2020 Annual Report

investment securities available for sale, which are referred to as primary liquidity. In regards to off-balance sheet capacity, the Company maintains available borrowing capacity under secured borrowing lines with the FHLB and the Federal Reserve Bank of Minneapolis, as well as unsecured lines of credit for the purpose of overnight funds with various correspondent banks, which the Company refers to as secondary liquidity. In addition, the Bank is a member of the American Financial Exchange, or AFX, through which it may either borrow or lend funds on an overnight or short-term basis with a group of approved commercial banks. The availability of funds changes daily. As of December 31, 2020, the Company had no borrowings outstanding through the AFX. The Bank has also established additional borrowing capacity through the Federal Reserve Bank’s PPPLF, where it can pledge PPP loans to borrow an equal amount of funds. As of December 31, 2020, the Company had no borrowings outstanding through this facility and $138.5 million of PPP loans available to pledge. The facility is available through June 30, 2021.

The following tables present a summary of primary and secondary liquidity levels as of the dates indicated:

Primary Liquidity—On-Balance Sheet

December 31, 2020

December 31, 2019

(Dollars in thousands) Cash and Cash Equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Securities Available for Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Primary Liquidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Ratio of Primary Liquidity to Total Deposits . . . . . . . . . . . . . . . . . . . . . . . . .

145,348 390,629 535,977

$

31,935 289,877 321,812

$

21.4 %

17.6 %

Secondary Liquidity—Off-Balance Sheet Borrowing Capacity

December 31, 2020

December 31, 2019

(Dollars in thousands) Net Secured Borrowing Capacity with the FHLB . . . . . . . . . . . . . . . . . . . . $

361,236 76,830 143,000 581,066

$

209,840 113,164 105,000 428,004

Net Secured Borrowing Capacity with

the Federal Reserve Bank . . . . . . . . .

Unsecured Borrowing Capacity with Correspondent Lenders. . . . . . . . . . . Total Secondary Liquidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Ratio of Primary and Secondary Liquidity to Total Deposits . . . . . . . . . . .

$

45.3 %

41.1 %

During the year ended December 31, 2020, primary liquidity increased $214.2 million due to a $113.4 million increase in cash and cash equivalents and a $100.8 million increase in securities available for sale, when compared to December 31, 2019. Secondary liquidity increased $153.1 million as of December 31, 2020 when compared to December 31, 2019, due to a $151.4 million increase in the borrowing capacity on the secured borrowing line with the FHLB and a $38.0 million increase in unsecured borrowing capacity with correspondent lenders, offset partially by a $36.3 million decrease in the borrowing capacity on the secured credit line with the Federal Reserve Bank. In addition to primary liquidity, the Company generates liquidity from cash flows from the loan and securities portfolios and from the large base of core customer deposits, defined as noninterest bearing transaction, interest bearing transaction, savings, non-brokered money market accounts and non-brokered time deposits less than $250,000. At December 31, 2020, core deposits totaled approximately $1.95 billion and represented 78.1% of total deposits. These core deposits are normally less volatile, often with customer relationships tied to other products offered by the Company, which promote long-standing relationships and stable funding sources. The Company uses brokered deposits, the availability of which is uncertain and subject to competitive market forces and regulation, for liquidity management purposes. At December 31, 2020, brokered deposits totaled $452.3 million, consisting of $292.6 million of brokered time deposits and $159.7 million of non-maturity brokered money market and transaction accounts. At December 31, 2019, brokered deposits totaled $234.4 million, consisting of $231.9 million of brokered time deposits and $2.4 million of non-maturity brokered money market and transaction accounts. The Company’s liquidity policy includes guidelines for On-Balance Sheet Liquidity (a measurement of primary liquidity to total deposits plus borrowings), Total On-Balance Sheet Liquidity with Borrowing Capacity (a measurement of primary and secondary liquidity to total deposits plus borrowings), Wholesale Funding Ratio (a measurement of total

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