Dear Shareholder:
We foreshadowed in our last letter that 2023 would be difficult and it was! The rapid rise in interest rates
created asset liability management for all banks, and consequentially our net interest margin declined by
17 basis points compared with2022. Our loan portfolio grew by 6%, far below the 25% growth in 2022,
and net income growth for 2023 was 5%, not what we were hoping for but still ranking Truxton among
the top performing banks in the country.
In tough economic conditions, the core strengths of our business model remained very evident. Wealth
management grew 8% compared with 2022 as equity markets rallied through the year and we attracted
a significant number of new clients. Credit quality remained strong, and we finished the year with zero
non‐performing assets. Return on assets was 1.86%, an exceptional performance for any bank and the
same as 2022. Return on Average Equity was again 22.3%, among the highest observed in our industry.
This strong return to our equity capital allowed us to increase the total dividend (including a special
dividend) by 7% yet still saw our equity to assets ratio grow from 8.0% at the end of 2022 to 9.2% as of
December 31, 2023. Dividends since inception are now $13.80 per share (as of year‐end 2023) and the
last trade in our shares in 2023 was $65.00. For our long‐time shareholders, the returns have been strong.
Truxton has always put profitability and soundness ahead of asset growth for its own sake. Our wealth
management business involves minimal “on balance sheet” assets and can grow without taxing capital.
Non‐interest income as a percentage of total income remains extraordinary.
Looking ahead, we see 2024 as another challenging year. Cost of funds will likely continue to rise even
with a stable yield environment. Loan growth is likely to remain moderate. Growth in our Wealth
Management business will depend on attracting new relationships and the performance of equity and
debt markets. Truxton will move to a new headquarters location in 2024, a change that will bring higher
current expenses and higher continuing costs for rent and depreciation. Notwithstanding these
limitations, we anticipate delivering returns on assets and equity that should continue to be the envy of
our peers. Nashville, our principal market area, continues to exhibit strong job and population growth,
bolstering credit quality and providing diverse avenues to grow our firm and its value to our clients and
shareholders.
Truxton’s shareholders and senior leadership owe a huge debt of gratitude to the people who make this
place work. The bankers, wealth management professionals, treasury management and capital advisory
teams are intensely focused on bringing a superior experience to our clients. Our colleagues are more
responsive, more skillful, more knowledgeable, and more experienced than most people expect to
encounter in a bank. Investors ask us how we compete so successfully against competitors who are
hundreds of times our size. The answer is people. Ours are simply the best.
We wish everyone the best of luck in the year ahead.
Thomas S. Stumb
Derrick A. Jones
TRUXTON CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
TRUXTON CORPORATION
Nashville, Tennessee
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
CONTENTS
INDEPENDENT AUDITOR’S REPORT ....................................................................................................
1
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS ..............................................................................................
3
CONSOLIDATED STATEMENTS OF NET INCOME ........................................................................
4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) ..................................
5
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY ..........................
6
CONSOLIDATED STATEMENTS OF CASH FLOWS .......................................................................
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ..............................................................
9
Crowe LLP
Independent Member Crowe Global
(Continued)
1.
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, 2023 and 2022, and the related consolidated statements
of net income, comprehensive income (loss), 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, 2023 and 2022, 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.
Emphasis of Matter
As discussed in Note 1 to the financial statements, effective January 1, 2023, Truxton Corporation has
changed its method of accounting for credit losses effective January 1, 2023 due to the adoption of Financial
Accounting Standards Board (FASB) Accounting Standards Codification No. 326, Financial Instruments –
Credit Losses (ASC 326). The Company adopted the new credit loss standard using the modified
retrospective method such that prior period amounts are not adjusted and continue to be reported in
accordance with previously applicable generally accepted accounting principles. Our opinion is not
modified with respect to this matter.
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.
2.
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.
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:
Exercise professional judgment and maintain professional skepticism throughout the audit.
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.
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.
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.
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.
Other Information
Management is responsible for the other information included in the Annual Report. The other information
comprises the President’s Letter but does not include the consolidated financial statements and our
auditor’s report thereon. Our opinion on the consolidated financial statements does not cover the other
information, and we do not express an opinion or any form of assurance thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other
information and consider whether a material inconsistency exists between the other information and the
consolidated financial statements, or the other information otherwise appears to be materially misstated. If,
based on the work performed, we conclude that an uncorrected material misstatement of the other
information exists, we are required to describe it in our report.
Crowe LLP
Franklin, Tennessee
January 24, 2024
TRUXTON CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 2023 and 2022
(Dollars in thousands except share and per share amounts)
See accompanying notes to consolidated financial statements.
3.
2023
2022
ASSETS
Cash and due from financial institutions
$
4,272
$
5,405
Restricted cash
1,550
-
Interest bearing deposits in other financial institutions
1,867
1,094
Federal funds sold
1,537
-
Cash and cash equivalents
9,226
6,499
Time deposits in other financial institutions
490
3,833
Securities available for sale
259,926
257,257
Gross loans
657,840
618,948
Allowance for credit losses on loans
(6,304)
(5,761)
Net loans
651,536
613,187
Bank owned life insurance
10,808
10,592
Restricted equity securities
1,858
3,227
Premises and equipment, net
189
209
Accrued interest receivable
4,388
3,512
Deferred tax asset, net
6,010
7,161
Other assets
10,839
11,803
Total assets
$ 955,270
$ 917,280
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Non-interest bearing
$ 123,918
$ 153,870
Interest bearing
658,061
653,880
Total deposits
781,979
807,750
Federal funds purchased
-
4,933
Federal Home Loan Bank advances
4,500
4,500
Bank Term Funding Program advances
53,800
-
Subordinated debentures
(less unamortized discount and debt
issuance costs of $173 at December 31, 2023 and
$273 at December 31, 2022)
14,327
14,727
Other liabilities
12,982
11,994
Total liabilities
867,588
843,904
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;
2,893,064 shares issued and outstanding in 2023 and
2,888,452 shares issued and outstanding in 2022
289
289
Additional paid-in capital
31,457
31,107
Retained earnings
69,215
59,492
Accumulated other comprehensive income (loss)
(13,279)
(17,512)
Total shareholders’ equity
87,682
73,376
Total liabilities and shareholders’ equity
$ 955,270
$ 917,280
TRUXTON CORPORATION
CONSOLIDATED STATEMENTS OF NET INCOME
Years ended December 31, 2023 and 2022
(Dollars in thousands except share and per share amounts)
See accompanying notes to consolidated financial statements.
4.
2023
2022
Non-interest income
Wealth management services
$
17,657
$
16,377
Service charges on deposit accounts
461
415
Bank owned life insurance income
216
203
Net losses on sales of securities
(376)
(636)
Other
298
253
Total non-interest income
18,256
16,612
Interest income
Loans, including fees
37,804
25,125
Taxable securities
9,350
5,247
Tax-exempt securities
876
1,568
Interest bearing deposits
695
469
Federal funds sold
101
39
Other interest income
216
156
Total interest income
49,042
32,604
Interest expense
Deposits
20,881
6,792
Subordinated debentures and other
771
776
Short-term borrowings
2,154
52
Long-term borrowings
490
141
Total interest expense
24,296
7,761
Net interest income
24,746
24,843
Provision for credit losses on loans
296
984
Net interest income after provision for credit losses
24,450
23,859
Total revenue, net
42,706
40,471
Non-interest expense
Compensation and employee benefits
14,810
14,587
Occupancy
1,185
1,034
Furniture and equipment
76
112
Data processing
1,703
1,486
Wealth management processing fees
729
666
Advertising and public relations
248
162
Professional services
941
793
FDIC insurance assessments
460
246
Other
901
879
Total non-interest expense
21,053
19,965
Income before income taxes
21,653
20,506
Income tax expense
4,117
3,780
Net income
$
17,536
$
16,726
Earnings per share:
Basic
$
6.04
$
5.78
Diluted
$
6.02
$
5.75
TRUXTON CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Years ended December 31, 2023 and 2022
(Dollars in thousands except share and per share amounts)
See accompanying notes to consolidated financial statements.
5.
2023
2022
Net income
$
17,536
$
16,726
Other comprehensive income:
Unrealized gains/losses on securities:
Unrealized holding gain (loss) arising during the period
6,112
(31,604)
Reclassification adjustment for losses included in net
income as net losses on sale of securities
376
636
Tax effect, income tax (expense) benefit included in
net income related to reclassification adjustments
($98) and ($166), respectively
(1,696)
8,092
Unrealized gains/losses on cash flow hedging activities:
Unrealized holding gain (loss) arising during the period
(521)
3,889
Reclassification adjustment for losses included in net
income as loss (gain) in interest income
(237)
195
Tax effect, income tax (expense) benefit included in
net income related to reclassification adjustments
($62) and ($51), respectively
199
(1,065)
Total other comprehensive (loss) income, net of tax
4,233
(19,857)
Comprehensive income (loss)
$
21,769
$
(3,131)
TRUXTON CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Years Ended December 31, 2023 and 2022
(Dollars in thousands except share and per share amounts)
See accompanying notes to consolidated financial statements.
6.
Accumulated
Additional
Other
Total
Common
Paid-In
Retained
Comprehensive Shareholders’
Shares
Stock
Capital
Earnings
Income (loss)
Equity
Balance at January 1, 2022
2,879,284
$
288
$
31,790
$
49,628
$
2,345
$
84,051
Exercise of stock options
3,523
-
144
-
-
144
Proceeds from buy back
shares of common stock, net
(32,000)
(3)
(2,199)
-
-
(2,202)
Issuance of restricted
shares of common stock, net
37,645
4
(4)
-
-
-
Stock based compensation expense
-
-
1,376 - - 1,376
Cash dividends ($2.20 per share)
-
-
-
(6,862)
-
(6,862)
Net income
-
-
-
16,726
-
16,726
Other comprehensive loss
-
-
-
-
(19,857)
(19,857)
Balance at December 31, 2022
2,888,452
$
289
$
31,107
$
59,492
$ (17,512) $
73,376
Adjustment for Adoption of ASC 326
-
-
-
(488)
-
(488)
Exercise of stock options
5,780
-
127
-
-
127
Proceeds from buy back
shares of common stock, net
(18,343)
(2)
(1,097)
-
-
(1,099)
Issuance of restricted
shares of common stock, net
17,175
2
(2)
-
-
-
Stock based compensation expense
-
-
1,322
-
-
1,322
Cash dividends ($2.52 per share)
-
-
-
(7,325)
-
(7,325)
Net income
-
-
-
17,536
-
17,536
Other comprehensive income (loss)
-
-
-
-
4,233
4,233
Balance at December 31, 2023
2,893,064
$
289
$
31,457
$
69,215
$ (13,279) $
87,682
TRUXTON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
December 31, 2023 and 2022
(Dollars in thousands except share and per share amounts)
(Continued)
7.
2023
2022
Cash flows from operating activities
Net income
$
17,536
$
16,726
Adjustments to reconcile net income to net cash
from operating activities
Depreciation and amortization
245
290
Net amortization of securities
915
2,019
Net loss on sale of securities
376
636
Deferred income tax benefit
(173)
(75)
Provision for credit losses
296
984
Gain on sale of loans held for sale
-
(15)
Loans originated and held for sale
-
(1,440)
Proceeds from sale of loans held for sale
-
1,455
Stock based compensation expense
1,322
1,376
Bank owned life insurance income
(216)
(203)
Net change in:
Accrued interest receivable
(876)
(1,166)
Other assets
964
(5,693)
Other liabilities
(181)
9,473
Net cash from operating activities
20,208
24,367
Cash flows from investing activities
Net decrease in time deposits in other financial institutions
3,343
(1,053)
Available for sale securities:
Sales
16,648
27,965
Purchases
(44,697)
(56,539)
Maturities, calls and paydowns
30,577
40,197
Net increase in loans
(38,893)
(124,147)
Purchase of restricted equity securities
(43)
(38)
Purchase of Federal Home Loan Bank stock
(1,187)
(528)
Sales of Federal Home Loan Bank stock
2,598
581
Additions of premises and equipment, net
(126)
(84)
Net cash from investing activities
(31,780)
(113,646)
Cash flows from financing activities
Proceeds from Federal Home Loan Bank advances
133,700
57,000
Repayments of Federal Home Loan Bank advances
(133,700)
(57,000)
Proceeds from Bank Term Funding Program advances
110,000
-
Repayments of Bank Term Funding Program advances
(56,200)
-
Proceeds from Federal Reserve Bank Discount Window advances
32,067
-
Repayments of Federal Reserve Bank Discount Window advances
(32,067)
-
Payments on subordinated debt
(500)
-
Net change in federal funds purchased
(4,933)
4,933
Net change in deposits
(25,771)
276
Proceeds from exercise of stock options
127
144
Purchase of common stock
(1,099)
(2,202)
Cash dividends paid
(7,325)
(6,862)
Net cash from financing activities
14,299
(3,711)
Net change in cash and cash equivalents
2,727
(92,990)
Cash and cash equivalents at beginning of year
6,499
99,489
Cash and cash equivalents at end of year
$
9,226
$
6,499
TRUXTON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
December 31, 2023 and 2022
(Dollars in thousands except share and per share amounts)
See accompanying notes to consolidated financial statements.
8.
2023
2022
Supplemental cash flow information:
Cash paid during year for interest
$
24,118
$
7,580
Cash paid during year for income taxes
4,335
3,879
Supplemental non-cash information:
Decrease to retained earnings for adoption of ASC 326
$
(488)
$
-
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(Dollars in thousands except share and per share amounts)
9.
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 Risk Management is an insurance company regulated by the Tennessee Department of
Insurance that provides protection from certain risks that are not typically covered by commercial
insurance. Truxton Risk Management was dissolved effective September 30, 2023.
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.
Truxton Trust Company has two wholly owned subsidiaries, Insurgent Investments, Inc., which primarily
manages an investment portfolio of municipal securities, and Truxton Capital Management, LLC, which
primarily provides investment management and advisory services to businesses and their owners.
Subsequent Events: The Corporation has evaluated subsequent events for recognition and disclosure
through January 24, 2024, 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. 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, not all are within the insurance
limits provided by the Federal Deposit Insurance Corporation “FDIC” and have maturities ranging from
2024 to 2025.
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.
Allowance for Credit Losses – Available-For-Sale Securities: For available-for-sale debt securities in an
unrealized loss position, the Corporation first assesses whether it intends to sell, or it is more likely than
not that it will be required to sell the security before recovery of its amortized cost basis. If either of the
criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to
fair value through income. For debt securities available-for-sale that do not meet the criteria, the
Corporation evaluates whether the decline in the fair value has resulted from credit losses or other
factors. In making this assessment, management considers the extent to which fair value is less than
amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions
specifically related to the security, among other factors. If this assessment indicates that a credit loss
exists, the present value of cash flows expected to be collected from the security are compared to the
amortized cost basis of the security. If the present value of cash flows expected to be collected is less
than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(Dollars in thousands except share and per share amounts)
10.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment
that has not been recorded through an allowance for credit losses is recognized in other comprehensive
income.
Changes in the allowance for credit losses are recorded as credit loss expense (or reversal). Losses are
charged against the allowance when management believes the uncollectiblity of an available-for-sale
security is confirmed or when either of the criteria regarding intent for requirement to sell is met.
Accrued interest receivable on available-for-sale debit securities totaled $1,561 at December 31, 2023
and is excluded from the estimate of credit losses.
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, 2023, 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 Credit Losses: The provision for credit losses represents the portion of the loan's
amortized cost basis that the Corporation does not expect to collect due to credit losses over the loan's
life, considering past events, current conditions, and reasonable and supportable forecasts of future
economic conditions considering macroeconomic forecasts. Loan losses are charged against the
allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent
recoveries, if any, are credited to the allowance.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(Dollars in thousands except share and per share amounts)
11.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
As of January 1, 2023, the Corporation’s policy for the provision for credit losses changed with the
adoption of the Current Expected Credit Loss (CECL) model to calculate the allowance using a lifetime
expected credit loss approach. The Corporation uses two methodologies allowed under the accounting
guidance, Weighted Average Remaining Maturity (WARM) and Scaled CECL Allowance for Losses
Estimator (SCALE). The allowance for credit losses is measured on a collective (pool) basis when similar
risk characteristics exist. The Corporation has identified the loan portfolio segments listed below. The two
construction loan portfolios use the SCALE model to calculate the provision for credit losses. All of the
other loan pools use the WARM methodology.
Residential construction loans. The Company provides construction financing for small residential
developers of single-family homes. This category excludes single loan commitments funding the
construction of five or more individual houses but does include all owner-occupied residential
construction loans. These loans are in the construction and land development segment.
Commercial construction loans. The Company provides financing for commercial construction
projects and vacant land (excluding agricultural property), This category includes single loan
commitments funding the construction of five or more individual homes and both non-owner
occupied and owner-occupied properties of all types. These loans are in the construction and
land development segment.
Residential and commercial 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.
Residential line of credit loans. The Corporation’s residential line of credit loans are revolving,
open-end lines of credit secured by 1-4 family residential properties. These loans can be secured
by owner-occupied property (primary or secondary residence) or by investment property and can
be a primary or junior lien. These loans are in the residential real estate segment.
Residential real estate 1-4 family mortgage loans. The Corporation provides closed-end
mortgages secured by 1-4 family residential mortgages. This category includes junior lien 1-4
family residential mortgages and both owner-occupied and non-owner occupied collateral. These
loans are in the residential real estate segment.
Commercial real estate loans. The Corporation provides commercial real estate mortgages
(including those secured by multifamily properties) combined into one pool regardless of property
type. A portion of these loans are non-recourse but others have guarantors or, in the case with
mortgages secured by owner-occupied properties, full commercial business interests supporting
cash flow.
As it relates to all mortgages secured by real properties, 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.
Commercial and industrial loans. The Corporation provides a mix of variable rate and fixed rate
loans to commercial operations. While these loans can be unsecured, they also include a variety
of collateral such as accounts receivable, inventory, equipment, and vehicles. Most are
guaranteed by the business principals and are typically made on the basis of the borrower's
ability to repay from the cash flow of the business enterprise. Adverse economic conditions may
affect the repayment ability of these loans. These loans are in the commercial segment.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(Dollars in thousands except share and per share amounts)
12.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Consumer loans. The Corporation’s consumer loans include both open-end and closed-end loans
to individuals for personal, family, or household purposes. These loans may be secured or
unsecured but are never secured with real estate.
Loans that do not share risk characteristics are evaluated on an individual basis and not included in the
loan pools highlighted above. The Corporation has determined the following circumstances in which a
loan may require an individual evaluation: collateral dependent loans; loans for which foreclosure is
probable; and loans with other unique risk characteristics. A loan is deemed collateral dependent when 1)
the borrower is experiencing financial difficulty and 2) the repayment is expected to be primarily through
sale or operation of the collateral. The allowance for credit losses for collateral dependent loans as well
as loans where foreclosure is probable is calculated as the amount for which the loan’s amortized cost
basis exceeds fair value. Fair value is determined based on appraisals performed by qualified appraisers
and reviewed by qualified personnel. In cases where repayment is to be provided substantially through
the sale of collateral, the Corporation reduces the fair value by the estimated costs to sell.
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures:
The
Corporation
estimates
expected credit losses over the contractual period in which the Bank is exposed to credit risk via a
contractual obligation to extend credit unless that obligation is unconditionally cancellable by the
Corporation. The allowance for credit losses on off-balance sheet credit exposures is adjusted through
credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an
estimate of an estimate of expected credit losses on commitments expected to be funded over its
estimated life.
As of December 31, 2023, the allowance for credit losses on unfunded commitments was $411 and
included in other liabilities.
Bank Owned Life Insurance:
The Bank has purchased life insurance policies on certain key
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.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(Dollars in thousands except share and per share amounts)
13.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 120-
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 $477 and $673 were included in other assets as of
December 31, 2023 and 2022.
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 hedges 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.
The Corporation is exposed to losses if a counterparty fails to make its payments under a contract in
which the Corporation is in the net receiving position. The Corporation anticipates that the counterparties
will be able to fully satisfy their obligations under the agreements. All the contracts to which the
Corporation is a party settle monthly or quarterly. In addition, the Corporation obtains collateral above
certain thresholds of the fair value of its derivatives for each counterparty based upon their credit standing
and the Corporation has netting agreements with the dealers with which it does business.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(Dollars in thousands except share and per share amounts)
14.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
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: The Corporation has cash held with third-party provider as collateral on cash flow
swap.
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.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(Dollars in thousands except share and per share amounts)
15.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
Reclassifications: Some items in the prior year financial statements were reclassified to conform to the
current presentation. Reclassifications had no effect on prior year net income or shareholders’ equity.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(Dollars in thousands except share and per share amounts)
16.
NOTE 2 - SECURITIES
The following table summarizes the amortized cost and fair value of the available for sale securities
portfolio at December 31, 2023 and 2022 and the corresponding amounts of gross unrealized gains and
losses recognized in accumulated other comprehensive income:
Gross
Gross
Amortized
Unrealized
Unrealized
Fair
2023
Cost
Gains
Losses
Value
Available for sale
U.S. Treasury and federal agency
496
-
(5)
491
U.S. government sponsored entities and
agencies
6,413
11
(157)
6,267
Agency mortgage-backed securities:
residential
21,524
1
(3,048)
18,477
Agency mortgage-backed securities:
commercial
3,983
3
(222)
3,764
Agency collateralized mortgage obligations
26,888
47
(1,211)
25,724
State and political subdivisions
58,328
33
(6,435)
51,926
Non-agency mortgage securitizations
82,041
158
(7,636)
74,563
Asset backed securities
73,104
122
(2,278)
70,948
Corporate securities
8,498
1
(733)
7,766
Total available for sale
$ 281,275
$
376
$ (21,725)
$ 259,926
Gross
Gross
Amortized
Unrealized
Unrealized
Fair
2022
Cost
Gains
Losses
Value
Available for sale
U.S. Treasury and federal agency
491
-
(10)
481
U.S. government sponsored entities and
agencies
8,723
17
(202)
8,538
Agency mortgage-backed securities:
residential
23,960
-
(3,648)
20,312
Agency mortgage-backed securities:
commercial
3,111
-
(276)
2,835
Agency collateralized mortgage obligations
27,197
30
(1,431)
25,796
State and political subdivisions
73,585
34
(9,458)
64,161
Non-agency mortgage securitizations
81,180
10
(8,273)
72,917
Asset backed securities
52,338
-
(3,567)
48,771
Corporate securities
14,509
-
(1,063)
13,446
Total available for sale
$ 285,094
$
91
$ (27,928)
$ 257,257
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(Dollars in thousands except share and per share amounts)
17.
NOTE 2 - SECURITIES (Continued)
Sales of available for sale securities were as follows for the years ending December 31, 2023 and 2022:
2023
2022
Proceeds
$
16,648
$
27,965
Gross gains
111
9
Gross losses
(487)
(645)
Securities pledged at year-end 2023 and 2022 had a carrying value of $85,013 and $31,863 and were
pledged to secure public deposits, interest rate swaps, one of the bank’s federal funds lines of credit, and
other borrowings with Federal Reserve Bank through the Bank Term Funding Program (BTFP). 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.
December 31, 2023
Amortized
Fair
Cost
Value
Within one year
$
250
$
249
One to five years
6,461
6,055
Five to ten years
13,275
11,568
Beyond ten years
47,336
42,311
U.S. government sponsored entities and agencies
6,413
6,267
Agency mortgage-backed securities: residential
21,524
18,477
Agency mortgage-backed securities: commercial
3,983
3,764
Agency collateralized mortgage obligations
26,888
25,724
Non-agency mortgage securitizations
82,041
74,563
Asset backed securities
73,104
70,948
Total
$ 281,275
$ 259,926
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(Dollars in thousands except share and per share amounts)
18.
NOTE 2 - SECURITIES (Continued)
The following table summarizes the investment securities with unrealized losses at December 31, 2023
and 2022 aggregated by major security type and length of time in a continuous unrealized loss position:
Less than 12 Months
12 Months or More
Total
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
December 31, 2023
Value
Losses
Value
Losses
Value
Losses
Available for sale
U.S. Treasury and federal
agency
$
491 $
(5) $
- $
- $
491 $
(5)
U.S. government sponsored
entities and agencies
246
(1)
4,131
(156)
4,377
(157)
Agency Mortgage-backed
securities: residential
5
-
18,452
(3,048)
18,457
(3,048)
Agency Mortgage-backed
securities: commercial
-
-
2,824
(222)
2,824
(222)
Agency collateralized
mortgage obligation
3,883
(147)
20,290
(1,064)
24,173
(1,211)
State and political
subdivisions
-
-
48,611
(6,435)
48,611
(6,435)
Non-agency mortgage
securitizations
10,871
(65)
54,222
(7,571)
65,093
(7,636)
Asset backed securities
8,211
(66)
36,661
(2,212)
44,872
(2,278)
Corporate bonds
-
-
6,762
(733)
6,762
(733)
Total available for sale
$
23,707 $
(284) $ 191,953 $ (21,441) $ 215,660 $ (21,725)
Less than 12 Months
12 Months or More
Total
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
December 31, 2022
Value
Losses
Value
Losses
Value
Losses
Available for sale
U.S. Treasury and federal
agency
$
481 $
(10) $
- $
- $
481 $
(10)
U.S. government sponsored
entities and agencies
2,094
(179)
3,383
(23)
5,477
(202)
Agency Mortgage-backed
securities: residential
1,872
(248)
18,422
(3,400)
20,294
(3,648)
Agency Mortgage-backed
securities: commercial
1,944
(87)
890
(189)
2,834
(276)
Agency collateralized
mortgage obligation
15,214
(890)
8,647
(541)
23,861
(1,431)
State and political
subdivisions
53,198
(7,254)
8,193
(2,204)
61,391
(9,458)
Non-agency mortgage
securitizations
23,113
(1,571)
44,987
(6,702)
68,100
(8,273)
Asset backed securities
11,354
(341)
33,020
(3,226)
44,374
(3,567)
Corporate bonds
7,655
(362)
5,791
(701)
13,446
(1,063)
Total available for sale
$ 116,925 $ (10,942) $ 123,333 $ (16,986) $ 240,258 $ (27,928)
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(Dollars in thousands except share and per share amounts)
19.
NOTE 2 - SECURITIES (Continued)
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, 2023.
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, 2023 and
2022:
2023
2022
Federal Home Loan Bank stock
$
975
$
2,387
Federal Reserve Bank stock
883
840
$
1,858
$
3,227
NOTE 3 - LOANS
Loans at year end were as follows:
2023
2022
Commercial
$
62,441
$
53,018
Commercial real estate
241,492
242,555
Residential real estate
255,827
228,814
Construction and land development
50,281
45,648
Consumer
48,662
49,791
Subtotal
658,703
619,826
Net deferred loan fees
(863)
(878)
Gross loans
$ 657,840
$ 618,948
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(Dollars in thousands except share and per share amounts)
20.
NOTE 3 - LOANS (Continued)
The following tables present the activity in the allowance for credit losses and the recorded investment in loans by portfolio segment for the years ending
December 31, 2023 and 2022:
Commercial
Residential
Construction
Real
Real
and Land
December 31, 2023
Commercial
Estate
Estate
Development
Consumer
Unallocated
Total
Allowance for credit losses:
Beginning balance, prior to adoption of ASC 326
$
578
$
2,691
$
1,629
$
498
$
365
$
-
$
5,761
Impact of adopting ASC 326
(88)
(707)
685
67
168
125
Provision for credit losses (1)
(1)
307
129
89
(104)
-
420
Loans charged-off
-
-
(13)
-
-
-
(13)
Recoveries collected
-
-
11
-
-
-
11
Total ending allowance balance
$
489
$
2,291
$
2,441
$
654
$
429
$
-
$
6,304
December 31, 2022
Allowance for credit losses:
Beginning balance
$
485
$
2,398
$
911
$
556
$
283
$
142
$
4,775
Provision for credit losses
93
293
716
(58)
82
(142)
984
Loans charged-off
-
-
(2)
-
-
-
(2)
Recoveries collected
-
-
4
-
-
-
4
Total ending allowance balance
$
578
$
2,691
$
1,629
$
498
$
365
$
-
$
5,761
(1) Provision for credit losses excludes $124 reduction due to unfunded commitments included in other liabilities.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(Dollars in thousands except share and per share amounts)
21.
NOTE 3 - LOANS (Continued)
The ACL and the recorded investment in loans by portfolio segment as of December 31, 2023 and 2022 are as follows. The recorded investment amounts do not
include accrued and unpaid interest or any net deferred loan fees or costs due to immateriality.
Commercial
Residential
Construction
Real
Real
and Land
December 31, 2023
Commercial
Estate
Estate
Development
Consumer
Unallocated
Total
Ending allowance balance attributable to loans:
Individually evaluated for impairment
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Collectively evaluated for impairment
489
2,291
2,441
654
429
-
6,304
Total ending allowance balance
$
489
$
2,291
$
2,441
$
654
$
429
$
-
$
6,304
Loans:
Individually evaluated for impairment
$
-
$
-
$
36
$
-
$
-
$
-
$
36
Collectively evaluated for impairment
62,441
241,492
255,791
50,281
48,662
-
658,667
Total ending loans balance
$
62,441
$ 241,492
$ 255,827
$
50,281
$
48,662
$
-
$ 658,703
December 31, 2022
Ending allowance balance attributable to loans:
Individually evaluated for impairment
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Collectively evaluated for impairment
578
2,691
1,629
498
365
-
5,761
Total ending allowance balance
$
578
$
2,691
$
1,629
$
498
$
365
$
-
$
5,761
Loans:
Individually evaluated for impairment
$
-
$
-
$
305
$
-
$
-
$
-
$
305
Collectively evaluated for impairment
53,018
242,555
228,509
45,648
49,791
-
619,521
Total ending loans balance
$
53,018
$ 242,555
$ 228,814
$
45,648
$
49,791
$
-
$ 619,826
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(Dollars in thousands except share and per share amounts)
22.
NOTE 3 - LOANS (Continued)
Loan Modifications to Borrowers Experiencing Financial Difficulties
The Corporation did not have new modifications to borrowers experiencing financial difficulties and no loan modifications that subsequently defaulted during the
twelve months ended December 31, 2023.
The following table presents information related to impaired loans by class of loans as of and for the year ended December 31, 2022:
Unpaid
Allowance for
Average
Interest
Cash Basis
Principal
Recorded
Loan Losses
Recorded
Income
Interest
Balance
Investment
Allocated
Investment
Recognized
Recognized
December 31, 2022
With no related allowance recorded:
Residential real estate:
Closed-end
$
305
$
305
$
-
$
306
$
16
$
16
With no related allowance recorded:
Commercial real estate
-
-
-
4,443
212
212
Total
$
305
$
305
$
-
$
4,749
$
228
$
228
For the purposes of this disclosure, the unpaid principal balance is not reduced for partial charge-offs.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(Dollars in thousands except share and per share amounts)
23.
NOTE 3 - LOANS (Continued)
There were $12 and $0 loans past due over 90 days and still accruing as of December 31, 2023, and 2022, respectively.
There were no loans on non-accrual as of December 31, 2023, and 2022, respectively.
The following table presents the aging of the amortized cost basis in past due loans as of December 31, 2023, and 2022 by class of loans:
30 - 59
60 - 89
Greater than
Days
Days
89 Days
Total
Loans Not
December 31, 2023
Past Due
Past Due
Past Due
Past Due
Past Due
Total
Commercial
$
-
$
-
$
-
$
-
$
62,441
$
62,441
Commercial real estate
-
-
-
-
241,492
241,492
Residential real estate
35
13
12
60
255,767
255,827
Construction and land
Development
-
-
-
-
50,281
50,281
Consumer
-
-
-
-
48,662
48,662
Total
$
35
$
13
$
12
$
60
$
658,643
$
658,703
December 31, 2022
Commercial
$
-
$
-
$
-
$
-
$
53,018
$
53,018
Commercial real estate
-
-
-
-
242,555
242,555
Residential real estate
28
10
-
38
228,776
228,814
Construction and land
Development
-
-
-
-
45,648
45,648
Consumer
-
-
-
-
49,791
49,791
Total
$
28
$
10
$
-
$
38
$
619,788
$
619,826
Collateral-Dependent Loans
A loan is collateral dependent when the borrower is experiencing financial difficulty and repayment of the loan is expected to be provided substantially through the
sale or operation of the collateral. There were no collateral dependent loans as of December 31, 2023, or 2022, respectfully.
.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(Dollars in thousands except share and per share amounts)
24.
NOTE 3 - LOANS (Continued)
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:
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.
The table below is based on the most recent analysis performed loan balances classified within each risk
category by primary loan type based on year of origination or most recent renewal as of December 31,
2023:
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(Dollars in thousands except share and per share amounts)
25.
NOTE 3 - LOANS (Continued)
Term Loans Amortized Cost Basis by Origination Year
Revolving
Loans
Amortized
2023
2022
2021
Prior
Cost Basis
Total
As of December 31, 2023
Commercial:
Risk Rating
Pass
$
21,309
$
10,844
$
5,684
$
2,593
$
22,011
$
62,441
Special mention
-
-
-
-
-
-
Substandard
-
-
-
-
-
-
Doubtful
-
-
-
-
-
-
Total Commercial loans
$
21,309
$
10,844
$
5,684
$
2,593
$
22,011
$
62,441
Commercial real estate:
Risk Rating
Pass
$
41,133
$
66,211
$
59,809
$
65,763
$
8,576
$
241,492
Special mention
-
-
-
-
-
-
Substandard
-
-
-
-
-
-
Doubtful
-
-
-
-
-
-
Total Commercial real
estate loans
$
41,133
$
66,211
$
59,809
$
65,763
$
8,576
$
241,492
Residential real estate:
Risk Rating
Pass
$
48,081
$
56,133
$
62,591
$
35,494
$
53,502
$
255,801
Special mention
-
-
-
-
-
-
Substandard
-
12
-
14
-
26
Doubtful
-
-
-
-
-
-
Total Residential real
estate loans
$
48,081
$
56,145
$
62,591
$
35,508
$
53,502
$
255,827
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(Dollars in thousands except share and per share amounts)
26.
NOTE 3 - LOANS (Continued)
Term Loans Amortized Cost Basis by Origination Year
Revolving
Loans
Amortized
2023
2022
2021
Prior
Cost Basis
Total
Construction and land
development:
Risk Rating
Pass
$
37,340
$
11,858
$
-
$
618
$
465
$
50,281
Special mention
-
-
-
-
-
-
Substandard
-
-
-
-
-
-
Doubtful
-
-
-
-
-
-
Total Construction and
land development loans $
37,340
$
11,858
$
-
$
618
$
465
$
50,281
Consumer:
Risk Rating
Pass
$
8,241
$
3,207
$
847
$
1,480
$
34,887
$
48,662
Special mention
-
-
-
-
-
-
Substandard
-
-
-
-
-
-
Doubtful
-
-
-
-
-
-
Total Consumer loans
$
8,241
$
3,207
$
847
$
1,480
$
34,887
$
48,662
Total loans:
Risk Rating
Pass
$
156,104
$
148,253
$
128,931
$
105,948
$
119,441
$
658,677
Special mention
-
-
-
-
-
-
Substandard
-
12
-
14
-
26
Doubtful
-
-
-
-
-
-
Total loans
$
156,104
$
148,265
$
128,931
$
105,962
$
119,441
$
658,703
Loans not meeting the criteria above that are analyzed individually as part of the above-described process are considered to be pass-rated loans.
The Corporation had charge offs totaling $13 and $2 for the years ending December 31, 2023 and 2022, respectfully.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(Dollars in thousands except share and per share amounts)
27.
NOTE 3 - LOANS (Continued)
Based on the most recent analysis performed, the risk category of loans by class of loans is as follows:
Special
Total
Pass
Mention Substandard Doubtful
Loans
December 31, 2022
Commercial
$
53,018
$
-
$
-
$
-
$
53,018
Commercial real estate
236,767
5,788
-
-
242,555
Residential real estate
228,800
-
14
-
228,814
Construction and land development:
45,648
-
-
-
45,648
Consumer
49,791
-
-
-
49,791
Total
$ 614,024
$
5,788
$
14
$
-
$ 619,826
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(Dollars in thousands except share and per share amounts)
28.
NOTE 4 - PREMISES AND EQUIPMENT
Year-end premises and equipment were as follows:
2023
2022
Leasehold improvements
$
1,366
$
1,366
Furniture, fixtures and equipment
1,052
926
Computer software
1,054
1,054
3,472
3,346
Less: Accumulated depreciation and amortization
(3,283)
(3,137
Net premises and equipment
$
189
$
209
Depreciation and amortization expense totaled $146 and $191 for 2023 and 2022, 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 one-year lease extension, terminating June 1,
2024. Prior to that date, the Corporation will move its headquarters into a new space with a lease
commencing January 1, 2024, and terminating February 1, 2034, with two 5-year renewal options. The
Corporation’s current leases have remaining terms ranging from 5 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
2023
2022
Right-of-use assets:
Operating leases Other assets
$ 224
$ 235
Lease liabilities:
Operating leases Other liabilities
$ 224
$ 235
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(Dollars in thousands except share and per share amounts)
29.
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, 2023 are as follows:
Operating
Leases
2024
$
212
Less: imputed interest
12
Net lease liabilities
$
224
Supplemental lease Information
2023
2022
Operating lease weighted average remaining lease term (years)
0.40
0.50
Operating lease weighted average discount rate
5.34%
2.88%
NOTE 6 - DEPOSITS
Scheduled maturities of time deposits, included in interest bearing deposits, for the next five years were
as follows:
2024
$ 95,433
2025
29,227
2026
11,566
2027
4,626
2028
498
Time deposits that meet or exceed the FDIC Insurance limit of $250 at December 31, 2023 and 2022
were $111,775 and $94,722.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(Dollars in thousands except share and per share amounts)
30.
NOTE 7 - BORROWINGS
Borrowings include Federal Home Loan Bank advances and subordinated debt.
Federal Home Loan Bank Advances
At December 31, 2023 and 2022, advances from the FHLB were as follows:
For 2023 and 2022, interest rates ranged from 1.02% to
2.90%, averaging 2.01% with maturities between
January 12, 2024 and April 28, 2025.
$
4,500
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 $94,364 of 1-4 family, first mortgage loans
and $30,538 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 $75,067 as of December 31, 2023.
Payments over the next five years are as follows:
2024
$
2,250
2025
2,250
Subordinated Debt
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 Corporation 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 $173 and $273 as of
December 31, 2023, and 2022, respectively.
In 2023, the Corporation repurchased $500 of the debt and recognized a gain of $50.
Bank Term Funding Program Advances
The Federal Reserve Bank created the new Bank Term Funding Program (BTFP) on March 12, 2023,
whereby banks with Discount Window access could receive 1-year fixed rate advances, prepayable
without penalty, based on the par value of their eligible pledged collateral, at a rate equal to the 1-year
overnight index swap rate plus 10 basis points, fixed each morning.
The bank advanced $40,000 in March 2023 and an additional $15,000 in April 2023. As of December 31,
2023, the bank has $53,800 outstanding BTFP advances at an average rate of 4.43%.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(Dollars in thousands except share and per share amounts)
31.
NOTE 7 - BORROWINGS (Continued)
Federal Reserve Bank Discount Window Advances
The Corporation maintains access to the Federal Reserve Bank Discount Window primary credit by
pledging securities. The Corporation utilized Discount Window Primary Credit advances for short-term
funding throughout 2023 but had no outstanding advances at December 31, 2023. The Corporation had
approximately $24,751 of availability at year-end based on the value of pledged securities.
NOTE 8 - INCOME TAXES
Income tax expense was as follows:
2023
2022
Current expense
Federal
$
4,329
$
3,895
State
(39)
(40)
Total current
4,290
3,855
Deferred benefit
Federal
(193)
(72)
State
20
(3)
Total deferred
(173)
(75)
Total
$
4,117
$
3,780
Effective tax rates differ from federal statutory rate of 21% applied to income before income taxes due to
the following:
2023
2022
Federal statutory rate times financial statement income
$
4,547
$
4,306
Effect of:
State taxes, net of federal benefit
(15)
(34)
Tax exempt interest income
(184)
(239)
Bank owned life insurance income
(45)
(43)
Captive insurance premiums and disallowances
(130)
(219)
Other, net
(56)
9
Total income tax expense
$
4,117
$
3,780
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(Dollars in thousands except share and per share amounts)
32.
NOTE 8 - INCOME TAXES (Continued)
Year-end deferred tax assets and liabilities were due to the following:
2023
2022
Deferred tax assets:
Allowance for credit losses
$
1,755
$
1,502
Loan origination income
289
297
Net unrealized losses on available for sale securities
5,579
7,274
Depreciation
62
52
Other
67
78
Total deferred tax assets
7,752
9,203
Deferred tax liabilities:
Prepaid expenses
(257)
(377)
Stock based compensation expense
(454)
(418)
Restricted equity stock dividends
(4)
(6)
Loan origination expenses
(64)
(67)
Net unrealized gain on cash flow hedges
(886)
(1,084)
Other
(77)
(90)
Total deferred tax liabilities
(1,742)
(2,042)
Deferred tax asset, net
$
6,010
$
7,161
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, 2023,
and 2022. 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 2019.
NOTE 9 - RELATED PARTY TRANSACTIONS
Loans to principal officers, directors and their affiliates at December 31, 2023 and 2022 totaled $11,918
and $7,554, respectively.
Deposits from principal officers, directors and their affiliates at December 31, 2023 and 2022 totaled
$3,019 and $4,197, respectively.
Wealth management fees earned from assets under management for principal officers, directors and their
affiliates at December 31, 2023 and 2022 totaled $1,662 and $1,057, respectively.
The Company recognized $20 and $4 from an unconsolidated related entity at December 31, 2023 and
2022, respectively.
Additionally, the Corporation has a director that is a member of the firm from which the Corporation
receives legal services.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(Dollars in thousands except share and per share amounts)
33.
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, 2023, 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, 2023 and 2022, 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.
Actual and required capital amounts and ratios for the Bank are presented below as of December 31,
2023 and 2022. The capital conservation buffer is not included in the required ratios of the table
presented below.
To Be Well
Capitalized Under
For Capital
Prompt Corrective
Actual
Adequacy Purposes
Action Provisions
2023
Amount
Ratio
Amount
Ratio
Amount
Ratio
Total Capital to risk
weighted assets
$ 108,919
15.45%
$ 56,383
8.00%
$ 70,478
10.00%
Tier 1 (Core) Capital to
risk weighted assets
102,204
14.50%
42,287
6.00%
56,383
8.00%
Common Tier 1 (CET1)
102,204
14.50%
31,715
4.50%
45,811
6.50%
Tier 1 (Core) Capital to
average assets
102,204
10.53%
38,809
4.00%
48,512
5.00%
2022
Amount
Ratio
Amount
Ratio
Amount
Ratio
Total Capital to risk
weighted assets
$ 97,519
14.20%
$ 54,938
8.00%
$ 68,672
10.00%
Tier 1 (Core) Capital to
risk weighted assets
91,758
13.36%
41,203
6.00%
54,938
8.00%
Common Tier 1 (CET1)
91,758
13.36%
30,902
4.50%
44,637
6.50%
Tier 1 (Core) Capital to
average assets
91,758
9.78%
37,533
4.00%
46,916
5.00%
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 2024, the Bank could,
without prior approval, declare dividends of approximately $19,494 plus any 2024 net profits retained to
date of declaration.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(Dollars in thousands except share and per share amounts)
34.
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:
2023
2022
Letters of Credit
$
2,185
$
3,311
Unused Lines of Credit
156,719
162,631
NOTE 12 - STOCK BASED COMPENSATION PLAN
Total stock-based compensation expense in 2023 and 2022 was $1,322 and $1,376, respectively.
Related to the 2023 and 2022 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 2023 employees forfeited 877 shares with a total fair
value of $61 in connection with the election. During 2022 employees forfeited 553 shares with a total fair
value of $41 in connection with the election. These amounts were recorded in salaries and employee
benefits on the Corporation’s consolidated statements of income in 2023 and 2022.
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, 2023, 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, 2022, 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, 2023, the Corporation has issued 64,372 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 2023 and 2022. 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.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(Dollars in thousands except share and per share amounts)
35.
NOTE 12 - STOCK BASED COMPENSATION PLAN (Continued)
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 2023 and 2022, the Corporation did not issue incentive stock options for the purchase of shares of
common stock, respectively.
A summary of the stock option activity for 2023 follows:
Weighted
Weighted
Average
Average
Remaining
Aggregate
Exercise
Contractual
Intrinsic
Shares
Price
Term
Value
Outstanding at beginning of year
22,465
$ 32.02
4.1
Forfeited
(2,643)
37.00
Exercised
(5,780)
36.98
Outstanding at end of year
14,042
29.05
2.1
$
505
Vested or expected to vest
14,042
39.05
2.1
505
Exercisable at end of year
14,042
29.05
2.1
505
Information related to stock options during each year follows:
2023
2022
Intrinsic value of options exercised
$
85
$
82
Cash received from option exercises
126
144
Weighted average fair value of options granted
-
-
All stock options granted under the Plan are vested and exercisable as of December 31, 2023.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(Dollars in thousands except share and per share amounts)
36.
NOTE 12 - STOCK BASED COMPENSATION PLAN (Continued)
Restricted Stock Grants
In 2023 and 2022, the Corporation issued 24,499 and 39,873 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 over a period of five to seven years.
A summary of the changes in the Corporation’s non-vested shares for the year follows:
Weighted-
Average
Non-vested shares
Shares
Fair Value
Non-vested at January 1, 2023
79,356
$
60.04
Granted
24,499
68.58
Vested
(23,447)
51.24
Forfeited or expired
(7,324)
65.45
Non-vested at December 31, 2023
73,084
$
61.78
As of December 31, 2023, there was $3,424 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 2.4 years.
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 had swaps designated as Fair Value Hedges for Loans, totaling $21,921 and $22,634 in
notional, respectively, as of December 31, 2023 and 2022, with the decline reflecting the amortization of
the hedged loans. The Corporation had swaps designated as Fair Value Hedges for AFS Securities
totaling $10,750 in notional as of December 31, 2023 and 2022. The hedges were determined to be
effective during all periods presented. The Corporation expects the hedges to remain effective during the
remaining terms of the swaps.
.
The following table reflects the fair value hedges included in the Consolidated Statements of Net Income
as of December 31:
Interest rate contracts
Location
2023
2022
Change in fair value on interest rate
swaps hedging loans and securities
Loan interest income
$
(50) $
(14)
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(Dollars in thousands except share and per share amounts)
37.
NOTE 13 - DERIVATIVES (Continued)
The following table reflects the fair value hedges included in the Consolidated Balance Sheets as of
December 31:
2023
2022
Notional
Fair
Notional
Fair
Amount
Value
Amount
Value
Included in other assets:
Derivatives designated as hedges:
Interest rate swaps
$ 32,671
$ 2,626
$ 33,384
$ 3,289
Included in other liabilities:
Derivatives designated as hedges:
Interest rate swaps
$ 32,671
$ 2,435
$ 33,384
$ 3,048
Cash Flow Hedge
Interest Rate Swaps Designated as Cash Flow Hedges: Interest rate swaps with notional amounts
totaling $65,000 and $47,500, respectively, as of December 31, 2023 and 2022, were designated as cash
flow hedges of certain deposit accounts and were determined to be fully effective during the periods
presented. In February 2023 and November 2023, the Corporation entered into new cashflow hedges of
$10,000 and $5,000, respectively, whereby the Corporation paid a fixed interest rate and receives a
monthly average of the Effective Federal Funds rate, to which the hedged deposits’ rates are indexed. In
May 2023, the Corporation entered into two more cashflow hedges of $5,000 each, whereby the
Corporation pays a fixed rate and receives a 3-month average of daily SOFR, which is highly correlated
to the cost of 3-month wholesale borrowings (such as brokered CDs or FHLB advances). The
Corporation had $40,000 notional cashflow hedges for Fed Funds Effective indexed deposits and
$25,000 notional of cashflows hedges for 3-month wholesale funding. As such, no amount of
ineffectiveness has been included in net income. Therefore, the 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:
2023:
Amount of Gain
Amount of Gain
Amount of Gain
(Loss) Recognized
(Loss) Recognized
(Loss) Recognized
In OCI
from OCI to
in Non-Interest Income
(Effective Portion)
Interest Income
(Ineffective Portion)
Interest rate swaps related
to deposits
$
(758)
$
-
$
-
2022:
Amount of Gain
Amount of Gain
Amount of Gain
(Loss) Recognized
(Loss) Recognized
(Loss) Recognized
In OCI
from OCI to
in Non-Interest Income
(Effective Portion)
Interest Income
(Ineffective Portion)
Interest rate swaps related
to deposits
$
4,084
$
-
$
-
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(Dollars in thousands except share and per share amounts)
38.
NOTE 13 - DERIVATIVES (Continued)
The following table reflects the fair value hedges included in the Consolidated Balance Sheets as of
December 31:
2023
2022
Notional
Fair
Notional
Fair
Included in other assets:
Amount
Value
Amount
Value
Interest rate swaps related to deposits
$ 65,000
$ 3,389
$ 47,500
$ 4,147
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.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(Dollars in thousands except share and per share amounts)
39.
NOTE 14 - FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
Assets and liabilities measured at fair value on a recurring basis are summarized below:
Fair Value Measurements at Using:
Quoted Prices
Significant
In Active
Other
Markets for
Observable
December 31, 2023
Carrying
Identical Assets
Inputs
Financial assets:
Value
“Level 1”
“Level 2”
Investment securities available for sale
U.S. Treasury and federal agency
$
491
$
-
$
491
U.S. government sponsored entities and agencies
6,267
-
6,267
Agency mortgage-backed securities: residential
18,477
-
18,477
Agency mortgage-backed securities: commercial
3,764
-
3,764
Agency collateralized mortgage obligations
25,724
-
25,724
State and political subdivisions
51,926
-
51,926
Non-agency mortgage securitizations
74,563
-
74,563
Asset backed securities
70,948
-
70,948
Corporate bonds
7,766
-
7,766
Total investment securities available for sale
$ 259,926
$
-
$ 259,926
Derivatives
$
6,015
$
-
$
6,015
Financial liabilities:
Derivatives
$
2,435
$
-
$
2,435
Fair Value Measurements at Using:
Quoted Prices
Significant
In Active
Other
Markets for
Observable
December 31, 2022
Carrying
Identical Assets
Inputs
Financial assets:
Value
“Level 1”
“Level 2”
Investment securities available for sale
U.S. Treasury and federal agency
$
481
$
-
$
481
U.S. government sponsored entities and agencies
8,538
-
8,538
Agency mortgage-backed securities: residential
20,312
-
20,312
Agency mortgage-backed securities: commercial
2,835
-
2,835
Agency collateralized mortgage obligations
25,796
-
25,796
State and political subdivisions
64,161
-
64,161
Non-agency mortgage securitizations
72,917
-
72,917
Asset backed securities
48,771
-
48,771
Corporate bonds
13,446
-
13,446
Total investment securities available for sale
$ 257,257
$
-
$ 257,257
Derivatives
$
7,436
$
-
$
7,436
Financial liabilities:
Derivatives
$
3,048
$
-
$
3,048
There were no transfers between Level 1 and Level 2 during 2023 or 2022.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(Dollars in thousands except share and per share amounts)
40.
NOTE 14 - FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
The carrying amounts and estimated fair values of financial instruments, at December 31, 2023 and
December 31, 2022 are as follows:
Fair Value Measurements Using:
Carrying
December 31, 2023
Value
Level 1
Level 2
Level 3
Total
Financial assets
Cash and cash equivalents
$
9,226
$
9,226
$
-
$
-
$
9,226
Time deposits in other
financial institutions
490
-
490
-
490
Securities available-for-sale
259,926
-
259,926
-
259,926
Restricted equity securities
1,858
NA
NA
NA
NA
Loans, net
651,536
-
-
631,892
631,892
Accrued interest receivable
4,388
-
1,880
2,508
4,388
Financial liabilities
Deposits
$ 781,979
$
-
$ 780,547
$
-
$ 780,547
Federal Home Loan Bank advances
4,500
-
4,392
-
4,392
Bank Term Funding Program advances
53,800
-
53,641
-
53,641
Accrued interest payable
337
337
-
-
337
December 31, 2022
Financial assets
Cash and cash equivalents
$
6,499
$
6,499
$
-
$
-
$
6,499
Time deposits in other
financial institutions
3,833
-
3,833
-
3,833
Securities available-for-sale
257,257
-
257,257
-
257,257
Restricted equity securities
3,227
NA
NA
NA
NA
Loans, net
613,187
-
-
581,717
581,717
Accrued interest receivable
3,512
-
1,515
1,997
3,512
Financial liabilities
Deposits
$ 807,750
$
-
$ 804,649
$
-
$ 804,649
Federal Home Loan Bank advances
4,500
-
4,282
-
4,282
Federal funds borrowings
4,933
-
4,933
-
4,933
Accrued interest payable
159
159
-
-
159
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.
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(Dollars in thousands except share and per share amounts)
41.
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 2023 and 2022 was $358 and
$337, respectively.
NOTE 16 - OTHER COMPREHENSIVE INCOME (LOSS)
The following is a summary of the accumulated other comprehensive income balances, net of tax:
Balance
Current
Balance
at
Period
at
12/31/2022
Change
12/31/2023
Unrealized gains (losses) on securities
available for sale
$
(20,575)
$
4,793
$
(15,782)
Unrealized gains (losses) on cash
flow hedge
3,063
(560)
2,503
Total
$
(17,512)
$
4,233
$
(13,279)
TRUXTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(Dollars in thousands except share and per share amounts)
42.
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:
2023
2022
Basic
Net income
$
17,536
$
16,726
Less: Undistributed income allocated to
participating securities
469
448
Net earnings allocated to common stock
$
17,067
$
16,278
Weighted common shares outstanding including
participating securities
2,904,153
2,895,888
Less: Participating securities
77,730
77,546
Weighted average shares
2,826,423
2,818,342
Basic earnings per share
$
6.04
$
5.78
Diluted earnings allocated to common stock
$
17,067
$
16,278
Weighted average shares
2,826,423
2,818,342
Add: Dilutive effects of assumed exercises
of stock options and warrants
7,275
12,364
Average shares and dilutive potential common shares
2,833,698
2,830,706
Diluted earnings per share
$
6.02
$
5.75
At year-end 2023, there were no stock options that were not considered in computing diluted earnings per
common share for 2023, because they were antidilutive. At year-end 2022, there were 3,077 stock
options that were not considered in computing diluted earnings per common share for 2022, because
they were antidilutive.