NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 – BASIS OF PRESENTATION AND NATURE OF OPERATIONS
Basis of Presentation
The Consolidated Financial Statements of The Community Financial Corporation (the “Company”) and its wholly-owned subsidiary, Community Bank of the Chesapeake (the “Bank”), and the Bank’s wholly-owned subsidiary, Community Mortgage Corporation of Tri-County, included herein are unaudited.
The Consolidated Financial Statements reflect all adjustments consisting only of normal recurring accruals that, in the opinion of management, are necessary to present fairly the Company’s financial condition, results of operations, and cash flows for the periods presented. Certain information and note disclosures normally included in Consolidated Financial Statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") have been condensed or omitted pursuant to the rules and regulations of the SEC. Management believes that the included disclosures are adequate to make the information presented not misleading. The balances as of December 31, 2020 have been derived from audited Consolidated Financial Statements. Additions to the Company’s accounting policies are disclosed in the 2020 Annual Report as well as the adoption of new accounting standards included in Note 1. The results of operations for the three months March 31, 2021 are not necessarily indicative of the results of operations to be expected for the remainder of the year or any other period.
These Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes included in the Company’s 2020 Annual Report on Form 10-K.
Reclassification
Certain items in prior Consolidated Financial Statements have been reclassified to conform to the current presentation.
Nature of Operations
The Company provides financial services to individuals and businesses through its offices in Southern Maryland, and Fredericksburg, Virginia. Its primary deposit products are demand, savings and time deposits, and its primary lending products are commercial and residential mortgage loans, commercial loans, construction and land development loans, home equity and second mortgages and commercial equipment loans.
Use of Estimates
The preparation of Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the Consolidated Financial Statements and the reported amount of income and expenses during the reporting periods. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses ("ALLL"), real estate acquired in the settlement of loans ("OREO"), fair value of financial instruments, fair value of assets acquired and liabilities assumed in a business combination, evaluating other-than-temporary-impairment ("OTTI") of investment securities and valuation of deferred tax assets.
COVID-19
The Company has evaluated subsequent events for potential recognition and/or disclosure through the date the unaudited Consolidated Financial Statements included in this Quarterly Report on Form 10-Q were issued. On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus ("COVID-19") as a global pandemic. The COVID-19 pandemic adversely impacted many of the Company's customers and impaired their abilities to fulfill their financial obligations to the Company. In response to the likely effects on the economy of the pandemic, the Federal Open Market Committee reduced the federal funds rate from a target range of 1.50% to 1.75% to a target range of 0% to 0.25%. These reductions in interest rates along with the other effects of the COVID-19 outbreak may adversely affect the Company's financial condition and results of operations. Please refer to Management's Discussion and Analysis for further discussion.
New Accounting Policy
COVID-19 Deferrals
On March 22, 2020, federal banking regulatory agencies, including the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation, ("the agencies") issued an interagency statement on loan modifications and reporting for financial institutions working with customers affected by the Coronavirus. The interagency statement impacted accounting for loan modifications. Under Accounting Standards Codification 310-40, "Receivables - Troubled Debt Restructurings by Creditors," ("ASC 310-40"), a restructuring of debt constitutes a troubled debt restructure ("TDR") if the creditor, for economic or legal reasons related to the debtor's financial difficulties, grants a concession to the debtor that it would not otherwise consider. The agencies confirmed with the staff of the FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers, who were current prior to any relief, are not to be considered TDRs. This includes modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. Under the March 22, 2020 interagency statement loan modifications were required to be executed between March 1, 2020, and the earlier of (A) 60 days after the date of termination of the National Emergency or (B) December 31, 2020. The Consolidated Appropriations Act that was signed into law on December 27, 2020 extended the loan modification date to the earlier of (A) January 1, 2022 or (B) 60 days after the date on which the national COVID-19 emergency terminates. This interagency guidance is expected to have a material impact on the Company's Consolidated Financial Statements.
Under the Coronavirus Aid, Relief and Economic Security ("CARES") Act, borrowers who were making payments as required and were not considered past due prior to becoming affected by COVID-19 and then receive payment accommodations as a result of the effects of COVID-19 generally would not be reported as past due or nonaccrual for regulatory and financial reporting during the accommodation period. Consistent with regulatory guidance, if new information during the deferral period indicates that there is evidence of default, the Bank may change the classification rating (e.g., change from passing credit to substandard) and accrual status (e.g., change from accrual to non-accrual status) as deemed appropriate.
In keeping with regulatory guidance to work with borrowers as outlined in the CARES Act, the Company offered payment deferral programs for its business and individual customers who were adversely affected by the pandemic. Generally, depending on the demonstrated need of the client, the Company deferred either the full loan payment or the principal component of the loan payment between 90 and 180 days. While interest and fees will still accrue to income, should eventual credit losses on these deferred payments emerge or if a loan is placed on nonaccrual status, interest income and fees accrued would be reversed. Given the ongoing uncertainty regarding the length and economic impact of the COVID-19 crisis and the effects of various government stimulus programs, the estimated number and dollar impact of loan deferrals the Company could execute is subject to change. As of March 31, 2021 and December 31, 2020, the Company had $23.1 million and $35.4 million of loan deferrals, respectively, which represented 1.53% and 2.35% of gross portfolio loans, respectively.
See Note 1 – Summary of Significant Accounting Policies included in the Company’s 2020 Annual Report on Form 10-K for a list of policies in effect as of December 31, 2020.
Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”)
ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments. ASU No. 2016-13 significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace the current “incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, will apply to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments, and financial guarantees. The ASU also simplifies the accounting model for purchase credit impaired (“PCI”) debt securities and loans. ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the ALLL. In addition, entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach).
The Company has formed a CECL committee with representatives from various departments. The committee has selected a third-party vendor solution to assist in the application of the ASU 2016-13. The committee continues to make progress in accordance with the Company's plan for adoption. The Company has developed new expected credit loss estimation models, depending on the nature of each identified pool of financial assets with similar risk characteristics, and is currently reviewing and analyzing the different methodologies to estimate expected credit losses. The Company is also working on documenting new processes and controls, challenging estimated credit loss model assumptions and outputs, refining the qualitative framework as well as drafting policies and disclosures. Additionally, parallel runs will be enhanced throughout 2021 as the processes, controls, and policies are finalized. The adoption of the ASU 2016-13 could result in an increase or decrease in the allowance for loan losses as a result of changing from an “incurred loss” model to an “expected loss” model. Furthermore, ASU 2016-13 will necessitate the establishment of an allowance for expected credit losses for certain debt securities and other financial assets.
In December 2019, the FASB issued ASU No. 2019-10, Financial Instruments-Credit Losses (Topic 326). This update amends the effective date of ASU No. 2016-13 for certain entities, including smaller reporting companies until fiscal years beginning after December 15, 2022, including interim periods within those fiscal periods. Early adoption is permitted. The one-time determination date for identifying as a smaller reporting company was November 15, 2019. The Company met the definition of a smaller reporting company as of this date and plans to adopt the standard with the amended effective date. The Company continues to work through implementation and continues collecting and retaining loan and credit data and evaluating various loss estimation models. Management expects to recognize a one-time cumulative effect adjustment to the allowance for credit losses as of the beginning of the first reporting period in which the standard is effective. While the Company currently cannot reasonably estimate the impact of adopting this standard, the Company expects the impact will be influenced by the composition, characteristics and quality of its loan and securities portfolios, as well as the general economic conditions and forecasts as of the adoption date.
ASU 2019-04 - In April 2019, the FASB issued ASU No. 2019-4 which codifies improvements to Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), Financial Instruments (Topic 825). With respect to Topic 326, ASU 2019-04 clarifies the scope of the credit losses standard and addresses issues related to accrued interest receivable balances, recoveries, variable interest rates and prepayments, among other things. With respect to Topic 825, ASU 2019-04 clarifies the scope of the guidance for recognizing and measuring financial instruments, the requirement for remeasurement under ASC 820 when using the measurement alternative, which equity securities have to be remeasured at historical exchange rates, and certain disclosure requirements. The amendments to Topic 326 have the same effective dates as ASU 2016-13. The Company is currently evaluating the potential impact of Topic 326 amendments on the Company's Consolidated Financial Statements. The amendments to Topic 825 are effective for interim and annual reporting periods beginning after December 15, 2022 and are not expected to have a material impact on the Company's Consolidated Financial Statements.
ASU 2019-05 - Financial Instruments-Credit Losses (Topic 326). In May 2019, the FASB issued ASU No. 2019-05. This ASU allows entities to irrevocably elect, upon adoption of ASU 2016-13, the fair value option for financial instruments that (1) were previously recorded at amortized cost and (2) are within the scope of ASC 326-20 if the instruments are eligible for the fair value option under ASC 825-10. The fair value option election does not apply to held-to-maturity debt securities. Entities are required to make this election on an instrument-by-instrument basis. The Company plans to adopt ASU 2019-05 upon adoption of ASU 2016-13 unless an earlier adoption is permitted in an accounting update. The Company is evaluating the impact of electing the fair value option of ASU 2019-05 on the Company's Consolidated Financial Statements.
ASU 2020-02 - Financial Instruments-Credit Losses (Topic 326) and Leases (Topic 842). In February 2020, the FASB issued guidance to add and amend SEC paragraphs in the Accounting Standards Codification to reflect the issuance of SEC Staff Accounting Bulletin No. 119 related to the new credit losses standard and comments by the SEC staff related to the revised effective date of the new leases standard. The amendments were effective upon issuance. The Company does not expect these amendments to have a material effect on its Consolidated Financial Statements.
ASU 2020-04 - Reference Rate Reform (Topic 848). In March 2020, the FASB issued guidance to provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The amendments are effective as of March 12, 2020 through December 31, 2022. The Company does not expect these amendments to have a material effect on its Consolidated Financial Statements.
NOTE 2 – SECURITIES
Amortized cost and fair values of investment securities at March 31, 2021 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
(dollars in thousands)
|
|
Amortized Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Estimated Fair Value
|
AFS Securities
|
|
|
|
|
|
|
|
|
Asset-backed securities issued by GSEs and U.S. Agencies
|
|
|
|
|
|
|
|
|
Residential Mortgage Backed Securities ("MBS")
|
|
$
|
37,204
|
|
|
$
|
1,367
|
|
|
$
|
191
|
|
|
$
|
38,380
|
|
Residential Collateralized Mortgage Obligations ("CMOs")
|
|
132,294
|
|
|
1,575
|
|
|
1,221
|
|
|
132,648
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities ("ABSs") issued by Others:
|
|
|
|
|
|
|
|
|
Residential CMOs
|
|
271
|
|
|
10
|
|
|
6
|
|
|
275
|
|
Student Loan Trust ABSs
|
|
39,925
|
|
|
625
|
|
|
70
|
|
|
40,480
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds
|
|
36,914
|
|
|
521
|
|
|
314
|
|
|
37,121
|
|
|
|
|
|
|
|
|
|
|
U.S. government obligations
|
|
4,463
|
|
|
—
|
|
|
19
|
|
|
4,444
|
|
Total AFS Securities
|
|
$
|
251,071
|
|
|
$
|
4,098
|
|
|
$
|
1,821
|
|
|
$
|
253,348
|
|
|
|
|
|
|
|
|
|
|
Equity securities carried at fair value through income
|
|
|
|
|
|
|
|
|
CRA investment fund
|
|
$
|
4,787
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,787
|
|
Non-marketable equity securities
|
|
|
|
|
|
|
|
|
Other equity securities
|
|
$
|
207
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
207
|
|
|
|
|
|
|
|
|
|
|
Total Investment Securities
|
|
$
|
256,065
|
|
|
$
|
4,098
|
|
|
$
|
1,821
|
|
|
$
|
258,342
|
|
Amortized cost and fair values of investment securities at December 31, 2020 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
(dollars in thousands)
|
|
Amortized Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Estimated Fair Value
|
AFS Securities
|
|
|
|
|
|
|
|
|
Asset-backed securities issued by GSEs and U.S. Agencies
|
|
|
|
|
|
|
|
|
Residential Mortgage Backed Securities ("MBS")
|
|
$
|
33,248
|
|
|
$
|
1,735
|
|
|
$
|
30
|
|
|
$
|
34,953
|
|
Residential Collateralized Mortgage Obligations ("CMOs")
|
|
125,564
|
|
|
2,180
|
|
|
297
|
|
|
127,447
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities ("ABSs") issued by Others:
|
|
|
|
|
|
|
|
|
Residential CMOs
|
|
292
|
|
|
5
|
|
|
9
|
|
|
288
|
|
Student Loan Trust ABSs
|
|
37,141
|
|
|
386
|
|
|
88
|
|
|
37,439
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds
|
|
42,268
|
|
|
2,210
|
|
|
—
|
|
|
44,478
|
|
|
|
|
|
|
|
|
|
|
U.S. government obligations
|
|
1,500
|
|
|
—
|
|
|
—
|
|
|
1,500
|
|
Total AFS Securities
|
|
$
|
240,013
|
|
|
$
|
6,516
|
|
|
$
|
424
|
|
|
$
|
246,105
|
|
|
|
|
|
|
|
|
|
|
Equity securities carried at fair value through income
|
|
|
|
|
|
|
|
|
CRA investment fund
|
|
$
|
4,855
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,855
|
|
Non-marketable equity securities
|
|
|
|
|
|
|
|
|
Other equity securities
|
|
$
|
207
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
207
|
|
|
|
|
|
|
|
|
|
|
Total Investment Securities
|
|
$
|
245,075
|
|
|
$
|
6,516
|
|
|
$
|
424
|
|
|
$
|
251,167
|
|
At March 31, 2021 and December 31, 2020 securities with an amortized cost of $46.7 million and $48.2 million were pledged to secure certain customer deposits. At March 31, 2021, and December 31, 2020, no securities were pledged as collateral for advances from the FHLB of Atlanta.
During the quarter ended March 31, 2021, the Company recognized net gains of $0.6 million on the sale of 10 AFS securities with aggregate carrying values of $11.9 million. During the year ended December 31, 2020, the Company recognized net gains of $1.4 million on the sale of 42 AFS securities with aggregate carrying values of $62.5 million.
The Company’s investment portfolio includes securities that are in an unrealized loss position as of March 31, 2021, the details of which are included in the following table. Although these securities, if sold at March 31, 2021 would result in a pretax loss of $1.8 million, the Company has no intent to sell the applicable securities at such fair values, and maintains the ability to hold these securities until all principal has been recovered. It is more likely than not that the Company will not sell any securities at a loss for liquidity purposes. Declines in the fair values of these securities are due to general market conditions which reflect prospects for the economy as a whole. When determining OTTI, the Company considers such factors as adverse conditions specifically related to a certain security or to specific conditions in an industry or geographic area, the time frame securities have been in an unrealized loss position, the Company’s ability to hold the security for a period of time sufficient to allow for anticipated recovery in value, whether or not the security has been downgraded by a rating agency, and whether or not the financial condition of the security issuer has severely deteriorated. As of March 31, 2021, the Company considers all securities with unrealized loss positions to be temporarily impaired, and consequently, does not believe it will sustain any material realized losses as a result of the current temporary decline in fair value. No charges related to OTTI were made during the three months ended March 31, 2021 and the year ended December 31, 2020.
AFS Securities
Gross unrealized losses and estimated fair value by length of time that individual AFS securities have been in a continuous unrealized loss position at March 31, 2021, and December 31, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
Less Than 12 Months
|
|
More Than 12 Months
|
|
Total
|
(dollars in thousands)
|
|
Fair Value
|
|
Unrealized Loss
|
|
Fair Value
|
|
Unrealized Loss
|
|
Fair Value
|
|
Unrealized Losses
|
Asset-backed securities issued by GSEs and U.S. Agencies
|
|
$
|
42,247
|
|
|
$
|
1,406
|
|
|
$
|
1,202
|
|
|
$
|
6
|
|
|
$
|
43,449
|
|
|
$
|
1,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities issued by Others
|
|
—
|
|
|
—
|
|
|
78
|
|
|
6
|
|
|
78
|
|
|
6
|
|
Student Loan Trust ABSs
|
|
2,852
|
|
|
24
|
|
|
5,055
|
|
|
46
|
|
|
7,907
|
|
|
70
|
|
Municipal bonds
|
|
9,511
|
|
|
199
|
|
|
8,391
|
|
|
115
|
|
|
17,902
|
|
|
314
|
|
U.S. government obligations
|
|
2,945
|
|
|
19
|
|
|
—
|
|
|
—
|
|
|
2,945
|
|
|
19
|
|
|
|
$
|
57,555
|
|
|
$
|
1,648
|
|
|
$
|
14,726
|
|
|
$
|
173
|
|
|
$
|
72,281
|
|
|
$
|
1,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Less Than 12 Months
|
|
More Than 12 Months
|
|
Total
|
(dollars in thousands)
|
|
Fair Value
|
|
Unrealized Loss
|
|
Fair Value
|
|
Unrealized Loss
|
|
Fair Value
|
|
Unrealized Losses
|
Asset-backed securities issued by GSEs and U.S. Agencies
|
|
$
|
32,281
|
|
|
$
|
320
|
|
|
$
|
670
|
|
|
$
|
7
|
|
|
$
|
32,951
|
|
|
$
|
327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities issued by Others
|
|
—
|
|
|
—
|
|
|
87
|
|
|
9
|
|
|
87
|
|
|
9
|
|
Student Loan Trust ABSs
|
|
12,511
|
|
|
88
|
|
|
—
|
|
|
—
|
|
|
12,511
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
44,792
|
|
|
$
|
408
|
|
|
$
|
757
|
|
|
$
|
16
|
|
|
$
|
45,549
|
|
|
$
|
424
|
|
AFS asset-backed securities issued by GSEs are guaranteed by the issuer and U.S. government agency securities and bonds are guaranteed by the full faith and credit of the U.S. government. At March 31, 2021 and December 31, 2020, total unrealized losses were $1.8 million and $0.4 million of the portfolio amortized cost of $251.1 million and $240.0 million, respectively.
At March 31, 2021 and December 31, 2020, AFS asset-backed securities issued by GSEs and U.S. Agencies with unrealized losses had amortized cost of $44.9 million and $33.3 million, respectively, with the unrealized losses of $1.4 million and $0.3 million, respectively. At March 31, 2021 and December 31, 2020, AFS asset-backed securities issued by student loan trust and others with unrealized losses had amortized cost of $8.0 million and $12.6 million, respectively, with unrealized losses of $70,000 and $88,000, respectively. The Company's amortized cost investment of $39.9 million in student loan trusts are 97% U.S. government guaranteed. At March 31, 2021, AFS municipal bonds issued by states, political subdivisions, or agencies with unrealized losses had amortized cost of $18.2 million, with unrealized losses of $0.3 million. At December 31, 2020, AFS municipal bonds issued by states, political subdivisions, or agencies had no unrealized losses. Management believes that the securities will either recover in market value or be paid off as agreed.
Maturities
The amortized cost and estimated fair value of debt securities at March 31, 2021, and December 31, 2020 by contractual maturity, are shown below. The Company has allocated the AFS securities into the four maturity groups listed below using the expected average life of the individual securities based on statistics provided by industry sources. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
(dollars in thousands)
|
|
Amortized Cost
|
|
Estimated Fair Value
|
|
Amortized Cost
|
|
Estimated Fair Value
|
Within one year
|
|
$
|
24,334
|
|
|
$
|
24,554
|
|
|
$
|
36,165
|
|
|
$
|
37,084
|
|
Over one year through five years
|
|
59,975
|
|
|
60,519
|
|
|
60,669
|
|
|
62,209
|
|
Over five years through ten years
|
|
94,889
|
|
|
95,750
|
|
|
67,158
|
|
|
68,862
|
|
After ten years
|
|
71,873
|
|
|
72,525
|
|
|
76,021
|
|
|
77,950
|
|
Total AFS securities
|
|
$
|
251,071
|
|
|
$
|
253,348
|
|
|
$
|
240,013
|
|
|
$
|
246,105
|
|
NOTE 3 – LOANS
Loans consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
(dollars in thousands)
|
|
Total
|
|
% of Gross Loans
|
|
Total
|
|
% of Gross Loans
|
Portfolio Loans:
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
1,081,111
|
|
|
71.74
|
%
|
|
$
|
1,049,147
|
|
|
69.75
|
%
|
Residential first mortgages
|
|
115,803
|
|
|
7.68
|
%
|
|
133,779
|
|
|
8.89
|
%
|
Residential rentals
|
|
137,522
|
|
|
9.12
|
%
|
|
139,059
|
|
|
9.24
|
%
|
Construction and land development
|
|
38,446
|
|
|
2.55
|
%
|
|
37,520
|
|
|
2.49
|
%
|
Home equity and second mortgages
|
|
29,363
|
|
|
1.95
|
%
|
|
29,129
|
|
|
1.94
|
%
|
Commercial loans
|
|
42,689
|
|
|
2.83
|
%
|
|
52,921
|
|
|
3.52
|
%
|
Consumer loans
|
|
1,415
|
|
|
0.09
|
%
|
|
1,027
|
|
|
0.07
|
%
|
Commercial equipment
|
|
60,834
|
|
|
4.04
|
%
|
|
61,693
|
|
|
4.10
|
%
|
Gross portfolio loans
|
|
1,507,183
|
|
|
100.00
|
%
|
|
1,504,275
|
|
|
100.00
|
%
|
Less:
|
|
|
|
|
|
|
|
|
Net deferred costs
|
|
879
|
|
|
0.06
|
%
|
|
1,264
|
|
|
0.08
|
%
|
Allowance for loan losses
|
|
(18,256)
|
|
|
(1.21)
|
%
|
|
(19,424)
|
|
|
(1.29)
|
%
|
|
|
(17,377)
|
|
|
|
|
(18,160)
|
|
|
|
Net portfolio loans
|
|
$
|
1,489,806
|
|
|
|
|
$
|
1,486,115
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. SBA PPP loans
|
|
$
|
115,700
|
|
|
|
|
$
|
110,320
|
|
|
|
Net deferred fees
|
|
(3,215)
|
|
|
|
|
(2,360)
|
|
|
|
Net U.S. SBA PPP Loans
|
|
$
|
112,485
|
|
|
|
|
$
|
107,960
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loans
|
|
$
|
1,602,291
|
|
|
|
|
$
|
1,594,075
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Loans
|
|
$
|
1,622,883
|
|
|
|
|
$
|
1,614,595
|
|
|
|
The Company has segregated its loans into two categories; portfolio loans and U.S. SBA PPP loans.
During the quarter ended March 31, 2021, the Bank sold non-accrual and classified commercial real estate and residential mortgage loans with an amortized cost of $9.1 million for proceeds of $8.9 million and recognized a loss of $0.2 million.
Deferred Costs/Fees
Portfolio net deferred costs of $0.9 million at March 31, 2021 included deferred fees paid by customers of $3.5 million offset by deferred costs of $4.4 million. Deferred loan costs include premiums paid for the purchase of residential first mortgages and deferred loan origination costs in accordance with ASC 310-20. Net deferred loan costs of $1.3 million at December 31, 2020 included deferred fees paid by customers of $3.4 million offset by deferred costs of $4.7 million.
U.S. SBA PPP loan net deferred fees of $3.2 million at March 31, 2021 included deferred fees paid by the U.S. SBA of $3.7 million partially offset by deferred costs of $0.4 million. U.S. SBA PPP net deferred loan fees of $2.4 million at December 31, 2020 included deferred fees paid by the SBA of $2.9 million offset by deferred costs of $0.5 million. The net deferred fees are being amortized as a component of interest income through the contractual maturity date of each individual U.S. SBA PPP loan. Net deferred fees include fees (deferred fees) paid to participant banks for each U.S. SBA PPP loan underwritten and funded net of costs incurred to underwrite the loans (deferred costs). Net deferred fees will be recognized in income when the U.S. SBA PPP loan is forgiven or paid.
Risk Characteristics of Portfolio Segments
Concentrations of Credit - Loans are primarily made within the Company’s operating footprint of Southern Maryland and the greater Fredericksburg area of Virginia. Real estate loans can be affected by the condition of the local real estate market. Commercial and industrial loans can be affected by the local economic conditions. The commercial loan portfolio has business loans secured by real estate and real estate development loans. At March 31, 2021 and December 31, 2020, the Company had no loans outstanding with foreign entities.
The Company manages its credit products and exposure to credit losses (credit risk) by the following specific portfolio segments (classes), which are levels at which the Company develops and documents its allowance for loan loss methodology. These segments are:
Commercial Real Estate (“CRE”)
Commercial and other real estate projects include office, medical and professional buildings, retail locations, churches, other special purpose buildings and commercial construction. Commercial construction balances were 5.5% and 6.9% of the CRE portfolio at March 31, 2021 and December 31, 2020, respectively. The Bank offers both fixed-rate and adjustable-rate loans under these product lines. The primary security on a commercial real estate loan is the real property and the leases that produce income for the real property. Loans secured by commercial real estate are generally limited to 80% of the lower of the appraised value or sales price at origination and have an initial contractual loan payment period ranging from three to 20 years.
Loans secured by commercial real estate are larger and involve greater risks than 1-4 family residential mortgage loans. Because payments on loans secured by such properties are often dependent on the successful operation or management of the properties, repayment of such loans may be subject to adverse conditions in the real estate market or the economy.
At March 31, 2021 and December 31, 2020, the largest outstanding commercial real estate loans were $20.7 million and $20.7 million, respectively, which were secured by commercial real estate and performing according to their terms.
Residential First Mortgages
Residential first mortgage loans are generally long-term loans, amortized on a monthly basis, with principal and interest due each month. The contractual loan payment period for residential loans typically ranges from 10 to 30 years. The Bank’s experience indicates that real estate loans remain outstanding for significantly shorter time periods than their contractual terms. Borrowers may refinance or prepay loans at their option, without penalty. The Bank’s residential portfolio has both fixed-rate and adjustable-rate residential first mortgages. The Bank did not purchase any residential first mortgages during the three months ended March 31, 2021. During the year ended December 31, 2020, the Bank purchased residential first mortgages of $22.0 million.
The annual and lifetime limitations on interest rate adjustments may constrain interest rate increases on these loans. There are also credit risks resulting from potential increased costs to the borrower as a result of repricing of adjustable-rate mortgage loans. During periods of rising interest rates, the risk of default on adjustable-rate mortgage loans may increase due to the upward adjustment of interest cost to the borrower. The Bank’s adjustable rate residential first mortgage portfolio was $27.9 million or 1.9% of total gross portfolio loans of $1.5 billion at March 31, 2021 compared to $33.6 million or 2.2% of total gross portfolio loans of $1.5 billion at December 31, 2020.
The Bank generally retains the right to service loans sold for a payment based upon a percentage (generally 0.25% of the outstanding loan balance). As of March 31, 2021, and December 31, 2020, the Bank serviced $21.5 million and $23.9 million, respectively, in residential mortgage loans for others.
Residential Rentals
Residential rental mortgage loans are amortizing, with principal and interest due each month. The loans are secured by income-producing 1-4 family units and apartments. As of March 31, 2021, and December 31, 2020, $104.9 million and $105.9 million, respectively, were 1-4 family units and $32.6 million and $33.2 million, respectively, were apartment buildings or multi-family units. Loans secured by residential rental properties are generally limited to 80% of the lower of the appraised value or sales price at origination and have an initial contractual loan payment period ranging from three to 20 years. The primary security on a residential rental loan is the property and the leases that produce income. During periods of rising interest rates, the risk of default on adjustable-rate mortgage loans may increase due to the upward adjustment of interest cost to the borrower. The Bank’s adjustable rate residential rental portfolio was $118.3 million or 7.8% of total gross portfolio loans of $1.5 billion at March 31, 2021 compared to $118.5 million or 7.9% of total gross portfolio loans of $1.5 billion at December 31, 2020.
Loans secured by residential rental properties involve greater risks than 1-4 family residential mortgage loans. Although, there are similar risk characteristics shared with commercial real estate loans, the balances for the loans secured by residential rental properties are generally smaller. Payments on loans secured by residential rental properties are dependent on the successful operation of the properties; and repayment of these loans may be subject to more volatile conditions in the rental real estate market or the economy than similar owner-occupied properties.
At March 31, 2021 and December 31, 2020, the largest outstanding residential rental mortgage loan was $9.5 million which was secured by over 120 single family homes located in the Bank’s market area. The loan was performing according to its terms.
Construction and Land Development
The Bank offers loans for the construction of 1-4 family dwellings. Generally, these loans are secured by the real estate under construction as well as by guarantees of the principals involved. In addition, the Bank offers loans to acquire and develop land, as well as loans on undeveloped, subdivided lots for home building. The Bank’s construction and land development portfolio was $38.4 million or 2.6% of total gross portfolio loans at March 31, 2021 compared to $37.5 million or 2.5% of total gross portfolio loans at December 31, 2020.
A decline in demand for new housing might adversely affect the ability of borrowers to repay these loans. Construction and land development loans are inherently riskier than financing owner-occupied real estate. The Bank’s risk of loss is affected by the accuracy of the initial estimate of the market value of the completed project as well as the accuracy of the cost estimates to complete the project. In addition, volatility in the real estate market can make it difficult to ensure that the valuation of land associated with these loans is accurate. During the construction phase, a number of factors could result in delays and cost overruns. If the estimate of construction costs proves to be inaccurate, the Bank may be required to advance funds beyond the amount originally committed to complete development. If the estimate of value proves to be inaccurate, a project’s value might be insufficient to assure full repayment. As a result of these factors, construction lending often involves the disbursement of substantial funds with repayment dependent, in part, on the success of the project rather than the ability of the borrower or guarantor to repay principal and interest. If the Bank forecloses on a project, there can be no assurance that the Bank will be able to recover all of the unpaid balance of principal, accrued interest, and related foreclosure and holding costs.
Home Equity and Second Mortgage Loans
The Bank maintains a portfolio of home equity and second mortgage loans. The Bank’s home equity and second mortgage portfolio was $29.4 million or 1.9% of total gross portfolio loans of $1.5 billion at March 31, 2021 compared to $29.1 million or 1.9% of total gross portfolio loans of $1.5 billion at December 31, 2020. These products contain a higher risk of default than residential first mortgages as in the event of foreclosure, the first mortgage would need to be paid off prior to collection of the second mortgage.
Commercial Loans
The Bank offers its customers commercial loan products including term loans, demand loans and lines of credit. Such loans are generally made for terms of five years or less. The Bank offers both fixed-rate and adjustable-rate loans. The portfolio consists primarily of demand loans and lines of credit. When making commercial business loans, the Bank considers the financial condition of the borrower, the borrower’s payment history of both corporate and personal debt, the projected cash flows of the business, the viability of the industry in which the borrower operates, the value of the collateral, and the borrower’s ability to service the debt from income. These loans are primarily secured by equipment, real property, accounts receivable or other security as determined by the Bank. Commercial loans are made on the basis of the borrower’s ability to make repayment from the cash flows of the borrower’s business. As a result, the availability of funds for the repayment of commercial loans may depend substantially on the success of the business itself. In the case of business failure, collateral would need to be liquidated to provide repayment for the loan. In many cases, the highly specialized nature of collateral would make full recovery from its sale unlikely.
The Bank’s commercial loan portfolio was $42.7 million or 2.8% of total gross portfolio loans of $1.5 billion at March 31, 2021 compared to $52.9 million or 3.5% of total gross portfolio loans of $1.5 billion at December 31, 2020.
Consumer Loans
Consumer loans consist of loans secured by automobiles, boats, recreational vehicles and trucks. The Bank also makes home improvement loans and offers both secured and unsecured personal lines of credit. Consumer loans entail greater risk than other loan types due to being secured by rapidly depreciating assets or the reliance on the borrower’s continuing financial stability.
Commercial Equipment Loans
These loans consist primarily of fixed-rate, short-term loans collateralized by a commercial customer’s equipment or secured by real property, accounts receivable, or other security as determined by the Bank. When making commercial equipment loans, the Bank considers the same factors it considers when underwriting a commercial business loan. Commercial loans are of higher risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flows of the borrower’s business. As a result, repayment of commercial loans may depend substantially on the success of the business itself. In the case of business failure, collateral would need to be liquidated to repay the loan. In many cases, the highly specialized nature of collateral equipment would make full recovery from the sale of collateral problematic.
The Bank’s commercial equipment portfolio was $60.8 million or 4.0% of total gross portfolio loans of $1.5 billion at March 31, 2021 compared to $61.7 million or 4.1% of total gross portfolio loans of $1.5 billion at December 31, 2020.
U.S. SBA PPP Loans
The U.S. SBA PPP loan was created to address economic hardships resulting from the COVID-19 pandemic. As of March 31, 2021, the Company had originated 865 U.S. SBA PPP loans with balances of $115.7 million. The program is designed to provide a direct incentive for small businesses to keep their workers on the payroll. SBA will forgive loans if all employee retention criteria are met, and the funds are used for eligible expenses. U.S. SBA PPP loans carry a two or five-year term at a 1% annual interest rate until the loan is either forgiven or paid. At March 31, 2021, 52.61% or $60.9 million of these loans have a two-year term.
No credit issues are anticipated with U.S. SBA PPP loans as they are fully guaranteed by the Small Business Administration and the Bank's ALLL does not include an allowance for U.S. SBA PPP loans. Management believes all U.S. SBA PPP loans were underwritten in accordance with the program's guidelines. The U.S. SBA PPP guidelines indicate that lenders may rely on certifications of the borrower in order to determine eligibility and to rely on specified documents provided by the borrower to determine qualifying loan amount and eligibility for forgiveness. The guidelines further specify that lenders will be held harmless for a borrower's failure to comply with program criteria.
Non-accrual and Aging Analysis of Current and Past Due Loans
Non-accrual loans as of March 31, 2021 and December 31, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
(dollars in thousands)
|
|
Non-accrual Delinquent Loans
|
|
Number of Loans
|
|
Non-accrual Current Loans
|
|
Number of Loans
|
|
Total Non-accrual Loans
|
|
Total Number of Loans
|
Commercial real estate
|
|
$
|
5,200
|
|
|
2
|
|
|
$
|
6,686
|
|
|
11
|
|
|
$
|
11,886
|
|
|
13
|
|
Residential first mortgages
|
|
50
|
|
|
1
|
|
|
274
|
|
|
1
|
|
|
324
|
|
|
2
|
|
Residential rentals
|
|
—
|
|
|
—
|
|
|
736
|
|
|
5
|
|
|
736
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and second mortgages
|
|
202
|
|
|
2
|
|
|
390
|
|
|
2
|
|
|
592
|
|
|
4
|
|
Commercial loans
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial equipment
|
|
—
|
|
|
—
|
|
|
85
|
|
|
3
|
|
|
85
|
|
|
3
|
|
|
|
$
|
5,452
|
|
|
5
|
|
|
$
|
8,171
|
|
|
22
|
|
|
$
|
13,623
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
(dollars in thousands)
|
|
Non-accrual Delinquent Loans
|
|
Number of Loans
|
|
Non-accrual Current Loans
|
|
Number of Loans
|
|
Total Non-accrual Loans
|
|
Total Number of Loans
|
Commercial real estate
|
|
$
|
11,428
|
|
|
9
|
|
|
$
|
5,184
|
|
|
9
|
|
|
$
|
16,612
|
|
|
18
|
|
Residential first mortgages
|
|
335
|
|
|
2
|
|
|
459
|
|
|
2
|
|
|
794
|
|
|
4
|
|
Residential rentals
|
|
—
|
|
|
—
|
|
|
275
|
|
|
2
|
|
|
275
|
|
|
2
|
|
Home equity and second mortgages
|
|
202
|
|
|
2
|
|
|
293
|
|
|
1
|
|
|
495
|
|
|
3
|
|
Commercial loans
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial equipment
|
|
—
|
|
|
—
|
|
|
46
|
|
|
3
|
|
|
46
|
|
|
3
|
|
|
|
$
|
11,965
|
|
|
13
|
|
|
$
|
6,257
|
|
|
17
|
|
|
$
|
18,222
|
|
|
30
|
|
Non-accrual loans decreased $4.6 million from $18.2 million or 1.13% of total loans at December 31, 2020 to $13.6 million or 0.84% of total loans at March 31, 2021. Loans can be current but classified as non-accrual due to customer operating results or payment history. All interest accrued but not collected from loans that are placed on non-accrual or charged-off is reversed against interest income. In accordance with the Company’s policy, such interest income is recognized on a cash basis or cost-recovery method, until qualifying for return to accrual status.
Non-accrual loans of $8.2 million (60%) were current with all payments of principal and interest with no impairment at March 31, 2021. Delinquent non-accrual loans were $5.5 million (40%) with specific reserves of $0.7 million at March 31, 2021. During the quarter ended March 31, 2021 , non-accrual loans decreased $4.6 million primarily as a result of the loan sale mentioned previously. At December 31, 2020, there were $6.3 million (34%) of non-accrual loans were current with all payments of principal and interest with no impairment and $12.0 million (66%) of non-accrual loans were delinquent with specific valuation reserves of $1.3 million.
Non-accrual loans at March 31, 2021 and December 31, 2020 included one and three TDRs totaling $2,000 and $1.52 million, respectively. These loans were classified as non-accrual solely for the calculation of financial ratios. Loan delinquency (total past due) decreased $5.3 million from $12.1 million, or 0.81% of loans, at December 31, 2020 to $6.8 million, or 0.45% of loans, at March 31, 2021.
Non-accrual loans on which the recognition of interest has been discontinued, which did not have a specific allowance for impairment, amounted to $7.3 million and $12.4 million at March 31, 2021 and December 31, 2020, respectively. Interest due but not recognized on these balances at March 31, 2021 and December 31, 2020 was $56,000 and $0.4 million, respectively. Non-accrual loans with a specific allowance for impairment amounted to $6.3 million and $5.8 million at March 31, 2021 and December 31, 2020, respectively. Interest due but not recognized on these balances at March 31, 2021 and December 31, 2020 was $0.4 million and $0.4 million, respectively.
The Company considers a loan to be past due or delinquent when the terms of the contractual obligation are not met by the borrower. PCI loans are included as a single category in the table below as management believes there is a lower likelihood of aggregate loss related to these loan pools. Additionally, PCI loans are discounted to allow for the accretion of income on a level yield basis over the life of the loan based on expected cash flows. Regardless of payment status, as long as cash flows can be reasonably estimated, the associated discount on these loan pools results in income recognition. An analysis of past due loans as of March 31, 2021 and December 31, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
(dollars in thousands)
|
|
31-60 Days
|
|
61-89 Days
|
|
90 or Greater Days
|
|
Total Past Due
|
|
PCI Loans
|
|
Current
|
|
Total Loan Receivables
|
Commercial real estate
|
|
$
|
955
|
|
|
$
|
—
|
|
|
$
|
5,201
|
|
|
$
|
6,156
|
|
|
$
|
1,550
|
|
|
$
|
1,073,405
|
|
|
$
|
1,081,111
|
|
Residential first mortgages
|
|
133
|
|
|
—
|
|
|
50
|
|
|
183
|
|
|
—
|
|
|
115,620
|
|
|
115,803
|
|
Residential rentals
|
|
265
|
|
|
—
|
|
|
—
|
|
|
265
|
|
|
—
|
|
|
137,257
|
|
|
137,522
|
|
Construction and land dev.
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
38,446
|
|
|
38,446
|
|
Home equity and second mtg.
|
|
20
|
|
|
—
|
|
|
202
|
|
|
222
|
|
|
403
|
|
|
28,738
|
|
|
29,363
|
|
Commercial loans
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
42,689
|
|
|
42,689
|
|
Consumer loans
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,415
|
|
|
1,415
|
|
Commercial equipment
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
60,834
|
|
|
60,834
|
|
Total portfolio loans
|
|
$
|
1,373
|
|
|
$
|
—
|
|
|
$
|
5,453
|
|
|
$
|
6,826
|
|
|
$
|
1,953
|
|
|
$
|
1,498,404
|
|
|
$
|
1,507,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. SBA PPP loans
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
115,700
|
|
|
$
|
115,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
(dollars in thousands)
|
|
31-60 Days
|
|
61-89 Days
|
|
90 or Greater Days
|
|
Total Past Due
|
|
PCI Loans
|
|
Current
|
|
Total Loan Receivables
|
Commercial real estate
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11,428
|
|
|
$
|
11,428
|
|
|
$
|
1,572
|
|
|
$
|
1,036,147
|
|
|
$
|
1,049,147
|
|
Residential first mortgages
|
|
—
|
|
|
—
|
|
|
335
|
|
|
335
|
|
|
—
|
|
|
133,444
|
|
|
133,779
|
|
Residential rentals
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
139,059
|
|
|
139,059
|
|
Construction and land dev.
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
37,520
|
|
|
37,520
|
|
Home equity and second mtg.
|
|
167
|
|
|
—
|
|
|
202
|
|
|
369
|
|
|
406
|
|
|
28,354
|
|
|
29,129
|
|
Commercial loans
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
52,921
|
|
|
52,921
|
|
Consumer loans
|
|
8
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
—
|
|
|
1,019
|
|
|
1,027
|
|
Commercial equipment
|
|
—
|
|
|
4
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
61,689
|
|
|
61,693
|
|
Total portfolio loans
|
|
$
|
175
|
|
|
$
|
4
|
|
|
$
|
11,965
|
|
|
$
|
12,144
|
|
|
$
|
1,978
|
|
|
$
|
1,490,153
|
|
|
$
|
1,504,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. SBA PPP loans
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
110,320
|
|
|
$
|
110,320
|
|
There were no loans that were past due 90 days or greater accruing interest at March 31, 2021 and December 31, 2020.
Impaired Loans and Troubled Debt Restructures (“TDRs”)
Impaired loans, including TDRs, at March 31, 2021 and 2020 and at December 31, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
(dollars in thousands)
|
|
Unpaid Contractual Principal Balance
|
|
Recorded Investment With No Allowance
|
|
Recorded Investment With Allowance
|
|
Total Recorded Investment
|
|
Related Allowance
|
|
Quarter Average Recorded Investment
|
|
Quarter Interest Income Recognized
|
|
YTD Average Recorded Investment
|
|
YTD Interest Income Recognized
|
Commercial real estate
|
|
$
|
12,029
|
|
|
$
|
5,641
|
|
|
$
|
6,290
|
|
|
$
|
11,931
|
|
|
$
|
854
|
|
|
$
|
11,937
|
|
|
$
|
110
|
|
|
$
|
11,937
|
|
|
$
|
110
|
|
Residential first mortgages
|
|
794
|
|
|
751
|
|
|
—
|
|
|
751
|
|
|
—
|
|
|
756
|
|
|
11
|
|
|
756
|
|
|
11
|
|
Residential rentals
|
|
741
|
|
|
736
|
|
|
—
|
|
|
736
|
|
|
—
|
|
|
744
|
|
|
10
|
|
|
744
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and second mtg.
|
|
666
|
|
|
651
|
|
|
—
|
|
|
651
|
|
|
—
|
|
|
657
|
|
|
4
|
|
|
657
|
|
|
4
|
|
Commercial loans
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial equipment
|
|
559
|
|
|
507
|
|
|
37
|
|
|
544
|
|
|
37
|
|
|
565
|
|
|
12
|
|
|
565
|
|
|
12
|
|
Total
|
|
$
|
14,789
|
|
|
$
|
8,286
|
|
|
$
|
6,327
|
|
|
$
|
14,613
|
|
|
$
|
891
|
|
|
$
|
14,659
|
|
|
$
|
147
|
|
|
$
|
14,659
|
|
|
$
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
(dollars in thousands)
|
|
Unpaid Contractual Principal Balance
|
|
Recorded Investment With No Allowance
|
|
Recorded Investment With Allowance
|
|
Total Recorded Investment
|
|
Related Allowance
|
|
Quarter Average Recorded Investment
|
|
Quarter Interest Income Recognized
|
|
YTD Average Recorded Investment
|
|
YTD Interest Income Recognized
|
Commercial real estate
|
|
$
|
22,527
|
|
|
$
|
18,250
|
|
|
$
|
4,064
|
|
|
$
|
22,314
|
|
|
$
|
367
|
|
|
$
|
22,347
|
|
|
$
|
140
|
|
|
$
|
22,347
|
|
|
$
|
140
|
|
Residential first mortgages
|
|
1,738
|
|
|
1,738
|
|
|
—
|
|
|
1,738
|
|
|
—
|
|
|
1,744
|
|
|
16
|
|
|
1,744
|
|
|
16
|
|
Residential rentals
|
|
656
|
|
|
656
|
|
|
—
|
|
|
656
|
|
|
—
|
|
|
658
|
|
|
6
|
|
|
658
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and second mtg.
|
|
530
|
|
|
519
|
|
|
—
|
|
|
519
|
|
|
—
|
|
|
519
|
|
|
5
|
|
|
519
|
|
|
5
|
|
Commercial loans
|
|
2,906
|
|
|
1,807
|
|
|
1,099
|
|
|
2,906
|
|
|
932
|
|
|
2,951
|
|
|
—
|
|
|
2,951
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial equipment
|
|
949
|
|
|
576
|
|
|
350
|
|
|
926
|
|
|
350
|
|
|
939
|
|
|
15
|
|
|
939
|
|
|
15
|
|
Total
|
|
$
|
29,306
|
|
|
$
|
23,546
|
|
|
$
|
5,513
|
|
|
$
|
29,059
|
|
|
$
|
1,649
|
|
|
$
|
29,158
|
|
|
$
|
182
|
|
|
$
|
29,158
|
|
|
$
|
182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
(dollars in thousands)
|
|
Unpaid Contractual Principal Balance
|
|
Recorded Investment With No Allowance
|
|
Recorded Investment With Allowance
|
|
Total Recorded Investment
|
|
Related Allowance
|
|
YTD Average Recorded Investment
|
|
YTD Interest Income Recognized
|
Commercial real estate
|
|
$
|
17,952
|
|
|
$
|
11,915
|
|
|
$
|
5,799
|
|
|
$
|
17,714
|
|
|
$
|
1,316
|
|
|
$
|
17,729
|
|
|
$
|
361
|
|
Residential first mortgages
|
|
2,001
|
|
|
1,989
|
|
|
—
|
|
|
1,989
|
|
|
—
|
|
|
2,043
|
|
|
70
|
|
Residential rentals
|
|
626
|
|
|
625
|
|
|
—
|
|
|
625
|
|
|
—
|
|
|
643
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and second mtg.
|
|
568
|
|
|
555
|
|
|
—
|
|
|
555
|
|
|
—
|
|
|
559
|
|
|
15
|
|
Commercial loans
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial equipment
|
|
527
|
|
|
472
|
|
|
40
|
|
|
512
|
|
|
40
|
|
|
531
|
|
|
30
|
|
Total
|
|
$
|
21,674
|
|
|
$
|
15,556
|
|
|
$
|
5,839
|
|
|
$
|
21,395
|
|
|
$
|
1,356
|
|
|
$
|
21,505
|
|
|
$
|
508
|
|
TDRs included in the impaired loan schedules above, as of March 31, 2021 and December 31, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
(dollars in thousands)
|
|
Dollars
|
|
Number of Loans
|
|
Dollars
|
|
Number of Loans
|
Commercial real estate
|
|
$
|
45
|
|
|
1
|
|
|
$
|
1,376
|
|
|
2
|
|
Residential first mortgages
|
|
—
|
|
|
—
|
|
|
247
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial equipment
|
|
461
|
|
|
2
|
|
|
471
|
|
|
2
|
|
Total TDRs
|
|
$
|
506
|
|
|
3
|
|
|
$
|
2,094
|
|
|
6
|
|
Less: TDRs included in non-accrual loans
|
|
(2)
|
|
|
(1)
|
|
|
(1,522)
|
|
|
(3)
|
|
Total accrual TDR loans
|
|
$
|
504
|
|
|
2
|
|
|
$
|
572
|
|
|
3
|
|
TDRs decreased $1.59 million during the three months ended March 31, 2021 due to the previously discussed sale of three TDRs in the amount of $1.58 million and the principal paydowns of $11,000.
The Company had specific reserves of $0.4 million on six TDRs totaling $2.1 million at December 31, 2020. During the year ended December 31, 2020, TDR disposals, which included payoffs and refinancing, included three loans totaling $0.1 million. TDR loan principal curtailment was $53,000 for the year ended December 31, 2020. There was one TDR added during the year ended December 31, 2020 totaling $0.2 million.
Allowance for Loan Losses ("ALLL")
The following tables detail activity in the ALLL at and for the three months ended March 31, 2021 and 2020, respectively. An allocation of the allowance to one category of loans does not prevent the Company from using that allowance to absorb losses in a different category.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31, 2021
|
(dollars in thousands)
|
|
Beginning Balance
|
|
Charge-offs
|
|
Recoveries
|
|
Provisions
|
|
Ending Balance
|
Commercial real estate
|
|
$
|
13,744
|
|
|
$
|
(1,247)
|
|
|
$
|
1
|
|
|
$
|
787
|
|
|
$
|
13,285
|
|
Residential first mortgages
|
|
1,305
|
|
|
(142)
|
|
|
—
|
|
|
(139)
|
|
|
1,024
|
|
Residential rentals
|
|
1,413
|
|
|
(46)
|
|
|
—
|
|
|
(6)
|
|
|
1,361
|
|
Construction and land development
|
|
401
|
|
|
—
|
|
|
—
|
|
|
(36)
|
|
|
365
|
|
Home equity and second mortgages
|
|
261
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
263
|
|
Commercial loans
|
|
1,222
|
|
|
(50)
|
|
|
5
|
|
|
(165)
|
|
|
1,012
|
|
Consumer loans
|
|
20
|
|
|
—
|
|
|
—
|
|
|
9
|
|
|
29
|
|
Commercial equipment
|
|
1,058
|
|
|
—
|
|
|
15
|
|
|
(156)
|
|
|
917
|
|
|
|
$
|
19,424
|
|
|
$
|
(1,485)
|
|
|
$
|
22
|
|
|
$
|
295
|
|
|
$
|
18,256
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase Credit Impaired**
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
_______________________________________
**There is no allowance for loan loss on the PCI or the SBA PPP portfolios. A more detailed rollforward schedule will be presented if an allowance is required.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31, 2020
|
(dollars in thousands)
|
|
Beginning Balance
|
|
Charge-offs
|
|
Recoveries
|
|
Provisions
|
|
Ending Balance
|
Commercial real estate
|
|
$
|
7,398
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,685
|
|
|
$
|
9,083
|
|
Residential first mortgages
|
|
464
|
|
|
—
|
|
|
—
|
|
|
398
|
|
|
862
|
|
Residential rentals
|
|
397
|
|
|
—
|
|
|
—
|
|
|
305
|
|
|
702
|
|
Construction and land development
|
|
273
|
|
|
—
|
|
|
—
|
|
|
163
|
|
|
436
|
|
Home equity and second mortgages
|
|
149
|
|
|
—
|
|
|
1
|
|
|
108
|
|
|
258
|
|
Commercial loans
|
|
1,086
|
|
|
—
|
|
|
5
|
|
|
1,175
|
|
|
2,266
|
|
Consumer loans
|
|
10
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
15
|
|
Commercial equipment
|
|
1,165
|
|
|
—
|
|
|
13
|
|
|
261
|
|
|
1,439
|
|
|
|
$
|
10,942
|
|
|
$
|
—
|
|
|
$
|
19
|
|
|
$
|
4,100
|
|
|
$
|
15,061
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase Credit Impaired**
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
_______________________________________
**There is no allowance for loan loss on the PCI or the SBA PPP portfolios. A more detailed rollforward schedule will be presented if an allowance is required.
The following tables detail loan receivable and allowance balances disaggregated on the basis of the Company’s impairment methodology at March 31, 2021 and 2020 and December 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
March 31, 2020
|
(dollars in thousands)
|
|
Ending balance: individually evaluated for impairment
|
|
Ending balance: collectively evaluated for impairment
|
|
Purchase Credit Impaired
|
|
Total
|
|
Ending balance: individually evaluated for impairment
|
|
Ending balance: collectively evaluated for impairment
|
|
Purchase Credit Impaired
|
|
Total
|
|
Ending balance: individually evaluated for impairment
|
|
Ending balance: collectively evaluated for impairment
|
|
Purchase Credit Impaired
|
|
Total
|
Loan Receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
11,931
|
|
|
$
|
1,067,630
|
|
|
$
|
1,550
|
|
|
$
|
1,081,111
|
|
|
$
|
17,714
|
|
|
$
|
1,029,861
|
|
|
$
|
1,572
|
|
|
$
|
1,049,147
|
|
|
$
|
22,314
|
|
|
$
|
953,634
|
|
|
$
|
1,730
|
|
|
$
|
977,678
|
|
Residential first mortgages
|
|
751
|
|
|
115,052
|
|
|
—
|
|
|
115,803
|
|
|
1,989
|
|
|
131,790
|
|
|
—
|
|
|
133,779
|
|
|
1,738
|
|
|
169,057
|
|
|
—
|
|
|
170,795
|
|
Residential rentals
|
|
736
|
|
|
136,786
|
|
|
—
|
|
|
137,522
|
|
|
625
|
|
|
138,434
|
|
|
—
|
|
|
139,059
|
|
|
656
|
|
|
132,360
|
|
|
—
|
|
|
133,016
|
|
Construction and land development
|
|
—
|
|
|
38,446
|
|
|
—
|
|
|
38,446
|
|
|
—
|
|
|
37,520
|
|
|
—
|
|
|
37,520
|
|
|
—
|
|
|
38,627
|
|
|
—
|
|
|
38,627
|
|
Home equity and second mortgages
|
|
651
|
|
|
28,309
|
|
|
403
|
|
|
29,363
|
|
|
555
|
|
|
28,168
|
|
|
406
|
|
|
29,129
|
|
|
519
|
|
|
35,023
|
|
|
395
|
|
|
35,937
|
|
Commercial loans
|
|
—
|
|
|
42,689
|
|
|
—
|
|
|
42,689
|
|
|
—
|
|
|
52,921
|
|
|
—
|
|
|
52,921
|
|
|
2,906
|
|
|
68,065
|
|
|
—
|
|
|
70,971
|
|
Consumer loans
|
|
—
|
|
|
1,415
|
|
|
—
|
|
|
1,415
|
|
|
—
|
|
|
1,027
|
|
|
—
|
|
|
1,027
|
|
|
—
|
|
|
1,134
|
|
|
—
|
|
|
1,134
|
|
Commercial equipment
|
|
544
|
|
|
60,290
|
|
|
—
|
|
|
60,834
|
|
|
512
|
|
|
61,181
|
|
|
—
|
|
|
61,693
|
|
|
926
|
|
|
61,005
|
|
|
—
|
|
|
61,931
|
|
|
|
$
|
14,613
|
|
|
$
|
1,490,617
|
|
|
$
|
1,953
|
|
|
$
|
1,507,183
|
|
|
$
|
21,395
|
|
|
$
|
1,480,902
|
|
|
$
|
1,978
|
|
|
$
|
1,504,275
|
|
|
$
|
29,059
|
|
|
$
|
1,458,905
|
|
|
$
|
2,125
|
|
|
$
|
1,490,089
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
854
|
|
|
$
|
12,431
|
|
|
$
|
—
|
|
|
$
|
13,285
|
|
|
$
|
1,316
|
|
|
$
|
12,428
|
|
|
$
|
—
|
|
|
$
|
13,744
|
|
|
$
|
367
|
|
|
$
|
8,716
|
|
|
$
|
—
|
|
|
$
|
9,083
|
|
Residential first mortgages
|
|
—
|
|
|
1,024
|
|
|
—
|
|
|
1,024
|
|
|
—
|
|
|
1,305
|
|
|
—
|
|
|
1,305
|
|
|
—
|
|
|
862
|
|
|
—
|
|
|
862
|
|
Residential rentals
|
|
—
|
|
|
1,361
|
|
|
—
|
|
|
1,361
|
|
|
—
|
|
|
1,413
|
|
|
—
|
|
|
1,413
|
|
|
—
|
|
|
702
|
|
|
—
|
|
|
702
|
|
Construction and land development
|
|
—
|
|
|
365
|
|
|
—
|
|
|
365
|
|
|
—
|
|
|
401
|
|
|
—
|
|
|
401
|
|
|
—
|
|
|
436
|
|
|
—
|
|
|
436
|
|
Home equity and second mortgages
|
|
—
|
|
|
263
|
|
|
—
|
|
|
263
|
|
|
—
|
|
|
261
|
|
|
—
|
|
|
261
|
|
|
—
|
|
|
258
|
|
|
—
|
|
|
258
|
|
Commercial loans
|
|
—
|
|
|
1,012
|
|
|
—
|
|
|
1,012
|
|
|
—
|
|
|
1,222
|
|
|
—
|
|
|
1,222
|
|
|
932
|
|
|
1,334
|
|
|
—
|
|
|
2,266
|
|
Consumer loans
|
|
—
|
|
|
29
|
|
|
—
|
|
|
29
|
|
|
—
|
|
|
20
|
|
|
—
|
|
|
20
|
|
|
—
|
|
|
15
|
|
|
—
|
|
|
15
|
|
Commercial equipment
|
|
37
|
|
|
880
|
|
|
—
|
|
|
917
|
|
|
40
|
|
|
1,018
|
|
|
—
|
|
|
1,058
|
|
|
350
|
|
|
1,089
|
|
|
—
|
|
|
1,439
|
|
|
|
$
|
891
|
|
|
$
|
17,365
|
|
|
$
|
—
|
|
|
$
|
18,256
|
|
|
$
|
1,356
|
|
|
$
|
18,068
|
|
|
$
|
—
|
|
|
$
|
19,424
|
|
|
$
|
1,649
|
|
|
$
|
13,412
|
|
|
$
|
—
|
|
|
$
|
15,061
|
|
Credit Quality Indicators
Credit quality indicators as of March 31, 2021 and December 31, 2020 were as follows:
Credit Risk Profile by Internally Assigned Grade
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
Construction and Land Dev.
|
|
Residential Rentals
|
(dollars in thousands)
|
|
3/31/2021
|
|
12/31/2020
|
|
3/31/2021
|
|
12/31/2020
|
|
3/31/2021
|
|
12/31/2020
|
Unrated
|
|
$
|
—
|
|
|
$
|
162,434
|
|
|
$
|
—
|
|
|
$
|
1,036
|
|
|
$
|
—
|
|
|
$
|
47,605
|
|
Pass
|
|
1,065,163
|
|
|
866,648
|
|
|
38,446
|
|
|
36,484
|
|
|
136,786
|
|
|
90,633
|
|
Special mention
|
|
3,890
|
|
|
2,417
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
821
|
|
Substandard
|
|
12,058
|
|
|
17,648
|
|
|
—
|
|
|
—
|
|
|
736
|
|
|
—
|
|
Doubtful
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
1,081,111
|
|
|
$
|
1,049,147
|
|
|
$
|
38,446
|
|
|
$
|
37,520
|
|
|
$
|
137,522
|
|
|
$
|
139,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Loans
|
|
Commercial Equipment
|
|
Total Commercial Portfolios
|
(dollars in thousands)
|
|
3/31/2021
|
|
12/31/2020
|
|
3/31/2021
|
|
12/31/2020
|
|
3/31/2021
|
|
12/31/2020
|
Unrated
|
|
$
|
—
|
|
|
$
|
12,962
|
|
|
$
|
—
|
|
|
$
|
26,585
|
|
|
$
|
—
|
|
|
$
|
250,622
|
|
Pass
|
|
42,689
|
|
|
39,959
|
|
|
56,872
|
|
|
31,091
|
|
|
1,339,956
|
|
|
1,064,815
|
|
Special mention
|
|
—
|
|
|
—
|
|
|
3,879
|
|
|
3,977
|
|
|
7,769
|
|
|
7,215
|
|
Substandard
|
|
—
|
|
|
—
|
|
|
83
|
|
|
40
|
|
|
12,877
|
|
|
17,688
|
|
Doubtful
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
42,689
|
|
|
$
|
52,921
|
|
|
$
|
60,834
|
|
|
$
|
61,693
|
|
|
$
|
1,360,602
|
|
|
$
|
1,340,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Commercial Portfolios **
|
|
U.S. SBA PPP Loans
|
|
Total Loans Portfolios
|
(dollars in thousands)
|
|
3/31/2021
|
|
12/31/2020
|
|
6/30/2020
|
|
12/31/2019
|
|
3/31/2021
|
|
12/31/2020
|
Unrated
|
|
$
|
121,171
|
|
|
$
|
136,792
|
|
|
$
|
115,700
|
|
|
$
|
110,320
|
|
|
$
|
236,871
|
|
|
$
|
497,734
|
|
Pass
|
|
24,471
|
|
|
25,125
|
|
|
—
|
|
|
—
|
|
|
1,364,427
|
|
|
1,089,940
|
|
Special mention
|
|
—
|
|
|
457
|
|
|
—
|
|
|
—
|
|
|
7,769
|
|
|
7,672
|
|
Substandard
|
|
939
|
|
|
1,561
|
|
|
—
|
|
|
—
|
|
|
13,816
|
|
|
19,249
|
|
Doubtful
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
146,581
|
|
|
$
|
163,935
|
|
|
$
|
115,700
|
|
|
$
|
110,320
|
|
|
$
|
1,622,883
|
|
|
$
|
1,614,595
|
|
_______________________________________
**Non-commercial portfolios are generally evaluated based on payment activity but may be risk graded if part of a larger commercial relationship or are credit impaired (e.g. non-accrual loans, TDRs).
Credit Risk Profile Based on Payment Activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential First Mortgages
|
|
Home Equity and Second Mtg.
|
|
Consumer Loans
|
(dollars in thousands)
|
|
3/31/2021
|
|
12/31/2020
|
|
3/31/2021
|
|
12/31/2020
|
|
3/31/2021
|
|
12/31/2020
|
Performing
|
|
$
|
115,753
|
|
|
$
|
133,444
|
|
|
$
|
29,161
|
|
|
$
|
28,927
|
|
|
$
|
1,415
|
|
|
$
|
1,027
|
|
Nonperforming
|
|
50
|
|
|
335
|
|
|
202
|
|
|
202
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
115,803
|
|
|
$
|
133,779
|
|
|
$
|
29,363
|
|
|
$
|
29,129
|
|
|
$
|
1,415
|
|
|
$
|
1,027
|
|
A risk-grading scale is used to assign grades to commercial relationships, which include commercial real estate, residential rentals, construction and land development, commercial loans and commercial equipment loans. Loans are graded at inception, annually thereafter when financial statements are received and at other times when there is an indication that a credit may have weakened or improved. At December 31, 2020 and prior, only commercial loan relationships with an aggregate exposure to the Bank of $1,000,000 or greater were subject to being risk rated. During the quarter ended March 31, 2021, the Bank's policy was amended to risk rate all commercial loan relationships.
Home equity and second mortgages and consumer loans are evaluated for creditworthiness in underwriting and are monitored based on borrower payment history. Residential first mortgages are evaluated for creditworthiness during credit due diligence before being purchased. Residential first mortgages, home equity and second mortgages and consumer loans are classified as unrated unless they are part of a larger commercial relationship that requires grading or are TDRs or nonperforming loans with an Other Assets Especially Mentioned ("OAEM") or higher risk rating due to a delinquency payment history.
Management regularly reviews credit quality indicators as part of its individual loan reviews and on a quarterly basis. The overall quality of the Bank’s loan portfolio is assessed using the Bank’s risk-grading scale, the level and trends of net charge-offs, nonperforming loans and delinquencies, the performance of TDRs and the general economic conditions in the Company’s geographical market. This review process is assisted by frequent internal reporting of loan production, loan quality, concentrations of credit, loan delinquencies and nonperforming and potential problem loans. Credit quality indicators and allowance factors are adjusted based on management’s judgment during the monthly and quarterly review process. Loans subject to risk ratings are graded on a scale of one to ten. The Company considers loans rated substandard, doubtful and loss as classified assets for regulatory and financial reporting.
Ratings 1 thru 6 - Pass
Ratings 1 thru 6 have asset risks ranging from excellent-low to adequate. The specific rating assigned considers customer history of earnings, cash flows, liquidity, leverage, capitalization, consistency of debt service coverage, the nature and extent of customer relationship and other relevant specific business factors such as the stability of the industry or market area, changes to management, litigation or unexpected events that could have an impact on risks.
Rating 7 - OAEM (Other Assets Especially Mentioned) – Special Mention
These credits, while protected by the financial strength of the borrowers, guarantors or collateral, have reduced quality due to economic conditions, less than adequate earnings performance or other factors which require the lending officer to direct more than normal attention to the credit. Financing alternatives may be limited and/or command higher risk interest rates. OAEM loans relationships are reviewed at least quarterly.
Rating 8 - Substandard
Substandard assets are assets that are inadequately protected by the sound worth or paying capacity of the borrower or of the collateral pledged. Substandard loans are the first adversely classified loans on the Bank's watchlist. These assets have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified substandard. The loans may have a delinquent history or combination of weak collateral, weak guarantor strength or operating losses. When a loan is assigned to this category the Bank may estimate a specific reserve in the loan loss allowance analysis. These assets listed may include assets with histories of repossessions or some that are non-performing bankruptcies. These relationships will be reviewed at least quarterly.
Rating 9 - Doubtful
Doubtful assets have many of the same characteristics of Substandard with the exception that the Bank has determined that loss is not only possible but is probable and the risk is close to certain that loss will occur. When a loan is assigned to this category the Bank will identify the probable loss and the loan will receive a specific reserve in the loan loss allowance analysis. These relationships will be reviewed at least quarterly.
Rating 10 – Loss
Once an asset is identified as a definite loss to the Bank, it will receive the classification of “loss.” There may be some future potential recovery; however, it is more practical to write off the loan at the time of classification. Losses will be taken in the period in which they are determined to be non-collectable.
Purchased Credit-Impaired Loans and Acquired Loans ("PCI")
PCI loans had an unpaid principal balance of $2.3 million and a carrying value of $2.0 million at March 31, 2021. The carrying value of PCI loans represented 0.09% of total assets at March 31, 2021. Determining the fair value of the PCI loans at the time of acquisition required the Company to estimate cash flows expected to result from those loans and to discount those cash flows at appropriate rates of interest considering prepayment assumptions. For such loans, the excess of cash flows expected at acquisition over the estimated fair value is recognized as interest income over the remaining lives of the loans and is called accretable yield. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition reflects the impact of estimated credit losses and is called the nonaccretable difference. In accordance with GAAP, there was no carryover of a previously established allowance for loan losses from acquisition.
A summary of changes in the accretable yield for PCI loans for the three months ended March 31, 2021 and 2020 and the year ended December 31, 2020 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
(dollars in thousands)
|
|
2021
|
|
2020
|
|
|
|
|
Accretable yield, beginning of period
|
|
$
|
342
|
|
|
$
|
677
|
|
|
|
|
|
Additions
|
|
—
|
|
|
—
|
|
|
|
|
|
Accretion
|
|
(31)
|
|
|
(139)
|
|
|
|
|
|
Reclassification from nonaccretable difference
|
|
—
|
|
|
—
|
|
|
|
|
|
Other changes, net
|
|
—
|
|
|
—
|
|
|
|
|
|
Accretable yield, end of period
|
|
$
|
311
|
|
|
$
|
538
|
|
|
|
|
|
At March 31, 2021 performing acquired loans, which totaled $55.4 million, included a $0.7 million net acquisition accounting fair market value adjustment, representing a 1.22% discount; and PCI loans which totaled $2.0 million, included a $0.3 million adjustment, representing a 14.24% discount. At December 31, 2020 acquired performing loans, which totaled $59.0 million, included a $0.8 million net acquisition accounting fair market value adjustment, representing a 1.25% discount; and PCI loans which totaled $2.0 million, included a $0.3 million adjustment, representing a 14.95% discount.
During the three months ended March 31, 2021 and 2020 there was $90,000 and $0.2 million, respectively, of accretion interest.
Accounting standards require a periodic recast of the expected cash flows on the PCI loan portfolio. The recast was performed during the fourth quarter of 2020 which resulted in a reclassification of $0.5 million, from the credit (nonaccretable) portion of the discount to the liquidity (accretable) portion of the discount.
The following is a summary of acquired and non-acquired loans as of March 31, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BY ACQUIRED AND NON-ACQUIRED
|
|
March 31, 2021
|
|
%
|
|
December 31, 2020
|
|
%
|
Acquired loans - performing
|
|
$
|
55,381
|
|
|
3.41
|
%
|
|
$
|
58,999
|
|
|
3.66
|
%
|
Acquired loans - purchase credit impaired ("PCI")
|
|
1,953
|
|
|
0.12
|
%
|
|
1,978
|
|
|
0.12
|
%
|
Total acquired loans
|
|
57,334
|
|
|
3.53
|
%
|
|
60,977
|
|
|
3.78
|
%
|
U.S. SBA PPP loans
|
|
115,700
|
|
|
7.13
|
%
|
|
110,320
|
|
|
6.83
|
%
|
Non-acquired loans**
|
|
1,449,849
|
|
|
89.34
|
%
|
|
1,443,298
|
|
|
89.39
|
%
|
Gross loans
|
|
1,622,883
|
|
|
|
|
1,614,595
|
|
|
|
Net deferred fees
|
|
(2,336)
|
|
|
(0.14)
|
%
|
|
(1,096)
|
|
|
(0.07)
|
%
|
Total loans, net of deferred fees
|
|
$
|
1,620,547
|
|
|
|
|
$
|
1,613,499
|
|
|
|
______________________________
**Non-acquired loans include loans transferred from acquired pools following release of acquisition accounting FMV adjustments.
NOTE 4 – GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets are presented in the tables below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
As of March 31, 2021
|
|
As of December 31, 2020
|
|
|
|
|
|
Goodwill
|
|
$
|
10,835
|
|
|
$
|
10,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2021
|
|
As of December 31, 2020
|
(dollars in thousands)
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Intangible Assets
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core deposit intangible
|
|
$
|
3,590
|
|
|
$
|
(2,196)
|
|
|
$
|
1,394
|
|
|
$
|
3,590
|
|
|
$
|
(2,063)
|
|
|
$
|
1,527
|
|
The estimated aggregate future amortization expense for intangible assets remaining as of March 31, 2021 is as follows:
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Remainder of 2021
|
|
$
|
362
|
|
2022
|
|
398
|
|
2023
|
|
302
|
|
2024
|
|
205
|
|
2025
|
|
109
|
|
Thereafter
|
|
18
|
|
|
|
$
|
1,394
|
|
As of March 31, 2021, the Company did not have impairment to goodwill or core deposit intangibles ("CDI"). At March 31, 2021 the Company had goodwill of $10.8 million or 5.40% of equity and CDI of $1.4 million or 0.69% of equity.
In the third quarter of 2020, management determined that the COVID-19 pandemic and its impact on the banking industry, was deemed a triggering event that required an interim impairment test for goodwill. Management engaged an independent consultant to perform a quantitative goodwill and CDI impairment analysis for the Company's single reporting unit, the Bank, as of September 15, 2020 ("the measurement date"). The impairment analysis used both market and income valuation approaches. The market approach analyzed transaction and control premium information for the Company and a selected peer group. The income approach analyzed discounted cash flows. The results of the methods were weighted to determine an overall value. Significant estimates and assumptions included, but were not limited to, projected profitability ratios, discount rates, cash flows projections selection and evaluation and selection of control premiums in appropriate market transactions and selection of peers.
In accordance with the Bank's policy, management performed its annual analyses of goodwill and CDI during the fourth quarter of 2020 and concluded that there was no impairment at December 31, 2020. At March 31, 2021, management's analysis concluded that there were no changes in the Company's financial statements or operations subsequent to the measurement date and the fourth quarter 2020 annual analyses that would indicate that it was more likely than not that goodwill or CDI was impaired.
It is possible that the length and severity of the COVID-19 crisis could cause the Company's goodwill or CDI to become impaired in future periods due to a sustained decline in the Company's stock price or other financial or qualitative measures. In the event that the Company concludes that all or a portion of its goodwill and CDI are impaired, a non-cash charge for the amount of such impairment would be recorded to earnings in that quarter. Such a charge would have no impact on tangible capital or regulatory capital.
NOTE 5 – OTHER REAL ESTATE OWNED (“OREO”)
OREO assets are presented net of the valuation allowance. The Company considers OREO as classified assets for regulatory and financial reporting. OREO carrying amounts reflect management’s estimate of the realizable value of these properties incorporating current appraised values, local real estate market conditions and related costs. An analysis of OREO activity follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Years Ended December 31,
|
(dollars in thousands)
|
|
2021
|
|
2020
|
|
2020
|
Balance at beginning of year
|
|
$
|
3,109
|
|
|
$
|
7,773
|
|
|
$
|
7,773
|
|
Additions of underlying property
|
|
—
|
|
|
—
|
|
|
1,240
|
|
Disposals of underlying property
|
|
(600)
|
|
|
(703)
|
|
|
(2,882)
|
|
Valuation allowance
|
|
(180)
|
|
|
(732)
|
|
|
(3,022)
|
|
Balance at end of period
|
|
$
|
2,329
|
|
|
$
|
6,338
|
|
|
$
|
3,109
|
|
During the three months ended March 31, 2021 and 2020, there were no OREO additions. During the three months ended March 31, 2021, the Company recognized net gains of $22,000 on the disposal of $0.6 million of residential lots. During the three months ended March 31, 2020, the Company disposed of a commercial lot with a carrying value of $0.7 million for proceeds of $0.7 million resulting in a loss of $3,000.
To adjust properties to current appraised values, additions to the valuation allowance were taken for the three months ended March 31, 2021 and 2020 and the year ended December 31, 2020.
Expenses applicable to OREO assets included the following.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
(dollars in thousands)
|
|
2021
|
|
2020
|
|
|
|
|
|
Valuation allowance
|
|
$
|
180
|
|
|
$
|
732
|
|
Losses (gains) on dispositions
|
|
(22)
|
|
|
3
|
|
Operating expenses
|
|
23
|
|
|
47
|
|
|
|
$
|
181
|
|
|
$
|
782
|
|
There were no impaired loans secured by residential real estate for which formal foreclosure proceedings were in process as of March 31, 2021 and December 31, 2020.
NOTE 6 – DEPOSITS
Deposits consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
March 31, 2021
|
|
December 31, 2020
|
|
Balance
|
|
%
|
|
Balance
|
|
%
|
Noninterest-bearing demand
|
|
$
|
406,319
|
|
|
21.75
|
%
|
|
$
|
362,079
|
|
|
20.74
|
%
|
Interest-bearing:
|
|
|
|
|
|
|
|
|
Demand
|
|
651,639
|
|
|
34.89
|
%
|
|
590,159
|
|
|
33.81
|
%
|
Money market deposits
|
|
355,680
|
|
|
19.04
|
%
|
|
340,725
|
|
|
19.52
|
%
|
Savings
|
|
105,590
|
|
|
5.65
|
%
|
|
98,783
|
|
|
5.66
|
%
|
Certificates of deposit
|
|
348,668
|
|
|
18.67
|
%
|
|
353,856
|
|
|
20.27
|
%
|
Total interest-bearing
|
|
1,461,577
|
|
|
78.25
|
%
|
|
1,383,523
|
|
|
79.26
|
%
|
|
|
|
|
|
|
|
|
|
Total Deposits
|
|
$
|
1,867,896
|
|
|
100.00
|
%
|
|
$
|
1,745,602
|
|
|
100.00
|
%
|
The aggregate amount of certificates of deposit that exceed the FDIC insurance limit of $250,000 at March 31, 2021 and December 31, 2020 was $67.3 million and $64.3 million, respectively.
The Company monitors all customer deposit concentrations at or above 2% of total deposits. At March 31, 2021, the Bank had three customer deposit relationships that exceeded 2% of total deposits, totaling $308.9 million which represented 16.5% of total deposits. At December 31, 2020, the Bank had two customer deposit relationships that exceeded 2% of total deposits, totaling $238.8 million which represented 13.7% of total deposits. The reported concentrations at March 31, 2021 and December 31, 2020 were with local municipal agencies.
NOTE 7 – COMMITMENTS & CONTINGENCIES
Operating Leases
The Company's, operating lease agreements are primarily for leases of branches and office space. All of these leases are classified as operating leases, and therefore, were previously not recognized on the Company’s consolidated balance sheet. With the adoption of Topic 842, operating lease agreements are required to be recognized on the consolidated balance sheet as a right-of-use-asset with a corresponding lease liability.
The table below details the Right of Use asset (net of accumulated amortization), lease liability and other information related to the Company's operating leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
March 31, 2021
|
|
December 31, 2020
|
Operating Leases
|
|
|
|
|
Operating lease right of use asset, net
|
|
$
|
6,391
|
|
|
$
|
7,831
|
|
Operating lease liability
|
|
$
|
6,614
|
|
|
$
|
8,088
|
|
Weighted average remaining lease term
|
|
17.43 years
|
|
18.21 years
|
Weighted average discount rate
|
|
3.49 %
|
|
3.52
|
%
|
Remaining lease term - min
|
|
0.0 years
|
|
0.7 years
|
Remaining lease term - max
|
|
24.0 years
|
|
24.0 years
|
During the quarter ended March 31, 2021, the Bank purchased the land under one of its existing branch locations and simultaneously terminated the associated land lease. Accordingly, the remaining unamortized right-of-use asset and the corresponding liability of approximately $1.4 million each were reduced to zero.
The table below details the Company's lease cost, which is included in occupancy expense in the Unaudited Consolidated Statements of Income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
(dollars in thousands)
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease cost
|
|
$
|
197
|
|
|
$
|
198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for lease liability
|
|
$
|
1,545
|
|
|
$
|
172
|
|
|
|
|
|
A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total operating lease liability is as follows:
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
As of March 31, 2021
|
|
|
|
Lease payments due:
|
|
|
Within one year
|
|
$
|
572
|
|
After one but within two years
|
|
532
|
|
After two but within three years
|
|
539
|
|
After three but within four years
|
|
547
|
|
After four but within five years
|
|
588
|
|
After five years
|
|
6,272
|
|
Total undiscounted cash flows
|
|
$
|
9,050
|
|
Discount on cash flows
|
|
2,436
|
|
Total lease liability
|
|
$
|
6,614
|
|
NOTE 8 – GUARANTEED PREFERRED BENEFICIAL INTEREST IN JUNIOR SUBORDINATED DEBENTURES (“TRUPs”)
On June 15, 2005, Tri-County Capital Trust II (“Capital Trust II”), a Delaware business trust formed, funded and wholly-owned by the Company, issued $5.0 million of variable-rate capital securities in a private pooled transaction. The variable rate is based on the 90-day LIBOR rate plus 1.70%. The Trust used the proceeds from this issuance, along with the $0.2 million for Capital Trust II’s common securities, to purchase $5.2 million of the Company’s junior subordinated debentures. The interest rate on the debentures and the trust preferred securities is variable and adjusts quarterly. These capital securities qualify as Tier I capital and are presented in the Consolidated Balance Sheets as “Guaranteed Preferred Beneficial Interests in Junior Subordinated Debentures.” Both the capital securities of Capital Trust II and the junior subordinated debentures are scheduled to mature on June 15, 2035, unless called by the Company.
On July 22, 2004, Tri-County Capital Trust I (“Capital Trust I”), a Delaware business trust formed, funded and wholly owned by the Company, issued $7.0 million of variable-rate capital securities in a private pooled transaction. The variable rate is based on the 90-day LIBOR rate plus 2.60%. The Trust used the proceeds from this issuance, along with the Company’s $0.2 million capital contribution for Capital Trust I’s common securities, to purchase $7.2 million of the Company’s junior subordinated debentures. The interest rate on the debentures and the trust preferred securities is variable and adjusts quarterly. These debentures qualify as Tier I capital and are presented in the Consolidated Balance Sheets as “Guaranteed Preferred Beneficial Interests in Junior Subordinated Debentures.” Both the capital securities of Capital Trust I and the junior subordinated debentures are scheduled to mature on July 22, 2034, unless called by the Company.
NOTE 9 – SUBORDINATED NOTES
On October 14, 2020, the Company entered into Subordinated Note Purchase Agreements (collectively, the "Purchase Agreements'') with qualified institutional buyers and accredited investors (collectively, the "Purchasers") pursuant to which the Company issued and sold $20.0 million in aggregate principal amount of its 4.75% Fixed to Floating Rate Subordinated Notes due 2030 (the "Notes"). The Notes were sold by the Company in a private offering. The Notes mature on October 15, 2030 and bear interest at a fixed rate of 4.75% to October 14, 2025. From October 15, 2025 to the maturity date or early redemption date, the interest rate will reset quarterly to an interest rate per annum, expected to be the then-current-three-month Secured Overnight Financing Rate ("SOFR") provided by the Federal Reserve Bank of New York plus 458 basis points. The Company may redeem the Notes at any time after October 14, 2025, and at any time in whole, but not in part, upon the occurrence of certain events. Any redemption of the Notes will be subject to prior regulatory approval. The Company incurred debt issuance costs for placement fees, legal and other out-of-pocket expenses of approximately $0.6 million, which are being amortized over the life of the Notes.
NOTE 10 – REGULATORY CAPITAL
The Bank’s primary regulator is the Federal Deposit Insurance Corporation (“FDIC”). The Bank is subject to regulation, supervision and regular examination by the Maryland Commissioner of Financial Regulation (the “Commissioner”) and the FDIC. The Company is subject to regulation, examination and supervision by the Federal Reserve Board under the Bank Holding Company Act of 1956, as amended (the “BHCA”).
The Company and Bank are subject to the Basel III Capital Rules which establish a comprehensive capital framework for U.S. banking organizations. The rules implement the Basel Committee’s “Basel III” framework for strengthening international capital standards as well as certain provisions of the Dodd-Frank Act. The Basel III Capital Rules define the components of capital and address other issues affecting the numerator in banking institutions’ regulatory capital ratios. The Basel III Capital Rules also address risk weights and other issues affecting the denominator in banking institutions’ regulatory capital ratios and replace the existing risk-weighting approach with a more risk-sensitive approach. The Basel III Capital Rules also implement the requirements of Section 939A of the Dodd-Frank Act to remove references to credit ratings from the federal banking agencies’ rules.
The rules include a common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.50%, a minimum ratio of Tier 1 capital to risk-weighted assets of 6.0%, require a minimum ratio (“Min. Ratio”) of Total Capital to risk-weighted assets of 8.0%, and require a minimum Tier 1 leverage ratio of 4.0%. A capital conservation buffer (“CCB”) is also established above the regulatory minimum capital requirements. Strict eligibility criteria for regulatory capital instruments were also implemented under the rules. The rules revised the definition and calculation of Tier 1 capital, Total Capital, and risk-weighted assets.
On April 13, 2020, the regulatory agencies published an interim final rule, which permits banking organizations to exclude from regulatory capital requirements U.S. SBA PPP covered loans pledged under the PPPLF. The interim final rule also clarifies that U.S. SBA PPP covered loans as defined in section 7(a)(36) of the Small Business Act (15 U.S.C. 636(a)(36)) receive a zero percent risk weight.
The interim final rule modifies the agencies’ capital rule and allows PPPLF-eligible banking organizations to neutralize the regulatory effects of U.S. SBA PPP covered loans on their risk-based capital ratios, as well as U.S. SBA PPP covered loans pledged under the PPPLF on their leverage capital ratios. When calculating leverage capital ratios, a banking organization may exclude from average total consolidated assets and, as applicable, total leverage exposure a U.S. SBA PPP covered loan as of the date that it has been pledged under the PPPLF. Accordingly, a U.S. SBA PPP covered loan that has not been pledged as collateral in connection with an extension of credit under the PPPLF would be included in the calculation of the banking organization’s average total consolidated assets and, as applicable, total leverage exposure. On November 30, 2020, the Federal Reserve Board and U.S. Department of Treasury jointly announced the extension of the PPPLF facility to March 31, 2021.
As of March 31, 2021, and December 31, 2020, the Company and Bank were well-capitalized under the regulatory framework for prompt corrective action ("PCA") under the new Basel III Capital Rules. Management believes, as of March 31, 2021 and December 31, 2020, that the Company and the Bank met all capital adequacy requirements to which they were subject. The Company’s and the Bank’s actual regulatory capital amounts and ratios are presented in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory Capital and Ratios
|
|
|
|
The Company
|
|
The Bank
|
(dollars in thousands)
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
March 31, 2021
|
|
December 31, 2020
|
Common equity
|
|
|
|
$
|
200,759
|
|
|
$
|
198,013
|
|
|
$
|
221,447
|
|
|
$
|
217,142
|
|
Goodwill
|
|
|
|
(10,835)
|
|
|
(10,835)
|
|
|
(10,835)
|
|
|
(10,835)
|
|
Core deposit intangible (net of deferred tax liability)
|
|
|
|
(1,031)
|
|
|
(1,129)
|
|
|
(1,031)
|
|
|
(1,129)
|
|
AOCI (gains) losses
|
|
|
|
(1,684)
|
|
|
(4,504)
|
|
|
(1,684)
|
|
|
(4,504)
|
|
Common Equity Tier 1 Capital
|
|
|
|
187,209
|
|
|
181,545
|
|
|
207,897
|
|
|
200,674
|
|
TRUPs
|
|
|
|
12,000
|
|
|
12,000
|
|
|
—
|
|
|
—
|
|
Tier 1 Capital
|
|
|
|
199,209
|
|
|
193,545
|
|
|
207,897
|
|
|
200,674
|
|
Allowable reserve for credit losses and other Tier 2 adjustments
|
|
|
|
18,307
|
|
|
19,475
|
|
|
18,307
|
|
|
19,475
|
|
Subordinated notes
|
|
|
|
19,468
|
|
|
19,526
|
|
|
—
|
|
|
—
|
|
Tier 2 Capital
|
|
|
|
$
|
236,984
|
|
|
$
|
232,546
|
|
|
$
|
226,204
|
|
|
$
|
220,149
|
|
Risk-Weighted Assets ("RWA")
|
|
|
|
$
|
1,597,777
|
|
|
$
|
1,582,581
|
|
|
$
|
1,596,308
|
|
|
$
|
1,580,786
|
|
Average Assets ("AA")
|
|
|
|
$
|
2,053,796
|
|
|
$
|
2,025,061
|
|
|
$
|
2,052,412
|
|
|
$
|
2,023,325
|
|
Regulatory Min. Ratio + CCB (1)
|
|
|
|
|
|
|
|
|
|
|
Common Tier 1 Capital to RWA
|
|
7.00
|
%
|
|
11.72
|
%
|
|
11.47
|
%
|
|
13.02
|
%
|
|
12.69
|
%
|
Tier 1 Capital to RWA
|
|
8.50
|
|
|
12.47
|
|
|
12.23
|
|
|
13.02
|
|
|
12.69
|
|
Tier 2 Capital to RWA
|
|
10.50
|
|
|
14.83
|
|
|
14.69
|
|
|
14.17
|
|
|
13.93
|
|
Tier 1 Capital to AA (Leverage) (2)
|
|
n/a
|
|
9.70
|
|
|
9.56
|
|
|
10.13
|
|
|
9.92
|
|
____________________________________
(1)The regulatory minimum capital ratio ("Min. Ratio") + the capital conservation buffer ("CCB").
(2)Tier 1 Capital to AA (Leverage) has no capital conservation buffer defined. The PCA well capitalized is defined as 5.00%.
Dividends paid by the Company are substantially funded from dividends received from the Bank. Federal and holding company regulations, as well as Maryland law, impose certain restrictions on capital distributions, including dividend payments and share repurchases. These restrictions generally require advanced approval from the Bank's regulator for payment of dividends in excess of the sum of net income for the current calendar year and the retained net income of the prior two calendar years.
NOTE 11 – FAIR VALUE MEASUREMENTS
The Company adopted FASB ASC Topic 820, “Fair Value Measurements” and FASB ASC Topic 825, “The Fair Value Option for Financial Assets and Financial Liabilities”, which provides a framework for measuring and disclosing fair value under U.S. GAAP. FASB ASC Topic 820 requires disclosures about the fair value of assets and liabilities recognized in the balance sheet in periods subsequent to initial recognition, whether the measurements are made on a recurring basis (for example, AFS investment securities) or on a nonrecurring basis (for example, impaired loans).
FASB ASC Topic 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an 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. FASB ASC Topic 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The Company utilizes fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. AFS securities are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis such as loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.
Under FASB ASC Topic 820, the Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded, and the reliability of the assumptions used to determine the fair value. These hierarchy levels are:
Level 1 inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date.
Level 2 inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Company’s quarterly valuation process. Intra-quarter transfers in and out of level 3 assets and liabilities recorded at fair value on a recurring basis are disclosed. There were no such transfers during the quarter ended March 31, 2021 or the year ended December 31, 2020.
Following is a description of valuation methodologies used for assets and liabilities recorded at fair value:
Securities Available for Sale
AFS investment securities are recorded at fair value on a recurring basis. Standard inputs include quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities (“GSEs”), municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets.
Equity Securities Carried at Fair Value Through Income
Equity securities carried at fair value through income are recorded at fair value on a recurring basis. Standard inputs include quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 equity securities include those traded on an active exchange, such as the New York Stock Exchange. Level 2 equity securities include mutual funds with asset-backed securities issued by government sponsored entities (“GSEs”) as the underlying investment supporting the fund. Equity securities classified as Level 3 include mutual funds with asset-backed securities in less liquid markets.
Loans Receivable
The Company does not record loans at fair value on a recurring basis; however, from time to time, a loan is considered impaired and an allowance for loan loss is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan are considered impaired. Management estimates the fair value of impaired loans using one of several methods, including the collateral value, market value of similar debt, or discounted cash flows. Impaired loans not requiring a specific allowance are those for which the fair value of expected repayments or collateral exceed the recorded investment in such loans. At March 31, 2021 and December 31, 2020, substantially all of the impaired loans were evaluated based upon the fair value of the collateral.
In accordance with FASB ASC 820, impaired loans where an allowance is established based on the fair value of collateral (loans with impairment) require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price (e.g., contracted sales price), the Company records the loan as nonrecurring Level 2. When the fair value of the impaired loan is derived from an appraisal, the Company records the loan as nonrecurring Level 3. Fair value is re-assessed at least quarterly or more frequently when circumstances occur that indicate a change in the fair value. The fair values of impaired loans that are not measured based on collateral values are measured using discounted cash flows and considered to be Level 3 inputs.
Premises and Equipment Held for Sale
Premises and equipment are adjusted to fair value upon transfer of the assets to premises and equipment held for sale. Subsequently, premises and equipment held for sale are carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised value of the collateral or management's estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price (e.g., contracted sales price), the Company records the asset as nonrecurring Level 2. When the fair value of premises and equipment is derived from an appraisal or a cash flow analysis, the Company records the asset as nonrecurring Level 3.
Other Real Estate Owned ("OREO")
OREO is adjusted for fair value upon transfer of the loans to foreclosed assets. Subsequently, OREO is reported at the lower of carrying value or fair value. Fair value is based on independent market prices, appraised value of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price (e.g., contracted sales price), the Company records the foreclosed asset as nonrecurring Level 2. When the fair value is derived from an appraisal, the Company records the foreclosed asset at nonrecurring Level 3.
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
The tables below present the recorded amount of assets as of March 31, 2021 and December 31, 2020 measured at fair value on a recurring basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
March 31, 2021
|
Description of Asset
|
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
AFS securities
|
|
|
|
|
|
|
|
|
Asset-backed securities issued by GSEs and U.S. Agencies
|
|
|
|
|
|
|
|
|
MBS
|
|
$
|
38,380
|
|
|
$
|
—
|
|
|
$
|
38,380
|
|
|
$
|
—
|
|
CMOs
|
|
132,648
|
|
|
—
|
|
|
132,648
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities issued by Others:
|
|
|
|
|
|
|
|
|
Residential CMOs
|
|
275
|
|
|
—
|
|
|
275
|
|
|
—
|
|
Student Loan Trust ABSs
|
|
40,480
|
|
|
—
|
|
|
40,480
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government obligations
|
|
4,444
|
|
|
—
|
|
|
4,444
|
|
|
—
|
|
Municipal bonds
|
|
37,121
|
|
|
—
|
|
|
37,121
|
|
|
—
|
|
Total AFS securities
|
|
$
|
253,348
|
|
|
$
|
—
|
|
|
$
|
253,348
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Equity securities carried at fair value through income
|
|
|
|
|
|
|
|
|
CRA investment fund
|
|
$
|
4,787
|
|
|
$
|
—
|
|
|
$
|
4,787
|
|
|
$
|
—
|
|
Non-marketable equity securities
|
|
|
|
|
|
|
|
|
Other equity securities
|
|
$
|
207
|
|
|
$
|
—
|
|
|
$
|
207
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
December 31, 2020
|
Description of Asset
|
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
AFS securities
|
|
|
|
|
|
|
|
|
Asset-backed securities issued by GSEs and U.S. Agencies
|
|
|
|
|
|
|
|
|
MBS
|
|
$
|
34,953
|
|
|
$
|
—
|
|
|
$
|
34,953
|
|
|
$
|
—
|
|
CMOs
|
|
127,447
|
|
|
—
|
|
|
127,447
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities issued by others:
|
|
|
|
|
|
|
|
|
Residential CMOs
|
|
288
|
|
|
—
|
|
|
288
|
|
|
—
|
|
Student Loan Trust ABSs
|
|
37,439
|
|
|
—
|
|
|
37,439
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government obligations
|
|
1,500
|
|
|
—
|
|
|
1,500
|
|
|
—
|
|
Municipal bonds
|
|
44,478
|
|
|
—
|
|
|
44,478
|
|
|
—
|
|
Total AFS securities
|
|
$
|
246,105
|
|
|
$
|
—
|
|
|
$
|
246,105
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Equity securities carried at fair value through income
|
|
|
|
|
|
|
|
|
CRA investment fund
|
|
$
|
4,855
|
|
|
$
|
—
|
|
|
$
|
4,855
|
|
|
$
|
—
|
|
Non-marketable equity securities
|
|
|
|
|
|
|
|
|
Other equity securities
|
|
$
|
207
|
|
|
$
|
—
|
|
|
$
|
207
|
|
|
$
|
—
|
|
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
The Company may be required to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. GAAP. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis as of March 31, 2021 and December 31, 2020 were included in the tables below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
March 31, 2021
|
Description of Asset
|
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Loans with impairment
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
5,436
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans with impairment
|
|
$
|
5,436
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,436
|
|
Premises and equipment held for sale
|
|
$
|
430
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
430
|
|
Other real estate owned
|
|
$
|
2,329
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
December 31, 2020
|
Description of Asset
|
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Loans with impairment
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
4,483
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans with impairment
|
|
$
|
4,483
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,483
|
|
Premises and equipment held for sale
|
|
$
|
430
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
430
|
|
Other real estate owned
|
|
$
|
3,109
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,109
|
|
Loans with impairment had unpaid principal balances of $6.3 million and $5.8 million at March 31, 2021 and December 31, 2020, respectively.
The following tables provide information describing the unobservable inputs used in Level 3 fair value measurements at March 31, 2021 and December 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
Fair Value
|
|
Valuation Technique
|
|
Unobservable Inputs
|
|
Range (Weighted Average)
|
(dollars in thousands)
|
Description of Asset
|
Loans with impairment
|
|
$
|
5,436
|
|
|
Third party appraisals and in-house real estate evaluations of fair value
|
|
Management discount for property type, selling costs and current market conditions
|
|
0% - 50% - 14%
|
Premises and equipment held for sale
|
|
$
|
430
|
|
|
Third party appraisals, in-house real estate evaluations of fair value and contracts to sell.
|
|
Management discount for property type and current market conditions
|
|
0% - 25% - 10%
|
Other real estate owned
|
|
$
|
2,329
|
|
|
Third party appraisals and in-house real estate evaluations of fair value
|
|
Management discount for property type and current market conditions
|
|
0% - 50% - 49%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Fair Value
|
|
Valuation Technique
|
|
Unobservable Inputs
|
|
Range (Weighted Average)
|
(dollars in thousands)
|
Description of Asset
|
Loans with impairment
|
|
$
|
4,483
|
|
|
Third party appraisals and in-house real estate evaluations of fair value
|
|
Management discount for property type, selling costs and current market conditions
|
|
0% - 50% - 23%
|
Premises and equipment held for sale
|
|
$
|
430
|
|
|
Third party appraisals, in-house real estate evaluations of fair value and contracts to sell.
|
|
Management discount for property type and current market conditions
|
|
0% - 25% - 10%
|
Other real estate owned
|
|
$
|
3,109
|
|
|
Third party appraisals and in-house real estate evaluations of fair value
|
|
Management discount for property type and current market conditions
|
|
0% - 50% - 47%
|
NOTE 12 – FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments require disclosure of fair value information, whether or not recognized in the consolidated balance sheets, when it is practical to estimate the fair value. A financial instrument is defined as cash, evidence of an ownership interest in an entity or a contractual obligation which requires the exchange of cash. Certain items are specifically excluded from the financial instrument fair value disclosure requirements, including the Company’s common stock, OREO, premises and equipment and other assets and liabilities.
The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Therefore, any aggregate unrealized gains or losses should not be interpreted as a forecast of future earnings or cash flows. Furthermore, the fair values disclosed should not be interpreted as the aggregate current value of the Company.
The Company’s estimated fair values of financial instruments are presented in the following tables.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
Carrying Amount
|
|
Fair Value
|
|
Fair Value Measurements
|
Description of Asset (dollars in thousands)
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Investment securities - AFS
|
|
$
|
253,348
|
|
|
$
|
253,348
|
|
|
$
|
—
|
|
|
$
|
253,348
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities carried at fair value through income
|
|
4,787
|
|
|
4,787
|
|
|
—
|
|
|
4,787
|
|
|
|
Non-marketable equity securities in other financial institutions
|
|
207
|
|
|
207
|
|
|
—
|
|
|
207
|
|
|
—
|
|
FHLB Stock
|
|
2,036
|
|
|
2,036
|
|
|
—
|
|
|
2,036
|
|
|
—
|
|
Net loans receivable
|
|
1,602,291
|
|
|
1,606,510
|
|
|
—
|
|
|
—
|
|
|
1,606,510
|
|
Accrued Interest Receivable
|
|
7,337
|
|
|
7,337
|
|
|
—
|
|
|
7,337
|
|
|
—
|
|
Investment in BOLI
|
|
38,275
|
|
|
38,275
|
|
|
—
|
|
|
38,275
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Savings, NOW and money market accounts
|
|
$
|
1,519,228
|
|
|
$
|
1,519,228
|
|
|
$
|
—
|
|
|
$
|
1,519,228
|
|
|
$
|
—
|
|
Time deposits
|
|
348,668
|
|
|
349,925
|
|
|
—
|
|
|
349,925
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
27,285
|
|
|
27,001
|
|
|
—
|
|
|
27,001
|
|
|
—
|
|
TRUPs
|
|
12,000
|
|
|
10,473
|
|
|
—
|
|
|
10,473
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
See the Company’s methodologies disclosed in Note 21 of the Company’s 2020 Form 10-K for the fair value methodologies used as of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Carrying Amount
|
|
Fair Value
|
|
Fair Value Measurements
|
Description of Asset (dollars in thousands)
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Investment securities - AFS
|
|
$
|
246,105
|
|
|
$
|
246,105
|
|
|
$
|
—
|
|
|
$
|
246,105
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities carried at fair value through income
|
|
4,855
|
|
|
4,855
|
|
|
—
|
|
|
4,855
|
|
|
—
|
|
Non-marketable equity securities in other financial institutions
|
|
207
|
|
|
207
|
|
|
—
|
|
|
207
|
|
|
—
|
|
FHLB Stock
|
|
2,777
|
|
|
2,777
|
|
|
—
|
|
|
2,777
|
|
|
—
|
|
Net loans receivable
|
|
1,594,075
|
|
|
1,581,922
|
|
|
—
|
|
|
—
|
|
|
1,581,922
|
|
Accrued Interest Receivable
|
|
8,717
|
|
|
8,717
|
|
|
—
|
|
|
8,717
|
|
|
—
|
|
Investment in BOLI
|
|
38,061
|
|
|
38,061
|
|
|
—
|
|
|
38,061
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Savings, NOW and money market accounts
|
|
$
|
1,391,746
|
|
|
$
|
1,391,746
|
|
|
$
|
—
|
|
|
$
|
1,391,746
|
|
|
$
|
—
|
|
Time deposits
|
|
353,856
|
|
|
355,478
|
|
|
—
|
|
|
355,478
|
|
|
—
|
|
Short-term borrowings
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Long-term debt
|
|
27,302
|
|
|
27,805
|
|
|
—
|
|
|
27,805
|
|
|
—
|
|
TRUPs
|
|
12,000
|
|
|
9,444
|
|
|
—
|
|
|
9,444
|
|
|
—
|
|
Subordinated notes
|
|
19,526
|
|
|
20,106
|
|
|
—
|
|
|
20,106
|
|
|
—
|
|
At March 31, 2021 and December 31, 2020, the Company had outstanding loan commitments and standby letters of credit with customers of $86.9 million and $66.5 million, respectively, and $22.9 million and $20.0 million, respectively. Additionally, at March 31, 2021 and December 31, 2020, customers had $225.0 million and $225.5 million, respectively, available and unused on lines of credit, which include lines of credit for commercial customers, home equity loans as well as builder and construction lines. Based on the short-term lives of these instruments, the Company does not believe that the fair value of these instruments differs significantly from their carrying values.
The fair value estimates presented herein are based on pertinent information available to management as of March 31, 2021 and December 31, 2020. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these Consolidated Financial Statements since that date and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.
NOTE 13 – ACCUMULATED OTHER COMPREHENSIVE INCOME ("AOCI")
The following table presents the changes in each component of accumulated other comprehensive gain, net of tax, for the three months ended March 31, 2021 and 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2021
|
|
Three Months Ended March 31, 2020
|
|
|
|
|
(dollars in thousands)
|
Net Unrealized Gains And Losses
|
|
Net Unrealized Gains And Losses
|
|
|
|
|
Beginning of period
|
|
$
|
4,504
|
|
|
$
|
1,504
|
|
|
|
|
|
Other comprehensive (loss) gains, net of tax before reclassifications
|
|
(3,253)
|
|
|
1,412
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive gain
|
|
433
|
|
|
243
|
|
|
|
|
|
Net other comprehensive (loss) income
|
|
(2,820)
|
|
|
1,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
1,684
|
|
|
$
|
3,159
|
|
|
|
|
|
As of the three months ended March 31, 2021 and March 31, 2020, reclassification adjustments were due to the gain on sale of AFS investment securities of $0.6 million and $0.3 million, respectively.
NOTE 14 – EARNINGS PER SHARE (“EPS”)
Basic earnings per common share represent income available to common shareholders, divided by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares that may have been issued by the Company related to outstanding unvested restricted stock unit and performance stock unit awards were determined using the treasury stock method. The Company has not granted any stock options since 2007 and all outstanding options expired on July 17, 2017.
As of March 31, 2021, and 2020, there were no unvested restricted stock and performance stock unit awards which were excluded from the calculation as their effect would be anti-dilutive. Basic and diluted earnings per share have been computed based on weighted-average common and common equivalent shares outstanding as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands, except per share amounts)
|
|
Three Months Ended March 31,
|
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
6,299
|
|
|
$
|
2,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of common shares outstanding
|
|
5,888,250
|
|
|
5,886,981
|
|
|
|
|
|
Dilutive effect of common stock equivalents
|
|
9,448
|
|
|
—
|
|
|
|
|
|
Average number of shares used to calculate diluted EPS
|
|
5,897,698
|
|
|
5,886,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Common Share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.07
|
|
|
$
|
0.47
|
|
|
|
|
|
Diluted
|
|
$
|
1.07
|
|
|
$
|
0.47
|
|
|
|
|
|
NOTE 15 – INCOME TAXES
The Company files a consolidated federal income tax return with its subsidiaries. Deferred tax assets and liabilities are determined using the liability (or balance sheet) method which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. If it is more likely than not that some portion or the entire deferred tax asset will not be realized, deferred tax assets will be reduced by a valuation allowance. It is the Company’s policy to recognize accrued interest and penalties related to unrecognized tax benefits as a component of tax expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Three Months Ended March 31,
|
|
|
2021
|
|
2020
|
|
|
|
|
Current income tax expense
|
|
$
|
1,895
|
|
|
$
|
739
|
|
|
|
|
|
Deferred income tax benefit
|
|
232
|
|
|
(796)
|
|
|
|
|
|
Income tax expense as reported
|
|
$
|
2,127
|
|
|
$
|
(57)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
25.2
|
%
|
|
(2.1)
|
%
|
|
|
|
|
Net deferred tax assets totaled $8.7 million at March 31, 2021 and $7.9 million at December 31, 2020. No valuation allowance for deferred tax assets was recorded at March 31, 2021 as management believes it is more likely than not that deferred tax assets will be realized against deferred tax liabilities and projected future taxable income.
The increase in income tax expense for the three months ended March 31, 2021 was primarily due to a change in the Company's state tax apportionment approach which was implemented during the first quarter of 2020 and included the impact of amended income tax filings of the Company and Bank. Management determined the change in tax position qualified as a change in estimate under FASB ASC Section 250.
The effective tax rate differed from the statutory federal and state income rates during 2021 primarily due to the effect of tax-exempt loans, life insurance policies, the income tax effects associated with stock-based compensation and certain non-deductible expenses for state income taxes. The Company’s consolidated effective tax rate is expected to be between 25.00% and 26.06% in 2021.
The effective income tax rates differed from the statutory federal and state income tax rates during 2020 primarily due to an adjustment of $0.7 million related to state apportionment of interest income on loans. In addition, the effective income tax rates differed from the statutory federal and state income tax rates due to the effect of tax-exempt loans, life insurance policies, the income tax effects associated with stock-based compensation and certain non-deductible expenses for state income taxes.
NOTE 16 – OTHER EXPENSES
The Company had the following other noninterest expenses for the three months ended March 31, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
(dollars in thousands)
|
|
2021
|
|
2020
|
|
|
|
|
Deposit account expenses
|
|
$
|
118
|
|
|
$
|
111
|
|
|
|
|
|
Insurance
|
|
99
|
|
|
49
|
|
|
|
|
|
ATM expenses
|
|
81
|
|
|
86
|
|
|
|
|
|
Fraud losses
|
|
1,329
|
|
|
7
|
|
|
|
|
|
Other expenses
|
|
604
|
|
|
566
|
|
|
|
|
|
|
|
$
|
2,231
|
|
|
$
|
819
|
|
|
|
|
|
For the three months ended March 31, 2021, fraud losses include a $1.3 million charge related to an isolated wire transfer fraud incident. No additional expense is expected to be incurred relating to this incident and the Company have submitted an insurance claim that could result in a recovery of a portion of the expense. In addition, through April 30, 2021 the Company recovered approximately $0.2 million from other financial institutions that will be recognized in the second quarter.
NOTE 17 – SUBSEQUENT EVENTS
On April 21, 2021, the Bank purchased a branch building in Spotsylvania, Virginia for $1.3 million The full service branch is expected to open in late 2021 and will provide banking, lending and wealth management services with a focus on digital banking. The Company estimates the renovation and equipment costs to be in the range of $1.1 million to $1.5 million.
On April 28, 2021, the Bank entered into a contract to sell an undeveloped commercial OREO property with expected proceeds of approximately $0.3 million. The carrying value of the property at March 31, 2021 was approximately $0.8 million. A valuation allowance of $0.5 million will be recognized in the second quarter of 2021.