Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Results of Operations and Financial Condition
This MD&A is intended to assist readers in understanding our results of operations and changes in financial position for the past three years. This discussion should be read in conjunction with the consolidated financial statements and accompanying notes included in Item 8 of this Report. This discussion may contain forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in forward-looking statements as a result of various factors. The following discussion is intended to assist in understanding the financial condition and results of operations of the Company.
Overview and 2022 Highlights
The Company is a bank holding company headquartered in Southern Pines, North Carolina. We provide diversified financial services primarily though the Bank, our principal subsidiary, including commercial and consumer banking services, mortgage lending, SBA lending, accounts receivable financing, and investment advisory services. As of December 31, 2022, the Bank had a 108 branch network in North Carolina and South Carolina and 1,244 full-time equivalent employees. We have grown organically as well as through strategic acquisitions as discussed above in "Recent Developments and Acquisitions".
2022 Financial Highlights:
• Return on average assets was 1.39% for the year ended December 31, 2022, up from 1.13% for the prior year. Return on average common equity of 13.40% was reported for the year ended December 31, 2022 as compared to 9.86% for the prior year.
• Our total assets at December 31, 2022 were $10.6 billion, a 1.1% increase from a year earlier, with growth in loans offset by reductions in other assets throughout the year.
• Total loans outstanding increased $583.4 million, or 9.6%, during the year and total loans were in excess of $6.6 billion at December 31, 2022.
• Credit quality continues to be strong with the NPA to total assets ratio at 0.36% as of December 31, 2022 and as compared to 0.50% at December 31, 2021. Net charge offs as a percentage of average loans were 0.01% for 2022, down from 0.05% for the prior year.
• Capital remains strong with a total CET1 ratio of 13.02%, up from 12.53% for the prior year, and total risk-based capital ratio of 15.09% as of December 31, 2022 as compared to 14.67% for the prior year. Our TCE ratio was 6.39% at December 31, 2022.
• We earned net income of $146.9 million, or $4.12 diluted EPS, during 2022 compared to net income of $95.6 million, or $3.19 diluted EPS, in 2021. The main drivers to the increase in net income were as follows:
• Net interest income increased $78.5 million, or 32%, driven by higher interest income, partially offset by increased interest expense. Both of these increases were influences by higher market interest rates during the year. The NIM on a tax-equivalent basis was 3.28% for 2022, an increase of 12 basis points from 2021. The growth in average earning assets also contributed to the higher interest income.
• Interest income on loans increased $59.0 million related to a combination of higher volumes of average balances and increased yields. Interest income on investment securities increased $23.4 million, also driven by higher average balances and higher yields.
• The increase in interest expense of $6.6 million was driven by higher market rates resulting in some repricing of our deposits. Also contributing was the utilization of higher cost brokered deposits and short-term borrowings to fund loan demand and deposit fluctuations.
• Provision for loans losses for 2022 of $12.6 million was up from the $9.6 million provision in 2021 due to in part to loan growth experienced during the year. Also contributing was the updated loss rates and economic forecasts used in our CECL model which have indicated increasing risk of economic deterioration, including higher unemployment rates and lower GDP projections, resulting in a higher ACL. Refer to Provision for Loan Losses section below for further discussion.
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• Noninterest income declined $5.6 million, which resulted primarily from an $8.9 million decrease in mortgage banking income related to lower levels of originations and sales activity. Also a factor was the lower SBA-related revenues, including consulting fees and gains on sale, which was down $6.9 million year-over-year as a result of lower PPP-related revenue in 2022, as well as the timing and volume of loan originations available to be sold. Somewhat offsetting these declines in revenue was higher service charges and other gains related to death benefits on BOLI policies. Refer to Noninterest Income section below for further discussion.
• Noninterest expense increased $10.6 million, primarily related to the Select acquisition completed in the fourth quarter of 2021 driving higher operating expenses, including additional locations and personnel, as well as the increased number of customer accounts and transaction volume creating additional expense. Somewhat offsetting the higher expenses was a reduction of $11.8 million in merger expenses year-over-year. Refer to Noninterest Expense section below for further discussion.
• Income tax expense was up $13.6 million relative to the higher pre-tax income. The effective tax rate of 20.5% was fairly consistent with the prior year.
Current Economic Conditions and COVID-19 Impact
The lingering impact the COVID-19 pandemic continues to contribute to certain adverse and persistent macroeconomic consequences, including labor shortages and disruptions of global supply chains. These issues, coupled with the growth in economic activity and in the demand for goods and services, have resulted in rising inflationary pressures and the risk of recession. As a result of the current uncertain economic conditions, we could be subject to ongoing risks, which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations.
Our financial position and results of operations are susceptible to the ability of our loan customers to meet loan obligations, the availability of our workforce, the availability of our vendors, and the decline in the value of assets held by us or securing our loans. We have not realized significant negative impact on our loan portfolio or asset quality to date as a result of the pandemic impact. However, the economic pressures and uncertainties arising from the recent expansion in economic activity, increased consumer demand and rising interest rates to combat inflation have resulted in, and may continue to result in, specific changes in consumer and business spending and borrowing habits, given the higher interest rate environment, which could making it difficult to grow assets and income.
The extent to which the current economic conditions and lingering impacts of COVID-19 have a further impact on our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including actions taken by governmental authorities response to inflationary trends and recessionary risks.
Critical Accounting Policies and Estimates
The accounting principles we follow and our methods of applying these principles conform with GAAP and with general practices followed by the banking industry. Certain policies inherently have a greater reliance on the use of estimates, assumptions, or judgments and as such, have a greater possibility of producing results that could be materially different than originally reported. We have identified the determination of our ACL as well as business combinations, related fair value measurements, and goodwill to be the accounting areas that require the most subjective or complex judgments, estimates, and assumptions, and where changes in those judgments, estimates, and assumptions (based on new or additional information, changes in the economic climate and/or market interest rates, etc.) could have a significant effect on our financial statements.
Our most significant accounting policies are presented in Note 1 to the accompanying consolidated financial statements. These policies, along with the disclosures presented in the other notes to the consolidated financial statements and in this MD&A, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined.
Allowance for Credit Losses on Loans
The ACL represents management’s current estimate of credit losses for the remaining estimated life of financial instruments. We perform periodic and systematic detailed reviews of the loan portfolio to identify trends and to
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assess the overall collectability of the portfolio. We believe the accounting estimate related to the ACL is a “critical accounting estimate” as: (1) changes in it can materially affect the provision for loan losses and net income; (2) it requires management to predict borrowers’ likelihood or capacity to repay, including evaluation of inherently uncertain future economic conditions; (3) the value of underlying collateral must be estimated on collateral-dependent loans; (4) prepayment activity must be projected to estimate the life of loans that often are shorter than contractual terms; and (5) it requires estimation of a reasonable and supportable forecast period for credit losses. Accordingly, this is a highly subjective process and requires significant judgment since it is difficult to evaluate current and future economic conditions in relation to an overall credit cycle and estimate the timing and extent of loss events that are expected to occur prior to end of a loan’s estimated life.
Our ACL is assessed at each balance sheet date and adjustments are recorded in the provision for loan losses. The ACL is estimated based on loan level characteristics using historical loss rates, a reasonable and supportable economic forecast, and assumptions of probability of default and loss given default. Loan balances considered uncollectible are charged-off against the ACL. There are many factors affecting the ACL, some of which are quantitative, while others require qualitative judgment. Although management believes its process for determining the allowance adequately considers all the factors that could potentially result in credit losses, the process includes subjective elements and is susceptible to significant change. To the extent actual outcomes differ from management estimates, additional provision for loan losses could be required that could adversely affect our earnings or financial position in future periods.
PCD loans represent assets that are acquired with evidence of more than insignificant credit quality deterioration since origination at the acquisition date. At acquisition, the allowance on PCD assets is booked directly to the ACL. Any subsequent changes in the ACL on PCD assets is recorded through the provision for loan losses.
We believe that the ACL is adequate to absorb the expected life of loan credit losses on the portfolio of loans as of the balance sheet date. Actual losses incurred may differ materially from our estimates. For example, inflationary pressures and recessionary concerns leading to macroeconomic economic deterioration, higher unemployment and declines in real estate and other asset valuations could affect our loss experience and assumptions utilized in our model.
Additional information on the loan portfolio and ACL can be found in the sections of this Item 7 titled “Nonperforming Assets” and “Allowance for Credit Losses and Loan Loss Experience” below.
Business Combinations and Goodwill
Pursuant to applicable accounting guidance, we recognize assets acquired, including identified intangible assets, and the liabilities assumed in acquisitions at their fair values as of the acquisition date, with the related transaction costs expensed in the period incurred. Specified items such as acquired operating lease assets and liabilities as lessee, employee benefit plans, and income-tax related balances are recognized in accordance with accounting guidance that results in measurements that may differ from fair value. Determining the fair value of assets acquired and liabilities assumed often involves estimates based on internal or third-party valuations which include appraisals, discounted cash flow analysis, or other valuation techniques that may include estimates of attrition, inflation, asset growth rates, discount rates, credit risk, multiples of earnings, or other relevant factors. The determination of fair value may require us to make point-in-time estimates about discount rates, future expected cash flows, market conditions, and other future events that can be volatile in nature and challenging to assess. While we use the best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, the estimates are inherently uncertain and subject to refinement.
The primary identifiable intangible asset we typically record in connection with a whole bank or bank branch acquisition is the value of the core deposit intangibles which represents the estimated value of the long-term deposit relationships acquired in the transaction. Determining the amount of identifiable intangible assets and their average lives involves multiple assumptions and estimates and is typically determined by performing a discounted cash flow analysis, which involves a combination of any or all of the following assumptions: customer attrition/runoff, alternative funding costs, deposit servicing costs, and discount rates. The core deposit intangibles are amortized over the estimated useful lives of the deposit accounts based on a method that we believe reasonably approximates the anticipated benefit stream from this intangible. The estimated useful lives are periodically reviewed for reasonableness and have generally been estimated to have a life ranging from seven to ten years, with an accelerated rate of amortization. We review identifiable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Our policy is that an impairment loss is recognized, equal to the difference between the asset’s carrying amount and its fair value, if the sum of the
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expected undiscounted future cash flows is less than the carrying amount of the asset. Estimating future cash flows involves the use of multiple estimates and assumptions, such as those listed above.
The ACL for PCD assets is recognized within business combination accounting with no initial impact to net income. Changes in estimates of expected credit losses on PCD loans after acquisition are recognized as provision expense (or reversal of provision expense) in subsequent periods as they arise. The ACL for non-PCD assets is recognized as provision expense in the same reporting period as the business combination. Estimated loan losses for acquired loans are determined using methodologies and applying estimates and assumptions that were described previously in the Allowance for Credit Losses on Loans section.
Non-PCD loans acquired are generally estimated at fair value using a discounted cash flow approach with assumptions of discount rate, remaining life, prepayments, probability of default, and loss given default. The actual cash flows on these loans could differ materially from the fair value estimates. The amount we record as the fair values for the loans is generally less than the contractual unpaid principal balance due from the borrowers, with the difference being referred to as the “discount” on the acquired loans. Discounts on acquired non-PCD loans are accreted to interest income over their estimated remaining lives, which may include prepayment estimates in certain circumstances.
Similarly, premiums or discounts on acquired debt are accreted or amortized to interest expense over their remaining lives. Actual accretion or amortization of premiums and discounts from a business acquisition may differ materially from our estimates impacting our operating results.
Goodwill arising from business combinations represents the excess of the purchase price over the sum of the estimated fair values of the tangible and identifiable intangible assets acquired less the estimated fair value of the liabilities assumed. Goodwill has an indefinite useful life and is evaluated for impairment annually or more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. We believe that the accounting for goodwill also involves a higher degree of judgment than most other significant accounting policies. ASC 350-10 establishes standards for an impairment assessment of goodwill. At December 31, 2022, we had $364.3 million of goodwill.
At each reporting date between annual goodwill impairment tests, we consider potential indicators of impairment. Generally, absent potential impairment indicators, we perform an annual assessment of whether the events and circumstances resulted in it being more likely than not that the fair value of any reporting unit was less than its carrying value. Impairment indicators considered include the condition of the economy and banking industry; government intervention and regulatory updates; the impact of recent events to financial performance and cost factors of the reporting unit; performance of the Company's stock, and other relevant events. During 2022 there were no triggers warranting interim impairment assessments and for the 2022 annual assessment, we concluded that it was more likely than not that the fair value exceeded its carrying value.
Recent Accounting Standards and Pronouncements
For information relating to recent accounting standards and pronouncements, see Note 1 to our consolidated financial statements entitled “Summary of Significant Accounting Policies.”
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RESULTS OF OPERATIONS
The following discussion reviews the results of operations and key drivers to change in the results of 2022 as compared to 2021. For a description of our results of operations for 2021 as compared to 2020, refer to the "Overview and 2021 Highlights," Results of Operations," and "Analysis of Financial Condition and Changes in Financial Condition" sections of Item 7 in our 2021 Form 10-K.
Net Interest Income
Net interest income is our largest source of revenue and is the difference between the interest earned on interest-earning assets (generally loans and investment securities) and the interest expense incurred in connection with interest-bearing liabilities (generally deposits and borrowed funds). Changes in the net interest income are the result of changes in volume and the net interest spread which affects NIM. Volume refers to the average dollar levels of interest-earning assets and interest-bearing liabilities. Net interest spread refers to the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. NIM refers to net interest income divided by average interest-earning assets and is influenced by the level and relative mix of interest-earning assets and interest-bearing liabilities. Net interest income is also influenced by external factors such as local economic conditions, competition for loans and deposits, and market interest rates.
Net interest income amounted to $324.9 million in 2022, an increase of $78.5 million, or 31.8%, from the $246.4 million in 2021. The increase was due primarily to the increase in average earnings assets from both organic growth and the Select acquisition completed in October 2021. For 2022, average interest-earning assets increased $2.1 billion, or 26.9%, including growth of $1.3 billion in average loans and $1.0 billion in average securities.
Also contributing to the higher net interest income was the expansion of our NIM which, on a tax-equivalent basis, increased from 3.16% in 2021 to 3.28% in 2022. For internal purposes, we evaluate our NIM on a tax-equivalent basis by adding the tax benefit realized from tax-exempt loans and securities to reported interest income then dividing by total average earning assets. We believe that analysis of NIM on a tax-equivalent basis is useful and appropriate because it allows a comparison of net interest in different periods without taking into account the different mix of taxable versus non-taxable loans and investments that may have existed during those periods. The following is a reconciliation of reported net interest income to tax-equivalent net interest income and the resulting NIM as reported and on a tax-equivalent basis.
($ in thousands) Year ended December 31,
2022 2021 2020
Net interest income, as reported $ 324,854 246,395 218,122
Tax-equivalent adjustment 2,780 2,243 1,468
Net interest income, tax-equivalent $ 327,634 248,638 219,590
Net interest margin, as reported 3.25 % 3.13 % 3.54 %
Net interest margin, tax-equivalent 3.28 % 3.16 % 3.56 %
The increase in our NIM was driven by the rising market interest rates as the Federal Reserve's monetary policies resulted in a 425 basis point rise in short-term rates between March and December 2022. As demonstrated in the Average Balances and Net Interest Income Analysis table below, our total yield on average earning assets increased 16 basis points while we were able to maintain a low total cost of funds. Our mix of earning assets remained fairly stable between 2021 and 2022.
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Our NIM for all periods benefited from the net accretion income, primarily associated with purchase accounting premiums/discounts associated with acquisitions. Presented in the table below is the amount of accretion which increased net interest income in each year.
Year ended December 31,
($ in thousands) 2022 2021 2020
Interest income – increased by accretion of loan discount on acquired loans
$ 5,621 6,107 3,817
Interest income - increased by accretion of loan discount on retained SBA loans
2,856 2,707 2,511
Interest expense – reduced by premium amortization of deposits
593 295 100
Interest expense – increased by discount accretion of borrowings
(254) (249) (181)
Impact on net interest income
$ 8,816 8,860 6,247
The most significant component of the purchase accounting adjustments in each year was loan discount accretion on purchased loans. Generally, the level of loan discount accretion will decline each year due to the natural paydowns in acquired loan portfolios. Alternately, levels of accretion will increase as a result of acquisitions and related additions to loan discounts on acquired portfolios which are accreted to income as experienced in 2021 with the Select acquisition.
At December 31, 2022, 2021, and 2020, unaccreted loan discount on purchased loans amounted to $11.6 million, $17.2 million, and $8.9 million, respectively. The Select acquired portfolio comprises the majority of the remaining unaccreted loan discount at December 31, 2022.
In addition to the loan discount accretion recorded on acquired loans, we record accretion on the discounts associated with the retained unguaranteed portions of SBA loans sold in the secondary market. The level of SBA loan discount accretion will fluctuate relative to the SBA loan portfolio balances. At December 31, 2022, 2021, and 2020, unaccreted loan discount on SBA loans amounted to $4.3 million, $6.0 million, and $7.3 million, respectively.
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The following table presented the major components of the net interest income and NIM.
Average Balances and Net Interest Income Analysis
Year Ended December 31,
2022 2021 2020
($ in thousands) Average
Volume Avg.
Rate Interest
Earned
or Paid Average
Volume Avg.
Rate Interest
Earned
or Paid Average
Volume Avg.
Rate Interest
Earned
or Paid
Assets
Loans (1) (2)
$ 6,293,280 4.42 % $ 278,027 5,018,391 4.36 % 219,013 4,702,743 4.53 % 213,099
Taxable securities
3,059,683 1.75 % 53,536 2,204,713 1.45 % 32,076 967,900 2.11 % 20,429
Non-taxable securities
296,803 1.48 % 4,387 162,878 1.49 % 2,402 34,108 2.13 % 725
Other interest-earning assets, primarily overnight funds
339,419 1.48 % 5,007 485,337 0.50 % 2,427 455,349 0.75 % 3,431
Total interest-earning assets
9,989,185 3.41 % 340,957 7,871,319 3.25 % 255,918 6,160,100 3.86 % 237,684
Cash and due from banks
104,374 90,275 81,154
Premises and equipment
135,160 125,738 116,425
Other assets
327,511 408,313 408,319
Total assets
$ 10,556,230 8,495,645 6,765,998
Liabilities and Equity
Interest-bearing checking accounts
$ 1,545,573 0.08 % $ 1,219 1,353,172 0.07 % 919 1,019,773 0.12 % 1,208
Money market accounts
2,515,897 0.22 % 5,610 1,923,614 0.16 % 3,158 1,367,851 0.34 % 4,632
Savings accounts
739,681 0.06 % 459 607,452 0.07 % 443 467,682 0.15 % 711
Other time deposits 551,852 0.46 % 2,541 432,506 0.39 % 1,722 500,424 1.49 % 7,473
Time deposits >$250,000 287,194 0.53 % 1,520 356,398 0.46 % 1,639 355,737 0.64 % 2,277
Total interest-bearing deposits
5,640,197 0.20 % 11,349 4,673,142 0.17 % 7,881 3,711,467 0.44 % 16,301
Short-term borrowings 52,446 3.45 % 1,808 — — % — 71,955 1.42 % 1,022
Long-term borrowings 65,358 4.51 % 2,946 63,201 2.60 % 1,642 114,490 1.96 % 2,239
Total interest-bearing liabilities
5,758,001 0.28 % 16,103 4,736,343 0.13 % 9,523 3,897,912 0.50 % 19,562
Noninterest-bearing checking accounts
3,643,308 2,728,768 1,932,823
Total sources of funds
9,401,309 0.17 % 7,465,111 0.13 % 5,830,735 0.34 %
Other liabilities
58,008 60,759 60,731
Shareholders’ equity
1,096,913 969,775 874,532
Total liabilities and shareholders’ equity
$ 10,556,230 8,495,645 6,765,998
Net yield on interest-earning assets and net interest income
3.25 % $ 324,854 3.13 % 246,395 3.54 % 218,122
Net yield on interest-earning assets and net interest income – tax-equivalent (3)
3.28 % $ 327,634 3.16 % 248,638 3.56 % 219,590
Interest rate spread
3.29 % 3.14 % 3.36 %
Average Prime Rate 4.86 % 3.25 % 3.54 %
(1) Average loans include nonaccruing loans, the effect of which is to lower the average rate shown. Interest earned includes recognized net loan fees, including late fees, prepayment fees, and deferred loan fee amortization, in the amounts of $3.1 million , $9.7 million, and $4.8 million for 2022, 2021, and 2020, respectively.
(2) Includes accretion of discount on acquired and SBA loans of $8.5 million, $8.8 million, and $6.3 million in 2022, 2021, and 2020, respectively.
(3) Includes tax-equivalent adjustments of $2.8 million, $2.2 million and $1.5 million in 2022, 2021, and 2020, respectively, to reflect the federal and state tax benefit that we receive related to tax-exempt securities and tax-exempt loans, which carry interest rates lower than similar taxable investments/loans due to their tax exempt status. This amount has been computed assuming a 23% tax rate and is reduced by the related nondeductible portion of interest expense.
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The following table presents additional detail regarding the estimated impact that changes in loan and deposit volumes and changes in the interest rates we earned/paid had on our net interest income in 2022 and 2021.
Volume and Rate Variance Analysis
Year Ended December 31, 2022 Year Ended December 31, 2021
Change Attributable to Change Attributable to
($ in thousands) Changes
in Volumes Changes
in Rates Total
Increase
(Decrease) Changes
in Volumes Changes
in Rates Total
Increase
(Decrease)
Interest income:
Loans $ 55,980 3,034 59,014 14,040 (8,126) 5,914
Taxable securities 13,681 7,779 21,460 22,055 (10,408) 11,647
Non-taxable securities 2,002 (17) 1,985 2,316 (639) 1,677
Other interest-earning assets, primarily overnight funds (1,442) 4,022 2,580 188 (1,192) (1,004)
Total interest income 70,221 14,818 85,039 38,599 (20,365) 18,234
Interest expense:
Interest bearing checking accounts 142 158 300 311 (600) (289)
Money market accounts 1,147 1,305 2,452 1,399 (2,873) (1,474)
Savings accounts 89 (73) 16 158 (426) (268)
Other time 360 459 819 (857) (4,894) (5,751)
Time deposits >$250,000 (340) 221 (119) (2) (636) (638)
Total interest-bearing deposits 1,398 2,070 3,468 1,009 (9,429) (8,420)
Short-term borrowings 904 904 1,808 (1,022) — (1,022)
Long-term borrowings 76 1,228 1,304 (1,167) 570 (597)
Total interest expense 2,378 4,202 6,580 (1,180) (8,859) (10,039)
Net interest income $ 67,843 10,616 78,459 39,779 (11,506) 28,273
Note - Changes attributable to both volume and rate are allocated equally between rate and volume variances.
Overall, as demonstrated in the above table, net interest income grew $78.5 million in 2022. Higher earning asset volumes were the primary driver of the increase in income. In addition, market rate increases were a contributing factor as the Federal Reserve raised short-term rates 425 basis points during the year. The Federal Reserve has continued to increase short-term interest rates into 2023 as they implement monetary policy in an effort to combat inflation.
• For 2022, higher loan volume was the primary contributor to increased interest income, driving $56.0 million of the increase. Higher market rates contributed to an additional $3.0 million of loan interest income. Variable rate loans comprise approximately 20% of the loan portfolio, accordingly, we are limited as to the magnitude of the impact we experience from each rate increase.
• Increases in both volume of average investment securities and yields on the portfolio resulted in additional interest income of $23.4 million in 2022.
• Average balances of other interest-earning assets (primarily overnight funds and presold mortgages held for sale) declined in 2022 and resulted in a $1.4 million decrease in interest income. The impact of lower volumes was more than offset by the increase in market rates contributing $4.0 million in additional interest income for the year.
• The increase of $3.5 million in interest expense on deposits was a combination of higher volumes, primarily in money market deposit accounts and other time deposits, and higher rates on accounts as as we have begun to experience some pressure to reprice deposits given the increase in market rates.
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• Higher levels of borrowings, primarily in short-term FHLB advances to fund loan demand and deposit fluctuations, resulted in an increase in borrowings interest expense of $1.0 million in 2022. The more significant contributor to the increase in interest expense was the repricing of our variable rate trust preferred securities and the higher cost of short-term advances, which added $2.1 million to interest expense for the year.
Provision for Loan Losses and Provision for Unfunded Commitments
We implemented CECL effective January 1, 2021. Prior to that, the provision for loan losses was based on the incurred loss impairment framework for loan losses under ASC 310-30 which represented an estimate of probable incurred losses in the loan portfolio at the end of each reporting period. Under CECL, the provision for credit losses represents our current estimate of life of loan credit losses in the loan portfolio and unfunded loan commitments. Our estimate of credit losses under CECL is determined using a complex model that relies on reasonable and supportable forecasts and historical loss information to determine the balance of the ACL and resulting provision for loan losses and provision for unfunded commitments which represents expected losses on unfunded loan commitments that are expected to result in outstanding loan balances. The allowance for unfunded commitments is included in other liabilities in the consolidated balance sheets.
The provision for loan losses was $12.6 million in 2022 and $9.6 million in 2021. The amount of provision recorded in each period was the amount required such that the total ACL reflected the appropriate balance as determined under the CECL model. The increase in the provision for the year ended December 31, 2022 as compared to the prior year was a combination of loan growth during the year, which increased $583.4 million, and updated economic forecasts and loss driver inputs to the CECL model. We subscribe to a third-party service which provides a quarterly macroeconomic scenarios for the United States economy. For 2022, we utilized the baseline forecast, which incorporates an equal probability of the United States economy performing better or worse than the projection. The economic forecasts throughout the year have projected general weakening of the economy demonstrated in higher projected unemployment rates, lower GDP, and declining price indices for both commercial real estate and residential mortgages. These worsening economic projections translated to higher forecasted losses in our loan portfolio and a higher estimated ACL.
Also under the CECL method, in 2022 we recorded a reduction in the provision for unfunded commitments of $0.2 million compared to $5.4 million in provision for unfunded commitments for 2021. Changes in the level of provision each year are generally related to fluctuations in the level of available credit lines and updated loss drivers.
Additional discussion on the CECL method and our asset quality and credit metrics, which impact our provision for credit losses, is provided in the "Nonperforming Assets" and "Allowance for Credit Losses and Loan Loss Experience" sections following.
Noninterest Income
Our noninterest income amounted to $68.0 million in 2022, $73.6 million in 2021, and $81.3 million in 2020.
Management evaluates noninterest income on a non-GAAP basis that excludes items such as securities gains and losses and other miscellaneous gains and losses because we believe excluding those items results in a more meaningful reflection of noninterest income from recurring sources. We refer to this as "adjusted noninterest income." A reconciliation of reported noninterest income to adjusted noninterest income is presented in the table below. Adjusted noninterest income amounted to $60.6 million in 2022, $73.2 million in 2021, and $73.4 million in 2020.
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Noninterest Income
Year Ended December 31,
($ in thousands) 2022 2021 2020
Service charges on deposit accounts
$ 15,523 12,317 11,098
Other service charges, commissions and fees - interchange income, net 14,996 18,480 14,142
Other service charges, commissions, and fees - other 11,298 7,036 5,955
Fees from presold mortgage loans
2,102 10,975 14,183
Commissions from sales of insurance and financial products
5,195 6,947 8,848
SBA consulting fees
2,608 7,231 8,644
SBA loan sale gains
5,076 7,329 7,973
Bank-owned life insurance income
3,847 2,885 2,533
Securities (losses) gains, net — (1,237) 8,024
Other gains (losses), net
7,340 1,648 (54)
Noninterest income
67,985 73,611 81,346
Non-GAAP adjustments - Exclude:
Securities losses (gains), net — 1,237 (8,024)
Other (gains) losses, net
(7,340) (1,648) 54
Adjusted noninterest income $ 60,645 73,200 73,376
Service charges on deposit accounts increased $3.2 million, or 26.0%, in 2022 as compared to 2021. The increase in 2022 was primarily due to growth in the number of checking accounts generating fees, as well as higher NSF activity during the year. In addition to the organic growth we experienced during the year, the acquisition of Select deposit accounts in the fourth quarter of 2021 contributed to the higher service charge income during 2022.
Total "Other service charges, commissions and fees - interchange income,net" from bankcard activity amounted to $15.0 million in 2022, a 18.9% decrease from the $18.5 million in 2021. While the number of cards outstanding and volume of transactions continues to grow, we became subject to the Durbin Amendment limitations on interchange fees effective July 1, 2022. The decrease in revenue is a direct result of the lower interchange fee per transaction for the last six months of the year. We anticipate lower levels of interchange revenue going forward as we will continue to be subject to the Durbin Amendment limitations.
"Other service charges, commissions and fees - other" includes items such as SBA guarantee servicing fees, ATM charges, wire transfer fees, safety deposit box rentals, fees from sales of personalized checks, and check cashing fees. The increase in this item in 2022 of $4.3 million, or 60.6%, was primarily due to growth in the number of accounts and related transaction activity, as well as the Bank's deposit base increases.
Fees from presold mortgages amounted to $2.1 million in 2022, a decline of $8.9 million or 80.8% from 2021. Mortgage loan refinancing and origination volumes declined significantly during the year due primarily to the rapid increases in mortgage interest rates. Lower originations, combined with a higher percentage of mortgages retained in the portfolio during 2022 as compared to the prior year, resulted in the lower revenue from mortgage loan sales. We anticipate lower revenue from sales of mortgage loans as long as the higher interest rate environment continues and originations are slower.
Commissions from sales of insurance and financial products amounted to $5.2 million in 2022, down $1.8 million from 2021. The decrease is due to the sale of the majority of the assets of First Bank Insurance in June 2021.
The reduction in SBA consulting services in 2022 of $4.6 million, or 63.9%, is primarily related to the wind-down of the PPP loan program. SBA Complete recognized $3.2 million in PPP fees during 2021 as compared to $355,000 in 2022.
SBA loan sale gains declined $2.3 million in 2022 related in part to lower loan originations in the current year as compared to 2021. Also contributing to the lower fees was the expiration of the 90% SBA guarantee level effective during 2021 as a part of the CARES Act, which resulted in a lower portion of each loan being available to be sold in 2022.
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The 33.3% increase in BOLI income in 2022 was related to the acquisition of Select in the fourth quarter of 2021 which had $31.1 million in BOLI assets as of the date of acquisition.
“Other gains (losses), net” amounted to a net gain of $7.3 million for 2022 related primarily to death benefits realized on BOLI. The 2021 gain was related to the sale of First Bank Insurance during that year.
Noninterest Expenses
Total noninterest expenses totaled $195.2 million, $184.7 million, and $161.3 million, for 2022, 2021, and 2020, respectively.
Noninterest Expenses
Year Ended December 31,
($ in thousands) 2022 2021 2020
Salaries $ 96,321 86,815 84,941
Employee benefits 21,397 16,434 16,027
Total personnel expense 117,718 103,249 100,968
Occupancy expense 12,796 11,528 11,278
Equipment related expenses 5,808 4,492 4,285
Merger and acquisition expenses 5,072 16,845 —
Amortization of intangible assets 3,684 3,531 3,956
Bankcard expenses 1,653 4,609 3,599
Telephone and data lines 3,631 3,087 2,893
Software licenses and other software costs 6,064 5,316 5,150
Data processing expense 7,535 5,959 4,743
Professional fees 4,350 2,992 2,794
Advertising and marketing 3,032 2,580 2,297
Corporate and FDIC insurance costs 4,858 3,986 3,136
Non-credit losses 2,721 1,136 1,024
Other operating expenses 16,298 15,346 15,175
Total $ 195,220 184,656 161,298
In general, between 2021 and 2022, the 5.7% increase in total noninterest expenses, as well as the increases in most of the individual expense line items in the above table, was driven by higher operating expense from additional personnel and locations, as well as increases in the number of customer accounts and transactions resulting from the Select acquisition which occurred in the fourth quarter of 2021. We anticipate increases in operating expenses as we continue to grow organically and through acquisitions. The more notable variances in expense categories for 2022 follows.
Total personnel expense increased $14.5 million, or 14.0% in 2022, as compared to the prior year. Within personnel expense, salaries expense increased $9.5 million, or 10.9%, and benefits increased $5.0 million or 30.2%, driven by the addition of full time associates, combined with the increase in employee insurance costs related to higher claims paid under our self-insured health insurance plan.
Merger and acquisition expenses were down $11.8 million in 2022 as compared to the prior year. 2022 merger expenses were related to the GrandSouth acquisition and were comprised primarily of investment banking fees and other professional fees, and conversion services. The 2021 expenses were related to the Select acquisition and were comprised primarily of investment banking fees and other professional fees, severance costs, contract termination fees, and data processing conversion expenses.
Income Taxes
We recorded income tax expense of $38.3 million in 2022, $24.7 million in 2021, and $21.7 million in 2020. Our effective tax rates were fairly stable at 20.7% for 2022, 20.5% for 2021, and 21.0% for 2020. We expect our effective tax rate to be approximately 21.0% in 2023.
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ANALYSIS OF FINANCIAL CONDITION AND CHANGES IN FINANCIAL CONDITION
Loans
The loan portfolio is the largest category of our earning assets and is comprised of commercial loans, real estate mortgage loans, real estate construction loans, and consumer loans. The majority of our loan portfolio is within our North Carolina and South Carolina market areas. We also have a portfolio of SBA loans that have been made on a nationwide basis. The diversity of the economic bases of our market areas has historically provided a stable lending environment.
Total loans amounted to $6.7 billion at December 31, 2022, an increase of $583.4 million, or 9.6%, from December 31, 2021. Net loan growth for the year was all organic growth as there were no acquisitions in 2022.
The following table provides a summary of the loan portfolio composition at each of the past five year ends.
Loan Portfolio Composition
As of December 31,
2022 2021 2020 2019 2018
($ in thousands) Amount % of
Total
Loans Amount % of
Total
Loans Amount % of
Total
Loans Amount % of
Total
Loans Amount % of
Total
Loans
Commercial, financial, and agricultural
$ 641,941 9 % 648,997 11 % 782,549 17 % 504,271 11 % 457,037 11 %
Real estate – construction, land development & other land loans
934,176 14 % 828,549 13 % 570,672 12 % 530,866 12 % 518,976 12 %
Real estate mortgage – residential (1-4 family) first mortgages 1,195,785 18 % 1,021,966 17 % 972,378 21 % 1,105,014 25 % 1,054,176 25 %
Real estate mortgage – home equity loans/lines of credit 323,726 5 % 331,932 5 % 306,256 6 % 337,922 8 % 359,162 8 %
Real estate mortgage – commercial and other 3,510,261 53 % 3,194,737 53 % 2,049,203 43 % 1,917,280 43 % 1,787,022 42 %
Consumer loans 60,659 1 % 57,238 1 % 53,955 1 % 56,172 1 % 71,392 2 %
Loans, gross 6,666,548 100 % 6,083,419 100 % 4,735,013 100 % 4,451,525 100 % 4,247,765 100 %
Unamortized net deferred loan (fees) costs (1,403) (1,704) (3,698) 1,941 1,299
Total loans $ 6,665,145 6,081,715 4,731,315 4,453,466 4,249,064
The majority of our loan portfolio over the years has been real estate mortgage loans, including commercial and residential mortgages. All loan categories secured by real estate, including construction and land loans, have historically ranged from approximately 85% to 90% of the loan portfolio. Except for construction, land development, and other land loans, the majority of our real estate loans are personal and commercial loans where cash flow from the borrower’s occupation or business is the primary repayment source, with the real estate pledged providing a secondary repayment source.
The largest component of our portfolio, commercial real estate loans, remained unchanged at 53% of the total portfolio at December 31, 2022 as compared to the prior year. Residential real estate loans remained the second largest component at 18% of total loans at December 31, 2022. This percentage is fairly stable with the prior year, but has declined somewhat over the last several years related to the increase in consumers refinancing their home loans and the Bank selling more residential loans in the secondary market prior to 2022.
Commercial, financial, and agricultural loans comprised 9% of total loans at December 31, 2022, down somewhat from the prior year end, but was in line with the historical level for this category. The higher percentage for this category in 2020 was related to PPP loans made under the provisions of the CARES Act, which were forgiven in accordance with the PPP loan provisions from late 2020 through early 2022.
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A summary of scheduled loan maturities, based on contractual maturity dates, over certain time periods is presented below, with fixed rate loans and adjustable rate loans shown separately.
Loan Maturities
As of December 31, 2022
Due within
one year Due after one year but
within five years Due after five years but
within fifteen years Due after fifteen
years Total
($ in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
Variable Rate Loans:
Commercial, financial, and agricultural $ 89,720 7.38 % 42,777 7.32 % 40,309 8.44 % 306 9.15 % 173,112 7.64 %
Real estate – construction, land development & other land loans 190,224 8.14 % 89,360 7.63 % 59,875 6.91 % 9,131 7.98 % 348,590 7.79 %
Real estate mortgage – residential (1-4 family) first mortgages 5,231 8.05 % 11,467 7.73 % 20,057 5.26 % 175,052 3.90 % 211,807 4.23 %
Real estate mortgage – home equity loans/lines of credit 21,627 7.56 % 24,604 7.83 % 266,472 7.60 % — — % 312,703 7.62 %
Real estate mortgage – commercial and other 72,561 7.58 % 76,090 7.28 % 48,862 6.47 % 88,538 7.25 % 286,051 7.21 %
Consumer loans 8,040 8.26 % 3,739 8.79 % 22 7.00 % 905 9.91 % 12,706 8.65 %
Total at variable rates 387,403 7.83 % 248,037 7.51 % 435,597 7.35 % 273,932 5.17 % 1,344,969 7.06 %
Fixed Rate Loans:
Commercial, financial, and agricultural 18,471 4.17 % 181,272 4.17 % 166,945 3.26 % 92,701 2.64 % 459,389 3.50 %
Real estate – construction, land development & other land loans 196,924 3.78 % 157,603 4.36 % 229,851 3.74 % 198 4.50 % 584,576 3.92 %
Real estate mortgage – residential (1-4 family) first mortgages 31,458 4.94 % 217,009 4.49 % 171,560 4.00 % 559,123 3.63 % 979,150 3.91 %
Real estate mortgage – home equity loans/lines of credit 981 6.20 % 3,688 5.12 % 4,753 4.99 % 205 6.45 % 9,627 5.19 %
Real estate mortgage – commercial and other 136,176 4.64 % 1,364,263 4.13 % 1,707,373 3.64 % 3,250 3.92 % 3,211,062 3.89 %
Consumer loans 15,807 5.94 % 23,079 6.25 % 6,582 6.13 % 2,390 16.82 % 47,858 6.97 %
Total at fixed rates 399,817 4.27 % 1,946,914 4.22 % 2,287,064 3.66 % 657,867 3.54 % 5,291,662 3.89 %
Subtotal 787,220 6.02 % 2,194,951 4.59 % 2,722,661 4.25 % 931,799 4.02 % 6,636,631 4.53 %
Nonaccrual loans 28,514 — — — 28,514
Total loans $ 815,734 2,194,951 2,722,661 931,799 6,665,145
Note: The above table is based on contractual scheduled maturities. Early repayment of loans or renewals at maturity are not considered in this table.
Approximately 12% of our accruing loans outstanding at December 31, 2022 mature within one year and 45% of total loans mature within five years. As of December 31, 2022, the percentages of variable rate loans and fixed rate loans as compared to total performing loans were 20% and 80%, respectively. In recent years, the mix of variable rate loans to fixed rate loans has been shifting to more fixed rate loans given the low interest rate environment prior to 2022 and borrowers' preference to lock in low rates. While fixed rate loans present risk to our Company, in particular in rising interest rate environment as we have experienced in 2022, we measure our interest rate risk closely. Refer to additional discussion in the section “Interest Rate Risk” below.
The Company’s loan portfolio is not concentrated in loans to any single borrower or to a relatively small number of borrowers. Additionally, management is not aware of any concentrations of loans to classes of borrowers or industries that would be similarly affected by economic conditions.
In addition to monitoring potential concentrations of loans to particular borrowers or groups of borrowers, industries, and geographic regions, the Company monitors exposure to credit risk that could arise from potential concentrations of lending products and practices such as loans that subject borrowers to substantial payment increases (e.g. principal deferral periods, loans with initial interest-only periods, etc.), and loans with high loan-to-value ratios.
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Additionally, there are industry practices that could subject the Company to increased credit risk should economic conditions change over the course of a loan’s life. For example, the Bank makes variable rate loans and fixed rate principal-amortizing loans with maturities prior to the loan being fully paid (i.e. balloon payment loans). These loans are underwritten and monitored to manage the associated risks. The Company has determined that there is no concentration of credit risk associated with its lending policies or practices.
Most of our business activity is with customers located within the markets where we have banking operations. Therefore, our exposure to credit risk is significantly affected by changes in the economy within our markets. Approximately 90% of our loan portfolio is secured by real estate and is therefore susceptible to changes in real estate valuations.
Nonperforming Assets
NPAs include nonaccrual loans, TDRs, loans past due 90 or more days and still accruing interest, and foreclosed properties. Nonaccrual loans are loans on which interest income is no longer being recognized or accrued because management has determined that the collection of interest is doubtful. Placing loans on nonaccrual status negatively impacts earnings because (1) interest accrued but unpaid as of the date a loan is placed on nonaccrual status is reversed and deducted from interest income; (2) future accruals of interest income are not recognized until it becomes probable that both principal and interest will be paid; and (3) principal charged-off, if appropriate, may necessitate additional provisions for loan losses that are charged against earnings. In some cases, where borrowers are experiencing financial difficulties, loans may be restructured to provide terms significantly different from the originally contracted terms.
The following table summarizes our NPAs at the dates indicated.
Nonperforming Assets
As of December 31,
($ in thousands) 2022 2021 2020 2019 2018
Nonperforming assets
Nonaccrual loans $ 28,514 34,696 35,076 24,866 22,575
Restructured loans - accruing 9,121 13,866 9,497 9,053 13,418
Accruing loans >90 days past due — 1,004 — — —
Total nonperforming loans 37,635 49,566 44,573 33,919 35,993
Foreclosed properties 658 3,071 2,424 3,873 7,440
Total nonperforming assets $ 38,293 52,637 46,997 37,792 43,433
Allowance for credit losses $ 90,967 78,789 52,388 21,398 21,039
Total Loans 6,665,145 6,081,715 4,731,315 4,453,466 4,249,064
Asset Quality Ratios
Nonaccrual loans to total loans 0.43 % 0.57 % 0.74 % 0.56 % 0.53 %
Nonperforming loans to total loans 0.56 % 0.82 % 0.94 % 0.76 % 0.85 %
Nonperforming assets to total loans and foreclosed properties 0.57 % 0.87 % 0.99 % 0.85 % 1.02 %
Nonperforming assets to total assets 0.36 % 0.50 % 0.64 % 0.62 % 0.74 %
Allowance for credit losses to nonaccrual loans 319.03 % 227.08 % 149.36 % 86.05 % 93.20 %
As a matter of policy, we generally place all loans that are past due 90 or more days on nonaccrual basis. There were no accruing loans that are past due 90 or more days at December 31, 2022. At December 31, 2021, there were $1.0 million in this category related to two loans acquired from Select, one of which was renewed and the other of which was placed on nonaccrual in January 2022.
We continue to see improving trends in asset quality. Our total nonperforming loans to total loans declined 26 basis points to 0.56% at December 31, 2022, while our total NPA ratio decreased 14 basis points to 0.36% at December 31, 2022. The increase in NPAs in 2021 was a direct result of the Select acquisition, combined with the lingering impact of the Covid-19 pandemic. Additional discussion of the credit quality classification status of our loans is contained in Note 4 to our consolidated financial statements.
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As of December 31, 2022, SBA loans accounted for approximately $14.6 million of our nonaccrual loans, or 9.5%, of the total SBA portfolio, and carried guarantees from the SBA totaling $5.8 million. This is compared to $16.8 million, or 9.8%, of the non-PPP SBA portfolio at December 31, 2021. We continue to closely monitor the SBA loan portfolio and give it appropriate consideration when evaluating the adequacy of the ACL as those loans are generally considered inherently more risky than other loans in our portfolio. Refer to additional discussion of the ACL below.
As shown in Note 4 to the consolidated financial statements, our accruing past due loans (30 or more days) have declined $7.8 million million to total $8.2 million at December 31, 2022.
We classify loans as “special mention” when there is a defined weakness or weaknesses that jeopardize the repayment by the borrower and there is a distinct possibility that we could sustain some loss if the deficiency is not corrected. Performing special mention loans, which are still accruing interest, totaled $39.0 million and $43.1 million as of December 31, 2022 and 2021, respectively. In addition, loans that are in the risk category of "classified" which are still accruing interest totaled $20.0 million at December 31, 2022 and $21.3 million at December 31, 2021. These loans have a great risk of further deterioration and potential loss to the Bank.
Foreclosed properties includes primarily foreclosed real estate. Total foreclosed real estate amounted to $0.7 million at December 31, 2022, down from $3.1 million in 2021. The decrease is related to the sale of properties in 2022 as we continue to see active real estate markets and steady sales activity. Only one property was added to foreclosed real estate during 2022 while we completed the sale of six properties during the year.
Allowance for Credit Losses and Loan Loss Experience
The total allowance for credit losses amounted to $91.0 million at December 31, 2022 compared to $78.8 million at December 31, 2021. As discussed previously in the Provision for Loan Losses section, the increase in the ACL at December 31, 2022 as compared to the prior year was driven by the loan growth experienced during the year requiring an allowance be provided, combined with the deteriorating economic forecasts and loss driver inputs to the CECL model. The economic forecasts provided by a third-party service for our CECL model calculations have projected general weakening of the economy demonstrated in higher projected unemployment rates, lower GDP, and declining price indices for both commercial real estate and residential mortgages. These worsening economic projections translated to higher forecasted life of loan losses in our portfolio and a higher estimated ACL.
The ACL reflects our estimate of life of loan expected credit losses that will result from the inability of our borrowers to make required loan payments. We use systematic methodologies to determine the ACL for loans and the allowance for certain off-balance-sheet credit exposures. The ACL is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loan portfolio.
We consider the effects of past events, current conditions, and reasonable and supportable forecasts on the collectability of the loan portfolio. Our estimate of the ACL involves a high degree of judgment. Therefore, the process for determining expected credit losses may result in a range of expected credit losses. The ACL is calculated using collectively evaluated pools for loans with similar risk characteristics applying the DCF method. When a loan no longer shares similar risk characteristics with its segment, the loan is evaluated on an individual basis applying a DCF or asset approach for collateral-dependent loans. Refer to Note 1 of the consolidated financial statements for a discussion of our CECL methodology used to determine the ACL.
Our assessment of the ACL involves uncertainty and judgment and is subject to change in future periods. The amount of any changes could be significant if the assessment of loan quality or collateral values changes substantially with respect to one or more loan relationships or portfolios or if there is a significant change in the reasonable and supportable forecast used to model our expected credit losses. The allocation of the ACL as presented in the following table is based on reasonable and supportable forecasts, historical data, subjective judgment, and estimates and therefore, may not be predictive of the specific amounts or loan categories in which charge-offs may ultimately occur. In addition, bank regulatory authorities, as part of their periodic examination of the Bank, may require adjustments to the provision for loan losses in future periods if, in their opinion, the results of their review warrant such additions.
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The following table sets forth the allocation of the ACL by loan category at the dates indicated. However, the ACL is available to absorb losses in all categories.
Allocation of the Allowance for Credit Losses
As of December 31,
($ in thousands) 2022 % of
Loan Category 2021 % of
Loan Category 2020 % of
Loan Category 2019 % of
Loan Category 2018 % of
Loan Category
Commercial, financial, and agricultural
$ 17,718 2.76 % 16,249 2.50 % 11,316 1.45 % 4,553 0.90 % 2,889 0.63 %
Real estate – construction, land development
15,128 1.62 % 16,519 1.99 % 5,355 0.94 % 1,976 0.37 % 2,243 0.43 %
Real estate mortgage – residential (1-4 family) first mortgages 11,354 0.95 % 8,686 0.85 % 8,048 0.83 % 3,832 0.35 % 5,197 0.49 %
Real estate mortgage - home equity loans/lines of credit 3,158 0.98 % 4,337 1.31 % 2,375 0.78 % 1,127 0.33 % 1,665 0.46 %
Real estate mortgage - commercial and other 40,709 1.16 % 30,342 0.95 % 23,603 1.15 % 8,938 0.47 % 7,983 0.45 %
Consumer loans 2,900 4.78 % 2,656 4.64 % 1,478 2.74 % 972 1.73 % 952 1.33 %
Total allocated
90,967 78,789 52,175 21,398 20,929
Unallocated
— n/a — n/a 213 n/a — n/a 110 n/a
Total
$ 90,967 1.36 % 78,789 1.30 % 52,388 1.11 % 21,398 0.48 % 21,039 0.50 %
Note: "% of Loan Category" represents the ACL as a percent of the respective total loan categories presented previously in the Loan Portfolio Composition table.
n/a - not applicable
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For the years indicated, the following table summarized our net loss experience by loan category and key ratios demonstrating the asset quality trends over the most recent five years.
Loan Ratios, Loss and Recovery Experience
As of December 31,
($ in thousands) 2022 2021 2020 2019 2018
Loans outstanding at end of year $ 6,665,145 6,081,715 4,731,315 4,453,466 4,249,064
Average amount of loans outstanding 6,293,280 5,018,391 4,702,743 4,346,331 4,161,838
Allowance for credit losses, at end of year 90,967 78,789 52,388 21,398 21,039
Net loan (charge-offs) recoveries
Commercial, financial, and agricultural $ (1,763) (1,978) (4,863) (1,493) (933)
Real estate – construction, land development & other land loans 480 703 1,501 722 3,939
Real estate mortgage – residential (1-4 family) first mortgages 17 488 276 48 (901)
Real estate mortgage – home equity loans/lines of credit 557 178 (37) 322 (347)
Real estate mortgage – commercial and other 920 (1,762) (347) (981) 44
Consumer loans (633) (309) (579) (522) (472)
Total net (charge-offs) recoveries $ (422) (2,680) (4,049) (1,904) 1,330
Average loans:
Commercial, financial, and agricultural $ 619,480 700,557 707,976 482,654 430,449
Real estate – construction, land development & other land loans 857,880 619,928 615,717 503,183 555,354
Real estate mortgage – residential (1-4 family) first mortgages 1,091,788 951,573 1,028,334 1,074,938 1,015,360
Real estate mortgage – home equity loans/lines of credit 326,592 300,291 316,593 346,331 366,416
Real estate mortgage – commercial and other 3,338,710 2,391,845 1,981,763 1,872,666 1,723,117
Consumer loans 58,830 54,197 52,360 66,559 71,142
Total average loans $ 6,293,280 5,018,391 4,702,743 4,346,331 4,161,838
Ratios:
Allowance for credit losses as a percent of loans at end of year 1.36 % 1.30 % 1.11 % 0.48 % 0.50 %
Allowance for credit losses as a multiple of net charge-offs 215.56 29.40 12.94 11.24 n/m
Provision for loan losses as a percent of net charge-offs 2985.78 % 358.62% 865.37% 118.86% n/m
Recoveries of loans previously charged-off as a percent of loans charged-off 90.55 % 64.75 % 52.38 % 69.79 % 119.08 %
Total net (charge-offs) recoveries as a percent of average loans (0.01 %) (0.05 %) (0.09 %) (0.04 %) 0.03 %
Net (charge-offs) recoveries by loan category as a percent of average loans:
Commercial, financial, and agricultural (0.28 %) (0.28 %) (0.69 %) (0.31 %) (0.22 %)
Real estate – construction, land development & other land loans 0.06 % 0.11 % 0.24 % 0.14 % 0.71 %
Real estate mortgage – residential (1-4 family) first mortgages — % 0.05 % 0.03 % — % (0.09 %)
Real estate mortgage – home equity loans/lines of credit 0.17 % 0.06 % (0.01 %) 0.09 % (0.09 %)
Real estate mortgage – commercial and other 0.03 % (0.07 %) (0.02 %) (0.05 %) — %
Consumer loans (1.08 %) (0.57 %) (1.11 %) (0.78 %) (0.66 %)
n/m – not meaningful
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Securities
Our securities portfolio totaled $2.9 billion at December 31, 2022, compared to $3.1 billion at December 31, 2021.
AFS securities were $2.3 billion at December 31, 2022, compared to $2.6 billion at December 31, 2021. HTM securities were $541.7 million at December 31, 2022, compared to $513.8 million at December 31, 2021.
The composition of the investment securities portfolio reflects our investment strategy of maintaining an appropriate level of liquidity while providing a relatively stable source of income. The investment portfolio also provides a balance to interest rate risk and credit risk in other categories of the balance sheet while providing a vehicle for the investment of available funds, furnishing liquidity, and supplying securities to pledge as required collateral for certain deposits. Over 99% of our mortgage-backed securities, which include both AFS and HTM securities, are issued by GSEs or GNMA, and are traded in liquid secondary markets. These securities are recorded on the balance sheet at fair value for the AFS portfolio and at cost for the HTM portfolio.
Securities Portfolio Composition
As of December 31,
($ in thousands) 2022 2021 2020
Securities available for sale:
US Treasury securities $ 168,758 — —
Government-sponsored enterprise securities
57,456 69,179 70,206
Mortgage-backed securities
2,045,000 2,514,805 1,337,706
Corporate bonds
43,279 46,430 45,220
Total securities available for sale
2,314,493 2,630,414 1,453,132
Securities held to maturity:
Mortgage-backed securities
15,150 20,260 29,959
State and local governments
526,550 493,565 137,592
Total securities held to maturity
541,700 513,825 167,551
Total securities $ 2,856,193 3,144,239 1,620,683
Average total securities during year $ 3,356,486 2,367,591 1,002,008
The decrease in securities for the year ended December 31, 2022 was primarily due the decrease in market valuations on AFS securities associated with the sharp increase in bond yields. Also contributing to the decline was regular principal repayments received on mortgage-backed securities more than offsetting purchases early in the year.
The table below presents the composition, tax equivalent yields, and remaining maturities of our securities as of December 31, 2022. For more information about these securities, including gross unrealized gains and losses by type of security and securities pledged, see Note 3 to the consolidated financial statements.
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Securities Portfolio Maturity Schedule
($ in thousands) US Treasury securities Government & govt.-sponsored enterprise securities Mortgage-backed securities (1)
Corporate debt securities Total Weighted Average Yield (2)
Securities available for sale
Remaining maturity:
One year or less $ — — 1,715 25,036 26,751 2.66 %
After one through five years 168,758 — 469,151 2,466 640,375 1.52 %
After five through ten years — 57,456 1,480,763 14,891 1,553,110 1.56 %
After ten years — — 93,371 886 94,257 1.79 %
Fair Value $ 168,758 57,456 2,045,000 43,279 2,314,493
Amortized cost $ 174,420 71,957 2,467,839 44,340 2,758,556 1.57 %
Weighted-average yield (2)
2.33 % 1.17 % 1.71 % 3.78 % 1.57 %
Weighted average maturity years 1.48 7.07 7.09 2.86 6.15
Mortgage-backed securities (1)
State and local governments Total Weighted Average Yield (2)
Securities held to maturity
Remaining maturity:
One year or less $ — — — — %
After one through five years 13,316 997 14,313 2.29 %
After five through ten years 1,834 61,509 63,343 2.11 %
After ten years — 464,044 464,044 2.05 %
Amortized cost $ 15,150 526,550 541,700
Fair value $ 14,221 418,307 432,528 2.07 %
Weighted-average yield (2)
2.41 % 2.06 % 2.07 %
Weighted average maturity years 3.06 11.71 11.47
(1) Mortgage-backed securities are shown maturing in the periods consistent with their estimated lives based on expected prepayment speeds.
(2) Yields on tax-exempt investments have been adjusted to a taxable equivalent basis using a 23% tax rate.
The majority of our GSE securities carry one maturity date, often with an issuer call feature. At December 31, 2022, of the $57.4 million in AFS GSE securities, $32.3 million were issued by the FFCB, $23.6 million were issued by the FHLMC, and the remaining $1.5 million were issued by the FHLB.
Nearly all of our $2.0 billion in AFS mortgage-backed securities at December 31, 2022 were issued by the FHLMC, FNMA, GNMA, or the SBA, each of which is a government agency or government-sponsored corporation and guarantees the repayment of the securities. Included in this total are commerical mortgage-backed securities of $810.9 million. Mortgage-backed securities vary in their repayment in correlation with the underlying pools of mortgage loans.
At December 31, 2022, we held $541.7 million in securities classified as HTM, which are carried at amortized cost. These securities had fair values that were lower than their carrying values by $109.2 million at December 31, 2022. Approximately $15.2 million of the HTM securities were mortgage-backed securities that have been issued by either the FHLMC or FNMA. The remaining $526.6 million in HTM securities were comprised almost entirely of highly-rated municipal bonds issued by state and local governments throughout the nation. We have no significant concentration of bond holdings from one state or local government entity, with the single largest exposure to any one entity being $9.5 million. We have evaluated any unrealized losses on individual securities at each year end and determined them to be of a temporary nature and caused by fluctuations in market interest rates, not by concerns about the ability of the issuers to meet their obligations.
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Deposits
Deposits represent the primary funding source for our loans and investments. Total deposits amounted to $9.2 billion at December 31, 2022, an increase of $0.1 billion, or 1.1%, from December 31, 2021. Deposit growth for the year was entirely organic as there were no acquisitions during 2022.
While total deposits increased in 2022, we experienced a decline in retail customer deposits of 1.7% from the prior year end. Brokered deposits were utilized as needed during the year to fund loan growth and fluctuations in deposit accounts.
We believe the decline in retail deposits was a result of customer behaviors shifting from the activity experienced during the pandemic, combined with the increase in market rates and resulting competition for deposits. In addition, although the number of net new deposit accounts increased, the average balance per account declined year-over-year. We routinely engage in activities designed to grow and retain deposits, such as (1) emphasizing relationship banking to new and existing customers, where borrowers are encouraged and normally expected to maintain deposit accounts with us, (2) pricing deposits at rate levels that will attract and/or retain deposits, and (3) continually working to identify and introduce new products that will attract customers or enhance our appeal as a primary provider of financial services.
The following table presents summary of the deposit balances and mix at each of the past five year ends.
Deposit Composition
As of December 31,
2022 2021 2020 2019 2018
($ in thousands) Amount % of
Total Amount % of
Total Amount % of
Total Amount % of
Total Amount % of
Total
Noninterest-bearing checking accounts $ 3,566,003 39 % 3,348,622 37 % 2,210,012 35 % 1,515,977 31 % 1,320,697 28 %
Interest-bearing checking accounts 1,514,166 16 % 1,593,231 17 % 1,172,022 19 % 912,784 18 % 916,374 20 %
Money market accounts 2,416,146 26 % 2,562,283 28 % 1,581,364 25 % 1,173,107 24 % 1,035,523 22 %
Savings accounts 728,641 8 % 708,054 8 % 519,266 8 % 424,415 9 % 432,390 9 %
Other time deposits 464,343 5 % 547,669 6 % 415,269 7 % 462,898 9 % 445,594 10 %
Time deposits >$250,000 276,319 3 % 357,355 4 % 355,441 6 % 356,033 7 % 269,453 6 %
Total customer deposits 8,965,618 97 % 9,117,214 100 % 6,253,374 100 % 4,845,214 98 % 4,420,031 95 %
Brokered Deposits 261,911 3 % 7,415 — % 20,222 — % 86,141 2 % 239,875 5 %
Total deposits $ 9,227,529 100 % 9,124,629 100 % 6,273,596 100 % 4,931,355 100 % 4,659,906 100 %
Our deposit mix continues to be predominately transaction and non-time deposit accounts, with total time deposits declining from 21% of total deposits at December 31, 2018 to 11% at December 31, 2022. Such a shift in mix is beneficial for us, as non-time deposit accounts generally carry lower interest rates compared to time deposits and allows us to reprice these deposit categories at any time. Approximately 88% of our time deposits mature within one year.
As of December 31, 2022, we held approximately $3.5 billion in uninsured deposits, including $276.3 million of uninsured time deposits.
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The table below presents maturities of time deposits of more than $250,000 as of December 31, 2022.
As of December 31, 2022
($ in thousands) 3 Months
or Less Over 3 to 6
Months Over 6 to 12
Months Over 12
Months Total
Uninsured time deposits of more than $250,000 $ 72,133 85,194 84,171 34,821 276,319
At each of the past three year ends, we had no deposits issued through foreign offices, nor do we believe that we held any deposits of foreign depositors.
Borrowings
We typically utilize borrowings to provide balance sheet liquidity and to fund imbalances in our loan growth compared to our deposit growth. Total borrowings at December 31, 2022 increased $220.1 million over the prior year end. During 2022, FHLB advances increased $219.9 million related to short-term advances required to fund loan growth and fluctuations in deposit balances. Our borrowings outstanding as of the dates presented were as follows:
($ in thousands) December 31, 2022 December 31, 2021
FHLB advances - long-term $ 221,842 1,974
Trust preferred capital issuances 69,076 69,076
290,918 71,050
Unamortized discounts on acquired borrowings (3,411) (3,664)
$ 287,507 67,386
As noted in the table above, at December 31, 2022, we had $69.1 million of borrowings structured as trust preferred capital securities which qualify as capital for regulatory capital adequacy requirements. The Company issued $46.4 million of these securities, $10.3 million was assumed in our acquisition of Carolina Bank, and $12.4 million was assumed in our acquisition of Select.
At December 31, 2022, the Company had three sources of readily available borrowing capacity:
• A line of credit with the FHLB of approximately $847.1 million which can be structured as either short-term or long-term borrowings, depending on the particular funding or liquidity need, and is secured by our FHLB stock and a blanket lien on most of our real estate loan portfolio.
• Federal funds lines of credit from several correspondent banks totaling $265.0 million which provide for overnight unsecured federal funds purchased.
• A line of credit with the Federal Reserve of approximately $165.4 million which is secured by a blanket lien on a portion of our commercial and consumer loan portfolio (excluding real estate loans).
Refer to Note 9 to the consolidated financial statements for additional discussion of our borrowings.
Liquidity, Commitments, and Contingencies
Our liquidity is determined by our ability to convert assets to cash or to acquire alternative sources of funds to meet the needs of our customers who are withdrawing or borrowing funds, and our ability to maintain required reserve levels, pay expenses, and operate the Company on an ongoing basis. Our primary liquidity sources are net income from operations, cash and due from banks, federal funds sold, and other short-term investments. Our securities portfolio is comprised almost entirely of readily marketable securities which could also be sold to provide cash. In addition, we have available lines of credit from the FHLB and Federal Reserve, as well as federal funds lines from several correspondent banks.
Our overall liquidity started increasing in 2020 and continued into 2021 due to significant and continued deposit growth that outpaced our loan growth. During 2022, we have managed our primary liquid assets (cash and AFS securities) to lower levels in order to meet loan demand and maximize our margins. In addition during 2022, we have had decreases in retail deposit levels as market rates for deposits became more competitive and customer behaviors shifted from the activity experienced during the pandemic.
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Our liquid assets as a percentage of our total deposits and borrowings amounted to 27.2% at December 31, 2022. We believe our liquidity sources, including unused lines of credit, are at an acceptable level and remain adequate to meet our operating needs in the foreseeable future. We will continue to monitor our liquidity position carefully and will explore and implement strategies to increase liquidity if deemed appropriate.
In the normal course of business we have various outstanding contractual obligations that will require future cash outflows. In addition, there are commitments and contingent liabilities, such as commitments to extend credit, that may or may not require future cash outflows.
Presented below is a summary of our contractual obligations and other commercial commitments outstanding as of December 31, 2022.
Contractual Obligations and Other Commercial Commitments
Payments Due Per Period ($ in thousands)
Contractual Obligations
As of December 31, 2022 Less
than 1 Year 1-3 Years 4-5 Years After 5 Years Total
Borrowings $ 220,991 98 104 66,314 287,507
Operating leases 2,360 3,869 3,232 18,441 27,902
Time deposits, including brokered deposits 882,740 89,299 29,649 884 1,002,572
Non-qualified postretirement plan liabilities 340 712 772 5,783 7,607
Committed investment obligations 14,288 14,287 — — 28,575
Estimated interest expense on borrowings and time deposits (1)
12,887 11,646 10,169 35,928 70,630
Total contractual cash obligations $ 1,133,606 119,911 43,926 127,350 1,424,793
(1) Represents forecasted interest expense on borrowings and time deposits based on interest rates and balances at December 31, 2022. Forecasts are based on the contractual maturity of each liability.
Amount of Commitment Expiration Per Period ($ in thousands)
Other Commercial Commitments
As of December 31, 2022 Less
than 1 Year 1-3 Years 4-5 Years After 5 Years Total
Amounts
Committed
Credit cards
$ — — — 202,995 202,995
Lines of credit and loan commitments
393,609 608,245 149,589 1,005,938 2,157,381
Standby letters of credit
18,912 1,315 — — 20,227
Total commercial commitments
$ 412,521 609,560 149,589 1,208,933 2,380,603
In the normal course of business there are various outstanding commitments and contingent liabilities such as commitments to extend credit, which are not reflected in the financial statements.
As presented in the table above, at December 31, 2022, we had $20.2 million in standby letters of credit outstanding. We had no carrying amount for these standby letters of credit. The nature of standby letters of credit is that of a stand-alone obligation made on behalf of our customers to suppliers of the customers to guarantee payments owed to the supplier by the customer. The standby letters of credit are generally for terms of one year, at which time they may be renewed for another year if both parties agree. The payment of the guarantees would generally be triggered by a continued nonpayment of an obligation owed by the customer to the supplier. The maximum potential amount of future payments (undiscounted) we could be required to make under the guarantees in the event of nonperformance by the parties to whom credit or financial guarantees have been extended is represented by the contractual amount of the financial instruments discussed above. In the event that we are required to honor a standby letter of credit, a note, already executed by the customer, becomes effective providing repayment terms and any collateral. Over the past several years, we have had to honor only a few standby letters of credit, none of which resulted in any loss to the Company. We expect any draws under existing commitments to be funded through normal operations.
It has been our experience that deposit withdrawals are generally able to be replaced with new deposits when needed. Based on that assumption, management believes that he Bank can meet its contractual cash obligations and existing commitments from normal operations.
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Capital Resources and Shareholders’ Equity
Shareholders’ equity at December 31, 2022 amounted to $1.0 billion compared to $1.2 billion at December 31, 2021. The two basic components that typically have the largest impact on our shareholders’ equity are net income, which increases shareholders’ equity, and dividends declared, which decrease shareholders’ equity. Additionally, any stock issuances can significantly increase shareholders’ equity, including those associated with acquisitions, and any stock repurchases reduce shareholders’ equity. Finally, fluctuations in the amount of AOCI, generally driven by market rate changes resulting in increases or decreases in unrealized gains/losses on AFS securities, can have a significant impact on total equity. In 2022, the most significant factors that impacted our shareholders' equity were (1) $317.0 million reduction in equity related to changes in AOCI driven by higher unrealized losses on AFS securities; (2) $146.9 million net income reported for 2022, which increased equity, and (3) common stock dividends declared of $31.4 million, which reduced equity.
As discussed in “Borrowings” above, we also currently have $69.1 million in trust preferred securities outstanding, all of which qualify as Tier I capital under regulatory standards. We are not aware of any recommendations of regulatory authorities or otherwise which, if they were to be implemented, would have a material effect on our liquidity, capital resources, or operations.
The Company and the Bank must comply with regulatory capital requirements established by the Federal Reserve and the Commissioner. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on our financial statements. The primary source of funds for the payment of dividends by the Company is dividends received from its subsidiary, the Bank. The Bank, as a North Carolina banking corporation, may declare dividends so long as such dividends do not reduce its capital below its applicable required capital (typically, the level of capital required to be deemed “adequately capitalized”). As of December 31, 2022, approximately $830.8 million of the Company’s investment in the Bank is restricted as to transfer to the Company without obtaining prior regulatory approval.
Our regulatory capital ratios as of December 31, 2022, 2021, and 2020 are presented in the table below. All of our capital ratios significantly exceeded the minimum regulatory thresholds for all periods presented.
Risk-Based and Leverage Capital Ratios
As of December 31,
($ in thousands) 2022 2021 2020
Risk-Based and Leverage Capital
Common Equity Tier I capital:
Shareholders’ equity $ 1,031,596 1,230,575 893,421
Intangible assets, net of deferred tax liability (363,202) (366,609) (239,702)
Accumulated other comprehensive income adjustments 341,975 24,970 (14,350)
Total Common Equity Tier I capital 1,010,369 888,936 639,369
Add: Trust preferred securities eligible for Tier I capital treatment 63,589 63,336 52,496
Total Tier I leverage capital 1,073,958 952,272 691,865
Tier II capital:
Add: Allowable allowance for credit losses and unfunded commitments 97,126 88,692 52,388
Add: Other Tier II Capital — — 582
Tier II capital additions 97,126 88,692 52,970
Total capital $ 1,171,084 1,040,964 744,835
Total risk weighted assets $ 7,762,894 7,094,787 4,846,322
Adjusted fourth quarter average assets $ 10,215,571 10,144,760 7,001,834
Risk-based and Leverage capital ratios:
Common equity Tier I capital to Tier I risk adjusted assets 13.02 % 12.53 % 13.19 %
Tier I capital to Tier I risk adjusted assets 13.83 % 13.42 % 14.28 %
Total risk-based capital to Tier II risk-adjusted assets 15.09 % 14.67 % 15.37 %
Tier I leverage capital to adjusted fourth quarter average assets 10.51 % 9.39 % 9.88 %
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Our goal is to maintain our capital ratios at levels at least 200 basis points higher than the regulatory “well capitalized” thresholds set for banks. At December 31, 2022, our leverage ratio was 10.51% compared to the regulatory well capitalized bank-level threshold of 4.00% and our total risk-based capital ratio was 15.09% compared to the 10.50% regulatory well capitalized threshold. The increase in capital levels in 2022 was related to the growth in net income.
In addition to regulatory capital ratios, we also closely monitor our ratio of TCE to tangible assets. This ratio was 6.39% at December 31, 2022 compared to 8.38% at December 31, 2021, with the decline of 199 basis points related primarily to the higher unrealized loss on available for sale securities included in equity
See “Supervision and Regulation” under “Business” in Item 1. and Note 15 to the consolidated financial statements for discussion of other matters that may affect our capital resources.
Off-Balance Sheet Arrangements and Derivative Financial Instruments
Off-balance sheet arrangements include transactions, agreements, or other contractual arrangements pursuant to which we have obligations or provide guarantees on behalf of an unconsolidated entity. We have no off-balance sheet arrangements of this kind other than letters of credit and repayment guarantees associated with our trust preferred securities.
Derivative financial instruments include futures, forwards, interest rate swaps, options contracts, and other financial instruments with similar characteristics. We did not engage in significant derivatives activities in 2022 and have no current plans to do so.
Current Accounting Matters
We prepare our consolidated financial statements and related disclosures in conformity with standards established by, among others, the FASB. Because the information needed by users of financial reports is dynamic, the FASB frequently issues new rules and proposes new rules for companies to apply in reporting their activities. See Note 1 to our consolidated financial statements for a discussion of recent rule proposals and changes.
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Selected Consolidated Financial Data
Year Ended December 31,
($ in thousands, except per share data) 2022 2021 2020 2019 2018
Income Statement Data
Interest income $ 340,957 255,918 237,684 250,107 231,207
Interest expense 16,103 9,523 19,562 33,903 23,777
Net interest income 324,854 246,395 218,122 216,204 207,430
Provision for (reversal of) loan losses 12,600 9,611 35,039 2,263 (3,589)
(Reversal of) provision for unfunded commitments (200) 5,420 — — —
Net interest income after provision 312,454 231,364 183,083 213,941 211,019
Noninterest income 67,985 73,611 81,346 59,529 58,942
Noninterest expense 195,220 184,656 161,298 157,194 156,483
Income before income taxes 185,219 120,319 103,131 116,276 113,478
Income tax expense 38,283 24,675 21,654 24,230 24,189
Net income 146,936 95,644 81,477 92,046 89,289
Per Common Share Data
Earnings per common share – basic $ 4.12 3.19 2.81 3.10 3.02
Earnings per common share – diluted 4.12 3.19 2.81 3.10 3.01
Cash dividends declared 0.88 0.80 0.72 0.54 0.40
Market Price
High 49.00 50.92 40.00 41.34 43.14
Low 32.90 32.47 17.32 31.22 30.50
Close 42.84 45.72 33.83 39.91 32.66
Stated book value – common 28.89 34.54 31.26 28.80 25.71
Selected Balance Sheet Data (at year end)
Total assets $ 10,625,049 10,508,901 7,289,751 6,143,639 5,864,116
Loans 6,665,145 6,081,715 4,731,315 4,453,466 4,249,064
Allowance for credit losses 90,967 78,789 52,388 21,398 21,039
Intangible assets 376,938 382,090 254,638 251,585 255,480
Deposits 9,227,529 9,124,629 6,273,596 4,931,355 4,659,339
Borrowings 287,507 67,386 61,829 300,671 406,609
Total shareholders’ equity 1,031,596 1,230,575 893,421 852,401 764,230
Selected Average Balances
Total assets $ 10,556,230 8,495,645 6,765,998 6,027,047 5,693,760
Loans 6,293,280 5,018,391 4,702,743 4,346,331 4,161,838
Earning assets 9,989,185 7,871,319 6,160,100 5,448,400 5,112,436
Deposits 9,283,505 7,401,910 5,644,290 4,824,216 4,516,811
Interest-bearing liabilities 5,758,001 4,736,343 3,897,912 3,720,536 3,663,077
Total shareholders’ equity 1,096,913 969,775 874,532 812,823 727,920
Ratios
Return on average assets 1.39 % 1.13 % 1.20 % 1.53 % 1.57 %
Return on average common equity 13.40 % 9.86 % 9.32 % 11.32 % 12.27 %
Total risk-based capital ratio 15.09 % 14.67 % 15.37 % 14.89 % 13.97 %
Net interest margin (taxable-equivalent basis) 3.28 % 3.16 % 3.56 % 4.00 % 4.09 %
Loans to deposits at year end 72.23 % 66.65 % 75.42 % 90.31 % 91.19 %
Allowance for loan losses to total loans 1.36 % 1.30 % 1.11 % 0.48 % 0.50 %
Nonperforming assets to total assets at year end 0.36 % 0.50 % 0.64 % 0.62 % 0.74 %
Net (charge-offs) recoveries to average total loans (0.01 %) (0.05 %) (0.09 %) (0.04 %) 0.03 %
Note - During 2021, the Company completed a significant whole-bank acquisition impacting the comparisons for that year. See additional discussion under "Mergers and Acquisitions" in Item 1.
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