2021
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Class
I. PAGEItem 1Consolidated Balance Sheets (Unaudited) as of September 30, 2020 and December 31, 2019345678Item 2Management’s Discussion and Analysis of Financial Condition and Results of Operations29505152535455Table 7 – Allowance for Loan Losses and Nonperforming Assets565758Item 359Item 459Item 159Item 1A59Item 263Item 363Item 463Item 563Item 664
September 30, December 31, (Dollars in thousands, except share data) 2020 2019 Assets: Cash and due from banks $ 17,079 $ 15,172 Federal funds sold 29,182 25,944 Interest-bearing bank deposits 56,412 51,327 Cash and cash equivalents 102,673 92,443 Securities available-for-sale 320,922 235,902 Loans held for sale 4,765 2,202 Loans, net of unearned income 472,453 460,901 Allowance for loan losses (5,575) (4,386) Loans, net 466,878 456,515 Premises and equipment, net 15,473 14,743 Bank-owned life insurance 19,124 19,202 Other assets 8,055 6,872 Total assets $ 937,890 $ 827,879 Liabilities: Deposits: Noninterest-bearing $ 238,482 $ 196,218 Interest-bearing 585,498 527,934 Total deposits 823,980 724,152 Federal funds purchased and securities sold under agreements to repurchase 2,070 1,069 Accrued expenses and other liabilities 5,526 4,330 Total liabilities 831,576 729,551 Stockholders' equity: Preferred stock of $.01 par value; authorized 200,000 shares; no shares issued 0 0 Common stock of $.01 par value; authorized 8,500,000 shares; issued 3,957,135 shares 39 39 Additional paid-in capital 3,789 3,784 Retained earnings 104,471 101,801 Accumulated other comprehensive income, net 7,369 2,059 Less treasury stock, at cost - 390,859 shares and 390,989 at September 30, 2020 and December 31, 2019, respectively (9,354) (9,355) Total stockholders’ equity 106,314 98,328 Total liabilities and stockholders’ equity $ 937,890 $ 827,879 See accompanying notes to consolidated financial statements (Unaudited)3
Quarter ended September 30, Nine months ended September 30, (Dollars in thousands, except share and per share data) 2020 2019 2020 2019 Interest income: Loans, including fees $ 5,453 $ 5,787 $ 16,359 $ 17,277 Securities: Taxable 913 997 3,080 2,997 Tax-exempt 461 526 1,390 1,619 Federal funds sold and interest-bearing bank deposits 26 335 332 998 Total interest income 6,853 7,645 21,161 22,891 Interest expense: Deposits 983 1,076 3,005 3,101 Short-term borrowings 2 2 6 6 Total interest expense 985 1,078 3,011 3,107 Net interest income 5,868 6,567 18,150 19,784 Provision for loan losses 250 0 1,100 0 Net interest income after provision for loan losses 5,618 6,567 17,050 19,784 Noninterest income: Service charges on deposit accounts 139 182 437 542 Mortgage lending 702 263 1,615 639 Bank-owned life insurance 109 109 615 326 Other 408 393 1,202 1,472 Securities gains, net 16 44 103 57 Total noninterest income 1,374 991 3,972 3,036 Noninterest expense: Salaries and benefits 2,802 2,894 8,230 8,631 Net occupancy and equipment 457 387 1,974 1,152 Professional fees 230 195 877 698 Other 1,164 1,348 3,387 3,583 Total noninterest expense 4,653 4,824 14,468 14,064 Earnings before income taxes 2,339 2,734 6,554 8,756 Income tax expense 403 527 1,156 1,699 Net earnings $ 1,936 $ 2,207 $ 5,398 $ 7,057 Net earnings per share: Basic and diluted $ 0.54 $ 0.62 $ 1.51 $ 1.97 Weighted average shares outstanding: Basic and diluted 3,566,239 3,568,287 3,566,184 3,586,642 See accompanying notes to consolidated financial statements (Unaudited) 2(Unaudited)
Quarter ended September 30, Nine months ended September 30, (Dollars in thousands) 2020 2019 2020 2019 Net earnings $ 1,936 $ 2,207 $ 5,398 $ 7,057 Other comprehensive income (loss), net of tax: Unrealized net holding (loss) gain on securities (5) 1,596 5,387 6,049 Reclassification adjustment for net gain on securities recognized in net earnings (12) (33) (77) (43) Other comprehensive (loss) income (17) 1,563 5,310 6,006 Comprehensive income $ 1,919 $ 3,770 $ 10,708 $ 13,063 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 September 30, 2020 Balance, June 30, 2020 3,566,176 $ 39 $ 3,785 $ 103,444 $ 7,386 $ (9,355) $ 105,299 Net earnings — 0 0 1,936 0 0 1,936 Other comprehensive loss — 0 0 0 (17) 0 (17) Cash dividends paid ($.255 per share) — 0 0 (909) 0 0 (909) Sale of treasury stock 100 0 4 0 0 1 5 Balance, September 30, 2020 3,566,276 $ 39 $ 3,789 $ 104,471 $ 7,369 $ (9,354) $ 106,314 Quarter ended September 30, 2019 Balance, June 30, 2019 3,571,828 $ 39 $ 3,783 $ 98,694 $ 680 $ (9,131) $ 94,065 Net earnings — 0 0 2,207 0 0 2,207 Other comprehensive income — 0 0 0 1,563 0 1,563 Cash dividends paid ($.25 per share) — 0 0 (892) 0 0 (892) Stock repurchases (5,702) 0 0 0 0 (224) (224) Sale of treasury stock 20 0 1 0 0 0 1 Balance, September 30, 2019 3,566,146 $ 39 $ 3,784 $ 100,009 $ 2,243 $ (9,355) $ 96,720 Nine months ended September 30, 2020 Balance, December 31, 2019 3,566,146 $ 39 $ 3,784 $ 101,801 $ 2,059 $ (9,355) $ 98,328 Net earnings — 0 0 5,398 0 0 5,398 Other comprehensive income — 0 0 0 5,310 0 5,310 Cash dividends paid ($.765 per share) — 0 0 (2,728) 0 0 (2,728) Sale of treasury stock 130 0 5 0 0 1 6 Balance, September 30, 2020 3,566,276 $ 39 $ 3,789 $ 104,471 $ 7,369 $ (9,354) $ 106,314 Nine months ended September 30, 2019 Balance, December 31, 2018 3,643,868 $ 39 $ 3,779 $ 95,635 $ (3,763) $ (6,635) $ 89,055 Net earnings — 0 0 7,057 0 0 7,057 Other comprehensive income — 0 0 0 6,006 0 6,006 Cash dividends paid ($.75 per share) — 0 0 (2,683) 0 0 (2,683) Stock repurchases (77,907) 0 0 0 0 (2,721) (2,721) Sale of treasury stock 185 0 5 0 0 1 6 Balance, September 30, 2019 3,566,146 $ 39 $ 3,784 $ 100,009 $ 2,243 $ (9,355) $ 96,720 See accompanying notes to consolidated financial statements (Unaudited)6
Nine months ended September 30, (Dollars in thousands) 2020 2019 Cash flows from operating activities: Net earnings $ 5,398 $ 7,057 Adjustments to reconcile net earnings to net cash provided by operating activities: Provision for loan losses 1,100 0 Depreciation and amortization 1,336 705 Premium amortization and discount accretion, net 1,950 1,365 Net gain on securities available-for-sale (103) (57) Net gain on sale of loans held for sale (1,569) (382) Net gain on other real estate owned (52) (59) Loans originated for sale (60,173) (22,051) Proceeds from sale of loans 58,707 21,585 Increase in cash surrender value of bank-owned life insurance (334) (326) Income recognized from death benefit on bank-owned life insurance (282) 0 Net increase in other assets (1,241) (1,009) Net (decrease) increase in accrued expenses and other liabilities (585) 1,671 Net cash provided by operating activities 4,152 8,499 Cash flows from investing activities: Proceeds from sales of securities available-for-sale 21,029 12,159 Proceeds from prepayments and maturities of securities available-for-sale 39,909 38,413 Purchase of securities available-for-sale (140,714) (55,212) (Increase) decrease in loans, net (11,562) 11,735 Net purchases of premises and equipment (1,527) (1,604) Proceeds from bank-owned life insurance death benefit 694 0 (Increase) decrease in FHLB stock (9) 32 Proceeds from sale of other real estate owned 151 394 Net cash (used in) provided by investing activities (92,029) 5,917 Cash flows from financing activities: Net increase in noninterest-bearing deposits 42,264 1,630 Net increase (decrease) in interest-bearing deposits 57,564 (2,752) Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase 1,001 (1,328) Proceeds from sale of treasury stock 6 6 Stock repurchases 0 (2,721) Dividends paid (2,728) (2,683) Net cash provided by (used in) financing activities 98,107 (7,848) Net change in cash and cash equivalents 10,230 6,568 Cash and cash equivalents at beginning of period 92,443 65,076 Cash and cash equivalents at end of period $ 102,673 $ 71,644 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 3,011 $ 3,037 Income taxes 678 1,499 Supplemental disclosure of non-cash transactions: Initial recognition of operating lease right of use assets 0 891 Initial recognition of operating lease liabilities 0 889 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
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| Quarter ended September 30, |
|
| Nine months ended September 30, | ||||||
(Dollars in thousands, except share and per share data) |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 | ||
Basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
| ||
| Net earnings |
| $ | 1,936 |
| $ | 2,207 |
| $ | 5,398 |
| $ | 7,057 | |
| Weighted average common shares outstanding |
|
| 3,566,239 |
|
| 3,568,287 |
|
| 3,566,184 |
|
| 3,586,642 | |
|
| Net earnings per share |
| $ | 0.54 |
| $ | 0.62 |
| $ | 1.51 |
| $ | 1.97 |
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 | ||
September 30, 2020 |
|
|
|
|
|
|
|
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|
|
|
| |
Agency obligations (a) | $ | 5,011 | 29,994 | 55,660 | 5,389 | 96,054 |
| 3,396 | 19 |
| $ | 92,677 | |
Agency RMBS (a) |
| 0 | 1,302 | 8,292 | 145,053 | 154,647 |
| 3,415 | 285 |
|
| 151,517 | |
State and political subdivisions |
| 96 | 1,168 | 6,712 | 62,245 | 70,221 |
| 3,345 | 13 |
|
| 66,889 | |
| Total available-for-sale | $ | 5,107 | 32,464 | 70,664 | 212,687 | 320,922 |
| 10,156 | 317 |
| $ | 311,083 |
December 31, 2019 |
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|
|
| ||
Agency obligations (a) | $ | 4,993 | 27,245 | 18,470 | 0 | 50,708 |
| 215 | 98 |
| $ | 50,591 | |
Agency RMBS (a) |
| 0 | 560 | 4,510 | 118,207 | 123,277 |
| 798 | 261 |
|
| 122,740 | |
State and political subdivisions |
| 0 | 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
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| Less than 12 Months |
|
| 12 Months or Longer |
|
| Total | |||||||||
|
|
|
| Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
(Dollars in thousands) |
| Value |
|
| Losses |
|
| Value |
|
| Losses |
|
| Value |
|
| Losses | ||
September 30, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Agency obligations | $ | 5,013 |
|
| 19 |
|
| 0 |
|
| 0 |
| $ | 5,013 |
|
| 19 | ||
Agency RMBS |
| 30,819 |
|
| 285 |
|
| 0 |
|
| 0 |
|
| 30,819 |
|
| 285 | ||
State and political subdivisions |
| 2,868 |
|
| 13 |
|
| 0 |
|
| 0 |
|
| 2,868 |
|
| 13 | ||
|
| Total | $ | 38,700 |
|
| 317 |
|
| 0 |
|
| 0 |
| $ | 38,700 |
|
| 317 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
December 31, 2019: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
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 |
|
| 0 |
|
| 0 |
|
| 2,741 |
|
| 9 | ||
|
| Total | $ | 67,601 |
|
| 204 |
|
| 26,470 |
|
| 164 |
| $ | 94,071 |
|
| 368 |
11
Agency RMBS
mortgage-backed securities (“MBS”)
Realized Gains and Losses | ||||||||||||||
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The following table presents the gross realized gains and losses on sales of securities. |
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| ||||||||||||
| ||||||||||||||
|
|
|
|
| Quarter ended September 30, |
|
| Nine months ended September 30, | ||||||
(Dollars in thousands) |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 | ||
Gross realized gains |
| $ | 78 |
|
| 44 |
| $ | 184 |
|
| 76 | ||
Gross realized losses |
|
| (62) |
|
| 0 |
|
| (81) |
|
| (19) | ||
| Realized gains, net |
| $ | 16 |
|
| 44 |
| $ | 103 |
|
| 57 | |
12
2021
|
|
|
|
|
|
| September 30, |
|
| December 31, |
(Dollars in thousands) |
|
| 2020 |
|
| 2019 | ||||
Commercial and industrial |
| $ | 98,244 |
| $ | 56,782 | ||||
Construction and land development |
|
| 31,651 |
|
| 32,841 | ||||
Commercial real estate: |
|
|
|
|
|
| ||||
| Owner occupied |
|
| 48,955 |
|
| 48,860 | |||
| Hotel/motel |
|
| 43,111 |
|
| 43,719 | |||
| Multi-family |
|
| 32,608 |
|
| 44,839 | |||
| Other |
|
| 126,318 |
|
| 132,900 | |||
|
| Total commercial real estate |
|
| 250,992 |
|
| 270,318 | ||
Residential real estate: |
|
|
|
|
|
| ||||
| Consumer mortgage |
|
| 37,577 |
|
| 48,923 | |||
| Investment property |
|
| 47,477 |
|
| 43,652 | |||
|
| Total residential real estate |
|
| 85,054 |
|
| 92,575 | ||
Consumer installment |
|
| 7,731 |
|
| 8,866 | ||||
|
| Total loans |
|
| 473,672 |
|
| 461,382 | ||
Less: unearned income |
|
| (1,219) |
|
| (481) | ||||
|
| Loans, net of unearned income |
| $ | 472,453 |
| $ | 460,901 | ||
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 property.
13
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.
14
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| Accruing | Accruing | Total |
|
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|
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| 30-89 Days | Greater than | Accruing | Non- |
|
| Total |
(Dollars in thousands) |
| Current | Past Due | 90 days | Loans | Accrual |
|
| Loans | ||||||
September 30, 2020: |
|
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|
|
|
|
|
|
|
| |||||
Commercial and industrial |
| $ | 98,196 | 48 | 0 | 98,244 | 0 |
| $ | 98,244 | |||||
Construction and land development |
|
| 31,651 | 0 | 0 | 31,651 | 0 |
|
| 31,651 | |||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
| |||||
| Owner occupied |
|
| 48,955 | 0 | 0 | 48,955 | 0 |
|
| 48,955 | ||||
| Hotel/motel |
|
| 43,111 | 0 | 0 | 43,111 | 0 |
|
| 43,111 | ||||
| Multi-family |
|
| 32,608 | 0 | 0 | 32,608 | 0 |
|
| 32,608 | ||||
| Other |
|
| 126,102 | 0 | 0 | 126,102 | 216 |
|
| 126,318 | ||||
|
| Total commercial real estate |
|
| 250,776 | 0 | 0 | 250,776 | 216 |
|
| 250,992 | |||
Residential real estate: |
|
|
|
|
|
|
|
|
|
| |||||
| Consumer mortgage |
|
| 37,179 | 106 | 71 | 37,356 | 221 |
|
| 37,577 | ||||
| Investment property |
|
| 47,366 | 0 | 0 | 47,366 | 111 |
|
| 47,477 | ||||
|
| Total residential real estate |
|
| 84,545 | 106 | 71 | 84,722 | 332 |
|
| 85,054 | |||
Consumer installment |
|
| 7,724 | 6 | 0 | 7,730 | 1 |
|
| 7,731 | |||||
|
| Total |
| $ | 472,892 | 160 | 71 | 473,123 | 549 |
| $ | 473,672 | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019: |
|
|
|
|
|
|
|
|
|
| |||||
Commercial and industrial |
| $ | 56,758 | 24 | 0 | 56,782 | 0 |
| $ | 56,782 | |||||
Construction and land development |
|
| 32,385 | 456 | 0 | 32,841 | 0 |
|
| 32,841 | |||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
| |||||
| Owner occupied |
|
| 48,860 | 0 | 0 | 48,860 | 0 |
|
| 48,860 | ||||
| Hotel/motel |
|
| 43,719 | 0 | 0 | 43,719 | 0 |
|
| 43,719 | ||||
| Multi-family |
|
| 44,839 | 0 | 0 | 44,839 | 0 |
|
| 44,839 | ||||
| Other |
|
| 132,900 | 0 | 0 | 132,900 | 0 |
|
| 132,900 | ||||
|
| Total commercial real estate |
|
| 270,318 | 0 | 0 | 270,318 | 0 |
|
| 270,318 | |||
Residential real estate: |
|
|
|
|
|
|
|
|
|
| |||||
| Consumer mortgage |
|
| 47,151 | 1,585 | 0 | 48,736 | 187 |
|
| 48,923 | ||||
| Investment property |
|
| 43,629 | 23 | 0 | 43,652 | 0 |
|
| 43,652 | ||||
|
| Total residential real estate |
|
| 90,780 | 1,608 | 0 | 92,388 | 187 |
|
| 92,575 | |||
Consumer installment |
|
| 8,802 | 64 | 0 | 8,866 | 0 |
|
| 8,866 | |||||
|
| Total |
| $ | 459,043 | 2,152 | 0 | 461,195 | 187 |
| $ | 461,382 | |||
2020.
15
charged-off.
16
|
|
| September 30, 2020 | ||||||||||||
(Dollars in thousands) | Commercial and industrial |
| Construction and land development |
| Commercial real estate |
| Residential real estate |
| Consumer installment |
|
|
| Total | ||
Quarter ended: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Beginning balance | $ | 679 |
| 613 |
| 2,915 |
| 954 |
| 147 |
|
| $ | 5,308 | |
Charge-offs |
| 0 |
| 0 |
| 0 |
| 0 |
| (4) |
|
|
| (4) | |
Recoveries |
| 8 |
| 0 |
| 0 |
| 8 |
| 5 |
|
|
| 21 | |
| Net recoveries |
| 8 |
| 0 |
| 0 |
| 8 |
| 1 |
|
|
| 17 |
Provision for loan losses |
| 111 |
| (31) |
| 205 |
| (8) |
| (27) |
|
|
| 250 | |
Ending balance | $ | 798 |
| 582 |
| 3,120 |
| 954 |
| 121 |
|
| $ | 5,575 | |
Nine months ended: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Beginning balance | $ | 577 |
| 569 |
| 2,289 |
| 813 |
| 138 |
|
| $ | 4,386 | |
Charge-offs |
| (4) |
| 0 |
| 0 |
| 0 |
| (36) |
|
|
| (40) | |
Recoveries |
| 63 |
| 0 |
| 0 |
| 53 |
| 13 |
|
|
| 129 | |
| Net recoveries (charge-offs) |
| 59 |
| 0 |
| 0 |
| 53 |
| (23) |
|
|
| 89 |
Provision for loan losses |
| 162 |
| 13 |
| 831 |
| 88 |
| 6 |
|
|
| 1,100 | |
Ending balance | $ | 798 |
| 582 |
| 3,120 |
| 954 |
| 121 |
|
| $ | 5,575 | |
|
|
| September 30, 2019 | ||||||||||||
(Dollars in thousands) | Commercial and industrial |
| Construction and land development |
| Commercial real estate |
| Residential real estate |
| Consumer installment |
|
|
| Total | ||
Quarter ended: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Beginning balance | $ | 726 |
| 781 |
| 2,287 |
| 904 |
| 153 |
|
| $ | 4,851 | |
Charge-offs |
| (128) |
| 0 |
| 0 |
| (1) |
| (2) |
|
|
| (131) | |
Recoveries |
| 59 |
| 0 |
| 0 |
| 12 |
| 16 |
|
|
| 87 | |
| Net (charge-offs) recoveries |
| (69) |
| 0 |
| 0 |
| 11 |
| 14 |
|
|
| (44) |
Provision for loan losses |
| 28 |
| (51) |
| 67 |
| (25) |
| (19) |
|
|
| 0 | |
Ending balance | $ | 685 |
| 730 |
| 2,354 |
| 890 |
| 148 |
|
| $ | 4,807 | |
Nine months ended: |
|
|
|
|
|
|
|
|
|
|
|
| |||
Beginning balance | $ | 778 |
| 700 |
| 2,218 |
| 946 |
| 148 |
| �� | $ | 4,790 | |
Charge-offs |
| (128 ) |
| 0 |
| 0 |
| (1 ) |
| (18) |
|
|
| (147) | |
Recoveries |
| 83 |
| 0 |
| 1 |
| 59 |
| 21 |
|
|
| 164 | |
| Net (charge-offs) recoveries |
| (45) |
| 0 |
| 1 |
| 58 |
| 3 |
|
|
| 17 |
Provision for loan losses |
| (48) |
| 30 |
| 135 |
| (114) |
| (3) |
|
|
| 0 | |
Ending balance | $ | 685 |
| 730 |
| 2,354 |
| 890 |
| 148 |
|
| $ | 4,807 | |
17
|
|
|
|
|
|
|
| Collectively evaluated (1) |
| Individually evaluated (2) |
| Total | |||
|
|
|
|
|
|
|
| Allowance | Recorded |
| Allowance | Recorded |
| Allowance | Recorded |
|
|
|
|
|
|
|
| for loan | investment |
| for loan | investment |
| for loan | investment |
(Dollars in thousands) |
|
| losses | in loans |
| losses | in loans |
| losses | in loans | |||||
September 30, 2020: |
|
|
|
|
|
|
|
|
|
| |||||
Commercial and industrial (3) |
| $ | 798 | 98,244 |
| 0 | 0 |
| 798 | 98,244 | |||||
Construction and land development |
|
| 582 | 31,651 |
| 0 | 0 |
| 582 | 31,651 | |||||
Commercial real estate |
|
| 3,120 | 250,776 |
| 0 | 216 |
| 3,120 | 250,992 | |||||
Residential real estate |
|
| 954 | 84,943 |
| 0 | 111 |
| 954 | 85,054 | |||||
Consumer installment |
|
| 121 | 7,731 |
| 0 | 0 |
| 121 | 7,731 | |||||
|
| Total |
| $ | 5,575 | 473,345 |
| 0 | 327 |
| 5,575 | 473,672 | |||
September 30, 2019: |
|
|
|
|
|
|
|
|
| |||||
Commercial and industrial | $ | 685 | 52,288 |
| 0 | 0 |
| 685 | 52,288 | |||||
Construction and land development |
| 730 | 41,599 |
| 0 | 0 |
| 730 | 41,599 | |||||
Commercial real estate |
| 2,354 | 267,346 |
| 0 | 0 |
| 2,354 | 267,346 | |||||
Residential real estate |
| 890 | 95,215 |
| 0 | 0 |
| 890 | 95,215 | |||||
Consumer installment |
| 148 | 9,148 |
| 0 | 0 |
| 148 | 9,148 | |||||
|
| Total | $ | 4,807 | 465,596 |
| 0 | 0 |
| 4,807 | 465,596 | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. | |||||||||||||
(3) | Includes $36.5 million of PPP loans for which no loan loss reserve was allocated due to 100% SBA guarantee | |||||||||||||
2020.
18
(Dollars in thousands) |
| Pass |
| Special Mention |
| Substandard Accruing |
| Nonaccrual |
|
| Total loans | ||
September 30, 2020: |
|
|
|
|
|
|
|
|
|
|
| ||
Commercial and industrial | $ | 95,824 |
| 2,190 |
| 230 |
| 0 |
| $ | 98,244 | ||
Construction and land development |
| 31,088 |
| 0 |
| 563 |
| 0 |
|
| 31,651 | ||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
| ||
| Owner occupied |
| 45,089 |
| 3,723 |
| 143 |
| 0 |
|
| 48,955 | |
| Hotel/motel |
| 43,111 |
| 0 |
| 0 |
| — |
|
| 43,111 | |
| Multi-family |
| 29,078 |
| 3,530 |
| 0 |
| 0 |
|
| 32,608 | |
| Other |
| 125,574 |
| 483 |
| 45 |
| 216 |
|
| 126,318 | |
|
| Total commercial real estate |
| 242,852 |
| 7,736 |
| 188 |
| 216 |
|
| 250,992 |
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
| ||
| Consumer mortgage |
| 34,682 |
| 398 |
| 2,276 |
| 221 |
|
| 37,577 | |
| Investment property |
| 46,654 |
| 502 |
| 210 |
| 111 |
|
| 47,477 | |
|
| Total residential real estate |
| 81,336 |
| 900 |
| 2,486 |
| 332 |
|
| 85,054 |
Consumer installment |
| 7,673 |
| 15 |
| 42 |
| 1 |
|
| 7,731 | ||
|
| Total | $ | 458,773 |
| 10,841 |
| 3,509 |
| 549 |
| $ | 473,672 |
December 31, 2019: |
|
|
|
|
|
|
|
|
|
|
| ||
Commercial and industrial | $ | 54,340 |
| 2,176 |
| 266 |
| 0 |
| $ | 56,782 | ||
Construction and land development |
| 31,798 |
| 0 |
| 1,043 |
| 0 |
|
| 32,841 | ||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
| ||
| Owner occupied |
| 47,865 |
| 917 |
| 78 |
| 0 |
|
| 48,860 | |
| Hotel/motel |
| 43,719 |
| 0 |
| 0 |
| 0 |
|
| 43,719 | |
| Multi-family |
| 44,839 |
| 0 |
| 0 |
| 0 |
|
| 44,839 | |
| Other |
| 132,030 |
| 849 |
| 21 |
| 0 |
|
| 132,900 | |
|
| Total commercial real estate |
| 268,453 |
| 1,766 |
| 99 |
| 0 |
|
| 270,318 |
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
| ||
| Consumer mortgage |
| 45,247 |
| 962 |
| 2,527 |
| 187 |
|
| 48,923 | |
| Investment property |
| 42,331 |
| 949 |
| 372 |
| 0 |
|
| 43,652 | |
|
| Total residential real estate |
| 87,578 |
| 1,911 |
| 2,899 |
| 187 |
|
| 92,575 |
Consumer installment |
| 8,742 |
| 60 |
| 64 |
| 0 |
|
| 8,866 | ||
|
| Total | $ | 450,911 |
| 5,913 |
| 4,371 |
| 187 |
| $ | 461,382 |
19
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2020 | |||||
(Dollars 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 | (2) | 216 |
| $ | 0 | ||||
|
| Total commercial real estate |
| 218 | (2) | 216 |
|
| 0 | |||
Residential real estate: |
|
|
|
|
|
|
| |||||
| Investment property |
| 111 | 0 | 111 |
|
| 0 | ||||
|
| Total residential real estate |
| 111 | 0 | 111 |
|
| 0 | |||
|
| Total impaired loans | $ | 329 | (2) | 327 |
| $ | 0 | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 | |||||
(Dollars 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 |
| $ | 0 | |||||
|
| Total impaired loans | $ | 335 | (236) | 99 |
| $ | 0 | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. | |||||||||||
20
|
|
|
|
|
|
| Quarter ended September 30, 2020 |
| Nine months ended September 30, 2020 | ||||
|
|
|
|
|
|
| Average |
| Total interest |
| Average |
| Total interest |
|
|
|
|
|
|
| recorded |
| income |
| recorded |
| income |
(Dollars in thousands) |
| investment |
| recognized |
| investment |
| recognized | |||||
Impaired loans: | |||||||||||||
Commercial real estate: |
|
|
|
|
|
|
|
| |||||
| Other | $ | 217 |
| 0 |
| 87 |
| 0 | ||||
|
| Total commercial real estate |
| 217 |
| 0 |
| 87 |
| 0 | |||
Residential real estate: |
|
|
|
|
|
|
|
| |||||
| Investment property |
| 111 |
| 0 |
| 44 |
| 0 | ||||
|
| Total residential real estate |
| 111 |
| 0 |
| 44 |
| 0 | |||
|
| Total | $ | 328 |
| 0 |
| 131 |
| 0 | |||
|
|
|
|
|
|
| Quarter ended September 30, 2019 |
| Nine months ended September 30, 2019 | ||||
|
|
|
|
|
|
| Average |
| Total interest |
| Average |
| Total interest |
|
|
|
|
|
|
| recorded |
| income |
| recorded |
| income |
(Dollars in thousands) |
| investment |
| recognized |
| investment |
| recognized | |||||
Impaired loans: | |||||||||||||
Commercial real estate: |
|
|
|
|
|
|
|
| |||||
| Owner occupied | $ | 0 |
| 0 |
| 31 |
| 9 | ||||
|
| Total commercial real estate |
| 0 |
| 0 |
| 31 |
| 9 | |||
|
| Total | $ | 0 |
| 0 |
| 31 |
| 9 | |||
310-40.
21
Similar to other impaired loans, TDRs are measured for impairmentbased on the present value of expected payments using
|
|
|
|
|
|
| TDRs | |||||
|
|
|
|
|
|
|
|
|
|
|
| Related |
(Dollars in thousands) |
| Accruing | Nonaccrual | Total |
|
| Allowance | |||||
September 30, 2020 |
|
|
|
|
|
|
| |||||
Commercial real estate: |
|
|
|
|
|
|
| |||||
| Other | $ | 0 | 216 | 216 |
| $ | 0 | ||||
|
| Total commercial real estate |
| 0 | 216 | 216 |
|
| 0 | |||
Residential real estate: |
|
|
|
|
|
|
| |||||
| Investment property |
| 0 | 111 | 111 |
|
| 0 | ||||
|
| Total residential real estate |
| 0 | 111 | 111 |
|
| 0 | |||
|
| Total | $ | 0 | 327 | 327 |
| $ | 0 | |||
2020, respectively.
The following table summarizes loans modified in a TDR during the respective periods both before and after their modification.
|
|
|
|
|
| Quarter ended September 30, |
|
| Nine months ended September 30, | ||||||||||
|
|
|
|
|
|
|
|
| Pre- |
| Post - |
|
|
|
|
| Pre- |
| Post - |
|
|
|
|
|
|
|
|
| modification |
| modification |
|
|
|
|
| modification |
| modification |
|
|
|
|
|
| Number |
|
| outstanding |
| outstanding |
|
| Number |
|
| outstanding |
| outstanding |
|
|
|
|
|
| of |
|
| recorded |
| recorded |
|
| of |
|
| recorded |
| recorded |
(Dollars in thousands) | contracts |
|
| investment |
| investment |
|
| contracts |
|
| investment |
| investment | |||||
2020: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
| Other | 0 |
| $ | 0 |
| 0 |
|
| 1 |
| $ | 216 |
| 216 | ||||
|
| Total commercial real estate | 0 |
|
| 0 |
| 0 |
|
| 1 |
|
| 216 |
| 216 | |||
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
| Investment property | 0 |
|
| 0 |
| 0 |
|
| 3 |
|
| 111 |
| 111 | ||||
|
| Total residential real estate | 0 |
|
| 0 |
| 0 |
|
| 3 |
|
| 111 |
| 111 | |||
|
| Total | 0 |
| $ | 0 |
| 0 |
|
| 4 |
| $ | 327 |
| 327 | |||
Four loans were modified in a TDR during the nine
2021.
22
|
| Quarter ended September 30, |
|
| Nine months ended September 30, | ||||||
(Dollars in thousands) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
MSRs, net: |
|
|
|
|
|
|
|
|
|
|
|
Beginning balance | $ | 1,271 |
| $ | 1,355 |
| $ | 1,299 |
| $ | 1,441 |
Additions, net |
| 234 |
|
| 80 |
|
| 471 |
|
| 160 |
Amortization expense |
| (183) |
|
| (109) |
|
| (448) |
|
| (275) |
Ending balance | $ | 1,322 |
| $ | 1,326 |
| $ | 1,322 |
| $ | 1,326 |
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance included in MSRs, net: |
|
|
|
|
| ||||||
Beginning of period | $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
End of period |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of amortized MSRs: |
|
|
|
|
|
|
|
|
|
|
|
Beginning of period | $ | 1,690 |
| $ | 2,333 |
| $ | 2,111 |
| $ | 2,697 |
End of period |
| 1,521 |
|
| 2,068 |
|
| 1,521 |
|
| 2,068 |
23
Level changes in fair value measurements
24
|
|
|
|
|
| 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) | ||
September 30, 2020: |
|
|
|
|
|
|
|
| ||
Securities available-for-sale: |
|
|
|
|
|
|
|
| ||
| Agency obligations | $ | 96,054 |
| 0 |
| 96,054 |
| 0 | |
| Agency RMBS |
| 154,647 |
| 0 |
| 154,647 |
| 0 | |
| State and political subdivisions |
| 70,221 |
| 0 |
| 70,221 |
| 0 | |
Total securities available-for-sale |
| 320,922 |
| 0 |
| 320,922 |
| 0 | ||
|
| Total assets at fair value | $ | 320,922 |
| 0 |
| 320,922 |
| 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019: |
|
|
|
|
|
|
|
| ||
Securities available-for-sale: |
|
|
|
|
|
|
|
| ||
| Agency obligations | $ | 50,708 |
| 0 |
| 50,708 |
| 0 | |
| Agency RMBS |
| 123,277 |
| 0 |
| 123,277 |
| 0 | |
| State and political subdivisions |
| 61,917 |
| 0 |
| 61,917 |
| 0 | |
Total securities available-for-sale |
| 235,902 |
| 0 |
| 235,902 |
| 0 | ||
|
| Total assets at fair value | $ | 235,902 |
| 0 |
| 235,902 |
| 0 |
25
Other real estate owned
Other real estate owned (“OREO”), consisting of properties obtained through foreclosure or in satisfaction of loans, is 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) | |
September 30, 2020: |
|
|
|
|
|
|
|
| |
Loans held for sale | $ | 4,765 |
| 0 |
| 4,765 |
| 0 | |
Loans, net(1) |
| 327 |
| 0 |
| 0 |
| 327 | |
Other assets (2) |
| 1,322 |
| 0 |
| 0 |
| 1,322 | |
| Total assets at fair value | $ | 6,414 |
| 0 |
| 4,765 |
| 1,649 |
December 31, 2019: |
|
|
|
|
|
|
|
| |
Loans held for sale | $ | 2,202 |
| 0 |
| 2,202 |
| 0 | |
Loans, net(1) |
| 99 |
| 0 |
| 0 |
| 99 | |
Other assets (2) |
| 1,299 |
| 0 |
| 0 |
| 1,299 | |
| Total assets at fair value | $ | 3,600 |
| 0 |
| 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. | |||||||||
26
27
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 September 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.
|
|
|
|
|
|
|
|
|
| Fair Value Hierarchy | ||||||
|
|
|
| Carrying |
|
| Estimated |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
(Dollars in thousands) |
|
| amount |
|
| fair value |
|
| inputs |
|
| inputs |
|
| Inputs | |
September 30, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Loans, net (1) |
| $ | 466,878 |
| $ | 468,317 |
| $ | 0 |
| $ | 0 |
| $ | 468,317 |
| Loans held for sale |
|
| 4,765 |
|
| 4,969 |
|
| 0 |
|
| 4,969 |
|
| 0 |
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Time Deposits |
| $ | 163,294 |
| $ | 165,024 |
| $ | 0 |
| $ | 165,024 |
| $ | 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Loans, net (1) |
| $ | 456,515 |
| $ | 453,705 |
| $ | 0 |
| $ | 0 |
| $ | 453,705 |
| Loans held for sale |
|
| 2,202 |
|
| 2,251 |
|
| 0 |
|
| 2,251 |
|
| 0 |
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Time Deposits |
| $ | 167,199 |
| $ | 168,316 |
| $ | 0 |
| $ | 168,316 |
| $ | 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. | ||||||||||||||||
28
10-Q.ninesix months ended SeptemberJune 30, 2020 2021and 2019,2020, as well as the information contained in our annual reportAnnual 20192020 and our interim reportsQuarterly Reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020.Certain in this discussionherein under the captions “Management’sDiscussion and analysisAnalysis of Financial Condition including information incorporated herein by reference to other documents, of, and subject to, the protectionsof Section 27A of the Securities Act of 1933 as amended, (the “Securities Act”) and (the(the “Exchange Act”). “assume,“assume,” “should,“expect,“expect,” “estimate,” “continue,” “plan,” “point to,” “project,” “could,•foreign, locally,seasonality;•seasonality, naturaldisasters or climate change, such as rising sea and water levels,hurricanes and significant disruptive effects of the COVID-19 pandemic, and local, state, national and internationalwar or other conflicts, acts of terrorism, orother events that may affect general economic activity, including decreases in gross domestic product (“GDP”) and increases in unemployment;•conditions;policies, generally, and reductions of market interest rates, injections of liquidity by the Federal Reserve, Federal Reserve lending and market support programs and facilities, government spending and aid to businesses and consumers as a result of the COVID-19 pandemic, and the COVID-19 pandemic’s effects and public health and economic activity;•the effects of public health, economic activity and measures taken to restore public health in light of the COVID-19 pandemic;•policies;the CARES Act, changes in banking,securities and tax laws, regulations and rules andinsurance,insurance; temporary other changes in accountingborrowers’ credit risks and capital requirements to address the effects of the COVID-19 pandemic and stabilize and stimulate the economy and delayspayment behaviors from those used in PPPour loan forgiveness rules and processing;•changes in accounting policies, rules, and practices;•interest sensitiveinterest-sensitive assetsand liabilities, and the risks and uncertainty•behaviors, especially in light of the economic effects of COVID-19;behaviors;29•●••
•
•
•
•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, deferrals on loans, suspension of residential mortgage foreclosure 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
30
Summary of Results of Operations | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter ended September 30, |
|
| Nine months ended September 30, | ||||||
(Dollars in thousands, except per share amounts) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 | |||
Net interest income (a) | $ | 5,990 |
| $ | 6,707 |
| $ | 18,519 |
| $ | 20,215 | |||
Less: tax-equivalent adjustment |
| 122 |
|
| 140 |
|
| 369 |
|
| 431 | |||
|
|
| Net interest income (GAAP) |
| 5,868 |
|
| 6,567 |
|
| 18,150 |
|
| 19,784 |
Noninterest income |
| 1,374 |
|
| 991 |
|
| 3,972 |
|
| 3,036 | |||
|
|
| Total revenue |
| 7,242 |
|
| 7,558 |
|
| 22,122 |
|
| 22,820 |
Provision for loan losses |
| 250 |
|
| — |
|
| 1,100 |
|
| — | |||
Noninterest expense |
| 4,653 |
|
| 4,824 |
|
| 14,468 |
|
| 14,064 | |||
Income tax expense |
| 403 |
|
| 527 |
|
| 1,156 |
|
| 1,699 | |||
|
|
| Net earnings | $ | 1,936 |
| $ | 2,207 |
| $ | 5,398 |
| $ | 7,057 |
| ||||||||||||||
Basic and diluted earnings per share | $ | 0.54 |
| $ | 0.62 |
| $ | 1.51 |
| $ | 1.97 | |||
(a) Tax-equivalent. See "Table 1 - Explanation of Non-GAAP Financial Measures." | ||||||||||||||
June 30, 2020.
deposits from government stimulusand relief programs and customers’ increased savings.
Noninterest expense was $14.5 million for the first nine months of 2020 compared to $14.1 million for the first nine months of 2019. The increase was primarily due to $0.8 million of variousexpenses related to the redevelopment of
of $0.3 million and other noninterest expense of $0.2million during the first six months of 2021.
31
2021.
2020.
See “Balance Sheet Analysis – Loans” for supplemental COVID-19
32
•We arewere a participating lender in the Paycheck Protection Program (“PPP”). PPP.PPP loans are forgivable, in whole or in part, if the proceedsare used
(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 PPP closed on August 8, 2020 and the SBA
loans under the Economic Aid Act.
33
The Company deems loans impaired when, based on current informationand events, it is probable that the Company will
charged-off.
34
Assessment for Other-Than-TemporaryImpairment of Securities
35
Deferred TaxAsset Valuation
Under the CARES Act, net operating losses arising
RESULTS OF OPERATIONS | ||||||||||
| ||||||||||
Average Balance Sheet and Interest Rates | ||||||||||
|
| Nine months ended September 30, | ||||||||
|
| 2020 |
| 2019 | ||||||
|
| Average | Yield/ |
| Average | Yield/ | ||||
(Dollars in thousands) |
| Balance | Rate |
| Balance | Rate | ||||
Loans and loans held for sale |
| $ | 463,581 | 4.71% |
| $ | 475,467 | 4.86% | ||
Securities - taxable |
|
| 225,234 | 1.83% |
|
| 175,703 | 2.28% | ||
Securities - tax-exempt |
|
| 62,930 | 3.73% |
|
| 67,964 | 4.03% | ||
| Total securities |
|
| 288,164 | 2.24% |
|
| 243,667 | 2.77% | |
Federal funds sold |
|
| 30,739 | 0.51% |
|
| 19,552 | 2.32% | ||
Interest bearing bank deposits |
|
| 53,834 | 0.53% |
|
| 37,094 | 2.38% | ||
| Total interest-earning assets |
|
| 836,318 | 3.44% |
|
| 775,780 | 4.02% | |
Deposits: |
|
|
|
|
|
|
|
| ||
| NOW |
|
| 153,767 | 0.37% |
|
| 134,368 | 0.53% | |
| Savings and money market |
|
| 234,533 | 0.46% |
|
| 218,284 | 0.43% | |
| Time Deposits |
|
| 166,115 | 1.43% |
|
| 171,804 | 1.45% | |
| Total interest-bearing deposits |
|
| 554,415 | 0.72% |
|
| 524,456 | 0.79% | |
Short-term borrowings |
|
| 1,721 | 0.50% |
|
| 1,503 | 0.50% | ||
| Total interest-bearing liabilities |
|
| 556,136 | 0.72% |
|
| 525,959 | 0.79% | |
Net interest income and margin (tax-equivalent) |
| $ | 18,519 | 2.96% |
| $ | 20,215 | 3.48% | ||
margin (tax-equivalent)
deposits from government stimulus and
36
The Company continues to deploy various asset liability managementstrategies to manage its risk to interest rate
Noninterest Income | ||||||||||||
| Quarter ended September 30, |
| Nine months ended September 30, | |||||||||
(Dollars in thousands) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 | |
Service charges on deposit accounts | $ | 139 |
| $ | 182 |
| $ | 437 |
| $ | 542 | |
Mortgage lending income |
| 702 |
|
| 263 |
|
| 1,615 |
|
| 639 | |
Bank-owned life insurance |
| 109 |
|
| 109 |
|
| 615 |
|
| 326 | |
Securities gains, net |
| 16 |
|
| 44 |
|
| 103 |
|
| 57 | |
Other |
| 408 |
|
| 393 |
|
| 1,202 |
|
| 1,472 | |
| Total noninterest income | $ | 1,374 |
| $ | 991 |
| $ | 3,972 |
| $ | 3,036 |
The decrease
37
The following table presents a breakdown of the Company’smortgage lending income.
| Quarter ended September 30, |
| Nine months ended September 30, | |||||||||
(Dollars in thousands) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 | |
Origination income | $ | 722 |
| $ | 194 |
| $ | 1,569 |
| $ | 382 | |
Servicing fees, net |
| (20) |
|
| 69 |
|
| 46 |
|
| 257 | |
| Total mortgage lending income | $ | 702 |
| $ | 263 |
| $ | 1,615 |
| $ | 639 |
The increase
due to improved pricing margins.
Noninterest Expense | ||||||||||||
| Quarter ended September 30, |
| Nine months ended September 30, | |||||||||
(Dollars in thousands) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 | |
Salaries and benefits | $ | 2,802 |
| $ | 2,894 |
| $ | 8,230 |
| $ | 8,631 | |
Net occupancy and equipment |
| 457 |
|
| 387 |
|
| 1,974 |
|
| 1,152 | |
Professional fees |
| 230 |
|
| 195 |
|
| 877 |
|
| 698 | |
Other |
| 1,164 |
|
| 1,348 |
|
| 3,387 |
|
| 3,583 | |
| Total noninterest expense | $ | 4,653 |
| $ | 4,824 |
| $ | 14,468 |
| $ | 14,064 |
The decrease in salaries and benefits expense was primarily due to lower full-time equivalent employees, incentive accruals and an increase in deferred costs related to the PPP loan program.
program,
17.86%, respectively.
38
BALANCE SHEET ANALYSIS
ANALYSIS
Loans | |||||||||||
| 2020 |
| 2019 | ||||||||
| Third |
| Second |
| First |
| Fourth |
| Third | ||
(In thousands) |
| Quarter |
| Quarter |
| Quarter |
| Quarter |
| Quarter | |
Commercial and industrial | $ | 98,244 |
| 87,754 |
| 56,447 |
| 56,782 |
| 52,288 | |
Construction and land development |
| 31,651 |
| 32,967 |
| 32,302 |
| 32,841 |
| 41,599 | |
Commercial real estate |
| 250,992 |
| 250,588 |
| 256,099 |
| 270,318 |
| 267,346 | |
Residential real estate |
| 85,054 |
| 85,825 |
| 91,010 |
| 92,575 |
| 95,215 | |
Consumer installment |
| 7,731 |
| 8,631 |
| 8,424 |
| 8,866 |
| 9,148 | |
| Total loans |
| 473,672 |
| 465,765 |
| 444,282 |
| 461,382 |
| 465,596 |
Less: unearned income |
| (1,219) |
| (1,491) |
| (414) |
| (481) |
| (488) | |
| Loans, net of unearned income | $ | 472,453 |
| 464,274 |
| 443,868 |
| 460,901 |
| 465,108 |
the first six months of 2020.
2021.
2020.
39
The Company attempts to reduce these economic and creditrisks through its loan-to-value guidelines for collateralized
|
| September 30, |
|
| December 31, |
(Dollars in thousands) |
| 2020 |
|
| 2019 |
Lessors of 1 to 4 family residential properties | $ | 47,477 |
| $ | 43,652 |
Hotel/motel |
| 43,111 |
|
| 43,719 |
Shopping centers |
| 33,630 |
|
| 30,407 |
Multi-family residential properties |
| 32,608 |
|
| 44,839 |
Office buildings |
| 20,507 |
|
| 29,548 |
Supplemental COVID-19 Industry Exposure
We have identified certain commercial sectors with enhanced risk resulting from the impact
|
| Portfolio Segment |
|
|
|
| ||
(Dollars in thousands) |
| Commercial and industrial | Construction and land development | Commercial real estate |
| Total | % of Total Loans | |
September 30, 2020: |
|
|
|
|
|
|
|
|
Hotel/motel | $ | 753 | 9,890 | 43,111 | $ | 53,754 | 11 | % |
Shopping centers |
| 13 | — | 33,630 |
| 33,643 | 7 |
|
Retail, excluding shopping centers |
| 283 | 161 | 18,149 |
| 18,593 | 4 |
|
Restaurants |
| 1,516 | — | 13,306 |
| 14,822 | 4 |
|
Total | $ | 2,565 | 10,051 | 108,196 | $ | 120,812 | 26 | % |
1-4 family residential properties
40
49,127
COVID-19 Modifications |
|
| Modification Types | |||||
(Dollars in thousands) |
| Balance | % of Portfolio Modified |
| Interest Only Payment |
| P&I Payments Deferred |
|
Commercial and industrial | $ | 1,541 | 2 | % | 37 | % | 63 | % |
Construction and land development |
| 45 | — |
| — |
| 100 |
|
Commercial real estate |
| 82,491 | 33 |
| 32 |
| 68 |
|
Residential real estate |
| 2,874 | 3 |
| 5 |
| 95 |
|
Consumer installment |
| 117 | 2 |
| — |
| 100 |
|
Total | $ | 87,068 | 24 | % | 24 | % | 76 | % |
|
|
|
|
|
|
|
|
|
COVID-19 Modifications within Commercial Real Estate Segments |
|
|
| |||||
(Dollars in thousands) |
|
|
|
| Balance of Loans Modified |
| % of Total Segment Loans |
|
Hotel/motel |
|
|
| $ | 42,018 |
| 78 | % |
Shopping centers |
|
|
|
| 6,938 |
| 21 |
|
Retail, excluding shopping centers |
|
|
|
| 3,033 |
| 16 |
|
Restaurants |
|
|
|
| 7,523 |
| 51 |
|
41
A summary of the changes in the allowance for loan losses and certainasset quality ratios for the thirdsecond quarter of 2020 2021
|
| 2020 |
| 2019 | ||||||||
|
| Third |
| Second |
| First |
| Fourth |
| Third | ||
(Dollars in thousands) |
| Quarter |
| Quarter |
| Quarter |
| Quarter |
| Quarter | ||
Balance at beginning of period | $ | 5,308 |
| 4,867 |
| 4,386 |
| 4,807 |
| 4,851 | ||
Charge-offs: |
|
|
|
|
|
|
|
|
|
| ||
| Commercial and industrial |
| — |
| (3) |
| — |
| (236) |
| (128) | |
| Residential real estate |
| — |
| — |
| — |
| (5) |
| (1) | |
| Consumer installment |
| (4) |
| (28) |
| (5) |
| (20) |
| (2) | |
|
| Total charge-offs |
| (4) |
| (31) |
| (5) |
| (261) |
| (131) |
Recoveries |
| 21 |
| 22 |
| 86 |
| 90 |
| 87 | ||
|
| Net recoveries (charge-offs) |
| 17 |
| (9) |
| 81 |
| (171) |
| (44) |
Provision for loan losses |
| 250 |
| 450 |
| 400 |
| (250) |
| — | ||
|
|
|
|
|
|
|
|
|
|
|
| |
Ending balance | $ | 5,575 |
| 5,308 |
| 4,867 |
| 4,386 |
| 4,807 | ||
| as a % of loans |
| 1.18 | % | 1.14 |
| 1.10 |
| 0.95 |
| 1.03 | |
| as a % of nonperforming loans |
| 1,015 | % | 783 |
| 4,196 |
| 2,345 |
| 2,763 | |
Net (recoveries) charge-offs as % of average loans (a) | (0.01) | % | 0.01 |
| (0.07) |
| 0.15 |
| 0.04 | |||
| ||||||||||||
(a) Net (recoveries) charge-offs are annualized. | ||||||||||||
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.
42
loans and other real estate owned
|
|
| 2020 |
| 2019 | ||||||
|
|
| Third |
| Second |
| First |
| Fourth |
| Third |
(Dollars in thousands) |
| Quarter |
| Quarter |
| Quarter |
| Quarter |
| Quarter | |
Nonperforming assets: |
|
|
|
|
|
|
|
|
|
| |
Nonaccrual loans | $ | 549 |
| 678 |
| 116 |
| 187 |
| 174 | |
Other real estate owned |
| — |
| — |
| 99 |
| — |
| — | |
Total nonperforming assets | $ | 549 |
| 678 |
| 215 |
| 187 |
| 174 | |
| as a % of loans and other real estate owned |
| 0.12 | % | 0.15 |
| 0.05 |
| 0.04 |
| 0.04 |
| as a % of total assets |
| 0.06 | % | 0.07 |
| 0.03 |
| 0.02 |
| 0.02 |
Nonperforming loans as a % of total loans |
| 0.12 | % | 0.15 |
| 0.03 |
| 0.04 |
| 0.04 | |
|
|
|
|
|
|
|
|
|
|
|
|
0.14
|
|
| 2020 |
| 2019 | ||||||
|
|
| Third |
| Second |
| First |
| Fourth |
| Third |
(In thousands) |
| Quarter |
| Quarter |
| Quarter |
| Quarter |
| Quarter | |
Nonaccrual loans: |
|
|
|
|
|
|
|
|
|
| |
Commercial real estate | $ | 216 |
| 218 |
| — |
| — |
| — | |
Residential real estate |
| 332 |
| 459 |
| 112 |
| 187 |
| 174 | |
Consumer installment |
| 1 |
| 1 |
| 4 |
| — |
| — | |
| Total nonaccrual loans | $ | 549 |
| 678 |
| 116 |
| 187 |
| 174 |
2020.
2020.
|
|
|
| 2020 |
| 2019 | ||||||
|
|
|
| Third |
| Second |
| First |
| Fourth |
| Third |
(In thousands) |
| Quarter |
| Quarter |
| Quarter |
| Quarter |
| Quarter | ||
Other real estate owned: |
|
|
|
|
|
|
|
|
|
| ||
Residential | $ | — |
| — |
| 99 |
| — |
| — | ||
|
| Total other real estate owned | $ | — |
| — |
| 99 |
| — |
| — |
at June 30, 2021 or December 31,2020.
2020.
43
| 2020 |
| 2019 | ||||||||
| Third |
| Second |
| First |
| Fourth |
| Third | ||
(In thousands) | Quarter |
| Quarter |
| Quarter |
| Quarter |
| Quarter | ||
Potential problem loans: |
|
|
|
|
|
|
|
|
|
| |
Commercial and industrial | $ | 230 |
| 211 |
| 246 |
| 266 |
| 500 | |
Construction and land development |
| 563 |
| 568 |
| 910 |
| 1,043 |
| 660 | |
Commercial real estate |
| 188 |
| 165 |
| 170 |
| 99 |
| 102 | |
Residential real estate |
| 2,486 |
| 2,645 |
| 2,913 |
| 2,899 |
| 3,460 | |
Consumer installment |
| 42 |
| 55 |
| 63 |
| 64 |
| 45 | |
| Total potential problem loans | $ | 3,509 |
| 3,644 |
| 4,302 |
| 4,371 |
| 4,767 |
2021
44
The following table is a summary of the Company’sperforming loans that were past due at least 30 days,but less than
|
|
| 2020 |
| 2019 | ||||||
|
| Third |
| Second |
| First |
| Fourth |
| Third | |
(In thousands) |
| Quarter |
| Quarter |
| Quarter |
| Quarter |
| Quarter | |
Performing loans past due 30 to 89 days: |
|
|
|
|
|
|
|
|
|
| |
Commercial and industrial | $ | 48 |
| 83 |
| 4 |
| 24 |
| 53 | |
Construction and land development |
| — |
| — |
| 8 |
| 456 |
| 449 | |
Commercial real estate |
| — |
| 168 |
| — |
| — |
| — | |
Residential real estate |
| 106 |
| 620 |
| 922 |
| 1,608 |
| 94 | |
Consumer installment |
| 6 |
| 8 |
| 19 |
| 64 |
| 21 | |
| Total | $ | 160 |
| 879 |
| 953 |
| 2,152 |
| 617 |
quarters.
2020.The decline in average rates paid on total interest-bearing depositswas largely driven by generally
2020.
2021 compared to 0.75% in the first
2020.
During the first six months of 2021, the
45
Effective March 20, 2020, the Federal Reserve andthe other federal banking regulators adopted an interim final rule that
2021.
46
Company expenses.
47
Primary sources of funding for the Bank include customer deposits,other borrowings, repayment and maturity of securities,
Since 2009, we have
2021.
48
Although repurchase and make whole requests related to representationand warranty provisions and servicing activities
49
2020 2019 Third Second First Fourth Third (in thousands) Quarter Quarter Quarter Quarter Quarter Net interest income (GAAP) $ 5,868 6,070 6,212 6,280 6,567 Tax-equivalent adjustment 122 127 120 126 140 Net interest income (Tax-equivalent) $ 5,990 6,197 6,332 6,406 6,707 Nine months ended September 30, (In thousands) 2020 2019 Net interest income (GAAP) $ 18,150 19,784 Tax-equivalent adjustment 369 431 Net interest income (Tax-equivalent) $ 18,519 20,215non-GAAPnon-non-GAAPnon-50
2020 2019 Third Second First Fourth Third (Dollars in thousands, except per share amounts) Quarter Quarter Quarter Quarter Quarter Results of Operations Net interest income (a) $ 5,990 6,197 6,332 6,406 6,707 Less: tax-equivalent adjustment 122 127 120 126 140 Net interest income (GAAP) 5,868 6,070 6,212 6,280 6,567 Noninterest income 1,374 1,363 1,235 2,458 991 Total revenue 7,242 7,433 7,447 8,738 7,558 Provision for loan losses 250 450 400 (250) — Noninterest expense 4,653 4,959 4,856 5,633 4,824 Income tax expense 403 363 390 671 527 Net earnings $ 1,936 1,661 1,801 2,684 2,207 Per share data: Basic and diluted net earnings $ 0.54 0.47 0.50 0.76 0.62 Cash dividends declared 0.255 0.255 0.255 0.25 0.25 Weighted average shares outstanding: Basic and diluted 3,566,239 3,566,166 3,566,146 3,566,146 3,568,287 Shares outstanding, at period end 3,566,276 3,566,176 3,566,146 3,566,146 3,566,146 Book value $ 29.81 29.53 29.04 27.57 27.12 Common stock price High $ 56.80 63.40 59.99 53.90 47.38 Low 26.26 36.81 24.11 40.00 32.33 Period end: 36.26 57.09 41.98 53.00 47.38 To earnings ratio 15.97 x 24.29 16.66 19.49 18.08 To book value 122 % 193 145 192 175 Performance ratios: Return on average equity 7.26 % 6.34 7.24 10.86 9.25 Return on average assets 0.84 % 0.74 0.86 1.30 1.06 Dividend payout ratio 47.22 % 54.26 51.00 32.89 40.32 Asset Quality: Allowance for loan losses as a % of: Loans 1.18 % 1.14 1.10 0.95 1.03 Nonperforming loans 1,015 % 783 4,196 2,345 2,763 Nonperforming assets as a % of: Loans and foreclosed properties 0.12 % 0.15 0.05 0.04 0.04 Total assets 0.06 % 0.07 0.03 0.02 0.02 Nonperforming loans as a % of total loans 0.12 % 0.15 0.03 0.04 0.04 Annualized net (recoveries) charge-offs as % of average loans (0.01) % 0.01 (0.07) — 0.04 Capital Adequacy: (c) CET 1 risk-based capital ratio 17.70 % 18.00 17.77 17.28 17.06 Tier 1 risk-based capital ratio 17.70 % 18.00 17.77 17.28 17.06 Total risk-based capital ratio 18.77 % 19.04 18.72 18.12 17.96 Tier 1 leverage ratio 10.38 % 10.62 11.17 11.23 11.22 Other financial data: Net interest margin (a) 2.72 % 2.95 3.23 3.27 3.41 Effective income tax rate 17.23 % 17.93 17.80 20.00 19.28 Efficiency ratio (b) 63.19 % 65.60 64.17 63.55 62.67 Selected average balances: Securities $ 315,542 291,333 257,317 249,106 247,114 Loans, net of unearned income 465,285 466,971 451,210 469,579 472,747 Total assets 924,949 893,720 838,725 827,684 829,761 Total deposits 810,747 782,381 734,047 723,557 729,608 Total stockholders’ equity 106,709 104,820 99,560 98,887 95,400 Selected period end balances: Securities $ 320,922 302,193 280,435 235,902 251,152 Loans, net of unearned income 472,453 464,274 443,868 460,901 465,108 Allowance for loan losses 5,575 5,308 4,867 4,386 4,807 Total assets 937,890 942,887 856,475 828,570 824,963 Total deposits 823,980 829,810 746,785 724,152 723,071 Total stockholders’ equity 106,314 105,299 103,563 98,328 96,720 (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.51
Nine months ended September 30, (Dollars in thousands, except per share amounts) 2020 2019 Results of Operations Net interest income (a) $ 18,519 20,215 Less: tax-equivalent adjustment 369 431 Net interest income (GAAP) 18,150 19,784 Noninterest income 3,972 3,036 Total revenue 22,122 22,820 Provision for loan losses 1,100 — Noninterest expense 14,468 14,064 Income tax expense 1,156 1,699 Net earnings $ 5,398 7,057 Per share data: Basic and diluted net earnings $ 1.51 1.97 Cash dividends declared 0.765 0.75 Weighted average shares outstanding: Basic and diluted 3,566,184 3,586,642 Shares outstanding, at period end 3,566,276 3,566,146 Book value $ 29.81 27.12 Common stock price High $ 63.40 47.38 Low 24.11 30.61 Period end 36.26 47.38 To earnings ratio 15.97 x 18.08 To book value 122 % 175 Performance ratios: Return on average equity 6.94 % 10.17 Return on average assets 0.81 % 1.14 Dividend payout ratio 50.66 % 38.07 Asset Quality: Allowance for loan losses as a % of: Loans 1.18 % 1.03 Nonperforming loans 1,015 % 2,763 Nonperforming assets as a % of: Loans and other real estate owned 0.12 % 0.04 Total assets 0.06 % 0.02 Nonperforming loans as a % of total loans 0.12 % 0.04 Annualized net recoveries as a % of average loans (0.03) % — Capital Adequacy: (c) CET 1 risk-based capital ratio 17.70 % 17.06 Tier 1 risk-based capital ratio 17.70 % 17.06 Total risk-based capital ratio 18.77 % 17.96 Tier 1 leverage ratio 10.38 % 11.22 Other financial data: Net interest margin (a) 2.96 % 3.48 Effective income tax rate 17.64 % 19.40 Efficiency ratio (b) 64.33 % 60.49 Selected average balances: Securities $ 288,164 243,666 Loans, net of unearned income 461,170 474,438 Total assets 885,941 826,213 Total deposits 775,853 729,126 Total stockholders’ equity 103,707 92,555 Selected period end balances: Securities $ 320,922 251,152 Loans, net of unearned income 472,453 465,108 Allowance for loan losses 5,575 4,807 Total assets 937,890 824,963 Total deposits 823,980 723,071 Total stockholders’ equity 106,314 96,720 (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. Six months ended June 30,52
Quarter ended September 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) $ 468,203 $ 5,453 4.63% $ 474,293 $ 5,787 4.84% Securities - taxable 252,398 913 1.44% 179,981 997 2.20% Securities - tax-exempt (2) 63,144 583 3.67% 67,133 665 3.93% Total securities 315,542 1,496 1.89% 247,114 1,662 2.67% Federal funds sold 30,784 9 0.12% 20,250 114 2.23% Interest bearing bank deposits 60,698 17 0.11% 37,902 221 2.31% Total interest-earning assets 875,227 $ 6,975 3.17% 779,559 $ 7,784 3.96% Cash and due from banks 13,196 13,923 Other assets 36,526 36,279 Total assets $ 924,949 $ 829,761 Interest-bearing liabilities: Deposits: NOW $ 157,689 $ 100 0.25% $ 134,615 $ 178 0.52% Savings and money market 250,938 285 0.45% 222,992 265 0.47% Time deposits 164,988 598 1.44% 168,619 632 1.49% Total interest-bearing deposits 573,615 983 0.68% 526,226 1,075 0.81% Short-term borrowings 2,368 2 0.50% 1,281 2 0.50% Total interest-bearing liabilities 575,983 $ 985 0.68% 527,507 $ 1,077 0.81% Noninterest-bearing deposits 237,132 203,382 Other liabilities 5,125 3,472 Stockholders' equity 106,709 95,400 Total liabilities and stockholders' equity $ 924,949 $ 829,761 Net interest income and margin (tax-equivalent) $ 5,990 2.72% $ 6,707 3.41% (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 June 30,53
Nine months ended September 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) $ 463,581 $ 16,359 4.71% $ 475,467 $ 17,277 4.86% Securities - taxable 225,234 3,080 1.83% 175,703 2,997 2.28% Securities - tax-exempt (2) 62,930 1,759 3.73% 67,964 2,049 4.03% Total securities 288,164 4,839 2.24% 243,667 5,046 2.77% Federal funds sold 30,739 118 0.51% 19,552 339 2.32% Interest bearing bank deposits 53,834 214 0.53% 37,094 659 2.38% Total interest-earning assets �� 836,318 $ 21,530 3.44% 775,780 $ 23,321 4.02% Cash and due from banks 13,579 14,120 Other assets 36,044 36,313 Total assets $ 885,941 $ 826,213 Interest-bearing liabilities: Deposits: NOW $ 153,767 $ 426 0.37% $ 134,368 $ 537 0.53% Savings and money market 234,533 801 0.46% 218,284 705 0.43% Time deposits 166,115 1,778 1.43% 171,804 1,858 1.45% Total interest-bearing deposits 554,415 3,005 0.72% 524,456 3,100 0.79% Short-term borrowings 1,721 6 0.50% 1,503 6 0.50% Total interest-bearing liabilities 556,136 $ 3,011 0.72% 525,959 $ 3,106 0.79% Noninterest-bearing deposits 221,438 204,670 Other liabilities 4,659 3,029 Stockholders' equity 103,707 92,555 Total liabilities and stockholders' equity $ 885,940 $ 826,213 Net interest income and margin (tax-equivalent) $ 18,519 2.96% $ 20,215 3.48% (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%. Six months ended June 30,54
2020 2019 Third Second First Fourth Third (In thousands) Quarter Quarter Quarter Quarter Quarter Commercial and industrial $ 98,244 87,754 56,447 56,782 52,288 Construction and land development 31,651 32,967 32,302 32,841 41,599 Commercial real estate 250,992 250,588 256,099 270,318 267,346 Residential real estate 85,054 85,825 91,010 92,575 95,215 Consumer installment 7,731 8,631 8,424 8,866 9,148 Total loans 473,672 465,765 444,282 461,382 465,596 Less: unearned income (1,219) (1,491) (414) (481) (488) Loans, net of unearned income 472,453 464,274 443,868 460,901 465,108 Less: allowance for loan losses (5,575) (5,308) (4,867) (4,386) (4,807) Loans, net $ 466,878 458,966 439,001 456,515 460,301 202155
2020 2019 Third Second First Fourth Third (Dollars in thousands) Quarter Quarter Quarter Quarter Quarter Allowance for loan losses: Balance at beginning of period $ 5,308 4,867 4,386 4,807 4,851 Charge-offs: Commercial and industrial — (3) — (236) (128) Residential real estate — — — (5) (1) Consumer installment (4) (28) (5) (20) (2) Total charge-offs (4) (31) (5) (261) (131) Recoveries 21 22 86 90 87 Net recoveries (charge-offs) 17 (9) 81 (171) (44) Provision for loan losses 250 450 400 (250) — Ending balance $ 5,575 5,308 4,867 4,386 4,807 as a % of loans 1.18 % 1.14 1.10 0.95 1.03 as a % of loans (excluding PPP loans) 1.28 % 1.24 n/a n/a n/a as a % of nonperforming loans 1,015 % 783 4,196 2,345 2,763 Net (recoveries) charge-offs as % of avg. loans (a) (0.01) % 0.01 (0.07) 0.15 0.04 Nonperforming assets: Nonaccrual loans $ 549 678 116 187 174 Other real estate owned — — 99 — — Total nonperforming assets $ 549 678 215 187 174 as a % of loans and foreclosed properties 0.12 % 0.15 0.05 0.04 0.04 as a % of total assets 0.06 % 0.07 0.03 0.02 0.02 Nonperforming loans as a % of total loans 0.12 % 0.15 0.03 0.04 0.04 Accruing loans 90 days or more past due $ 71 49 — — 94 (a) Net (recoveries) charge-offs are annualized. 202156
2020 2019 Third Quarter Second Quarter First Quarter Fourth Quarter Third Quarter (Dollars in thousands) Amount %* Amount %* Amount %* Amount %* Amount %* Commercial and industrial $ 798 20.7 $ 679 18.8 $ 675 12.7 $ 577 12.3 $ 685 11.2 Construction and land development 582 6.7 613 7.1 582 7.3 569 7.1 730 8.9 Commercial real estate 3,120 53.0 2,915 53.8 2,596 57.6 2,289 58.6 2,354 57.5 Residential real estate 954 18.0 954 18.4 877 20.5 813 20.1 890 20.5 Consumer installment 121 1.6 147 1.9 137 1.9 138 1.9 148 2.0 Total allowance for loan losses $ 5,575 $ 5,308 $ 4,867 $ 4,386 $ 4,807 * Loan balance in each category expressed as a percentage of total loans. 202157
(Dollars in thousands) September 30, 2020 Maturity of: 3 months or less $ 24,269 Over 3 months through 6 months 6,299 Over 6 months through 12 months 27,444 Over 12 months 48,749 Total CDs and other time deposits of $100,000 or more $ 106,761 (Dollars in thousands)58
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.The travel, hospitality and food and beverage industries, restaurants, retailers and auto manufacturers, and their suppliers have been severely affected. A significant number of layoffs, furloughs of employees, as well as remote work have occurred in these and other industries, including government offices, schools and universities. Auburn University held virtual classes only from March 16, 2020 through the summer session. Auburn University’s guidelines for the fall semester of 2020 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.
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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 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;
•Additional stimulus efforts have been agreed to by the Congress and the executive branch and the related uncertainty may increase economic and market risks and volatility;
•Reduced consumer spending and economic activity due to both job losses, health concerns and required practices, such as social distancing and shelter in place, attributable to the COVID-19 pandemic, and to the discontinuation of Federal stimulus payments on July 25, 2020;
•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, hospitality, restaurants and retailers;
•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, and mortgage foreclosure moratoria, 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;
•The end of temporary regulatory accounting and capital relief for banks regarding the effects of the COVID-19 pandemic, including loan deferrals and modifications, could increase our TDRs and require additions to our allowance for loan losses, which may adversely affect our income, financial condition and capital;
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•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 and mortgage loan foreclosure moratoria may limit our ability to timely act to protect our interests in the loan collateral;
•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, including changes in such policies, or the effects of discontinuing COVID-19 relief programs, 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. Uncertainty and volatility in the capital markets may increase as a result of the 2020 federal and state elections.
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, especially if temporary regulatory relief for these actions expires. 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.
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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 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 September 30, 2020, we have secured funding of approximately 422 loans totaling $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. The PPP closed on August 8, 2020 and the SBA no longer accepts PPP applications from participating lenders, and proposed extension of the PPP have not been approved by Congress through mid-October, 2020. Since the opening of the PPP, various other 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, or obtain forgiveness of a PPP properly, 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.
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ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OFPROCEEDS
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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) | |
July 1 - July 31, 2020 |
| — |
| $ | — |
| — | $ | 5,000,000 |
August 1 - August 31, 2020 |
| — |
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| — |
| — |
| 5,000,000 |
September 1 - September 30, 2020 |
| — |
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| — |
| — |
| 5,000,000 |
Total |
| — |
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| — |
| — |
| 5,000,000 |
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(1) On March 10, 2020 the Company adopted a $5 million stock repurchase program that become effective April 1, 2020. | |||||||||
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ITEM 6. EXHIBITS
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SIGNATURES
Pursuant to Rule 13a-14(a) of the requirementsSecurities ExchangeAct of 1934, As Adopted Pursuant To
(Registrant)
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(Registrant)