Item 1 Financial Statements
NEW PEOPLES BANKSHARES,
INC.
CONSOLIDATED
STATEMENTS OF INCOME
FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 2021 AND 2020
(IN
THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
|
|
|
|
|
INTEREST
AND DIVIDEND INCOME
|
|
2021
|
|
2020
|
Loans
including fees
|
|
$
|
7,602
|
|
|
$
|
7,271
|
|
Interest-earning
deposits with banks
|
|
|
28
|
|
|
|
16
|
|
Investments
|
|
|
388
|
|
|
|
245
|
|
Dividends
on equity securities (restricted)
|
|
|
26
|
|
|
|
34
|
|
Total
Interest and Dividend Income
|
|
|
8,044
|
|
|
|
7,566
|
|
|
|
|
|
|
|
|
|
|
INTEREST
EXPENSE
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
522
|
|
|
|
1,024
|
|
Borrowed
funds
|
|
|
104
|
|
|
|
128
|
|
Total
Interest Expense
|
|
|
626
|
|
|
|
1,152
|
|
|
|
|
|
|
|
|
|
|
NET
INTEREST INCOME
|
|
|
7,418
|
|
|
|
6,414
|
|
|
|
|
|
|
|
|
|
|
PROVISION
FOR LOAN LOSSES
|
|
|
—
|
|
|
|
450
|
|
|
|
|
|
|
|
|
|
|
NET
INTEREST INCOME AFTER
|
|
|
|
|
|
|
|
|
PROVISION
FOR LOAN LOSSES
|
|
|
7,418
|
|
|
|
5,964
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST
INCOME
|
|
|
|
|
|
|
|
|
Service
charges and fees
|
|
|
1,001
|
|
|
|
859
|
|
Card
processing and interchange
|
|
|
982
|
|
|
|
892
|
|
Insurance
and investment fees
|
|
|
222
|
|
|
|
206
|
|
Net gain
on sales of available-for-sale securities
|
|
|
322
|
|
|
|
—
|
|
Other
noninterest income
|
|
|
443
|
|
|
|
159
|
|
Total
Noninterest Income
|
|
|
2,970
|
|
|
|
2,116
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST
EXPENSES
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
|
3,239
|
|
|
|
2,981
|
|
Occupancy
and equipment expense
|
|
|
2,215
|
|
|
|
1,132
|
|
Data
processing and telecommunications
|
|
|
609
|
|
|
|
604
|
|
Other
operating expenses
|
|
|
2,004
|
|
|
|
1,565
|
|
Total
Noninterest Expenses
|
|
|
8,067
|
|
|
|
6,282
|
|
|
|
|
|
|
|
|
|
|
INCOME
BEFORE INCOME TAXES
|
|
|
2,321
|
|
|
|
1,798
|
|
|
|
|
|
|
|
|
|
|
INCOME
TAX EXPENSE
|
|
|
476
|
|
|
|
374
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
$
|
1,845
|
|
|
$
|
1,424
|
|
|
|
|
|
|
|
|
|
|
Income
Per Share
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$
|
0.08
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
Average
Weighted Shares of Common Stock
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
23,922,086
|
|
|
|
23,922,086
|
|
The accompanying
notes are an integral part of these financial statements.
NEW PEOPLES BANKSHARES,
INC.
CONSOLIDATED
STATEMENTS OF INCOME
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 2021 AND 2020
(IN
THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
|
|
|
|
|
INTEREST
AND DIVIDEND INCOME
|
|
2021
|
|
2020
|
Loans
including fees
|
|
$
|
21,483
|
|
|
$
|
21,483
|
|
Federal
funds sold
|
|
|
—
|
|
|
|
1
|
|
Interest-earning
deposits with banks
|
|
|
69
|
|
|
|
191
|
|
Investments
|
|
|
969
|
|
|
|
814
|
|
Dividends
on equity securities (restricted)
|
|
|
90
|
|
|
|
108
|
|
Total
Interest and Dividend Income
|
|
|
22,611
|
|
|
|
22,597
|
|
|
|
|
|
|
|
|
|
|
INTEREST
EXPENSE
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
1,780
|
|
|
|
3,417
|
|
Borrowed
funds
|
|
|
349
|
|
|
|
484
|
|
Total
Interest Expense
|
|
|
2,129
|
|
|
|
3,901
|
|
|
|
|
|
|
|
|
|
|
NET
INTEREST INCOME
|
|
|
20,482
|
|
|
|
18,696
|
|
|
|
|
|
|
|
|
|
|
PROVISION
FOR LOAN LOSSES
|
|
|
372
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
NET
INTEREST INCOME AFTER
|
|
|
|
|
|
|
|
|
PROVISION
FOR LOAN LOSSES
|
|
|
20,110
|
|
|
|
16,696
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST
INCOME
|
|
|
|
|
|
|
|
|
Service
charges and fees
|
|
|
2,674
|
|
|
|
2,238
|
|
Card
processing and interchange
|
|
|
2,918
|
|
|
|
2,480
|
|
Insurance
and investment fees
|
|
|
723
|
|
|
|
447
|
|
Net gain
on sales of available-for-sale securities
|
|
|
322
|
|
|
|
4
|
|
Other
noninterest income
|
|
|
840
|
|
|
|
744
|
|
Total
Noninterest Income
|
|
|
7,477
|
|
|
|
5,913
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST
EXPENSES
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
|
9,417
|
|
|
|
10,300
|
|
Occupancy
and equipment expense
|
|
|
4,575
|
|
|
|
3,395
|
|
Data
processing and telecommunications
|
|
|
1,835
|
|
|
|
1,881
|
|
Other
operating expenses
|
|
|
5,313
|
|
|
|
5,149
|
|
Total
Noninterest Expenses
|
|
|
21,140
|
|
|
|
20,725
|
|
|
|
|
|
|
|
|
|
|
INCOME
BEFORE INCOME TAXES
|
|
|
6,447
|
|
|
|
1,884
|
|
|
|
|
|
|
|
|
|
|
INCOME
TAX EXPENSE
|
|
|
1,354
|
|
|
|
385
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
$
|
5,093
|
|
|
$
|
1,499
|
|
|
|
|
|
|
|
|
|
|
Income
Per Share
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$
|
0.21
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
Average
Weighted Shares of Common Stock
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
23,922,086
|
|
|
|
23,922,086
|
|
The accompanying
notes are an integral part of these financial statements.
NEW PEOPLES BANKSHARES,
INC.
CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME
FOR THE THREE AND
NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(IN
THOUSANDS)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the three months ended
September 30,
|
|
For
the nine months ended
September 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
$
|
1,845
|
|
|
$
|
1,424
|
|
|
$
|
5,093
|
|
|
$
|
1,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
(losses) gains arising during the period
|
|
|
(45
|
)
|
|
|
28
|
|
|
|
(629
|
)
|
|
|
1,039
|
|
Reclassification
adjustment for net gains included
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
net income
|
|
|
(322
|
)
|
|
|
—
|
|
|
|
(322
|
)
|
|
|
(4
|
)
|
Other
comprehensive (loss) gain on investment securities
|
|
|
(367
|
)
|
|
|
28
|
|
|
|
(951
|
)
|
|
|
1,035
|
|
Related
tax benefit (expense)
|
|
|
76
|
|
|
|
(6
|
)
|
|
|
199
|
|
|
|
(217
|
)
|
TOTAL
OTHER COMPREHENSIVE (LOSS) INCOME
|
|
|
(291
|
)
|
|
|
22
|
|
|
|
(752
|
)
|
|
|
818
|
|
TOTAL
COMPREHENSIVE INCOME
|
|
$
|
1,554
|
|
|
$
|
1,446
|
|
|
$
|
4,341
|
|
|
$
|
2,317
|
|
The accompanying notes
are an integral part of these financial statements.
NEW PEOPLES BANKSHARES,
INC.
CONSOLIDATED BALANCE
SHEETS
(IN
THOUSANDS EXCEPT PER SHARE AND SHARE DATA)
(UNAUDITED)
|
|
|
|
|
|
|
September
30,
|
|
December
31,
|
|
|
2021
|
|
2020
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
|
16,851
|
|
|
$
|
16,023
|
|
Interest-bearing
deposits with banks
|
|
|
69,577
|
|
|
|
76,105
|
|
Federal
funds sold
|
|
|
114
|
|
|
|
222
|
|
Total
Cash and Cash Equivalents
|
|
|
86,542
|
|
|
|
92,350
|
|
|
|
|
|
|
|
|
|
|
Investment
securities available-for-sale
|
|
|
105,228
|
|
|
|
48,406
|
|
Loans
held for sale
|
|
|
109
|
|
|
|
389
|
|
|
|
|
|
|
|
|
|
|
Loans
receivable
|
|
|
574,053
|
|
|
|
575,566
|
|
Allowance
for loan losses
|
|
|
(6,657
|
)
|
|
|
(7,191
|
)
|
Net
loans
|
|
|
567,396
|
|
|
|
568,375
|
|
|
|
|
|
|
|
|
|
|
Bank
premises and equipment, net
|
|
|
19,711
|
|
|
|
22,174
|
|
Other
real estate owned
|
|
|
2,318
|
|
|
|
3,334
|
|
Accrued
interest receivable
|
|
|
2,142
|
|
|
|
2,392
|
|
Deferred
taxes, net
|
|
|
1,974
|
|
|
|
3,126
|
|
Right-of-use
assets – operating leases
|
|
|
5,151
|
|
|
|
5,439
|
|
Other
assets
|
|
|
10,278
|
|
|
|
10,317
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
|
800,849
|
|
|
$
|
756,302
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Noninterest
bearing
|
|
|
255,443
|
|
|
$
|
223,725
|
|
Interest-bearing
|
|
|
458,046
|
|
|
|
444,287
|
|
Total
Deposits
|
|
|
713,489
|
|
|
|
668,012
|
|
|
|
|
|
|
|
|
|
|
Borrowed
funds
|
|
|
16,496
|
|
|
|
21,496
|
|
Lease
liabilities – operating leases
|
|
|
5,151
|
|
|
|
5,439
|
|
Accrued
interest payable
|
|
|
290
|
|
|
|
436
|
|
Accrued
expenses and other liabilities
|
|
|
2,905
|
|
|
|
2,742
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
738,331
|
|
|
|
698,125
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock - $2.00 par value; 50,000,000 shares authorized; 23,922,086
shares issued and outstanding at
September 30, 2021 and December 31, 2020
|
|
|
47,844
|
|
|
|
47,844
|
|
Additional
paid-in-capital
|
|
|
14,570
|
|
|
|
14,570
|
|
Retained
earnings (deficit)
|
|
|
114
|
|
|
|
(4,979
|
)
|
Accumulated
other comprehensive (loss) income
|
|
|
(10
|
)
|
|
|
742
|
|
|
|
|
|
|
|
|
|
|
Total
Stockholders’ Equity
|
|
|
62,518
|
|
|
|
58,177
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders’ Equity
|
|
|
800,849
|
|
|
$
|
756,302
|
|
The accompanying notes
are an integral part of these financial statements.
NEW PEOPLES BANKSHARES,
INC.
CONSOLIDATED STATEMENTS
OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE AND
NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(IN THOUSANDS INCLUDING
SHARE DATA)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
of Common Stock
|
|
Common
Stock
|
|
Additional
Paid-in- Capital
|
|
Retained (Deficit)
Earnings
|
|
Accumulated
Other
Comprehensive Income (Loss)
|
|
Total
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December
31, 2019
|
|
|
23,922
|
|
|
$
|
47,844
|
|
|
$
|
14,570
|
|
|
$
|
(7,869
|
)
|
|
$
|
57
|
|
|
$
|
54,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
46
|
|
|
|
—
|
|
|
|
46
|
|
Other
comprehensive income, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
603
|
|
|
|
603
|
|
Balance, March 31, 2020
|
|
|
23,922
|
|
|
$
|
47,844
|
|
|
$
|
14,570
|
|
|
$
|
(7,823
|
)
|
|
$
|
660
|
|
|
$
|
55,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
29
|
|
|
|
—
|
|
|
|
29
|
|
Other
comprehensive income, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
193
|
|
|
|
193
|
|
Balance, June 30, 2020
|
|
|
23,922
|
|
|
$
|
47,844
|
|
|
$
|
14,570
|
|
|
$
|
(7,794
|
)
|
|
$
|
853
|
|
|
$
|
55,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,424
|
|
|
|
—
|
|
|
|
1,424
|
|
Other
comprehensive income, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
22
|
|
|
|
22
|
|
Balance,
September 30, 2020
|
|
|
23,922
|
|
|
$
|
47,844
|
|
|
$
|
14,570
|
|
|
$
|
(6,370
|
)
|
|
$
|
875
|
|
|
$
|
56,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2020
|
|
|
23,922
|
|
|
$
|
47,844
|
|
|
$
|
14,570
|
|
|
$
|
(4,979
|
)
|
|
$
|
742
|
|
|
$
|
58,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,585
|
|
|
|
—
|
|
|
|
1,585
|
|
Other
comprehensive income, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(415
|
)
|
|
|
(415
|
)
|
Balance, March 31, 2021
|
|
|
23,922
|
|
|
$
|
47,844
|
|
|
$
|
14,570
|
|
|
$
|
(3,394
|
)
|
|
$
|
327
|
|
|
$
|
59,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,663
|
|
|
|
—
|
|
|
|
1,663
|
|
Other
comprehensive income, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(46
|
)
|
|
|
(46
|
)
|
Balance, June 30, 2021
|
|
|
23,922
|
|
|
$
|
47,844
|
|
|
$
|
14,570
|
|
|
$
|
(1,731
|
)
|
|
$
|
281
|
|
|
$
|
60,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,845
|
|
|
|
—
|
|
|
|
1,845
|
|
Other
comprehensive income, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(291
|
)
|
|
|
(291
|
)
|
Balance,
September 30, 2021
|
|
|
23,922
|
|
|
$
|
47,844
|
|
|
$
|
14,570
|
|
|
$
|
114
|
|
|
$
|
(10
|
)
|
|
$
|
62,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes
are an integral part of these financial statements.
NEW PEOPLES BANKSHARES,
INC.
CONSOLIDATED STATEMENTS
OF CASH FLOWS
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 2021 AND 2020
(IN
THOUSANDS)
(UNAUDITED)
|
|
|
|
|
|
|
2021
|
|
2020
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
5,093
|
|
|
$
|
1,499
|
|
Adjustments
to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
1,609
|
|
|
|
1,634
|
|
Provision
for loan losses
|
|
|
372
|
|
|
|
2,000
|
|
Income
on bank owned life insurance
|
|
|
(25
|
)
|
|
|
(61
|
)
|
Net gain
on sale of securities available-for-sale
|
|
|
(322
|
)
|
|
|
(4
|
)
|
Gain
on sale of mortgage loans
|
|
|
(95
|
)
|
|
|
(144
|
)
|
(Gain)
Loss on sale of premises and equipment
|
|
|
(149
|
)
|
|
|
19
|
|
Loss
on sale of repossessed assets
|
|
|
—
|
|
|
|
2
|
|
Gain
on sale of other real estate owned
|
|
|
(122
|
)
|
|
|
(52
|
)
|
Loans
originated for sale
|
|
|
(5,494
|
)
|
|
|
(10,307
|
)
|
Proceeds
from sales of loans originated for sale
|
|
|
5,869
|
|
|
|
10,116
|
|
Adjustment
to carrying value of premises transferred to other real estate owned
|
|
|
1,067
|
|
|
|
—
|
|
Adjustment
of carrying value of other real estate owned
|
|
|
423
|
|
|
|
132
|
|
Adjustment of carrying
value of repossessed assets
|
|
|
—
|
|
|
|
33
|
|
Amortization/accretion
of bond premiums/discounts
|
|
|
336
|
|
|
|
318
|
|
Deferred
tax expense
|
|
|
1,351
|
|
|
|
385
|
|
Net change
in:
|
|
|
|
|
|
|
|
|
Accrued
interest receivable
|
|
|
250
|
|
|
|
(666
|
)
|
Other
assets
|
|
|
(491
|
)
|
|
|
(314
|
)
|
Accrued
interest payable
|
|
|
(146
|
)
|
|
|
(203
|
)
|
Accrued
expenses and other liabilities
|
|
|
212
|
|
|
|
741
|
|
Net
Cash Provided by Operating Activities
|
|
|
9,738
|
|
|
|
5,128
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net decrease
(increase) in loans
|
|
|
41
|
|
|
|
(23,445
|
)
|
Purchase
of securities available-for-sale
|
|
|
(77,168
|
)
|
|
|
(2,045
|
)
|
Proceeds
from sale of investment securities available-for-sale
|
|
|
7,686
|
|
|
|
1,025
|
|
Proceeds
from repayments and maturities of securities available-for-sale
|
|
|
11,695
|
|
|
|
8,281
|
|
Net redemption
(purchase) of equity securities (restricted)
|
|
|
555
|
|
|
|
(22
|
)
|
Payments
for the purchase of premises and equipment
|
|
|
(2,217
|
)
|
|
|
(1,992
|
)
|
Proceeds
from sale of premises and equipment
|
|
|
1,203
|
|
|
|
1
|
|
Proceeds
from sales of repossessed assets
|
|
|
—
|
|
|
|
73
|
|
Proceeds
from insurance claims on other real estate owned
|
|
|
54
|
|
|
|
—
|
|
Proceeds
from sales of other real estate owned
|
|
|
2,128
|
|
|
|
562
|
|
Net
Cash Used in Investing Activities
|
|
|
(56,023
|
)
|
|
|
(17,562
|
)
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net change
in short term borrowings
|
|
|
(5,000
|
)
|
|
|
—
|
|
Net change
in noninterest bearing deposits
|
|
|
31,718
|
|
|
|
44,589
|
|
Net
change in interest bearing deposits
|
|
|
13,759
|
|
|
|
(4,394
|
)
|
Net
Cash Provided by Financing Activities
|
|
|
40,477
|
|
|
|
40,195
|
|
|
|
|
|
|
|
|
|
|
Net (decrease)
increase in cash and cash equivalents
|
|
|
(5,808
|
)
|
|
|
27,761
|
|
Cash
and Cash Equivalents, Beginning of the Period
|
|
|
92,350
|
|
|
|
50,147
|
|
Cash
and Cash Equivalents, End of the Period
|
|
$
|
86,542
|
|
|
$
|
77,908
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Cash Paid During the Period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
2,275
|
|
|
$
|
4,104
|
|
Taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
Supplemental
Disclosure of Non-cash Transactions:
|
|
|
|
|
|
|
|
|
Other
real estate acquired in settlement of foreclosed loans
|
|
$
|
566
|
|
|
$
|
914
|
|
Loans
made to finance sale of other real estate owned
|
|
$
|
—
|
|
|
$
|
428
|
|
Transfer
of premises and equipment to other real estate
|
|
$
|
950
|
|
|
$
|
—
|
|
Change
in unrealized gains on securities available for sale
|
|
$
|
(951
|
)
|
|
$
|
1,035
|
|
The accompanying notes
are an integral part of these financial statements.
NEW PEOPLES BANKSHARES, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE
1 NATURE OF OPERATIONS
Nature of Operations
– New Peoples Bankshares, Inc. (New Peoples) is a financial holding company whose principal activity is the ownership and management
of a community bank, New Peoples Bank, Inc. (the Bank). New Peoples and the Bank are organized and incorporated under the laws of the
Commonwealth of Virginia. As a state chartered member bank, the Bank is subject to regulation by the Virginia Bureau of Financial Institutions,
the Federal Deposit Insurance Corporation and the Board of Governors of the Federal Reserve System (the Federal Reserve). The Bank provides
general banking services to individuals, small and medium size businesses and the professional community of southwest Virginia, southern
West Virginia, western North Carolina and northeastern Tennessee. These services include commercial and consumer loans along with traditional
deposit products such as checking and savings accounts.
NOTE 2 SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
These consolidated
financial statements conform to U. S. generally accepted accounting principles (GAAP) and to general industry practices. In the opinion
of management, the accompanying consolidated financial statements contain all adjustments (consisting of only normal recurring accruals)
necessary to present fairly the Company’s financial position at September 30, 2021 and December 31, 2020, and the results of operations
for the three and nine month periods ended September 30, 2021 and 2020. The Notes included herein should be read in conjunction with
the notes to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December
31, 2020. The results of operations for interim periods are not necessarily indicative of the results of operations that may be expected
for a full year or any future period.
The consolidated
financial statements include New Peoples, the Bank, NPB Insurance Services, Inc., and NPB Web Services, Inc. (hereinafter, collectively
referred to as the Company, we, us or our). All significant intercompany balances and transactions have been eliminated. In accordance
with Accounting Standards Codification (ASC) 942, Financial Services – Depository and Lending, NPB Capital Trust I and 2 are not
included in the consolidated financial statements.
The preparation of
financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could differ from those estimates. The determination of the adequacy
of the allowance for loan losses and the determination of the deferred tax asset and related valuation allowance are based on estimates
that are particularly susceptible to significant changes in the economic environment and market conditions.
NOTE 3 INCOME
PER SHARE
Basic income per
share computations are based on the weighted average number of shares outstanding during each period. Dilutive earnings per share reflect
the additional common shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares
that may be issued relate to outstanding common stock warrants and are determined by the Treasury Method. For the three-month and nine-month
periods ended September 30, 2021 and 2020, there were no potential common shares. Basic and diluted net income per common share calculations
follows:
Schedule Basic and diluted net income per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars
in Thousands, Except
Share and Per Share Data)
|
|
For
the three months
ended September 30,
|
|
For
the nine months
ended September 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Net
income
|
|
$
|
1,845
|
|
|
$
|
1,424
|
|
|
$
|
5,093
|
|
|
$
|
1,499
|
|
Weighted
average shares outstanding
|
|
|
23,922,086
|
|
|
|
23,922,086
|
|
|
|
23,922,086
|
|
|
|
23,922,086
|
|
Weighted
average dilutive shares outstanding
|
|
|
23,922,086
|
|
|
|
23,922,086
|
|
|
|
23,922,086
|
|
|
|
23,922,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted income per share
|
|
$
|
0.08
|
|
|
$
|
0.06
|
|
|
$
|
0.21
|
|
|
$
|
0.06
|
|
NOTE 4 CAPITAL
Capital Requirements
and Ratios
The Company
meets eligibility criteria of a small bank holding company in accordance with the Federal Reserve’s Small Bank Holding Company
Policy Statement issued in February 2015 and, therefore, is not obligated to report consolidated regulatory capital.
The Bank is
subject to various capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate
certain mandatory and, possibly, additional discretionary actions by regulators that, if undertaken, could have a direct material effect
on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action,
the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet
items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments
by the regulators about components, risk weightings, and other factors.
Quantitative
measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the
following table) of total and Tier 1 capital to risk-weighted assets, Tier 1 capital to average assets, and Common Equity Tier 1 capital
to risk-weighted assets. As of September 30, 2021, the Bank meets all capital adequacy requirements to which it is subject.
The Bank’s
actual capital amounts and ratios are presented in the following table as of September 30, 2021 and December 31, 2020, respectively.
Schedule Bank’s actual capital amounts and ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
Minimum
Capital Requirement
|
|
Minimum
to Be Well Capitalized Under Prompt Corrective Action Provisions
|
(Dollars
are in thousands)
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
September 30,
2021:
|
Total
Capital to Risk Weighted Assets
|
|
|
82,575
|
|
|
|
16.37
|
%
|
|
$
|
40,365
|
|
|
|
8.0
|
%
|
|
$
|
50,456
|
|
|
|
10.0
|
%
|
Tier
1 Capital to Risk Weighted Assets
|
|
|
76,264
|
|
|
|
15.11
|
%
|
|
|
30,274
|
|
|
|
6.0
|
%
|
|
|
40,365
|
|
|
|
8.0
|
%
|
Tier
1 Capital to Average Assets
|
|
|
76,264
|
|
|
|
9.53
|
%
|
|
|
32,004
|
|
|
|
4.0
|
%
|
|
|
40,005
|
|
|
|
5.0
|
%
|
Common
Equity Tier 1 Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
Risk Weighted Assets
|
|
|
76,264
|
|
|
|
15.11
|
%
|
|
|
22,705
|
|
|
|
4.5
|
%
|
|
|
32,796
|
|
|
|
6.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Capital to Risk Weighted Assets
|
|
|
77,133
|
|
|
|
16.41
|
%
|
|
$
|
37,603
|
|
|
|
8.0
|
%
|
|
$
|
47,028
|
|
|
|
10.0
|
%
|
Tier
1 Capital to Risk Weighted Assets
|
|
|
71,241
|
|
|
|
15.16
|
%
|
|
|
28,202
|
|
|
|
6.0
|
%
|
|
|
37,603
|
|
|
|
8.0
|
%
|
Tier
1 Capital to Average Assets
|
|
|
71,241
|
|
|
|
9.49
|
%
|
|
|
30,036
|
|
|
|
4.0
|
%
|
|
|
37,545
|
|
|
|
5.0
|
%
|
Common
Equity Tier 1 Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
Risk Weighted Assets
|
|
|
71,241
|
|
|
|
15.16
|
%
|
|
|
21,152
|
|
|
|
4.5
|
%
|
|
|
30,552
|
|
|
|
6.5
|
%
|
Accordingly, as of
September 30, 2021, and December 31, 2020, the Bank was well capitalized under the regulatory framework for prompt corrective action.
There are no conditions or events since such dates that management believes have changed the Bank’s category.
The Bank is also
subject to the rules implementing the Basel III capital framework and certain related provisions of the Dodd-Frank Wall Street Reform
and Consumer Protection Act of 2010. The final rules require the Bank to comply with the following minimum capital ratios: (i) a
Common Equity Tier 1 capital to risk-weighted assets ratio of at least 4.5%, plus a 2.5% capital conservation buffer (effectively resulting
in a minimum Common Equity Tier 1 capital to risk-weighted assets ratio of 7%), (ii) a ratio of Tier 1 capital to risk-weighted assets
of at least 6.0%, plus the 2.5% capital conservation buffer (effectively resulting in a minimum Tier 1 capital ratio of 8.5%), (iii)
a ratio of total capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer (effectively resulting in
a minimum total capital ratio of 10.5%), and (iv) a leverage ratio of 4%, calculated as the ratio of Tier 1 capital to average assets.
The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a Common Equity
Tier 1 capital to risk-weighted assets ratio above the minimum but below the conservation buffer face constraints on dividends, equity
repurchases, and compensation based on the amount of the shortfall. All ratios shown in the table above exceed the minimum requirements.
The Bank’s capital conservation buffer as of September 30, 2021, was 8.37%.
NOTE 5 INVESTMENT
SECURITIES
The amortized cost and estimated fair
value of available-for-sale (AFS) securities as of September 30, 2021 and December 31, 2020 is as follows:
Schedule of estimated fair value of available-for-sale (AFS) securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
Gross
|
|
Approximate
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
(Dollars
are in thousands)
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
September 30, 2021
|
|
|
|
|
|
|
|
|
U.S.
Treasuries
|
|
$
|
6,338
|
|
|
$
|
—
|
|
|
$
|
46
|
|
|
$
|
6,292
|
|
U.S.
Government Agencies
|
|
|
9,566
|
|
|
|
149
|
|
|
|
65
|
|
|
|
9,650
|
|
Taxable
municipals
|
|
|
23,597
|
|
|
|
283
|
|
|
|
47
|
|
|
|
23,833
|
|
Corporate
bonds
|
|
|
2,016
|
|
|
|
30
|
|
|
|
—
|
|
|
|
2,046
|
|
Mortgage
backed securities
|
|
|
63,723
|
|
|
|
251
|
|
|
|
567
|
|
|
|
63,407
|
|
Total
Securities AFS
|
|
$
|
105,240
|
|
|
$
|
713
|
|
|
$
|
725
|
|
|
$
|
105,228
|
|
December
31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government Agencies
|
|
$
|
13,852
|
|
|
$
|
322
|
|
|
$
|
67
|
|
|
$
|
14,107
|
|
Taxable
municipals
|
|
|
5,157
|
|
|
|
188
|
|
|
|
—
|
|
|
|
5,345
|
|
Corporate
bonds
|
|
|
5,893
|
|
|
|
186
|
|
|
|
31
|
|
|
|
6,048
|
|
Mortgage
backed securities
|
|
|
22,565
|
|
|
|
388
|
|
|
|
47
|
|
|
|
22,906
|
|
Total
Securities AFS
|
|
$
|
47,467
|
|
|
$
|
1,084
|
|
|
$
|
145
|
|
|
$
|
48,406
|
|
The following table
details unrealized losses and related fair values in the AFS portfolio. This information is aggregated by the length of time that individual
securities have been in a continuous unrealized loss position as of September 30, 2021 and December 31, 2020.
Schedule of unrealized loss position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
than 12 Months
|
|
12
Months or More
|
|
Total
|
(Dollars
are in thousands)
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
September
30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasuries
|
|
$
|
6,292
|
|
|
$
|
46
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,292
|
|
|
$
|
46
|
|
U.S.
Government Agencies
|
|
|
—
|
|
|
|
—
|
|
|
|
3,714
|
|
|
|
65
|
|
|
|
3,714
|
|
|
|
65
|
|
Taxable
municipals
|
|
|
2,963
|
|
|
|
47
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,963
|
|
|
|
47
|
|
Mortgage
backed securities
|
|
|
45,419
|
|
|
|
539
|
|
|
|
817
|
|
|
|
28
|
|
|
|
46,236
|
|
|
|
567
|
|
Total
Securities AFS
|
|
$
|
54,674
|
|
|
$
|
632
|
|
|
$
|
4,531
|
|
|
$
|
93
|
|
|
$
|
59,205
|
|
|
$
|
725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government Agencies
|
|
$
|
1,479
|
|
|
$
|
12
|
|
|
$
|
3,829
|
|
|
$
|
55
|
|
|
$
|
5,308
|
|
|
$
|
67
|
|
Taxable
municipals
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Corporate
bonds
|
|
|
1,219
|
|
|
|
31
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,219
|
|
|
|
31
|
|
Mortgage
backed securities
|
|
|
7,517
|
|
|
|
44
|
|
|
|
218
|
|
|
|
3
|
|
|
|
7,735
|
|
|
|
47
|
|
Total
Securities AFS
|
|
$
|
10,215
|
|
|
$
|
87
|
|
|
$
|
4,047
|
|
|
$
|
58
|
|
|
$
|
14,262
|
|
|
$
|
145
|
|
At September 30,
2021, there were 78 securities in a loss position, of which 26 have been in a loss position for twelve months or more. Management believes
that all unrealized losses have resulted from temporary changes in the interest rates and current market conditions and are not a result
of credit deterioration. Management does not intend to sell, and it is not likely that the Bank will be required to sell any of the securities
referenced in the table above before recovery of their amortized cost.
Investment securities
with a carrying value of $5.2 million and $6.8 million at September 30, 2021 and December 31, 2020, respectively, were pledged as collateral
to secure public deposits and for other purposes required by law.
The following table
summarizes sales of AFS debt securities for the nine months-ended September 30,
Schedule summarizes sales of AFS debt securities
|
|
|
|
|
|
|
|
|
(Dollars
are in thousands)
|
|
2021
|
|
2020
|
Proceeds
|
|
$
|
7,686
|
|
|
$
|
1,025
|
|
Gains
|
|
|
322
|
|
|
|
7
|
|
Losses
|
|
|
—
|
|
|
|
(3
|
)
|
Tax
provision (benefit)
|
|
|
68
|
|
|
|
(1
|
)
|
The amortized cost
and fair value of investment securities at September 30, 2021, by contractual maturity, are shown in the following schedule. Expected
maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
Schedule amortized cost and fair value of investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
(Dollars are in thousands)
|
|
Amortized
|
|
Fair
|
|
Average
|
Securities Available-for-Sale
|
|
Cost
|
|
Value
|
|
Yield
|
Due
in one year or less
|
|
$
|
1,255
|
|
|
$
|
1,261
|
|
|
|
3.11
|
%
|
Due after
one year through five years
|
|
|
4,868
|
|
|
|
4,892
|
|
|
|
1.64
|
%
|
Due after
five years through ten years
|
|
|
12,072
|
|
|
|
12,166
|
|
|
|
1.66
|
%
|
Due
after ten years
|
|
|
87,045
|
|
|
|
86,909
|
|
|
|
1.59
|
%
|
Total
|
|
$
|
105,240
|
|
|
$
|
105,228
|
|
|
|
1.62
|
%
|
The Bank, as a member
of the Federal Reserve Bank and the Federal Home Loan Bank of Atlanta (FHLB), is required to hold stock in each. The Bank also owns stock
in CBB Financial Corp., which is a correspondent of the Bank. These equity securities, which are included in Other Assets on the consolidated
balance sheet, are restricted from trading and are recorded at a cost of $2.0 million and $2.6 million at September 30, 2021 and December
31, 2020, respectively. The stock has no quoted market value and no ready market exists.
NOTE 6 LOANS
There were $109 thousand
of loans held for sale at September 30, 2021 and $389 thousand at December 31, 2020, which represents mortgage loans originated for sale.
These originations and sales are executed on a best efforts basis.
Loans receivable
outstanding as of September 30, 2021 and December 31, 2020 are summarized as follows:
Schedule of Loans receivable on nonaccrual status
|
|
|
|
|
|
|
|
|
(Dollars
are in thousands)
|
|
September
30,
2021
|
|
December
31, 2020
|
Real
estate secured:
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
198,748
|
|
|
$
|
179,381
|
|
Construction
and land development
|
|
|
30,497
|
|
|
|
25,031
|
|
Residential
1-4 family
|
|
|
221,628
|
|
|
|
222,980
|
|
Multifamily
|
|
|
21,852
|
|
|
|
16,569
|
|
Farmland
|
|
|
19,322
|
|
|
|
18,368
|
|
Total
real estate loans
|
|
|
492,047
|
|
|
|
462,329
|
|
Commercial
|
|
|
57,317
|
|
|
|
86,010
|
|
Agriculture
|
|
|
3,866
|
|
|
|
4,450
|
|
Consumer
installment loans
|
|
|
18,983
|
|
|
|
20,632
|
|
All
other loans
|
|
|
1,840
|
|
|
|
2,145
|
|
Total
loans
|
|
$
|
574,053
|
|
|
$
|
575,566
|
|
Included in commercial
loans at September 30, 2021 and December 31, 2020 were $9.6 million and $34.8 million of Paycheck Protection Program (PPP) loans, respectively,
that are guaranteed by the Small Business Administration (SBA). Fees paid by SBA for round 1 PPP loans ranged from 1% to 5% of the amount
borrowed, with 5% paid on loans up to $350 thousand, 3% on loans between $350 thousand and $2 million, and 1% on loans over $2 million.
For round 2 PPP loans the fee structure was modified to the lesser of 50%, or $2.5 thousand for loans up to $50 thousand, 5% on loans
ranging from $50 thousand to $350 thousand; 3% on loans between $350 thousand and $2 million and 1% on loans over $2 million. Included
in total loans above are net deferred fees of $390 thousand and $496 thousand, including unearned PPP loans fees, at September 30, 2021
and December 31, 2020, respectively. Income from net deferred fees is recognized as income over the lives of the respective loans as
a yield adjustment. If loans repay prior to scheduled maturities any unamortized fee or cost is recognized at that time.
Loans receivable
on nonaccrual status as of September 30, 2021 and December 31, 2020 are summarized as follows:
Schedule Of Summary Loans receivable on nonaccrual status
|
|
|
|
|
(Dollars
are in thousands)
|
|
September
30,
2021
|
|
December
31, 2020
|
Real
estate secured:
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
452
|
|
|
$
|
2,225
|
|
Construction
and land development
|
|
|
31
|
|
|
|
57
|
|
Residential
1-4 family
|
|
|
2,431
|
|
|
|
2,700
|
|
Multifamily
|
|
|
111
|
|
|
|
—
|
|
Farmland
|
|
|
83
|
|
|
|
101
|
|
Total
real estate loans
|
|
|
3,108
|
|
|
|
5,083
|
|
Commercial
|
|
|
8
|
|
|
|
453
|
|
Consumer
installment loans and other loans
|
|
|
10
|
|
|
|
12
|
|
Total
loans receivable on nonaccrual status
|
|
$
|
3,126
|
|
|
$
|
5,548
|
|
Total interest income
not recognized on nonaccrual loans for the nine months ended September 30, 2021 and September 30, 2020 was $445 thousand and $418 thousand,
respectively.
The following tables
present information concerning the Company’s investment in loans considered impaired as of September 30, 2021 and December 31,
2020:
Summary of impaired loans
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of September 30, 2021
(Dollars
are in thousands)
|
|
Recorded
Investment
|
|
Unpaid
Principal Balance
|
|
Related
Allowance
|
With
no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
102
|
|
|
$
|
141
|
|
|
$
|
—
|
|
Construction
and land development
|
|
|
30
|
|
|
|
305
|
|
|
|
—
|
|
Residential
1-4 family
|
|
|
1,605
|
|
|
|
1,901
|
|
|
|
—
|
|
Multifamily
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Farmland
|
|
|
344
|
|
|
|
513
|
|
|
|
—
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Agriculture
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer
installment loans
|
|
|
2
|
|
|
|
3
|
|
|
|
—
|
|
All other
loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
With
an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
333
|
|
|
|
386
|
|
|
|
112
|
|
Construction
and land development
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Residential
1-4 family
|
|
|
488
|
|
|
|
537
|
|
|
|
58
|
|
Multifamily
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Farmland
|
|
|
200
|
|
|
|
211
|
|
|
|
20
|
|
Commercial
|
|
|
29
|
|
|
|
37
|
|
|
|
3
|
|
Agriculture
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer
installment loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
All
other loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
3,133
|
|
|
$
|
4,034
|
|
|
$
|
193
|
|
As
of December 31, 2020
(Dollars
are in thousands)
|
|
Recorded
Investment
|
|
Unpaid
Principal Balance
|
|
Related
Allowance
|
With
no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
385
|
|
|
$
|
386
|
|
|
$
|
—
|
|
Construction
and land development
|
|
|
99
|
|
|
|
376
|
|
|
|
—
|
|
Residential
1-4 family
|
|
|
1,662
|
|
|
|
1,898
|
|
|
|
—
|
|
Multifamily
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Farmland
|
|
|
391
|
|
|
|
560
|
|
|
|
—
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Agriculture
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer
installment loans
|
|
|
5
|
|
|
|
6
|
|
|
|
—
|
|
All other
loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
With
an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
1,566
|
|
|
|
1,678
|
|
|
|
574
|
|
Construction
and land development
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Residential
1-4 family
|
|
|
337
|
|
|
|
365
|
|
|
|
72
|
|
Multifamily
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Farmland
|
|
|
208
|
|
|
|
220
|
|
|
|
2
|
|
Commercial
|
|
|
429
|
|
|
|
437
|
|
|
|
404
|
|
Agriculture
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer
installment loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
All
other loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
5,082
|
|
|
$
|
5,926
|
|
|
$
|
1,052
|
|
The following tables
present information concerning the Company’s average impaired loans and interest recognized on those impaired loans, for the periods
indicated:
|
|
Nine
Months Ended
|
|
|
September
30, 2021
|
|
September
30, 2020
|
(Dollars
are in thousands)
|
|
Average
Recorded
Investment
|
|
Interest
Income
Recognized
|
|
Average
Recorded
Investment
|
|
Interest
Income
Recognized
|
Real
estate secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
281
|
|
|
$
|
—
|
|
|
$
|
2,004
|
|
|
$
|
1
|
|
Construction
and land development
|
|
|
75
|
|
|
|
9
|
|
|
|
87
|
|
|
|
12
|
|
Residential
1-4 family
|
|
|
1,773
|
|
|
|
24
|
|
|
|
1,819
|
|
|
|
49
|
|
Multifamily
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Farmland
|
|
|
467
|
|
|
|
14
|
|
|
|
590
|
|
|
|
51
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
74
|
|
|
|
1
|
|
Agriculture
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer
installment loans
|
|
|
3
|
|
|
|
—
|
|
|
|
3
|
|
|
|
—
|
|
All other
loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
With
an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
1,010
|
|
|
|
3
|
|
|
|
493
|
|
|
|
—
|
|
Construction
and land development
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Residential
1-4 family
|
|
|
338
|
|
|
|
6
|
|
|
|
104
|
|
|
|
3
|
|
Multifamily
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Farmland
|
|
|
102
|
|
|
|
4
|
|
|
|
213
|
|
|
|
7
|
|
Commercial
|
|
|
129
|
|
|
|
1
|
|
|
|
160
|
|
|
|
1
|
|
Agriculture
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer
installment loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
All
other loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
4,178
|
|
|
$
|
61
|
|
|
$
|
5,547
|
|
|
$
|
125
|
|
|
|
Three
Months Ended
|
|
|
September
30, 2021
|
|
September
30, 2020
|
(Dollars
are in thousands)
|
|
Average
Recorded
Investment
|
|
Interest
Income
Recognized
|
|
Average
Recorded
Investment
|
|
Interest
Income
Recognized
|
Real
estate secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
122
|
|
|
$
|
—
|
|
|
$
|
1,673
|
|
|
$
|
—
|
|
Construction
and land development
|
|
|
56
|
|
|
|
5
|
|
|
|
107
|
|
|
|
8
|
|
Residential
1-4 family
|
|
|
1,764
|
|
|
|
10
|
|
|
|
2,334
|
|
|
|
36
|
|
Multifamily
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Farmland
|
|
|
452
|
|
|
|
5
|
|
|
|
419
|
|
|
|
41
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
33
|
|
|
|
—
|
|
Agriculture
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer
installment loans
|
|
|
3
|
|
|
|
—
|
|
|
|
7
|
|
|
|
—
|
|
All other
loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
With
an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
519
|
|
|
|
—
|
|
|
|
553
|
|
|
|
—
|
|
Construction
and land development
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Residential
1-4 family
|
|
|
357
|
|
|
|
6
|
|
|
|
154
|
|
|
|
3
|
|
Multifamily
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Farmland
|
|
|
100
|
|
|
|
4
|
|
|
|
211
|
|
|
|
5
|
|
Commercial
|
|
|
29
|
|
|
|
—
|
|
|
|
34
|
|
|
|
1
|
|
Agriculture
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer
installment loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
All
other loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
3,402
|
|
|
$
|
30
|
|
|
$
|
5,525
|
|
|
$
|
94
|
|
An age analysis of
past due loans receivable as of September 30, 2021 and December 31, 2020 is below. At September 30, 2021 and December 31, 2020, no loans
over 90 days past due were accruing.
Summary age analysis of past due loans receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of September 30, 2021
(Dollars
are in thousands)
|
|
Loans
30-59
Days
Past
Due
|
|
Loans
60-89
Days
Past
Due
|
|
Loans
90 or
More
Days
Past
Due
|
|
Total
Past
Due
Loans
|
|
Current
Loans
|
|
Total
Loans
|
Real
estate secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
45
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
45
|
|
|
|
198,703
|
|
|
$
|
198,748
|
|
Construction
and land development
|
|
|
21
|
|
|
|
32
|
|
|
|
—
|
|
|
|
53
|
|
|
|
30,444
|
|
|
|
30,497
|
|
Residential
1-4 family
|
|
|
1,228
|
|
|
|
667
|
|
|
|
411
|
|
|
|
2,306
|
|
|
|
219,322
|
|
|
|
221,628
|
|
Multifamily
|
|
|
111
|
|
|
|
—
|
|
|
|
—
|
|
|
|
111
|
|
|
|
21,741
|
|
|
|
21,852
|
|
Farmland
|
|
|
119
|
|
|
|
—
|
|
|
|
—
|
|
|
|
119
|
|
|
|
19,203
|
|
|
|
19,322
|
|
Total
real estate loans
|
|
|
1,524
|
|
|
|
699
|
|
|
|
411
|
|
|
|
2,634
|
|
|
|
489,413
|
|
|
|
492,047
|
|
Commercial
|
|
|
5
|
|
|
|
7
|
|
|
|
—
|
|
|
|
12
|
|
|
|
57,305
|
|
|
|
57,317
|
|
Agriculture
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
3,865
|
|
|
|
3,866
|
|
Consumer
installment loans
|
|
|
46
|
|
|
|
3
|
|
|
|
—
|
|
|
|
49
|
|
|
|
18,934
|
|
|
|
18,983
|
|
All
other loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,840
|
|
|
|
1,840
|
|
Total
loans
|
|
|
1,576
|
|
|
$
|
709
|
|
|
|
411
|
|
|
|
2,696
|
|
|
|
571,357
|
|
|
$
|
574,053
|
|
As
of December 31, 2020
(Dollars
are in thousands)
|
|
Loans
30-59
Days
Past
Due
|
|
Loans
60-89
Days
Past
Due
|
|
Loans
90 or
More
Days
Past
Due
|
|
Total
Past
Due
Loans
|
|
Current
Loans
|
|
Total
Loans
|
Real
estate secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
969
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
969
|
|
|
$
|
178,412
|
|
|
$
|
179,381
|
|
Construction
and land development
|
|
|
64
|
|
|
|
—
|
|
|
|
—
|
|
|
|
64
|
|
|
|
24,967
|
|
|
|
25,031
|
|
Residential
1-4 family
|
|
|
5,717
|
|
|
|
615
|
|
|
|
690
|
|
|
|
7,022
|
|
|
|
215,958
|
|
|
|
222,980
|
|
Multifamily
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16,569
|
|
|
|
16,569
|
|
Farmland
|
|
|
57
|
|
|
|
—
|
|
|
|
—
|
|
|
|
57
|
|
|
|
18,311
|
|
|
|
18,368
|
|
Total
real estate loans
|
|
|
6,807
|
|
|
|
615
|
|
|
|
690
|
|
|
|
8,112
|
|
|
|
454,217
|
|
|
|
462,329
|
|
Commercial
|
|
|
214
|
|
|
|
—
|
|
|
|
—
|
|
|
|
214
|
|
|
|
85,796
|
|
|
|
86,010
|
|
Agriculture
|
|
|
7
|
|
|
|
1
|
|
|
|
—
|
|
|
|
8
|
|
|
|
4,442
|
|
|
|
4,450
|
|
Consumer
installment loans
|
|
|
214
|
|
|
|
22
|
|
|
|
—
|
|
|
|
236
|
|
|
|
20,396
|
|
|
|
20,632
|
|
All
other loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,145
|
|
|
|
2,145
|
|
Total
loans
|
|
$
|
7,242
|
|
|
$
|
638
|
|
|
$
|
690
|
|
|
$
|
8,570
|
|
|
$
|
566,996
|
|
|
$
|
575,566
|
|
The Company categorizes
loans receivable into risk categories based on relevant information about the ability of borrowers to service their debt such as: current
financial information, historical payment experience, credit documentation, public information, and current economic trends, among other
factors. The Company analyzes loans individually by classifying the loans receivable as to credit risk. The Company uses the following
definitions for risk ratings:
Pass - Loans
in this category are considered to have a low likelihood of loss based on relevant information analyzed about the ability of the borrowers
to service their debt and other factors.
Special Mention
- Loans in this category are currently protected but are potentially weak, including adverse trends in borrower’s operations,
credit quality or financial strength. Those loans constitute an undue and unwarranted credit risk but not to the point of justifying
a substandard classification. The credit risk may be relatively minor yet constitute an unwarranted risk in light of the circumstances.
Special mention loans have potential weaknesses which may, if not checked or corrected, weaken the loan or inadequately protect
the Company’s credit position at some future date.
Substandard
- A substandard loan is inadequately protected by the current sound net worth and paying capacity of the
obligor or of the collateral pledged, if any. Loans classified as substandard must have a well-defined weakness or weaknesses that jeopardize
the liquidation of the debt; they are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies
are not corrected.
Doubtful
- Loans classified doubtful have all the weaknesses
inherent in loans classified as substandard, plus the added characteristic that the weaknesses make collection or liquidation in full
on the basis of currently existing facts, conditions, and values highly questionable and improbable.
Based on the most recent analysis performed,
the risk categories of loans receivable as of September 30, 2021 and December 31, 2020 were as follows:
Schedule of summary of category of loans receivable
|
|
|
|
|
|
|
|
|
|
|
As
of September 30, 2021
(Dollars
are in thousands)
|
|
Pass
|
|
Special
Mention
|
|
Substandard
|
|
Doubtful
|
|
Total
|
Real
estate secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
189,216
|
|
|
$
|
9,079
|
|
|
$
|
453
|
|
|
$
|
—
|
|
|
$
|
198,748
|
|
Construction
and land development
|
|
|
30,300
|
|
|
|
165
|
|
|
|
32
|
|
|
|
—
|
|
|
|
30,497
|
|
Residential
1-4 family
|
|
|
218,305
|
|
|
|
893
|
|
|
|
2,430
|
|
|
|
—
|
|
|
|
221,628
|
|
Multifamily
|
|
|
21,517
|
|
|
|
224
|
|
|
|
111
|
|
|
|
—
|
|
|
|
21,852
|
|
Farmland
|
|
|
18,562
|
|
|
|
677
|
|
|
|
83
|
|
|
|
—
|
|
|
|
19,322
|
|
Total
real estate loans
|
|
|
477,900
|
|
|
|
11,038
|
|
|
|
3,109
|
|
|
|
—
|
|
|
|
492,047
|
|
Commercial
|
|
|
56,081
|
|
|
|
1,227
|
|
|
|
9
|
|
|
|
—
|
|
|
|
57,317
|
|
Agriculture
|
|
|
3,866
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,866
|
|
Consumer
installment loans
|
|
|
18,972
|
|
|
|
2
|
|
|
|
9
|
|
|
|
—
|
|
|
|
18,983
|
|
All
other loans
|
|
|
1,840
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,840
|
|
Total
|
|
$
|
558,659
|
|
|
$
|
12,267
|
|
|
$
|
3,127
|
|
|
$
|
—
|
|
|
$
|
574,053
|
|
As
of December 31, 2020
(Dollars
are in thousands)
|
|
Pass
|
|
Special
Mention
|
|
Substandard
|
|
Doubtful
|
|
Total
|
Real
estate secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
171,212
|
|
|
$
|
6,112
|
|
|
$
|
2,057
|
|
|
$
|
—
|
|
|
$
|
179,381
|
|
Construction
and land development
|
|
|
23,168
|
|
|
|
1,806
|
|
|
|
57
|
|
|
|
—
|
|
|
|
25,031
|
|
Residential
1-4 family
|
|
|
218,947
|
|
|
|
1,304
|
|
|
|
2,729
|
|
|
|
—
|
|
|
|
222,980
|
|
Multifamily
|
|
|
16,337
|
|
|
|
232
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16,569
|
|
Farmland
|
|
|
17,019
|
|
|
|
1,249
|
|
|
|
100
|
|
|
|
—
|
|
|
|
18,368
|
|
Total
real estate loans
|
|
|
446,683
|
|
|
|
10,703
|
|
|
|
4,943
|
|
|
|
—
|
|
|
|
462,329
|
|
Commercial
|
|
|
81,846
|
|
|
|
3,711
|
|
|
|
453
|
|
|
|
—
|
|
|
|
86,010
|
|
Agriculture
|
|
|
4,255
|
|
|
|
195
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,450
|
|
Consumer
installment loans
|
|
|
20,615
|
|
|
|
5
|
|
|
|
12
|
|
|
|
—
|
|
|
|
20,632
|
|
All
other loans
|
|
|
2,145
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,145
|
|
Total
|
|
$
|
555,544
|
|
|
$
|
14,614
|
|
|
$
|
5,408
|
|
|
$
|
—
|
|
|
$
|
575,566
|
|
NOTE 7 ALLOWANCE
FOR LOAN LOSSES
In determining the
amount of our allowance for loan losses, we rely on an analysis of our loan portfolio, our experience and our evaluation of general economic
conditions. If our assumptions prove to be incorrect, our current allowance may not be sufficient to cover future loan losses and we
may experience significant increases to our provision. Due to the underlying SBA guarantee provided for PPP loans, these accounts were
not included in either the portfolio segment or impairment calculations at September 30, 2021 and December 31, 2020. Additionally, due
to uncertainties presented by the ongoing pandemic and the resulting economic uncertainty, internal and external qualitative factors
were revised accordingly. This revision included reviewing our internal scoring related to loan modifications and extensions, and external
factors, specifically, unemployment and other economic factors.
The following
table presents activity in the allowance for loan losses for the nine- and three-month periods ending September 30, 2021, and 2020, respectively.
Additionally, the allocation of the allowance by recorded portfolio segment and impairment method is presented as of September 30, 2021,
and December 31, 2020, respectively.
Summary of activity in the allowance for loan losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate secured
|
|
|
|
|
|
|
|
|
|
|
(Dollars
are in thousands)
|
|
Commercial
|
|
Construction
and Land Development
|
|
Residential
1-4 family
|
|
Multifamily
|
|
Farmland
|
|
Commercial
|
|
Agriculture
|
|
Consumer
and All Other
|
|
Unallocated
|
|
Total
|
Nine months ended
September 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
2,281
|
|
|
$
|
233
|
|
|
$
|
1,951
|
|
|
$
|
151
|
|
|
$
|
97
|
|
|
$
|
2,275
|
|
|
$
|
40
|
|
|
$
|
163
|
|
|
$
|
—
|
|
|
$
|
7,191
|
|
Charge-offs
|
|
|
(915
|
)
|
|
|
—
|
|
|
|
(48
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(92
|
)
|
|
|
—
|
|
|
|
(55
|
)
|
|
|
—
|
|
|
|
(1,110
|
)
|
Recoveries
|
|
|
2
|
|
|
|
6
|
|
|
|
25
|
|
|
|
—
|
|
|
|
—
|
|
|
|
134
|
|
|
|
1
|
|
|
|
36
|
|
|
|
—
|
|
|
|
204
|
|
Provision
|
|
|
700
|
|
|
|
(69
|
)
|
|
|
180
|
|
|
|
6
|
|
|
|
59
|
|
|
|
(842
|
)
|
|
|
(14
|
)
|
|
|
(42
|
)
|
|
|
394
|
|
|
|
372
|
|
Ending balance
|
|
$
|
2,068
|
|
|
$
|
170
|
|
|
$
|
2,108
|
|
|
$
|
157
|
|
|
$
|
156
|
|
|
$
|
1,475
|
|
|
$
|
27
|
|
|
$
|
102
|
|
|
$
|
394
|
|
|
$
|
6,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
September 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
2,151
|
|
|
$
|
155
|
|
|
$
|
2,046
|
|
|
$
|
160
|
|
|
$
|
137
|
|
|
$
|
1,916
|
|
|
$
|
28
|
|
|
$
|
103
|
|
|
$
|
—
|
|
|
$
|
6,696
|
|
Charge-offs
|
|
|
—
|
|
|
|
—
|
|
|
|
(38
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(27
|
)
|
|
|
—
|
|
|
|
(65
|
)
|
Recoveries
|
|
|
—
|
|
|
|
6
|
|
|
|
8
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
|
—
|
|
|
|
9
|
|
|
|
—
|
|
|
|
26
|
|
Provision
|
|
|
(83
|
)
|
|
|
9
|
|
|
|
92
|
|
|
|
(3
|
)
|
|
|
19
|
|
|
|
(444
|
)
|
|
|
(1
|
)
|
|
|
17
|
|
|
|
394
|
|
|
|
—
|
|
Ending balance
|
|
$
|
2,068
|
|
|
$
|
170
|
|
|
$
|
2,108
|
|
|
$
|
157
|
|
|
$
|
156
|
|
|
$
|
1,475
|
|
|
$
|
27
|
|
|
$
|
102
|
|
|
$
|
394
|
|
|
$
|
6,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses at September 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evluated
for impairment
|
|
$
|
112
|
|
|
$
|
—
|
|
|
$
|
58
|
|
|
$
|
—
|
|
|
$
|
20
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
193
|
|
Collectively
evaluated for impairment
|
|
|
1,956
|
|
|
|
170
|
|
|
|
2,050
|
|
|
|
157
|
|
|
|
136
|
|
|
|
1,472
|
|
|
|
27
|
|
|
|
102
|
|
|
|
394
|
|
|
|
6,464
|
|
Total
|
|
$
|
2,068
|
|
$
|
170
|
|
$
|
2,108
|
|
$
|
157
|
|
$
|
156
|
|
$
|
1,475
|
|
$
|
27
|
|
$
|
102
|
|
$
|
394
|
|
$
|
6,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans at September
30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evluated
for impairment
|
|
$
|
435
|
|
|
$
|
30
|
|
|
$
|
2,093
|
|
|
$
|
—
|
|
|
$
|
544
|
|
|
$
|
29
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
3,133
|
|
Collectively
evaluated for impairment
|
|
|
198,313
|
|
|
|
30,467
|
|
|
|
219,535
|
|
|
|
21,852
|
|
|
|
18,778
|
|
|
|
57,288
|
|
|
|
3,866
|
|
|
|
20,821
|
|
|
|
—
|
|
|
|
570,920
|
|
Total
|
|
$
|
198,748
|
|
$
|
30,497
|
|
$
|
221,628
|
|
$
|
21,852
|
|
$
|
19,322
|
|
$
|
57,317
|
|
$
|
3,866
|
|
$
|
20,823
|
|
$
|
—
|
|
$
|
574,053
|
|
|
Real
estate secured
|
|
|
|
|
|
|
|
|
|
|
(Dollars
are in thousands)
|
|
Commercial
|
|
Construction
and Land Development
|
|
Residential
1-4 family
|
|
Multifamily
|
|
Farmland
|
|
Commercial
|
|
Agriculture
|
|
Consumer
and All Other
|
|
Unallocated
|
|
Total
|
Allowance for
loan losses at December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
evluat ed for impairment
|
|
$
|
574
|
|
|
$
|
—
|
|
|
$
|
72
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
404
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,052
|
|
Collectively
evaluated for impairment
|
|
|
1,707
|
|
|
|
233
|
|
|
|
1,879
|
|
|
|
151
|
|
|
|
95
|
|
|
|
1,871
|
|
|
|
40
|
|
|
|
163
|
|
|
|
—
|
|
|
|
6,139
|
|
Total
|
|
$
|
2,281
|
|
$
|
233
|
|
$
|
1,951
|
|
$
|
151
|
|
$
|
97
|
|
$
|
2,275
|
|
$
|
40
|
|
$
|
163
|
|
$
|
—
|
|
$
|
7,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans at December 31,
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evluated
for impairment
|
|
$
|
1,951
|
|
|
$
|
99
|
|
|
$
|
1,999
|
|
|
$
|
—
|
|
|
$
|
599
|
|
|
$
|
429
|
|
|
$
|
—
|
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
5,082
|
|
Collectively
evaluated for impairment
|
|
|
177,430
|
|
|
|
24,932
|
|
|
|
220,981
|
|
|
|
16,569
|
|
|
|
17,769
|
|
|
|
85,581
|
|
|
|
4,450
|
|
|
|
22,772
|
|
|
|
—
|
|
|
|
570,484
|
|
Total
|
|
$
|
179,381
|
|
$
|
25,031
|
|
$
|
222,980
|
|
$
|
16,569
|
|
$
|
18,368
|
|
$
|
86,010
|
|
$
|
4,450
|
|
$
|
22,777
|
|
$
|
—
|
|
$
|
575,566
|
|
|
Real
estate secured
|
|
|
|
|
|
|
|
|
|
|
(Dollars
are in thousands)
|
|
Commercial
|
|
Construction
and Land Development
|
|
Residential
1-4 family
|
|
Multifamily
|
|
Farmland
|
|
Commercial
|
|
Agriculture
|
|
Consumer
and All Other
|
|
Unallocated
|
|
Total
|
Nine months ended
September 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
1,248
|
|
|
$
|
158
|
|
|
$
|
1,736
|
|
|
$
|
104
|
|
|
$
|
109
|
|
|
$
|
1,789
|
|
|
$
|
27
|
|
|
$
|
195
|
|
|
$
|
2
|
|
|
$
|
5,368
|
|
Charge-offs
|
|
|
(65
|
)
|
|
|
—
|
|
|
|
(66
|
)
|
|
|
—
|
|
|
|
(42
|
)
|
|
|
(326
|
)
|
|
|
(15
|
)
|
|
|
(59
|
)
|
|
|
—
|
|
|
|
(573
|
)
|
Recoveries
|
|
|
56
|
|
|
|
—
|
|
|
|
31
|
|
|
|
—
|
|
|
|
33
|
|
|
|
34
|
|
|
|
1
|
|
|
|
37
|
|
|
|
—
|
|
|
|
192
|
|
Provision
|
|
|
874
|
|
|
|
32
|
|
|
|
361
|
|
|
|
44
|
|
|
|
20
|
|
|
|
627
|
|
|
|
31
|
|
|
|
13
|
|
|
|
(2
|
)
|
|
|
2,000
|
|
Ending balance
|
|
$
|
2,113
|
|
|
$
|
190
|
|
|
$
|
2,062
|
|
|
$
|
148
|
|
|
$
|
120
|
|
|
$
|
2,124
|
|
|
$
|
44
|
|
|
$
|
186
|
|
|
$
|
—
|
|
|
$
|
6,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
September 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
2,054
|
|
|
$
|
169
|
|
|
$
|
2,039
|
|
|
$
|
145
|
|
|
$
|
121
|
|
|
$
|
1,817
|
|
|
$
|
49
|
|
|
$
|
181
|
|
|
$
|
—
|
|
|
$
|
6,575
|
|
Charge-offs
|
|
|
(43
|
)
|
|
|
—
|
|
|
|
(66
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(15
|
)
|
|
|
—
|
|
|
|
(124
|
)
|
Recoveries
|
|
|
54
|
|
|
|
—
|
|
|
|
14
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
|
—
|
|
|
|
15
|
|
|
|
—
|
|
|
|
86
|
|
Provision
|
|
|
48
|
|
|
|
21
|
|
|
|
75
|
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
304
|
|
|
|
(5
|
)
|
|
|
5
|
|
|
|
—
|
|
|
|
450
|
|
Ending balance
|
|
$
|
2,113
|
|
|
$
|
190
|
|
|
$
|
2,062
|
|
|
$
|
148
|
|
|
$
|
120
|
|
|
$
|
2,124
|
|
|
$
|
44
|
|
|
$
|
186
|
|
|
$
|
—
|
|
|
$
|
6,987
|
|
Allocation of a portion
of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.
NOTE 8 TROUBLED DEBT RESTRUCTURINGS
There were $2.8 million
in loans that were classified as troubled debt restructurings (TDRs) at September 30, 2021 and $4.0 million at December 31, 2020. All
loans considered to be TDRs are individually evaluated for impairment as part of the allowance for loan losses calculation.
The following table
presents information related to loans modified as TDRs during the nine and three months ended September 30, 2021 and 2020.
Schedule of loans modified as TDRs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended
September 30, 2021
|
|
For the nine months ended
September 30, 2020
|
Troubled Debt Restructurings
(Dollars are in thousands)
|
|
# of Loans
|
|
Pre-Mod. Recorded Investment
|
|
Post-Mod.
Recorded
Investment
|
|
# of
Loans
|
|
Pre-Mod.
Recorded Investment
|
|
Post-Mod.
Recorded
Investment
|
Real estate secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
3
|
|
|
$
|
190
|
|
|
$
|
190
|
|
Construction and land
Development
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Residential 1-4 family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
27
|
|
|
|
1,236
|
|
|
|
1,236
|
|
Multifamily
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Farmland
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total real estate loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30
|
|
|
|
1,426
|
|
|
|
1,426
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer installment loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
|
|
7
|
|
|
|
7
|
|
All other loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
32
|
|
|
$
|
1,433
|
|
|
$
|
1,433
|
|
|
|
For the three months ended
September 30, 2021
|
|
For the three months ended
September 30, 2020
|
Troubled Debt Restructurings
(Dollars are in thousands)
|
|
# of Loans
|
|
Pre-Mod. Recorded Investment
|
|
Post-Mod.
Recorded
Investment
|
|
# of
Loans
|
|
Pre-Mod.
Recorded Investment
|
|
Post-Mod.
Recorded
Investment
|
Real estate secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Construction and land
Development
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Residential 1-4 family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
32
|
|
|
|
32
|
|
Multifamily
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Farmland
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total real estate loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
32
|
|
|
|
32
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer installment loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
All other loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
1
|
|
|
$
|
32
|
|
|
$
|
32
|
|
During the three
months and nine months ended September 30, 2021, no loans were modified for which the modification was considered to be a troubled dept
restructuring.
During the three
months ended September 30, 2020, one modified loan with a balance of $32 thousand was considered to be a troubled debt restructuring.
During the nine months ended September 30, 2020, the Company modified 32 loans totaling $1.4 million for which the modification was considered
to be a TDR.
During the three
months ended September 30, 2021, one loan with a balance of $119 thousand previously modified as troubled debt restructuring defaulted.
During the nine months ended September 30, 2021, two loans to the same borrower, previously modified as TDRs, totaling $1.1 million,
defaulted, resulting in charge-offs totaling $835 thousand. Generally, a TDR is considered to be in default once it becomes 90 days or
more past due following a modification.
During the three
months ended September 30, 2020, no loans previously modified as troubled debt restructurings defaulted. During the nine months ended
September 30, 2020, one loan previously modified as a troubled debt restructuring, with a balance of $31 thousand, defaulted. One loan
previously modified as a troubled debt restructuring, with a balance of $663 thousand, which defaulted during the first three months
of 2020, has been paid off.
In determining the
allowance for loan losses, management considers TDRs and subsequent defaults in these restructurings in its estimate. The Company evaluates
all TDRs for possible further impairment. As a result, the allowance may be increased, adjustments may be made in the allocation of the
allowance, or charge-offs may be taken to further write down the carrying value of the loan.
NOTE 9 OTHER REAL
ESTATE OWNED
The following table
summarizes the activity in other real estate owned for the nine months ended September 30, 2021 and the year ended December 31, 2020:
Schedule Of other real estate owned
|
|
|
|
|
|
|
|
|
(Dollars are in thousands)
|
|
September 30,
2021
|
|
December 31, 2020
|
Balance, beginning of period
|
|
$
|
3,334
|
|
|
$
|
3,393
|
|
Additions
|
|
|
566
|
|
|
|
1,128
|
|
Transfers from premises and equipment
|
|
|
950
|
|
|
|
—
|
|
Proceeds from sales
|
|
|
(2,128
|
)
|
|
|
(687
|
)
|
Proceeds from insurance claims
|
|
|
(54
|
)
|
|
|
—
|
|
Loans made to finance sales
|
|
|
—
|
|
|
|
(428
|
)
|
Adjustment of carrying value
|
|
|
(423
|
)
|
|
|
(132
|
)
|
Gains from sales, net
|
|
|
73
|
|
|
|
60
|
|
Balance, end of period
|
|
$
|
2,318
|
|
|
$
|
3,334
|
|
During the three
months ended September 30, 2021, three former branch office sites were transferred to Other Real Estate Owned at a value of $950 thousand.
Former branch office sites comprised $1.375 million and $683 thousand of the balance of Other Real Estate Owned at September 30, 2021
and December 31, 2020, respectively.
NOTE 10 FAIR VALUES
The financial reporting
standard, “Fair Value Measurements and Disclosures” provides a framework for measuring fair value under generally accepted
accounting principles and 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, available-for-sale investment
securities) or on a nonrecurring basis (for example, impaired loans and other real estate acquired through foreclosure).
Fair value is defined
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. Fair Value Measurements
and Disclosures also establish 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 standard describes three levels of inputs that may be used to measure fair
value.
Level 1: Quoted prices
in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative
contracts that are traded in an exchange market, as well as U. S. Treasury, other U. S. Government and agency mortgage-backed debt securities
that are highly liquid and are actively traded in over-the-counter markets.
Level 2: Significant
observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are
not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the
assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than
exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable
in the market or can be derived principally from or corroborated by observable market data. This category generally includes certain
derivative contracts and impaired loans.
Level 3: Significant
unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities.
Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies,
or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.
For example, this category generally includes certain private equity investments, retained residual interests in securitizations, residential
mortgage servicing rights, and highly structured or long-term derivative contracts.
Investment Securities
Available for Sale – Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement
is based upon quoted prices if available. If quoted prices are not available, fair value is 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, or by dealers or brokers in active over-the counter markets. Level 2 securities include mortgage-backed
securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include
asset-backed securities in less liquid markets.
Loans - The
Company does not record loans at fair value on a recurring basis. Real estate serves as collateral on a substantial majority of the Company’s
loans. When a loan is considered impaired, a specific reserve may be established. Loans, which are deemed to be impaired and require
a reserve, are primarily valued on a non-recurring basis at the fair values of the underlying real estate collateral. Where there is
no observable market price, such fair values are obtained using independent appraisals, which management evaluates to determine whether
or not the fair value of the collateral is further impaired below the appraised value and adjusts for estimated costs of disposition.
The Company records impaired loans as nonrecurring Level 3 assets.
Foreclosed Assets
– Foreclosed assets are adjusted to fair value upon transfer of the loans to foreclosed assets. Foreclosed assets
are carried at the lower of the carrying value or fair value. Fair value is based upon observable market prices, when available,
reduced by estimated disposition costs, which the Company considers to be nonrecurring Level 2 inputs. When observable market prices
are not available, management determines the fair value of the foreclosed asset using independent appraisals, evaluated to determine
whether or not the property is further impaired below the appraised value and adjusts for estimated costs of disposition. The Company
records foreclosed assets as nonrecurring Level 3.
Assets and liabilities
measured at fair value are as follows as of September 30, 2021 (for purpose of this table the impaired loans are shown net of the related
allowance):
Schedule Assets and liabilities measured at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
(Dollars are in thousands)
|
|
Quoted market price in active markets
(Level 1)
|
|
Significant other observable inputs
(Level 2)
|
|
Significant unobservable inputs
(Level 3)
|
(On a recurring basis)
Available for sale investments
|
|
|
|
|
|
|
U.S. Treasuries
|
|
$
|
—
|
|
|
$
|
6,292
|
|
|
$
|
—
|
|
U.S. Government Agencies
|
|
|
—
|
|
|
|
9,650
|
|
|
|
—
|
|
Taxable municipals
|
|
|
—
|
|
|
|
23,833
|
|
|
|
—
|
|
Corporate bonds
|
|
|
—
|
|
|
|
2,046
|
|
|
|
—
|
|
Mortgage backed securities
|
|
|
—
|
|
|
|
63,407
|
|
|
|
—
|
|
(On a non-recurring basis)
Other real estate owned
|
|
|
—
|
|
|
|
—
|
|
|
|
2,318
|
|
Impaired loans
|
|
|
—
|
|
|
|
—
|
|
|
|
2,940
|
|
Total
|
|
$
|
—
|
|
|
$
|
105,228
|
|
|
$
|
5,258
|
|
Assets and liabilities
measured at fair value are as follows as of December 31, 2020 (for purpose of this table the impaired loans are shown net of the related
allowance):
|
|
|
|
|
|
|
December 31, 2020
(Dollars are in thousands)
|
|
Quoted market price in active markets
(Level 1)
|
|
Significant other observable inputs
(Level 2)
|
|
Significant unobservable inputs
(Level 3)
|
(On a recurring basis)
Available for sale investments
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agencies
|
|
$
|
—
|
|
|
$
|
14,107
|
|
|
$
|
—
|
|
Taxable municipals
|
|
|
—
|
|
|
|
5,345
|
|
|
|
—
|
|
Corporate bonds
|
|
|
—
|
|
|
|
6,048
|
|
|
|
—
|
|
Mortgage backed securities
|
|
|
—
|
|
|
|
22,906
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(On a non-recurring basis)
Other real estate owned
|
|
|
—
|
|
|
|
—
|
|
|
|
3,334
|
|
Impaired loans
|
|
|
|
|
|
|
—
|
|
|
|
4,030
|
|
Total
|
|
$
|
—
|
|
|
$
|
48,406
|
|
|
$
|
7,364
|
|
For Level 3 assets
measured at fair value on a recurring or non-recurring basis as of September 30, 2021 and December 31, 2020, the significant unobservable
inputs used in the fair value measurements were as follows:
Schedule of significant unobservable inputs Level 3 assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Fair Value
September 30, 2021
|
|
|
Fair Value at December 31, 2020
|
|
|
Valuation Technique
|
|
|
Significant Unobservable Inputs
|
|
|
General Range of Significant Unobservable Input Values
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans
|
|
$
|
2,940
|
|
|
$
|
4,030
|
|
|
|
Appraised Value/Discounted Cash Flows/Market Value of Note
|
|
|
|
Discounts to reflect current market conditions, ultimate collectability, and estimated costs to sell
|
|
|
|
0 – 18%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Real Estate Owned
|
|
$
|
2,318
|
|
|
$
|
3,334
|
|
|
|
Appraised Value/Comparable Sales/Other Estimates from Independent Sources
|
|
|
|
Discounts to reflect current market conditions and estimated costs to sell
|
|
|
|
0 – 18%
|
|
Fair
Value of Financial Instruments
Fair value information
about financial instruments, whether or not recognized in the balance sheet, for which it is practical to
estimate the value, is based
upon the characteristics of the instruments and relevant market information. Financial instruments include cash, evidence of ownership
in an entity, or contracts that convey or impose on an entity that contractual right or obligation to either receive or deliver cash
for another financial instrument.
The
following summary presents the methodologies and assumptions used to estimate the fair value of the Company’s financial instruments
presented below. The information used to determine fair value is highly subjective and judgmental in nature and, therefore, the results
may not be precise. Subjective factors include, among other things, estimates of cash flows, risk characteristics, credit quality, and
interest rates, all of which are subject to change. Since the fair value is estimated as of the balance sheet date, the amounts that
will actually be realized or paid upon settlement or maturity on these various instruments could be significantly different.
The carrying amount and fair value of
the Company’s financial instruments that are not required to be measured or reported at fair value on a recurring basis as of September
30, 2021 and December 31, 2020 are as follows:
Schedule fair value financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
(Dollars are in thousands)
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Quoted market price in active markets
(Level 1)
|
|
Significant other observable inputs
(Level 2)
|
|
Significant unobservable inputs
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instruments – Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loans
|
|
$
|
567,396
|
|
|
$
|
567,797
|
|
|
$
|
—
|
|
|
$
|
564,857
|
|
|
$
|
2,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instruments – Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time Deposits
|
|
|
206,680
|
|
|
|
209,177
|
|
|
|
—
|
|
|
|
209,177
|
|
|
|
—
|
|
Borrowed funds
|
|
|
16,496
|
|
|
|
15,438
|
|
|
|
—
|
|
|
|
15,438
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instruments – Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loans
|
|
$
|
568,375
|
|
|
$
|
564,664
|
|
|
$
|
—
|
|
|
$
|
560,634
|
|
|
$
|
4,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instruments – Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time Deposits
|
|
|
234,449
|
|
|
|
237,768
|
|
|
|
—
|
|
|
|
237,768
|
|
|
|
—
|
|
Borrowed funds
|
|
|
21,496
|
|
|
|
16,788
|
|
|
|
—
|
|
|
|
16,788
|
|
|
|
—
|
|
Fair value estimates
are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates
do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a
particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair
value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of
various financial instruments and other factors. These estimates are subjective in nature, involve uncertainties and matters of significant
judgment, and therefore cannot be determined with precision. Changes in assumptions can significantly affect the estimates.
Estimated fair values
have been determined by the Company using historical data, as generally provided in the Company’s regulatory reports, and an estimation
methodology suitable for each category of financial instruments. The Company’s fair value estimates, methods and assumptions are
set forth below for the Company’s other financial instruments.
The carrying values
of cash and due from banks, federal funds sold, interest-bearing deposits, deposits with no stated maturities and accrued interest approximates
fair value and are excluded from the table above.
In accordance with
our adoption of Accounting Standards Update (ASU) 2016-01 in 2018, the methods utilized to measure the fair value of financial instruments
at September 30, 2021 and December 31, 2020, represent an approximation of exit price; however, an actual exit price may differ.
NOTE 11 LEASING
ACTIVITIES
As
of September 30, 2021, the Bank leases five branch office sites resulting from sale leaseback transactions entered into in 2017 and 2019.
The lease agreements have maturity dates ranging from May 2032 to September 2034. While it is assumed that there are currently no circumstances
in which the leases would be terminated prior to expiration, on October 1, 2021, the company repurchased the branch office that was sold
under a sale leaseback transaction in 2019. The weighted average remaining life of the lease terms at September 30, 2021 was 11.14 years.
The
discount rate used in determining the lease liability for each individual lease was the FHLB fixed advance rate which corresponded to
the lease term for each transaction. This methodology is expected to be used for any other subsequent lease agreements. The weighted
average discount rate for the leases at September 30, 2021 was 3.16%.
For the nine months
ended September 30, 2021 and 2020, operating lease expenses were $421 thousand and $429 thousand, respectively.
The
Company’s other operating leases were evaluated and determined to be immaterial to the financial statements. At September 30, 2021,
future minimum rental commitments under the non-cancellable operating leases discussed above are as follows (dollars are in thousands):
Schedule Of non-cancellable operating lease
|
|
|
|
|
|
2021
|
|
|
$
|
128
|
|
2022
|
|
|
|
530
|
|
2023
|
|
|
|
544
|
|
2024
|
|
|
|
546
|
|
2025
|
|
|
|
550
|
|
Thereafter
|
|
|
|
3,978
|
|
Total lease payments
|
|
|
|
6,276
|
|
Less imputed interest
|
|
|
|
1,125
|
|
Total
|
|
|
$
|
5,151
|
|
After
considering the repurchase of the branch office October 1, 2021, minimum future rental commitments will consist of total lease payments
of $4.956 million less imputed interest of $899 thousand, for a total of $4.057 million.
NOTE
12 REVENUE FROM CONTRACTS WITH CUSTOMERS
Revenue
from contracts with customers as defined in ASC 606 is recognized within Noninterest income. The following table presents Noninterest
income by revenue stream for the three and nine months ended September 30, 2021 and 2020.
Schedule of Redeemable Noncontrolling Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
For the nine months ended
|
|
|
September 30,
|
|
September 30,
|
(Dollars in thousands)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Service charges and fees
|
|
$
|
1,001
|
|
|
$
|
859
|
|
|
$
|
2,674
|
|
|
$
|
2,238
|
|
Card Processing and interchange income
|
|
|
982
|
|
|
|
892
|
|
|
|
2,918
|
|
|
|
2,480
|
|
Gain on sale of securities available-for-sale (1)
|
|
|
322
|
|
|
|
—
|
|
|
|
322
|
|
|
|
4
|
|
Insurance and investment fees
|
|
|
222
|
|
|
|
206
|
|
|
|
723
|
|
|
|
447
|
|
Other noninterest income
|
|
|
443
|
|
|
|
159
|
|
|
|
840
|
|
|
|
744
|
|
Total Noninterest Income
|
|
$
|
2,970
|
|
|
$
|
2,116
|
|
|
$
|
7,477
|
|
|
$
|
5,913
|
|
|
(1)
|
Not
within the scope of ASU 2014-09
|
NOTE 13 NONINTEREST EXPENSES
Other operating expenses,
included as part of noninterest expenses, consisted of the following for the periods presented:
Schedule of noninterest expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended September 30,
|
|
For the nine months ended September 30,
|
(Dollars are in thousands)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
$
|
85
|
|
|
$
|
42
|
|
|
$
|
193
|
|
|
$
|
166
|
|
ATM network expense
|
|
|
368
|
|
|
|
357
|
|
|
|
1,113
|
|
|
|
1,113
|
|
Legal and professional fees
|
|
|
254
|
|
|
|
112
|
|
|
|
842
|
|
|
|
602
|
|
Consulting fees
|
|
|
58
|
|
|
|
82
|
|
|
|
206
|
|
|
|
443
|
|
Loan related expenses
|
|
|
198
|
|
|
|
88
|
|
|
|
448
|
|
|
|
275
|
|
Printing and supplies
|
|
|
29
|
|
|
|
38
|
|
|
|
89
|
|
|
|
105
|
|
FDIC insurance premiums
|
|
|
81
|
|
|
|
103
|
|
|
|
218
|
|
|
|
297
|
|
Other real estate owned expenses, net
|
|
|
301
|
|
|
|
59
|
|
|
|
439
|
|
|
|
255
|
|
Other operating expenses
|
|
|
630
|
|
|
|
684
|
|
|
|
1,765
|
|
|
|
1,893
|
|
Total other operating expenses
|
|
$
|
2,004
|
|
|
$
|
1,565
|
|
|
$
|
5,313
|
|
|
$
|
5,149
|
|
NOTE 14 SUBSEQUENT
EVENTS
Subsequent events
are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent
events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including
the estimates inherent in the process of preparing financial statements. Non-recognized subsequent events are events that provide evidence
about conditions that did not exist at the date of the balance sheet but arose after that date. No subsequent events have occurred since
September 30, 2021, except for the repurchase of a branch office site that had been previously sold under a sale leaseback transaction
in 2019.
NOTE 15 RECENT
ACCOUNTING DEVELOPMENTS
The following is
a summary of recent authoritative announcements:
In June 2016, per
ASU No. 2016-13, ‘Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,’
the Financial Accounting Standards Board (the FASB) issued guidance to change the accounting for credit losses and modify the impairment
model for certain debt securities. Subsequently, per ASU No. 2019-10, implementation for the Company is delayed until reporting periods
beginning after December 15, 2022. Early adoption is permitted for all organizations for periods beginning after December 15, 2018. The
Company is currently evaluating the effect that implementation of the new standard will have on its financial position, results of operations,
and cash flows.
In May 2019, the
FASB issued targeted transition relief for entities which irrevocably elect the fair value option for certain financial assets previously
measured at amortized cost basis. For those entities, the amendments to the transition guidance for ASU 2016-13 will increase comparability
of financial statement information by providing an option to align measurement methodologies for similar financial assets. Subsequently,
per ASU No. 2019-10, implementation for the Company is delayed until reporting periods beginning after December 15, 2021. The Company
is currently in the process of evaluating the impact of adoption of this guidance on its financial statements.
In November 2019,
the FASB released ASU 2019-10, ‘Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and
Leases (Topic 842),’ in which the FASB shared a new philosophy to extend and simplify how effective dates for certain major Updates
would be staggered between larger public companies (bucket one) and all other entities (bucket two). A major Update would first be effective
for bucket-one entities. For bucket-two entities, including the Company, it is anticipated that the FASB will consider requiring an effective
date staggered at least two years after bucket one for major Updates. Generally, it is expected that early application would continue
to be allowed for all entities. The Company is considered a bucket-two entity due to its eligibility to be a smaller reporting company,
per the Securities and Exchange Commission (the SEC). This Update applies to ASU 2016-13, as discussed above, ASU 2017-12, which does
not apply to the Company, and ASU 2016-02, which the Company has already early-adopted.
In December 2019,
the FASB released ASU 2019-12, ‘Income Taxes (Topic 740),’ which simplify the accounting for income taxes by removing certain
exceptions to the general principles in Topic 740, improve consistent application, and simplify GAAP for other areas of Topic 740. The
amendments in this Update are effective for the Company for fiscal years beginning after December 15, 2021, and interim periods within
fiscal years beginning after December 15, 2022. The Company does not expect these amendments to have a material effect on its financial
statements.
In January 2020,
the FASB released ASU 2020-01, ‘Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint
Ventures (Topic 323), and Derivatives and Hedging (Topic 815),’ which clarify certain interactions between the guidance to account
for certain equity securities under Topic 321, 323 and 815, and improve current GAAP by reducing diversity in practice and increasing
comparability of accounting. The amendments in this Update are effective for the Company for fiscal years beginning after December 31,
2021, and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect these amendments to have
a material effect on its financial statements.
In March 2020, the
FASB released ASU 2020-03, ‘Codification Improvements to Financial Instruments,’ as part of its ongoing project for improving
the Codification or correcting its unintended application. This Update is being issued to increase stakeholder awareness of these amendments.
These amendments affect Fair Value Option Disclosures, Applicability of Portfolio Exception in Topic 820 to Nonfinancial Items, Disclosures
for Depository and Lending Institutions, Cross-Reference to Line-of-Credit or Revolving-Debt Arrangements Guidance in Subtopic 470-50,
Cross-Reference to Net Asset Value Practical Expedient in Subtopic 820-10, Interaction of Topic 842 and Topic 326, and Interaction of
Topic 326 and Subtopic 860-20. The amendments in this update are effective immediately. The Company does not expect these amendments
to have a material effect on its financial statements.
In March 2020, the
FASB released ASU 2020-04, ‘Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial
Reporting,’ which provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing
the effects of) reference rate reform. The amendments in this Update are elective and apply to all entities, subject to meeting certain
criteria, that have contracts, hedging relationships, and other transactions that reference the London Interbank Offering Rate (LIBOR)
or another reference rate expected to be discontinued because of reference rate reform. The amendments in the Update are effective for
the Company as of March 12, 2020 through December 31, 2022. The Company is working through implementation of this guidance, but does
not expect this amendment to have a material impact on its financial statements.
In August 2020, the
FASB released ASU 2020-06, ‘Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity,’ which
reduces the number of accounting models for convertible debt instruments and convertible preferred stock. The Board concluded that eliminating
certain accounting models simplifies the accounting for convertible instruments, reduces complexity for preparers and practitioners,
and improves the decision usefulness and relevance of the information provided to financial statement users. The amendments in this Update
are effective for the Company for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.
The Company does not expect these amendments to have a material effect on its financial statements.
In January 2021,
the FASB released ASU 2021-01, ‘Reference Rate Reform (Topic 848),’ which clarifies that certain optional expedients and
exceptions in topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition
related to reference rate reform. The amendments in this Update are effective immediately for all entities. An entity may elect to apply
the amendments in the Update on a full retrospective basis as of any date from the beginning of an interim period that includes or is
subsequent to March 12, 2020, or on a prospective basis to new modifications from any date within an interim period that includes or
is subsequent to the date of the issuance of a final Update, up to the date that financial statements are available to be issued. The
Company does not expect this amendment to have a material effect on its financial statements.
In July 2021, the
FASB released ASU 2021-05, ‘Lessors – Certain Leases with Variable Lease Payments (Topic 842),’ which amends the lease
classification requirements for lessors to align them with practice under Topic 840. The amendments in this Update amend Topic 842 and
are effective for the Company for fiscal years beginning after December 15, 2021, and for interim periods within fiscal years beginning
after December 13, 2022. The Company may elect either (1) to retrospectively apply the amendments to leases that commenced or were modified
on or after the adoption of Update 2016-02 or (2) prospectively to leases that commence or are modified on or after the date that the
Company first applies the amendments. The Company does not expect this amendment to have a material effect on its financial statements.
In August 2021, the
FASB released ASU 2021-06, ‘Presentation of Financial Statements (Topic 205), Financial Services – Depository and Lending
(Topic 942), and Financial Services – Investment Companies (Topic 946),’ which amends certain SEC paragraphs pursuant to
SEC final rule releases No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No. 33-10835,
Update of Statistical Disclosures for Bank and Savings and Loan Registrants. These amendments become effective for fiscal years
ending on or after December 15, 2021. The Company does not expect these amendments to have a material effect on its financial statements.
Other accounting
standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact
on the Company’s financial position, results of operations or cash flows.
|
Item 2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
|
Caution About Forward Looking Statements
We make forward looking
statements in this quarterly report on Form 10-Q that are subject to risks and uncertainties. These forward-looking statements include
statements regarding expectations, intentions, projections and beliefs concerning our profitability, liquidity, and allowance for loan
losses, interest rate sensitivity, market risk, growth strategy, and financial and other goals. The words “believes,” “expects,”
“may,” “will,” “should,” “projects,” “contemplates,” “anticipates,”
“forecasts,” “intends,” or other similar words or terms are intended to identify forward looking statements.
The forward-looking information is based on various factors and was derived using numerous assumptions. Important factors that may
cause actual results to differ from projections include:
-
the success
or failure of our efforts to implement our business plan;
-
any required
increase in our regulatory capital ratios;
-
satisfying
other regulatory requirements that may arise from examinations, changes in the law and other similar factors;
-
deterioration
of asset quality;
-
changes in
the level of our nonperforming assets and charge-offs;
-
fluctuations
of real estate values in our markets;
-
our ability
to attract and retain talent;
-
demographical
changes in our markets which negatively impact the local economy;
-
the uncertain
outcome of current or future legislation or regulations or policies of state and federal regulators;
-
the successful
management of interest rate risk;
-
the successful
management of liquidity;
-
changes in
general economic and business conditions in our market area and the United States in general;
-
credit risks
inherent in making loans such as changes in a borrower’s ability to repay and our management of such risks;
-
competition
with other banks and financial institutions, and companies outside of the banking industry, including online lenders and those companies
that have substantially greater access to capital and other resources;
-
demand, development
and acceptance of new products and services we have offered or may offer;
-
the effects
of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve, inflation,
interest rate, market and monetary fluctuations;
-
the occurrence
of significant natural disasters, including severe weather conditions, floods, health related issues (including the ongoing novel coronavirus
(COVID-19) outbreak and the associated efforts to limit the spread of the disease), and other catastrophic events;
-
technology
utilized by us;
-
our ability
to successfully manage cyber security;
-
our reliance
on third-party vendors and correspondent banks;
-
changes in
generally accepted accounting principles;
-
changes in
governmental regulations, tax rates and similar matters; and,
-
other risks,
which may be described, from time to time, in our filings with the SEC.
Because of these
uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.
In addition, our past results of operations do not necessarily indicate our future results. We expressly disclaim any obligation to update
or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Critical Accounting
Policies
For discussion of
our significant accounting policies, see our Annual Report on Form 10-K for the year ended December 31, 2020 (the 2020 10-K). Certain
critical accounting policies affect the more significant judgments and estimates used in the preparation of our financial statements.
Our most critical accounting policies relate to our provision for loan losses and the calculation of our deferred tax asset and related
valuation allowance.
The provision for
loan losses reflects the estimated losses resulting from the inability of our customers to make required payments. If the financial condition
of our borrowers were to further deteriorate, resulting in an impairment of their ability to make payments, our estimates would be updated,
and additional provisions could be required.
Deferred tax assets
or liabilities are computed based upon the difference between financial statement and income tax bases of assets and liabilities using
the enacted marginal tax rate. In the past, the Company provided a valuation allowance on its net deferred tax assets where it was deemed
more likely than not such assets would not be realized. At September 30, 2021 and December 31, 2020, the Company had no valuation allowance
on its net deferred tax assets.
The Company recognizes
the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by
the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such
positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement.
For further discussion
of the deferred tax asset and valuation allowance, we refer you to the section on “Deferred Tax Asset and Income Taxes” below.
COVID-19 Pandemic
Since the first quarter
of 2020, COVID-19 has adversely affected, and will continue to adversely affect, economic activity globally, nationally and locally.
Market interest rates declined significantly and remain at historically low levels. In early 2020, the Federal Open Market Committee
(FOMC) reduced the target federal funds rate twice by a total of 150 basis points (bps). As a result of these actions the target federal
funds rate now stands at 0.00% - 0.25% and the prime interest rate stands at 3.25%. While the FOMC has recently signaled its intention
to ease interest rate accommodations, it is expected that it will be mid-2022 before overt action is taken to raise interest rates.
State and local governments
have eased many of their executive orders relating to mask-wearing, social distancing, and attendance limitations. However, with the
rise in instances of the Delta variant of COVID-19, some of these executive orders have been reinstated. During the third quarter of
2021, supply chain constraints became more prevalent, adversely affecting many businesses. Price inflation is also being seen in many
types of consumer products, including groceries and fuel. Although there are signs of economic improvement; specifically, improved employment
statistics, it appears the improvement may be uneven, and the expectation of any sustained recovery is impossible to predict. Previously,
economic conditions such as these have led certain industries and individual businesses to reduce operations and staffing, and in some
cases to close, either temporarily or permanently.
As the uncertainty
created by the pandemic persists, we continue to meet the needs of our customers. Since the first quarter of 2020, we have maintained
a committee dedicated to managing our response to the pandemic. This has included marshalling supplies and personal protective equipment,
coordinating employee and customer communications, evaluating staffing and maintaining compliance with various mandates and regulations.
All of our branch offices have been fully open since April 2021. We continue to maintain diligence, including the practices of daily
self-assessments and temperature monitoring for all employees prior to entering their worksite. Even so, we have had exposure instances
that cause us to temporarily close offices, or reduce service to drive-thru only, and quarantine employees. Several departments have
reinstituted remote work protocols with employees alternating weeks working on and off site. Additionally, we encourage our employees
to be vaccinated.
Last year, as part
of the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), the Small Business Administration (SBA) was authorized to
guarantee Paycheck Protection Program (PPP) loans used by borrowers for payroll and other permitted purposes. The SBA provided a 100%
guarantee and paid originators a processing fee ranging from 1% to 5%, based on the loan amount. We funded a total of $44.5 million of
these loans (Round 1) for our customers through August 2020, when the funding period closed, and received $1.6 million in net fees from
the SBA, which is being recognized as income over the terms of these loans.
In December 2020, the Consolidated Appropriations Act, 2021
was enacted providing additional economic relief related to the COVID-19 pandemic. This legislation included a second round (Round 2)
of PPP loans. We participated in this program and funded 568 Round 2 loans totaling $25.3 million through June 30, 2021. The total remaining
balances of PPP loans, including both Round 1 and Round 2, at September 30, 2021 was $9.6 million. Of the combined $69.8 million loans
funded in both Round 1 and Round 2, 1,144 loans have received full or partial forgiveness payments from the SBA totaling $60.2 million,
of which 1,004 loans totaling $50.4 million received forgiveness during the first nine months of 2021.
With the end of the
second round of the PPP loan program, our efforts are now focused on assisting borrowers in applying for and obtaining forgiveness through
the SBA of the $9.6 million of PPP loans remaining at September 30, 2021.
In response to the
economic impact brought on by the COVID-19 pandemic, banking and financial regulators provided guidance to financial institutions regarding
borrower requests for forbearance. In general, short-term deferrals or other minor modifications extended to borrowers who were current
in their loan obligations at December 31, 2019, were not considered troubled debt restructurings (TDRs) or impairments. These accommodations
have been provided in the form of payment deferrals or conversion to interest only for a period of time, generally three to six months.
As of September 30, 2021, of the 648 loans, totaling $103.4 million, which received some form of forbearance in accordance with the applicable
legislative and regulatory guidelines, none remain in forbearance.
In summary, the lingering,
adverse economic impact of the COVID-19 pandemic has been extensive and wide ranging, resulting in a steep decline in interest rates,
reduced participation in the labor force and supply chain backlogs resulting in a decline in economic output, and we cannot reasonably
estimate the term or intensity of any prolonged adverse impact on our financial position, operations or liquidity.
London Interbank Offering Rate
The use of the London
Interbank Offering Rate (LIBOR) as a benchmark interest rate will be ending later in 2021, and this may impact our future interest rate
structure. We use LIBOR in pricing some of our interest earning assets and liabilities, including our trust preferred securities. At
this time, it appears that LIBOR will be replaced by the Secured Overnight Financing Rate (SOFR), which is a transparent measure of the
cost of borrowing cash overnight collateralized by Treasury securities, as SOFR is now being listed on quotation systems and is being
incorporated into instruments and transactions previously tied to LIBOR.
The United Kingdom’s
Financial Conduct Authority (FCA), who is the regulator of LIBOR, announced on March 5, 2021, that they will no longer require any panel
bank to continue to submit LIBOR after December 31, 2021. As it pertains to U.S. dollar LIBOR, the FCA will consider the case to require
continued publication, on a synthetic basis, of 1-month, 3-month and 6-month LIBOR settings through June 30, 2023. After such date, the
LIBOR settings will no longer be representative and this index will not be restored.
It should be noted,
however, that United States bank regulators, in a joint statement, have urged banks to stop using LIBOR altogether on new transactions
by the end of 2021 to avoid the creation of safety and soundness risk. The Federal Reserve Bank of New York has created a working group
called the Alternative Reference Rate Committee (ARRC) to assist U.S. institutions in transitioning away from LIBOR as a benchmark interest
rate. The ARRC has recommended the use of the SOFR as a replacement index for LIBOR. Because there is not yet a consensus as to what
rate or rates may become acceptable alternatives to LIBOR, we cannot predict the effect of any such alternatives on the value of our
LIBOR-based variable-rate loans, as well as LIBOR-based securities, trust preferred securities, or other securities or financial arrangements.
Regardless of whether SOFR or some other benchmark rate replaces LIBOR, we do not anticipate that the change will have a material impact
on our ability to negotiate and price earning assets and liabilities. However, the transition to an alternative reference rate for new
contracts, or the implementation of a substitute index or indices for the calculation of interest rates under the Company’s existing
loan agreements with borrowers or other financial arrangements, could change the Company’s market risk profile, interest margin,
interest spread and pricing models. This may cause the Company to incur significant expenses in effecting the transition, may result
in reduced loan balances if borrowers do not accept a substitute index or indices, and may result in disputes or litigation with customers
or other counterparties over the appropriateness or comparability to LIBOR of any substitute index or indices.
Overview and Highlights
For the nine months
ended September 30, 2021, we earned net income of $5.1 million, which equates to $0.21 per share, and is $3.6 million higher than the
$1.5 million net income we earned during the same period in 2020. Most components of the income statement improved. Net interest income
grew $1.8 million, provision for loan losses decreased $1.6 million, and non-interest income increased $1.6 million. Non-interest expense
increased $415 thousand as we absorbed losses on disposals of three former branch offices. Consequently, income tax expense increased
$969 thousand due to the increase in net income before income taxes. Although interest rates are generally lower, net interest income
increased due to the reduction
in interest expense with interest income improving slightly due to the accelerated accretion of fee income from PPP loan forgiveness
offsetting the impact of lower interest rates.
The balance sheet
grew to $800.8 million as of September 30, 2021, from $756.3 million as of December 31, 2020, with deposit growth providing funds for
investment growth. Our Boone, North Carolina, loan production office, which opened in the fourth quarter of 2020, is positively affecting
originations of commercial and commercial real estate loans, as well as residential mortgage loan originations brokered through or sold
into the secondary market. Deposit growth is primarily due to stimulus payments and PPP funds received by our customers, which has helped
to drive down our cost of funds, as these deposit accounts are generally non-interest bearing. As a result of the improved earnings,
we returned to a positive retained earnings position at September 30, 2021, after several years of being a deficit balance.
As a follow-on to
the operational assessment initiated in 2019 and implemented in 2021, we have identified several areas to assess our current position
and develop means of improvements. The areas we are assessing include reducing the level of nonperforming assets, improving our secondary
mortgage origination operations, improving marketing and development to better align with bank-wide and individual market goals; reviewing
compensation structure to better align with bank-wide goals, and improving operations and efficiencies in the loan origination and operations
functions. As part of the initiative to reduce nonearning assets, three former branch office sites were sold during the third quarter,
resulting in net gains of $190 thousand, and three more were transferred to OREO, after writedowns of $1.1 million. Since September 30,
2021, an additional former branch office site was auctioned successfully, and one of the sites transferred to OREO is under a sales agreement,
with both transactions expected to close during the fourth quarter. As part of our efforts to enhance our mortgage operations, we have
implemented a new compensation plan for mortgage originators and realigned the department to improve both origination efforts and backroom
support.
Comparison of
the nine months ended September 30, 2021 to September 30, 2020
Overall, during the
nine months ended September 30, 2021, compared to the same period in 2020, net income has improved 240% to $5.1 million, or $0.21 per
share, from $1.5 million, or $0.06 per share. Interest income was up and interest expense was down, resulting in an improvement of $1.8
million in net interest income. Other primary drivers of the improvement were provision for loan losses, which was down $1.6 million,
and non-interest income, which was up $1.6 million.
Year-to-date highlights
include:
|
·
|
Net
interest income improved to $20.5 million for the first nine months of 2021, an improvement
of $1.8 million, or 9.6%, compared to the same period in 2020;
|
|
·
|
Net
interest margin was 3.68% for the first nine months of 2021, an increase of 3 basis points
compared to 3.65% for the first nine months of 2020;
|
|
·
|
Investment
securities totaling $77.2 million were purchased during the first nine months of 2021, accounting
for the $56.8 million growth of that portfolio;
|
|
·
|
Investment
securities totaling $7.7 million were sold during the third quarter of 2021, resulting in
gains of $322 thousand;
|
|
·
|
Provision
for loans losses was $372 thousand for the first nine months of 2021, a reduction of $1.6
million, or 81.4%, compared to the first nine months of 2020;
|
|
·
|
Noninterest
income was $7.5 million, an increase of $1.6 million, or 26.5%, compared to the first nine
months of 2020;
|
|
·
|
Total
noninterest expense was $21.1 million, an increase of $415 thousand, or 2.0%, compared to
the first nine months of 2020; and
|
|
·
|
Occupancy
and equipment expense was $4.6 million, an increase of $1.2 million, or 34.8%, compared to
the nine months of 2020.
|
|
·
|
Retained
earnings returned to a positive balance in the third quarter of 2021, after several years
of being a deficit balance.
|
During the first nine months of 2021 compared to the first nine
months of 2020, the increase of $1.8 million in net interest income was due primarily to a reduction in interest expense on deposits of
$1.6 million. This reduction in interest expense on deposits was driven mainly by a reduction in the average cost of retail time deposits,
which declined 60 basis points, to 1.00% from 1.60%, plus a decrease in average balances of $34.7 million. Interest income on earning
assets was essentially unchanged, as an increase of $1.3 million in loan fees offset a decrease of $1.3 million in interest income on
loans. The increase in loan fee income is a result of recognition of deferred fees on PPP loans forgiven. As the PPP portfolio stands
at $9.6 million at September 30, 2021, we expect the fee revenue earned from these loans to have largely run its course by year-end. Although
average loan balances grew $9.6 million, average yields decreased to 4.40% from 4.78%, which caused the decrease in interest income. The
yield on PPP loans is 1.00% (excluding the impact of deferred fee income), which also negatively affects our loan yields.
While interest income
on deposits with other banks decreased $122 thousand, it was more than offset by increased interest income on investment securities of
$137 thousand. The primary driver of the reduced interest income on deposits with other banks was the reduction in average yields to
0.11% from 0.44%. The improvement in interest income on investment securities was mainly a result of $24.0 million of increased average
balances, although yields declined to 1.94% from 2.51%.
The reduction in
both interest income, excluding fees, and interest expense was driven mainly by lower market rates, which have fallen throughout 2020
and 2021. Our total average yield on earning assets was 4.06% during the first nine months of 2021, compared to 4.40% during the same
period in 2020. The reduction in our average cost of funds to 0.39% during the first nine months of 2021, compared to 0.77% during the
same period in 2020, more than offset the reduced yield on average assets. In summary, the net interest margin for the first nine months
of 2021 was 3.68%, a reduction of 3 basis points compared to 3.65% for the first nine months of 2020.
The provision for
loan losses for the first nine months of 2021 was down $1.6 million compared to the same period in 2020, to $372 thousand from $2.0 million,
due to a combination of factors, including the limited risk associated with PPP loans, improving economic trends, such as improving employment
statistics, combined with the liquidity provided to customers through stimulus payments and the aforementioned funding and forgiveness
of PPP loans. For more information on the factors affecting the allowance for loan losses, including provision expense, refer to Note
7, Allowance for loan Losses, in Item 1 of this Form 10-Q. Depending on the length of the economic downturn, and the nature and speed
of any future recovery, it is possible that additional provisions may be needed beyond those necessary to support organic growth of the
loan portfolio.
Total non-interest
income for the first nine months of 2021 compared to the same period in 2020 grew by $1.6 million to $7.5 million. This improvement was
driven by increases in service charges and fees, card processing and interchange income, insurance and investment fees, and gains on
sales of investment securities, of $436 thousand, $438 thousand, $276 thousand, and $318 thousand respectively. The improvement in service
charges and fees resulted from the fee schedule changes we made in August 2020. The improvement in card processing and interchange income
resulted from increased volume and the related increase in interchange fees received. Efforts to increase noninterest income revenues
from financial services drove the improvement in insurance and investment fees. Gains of $322 thousand were realized from sales of securities
during the first nine months of 2021 versus $4 thousand during the same period in 2020. Other non-interest income also increased, to
$840 thousand from $744 thousand, driven by the $190 thousand gains on sales of former branch offices and $111 thousand from commissions
on and gains on originations and sales of mortgage loans, even when the $220 thousand bonus payment from a service provider in 2020 is
considered.
For the nine months
ended September 30, 2021, compared to the same period in 2020, total non-interest expense increased $415 thousand, to $21.1 million,
primarily because of a $1.2 million increase in occupancy and equipment expense, which was partially offset by an $883 thousand decrease
in salaries and employee benefits. The increase in occupancy and equipment expense was driven nearly entirely by $1.1 million in asset
disposal costs, a result of the three former branch office locations transferred to OREO, as previously discussed. We expect some modest
expense reductions associated with the sales and disposals of former branch office locations. The reduction in salaries and benefits
expense is due to the restructuring implemented during the second quarter of 2020. Data processing and telecommunications expense is
down $46 thousand due to changes in the related agreements with some of those service providers. Other operating expenses were up $164
thousand due to higher loan and other real estate expenses of $173 thousand and $184 thousand, respectively, increased internal and external
audit and accounting expenses of $87 thousand, other professional fees of $32 thousand, and advertising and promotions of $37 thousand.
These increases offset decreases in FDIC insurance, consulting, data processing, and travel, which decreased $79 thousand, $237 thousand,
$67 thousand, and $55 thousand, respectively. FDIC premiums decreased due to improvements in our risk assessment. Consulting decreased
due to costs incurred in 2020, which were not repeated in 2021. Travel reflects the impact of the pandemic. In addition, 2021 includes
a $61 thousand increase in bank franchise taxes due to the increased tax base and added taxes for other states.
The efficiency ratio,
a non-GAAP measure, improved to 76.4% for the first nine months of 2021 from 84.2% for the first nine months of 2020, due to improvements
discussed above. We re-engaged the firm that assisted in the operational assessment in 2019 and 2020 to review our efforts to date and
work toward enhancing our revenue and cost control structure.
Comparison of
the Three Months ended September 30, 2021 to September 30, 2020
Overall, during the
quarter ended September 30, 2021, compared to the same quarter in 2020, net income improved 29.6% to $1.8 million, or $0.08 per share,
from $1.4 million, or $0.06 per share. Contributing to this improvement was higher interest income, lower interest expense, lower provision
for loan loss expense and higher non-interest income. Although non-interest expense was higher, it was more than offset by improvements
in every other major category of the income statement.
Quarter-to-date highlights
include:
|
·
|
Net
interest income was $7.4 million for the third quarter of 2021, an improvement of $1.0 million,
or 15.7%, compared to the third quarter of 2020;
|
|
·
|
Net
interest margin was 3.93% for the third quarter of 2021, an increase of 27 basis points compared
to 3.66% in the third quarter of 2020;
|
|
·
|
Provision
for loan losses was zero for the third quarter of 2021 compared to $450 thousand for the
third quarter of 2020;
|
|
·
|
Noninterest
income was $3.0 million, an increase of $854 thousand, or 40.4%, during the third quarter
of 2021 compared to the third quarter of 2020; and
|
|
·
|
Noninterest
expense was $8.1 million, an increase of $1.8 million, or 28.4%, for the third quarter of
2021 compared to the third quarter of 2020.
|
During the third
quarter of 2021, compared to the third quarter of 2020, net interest income increased $1.0 million, the result of a $478 thousand increase
in interest income on earning assets, and a $526 thousand decrease in interest expense on interest-bearing liabilities. The primary driver
was an improvement of $695 thousand in loan fees, which was mainly due to recognition of deferred fees on PPP loans forgiven, which more
than offset a decrease in interest income on loans of $364 thousand. The impact of the increased loan fee income will not continue, as
only 14% of the original portfolio remains outstanding at September 30, 2021. The reduced interest income on loans was a result of both
lower average balances and reduced average yields, to 4.40% from 4.61%. Also driving the improvement in interest income was an increase
of $134 thousand in interest income on investment securities. Although the average yield on investment securities declined to 1.72% from
2.39%, average balances increased by $49.3 million, as we redeployed lower yielding deposits in other banks into investment securities
providing a higher return. Overall, our yield on earning assets declined to 4.26% from 4.31%.
On the interest expense
side of net interest income, the primary driver of the $526 thousand reduction in interest expense was a $472 thousand decrease in interest
expense on retail time deposits. The decrease in interest expense on retail time deposits was primarily due to a reduction in average
cost to 0.90% from 1.52%, combined with a reduction in average balances of $40.1 million. Also contributing to the reduced interest expense
was an increase in average balances of non-interest-bearing deposits of $48.6 million, a result of liquidity provided to customers through
stimulus payments and the funding of PPP loans. Overall, our average cost of funds has declined to 0.34% from 0.66%.
In summary, our net
interest margin for the third quarter of 2021 was 3.93% compared to 3.66% for the third quarter of 2020. The reduction in yields and
costs has been driven by decreases in general market rates, as previously discussed.
The provision for
loan losses was zero in the third quarter of 2021 compared to $450 thousand for the same quarter in 2020, due to a combination of factors,
including the limited risk associated with PPP loans, improving economic trends, including improving employment statistics, combined
with the liquidity provided to customers through stimulus payments and the aforementioned funding and forgiveness of PPP loans. For more
information on the factors affecting the allowance for loan losses, including provision expense, refer to Note 7, Allowance for loan
Losses, in Item 1 of this Form 10-Q. Depending on the length of the economic downturn and the nature and speed of any future recovery,
it is possible that additional provisions may be needed beyond those necessary to support organic growth of the loan portfolio.
Total non-interest
income increased $854 thousand in the third quarter of 2021 compared to the third quarter of 2020, primarily due to $322 thousand of
net gains on sales of investment securities, an increase of $284 thousand in other non-interest income, an increase of $142 thousand
in service charges and fees, and an increase of $90 thousand in card processing and interchange income. During the third quarter of 2021,
we sold $7.7 million of securities and realized gains of $322 thousand. The increase in other non-interest income is primarily a result
of $190 thousand of net gains on sales of three former branch office locations. As part of the project to improve earnings, fee schedule
changes were implemented in August of 2020, and this contributed to the increase in service charges and fees. Card processing revenue
increased due to increased volume and the related incremental increase in interchange income received. In addition, efforts to increase
noninterest income revenues from financial services drove the improvement in insurance and investment fees. Commissions and gains on
originations and sales of mortgage loans also increased.
Total non-interest
expense increased $1.8 million for the third quarter of 2021 compared to the third quarter of 2020, primarily due to an increase of $1.1
million in occupancy and equipment expense, which was driven nearly entirely by $1.1 million in disposal costs of three former branch
office locations, which were transferred to OREO. Otherwise, we expect some modest expense reductions associated with the sales and disposals
of former branch office locations. Salaries and benefits expense increased $258 thousand, due to an increase of $183 thousand for general
wage increases and additional employees hired to staff our loan production office in Boone, NC, which opened in the fourth quarter of
2020; and our new branch office in Bristol, VA which opened in October 2021; an increase of $31 thousand in bonus accruals related to
a new incentive plan, an increase of $29 thousand in commissions for mortgage personnel, and an increase of $27 thousand in group insurance
due to changes made in the employer contribution formula. These were partially offset by contra expense of $106 thousand related to mortgage
originations. Other operating expenses increased $439 thousand, primarily due to increases in other real estate expense, which increased
$242 thousand, and loan related expenses, which increased $110 thousand. Other real estate owned expenses increased due to write-downs
of $395 thousand. Loan related expenses increased due to costs associated with processing PPP loan forgiveness.
The efficiency ratio,
a non-GAAP measure, improved to 76.4% for the third quarter of 2021 compared to 84.2% for the third quarter of 2020. This ratio has been
positively affected by earnings improvement projects. As discussed above, we are continuing our operational assessments and have implemented
several to date, which we anticipate will help improve the efficiency ratio by increasing earnings or controlling costs.
Balance Sheet
During the nine months
ended September 30, 2021, the balance sheet grew to $800.8 million. Highlights include:
|
·
|
Total
assets grew by $44.5 million, or 5.9%, during the first nine months of 2021, to $800.8 million;
|
|
·
|
Interest
bearing deposits in other banks decreased by $6.5 million, to $69.6 million;
|
|
·
|
Loans
decreased by $1.5 million, or 0.26%, to $574.1 million;
|
|
·
|
Securities
available for sale increased $56.8 million, or 117.4%, to $105.2 million;
|
|
·
|
Total
deposits increased $45.5 million, or 6.8%, to $713.5 million;
|
|
·
|
Book
value per share increased to $2.61 at September 30, 2021 as compared to $2.43 at December
31, 2020.
|
The growth in total
assets was primarily driven by the growth in deposits, which funded investment purchases. During the first nine months of 2021, investment
purchases totaling $77.2 million and sales of $7.7 million were made. Also, during this period, 568 loans totaling $25.3 million were
funded in Round 2 of the PPP program. Cumulatively through September 30, 2021, $60.2 million of all PPP loans originated in both rounds
have received full or partial SBA forgiveness, of which $50.4 received forgiveness during the first nine months of 2021. Excluding the
net impact of $25.3 million PPP loan originations and $50.4 million of repayments, loan growth totaled $23.7 million during the first
nine months of 2021. This loan growth has resulted in an increase in commercial real estate and multi-family loans, which have been positively
impacted by our new Boone, NC, loan production office, which opened during the fourth quarter of 2020. These increases were offset primarily
by decreases in commercial loans, which declined $28.8 million, a result of PPP loan forgiveness. At September 30, 2021, approximately
$21.4 million in new loan originations were in the pipeline. Through November 8, 2021, approximately $16.0 million, of these loans have
closed. There were $109 thousand of loans held for sale at September 30, 2021.
Efforts to reduce
non-earning assets have resulted in the sale of three former branch office sites during the quarter, with two other sites sold or pending
sale since September 30, 2021, with closings expected during the fourth quarter. pending closing.
The increase in total
deposits was primarily driven by an increase of $35.9 million, or 16.4%, in noninterest-bearing demand deposits, a result of the federal
stimulus payments received by customers and PPP loan funds, which are typically deposited into a customer’s checking account. Also,
interest-bearing demand deposits increased $13.0 million, or 25.7%. Savings and money market accounts grew $34.2 million, or 22.7%. This
growth was partially reduced by a decrease of $27.8 million in retail time deposits. Although we have lowered deposit rates, we continue
to maintain core deposits through attractive consumer and commercial deposit products and strong ties with our customer base and communities.
Total borrowings
were reduced by $5 million as we repaid a maturing FHLB advance in June 2021. Trust preferred securities of $16.5 million at September
30, 2021 were unchanged compared to December 31, 2020.
Since December 31, 2020, total capital grew $4.7 million, as
year-to-date earnings added $5.1 million, while investment securities caused other comprehensive losses of $752 thousand. During the quarter,
our retained deficit has been mitigated and we now report retained earnings. Consequently, book value per share has increased to $2.61
at September 30, 2021 compared to $2.43 at December 31, 2020. The bank remains well capitalized per regulatory guidance.
Asset Quality
Nonperforming assets
include nonaccrual loans, other real estate owned (OREO) and loans past due more than 90 days which are still accruing interest. Our
policy is to place loans on nonaccrual status once they reach 90 days past due. The makeup of the nonaccrual loans is primarily those
secured by residential mortgages and commercial real estate. OREO is primarily made up of commercial and single-family residential properties,
plus four former branch office locations. At September 30, 2021, the former branch offices comprised $1.4 million of the OREO balance.
Nonperforming assets
decreased $3.4 million, or 38.7%, during the first nine months of 2021, driven by a decrease in non-accruing loans of $2.4 million and
a decrease in other real estate owned of $1.0 million. No accruing loans are more than 90 days past due. As a result, the ratio of nonperforming
assets to total assets decreased to 0.68% at September 30, 2021 compared to 1.17% at December 31, 2020.
Nonperforming assets
consisted of the following as of September 30, 2021, and December 31, 2020:
|
|
September 30,
2021
|
|
December 31,
2020
|
Nonaccrual loans
|
|
$
|
3,126
|
|
|
$
|
5,548
|
|
Loans past due more than 90 days, still accruing
|
|
|
—
|
|
|
|
—
|
|
Nonperforming loans
|
|
|
3,126
|
|
|
|
5,548
|
|
Other real estate owned
|
|
|
2,318
|
|
|
|
3,334
|
|
Nonperforming assets
|
|
$
|
5,444
|
|
|
$
|
8,882
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans/Total loans at period end
|
|
|
0.54
|
%
|
|
|
0.96
|
%
|
Nonperforming assets/Total assets at period end
|
|
|
0.68
|
%
|
|
|
1.17
|
%
|
All OREO properties
are available for sale by commercial and residential realtors under the direction of our Special Assets division. During the first nine
months of 2021, $566 thousand of OREO was acquired as a result of settlement of foreclosed loans and three former branch office locations
worth $950 thousand were transferred into OREO. Sales of OREO for the first nine months of 2021 totaled $2.1 million, resulting in a
net gain of $73 thousand. As part of our continuing effort to reduce OREO, we made valuation adjustments of $423 thousand during the
first nine months of 2021, based on updated property valuations. As we continue these efforts, additional losses could occur, while reducing
future carrying costs. Due to sales of foreclosed properties we no longer have any foreclosures generating rental income. Rental income
was $24 thousand for the first nine months of 2021 compared to $47 thousand for the first nine months of 2020.
We continue extensive
efforts to work through problem credits and liquidate foreclosed properties and other parcels of other real estate owned, to reduce the
level of nonperforming assets. These efforts include price adjustments and property auctions to expedite sales. Since September 30, 2021,
one of the former branch sites which was transferred to OREO is under a purchase agreement. We are mindful of the impact on earnings
and capital as we work to achieve this goal. However, we may recognize future losses on sales of OREO and reductions in the allowance
for loan losses as we expedite the resolution of these assets.
Loans rated substandard
or below totaled $3.1 million at September 30, 2021, a decrease of $2.3 million from $5.4 million at December 31, 2020. Total past due
loans decreased to $2.7 million at September 30, 2021 from $8.6 million at December 31, 2020.
Our allowance for
loan losses at September 30, 2021 was $6.7 million, or 1.16% of total loans (1.18% when excluding PPP loans) as compared to $7.2 million,
or 1.25% (1.33% when excluding PPP loans) of total loans at December 31, 2020. Impaired loans totaled $3.1 million with an estimated
related specific allowance of $193 thousand for potential losses at September 30, 2021 as compared to $5.1 million of impaired loans
with an estimated related allowance of $1.1 million at the end of 2020. A provision of $372 thousand was recorded for the first nine
months of 2021 compared to $2.0 million during the first nine months of 2020.
In the first nine months of 2021, net
charge-offs totaled $906 thousand, or 0.31% of average loans, annualized, as compared to $381 thousand, or 0.07%, of average loans for
the same period in 2020. Included in the net charge-offs are two loans to the same borrower, previously modified as TDRs, totaling $1.1
million that defaulted during the second quarter of 2021, resulting in charge-offs
totaling $835 thousand. The allowance for loan losses is maintained at a level that management deems appropriate to absorb any potential
future losses and known impairments within the loan portfolio, whether or not the losses are actually ever realized. Through our quarterly
assessment, we continue to adjust the allowance for loan loss model to best reflect the risks in the portfolio and the improvements made
in our internal policies and procedures; however, future provisions may be deemed necessary. During the first nine months of 2021, we
adjusted our external qualitative factors to reflect the improving economic trends, including positive employment and home sales statistics,
combined with the liquidity provided to customers through stimulus payments and forgiveness of PPP loans. Those changes along with the
assessment of the inherent and specific risks associated with the loan portfolio resulted in a provision to the allowance of $372 thousand
for the first nine months 2021. The following table summarizes components of the allowance for loan losses and the related loans as of
September 30, 2021 and December 31, 2020:
(Dollars in thousands)
|
|
September 30,
2021
|
|
December 31, 2020
|
Specific allowance
|
|
$
|
193
|
|
|
$
|
1,052
|
|
General allowance
|
|
|
6,464
|
|
|
|
6,139
|
|
Total allowance
|
|
$
|
6,657
|
|
|
$
|
7,191
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
3,133
|
|
|
$
|
5,082
|
|
Other loans
|
|
|
570,920
|
|
|
|
570,484
|
|
Total loans
|
|
$
|
574,053
|
|
|
$
|
575,566
|
|
|
|
|
|
|
|
|
|
|
Total allowance/Total loans
|
|
|
1.16
|
%
|
|
|
1.25
|
%
|
General allowance/Other loans
|
|
|
1.13
|
%
|
|
|
1.08
|
%
|
Deferred Tax Asset
and Income Taxes
Due to timing differences
between book and tax treatment of several income and expense items, a net deferred tax asset of $2.0 million and $3.1 million existed
at September 30, 2021 and December 31, 2020, respectively. Our income tax expense was computed at the corporate income tax rate of 21%
of taxable income. We have no significant nontaxable income or nondeductible expenses.
Capital Resources
Total stockholders’
equity at September 30, 2021, was $62.5 million compared to $58.2 million at December 31, 2020, an increase of $4.3 million. The increase
was due to net income of $5.1 million, which drove retained earnings into positive territory. Due to modest rate increases during September
2021, unrealized losses of $752 thousand, net of tax were recorded for the available-for-sale investment portfolio.
The Company meets
the eligibility criteria to be classified as a small bank holding company in accordance with the Federal Reserve’s Small Bank Holding
Company Policy Statement issued in February 2015 and is therefore not obligated to report consolidated regulatory capital. The Bank continues
to be subject to various capital requirements administered by banking agencies.
The Bank’s capital ratios along
with the minimum regulatory thresholds to be considered well-capitalized are presented in the following table:
|
|
Well-Capitalized Regulatory Threshold
|
|
September 30, 2021
|
|
December 31, 2020
|
Tier 1 leverage
|
|
|
5.00
|
%
|
|
|
9.53
|
%
|
|
|
9.49
|
%
|
Common equity Tier 1
|
|
|
6.50
|
%
|
|
|
15.11
|
%
|
|
|
15.16
|
%
|
Tier 1 risk-based capital
|
|
|
8.00
|
%
|
|
|
15.11
|
%
|
|
|
15.16
|
%
|
Total risk-based capital
|
|
|
10.00
|
%
|
|
|
16.37
|
%
|
|
|
16.41
|
%
|
At September 30 2021,
the Bank remains well capitalized under the regulatory framework for prompt corrective action. The ratios mentioned above for the Bank
comply with the Federal Reserve rules to align with the Basel III Capital requirements.
Book value was $2.61
per common share at September 30, 2021, and $2.43 per common share at December 31, 2020. Other key performance indicators are as follows:
|
Three
months ended September 30,
|
|
Nine
months ended September 30,
|
|
2021
|
2020
|
|
2021
|
2020
|
Return
on average assets1
|
0.91%
|
0.02%
|
|
0.85%
|
0.02%
|
Return
on average equity1
|
11.75%
|
0.21%
|
|
11.30%
|
0.27%
|
Average
equity to average assets
|
7.76%
|
7.32%
|
|
7.56%
|
7.50%
|
1
- Annualized
Based on current
economic conditions, we believe it is prudent to continue to maintain the Bank’s capital ratios at levels commensurate with the
Bank’s risk profile. With recent capital stress testing and projected growth, we believe our capital levels and liquidity will
be sufficient to support planned asset growth and any continued downturn in economic conditions. Those expectations could be impacted
if actual deterioration in economic conditions is more severe than the assumptions included in the stress testing. Accordingly, management
is working on various strategies for more efficient use of liquidity and to improve capital and stock performance, including continuation
of the operational assessments discussed earlier.
Cash dividends have
not been paid by the Company historically due to a retained deficit. Due to increased earnings, the retained deficit has been eliminated
this quarter and we now have retained earnings of $114 thousand. With the return to a retained earnings position, we may be able to consider
payment of a cash dividend in the future. The payment of cash dividends will depend on a number of factors including our ability to maintain
capital ratios at or above current levels with consideration of strategic plans and an acceptable risk profile.
Liquidity
Throughout the pandemic,
we elevated our monitoring of liquidity, including consideration of leveraging or selling illiquid assets, and deem liquidity adequate
to meet potential needs. Liquid assets include cash, due from banks, federal funds sold, and unpledged available for sale investments.
Collectively, those balances were $186.6 million at September 30, 2021, an increase from $134.0 million at December 31, 2020. Sufficient
short-term assets are maintained at levels management deems adequate to meet potential liquidity needs.
At September 30,
2021, all of our investment securities were classified as available-for-sale. These investments provide a source of liquidity in the
amount of $100.0 million, net of the $5.2 million of securities pledged as collateral. Investment securities available for sale serve
as a source of liquidity while yielding a higher return versus other short-term investment options, such as federal funds sold and overnight
deposits with the Federal Reserve Bank of Richmond.
Our loan to deposit
ratio was 80.5% at September 30, 2021 and 86.2% at December 31, 2020. We anticipate this ratio to remain at or below 90% for the foreseeable
future.
Available third-party
sources of liquidity to the Bank at September 30, 2021 include the following: a line of credit with the FHLB, access to brokered certificates
of deposit markets and the discount window at the Federal Reserve Bank of Richmond. We also have the ability to cumulatively borrow $20.0
million in unsecured federal funds credit facilities extended by three correspondent banks.
The Bank’s
total line of credit with the FHLB is $199.1 million, with unused availability at September 30, 2021, of $107.4 million. This line secures
letters of credit totaling $12.0 million. No advances were outstanding at September 30, 2021. Any borrowings, plus the letters of credit,
are secured by a blanket lien on our residential real estate loans which amounted to $119.4 million at September 30, 2021. While we do
not foresee a need to borrow funds up to the available capacity, should borrowings exceed the available pledged collateral, additional
collateral would need to be provided to FHLB.
The Bank also has
access to the brokered deposits market and the Certificate of Deposit Registry Service (CDARS). At September 30, 2021, we held no brokered
deposits and $7.0 million in CDARS reciprocal time deposits.
Additional liquidity
is available through the Federal Reserve Bank discount window for overnight funding needs. We may collateralize this line with investment
securities and loans at our discretion; however, we do not anticipate using this funding source except as a last resort.
With the on-balance
sheet liquidity and other external sources of funding, we believe the Bank has adequate liquidity and capital resources to meet our requirements
and needs for the foreseeable future. However, liquidity can be further affected by a number of factors, such as counterparty willingness
or ability to extend credit, regulatory actions and customer preferences, etc., some of which are beyond our control.
The bank holding
company has approximately $180 thousand in cash on deposit at the Bank at September 30, 2021. Additionally, $430 thousand in dividend
payments from the Bank have been received in the first nine months of 2020. These funds are used to pay operating expenses and trust
preferred interest payments. The Company makes quarterly interest payments on the trust preferred securities.
Off Balance Sheet Items and Contractual
Obligations
There have been no
material changes during the nine months ended September 30, 2021, to the off-balance sheet items and the contractual obligations disclosed
in our 2020 Form 10-K.