|
|
(334)
|
|
|
|
|
|
|
| |
|
|
|
|
| |
|
|
Class
I. PAGEItem 1Consolidated Balance Sheets (Unaudited) as of June 30, 2020 and December 31, 20193456Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 2020 and 201978Item 2Management’s Discussion and Analysis of Financial Condition and Results of Operations27474849505152Table 7 – Allowance for Loan Losses and Nonperforming Assets535455Item 356Item 456Item 156Item 1A56Item 260Item 360Item 460Item 560Item 660
June 30, December 31, (Dollars in thousands, except share data) 2020 2019 Assets: Cash and due from banks $ 24,518 $ 15,172 Federal funds sold 17,755 25,944 Interest-bearing bank deposits 95,562 51,327 Cash and cash equivalents 137,835 92,443 Securities available-for-sale 302,193 235,902 Loans held for sale 2,620 2,202 Loans, net of unearned income 464,274 460,901 Allowance for loan losses (5,308) (4,386) Loans, net 458,966 456,515 Premises and equipment, net 14,451 14,743 Bank-owned life insurance 19,014 19,202 Other assets 7,808 6,872 Total assets $ 942,887 $ 827,879 Liabilities: Deposits: Noninterest-bearing $ 247,429 $ 196,218 Interest-bearing 582,381 527,934 Total deposits 829,810 724,152 Federal funds purchased and securities sold under agreements to repurchase 1,995 1,069 Accrued expenses and other liabilities 5,783 4,330 Total liabilities 837,588 729,551 Stockholders' equity: Preferred stock of $.01 par value; authorized 200,000 shares; no shares issued — — Common stock of $.01 par value; authorized 8,500,000 shares; issued 3,957,135 shares 39 39 Additional paid-in capital 3,785 3,784 Retained earnings 103,444 101,801 Accumulated other comprehensive income, net 7,386 2,059 Less treasury stock, at cost - 390,959 shares and 390,989 at June 30, 2020 and December 31, 2019 , respectively (9,355) (9,355) Total stockholders’ equity 105,299 98,328 Total liabilities and stockholders’ equity $ 942,887 $ 827,879 See accompanying notes to consolidated financial statements (Unaudited)3
Quarter ended June 30, Six months ended June 30, (In thousands, except share and per share data) 2020 2019 2020 2019 Interest income: Loans, including fees $ 5,494 $ 5,763 $ 10,906 $ 11,490 Securities: Taxable 1,056 985 2,167 2,000 Tax-exempt 476 544 929 1,093 Federal funds sold and interest-bearing bank deposits 27 311 306 663 Total interest income 7,053 7,603 14,308 15,246 Interest expense: Deposits 981 1,004 2,022 2,025 Short-term borrowings 2 2 4 4 Total interest expense 983 1,006 2,026 2,029 Net interest income 6,070 6,597 12,282 13,217 Provision for loan losses 450 — 850 — Net interest income after provision for loan losses 5,620 6,597 11,432 13,217 Noninterest income: Service charges on deposit accounts 126 176 298 360 Mortgage lending 683 187 913 376 Bank-owned life insurance 108 107 506 217 Other 365 407 794 1,079 Securities gains, net 81 8 87 13 Total noninterest income 1,363 885 2,598 2,045 Noninterest expense: Salaries and benefits 2,597 2,799 5,428 5,737 Net occupancy and equipment 920 381 1,517 765 Professional fees 389 275 647 503 Other 1,053 1,174 2,223 2,235 Total noninterest expense 4,959 4,629 9,815 9,240 Earnings before income taxes 2,024 2,853 4,215 6,022 Income tax expense 363 546 753 1,172 Net earnings $ 1,661 $ 2,307 $ 3,462 $ 4,850 Net earnings per share: Basic and diluted $ 0.47 $ 0.64 $ 0.97 $ 1.35 Weighted average shares outstanding: Basic and diluted 3,566,166 3,577,409 3,566,156 3,595,972 See accompanying notes to consolidated financial statements (Unaudited) 2(Unaudited)
Quarter ended June 30, Six months ended June 30, (Dollars in thousands) 2020 2019 2020 2019 Net earnings $ 1,661 $ 2,307 $ 3,462 $ 4,850 Other comprehensive income, net of tax: Unrealized net holding gain on securities 1,043 2,057 5,392 4,453 Reclassification adjustment for net gain on securities recognized in net earnings (60) (6) (65) (10) Other comprehensive income 983 2,051 5,327 4,443 Comprehensive income $ 2,644 $ 4,358 $ 8,789 $ 9,293 See accompanying notes to consolidated financial statements (Unaudited)5
Accumulated Common Additional other Shares Common paid-in Retained comprehensive Treasury (Dollars in thousands, except share data) Outstanding Stock capital earnings income (loss) stock Total Quarter ended June 30, 2020 Balance, March 31, 2020 3,566,146 $ 39 $ 3,784 $ 102,692 $ 6,403 $ (9,355) $ 103,563 Net earnings — — — 1,661 — — 1,661 Other comprehensive income — — — — 983 — 983 Cash dividends paid ($.255 per share) — — — (909) — — (909) Sale of treasury stock 30 — 1 — — — 1 Balance, June 30, 2020 3,566,176 $ 39 $ 3,785 $ 103,444 $ 7,386 $ (9,355) $ 105,299 Quarter ended June 30, 2019 Balance, March 31, 2019 3,581,485 $ 39 $ 3,783 $ 97,280 $ (1,371) $ (8,782) $ 90,949 Net earnings — — — 2,307 — — 2,307 Other comprehensive income — — — — 2,051 — 2,051 Cash dividends paid ($.25 per share) — — — (893) — — (893) Stock repurchases (9,687) — — — — (350) (350) Sale of treasury stock 30 — — — — 1 1 Balance, June 30, 2019 3,571,828 $ 39 $ 3,783 $ 98,694 $ 680 $ (9,131) $ 94,065 Six months ended June 30, 2020 Balance, December 31, 2019 3,566,146 $ 39 $ 3,784 $ 101,801 $ 2,059 $ (9,355) $ 98,328 Net earnings — — — 3,462 — — 3,462 Other comprehensive income — — — — 5,327 — 5,327 Cash dividends paid ($.51 per share) — — — (1,819) — — (1,819) Sale of treasury stock 30 — 1 — — — 1 Balance, June 30, 2020 3,566,176 $ 39 $ 3,785 $ 103,444 $ 7,386 $ (9,355) $ 105,299 Six months ended June 30, 2019 Balance, December 31, 2018 3,643,868 $ 39 $ 3,779 $ 95,635 $ (3,763) $ (6,635) $ 89,055 Net earnings — — — 4,850 — — 4,850 Other comprehensive income — — — — 4,443 — 4,443 Cash dividends paid ($.50 per share) — — — (1,791) — — (1,791) Stock repurchases (72,205) — — — — (2,497) (2,497) Sale of treasury stock 165 — 4 — — 1 5 Balance, June 30, 2019 3,571,828 $ 39 $ 3,783 $ 98,694 $ 680 $ (9,131) $ 94,065 See accompanying notes to consolidated financial statements (Unaudited)6
Six months ended June 30, (In thousands) 2020 2019 Cash flows from operating activities: Net earnings $ 3,462 $ 4,850 Adjustments to reconcile net earnings to net cash provided by operating activities: Provision for loan losses 850 — Depreciation and amortization 989 448 Premium amortization and discount accretion, net 1,081 886 Net gain on securities available-for-sale (87) (13) Net gain on sale of loans held for sale (847) (188) Net gain on other real estate owned (17) — Loans originated for sale (36,385) (11,312) Proceeds from sale of loans 36,576 9,786 Increase in cash surrender value of bank-owned life insurance (224) (217) Income recognized from death benefit on bank-owned life insurance (282) — Net increase in other assets (1,014) (900) Net (decrease) increase in accrued expenses and other liabilities (334) 983 Net cash provided by operating activities 3,768 4,323 Cash flows from investing activities: Proceeds from sales of securities available-for-sale 9,062 7,662 Proceeds from prepayments and maturities of securities available-for-sale 22,085 22,222 Purchase of securities available-for-sale (91,318) (33,839) (Increase) decrease in loans, net (3,400) 826 Net purchases of premises and equipment (372) (1,459) Proceeds from bank-owned life insurance death benefit 694 — (Increase) decrease in FHLB stock (9) 32 Proceeds from sale of other real estate owned 116 — Net cash used in investing activities (63,142) (4,556) Cash flows from financing activities: Net increase in noninterest-bearing deposits 51,211 5,223 Net increase in interest-bearing deposits 54,447 11,085 Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase 926 (1,200) Proceeds from sale of treasury stock 1 5 Stock repurchases — (2,497) Dividends paid (1,819) (1,791) Net cash provided by financing activities 104,766 10,825 Net change in cash and cash equivalents 45,392 10,592 Cash and cash equivalents at beginning of period 92,443 65,076 Cash and cash equivalents at end of period $ 137,835 $ 75,668 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 2,023 $ 2,029 Income taxes 678 1,499 Supplemental disclosure of non-cash transactions: Initial recognition of operating lease right of use assets — 891 Initial recognition of operating lease liabilities — 889 Real estate acquired through foreclosure 99 82 See accompanying notes to consolidated financial statements (Unaudited)7
2020. (the2019.8
Reclassifications
Certain amounts reported in the prior period have been reclassified to conform to the current-period presentation. These reclassifications had no impact on the Company’s previously reported net earnings or total stockholders’ equity.
ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement; and
ASU 2018-15, Intangibles – Goodwill and Other – Internal Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract.
Information about these pronouncements is described in more detail below.
ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, improves the disclosure requirements on fair value measurements by eliminating the requirements to disclose (i) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; (ii) the policy for timing of transfers between levels; and (iii) the valuation processes for Level 3 fair value measurements. This ASU also added specific disclosure requirements for fair value measurements for public entities including the requirement to disclose the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.
The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2019, and all interim periods within those fiscal years. Early adoption was permitted upon issuance of the ASU. Entities are permitted to early adopt amendments that remove or modify disclosures and delay the adoption of the additional disclosures until their effective date. The Company adopted this ASU on January 1, 2020. Adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
ASU 2018- 15, Intangibles – Goodwill and Other – Internal Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include internal-use software license). This ASU requires entities to use the guidance in FASB ASC 350-40, Intangibles - Goodwill and Other - Internal Use Software, to determine whether to capitalize or expense implementation costs related to the service contract. This ASU also requires entities to (i) expense capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement; (ii) present the expense related to the capitalized implementation costs in the same line item on the income statement as fees associated with the hosting element of the arrangement; (iii) classify payments for capitalized implementation costs in the statement of cash flows in the same manner as payments made for fees associated with the hosting element; and (iv) present the capitalized implementation costs in the same balance sheet line item that a prepayment for the fees associated with the hosting arrangement would be presented.
The amendments in this ASU are effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption was permitted. The Company adopted this ASU on January 1, 2020. Adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
9
|
|
|
|
| Quarter ended June 30, |
|
| Six months ended June 30, | ||||||
(In thousands, except share and per share data) |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 | ||
Basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
| ||
| Net earnings |
| $ | 1,661 |
| $ | 2,307 |
| $ | 3,462 |
| $ | 4,850 | |
| Weighted average common shares outstanding |
|
| 3,566,166 |
|
| 3,577,409 |
|
| 3,566,156 |
|
| 3,595,972 | |
|
| Net earnings per share |
| $ | 0.47 |
| $ | 0.64 |
| $ | 0.97 |
| $ | 1.35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
below
|
|
| 1 year | 1 to 5 | 5 to 10 | After 10 | Fair |
| Gross Unrealized |
| Amortized | ||
(Dollars in thousands) |
| or less | years | years | years | Value |
| Gains | Losses |
| Cost | ||
June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
| |
Agency obligations (a) | $ | 5,027 | 30,232 | 40,209 | 5,340 | 80,808 |
| 3,210 | — |
| $ | 77,598 | |
Agency RMBS (a) |
| — | 1,461 | 9,001 | 144,144 | 154,606 |
| 3,488 | 163 |
|
| 151,281 | |
State and political subdivisions |
| 97 | 1,168 | 6,581 | 58,933 | 66,779 |
| 3,337 | 10 |
|
| 63,452 | |
| Total available-for-sale | $ | 5,124 | 32,861 | 55,791 | 208,417 | 302,193 |
| 10,035 | 173 |
| $ | 292,331 |
December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
| ||
Agency obligations (a) | $ | 4,993 | 27,245 | 18,470 | — | 50,708 |
| 215 | 98 |
| $ | 50,591 | |
Agency RMBS (a) |
| — | 560 | 4,510 | 118,207 | 123,277 |
| 798 | 261 |
|
| 122,740 | |
State and political subdivisions |
| — | 1,355 | 6,166 | 54,396 | 61,917 |
| 2,104 | 9 |
|
| 59,822 | |
| Total available-for-sale | $ | 4,993 | 29,160 | 29,146 | 172,603 | 235,902 |
| 3,117 | 368 |
| $ | 233,153 |
(a) Includes securities issued by U.S. government agencies or government-sponsored entities. | |||||||||||||
10
|
|
|
| Less than 12 Months |
|
| 12 Months or Longer |
|
| Total | |||||||||
|
|
|
| Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
(Dollars in thousands) |
| Value |
|
| Losses |
|
| Value |
|
| Losses |
|
| Value |
|
| Losses | ||
June 30, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Agency obligations | $ | 28,480 |
|
| 163 |
|
| — |
|
| — |
| $ | 28,480 |
|
| 163 | ||
State and political subdivisions |
| 1,337 |
|
| 10 |
|
| — |
|
| — |
|
| 1,337 |
|
| 10 | ||
|
| Total | $ | 29,817 |
|
| 173 |
|
| — |
|
| — |
| $ | 29,817 |
|
| 173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Agency obligations | $ | 24,734 |
|
| 97 |
|
| 4,993 |
|
| 1 |
| $ | 29,727 |
|
| 98 | ||
Agency RMBS |
| 40,126 |
|
| 98 |
|
| 21,477 |
|
| 163 |
|
| 61,603 |
|
| 261 | ||
State and political subdivisions |
| 2,741 |
|
| 9 |
|
| — |
|
| — |
|
| 2,741 |
|
| 9 | ||
|
| Total | $ | 67,601 |
|
| 204 |
|
| 26,470 |
|
| 164 |
| $ | 94,071 |
|
| 368 |
mortgage-backed securities (“MBS”)
11
Securities of U.S. states and political subdivisions
Realized Gains and Losses | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the gross realized gains and losses on sales of securities. |
|
| ||||||||||||
| ||||||||||||||
|
|
|
|
| Quarter ended June 30, |
|
| Six months ended June 30, | ||||||
(Dollars in thousands) |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 | ||
Gross realized gains |
| $ | 100 |
|
| 27 |
| $ | 106 |
|
| 32 | ||
Gross realized losses |
|
| (19) |
|
| (19) |
|
| (19) |
|
| (19) | ||
| Realized gains, net |
| $ | 81 |
|
| 8 |
| $ | 87 |
|
| 13 | |
Losses
|
|
|
|
|
|
| June 30, |
|
| December 31, |
(In thousands) |
|
| 2020 |
|
| 2019 | ||||
Commercial and industrial |
| $ | 87,754 |
| $ | 56,782 | ||||
Construction and land development |
|
| 32,967 |
|
| 32,841 | ||||
Commercial real estate: |
|
|
|
|
|
| ||||
| Owner occupied |
|
| 50,036 |
|
| 48,860 | |||
| Hotel/motel |
|
| 43,183 |
|
| 43,719 | |||
| Multi-family |
|
| 31,974 |
|
| 44,839 | |||
| Other |
|
| 125,395 |
|
| 132,900 | |||
|
| Total commercial real estate |
|
| 250,588 |
|
| 270,318 | ||
Residential real estate: |
|
|
|
|
|
| ||||
| Consumer mortgage |
|
| 40,967 |
|
| 48,923 | |||
| Investment property |
|
| 44,858 |
|
| 43,652 | |||
|
| Total residential real estate |
|
| 85,825 |
|
| 92,575 | ||
Consumer installment |
|
| 8,631 |
|
| 8,866 | ||||
|
| Total loans |
|
| 465,765 |
|
| 461,382 | ||
Less: unearned income |
|
| (1,491) |
|
| (481) | ||||
|
| Loans, net of unearned income |
| $ | 464,274 |
| $ | 460,901 | ||
12
In accordance with ASC 310, a portfolio segment is defined as the levelat which an entity develops and documents a
Construction and land development (“C&D”) — includes both loans and credit lines for the purpose of purchasing, carrying, and developing land into commercial developments or residential subdivisions. Also included are loans and credit lines for construction of residential, multi-family, and commercial buildings. Generally, the primary source of repayment is dependent upon the sale or refinance of the real estate collateral.
Commercial real estate (“CRE”) — includes loans disaggregated into three classes: (1) owner occupied, (2) multifamily and (3) other.
Owner occupied – includes loans secured by business facilities to finance business operations, equipment and owner-occupied facilities primarily for small and medium-sized commercial customers. Generally, the primary source of repayment is the cash flow from business operations and activities of the borrower, who owns the
Other – primarily includes loans to finance income-producing commercial properties that are not owner occupied. Loans in this class include loans for neighborhood retail centers, medical and professional offices, single retail stores, industrial buildings, and warehouses leased to local businesses. Generally, the primary source of repayment is dependent upon income generated from the real estate collateral. The underwriting of these loans takes into consideration the occupancy and rental rates, as well as the financial health of the borrower.
13
|
|
|
|
|
|
|
|
| Accruing | Accruing | Total |
|
|
|
|
|
|
|
|
|
|
|
|
| 30-89 Days | Greater than | Accruing | Non- |
|
| Total |
(In thousands) |
| Current | Past Due | 90 days | Loans | Accrual |
|
| Loans | ||||||
June 30, 2020: |
|
|
|
|
|
|
|
|
|
| |||||
Commercial and industrial |
| $ | 87,671 | 83 | — | 87,754 | — |
| $ | 87,754 | |||||
Construction and land development |
|
| 32,967 | — | — | 32,967 | — |
|
| 32,967 | |||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
| |||||
| Owner occupied |
|
| 49,958 | 78 | — | 50,036 | — |
|
| 50,036 | ||||
| Hotel/motel |
|
| 43,183 | — | — | 43,183 | — |
|
| 43,183 | ||||
| Multi-family |
|
| 31,974 | — | — | 31,974 | — |
|
| 31,974 | ||||
| Other |
|
| 125,087 | 90 | — | 125,177 | 218 |
|
| 125,395 | ||||
|
| Total commercial real estate |
|
| 250,202 | 168 | — | 250,370 | 218 |
|
| 250,588 | |||
Residential real estate: |
|
|
|
|
|
|
|
|
|
| |||||
| Consumer mortgage |
|
| 40,189 | 430 | — | 40,619 | 348 |
|
| 40,967 | ||||
| Investment property |
|
| 44,557 | 190 | — | 44,747 | 111 |
|
| 44,858 | ||||
|
| Total residential real estate |
|
| 84,746 | 620 | — | 85,366 | 459 |
|
| 85,825 | |||
Consumer installment |
|
| 8,573 | 8 | 49 | 8,630 | 1 |
|
| 8,631 | |||||
|
| Total |
| $ | 464,159 | 879 | 49 | 465,087 | 678 |
| $ | 465,765 | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019: |
|
|
|
|
|
|
|
|
|
| |||||
Commercial and industrial |
| $ | 56,758 | 24 | — | 56,782 | — |
| $ | 56,782 | |||||
Construction and land development |
|
| 32,385 | 456 | — | 32,841 | — |
|
| 32,841 | |||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
| |||||
| Owner occupied |
|
| 48,860 | — | — | 48,860 | — |
|
| 48,860 | ||||
| Hotel/motel |
|
| 43,719 | — | — | 43,719 | — |
|
| 43,719 | ||||
| Multi-family |
|
| 44,839 | — | — | 44,839 | — |
|
| 44,839 | ||||
| Other |
|
| 132,900 | — | — | 132,900 | — |
|
| 132,900 | ||||
|
| Total commercial real estate |
|
| 270,318 | — | — | 270,318 | — |
|
| 270,318 | |||
Residential real estate: |
|
|
|
|
|
|
|
|
|
| |||||
| Consumer mortgage |
|
| 47,151 | 1,585 | — | 48,736 | 187 |
|
| 48,923 | ||||
| Investment property |
|
| 43,629 | 23 | — | 43,652 | — |
|
| 43,652 | ||||
|
| Total residential real estate |
|
| 90,780 | 1,608 | — | 92,388 | 187 |
|
| 92,575 | |||
Consumer installment |
|
| 8,802 | 64 | — | 8,866 | — |
|
| 8,866 | |||||
|
| Total |
| $ | 459,043 | 2,152 | — | 461,195 | 187 |
| $ | 461,382 | |||
2020.
14
charged-off.
15
|
|
| June 30, 2020 | ||||||||||||
(In thousands) | Commercial and industrial |
| Construction and land development |
| Commercial real estate |
| Residential real estate |
| Consumer installment |
|
|
| Total | ||
Quarter ended: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Beginning balance | $ | 675 |
| 582 |
| 2,596 |
| 877 |
| 137 |
|
| $ | 4,867 | |
Charge-offs |
| (4) |
| — |
| — |
| — |
| (27) |
|
|
| (31) | |
Recoveries |
| 2 |
| — |
| — |
| 14 |
| 6 |
|
|
| 22 | |
| Net (charge-offs) recoveries |
| (2) |
| — |
| — |
| 14 |
| (21) |
|
|
| (9) |
Provision for loan losses |
| 6 |
| 31 |
| 319 |
| 63 |
| 31 |
|
|
| 450 | |
Ending balance | $ | 679 |
| 613 |
| 2,915 |
| 954 |
| 147 |
|
| $ | 5,308 | |
Six months ended: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Beginning balance | $ | 577 |
| 569 |
| 2,289 |
| 813 |
| 138 |
|
| $ | 4,386 | |
Charge-offs |
| (4) |
| — |
| — |
| — |
| (32) |
|
|
| (36) | |
Recoveries |
| 55 |
| — |
| — |
| 45 |
| 8 |
|
|
| 108 | |
| Net recoveries (charge-offs) |
| 51 |
| — |
| — |
| 45 |
| (24) |
|
|
| 72 |
Provision for loan losses |
| 51 |
| 44 |
| 626 |
| 96 |
| 33 |
|
|
| 850 | |
Ending balance | $ | 679 |
| 613 |
| 2,915 |
| 954 |
| 147 |
|
| $ | 5,308 | |
|
|
| June 30, 2019 | ||||||||||||
(In thousands) | Commercial and industrial |
| Construction and land development |
| Commercial real estate |
| Residential real estate |
| Consumer installment |
|
|
| Total | ||
Quarter ended: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Beginning balance | $ | 686 |
| 773 |
| 2,251 |
| 930 |
| 168 |
|
| $ | 4,808 | |
Charge-offs |
| — |
| — |
| — |
| — |
| (1) |
|
|
| (1) | |
Recoveries |
| 6 |
| — |
| 1 |
| 33 |
| 4 |
|
|
| 44 | |
| Net recoveries (charge-offs) |
| 6 |
| — |
| 1 |
| 33 |
| 3 |
|
|
| 43 |
Provision for loan losses |
| 34 |
| 8 |
| 35 |
| (59) |
| (18) |
|
|
| — | |
Ending balance | $ | 726 |
| 781 |
| 2,287 |
| 904 |
| 153 |
|
| $ | 4,851 | |
Six months ended: |
|
|
|
|
|
|
|
|
|
|
|
| |||
Beginning balance | $ | 778 |
| 700 |
| 2,218 |
| 946 |
| 148 |
|
| $ | 4,790 | |
Charge-offs |
| — |
| — |
| — |
| — |
| (16) |
|
|
| (16) | |
Recoveries |
| 24 |
| — |
| 1 |
| 47 |
| 5 |
|
|
| 77 | |
| Net recoveries (charge-offs) |
| 24 |
| — |
| 1 |
| 47 |
| (11) |
|
|
| 61 |
Provision for loan losses |
| (76) |
| 81 |
| 68 |
| (89) |
| 16 |
|
|
| — | |
Ending balance | $ | 726 |
| 781 |
| 2,287 |
| 904 |
| 153 |
|
| $ | 4,851 | |
16
|
|
|
|
|
|
| Collectively evaluated (1) |
| Individually evaluated (2) |
| Total | |||
|
|
|
|
|
|
| Allowance | Recorded |
| Allowance | Recorded |
| Allowance | Recorded |
|
|
|
|
|
|
| for loan | investment |
| for loan | investment |
| for loan | investment |
(In thousands) |
| losses | in loans |
| losses | in loans |
| losses | in loans | |||||
June 30, 2020: |
|
|
|
|
|
|
|
|
| |||||
Commercial and industrial | $ | 679 | 87,754 |
| — | — |
| 679 | 87,754 | |||||
Construction and land development |
| 613 | 32,967 |
| — | — |
| 613 | 32,967 | |||||
Commercial real estate |
| 2,915 | 250,370 |
| — | 218 |
| 2,915 | 250,588 | |||||
Residential real estate |
| 954 | 85,714 |
| — | 111 |
| 954 | 85,825 | |||||
Consumer installment |
| 147 | 8,631 |
| — | — |
| 147 | 8,631 | |||||
|
| Total | $ | 5,308 | 465,436 |
| — | 329 |
| 5,308 | 465,765 | |||
June 30, 2019: |
|
|
|
|
|
|
|
|
| |||||
Commercial and industrial | $ | 726 | 54,307 |
| — | — |
| 726 | 54,307 | |||||
Construction and land development |
| 781 | 45,395 |
| — | — |
| 781 | 45,395 | |||||
Commercial real estate |
| 2,287 | 268,500 |
| — | — |
| 2,287 | 268,500 | |||||
Residential real estate |
| 904 | 99,292 |
| — | — |
| 904 | 99,292 | |||||
Consumer installment |
| 153 | 9,091 |
| — | — |
| 153 | 9,091 | |||||
|
| Total | $ | 4,851 | 476,585 |
| — | — |
| 4,851 | 476,585 | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Represents loans collectively evaluated for impairment in accordance with ASC 450-20, Loss Contingencies, and | |||||||||||||
| pursuant to amendments by ASU 2010-20 regarding allowance for non-impaired loans. | |||||||||||||
(2) | Represents loans individually evaluated for impairment in accordance with ASC 310-30, Receivables, and | |||||||||||||
| pursuant to amendments by ASU 2010-20 regarding allowance for impaired loans. | |||||||||||||
2020.
17
(In thousands) |
| Pass |
| Special Mention |
| Substandard Accruing |
| Nonaccrual |
|
| Total loans | ||
June 30, 2020: |
|
|
|
|
|
|
|
|
|
|
| ||
Commercial and industrial | $ | 85,347 |
| 2,196 |
| 211 |
| — |
| $ | 87,754 | ||
Construction and land development |
| 32,399 |
| — |
| 568 |
| — |
|
| 32,967 | ||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
| ||
| Owner occupied |
| 48,988 |
| 902 |
| 146 |
| — |
|
| 50,036 | |
| Hotel/motel |
| 43,183 |
| — |
| — |
| — |
|
| 43,183 | |
| Multi-family |
| 28,444 |
| 3,530 |
| — |
| — |
|
| 31,974 | |
| Other |
| 124,285 |
| 873 |
| 19 |
| 218 |
|
| 125,395 | |
|
| Total commercial real estate |
| 244,900 |
| 5,305 |
| 165 |
| 218 |
|
| 250,588 |
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
| ||
| Consumer mortgage |
| 37,453 |
| 739 |
| 2,427 |
| 348 |
|
| 40,967 | |
| Investment property |
| 43,991 |
| 538 |
| 218 |
| 111 |
|
| 44,858 | |
|
| Total residential real estate |
| 81,444 |
| 1,277 |
| 2,645 |
| 459 |
|
| 85,825 |
Consumer installment |
| 8,520 |
| 55 |
| 55 |
| 1 |
|
| 8,631 | ||
|
| Total | $ | 452,610 |
| 8,833 |
| 3,644 |
| 678 |
| $ | 465,765 |
December 31, 2019: |
|
|
|
|
|
|
|
|
|
|
| ||
Commercial and industrial | $ | 54,340 |
| 2,176 |
| 266 |
| — |
| $ | 56,782 | ||
Construction and land development |
| 31,798 |
| — |
| 1,043 |
| — |
|
| 32,841 | ||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
| ||
| Owner occupied |
| 47,865 |
| 917 |
| 78 |
| — |
|
| 48,860 | |
| Hotel/motel |
| 43,719 |
| — |
| — |
| — |
|
| 43,719 | |
| Multi-family |
| 44,839 |
| — |
| — |
| — |
|
| 44,839 | |
| Other |
| 132,030 |
| 849 |
| 21 |
| — |
|
| 132,900 | |
|
| Total commercial real estate |
| 268,453 |
| 1,766 |
| 99 |
| — |
|
| 270,318 |
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
| ||
| Consumer mortgage |
| 45,247 |
| 962 |
| 2,527 |
| 187 |
|
| 48,923 | |
| Investment property |
| 42,331 |
| 949 |
| 372 |
| — |
|
| 43,652 | |
|
| Total residential real estate |
| 87,578 |
| 1,911 |
| 2,899 |
| 187 |
|
| 92,575 |
Consumer installment |
| 8,742 |
| 60 |
| 64 |
| — |
|
| 8,866 | ||
|
| Total | $ | 450,911 |
| 5,913 |
| 4,371 |
| 187 |
| $ | 461,382 |
2020.
18
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, 2020 | |||||
(In thousands) |
| Unpaid principal balance (1) | Charge-offs and payments applied (2) | Recorded investment (3) |
|
| Related allowance | |||||
With no allowance recorded: | ||||||||||||
Commercial real estate: |
|
|
|
|
|
|
| |||||
| Other | $ | 218 | — | 218 |
| $ | — | ||||
|
| Total commercial real estate |
| 218 | — | 218 |
|
| — | |||
Residential real estate: |
|
|
|
|
|
|
| |||||
| Investment property |
| 111 | — | 111 |
|
| — | ||||
|
| Total residential real estate |
| 111 | — | 111 |
|
| — | |||
|
| Total impaired loans | $ | 329 | — | 329 |
| $ | — | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Unpaid principal balance represents the contractual obligation due from the customer. | ||||||||||||
(2) Charge-offs and payments applied represents cumulative charge-offs taken, as well as interest payments that have been | ||||||||||||
| applied against the outstanding principal balance subsequent to the loans being placed on nonaccrual status. | |||||||||||
(3) Recorded investment represents the unpaid principal balance less charge-offs and payments applied; it is shown before | ||||||||||||
| any related allowance for loan losses. | |||||||||||
|
|
|
|
|
|
| December 31, 2019 | |||||
(In thousands) |
| Unpaid principal balance (1) | Charge-offs and payments applied (2) | Recorded investment (3) |
|
| Related allowance | |||||
With no allowance recorded: | ||||||||||||
Commercial and industrial | $ | 335 | (236) | 99 |
| $ | — | |||||
|
| Total impaired loans | $ | 335 | (236) | 99 |
| $ | — | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Unpaid principal balance represents the contractual obligation due from the customer. | ||||||||||||
(2) Charge-offs and payments applied represents cumulative charge-offs taken, as well as interest payments that have been | ||||||||||||
| applied against the outstanding principal balance subsequent to the loans being placed on nonaccrual status. | |||||||||||
(3) Recorded investment represents the unpaid principal balance less charge-offs and payments applied; it is shown before | ||||||||||||
| any related allowance for loan losses. | |||||||||||
|
|
|
|
|
|
| Quarter ended June 30, 2020 |
| Six months ended June 30, 2020 | ||||
|
|
|
|
|
|
| Average |
| Total interest |
| Average |
| Total interest |
|
|
|
|
|
|
| recorded |
| income |
| recorded |
| income |
(In thousands) |
| investment |
| recognized |
| investment |
| recognized | |||||
Impaired loans: | |||||||||||||
Commercial real estate: |
|
|
|
|
|
|
|
| |||||
| Other | $ | 54 |
| — |
| 31 |
| — | ||||
|
| Total commercial real estate |
| 54 |
| — |
| 31 |
| — | |||
Residential real estate: |
|
|
|
|
|
|
|
| |||||
| Investment property |
| 28 |
| — |
| 16 |
| — | ||||
|
| Total residential real estate |
| 28 |
| — |
| 16 |
| — | |||
|
| Total | $ | 82 |
| — |
| 47 |
| — | |||
19
|
|
|
|
|
|
| Quarter ended June 30, 2019 |
| Six months ended June 30, 2019 | ||||
|
|
|
|
|
|
| Average |
| Total interest |
| Average |
| Total interest |
|
|
|
|
|
|
| recorded |
| income |
| recorded |
| income |
(In thousands) |
| investment |
| recognized |
| investment |
| recognized | |||||
Impaired loans: | |||||||||||||
Commercial real estate: |
|
|
|
|
|
|
|
| |||||
| Owner occupied | $ | — |
| — |
| 45 |
| 9 | ||||
|
| Total commercial real estate |
| — |
| — |
| 45 |
| 9 | |||
|
| Total | $ | — |
| — |
| 45 |
| 9 | |||
The Company had no TDRs as
20
|
|
|
|
|
|
| TDRs | |||||
|
|
|
|
|
|
|
|
|
|
|
| Related |
(In thousands) |
| Accruing | Nonaccrual | Total |
|
| Allowance | |||||
June 30, 2020 |
|
|
|
|
|
|
| |||||
Commercial real estate: |
|
|
|
|
|
|
| |||||
| Other | $ | — | 218 | 218 |
| $ | — | ||||
|
| Total commercial real estate |
| — | 218 | 218 |
|
| — | |||
Residential real estate: |
|
|
|
|
|
|
| |||||
| Investment property |
| — | 111 | 111 |
|
| — | ||||
|
| Total residential real estate |
| — | 111 | 111 |
|
| — | |||
|
| Total | $ | — | 329 | 329 |
| $ | — | |||
During the quartersended March 31, 2021 and 2020, respectively,there were no loans modified in a TDR within the
|
| Quarter ended June 30, |
|
| Six months ended June 30, | ||||||
(Dollars in thousands) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
MSRs, net: |
|
|
|
|
|
|
|
|
|
|
|
Beginning balance | $ | 1,249 |
| $ | 1,410 |
| $ | 1,299 |
| $ | 1,441 |
Additions, net |
| 188 |
|
| 39 |
|
| 237 |
|
| 80 |
Amortization expense |
| (166) |
|
| (94) |
|
| (265) |
|
| (166) |
Ending balance | $ | 1,271 |
| $ | 1,355 |
| $ | 1,271 |
| $ | 1,355 |
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance included in MSRs, net: |
|
|
|
|
| ||||||
Beginning of period | $ | — |
| $ | — |
| $ | — |
| $ | — |
End of period |
| — |
|
| — |
|
| — |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of amortized MSRs: |
|
|
|
|
|
|
|
|
|
|
|
Beginning of period | $ | 1,917 |
| $ | 2,591 |
| $ | 2,111 |
| $ | 2,697 |
End of period |
| 1,690 |
|
| 2,333 |
|
| 1,690 |
|
| 2,333 |
quarters ended March 31, 2021 and 2020are
21
period
$
22
|
|
|
|
|
| Quoted Prices in |
| Significant |
|
|
|
|
|
|
|
| Active Markets |
| Other |
| Significant |
|
|
|
|
|
| for |
| Observable |
| Unobservable |
|
|
|
|
|
| Identical Assets |
| Inputs |
| Inputs |
(Dollars in thousands) |
| Amount |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||
June 30, 2020: |
|
|
|
|
|
|
|
| ||
Securities available-for-sale: |
|
|
|
|
|
|
|
| ||
| Agency obligations | $ | 80,808 |
| — |
| 80,808 |
| — | |
| Agency RMBS |
| 154,606 |
| — |
| 154,606 |
| — | |
| State and political subdivisions |
| 66,779 |
| — |
| 66,779 |
| — | |
Total securities available-for-sale |
| 302,193 |
| — |
| 302,193 |
| — | ||
|
| Total assets at fair value | $ | 302,193 |
| — |
| 302,193 |
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019: |
|
|
|
|
|
|
|
| ||
Securities available-for-sale: |
|
|
|
|
|
|
|
| ||
| Agency obligations | $ | 50,708 |
| — |
| 50,708 |
| — | |
| Agency RMBS |
| 123,277 |
| — |
| 123,277 |
| — | |
| State and political subdivisions |
| 61,917 |
| — |
| 61,917 |
| — | |
Total securities available-for-sale |
| 235,902 |
| — |
| 235,902 |
| — | ||
|
| Total assets at fair value | $ | 235,902 |
| — |
| 235,902 |
| — |
23
Other real estate owned
Other real estate owned (“OREO”), consisting of properties obtained through foreclosure or in satisfaction of loans, are initially recorded at the lower of the loan’s carrying amount or the fair value of collateral less costs to sell upon transfer of the loans to other real estate. Subsequently, OREO is carried at the lower of carrying value or fair value less costs to sell. Fair values are generally based on third party appraisals of the property and are classified within Level 3 of the fair value hierarchy. The appraisals are sometimes further discounted based on management’s historical knowledge, and/or changes in market conditions from the date of the most recent appraisal, and/or management’s expertise and knowledge of the customer and the customer’s business. Such discounts are typically significant unobservable inputs for determining fair value. In cases where the carrying amount exceeds the fair value, less costs to sell, a loss is recognized in noninterest expense.
Mortgage servicing rights, net
|
|
|
|
| Quoted Prices in |
|
|
|
|
|
|
|
|
| Active Markets |
| Other |
| Significant |
|
|
|
|
| for |
| Observable |
| Unobservable |
|
|
| Carrying |
| Identical Assets |
| Inputs |
| Inputs |
(Dollars in thousands) |
| Amount |
| (Level 1) |
| (Level 2) |
| (Level 3) | |
June 30, 2020: |
|
|
|
|
|
|
|
| |
Loans held for sale | $ | 2,620 |
| — |
| 2,620 |
| — | |
Loans, net(1) |
| 329 |
| — |
| — |
| 329 | |
Other assets (2) |
| 1,271 |
| — |
| — |
| 1,271 | |
| Total assets at fair value | $ | 4,220 |
| — |
| 2,620 |
| 1,600 |
December 31, 2019: |
|
|
|
|
|
|
|
| |
Loans held for sale | $ | 2,202 |
| — |
| 2,202 |
| — | |
Loans, net(1) |
| 99 |
| — |
| — |
| 99 | |
Other assets (2) |
| 1,299 |
| — |
| — |
| 1,299 | |
| Total assets at fair value | $ | 3,600 |
| — |
| 2,202 |
| 1,398 |
(1)Loans considered impaired under ASC 310-10-35 Receivables. This amount reflects the recorded investment in impaired loans, net | |||||||||
of any related allowance for loan losses | |||||||||
(2)Represents MSRs, net and other real estate owned, both of which are carried at lower of cost or estimated fair value. | |||||||||
below
24
Input
|
|
|
|
|
|
|
|
|
|
|
| Weighted | |||
|
| Carrying |
| Significant |
|
|
|
|
|
| Average | ||||
(Dollars in thousands) |
| Amount | Valuation Technique | Unobservable Input |
| Range |
| of Input | |||||||
June 30, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Impaired loans | $ | 329 |
| Appraisal | Appraisal discounts |
| 10.0 |
| - | 10.0 | % |
| 10.0 | % | |
Mortgage servicing rights, net |
| 1,271 |
| Discounted cash flow | Prepayment Speed or CPR |
| 14.7 |
| - | 18.4 | % |
| 16.8 | % | |
|
|
|
|
|
| Discount rate |
| 10.0 |
| - | 12.0 | % |
| 10.0 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Impaired loans | $ | 99 |
| Appraisal | Appraisal discounts |
|
|
|
|
|
|
| 10.0 | % | |
Mortgage servicing rights, net |
| 1,299 |
| Discounted cash flow | Prepayment Speed or CPR |
|
|
|
|
|
|
| 11.6 | % | |
|
|
|
|
|
| Discount rate |
|
|
|
|
|
|
| 10.0 | % |
|
| ||||||||||||||
March 31, 2021:
Loans held for sale
Fair values of loans held for sale are determined using quoted secondary market prices for similar loans.
Time Deposits
Fair values for time deposits were estimated using discounted cash flows. The discount rates were based on rates currently offered for deposits with similar remaining maturities.
The carrying value, related estimated fair value, and placement in the fair value hierarchy of the Company’s financial instruments at June 30, 2020 and December 31, 2019 are presented below. This table excludes financial instruments for which the carrying amount approximates fair value. Financial assets for which fair value approximates carrying value included cash and cash equivalents. Financial liabilities for which fair value approximates carrying value included noninterest-bearing demand deposits, interest-bearing demand deposits, and savings deposits. Fair value approximates carrying value in these financial liabilities due to these products having no stated maturity. Additionally, financial liabilities for which fair value approximates carrying value included overnight borrowings such as federal funds purchased and securities sold under agreements to repurchase.
25
|
|
|
|
|
|
|
|
|
| Fair Value Hierarchy | ||||||
|
|
|
| Carrying |
|
| Estimated |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
(Dollars in thousands) |
|
| amount |
|
| fair value |
|
| inputs |
|
| inputs |
|
| Inputs | |
June 30, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Loans, net (1) |
| $ | 458,966 |
| $ | 458,957 |
| $ | — |
| $ | — |
| $ | 458,957 |
| Loans held for sale |
|
| 2,620 |
|
| 2,743 |
|
| — |
|
| 2,743 |
|
| — |
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| �� |
|
| |
| Time Deposits |
| $ | 165,351 |
| $ | 167,026 |
| $ | — |
| $ | 167,026 |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Loans, net (1) |
| $ | 456,515 |
| $ | 453,705 |
| $ | — |
| $ | — |
| $ | 453,705 |
| Loans held for sale |
|
| 2,202 |
|
| 2,251 |
|
| — |
|
| 2,251 |
|
| — |
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Time Deposits |
| $ | 167,199 |
| $ | 168,316 |
| $ | — |
| $ | 168,316 |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Represents loans, net of unearned income and the allowance for loan losses. The fair value of loans was measured using an exit price notion. | ||||||||||||||||
26
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTSOF
General
2020.
Certain
•
•seasonality, naturaldisasters or climate change, such as rising sea and water levels,hurricanes and
•conditions;
•the effects of public health, economic activity and measures taken to restore public health in light of the COVID-19 pandemic;
•policies;
•credit
•payment behaviors from those used in our loan
•
behaviors;
27
•●
•
•
•
•
•
•our business continuity planning, and changes in the ways we communicate with, and provide services to our customers, implemented during the COVID-19 pandemic;
•the effects of war, or other conflicts, acts of terrorism, pandemics or other catastrophic events that may affect general economic conditions;
•cyber attacks
•the failure of assumptions and estimates, as well as differences in, and changes to, economic, market, and credit conditions, including changes in borrowers’ credit risks and payment behaviors from those used in our loan portfolio stress tests and other evaluations, including price and market volatility and liquidity issues resulting from the COVID-19 pandemic;
•the risk that our deferred tax assets (“DTAs”),if any, could be reducedif estimates of future taxable income from
•
Business
Section 21E of the Securities Exchange
28
Summary of Results of Operations | |||||||||||||||
|
|
|
|
|
| Quarter ended June 30, |
|
| Six months ended June 30, | ||||||
(Dollars in thousands, except per share amounts) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 | ||||
Net interest income (a) | $ | 6,197 |
| $ | 6,742 |
| $ | 12,529 |
| $ | 13,508 | ||||
Less: tax-equivalent adjustment |
| 127 |
|
| 145 |
|
| 247 |
|
| 291 | ||||
|
|
| Net interest income (GAAP) |
|
| 6,070 |
|
| 6,597 |
|
| 12,282 |
|
| 13,217 |
Noninterest income |
| 1,363 |
|
| 885 |
|
| 2,598 |
|
| 2,045 | ||||
|
|
| Total revenue |
|
| 7,433 |
|
| 7,482 |
|
| 14,880 |
|
| 15,262 |
Provision for loan losses |
| 450 |
|
| — |
|
| 850 |
|
| — | ||||
Noninterest expense |
| 4,959 |
|
| 4,629 |
|
| 9,815 |
|
| 9,240 | ||||
Income tax expense |
| 363 |
|
| 546 |
|
| 753 |
|
| 1,172 | ||||
|
|
| Net earnings |
| $ | 1,661 |
| $ | 2,307 |
| $ | 3,462 |
| $ | 4,850 |
| |||||||||||||||
Basic and diluted earnings per share | $ | 0.47 |
| $ | 0.64 |
| $ | 0.97 |
| $ | 1.35 | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Tax-equivalent. See "Table 1 - Explanation of Non-GAAP Financial Measures." | |||||||||||||||
2020.
For the first quarter of 2020, noninterest income included $0.3million in non-taxable death
Auburn.
29
The Company paid cash dividends of $0.51$0.26 per share in the first six months quarterof 2020,2021, an increase of 2% from the same period of 2019.
For the second quarterMarch 31, 2021.
See “Balance Sheet Analysis – Loans” for supplemental COVID-19
shareholders.
•We continue to
30
•Weare a participating lender in the Paycheck Protection Program (“PPP”). PPP.PPP loans are forgivable, in whole or in part, if theproceeds are used for
(Dollars in thousands) | # of SBA Approved | Mix |
|
|
| $ of SBA Approved | Mix | |
SBA Tier: |
|
|
|
|
|
|
|
|
$2 million to $10 million | — | — | % |
| $ | — | — | % |
$350,000 to less than $2 million | 22 | 5 |
|
|
| 14,687 | 40 |
|
Up to $350,000 | 400 | 95 |
|
|
| 21,784 | 60 |
|
Total | 422 | 100 | % |
| $ | 36,471 | 100 | % |
The Company extended a totalSBA
The PPP,as
conditions,
31
An impairment allowance is recognizedif the fair value of the loan is less than the recorded investment inthe loan. The
charged-off.
Further adjustments may be made in the future as a result of the continuingCOVID-19 pandemic.
32
Assessment for Other-Than-TemporaryImpairment of Securities
33
Deferred TaxAsset Valuation
Under the CARES Act, net operating losses arising
RESULTS OF OPERATIONS | ||||||||||
| ||||||||||
Average Balance Sheet and Interest Rates | ||||||||||
|
| Six months ended June 30, | ||||||||
|
| 2020 |
| 2019 | ||||||
|
| Average | Yield/ |
| Average | Yield/ | ||||
(Dollars in thousands) |
| Balance | Rate |
| Balance | Rate | ||||
Loans and loans held for sale |
| $ | 461,245 | 4.75% |
| $ | 476,063 | 4.87% | ||
Securities - taxable |
|
| 211,503 | 2.06% |
|
| 173,528 | 2.32% | ||
Securities - tax-exempt |
|
| 62,822 | 3.76% |
|
| 68,386 | 4.08% | ||
| Total securities |
|
| 274,325 | 2.45% |
|
| 241,914 | 2.82% | |
Federal funds sold |
|
| 30,716 | 0.71% |
|
| 19,198 | 2.36% | ||
Interest bearing bank deposits |
|
| 50,365 | 0.79% |
|
| 36,683 | 2.41% | ||
| Total interest-earning assets |
|
| 816,651 | 3.58% |
|
| 773,858 | 4.05% | |
Deposits: |
|
|
|
|
|
|
|
| ||
| NOW |
|
| 151,785 | 0.43% |
|
| 134,242 | 0.54% | |
| Savings and money market |
|
| 226,240 | 0.46% |
|
| 215,892 | 0.41% | |
| Time Deposits |
|
| 166,685 | 1.42% |
|
| 173,423 | 1.43% | |
| Total interest-bearing deposits |
|
| 544,710 | 0.75% |
|
| 523,557 | 0.78% | |
Short-term borrowings |
|
| 1,394 | 0.50% |
|
| 1,615 | 0.74% | ||
| Total interest-bearing liabilities |
|
| 546,104 | 0.75% |
|
| 525,172 | 0.78% | |
Net interest income and margin (tax-equivalent) |
| $ | 12,529 | 3.09% |
| $ | 13,508 | 3.52% | ||
margin (tax-equivalent)
to 0.44%.The net decrease in our funding costs was primarily due to lowerprevailing market interest rates.Such
34
earning assets.
Noninterest Income | ||||||||||||
| Quarter ended June 30, |
| Six months ended June 30, | |||||||||
(Dollars in thousands) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 | |
Service charges on deposit accounts | $ | 126 |
| $ | 176 |
| $ | 298 |
| $ | 360 | |
Mortgage lending income |
| 683 |
|
| 187 |
|
| 913 |
|
| 376 | |
Bank-owned life insurance |
| 108 |
|
| 107 |
|
| 506 |
|
| 217 | |
Securities gains, net |
| 81 |
|
| 8 |
|
| 87 |
|
| 13 | |
Other |
| 365 |
|
| 407 |
|
| 794 |
|
| 1,079 | |
| Total noninterest income | $ | 1,363 |
| $ | 885 |
| $ | 2,598 |
| $ | 2,045 |
35
| Quarter ended June 30, |
| Six months ended June 30, | |||||||||
(Dollars in thousands) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 | |
Origination income | $ | 684 |
| $ | 102 |
| $ | 847 |
| $ | 188 | |
Servicing fees, net |
| (1) |
|
| 85 |
|
| 66 |
|
| 188 | |
| Total mortgage lending income | $ | 683 |
| $ | 187 |
| $ | 913 |
| $ | 376 |
Quarter ended March 31,
Noninterest Expense | ||||||||||||
| Quarter ended June 30, |
| Six months ended June 30, | |||||||||
(Dollars in thousands) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 | |
Salaries and benefits | $ | 2,597 |
| $ | 2,799 |
| $ | 5,428 |
| $ | 5,737 | |
Net occupancy and equipment |
| 920 |
|
| 381 |
|
| 1,517 |
|
| 765 | |
Professional fees |
| 389 |
|
| 275 |
|
| 647 |
|
| 503 | |
Other |
| 1,053 |
|
| 1,174 |
|
| 2,223 |
|
| 2,235 | |
| Total noninterest expense | $ | 4,959 |
| $ | 4,629 |
| $ | 9,815 |
| $ | 9,240 |
The decrease in salaries and benefits expense was primarily due to lower incentive accruals and an increase in deferred costs related to the PPP loan program.
The increase in net occupancy and equipment expense was primarilydue to a reduction of $0.2 million in various expenses
36
Loans | |||||||||||
| 2020 |
| 2019 | ||||||||
| Second |
| First |
| Fourth |
| Third |
| Second | ||
(In thousands) |
| Quarter |
| Quarter |
| Quarter |
| Quarter |
| Quarter | |
Commercial and industrial | $ | 87,754 |
| 56,447 |
| 56,782 |
| 52,288 |
| 54,307 | |
Construction and land development |
| 32,967 |
| 32,302 |
| 32,841 |
| 41,599 |
| 45,395 | |
Commercial real estate |
| 250,588 |
| 256,099 |
| 270,318 |
| 267,346 |
| 268,500 | |
Residential real estate |
| 85,825 |
| 91,010 |
| 92,575 |
| 95,215 |
| 99,292 | |
Consumer installment |
| 8,631 |
| 8,424 |
| 8,866 |
| 9,148 |
| 9,091 | |
| Total loans |
| 465,765 |
| 444,282 |
| 461,382 |
| 465,596 |
| 476,585 |
Less: unearned income |
| (1,491) |
| (414) |
| (481) |
| (488) |
| (524) | |
| Loans, net of unearned income | $ | 464,274 |
| 443,868 |
| 460,901 |
| 465,108 |
| 476,061 |
March 31, 2021.
2020.
37
1-4 family residential properties
|
| June 30, |
|
| December 31, |
(In thousands) |
| 2020 |
|
| 2019 |
Lessors of 1 to 4 family residential properties | $ | 44,858 |
| $ | 43,652 |
Hotel/motel |
| 43,183 |
|
| 43,719 |
Shopping centers |
| 33,872 |
|
| 30,407 |
Multi-family residential properties |
| 31,974 |
|
| 44,839 |
Office buildings |
| 23,931 |
|
| 29,548 |
49,196
|
| Portfolio Segment |
|
|
|
| ||
(Dollars in thousands) |
| Commercial and industrial | Construction and land development | Commercial real estate |
| Total | % of Total Loans | |
June 30, 2020: |
|
|
|
|
|
|
|
|
Hotel/motel | $ | 1,566 | 8,536 | 43,183 | $ | 52,472 | 11 | % |
Shopping centers |
| 19 | — | 33,872 |
| 33,891 | 7 |
|
Retail, excluding shopping centers |
| 428 | 161 | 17,725 |
| 18,314 | 4 |
|
Restaurants |
| 1,562 | — | 13,605 |
| 15,167 | 4 |
|
Total | $ | 3,575 | 8,697 | 108,385 | $ | 119,844 | 26 | % |
38
Loans
COVID-19 Modifications through June 30, 2020 |
|
| Modification Types | |||||
(Dollars in thousands) |
| Balance | % of Portfolio Modified |
| Interest Only Payment |
| P&I Payments Deferred |
|
Commercial and industrial | $ | 2,741 | 3 | % | 21 | % | 79 | % |
Construction and land development |
| 103 | — |
| — |
| 100 |
|
Commercial real estate |
| 103,052 | 41 |
| 26 |
| 74 |
|
Residential real estate |
| 6,663 | 8 |
| 2 |
| 98 |
|
Consumer installment |
| 137 | 2 |
| — |
| 100 |
|
Total | $ | 112,696 | 24 | % | 24 | % | 76 | % |
|
|
|
|
|
|
|
|
|
COVID-19 Modifications within High Exposure Commercial Real Estate Segments |
|
|
| |||||
(Dollars in thousands) |
|
|
|
| Balance of Loans Modified |
| % of Total Segment Loans |
|
Hotel/motel |
|
|
| $ | 42,074 |
| 79 | % |
Shopping centers |
|
|
|
| 17,010 |
| 50 |
|
Retail, excluding shopping centers |
|
|
|
| 5,989 |
| 32 |
|
Restaurants |
|
|
|
| 10,997 |
| 60 |
|
Modified
|
| 2020 |
| 2019 | ||||||||
|
| Second |
| First |
| Fourth |
| Third |
| Second | ||
(Dollars in thousands) |
| Quarter |
| Quarter |
| Quarter |
| Quarter |
| Quarter | ||
Balance at beginning of period | $ | 4,867 |
| 4,386 |
| 4,807 |
| 4,851 |
| 4,808 | ||
Charge-offs: |
|
|
|
|
|
|
|
|
|
| ||
| Commercial and industrial |
| (3) |
| — |
| (236) |
| (128) |
| — | |
| Residential real estate |
| — |
| — |
| (5) |
| (1) |
| — | |
| Consumer installment |
| (28) |
| (5) |
| (20) |
| (2) |
| (1) | |
|
| Total charge-offs |
| (31) |
| (5) |
| (261) |
| (131) |
| (1) |
Recoveries |
| 22 |
| 86 |
| 90 |
| 87 |
| 44 | ||
|
| Net (charge-offs) recoveries |
| (9) |
| 81 |
| (171) |
| (44) |
| 43 |
Provision for loan losses |
| 450 |
| 400 |
| (250) |
| — |
| — | ||
|
|
|
|
|
|
|
|
|
|
|
| |
Ending balance | $ | 5,308 |
| 4,867 |
| 4,386 |
| 4,807 |
| 4,851 | ||
| as a % of loans |
| 1.14 | % | 1.10 |
| 0.95 |
| 1.03 |
| 1.02 | |
| as a % of nonperforming loans |
| 783 | % | 4,196 |
| 2,345 |
| 2,763 |
| 3,703 | |
Net charge-offs (recoveries) as % of average loans (a) | 0.01 | % | (0.07) |
| 0.15 |
| 0.04 |
| (0.04) | |||
| ||||||||||||
(a) Net charge-offs (recoveries) are annualized. | ||||||||||||
39
period
$
Our allowance for loan losses is expected to increase as the cumulative effects of the COVID-19 pandemic affect our customers for a longer period and are more fully realized as a result.
|
|
| 2020 |
| 2019 | ||||||
|
|
| Second |
| First |
| Fourth |
| Third |
| Second |
(Dollars in thousands) |
| Quarter |
| Quarter |
| Quarter |
| Quarter |
| Quarter | |
Nonperforming assets: |
|
|
|
|
|
|
|
|
|
| |
Nonaccrual loans | $ | 678 |
| 116 |
| 187 |
| 174 |
| 131 | |
Other real estate owned |
| — |
| 99 |
| — |
| — |
| 303 | |
Total nonperforming assets | $ | 678 |
| 215 |
| 187 |
| 174 |
| 434 | |
| as a % of loans and other real estate owned |
| 0.15 | % | 0.05 |
| 0.04 |
| 0.04 |
| 0.09 |
| as a % of total assets |
| 0.07 | % | 0.03 |
| 0.02 |
| 0.02 |
| 0.05 |
Nonperforming loans as a % of total loans |
| 0.15 | % | 0.03 |
| 0.04 |
| 0.04 |
| 0.03 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2020 |
| 2019 | ||||||
|
|
| Second |
| First |
| Fourth |
| Third |
| Second |
(In thousands) |
| Quarter |
| Quarter |
| Quarter |
| Quarter |
| Quarter | |
Nonaccrual loans: |
|
|
|
|
|
|
|
|
|
| |
Commercial real estate | $ | 218 |
| — |
| — |
| — |
| — | |
Residential real estate |
| 459 |
| 112 |
| 187 |
| 174 |
| 131 | |
Consumer installment |
| 1 |
| 4 |
| — |
| — |
| — | |
| Total nonaccrual loans | $ | 678 |
| 116 |
| 187 |
| 174 |
| 131 |
2020.
2020.
40
The table below provides information concerning the compositionof OREO for the secondfirst quarter of 20202021 and the previous
|
|
|
| 2020 |
| 2019 | ||||||
|
|
|
| Second |
| First |
| Fourth |
| Third |
| Second |
(In thousands) |
| Quarter |
| Quarter |
| Quarter |
| Quarter |
| Quarter | ||
Other real estate owned: |
|
|
|
|
|
|
|
|
|
| ||
Residential | $ | — |
| 99 |
| — |
| — |
| 303 | ||
|
| Total other real estate owned | $ | — |
| 99 |
| — |
| — |
| 303 |
2020.
| 2020 |
| 2019 | ||||||||
| Second |
| First |
| Fourth |
| Third |
| Second | ||
(In thousands) | Quarter |
| Quarter |
| Quarter |
| Quarter |
| Quarter | ||
Potential problem loans: |
|
|
|
|
|
|
|
|
|
| |
Commercial and industrial | $ | 211 |
| 246 |
| 266 |
| 500 |
| 590 | |
Construction and land development |
| 568 |
| 910 |
| 1,043 |
| 660 |
| 681 | |
Commercial real estate |
| 165 |
| 170 |
| 99 |
| 102 |
| 105 | |
Residential real estate |
| 2,645 |
| 2,913 |
| 2,899 |
| 3,460 |
| 3,621 | |
Consumer installment |
| 55 |
| 63 |
| 64 |
| 45 |
| 51 | |
| Total potential problem loans | $ | 3,644 |
| 4,302 |
| 4,371 |
| 4,767 |
| 5,048 |
|
|
| 2020 |
| 2019 | ||||||
|
| Second |
| First |
| Fourth |
| Third |
| Second | |
(In thousands) |
| Quarter |
| Quarter |
| Quarter |
| Quarter |
| Quarter | |
Performing loans past due 30 to 89 days: |
|
|
|
|
|
|
|
|
|
| |
Commercial and industrial | $ | 83 |
| 4 |
| 24 |
| 53 |
| 109 | |
Construction and land development |
| — |
| 8 |
| 456 |
| 449 |
| 351 | |
Commercial real estate |
| 168 |
| — |
| — |
| — |
| — | |
Residential real estate |
| 620 |
| 922 |
| 1,608 |
| 94 |
| 214 | |
Consumer installment |
| 8 |
| 19 |
| 64 |
| 21 |
| 8 | |
| Total | $ | 879 |
| 953 |
| 2,152 |
| 617 |
| 682 |
.
41
The average rate paid on total interest-bearing deposits was 0.75% 0.44%in the first six monthsquarter of 20202021 compared to 0.78% in the
2020.
2020.
2021 and 2020.
2020.
March 31, 2021.
42
Interest Rate Risk Management
43
The Company may also use derivative financial instrumentsto improve the balance between interest-sensitive assets and
Company expenses.
Since 2009, we have
44
matters.
March 31, 2021.
forbearance.
45
CURRENT ACCOUNTING DEVELOPMENTS
46
2020 2019 Second First Fourth Third Second (In thousands) Quarter Quarter Quarter Quarter Quarter Net interest income (GAAP) $ 6,070 6,212 6,280 6,567 6,597 Tax-equivalent adjustment 127 120 126 140 145 Net interest income (Tax-equivalent) $ 6,197 6,332 6,406 6,707 6,742 Six months ended June 30, (In thousands) 2020 2019 Net interest income (GAAP) $ 12,282 13,217 Tax-equivalent adjustment 247 291 Net interest income (Tax-equivalent) $ 12,529 13,508 2021non-GAAPnon-non-GAAPnon-47
2020 2019 Second First Fourth Third Second (Dollars in thousands, except per share amounts) Quarter Quarter Quarter Quarter Quarter Results of Operations Net interest income (a) $ 6,197 6,332 6,406 6,707 6,742 Less: tax-equivalent adjustment 127 120 126 140 145 Net interest income (GAAP) 6,070 6,212 6,280 6,567 6,597 Noninterest income 1,363 1,235 2,458 991 885 Total revenue 7,433 7,447 8,738 7,558 7,482 Provision for loan losses 450 400 (250) — — Noninterest expense 4,959 4,856 5,633 4,824 4,629 Income tax expense 363 390 671 527 546 Net earnings $ 1,661 1,801 2,684 2,207 2,307 Per share data: Basic and diluted net earnings $ 0.47 0.50 0.76 0.62 0.64 Cash dividends declared 0.255 0.255 0.25 0.25 0.25 Weighted average shares outstanding: Basic and diluted 3,566,166 3,566,146 3,566,146 3,568,287 3,577,409 Shares outstanding 3,566,176 3,566,146 3,566,146 3,566,146 3,571,828 Book value $ 29.53 29.04 27.57 27.12 26.34 Common stock price High $ 63.40 59.99 53.90 47.38 39.55 Low 36.81 24.11 40.00 32.33 31.06 Period end 57.09 41.98 53.00 47.38 33.50 To earnings ratio 24.29 x 16.66 19.49 18.08 13.19 To book value 193 % 145 192 175 127 Performance ratios: Return on average equity 6.34 % 7.24 10.86 9.25 10.00 Return on average assets 0.74 % 0.86 1.30 1.06 1.12 Dividend payout ratio 54.26 % 51.00 32.89 40.32 39.06 Asset Quality: Allowance for loan losses as a % of: Loans 1.14 % 1.10 0.95 1.03 1.02 Nonperforming loans 783 % 4,196 2,345 2,763 3,703 Nonperforming assets as a % of: Loans and other real estate owned 0.15 % 0.05 0.04 0.04 0.09 Total assets 0.07 % 0.03 0.02 0.02 0.05 Nonperforming loans as a % of total loans 0.15 % 0.03 0.04 0.04 0.03 Annualized net chargeoffs (recoveries) as a % of average loans 0.01 % (0.07) 0.15 0.04 (0.04) Capital Adequacy: (c) CET 1 risk-based capital ratio 18.00 % 17.77 17.28 17.06 16.26 Tier 1 risk-based capital ratio 18.00 % 17.77 17.28 17.06 16.26 Total risk-based capital ratio 19.04 % 18.72 18.12 17.96 17.14 Tier 1 leverage ratio 10.62 % 11.17 11.23 11.22 11.14 Other financial data: Net interest margin (a) 2.95 % 3.23 3.27 3.41 3.50 Effective income tax rate 17.93 % 17.80 20.00 19.28 19.14 Efficiency ratio (b) 65.60 % 64.17 63.55 62.67 60.69 Selected average balances: Securities $ 291,333 257,317 249,106 247,114 243,784 Loans, net of unearned income 466,971 451,210 469,579 472,747 473,281 Total assets 893,720 838,725 827,684 829,761 821,706 Total deposits 782,381 734,047 723,557 729,608 725,263 Total stockholders’ equity 104,820 99,560 98,887 95,400 92,272 Selected period end balances: Securities $ 302,193 280,435 235,902 251,152 248,813 Loans, net of unearned income 464,274 443,868 460,901 465,108 476,061 Allowance for loan losses 5,308 4,867 4,386 4,807 4,851 Total assets 942,887 856,475 828,570 824,963 839,178 Total deposits 829,810 746,785 724,152 723,071 740,501 Total stockholders’ equity 105,299 103,563 98,328 96,720 94,065 (a) Tax-equivalent. See "Table 1 - Explanation of Non-GAAP Financial Measures." (b) Efficiency ratio is the result of noninterest expense divided by the sum of noninterest income and tax-equivalent net interest income. (c) Regulatory capital ratios presented are for the Company's wholly-owned subsidiary, AuburnBank. 202148
Six months ended June 30, (Dollars in thousands, except per share amounts) 2020 2019 Results of Operations Net interest income (a) $ 12,529 13,508 Less: tax-equivalent adjustment 247 291 Net interest income (GAAP) 12,282 13,217 Noninterest income 2,598 2,045 Total revenue 14,880 15,262 Provision for loan losses 850 — Noninterest expense 9,815 9,240 Income tax expense 753 1,172 Net earnings $ 3,462 4,850 Per share data: Basic and diluted net earnings $ 0.97 1.35 Cash dividends declared 0.51 0.50 Weighted average shares outstanding: Basic and diluted 3,566,156 3,595,972 Shares outstanding, at period end 3,566,176 3,571,828 Book value $ 29.53 26.34 Common stock price High $ 63.40 39.55 Low 24.11 30.61 Period end 57.09 33.50 To earnings ratio 24.29 x 13.19 To book value 193 % 127 Performance ratios: Return on average equity 6.78 % 10.65 Return on average assets 0.80 % 1.18 Dividend payout ratio 52.58 % 37.04 Asset Quality: Allowance for loan losses as a % of: Loans 1.14 % 1.02 Nonperforming loans 782.89 % 3,703.05 Nonperforming assets as a % of: Loans and other real estate owned 0.15 % 0.09 Total assets 0.07 % 0.05 Nonperforming loans as a % of total loans 0.15 % 0.03 Annualized net recoveries as a % of average loans (0.03) % (0.03) Capital Adequacy: (c) CET 1 risk-based capital ratio 18.00 % 16.26 Tier 1 risk-based capital ratio 18.00 % 16.26 Total risk-based capital ratio 19.04 % 17.14 Tier 1 leverage ratio 10.62 % 11.14 Other financial data: Net interest margin (a) 3.09 % 3.52 Effective income tax rate 17.86 % 19.46 Efficiency ratio (b) 64.88 % 59.41 Selected average balances: Securities $ 274,325 241,914 Loans, net of unearned income 459,091 475,297 Total assets 866,222 824,409 Total deposits 646,899 728,881 Total stockholders’ equity 102,190 91,110 Selected period end balances: Securities $ 302,193 248,813 Loans, net of unearned income 464,274 476,061 Allowance for loan losses 5,308 4,851 Total assets 942,887 839,178 Total deposits 829,810 740,501 Total stockholders’ equity 105,299 94,065 (a) Tax-equivalent. See "Table 1 - Explanation of Non-GAAP Financial Measures." (b) Efficiency ratio is the result of noninterest expense divided by the sum of noninterest income and tax-equivalent net interest income. (c) Regulatory capital ratios presented are for the Company's wholly-owned subsidiary, AuburnBank. Quarter ended June 30, 2020 2019 Interest Interest Average Income/ Yield/ Average Income/ Yield/ (Dollars in thousands) Balance Expense Rate Balance Expense Rate Interest-earning assets: Loans and loans held for sale (1) $ 470,335 $ 5,494 4.70% $ 474,089 $ 5,763 4.88% Securities - taxable 226,585 1,056 1.87% 175,492 985 2.25% Securities - tax-exempt (2) 64,748 603 3.75% 68,292 689 4.05% Total securities 291,333 1,659 2.29% 243,784 1,674 2.75% Federal funds sold 31,673 16 0.20% 17,016 99 2.33% Interest bearing bank deposits 51,352 11 0.09% 36,691 212 2.32% Total interest-earning assets 844,693 $ 7,180 3.42% 771,580 $ 7,748 4.03% Cash and due from banks 13,361 13,822 Other assets 35,666 36,304 Total assets $ 893,720 $ 821,706 Interest-bearing liabilities: Deposits: NOW $ 154,225 $ 138 0.36% $ 136,105 $ 184 0.54% Savings and money market 231,571 263 0.46% 211,521 217 0.41% Time deposits 165,922 580 1.41% 169,702 603 1.43% Total interest-bearing deposits 551,718 981 0.72% 517,328 1,004 0.78% Short-term borrowings 1,428 2 0.50% 1,260 2 0.64% Total interest-bearing liabilities 553,146 $ 983 0.71% 518,588 $ 1,006 0.78% Noninterest-bearing deposits 230,663 207,935 Other liabilities 5,091 2,911 Stockholders' equity 104,820 92,272 Total liabilities and stockholders' equity $ 893,720 $ 821,706 Net interest income and margin (tax-equivalent) $ 6,197 2.95% $ 6,742 3.50% (1) Average loan balances are shown net of unearned income and loans on nonaccrual status have been included in the computation of average balances. (2) Yields on tax-exempt securities have been computed on a tax-equivalent basis using a federal income tax rate of 21%. Quarter ended March 31, - Selected Financial Data49Table 4 - AverageBalances and Net Interest Income Analysis50
Six months ended June 30, 2020 2019 Interest Interest Average Income/ Yield/ Average Income/ Yield/ (Dollars in thousands) Balance Expense Rate Balance Expense Rate Interest-earning assets: Loans and loans held for sale (1) $ 461,245 $ 10,906 4.75% $ 476,063 $ 11,490 4.87% Securities - taxable 211,503 2,167 2.06% 173,528 2,000 2.32% Securities - tax-exempt (2) 62,822 1,176 3.76% 68,386 1,384 4.08% Total securities 274,325 3,343 2.45% 241,914 3,384 2.82% Federal funds sold 30,716 109 0.71% 19,198 225 2.36% Interest bearing bank deposits 50,365 197 0.79% 36,683 438 2.41% Total interest-earning assets 816,651 $ 14,555 3.58% 773,858 $ 15,537 4.05% Cash and due from banks 13,773 14,220 Other assets 35,798 36,331 Total assets $ 866,222 $ 824,409 Interest-bearing liabilities: Deposits: NOW $ 151,785 $ 326 0.43% $ 134,242 $ 359 0.54% Savings and money market 226,240 516 0.46% 215,892 440 0.41% Time deposits 166,685 1,180 1.42% 173,423 1,226 1.43% Total interest-bearing deposits 544,710 2,022 0.75% 523,557 2,025 0.78% Short-term borrowings 1,394 4 0.50% 1,615 4 0.74% Total interest-bearing liabilities 546,104 $ 2,026 0.75% 525,172 $ 2,029 0.78% Noninterest-bearing deposits 213,505 205,324 Other liabilities 4,423 2,803 Stockholders' equity 102,190 91,110 Total liabilities and stockholders' equity $ 866,222 $ 824,409 Net interest income and margin (tax-equivalent) $ 12,529 3.09% $ 13,508 3.52% (1) Average loan balances are shown net of unearned income and loans on nonaccrual status have been included in the computation of average balances. (2) Yields on tax-exempt securities have been computed on a tax-equivalent basis using a federal income tax rate of 21%. 2020 2019 Second First Fourth Third Second (In thousands) Quarter Quarter Quarter Quarter Quarter Commercial and industrial $ 87,754 56,447 56,782 52,288 54,307 Construction and land development 32,967 32,302 32,841 41,599 45,395 Commercial real estate 250,588 256,099 270,318 267,346 268,500 Residential real estate 85,825 91,010 92,575 95,215 99,292 Consumer installment 8,631 8,424 8,866 9,148 9,091 Total loans 465,765 444,282 461,382 465,596 476,585 Less: unearned income (1,491) (414) (481) (488) (524) Loans, net of unearned income 464,274 443,868 460,901 465,108 476,061 Less: allowance for loan losses (5,308) (4,867) (4,386) (4,807) (4,851) Loans, net $ 458,966 439,001 456,515 460,301 471,210 20215 - Average Balances and Net Interest Income Analysis51Table 6 - Loan Portfolio Composition52
2020 2019 Second First Fourth Third Second (Dollars in thousands) Quarter Quarter Quarter Quarter Quarter Allowance for loan losses: Balance at beginning of period $ 4,867 4,386 4,807 4,851 4,808 Charge-offs: Commercial and industrial (3) — (236) (128) — Residential real estate — — (5) (1) — Consumer installment (28) (5) (20) (2) (1) Total charge-offs (31) (5) (261) (131) (1) Recoveries 22 86 90 87 44 Net (charge-offs) recoveries (9) 81 (171) (44) 43 Provision for loan losses 450 400 (250) — — Ending balance $ 5,308 4,867 4,386 4,807 4,851 as a % of loans 1.14 % 1.10 0.95 1.03 1.02 as a % of nonperforming loans 1.24 % n/a n/a n/a n/a as a % of nonperforming loans 783 % 4,196 2,345 2,763 3,703 Net charge-offs (recoveries) as % of avg. loans (a) 0.01 % (0.07) 0.15 0.04 (0.04) Nonperforming assets: Nonaccrual loans $ 678 116 187 174 131 Other real estate owned — 99 — — 303 Total nonperforming assets $ 678 215 187 174 434 as a % of loans and other real estate owned 0.15 % 0.05 0.04 0.04 0.09 as a % of total assets 0.07 % 0.03 0.02 0.02 0.05 Nonperforming loans as a % of total loans 0.15 % 0.03 0.04 0.04 0.03 Accruing loans 90 days or more past due $ 49 — — 94 — (a) Net (charge-offs) recoveries are annualized. 20217 5- Allowance for Loan Losses and Nonperforming Assets53
2020 2019 Second Quarter First Quarter Fourth Quarter Third Quarter Second Quarter (Dollars in thousands) Amount %* Amount %* Amount %* Amount %* Amount %* Commercial and industrial $ 679 18.8 $ 675 12.7 $ 577 12.3 $ 685 11.2 $ 726 11.4 Construction and land development 613 7.1 582 7.3 569 7.1 730 8.9 781 9.5 Commercial real estate 2,915 53.8 2,596 57.6 2,289 58.6 2,354 57.4 2,287 56.4 Residential real estate 954 18.4 877 20.5 813 20.1 890 20.5 904 20.8 Consumer installment 147 1.9 137 1.9 138 1.9 148 2.0 153 1.9 Total allowance for loan losses $ 5,308 $ 4,867 $ 4,386 $ 4,807 $ 4,851 * Loan balance in each category expressed as a percentage of total loans. 20218 6- Allocation of Allowance for Loan Losses54
(Dollars in thousands) June 30, 2020 Maturity of: 3 months or less $ 21,602 Over 3 months through 6 months 23,998 Over 6 months through 12 months 10,308 Over 12 months 51,463 Total CDs and other time deposits of $100,000 or more $ 107,371 (Dollars in thousands)9 7- CDs and Other Time Deposits of $100,000or More55
2020. (as (as2019. and the risk factors discussed below, you should carefully consider the factors discussed in Part I, 2019, 2020, and below are not the only the risks facing our Company.Additional risks and uncertainties not currently known to us orThe COVID-19 pandemic is expected to continue to adversely affect our business, financial condition and results of operations. The ultimate effects of the pandemic on our business, financial condition and results of operations will depend on the severity, scope and duration of the pandemic, its cumulative economic effects, and the effectiveness of governmental actions in response to the pandemic.The ongoing COVID-19 national health emergency has significantly disrupted the United States and international economies and financial markets. We expect that the COVID-19 pandemic and its effects will continue to adversely affect our business, financial condition and results of operations in future periods. The spread of COVID-19 has caused illness, quarantines, cancellation of events and travel, business and school shutdowns, reductions in business activity and financial transactions, supply chain interruptions and overall economic and financial market instability. The State of Alabama and many other states have taken preventative and protective actions, such as imposing a statewide mask mandate, restrictions on travel, business operations, public gatherings, social distancing, advising or requiring individuals to limit or forego their time outside of their homes, and ordering temporary closures of non-essential businesses. Though certain of these measures have been relaxed or eliminated, recent increases in reported cases could cause these measures to be re-established.
56
The travel, hospitality and food and beverage industries, restaurants and auto manufacturers, and their suppliers have been severely affected. A significant number of layoffs, furloughs of employees, as well as mandated remote work have occurred in these and other industries, including government offices, schools and universities. Auburn University is holding virtual classes only from March 16, 2020 through the summer session. Auburn University announced its guidelines for the fall semester of 2020, which will involve both remote and in person instructions as well as social distancing measures. The economic impact of these measures is not presently known. Hyundai’s Montgomery and Kia’s West Point, Georgia plants were closed for a portion of the first quarter of 2020, but began a phased reopen in the second quarter of 2020 in response to COVID-19.
The ultimate effects of the COVID-19 pandemic on the economy, generally, our markets, and on us cannot be predicted. The timing and effects of the COVID-19 pandemic on our business, results of operations and financial condition may include, among various other consequences, the following. These effects depend on the severity, scope and duration of the pandemic, its cumulative economic effects, and the effectiveness of healthcare; business and governmental actions addressing to the pandemic’s effects.
•Employees’ health could be adversely affected, necessitating their recovery away from work;
•Unavailability of key personnel necessary to conduct our business activities;
•Our operating effectiveness may be reduced as our employees work from home or suffer from the COVID-19 virus;
•Shelter in place, or other restrictions and interruptions of our business and contact with our customers;
•Sustained closures of our branch lobbies or the offices of our customers;
•Declines in demand for loans and other banking services and products, and reduced interchange fees on payment cards;
•Reduced consumer spending due to both job losses, health concerns and required practices, such as social distancing and shelter in place, attributable to the COVID-19 pandemic;
•Reduced interchange revenue from reduced retail sales, travel and payment card usage, generally;
•Significant volatility in United States financial markets and our investment securities portfolio, including credit concerns over state, county and municipal securities;
•Our growth has been slowed, and may slow further, or our asset size may decline;
•Reduced economic activity and reduced customer income and cash flows from normal business and employment could reduce the amounts of our deposits, increase deposit costs, and adversely affect our liquidity, financial condition and results of operations;
•Declines in the credit quality of our loan portfolio, owing to the effects of the COVID-19 pandemic in the markets we serve, leading to increased provisions for loan losses and increases in our allowance for possible credit losses;
•Declines in the value of collateral for loans, including real estate collateral, especially in industries such as travel and hospitality;
•Declines in the net worth and liquidity of borrowers, impairing their ability to pay timely their loan obligations to us;
•Decreases in market interest rates that are expected to reduce our net interest income and our profitability;
•Loan deferrals and loan modifications, including those mandated by law, or which are encouraged by our regulators, may increase our expense and risks of collectability, reduce our cash flows and liquidity and adversely affect our results of operations and financial condition;
57
•Our waiver of various fees and service charges to support our customers and communities will adversely affect our results of operation and our liquidity and financial position;
•The COVID-19 pandemic may change customer financial behaviors and payment practices. Electronic banking could become more popular with less customers doing business at our offices;
•Certain of our assets, including loans and securities, may become impaired, which would adversely affect our results of operation and financial condition;
•Reductions in income or losses will adversely affect our capital and growth of capital, including our capital for bank regulatory purposes;
•Losses or reductions in net income may adversely affect the growth or amount of dividends we can pay on our common stock;
•The effects of government fiscal and monetary policies on the economy and financial stability, generally, and on our business, results of operations and financial condition cannot be predicted;
•The restoration of financial stability and economic growth may depend on the health care system developing and deploying COVID-19 testing and contact tracing, and drugs that better address COVID-19, and vaccines to prevent COVID-19, which promote consumer and employee health and confidence in the economy.
These factors, together or in combination with other events or occurrences that are unknown or anticipated, may materially and adversely affect our business, financial condition and results of operations.
Our stock price may reflect securities market conditions
The ongoing COVID-19pandemic has resulted in substantial securities market losses, especially for bank stocks and has, and may continue to, adversely affect the market of our common stock. The spread, intensification and duration of COVID-19 pandemic, as well as the effectiveness of governmental, fiscal and monetary policies, and regulatory responses to the pandemic, further affect the financial markets and the market prices for securities generally, and the market prices for bank stocks, including our common stock.
The COVID-19 global pandemic could result in deterioration of asset quality and an increase in credit losses.
Many businesses have or will have lower revenues and cash flows and many consumers will have lower income. These could result in an inability to repay loans timely in full, reduce our asset quality and reduce our deposits. Loan modifications and payment deferrals may also increase our credit risks. Our business, results of operations, liquidity and financial condition could be adversely affected.
The COVID-19pandemic has resulted in increased operational risks.
The COVID-19pandemic has resulted in heightened operational risks. Much of our workforce has been working remotely, and increased levels of remote access create additional cybersecurity risk and opportunities for cybercriminals to exploit vulnerabilities. Cybercriminals may increase their attempts to compromise business and consumer emails, including an increase in phishing attempts, and fraudulent vendors or other parties may view the pandemic as an opportunity to prey upon consumers and businesses during this time. This could result in increased fraud losses to us or our clients. The increase in online and remote banking activities may also increase the risk of fraud against our customers. State and local orders and regulations regarding the conduct of in-person business operations have affected and may continue to affect our ability to operate at normal levels and to restore operations to their pre-pandemic level for an unknown period of time. Separately, our third-party service providers have also been affected by the pandemic. To date, these disruptions have not been material and we have developed solutions to these disruptions, but we may experience additional disruption in the future, which could adversely affect our business, results of operations and financial condition.
55
58
The COVID-19 global pandemic may continue to cause uncertainty in markets and may result in an increase in our cost of funds.
The COVID-19 global pandemic has caused a great amount of uncertainty in markets, causing credit markets to seize and forcing companies, including our clients, to seek liquidity in the face of uncertain future cash flows. To the extent the clients’ funds are not used as working capital and not placed on deposit with us, we could be faced with funding draws of committed lending facilities, along with requests for new credit facilities from our clients. As clients use deposit balances to fund their businesses, this may put funding pressure on us, which may cause us to pay higher rates than normal for deposits and other funding.
As a participating lender in the Small Business Administration (“SBA”)Paycheck Protection Program (“PPP”), the Bank is subject to additional risks of litigation from the Bank’s customers or other parties regarding the Bank’s processing of loans for the PPP and risks that the SBA may not fund some or all PPP loan guaranties.
The CARES Act and the PPP and Healthcare Enhancement Act included an approximately $659 billion loan for the PPP administered through by the SBA and the U.S. Department of the Treasury. Under the PPP, small businesses and other entities and individuals can apply for loans from existing SBA lenders and other approved PPP lenders, subject to numerous limitations and eligibility criteria. The Bank is participating as a lender in the PPP. As of June 30, 2020, we have secured funding of approximately 422 loans totaling approximately $36.5 million through the PPP program. The PPP opened on April 3, 2020; however, because of the short timeframe between the passing of the CARES Act and the opening of the PPP, there is some ambiguity in the laws, rules and guidance regarding the operation of the PPP, which exposes the Company to risks relating to noncompliance with the PPP. On or about April 16, 2020, the SBA notified lenders that the $349 billion earmarked for the PPP was exhausted. Congress approved approximately $310 billion of additional funding for the PPP on April 24, 2020. Since the opening of the PPP, several other larger banks have been subject to litigation regarding the process and procedures that such banks used in processing applications for the PPP. We may be exposed to the risk of litigation, from both customers and non-customers that approached the Bank regarding PPP loans, regarding its procedures used in processing applications for the PPP. If any such litigation is filed against the Bank and is not resolved favorably to the Bank, it may result in financial liability or adversely affect our reputation. Litigation can be costly, regardless of outcome. Any financial liability, litigation costs or reputational damage caused by PPP related litigation could have a material adverse effect on our business, financial condition and results of operations.
The Bank also has credit risk on PPP loans, if the SBA determines deficiencies in the manner in which PPP loans were originated, funded or serviced by the Bank, such as an issue with the eligibility of a borrower to receive a PPP loan, including those related to the ambiguity in the laws, rules and guidance regarding the PPP’s operation. In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there were one or more deficiencies in the manner in which the PPP loan was originated, funded, or serviced by the Company, the SBA may deny its liability under the PPP loan guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency from the Company. Similar issues may also result in the denial of forgiveness of PPP loans, which would adversely affect and could result in losses, including possible bankruptcies, which may expose us to further costs and potential losses.
59
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OFPROCEEDS
| |||||||||
Period |
| Total Number of Shares Purchased |
| Average Price Paid per Share |
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
| Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) | |
April 1 - April 30, 2020 |
| — |
| $ | — |
| — | $ | 5,000,000 |
May 1 - May 31, 2020 |
| — |
|
| — |
| — |
| 5,000,000 |
June 1 - June 30, 2020 |
| — |
|
| — |
| — |
| 5,000,000 |
Total |
| — |
|
| — |
| — |
| 5,000,000 |
|
|
|
|
|
|
|
|
|
|
(1) On March 10, 2020 the Company adopted a $5 million stock repurchase program that become effective April 1, 2020. | |||||||||
ITEM 6. EXHIBITSExhibitNumberDescription
60
| 3.2 | |
| ||
| ||
| ||
| ||
| ||
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Inc., adopted as of November 13, 2007. **
61
SIGNATURES
(Registrant)
|
| |
| ||
| ||
|
| |
| ||
|
(Registrant)