Dear(cid:3)Shareholder:(cid:3)
Truxton(cid:3)Trust(cid:3)thrived(cid:3)in(cid:3)the(cid:3)tumult(cid:3)and(cid:3)crosscurrents(cid:3)of(cid:3)2021.(cid:3)(cid:3)Values(cid:3)rose(cid:3)in(cid:3)many(cid:3)asset(cid:3)classes(cid:3)as(cid:3)a(cid:3)
friendly(cid:3)Federal(cid:3)Reserve(cid:3)kept(cid:3)rates(cid:3)low(cid:3)to(cid:3)bolster(cid:3)the(cid:3)pandemic(cid:882)stressed(cid:3)economy.(cid:3)(cid:3)Real(cid:3)estate(cid:3)prices(cid:3)in(cid:3)
our(cid:3)home(cid:3)market(cid:3)of(cid:3)Nashville(cid:3)stood(cid:3)at(cid:3)the(cid:3)confluence(cid:3)of(cid:3)several(cid:3)trends:(cid:3)easy(cid:3)money(cid:3)globally,(cid:3)a(cid:3)low(cid:882)tax,(cid:3)
business(cid:3)friendly(cid:3)environment(cid:3)in(cid:3)the(cid:3)state,(cid:3)and(cid:3)appealing(cid:3)economic(cid:3)opportunity(cid:3)and(cid:3)cultural(cid:3)vibrancy(cid:3)
locally.(cid:3)(cid:3)The(cid:3)result(cid:3)was(cid:3)extraordinary(cid:3)appreciation(cid:3)of(cid:3)assets(cid:3)across(cid:3)many(cid:3)categories,(cid:3)buoying(cid:3)both(cid:3)loan(cid:3)
quality(cid:3)and(cid:3)loan(cid:3)growth(cid:3)at(cid:3)Truxton.(cid:3)(cid:3)Gross(cid:3)loans(cid:3)at(cid:3)the(cid:3)end(cid:3)of(cid:3)2021(cid:3)stood(cid:3)at(cid:3)$494.8(cid:3)million,(cid:3)an(cid:3)increase(cid:3)
of(cid:3)17.9%(cid:3)from(cid:3)the(cid:3)beginning(cid:3)of(cid:3)the(cid:3)year.(cid:3)(cid:3)Excluding(cid:3)loans(cid:3)made(cid:3)under(cid:3)the(cid:3)Paycheck(cid:3)Protection(cid:3)Program(cid:3)
(PPP),(cid:3)loans(cid:3)grew(cid:3)by(cid:3)25%(cid:3)compared(cid:3)to(cid:3)the(cid:3)end(cid:3)of(cid:3)2020.(cid:3)(cid:3)We(cid:3)ended(cid:3)the(cid:3)year(cid:3)with(cid:3)no(cid:3)loans(cid:3)past(cid:3)due(cid:3)by(cid:3)
more(cid:3)than(cid:3)30(cid:3)days.(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)
Truxton(cid:3)Wealth(cid:3)Management(cid:3)won(cid:3)many(cid:3)new(cid:3)client(cid:3)relationships(cid:3)in(cid:3)2021(cid:3)and(cid:3)the(cid:3)assets(cid:3)we(cid:3)manage(cid:3)
experienced(cid:3)strong(cid:3)appreciation.(cid:3)(cid:3)As(cid:3)a(cid:3)result,(cid:3)wealth(cid:3)management(cid:3)revenue(cid:3)grew(cid:3)by(cid:3)32%(cid:3)compared(cid:3)to(cid:3)
2020.(cid:3)(cid:3)Truxton(cid:3)believes(cid:3)in(cid:3)proactive,(cid:3)comprehensive(cid:3)wealth(cid:3)management.(cid:3)(cid:3)We(cid:3)look(cid:3)for(cid:3)opportunities(cid:3)to(cid:3)
improve(cid:3)long(cid:882)term(cid:3)outcomes(cid:3)for(cid:3)wealthy(cid:3)families(cid:3)who(cid:3)let(cid:3)us(cid:3)guide(cid:3)their(cid:3)planning(cid:3)and(cid:3)asset(cid:3)
management.(cid:3)(cid:3)(cid:3)
Expenses(cid:3)remain(cid:3)under(cid:3)tight(cid:3)control(cid:3)at(cid:3)Truxton.(cid:3)(cid:3)We(cid:3)operate(cid:3)from(cid:3)a(cid:3)single(cid:3)banking(cid:3)location(cid:3)in(cid:3)Nashville,(cid:3)
the(cid:3)same(cid:3)space(cid:3)we(cid:3)have(cid:3)occupied(cid:3)for(cid:3)17(cid:3)years.(cid:3)(cid:3)We(cid:3)employed(cid:3)61(cid:3)full(cid:882)time(cid:3)equivalent(cid:3)staff(cid:3)at(cid:3)the(cid:3)end(cid:3)of(cid:3)
the(cid:3)year,(cid:3)only(cid:3)a(cid:3)handful(cid:3)more(cid:3)than(cid:3)five(cid:3)years(cid:3)ago(cid:3)when(cid:3)our(cid:3)revenue(cid:3)was(cid:3)scarcely(cid:3)more(cid:3)than(cid:3)half(cid:3)of(cid:3)what(cid:3)
it(cid:3)was(cid:3)in(cid:3)the(cid:3)year(cid:3)just(cid:3)concluded.(cid:3)(cid:3)The(cid:3)result(cid:3)is(cid:3)that(cid:3)net(cid:3)income(cid:3)almost(cid:3)tripled(cid:3)over(cid:3)the(cid:3)last(cid:3)five(cid:3)years,(cid:3)
rising(cid:3)from(cid:3)$5.5(cid:3)million(cid:3)to(cid:3)$14.5(cid:3)million.(cid:3)(cid:3)(cid:3)
At(cid:3)the(cid:3)bottom(cid:3)line,(cid:3)Truxton(cid:3)dilutive(cid:3)earnings(cid:3)per(cid:3)share(cid:3)rose(cid:3)to(cid:3)$5.02(cid:3)in(cid:3)2021(cid:3)from(cid:3)$3.90(cid:3)in(cid:3)2020,(cid:3)an(cid:3)
increase(cid:3)of(cid:3)29%.(cid:3)(cid:3)The(cid:3)eclipse(cid:3)of(cid:3)$5(cid:3)EPS(cid:3)represents(cid:3)the(cid:3)achievement(cid:3)of(cid:3)a(cid:3)goal(cid:3)set(cid:3)by(cid:3)Truxton(cid:3)
management(cid:3)a(cid:3)decade(cid:3)ago.(cid:3)While(cid:3)satisfying,(cid:3)this(cid:3)success(cid:3)causes(cid:3)us(cid:3)to(cid:3)lift(cid:3)our(cid:3)eyes(cid:3)to(cid:3)still(cid:3)loftier(cid:3)goals,(cid:3)
none(cid:3)of(cid:3)which(cid:3)can(cid:3)be(cid:3)achieved(cid:3)unless(cid:3)we(cid:3)provide(cid:3)exceptional(cid:3)service(cid:3)to(cid:3)clients.(cid:3)
The(cid:3)year(cid:3)ahead(cid:3)offers(cid:3)many(cid:3)challenges.(cid:3)(cid:3)We(cid:3)benefitted(cid:3)from(cid:3)almost(cid:3)$1(cid:3)million(cid:3)in(cid:3)fees(cid:3)from(cid:3)loans(cid:3)made(cid:3)
under(cid:3)the(cid:3)Paycheck(cid:3)Protection(cid:3)Program(cid:3)(PPP)(cid:3)in(cid:3)2021,(cid:3)which(cid:3)will(cid:3)decline(cid:3)to(cid:3)zero(cid:3)in(cid:3)2022.(cid:3)(cid:3)Interest(cid:3)rates(cid:3)
have(cid:3)begun(cid:3)to(cid:3)rise(cid:3)in(cid:3)early(cid:3)2022(cid:3)and(cid:3)stock(cid:3)prices(cid:3)have(cid:3)generally(cid:3)fallen.(cid:3)(cid:3)Most(cid:3)banks(cid:3)hold(cid:3)excess(cid:3)deposits(cid:3)
today(cid:3)which(cid:3)they(cid:3)seek(cid:3)to(cid:3)deploy(cid:3)in(cid:3)the(cid:3)form(cid:3)of(cid:3)loans(cid:3)making(cid:3)for(cid:3)a(cid:3)difficult(cid:3)pricing(cid:3)environment(cid:3)for(cid:3)
Truxton.(cid:3)
Despite(cid:3)these(cid:3)headwinds,(cid:3)we(cid:3)believe(cid:3)that(cid:3)Truxton(cid:3)Trust(cid:3)provides(cid:3)value(cid:3)to(cid:3)clients(cid:3)that(cid:3)will(cid:3)allow(cid:3)us(cid:3)to(cid:3)
continue(cid:3)to(cid:3)grow(cid:3)and(cid:3)prosper.(cid:3)We(cid:3)believe(cid:3)shareholders(cid:3)will(cid:3)be(cid:3)the(cid:3)ultimate(cid:3)beneficiaries.(cid:3)
Thomas(cid:3)S.(cid:3)Stumb(cid:3)
Andrew(cid:3)L.(cid:3)May(cid:3)
TRUXTON CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021 and 2020
TRUXTON CORPORATION
Nashville, Tennessee
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021 and 2020
CONTENTS
INDEPENDENT AUDITOR’S REPORT .................................................................................................... 1
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS .............................................................................................. 3
CONSOLIDATED STATEMENTS OF NET INCOME ........................................................................ 4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ................................................ 5
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY .......................... 6
CONSOLIDATED STATEMENTS OF CASH FLOWS ....................................................................... 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............................................................... 8
Crowe LLP
Independent Member Crowe Global
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Truxton Corporation
Nashville, Tennessee
Opinion
We have audited the consolidated financial statements of Truxton Corporation, which comprise the
consolidated balance sheets as of December 31, 2021 and 2020, and the related consolidated statements
of net income, comprehensive income, changes in shareholders’ equity, and cash flows for the years then
ended, and the related notes to the financial statements.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,
the financial position of Truxton Corporation as of December 31, 2021 and 2020, and the results of its
operations and its cash flows for the years then ended in accordance with accounting principles generally
accepted in the United States of America.
Basis for Opinion
We conducted our audits in accordance with auditing standards generally accepted in the United States of
America (GAAS). Our responsibilities under those standards are further described in the Auditor’s
Responsibilities for the Audit of the Financial Statements section of our report. We are required to be
independent of Truxton Corporation and to meet our other ethical responsibilities, in accordance with the
relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our audit opinion.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with accounting principles generally accepted in the United States of America,
and for the design, implementation, and maintenance of internal control relevant to the preparation and fair
presentation of consolidated financial statements that are free from material misstatement, whether due to
fraud or error.
In preparing the consolidated financial statements, management is required to evaluate whether there are
conditions or events, considered in the aggregate, that raise substantial doubt about Truxton Corporation’s
ability to continue as a going concern for one year from the date the consolidated financial statements are
available to be issued.
1.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report
that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance
and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a
material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud
is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control. Misstatements are considered material if there is a
substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a
reasonable user based on the consolidated financial statements.
In performing an audit in accordance with GAAS, we:
(cid:120) Exercise professional judgment and maintain professional skepticism throughout the audit.
(cid:120)
Identify and assess the risks of material misstatement of the consolidated financial statements, whether
due to fraud or error, and design and perform audit procedures responsive to those risks. Such
procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements.
(cid:120) Obtain an understanding of internal control relevant to the audit in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of Truxton Corporation’s internal control. Accordingly, no such opinion is expressed.
(cid:120) Evaluate the appropriateness of accounting policies used and the reasonableness of significant
accounting estimates made by management, as well as evaluate the overall presentation of the
consolidated financial statements.
(cid:120) Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that
raise substantial doubt about Truxton Corporation’s ability to continue as a going concern for a
reasonable period of time.
We are required to communicate with those charged with governance regarding, among other matters, the
planned scope and timing of the audit, significant audit findings, and certain internal control–related matters
that we identified during the audit.
Franklin, Tennessee
January 26, 2022
Crowe LLP
2.
TRUXTON CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 2021 and 2020
(Dollars in thousands except share and per share amounts)
ASSETS
Cash and due from financial institutions
Restricted cash
Interest bearing deposits in other financial institutions
Federal funds sold
Cash and cash equivalents
Time deposits in other financial institutions
Securities available for sale
Gross loans
Allowance for loan losses
Net loans
Bank owned life insurance
Restricted equity securities
Premises and equipment, net
Accrued interest receivable
Deferred tax asset, net
Other assets
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Non-interest bearing
Interest bearing
Total deposits
Federal Home Loan Bank advances
Subordinated debentures
$15,000 face amount (less unamortized discount and debt
issuance costs of $372 at December 31, 2021 and
$471 at December 31, 2020)
Deferred tax liability, net
Other liabilities
Total liabilities
Shareholders’ equity
Preferred stock, $0.10 par value; 5,000,000 shares authorized;
no shares issued
Common stock, $0.10 par value; 40,000,000 shares authorized;
2,879,284 shares issued and outstanding in 2021 and
2,863,671 shares issued and outstanding in 2020
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Total shareholders’ equity
2021
2020
$
9,321
-
88,743
1,425
99,489
$
9,492
3,170
81,265
169
94,096
2,780
302,502
2,931
206,318
494,799
(4,775)
490,024
419,628
(4,490)
415,138
10,389
3,242
316
2,346
62
6,109
10,185
3,214
507
2,653
-
6,576
$ 917,259
$ 741,618
$ 215,696
591,779
807,475
$ 170,251
453,774
624,025
4,500
17,673
14,628
-
6,605
833,208
14,529
479
8,254
664,960
-
-
288
31,790
49,628
2,345
285
31,366
41,433
3,574
84,051
76,658
Total liabilities and shareholders’ equity
$ 917,259
$ 741,618
See accompanying notes to consolidated financial statements.
3.
TRUXTON CORPORATION
CONSOLIDATED STATEMENTS OF NET INCOME
Years ended December 31, 2021 and 2020
(Dollars in thousands except share and per share amounts)
Non-interest income
Wealth management services
Service charges on deposit accounts
Bank owned life insurance income
Other
Total non-interest income
Interest income
Loans, including fees
Taxable securities
Tax-exempt securities
Interest bearing deposits
Federal funds sold
Other interest income
Total interest income
Interest expense
Deposits
Subordinated debentures and other
Long-term borrowings
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Total revenue, net
Non-interest expense
Compensation and employee benefits
Occupancy
Furniture and equipment
Data processing
Wealth management processing fees
Advertising and public relations
Professional services
FDIC insurance assessments
Other
Total non-interest expense
Income before income taxes
Income tax expense
Net income
Earnings per share:
Basic
Diluted
2021
2020
$ 15,102
334
204
269
15,909
$ 11,469
256
212
262
12,199
18,325
3,031
1,565
236
2
124
23,283
2,247
780
310
3,337
17,201
2,137
1,088
332
19
94
20,871
1,941
194
468
2,603
19,946
18,268
291
1,093
19,655
17,175
35,564
29,374
13,247
967
154
1,291
644
215
645
214
777
18,154
11,380
868
153
1,169
520
163
626
150
887
15,916
17,410
13,458
2,869
2,309
$ 14,541
$ 11,149
$
$
5.05
5.02
$
$
3.94
3.90
See accompanying notes to consolidated financial statements.
4.
TRUXTON CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended December 31, 2021 and 2020
(Dollars in thousands except share and per share amounts)
Net income
Other comprehensive income:
Unrealized gains/losses on securities:
Unrealized holding gain (loss) arising during the period
Tax effect
Unrealized gains/losses on cash flow hedging activities:
Unrealized holding gain (loss) arising during the period
Reclassification adjustment for losses included in net
income as loss (gain) in interest income
Tax effect, income tax (expense) benefit included in
net income related to reclassification adjustments
($124) and ($101), respectively
Total other comprehensive (loss) income, net of tax
Comprehensive income
2021
2020
$ 14,541
$ 11,149
(3,150)
822
1,015
473
5,166
(1,350)
(826)
387
(389)
(1,229)
$ 13,312
115
3,492
$ 14,641
See accompanying notes to consolidated financial statements.
5.
TRUXTON CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Years Ended December 31, 2021 and 2020
(Dollars in thousands except share and per share amounts)
Shares
Common
Stock
Additional
Paid-In
Capital
Accumulated
Other
Total
Retained Comprehensive Shareholders’
Earnings
Income
Equity
2,774,655 $
57,594
Balance at January 1, 2020
Exercise of stock options
Proceeds from buy back
shares of common stock, net
Issuance of restricted
shares of common stock, net
Stock based compensation expense
Cash dividends ($1.12 per share)
Net income
Other comprehensive income
Balance at December 31, 2020
Exercise of stock options
Proceeds from buy back
shares of common stock, net
Issuance of restricted
shares of common stock, net
Stock based compensation expense
Cash dividends ($2.20 per share)
Net income
Other comprehensive income
-
31,422
-
-
-
-
(15,642)
18,111
-
-
-
-
2,863,671 $
13,144
277 $ 29,493 $ 33,511 $
5
-
3
-
-
-
-
965
(17)
(3)
928
-
-
-
-
-
-
-
(3,227)
11,149
-
285 $ 31,366 $ 41,433 $
271
(811)
-
-
82 $ 63,363
970
-
-
(17)
-
-
-
-
3,492
-
928
(3,227)
11,149
3,492
3,574 $ 76,658
273
-
-
(812)
-
(2)
-
966 - - 966
(6,346)
14,541
(1,229)
(6,346)
14,541
-
-
-
(1,229)
-
-
-
-
2
(1)
2
-
-
-
-
Balance at December 31, 2021
2,879,284 $
288 $ 31,790 $ 49,628 $
2,345 $ 84,051
See accompanying notes to consolidated financial statements.
6.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021 and 2020
(Dollars in thousands except share and per share amounts)
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash
from operating activities
Depreciation and amortization
Net amortization of securities
Deferred income tax benefit
Provision for loan losses
Gain on sale of loans held for sale
Loans originated and held for sale
Proceeds from sale of loans held for sale
Stock based compensation expense
Bank owned life insurance income
Net change in:
Accrued interest receivable
Other assets
Other liabilities
Net cash from operating activities
Cash flows from investing activities
Net decrease in time deposits in other financial institutions
Available for sale securities:
Purchases
Maturities, calls and paydowns
Net increase in loans
Purchase of restricted equity securities
Additions of premises and equipment, net
Net cash from investing activities
Cash flows from financing activities
Repayments of Federal Home Loan Bank advances
Net increase in deposits
Proceeds from issuance of subordinate debt
Proceeds from exercise of stock options
Purchase of common stock
Cash dividends paid
Net cash from financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental cash flow information:
Cash paid during year for interest
Cash paid during year for income taxes
Supplemental noncash disclosure:
Lease liabilities arising from right of use asset
7.
2021
2020
$ 14,541
$ 11,149
338
1,959
(106)
291
(38)
(2,767)
2,803
966
(204)
307
467
(161)
18,396
232
956
(237)
1,093
(51)
(3,596)
3,996
928
(212)
(811)
(1,783)
1,309
12,973
151
2,226
(125,364)
24,070
(75,176)
(28)
(48)
(176,395)
(105,937)
19,861
(55,856)
(615)
(441)
(140,762)
(13,173)
183,450
-
273
(812)
(6,346)
163,392
(738)
175,949
14,505
970
(17)
(5,979)
184,690
5,393
56,901
94,096
$ 99,489
37,195
$ 94,096
$
3,383
3,429
$
-
2,702
2,695
1,130
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021 and 2020
(Dollars in thousands except share and per share amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Principles of Consolidation: The consolidated financial statements include
Truxton Corporation and its wholly owned subsidiaries, Truxton Trust Company and Truxton Risk
Management, together referred to as “the Corporation.” Intercompany transactions and balances are
eliminated in consolidation.
Truxton Trust Company, referred to as “the Bank”, represents substantially all the operations in the
consolidated financial statements and it provides a variety of banking, investment management and trust
administration services to individuals, businesses, and charitable institutions. Its primary deposit products
are demand, money market and certificates of deposit and its primary lending products are residential
and commercial real estate mortgages, commercial loans, and loans to individuals.
Subsequent Events: The Corporation has evaluated subsequent events for recognition and disclosure
through January 26, 2022, which is the date the financial statements were available to be issued.
Use of Estimates: To prepare financial statements in conformity with accounting principles generally
accepted in the United States of America, management makes estimates and assumptions based on
available information. It is reasonably possible that the Corporation’s estimate of allowance for loan
losses could change as a result of the continued impact of the COVID-19 pandemic on the economy.
These estimates and assumptions affect the amounts reported in the financial statements and the
disclosures provided and actual results could differ.
Cash Flows: Cash and cash equivalents include cash, deposits with other financial institutions with
maturities under 90 days, and federal funds sold. Net cash flows are reported for customer loan and
deposit transactions, premises and equipment, and time deposits in other financial institutions.
Time Deposits in Other Financial Institutions: Time deposits in other financial institutions are carried at
cost. These accounts are maintained at several financial institutions and are all within the insurance
limits provided by the Federal Deposit Insurance Corporation “FDIC” and have maturities ranging from
2025 to 2026.
Securities: Debt securities are classified as available for sale when they might be sold before maturity.
Securities available for sale are carried at fair value with unrealized holding gains and losses reported in
accumulated other comprehensive income (loss), net of tax.
Interest income includes net amortization of purchase premium or discount. Premiums and discounts on
securities are amortized on the level-yield method. Gains and losses on sales are recorded on the trade
date and determined using the specific identification method.
Management evaluates securities for other-than-temporary impairment “OTTI” on at least a quarterly
basis, and more frequently when economic or market conditions warrant such an evaluation. For
securities in an unrealized loss position, management considers the extent and duration of the unrealized
loss, and the financial condition and near-term prospects of the issuer. Management also assesses
whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an
unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding
intent or requirement to sell is met, the entire difference between amortized cost and fair value is
recognized as impairment through earnings. For debt securities that do not meet the aforementioned
criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss,
which must be recognized in the income statement, and 2) OTTI related to other factors, which is
recognized in other comprehensive income (loss). The credit loss is defined as the difference between
the present value of the cash flows expected to be collected and the amortized cost basis.
8.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021 and 2020
(Dollars in thousands except share and per share amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans Held for Sale: Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of aggregate cost or fair value, as determined by outstanding commitments from
investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings.
The carrying value of mortgage loans sold is reduced by the amount allocated to the servicing right, if
servicing is retained. As of December 31, 2021, the Company has not sold any loans with servicing
retained. Gains and losses on sales of mortgage loans are based on the difference between the selling
price and the carrying value of the related loan sold.
Loans: Loans that management has the intent and ability to hold for the foreseeable future or until
maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs.
Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct
origination costs, are deferred and recognized in interest income using the level-yield method without
anticipating prepayments.
Interest income is reported on the interest method and includes amortization of net deferred loan fees and
costs over the loan term. Interest income on all loans is discontinued at the time the loan is 90 days
delinquent unless the credit is well-secured and in process of collection. Past due status is based on the
contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier
date if collection of principal or interest is considered doubtful. Nonaccrual loans and loans past due 90
days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for
impairment and individually classified impaired loans.
All interest accrued, but not received, for loans placed on nonaccrual are reversed against interest
income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method until
qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest
amounts contractually due are brought current and future payments are reasonably assured.
Concentration of Credit Risk: Most of the Corporation’s business activity is with customers located within
Nashville, Tennessee. Therefore, the Corporation’s exposure to credit risk is significantly affected by
changes in the economy in the Nashville, Tennessee metropolitan area.
Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for probable incurred
credit losses, increased by the provision for loan losses and decreased by charge-offs less recoveries.
Management estimates the allowance balance required using historical loan loss experience of both the
bank and the banking industry, the nature and volume of the portfolio, information about specific borrower
situations and estimated collateral values, economic conditions, and other factors. Allocations of the
allowance may be made for specific loans, but the entire allowance is available for any loan that, in
management’s judgment, should be charged-off. Loan losses are charged against the allowance when
management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries if any,
are credited to the allowance.
The allowance consists of specific and general components. The specific component relates to loans that
are individually classified as impaired. The general component covers loans that are collectively
evaluated for impairment and is based on historical loss experience adjusted for current factors.
A loan is impaired when, based on current information and events, it is probable that the Corporation will
be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans, for
which the terms have been modified resulting in a concession, and for which the borrower is experiencing
financial difficulties, are considered troubled debt restructurings, and classified as impaired.
9.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021 and 2020
(Dollars in thousands except share and per share amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Factors considered by management in determining impairment include payment status, collateral value,
and the probability of collecting scheduled principal and interest payments when due. Loans that
experience insignificant payment delays and payment shortfalls generally are not classified as impaired.
Management determines the significance of payment delays and payment shortfalls on a case-by-case
basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including
the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of
the shortfall in relation to the principal and interest owed.
Commercial and commercial real estate loans are individually evaluated for impairment. If a loan is
impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of
estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is
expected solely from the collateral. Large groups of smaller balance homogeneous loans, such as
consumer and residential real estate loans are collectively evaluated for impairment and accordingly, they
are not separately identified for impairment disclosures.
Troubled debt restructurings are individually evaluated for impairment and included in the separately
identified impairment disclosures. Troubled debt restructurings are measured at the present value of
estimated future cash flows using the loan’s effective rate at inception. If a troubled debt restructuring is
considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral.
For troubled debt restructurings that subsequently default, the Corporation determines the amount of the
allowance on the loan in accordance with the accounting policy for the allowance for loan losses
individually evaluated as impaired.
The historical loss experience used in management’s analysis of the general component for the
allowance for loan losses is determined by portfolio segment and is based on the average loss history
experienced by the bank and banking industry over the most recent 12 years. Management determined
that periods shorter than 12 years were inadequate given the paucity of material, differentiating loss data.
The Corporation used the loss history of its peers, as it has experienced very few losses on its own during
the entire history of the Corporation. Management evaluates 12 years of peer losses in order to align with
what management expects normalized probable incurred losses to be for the Corporation. This actual
loss experience is supplemented with other economic factors based on the risks present for each portfolio
segment. These economic factors include consideration of the following: levels of and trends in
delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume
and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in
lending policies, procedures, and practices; experience, ability, and depth of lending management and
other relevant staff; national and local economic trends and conditions; industry conditions; and effects of
changes in credit concentrations.
The following portfolio segments have been identified:
(cid:120) Commercial loans include loans for commercial, industrial, or agricultural purposes to business
enterprises that are not secured by real estate. These loans are typically made on the basis of the
borrower's ability to repay from the cash flow of the borrower's business and are generally secured by
accounts receivable, inventory and equipment. The collateral securing loans may depreciate over
time, may be difficult to appraise and may fluctuate in value based on the success of the business.
(cid:120) Commercial Real Estate
loans secured by non-residential real estate and
improvements thereon. Often these loans are made to single borrowers or groups of related
borrowers, and the repayment of these loans largely depends on the results of operations and
management of these properties. Adverse economic conditions may affect the repayment ability of
these loans.
include
loans
10.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021 and 2020
(Dollars in thousands except share and per share amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(cid:120) Residential Real Estate loans include loans secured by residential real estate, including single-family
and multi-family dwellings. Adverse economic conditions in the Corporation’s market area may
reduce borrowers' ability to repay these loans and may reduce the collateral securing these loans.
(cid:120) Construction and Land Development loans include loans to finance the process of improving
properties preparatory to erecting new structures or the on-site construction of industrial, commercial,
residential or farm buildings. Construction and land development loans also include loans secured by
vacant land, except land known to be used or usable for agricultural purposes. Construction loans
generally are made for relatively short terms. They generally are more vulnerable to changes in
economic conditions. Furthermore, the nature of these loans is such that they are more difficult to
evaluate and monitor. The risk of loss on a construction loan is dependent largely upon the accuracy
of the initial estimate of the property's value upon completion of the project and the estimated cost
(including interest) of the project. Periodic site inspections are made on construction loans.
(cid:120) Consumer loans include loans to individuals for household, family and other personal expenditures
that are not secured by real estate.
The Bank has purchased life insurance policies on certain key
Bank Owned Life Insurance:
employees. Bank owned life insurance is recorded at the amount that can be realized under the
insurance contract at the balance sheet date, which is the cash surrender value adjusted for other
charges or other amounts due that are probable at settlement.
Transfers of Financial Assets: Transfers of financial assets are accounted for as sales, when control over
the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the
assets have been isolated from the Corporation, the transferee obtains the right (free of conditions that
constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the
Corporation does not maintain effective control over the transferred assets through an agreement to
repurchase them before their maturity.
Premises and Equipment: Premises and equipment are stated at cost less accumulated depreciation.
Leasehold improvements are amortized using the straight-line method over the shorter of the lease terms
or the useful lives. Furniture, fixtures and equipment are depreciated using the straight-line method with
useful lives ranging from three to five years.
Restricted Equity Securities: The Bank is a member of the Federal Home Loan Bank (FHLB) and Federal
Reserve Bank (FRB) systems. Members are required to own a certain amount of stock based on the
level of borrowings and on their level of equity and may invest in additional amounts. FHLB and FRB
stock are carried at cost, classified as restricted equity securities and periodically evaluated for
impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as
income.
Prepaid Long-term Compensation: The Corporation paid retention bonuses in cash to certain key
employees. These cash bonuses are considered long-term compensation to be earned over a 24 to 60-
month requisite service period. The amount of the contracts is earned pro rata by the employees and
expensed pro rata by the Corporation over the contractual term of the agreements. In the event that the
employee leaves during the life of the contract, the employee is obligated to repay the unearned amount.
Prepaid long-term compensation amounts of $504 and $590 were included in other assets as of
December 31, 2021 and 2020.
11.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021 and 2020
(Dollars in thousands except share and per share amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Long-term Assets: Premises and equipment and other long-term assets are reviewed for impairment
when events indicate their carrying amount may not be recoverable from future undiscounted cash flows.
If impaired, the assets are recorded at fair value.
Assets Under Management: Assets held in fiduciary or agency capacities are not included in the
consolidated balance sheets since such items are not assets of the Corporation.
Wealth Management Services Income Recognition: Income from Wealth Management Services is
calculated by multiplying each investment management account’s market value, determined on a specific
date each month, by a static or tiered percentage, according to the investment management agreement.
The income resulting from Wealth Management Services accounts is recognized monthly.
Derivatives: The Corporation has entered into derivative contracts designated as a) a hedge of fair value
of a recognized asset or liability or of an unrecognized firm commitment (“fair value hedge”), and b) a
hedge of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash
flow hedge”). For a fair value hedge, the gain or loss on the derivative, as well as the offsetting loss or
gain on the hedged item, are recognized in current earning as fair values change. For a cash flow hedge,
the gain or loss on the derivative is reported in other comprehensive income and is reclassified into
earnings in the same periods during which the hedged transaction effects earnings. For both types of
hedges, changes in the fair values of derivatives that are not highly effective in hedging the changes in
fair value or expected cash flows of the hedged item are recognized immediately in current earnings. Net
cash settlements on derivatives that qualify for hedge accounting are recorded in interest income or
interest expense, based on the item being hedged. Cash flows on hedges are classified in the cash flow
statement the same as the cash flows of the items being hedged.
The Corporation formally documents the relationship between derivatives and hedged items, as well as
the risk-management objective and the strategy for undertaking hedge transactions at the inception of the
hedging relationship. This documentation includes linking hedge’s to specific assets and liabilities on the
balance sheet. The Corporation also formally assesses, both at the hedges inception and on an ongoing
basis, whether the derivative instruments that are used are highly effective in offsetting changes in fair
values or expected cash flows of hedged items. The Corporation discontinues hedge accounting when it
determines that the derivative is no longer effective in offsetting changes in fair value of the hedged item,
the derivative is settled or terminates, or the treatment of the derivative as a hedge is no longer
appropriate or intended. When hedge accounting is discontinued, subsequent changes in fair value of
the derivative are recorded as non-interest income.
Stock-Based Compensation: Compensation cost is recognized for stock options and restricted stock
awards issued to employees and directors, based on the fair value of these awards at the date of grant.
A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the
Corporation’s common stock at the date of grant is used for restricted stock awards. Compensation cost
is recognized, on a straight-line basis over the requisite service period for the entire award generally
defined as the vesting period.
Retirement Plans: Employee 401(k) benefit plan expense is the amount of matching contributions for the
period.
Comprehensive Income: Comprehensive income consists of net income and other comprehensive
income. Other comprehensive income includes unrealized gains and losses on securities available for
sale and unrealized gains and losses on cash flow hedges, which are also recognized as separate
components of shareholders’ equity.
12.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021 and 2020
(Dollars in thousands except share and per share amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes: Income tax expense or benefit is the total of the current year income tax due or
refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the
expected future tax amounts for the temporary differences between carrying amounts and tax bases of
assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces
deferred tax assets to the amount expected to be realized.
A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be
sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized
is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For
tax positions not meeting the “more likely than not” test, no tax benefit is recorded.
The Corporation recognizes interest and/or penalties related to income tax matters in income tax
expense.
Earnings Per Share: Basic earnings per share available to common shareholders is computed by
dividing net income adjusted for income allocated to participating securities by the weighted average
number of common shares outstanding during the period. All outstanding unvested share-based
payment awards that contain rights to non-forfeitable dividends are considered participating securities for
this calculation. Diluted earnings per share include the dilutive effect of additional potential common
shares issuable under stock options.
Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course
of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of
loss can be reasonably estimated. Management does not believe that there now are such matters that
will have a material effect on the financial statements.
Restrictions on Cash: Cash on hand or on deposit with the Federal Reserve Bank is required to meet
regulatory reserve and clearing requirements.
Dividend Restriction: Banking regulations require maintaining certain capital levels and may limit the
dividends paid by the Bank to the Corporation or by the Corporation to shareholders.
Fair Value of Financial Instruments: Fair values of financial instruments are estimated using relevant
market information and other assumptions as more fully disclosed in a separate note. Fair value
estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk,
prepayments and other factors, especially in the absence of broad markets for particular items. Changes
in assumptions or in market conditions could significantly affect the estimates.
Off Balance Sheet Financial Instruments: Financial instruments include off-balance sheet credit
instruments, such as commitments to make loans and standby letters of credit issued to meet customer
financing needs. The face amount for these items represents the exposure to loss before considering
customer collateral or ability to repay. Such financial instruments are recorded as loans when funded.
13.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021 and 2020
(Dollars in thousands except share and per share amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Newly Issued, Not Yet Effective Accounting Standards:
ASU 2016-13, Financial Instruments – Credit Losses (Topic 326)
In June 2016, FASB issued guidance to replace the incurred loss model with an expected loss model,
which is referred to as the current expected credit loss (CECL) model. The CECL model is applicable to
the measurement of credit losses on financial assets measured at amortized cost, including loan
receivables, held-to maturity debt securities, and reinsurance receivables. It also applies to off-balance
sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit,
financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor.
Transition:
(cid:120) For debt securities with other-than-temporary impairment (OTTI), the guidance will be applied
prospectively.
(cid:120) Existing purchased credit impaired (PCI) assets will be grandfathered and classified as purchased
credit deteriorated (PCD) assets at the date of adoption. The asset will be grossed up for the
allowance for expected credit losses for all PCD assets at the date of adoption and will continue to
recognize the noncredit discount in interest income based on the yield of such assets as of the
adoption date. Subsequent changes in expected credit losses will be recorded through the allowance.
(cid:120) For all other assets within the scope of CECL, a cumulative-effect adjustment will be recognized in
retained earnings as of the beginning of the first reporting period in which the guidance is effective.
The standard will be effective for fiscal years beginning after December 15, 2022.
The Corporation is currently evaluating the impact of this new accounting standard on the consolidated
financial statements.
14.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021 and 2020
(Dollars in thousands except share and per share amounts)
NOTE 2 - SECURITIES
The following table summarizes the amortized cost and fair value of the available for sale securities
portfolio at December 31, 2021 and 2020 and the corresponding amounts of gross unrealized gains and
losses recognized in accumulated other comprehensive income:
2021
Available for sale
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Asset backed securities
Corporate bonds
State and political subdivisions
Collateralized mortgage obligations
Mortgage-backed securities: residential
Mortgage-backed securities: commercial
56,483
15,029
92,692
90,461
31,756
12,950
126
183
4,026
475
199
117
(477)
(127)
(42)
(839)
(472)
(38)
Fair
Value
56,132
15,085
96,676
90,097
31,483
13,029
Total available for sale
$ 299,371
$
5,126
$
(1,995)
$ 302,502
2020
Available for sale
Asset backed securities
Corporate bonds
State and political subdivisions
Collateralized mortgage obligations
Mortgage-backed securities: residential
Mortgage-backed securities: commercial
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
23,492
11,044
76,708
50,587
21,323
16,883
70
379
4,633
1,134
477
191
(247)
-
(55)
(166)
(44)
(91)
23,315
11,423
81,286
51,555
21,756
16,983
Total available for sale
$ 200,037
$
6,884
$
(603)
$ 206,318
15.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021 and 2020
(Dollars in thousands except share and per share amounts)
NOTE 2 – SECURITIES (Continued)
There were no sales of available for sale securities during the years ending December 31, 2021, and
2020.
Securities pledged at year-end 2021 and 2020 had a carrying value of $40,313 and $41,670 and were
pledged to secure public deposits, interest rate swaps, and one of the bank’s federal funds lines of credit.
The Corporation had no holdings of securities of any one issuer, other than the U.S. government
sponsored entities and agencies, in an amount greater than 10% of shareholders’ equity.
The amortized cost and fair value of the investment securities portfolio are shown by contractual maturity.
Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay
obligations with or without call or prepayment penalties. Securities not due at a single maturity date are
shown separately.
Within one year
One to five years
Five to ten years
Beyond ten years
Asset backed securities
Collateralized mortgage obligations
Mortgage-backed securities: residential
Mortgage-backed securities: commercial
Total
December 31, 2021
Fair
Amortized
Value
Cost
$
1,503
10,027
15,214
80,977
56,483
90,461
31,756
12,950
$
1,525
10,084
15,641
84,511
56,132
90,097
31,483
13,029
$ 299,371
$ 302,502
The following table summarizes the investment securities with unrealized losses at December 31, 2021
and 2020 aggregated by major security type and length of time in a continuous unrealized loss position:
December 31, 2021
Available for sale
Less than 12 Months
Unrealized
Losses
Fair
Value
12 Months or More
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Asset backed securities $ 37,927 $
Corporate bonds
State and political
subdivisions
Collateralized mortgage
obligation
Mortgage-backed securities:
6,363
2,925
59,377
(765)
5,169
(74)
64,546
residential
18,561
(271)
6,333
(201)
24,894
Mortgage-backed securities:
commercial
256
(1)
4,890
(37)
5,146
(477) $
(127)
(42)
- $
-
-
- $ 37,927 $
-
6,363
-
2,925
(477)
(127)
(42)
(839)
(472)
(38)
Total available for sale
$ 125,409 $
(1,683) $ 16,392 $
(312) $ 141,801 $
(1,995)
16.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021 and 2020
(Dollars in thousands except share and per share amounts)
NOTE 2 – SECURITIES (Continued)
December 31, 2020
Available for sale
Less than 12 Months
Unrealized
Losses
Fair
Value
12 Months or More
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Asset backed securities $
- $
- $ 11,859 $
(247) $ 11,859 $
(247)
State and political
subdivisions
Collateralized mortgage
obligation
485
(4)
2,093
(51)
2,578
(55)
17,290
(130)
1,587
(36)
18,877
(166)
Mortgage-backed securities:
residential
Mortgage-backed securities:
commercial
5,153
3,218
(44)
-
-
5,153
(8)
6,440
(83)
9,658
(44)
(91)
Total available for sale
$ 26,146 $
(186) $ 21,979 $
(417) $ 48,125 $
(603)
Unrealized losses on securities have not been recognized into income because the issuers are of high
credit quality, management does not intend to sell and it is more likely than not that management will not
be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely
due to changes in market interest rates instead of credit quality. The fair value is expected to recover as
the securities approach their maturity dates and/or market rates change. As a result, the Corporation
does not consider these securities to be other-than-temporarily impaired at December 31, 2021.
Restricted equity securities consist of securities which are restricted as to transferability. These securities
are recorded at cost. Restricted equity securities consist of the following at December 31, 2021 and
2020:
Federal Home Loan Bank stock
Federal Reserve Bank stock
2021
2020
$
2,440
802
$
2,440
774
$
3,242
$
3,214
17.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021 and 2020
(Dollars in thousands except share and per share amounts)
NOTE 3 - LOANS
Loans at year end were as follows:
Commercial
Commercial real estate
Residential real estate:
Closed-end
Open-end
Construction and land development
Consumer
Subtotal
Net deferred loan fees
Gross loans
2021
2020
$ 38,549
197,047
$ 62,792
158,383
160,235
32,780
39,999
26,870
495,480
(681)
107,261
30,256
36,162
25,583
420,437
(809)
$ 494,799
$ 419,628
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was enacted. The
CARES Act, among other things, temporarily adds a new product, titled the “Paycheck Protection
Program, (“PPP”)” to the U.S. Small Business Administration’s (SBA’s) 7(a) Loan Program. The CARES
Act provides for forgiveness of up to the full principal amount of qualifying loans guaranteed under the
PPP. Included in commercial loans above are $506 and $24,522 of PPP loans, in 2021 and 2020,
respectively.
18.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021 and 2020
(Dollars in thousands except share and per share amounts)
NOTE 3 - LOANS (Continued)
The following tables present the activity in the allowance for loan losses by portfolio segment for the years ending December 31, 2021 and 2020:
December 31, 2021
Commercial
Commercial Residential Construction
Real
Estate
Real
Estate
and Land
Development Consumer
Unallocated
Total
Allowance for loan losses:
Beginning balance
Provision (credit) for loan losses
Loans charged-off
Recoveries
$
$
539
(54)
-
-
2,058
340
-
-
$
$
955
(38)
(20)
14
$
668
(112)
-
-
$
270
13
-
-
$
-
142
-
-
4,490
291
(20)
14
Total ending allowance balance
$
485
$
2,398
$
911
$
556
$
283
$
142
$
4,775
December 31, 2020
Allowance for loan losses:
Beginning balance
Provision (credit) for loan losses
Loans charged-off
Recoveries
$
$
634
(95)
-
-
1,470
588
-
-
$
$
553
414
(17)
5
$
359
309
-
-
$
310
(40)
-
-
$
83
(83)
-
-
3,409
1,093
(17)
5
Total ending allowance balance
$
539
$
2,058
$
955
$
668
$
270
$
-
$
4,490
19.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021 and 2020
(Dollars in thousands except share and per share amounts)
NOTE 3 - LOANS (Continued)
The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment
method as of December 31, 2021 and 2020. The recorded investment amounts do not include accrued and unpaid interest or any net deferred loan fees or costs
due to immateriality.
December 31, 2021
Commercial
Commercial Residential Construction
Real
Estate
Real
Estate
and Land
Development Consumer
Unallocated
Total
$
-
485
-
2,398
$
$
-
911
$
-
556
-
283
$
-
142
$
-
4,775
485
$
2,398
$
911
$
556
$
283
$
142
$
4,775
Ending allowance balance attributable to loans:
Individually evaluated for impairment
Collectively evaluated for impairment
Total ending allowance balance
Loans:
Individually evaluated for impairment
Collectively evaluated for impairment
$
$
$
-
38,549
$
5,767
191,280
$
307
192,708
$
-
39,999
$
-
26,870
$
Total ending loans balance
$ 38,549
$ 197,047
$ 193,015
$ 39,999
$ 26,870
$
December 31, 2020
Ending allowance balance attributable to loans:
Individually evaluated for impairment
Collectively evaluated for impairment
Total ending allowance balance
Loans:
Individually evaluated for impairment
Collectively evaluated for impairment
$
$
$
$
-
539
-
2,058
$
260
695
$
-
668
$
-
270
$
539
$
2,058
$
955
$
668
$
270
$
-
62,792
-
$
158,383
2,130
$
135,387
$
-
36,162
$
-
25,583
$
Total ending loans balance
$ 62,792
$ 158,383
$ 137,517
$ 36,162
$ 25,583
$
20.
-
-
-
-
-
-
-
-
-
$
6,074
489,406
$ 495,480
$
260
4,230
$
4,490
2,130
$
418,307
$ 420,437
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021 and 2020
(Dollars in thousands except share and per share amounts)
NOTE 3 - LOANS (Continued)
As of December 31, 2021, and 2020, the Corporation has a recorded investment in troubled debt
restructurings of $6,074 and $113. The Corporation has allocated no specific reserves for those loans at
December 31, 2021 and 2020.
The modifications in terms associated with troubled debt restructurings that occurred in 2021 included the
reduction of near-term interest and/or principal payments as a concession to borrowers experiencing
financial stress. These loans are well secured by residential or commercial real estate.
The troubled debt restructurings described above had no impact on the allowance for loan losses or
charge offs during the year ending December 31, 2021.
The following table presents loans by class modified as troubled debt restructuring that occurred during
the year ending December 31, 2021, and 2020:
December 31, 2021
Troubled debt restructurings:
Commercial real estate
Residential real estate:
Closed-end
December 31, 2020
Troubled debt restructurings:
Residential real estate:
Closed-end
Pre-Modification Post-Modification
Number
Of
Loans
Outstanding
Recorded
Investment
Outstanding
Recorded
Investment
2 $ 5,767 $ 5,767
1
$
196
$
196
Pre-Modification Post-Modification
Number
Of
Loans
Outstanding
Recorded
Investment
Outstanding
Recorded
Investment
1
$
113
$
113
There were no loans that were modified as troubled debt restructurings for which there was a payment
default within twelve months following the modification during the years ended December 31, 2021 and
2020.
21.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021 and 2020
(Dollars in thousands except share and per share amounts)
NOTE 3 - LOANS (Continued)
The following table presents information related to impaired loans by class of loans as of and for the years ended December 31, 2021, and 2020:
December 31, 2021
With no related allowance recorded:
Residential real estate:
Closed-end
With no related allowance recorded:
Commercial real estate
With an allowance recorded:
Residential real estate:
Closed-end
Total
December 31, 2020
With no related allowance recorded:
Residential real estate:
Closed-end
With an allowance recorded:
Residential real estate:
Closed-end
Total
Unpaid
Principal
Balance
Recorded
Investment
Allowance for
Loan Losses
Allocated
Average
Interest
Income
Recorded
Investment Recognized Recognized
Cash Basis
Interest
$
307
$
307
$
5,767
5,767
-
-
$
6,074
$
6,074
$
-
-
-
-
$
226
$
12
$
12
949
14
14
1,340
134
$
2,515
$
160
$
134
160
$
113
$
113
$
-
$
114
$
3
$
3
2,017
2,017
260
2,050
$
2,130
$
2,130
$
260
$
2,164
$
29
32
$
29
32
For purposes of this disclosure, the unpaid principal balance is not reduced for partial charge-offs.
22.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021 and 2020
(Dollars in thousands except share and per share amounts)
NOTE 3 - LOANS (Continued)
There were $0 and $12 loans past due over 90 days and still accruing as of December 31, 2021, and
2020, respectively.
There were $0 and $2,017 loans on non-accrual as of December 31, 2021, and 2020, respectively.
The following table presents the aging of the recorded investment in past due loans as of December 31,
2021, and 2020 by class of loans:
December 31, 2021
30 - 59
Days
Past Due
60 - 89 Greater than
Days
Past Due
89 Days
Past Due
Total
Past Due
Loans Not
Past Due
Total
Commercial
Commercial real estate
Residential real estate:
$
Closed-end
Open-end
Construction and land
Development
Consumer
- $
-
- $
-
- $
-
- $ 38,549 $ 38,549
197,047
-
197,047
14
-
-
-
11
-
-
-
-
-
-
-
25
-
160,210
32,780
160,235
32,780
-
-
39,999
26,870
39,999
26,870
Total
$
14 $
11 $
- $
25 $ 495,455 $ 495,480
December 31, 2020
Commercial
Commercial real estate
Residential real estate:
$
Closed-end
Open-end
Construction and land
Development
Consumer
- $
-
- $
-
- $
-
- $ 62,792 $ 62,792
158,383
-
158,383
154
-
-
-
104
-
-
-
2,029
-
2,287
-
104,974
30,256
107,261
30,256
-
-
-
-
36,162
25,583
36,162
25,583
Total
$
154 $
104 $
2,029 $
2,287 $ 418,150 $ 420,437
Additionally, the Company is working with borrowers impacted by COVID-19 and providing modifications
to include interest only deferral or principal and interest deferral. These modifications are excluded from
troubled debt restricting classification under Section 4013 of the CARES Act or under applicable
interagency guidance of the federal banking regulators. The Company had no loans modified at
December 31, 2021, and had 3 commercial loans modified with outstanding balances of $5,005 at
December 31, 2020.
Credit Quality Indicators:
The Corporation categorizes loans into risk categories based on relevant information about the ability of
borrowers to service their debt such as: current financial information, historical payment experience,
credit documentation, public information, and current economic trends, among other factors. The
Corporation periodically analyzes loans individually by classifying the loans as to credit risk. The
Corporation uses the following definitions for risk ratings:
23.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021 and 2020
(Dollars in thousands except share and per share amounts)
NOTE 3 - LOANS (Continued)
Special Mention. Loans classified as special mention have a potential weakness that deserves
management's close attention. If left uncorrected, these potential weaknesses may result in
deterioration of the repayment prospects for the loan or of the institution's credit position at some
future date.
Substandard. Loans classified as substandard are inadequately protected by the current net
worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified
have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They
are characterized by the distinct possibility that the institution will sustain some loss if the
deficiencies are not corrected.
Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as
substandard, with the added characteristic that the weaknesses make collection or liquidation in
full, on the basis of currently existing facts, conditions, and values, highly questionable and
improbable.
Loans not meeting the criteria above that are analyzed individually as part of the above described
process are considered to be pass rated loans. As of December 31, 2021, and 2020, based on the most
recent analysis performed, the risk category of loans by class of loans is as follows:
Pass
Special
Mention
Substandard
Doubtful
December 31, 2021
Commercial
Commercial real estate
Residential real estate:
Closed-end
Open-end
Construction and land development:
Consumer
$ 38,549
191,280
$
-
5,767
$
160,028
32,780
39,999
26,870
196
-
-
-
$
-
-
11
-
-
-
Total
$ 489,506
$
5,963
$
11
$
December 31, 2020
Commercial
Commercial real estate
Residential real estate:
Closed-end
Open-end
Construction and land development:
Consumer
$ 62,337
158,383
$
$
-
-
455
-
$
104,934
30,256
36,162
25,583
310
-
-
-
2,017
-
-
-
Total
$ 417,655
$
310
$
2,472
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
24.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021 and 2020
(Dollars in thousands except share and per share amounts)
NOTE 4 - PREMISES AND EQUIPMENT
Year-end premises and equipment were as follows:
Leasehold improvements
Furniture, fixtures and equipment
Computer software
Less: Accumulated depreciation and amortization
Net premises and equipment
2021
2020
$
1,366
905
991
3,262
(2,946)
$
1,366
887
961
3,214
(2,707)
$
316
$
507
Depreciation and amortization expense totaled $239 and $207 for 2021 and 2020, respectively.
NOTE 5 – LEASES
The Corporation enters into leases in the normal course of business primarily for the Corporation’s office
space. The Corporation’s main office facility is subject to a five-year lease, terminating June 1, 2023. The
Corporation’s leases have remaining terms ranging from 5 months to 17 months, some of which include
renewal options to extend the lease for up to 2 years. The Corporation’s leases do not include residual
value guarantees or covenants.
The Corporation has elected to account for any non-lease components in its real estate leases as part of
the associated lease component. The Corporation has also elected not to recognize leases with original
lease terms of 12 months or less (short-term leases) on the Corporation’s balance sheet.
The Corporation’s leases are classified as operating leases at the lease commencement date. Lease
expense for operating leases is recognized on a straight-time basis over the lease term. Right-of-use
assets represent our right to use an underlying asset for the lease term and lease liabilities represent our
obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are
recognized at the lease commencement date based on the estimated present value of lease payments
over the lease term.
The Corporation uses its incremental borrowing rate at lease commencement to calculate the present
value of lease payments when the rate implicit in a lease is not known. The Corporation’s incremental
borrowing rate is based on FHLB amortizing advance rate, adjusted for the lease term and other factors.
Right-of-use assets and lease liabilities by lease type, and associated balance sheet classification, are as
follows:
Balance Sheet Classification
Right-of-use assets:
Operating leases Other assets
Lease liabilities:
Operating leases Other liabilities
2021
2020
$ 681
$ 1,130
$ 681
$ 1,130
25.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021 and 2020
(Dollars in thousands except share and per share amounts)
NOTE 5 – LEASES (Continued)
Lease Obligations
Future undiscounted lease payments for operating leases with initial terms of one year or more as of
December 31, 2021 are as follows:
2022
2023
Total undiscounted lease payments
Less: imputed interest
Net lease liabilities
Supplemental lease Information
Operating
Leases
$
494
202
696
15
$ 681
2021
2020
Operating lease weighted average remaining lease term (years)
Operating lease weighted average discount rate
1.4
2.77%
2.4
2.77%
NOTE 6 - DEPOSITS
Scheduled maturities of time deposits, included in interest bearing deposits, for the next five years were
as follows:
2022
2023
2024
2025
2026
$
6,152
1,959
407
7,418
5,767
Time deposits that meet or exceed the FDIC Insurance limit of $250 at December 31, 2021 and 2020
were $15,663 and $25,922.
26.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021 and 2020
(Dollars in thousands except share and per share amounts)
NOTE 7 - BORROWINGS
Borrowings include Federal Home Loan Bank advances and subordinated debt.
Federal Home Loan Bank Advances
At December 31, 2021 and 2020, advances from the FHLB were as follows:
For 2021, interest rates ranged from 1.02% to 2.90%,
averaging 2.01% with maturities between January 24,
2024 and April 28, 2025.
For 2020, interest rates ranged from 1.00% to 2.90%,
averaging 1.95% with maturities between January 19,
2021 and June 1, 2028.
$
4,500
$ 17,673
The advances are subject to penalties if repaid before scheduled payments are due. The Bank’s
outstanding borrowings from the FHLB are secured by a blanket pledge agreement of 150% of 1-4 family
loans, first lien mortgage loans. The Bank has approximately $87,558 of 1-4 family, first mortgage loans
and $21,569 of home equity mortgage loans available to pledge under the blanket pledge arrangement
dated March 16, 2006. Based on the collateral and the Corporation’s holdings of FHLB Stock, the Bank
is eligible to borrow additional advances of approximately $83,835 as of December 31, 2021.
Payments over the next five years are as follows:
2024
2025
Subordinated Debt
$
2,250
2,250
In 2020, the Corporation issued $15,000 of ten year fixed-to-floating rate subordinated notes maturing
September 30, 2030. This subordinated note instrument pays interest semi-annually in arrears based on
a 4.5% fixed annual interest rate for the first five years of the notes. For years six through ten, the interest
rate resets on a quarterly basis, and will be based on the 3-month Secured Overnight Financing Rate plus
a spread of 438 basis points. The Company is entitled to redeem the notes in whole or in part on any
interest payment date on or after September 30, 2025.
The Company has recorded the issuance, net of unamortized issuance costs of $372 and $471 as of
December 31, 2021, and 2020, respectively.
27.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021 and 2020
(Dollars in thousands except share and per share amounts)
NOTE 8 - INCOME TAXES
Income tax expense was as follows:
Current expense
Federal
State
Total current
Deferred benefit
Federal
State
Total deferred
Total
2021
2020
$
$
3,230
(255)
2,975
2,526
20
2,546
(212)
106
(106)
(163)
(74)
(237)
$
2,869
$
2,309
Effective tax rates differ from federal statutory rate of 21% applied to income before income taxes due to
the following:
Federal statutory rate times financial statement income
Effect of:
State taxes, net of federal benefit
Tax exempt interest income
Bank owned life insurance income
Captive insurance premiums and disallowances
Other, net
Total income tax expense
2021
2020
$
3,656
$
2,826
(118)
(288)
(43)
(186)
(152)
(43)
(196)
(45)
(178)
(55)
$
2,869
$
2,309
28.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021 and 2020
(Dollars in thousands except share and per share amounts)
NOTE 8 - INCOME TAXES (Continued)
Year-end deferred tax assets and liabilities were due to the following:
Deferred tax assets:
Allowance for loan losses
Organizational and start-up expenditures
$
Loan origination income
Non-accrual loan interest
Net unrealized loss on cash flow hedges
Depreciation
Other
Total deferred tax assets
Deferred tax liabilities:
Prepaid expenses
Stock based compensation expense
Restricted equity stock dividends
Loan origination expenses
Non-accrual loan interest
(279)
(260)
(6)
(63)
(12)
Net unrealized gain on cash flow hedges (16)
(818)
(197)
Net unrealized gains on available for sale securities
Other
2021
2020
1,242
1
237
-
-
32
201
1,713
$
1,162
2
163
19
373
9
306
2,034
(282)
(224)
(7)
(64)
-
-
(1,642)
(294)
Total deferred tax liabilities
(1,651)
(2,513)
Deferred tax asset (liability), net
$
62
$
(479)
The Corporation does not have any uncertain tax positions and has minimal interest and penalties
recorded or accrued in the consolidated financial statements for the years ended December 31, 2021,
and 2020. The Corporation and its subsidiaries are subject to U.S. federal income tax as well as income
tax of the states of Georgia and Tennessee. The Corporation is no longer subject to examination by
taxing authorities for years before 2017.
NOTE 9 - RELATED PARTY TRANSACTIONS
Loans to principal officers, directors and their affiliates at December 31, 2021 and 2020 totaled $10,241
and $11,925, respectively.
Deposits from principal officers, directors and their affiliates at December 31, 2021 and 2020 totaled
$3,123 and $4,284, respectively.
Wealth management fees earned from assets under management for principal officers, directors and their
affiliates at December 31, 2021 and 2020 totaled $1,011 and $821, respectively.
29.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021 and 2020
(Dollars in thousands except share and per share amounts)
NOTE 10 - REGULATORY CAPITAL MATTERS
Banks and bank holding companies are subject to regulatory capital requirements administered by federal
banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action
regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items
calculated under regulatory accounting practices. Capital amounts and classifications are also subject to
qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action.
The net unrealized gain or loss on available for sale securities is included in computing regulatory capital.
Management believes as of December 31, 2021, the Bank meets all capital adequacy requirements to
which it is subject.
Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are
not used to represent overall financial condition. If adequately capitalized, regulatory approval is required
to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and
expansion, and capital restoration plans are required. At December 31, 2021 and 2020, the most recent
regulatory notifications categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. There are no conditions or events since that notification that management
believes have changed the institution’s category.
30.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021 and 2020
(Dollars in thousands except share and per share amounts)
NOTE 10 - REGULATORY CAPITAL MATTERS (Continued)
Actual and required capital amounts and ratios for the Bank are presented below as of December 31,
2021 and 2020. The capital conservation buffer is not included in the required ratios of the table
presented below.
Actual
Amount
Ratio
For Capital
Adequacy Purposes
Amount Ratio
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
Ratio
Amount
$ 82,835 14.66%
$ 45,195
8.00%
$ 56,494 10.00%
78,060 13.82%
78,060 13.82%
33,896
25,422
6.00%
4.50%
45,195
36,721
8.00%
6.50%
78,060
8.95%
34,870
4.00%
43,588
5.00%
Amount
Ratio
Amount Ratio
Amount
Ratio
$ 70,805 15.05%
$ 37,633
8.00%
$ 47,041 10.00%
66,315 14.10%
66,315 14.10%
28,224
21,168
6.00%
4.50%
37,633
30,576
8.00%
6.50%
66,315
9.38%
28,271
4.00%
35,339
5.00%
2021
Total Capital to risk
weighted assets
Tier 1 (Core) Capital to
risk weighted assets
Common Tier 1 (CET1)
Tier 1 (Core) Capital to
average assets
2020
Total Capital to risk
weighted assets
Tier 1 (Core) Capital to
risk weighted assets
Common Tier 1 (CET1)
Tier 1 (Core) Capital to
average assets
Dividend Restrictions - The Corporation’s principal source of funds for dividend payments is dividends
received from the Bank. Banking regulations limit the amount of dividends that may be paid without prior
approval of regulatory agencies. Under these regulations, the amount of dividends that may be paid in
any calendar year is limited to the current year's net profits, combined with the retained net profits of the
preceding two years, subject to the capital requirements described above. During 2021, the Bank could,
without prior approval, declare dividends of approximately $15,102 plus any 2021 net profits retained to
date of declaration.
NOTE 11 - OFF-BALANCE SHEET ACTIVITIES
Some financial instruments, such as loan commitments, credit lines, and letters of credit, are issued to
meet customer financing needs. These are agreements to provide credit or to support the credit of others
as long as conditions established in the contract are met. In addition, these agreements usually have
expiration dates, and the commitments may expire without being used.
Off-balance sheet risk to credit loss exists up to the face amount of these instruments, although material
losses are not anticipated. The same credit policies are used to make such commitments as are used for
loans, including obtaining collateral at the exercise of the commitment. The majority of the Corporation’s
commitments to extend credit have maturities of less than one year and reflect the prevailing market
interest rates at the time of the commitment.
The contractual amount of financial instruments with off-balance sheet risk was as follows at
December 31:
Letters of Credit
Unused Lines of Credit
2021
2020
$
3,690
141,399
$
3,619
120,103
31.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021 and 2020
(Dollars in thousands except share and per share amounts)
NOTE 12 - STOCK BASED COMPENSATION PLAN
Total stock-based compensation expense in 2021 and 2020 was $966 and $928, respectively. Related to
the 2021 and 2020 restricted stock grants, some employees made an election, in accordance with
Section 83(b) of the Internal Revenue Code, to have the fair value of the awards taxable immediately. In
connection with the election, the Corporation allowed the employees to forfeit shares to cover the related
personal tax obligation. During 2021 employees forfeited 1,011 shares with a total fair value of $47.
During 2020 employees forfeited 1,080 shares with a total fair value of $51. These amounts were
recorded in salaries and employee benefits on the Corporation’s consolidated statements of income in
2021 and 2020.
The Corporation’s 2008 Equity Incentive Plan as modified in 2015 provides for the grant of stock options,
restricted stock and other equity-based incentives up to 900,000 shares. As of December 31, 2021, the
Corporation had issued grants totaling 866,249 shares under the 2008 Equity Incentive Plan and its
predecessor, the 2004 Employee Share Option Plan. The Corporation’s 2021 Equity Incentive Plan,
approved by shareholders on May 19, 2021, provides for the grant of stock options, restricted stock, and
other equity-based incentives of 233,751 shares. This includes 200,000 shares newly authorized shares
under the 2021 Equity Incentive Plan and 33,751 shares previously available under the 2008 Equity
Incentive Plan. As of December 31, 2021, the Corporation has not issued any of these shares under the
2021 Equity Incentive Plan.
Stock Option Grants
Option awards are granted with an exercise price equal to the market price of the Corporation’s common
stock at the date of grant. Option awards have vesting periods of one to six years and have 10-year
contractual terms. The Corporation uses newly issued shares to satisfy share option exercises.
The fair value of each option award is estimated on the date of grant using a closed form option valuation
(Black-Scholes) model that uses the assumptions noted in the table below. Expected volatilities are
based on historical trading of the shares of Truxton Corporation common stock for 2021 and 2020. The
expected term of options granted is based on historical data and represents the period of time that
options granted are expected to be outstanding taking into account that the options are not transferable.
The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in
effect at the time of the grant.
During 2021 and 2020, the Corporation issued incentive stock options to outside directors and certain
employees for the purchase of 5,000 shares and no shares of common stock, respectively. The fair value
of options granted in 2021 and 2020 was determined using the following assumptions as of grant date:
Risk-free interest rate
Expected term
Expected stock price volatility
Dividend yield
2021
2020
1.20%
6.75 years
38.69%
2.15%
-
-
-
-
32.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021 and 2020
(Dollars in thousands except share and per share amounts)
NOTE 12 - STOCK BASED COMPENSATION PLAN (Continued)
A summary of the stock option activity for 2021 follows:
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
Shares
Outstanding at beginning of year
Granted
Forfeited
Exercised
42,276
5,000
(644)
(13,144)
$ 28.01
52.00
31.00
21.59
Outstanding at end of year
33.488
34.06
Vested or expected to vest
33,488
34,06
Exercisable at end of year
20,419
28.50
4.7
6.0
6.0
4.8
$
1,304
1,304
909
Information related to stock options during each year follows:
Intrinsic value of options exercised
Cash received from option exercises
Weighted average fair value of options granted
2021
2020
$
$
676
273
20.94
1,445
970
-
There was a total of $184 in unrecognized compensation cost related to non-vested stock options granted
under the Plan as of December 31, 2021. The cost is expected to be recognized over a weighted-
average period of 2.4 years.
Restricted Stock Grants
In 2021 and 2020, the Corporation issued 20,569 and 32,528 restricted shares of common stock,
respectively. Compensation expense is recognized over the vesting period of the awards based on the
value of the stock at issue date. The fair value of the stock was determined by current stock trade
activity. These shares vest in 20% increments through 2026.
A summary of the changes in the Corporation’s non-vested shares for the year follows:
Non-vested shares
Non-vested at January 1, 2021
Granted
Vested
Forfeited or expired
Weighted-
Average
Fair Value
$
39.03
47.23
34.88
40.14
Shares
69,973
20,569
(25,204)
(2,458)
Non-vested at December 31, 2021
62,880
$
41.65
As of December 31, 2021, there was $1,949 of total unrecognized compensation cost related to non-
vested restricted shares granted under the Plan. The cost is expected to be recognized over a weighted-
average period of 2.0 years.
33.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021 and 2020
(Dollars in thousands except share and per share amounts)
NOTE 13 - DERIVATIVES
The Corporation utilizes interest rate swap agreements as part of its asset liability management strategy
to help manage its interest rate risk position. The notional amount of the interest rate swaps does not
represent amounts exchanged by the parties. The amount exchanged is determined by reference to the
notional amount and the other terms of the individual interest rate swap agreements.
Fair Value Hedge
The Corporation has entered into swaps designated as Fair Value Hedges for Loans and Securities,
totaling $23,317 and $10,750 in notional, respectively, as of December 31, 2021. In February 2020, the
Corporation hedged the fair value of six municipal bond holdings with swaps, through which the
Corporation pays fixed rates matching the bonds’ coupons and receives 3-month USD LIBOR plus a
spread until the bonds’ first call dates. Prior to 2021, the Corporation had hedged four loans with swaps
matching the notional, amortization schedule, and maturity of those loans. With these swaps, the
Corporation pays the swap counterparty a fixed rate equal to the loan interest and receives 1-month USD
LIBOR plus a spread. The loan customers are not party to the swaps, but their loans have prepayment
penalties that would equal the cost to unwind the swaps, if necessary. In 2021, the Corporation entered
two more similar swaps to hedge 10-year loans, receiving a floating rate based on 1-month LIBOR for
one and an average rate based on the Secured Overnight Financing Rate (SOFR) for the other.
The following table reflects the fair value hedges included in the Consolidated Statements of Net Income
as of December 31:
Interest rate contracts
Location
2021
2020
Change in fair value on interest rate
swaps hedging loans and securities
Loan interest income
$
(12) $
(18)
The following table reflects the fair value hedges included in the Consolidated Balance Sheets as of
December 31:
Included in other assets:
Derivatives designated as hedges:
Interest rate swaps
Included in other liabilities:
Derivatives designated as hedges:
Interest rate swaps
Cash Flow Hedge
2021
2020
Notional
Amount
Fair
Value
Notional
Amount
Fair
Value
$ 34,067 $ 1,036
$ 29,826 $ 2,741
$ 34,067 $
781
$ 29,826 $ 2,474
Interest Rate Swaps Designated as Cash Flow Hedges: Interest rate swaps with notional amounts
totaling $30,000 as of December 31, 2021, and 2020, were designated as cash flow hedges of certain
deposit accounts and were determined to be fully effective during the periods presented. For $15,000
notional of the cash flow hedges, the Corporation pays a fixed rate and receives a monthly average of the
Effective Federal Funds rate, to which the hedged deposits’ rates are indexed. For the other $15,000
notional, the Corporation pays a fixed rate and receives 3-month USD LIBOR, which is highly correlated
to the cost of the 3-month wholesale borrowings (such as FHLB advances or brokered CDs) being
hedged. As such, no amount of ineffectiveness has been included in net income. Therefore, the
34.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021 and 2020
(Dollars in thousands except share and per share amounts)
NOTE 13 – DERIVATIVES (Continued)
aggregate fair value of swaps is recorded in other liabilities with changes in fair value recorded in other
comprehensive income (loss). The Company expects the hedges to remain fully effective during the
remaining terms of the swaps.
The following table presents the net losses recorded in accumulated other comprehensive income and
the Consolidated Statements of Net Income relating to the cash flow derivative instruments for the year
ended December 31:
Amount of Gain
(Loss) Recognized
In OCI
(Effective Portion)
2021:
Amount of Gain
(Loss) Recognized
from OCI to
Interest Income
Amount of Gain
(Loss) Recognized
in Non-Interest Income
(Ineffective Portion)
$
1,488
$
-
$
-
Amount of Gain
(Loss) Recognized
In OCI
(Effective Portion)
2020:
Amount of Gain
(Loss) Recognized
from OCI to
Interest Income
Amount of Gain
(Loss) Recognized
in Non-Interest Income
(Ineffective Portion)
$
(439)
$
-
$
-
Interest rate swaps related
to deposits
Interest rate swaps related
to deposits
The following table reflects the fair value hedges included in the Consolidated Balance Sheets as of
December 31:
Included in other liabilities:
2021
2020
Notional
Amount
Fair
Value
Notional
Amount
Fair
Value
Interest rate swaps related to deposits
$ 30,000 $
(62)
$ 30,000 $ 1,426
35.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021 and 2020
(Dollars in thousands except share and per share amounts)
NOTE 14 - FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit
price) in the principal or most advantageous market for the asset or liability in an orderly transaction
between market participants on the measurement date. There are three levels of inputs that may be used
to measure fair values:
Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that
the entity has the ability to access as of the measurement date.
Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices
for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that
are observable or can be corroborated by observable market data.
Level 3 – Significant unobservable inputs that reflect a Corporation’s own assumptions about
the assumptions that market participants would use in pricing an asset or liability.
The Corporation used the following methods and significant assumptions to estimate the fair value of
each type of financial instrument:
Investment Securities: The fair values for investment securities are determined by quoted market prices,
if available “Level 1”. For securities where quoted prices are not available, fair values are calculated
using a matrix pricing model, which is based on market prices of similar securities “Level 2”. Matrix
pricing is a mathematical technique commonly used to price debt securities that are not actively traded,
which values debt securities without relying exclusively on quoted prices for the specific securities but
rather by relying on the securities’ relationship to other benchmark securities.
Derivatives: The fair value of the derivatives is based on valuation models using observable market data
as of the measurement date (Level 2). Our derivatives are traded in an over-the-counter market where
quoted market prices are not always available. Therefore, the fair values of derivatives are determined
using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of
derivative, prepayment rates, and volatility factors to value the position. The majority of the market inputs
is actively quoted and can be validated through external sources, including brokers, market transactions
and third-party pricing services.
36.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021 and 2020
(Dollars in thousands except share and per share amounts)
NOTE 14 - FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
Assets and liabilities measured at fair value on a recurring basis are summarized below:
December 31, 2021
Financial assets:
Investment securities available for sale
Asset backed securities
Corporate bonds
State and political subdivisions
Collateralized mortgage obligations
Mortgage-backed securities: residential
Mortgage-backed securities: commercial
Total investment securities available for sale
Derivatives
Financial liabilities:
Derivatives
December 31, 2020
Financial assets:
Investment securities available for sale
Asset backed securities
Corporate bonds
State and political subdivisions
Collateralized mortgage obligations
Mortgage-backed securities: residential
Mortgage-backed securities: commercial
Total investment securities available for sale
Derivatives
Financial liabilities:
Derivatives
Fair Value Measurements at Using:
Quoted Prices Significant
In Active
Other
Markets for Observable
Carrying
Value
Identical Assets
“Level 1”
Inputs
“Level 2”
$ 56,132
15,085
96,676
90,097
31,483
13,029
$ 302,502
$
1,036
$
$
$
-
-
-
-
-
-
-
-
$ 56,132
15,085
96,676
90,097
31,483
13,029
$ 302,502
$
1,036
$
719
$
-
$
719
Fair Value Measurements at Using:
Quoted Prices Significant
In Active
Other
Markets for Observable
Carrying
Value
Identical Assets
“Level 1”
Inputs
“Level 2”
$ 23,315
11,423
81,286
51,555
21,756
16,983
$ 206,318
$
2,741
$
$
$
-
-
-
-
-
-
-
-
$ 23,315
11,423
81,286
51,555
21,756
16,983
$ 206,318
$
2,741
$
3,900
$
-
$
3,900
There were no transfers between Level 1 and Level 2 during 2021 or 2020.
37.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021 and 2020
(Dollars in thousands except share and per share amounts)
NOTE 14 - FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
The carrying amounts and estimated fair values of financial instruments, at December 31, 2021 and
December 31, 2020 are as follows:
Fair Value Measurements Using:
Carrying
Value
Level 1
Level 2
Level 3
Total
$ 99,489
$ 99,489
$
-
$
-
$ 99,489
December 31, 2021
Financial assets
Cash and cash equivalents
Time deposits in other
financial institutions
Securities available-for-sale
Restricted equity securities
Loans, net
Accrued interest receivable
December 31, 2020
Financial assets
Cash and cash equivalents
Time deposits in other
financial institutions
Securities available-for-sale
Restricted equity securities
Loans, net
Accrued interest receivable
2,780
302,502
3,242
490,024
2,346
2,931
206,318
3,214
415,138
2,653
Financial liabilities
Deposits
Federal Home Loan Bank advances
Accrued interest payable
$ 807,475
4,500
14
$
Financial liabilities
Deposits
Federal Home Loan Bank advances
Accrued interest payable
$ 624,025
17,673
16
$
-
-
NA
-
-
-
-
14
2,780
302,502
NA
-
1,148
-
-
NA
489,357
1,198
2,780
302,502
NA
489,357
2,346
$ 806,902
4,551
-
$
-
-
-
$ 806,902
4,551
14
-
-
NA
-
-
-
-
16
2,931
206,318
NA
-
930
-
-
NA
413,590
1,723
2,931
206,318
NA
413,590
2,653
$ 623,942
18,058
-
$
-
-
-
$ 623,942
18,058
16
$ 94,096
$ 94,096
$
-
$
-
$ 94,096
The methods and assumptions, not previously presented, used to estimate fair values are described as
follows:
The carrying amount of cash and cash equivalents approximates fair values and are classified as Level 1.
Time deposits in other financial institutions have infrequent repricing or repricing limits and their fair value
is based on discounted cash flows using current market rates applied to the estimated life and are
classified as Level 2. It is not practical to determine the fair value of restricted equity securities due to the
restrictions placed on its transferability.
The fair value of loans is determined based on a discounted cash flow analysis (income approach.) The
discounted cash flow was based on contractual maturity of the loan and current market assumptions
resulting in a level 3 classification. Impaired loans are valued at the lower of cost or fair value as
described previously.
38.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021 and 2020
(Dollars in thousands except share and per share amounts)
NOTE 14 - FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
The fair values disclosed for demand deposits are by definition, equal to the amount payable on demand
at the reporting date resulting in a Level 2 classification. Fair values for fixed rate certificates of deposit
are estimated using a discounted cash flows calculation that applies interest rates currently being offered
on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a
Level 2 classification. The fair values of the Bank’s Federal Home Loan Bank advances are estimated
using discounted cash flows based on the current borrowing rates for similar types of borrowing
arrangements resulting in a Level 2 classification. The carrying amounts of accrued interest approximate
fair value resulting in Level 2 or 3 classifications.
NOTE 15 - OTHER BENEFIT PLANS
The Corporation has a 401(k) benefit plan that covers all employees who meet certain eligibility
requirements and choose to participate in the plan. The plan allows employee contributions up to the
federal limits, which are matched 100% for the first 3% of compensation contributed and then 50% of the
next 2% of compensation contributed beginning on the first day of the calendar quarter following the
employee’s one-year anniversary. The 401(k) benefit plan expense for 2021 and 2020 was $298 and
$265, respectively.
NOTE 16 – OTHER COMPREHENSIVE INCOME (LOSS)
The following is a summary of the accumulated other comprehensive income balances, net of tax:
Unrealized gains (losses) on securities
available for sale
Unrealized gains (losses) on cash
flow hedge
Total
Balance
at
12/31/2020
Current
Period
Change
Balance
at
12/31/2021
$
$
4,627
$
(2,328)
$
2,299
(1,053)
1,099
46
3,574
$
(1,229)
$
2,345
39.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021 and 2020
(Dollars in thousands except share and per share amounts)
NOTE 17 – EARNINGS PER SHARE
Basic earnings per share available to common shareholders is computed by dividing net income adjusted
for income allocated to participating securities by the weighted average number of common shares
outstanding during the period. All outstanding unvested share-based payment awards that contain rights
to non-forfeitable dividends are considered participating securities for this calculation. Diluted earnings
per share available to common shareholders reflects the potential dilution that could occur if stock options
to issue common stock were exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity. The factors used in the earnings per share
computation follows:
Basic
Net income
Less: Undistributed income allocated to
participating securities
2021
2020
$
14,541
$
11,149
350
260
Net earnings allocated to common stock
$
14,191
$
10,889
Weighted common shares outstanding including
participating securities
Less: Participating securities
Weighted average shares
Basic earnings per share
Diluted earnings allocated to common stock
Weighted average shares
Add: Diluted effects of assumed exercises
of stock options and warrants
2,880,187
69,356
2,826,240
65,867
2,810,831
2,760,373
$
$
5.05
14,191
$
$
3.94
10,889
2,810,831
2,760,373
13,367
29,432
Average shares and dilutive potential common shares
2,824,198
2,789,805
Diluted earnings per share
$
5.02
$
3.90
At year-end 2021, there were 5,000 stock options that were not considered in computing diluted earnings
per common share for 2021, because they were antidilutive. At year-end 2020, there were 12,500 stock
options that were not considered in computing diluted earnings per common share for 2020, because
they were antidilutive.
40.