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UWHR Uwharrie Capital

Filed: 4 May 21, 9:55am

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                     .

COMMISSION FILE NUMBER 000-22062

 

UWHARRIE CAPITAL CORP

(Exact name of registrant as specified in its charter)

 

 

NORTH CAROLINA

 

56-1814206

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

132 NORTH FIRST STREET

ALBEMARLE, NORTH CAROLINA

 

28001

(Address of Principal Executive Offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (704) 983-6181

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

None

 

 

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.      Yes      No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      Yes      No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: 7,035,758 shares of common stock outstanding as of April 28, 2021.

 

 

 

 


 

 

Table of Contents

 

 

 

 

 

Page No.

 

 

 

 

 

Part I.

 

FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1 -

 

Financial Statements (Unaudited)

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020

 

3

 

 

 

 

 

 

 

Consolidated Statements of Income for the Three Months Ended March 31, 2021 and 2020

 

4

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2021 and 2020

 

5

 

 

 

 

 

 

 

Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended March 31, 2021 and 2020

 

6

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020

 

7

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements

 

8

 

 

 

 

 

Item 2 -

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

28

 

 

 

 

 

Item 3 -

 

Quantitative and Qualitative Disclosures about Market Risk

 

33

 

 

 

 

 

Item 4 -

 

Controls and Procedures

 

33

 

 

 

 

 

Part II.

 

OTHER INFORMATION

 

 

 

 

 

 

 

Item 1 -

 

Legal Proceedings

 

34

 

 

 

 

 

Item 1A -

 

Risk Factors

 

34

 

 

 

 

 

Item 2 -

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

34

 

 

 

 

 

Item 3 -

 

Defaults Upon Senior Securities

 

34

 

 

 

 

 

Item 4 -

 

Mine Safety Disclosures

 

34

 

 

 

 

 

Item 5 -

 

Other Information

 

34

 

 

 

 

 

Item 6 -

 

Exhibits

 

35

 

 

 

 

 

 

 

 

Signatures

 

36

 

-2-


 

 

Uwharrie Capital Corp and Subsidiaries

Consolidated Balance Sheets

 

Part I. Financial Information

Item 1.

Financial Statements.

 

 

March 31, 2021 (Unaudited)

 

 

December 31, 2020*

 

 

 

(dollars in thousands)

 

ASSETS

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

5,144

 

 

$

6,301

 

Interest-earning deposits with banks

 

 

91,916

 

 

 

82,567

 

Cash and cash equivalents

 

 

97,060

 

 

 

88,868

 

Securities available for sale, at fair value

 

 

190,083

 

 

 

191,513

 

Securities held to maturity, at amortized cost (fair value $28,818 and $29,600, respectively)

 

 

27,802

 

 

 

28,207

 

Equity security, at fair value

 

 

404

 

 

 

1,352

 

Loans held for sale

 

 

14,213

 

 

 

6,959

 

Loans:

 

 

 

 

 

 

 

 

Loans held for investment

 

 

460,441

 

 

 

467,741

 

Less allowance for loan losses

 

 

(4,252

)

 

 

(4,402

)

Net loans held for investment

 

 

456,189

 

 

 

463,339

 

Premises and equipment, net

 

 

16,698

 

 

 

16,982

 

Interest receivable

 

 

2,344

 

 

 

2,524

 

Restricted stock

 

 

921

 

 

 

1,166

 

Bank-owned life insurance

 

 

8,968

 

 

 

8,936

 

Prepaid assets

 

 

1,218

 

 

 

1,146

 

Loan servicing assets

 

 

4,511

 

 

 

3,957

 

Mortgage interest rate lock commitments, at fair value

 

 

2,108

 

 

 

2,073

 

Mortgage forward sales commitments

 

 

623

 

 

 

 

Other assets

 

 

9,455

 

 

 

10,748

 

Total assets

 

$

832,597

 

 

$

827,770

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

Demand noninterest-bearing

 

$

240,651

 

 

$

205,788

 

Interest checking and money market accounts

 

 

347,962

 

 

 

381,502

 

Savings deposits

 

 

82,336

 

 

 

74,792

 

Time deposits, $250,000 and over

 

 

22,981

 

 

 

28,825

 

Other time deposits

 

 

50,219

 

 

 

52,289

 

Total deposits

 

 

744,149

 

 

 

743,196

 

Short-term borrowed funds

 

 

1,338

 

 

 

710

 

Long-term debt

 

 

11,242

 

 

 

10,992

 

Interest payable

 

 

16

 

 

 

21

 

Mortgage forward sales commitments

 

 

 

 

 

388

 

Other liabilities

 

 

16,026

 

 

 

13,226

 

Total liabilities

 

 

772,771

 

 

 

768,533

 

 

 

 

 

 

 

 

 

 

Off balance sheet items, commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Common stock, $1.25 par value: 20,000,000 shares authorized; shares issued and

   outstanding 7,039,942 and 7,052,143, at March 31, 2021 and December 31, 2020, respectively

 

 

8,800

 

 

 

8,815

 

Additional paid-in capital

 

 

12,539

 

 

 

12,607

 

Undivided profits

 

 

27,444

 

 

 

23,000

 

Accumulated other comprehensive income

 

 

388

 

 

 

4,160

 

Total Uwharrie Capital Corp shareholders’ equity

 

 

49,171

 

 

 

48,582

 

Noncontrolling interest

 

 

10,655

 

 

 

10,655

 

Total shareholders’ equity

 

 

59,826

 

 

 

59,237

 

Total liabilities and shareholders’ equity

 

$

832,597

 

 

$

827,770

 

 

(*)

Derived from audited consolidated financial statements

See accompanying notes

-3-


 

Uwharrie Capital Corp and Subsidiaries

Consolidated Statements of Income (Unaudited)

 

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

 

 

(in thousands, except share and per share data)

 

Interest Income

 

 

 

 

 

 

 

 

Loans, including fees

 

$

6,062

 

 

$

4,553

 

Investment securities

 

 

 

 

 

 

 

 

U.S. Treasury

 

 

 

 

 

33

 

U.S. Government agencies and corporations

 

 

455

 

 

 

369

 

State and political subdivisions, non-taxable

 

 

253

 

 

 

99

 

State and political subdivisions, taxable

 

 

371

 

 

 

90

 

Interest-earning deposits with banks and federal funds sold

 

 

16

 

 

 

552

 

Total interest income

 

 

7,157

 

 

 

5,696

 

 

 

 

 

 

 

 

 

 

Interest Expense

 

 

 

 

 

 

 

 

Interest checking and money market accounts

 

 

91

 

 

 

298

 

Savings deposits

 

 

15

 

 

 

21

 

Time deposits, $250,000 and over

 

 

29

 

 

 

256

 

Other time deposits

 

 

76

 

 

 

153

 

Short-term borrowed funds

 

 

1

 

 

 

1

 

Long-term debt

 

 

136

 

 

 

131

 

Total interest expense

 

 

348

 

 

 

860

 

Net interest income

 

 

6,809

 

 

 

4,836

 

Provision for (recovery of) loan losses

 

 

(34

)

 

 

632

 

Net interest income after provision for (recovery of) loan losses

 

 

6,843

 

 

 

4,204

 

 

 

 

 

 

 

 

 

 

Noninterest Income

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

 

242

 

 

 

313

 

Interchange and card transaction fees, net

 

 

219

 

 

 

192

 

Other service fees and commissions

 

 

630

 

 

 

765

 

Gain on sale of securities

 

 

940

 

 

 

58

 

Realized/unrealized gain (loss) on equity securities

 

 

(19

)

 

 

231

 

Income from mortgage banking

 

 

5,106

 

 

 

1,065

 

Other income (expense)

 

 

(11

)

 

 

382

 

Total noninterest income

 

 

7,107

 

 

 

3,006

 

 

 

 

 

 

 

 

 

 

Noninterest Expense

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

5,389

 

 

 

4,424

 

Net occupancy expense

 

 

426

 

 

 

415

 

Equipment expense

 

 

172

 

 

 

183

 

Data processing costs

 

 

165

 

 

 

158

 

Loan costs

 

 

306

 

 

 

87

 

Foreclosed real estate expense

 

 

 

 

 

(7

)

Professional fees and services

 

 

236

 

 

 

194

 

Marketing and donations

 

 

621

 

 

 

219

 

Electronic banking expense

 

 

89

 

 

 

105

 

Software amortization and maintenance

 

 

390

 

 

 

264

 

FDIC insurance

 

 

71

 

 

 

17

 

Other noninterest expense

 

 

280

 

 

 

738

 

Total noninterest expense

 

 

8,145

 

 

 

6,797

 

Income before income taxes

 

 

5,805

 

 

 

413

 

Income taxes

 

 

1,222

 

 

 

85

 

Net income

 

$

4,583

 

 

$

328

 

 

 

 

 

 

 

 

 

 

Consolidated net income

 

$

4,583

 

 

$

328

 

Less: net income attributable to noncontrolling interest

 

 

(139

)

 

 

(141

)

Net income attributable to Uwharrie Capital Corp and common shareholders

 

 

4,444

 

 

 

187

 

Net income per common share

 

 

 

 

 

 

 

 

Basic

 

$

0.63

 

 

$

0.03

 

Diluted

 

$

0.63

 

 

$

0.03

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

Basic

 

 

7,050,790

 

 

 

7,209,107

 

Diluted

 

 

7,050,790

 

 

 

7,209,107

 

 

 

See accompanying notes  

 

=

-4-


 

Uwharrie Capital Corp and Subsidiaries

Consolidated Statements of Comprehensive Income (Unaudited)

 

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

Net income

 

$

4,583

 

 

$

328

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on available for sale securities

 

 

(3,959

)

 

 

2,141

 

Related tax effect

 

 

937

 

 

 

(490

)

Reclassification of gain recognized in net income

 

 

(940

)

 

 

(58

)

Related tax effect

 

 

190

 

 

 

11

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income (loss)

 

 

(3,772

)

 

 

1,604

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

 

811

 

 

 

1,932

 

 

 

 

 

 

 

 

 

 

Less: Comprehensive income attributable to noncontrolling interest

 

 

(139

)

 

 

(141

)

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to Uwharrie Capital Corp

 

$

672

 

 

$

1,791

 

 

See accompanying notes

 

 

-5-


 

 

Uwharrie Capital Corp and Subsidiaries

Consolidated Statement of Changes in Shareholders’ Equity (Unaudited)

 

 

 

 

Number of

Common

Shares

Issued

 

 

Common

Stock

 

 

Additional

Paid-in

Capital

 

 

Undivided

Profits

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Non

Controlling

Interest

 

 

Total

 

 

 

(dollars in thousands, except share data)

 

Balance, December 31, 2019

 

 

7,095,920

 

 

$

8,870

 

 

$

12,784

 

 

$

16,226

 

 

$

323

 

 

$

10,655

 

 

$

48,858

 

Net Income

 

 

 

 

 

 

 

 

 

 

 

187

 

 

 

 

 

 

141

 

 

 

328

 

Repurchase and retirement of common stock

 

 

(111,338

)

 

 

(139

)

 

 

(473

)

 

 

 

 

 

 

 

 

 

 

 

(612

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,604

 

 

 

 

 

 

1,604

 

Record preferred stock dividend Series B

   (noncontrolling interest)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(104

)

 

 

(104

)

Record preferred stock dividend Series C

   (noncontrolling interest)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(37

)

 

 

(37

)

Balance, March 31, 2020

 

 

6,984,582

 

 

$

8,731

 

 

$

12,311

 

 

$

16,413

 

 

$

1,927

 

 

$

10,655

 

 

$

50,037

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2020

 

 

7,052,143

 

 

$

8,815

 

 

$

12,607

 

 

$

23,000

 

 

$

4,160

 

 

$

10,655

 

 

$

59,237

 

Net Income

 

 

 

 

 

 

 

 

 

 

 

4,444

 

 

 

 

 

 

139

 

 

 

4,583

 

Repurchase and retirement of common stock

 

 

(12,201

)

 

 

(15

)

 

 

(68

)

 

 

 

 

 

 

 

 

 

 

 

(83

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,772

)

 

 

 

 

 

(3,772

)

Record preferred stock dividend Series B

   (noncontrolling interest)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(103

)

 

 

(103

)

Record preferred stock dividend Series C

   (noncontrolling interest)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(36

)

 

 

(36

)

Balance, March 31, 2021

 

 

7,039,942

 

 

$

8,800

 

 

$

12,539

 

 

$

27,444

 

 

$

388

 

 

$

10,655

 

 

$

59,826

 

 

 

See accompanying notes

-6-


 

Uwharrie Capital Corp and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

 

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

 

 

(dollars in thousands)

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income

 

$

4,583

 

 

$

328

 

Adjustments to reconcile net income to net cash used by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

271

 

 

 

285

 

Right of use asset amortization

 

 

85

 

 

 

81

 

Provision for (recovery of) loan losses

 

 

(34

)

 

 

632

 

Gain on sale of securities available for sale

 

 

(940

)

 

 

(58

)

Gain on sale of mortgage loans

 

 

3,041

 

 

 

621

 

Gain on sale of OREO

 

 

 

 

 

(42

)

OREO write-downs

 

 

 

 

 

21

 

Realized/unrealized (gain) loss on equity securities

 

 

19

 

 

 

(231

)

Net amortization of premium on investment securities available for sale

 

 

174

 

 

 

98

 

Net amortization of premium on investment securities held to maturity

 

 

39

 

 

 

26

 

Amortization of mortgage servicing rights

 

 

383

 

 

 

187

 

Originations and purchases of mortgage loans for sale

 

 

(108,979

)

 

 

(27,736

)

Proceeds from sales of mortgage loans for sale

 

 

98,313

 

 

 

24,737

 

Mortgage interest rate lock commitments

 

 

(35

)

 

 

 

Loan servicing assets

 

 

(938

)

 

 

(373

)

Accrued interest receivable

 

 

179

 

 

 

(93

)

Prepaid assets

 

 

(72

)

 

 

(653

)

Cash surrender value of life insurance

 

 

(32

)

 

 

(36

)

Miscellaneous other assets

 

 

2,056

 

 

 

1,151

 

Accrued interest payable

 

 

(5

)

 

 

(17

)

Mortgage forward sales commitments

 

 

(1,011

)

 

 

 

Miscellaneous other liabilities

 

 

2,412

 

 

 

(1,276

)

Net cash used by operating activities

 

 

(491

)

 

 

(2,348

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Proceeds from sales of investment securities available for sale

 

 

34,237

 

 

 

7,586

 

Proceeds from sale of equity securities

 

 

929

 

 

 

 

Proceeds from maturities, calls and paydowns of securities available for sale

 

 

4,505

 

 

 

1,471

 

Proceeds from maturities, calls and paydowns of securities held to maturity

 

 

366

 

 

 

1,668

 

Purchase of investment securities available for sale

 

 

(41,445

)

 

 

(26,694

)

Purchase of investment securities held to maturity

 

 

 

 

 

(4,064

)

Purchase of equity securities

 

 

 

 

 

(901

)

Proceeds from sales of investments in other assets

 

 

1,125

 

 

 

 

Net change in restricted stock

 

 

245

 

 

 

(22

)

Net (increase) decrease in loans

 

 

7,184

 

 

 

(10,288

)

Purchase of premises and equipment

 

 

(72

)

 

 

(269

)

Proceeds from sale of OREO

 

 

 

 

 

77

 

Net cash provided (used) by investing activities

 

 

7,074

 

 

 

(31,436

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Net increase in deposit accounts

 

 

953

 

 

 

18,448

 

Net increase (decrease) in federal funds purchased and other short-term borrowings

 

 

628

 

 

 

(101

)

Proceeds from long-term borrowings

 

 

250

 

 

 

 

Repurchase of common stock, net

 

 

(83

)

 

 

(612

)

Dividends paid on preferred stock (noncontrolling interest)

 

 

(139

)

 

 

(141

)

Net cash provided by financing activities

 

 

1,609

 

 

 

17,594

 

Increase (decrease) in cash and cash equivalents

 

 

8,192

 

 

 

(16,190

)

Cash and cash equivalents, beginning of period

 

 

88,868

 

 

 

155,198

 

Cash and cash equivalents, end of period

 

$

97,060

 

 

$

139,008

 

Supplemental disclosures of cash flow information

 

 

 

 

 

 

 

 

Interest paid

 

$

328

 

 

$

767

 

Income taxes paid

 

 

 

 

 

 

Supplemental schedule of non-cash activities

 

 

 

 

 

 

 

 

Net change in fair value of securities available for sale, net of tax

 

$

3,772

 

 

$

1,604

 

See accompanying notes

-7-


 

UWHARRIE CAPITAL CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

Note 1 – Basis of Presentation

The financial statements and accompanying notes are presented on a consolidated basis including Uwharrie Capital Corp (the “Company”) and its subsidiaries, Uwharrie Bank (the “Bank”), Uwharrie Investment Advisors, Inc. (“UIA”), and Uwharrie Mortgage, Inc. The Bank consolidates its subsidiaries, the Strategic Alliance Corporation, BOS Agency, Inc. and Gateway Mortgage, Inc., each of which is wholly owned by the Bank.

The information contained in the consolidated financial statements is unaudited. In the opinion of management, the consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”) and material adjustments necessary for a fair presentation of results of interim periods, all of which are of a normal recurring nature, have been made. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for an entire year. Management continues to evaluate the impact of COVID-19, the disease caused by the novel Coronavirus, beyond the current impacts as of March 31, 2021, which are discussed throughout the accompanying notes of this report. Management is not aware of additional economic events, outside influences or changes in concentrations of business that would require additional clarification or disclosure in the consolidated financial statements.

The organization and business of the Company, accounting policies followed by the Company and other information are contained in the notes to consolidated financial statements filed as part of the Company’s 2020 Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 5, 2021. This Quarterly Report should be read in conjunction with such Annual Report.

Use of Estimates

The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America (“GAAP”), requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses.

Accounting Changes, Reclassifications and Restatements

Certain amounts in the 2020 financial statements have been reclassified to conform to the 2021 presentation. These reclassifications did not have an impact on net income or shareholders’ equity.

Note 2 – Comprehensive Income

The Company reports as comprehensive income all changes in shareholders’ equity during the year from sources other than shareholders. Other comprehensive income refers to all components (revenues, expenses, gains, and losses) of comprehensive income that are excluded from net income. The Company’s only component of other comprehensive income is unrealized gains and losses, net of income tax, on investment securities available for sale.

The following table presents the changes in accumulated other comprehensive income (loss) for the three months ended March 31, 2021 and 2020:

 

 

 

For the Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

4,160

 

 

$

323

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss) before reclassifications,

   net of $937 and ($490) tax effect, respectively

 

 

(3,022

)

 

 

1,651

 

 

 

 

 

 

 

 

 

 

Amounts reclassified from accumulated other

   comprehensive income, net of $190 and $11 tax effect, respectively

 

 

(750

)

 

 

(47

)

 

 

 

 

 

 

 

 

 

Net current-period other comprehensive income (loss)

 

 

(3,772

)

 

 

1,604

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

388

 

 

$

1,927

 

 

-8-


 

 

 

Note 3 – Noncontrolling Interest

In 2013, the Company’s subsidiary bank issued a total of $10.7 million of Fixed Rate Noncumulative Perpetual Preferred Stock, Series B and Series C. The preferred stock qualifies as Tier 1 capital at the bank and pays dividends at an annual rate of 5.30%. The preferred stock has no voting rights. This capital is presented as noncontrolling interest in the consolidated balance sheets. Dividends declared on this preferred stock are presented as earnings allocated to the noncontrolling interest in the consolidated statements of income.

Note 4 – Per Share Data

Basic and diluted net income per common share is computed based on the weighted average number of shares outstanding during each period after retroactively adjusting for stock dividends. Diluted net income per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the net income of the Company. The Company had no stock options outstanding at March 31, 2021 or December 31, 2020.

Basic and diluted net income per common share have been computed based upon net income available to common shareholders as presented in the accompanying consolidated statements of income divided by the weighted average number of common shares outstanding or assumed to be outstanding.  

The weighted average number of common shares outstanding was 7,050,790 for the three-month period ended March 31, 2021 compared to 7,209,107 for the three-month period ended March 31, 2020.

Note 5 – Investment and Equity Securities

Carrying amounts and fair values of securities available for sale and held to maturity are summarized below:

 

March 31, 2021

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair

Value

 

 

 

(dollars in thousands)

 

Securities available for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government agencies

 

$

43,768

 

 

$

330

 

 

$

30

 

 

$

44,068

 

GSE - Mortgage-backed securities and CMO’s

 

 

48,363

 

 

 

322

 

 

 

336

 

 

 

48,349

 

Asset-backed securities

 

 

37,904

 

 

 

1,098

 

 

 

 

 

 

39,002

 

State and political subdivisions

 

 

55,636

 

 

 

634

 

 

 

1,743

 

 

 

54,527

 

Corporate bonds

 

 

3,908

 

 

 

229

 

 

 

 

 

 

4,137

 

Total securities available for sale

 

$

189,579

 

 

$

2,613

 

 

$

2,109

 

 

$

190,083

 

 

March 31, 2021

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair

Value

 

 

 

(dollars in thousands)

 

Securities held to maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government agencies

 

$

247

 

 

$

5

 

 

$

 

 

$

252

 

State and political subdivisions

 

 

17,555

 

 

 

879

 

 

 

 

 

 

18,434

 

Corporate bonds

 

 

10,000

 

 

 

136

 

 

 

4

 

 

 

10,132

 

Total securities held to maturity

 

$

27,802

 

 

$

1,020

 

 

$

4

 

 

$

28,818

 

 

December 31, 2020

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair

Value

 

 

 

(dollars in thousands)

 

Securities available for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government agencies

 

$

36,804

 

 

$

611

 

 

$

26

 

 

$

37,389

 

GSE - Mortgage-backed securities and CMO’s

 

 

39,720

 

 

 

1,844

 

 

 

68

 

 

 

41,496

 

Asset-backed securities

 

 

38,536

 

 

 

748

 

 

 

3

 

 

 

39,281

 

State and political subdivisions

 

 

67,148

 

 

 

2,107

 

 

 

91

 

 

 

69,164

 

Corporate bonds

 

 

3,902

 

 

 

281

 

 

 

 

 

 

4,183

 

Total securities available for sale

 

$

186,110

 

 

$

5,591

 

 

$

188

 

 

$

191,513

 

-9-


 

 

 

December 31, 2020

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair

Value

 

 

 

(dollars in thousands)

 

Securities held to maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government agencies

 

$

459

 

 

$

11

 

 

$

 

 

$

470

 

State and political subdivisions

 

 

17,748

 

 

 

1,382

 

 

 

 

 

 

19,130

 

Corporate bonds

 

 

10,000

 

 

 

 

 

 

 

 

 

10,000

 

Total securities held to maturity

 

$

28,207

 

 

$

1,393

 

 

$

 

 

$

29,600

 

 

At March 31, 2021 and December 31, 2020, the Company owned Federal Reserve Bank (FRB) stock reported at cost of $509,000 for both periods, and Federal Home Loan Bank (FHLB) stock reported at a cost of $411,000 and $657,000 at March 31, 2021 and December 31, 2020, respectively. The investments in FRB stock and FHLB stock are required investments related to the Company’s membership in, and borrowings with, these banks and is classified as restricted stock on the consolidated balance sheet. These investments are carried at cost since there is no ready market and redemption has historically been made at par value. The Company estimated that the fair value approximated cost and that these investments were not impaired at March 31, 2021.

Results from sales of securities available for sale for the three-month periods ended March 31, 2021 and 2020 are as follows:

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

 

 

(dollars in thousands)

 

Gross proceeds from sales

 

$

34,237

 

 

$

7,586

 

 

 

 

 

 

 

 

 

 

Realized gains from sales

 

$

1,454

 

 

$

58

 

Realized losses from sales

 

 

514

 

 

 

 

Net realized gains

 

$

940

 

 

$

58

 

 

At March 31, 2021 and December 31, 2020, securities available for sale with a carrying amount of $71.0 million and $82.8 million, respectively, were pledged as collateral on public deposits and for other purposes as required or permitted by law.

The following tables show the gross unrealized losses and fair value of investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2021 and December 31, 2020. We believe these unrealized losses on investment securities are a result of a volatile market and fluctuations in market prices due to a rise in interest rates, which will adjust if rates decline. Management does not believe these fluctuations are a reflection of the credit quality of the investments. At March 31, 2021, the unrealized losses on available for sale securities less than twelve months related to four government agency bonds, five government-sponsored enterprise (“GSE”) mortgage-backed securities and twenty-nine state and political subdivision bonds. There was one corporate held to maturity bond that had been in a loss position less than twelve months at March 31, 2021. At December 31, 2020, the unrealized losses on available for sale securities less than twelve months related to four government agency bonds, three GSE mortgage-backed securities, two asset-backed securities and ten state and political subdivision bonds. At March 31, 2021, the Company had two government agency bonds, two GSE mortgage-backed securities and two state and political subdivision bonds that had been in a loss position for twelve months or more.

 

 

 

Less than 12 Months

 

 

12 Months or More

 

 

Total

 

March 31, 2021

 

Fair Value

 

 

Unrealized

Losses

 

 

Fair Value

 

 

Unrealized

Losses

 

 

Fair Value

 

 

Unrealized

Losses

 

 

 

(dollars in thousands)

 

Securities available for sale temporary impairment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government agencies

 

$

5,237

 

 

$

19

 

 

$

2,805

 

 

$

11

 

 

$

8,042

 

 

$

30

 

GSE-Mortgage-backed securities and CMO’s

 

 

21,216

 

 

 

315

 

 

 

3,563

 

 

 

21

 

 

 

24,779

 

 

 

336

 

State and political subdivisions

 

 

38,709

 

 

 

1,679

 

 

 

1,414

 

 

 

64

 

 

 

40,123

 

 

 

1,743

 

Total securities available for sale

 

$

65,162

 

 

$

2,013

 

 

$

7,782

 

 

$

96

 

 

$

72,944

 

 

$

2,109

 

-10-


 

 

 

 

 

Less than 12 Months

 

 

12 Months or More

 

 

Total

 

March 31, 2021

 

Fair Value

 

 

Unrealized

Losses

 

 

Fair Value

 

 

Unrealized

Losses

 

 

Fair Value

 

 

Unrealized

Losses

 

 

 

(dollars in thousands)

 

Securities held to maturity temporary impairment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government agencies

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

State and political subdivisions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

 

1,246

 

 

 

4

 

 

 

 

 

 

 

 

 

1,246

 

 

 

4

 

Total securities held to maturity

 

$

1,246

 

 

$

4

 

 

$

 

 

$

 

 

$

1,246

 

 

$

4

 

 

 

 

Less than 12 Months

 

 

12 Months or More

 

 

Total

 

December 31, 2020

 

Fair Value

 

 

Unrealized

Losses

 

 

Fair Value

 

 

Unrealized

Losses

 

 

Fair Value

 

 

Unrealized

Losses

 

 

 

(dollars in thousands)

 

Securities available for sale temporary impairment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government agencies

 

$

5,061

 

 

$

26

 

 

$

 

 

$

 

 

$

5,061

 

 

$

26

 

GSE-Mortgage-backed securities and CMO’s

 

 

10,263

 

 

 

68

 

 

 

 

 

 

 

 

 

10,263

 

 

 

68

 

Asset-backed securities

 

 

2,686

 

 

 

3

 

 

 

 

 

 

 

 

 

2,686

 

 

 

3

 

State and political subdivisions

 

 

11,286

 

 

 

91

 

 

 

 

 

 

 

 

 

11,286

 

 

 

91

 

Total securities available for sale

 

$

29,296

 

 

$

188

 

 

$

 

 

$

 

 

$

29,296

 

 

$

188

 

 

 

 

Less than 12 Months

 

 

12 Months or More

 

 

Total

 

December 31, 2020

 

Fair Value

 

 

Unrealized

Losses

 

 

Fair Value

 

 

Unrealized

Losses

 

 

Fair Value

 

 

Unrealized

Losses

 

 

 

(dollars in thousands)

 

Securities held to maturity temporary impairment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government agencies

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

State and political subdivisions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total securities held to maturity

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

Declines in the fair value of the investment portfolio are believed by management to be temporary in nature. When evaluating an investment for other-than-temporary impairment, management considers, among other things, the length of time and the extent to which the fair value has been in a loss position, the financial condition of the issuer and the intent and the ability of the Company to hold the investment until the loss position is recovered.

Any unrealized losses were largely due to increases in market interest rates over the yields available at the time of purchase. The fair value is expected to recover as the bonds approach their maturity date or market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of credit quality, but that the losses are temporary in nature. At March 31, 2021, the Company does not intend to sell and is not likely to be required to sell the available for sale securities that were in a loss position prior to full recovery.

-11-


 

The following tables show contractual maturities of the investment portfolio as of March 31, 2021:

 

 

 

March 31, 2021

 

 

 

Amortized

Cost

 

 

Estimated

Fair Value

 

 

Book

Yield

 

 

 

(dollars in thousands)

 

Securities available for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government agencies

 

 

 

 

 

 

 

 

 

 

 

 

Due within twelve months

 

$

14,986

 

 

$

15,088

 

 

 

1.49

%

Due after one but within five years

 

 

4,004

 

 

 

4,103

 

 

 

1.80

%

Due after five but within ten years

 

 

14,601

 

 

 

14,608

 

 

 

1.36

%

Due after ten years

 

 

10,177

 

 

 

10,269

 

 

 

1.22

%

 

 

 

43,768

 

 

 

44,068

 

 

 

1.41

%

Mortgage-backed securities

 

 

 

 

 

 

 

 

 

 

 

 

Due after one but within five years

 

 

4,484

 

 

 

4,495

 

 

 

3.75

%

Due after five but within ten years

 

 

15,934

 

 

 

16,046

 

 

 

0.91

%

Due after ten years

 

 

27,945

 

 

 

27,808

 

 

 

0.93

%

 

 

 

48,363

 

 

 

48,349

 

 

 

1.18

%

Asset-backed securities

 

 

 

 

 

 

 

 

 

 

 

 

Due after ten years

 

 

37,904

 

 

 

39,002

 

 

 

1.29

%

 

 

 

37,904

 

 

 

39,002

 

 

 

1.29

%

State and political subdivisions

 

 

 

 

 

 

 

 

 

 

 

 

Due within twelve months

 

 

708

 

 

 

714

 

 

 

2.15

%

Due after one but within five years

 

 

1,877

 

 

 

1,932

 

 

 

3.44

%

Due after five but within ten years

 

 

1,594

 

 

 

1,527

 

 

 

2.10

%

Due after ten years

 

 

51,457

 

 

 

50,354

 

 

 

2.28

%

 

 

 

55,636

 

 

 

54,527

 

 

 

2.31

%

Corporate bonds

 

 

 

 

 

 

 

 

 

 

 

 

Due after one but within five years

 

 

3,908

 

 

 

4,137

 

 

 

3.20

%

 

 

 

3,908

 

 

 

4,137

 

 

 

3.20

%

Total securities available for sale

 

 

 

 

 

 

 

 

 

 

 

 

Due within twelve months

 

 

15,694

 

 

 

15,802

 

 

 

1.52

%

Due after one but within five years

 

 

14,273

 

 

 

14,667

 

 

 

3.01

%

Due after five but within ten years

 

 

32,129

 

 

 

32,181

 

 

 

1.17

%

Due after ten years

 

 

127,483

 

 

 

127,433

 

 

 

1.60

%

 

 

$

189,579

 

 

$

190,083

 

 

 

1.63

%

-12-


 

 

 

 

 

March 31, 2021

 

 

 

Amortized

Cost

 

 

Estimated

Fair Value

 

 

Book

Yield

 

 

 

(dollars in thousands)

 

Securities held to maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U. S. Government agencies

 

 

 

 

 

 

 

 

 

 

 

 

Due after one but within five years

 

$

247

 

 

$

252

 

 

 

2.97

%

 

 

 

247

 

 

 

252

 

 

 

2.97

%

State and political subdivisions

 

 

 

 

 

 

 

 

 

 

 

 

Due within twelve months

 

 

1,369

 

 

 

1,375

 

 

 

2.06

%

Due after one but within five years

 

 

2,724

 

 

 

2,796

 

 

 

2.64

%

Due after ten years

 

 

13,462

 

 

 

14,263

 

 

 

3.45

%

 

 

 

17,555

 

 

 

18,434

 

 

 

3.22

%

Corporate Bonds

 

 

 

 

 

 

 

 

 

 

 

 

Due after five but within ten years

 

 

10,000

 

 

 

10,132

 

 

 

5.01

%

 

 

 

10,000

 

 

 

10,132

 

 

 

5.01

%

Total securities held for maturity

 

 

 

 

 

 

 

 

 

 

 

 

Due within twelve months

 

 

1,369

 

 

 

1,375

 

 

 

2.06

%

Due after one but within five years

 

 

2,971

 

 

 

3,048

 

 

 

2.67

%

Due after five but within ten years

 

 

10,000

 

 

 

10,132

 

 

 

5.01

%

Due after ten years

 

 

13,462

 

 

 

14,263

 

 

 

3.45

%

 

 

$

27,802

 

 

$

28,818

 

 

 

3.86

%

 

The portion of unrealized gains and losses for the three-month periods ended March 31, 2021 and 2020 related to equity securities still held at the reporting date is calculated as follows:

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

 

 

(dollars in thousands)

 

Gross proceeds from sales

 

$

929

 

 

$

 

 

 

 

 

 

 

 

 

 

Net gains (losses) recognized during the period on equity securities

 

$

(19

)

 

$

231

 

Less: Realized gains from equity securities sold during the period

 

 

298

 

 

 

 

Unrealized gains (losses) from equity securities still held at the reporting date

 

$

(317

)

 

$

231

 

 

-13-


 

 

Note 6 – Loans Held for Investment

The composition of net loans held for investment by class as of March 31, 2021 and December 31, 2020 are as follows:

 

 

 

March 31, 2021

 

 

December 31, 2020

 

 

 

(dollars in thousands)

 

Commercial

 

 

 

 

 

 

 

 

Commercial

 

$

63,329

 

 

$

64,334

 

SBA Paycheck Protection Program (PPP)

 

 

76,504

 

 

 

76,398

 

Real estate - commercial

 

 

142,625

 

 

 

147,229

 

Other real estate construction loans

 

 

31,955

 

 

 

32,920

 

Other loans

 

 

2,966

 

 

 

3,098

 

Noncommercial

 

 

 

 

 

 

 

 

Real estate 1-4 family construction

 

 

3,825

 

 

 

7,709

 

Real estate - residential

 

 

81,379

 

 

 

75,000

 

Home equity

 

 

49,411

 

 

 

51,615

 

Consumer loans

 

 

11,085

 

 

 

11,073

 

 

 

 

463,079

 

 

 

469,376

 

Less:

 

 

 

 

 

 

 

 

Allowance for loan losses

 

 

(4,252

)

 

 

(4,402

)

Deferred loan fees net

 

 

(2,638

)

 

 

(1,635

)

 

 

 

 

 

 

 

 

 

Loans held for investment, net

 

$

456,189

 

 

$

463,339

 

The Paycheck Protection Program (“PPP”), which is administered by the Small Business Administration (“SBA”), was created as part of the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act. The Company participated in assisting its customers with applications for funds through the program.  PPP loans have a two-year term or, if approved after June 5, 2020, a five-year term and earn interest at 1%. The Company believes that the majority of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program.  As of March 31, 2021, the Company had funded 1,202 PPP loans representing $81.0 million. Of the loans funded, 598 loans totaling $47.0 million had been paid off or forgiven by the SBA as of March 31, 2021.  The Consolidated Appropriations Act, 2021, or CAA, established another round of PPP loan funding for certain eligible borrowers, and the Company has funded 672 PPP loans totaling $42.5 million under this additional round as of March 31, 2021. It is the Company’s understanding that loans funded through the PPP are fully guaranteed by the U.S. government. Should those circumstances change, the Company could be required to establish additional allowance for loan loss through additional provision expense charged to earnings.

Note 7 – Allowance for Loan Losses

The following tables show the change in the allowance for loan losses by loan segment for the three months ended March 31, 2021 and 2020, respectively:

 

Commercial

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

2,753

 

 

$

1,087

 

Provision for (recovery of) loan losses

 

 

(87

)

 

 

422

 

Charge-offs

 

 

(118

)

 

 

(3

)

Recoveries

 

 

7

 

 

 

6

 

Net (charge-offs) recoveries

 

 

(111

)

 

 

3

 

Balance at end of period

 

$

2,555

 

 

$

1,512

 

-14-


 

 

 

Non-Commercial

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

1,649

 

 

$

894

 

Provision for loan losses

 

 

53

 

 

 

210

 

Charge-offs

 

 

(20

)

 

 

(7

)

Recoveries

 

 

15

 

 

 

18

 

Net (charge-offs) recoveries

 

 

(5

)

 

 

11

 

Balance at end of period

 

$

1,697

 

 

$

1,115

 

 

Total

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

4,402

 

 

$

1,981

 

Provision for (recovery of) loan losses

 

 

(34

)

 

 

632

 

Charge-offs

 

 

(138

)

 

 

(10

)

Recoveries

 

 

22

 

 

 

24

 

Net (charge-offs) recoveries

 

 

(116

)

 

 

14

 

Balance at end of period

 

$

4,252

 

 

$

2,627

 

 

The following tables show period-end loans and reserve balances by loan segment both individually and collectively evaluated for impairment at March 31, 2021 and December 31, 2020:

 

March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually Evaluated

 

 

Collectively Evaluated

 

 

Total

 

 

 

Reserve

 

 

Loans

 

 

Reserve

 

 

Loans

 

 

Reserve

 

 

Loans

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

98

 

 

$

4,272

 

 

$

2,457

 

 

$

310,346

 

 

$

2,555

 

 

$

314,618

 

Non-Commercial

 

 

91

 

 

 

2,977

 

 

 

1,606

 

 

 

142,846

 

 

 

1,697

 

 

 

145,823

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

189

 

 

$

7,249

 

 

$

4,063

 

 

$

453,192

 

 

$

4,252

 

 

$

460,441

 

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually Evaluated

 

 

Collectively Evaluated

 

 

Total

 

 

 

Reserve

 

 

Loans

 

 

Reserve

 

 

Loans

 

 

Reserve

 

 

Loans

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

53

 

 

$

5,237

 

 

$

2,700

 

 

$

317,094

 

 

$

2,753

 

 

$

322,331

 

Non-Commercial

 

 

94

 

 

 

2,917

 

 

 

1,555

 

 

 

142,493

 

 

 

1,649

 

 

 

145,410

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

147

 

 

$

8,154

 

 

$

4,255

 

 

$

459,587

 

 

$

4,402

 

 

$

467,741

 

 

-15-


 

 

Past due loan information is used by management when assessing the adequacy of the allowance for loan losses. The following tables summarize the past due information of the loan portfolio by class as of the dates indicated:

 

March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

30-89 Days

Past Due

 

 

Loans

90 Days

or More

Past due

and Non -

Accrual

 

 

Total Past

Due Loans

 

 

Current

Loans

 

 

Total

Loans

 

 

Accruing

Loans 90 or

More Days

Past Due

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

 

 

$

 

 

$

 

 

$

63,329

 

 

$

63,329

 

 

$

 

SBA Paycheck Protection Program (PPP)

 

 

 

 

 

 

 

 

 

 

 

73,743

 

 

 

73,743

 

 

 

 

Real estate - commercial

 

 

 

 

 

2,165

 

 

 

2,165

 

 

 

140,460

 

 

 

142,625

 

 

 

 

Other real estate construction

 

 

 

 

 

 

 

 

 

 

 

31,955

 

 

 

31,955

 

 

 

 

Real estate 1-4 family construction

 

 

 

 

 

 

 

 

 

 

 

3,825

 

 

 

3,825

 

 

 

 

Real estate - residential

 

 

94

 

 

 

532

 

 

 

626

 

 

 

80,876

 

 

 

81,502

 

 

 

 

Home equity

 

 

21

 

 

 

237

 

 

 

258

 

 

 

49,153

 

 

 

49,411

 

 

 

 

Consumer loans

 

 

14

 

 

 

 

 

 

14

 

 

 

11,071

 

 

 

11,085

 

 

 

 

Other loans

 

 

 

 

 

 

 

 

 

 

 

2,966

 

 

 

2,966

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

129

 

 

$

2,934

 

 

$

3,063

 

 

$

457,378

 

 

$

460,441

 

 

$

 

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

30-89 Days

Past Due

 

 

Loans

90 Days

or More

Past due

and Non -

Accrual

 

 

Total Past

Due Loans

 

 

Current

Loans

 

 

Total

Loans

 

 

Accruing

Loans 90 or

More Days

Past Due

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

 

 

$

 

 

$

 

 

$

64,334

 

 

$

64,334

 

 

$

 

SBA Paycheck Protection Program (PPP)

 

 

 

 

 

 

 

 

 

 

 

74,750

 

 

 

74,750

 

 

 

 

Real estate - commercial

 

 

 

 

 

2,076

 

 

 

2,076

 

 

 

145,153

 

 

 

147,229

 

 

 

 

Other real estate construction

 

 

52

 

 

 

1,039

 

 

 

1,091

 

 

 

31,829

 

 

 

32,920

 

 

 

 

Real estate 1-4 family construction

 

 

 

 

 

 

 

 

 

 

 

7,709

 

 

 

7,709

 

 

 

 

Real estate - residential

 

 

299

 

 

 

595

 

 

 

894

 

 

 

74,119

 

 

 

75,013

 

 

 

 

Home equity

 

 

 

 

 

48

 

 

 

48

 

 

 

51,567

 

 

 

51,615

 

 

 

 

Consumer loan

 

 

46

 

 

 

 

 

 

46

 

 

 

11,027

 

 

 

11,073

 

 

 

 

Other loans

 

 

 

 

 

 

 

 

 

 

 

3,098

 

 

 

3,098

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

397

 

 

$

3,758

 

 

$

4,155

 

 

$

463,586

 

 

$

467,741

 

 

$

 

 

Once a loan becomes 90 days past due, the loan is automatically transferred to a non-accrual status. The exception to this policy is credit card loans that remain in accruing status 90 days or more until they are paid current or charged off.

The Company had $0 in foreclosed residential real estate and $0 of residential real estate in process of foreclosure at March 31, 2021. At December 31, 2020, the Company had $0 in foreclosed residential real estate and $51,000 of residential real estate in process of foreclosure.

-16-


 

The composition of non-accrual loans by class as of March 31, 2021 and December 31, 2020 was as follows:

 

 

 

March 31, 2021

 

 

December 31, 2020

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

 

 

$

 

SBA Paycheck Protection Program (PPP)

 

 

 

 

 

 

Real estate - commercial

 

 

2,165

 

 

 

2,076

 

Other real estate construction

 

 

 

 

 

1,039

 

Real estate 1 – 4 family construction

 

 

 

 

 

 

Real estate – residential

 

 

532

 

 

 

595

 

Home equity

 

 

237

 

 

 

48

 

Consumer loans

 

 

 

 

 

 

Other loans

 

 

 

 

 

 

 

 

$

2,934

 

 

$

3,758

 

 

Management uses a risk-grading program to facilitate the evaluation of probable inherent loan losses and to measure the adequacy of the allowance for loan losses. In this program, risk grades are initially assigned by the loan officers and reviewed and monitored by the lenders and credit administration. The program has eight risk grades summarized in five categories as follows:

Pass: Loans that are pass grade credits include loans that are fundamentally sound, with risk factors that are reasonable and acceptable. They generally conform to policy with only minor exceptions; any major exceptions are clearly mitigated by other economic factors.

Watch: Loans that are watch credits include loans on management’s watch list where a risk concern may be anticipated in the near future.

Substandard: Loans that are considered substandard are loans that are inadequately protected by current sound net worth and paying capacity of the obligor or the value of the collateral pledged. All non-accrual loans are graded as substandard.

Doubtful: Loans that are considered to be doubtful have all weaknesses inherent in loans classified substandard, plus the added characteristic that the weaknesses make the collection or liquidation in full on the basis of current existing facts, conditions and values highly questionable and improbable.

Loss: Loans that are considered to be a loss are considered to be uncollectible and of such little value that their continuance as bankable assets is not warranted.

The tables below summarize risk grades of the loan portfolio by class at March 31, 2021 and December 31, 2020:

 

March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

 

Watch

 

 

Sub-

standard

 

 

Doubtful

 

 

Total

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

60,871

 

 

$

2,282

 

 

$

176

 

 

$

 

 

$

63,329

 

SBA Paycheck Protection Program (PPP)

 

 

73,743

 

 

 

 

 

 

 

 

 

 

 

 

73,743

 

Real estate - commercial

 

 

135,051

 

 

 

4,601

 

 

 

2,973

 

 

 

 

 

 

142,625

 

Other real estate construction

 

 

31,342

 

 

 

339

 

 

 

274

 

 

 

 

 

 

31,955

 

Real estate 1 - 4 family construction

 

 

3,825

 

 

 

 

 

 

 

 

 

 

 

 

3,825

 

Real estate - residential

 

 

78,889

 

 

 

1,894

 

 

 

719

 

 

 

 

 

 

81,502

 

Home equity

 

 

48,417

 

 

 

607

 

 

 

387

 

 

 

 

 

 

49,411

 

Consumer loans

 

 

11,016

 

 

 

17

 

 

 

52

 

 

 

 

 

 

11,085

 

Other loans

 

 

2,966

 

 

 

 

 

 

 

 

 

 

 

 

2,966

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

446,120

 

 

$

9,740

 

 

$

4,581

 

 

$

 

 

$

460,441

 

-17-


 

 

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

 

Watch

 

 

Sub-

standard

 

 

Doubtful

 

 

Total

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

61,828

 

 

$

2,321

 

 

$

185

 

 

$

 

 

$

64,334

 

SBA Paycheck Protection Program (PPP)

 

 

74,750

 

 

 

 

 

 

 

 

 

 

 

 

74,750

 

Real estate - commercial

 

 

143,222

 

 

 

1,113

 

 

 

2,894

 

 

 

 

 

 

147,229

 

Other real estate construction

 

 

31,263

 

 

 

344

 

 

 

1,313

 

 

 

 

 

 

32,920

 

Real estate 1 - 4 family construction

 

 

7,709

 

 

 

 

 

 

 

 

 

 

 

 

7,709

 

Real estate - residential

 

 

72,085

 

 

 

2,145

 

 

 

783

 

 

 

 

 

 

75,013

 

Home equity

 

 

50,661

 

 

 

661

 

 

 

293

 

 

 

 

 

 

51,615

 

Consumer loans

 

 

11,001

 

 

 

19

 

 

 

53

 

 

 

 

 

 

11,073

 

Other loans

 

 

3,098

 

 

 

 

 

 

 

 

 

 

 

 

3,098

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

455,617

 

 

$

6,603

 

 

$

5,521

 

 

$

 

 

$

467,741

 

 

Loans that are in non-accrual status or 90 days past due and still accruing are considered to be nonperforming. At both March 31, 2021 and December 31, 2020 there were no loans 90 days past due and still accruing. The following tables show the breakdown between performing and nonperforming loans by class at March 31, 2021 and December 31, 2020:

 

March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

 

Non-

Performing

 

 

Total

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

63,329

 

 

$

 

 

$

63,329

 

SBA Paycheck Protection Program (PPP)

 

 

73,743

 

 

 

 

 

 

73,743

 

Real estate - commercial

 

 

140,460

 

 

 

2,165

 

 

 

142,625

 

Other real estate construction

 

 

31,955

 

 

 

 

 

 

31,955

 

Real estate 1 – 4 family construction

 

 

3,825

 

 

 

 

 

 

3,825

 

Real estate – residential

 

 

80,970

 

 

 

532

 

 

 

81,502

 

Home equity

 

 

49,174

 

 

 

237

 

 

 

49,411

 

Consumer loans

 

 

11,085

 

 

 

 

 

 

11,085

 

Other loans

 

 

2,966

 

 

 

 

 

 

2,966

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

457,507

 

 

$

2,934

 

 

$

460,441

 

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

 

Non-

Performing

 

 

Total

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

64,334

 

 

$

 

 

$

64,334

 

SBA Paycheck Protection Program (PPP)

 

 

74,750

 

 

 

 

 

 

74,750

 

Real estate - commercial

 

 

145,153

 

 

 

2,076

 

 

 

147,229

 

Other real estate construction

 

 

31,881

 

 

 

1,039

 

 

 

32,920

 

Real estate 1 – 4 family construction

 

 

7,709

 

 

 

 

 

 

7,709

 

Real estate – residential

 

 

74,418

 

 

 

595

 

 

 

75,013

 

Home equity

 

 

51,567

 

 

 

48

 

 

 

51,615

 

Consumer loans

 

 

11,073

 

 

 

 

 

 

11,073

 

Other loans

 

 

3,098

 

 

 

 

 

 

3,098

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

463,983

 

 

$

3,758

 

 

$

467,741

 

 

-18-


 

 

Loans are considered impaired when, based on current information and events, it is probable the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement. If a loan is deemed impaired, a specific calculation is performed and a specific reserve is allocated, if necessary. The tables below summarize the loans deemed impaired and the amount of specific reserves allocated by class at March 31, 2021 and December 31, 2020.

 

March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unpaid

Principal

Balance

 

 

Recorded

Investment

With No

Allowance

 

 

Recorded

Investment

With

Allowance

 

 

Related

Allowance

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

651

 

 

$

 

 

$

651

 

 

$

20

 

SBA Paycheck Protection Program (PPP)

 

 

 

 

 

 

 

 

 

 

 

 

Real estate - commercial

 

 

3,621

 

 

 

2,075

 

 

 

1,546

 

 

 

78

 

Other real estate construction

 

 

 

 

 

 

 

 

 

 

 

 

Real estate 1 - 4 family construction

 

 

 

 

 

 

 

 

 

 

 

 

Real estate - residential

 

 

2,729

 

 

 

1,348

 

 

 

1,381

 

 

 

81

 

Home equity

 

 

237

 

 

 

204

 

 

 

33

 

 

 

10

 

Consumer loans

 

 

11

 

 

 

 

 

 

11

 

 

 

 

Other loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

7,249

 

 

$

3,627

 

 

$

3,622

 

 

$

189

 

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unpaid

Principal

Balance

 

 

Recorded

Investment

With No

Allowance

 

 

Recorded

Investment

With

Allowance

 

 

Related

Allowance

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

651

 

 

$

 

 

$

651

 

 

$

20

 

SBA Paycheck Protection Program (PPP)

 

 

 

 

 

 

 

 

 

 

 

 

Real estate - commercial

 

 

3,547

 

 

 

2,076

 

 

 

1,471

 

 

 

33

 

Other real estate construction

 

 

1,039

 

 

 

1,039

 

 

 

 

 

 

 

Real estate 1 - 4 family construction

 

 

 

 

 

 

 

 

 

 

 

 

Real estate - residential

 

 

2,856

 

 

 

1,416

 

 

 

1,440

 

 

 

84

 

Home equity

 

 

48

 

 

 

15

 

 

 

33

 

 

 

10

 

Consumer loans

 

 

13

 

 

 

 

 

 

13

 

 

 

 

Other loans

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

8,154

 

 

$

4,546

 

 

$

3,608

 

 

$

147

 

The table below shows interest income received on impaired loans by class for the three months ended March 31, 2021 and 2020.

 

 

Three Months Ended March 31, 2021

 

 

Three Months Ended March 31, 2020

 

 

 

Average

Recorded

Investment

 

 

Interest

Income

 

 

Average

Recorded

Investment

 

 

Interest

Income

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

651

 

 

$

5

 

 

$

82

 

 

$

 

SBA Paycheck Protection Program (PPP)

 

 

 

 

 

 

 

 

 

 

 

 

Real estate - commercial

 

 

3,621

 

 

 

24

 

 

 

3,598

 

 

 

29

 

Other real estate construction

 

 

 

 

 

 

 

 

3,848

 

 

 

43

 

Real estate 1- 4 family construction

 

 

 

 

 

 

 

 

 

 

 

 

Real estate - residential

 

 

2,729

 

 

 

38

 

 

 

3,303

 

 

 

40

 

Home equity

 

 

237

 

 

 

1

 

 

 

124

 

 

 

1

 

Consumer loans

 

 

11

 

 

 

 

 

 

28

 

 

 

 

Other loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

7,249

 

 

$

68

 

 

$

10,983

 

 

$

113

 

-19-


 

 

 

Note 8 – Troubled Debt Restructures

A modification of a loan constitutes a troubled debt restructuring (“TDR”) when a borrower is experiencing financial difficulty and the modification involves providing a concession to the existing loan contract. The Company offers various types of concessions when modifying loans to troubled borrowers, however, forgiveness of principal is rarely granted. Concessions offered are term extensions, capitalizing accrued interest, reducing interest rates to below current market rates or a combination of any of these. Combinations from time to time may include allowing a customer to be placed on interest-only payments. The presentations below in the “other” category are TDRs with a combination of concessions. At the time of a TDR, additional collateral or a guarantor may be requested.

Loans modified as TDRs are typically already on non-accrual status and in some cases, partial charge-offs may have already been taken against the outstanding loan balance. The Company classifies TDR loans as impaired loans and evaluates the need for an allowance for loan loss on a loan-by-loan basis. An allowance is based on either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price or the estimated fair value of the underlying collateral less any selling costs, if the loan is deemed to be collateral dependent.

At both March 31, 2021 and December 31, 2020, the Company had $4.4 million in TDRs outstanding, of which one with a balance totaling $46,000 was on a non-accruing basis.

There were no loans modified as TDRs during the first quarter of 2021. For the three months ended March 31, 2020, the following table presents a breakdown of the types of concessions made by loan class:

 

 

 

For the three months ended March 31, 2020

 

 

 

Number

of Contracts

 

 

Pre-Modification

Outstanding Recorded

Investment

 

 

Post-Modification

Outstanding Recorded

Investment

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

1

 

 

$

41

 

 

$

41

 

SBA Paycheck Protection Program (PPP)

 

 

 

 

 

 

 

 

 

Real estate - commercial

 

 

 

 

 

 

 

 

 

Other real estate construction

 

 

1

 

 

 

2,725

 

 

 

2,725

 

Real estate 1 – 4 family construction

 

 

 

 

 

 

 

 

 

Real estate – residential

 

 

2

 

 

 

335

 

 

 

332

 

Home equity

 

 

 

 

 

 

 

 

 

Consumer loans

 

 

 

 

 

 

 

 

 

Other loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

4

 

 

$

3,101

 

 

$

3,098

 

During the twelve months ended March 31, 2021, there was one TDR for which there was a payment default. During the twelve months ended March 31, 2020, there were two TDRs for which there was a payment default.

A default on a TDR is defined as being past due 90 days or being out of compliance with the modification agreement. As previously mentioned, the Company considers TDRs to be impaired loans and has $139,000 in the allowance for loan losses as of March 31, 2021, as a direct result of these TDRs. At March 31, 2020, there was $114,000 in the allowance for loan losses related to TDRs.

-20-


 

The following table presents the status of the types of loans modified as TDRs within the previous twelve months as of March 31, 2021 and 2020:

 

 

 

Paid In Full

 

 

Paying as restructured

 

 

Converted to non-accrual

 

 

Foreclosure/ Default

 

 

 

Number of

Loans

 

 

Recorded

Investments

 

 

Number of

Loans

 

 

Recorded

Investments

 

 

Number of

Loans

 

 

Recorded

Investments

 

 

Number of

Loans

 

 

Recorded

Investments

 

 

 

(dollars in thousands)

 

March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Below market interest rate

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

Extended payment Terms

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forgiveness of Principal/Other

 

 

6

 

 

 

639

 

 

 

5

 

 

 

1,745

 

 

 

 

 

 

 

 

 

1

 

 

 

41

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

6

 

 

$

639

 

 

 

5

 

 

$

1,745

 

 

 

 

 

$

 

 

 

1

 

 

$

41

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Below market interest rate

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

Extended payment Terms

 

 

 

 

 

 

 

 

1

 

 

 

221

 

 

 

 

 

 

 

 

 

 

 

 

 

Forgiveness of Principal/Other

 

 

1

 

 

 

37

 

 

 

6

 

 

 

3,094

 

 

 

1

 

 

 

46

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

1

 

 

$

37

 

 

 

7

 

 

$

3,315

 

 

 

1

 

 

$

46

 

 

 

 

 

$

 

The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, which was signed into law on March 27, 2020, allows the Company to suspend the TDR classifications described above in an effort to provide relief to borrowers impacted by COVID-19. The Consolidated Appropriations Act, 2021, or CAA, which was signed into law on December 27, 2020, extends the expiration of TDR suspensions as set forth in the CARES Act. The Company has elected to adopt this suspension until January 1, 2022 or 60 days after the national emergency terminates, per the CAA. Modifications of loans subsequent to March 1, 2020 for COVID-19 reasons, and that were current as of December 31, 2019, are not considered TDRs and are tracked internally as “COVID-19 Modifications”.

The Company initially provided up to a three-month deferral period or conversion to interest-only repayment for up to three months. Additional extensions have been considered. Loans are reviewed on a case-by-case basis and the Company will generally work with borrowers that express an interest in the assistance program. As of March 31, 2021, the Company had three current outstanding modified loans with a recorded investment of $37,000. Of the loans currently under accommodation, one has entered payment deferral a second time. Additionally, 205 previously modified loans with outstanding balances totaling $55.3 million have come out of deferment. Of the loans removed from deferment, 30 with balances totaling $9.0 million were paid off, 172 loans totaling $46.2 million were out of accommodation and current at March 31, 2021 and three loans totaling $179,000 were removed due to noncompliance.

As of March 31, 2021, the Company’s modifications of loans for COVID-19 related reasons are disclosed in the table below:

 

 

 

Interest only

 

 

Payment deferral

 

 

Other

 

 

Total COVID-19 modifications

 

 

 

Number of

Loans

 

 

Recorded

Investments

 

 

Number of

Loans

 

 

Recorded

Investments

 

 

Number of

Loans

 

 

Recorded

Investments

 

 

Number of

Loans

 

 

Recorded

Investments

 

 

 

(dollars in thousands)

 

March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

$

 

 

 

1

 

 

$

4

 

 

 

 

 

$

 

 

 

1

 

 

$

4

 

Real estate - commercial

 

 

 

 

 

 

 

 

1

 

 

 

27

 

 

 

 

 

 

 

 

 

1

 

 

 

27

 

Other real estate construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate – residential

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer loans

 

 

 

 

 

 

 

 

1

 

 

 

6

 

 

 

 

 

 

 

 

 

1

 

 

 

6

 

Total

 

 

 

 

 

 

 

 

3

 

 

 

37

 

 

 

 

 

 

 

 

 

3

 

 

 

37

 

 

Note 9 - Leases

Operating leases in which we are the lessee are recorded as operating lease right of use (“ROU”) assets and operating lease liabilities, included in premises and equipment and other liabilities, respectively, on our consolidated balance sheets. Operating lease ROU assets

-21-


 

represent our right to use an underlying asset during the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents our incremental collateralized borrowing rate at the lease commencement date. ROU assets are further adjusted for the lease incentives. Operating lease expense, which is composed of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term and is recorded in the net occupancy expense in the consolidated statements of income. We do not currently have any finance leases in which we are the lessee.

Our leases relate to three office locations, two of which are branch locations, with remaining terms of five to nine years. Certain lease arrangements contain extension options which range from five to ten years at the then fair market rental rates. As these extension options are not generally considered reasonably certain of exercise, they are not included in the lease term. As of March 31, 2021, operating lease ROU assets were $2.4 million and the lease liability was $2.5 million, compared to ROU assets of $1.9 million and a lease liability of $1.9 million at March 31, 2020. Lease costs associated with all leases was $99,000 and $96,000 for the three months ended March 31, 2021 and 2020, respectively.

The table below summarizes other information related to our operating leases:

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

 

 

(in thousands except percent and period data)

 

 

 

 

 

 

 

 

 

 

Cash paid for amounts included in the measurement of lease liabilities

 

 

 

 

 

 

 

 

Operating cash flows from operating leases

 

$

96

 

 

$

94

 

Right-of-use assets obtained in exchange for new operating lease liabilities

 

 

2,354

 

 

 

1,864

 

Weighted-average remaining lease term - operating leases, in years

 

 

6.6

 

 

 

7.4

 

Weighted-average discount rate - operating leases

 

 

2.45

%

 

 

2.90

%

 

The table below summarizes the maturity of remaining lease liabilities:

 

 

 

 

 

 

 

March 31, 2021

 

 

 

(in thousands)

 

 

 

 

 

 

2021

 

$

293

 

2022

 

 

400

 

2023

 

 

408

 

2024

 

 

417

 

2025

 

 

427

 

2026 and thereafter

 

 

753

 

Total lease payments

 

 

2,698

 

Less: Interest

 

 

(220

)

Present value of lease liabilities

 

 

2,478

 

 

Note 10 - Commitments and Contingencies

The Company’s subsidiary bank is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, lines of credit and standby letters of credit. These instruments involve elements of credit risk in excess of amounts recognized in the accompanying financial statements.

The Bank’s risk of loss with unfunded loans and lines of credit or standby letters of credit is represented by the contractual amount of these instruments. The Bank uses the same credit policies in making commitments under such instruments as it does for on-balance sheet instruments. The amount of collateral obtained, if any, is based on management’s credit evaluation of the borrower. Collateral held varies, but may include accounts receivable, inventory, real estate and time deposits with financial institutions. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Credit card commitments are unsecured.

-22-


 

At March 31, 2021 and December 31, 2020, outstanding financial instruments whose contract amounts represent credit risk were approximately:

 

 

March 31, 2021

 

 

December 31, 2020

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

Commitments to extend credit

 

$

143,254

 

 

$

127,986

 

Credit card commitments

 

 

13,709

 

 

 

12,821

 

Standby letters of credit

 

 

8,071

 

 

 

8,277

 

Total commitments

 

$

165,034

 

 

$

149,084

 

 

Note 11 – Fair Value Disclosures

Accounting Standards Codification (“ASC”) 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 does not require any new fair value measurements but clarifies and standardizes some divergent practices that have emerged since prior guidance was issued. ASC 820 creates a three-level hierarchy under which individual fair value estimates are to be ranked based on the relative reliability of the inputs used in the valuation.

ASC 820 defines fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, the Company considers the principal or most advantageous market in which those assets or liabilities are sold and considers assumptions that market participants would use when pricing those assets or liabilities. Fair values determined using Level 1 inputs rely on active and observable markets to price identical assets or liabilities. In situations where identical assets and liabilities are not traded in active markets, fair values may be determined based on Level 2 inputs, which exist when observable data exists for similar assets and liabilities. Fair values for assets and liabilities for which identical or similar assets and liabilities are not actively traded in observable markets are based on Level 3 inputs, which are considered to be unobservable.

Among the Company’s assets and liabilities, investment securities available for sale and mortgage banking derivatives are reported at their fair values on a recurring basis. Certain other assets are adjusted to their fair value on a nonrecurring basis, including other real estate owned, impaired loans, loans held for sale, which are carried at the lower of cost or market, and loan servicing rights, where fair value is determined using similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. Deposits, short-term borrowings and long-term obligations are not reported at fair value.

Prices for US Treasury and marketable equity securities are readily available in the active markets in which those securities are traded, and the resulting fair values are shown in the Level 1 input column. Prices for government agency securities, mortgage-backed securities, asset-backed securities and for state, county and municipal securities are obtained for similar securities, and the resulting fair values are shown in the Level 2 input column. Prices for all other non-marketable investments are determined based on various assumptions that are not observable. The fair values for these investment securities are shown in the Level 3 input column. Non-marketable investment securities, which are carried at their purchase price, include those that may only be redeemed by the issuer. The changes in securities between Level 1 and Level 2 were related to the purchase and sale of several securities and not the transfer of securities.

Mortgage banking derivatives, which are comprised of interest rate lock commitments, or IRLCs, and mortgage forward sales commitments, are recorded at fair value on a recurring basis. Fair value of the IRLCs is based on projected pull-through rates, anticipated margins based on changes in market interest rates, and remaining origination costs to be incurred. The Company considers these to be Level 3 valuations.  The fair value of mortgage forward sales commitments is based on the gain or loss that would occur if the Company were to pair-off the transaction at the measurement date and is considered to be a Level 2 input.  

The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment by using one of several methods including collateral value, fair value of similar debt or discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the present value of the expected repayments or fair value of collateral exceed the recorded investments in such loans. The Company typically bases the fair value of the collateral on appraised values which the Company considers Level 3 valuations.

Foreclosed assets are adjusted to fair value upon transfer of the loans to other real estate owned. Real estate acquired in settlement of loans is recorded initially at the estimated fair value of the property less estimated selling costs at the date of foreclosure. The initial recorded value may be subsequently reduced by additional allowances, which are charged to earnings if the estimated fair value of the property less estimated selling costs declines below the initial recorded value. Fair value is based upon independent market prices,

-23-


 

appraised values of the collateral or management’s estimation of the value of the collateral. The Company typically bases the fair value of the collateral on appraised values, which the Company considers Level 3 valuations.

Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate, based on secondary market prices. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income. These loans are recorded in Level 2.

The following tables provides fair value information for assets and liabilities measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020:

 

 

 

March 31, 2021

 

 

 

(dollars in thousands)

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government agencies

 

$

44,068

 

 

$

 

 

$

44,068

 

 

$

 

GSE - Mortgage-backed securities and CMO’s

 

 

48,349

 

 

 

 

 

 

48,349

 

 

 

 

Asset-backed securities

 

 

39,002

 

 

 

 

 

 

39,002

 

 

 

 

State and political subdivisions

 

 

54,527

 

 

 

 

 

 

54,527

 

 

 

 

Corporate bonds

 

 

4,137

 

 

 

 

 

 

4,137

 

 

 

 

Equity securities

 

 

404

 

 

 

404

 

 

 

 

 

 

 

Mortgage interest rate lock commitments

 

 

2,108

 

 

 

 

 

 

 

 

 

2,108

 

Mortgage forward sales commitments

 

 

623

 

 

 

 

 

 

623

 

 

 

 

Total assets at fair value on a recurring basis

 

$

193,218

 

 

$

404

 

 

$

190,706

 

 

$

2,108

 

 

 

 

December 31, 2020

 

 

 

(dollars in thousands)

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government agencies

 

$

37,389

 

 

$

 

 

$

37,389

 

 

$

 

GSE - Mortgage-backed securities and CMO’s

 

 

41,496

 

 

 

 

 

 

41,496

 

 

 

 

Asset-backed securities

 

 

39,281

 

 

 

 

 

 

39,281

 

 

 

 

State and political subdivisions

 

 

69,164

 

 

 

 

 

 

69,164

 

 

 

 

Corporate bonds

 

 

4,183

 

 

 

 

 

 

4,183

 

 

 

 

Equity securities

 

 

1,352

 

 

 

1,352

 

 

 

 

 

 

 

Mortgage interest rate lock commitments

 

 

2,073

 

 

 

 

 

 

 

 

 

2,073

 

Total assets at fair value on a recurring basis

 

$

194,938

 

 

$

1,352

 

 

$

191,513

 

 

$

2,073

 

Mortgage forward sales commitments

 

$

388

 

 

$

 

 

$

388

 

 

$

 

Total liabilities at fair value on a recurring basis

 

$

388

 

 

$

 

 

$

388

 

 

$

 

 

The following table provides a rollforward for recurring Level 3 fair value measurements:

 

 

March 31, 2021

 

 

(dollars in thousands)

 

 

Mortgage interest rate lock commitments

 

 

Total

 

Balance at December 31, 2020

 

2,073

 

 

 

2,073

 

Change in fair value:

 

 

 

 

 

 

 

Included in income from mortgage banking

 

35

 

 

 

35

 

Balance at March 31, 2021

 

2,108

 

 

 

2,108

 

-24-


 

 

 

The fair value of mortgage interest rate lock commitments at March 31, 2021 was calculated based on a notional amount of $63.9 million. Significant unobservable inputs are used to determine the fair value of these derivatives. For the three months ended March 31, 2021, such inputs include anticipated remaining costs associated with origination of the loan of 0.85% and a projected pull-through rate of 86.1%. The fair value of mortgage interest rate lock commitments at December 31, 2020 was calculated based on a notional amount of $69.0 million. Significant unobservable inputs included anticipated remaining costs associated with origination of the loan of 0.83% and a projected pull-through rate of 86.0% at December 31, 2020. The estimated net margin to be earned from loan sales is also applied in the calculation. Changes in interest rates and other assumptions could significantly change these estimated values.

The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market value that were recognized at fair value less cost to sell at the end of the period. Assets measured at fair value on a nonrecurring basis are included in the table below as of March 31, 2021 and December 31, 2020:

 

 

 

March 31, 2021

 

 

 

(dollars in thousands)

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans

 

$

3,434

 

 

$

 

 

$

 

 

$

3,434

 

Total assets at fair value on a nonrecurring basis

 

$

3,434

 

 

$

 

 

$

 

 

$

3,434

 

 

 

 

December 31, 2020

 

 

 

(dollars in thousands)

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans

 

$

3,461

 

 

$

 

 

$

 

 

$

3,461

 

Total assets at fair value on a nonrecurring basis

 

$

3,461

 

 

$

 

 

$

 

 

$

3,461

 

 

Quantitative Information about Level 3 Fair Value Measurements

 

March 31, 2021

 

 

 

 

 

 

 

 

Valuation Technique

 

Unobservable Input

 

General

Range

Nonrecurring measurements:

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans

 

Discounted appraisals

 

Collateral discounts and Estimated costs to sell

 

0 – 25%

 

 

Discounted cash flows

 

Discount rates

 

4%-8.75%

 

December 31, 2020

 

 

 

 

 

 

 

 

Valuation Technique

 

Unobservable Input

 

General

Range

Nonrecurring measurements:

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans

 

Discounted appraisals

 

Collateral discounts and Estimated costs to sell

 

0 – 25%

 

 

Discounted cash flows

 

Discount rates

 

4%-8.75%

 

At March 31, 2021, impaired loans were being evaluated with discounted expected cash flows for performing TDRs and discounted appraisals were being used on collateral dependent loans.

Note 12 Fair Values of Financial Instruments and Interest Rate Risk

ASC 825, “Disclosures about Fair Value of Financial Instruments,” requires disclosure of the fair value of financial assets and financial liabilities, including those that are not measured and reported at fair value on a recurring basis or non-recurring basis.

The fair value estimates presented at March 31, 2021 and December 31, 2020 are based on relevant market information and information about the financial instruments. Fair value estimates are intended to represent the price an asset could be sold at or the price at which a liability could be settled. However, given there is no active market or observable market transactions for many of the Company’s financial instruments, the Company has made estimates of many of these fair values which are subjective in nature, involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimated values. The estimated fair values disclosed in the following table do not represent market values of all assets and liabilities of the Company and should not be interpreted to represent the underlying value of the Company. The

-25-


 

following table reflects a comparison of carrying amounts and the estimated fair value of the financial instruments as of March 31, 2021 and December 31, 2020:

 

March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Carrying

Value

 

 

Estimated

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(dollars in thousands)

 

FINANCIAL ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

97,060

 

 

$

97,062

 

 

$

95,815

 

 

$

1,247

 

 

$

 

Securities available for sale

 

 

190,083

 

 

 

190,083

 

 

 

 

 

 

190,083

 

 

 

 

Securities held to maturity

 

 

27,802

 

 

 

28,818

 

 

 

 

 

 

18,686

 

 

 

10,132

 

Equity securities

 

 

404

 

 

 

404

 

 

 

404

 

 

 

 

 

 

 

Loans held for investment, net

 

 

456,189

 

 

 

451,627

 

 

 

 

 

 

 

 

 

451,627

 

Loans held for sale

 

 

14,213

 

 

 

14,213

 

 

 

 

 

 

14,213

 

 

 

 

Restricted stock

 

 

921

 

 

 

921

 

 

 

921

 

 

 

 

 

 

 

Loan servicing rights

 

 

4,511

 

 

 

4,865

 

 

 

 

 

 

4,865

 

 

 

 

Mortgage interest rate lock commitments

 

 

2,108

 

 

 

2,108

 

 

 

 

 

 

 

 

 

2,108

 

Mortgage forward sales commitments

 

 

623

 

 

 

623

 

 

 

 

 

 

623

 

 

 

 

Accrued interest receivable

 

 

2,344

 

 

 

2,344

 

 

 

 

 

 

 

 

 

2,344

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FINANCIAL LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

744,149

 

 

$

744,222

 

 

$

 

 

$

744,222

 

 

$

 

Short-term borrowings

 

 

1,338

 

 

 

1,338

 

 

 

 

 

 

1,338

 

 

 

 

Long-term borrowings

 

 

11,242

 

 

 

11,002

 

 

 

 

 

 

 

 

 

11,002

 

Accrued interest payable

 

 

16

 

 

 

16

 

 

 

 

 

 

 

 

 

16

 

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Carrying

Value

 

 

Estimated

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(dollars in thousands)

 

FINANCIAL ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

88,868

 

 

$

88,879

 

 

$

87,623

 

 

$

1,256

 

 

$

 

Securities available for sale

 

 

191,513

 

 

 

191,513

 

 

 

 

 

 

191,513

 

 

 

 

Securities held to maturity

 

 

28,207

 

 

 

29,600

 

 

 

 

 

 

19,664

 

 

 

9,936

 

Equity securities

 

 

1,352

 

 

 

1,352

 

 

 

1,352

 

 

 

 

 

 

 

Loans held for investment, net

 

 

463,339

 

 

 

458,706

 

 

 

 

 

 

 

 

 

458,706

 

Loans held for sale

 

 

6,959

 

 

 

6,959

 

 

 

 

 

 

6,959

 

 

 

 

Restricted stock

 

 

1,166

 

 

 

1,166

 

 

 

1,166

 

 

 

 

 

 

 

Loan servicing rights

 

 

3,957

 

 

 

4,054

 

 

 

 

 

 

4,054

 

 

 

 

Mortgage interest rate lock commitments

 

 

2,073

 

 

 

2,073

 

 

 

 

 

 

 

 

 

2,073

 

Accrued interest receivable

 

 

2,523

 

 

 

2,523

 

 

 

 

 

 

 

 

 

2,523

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FINANCIAL LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

743,196

 

 

$

743,378

 

 

$

 

 

$

743,378

 

 

$

 

Short-term borrowings

 

 

710

 

 

 

710

 

 

 

 

 

 

710

 

 

 

 

Long-term debt

 

 

10,992

 

 

 

10,909

 

 

 

 

 

 

 

 

 

10,909

 

Mortgage forward sales commitments

 

 

388

 

 

 

388

 

 

 

 

 

 

388

 

 

 

 

Accrued interest payable

 

 

21

 

 

 

21

 

 

 

 

 

 

 

 

 

21

 

At March 31, 2021 the subsidiary bank had outstanding standby letters of credit and commitments to extend credit. These off-balance sheet financial instruments are generally exercisable at the market rate prevailing at the date the underlying transaction will be completed; therefore, the fair value is the fee the Bank is expected to receive. This amount is deemed immaterial by management. See Note 10.

Note 13 – Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. ASU 2016-13 requires an entity to utilize a new impairment model known as the current expected credit loss (“CECL”) model to estimate its lifetime “expected credit loss” and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The CECL model is expected to result in earlier recognition of credit losses. ASU 2016-13 also requires new disclosures for financial assets measured at amortized

-26-


 

cost, loans and available-for-sale debt securities. During 2019, the effective date was extended to fiscal years beginning on or after December 15, 2022 for public entities that qualify as smaller reporting companies, per the Securities and Exchange Commission definition, which currently includes the Company. Early adoption is permitted. Entities will apply the standard’s provisions as a cumulative effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. We have entered into a contract to outsource our current model with a CECL-ready vendor. We are currently evaluating the various methods of determining credit losses within the software. The impact of the adoption is dependent on loan portfolio composition and credit quality at adoption date, as well as economic conditions and forecasts at that time.

ASC 848, “Reference Rate Reform,” was set forth to eliminate certain reference rates and introduce new reference rates that are based on a larger, more liquid population of observable transactions that are less vulnerable to manipulation. The reference rate reform will discontinue the use of certain widely used reference rates such as the London Interbank Offered Rate, or LIBOR. In response to likely challenges arising from contract modifications due to reference rate reform, the FASB issued ASU 2020-04 in March 2020 to provide optional expedients and exceptions for applying GAAP to contract modifications. As such, modifications to debt contracts may be accounted for as a continuation of the existing contract by prospectively adjusting the effective interest rate. This amendment can be applied beginning March 12, 2020 and will sunset December 31, 2022.  The Company currently holds loan contracts that reference LIBOR, and is evaluating the most effective manner in which to modify those contracts, but does not anticipate material financial impact.

From time to time the FASB issues exposure drafts of proposed statements of financial accounting standards. Such exposure drafts are subject to comment from the public, to revisions by the FASB and to final issuance by the FASB as statements of financial accounting standards. Management considers the effect of the proposed statements on the consolidated financial statements of the Company and monitors the status of changes to and proposed effective dates of exposure drafts.

-27-


 

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Caution Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q may contain certain forward-looking statements consisting of estimates with respect to the financial condition, results of operations and business of the Company that are subject to various factors that could cause actual results to differ materially from these estimates. These factors include, but are not limited to: the impact of the novel Coronavirus disease, or COVID-19, on our borrowers’ ability to meet their financial obligations to us; increases in our past due loans and provisions for loan losses that may result from COVID-19; declines in general economic conditions, including increased stress in the financial markets due to COVID-19; changes in interest rates, deposit flows, loan demand, real estate values, and competition; changes in accounting principles, policies, or guidelines; changes in legislation or regulation; and other economic, competitive, governmental, regulatory, and technological factors affecting the Company’s operations, pricing, products and services. Any use of “we” or “our” in the following discussion refers to the Company on a consolidated basis.

Comparison of Financial Condition at March 31, 2021 and December 31, 2020.

During the three months ended March 31, 2021, the Company’s total assets increased $4.8 million, from $827.8 million to $832.6 million.

Cash and cash equivalents increased $8.2 million during the three months ended March 31, 2021. The increase is related to sales of investments in the securities portfolio in an effort to reduce duration risk as long-term interest rates rise.

Investment securities consist of securities available for sale and securities held to maturity. Investment securities decreased $1.8 million to $217.9 million for the three-month period ended March 31, 2021. At March 31, 2021, the Company had net unrealized gains on securities available for sale of $388,000, compared to net unrealized gains of $4.2 million as December 31, 2020. The significant decline is directly related to the increase of interest rates at March 31, 2021 compared to December 31, 2020, as the market signals recovery from the COVID-19 outbreak worldwide.

During the first quarter of 2021, the Company sold a portion of its equity security investment bringing the principal value down from $901,000 to $270,000. At March 31, 2021, unrealized gains on the investment totaled $134,000, resulting in a fair value of $404,000 for the security.

Loans held for investment decreased from $467.7 million to $460.4 million, a decrease of $7.3 million for the three-month period. The Company experienced net decline in nearly all sectors with the largest decline (not including PPP loans) occurring in the commercial real estate segment related to large payoffs, one of which was a nonaccrual loan. During the first quarter of 2021, the Company funded 672 SBA PPP Round 2 loans for a total of $42.5 million. These loans are unsecured commercial loans, but are 100% guaranteed by the SBA. The growth in PPP loans was offset by forgiveness of $42.0 million of SBA PPP loans originally funded during 2020. Loans held for sale increased 104%, or $7.3 million, as many of the loans produced near the March 31, 2021 quarter-end date were not sold on the secondary market until early April.

The allowance for loan losses was $4.3 million at March 31, 2021, which represented 0.92% of the total loans held for investment compared to $4.4 million or 0.94% of the total loans held for investment at December 31, 2020. Additional discussion regarding the decrease in the allowance is included in the Asset Quality section below.

Other changes in our consolidated assets are primarily related to loan servicing assets, mortgage forward sales commitments, and other assets. Loan servicing assets increased $554,000 from December 31, 2020 to March 31, 2021 due to retention of servicing rights related to sustained sales of residential mortgage loans. Mortgage forward sales commitments are recognized as an asset this quarter compared to a liability at December 31, 2020, because of the significant rise in interest rates since year-end. As rates rise, the value of the mandatory commitment deteriorates and the price received to exit out of the commitment increases. Other assets decreased $1.3 million during the first three months of 2021, primarily due to the sale of an investment in a community development project, originally purchased in the first quarter of 2020.

Customer deposits, our primary funding source, experienced a $953,000 increase during the three-month period ended March 31, 2021, increasing from $743.2 million to $744.1 million, a 0.13% increase. A portion of this increase is related to funding of SBA PPP loans, some of the proceeds of which were deposited by our customers into their deposit accounts held at the Company’s subsidiary bank. The growth was offset by a significant reduction due to one account. The subsidiary bank has more than replaced the exited account’s balances during the first quarter of 2021. Demand noninterest-bearing checking accounts increased $34.9 million and savings deposits increased $7.5 million during the three months ended March 31, 2021. Interest checking and money market accounts decreased by $33.4 million, primarily due to a $42.0 million decrease related to the deposit account closure referenced above. Time deposits have decreased by $7.9 million as customers transition to liquid accounts.

-28-


 

Total short-term borrowings increased $628,000 for the period. At March 31, 2021, the Company had $11.2 million in long-term debt outstanding, which consisted primarily of its fixed rate junior subordinated debt securities issued during the third quarter of 2019. The subordinated debt securities have a final maturity date of September 30, 2029, though may be redeemed by the Company on or after September 30, 2024. The junior subordinated debt pays interest quarterly at an annual fixed rate of 5.25%. The Company has a $3.0 million line of credit of which $1.3 million was in use at March 31, 2021.

Other liabilities increased from $13.2 million at December 31, 2020 to $16.0 million at March 31, 2021, an increase of $2.8 million, primarily due to the accrual for payment of income taxes.

At March 31, 2021, total shareholders’ equity was $59.8 million, an increase of $589,000 from December 31, 2020. Net income for the three-month period was $4.6 million. Unrealized gains/losses on investment securities, net of tax, declined by $3.8 million as the yield curve continues to steepen. The Company repurchased 12,201 shares of common stock at a total cost of $83,000 during the first three months of 2021. The Company paid $139,000 in dividends attributed to noncontrolling interest during the first three months of 2021. See Note 3 (Noncontrolling Interest) to the Company’s Notes to Consolidated Financial Statements for additional discussion of the noncontrolling interest.

Results of Operations for the Three Months Ended March 31, 2021 and 2020.

Net Income and Net Income Available to Common Shareholders

Uwharrie Capital Corp reported net income of $4.6 million for the three months ended March 31, 2021, as compared to $328,000 for the three months ended March 31, 2020, an increase of $4.3 million. Net income available to common shareholders was $4.4 million or $0.63 per common share, for the three months ended March 31, 2021, compared to $187,000 or $0.03 per common share, for the three months ended March 31, 2020. Net income available to common shareholders is net income less dividends on the aforementioned noncontrolling interest.

Net Interest Income

Net interest income for the three months ended March 31, 2021 was $6.8 million, compared to $4.8 million for the three months ended March 31, 2020, an increase of $2.0 million. During the first quarter of 2021, the average yield on our interest-earning assets increased eight basis points to 3.80%, and the average rate we paid for our interest-bearing liabilities decreased fifty basis points to 0.27%. These changes resulted in a higher interest rate spread of 3.53% as of March 31, 2021, compared to 2.95% as of March 31, 2020. Our net interest margin was 3.62% and 3.17% for the comparable periods in 2021 and 2020, respectively.

The following table presents average balance sheet and a net interest income analysis for the three months ended March 31, 2021 and 2020:

Average Balance Sheet and Net Interest Income Analysis

For the Three Months Ended March 31,

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Balance

 

 

Income/Expenses

 

 

Rate/Yield

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable securities

 

$

193,755

 

 

$

88,396

 

 

$

826

 

 

$

492

 

 

 

1.73

%

 

 

2.24

%

Nontaxable securities (1)

 

 

39,490

 

 

 

16,053

 

 

 

253

 

 

 

99

 

 

 

3.26

%

 

 

3.10

%

Short-term investments

 

 

58,384

 

 

 

150,879

 

 

 

16

 

 

 

552

 

 

 

0.11

%

 

 

1.47

%

Equity Securities

 

 

721

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable loans

 

 

471,456

 

 

 

355,018

 

 

 

6,004

 

 

 

4,485

 

 

 

5.16

%

 

 

5.08

%

Non-taxable loans (1)

 

 

8,197

 

 

 

9,792

 

 

 

58

 

 

 

68

 

 

 

3.60

%

 

 

3.49

%

Total interest-earning assets

 

 

772,003

 

 

 

620,138

 

 

 

7,157

 

 

 

5,696

 

 

 

3.80

%

 

 

3.72

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits

 

 

510,486

 

 

 

438,683

 

 

 

211

 

 

 

728

 

 

 

0.17

%

 

 

0.67

%

Short-term borrowed funds

 

 

1,621

 

 

 

501

 

 

 

1

 

 

 

1

 

 

 

0.25

%

 

 

0.80

%

Long-term debt

 

 

12,004

 

 

 

9,992

 

 

 

136

 

 

 

131

 

 

 

4.59

%

 

 

5.72

%

Total interest-bearing liabilities

 

 

524,111

 

 

 

449,176

 

 

 

348

 

 

 

860

 

 

 

0.27

%

 

 

0.77

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest spread

 

$

247,892

 

 

$

170,962

 

 

$

6,809

 

 

$

4,836

 

 

 

3.53

%

 

 

2.95

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest margin (1) (% of earning assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3.62

%

 

 

3.17

%

(1)

Yields related to securities and loans exempt from income taxes are stated on a fully tax-equivalent basis, assuming a 23% tax rate.

-29-


 

Provision (Recovery) and Allowance for Loan Losses

The recovery for loan losses was $34,000 for the three months ended March 31, 2021, compared to a provision of $632,000 for the same period in 2020. There were net loan charge-offs of $116,000 for the three months ended March 31, 2021, as compared with net loan recoveries of $14,000 during the same period of 2020. Refer to the Asset Quality section below for further information.

Noninterest Income

The Company generates most of its revenue from net interest income; however, diversification of our revenue sources is important as well. Total noninterest income increased by $4.1 million for the three-month period ended March 31, 2021, as compared to the same period in 2020. The primary factor contributing to the overall increase was an increase of $4.0 million in income from mortgage loan sales. This increase is due to stronger margins and increased production from refinance and purchase transactions during the first quarter of 2021.

In addition, the gain on sale of securities increased $882,000 to $940,000 at March 31, 2021 compared to $58,000 at March 31, 2020 as the Company worked to reduce the duration of the investment portfolio in an attempt to protect capital as long-term interest rates rise.

Interchange fees, or “swipe” fees, are charges that merchants pay to us and other card-issuing banks for processing electronic payment transactions. Interchange and card transaction fees consist of income from check card usage, point-of-sale income from PIN-based debit card transactions, ATM service fees, and credit card usage. A comparison of gross interchange and card transaction fees and interchange and card transaction fees net of associated network costs for the reported periods is presented in the table below:

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

Income from debit card transactions

 

$

492

 

 

$

385

 

Income from credit card transactions

 

 

114

 

 

 

121

 

Gross interchange and transaction fee income

 

 

606

 

 

 

506

 

Network costs - debit card

 

 

251

 

 

 

172

 

Network costs - credit card

 

 

136

 

 

 

142

 

Total net income

 

$

219

 

 

$

192

 

Noninterest Expense

Noninterest expense for the three months ended March 31, 2021 increased by $1.3 million from the same period in 2020, to $8.1 million. Salaries and benefits, the largest component of noninterest expense, increased $965,000 to account for wage and benefit cost increases as well as increased commissions for increased production in the mortgage division. As a result of production growth in the mortgage division, loan costs increased by $219,000 to $306,000 for the three months ended March 31, 2021. Marketing and donations increased $402,000 as the Company makes a conscious effort to support the communities we serve by giving back and supporting economic development and growth.

Total other noninterest expense decreased for the three months ended March 31, 2021 compared to the same period in 2020. This decline was due to market valuation adjustments that reduced the expense associated with supplemental executive retirement plans by $462,000. The table below reflects the composition of other noninterest expense.

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

Postage

 

$

46

 

 

$

44

 

Telephone and data lines

 

 

49

 

 

 

47

 

Office supplies and printing

 

 

26

 

 

 

22

 

Shareholder relations expense

 

 

33

 

 

 

34

 

Dues and subscriptions

 

 

109

 

 

 

64

 

Other

 

 

17

 

 

 

527

 

Total

 

$

280

 

 

$

738

 

Income Tax Expense

The Company had income tax expense of $1.2 million for the three months ended March 31, 2021 at an effective tax rate of 21.1% compared to income tax expense of $85,000 with an effective tax rate of 20.6% in the comparable 2020 period. Income taxes

-30-


 

computed at the statutory rate are affected primarily by the eligible amount of interest earned on state and municipal securities, tax-free municipal loans and income earned on bank-owned life insurance. For the three months ended March 31, 2021, the effective tax rate increased slightly due to the reduction in tax-free securities as a part of the duration reduction of the investment portfolio.

Asset Quality

The Company’s allowance for loan losses is established through charges to earnings in the form of a provision for loan losses. The allowance is increased by provisions charged to operations and recoveries of amounts previously charged off and is reduced by recovery of provisions and loans charged off. Management continuously evaluates the adequacy of the allowance for loan losses. In evaluating the adequacy of the allowance, management considers the following: the growth, composition and industry diversification of the portfolio; historical loan loss experience; current delinquency levels; adverse situations that may affect a borrower’s ability to repay; estimated value of any underlying collateral; prevailing economic conditions; and other relevant factors. The Company’s credit administration function, through a review process, periodically validates the accuracy of the initial risk grade assessment. In addition, as a given loan’s credit quality improves or deteriorates, the credit administration department has the responsibility to change the borrower’s risk grade accordingly. For loans determined to be impaired, the allowance is based on either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the estimated fair value of the underlying collateral less the selling costs. This evaluation is inherently subjective, as it requires material estimates, including the amounts and timing of future cash flows expected to be received on impaired loans, which may be susceptible to significant change. In addition, regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses and may require additions for estimated losses based upon judgments different from those of management.

Management uses a risk-grading program designed to evaluate the credit risk in the loan portfolio. In this program, risk grades are initially assigned by loan officers and then reviewed and monitored by credit administration. This process includes the maintenance of an internally classified loan list that is designed to help management assess the overall quality of the loan portfolio and the adequacy of the allowance for loan losses. In establishing the appropriate classification for specific assets, management considers, among other factors, the estimated value of the underlying collateral, the borrower’s ability to repay, the borrower’s payment history, and the current delinquent status. Because of this process, certain loans are deemed to be impaired and evaluated as an impaired loan.

The portion of the Company’s allowance for loan loss model related to general reserves captures the mean loss of individual loans within the loan portfolio and adds additional loss based on economic uncertainty and specific indicators of potential issues in the market. Specifically, the Company calculates probable losses on loans by computing a probability of loss and multiplying that by a loss given default derived from historical experience. An additional calculation based on economic uncertainty is added to the probable losses, thus deriving the estimated loss scenario by FDIC call report codes. Together, these expected components, as well as a reserve for qualitative factors based on management’s discretion of economic conditions, form the basis of the allowance model. The loans that are impaired and included in the specific reserve are excluded from these calculations.

The Company assesses the probability of losses inherent in the loan portfolio using probability of default data derived from the Company’s internal historical data, representing a one-year loss horizon for each obligor. Credit scores are used within the model to determine the probability of default. The Company updates the credit scores for individuals that either have a loan, or are financially responsible for the loan, semi-annually, during the first and third quarters. During the first three months of 2021, the average effective credit score of the portfolio, excluding loans in default, decreased slightly from 772 to 768. The probability of default associated with each credit score is a major driver in the allowance for loan losses.

The allowance for loan losses represents management’s best estimate of an appropriate amount to provide for probable credit risk inherent in the loan portfolio in the normal course of business. While management believes that it uses the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary and results of operations could be adversely affected if circumstances differ from the assumptions used in making the determinations. Furthermore, while management believes it has established the allowance for loan losses in conformity with generally accepted accounting principles, there can be no assurance that banking regulators, in reviewing the Company’s portfolio, will not require an adjustment to the allowance for loan losses. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that increases will not be necessary, should the quality of any loans deteriorate. Unexpected global events, such as the unprecedented economic disruption due to COVID-19, are the type of future events that often cause material adjustments to the allowance to be necessary. Any material increase in the allowance for loan losses may adversely affect the Company’s financial condition, results of operations and the value of its securities.

At March 31, 2021, the level of our impaired loans, which includes all loans in non-accrual status, TDRs, and other loans deemed by management to be impaired, was $7.2 million, compared to $8.2 million at December 31, 2020, a net decrease of $906,000. The decrease is related to one large relationship paying off in the first quarter of 2021. Total non-accrual loans, which are a component of impaired loans, decreased from $3.8 million at December 31, 2020 to $2.9 million at March 31, 2021. During the first three months of 2021, two additional loans totaling $289,000 were added to impaired loans; however, four loans totaling $1.1 million were paid off.  That was offset by net pay downs of $53,000.

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The allowance, expressed as a percentage of gross loans held for investment, decreased two basis points from 0.94% at December 31, 2020 to 0.92% at March 31, 2021. The collectively evaluated reserve allowance as a percentage of collectively evaluated loans was 0.93% at December 31, 2020 and 0.90% at March 31, 2021. The decrease is attributable to the economic recovery occurring as the COVID-19 outbreak is contained and businesses increase operations. The individually evaluated allowance as a percentage of individually evaluated loans increased from 1.81% to 2.60% for the same periods, mainly due to one relationship deemed impaired during the first three months of 2021, which required additional reserves to cover probable losses.

The ratio of nonperforming loans, which consists of non-accrual loans and loans past due 90 days and still accruing, to total loans decreased from 0.80% at December 31, 2020 to 0.64% at March 31, 2021, and was related to the large nonaccrual relationship that was paid off in the first quarter.

As of March 31, 2021, management believed the level of the allowance for loan losses was appropriate in light of the risk inherent in the loan portfolio.

Other real estate owned remained at $0 through March 31, 2021, as there were no loans foreclosed on during the first three months of 2021.

Troubled debt restructured loans at March 31, 2021 totaled $4.3 million compared to $4.4 million at December 31, 2020 and are included in impaired loans. The slight decrease is related to one relationship paying off in the first three months of 2021. At March 31, 2021, there was one troubled debt restructured loan in non-accrual status, which had a balance of $46,000.

As discussed in Note 8 of our Notes to Consolidated Financial Statements, the CARES Act allows for loan modifications related to COVID-19 impacts to be excluded from TDR status. As of March 31, 2021, the Company had three current outstanding loan portfolio modifications of COVID-19 impacted loans for $37,000. Of the loans currently under accommodation, one had entered payment deferral a second time. Additionally, 205 previously modified loans with outstanding balances totaling $55.4 million have come out of deferment. Of the loans removed from deferment, 30 loans totaling $9.0 million have paid off, 172 loans totaling $46.2 million were out of accommodation and current at March 31, 2021 and three loans totaling $179,000 were removed due to noncompliance.

The following table shows the comparison of nonperforming assets at March 31, 2021 and December 31, 2020:

Nonperforming Assets

(dollars in thousands)

 

 

March 31, 2021

 

 

December 31, 2020

 

Nonperforming assets:

 

 

 

 

 

 

 

 

Accruing loans past due 90 days or more

 

$

 

 

$

 

Non-accrual loans

 

 

2,934

 

 

 

3,758

 

Other real estate owned

 

 

 

 

 

 

Total nonperforming assets

 

$

2,934

 

 

$

3,758

 

 

 

 

 

 

 

 

 

 

Allowance for loans losses

 

$

4,252

 

 

$

4,402

 

Nonperforming loans to total loans

 

 

0.64

%

 

 

0.80

%

Allowance for loan losses to total loans

 

 

0.92

%

 

 

0.94

%

Nonperforming assets to total assets

 

 

0.35

%

 

 

0.45

%

Allowance for loan losses to nonperforming loans

 

 

144.92

%

 

 

117.14

%

Liquidity and Capital Resources

The objective of the Company’s liquidity management policy is to ensure the availability of sufficient cash flows to meet all financial commitments and to capitalize on any opportunities for expansion. Liquidity management addresses the ability to meet deposit withdrawals on demand or at contractual maturity, to repay borrowings as they mature and to fund new loans and investments as opportunities arise.

The Company’s primary sources of internally generated funds are principal and interest payments on loans, cash flows generated from operations and cash flow generated by investments. Growth in deposits is typically the primary source of funds for loan growth. The Company and its subsidiary bank have multiple funding sources, in addition to deposits, that can be used to increase liquidity and provide additional financial flexibility. These sources are the subsidiary bank’s established federal funds lines with correspondent banks aggregating $28.0 million at March 31, 2021, with available credit of $28.0 million; established borrowing relationships with the Federal Home Loan Bank, with available credit of $92.9 million; access to borrowings from the Federal Reserve Bank discount window, with available credit of $27.2 million and the issuance of commercial paper. The Company also secured a $3.0 million line of

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credit with TIB The Independent BankersBank, N.A. The line is secured with 100% of the outstanding common shares of the Company’s subsidiary bank. As of March 31, 2021, we had $1.8 million that had not been extended and remained available for use on the line of credit. The Company has also previously secured long-term debt from other sources. Total outstanding debt from these sources included $10.0 million of junior subordinated debt at both March 31, 2021 and December 31, 2020.

Banks and bank holding companies, as regulated institutions, must meet required levels of capital. The Federal Reserve, the primary federal regulator of the Company and its subsidiary bank, has adopted minimum capital regulations or guidelines that categorize components and the level of risk associated with various types of assets.

The Company continues to maintain capital ratios that support its asset growth. The federal bank regulatory agencies have implemented regulatory capital rules known as “Basel III.” The Basel III rules require a common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.50%, a minimum ratio of Tier 1 capital to risk-weighted assets of 6.00%, a minimum ratio of total capital to risk-weighted assets of 8.00%, and a minimum Tier 1 leverage ratio of 4.00%. There is also a capital conservation buffer that requires banks to hold common equity Tier 1 capital in excess of minimum risk-based capital ratios by at least 2.5% to avoid limits on capital distributions and certain discretionary bonus payments to executive officers and similar employees.

As of March 31, 2021, the Company’s subsidiary bank continued to exceed minimum capital standards and remained well-capitalized under the applicable rules.

The Company’s subsidiary bank has a net total of $10.6 million in outstanding Fixed Rate Noncumulative Perpetual Preferred Stock. The preferred stock qualifies as Tier 1 capital at the Bank and pays dividends at an annual rate of 5.30%. The net total of $10.6 million is presented as noncontrolling interest at the Company level and qualifies as Tier 1 capital at the Company. At March 31, 2021, the Company had $10.0 million in subordinated debt outstanding, which qualifies as Tier 2 capital at the Company level. The Company has made all interest and dividend payments in a timely manner.

Off-Balance Sheet Arrangements

Off-balance sheet arrangements include transactions, agreements or other contractual arrangements to which an unconsolidated entity of the Company is a party and pursuant to which the Company has obligations, including an obligation to provide guarantees on behalf of an unconsolidated entity, or retains an interest in assets transferred to an unconsolidated entity. We currently have no off-balance sheet arrangements of this kind.

Derivative financial instruments include futures contracts, forward contracts, interest rate swaps, options contracts, and other financial instruments with similar characteristics. We have not engaged in significant derivative activities through March 31, 2021 and have no current plans to do so.

Contractual Obligations

The timing and amount of our contractual obligations has not changed materially since our 2020 Annual Report to Shareholders, which is filed as Exhibit 13 to our 2020 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 5, 2021.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk.

Disclosure under this item is not required for smaller reporting companies.

Item 4.

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

At the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Securities Exchange Act (“Exchange Act”) Rule 13a-15.

Based upon that evaluation, the principal executive officer and principal financial officer concluded that in their opinion, the Company’s disclosure controls and procedures were effective (1) to provide reasonable assurance that information required to be disclosed by the Company in the reports filed or submitted by it under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) to provide reasonable assurance that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow for timely decisions regarding required disclosure.

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Changes in Internal Control over Financial Reporting

Management of the Company has evaluated, with the participation of the Company’s principal executive officer and principal financial officer, changes in the Company’s internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the first quarter of 2021. In connection with such evaluation, the Company has determined that there were no changes in the Company’s internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company reviews its disclosure controls and procedures, which may include its internal control over financial reporting, on an ongoing basis, and may from time to time make changes aimed at enhancing their effectiveness and ensuring that the Company’s systems evolve with its business.

Part II. OTHER INFORMATION

Item 1.

Legal Proceedings.

Neither the Company nor its subsidiaries, nor any of their properties are subject to any material legal proceedings. From time to time, the Company’s subsidiary bank is engaged in ordinary routine litigation incidental to its business.

Item 1A.

Risk Factors.

Disclosure under this item is not required for smaller reporting companies.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

The following table sets forth information with respect to shares of common stock repurchased by the Company during the three months ended March 31, 2021.

 

 

 

(a) Total

Number of

Shares

Purchased

 

 

(b) Average

Price Paid per

Share

 

 

(c) Total Number

of Shares

Purchased as

Part of Publicly

Announced

Plans or Program(1)

 

 

(d) Maximum

Dollar Value

(in thousands) 

of Shares that 

May Yet Be Purchased Under

the Plans

 

January 1, 2021 Through January 31, 2021

 

 

 

 

$

 

 

 

 

 

$

 

February 1, 2021 Through February 28, 2021

 

 

 

 

$

 

 

 

 

 

$

 

March 1, 2021 Through March 31, 2021

 

 

12,201

 

 

$

6.79

 

 

 

 

 

$

1,000

 

Total

 

 

12,201

 

 

$

6.79

 

 

 

 

 

$

1,000

 

(1) Trades of the Company’s common stock are quoted on the OTCQX Market from time to time. The Company also has in place a Stock Repurchase Plan that provides liquidity to its shareholders in the event a willing buyer is not available to purchase shares that are offered for sale. The Company is under no obligation to purchase shares offered; however, it will accommodate such offers as its Stock Repurchase Plan allows.

Item 3.

Defaults Upon Senior Securities.

None.

Item 4.

Mine Safety Disclosures.

Not applicable.

Item 5.

Other Information.

None.

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Item 6.

Exhibits.

Set forth below is the exhibit index for this quarterly report:

 

Exhibit

Number

 

Description of Exhibit

 

 

 

 

 

 

31.1

 

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

 

 

 

31.2

 

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

 

 

 

32

 

Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)

 

 

 

101

 

Interactive data files providing financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021, in XBRL (eXtensible Business Reporting Language) (filed herewith)

 

 

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

 

 

UWHARRIE CAPITAL CORP

 

 

 

 

(Registrant)

 

 

 

 

 

 

 

Date:

 

May 4, 2021

 

By:

 

/s/ Roger L. Dick

 

 

 

 

Roger L. Dick

 

 

 

 

President and Chief Executive Officer

 

 

 

 

 

 

 

Date:

 

May 4, 2021

 

By:

 

/s/ R. David Beaver, III

 

 

 

 

R. David Beaver, III

 

 

 

 

Principal Financial Officer

 

 

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