
|
|
$
|
783
|
|
|
|
3.6
|
%
|
|
$
|
6,637
|
|
|
|
3.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities measured at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer Mac class A stock
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
163
|
|
|
|
—
|
|
Total
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
163
|
|
|
|
—
|
|
|
|
December 31, 2018
|
|
|
|
Less than One Year
|
|
|
One to Five Years
|
|
|
Five to Ten Years
|
|
|
Over Ten Years
|
|
|
Total
|
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
Securities available-for-sale
|
|
(dollars in thousands)
|
|
U.S. government agency notes
|
|
$
|
1,946
|
|
|
|
2.6
|
%
|
|
$
|
1,388
|
|
|
|
2.6
|
%
|
|
$
|
8,736
|
|
|
|
3.1
|
%
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
12,070
|
|
|
|
2.0
|
%
|
U.S. government agency CMO
|
|
|
—
|
|
|
|
—
|
|
|
|
2,717
|
|
|
|
2.5
|
%
|
|
|
7,284
|
|
|
|
2.8
|
%
|
|
|
2,860
|
|
|
|
3.2
|
%
|
|
|
12,861
|
|
|
|
1.9
|
%
|
Total
|
|
$
|
1,946
|
|
|
|
2.6
|
%
|
|
$
|
4,105
|
|
|
|
2.5
|
%
|
|
$
|
16,020
|
|
|
|
3.0
|
%
|
|
$
|
2,860
|
|
|
|
3.2
|
%
|
|
$
|
24,931
|
|
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency MBS
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
2,058
|
|
|
|
4.7
|
%
|
|
$
|
4,449
|
|
|
|
3.2
|
%
|
|
$
|
794
|
|
|
|
3.6
|
%
|
|
$
|
7,301
|
|
|
|
3.3
|
%
|
Total
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
2,058
|
|
|
|
4.7
|
%
|
|
$
|
4,449
|
|
|
|
3.2
|
%
|
|
$
|
794
|
|
|
|
3.6
|
%
|
|
$
|
7,301
|
|
|
|
3.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities measured at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer Mac class A stock
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
121
|
|
|
|
—
|
|
Total
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
121
|
|
|
|
—
|
|
The amortized cost and fair value of investment securities by contractual maturities as of the periods presented were as shown below:
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
|
Estimated
Fair Value
|
|
|
Amortized
Cost
|
|
|
Estimated
Fair Value
|
|
Securities available-for-sale
|
|
(in thousands)
|
|
Due in one year or less
|
|
$
|
1,998
|
|
|
$
|
1,992
|
|
|
$
|
1,998
|
|
|
$
|
1,946
|
|
After one year through five years
|
|
|
3,773
|
|
|
|
3,767
|
|
|
|
4,138
|
|
|
|
4,105
|
|
After five years through ten years
|
|
|
13,586
|
|
|
|
13,530
|
|
|
|
16,107
|
|
|
|
16,020
|
|
After ten years
|
|
|
2,649
|
|
|
|
2,618
|
|
|
|
2,913
|
|
|
|
2,860
|
|
Total
|
|
$
|
22,006
|
|
|
$
|
21,907
|
|
|
$
|
25,156
|
|
|
$
|
24,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
After one year through five years
|
|
|
1,907
|
|
|
|
2,003
|
|
|
|
2,058
|
|
|
|
2,153
|
|
After five years through ten years
|
|
|
3,947
|
|
|
|
3,964
|
|
|
|
4,449
|
|
|
|
4,323
|
|
After ten years
|
|
|
783
|
|
|
|
870
|
|
|
|
794
|
|
|
|
793
|
|
Total
|
|
$
|
6,637
|
|
|
$
|
6,837
|
|
|
$
|
7,301
|
|
|
$
|
7,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities measured at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer Mac class A stock
|
|
$
|
66
|
|
|
$
|
163
|
|
|
$
|
66
|
|
|
$
|
121
|
|
Total
|
|
$
|
66
|
|
|
$
|
163
|
|
|
$
|
66
|
|
|
$
|
121
|
|
Actual maturities may differ from contractual maturities as borrowers or issuers have the right to prepay or call the investment securities. Changes in interest rates may also impact prepayments.
The following tables show all securities that are in an unrealized loss position:
|
|
September 30, 2019
|
|
|
|
Less Than Twelve
Months
|
|
|
More Than Twelve
Months
|
|
|
Total
|
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
Securities available-for-sale
|
|
(in thousands)
|
|
U.S. government agency notes
|
|
$
|
3
|
|
|
$
|
1,167
|
|
|
$
|
65
|
|
|
$
|
9,006
|
|
|
$
|
68
|
|
|
$
|
10,173
|
|
U.S. government agency CMO
|
|
|
15
|
|
|
|
5,120
|
|
|
|
47
|
|
|
|
2,338
|
|
|
|
62
|
|
|
|
7,458
|
|
Total
|
|
$
|
18
|
|
|
$
|
6,287
|
|
|
$
|
112
|
|
|
$
|
11,344
|
|
|
$
|
130
|
|
|
$
|
17,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government-agency MBS
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
22
|
|
|
$
|
2,153
|
|
|
$
|
22
|
|
|
$
|
2,153
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
22
|
|
|
$
|
2,153
|
|
|
$
|
22
|
|
|
$
|
2,153
|
|
|
|
December 31, 2018
|
|
|
|
Less Than Twelve
Months
|
|
|
More Than Twelve
Months
|
|
|
Total
|
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
Securities available-for-sale
|
|
(in thousands)
|
|
U.S. government agency notes
|
|
$
|
21
|
|
|
$
|
4,001
|
|
|
$
|
134
|
|
|
$
|
8,070
|
|
|
$
|
155
|
|
|
$
|
12,071
|
|
U.S. government agency CMO
|
|
|
2
|
|
|
|
4,749
|
|
|
|
77
|
|
|
|
3,289
|
|
|
|
79
|
|
|
|
8,038
|
|
Equity securities: Farmer Mac class A stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
23
|
|
|
$
|
8,750
|
|
|
$
|
211
|
|
|
$
|
11,359
|
|
|
$
|
234
|
|
|
$
|
20,109
|
|
Securities held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government-agency MBS
|
|
$
|
10
|
|
|
$
|
1,706
|
|
|
$
|
140
|
|
|
$
|
2,094
|
|
|
$
|
150
|
|
|
$
|
3,800
|
|
Total
|
|
$
|
10
|
|
|
$
|
1,706
|
|
|
$
|
140
|
|
|
$
|
2,094
|
|
|
$
|
150
|
|
|
$
|
3,800
|
|
As of September 30, 2019 and December 31, 2018, there were 20 and 21 securities, respectively, in an unrealized loss position. Declines in the fair value of held-to-maturity and available-for-sale
securities below their cost that are deemed to be other-than-temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers, among other things: (i) the length of time and the
extent to which the fair value has been less than cost; (ii) the financial condition and near-term prospects of the issuer; and (iii) the Company’s intent to sell an impaired security and if it is not more likely than not it will be required to sell
the security before the recovery of its amortized basis.
The unrealized losses are primarily due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as
the bonds approach their maturity date, repricing date or if market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of credit quality. Accordingly, as of September 30, 2019 and
December 31, 2018, management believes the impairments detailed in the table above are temporary and no other-than-temporary impairment loss has been realized in the Company’s consolidated income statements.
SBA and Agriculture Loans
As of September 30, 2019 and December 31, 2018, the Company had approximately $11.1 million and $13.6 million, respectively, of SBA loans included in loans held for sale. As of September 30, 2019 and
December 31, 2018, the principal balance of SBA loans serviced for others was $5.4 million and $7.2 million, respectively.
The Company’s agricultural lending program includes loans for agricultural land, agricultural operational lines, and agricultural term loans for crops, equipment and livestock. The primary products are
supported by guarantees issued from the USDA, FSA, and the USDA Business and Industry loan program.
As of September 30, 2019 and December 31, 2018, the Company had $33.7 million and $34.8 million of USDA loans included in loans held for sale, respectively. As of September 30, 2019 and December 31,
2018, the principal balance of USDA loans serviced for others was $2.0 million.
4.
|
LOANS HELD FOR INVESTMENT
|
The composition of the Company’s loans held for investment loan portfolio follows:
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
|
|
(in thousands)
|
|
Manufactured housing
|
|
$
|
253,229
|
|
|
$
|
247,114
|
|
Commercial real estate
|
|
|
392,288
|
|
|
|
365,809
|
|
Commercial
|
|
|
76,497
|
|
|
|
83,753
|
|
SBA
|
|
|
5,916
|
|
|
|
5,557
|
|
HELOC
|
|
|
4,847
|
|
|
|
6,756
|
|
Single family real estate
|
|
|
11,936
|
|
|
|
11,261
|
|
Consumer
|
|
|
70
|
|
|
|
46
|
|
|
|
|
744,783
|
|
|
|
720,296
|
|
Allowance for loan losses
|
|
|
(8,868
|
)
|
|
|
(8,691
|
)
|
Deferred fees, net
|
|
|
(85
|
)
|
|
|
(337
|
)
|
Discount on SBA loans
|
|
|
(57
|
)
|
|
|
(71
|
)
|
Total loans held for investment, net
|
|
$
|
735,773
|
|
|
$
|
711,197
|
|
The following table presents the contractual aging of the recorded investment in past due held for investment loans by class of loans:
|
|
September 30, 2019
|
|
|
|
Current
|
|
|
30-59 Days
Past Due
|
|
|
60-89 Days
Past Due
|
|
|
Over 90 Days
Past Due
|
|
|
Total
Past Due
|
|
|
Nonaccrual
|
|
|
Total
|
|
|
Recorded
Investment
Over 90 Days
and Accruing
|
|
|
|
(in thousands)
|
|
Manufactured housing
|
|
$
|
252,392
|
|
|
$
|
480
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
480
|
|
|
$
|
357
|
|
|
$
|
253,229
|
|
|
$
|
—
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
330,969
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
87
|
|
|
|
331,056
|
|
|
|
—
|
|
SBA 504 1st trust deed
|
|
|
19,162
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
19,162
|
|
|
|
—
|
|
Land
|
|
|
4,673
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,673
|
|
|
|
—
|
|
Construction
|
|
|
37,397
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
37,397
|
|
|
|
—
|
|
Commercial
|
|
|
71,841
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,656
|
|
|
|
76,497
|
|
|
|
—
|
|
SBA
|
|
|
4,181
|
|
|
|
17
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17
|
|
|
|
1,718
|
|
|
|
5,916
|
|
|
|
—
|
|
HELOC
|
|
|
4,847
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,847
|
|
|
|
—
|
|
Single family real estate
|
|
|
11,936
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11,936
|
|
|
|
—
|
|
Consumer
|
|
|
70
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
70
|
|
|
|
—
|
|
Total
|
|
$
|
737,468
|
|
|
$
|
497
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
497
|
|
|
$
|
6,818
|
|
|
$
|
744,783
|
|
|
$
|
—
|
|
|
|
December 31, 2018
|
|
|
|
Current
|
|
|
30-59 Days
Past Due
|
|
|
60-89 Days
Past Due
|
|
|
Over 90 Days
Past Due
|
|
|
Total
Past Due
|
|
|
Nonaccrual
|
|
|
Total
|
|
|
Recorded
Investment
Over 90 Days
and Accruing
|
|
|
|
(in thousands)
|
|
Manufactured housing
|
|
$
|
246,456
|
|
|
$
|
285
|
|
|
$
|
144
|
|
|
$
|
—
|
|
|
$
|
429
|
|
|
$
|
229
|
|
|
$
|
247,114
|
|
|
$
|
—
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
267,377
|
|
|
|
2,478
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,478
|
|
|
|
102
|
|
|
|
269,957
|
|
|
|
—
|
|
SBA 504 1st trust deed
|
|
|
20,835
|
|
|
|
—
|
|
|
|
322
|
|
|
|
—
|
|
|
|
322
|
|
|
|
—
|
|
|
|
21,157
|
|
|
|
—
|
|
Land
|
|
|
6,381
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,381
|
|
|
|
—
|
|
Construction
|
|
|
67,835
|
|
|
|
479
|
|
|
|
—
|
|
|
|
—
|
|
|
|
479
|
|
|
|
—
|
|
|
|
68,314
|
|
|
|
—
|
|
Commercial
|
|
|
78,857
|
|
|
|
15
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15
|
|
|
|
4,881
|
|
|
|
83,753
|
|
|
|
—
|
|
SBA
|
|
|
4,741
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
816
|
|
|
|
5,557
|
|
|
|
—
|
|
HELOC
|
|
|
6,558
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
198
|
|
|
|
6,756
|
|
|
|
—
|
|
Single family real estate
|
|
|
11,221
|
|
|
|
16
|
|
|
|
—
|
|
|
|
24
|
|
|
|
40
|
|
|
|
—
|
|
|
|
11,261
|
|
|
|
—
|
|
Consumer
|
|
|
46
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
46
|
|
|
|
—
|
|
Total
|
|
$
|
710,307
|
|
|
$
|
3,273
|
|
|
$
|
466
|
|
|
$
|
24
|
|
|
$
|
3,763
|
|
|
$
|
6,226
|
|
|
$
|
720,296
|
|
|
$
|
—
|
|
Allowance for Loan Losses
The following table summarizes the changes in the allowance for loan losses:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(in thousands)
|
|
Beginning balance
|
|
$
|
8,887
|
|
|
$
|
8,622
|
|
|
$
|
8,691
|
|
|
$
|
8,420
|
|
Charge-offs
|
|
|
—
|
|
|
|
—
|
|
|
|
(31
|
)
|
|
|
(6
|
)
|
Recoveries
|
|
|
56
|
|
|
|
94
|
|
|
|
163
|
|
|
|
329
|
|
Net recoveries
|
|
|
56
|
|
|
|
94
|
|
|
|
132
|
|
|
|
323
|
|
Provision (credit)
|
|
|
(75
|
)
|
|
|
(197
|
)
|
|
|
45
|
|
|
|
(224
|
)
|
Ending balance
|
|
$
|
8,868
|
|
|
$
|
8,519
|
|
|
$
|
8,868
|
|
|
$
|
8,519
|
|
As of September 30, 2019 and December 31, 2018, the Company had reserves for credit losses on undisbursed loans of $81,000 and $73,000, respectively, which were included in other liabilities.
The following tables summarize the changes in the allowance for loan losses by portfolio type:
|
|
For the Three Months Ended September 30,
|
|
|
|
Manufactured
Housing
|
|
|
Commercial
Real Estate
|
|
|
Commercial
|
|
|
SBA
|
|
|
HELOC
|
|
|
Single Family
Real Estate
|
|
|
Consumer
|
|
|
Total
|
|
2019
|
|
(in thousands)
|
|
Beginning balance
|
|
$
|
2,199
|
|
|
$
|
5,358
|
|
|
$
|
1,150
|
|
|
$
|
40
|
|
|
$
|
49
|
|
|
$
|
91
|
|
|
$
|
—
|
|
|
$
|
8,887
|
|
Charge-offs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Recoveries
|
|
|
6
|
|
|
|
21
|
|
|
|
10
|
|
|
|
17
|
|
|
|
1
|
|
|
|
1
|
|
|
|
—
|
|
|
|
56
|
|
Net (charge-offs) recoveries
|
|
|
6
|
|
|
|
21
|
|
|
|
10
|
|
|
|
17
|
|
|
|
1
|
|
|
|
1
|
|
|
|
—
|
|
|
|
56
|
|
Provision (credit)
|
|
|
(17
|
)
|
|
|
(41
|
)
|
|
|
17
|
|
|
|
(20
|
)
|
|
|
(14
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(75
|
)
|
Ending balance
|
|
$
|
2,188
|
|
|
$
|
5,338
|
|
|
$
|
1,177
|
|
|
$
|
37
|
|
|
$
|
36
|
|
|
$
|
92
|
|
|
$
|
—
|
|
|
$
|
8,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
2,145
|
|
|
$
|
5,007
|
|
|
$
|
1,221
|
|
|
$
|
57
|
|
|
$
|
93
|
|
|
$
|
99
|
|
|
$
|
—
|
|
|
$
|
8,622
|
|
Charge-offs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Recoveries
|
|
|
6
|
|
|
|
—
|
|
|
|
19
|
|
|
|
34
|
|
|
|
35
|
|
|
|
—
|
|
|
|
—
|
|
|
|
94
|
|
Net (charge-offs) recoveries
|
|
|
6
|
|
|
|
—
|
|
|
|
19
|
|
|
|
34
|
|
|
|
35
|
|
|
|
—
|
|
|
|
—
|
|
|
|
94
|
|
Provision (credit)
|
|
|
17
|
|
|
|
(134
|
)
|
|
|
4
|
|
|
|
(38
|
)
|
|
|
(36
|
)
|
|
|
(10
|
)
|
|
|
—
|
|
|
|
(197
|
)
|
Ending balance
|
|
$
|
2,168
|
|
|
$
|
4,873
|
|
|
$
|
1,244
|
|
|
$
|
53
|
|
|
$
|
92
|
|
|
$
|
89
|
|
|
$
|
—
|
|
|
$
|
8,519
|
|
|
|
For the Nine Months Ended September 30,
|
|
|
|
Manufactured
Housing
|
|
|
Commercial
Real Estate
|
|
|
Commercial
|
|
|
SBA
|
|
|
HELOC
|
|
|
Single Family
Real Estate
|
|
|
Consumer
|
|
|
Total
|
|
2019
|
|
(in thousands)
|
|
Beginning balance
|
|
$
|
2,196
|
|
|
$
|
5,028
|
|
|
$
|
1,210
|
|
|
$
|
79
|
|
|
$
|
90
|
|
|
$
|
88
|
|
|
$
|
—
|
|
|
$
|
8,691
|
|
Charge-offs
|
|
|
—
|
|
|
|
—
|
|
|
|
(31
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(31
|
)
|
Recoveries
|
|
|
49
|
|
|
|
33
|
|
|
|
49
|
|
|
|
28
|
|
|
|
3
|
|
|
|
1
|
|
|
|
—
|
|
|
|
163
|
|
Net (charge-offs) recoveries
|
|
|
49
|
|
|
|
33
|
|
|
|
18
|
|
|
|
28
|
|
|
|
3
|
|
|
|
1
|
|
|
|
—
|
|
|
|
132
|
|
Provision (credit)
|
|
|
(57
|
)
|
|
|
277
|
|
|
|
(51
|
)
|
|
|
(70
|
)
|
|
|
(57
|
)
|
|
|
3
|
|
|
|
—
|
|
|
|
45
|
|
Ending balance
|
|
$
|
2,188
|
|
|
$
|
5,338
|
|
|
$
|
1,177
|
|
|
$
|
37
|
|
|
$
|
36
|
|
|
$
|
92
|
|
|
$
|
—
|
|
|
$
|
8,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
2,180
|
|
|
$
|
4,844
|
|
|
$
|
1,133
|
|
|
$
|
73
|
|
|
$
|
92
|
|
|
$
|
98
|
|
|
$
|
—
|
|
|
$
|
8,420
|
|
Charge-offs
|
|
|
(6
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(6
|
)
|
Recoveries
|
|
|
114
|
|
|
|
15
|
|
|
|
43
|
|
|
|
102
|
|
|
|
54
|
|
|
|
1
|
|
|
|
—
|
|
|
|
329
|
|
Net (charge-offs) recoveries
|
|
|
108
|
|
|
|
15
|
|
|
|
43
|
|
|
|
102
|
|
|
|
54
|
|
|
|
1
|
|
|
|
—
|
|
|
|
323
|
|
Provision (credit)
|
|
|
(120
|
)
|
|
|
14
|
|
|
|
68
|
|
|
|
(122
|
)
|
|
|
(54
|
)
|
|
|
(10
|
)
|
|
|
—
|
|
|
|
(224
|
)
|
Ending balance
|
|
$
|
2,168
|
|
|
$
|
4,873
|
|
|
$
|
1,244
|
|
|
$
|
53
|
|
|
$
|
92
|
|
|
$
|
89
|
|
|
$
|
—
|
|
|
$
|
8,519
|
|
The following tables present impairment method information related to loans and allowance for loan losses by loan portfolio segment:
|
|
Manufactured
Housing
|
|
|
Commercial
Real Estate
|
|
|
Commercial
|
|
|
SBA
|
|
|
HELOC
|
|
|
Single Family
Real Estate
|
|
|
Consumer
|
|
|
Total
Loans
|
|
Loans Held for Investment as of September 30, 2019:
|
|
(in thousands)
|
|
Recorded Investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans with an allowance recorded
|
|
$
|
5,785
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
475
|
|
|
$
|
—
|
|
|
$
|
6,260
|
|
Impaired loans with no allowance recorded
|
|
|
2,149
|
|
|
|
87
|
|
|
|
5,969
|
|
|
|
1,718
|
|
|
|
—
|
|
|
|
1,867
|
|
|
|
—
|
|
|
|
11,790
|
|
Total loans individually evaluated for impairment
|
|
|
7,934
|
|
|
|
87
|
|
|
|
5,969
|
|
|
|
1,718
|
|
|
|
—
|
|
|
|
2,342
|
|
|
|
—
|
|
|
|
18,050
|
|
Loans collectively evaluated for impairment
|
|
|
245,295
|
|
|
|
392,201
|
|
|
|
70,528
|
|
|
|
4,198
|
|
|
|
4,847
|
|
|
|
9,594
|
|
|
|
70
|
|
|
|
726,733
|
|
Total loans held for investment
|
|
$
|
253,229
|
|
|
$
|
392,288
|
|
|
$
|
76,497
|
|
|
$
|
5,916
|
|
|
$
|
4,847
|
|
|
$
|
11,936
|
|
|
$
|
70
|
|
|
$
|
744,783
|
|
Unpaid Principal Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans with an allowance recorded
|
|
$
|
5,785
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
475
|
|
|
$
|
—
|
|
|
$
|
6,260
|
|
Impaired loans with no allowance recorded
|
|
|
2,994
|
|
|
|
152
|
|
|
|
6,302
|
|
|
|
2,149
|
|
|
|
—
|
|
|
|
1,867
|
|
|
|
—
|
|
|
|
13,464
|
|
Total loans individually evaluated for impairment
|
|
|
8,779
|
|
|
|
152
|
|
|
|
6,302
|
|
|
|
2,149
|
|
|
|
—
|
|
|
|
2,342
|
|
|
|
—
|
|
|
|
19,724
|
|
Loans collectively evaluated for impairment
|
|
|
245,295
|
|
|
|
392,201
|
|
|
|
70,528
|
|
|
|
4,198
|
|
|
|
4,847
|
|
|
|
9,594
|
|
|
|
70
|
|
|
|
726,733
|
|
Total loans held for investment
|
|
$
|
254,074
|
|
|
$
|
392,353
|
|
|
$
|
76,830
|
|
|
$
|
6,347
|
|
|
$
|
4,847
|
|
|
$
|
11,936
|
|
|
$
|
70
|
|
|
$
|
746,457
|
|
Related Allowance for Credit Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans with an allowance recorded
|
|
$
|
349
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
18
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
367
|
|
Impaired loans with no allowance recorded
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total loans individually evaluated for impairment
|
|
|
349
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
18
|
|
|
|
—
|
|
|
|
—
|
|
|
|
367
|
|
Loans collectively evaluated for impairment
|
|
|
1,839
|
|
|
|
5,338
|
|
|
|
1,177
|
|
|
|
37
|
|
|
|
18
|
|
|
|
92
|
|
|
|
—
|
|
|
|
8,501
|
|
Total loans held for investment
|
|
$
|
2,188
|
|
|
$
|
5,338
|
|
|
$
|
1,177
|
|
|
$
|
37
|
|
|
$
|
36
|
|
|
$
|
92
|
|
|
$
|
—
|
|
|
$
|
8,868
|
|
|
|
Manufactured
Housing
|
|
|
Commercial
Real Estate
|
|
|
Commercial
|
|
|
SBA
|
|
|
HELOC
|
|
|
Single Family
Real Estate
|
|
|
Consumer
|
|
|
Total
Loans
|
|
Loans Held for Investment as of December 31, 2018:
|
|
(in thousands)
|
|
Recorded Investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans with an allowance recorded
|
|
$
|
8,726
|
|
|
$
|
243
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
775
|
|
|
$
|
—
|
|
|
$
|
9,744
|
|
Impaired loans with no allowance recorded
|
|
|
3,269
|
|
|
|
102
|
|
|
|
7,811
|
|
|
|
815
|
|
|
|
198
|
|
|
|
1,964
|
|
|
|
—
|
|
|
|
14,159
|
|
Total loans individually evaluated for impairment
|
|
|
11,995
|
|
|
|
345
|
|
|
|
7,811
|
|
|
|
815
|
|
|
|
198
|
|
|
|
2,739
|
|
|
|
—
|
|
|
|
23,903
|
|
Loans collectively evaluated for impairment
|
|
|
235,119
|
|
|
|
365,464
|
|
|
|
75,942
|
|
|
|
4,742
|
|
|
|
6,558
|
|
|
|
8,522
|
|
|
|
46
|
|
|
|
696,393
|
|
Total loans held for investment
|
|
$
|
247,114
|
|
|
$
|
365,809
|
|
|
$
|
83,753
|
|
|
$
|
5,557
|
|
|
$
|
6,756
|
|
|
$
|
11,261
|
|
|
$
|
46
|
|
|
$
|
720,296
|
|
Unpaid Principal Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans with an allowance recorded
|
|
$
|
8,726
|
|
|
$
|
243
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
775
|
|
|
$
|
—
|
|
|
$
|
9,744
|
|
Impaired loans with no allowance recorded
|
|
|
4,321
|
|
|
|
160
|
|
|
|
8,078
|
|
|
|
1,211
|
|
|
|
249
|
|
|
|
1,963
|
|
|
|
—
|
|
|
|
15,982
|
|
Total loans individually evaluated for impairment
|
|
|
13,047
|
|
|
|
403
|
|
|
|
8,078
|
|
|
|
1,211
|
|
|
|
249
|
|
|
|
2,738
|
|
|
|
—
|
|
|
|
25,726
|
|
Loans collectively evaluated for impairment
|
|
|
235,119
|
|
|
|
365,464
|
|
|
|
75,942
|
|
|
|
4,742
|
|
|
|
6,558
|
|
|
|
8,522
|
|
|
|
46
|
|
|
|
696,393
|
|
Total loans held for investment
|
|
$
|
248,166
|
|
|
$
|
365,867
|
|
|
$
|
84,020
|
|
|
$
|
5,953
|
|
|
$
|
6,807
|
|
|
$
|
11,260
|
|
|
$
|
46
|
|
|
$
|
722,119
|
|
Related Allowance for Credit Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans with an allowance recorded
|
|
$
|
432
|
|
|
$
|
9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
24
|
|
|
$
|
—
|
|
|
$
|
465
|
|
Impaired loans with no allowance recorded
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total loans individually evaluated for impairment
|
|
|
432
|
|
|
|
9
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
24
|
|
|
|
—
|
|
|
|
465
|
|
Loans collectively evaluated for impairment
|
|
|
1,764
|
|
|
|
5,019
|
|
|
|
1,210
|
|
|
|
79
|
|
|
|
90
|
|
|
|
64
|
|
|
|
—
|
|
|
|
8,226
|
|
Total loans held for investment
|
|
$
|
2,196
|
|
|
$
|
5,028
|
|
|
$
|
1,210
|
|
|
$
|
79
|
|
|
$
|
90
|
|
|
$
|
88
|
|
|
$
|
—
|
|
|
$
|
8,691
|
|
Included in impaired loans are $1.7 million and $3.1 million of loans guaranteed by government agencies at September 30, 2019 and December 31, 2018, respectively. A valuation allowance is established
for an impaired loan when the fair value of the loan is less than the recorded investment. In certain cases, portions of impaired loans are charged-off to realizable value instead of establishing a valuation allowance and are included, when
applicable in the table below as “Impaired loans without specific valuation allowance under ASC 310.” The valuation allowance disclosed above is included in the allowance for loan losses reported in the consolidated balance sheets as of September
30, 2019 and December 31, 2018.
The table below reflects recorded investment in loans classified as impaired:
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
|
|
(in thousands)
|
|
Impaired loans with a specific valuation allowance under ASC 310
|
|
$
|
6,260
|
|
|
$
|
9,744
|
|
Impaired loans without a specific valuation allowance under ASC 310
|
|
|
11,790
|
|
|
|
14,159
|
|
Total impaired loans
|
|
$
|
18,050
|
|
|
$
|
23,903
|
|
Valuation allowance related to impaired loans
|
|
$
|
367
|
|
|
$
|
465
|
|
The following table summarizes impaired loans by class of loans:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Manufactured housing
|
|
$
|
7,934
|
|
|
$
|
11,995
|
|
Commercial real estate :
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
87
|
|
|
|
102
|
|
SBA 504 1st trust deed
|
|
|
—
|
|
|
|
243
|
|
Land
|
|
|
—
|
|
|
|
—
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
Commercial
|
|
|
5,969
|
|
|
|
7,811
|
|
SBA
|
|
|
1,718
|
|
|
|
815
|
|
HELOC
|
|
|
—
|
|
|
|
198
|
|
Single family real estate
|
|
|
2,342
|
|
|
|
2,739
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
18,050
|
|
|
$
|
23,903
|
|
The following tables summarize average investment in impaired loans by class of loans and the related interest income recognized:
|
|
Three Months Ended September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
Average
Investment
in Impaired
Loans
|
|
|
Interest
Income
|
|
|
Average
Investment
in Impaired
Loans
|
|
|
Interest
Income
|
|
|
|
(in thousands)
|
|
Manufactured housing
|
|
$
|
7,656
|
|
|
$
|
151
|
|
|
$
|
8,175
|
|
|
$
|
162
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
108
|
|
|
|
—
|
|
|
|
111
|
|
|
|
—
|
|
SBA 504 1st trust deed
|
|
|
215
|
|
|
|
—
|
|
|
|
407
|
|
|
|
5
|
|
Land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial
|
|
|
6,248
|
|
|
|
82
|
|
|
|
7,444
|
|
|
|
47
|
|
SBA
|
|
|
1,297
|
|
|
|
32
|
|
|
|
902
|
|
|
|
17
|
|
HELOC
|
|
|
112
|
|
|
|
—
|
|
|
|
203
|
|
|
|
11
|
|
Single family real estate
|
|
|
2,236
|
|
|
|
31
|
|
|
|
2,223
|
|
|
|
27
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
17,872
|
|
|
$
|
296
|
|
|
$
|
19,465
|
|
|
$
|
269
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
Average
Investment
in Impaired
Loans
|
|
|
Interest
Income
|
|
|
Average
Investment
in Impaired
Loans
|
|
|
Interest
Income
|
|
|
|
(in thousands)
|
|
Manufactured housing
|
|
$
|
9,247
|
|
|
$
|
470
|
|
|
$
|
8,226
|
|
|
$
|
497
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
107
|
|
|
|
—
|
|
|
|
116
|
|
|
|
—
|
|
SBA 504 1st trust deed
|
|
|
175
|
|
|
|
9
|
|
|
|
378
|
|
|
|
14
|
|
Land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial
|
|
|
6,260
|
|
|
|
161
|
|
|
|
7,737
|
|
|
|
145
|
|
SBA
|
|
|
1,090
|
|
|
|
32
|
|
|
|
921
|
|
|
|
18
|
|
HELOC
|
|
|
155
|
|
|
|
11
|
|
|
|
207
|
|
|
|
12
|
|
Single family real estate
|
|
|
2,425
|
|
|
|
96
|
|
|
|
2,276
|
|
|
|
81
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
19,459
|
|
|
$
|
779
|
|
|
$
|
19,861
|
|
|
$
|
767
|
|
The Company is not committed to lend additional funds on these impaired loans.
The following table reflects the recorded investment in certain types of loans at the periods indicated:
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
|
|
(in thousands)
|
|
Nonaccrual loans
|
|
$
|
6,818
|
|
|
$
|
6,226
|
|
Government guaranteed portion of loans included above
|
|
$
|
1,342
|
|
|
$
|
2,848
|
|
|
|
|
|
|
|
|
|
|
Troubled debt restructured loans, gross
|
|
$
|
12,608
|
|
|
$
|
16,749
|
|
Loans 30 through 89 days past due with interest accruing
|
|
$
|
497
|
|
|
$
|
3,763
|
|
Loans 90 days or more past due with interest accruing
|
|
$
|
—
|
|
|
$
|
—
|
|
Allowance for loan losses to gross loans held for investment
|
|
|
1.19
|
%
|
|
|
1.21
|
%
|
The accrual of interest is discontinued when substantial doubt exists as to collectability of the loan; generally at the time the loan is 90 days delinquent. Any unpaid but accrued interest is reversed
at that time. Thereafter, interest income is no longer recognized on the loan. Interest income may be recognized on impaired loans to the extent they are not past due by 90 days. Interest on nonaccrual loans is accounted for on the cash-basis or
cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all of the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Foregone interest on nonaccrual and TDR loans for the three months ended September 30, 2019 and 2018, was $0.2 million and $0.1 million respectively. Foregone interest
on nonaccrual and TDR loans for the three months ended September 30, 2019 and 2018, was $0.4 million and $0.3 million respectively.
The following table presents the composition of nonaccrual loans by class of loans:
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
|
|
(in thousands)
|
|
Manufactured housing
|
|
$
|
357
|
|
|
$
|
229
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
87
|
|
|
|
102
|
|
SBA 504 1st trust deed
|
|
|
—
|
|
|
|
—
|
|
Land
|
|
|
—
|
|
|
|
—
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
Commercial
|
|
|
4,656
|
|
|
|
4,881
|
|
SBA
|
|
|
1,718
|
|
|
|
816
|
|
HELOC
|
|
|
—
|
|
|
|
198
|
|
Single family real estate
|
|
|
—
|
|
|
|
—
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
6,818
|
|
|
$
|
6,226
|
|
Included in nonaccrual loans are $1.3 million of loans guaranteed by government agencies at September 30, 2019 and $2.8 million at December 31, 2018.
The guaranteed portion of each SBA loan is repurchased from investors when those loans become past due 120 days by either CWB or the SBA directly. After the foreclosure and collection process is
complete, the principal balance of loans repurchased by CWB are reimbursed by the SBA. Although these balances do not earn interest during this period, they generally do not result in a loss of principal to CWB; therefore a repurchase reserve has
not been established related to these loans.
The Company utilizes an internal asset classification system as a means of reporting problem and potential problem loans. Under the Company’s risk rating system, the Company rates loans with potential
problems as “Special Mention,” “Substandard,” “Doubtful” and “Loss”. For a detailed discussion on these risk classifications see “Note 1 Summary of Significant Accounting Policies - Allowance for Loan Losses and Provision for Loan Losses”. Loans
that do not currently expose the Company to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses that deserve management’s close attention are deemed to be Special Mention. If left uncorrected,
these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the institution’s credit position at some future date. Special Mention assets are not adversely classified and do not expose an institution to
sufficient risk to warrant adverse classification. Risk ratings are updated as part of our normal loan monitoring process, at a minimum, annually.
The following tables present gross loans by risk rating:
|
|
September 30, 2019
|
|
|
|
Pass
|
|
|
Special Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Manufactured housing
|
|
$
|
252,823
|
|
|
$
|
—
|
|
|
$
|
406
|
|
|
$
|
—
|
|
|
$
|
253,229
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
329,013
|
|
|
|
1,956
|
|
|
|
87
|
|
|
|
—
|
|
|
|
331,056
|
|
SBA 504 1st trust deed
|
|
|
18,629
|
|
|
|
—
|
|
|
|
533
|
|
|
|
—
|
|
|
|
19,162
|
|
Land
|
|
|
4,673
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,673
|
|
Construction
|
|
|
35,372
|
|
|
|
—
|
|
|
|
2,024
|
|
|
|
—
|
|
|
|
37,396
|
|
Commercial
|
|
|
70,596
|
|
|
|
149
|
|
|
|
5,752
|
|
|
|
—
|
|
|
|
76,497
|
|
SBA
|
|
|
1,416
|
|
|
|
70
|
|
|
|
2,502
|
|
|
|
—
|
|
|
|
3,988
|
|
HELOC
|
|
|
4,847
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,847
|
|
Single family real estate
|
|
|
11,932
|
|
|
|
—
|
|
|
|
5
|
|
|
|
—
|
|
|
|
11,937
|
|
Consumer
|
|
|
70
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
70
|
|
Total, net
|
|
|
729,371
|
|
|
|
2,175
|
|
|
|
11,309
|
|
|
|
—
|
|
|
|
742,855
|
|
Government guarantee
|
|
|
—
|
|
|
|
—
|
|
|
|
1,928
|
|
|
|
—
|
|
|
|
1,928
|
|
Total
|
|
$
|
729,371
|
|
|
$
|
2,175
|
|
|
$
|
13,237
|
|
|
$
|
—
|
|
|
$
|
744,783
|
|
|
|
December 31, 2018
|
|
|
|
Pass
|
|
|
Special Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Manufactured housing
|
|
$
|
246,884
|
|
|
$
|
—
|
|
|
$
|
230
|
|
|
$
|
—
|
|
|
$
|
247,114
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
269,855
|
|
|
|
—
|
|
|
|
102
|
|
|
|
—
|
|
|
|
269,957
|
|
SBA 504 1st trust deed
|
|
|
20,109
|
|
|
|
—
|
|
|
|
1,048
|
|
|
|
—
|
|
|
|
21,157
|
|
Land
|
|
|
6,381
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,381
|
|
Construction
|
|
|
66,683
|
|
|
|
1,631
|
|
|
|
—
|
|
|
|
—
|
|
|
|
68,314
|
|
Commercial
|
|
|
73,580
|
|
|
|
—
|
|
|
|
7,771
|
|
|
|
—
|
|
|
|
81,351
|
|
SBA
|
|
|
2,770
|
|
|
|
34
|
|
|
|
1,557
|
|
|
|
|
|
|
|
4,361
|
|
HELOC
|
|
|
6,558
|
|
|
|
—
|
|
|
|
198
|
|
|
|
—
|
|
|
|
6,756
|
|
Single family real estate
|
|
|
11,256
|
|
|
|
—
|
|
|
|
5
|
|
|
|
—
|
|
|
|
11,261
|
|
Consumer
|
|
|
46
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
46
|
|
Total, net
|
|
|
704,122
|
|
|
|
1,665
|
|
|
|
10,911
|
|
|
$
|
—
|
|
|
|
716,698
|
|
Government guarantee
|
|
|
—
|
|
|
|
—
|
|
|
|
3,598
|
|
|
|
—
|
|
|
|
3,598
|
|
Total
|
|
$
|
704,122
|
|
|
$
|
1,665
|
|
|
$
|
14,509
|
|
|
$
|
—
|
|
|
$
|
720,296
|
|
Troubled Debt Restructured Loan (TDR)
A TDR is a loan on which the bank, for reasons related to a borrower’s financial difficulties, grants a concession to the borrower that the bank would not otherwise consider. The loan terms that have
been modified or restructured due to a borrower’s financial situation include, but are not limited to, a reduction in the stated interest rate, an extension of the maturity or renewal of the loan at an interest rate below current market, a reduction
in the face amount of the debt, a reduction in the accrued interest, extensions, deferrals, renewals and rewrites. The majority of the bank’s modifications are extensions in terms or deferral of payments which result in no lost principal or interest
followed by reductions in interest rates or accrued interest. A TDR is also considered impaired. Generally, a loan that is modified at an effective market rate of interest may no longer be disclosed as a troubled debt restructuring in years
subsequent to the restructuring if it is not impaired based on the terms specified by the restructuring agreement.
The following tables summarize the financial effects of TDR loans by loan class for the periods presented:
|
|
For the Nine Months Ended September 30, 2019
|
|
|
|
Number
of Loans
|
|
|
Pre-
Modification
Recorded
Investment
|
|
|
Post
Modification
Recorded
Investment
|
|
|
Balance of
Loans with
Rate
Reduction
|
|
|
Balance of
Loans with
Term
Extension
|
|
|
Effect on
Allowance
for
Loan
Losses
|
|
|
|
(dollars in thousands)
|
|
SBA
|
|
|
1
|
|
|
$
|
48
|
|
|
$
|
48
|
|
|
$
|
48
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total
|
|
|
1
|
|
|
$
|
48
|
|
|
$
|
48
|
|
|
$
|
48
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
For the Three Months Ended September 30, 2018
|
|
|
|
Number
of Loans
|
|
|
Pre-
Modification
Recorded
Investment
|
|
|
Post
Modification
Recorded
Investment
|
|
|
Balance of
Loans with
Rate
Reduction
|
|
|
Balance of
Loans with
Term
Extension
|
|
|
Effect on
Allowance
for
Loan
Losses
|
|
|
|
(dollars in thousands)
|
|
Manufactured housing
|
|
|
2
|
|
|
$
|
—
|
|
|
$
|
166
|
|
|
$
|
53
|
|
|
$
|
166
|
|
|
$
|
3
|
|
Commercial
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
—
|
|
|
|
-
|
|
|
|
—
|
|
Total
|
|
|
2
|
|
|
$
|
—
|
|
|
$
|
166
|
|
|
$
|
53
|
|
|
$
|
166
|
|
|
$
|
3
|
|
|
|
For the Nine Months Ended September 30, 2018
|
|
|
|
Number
of Loans
|
|
|
Pre-
Modification
Recorded
Investment
|
|
|
Post
Modification
Recorded
Investment
|
|
|
Balance of
Loans with
Rate
Reduction
|
|
|
Balance of
Loans with
Term
Extension
|
|
|
Effect on
Allowance
for
Loan
Losses
|
|
|
|
(dollars in thousands)
|
|
Manufactured housing
|
|
|
12
|
|
|
$
|
1,047
|
|
|
$
|
1,213
|
|
|
$
|
1,100
|
|
|
$
|
1,213
|
|
|
$
|
66
|
|
Commercial
|
|
|
3
|
|
|
|
1,781
|
|
|
|
1,781
|
|
|
|
—
|
|
|
|
1,781
|
|
|
|
—
|
|
Total
|
|
|
15
|
|
|
$
|
2,828
|
|
|
$
|
2,994
|
|
|
$
|
1,100
|
|
|
$
|
2,994
|
|
|
$
|
66
|
|
There were no new TDR loans for the three months ended September 30, 2019. The average rate concessions were 200 basis points for the nine months ended September 30, 2019 and 50 and 73 basis points for
the three and nine months ended September 30, 2018, respectively. The average term extension in months was 47 for the nine months ended September 30, 2019 and 180 and 151 for the three and nine months ended September 30, 2018, respectively.
A TDR loan is deemed to have a payment default when the borrower fails to make 2 consecutive payments or the collateral is transferred to repossessed assets. The Company had no TDR’s with payment
defaults for the three or nine months ended September 30, 2019 or 2018.
At September 30, 2019 there were no material loan commitments outstanding on TDR loans.
5.
|
OTHER ASSETS ACQUIRED THROUGH FORECLOSURE
|
The following table summarizes the changes in other assets acquired through foreclosure:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(in thousands)
|
|
Balance, beginning of period
|
|
$
|
1,074
|
|
|
$
|
213
|
|
|
$
|
—
|
|
|
$
|
372
|
|
Additions
|
|
|
—
|
|
|
|
—
|
|
|
|
1,177
|
|
|
|
174
|
|
Proceeds from dispositions
|
|
|
(750
|
)
|
|
|
(213
|
)
|
|
|
(750
|
)
|
|
|
(484
|
)
|
(Loss) gain on sales, net
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
(11
|
)
|
|
|
(62
|
)
|
Third-party portion of writedown/loss
|
|
|
(6
|
)
|
|
|
—
|
|
|
|
(99
|
)
|
|
|
—
|
|
Balance, end of period
|
|
$
|
317
|
|
|
$
|
—
|
|
|
$
|
317
|
|
|
$
|
—
|
|
The
third-party portion of writedown/loss above is related to a foreclosed agricultural loan 90% guaranteed by the Farm Service Agency (“FSA”).
6.
|
FAIR VALUE MEASUREMENT
|
The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities. FASB ASC 820, Fair Value Measurements and Disclosures
(“ASC 820”) established a framework for measuring fair value using a three-level valuation hierarchy for disclosure of fair value measurement. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset as of the
measurement date. ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available.
Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions
about the factors market participants would consider in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of inputs, as
follows:
|
•
|
Level 1— Observable quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
|
|
•
|
Level 2— Observable quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, matrix pricing or model-based valuation techniques
where all significant assumptions are observable, either directly or indirectly in the market.
|
|
•
|
Level 3— Model-based techniques where all significant assumptions are not observable, either directly or indirectly, in the market. These unobservable assumptions reflect management’s estimates of assumptions
that market participants would use in pricing the asset or liability. Valuation techniques may include use of discounted cash flow models and similar techniques.
|
The availability of observable inputs varies based on the nature of the specific financial instrument. To the extent that valuation is based on models or inputs that are less observable or unobservable
in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. In certain cases, the inputs used to
measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the
lowest level input that is significant to the fair value measurement in its entirety.
Fair value is a market-based measure considered from the perspective of a market participant who holds the asset or owes the liability rather than an entity-specific measure. When market assumptions
are available, ASC 820 requires the Company to make assumptions regarding the assumptions that market participants would use to estimate the fair value of the financial instrument at the measurement date.
FASB ASC 825, Financial Instruments (“ASC 825”) requires disclosure of fair value information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value.
Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent limitations in any estimation technique. Therefore, for substantially
all financial instruments, the fair value estimates presented herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction at September 30, 2019 and December 31, 2018. The estimated fair value amounts
for September 30, 2019 and December 31, 2018 have been measured as of period-end, and have not been reevaluated or updated for purposes of these consolidated financial statements subsequent to those dates. As such, the estimated fair values of these
financial instruments subsequent to the reporting date may be different than the amounts reported at the period-end.
This information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only required for a limited portion of the Company’s assets and
liabilities.
Due to the wide range of valuation techniques and the degree of subjectivity used in making the estimate, comparisons between the Company’s disclosures and those of other companies or banks may not be
meaningful.
The following tables summarize the fair value of assets measured on a recurring basis:
|
|
Fair Value Measurements at the End of the
Reporting Period Using:
|
|
|
|
|
September 30, 2019
|
|
Quoted Prices in
Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Fair
Value
|
|
Assets:
|
|
(in thousands)
|
|
Investment securities measured at fair value
|
|
$
|
163
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
163
|
|
Investment securities available-for-sale
|
|
|
—
|
|
|
|
21,907
|
|
|
|
—
|
|
|
|
21,907
|
|
Interest only strips
|
|
|
—
|
|
|
|
—
|
|
|
|
42
|
|
|
|
42
|
|
Servicing assets
|
|
|
—
|
|
|
|
—
|
|
|
|
42
|
|
|
|
42
|
|
Total
|
|
$
|
163
|
|
|
$
|
21,907
|
|
|
$
|
84
|
|
|
$
|
22,154
|
|
|
|
Fair Value Measurements at the End of the
Reporting Period Using:
|
|
|
|
|
December 31, 2018
|
|
Quoted Prices in
Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Fair
Value
|
|
Assets:
|
|
(in thousands)
|
|
Investment securities measured at fair value
|
|
$
|
121
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
121
|
|
Investment securities available-for-sale
|
|
|
—
|
|
|
|
24,931
|
|
|
|
—
|
|
|
|
24,931
|
|
Interest only strips
|
|
|
—
|
|
|
|
—
|
|
|
|
63
|
|
|
|
63
|
|
Servicing assets
|
|
|
—
|
|
|
|
—
|
|
|
|
49
|
|
|
|
49
|
|
|
|
$
|
121
|
|
|
$
|
24,931
|
|
|
$
|
112
|
|
|
$
|
25,164
|
|
Market valuations of our investment securities which are classified as level 2 are provided by an independent third party. The fair values are determined by using several sources for valuing fixed
income securities. Their techniques include pricing models that vary based on the type of asset being valued and incorporate available trade, bid and other market information. In accordance with the fair value hierarchy, the market valuation
sources include observable market inputs and are therefore considered Level 2 inputs for purposes of determining the fair values.
On certain SBA loan sales, the Company retained interest only strip assets (“I/O strips”) which represent the present value of excess net cash flows generated by the difference between (a) interest at
the stated rate paid by borrowers and (b) the sum of (i) pass-through interest paid to third-party investors and (ii) contractual servicing fees. I/O strips are classified as Level 3 in the fair value hierarchy. The fair value is determined on a
quarterly basis through a discounted cash flow analysis prepared by an independent third party using industry prepayment speeds. I/O strip valuation adjustments are recorded as additions or offsets to loan servicing income.
The Company had elected to use the amortizing method for the treatment of servicing assets and had measured for impairment on a quarterly basis through a discounted cash flow analysis prepared by an
independent third party using industry prepayment speeds. In connection with the sale of certain SBA and USDA loans the Company recorded servicing assets and elected to measure those assets at fair value in accordance with ASC 825-10. Significant
assumptions in the valuation of servicing assets include estimated loan repayment rates, the discount rate, and servicing costs, among others. Servicing assets are classified as Level 3 measurements due to the use of significant unobservable inputs,
as well as significant management judgment and estimation.
The Company also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. These assets include loans held for sale, foreclosed real estate and
repossessed assets and certain loans that are considered impaired per generally accepted accounting principles.
The following summarizes the fair value measurements of assets measured on a non-recurring basis:
|
|
|
|
|
Fair Value Measurements at the End of the
Reporting Period Using:
|
|
|
|
Total
|
|
|
Quoted Prices in
Active
Markets for
Identical Assets
(Level 1)
|
|
|
Active Markets
for Similar
Assets
(Level 2)
|
|
|
Unobservable
Inputs
(Level 3)
|
|
|
|
(in thousands)
|
|
September 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
6,367
|
|
|
$
|
—
|
|
|
$
|
6,367
|
|
|
$
|
—
|
|
Loans held for sale
|
|
|
45,789
|
|
|
|
—
|
|
|
|
45,789
|
|
|
|
—
|
|
Foreclosed real estate and repossessed assets
|
|
|
317
|
|
|
|
—
|
|
|
|
317
|
|
|
|
—
|
|
|
|
$
|
52,473
|
|
|
$
|
—
|
|
|
$
|
52,473
|
|
|
$
|
—
|
|
|
|
|
|
|
Fair Value Measurements at the End of the
Reporting Period Using:
|
|
|
|
Total
|
|
|
Quoted Prices in
Active
Markets for
Identical Assets
(Level 1)
|
|
|
Active Markets
for Similar
Assets
(Level 2)
|
|
|
Unobservable
Inputs
(Level 3)
|
|
|
|
(in thousands)
|
|
December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
5,592
|
|
|
$
|
—
|
|
|
$
|
5,592
|
|
|
$
|
—
|
|
Loans held for sale
|
|
|
49,050
|
|
|
|
—
|
|
|
|
49,050
|
|
|
|
—
|
|
Foreclosed real estate and repossessed assets
|
|
|
-
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
54,642
|
|
|
|
—
|
|
|
|
54,642
|
|
|
|
—
|
|
The Company records certain loans at fair value on a non-recurring basis. When a loan is considered impaired an allowance for a loan loss is established. The fair value measurement and disclosure
requirement applies to loans measured for impairment using the practical expedients method permitted by accounting guidance for impaired loans. Impaired loans are measured at an observable market price, if available or at the fair value of the
loan’s collateral, if the loan is collateral dependent. The fair value of the loan’s collateral is determined by appraisals or independent valuation. When the fair value of the loan’s collateral is based on an observable market price or current
appraised value, given the current real estate markets, the appraisals may contain a wide range of values and accordingly, the Company classifies the fair value of the impaired loans as a non-recurring valuation within Level 2 of the valuation
hierarchy. For loans in which impairment is determined based on the net present value of cash flows, the Company classifies these as a non-recurring valuation within Level 3 of the valuation hierarchy.
Foreclosed real estate and repossessed assets are carried at the lower of book value or fair value less estimated costs to sell. Fair value is based upon independent market prices obtained from
certified appraisers or the current listing price, if lower. When the fair value of the collateral is based on a current appraised value, the Company reports the fair value of the foreclosed collateral as non-recurring Level 2. When a current
appraised value is not available or if management determines the fair value of the collateral is further impaired, the Company reports the foreclosed collateral as non-recurring Level 3.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is
required to interpret market data to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
The estimated fair value of the Company’s financial instruments are as follows:
|
|
September 30, 2019
|
|
Carrying
Amount
|
|
|
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Financial assets:
|
|
(in thousands)
|
|
Cash and cash equivalents
|
|
$
|
56,347
|
|
|
$
|
56,347
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
56,347
|
|
FRB and FHLB stock
|
|
|
4,087
|
|
|
|
—
|
|
|
|
4,087
|
|
|
|
—
|
|
|
|
4,087
|
|
Investment securities
|
|
|
28,707
|
|
|
|
163
|
|
|
|
28,744
|
|
|
|
—
|
|
|
|
28,907
|
|
Loans, net
|
|
|
780,589
|
|
|
|
—
|
|
|
|
772,604
|
|
|
|
11,683
|
|
|
|
784,287
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
761,672
|
|
|
|
—
|
|
|
|
765,328
|
|
|
|
—
|
|
|
|
765,328
|
|
Other borrowings
|
|
|
45,000
|
|
|
|
—
|
|
|
|
45,260
|
|
|
|
—
|
|
|
|
45,260
|
|
|
|
December 31, 2018
|
|
Carrying
Amount
|
|
|
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Financial assets:
|
|
(in thousands)
|
|
Cash and cash equivalents
|
|
$
|
56,915
|
|
|
$
|
56,915
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
56,915
|
|
FRB and FHLB stock
|
|
|
4,087
|
|
|
|
—
|
|
|
|
4,087
|
|
|
|
—
|
|
|
|
4,087
|
|
Investment securities
|
|
|
32,353
|
|
|
|
121
|
|
|
|
32,079
|
|
|
|
—
|
|
|
|
32,200
|
|
Loans, net
|
|
|
759,552
|
|
|
|
—
|
|
|
|
735,377
|
|
|
|
17,846
|
|
|
|
753,223
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
716,006
|
|
|
|
—
|
|
|
|
712,900
|
|
|
|
—
|
|
|
|
712,900
|
|
Other borrowings
|
|
|
75,000
|
|
|
|
—
|
|
|
|
74,930
|
|
|
|
—
|
|
|
|
74,930
|
|
The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:
Cash and cash equivalents
The carrying amounts reported in the consolidated balance sheets for cash and due from banks approximate their fair value.
Money market investments
The carrying amounts reported in the consolidated balance sheets for money market investments approximate their fair value.
Investment securities
The fair value of Farmer Mac class A stock is based on quoted market prices and are categorized as Level 1 of the fair value hierarchy.
The fair value of other investment securities were determined based on matrix pricing. Matrix pricing is a mathematical technique that utilizes observable market inputs including, for example, yield
curves, credit ratings and prepayment speeds. Fair values determined using matrix pricing are generally categorized as Level 2 in the fair value hierarchy.
Federal Reserve Stock and Federal Home Loan Bank Stock
CWB is a member of the FHLB system and maintains an investment in capital stock of the FHLB. CWB also maintains an investment in capital stock of the Federal Reserve Bank (“FRB”). These investments
are carried at cost since no ready market exists for them, and they have no quoted market value. The Company conducts a periodic review and evaluation of our FHLB stock to determine if any impairment exists. The fair values have been categorized as
Level 2 in the fair value hierarchy.
Loans Held for Sale
Loans held for sale are carried at the lower of cost or fair value. The fair value of loans held for sale is based on what secondary markets are currently offering for portfolios with similar
characteristics or based on the agreed-upon sale price. As such, the Company classifies the fair value of loans held for sale as a non-recurring valuation within Level 2 of the fair value hierarchy. At September 30, 2019 and December 31, 2018, the
Company had loans held for sale with an aggregate carrying value of $44.8 million and $48.4 million respectively.
Loans
Fair value of loans is estimated by calculating loan level fair values for all loans utilizing a discounted cash flow methodology incorporating “exit pricing” analytics in conformance with ASU 2016-01.
All active loans were valued in the portfolio as of date of exercise, excluding any loans held for sale, and utilized assumptions such as probability of default, loss given default, recovery delay and prepayment assumptions. Fair value was
calculated in accordance with ASC 820. The fair value for loans is categorized as Level 2 in the fair value hierarchy. Fair values of impaired loans using a discounted cash flow method to measure impairment have been categorized as Level 3.
Deposits
The amount payable at demand at report date is used to estimate the fair value of demand and savings deposits. The estimated fair values of fixed-rate time deposits are determined by discounting the
cash flows of segments of deposits that have similar maturities and rates, utilizing a discount rate that approximates the prevailing rates offered to depositors as of the measurement date. The fair value measurement of deposit liabilities is
categorized as Level 2 in the fair value hierarchy.
Federal Home Loan Bank advances and other borrowings
The fair values of the Company’s borrowings are estimated using discounted cash flow analyses, based on the market rates for similar types of borrowing arrangements. The FHLB advances have been
categorized as Level 2 in the fair value hierarchy.
Off-balance sheet instruments
Fair values for the Company’s off-balance sheet instruments (lending commitments and standby letters of credit) are based on quoted fees currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the counterparties’ credit standing.
There were no standby letters of credit outstanding at September 30, 2019 or at December 31, 2018. Unfunded loan commitments at September 30, 2019 and December 31, 2018 were $63.0 million and $57.5
million, respectively.
Federal Home Loan Bank Advances – The Company through the bank has a blanket lien credit line with the FHLB. FHLB advances are collateralized in the aggregate
by CWB’s eligible loans and securities. Total FHLB advances were $45.0 million and $70.0 million at September 30, 2019 and December 31, 2018, respectively, borrowed at fixed rates. The Company also had $120.0 million of letters of credit with FHLB
at September 30, 2019 to secure public funds. At September 30, 2019, CWB had pledged to the FHLB $28.5 million of securities and $328.8 million of loans. At September 30, 2019, CWB had $71.5 million available for additional borrowing. At December
31, 2018, CWB had pledged to the FHLB $32.2 million of securities and $269.4 million of loans. At December 31, 2018, CWB had $35.9 million available for additional borrowing. Total FHLB interest expense for the three months ended September 30, 2019
and 2018 was $0.3 million. Total FHLB interest expense for the nine months ended September 30, 2019 and September 30, 2018 was $0.8 million and $0.7 million, respectively.
Federal Reserve Bank – The Company has established a credit line with the FRB. Advances are collateralized in the aggregate by eligible loans for up to 28
days. There were no outstanding FRB advances as of September 30, 2019 and December 31, 2018. Available borrowing capacity was $106.3 million and $103.8 million as of September 30, 2019 and December 31, 2018, respectively.
Federal Funds Purchased Lines – The Company has federal
funds borrowing lines at correspondent banks totaling $20.0 million. There was no amount outstanding as of September 30, 2019 and December 31, 2018.
Line of Credit - In July of 2017, the Company entered into a revolving line of credit agreement for up to $15.0 million. The Company must maintain a
compensating deposit with the lender of 25% of the outstanding principal balance in a non-interest-bearing deposit account, which was zero at September 30, 2019. In addition, the Company must maintain a minimum debt service coverage ratio of 1.65, a
minimum Tier 1 leverage ratio of 7.0% and a minimum total risked based capital ratio of 10.0%. The line of credit was modified to $10.0 million as of July 17, 2019. In September, the line of credit balance was paid down to zero.
The following table summarizes the changes in other comprehensive income (loss) by component, net of tax for the period indicated:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
Unrealized holding
gains (losses) on AFS
|
|
|
Unrealized holding
gains (losses) on AFS
|
|
|
|
(in thousands)
|
|
Beginning balance
|
|
$
|
(71
|
)
|
|
$
|
(111
|
)
|
|
$
|
(141
|
)
|
|
$
|
25
|
|
Other comprehensive income before reclassifications
|
|
|
4
|
|
|
|
(48
|
)
|
|
|
74
|
|
|
|
(125
|
)
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(59
|
)
|
Net current-period other comprehensive income
|
|
|
4
|
|
|
|
(48
|
)
|
|
|
74
|
|
|
|
(184
|
)
|
Ending Balance
|
|
$
|
(67
|
)
|
|
$
|
(159
|
)
|
|
$
|
(67
|
)
|
|
$
|
(159
|
)
|
The adoption of ASU-2018-02 during the first quarter of 2018 created a $6,000 reclassification within accumulated other comprehensive income to retained earnings. The Company also recorded a $53,000
adjustment during the first quarter of 2018 from AOCI to retained earnings on adoption of ASU 2016-01.
Common Stock
On February 28, 2019, the Board of Directors increased the common stock repurchase program to $4.5 million and extended the repurchase program until August 31, 2021. Under this program the Company has
repurchased 350,189 common stock shares for $3.0 million at an average price of $8.71 per share. There were 99,983 repurchased common stock shares under this program during the nine months ended September 30, 2019.
During the three and nine months ended September 30, 2019, the Company paid common stock dividends of $0.5 million and $1.4 million, respectively. During the three and nine months ended September 30,
2018, the Company paid common stock dividends of $0.4 and $1.2 million, respectively.
The Federal Reserve has adopted capital adequacy guidelines that are used to assess the adequacy of capital in supervising a bank holding company. In July 2013, the federal banking agencies approved
the final rules (“Final Rules”) to establish a new comprehensive regulatory capital framework with a phase-in period beginning January 1, 2015 and ending January 1, 2019. The Final Rules implement the third installment of the Basel Accords (“Basel
III”) regulatory capital reforms and changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) and substantially amend the regulatory risk-based capital rules applicable to the Company. Basel III redefines
the regulatory capital elements and minimum capital ratios, introduces regulatory capital buffers above those minimums, revises rules for calculating risk-weighted assets and adds a new component of Tier 1 capital called Common Equity Tier 1, which
includes common equity and retained earnings and excludes preferred equity.
The following tables illustrates the Bank’s regulatory ratios and the Federal Reserve’s current adequacy guidelines as of September 30, 2019 and December 31, 2018. The Federal Reserve’s fully phased-in
guidelines applicable in 2019 are also summarized.
|
|
Total Capital
(To Risk-
Weighted
Assets)
|
|
|
Tier 1 Capital
(To Risk-
Weighted
Assets)
|
|
|
Common
Equity
Tier 1
(To Risk-
Weighted
Assets)
|
|
|
Leverage
Ratio/Tier
1 Capital
(To
Average
Assets)
|
|
September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
CWB’s actual regulatory ratios
|
|
|
11.18
|
%
|
|
|
10.04
|
%
|
|
|
10.04
|
%
|
|
|
9.02
|
%
|
Minimum capital requirements
|
|
|
8.00
|
%
|
|
|
6.00
|
%
|
|
|
4.50
|
%
|
|
|
4.00
|
%
|
Well-capitalized requirements
|
|
|
10.50
|
%
|
|
|
8.50
|
%
|
|
|
7.00
|
%
|
|
|
5.00
|
%
|
Minimum capital requirements including fully-phased in capital conservation buffer
|
|
|
10.50
|
%
|
|
|
8.50
|
%
|
|
|
7.00
|
%
|
|
|
N/A
|
|
|
|
Total Capital
(To Risk-
Weighted
Assets)
|
|
|
Tier 1
Capital
(To Risk-
Weighted
Assets)
|
|
|
Common
Equity
Tier 1
(To Risk-
Weighted
Assets)
|
|
|
Leverage
Ratio/Tier
1 Capital
(To
Average
Assets)
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
CWB’s actual regulatory ratios
|
|
|
10.83
|
%
|
|
|
9.68
|
%
|
|
|
9.68
|
%
|
|
|
8.57
|
%
|
Minimum capital requirements
|
|
|
8.00
|
%
|
|
|
6.00
|
%
|
|
|
4.50
|
%
|
|
|
4.00
|
%
|
Well-capitalized requirements
|
|
|
10.00
|
%
|
|
|
8.00
|
%
|
|
|
6.50
|
%
|
|
|
5.00
|
%
|
Minimum capital requirements including fully-phased in capital conservation buffer
|
|
|
10.50
|
%
|
|
|
8.50
|
%
|
|
|
7.00
|
%
|
|
|
N/A
|
|
There are no conditions or events since September 30, 2019 that management believes have changed the Company’s or the Bank’s risk-based capital category.
The Company adopted ASU No, 2014-09 “Revenue from Contracts with Customers” (Topic 606) and all subsequent ASUs that modified Topic 606 on January 1, 2018. The implementation of the new standard did not have a
material impact on the measurement or recognition of revenue; as such, a cumulative effect adjustment to opening retained earnings was not deemed necessary. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606,
while prior period amounts were not adjusted and continue to be reported in accordance with our historic accounting under Topic 605.
Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain non-interest income streams such as servicing rights, financial guarantees
and certain credit card fees are also not in scope of the new guidance. Topic 606 is applicable to non-interest income streams such as deposit related fees, interchange fees and merchant income. However the recognition of these income streams did
not change upon the adoption of Topic 606. Substantially all of the Company’s revenue is generated from contracts with customers. Non-interest revenue streams in-scope of Topic 606 are discussed below.
Service Charges on Deposit Accounts
Service charges on deposit accounts consist of monthly service fees, check orders, account analysis fees, and other deposit account related fees. The Company’s performance obligation for monthly service fees and
account analysis fees is generally satisfied, and the related income recognized, over the period in which the service is provided. Check orders and other deposit related fees are largely transactional based and, therefore, the Company’s performance
obligation is satisfied and related income recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts.
Exchange Fees and Other Service Charges
Exchange fees and other service charges are primarily comprised of debit and credit card income, merchant services income, ATM fees and other service charges. Debit and credit card income is primarily comprised of
interchange fees earned whenever the Company’s debit and credit cards are processed through card payment networks such as Visa or MasterCard. Merchant services income is primarily fees charged to merchants to process their debit and credit card
transactions. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. Other service charges include fees from processing wire transfers, cashier’s checks and other services.
The Company’s performance obligation for exchange and other service charges are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following
month.
The following table presents non-interest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for periods indicated.
Non-interest income
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
In-scope of Topic 606:
|
|
(in thousands)
|
|
Service charges on deposit accounts
|
|
$
|
114
|
|
|
$
|
95
|
|
|
$
|
360
|
|
|
$
|
281
|
|
Exchange fees and other service charges
|
|
|
43
|
|
|
|
43
|
|
|
|
121
|
|
|
|
142
|
|
Non-interest income (in-scope of Topic 606)
|
|
|
157
|
|
|
|
138
|
|
|
|
481
|
|
|
|
423
|
|
Non-interest income (out-of-scope of Topic 606)
|
|
|
490
|
|
|
|
503
|
|
|
|
1,462
|
|
|
|
1,545
|
|
|
|
$
|
647
|
|
|
$
|
641
|
|
|
$
|
1,943
|
|
|
$
|
1,968
|
|
Contract Balances
A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A
contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. The Company’s non-interest income streams are largely based on
transactional activity. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and income is recognized. The Company does not typically enter into long-term revenue contracts with customers,
and therefore, does not experience significant contract balances. As of September 30, 2019 and December 31, 2018, the Company did not have any signficant contract balances.
Contract Acquisition Costs
In connection with the adoption of Topic 606, an entity is required to capitalize, and subsequently amortize into expense, certain incremental costs of obtaining a contract with a customer if these costs are expected
to be recovered. The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained. The Company utilizes the practical
expedient which allows entities to immediately expense contract acquisition costs when the asset that would have resulted from capitalizing these costs would have been amortized in one year or less. Upon adoption of Topic 606, the Company did not
capitalize any contract acquisition cost.
As described in Note 1 – Summary of Significant Accounting Policies – Recent Accounting Pronouncements, effective January 1, 2019, we adopted Topic 842. We have operating leases for office space. Our office leases
are typically for terms of between 2 and 10 years. Rents usually increase annually in accordance with defined rent steps or based on current year consumer price index adjustments. When renewal options exist, we generally do not deem them to be
reasonably certain to be exercised, and therefore the amounts are not recognized as part of our lease liability nor our right-of-use asset. As part of the adoption, we elected the package of practical expedients permitted under the transition
guidance, but not the hindsight practical expedient. As of September 30, 2019, the balance of the right-of-use assets was $6.7 million and the lease liabilities were $6.8 million. The right-of-use assets are included in other assets and the lease
liabilities are included in other liabilities in the accompanying Consolidated Balance Sheets.
|
|
Nine Months Ended September 30,
|
|
|
|
2019
|
|
|
2018
|
|
Lease cost:
|
|
(in thousands)
|
|
Operating lease cost
|
|
|
860
|
|
|
|
—
|
|
Sublease income
|
|
|
—
|
|
|
|
—
|
|
Total lease cost
|
|
|
860
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Other information
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
—
|
|
|
|
—
|
|
Operating cash flows from operating leases
|
|
|
844
|
|
|
|
—
|
|
Weighted average remaining lease term - operating leases
|
|
9.75 years
|
|
|
|
N/A
|
|
Weighted average discount rate - operating leases
|
|
|
3.22
|
%
|
|
|
N/A
|
|
Future minimum operating lease payments:
|
|
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(in thousands)
|
|
2019
|
|
$
|
273
|
|
|
$
|
—
|
|
2020
|
|
|
1,015
|
|
|
|
—
|
|
2021
|
|
|
884
|
|
|
|
—
|
|
2022
|
|
|
779
|
|
|
|
—
|
|
2023
|
|
|
705
|
|
|
|
—
|
|
Thereafter
|
|
|
4,004
|
|
|
|
—
|
|
Total future minimum lease payments
|
|
$
|
7,660
|
|
|
$
|
—
|
|
Less remaining imputed interest
|
|
|
1,122
|
|
|
|
—
|
|
Total lease liabilities
|
|
$
|
6,538
|
|
|
$
|
—
|
|