This MD&A and related financial data are presented to assist in understanding and assessing the financial position and results of operations of the Company and the Bank, as of
Critical accounting policies
Note 2 to the Company's consolidated financial statements (incorporated by reference in Item 8 of the Form 10-K) lists significant accounting policies used in the development and presentation of its financial statements. This discussion and analysis, the significant accounting policies, and other financial statement disclosures identify and address key variables and other qualitative and quantitative factors that are necessary for an understanding and evaluation of the Company and its results of operations. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of deferred tax assets, the determination of other-than-temporary impairment on securities, the determination of goodwill impairment and the fair value of financial instruments. Please refer to the discussion of the allowance for loan losses calculation under "Allowance for Loan Losses and Non-performing Assets" in the "Financial Condition" section. The deferred income taxes reflect temporary differences in the recognition of the revenue and expenses for tax reporting and financial statement purposes, principally because certain items are recognized in different periods for financial reporting and tax return purposes. Although realization is not assured, the Company believes it is more likely than not that all deferred tax assets will be realized. In estimating other-than-temporary impairment losses on securities, the Company considers 1) the length of time and extent to which the fair value has been less than cost and 2) the financial condition of the issuer. The Company does not have the intent to sell these securities and it is more likely than not that it will not sell the securities before recovery of their cost basis. The Company believes that any unrealized losses at
December 31, 2020and 2019 represent temporary impairment of the securities.
The fair value of financial instruments is based on market prices, when available. For cases where a quoted price is not available, fair values are based on observable market-based parameters, as well as unobservable parameters. Such an assessment is applied consistently over time.
In connection with the acquisition of
Delawarein 2016, we recorded goodwill in the amount of $1.6 million, representing the excess of amounts paid over the fair value of the net assets of the institution acquired at the date of acquisition. In connection with the acquisition of UpState.in July 2020, we recorded goodwill in the amount of $18.0 million, representing the excess of amounts paid over the fair value of the net assets of the institution acquired at the date of acquisition. . Goodwillis tested annually and deemed impaired when the carrying value of goodwill exceeds its implied fair value.
Total assets as of
December 31, 2020were $1.852 billioncompared to $1.231 billionas of year-end 2019, an increase of $621.3 million. The increase in assets was primarily attributable to the $438.8 millionof assets acquired from UpState. Loans Receivable As of December 31, 2020, loans receivable totaled $1.411 billioncompared to $924.6 millionas of year-end 2019, an increase of $486.2 million. Commercial loans, including commercial real estate, grew $376.9 million, while retail loans increased $109.3 millionduring the year. The growth includes the $413.5 millionof loans acquired from UpState and the $68.1 millionof Paycheck Protection Program ("PPP") loans originated prior to the merger date. The Bank's loan products include loans for personal and business use. Personal lending includes mortgage lending to finance principal residences and, to a lesser extent, second home dwellings. The Bank's loan products include fixed-rate mortgage products with terms up to 30 years which may be sold in the secondary market through the Federal National Mortgage Association ("Fannie Mae") or the FHLB, or held in the Bank's portfolio to the extent consistent with our asset/liability management strategies. Fixed-rate home equity loans are originated on terms up to 180 months. Home equity lines of credit tied to the prime rate are also offered. The Bank also offers indirect dealer financing of automobiles (new and used), boats, and recreational vehicles through a limited network of dealers in Northeast Pennsylvaniaand the Southern Tier of New York. At December 31, 2020, there were $147.2 millionof indirect loans in the 11
portfolio. In connection with the acquisition of UpState, the Company acquired approximately
$413.5 millionin loans, including $37.3 millionin residential real estate loans, $289.0 millionin commercial real estate loans, $92.0 millionin commercial, financial and agricultural loans, and $2.3 millionin consumer loans. As of December 31, 2020, the approximate outstanding balance of these acquired loans was $390.8 million. In connection with the acquisition of Delaware, the Company acquired approximately $116.7 millionin loans, including $68.7 millionin residential real estate loans, $22.5 millionin commercial real estate loans, $13.6 millionin commercial, financial and agricultural loans, $6.5 millionin consumer loans and $5.4in construction loans. As of December 31, 2020, the approximate outstanding balance of these acquired loans was $47.1 million. Commercial loans and commercial mortgages are provided to local small and mid-sized businesses at a variety of terms and rate structures. Commercial lending activities include lines of credit, revolving credit, term loans, mortgages, various forms of secured lending and a limited amount of letter of credit facilities. The rate structure may be fixed, immediately repricing tied to the prime rate or adjustable at set intervals. Also included in commercial loans are municipal finance lending in which the Bank has been active in recent years. Municipal lending includes both general obligations of local taxing authorities and revenue obligations of specific revenue producing projects such as sewer authorities and educational units. At December 31, 2020, the Bank had approximately $125.3 millionin loans on commercial rentals, as well as $117.8 millionof loans outstanding on residential rentals, which are its largest lending concentrations. As a qualified Small Business Administration("SBA") lender, the Bank originated $95.0 millionof PPP loans in loans in 2020, including loans originated by USNY Bankprior to the acquisition date. The Bank's construction lending has primarily involved lending for commercial construction projects and for single-family residences. All loans for the construction of speculative sale homes have a loan-to-value ratio of not more than 80%. For both commercial and single-family projects, loan proceeds are disbursed during the construction phase according to a draw schedule based on the stage of completion. Construction projects are inspected by contracted inspectors or bank personnel. Construction loans are underwritten on the basis of the estimated value of the property as completed. For commercial projects, the Bank typically also provides the permanent financing after the construction period, as a commercial mortgage. The Bank also, from time to time, originates loans secured by undeveloped land. Land loans granted to individuals have a term of up to five years. Land loans granted to developers may have an interest only period during development. The substantial majority of land loans have a loan-to-value ratio not exceeding 75%. The Bank has limited its exposure to land loans but may expand its lending on raw land, as market conditions allow, to qualified borrowers experienced in the development and sale of raw land. Loans involving construction financing and loans on raw land have a higher level of risk than loans for the purchase of existing homes since collateral values, land values, development costs and construction costs can only be estimated at the time the loan is approved. The Bank has sought to minimize its risk in construction lending and in lending for the purchase of raw land by offering such financing primarily to builders and developers to whom the Bank has loaned funds in the past and to persons who have previous experience in such projects. The Bank also limits construction lending and loans on raw land to its market area, with which management is familiar. Adjustable-rate loans decrease the risks associated with changes in interest rates by periodically repricing, but involve other risks because as interest rates increase, the underlying payments by the borrower increase, thus increasing the potential for payment default. At the same time, the marketability of the underlying collateral may be adversely affected by higher interest rates. Upward adjustment of the contractual interest rate may also be limited by the maximum periodic interest rate adjustment permitted in certain adjustable-rate mortgage loan documents, and, therefore is potentially limited in effectiveness during periods of rapidly rising interest rates. These risks have not had an adverse effect on the Bank. The Bank's adjustable-rate loan portfolio includes approximately $41.5 millionin loan participations indexed to the London Interbank Offered Rate ("LIBOR") which is expected to be phased out by June 30, 2023. The Bank anticipates that the terms of LIBOR-based loans, which have not matured prior to the phase-out of LIBOR will be negotiated to incorporate a to-be-determined substitute reference rate. The Bank must rely on the lead bank to renegotiate the terms of loans in which the Bank has a participation. There can be no assurance that the lead bank will be able to successfully renegotiate the loans in which the Bank has participations or that the substitute reference rate will perform as satisfactorily as LIBOR. Consumer lending, including indirect financing, provides benefits to the Bank's asset/liability management program by reducing the Bank's exposure to interest rate changes, due to their generally shorter terms. Such loans may entail additional credit risks compared to owner-occupied residential mortgage lending especially when unsecured or secured by collateral such as automobiles that depreciate rapidly. Commercial lending including real-estate related loans entail significant additional risks when compared with residential real estate and consumer lending. For example, commercial loans typically involve larger loan balances to single borrowers or groups of related borrowers. The payment experience on such loans typically is dependent on the successful operation of the project and these risks can be significantly impacted by the cash flow of the borrowers and market conditions for commercial office, retail, and warehouse 12
space. In periods of decreasing cash flows, the commercial borrower may permit a lapse in general maintenance of the property causing the value of the underlying collateral to deteriorate. The liquidation of commercial property is often more costly and may involve more time to sell than residential real estate. The Bank offsets such factors with requiring more owner equity, a lower loan to value ratio and by obtaining the personal guaranties of the principals. In addition, a majority of the Bank's commercial real estate portfolio is owner-occupied property. Commercial loans and leases are considered to have a higher degree of credit risk than secured real estate lending. The repayment of unsecured commercial business loans is wholly dependent on the success of the borrower's business, while secured commercial business loans may be secured by collateral that may not be readily marketable in the event of default. Municipal financing includes lending to local taxing authorities and revenue-producing projects. Such loans may constitute the general obligation of the taxing authority or may rely on a specific revenue source which is responsible for the repayment of the debt. General obligations are considered to carry a lower level of risk than other loan types since they are backed by the full faith and credit of the taxing authority. Revenue obligations are backed solely by revenues generated by the project financed and repayment may be affected by the success of the project. Due to the type and nature of the collateral, consumer lending generally involves more credit risk when compared with residential real estate lending. Consumer lending collections are typically dependent on the borrower's continuing financial stability, and thus, are more likely to be adversely affected by job loss, divorce, illness and personal bankruptcy. In most cases, any repossessed collateral for a defaulted consumer loan will not provide an adequate source of repayment of the outstanding loan balance. The remaining deficiency is usually turned over to a collection agency. There are additional risks associated with indirect lending since we must rely on the dealer to provide accurate information to us and accurate disclosures to the borrowers. These loans are principally done on a non-recourse basis. We seek to mitigate these risks by only dealing with dealers with whom we have a long-standing relationship. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") prohibits lenders from making residential mortgages unless the lender makes a reasonable and good faith determination that the borrower has a reasonable ability to repay the mortgage loan according to its terms. A borrower may recover statutory damages equal to all finance charges and fees paid within three years of a violation of the ability-to-repay rule and may raise a violation as a defense to foreclosure at any time. As authorized by the Dodd-Frank Act, the
Consumer Financial Protection Bureau("CFPB") has adopted regulations defining "qualified mortgages" that are presumed to comply with the Dodd-Frank Act's ability-to-repay rules. Under the CFPBregulations, qualified mortgages must satisfy the following criteria: (i) no negative amortization, interest-only payments, balloon payments, or term greater than 30 years; (ii) no points or fees in excess of 3% of the loan amount for loans over $100,000; (iii) borrower's income and assets are verified and documented; and (iv) the borrower's debt-to-income ratio generally may not exceed 43%. Qualified mortgages are conclusively presumed to comply with the ability-to-pay rule unless the mortgage is a "higher cost" mortgage, in which case the presumption is rebuttable. Under the Economic Growth, Regulatory Relief, and Consumer Protection Act ("EGRRCPA"), enacted in 2018, residential mortgages originated for portfolio by insured depository institutions, like the Bank, with less than $10 billionin total consolidated assets will be treated as qualified mortgages; provided that the mortgage terms do not include interest-only payments or negative amortization, total points and fees do not exceed 3% of the loan amount, prepayment penalties are not in excess of those permitted for qualified mortgages under Regulation Z and the lender has considered and documented the debt, income and financial resources of the borrower. The Bank has established various lending limits for its officers and also maintains an Officer Loan Committee to approve higher loan amounts. The Officer Loan Committee is comprised of the President and Chief Executive Officer, Chief Lending Officerand other Bank officers. The Officer Loan Committee has the authority to approve all loans up to set limits based on the type of loan and the collateral. Requests in excess of these limits must be submitted to the Directors' Loan Committee or Board of Directors for approval. Additionally, the President and Chief Executive Officer, and the Chief Lending Officer and other officers have the authority to approve secured and unsecured loans up to amounts approved by the Board of Directors and maintained in the Bank's Loan Policy. Notwithstanding individual lending authority, certain loan policy exceptions must be submitted to the Officer Loan Committee for approval.
Risk insurance coverage is required on all properties securing loans made by the Bank. Flood insurance is also required, if applicable.
Loan applicants are notified of the credit decision by letter. If the loan is approved, the loan commitment specifies the terms and conditions of the proposed loan including the amount, interest rate, amortization term, a brief description of the required collateral, and the required insurance coverage. The borrower must provide proof of fire, flood (if applicable) and casualty insurance on the property serving as collateral and title insurance, and these applicable insurances must be maintained during the full term of the loan. 13
Below are selected data relating to the composition of the Bank’s loan portfolio on the dates indicated.
As of December 31, 2020 2019 2018 2017 2016 $ % $ % $ % $ % $ % (dollars in thousands) Real Estate-Residential
$ 263,12718.6 $ 229,78124.9 $ 235,52327.7 $ 235,75930.8 $ 237,17733.2 Real Estate-Commercial 579,104 41.0 391,327 42.3 374,790 44.1 342,934 44.9 320,187 44.8 Real Estate-Agricultural 66,334 4.7 - - - - - - - - Real Estate-Construction 21,005 1.5 17,732 1.9 17,445 2 17,228 2.3 19,709 2.8 Commercial loans 283,741 20.1 134,150 14.5 110,542 13 97,461 12.7 85,508 12 Other agricultural loans 40,929 2.9 - - - - - - - - Consumer loans 158,049 11.2 151,686 16.4 112,002
13.2 70 953 9.3 51 524 7.2
1,412,289 100.0 924,676 100.0 850,302 100.0 764,335 100.0 714,105 100.0 Deferred fees, net (1,557) (95) (120) (243) (216) Allowance for loan losses (13,150) (8,509) (8,452) (7,634) (6,463) Loans receivable, net
$ 1,397,582 $ 916,072 $ 841,730 $ 756,458 $ 707,426The following table sets forth maturities and interest rate sensitivity for selected categories of loans as of December 31, 2020. Scheduled repayments are reported in the maturity category in which payment is due. Demand loans, loans having no stated schedule of repayments and no stated maturity and overdrafts are reported as due in one year or less. One Year After One to Over or Less Five Years Five Years Total (dollars in thousands) Commercial loans $ 35,679 $ 149,620 $ 98,442 $ 283,741Real Estate - Construction 3,042 1,433 16,530 21,005 Total $ 38,721 $ 151,053 $ 114,972 $ 304,746Loans with fixed rates $ 11,952 $ 139,470 $ 67,409 $ 218,831Loans with floating rates 30,837 17,770 37,308 85,915 Total $ 42,789 $ 157,240 $ 104,717 $ 304,746
allowance for loan losses
The allowance for loan losses totaled
$13,150,000as of December 31, 2020and represented 0.93% of total loans receivable compared to $8,509,000and 0.92% of total loans as of year-end 2019. Net charge-offs for 2020 totaled $809,000and represented 0.07% of average loans compared to $1,193,000and 0.13% of average loans in 2019. Management assesses the adequacy of the allowance for loan losses on a quarterly basis. The process includes a review of the risks inherent in the loan portfolio. It also includes an analysis of impaired loans and a historical review of losses. Other factors considered in the analysis include: concentrations of credit in specific industries in the commercial portfolio, the local and regional economic conditions, trends in delinquencies, internal risk rating classifications, total loan growth in the portfolio and fluctuations in large balance credits. During 2020, the Company added qualitative factors for Covid-19 related industries and for loans which have received deferral of payment due to Covid-19 factors. For loans acquired, including those that are not deemed impaired at acquisition, credit discounts representing the principal losses expected over the life of the loan are a component of the initial fair value. Subsequent to the purchase date, the methods utilized to estimate the required allowance for credit losses for these loans is similar to originated loans; however, the Company records a provision for loan losses only when the required allowance exceeds any remaining credit discounts. The Company has limited exposure to higher-risk loans. The Company does not originate option ARM products, interest only loans, sub-prime loans or loans with initial teaser rates in its residential real estate portfolio. The Company has $9.7 millionof junior lien home equity loans. For 2020, there were no charge-offs for this portfolio. As of December 31, 2020, the Company considered its concentration of credit risk profile to be acceptable. The highest concentrations are in commercial rentals and the residential rentals categories. During 2020, the Company recognized an increase in its adversely classified loans due primarily to loan balances acquired from UpState. The loans were accounted for in accordance with ASC 310-30, and were appropriately recorded at fair value after recording a specific loan fair value adjustment of $6,937,000. The Company assesses a loss factor against the classified loans, which is 14
based on prior experience. Classified loans that are considered impaired are measured on a loan-by-loan basis. The Company values such loans by either the present value of expected cash flows, the loan's obtainable market price or the fair value of collateral if the loan is collateral dependent. At
December 31, 2020, the recorded investment in impaired loans, not requiring an allowance for loan losses, was $2,662,000(net of charge-offs against the allowance for loan losses of $652,000). The recorded investment in impaired loans, requiring an allowance for loan losses, was $0. At December 31, 2019, the recorded investment in impaired loans not requiring an allowance for loan losses, was $143,000(net of charge-offs of $251,000). The recorded investment in impaired loans, requiring an allowance for loan losses, was $2,001,000(net of charge-offs of $0).
Following its analysis, after applying these factors, management considers the provision from
The following table presents information relating to the Bank’s allowance for loan losses for the years indicated:
As of December 31, 2020 2019 2018 2017 2016 (dollars in thousands) Total loans receivable net of deferred fees
$ 1,410,732 $ 924,581 $ 850,182 $ 764,092$
Average loans receivable 1,177,773 885,742 800,957 737,765 626,907 Allowance balance at beginning of period
$ 8,509 $ 8,452 $ 7,634 $ 6,463 $ 7,298Charge-offs: Commercial and agricultural (18) (911) (246) - (15) Real Estate - residential, commercial, agricultural and construction (493) (102) (480) (1,013) (2,834) Consumer (431) (420) (263) (207) (102) Total (942) (1,433) (989) (1,220) (2,951) Recoveries: Commercial and agricultural 44 173 8 - - Real Estate - residential, commercial, agricultural and construction 45 24 42 165 21 Consumer 44 43 32 26 45 Total 133 240 82 191 66 Net Charge-offs (809) (1,193) (907) (1,029) (2,885) Provision Expense 5,450 1,250 1,725 2,200 2,050 Allowance balance at end of period $ 13,150 $ 8,509 $ 8,452 $ 7,634 $ 6,463Allowance for loan losses as a percent of total loans outstanding 0.93 % 0.92 % 0.99 % 1.00 % 0.91 % Net loans charged off as a percent of average loans outstanding 0.07 % 0.13 % 0.11 % 0.14 % 0.46 % 15
The following table sets forth the allocation of the Bank's allowance for loan losses by loan category and the percent of loans in each category to total loans at the date indicated. The allocation is made for analytical purposes and is not necessarily indicative of the categories in which credit losses may occur. The total allowance is available to absorb losses from any type of loan. As of December 31, 2020 2019 2018 2017 2016 % of % of % of % of % of Loans Loans Loans Loans Loans to Total to Total to Total to Total to Total Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans (dollars in thousands) Real estate - residential
$ 1,96018.6 % $ 1,55224.9 % $ 1,32827.7 % $ 1,27230.8 % $ 1,09233.2 % Real estate - commercial 8,004 41.0 4,687 42.3 5,455 44.1 5,265 44.9 4,623 44.8 Real estate - agricultural - 4.7 - - - - - - - - Real estate - construction 150 1.5 95 1.9 93
2 90 2.3 78 2.8 Commercial 1,360 20.1 949 14.5 712
13 463 12.7 307 12 Other agricultural loans - 2.9 - - - - - - - -
Consumer 1,676 11.2 1,226 16.4 864 13.2 544 9.3 363 7.2 Total
$ 7,634100 % $ 6,463100 % As a result of the acquisition of UpState, the Company added $107.3 millionof agricultural loans to the loan portfolio. These loans are included in the outstanding balance information, but do not require an allocation of the allowance for loan losses since they were recorded at fair value in accordance with ASC 310-20 and ASC 310-30. Additional information about the allowance for loan losses at December 31, 2020is presented under "Item 1. Business" of this Annual Report on Form 10-K, as well as in Note 2 and Note 4 to the audited consolidated financial statements.
Non-performing assets consist of non-performing loans and real estate owned as a result of foreclosure, which is held for sale. Loans are placed on non-accrual status when management believes that a borrower's financial condition is such that collection of interest is doubtful. Commercial and real estate related loans are generally placed on non-accrual when interest is 90 days delinquent. When loans are placed on non-accrual, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the allowance for loan losses. As of
December 31, 2020, non-performing loans totaled $3,391,000and represented 0.24% of total loans compared to $795,000or 0.09% as of December 31, 2019. The increase in the level of non-performing loans reflects the addition of $939,000of loans acquired from UpState that experienced a deterioration in credit quality subsequent to the acquisition date. Based on management's analysis, the Company added $5,450,000to the allowance for loan losses for the year ended December 31, 2020compared to $1,250,000in 2019. Foreclosed real estate owned totaled $965,000as of December 31, 2020and $1,556,000as of December 31, 2019. During 2020, one property with a carrying value of $591,000was disposed of through a sale. The Company recorded a net gain of $12,000from the sale of the property. 16
The following table sets forth information regarding non-accrual loans, foreclosed real estate owned and loans 90 days or more delinquent on which the Bank was accruing interest at the dates indicated. At
December 31, 2020, 2019, 2018, 2017, and 2016, the Company also had $75,000, $99,000, $1.1 million, $1.1 million, and $1.5 million, respectively, in troubled debt restructurings. For the year ended December 31, 2020, interest income that would have been recorded on loans accounted for on a non-accrual basis under the original terms of such loans was $727,000of which $148,000was recognized. For those loans classified as troubled debt restructurings, interest income that would have been recorded under the original terms of the loans for fiscal year 2020 was $16,000of which $0was recognized. Of those loans classified as troubled debt restructurings at December 31, 2020, one loan with a balance of $75,000is included in non-accrual loans. As of December 31, 2020 2019 2018 2017 2016 (dollars in thousands) Non-accrual loans: Real Estate loans Residential $ 571 $ 567 $ 798 $ 1,706 $ 1,136Commercial 1,674 99 342 277 762 Agricultural 676 - - - - Construction - - - - 28 Commercial 22 50 - - - Other agricultural loans 263 - - - - Consumer loans 185 79 - - - Total non-accrual loans* 3,391 795 1,140 1,983 1,926 Accruing loans which are contractually past-due 90 days or more - - - 496 1 Total non-performing loans 3,391 795 1,140 2,479 1,927 Foreclosed real estate 965 1,556 1,115 1,661 5,302 Total non-performing assets $ 4,356 $ 2,351 $ 2,255 $ 4,140 $ 7,229Purchased credit impaired loans (a) $ 9,281 $ 696$ - $ - $ - Allowance for loan losses $ 13,150 $ 8,509 $ 8,452 $ 7,634 $ 6,463Coverage of non-performing loans (a) (b) 388 % 1,070 % 741 % 308 % 335 % Total non-performing loans to total loans 0.24 % 0.09 % 0.13 % 0.32 % 0.27 % Total non-performing loans to total assets 0.18 % 0.06 % 0.1 % 0.22 % 0.17 % Total non-performing assets to total assets 0.24 % 0.19 % 0.19 % 0.37 % 0.65 % *Includes non-accrual TDRs of $75,000, $99,000, $110,000, $144,000, and $477,000as of December 31, 2020, 2019, 2018, 2017 and 2016, respectively. The Company also had $0, $0, $977,000, $996,000, and $1.0 millionin accruing TDRs, respectively, on those dates. (a) Purchased impaired loans are loans obtained in acquisition transactions that as of the acquisition date were specifically identified as displaying signs of credit deterioration and for which the Company did not expect to collect all contractually required principal and interest payments. Those loans were impaired at the date of acquisition, were recorded at estimated fair value and were generally delinquent in payments. The Company estimated the timing and amount of expected cash flows in excess of the estimated fair value and established an accretable discount on the acquisition date relating to these impaired loans that is recognized in interest income.
(b) For loans acquired with specific evidence of deterioration in credit quality, a specific credit fair value adjustment is established at the acquisition date and will not impact the allowance for loan losses. unless the actual losses exceed the established fair value adjustment.
The recorded investment in impaired loans, not requiring an allowance for loan losses was
$2,662,000(net of a charge-off against the allowance for loan losses of $652,000) and $143,000(net of a charge-off against the allocation for loan losses of $251,000) at December 31, 2020and 2019, respectively. The recorded investment in impaired loans, requiring an allowance for loan losses was $0at December 31, 2020. The recorded investment in impaired loans, requiring an allowance for loan losses was $2.0 million(net of a charge-off against the allowance for loan losses of $0) at December 31, 2019. The specific reserve related to impaired loans was $0for 2020 and $417,000for 2019. For the years ended December 31, 2020and 2019, the average recorded investment in these impaired loans was $2,121,000and $1,036,000, respectively, and the interest income recognized on these impaired loans was $14,000and $233,000, respectively. In connection with the UpState acquisition, the Company acquired loans with deteriorated credit quality with an unpaid balance of $15.4 million, which are being carried at their fair value of $8,616,000. In connection with prior acquisitions, the Company acquired loans with deteriorated credit quality with an unpaid balance of $2.6 million, which are being carried at their fair value of $665,000. 17
December 31, 2020, there were no loans not previously disclosed in the above table, where known information about possible credit problems of borrowers causes management to have serious doubts as to the ability of such borrowers to comply with the present loan repayment terms. Troubled debt restructured loans are those loans whose terms have been renegotiated to provide a reduction or deferral of principal or interest as a result of financial difficulties experienced by the borrower, who could not obtain comparable terms from alternate financing sources. During 2020, there were no new loan relationships identified as troubled debt restructures. Management has instituted an internal loan review program, whereby weaker credits are classified as special mention, substandard, doubtful or loss. When a loan is classified as substandard or doubtful, management is required to establish a valuation reserve for loan losses in an amount that is deemed prudent. When management classifies a loan as a loss asset, a reserve equal to 100% of the loan balance is required to be established or the loan is to be charged-off. The allowance for loan losses is composed of an allowance for both inherent risk associated with lending activities and particular problem assets. An asset is considered substandard if it is inadequately protected by the paying capacity and net worth of the obligor or the collateral pledged, if any. Substandard assets include those characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all of the weaknesses inherent in those classified substandard, with the added characteristic that the weaknesses present make collection or liquidation in full, highly questionable and improbable, on the basis of currently existing facts, conditions, and values. Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets without the establishment of a loss reserve is not warranted. Assets which do not currently expose the insured institution to a sufficient degree of risk to warrant classification in one of the aforementioned categories but possess credit deficiencies or potential weaknesses are required to be designated special mention by management. Management's evaluation of the classification of assets and the adequacy of the allowance for loan losses is reviewed by the Board on a regular basis and by the regulatory agencies as part of their examination process.
The following table shows, on the dates indicated, the assets classified by the Bank in accordance with its asset classification system:
As of December 31, 2020 2019 2018 2017 2016 (In thousands) Special mention
$ 14,680 $ 12,516 $ 8,000 $ 9,696 $ 6,317Substandard 13,021 3,157 6,620 5,536 4,346 Doubtful - - - - - Loss - - - - - Total $ 27,701 $ 16,319 $ 14,620 $ 15,232 $ 10,663During the twelve-months ended December 31, 2020, over 1,200 of our loan customers had requested loan payment deferrals or payments of interest only on loans totaling $274.2 million. In accordance with interagency guidance issued in March 2020, these short-term deferrals are not considered troubled debt restructurings ("TDRs") unless the borrower was previously experiencing financial difficulty.
Additional information on non-performing assets at
The securities portfolio consists of
U.S. Governmentagencies, mortgage-backed securities issued by government sponsored entities, municipal obligations, and corporate debt. The Company classifies its investments into two categories: held to maturity (HTM) and available for sale (AFS). The Company does not have trading securities. Securities classified as HTM are those in which the Company has the ability and the intent to hold the security until contractual maturity. As of December 31, 2020, there were no securities carried in the HTM portfolio. Securities classified as AFS are eligible to be sold due to liquidity needs or interest rate risk management. These securities are adjusted to and carried at their fair value with any unrealized gains or losses recorded net of deferred income taxes, as an adjustment to capital and reported in the equity section of the Consolidated Balance Sheet as other comprehensive income. As of December 31, 2020, $226.6 millionof securities were so classified and carried at their fair value, with unrealized gains, net of tax, of $4,096,000included in accumulated other comprehensive income as a component of stockholders' equity. The Company considers its investment portfolio a source of earnings and liquidity. Investment securities may also be pledged to secure public deposits and customer repurchase agreements. As of December 31, 2020, the average life of the portfolio was 3.5 years. The Company has maintained a relatively short average life in the portfolio in order to generate cash flow to support loan growth and maintain liquidity levels. Purchases for the year 18
The carrying value of the securities portfolio at
December 31is as follows: 2020 2019 (dollars in thousands) Carrying % of Carrying % of Value portfolio Value portfolio
- % States and political subdivisions 73,091 32.3 % 71,305 33.9 % Corporate obligations 3,032 1.3 % 4,100 2.0 % Mortgage-backed securities - government sponsored entities 146,494 64.6 % 134,800 64.1 % Total
$ 226,586100.0 % $ 210,205100.0 %
The amortized cost and fair values of the securities, all of which are classified as available for sale, on the dates indicated are as follows:
As of December 31, 2020 2019 2018 (in thousands)
3,019 4,097 8,896
Mortgage Backed Securities – Government Sponsored Entities 143,712 135,646 142,197
$ 221,401 $ 209,758 $ 250,311
Fair value of securities
The following table sets forth certain information regarding carrying values, weighted average yields, and maturities of the Company's securities portfolio as of
December 31, 2020. Yields on tax-exempt securities are stated on a fully taxable equivalent basis using a Federal tax rate of 21%. Actual maturities may differ from contractual maturities as certain instruments have call features which allow prepayment of obligations. Maturity on the mortgage-backed securities is based upon contractual terms, the average life may differ as a result of changes in cash flow. After One After Five Total Investment One Year or Less Through Five Years Through Ten Years After Ten Years Securities Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Value Yield Value Yield Value Yield Value Yield Value Yield (dollars in thousands) U.S. Governmentagencies $ - - % $ - - % $ 3,9691.03 % $ - - % $ 3,9691.03 % State and political subdivision 2,500 2.93 5,510 3.00 19,707 2.74 45,374 3.03 73,091 2.95 Corporate obligations 3,032 2.04 - - - - - - 3,032 2.04 Mortgage-backed securities-government sponsored entities - - - - - - 146,494 1.52 146,494 1.52 Total Investment Securities $ 5,5322.44 % $ 5,5103.00 % $ 23,6762.45 % $ 191,8681.88 % $ 226,5861.98 % The portfolio had no adjustable-rate instruments as of December 31, 2020and 2019. The portfolio contained no private label mortgage-backed securities, collateralized debt obligations (CDOs), or trust preferred securities, and no off-balance sheet derivatives were in use. As of December 31, 2020, the portfolio did not contain any step-up bonds. The mortgage-backed securities portfolio includes pass-through bonds and collateralized mortgage obligations (CMO's) issued by Fannie Mae, Freddie Mac and the Government National Mortgage Association(GNMA). The Company evaluates the securities in its portfolio for other-than-temporary-impairment (OTTI) as fair value declines below cost. In estimating OTTI, management considers (1) the length of time and the extent of the decline in fair value and (2) the financial 19
condition and near-term prospects of the issuer. As of
December 31, 2020, the Company held six investment securities in a loss position, which had a combined unrealized loss of $56,000. Management believes that these losses are principally due to changes in interest rates and represent temporary impairment as the Company does not have the intent to sell these securities and it is more likely than not that it will not have to sell the securities before recovery of their cost basis. No impairment charges were recognized in 2020 or 2019.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company uses fair value measurements to record fair value adjustments to certain financial instruments and determine fair value disclosures (see Note 16 of Notes to the Consolidated Financial Statements). Approximately
$226.6 million, which represents 12.2% of total assets at December 31, 2020, consisted of financial instruments recorded at fair value on a recurring basis. This amount consists entirely of the Company's available for sale securities portfolio. The Company uses valuation methodologies involving market-based or market-derived information, collectively Level 1 and 2 measurements, to measure fair value. There were no transfers into or out of Level 3 for any instruments for the years ended December 31, 2020and 2019. The Company utilizes a third party provider to perform valuations of the investments. Methods used to perform the valuations include: pricing models that vary based on asset class, available trade and bid information, actual transacted prices, and proprietary models for valuations of state and municipal obligations. In addition, the Company has a sample of fixed-income securities valued by another independent source. The Company does not adjust values received from its providers, unless it is evident that fair value measurement is not consistent with the Company's policies. The Company also utilizes a third party provider to provide the fair value of certain loan servicing rights. Fair value for the purpose of this measurement is defined as the amount at which the asset could be exchanged in a current transaction between willing parties, other than in a forced liquidation. The fair value of mortgage servicing rights as of December 31, 2020and 2019 was $476,000and $226,000, respectively.
The Bank provides a full range of deposit products to its retail and business customers. These include interest-bearing and noninterest bearing transaction accounts, statement savings and money market accounts. Certificate of deposit terms range up to five years for retail instruments. As of
December 31, 2020, the Bank has $18,845,000of brokered deposits obtained through internet listing services, and $10,292,000of broker deposits which were secured through Cede & Co.All of these brokered deposits were acquired from UpState. The Bank has no current brokered deposits through its participation in the Certificate of Deposit Account Registry Service ("CDARS"). The Bank participates in the Jumbo CD ( $100,000and over) markets with local municipalities and school districts which are typically priced on a competitive bid basis. Other services the Bank offers its customers include cash management, direct deposit, Remote Deposit Capture, mobile deposit capture, PopMoney® mobile payments and Automated Clearing House (ACH) activity. The Bank operates thirty-one automated teller machines and is affiliated with the MoneyPass® ATM network. Internet banking including bill-pay is offered through the website at www.waynebank.com. Other services, such as eStatements and mobile banking are available online. The following table sets forth information regarding deposit categories of the Company. Years Ended December 31, 2020 2019 2018 Average Average Average Balance Rate Paid Balance Rate Paid
Balance Rate Paid (dollars in thousands) Noninterest-bearing demand
$ 297,175- % $ 213,165- % $ 208,222- % Interest-bearing demand 123,172 0.13 95,333 0.16 91,782 0.10 Money Market 185,214 0.28 134,579 0.38 142,147 0.26 Savings 200,042 0.06 170,167 0.06 178,203 0.05 Time 457,844 1.27 356,282 1.79 322,768 1.27
$ 1,263,447 $ 969,526 $ 943,12220
The following table indicates the amount of term deposits of the Bank of
or more depending on the time remaining until maturity from
Amount Maturity Period (in thousands) Within three months $ 80,453 Over three through six months 82,906 Over six through twelve months 87,609 Over twelve months 106,627
$ 357,595Total deposits as of December 31, 2020, totaled $1.535 billion, an increase of $577.9 millionfrom year-end 2019. Deposit growth included $411.4 millionof deposits acquired from UpState. Organic growth included $120.0 millionin non-maturity interest-bearing deposits, and $75.0 millionin non-interest bearing demand deposits. The large increases recorded in 2020 reflect the cash inflow from economic stimulus related to the Covid-19 pandemic. Time deposits decreased $31.3 million, net of acquired deposits. Time deposits over $250,000, which consist principally of school district funds, other public funds and short-term deposits from large commercial customers with maturities generally less than one year, totaled $205,376,000 millionas of December 31, 2020, compared to $133.9 millionat year-end 2019. These deposits are subject to competitive bid and the Company bases its bid on current interest rates, loan demand, investment portfolio structure and the relative cost of other funding sources. As of December 31, 2020, non-interest bearing demand deposits totaled $359.6 millioncompared to $207.3 millionat year-end 2019. Cash management accounts in the form of securities sold under agreements to repurchase included in short-term borrowings, totaled $63.3 millionat year end 2020 compared to $30.5 millionas of December 31, 2019. These balances represent commercial and municipal customers' funds invested in overnight securities. The Company considers these accounts as a source of core funding.
The following table sets forth information concerning the Bank's short-term borrowings (those with original maturities within one year) which consist principally of securities sold under agreements to repurchase, short-term fixed-rate FHLB advances and federal funds purchased during the periods indicated. Securities sold under repurchase agreements consist of commercial and municipal customers' funds invested in overnight securities for cash management purposes. Years Ended December 31, 2020 2019 2018 (dollars in thousands) Short-term borrowings: Average balance during the year
$ 57,014 $ 48,945 $ 41,963Maximum month-end balance during the year $ 69,294 $ 62,256 $ 53,046Average interest rate during the year 0.55 % 0.96 % 0.77 % Total short-term borrowings at end of the year $ 63,303 $ 62,256 $ 53,046Weighted average interest rate at the end of the year 0.43 % 1.30 % 1.27 % Other borrowings consist of long-term borrowings with the Federal Home Loan Bank of Pittsburgh. These borrowings, which are more fully described in Note 7 of Notes to the Consolidated Financial Statements, totaled $42.5 millionand $56.4 millionas of December 31, 2020and 2019, respectively.
RESULTS OF OPERATIONS
Net income for the Company for the year ended
December 31, 2020was $15,080,000, which was $865,000higher than the $14,215,000earned in 2019. Earnings per share on a fully diluted basis were $2.09for 2020 compared to $2.25in 2019. The return on average assets for the year was 0.97% with a return on average equity of 9.06%, compared to 1.18% and 10.83%, respectively, in 2019. Net interest income increased $11,870,000, which offset a $4,200,000increase in the provision for loan losses and the $7,129,000increase in other expenses. The variances reflect the results of the acquisition of UpState. Net interest income (fully taxable equivalent, or fte) totaled $51,359,000, which was an increase of $11,747,000from the 2019 total. Average loans outstanding increased $292.0 millionin 2020, which resulted in an increase in fte interest income of $12,197,000. Total average securities decreased $29.5 millionin 2020 as proceeds were utilized to fund loan growth, resulting in a $1,140,000decrease in fte interest income on securities. Average interest-bearing deposits increased $209.9 million, but decreasing interest rates 21
on certificates of deposit resulted in a
$529,000reduction in interest expense. The cost of borrowed funds decreased $170,000compared to the prior year due primarily to a lower cost of borrowings. The resulting fte net interest spread increased eight basis points to 3.36% in 2020 as a 20 basis point reduction in the yield earned was offset by a 28 basis point decrease in the cost of funds. All variances include the impact from the acquisition of UpState. Loans receivable increased $486.2 millionfrom the prior year-end. Loan growth included a $376.9 millionincrease in commercial loans, including a $189.1 millionincrease in commercial, financial and agriculture loans, and a $187.8 millionincrease in commercial real estate loans. Retail loans increased $109.3 millionin 2020 due to a $66.3 millionincrease in real estate loans secured by farmland and a $6.0 millionincrease in indirect auto and marine financing. Residential mortgage loans and construction loans also increased $36.6 million, net. Total non-performing loans increased from $795,000, or 0.09% of total loans at the end of 2019, to $3,391,000, or 0.24% of total loans on December 31, 2020. Net charge-offs totaled $809,000in 2020, which was a decrease from the $1,193,000recorded in 2019. Based on management's analysis, the Company determined that it would be appropriate to allocate $5,450,000to the allowance for loan losses in 2020, which resulted in an increase in the ratio of the allowance for loan losses to total loans outstanding of 0.93% in 2020 compared to 0.92% on December 31, 2019. The allowance for loan losses represented 388% of total non-performing loans on December 31, 2020compared to 1,070% as of December 31, 2019. Total other income for the year ended December 31, 2020totaled $7,780,000compared to $6,778,000in the prior year, an increase of $1,002,000. Gains on the sale of loans and investment securities increased $175,000in the aggregate, while service charges and fees increased $665,000. The increase reflects the benefits derived from the acquisition of UpState. Other expenses were $34,440,000in 2020 compared to $27,311,000for the similar period in 2019, an increase of $7,129,000. Salaries and benefits costs increased $2,466,000in 2020, while data processing costs increased $588,000. Occupancy and equipment costs rose $429,000, and merger related costs increase $2,049,000. All other operating expenses increased $1,597,000, net. The increases reflect the cost of operating four new community offices acquired from UpState. Income tax expense for the year totaled $3,286,000, which was an increase of $678,000from the prior year. The effective tax rate in 2020 was 17.9% compared to 15.5% in 2019.
The following table shows the change in net income (in thousands):
Net income 2019
$ 14,215Net interest income 11,870 Provision for loan losses (4,200)
Net capital gains on disposals of loans and securities 175 Other income
827 Salaries and employee benefits (2,466) Occupancy, furniture and equipment (429) Data processing and related operations (588) Merger related expenses (2,049) Other expenses (1,597) Income tax expense (678) Net income 2020
$ 15,080NET INTEREST INCOME Net interest income is the most significant source of revenue for the Company and represented 86.6% of total revenue for the year ended December 31, 2020. Net interest income (fte) totaled $51,359,000for the year ended December 31, 2020compared to $39,612,000for 2019, an increase of $11,747,000. The resulting fte net interest spread and net interest margin were 3.36% and 3.55%, respectively, in 2020 compared to 3.28% and 3.53%, respectively, in 2019. Interest income (fte) for the year ended December 31, 2020totaled $59,338,000compared to $48,290,000in 2019. The fte yield on average earning assets was 4.10%, decreasing 20 basis points from the 4.30% reported last year. The tax-equivalent yield on total loans decreased 15 basis points to 4.63% in 2020, while average loans outstanding increased $292.0 million, resulting in an increase in interest income (fte) from loans of $12.2 million. The yield on securities decreased 19 basis points in 2020 due primarily to lower yields on new purchases. Average securities outstanding decreased $29.5 millionas cash flow from the portfolio was utilized to fund loan growth, and interest income (fte) from the portfolio decreased $1.1 million. Interest expense was $7,979,000in 2020 which resulted in an average cost of interest-bearing liabilities of 0.74% compared to total interest expense of $8,678,000in 2019 with an average cost of 1.02%. Total interest-bearing deposits cost was 0.68% in 2020, which was a decrease of 26 basis points over the prior year. The decrease in cost was due primarily to time certificates of deposit that repriced to current market rates upon maturity, resulting in a decrease in the interest rate paid from 1.79% in 2019 to 1.27% in 2020. Borrowing costs also decreased in 2020, reflecting the lower interest rate environment. 22
PROVISION FOR LOAN LOSSES
The provision for loan losses was
$5,450,000in 2020 compared to $1,250,000in 2019. The increased provision for loan losses recorded in 2020 reflects the economic impact from the COVID-19 pandemic and the qualitative factors that are utilized to establish a subjective assessment of the adequacy of the allowance for loan losses. Qualitative factors specific to the pandemic that were developed in 2020 added $2.2 millionto the required allowance for loan losses, while the factor related to a deteriorating economy resulted in a $2.3 millionadditional provision for loan losses. Management assesses the adequacy of the allowance for loan losses on a quarterly basis. The process includes a review of the risks inherent in the loan portfolio. It also includes an analysis of impaired loans and a historical review of losses. Other factors considered in the analysis include: concentrations of credit in specific industries in the commercial portfolio, the local and regional economic conditions, trends in delinquencies, internal risk rating classifications, total loan growth in the portfolio and fluctuations in large balance credits. For loans acquired, including those that are not deemed impaired at acquisition, credit discounts representing the principal losses expected over the life of the loan are a component of the initial fair value. Subsequent to the purchase date, the methods utilized to estimate the required allowance for credit losses for these loans is similar to originated loans; however, the Company records a provision for loan losses only when the required allowance exceeds any remaining credit discounts.
Total other income was
$7,780,000for the year ended December 31, 2020compared to $6,778,000in 2019, an increase of $1,002,000. Gains on the sale of loans and investment securities increased $175,000in the aggregate, while loan related service charges and fees increased $725,000. The increase in loan related fees reflects activity resulting from the acquisition of UpState. All other items of other income increased $102,000, net.
Other income (in thousands of dollars)
For the year ended
2020 2019 Service charges on deposit accounts
$ 377 $ 336ATM Fees 457 384 Overdraft Fees 985 1,380 Safe deposit box rental 102 94 Loan related service fees 1,416 691 Debit card 1,656 1,424 Fiduciary activities 682 610 Commissions on mutual funds & annuities 122 141 Gains on sales of loans 527 169
Profits and income from life insurance held by banks 845 830 Other income
540 465 7,709 6,524 Net realized gains on sales of securities 71 254 Total
$ 7,780 $ 6,778OTHER EXPENSES Other expenses totaled $34,440,000for the year ended December 31, 2020compared to $27,311,000in the prior year. The $7,129,000increase in costs reflects the additional costs related to the operations of the four new community offices acquired from UpState, as well as the $2,049,000of merger related costs. Salaries and employee benefits costs increased $2,466,000in 2020, while occupancy and equipment costs increased $429,000and data processing expenses increased $588,000. All other operating expenses increased $1,597,000, net. The Company's efficiency ratio, which measures total other expenses as a percentage of net interest income (fte) plus other income, was 58.2% in 2020 compared to 58.9% in 2019. 23
Other expenses (in thousands of dollars)
For the year ended
2020 2019 Salaries
$ 10,903 $ 9,208Employee benefits 6,218 5,447 Occupancy 3,128 2,936 Furniture and equipment 1,020 783 Data processing and related operations 2,457
Federal Deposit Insurance Corporation insurance assessment 399 153 Advertising 385 267 Professional fees 1,062 1,113 Postage and telephone 983 834 Office supplies 555 396 Taxes, other than income 997 751 Foreclosed real estate 53 45 Amortization of intangible assets 114 101 Merger related 2,049 - Other 4,117 3,408 Total
$ 34,440 $ 27,311INCOME TAXES Income tax expense for the year ended December 31, 2020totaled $3,286,000, which resulted in an effective tax rate of 17.9%, compared to $2,608,000and 15.5% for 2019. The higher effective tax rate reflects the increase in taxable income. CAPITAL AND DIVIDENDS Total stockholders' equity as of December 31, 2020, was $194.8 million, compared to $137.4 millionas of year-end 2019. The increase was due primarily to the $45.3 millionincrease resulting from the acquisition of Upstate. Earnings retention net of a $7.8 millionreduction resulting from cash dividends declared, also contributed to the increase. As of December 31, 2020the Company had a leverage capital ratio of 8.71%, a Tier 1 risk-based capital ratio and a common equity Tier 1 risk-based capital ratio of 11.65%, and a total risk-based capital ratio of 12.62%, compared to 10.33%, 13.08% and 13.98%, respectively, at December 31, 2019. NON-GAAP FINANCIAL MEASURES This Annual Report contains or references tax-equivalent interest income and net interest income, which are non-GAAP financial measures. Tax-equivalent interest income and net interest income are derived from GAAP interest income and net interest income using a marginal tax rate of 21%. We believe the presentation of interest income and net interest income on a tax-equivalent basis ensures comparability of interest income and net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice. The following table reconciles net interest income to net interest income on a tax-equivalent basis: (dollars in thousands) Years ended December 31, 2020 2019 Net interest income $ 50,476 $ 38,606Tax-equivalent basis adjustment using a 21% marginal tax rate 883 1,006 Net interest income on a fully taxable equivalent basis $ 51,35939,612 24
AVERAGE CONSOLIDATED BALANCE SHEET WITH INTEREST AND RESULTING RATES
(equivalent tax base, in thousands of dollars)
Year Ended December 31 2020 2019 Average Average Average Average Balance Interest Rate Balance Interest Rate (2) (1) (2) (1) ASSETS Interest-earning assets: Interest-bearing deposits with banks
$ 65,812 $ 720.11 % $ 3,469 $ 812.33 % Securities available for sale: Taxable 150,019 2,914 1.94 148,825 3,277 2.20 Tax-exempt 53,502 1,801 3.37 84,225 2,578 3.06 Total securities available for sale 203,521 4,715 2.32 233,050 5,855 2.51 Loans receivable (3)(4) 1,177,773 54,551 4.63 885,741 42,354 4.78 Total interest-earning assets 1,447,106 59,338 4.10 1,122,260 48,290 4.30 Noninterest earning assets: Cash and due from banks 18,693 14,630 Allowance for loan losses (10,388) (8,465) Other assets 100,144 80,828 Total noninterest earning assets 108,449 86,993 TOTAL ASSETS $ 1,555,555 $ 1,209,253LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing liabilities: Interest-bearing demand and money market $ 308,386683 0.22 $ 229,912655 0.28 Savings 200,042 112 0.06 170,167 100 0.06 Time 457,844 5,815 1.27 356,282 6,384 1.79 Total interest-bearing deposits 966,272 6,610 0.68 756,361 7,139 0.94 Short-term borrowings 57,014 325 0.57 48,945 468 0.96 Other borrowings 50,286 1,044 2.08 43,743 1,071 2.45 Total interest-bearing liabilities 1,073,572 7,979 0.74 849,049 8,678 1.02 Noninterest-bearing liabilities: Noninterest-bearing demand deposits 297,175 213,165 Other liabilities 18,381 15,767 Total noninterest-bearing liabilities 315,556 228,932 Stockholders' equity 166,427 131,272 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,555,555 $ 1,209,253Net Interest Income/spread (tax equivalent basis) 51,359 3.36 % 39,612 3.28 % Tax-equivalent basis adjustment (883) (1,006) Net Interest Income $ 50,476 $ 38,606Net interest margin (tax equivalent basis) 3.55 % 3.53 %
(1) Interest and yields are presented on a tax equivalent basis using a marginal tax rate of 21%.
(2) Average balances were calculated on the basis of daily balances.
(3) Loan balances include unrecorded loans and are net of unearned income.
(4) Loan returns include the effect of amortization of purchased credit brands and deferred charges net of costs.
RATE / VOLUME ANALYSIS
The following table shows the fully taxable equivalent effect of variations in volumes and rates on interest income and expenses.
Increase/(Decrease) (dollars in thousands) 2020 compared to 2019 Variance due to Volume Rate Net INTEREST-EARNING ASSETS: Interest-bearing deposits
$ 133 $ (142) $ (9)Securities available for sale: Taxable 23 (386) (363) Tax-exempt securities (956) 179 (777) Total securities available for sale (933) (207) (1,140) Loans receivable 13,913 (1,716) 12,197 Total interest-earning assets 13,113 (2,065) 11,048
INTEREST-BEARING LIABILITIES Interest-bearing demand and money market 193 (165) 28 Savings
12 - 12 Time 1,477 (2,046) (569) Total interest-bearing deposits 1,682 (2,211) (529) Short-term borrowings 52 (195) (143) Other borrowings 146 (173) (27) Total interest-bearing liabilities 1,880 (2,579) (699)
Net interest income (tax base)
Changes in net interest income that could not be specifically identified as a change in rate or volume were allocated proportionally to changes in volume and changes in rate.
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