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ing
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2019
OR
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☐ |
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)
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NORTH CAROLINA |
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56-1814206 |
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(State or Other Jurisdiction of Incorporation or Organization) |
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(I.R.S. Employer Identification No.) |
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132 NORTH FIRST STREET ALBEMARLE, NORTH CAROLINA |
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28001 |
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(Address of Principal Executive Offices) |
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(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)
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.
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Large accelerated filer |
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☐ |
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Accelerated filer |
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☐ |
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Non-accelerated filer |
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☒ |
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Smaller reporting company |
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☒ |
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Emerging growth company |
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☐ |
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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
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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None |
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Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: 7,072,062 shares of common stock outstanding as of August 2, 2019.
Table of Contents
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Page No. |
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Part I. |
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Item 1 - |
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Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018 |
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3 |
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Consolidated Statements of Income for the Three and Six Months Ended June 30, 2019 and 2018 |
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4 |
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5 |
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6 |
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Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018 |
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7 |
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8 |
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Item 2 - |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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28 |
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Item 3 - |
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35 |
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Item 4 - |
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35 |
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Part II. |
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Item 1 - |
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36 |
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Item 1A - |
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36 |
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Item 2 - |
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36 |
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Item 3 - |
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36 |
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Item 4 - |
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36 |
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Item 5 - |
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36 |
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Item 6 - |
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37 |
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38 |
-2-
Uwharrie Capital Corp and Subsidiaries
Consolidated Balance Sheets
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June 30, 2019 (Unaudited) |
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December 31, 2018* |
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(dollars in thousands) |
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|||||
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ASSETS |
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Cash and due from banks |
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$ |
5,314 |
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$ |
4,473 |
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Interest-earning deposits with banks |
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107,544 |
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113,461 |
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Securities available for sale, at fair value |
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87,741 |
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91,299 |
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Securities held to maturity, at amortized cost (fair value $10,704 and $10,750, respectively) |
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10,639 |
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10,837 |
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Loans held for sale |
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2,517 |
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4,800 |
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Loans: |
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Loans held for investment |
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374,566 |
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369,970 |
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Less allowance for loan losses |
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(2,179 |
) |
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(2,374 |
) |
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Net loans held for investment |
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372,387 |
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367,596 |
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Premises and equipment, net |
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16,823 |
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14,800 |
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Interest receivable |
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1,733 |
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1,763 |
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Restricted stock |
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1,144 |
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1,094 |
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Bank-owned life insurance |
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8,726 |
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8,671 |
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Other real estate owned |
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686 |
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1,047 |
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Prepaid assets |
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1,109 |
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558 |
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Other assets |
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11,000 |
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11,905 |
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Total assets |
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$ |
627,363 |
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$ |
632,304 |
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LIABILITIES |
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Deposits: |
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Demand noninterest-bearing |
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$ |
148,930 |
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$ |
129,714 |
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Interest checking and money market accounts |
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237,723 |
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324,391 |
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Savings deposits |
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56,782 |
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54,784 |
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Time deposits, $250,000 and over |
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57,759 |
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7,920 |
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Other time deposits |
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55,722 |
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50,092 |
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Total deposits |
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556,916 |
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566,901 |
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Short-term borrowed funds |
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|
839 |
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|
1,190 |
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Long-term debt |
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|
9,974 |
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9,974 |
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Interest payable |
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|
47 |
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16 |
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Other liabilities |
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11,534 |
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9,048 |
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Total liabilities |
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579,310 |
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587,129 |
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Off balance sheet items, commitments and contingencies (Note 10) |
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SHAREHOLDERS’ EQUITY |
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Common stock, $1.25 par value: 20,000,000 shares authorized; shares issued and outstanding 7,072,062 and 7,126,541 |
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8,840 |
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8,908 |
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Preferred stock, 10,000,000 shares authorized; none issued and outstanding |
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— |
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— |
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Additional paid-in capital |
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12,683 |
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12,885 |
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Undivided profits |
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15,782 |
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14,421 |
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Accumulated other comprehensive income (loss) |
|
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93 |
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|
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(1,694 |
) |
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Total Uwharrie Capital shareholders’ equity |
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37,398 |
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34,520 |
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Noncontrolling interest |
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10,655 |
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10,655 |
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Total shareholders’ equity |
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|
48,053 |
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|
|
45,175 |
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Total liabilities and shareholders’ equity |
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$ |
627,363 |
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$ |
632,304 |
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(*) |
Derived from audited consolidated financial statements |
See accompanying notes
-3-
Uwharrie Capital Corp and Subsidiaries
Consolidated Statements of Income (Unaudited)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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||||||||||
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2019 |
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2018 |
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2019 |
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2018 |
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||||
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(in thousands, except share and per share data) |
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|||||||||||||
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Interest Income |
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|
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|
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|
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|
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|
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|
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Loans, including fees |
|
$ |
4,735 |
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$ |
4,469 |
|
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$ |
9,402 |
|
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$ |
8,725 |
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Investment securities |
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|
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|
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|
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|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
|
32 |
|
|
|
— |
|
|
|
65 |
|
|
|
— |
|
|
U.S. Government agencies and corporations |
|
|
345 |
|
|
|
364 |
|
|
|
693 |
|
|
|
751 |
|
|
State and political subdivisions, non-taxable |
|
|
88 |
|
|
|
111 |
|
|
|
194 |
|
|
|
224 |
|
|
State and political subdivisions, taxable |
|
|
25 |
|
|
|
9 |
|
|
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34 |
|
|
|
20 |
|
|
Interest-earning deposits with banks and federal funds sold |
|
|
687 |
|
|
|
365 |
|
|
|
1,480 |
|
|
|
642 |
|
|
Total interest income |
|
|
5,912 |
|
|
|
5,318 |
|
|
|
11,868 |
|
|
|
10,362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest checking and money market accounts |
|
|
343 |
|
|
|
192 |
|
|
|
768 |
|
|
|
336 |
|
|
Savings deposits |
|
|
26 |
|
|
|
13 |
|
|
|
53 |
|
|
|
25 |
|
|
Time deposits, $250,000 and over |
|
|
237 |
|
|
|
17 |
|
|
|
302 |
|
|
|
33 |
|
|
Other time deposits |
|
|
156 |
|
|
|
47 |
|
|
|
236 |
|
|
|
92 |
|
|
Short-term borrowed funds |
|
|
5 |
|
|
|
4 |
|
|
|
11 |
|
|
|
7 |
|
|
Long-term debt |
|
|
141 |
|
|
|
138 |
|
|
|
282 |
|
|
|
273 |
|
|
Total interest expense |
|
|
908 |
|
|
|
411 |
|
|
|
1,652 |
|
|
|
766 |
|
|
Net interest income |
|
|
5,004 |
|
|
|
4,907 |
|
|
|
10,216 |
|
|
|
9,596 |
|
|
Provision for (recovery of) loan losses |
|
|
(315 |
) |
|
|
38 |
|
|
|
(428 |
) |
|
|
116 |
|
|
Net interest income after provision for (recovery of) loan losses |
|
|
5,319 |
|
|
|
4,869 |
|
|
|
10,644 |
|
|
|
9,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
|
|
341 |
|
|
|
290 |
|
|
|
668 |
|
|
|
573 |
|
|
Interchange and card transaction fees, net |
|
|
204 |
|
|
|
144 |
|
|
|
398 |
|
|
|
286 |
|
|
Other service fees and commissions |
|
|
573 |
|
|
|
652 |
|
|
|
1,329 |
|
|
|
1,290 |
|
|
Income from mortgage loan sales |
|
|
1,087 |
|
|
|
869 |
|
|
|
1,579 |
|
|
|
1,531 |
|
|
Other income (loss) |
|
|
2 |
|
|
|
216 |
|
|
|
(19 |
) |
|
|
385 |
|
|
Total noninterest income |
|
|
2,207 |
|
|
|
2,171 |
|
|
|
3,955 |
|
|
|
4,065 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
4,252 |
|
|
|
4,121 |
|
|
|
8,385 |
|
|
|
8,067 |
|
|
Net occupancy expense |
|
|
418 |
|
|
|
396 |
|
|
|
823 |
|
|
|
760 |
|
|
Equipment expense |
|
|
183 |
|
|
|
165 |
|
|
|
359 |
|
|
|
335 |
|
|
Data processing costs |
|
|
172 |
|
|
|
283 |
|
|
|
394 |
|
|
|
533 |
|
|
Office supplies and printing |
|
|
33 |
|
|
|
39 |
|
|
|
60 |
|
|
|
75 |
|
|
Foreclosed real estate expense |
|
|
4 |
|
|
|
33 |
|
|
|
60 |
|
|
|
72 |
|
|
Professional fees and services |
|
|
199 |
|
|
|
214 |
|
|
|
352 |
|
|
|
462 |
|
|
Marketing and donations |
|
|
173 |
|
|
|
209 |
|
|
|
377 |
|
|
|
420 |
|
|
Electronic banking expense |
|
|
102 |
|
|
|
98 |
|
|
|
201 |
|
|
|
199 |
|
|
Software amortization and maintenance |
|
|
225 |
|
|
|
234 |
|
|
|
444 |
|
|
|
447 |
|
|
FDIC insurance |
|
|
52 |
|
|
|
65 |
|
|
|
132 |
|
|
|
131 |
|
|
Other noninterest expense |
|
|
485 |
|
|
|
638 |
|
|
|
911 |
|
|
|
1,207 |
|
|
Total noninterest expense |
|
|
6,298 |
|
|
|
6,495 |
|
|
|
12,498 |
|
|
|
12,708 |
|
|
Income before income taxes |
|
|
1,228 |
|
|
|
545 |
|
|
|
2,101 |
|
|
|
837 |
|
|
Income taxes |
|
|
277 |
|
|
|
78 |
|
|
|
460 |
|
|
|
136 |
|
|
Net income |
|
$ |
951 |
|
|
$ |
467 |
|
|
$ |
1,641 |
|
|
$ |
701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income |
|
$ |
951 |
|
|
$ |
467 |
|
|
$ |
1,641 |
|
|
$ |
701 |
|
|
Less: net income attributable to noncontrolling interest |
|
|
(140 |
) |
|
|
(141 |
) |
|
|
(280 |
) |
|
|
(284 |
) |
|
Net income attributable to Uwharrie Capital Corp and common shareholders |
|
|
811 |
|
|
|
326 |
|
|
|
1,361 |
|
|
|
417 |
|
|
Net income per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.11 |
|
|
$ |
0.04 |
|
|
$ |
0.19 |
|
|
$ |
0.06 |
|
|
Diluted |
|
$ |
0.11 |
|
|
$ |
0.04 |
|
|
$ |
0.19 |
|
|
$ |
0.06 |
|
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
7,095,756 |
|
|
|
7,249,390 |
|
|
|
7,110,578 |
|
|
|
7,251,978 |
|
|
Diluted |
|
|
7,095,756 |
|
|
|
7,249,390 |
|
|
|
7,110,578 |
|
|
|
7,251,978 |
|
See accompanying notes
-4-
Uw harrie Capital Corp and Subsidiaries
Consolidated Statements of Comprehensive Income (Unaudited)
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
951 |
|
|
$ |
467 |
|
|
$ |
1,641 |
|
|
$ |
701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on available for sale securities |
|
|
1,367 |
|
|
|
(142 |
) |
|
|
2,320 |
|
|
|
(1,241 |
) |
|
Related tax effect |
|
|
(314 |
) |
|
|
32 |
|
|
|
(533 |
) |
|
|
282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss) |
|
|
1,053 |
|
|
|
(110 |
) |
|
|
1,787 |
|
|
|
(959 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
|
2,004 |
|
|
|
357 |
|
|
|
3,428 |
|
|
|
(258 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Comprehensive income attributable to noncontrolling interest |
|
|
(140 |
) |
|
|
(141 |
) |
|
|
(280 |
) |
|
|
(284 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to Uwharrie Capital |
|
$ |
1,864 |
|
|
$ |
216 |
|
|
$ |
3,148 |
|
|
$ |
(542 |
) |
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, March 31, 2018 |
|
|
7,107,520 |
|
|
$ |
8,884 |
|
|
$ |
12,793 |
|
|
$ |
13,373 |
|
|
$ |
(1,956 |
) |
|
$ |
10,653 |
|
|
$ |
43,747 |
|
|
Net Income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
326 |
|
|
|
— |
|
|
|
141 |
|
|
|
467 |
|
|
Repurchase of common stock |
|
|
(6,771 |
) |
|
|
(8 |
) |
|
|
(31 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(39 |
) |
|
Other comprehensive (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(110 |
) |
|
|
— |
|
|
|
(110 |
) |
|
Record preferred stock dividend Series B (noncontrolling interest) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(103 |
) |
|
|
(103 |
) |
|
Record preferred stock dividend Series C (noncontrolling interest) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(37 |
) |
|
|
(37 |
) |
|
Balance, June 30, 2018 |
|
|
7,100,749 |
|
|
$ |
8,876 |
|
|
$ |
12,762 |
|
|
$ |
13,699 |
|
|
$ |
(2,066 |
) |
|
$ |
10,654 |
|
|
$ |
43,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2019 |
|
|
7,097,227 |
|
|
$ |
8,871 |
|
|
$ |
12,776 |
|
|
$ |
14,971 |
|
|
$ |
(960 |
) |
|
$ |
10,655 |
|
|
$ |
46,313 |
|
|
Net Income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
811 |
|
|
|
— |
|
|
|
140 |
|
|
|
951 |
|
|
Repurchase of common stock |
|
|
(25,165 |
) |
|
|
(31 |
) |
|
|
(93 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(124 |
) |
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,053 |
|
|
|
— |
|
|
|
1,053 |
|
|
Record preferred stock dividend Series B (noncontrolling interest) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(103 |
) |
|
|
(103 |
) |
|
Record preferred stock dividend Series C (noncontrolling interest) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(37 |
) |
|
|
(37 |
) |
|
Balance, June 30, 2019 |
|
|
7,072,062 |
|
|
$ |
8,840 |
|
|
$ |
12,683 |
|
|
$ |
15,782 |
|
|
$ |
93 |
|
|
$ |
10,655 |
|
|
$ |
48,053 |
|
|
|
|
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, 2017 |
|
|
7,112,853 |
|
|
$ |
8,891 |
|
|
$ |
12,824 |
|
|
$ |
13,282 |
|
|
$ |
(1,107 |
) |
|
$ |
10,650 |
|
|
$ |
44,540 |
|
|
Net Income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
417 |
|
|
|
— |
|
|
|
284 |
|
|
|
701 |
|
|
Repurchase of common stock |
|
|
(25,482 |
) |
|
|
(31 |
) |
|
|
(111 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(142 |
) |
|
Stock options exercised |
|
|
13,378 |
|
|
|
16 |
|
|
|
49 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
65 |
|
|
Other comprehensive (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(959 |
) |
|
|
— |
|
|
|
(959 |
) |
|
Record preferred stock dividend Series B (noncontrolling interest) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(206 |
) |
|
|
(206 |
) |
|
Record preferred stock dividend Series C (noncontrolling interest) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(74 |
) |
|
|
(74 |
) |
|
Balance, June 30, 2018 |
|
|
7,100,749 |
|
|
$ |
8,876 |
|
|
$ |
12,762 |
|
|
$ |
13,699 |
|
|
$ |
(2,066 |
) |
|
$ |
10,654 |
|
|
$ |
43,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018 |
|
|
7,126,541 |
|
|
$ |
8,908 |
|
|
$ |
12,885 |
|
|
$ |
14,421 |
|
|
$ |
(1,694 |
) |
|
$ |
10,655 |
|
|
$ |
45,175 |
|
|
Net Income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,361 |
|
|
|
— |
|
|
|
280 |
|
|
|
1,641 |
|
|
Repurchase of common stock |
|
|
(54,479 |
) |
|
|
(68 |
) |
|
|
(202 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(270 |
) |
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,787 |
|
|
|
— |
|
|
|
1,787 |
|
|
Record preferred stock dividend Series B (noncontrolling interest) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(206 |
) |
|
|
(206 |
) |
|
Record preferred stock dividend Series C (noncontrolling interest) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(74 |
) |
|
|
(74 |
) |
|
Balance, June 30, 2019 |
|
|
7,072,062 |
|
|
$ |
8,840 |
|
|
$ |
12,683 |
|
|
$ |
15,782 |
|
|
$ |
93 |
|
|
$ |
10,655 |
|
|
$ |
48,053 |
|
See accompanying notes
-6-
Uwharr ie Capital Corp and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
|
|
|
Six Months Ended June 30, |
|
|||||
|
|
|
2019 |
|
|
2018 |
|
||
|
|
|
(dollars in thousands) |
|
|||||
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,641 |
|
|
$ |
701 |
|
|
Adjustments to reconcile net income to net cash |
|
|
|
|
|
|
|
|
|
Provided (used) by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
536 |
|
|
|
515 |
|
|
Provision for (recovery of) loan losses |
|
|
(428 |
) |
|
|
116 |
|
|
Gain on sale of premises and equipment |
|
|
(4 |
) |
|
|
— |
|
|
Loss on sale of OREO |
|
|
38 |
|
|
|
27 |
|
|
Net amortization of premium on investment securities AFS |
|
|
341 |
|
|
|
364 |
|
|
Net amortization of premium on investment securities HTM |
|
|
70 |
|
|
|
75 |
|
|
Net amortization of mortgage servicing rights |
|
|
332 |
|
|
|
346 |
|
|
Originations and purchases of mortgage loans for sale |
|
|
(54,120 |
) |
|
|
(48,033 |
) |
|
Proceeds from sales of mortgage loans for sale |
|
|
56,076 |
|
|
|
46,809 |
|
|
Accrued interest receivable |
|
|
30 |
|
|
|
(5 |
) |
|
Prepaid assets |
|
|
(551 |
) |
|
|
(364 |
) |
|
Cash surrender value of life insurance |
|
|
(55 |
) |
|
|
(67 |
) |
|
Miscellaneous other assets |
|
|
367 |
|
|
|
(275 |
) |
|
Accrued interest payable |
|
|
31 |
|
|
|
1 |
|
|
Miscellaneous other liabilities |
|
|
2,486 |
|
|
|
696 |
|
|
Net cash provided by operating activities |
|
|
6,790 |
|
|
|
906 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
Proceeds from maturities, calls & paydowns of investment securities held to maturity |
|
|
128 |
|
|
|
265 |
|
|
Proceeds from maturities, calls & paydowns of investment securities available for sale |
|
|
15,975 |
|
|
|
3,709 |
|
|
Purchase of investment securities available for sale |
|
|
(10,438 |
) |
|
|
— |
|
|
Net change in restricted stock |
|
|
(50 |
) |
|
|
(27 |
) |
|
Net increase in loans |
|
|
(4,363 |
) |
|
|
(13,857 |
) |
|
Purchase of premises and equipment |
|
|
(2,721 |
) |
|
|
(851 |
) |
|
Proceeds from sale of OREO |
|
|
323 |
|
|
|
1,043 |
|
|
Proceeds from sales of premises, equipment and other assets |
|
|
166 |
|
|
|
— |
|
|
Net cash used in investing activities |
|
|
(980 |
) |
|
|
(9,718 |
) |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
Net increase (decrease) in deposit accounts |
|
|
(9,985 |
) |
|
|
38,025 |
|
|
Net increase in federal funds purchased |
|
|
|
|
|
|
|
|
|
and securities sold under agreements to repurchase and other short-term borrowings |
|
|
(351 |
) |
|
|
(230 |
) |
|
Common stock repurchased |
|
|
(270 |
) |
|
|
(142 |
) |
|
Exercise of stock options |
|
|
— |
|
|
|
65 |
|
|
Dividends paid on preferred stock (noncontrolling interest) |
|
|
(280 |
) |
|
|
(284 |
) |
|
Net cash provided (used) by financing activities |
|
|
(10,886 |
) |
|
|
37,434 |
|
|
Increase (decrease) in cash and cash equivalents |
|
|
(5,076 |
) |
|
|
28,622 |
|
|
Cash and cash equivalents, beginning of period |
|
|
117,934 |
|
|
|
70,403 |
|
|
Cash and cash equivalents, end of period |
|
$ |
112,858 |
|
|
$ |
99,025 |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow Information |
|
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
1,662 |
|
|
$ |
765 |
|
|
Income taxes paid |
|
|
508 |
|
|
|
335 |
|
|
Supplemental Schedule of Non-Cash Activities |
|
|
|
|
|
|
|
|
|
Net change in fair value securities available for sale, net of tax |
|
$ |
1,787 |
|
|
$ |
(959 |
) |
|
Loans transferred to foreclosed real estate |
|
|
— |
|
|
|
160 |
|
|
Mortgage servicing rights capitalized |
|
|
243 |
|
|
|
169 |
|
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 is not aware of 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 2018 Annual Report on Form 10-K. This Quarterly Report should be read in conjunction with such Annual Report.
Use of Estimates
The preparation of financial statements, in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities 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 2018 financial statements have been reclassified to conform to the 2019 presentation. These reclassifications do not have a material impact on net income or shareholders’ equity.
Accounting Standards Update (“ASU”) 2016-02 “Leases, Topic 842” was adopted January 1, 2019 and comparative periods have not been restated. This ASU increases the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The key difference between existing standards and this ASU is the requirement for lessees to recognize on their balance sheet all lease contracts with lease terms greater than 12 months, including operating leases. Both a right-of-use asset, representing the right to use the leased asset, and a lease liability, representing the contractual obligation, are required to be recognized on the balance sheet of the lessee at lease commencement. Further, this ASU requires lessees to classify leases as either operating or finance leases, which are substantially similar to the current operating and capital leases classifications. The distinction between these two classifications under the new standard does not relate to balance sheet treatment but relates to treatment in the statements of income and cash flows. Lessor guidance remains largely unchanged with the exception of how a lessor determines the appropriate lease classification for each lease to better align the lessor guidance with revised lessee classification guidance.
At the time of adoption, Uwharrie Capital Corp currently had two properties that were considered in-scope for application of ASU 2016-02. The Company has recognized a $2.1 million operating lease right-of-use asset (“ROU”), which is included in premises and equipment on the balance sheet, and a corresponding $2.2 million operating lease liability, recorded in other liabilities on the balance sheet. See Note 9 – Leases for additional information.
During the second quarter of 2019, the Company reclassified its reserve for unfunded liabilities (i.e. lines of credit that were available, but not yet drawn by the customer) of $86,000 from allowance for loan loss to other liabilities. There was no impact to the income statement for this reclassification. .
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.
-8-
The following table presents the changes in accumulated other comprehensive inco me for the three and six months ended June 30, 2019 and 2018:
|
|
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
||||||||||
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
|
|
|
(dollars in thousands) |
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
(960 |
) |
|
$ |
(1,956 |
) |
|
$ |
(1,694 |
) |
|
$ |
(1,107 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications, net of $314, ($32), $533 and ($282) tax effect, respectively |
|
|
1,053 |
|
|
|
(110 |
) |
|
|
1,787 |
|
|
|
(959 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current-period other comprehensive income (loss) |
|
|
1,053 |
|
|
|
(110 |
) |
|
|
1,787 |
|
|
|
(959 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
93 |
|
|
$ |
(2,066 |
) |
|
$ |
93 |
|
|
$ |
(2,066 |
) |
Note 3 – Noncontrolling Interest
In January 2013, the Company’s subsidiary banks issued a total of $7.9 million of Fixed Rate Noncumulative Perpetual Preferred Stock, Series B. The preferred stock qualified as Tier 1 capital at each 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. Effective September 1, 2013, the Fixed Rate Noncumulative Perpetual Preferred Stock, Series B was rolled into one issue under Uwharrie Bank in connection with the consolidation of the Company’s subsidiary banks and corresponding name change.
During 2013, the Company’s subsidiary bank, Uwharrie Bank, raised $2.8 million of Fixed Rate Noncumulative Perpetual Preferred Stock, 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.
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 June 30, 2019 or December 31, 2018.
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 computation of basic and diluted earnings per share is summarized below:
|
|
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
||||||||||
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding |
|
|
7,095,756 |
|
|
|
7,249,390 |
|
|
|
7,110,578 |
|
|
|
7,251,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive stock options |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares and dilutive potential common shares used in computing diluted net income per common share |
|
|
7,095,756 |
|
|
|
7,249,390 |
|
|
|
7,110,578 |
|
|
|
7,251,978 |
|
-9-
Note 5 – Investment Securities
Carrying amounts and fair values of securities available for sale and held to maturity are summarized below:
|
June 30, 2019 |
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
||||
|
|
|
(dollars in thousands) |
|
|||||||||||||
|
Securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
$ |
4,960 |
|
|
$ |
48 |
|
|
$ |
— |
|
|
$ |
5,008 |
|
|
U.S. Government agencies |
|
|
33,244 |
|
|
|
9 |
|
|
|
250 |
|
|
|
33,003 |
|
|
GSE - Mortgage-backed securities and CMO’s |
|
|
32,112 |
|
|
|
406 |
|
|
|
198 |
|
|
|
32,320 |
|
|
State and political subdivisions |
|
|
12,281 |
|
|
|
157 |
|
|
|
2 |
|
|
|
12,436 |
|
|
Corporate bonds |
|
|
5,024 |
|
|
|
5 |
|
|
|
55 |
|
|
|
4,974 |
|
|
Total securities available for sale |
|
$ |
87,621 |
|
|
$ |
625 |
|
|
$ |
505 |
|
|
$ |
87,741 |
|
|
June 30, 2019 |
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
||||
|
|
|
(dollars in thousands) |
|
|||||||||||||
|
Securities held to maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies |
|
$ |
723 |
|
|
$ |
15 |
|
|
$ |
— |
|
|
$ |
738 |
|
|
State and political subdivisions |
|
|
6,851 |
|
|
|
41 |
|
|
|
1 |
|
|
|
6,891 |
|
|
Corporate bonds |
|
|
3,065 |
|
|
|
10 |
|
|
|
— |
|
|
|
3,075 |
|
|
Total securities held to maturity |
|
$ |
10,639 |
|
|
$ |
66 |
|
|
$ |
1 |
|
|
$ |
10,704 |
|
|
December 31, 2018 |
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
||||
|
|
|
(dollars in thousands) |
|
|||||||||||||
|
Securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
$ |
4,944 |
|
|
$ |
11 |
|
|
$ |
— |
|
|
$ |
4,955 |
|
|
U.S. Government agencies |
|
|
52,935 |
|
|
|
47 |
|
|
|
1,066 |
|
|
|
51,916 |
|
|
GSE - Mortgage-backed securities and CMO’s |
|
|
17,217 |
|
|
|
— |
|
|
|
515 |
|
|
|
16,702 |
|
|
State and political subdivisions |
|
|
13,373 |
|
|
|
5 |
|
|
|
423 |
|
|
|
12,955 |
|
|
Corporate bonds |
|
|
5,030 |
|
|
|
6 |
|
|
|
265 |
|
|
|
4,771 |
|
|
Total securities available for sale |
|
$ |
93,499 |
|
|
$ |
69 |
|
|
$ |
2,269 |
|
|
$ |
91,299 |
|
|
December 31, 2018 |
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
||||
|
|
|
(dollars in thousands) |
|
|||||||||||||
|
Securities held to maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies |
|
$ |
855 |
|
|
$ |
— |
|
|
$ |
12 |
|
|
$ |
843 |
|
|
State and political subdivisions |
|
|
6,877 |
|
|
|
6 |
|
|
|
61 |
|
|
|
6,822 |
|
|
Corporate bonds |
|
|
3,105 |
|
|
|
— |
|
|
|
20 |
|
|
|
3,085 |
|
|
Total securities held to maturity |
|
$ |
10,837 |
|
|
$ |
6 |
|
|
$ |
93 |
|
|
$ |
10,750 |
|
At June 30, 2019 and December 31, 2018, the Company owned Federal Reserve Bank (FRB) stock reported at cost of $509,000 for both periods, and Federal Home Loan Bank (FHLB) stock of $635,000 and $585,000, 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 June 30, 2019.
There were no sales of securities available for sale for the three and six month periods ended June 30, 2019 and June 30, 2018.
At June 30, 2019 and December 31, 2018, securities available for sale with a carrying amount of $68.9 million and $71.5 million, respectively, were pledged as collateral on public deposits and for other purposes as required or permitted by law.
-10-
The following tables show the gross unrealized losses and fair value of investments, aggregated by investment category and leng th of time that individual securities have been in a continuous unrealized loss position, at June 30, 2019 and December 31, 2018 . These unrealized losses on investment securities are a result of temporary fluctuations in market prices due to a rise in inte rest rates, which will adjust if rates decline, and are in no way a reflection of the credit quality of the investments. At June 30, 2019 , the unrealized losses on available for sale securities less than twelve months related to t wo government agency bonds and one corporate bond . The Company had four teen government agency bonds, sixt een GSE mortgage backed securities, one state and political subdivision bond , and one corporate bond at June 30 , 201 9 , that had been in a loss position for twelve months or more . At June 30, 2019 , the unrealized losses on held to maturity securities for twelve months or more related to one state and political subdivision bond. At December 31, 201 8 , the unrealized losses on available for sale securities less than twelve months re lated to four government agency bonds, one GSE mortgage backed security , and one corporate bond . At December 31, 2018 , the Company had sixteen government agency bonds, sixteen GSE mortgage backed securities, eight state and political subdivision bond s , and one corporate bond that had been in a loss position for twelve months or more . At December 31, 2018 , the unrealized losses for less than twelve months on held to maturity securities related to two corporate bonds and two state and political subdivision bonds. The unrealized losses for twelve months or more on the held to maturity portfolio for December 31, 2018 relate d to one government agency and six state and political subdivision bonds.
|
|
|
Less than 12 Months |
|
|
12 Months or More |
|
|
Total |
|
|||||||||||||||
|
June 30, 2019 |
|
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 |
|
$ |
581 |
|
|
$ |
2 |
|
|
$ |
27,561 |
|
|
$ |
248 |
|
|
$ |
28,142 |
|
|
$ |
250 |
|
|
GSE-Mortgage-backed securities and CMO’s |
|
|
— |
|
|
|
— |
|
|
|
19,553 |
|
|
|
198 |
|
|
|
19,553 |
|
|
|
198 |
|
|
State and political subdivisions |
|
|
— |
|
|
|
— |
|
|
|
715 |
|
|
|
2 |
|
|
|
715 |
|
|
|
2 |
|
|
Corporate bonds |
|
|
2,161 |
|
|
|
50 |
|
|
|
2,004 |
|
|
|
5 |
|
|
|
4,165 |
|
|
|
55 |
|
|
Total securities available for sale |
|
$ |
2,742 |
|
|
$ |
52 |
|
|
$ |
49,833 |
|
|
$ |
453 |
|
|
$ |
52,575 |
|
|
$ |
505 |
|
|
|
|
Less than 12 Months |
|
|
12 Months or More |
|
|
Total |
|
|||||||||||||||
|
June 30, 2019 |
|
Fair Value |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Unrealized Losses |
|
||||||
|
|
|
(dollars in thousands) |
|
|||||||||||||||||||||
|
Securities held to maturity temporary impairment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and political subdivisions |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,009 |
|
|
$ |
1 |
|
|
$ |
1,009 |
|
|
$ |
1 |
|
|
Total securities held to maturity |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,009 |
|
|
$ |
1 |
|
|
$ |
1,009 |
|
|
$ |
1 |
|
|
|
|
Less than 12 Months |
|
|
12 Months or More |
|
|
Total |
|
|||||||||||||||
|
December 31, 2018 |
|
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 |
|
$ |
1,924 |
|
|
$ |
29 |
|
|
$ |
47,814 |
|
|
$ |
1,037 |
|
|
$ |
49,738 |
|
|
$ |
1,066 |
|
|
GSE-Mortgage-backed securities and CMO’s |
|
|
526 |
|
|
|
6 |
|
|
|
15,602 |
|
|
|
509 |
|
|
|
16,128 |
|
|
|
515 |
|
|
State and political subdivisions |
|
|
— |
|
|
|
— |
|
|
|
11,109 |
|
|
|
423 |
|
|
|
11,109 |
|
|
|
423 |
|
|
Corporate bonds |
|
|
1,989 |
|
|
|
224 |
|
|
|
1,971 |
|
|
|
41 |
|
|
|
3,960 |
|
|
|
265 |
|
|
Total securities available for sale |
|
$ |
4,439 |
|
|
$ |
259 |
|
|
$ |
76,496 |
|
|
$ |
2,010 |
|
|
$ |
80,935 |
|
|
$ |
2,269 |
|
|
|
|
Less than 12 Months |
|
|
12 Months or More |
|
|
Total |
|
|||||||||||||||
|
December 31, 2018 |
|
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 |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
843 |
|
|
$ |
12 |
|
|
$ |
843 |
|
|
$ |
12 |
|
|
State and political subdivisions |
|
|
755 |
|
|
|
6 |
|
|
|
5,157 |
|
|
|
55 |
|
|
|
5,912 |
|
|
|
61 |
|
|
Corporate bonds |
|
|
3,085 |
|
|
|
20 |
|
|
|
— |
|
|
|
— |
|
|
|
3,085 |
|
|
|
20 |
|
|
Total securities held to maturity |
|
$ |
3,840 |
|
|
$ |
26 |
|
|
$ |
6,000 |
|
|
$ |
67 |
|
|
$ |
9,840 |
|
|
$ |
93 |
|
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.
-11-
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 expe cted 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 quality but that the losses are temporary in nature. At June 30, 2019 , 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.
The aggregate amortized cost and fair value of the available for sale securities portfolio at June 30, 2019 by remaining contractual maturity are as follows:
|
|
|
June 30, 2019 |
|
|||||||||
|
|
|
Amortized Cost |
|
|
Estimated Fair Value |
|
|
Book Yield |
|
|||
|
|
|
(dollars in thousands) |
|
|||||||||
|
Securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
|
|
|
|
|
|
|
|
|
|
|
|
Due after one but within five years |
|
|
4,960 |
|
|
|
5,008 |
|
|
|
2.66 |
% |
|
|
|
|
4,960 |
|
|
|
5,008 |
|
|
|
2.66 |
% |
|
U.S. Government agencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within twelve months |
|
|
5,436 |
|
|
|
5,428 |
|
|
|
1.38 |
% |
|
Due after one but within five years |
|
|
18,945 |
|
|
|
18,851 |
|
|
|
1.55 |
% |
|
Due after five but within ten years |
|
|
6,827 |
|
|
|
6,694 |
|
|
|
1.94 |
% |
|
Due after ten years |
|
|
2,036 |
|
|
|
2,030 |
|
|
|
1.28 |
% |
|
|
|
|
33,244 |
|
|
|
33,003 |
|
|
|
1.59 |
% |
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Due after one but within five years |
|
|
7,413 |
|
|
|
7,380 |
|
|
|
2.02 |
% |
|
Due after five but within ten years |
|
|
17,469 |
|
|
|
17,812 |
|
|
|
2.59 |
% |
|
Due after ten years |
|
|
7,230 |
|
|
|
7,128 |
|
|
|
2.14 |
% |
|
|
|
|
32,112 |
|
|
|
32,320 |
|
|
|
2.36 |
% |
|
State and political subdivisions |
|
|
|
|
|
|
|
|
|
|
|
|
|
Due after one but within five years |
|
|
1,337 |
|
|
|
1,336 |
|
|
|
3.64 |
% |
|
Due after five but within ten years |
|
|
1,413 |
|
|
|
1,422 |
|
|
|
2.73 |
% |
|
Due after ten years |
|
|
9,531 |
|
|
|
9,678 |
|
|
|
3.10 |
% |
|
|
|
|
12,281 |
|
|
|
12,436 |
|
|
|
3.12 |
% |
|
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
Due after one but within five years |
|
|
5,024 |
|
|
|
4,974 |
|
|
|
2.94 |
% |
|
|
|
|
5,024 |
|
|
|
4,974 |
|
|
|
2.94 |
% |
|
Total securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within twelve months |
|
|
5,436 |
|
|
|
5,428 |
|
|
|
1.38 |
% |
|
Due after one but within five years |
|
|
37,679 |
|
|
|
37,549 |
|
|
|
2.05 |
% |
|
Due after five but within ten years |
|
|
25,709 |
|
|
|
25,928 |
|
|
|
2.43 |
% |
|
Due after ten years |
|
|
18,797 |
|
|
|
18,836 |
|
|
|
2.53 |
% |
|
|
|
$ |
87,621 |
|
|
$ |
87,741 |
|
|
|
2.22 |
% |
-12-
|
|
|
June 30, 2019 |
|
|||||||||
|
|
|
Amortized Cost |
|
|
Estimated Fair Value |
|
|
Book Yield |
|
|||
|
|
|
(dollars in thousands) |
|
|||||||||
|
Held to maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. Government agencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
Due after one but within five years |
|
$ |
723 |
|
|
$ |
738 |
|
|
|
2.57 |
% |
|
|
|
|
723 |
|
|
|
738 |
|
|
|
2.57 |
% |
|
State and political subdivisions |
|
|
|
|
|
|
|
|
|
|
|
|
|
Due after one but within five years |
|
|
5,527 |
|
|
|
5,551 |
|
|
|
2.21 |
% |
|
Due after five but within ten years |
|
|
1,324 |
|
|
|
1,340 |
|
|
|
2.42 |
% |
|
|
|
|
6,851 |
|
|
|
6,891 |
|
|
|
2.25 |
% |
|
Corporate Bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within twelve months |
|
|
1,523 |
|
|
|
1,526 |
|
|
|
2.73 |
% |
|
Due after one but within five years |
|
|
1,542 |
|
|
|
1,549 |
|
|
|
2.79 |
% |
|
|
|
|
3,065 |
|
|
|
3,075 |
|
|
|
2.76 |
% |
|
Total securities held for maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within twelve months |
|
|
1,523 |
|
|
|
1,526 |
|
|
|
2.73 |
% |
|
Due after one but within five years |
|
|
7,792 |
|
|
|
7,838 |
|
|
|
2.36 |
% |
|
Due after five but within ten years |
|
|
1,324 |
|
|
|
1,340 |
|
|
|
2.42 |
% |
|
|
|
$ |
10,639 |
|
|
$ |
10,704 |
|
|
|
2.42 |
% |
Note 6 – Loans Held for Investment
The composition of net loans held for investment by class as of June 30, 2019 and December 31, 2018 are as follows:
|
|
|
June 30, 2019 |
|
|
December 31, 2018 |
|
||
|
|
|
(dollars in thousands) |
|
|||||
|
Commercial |
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
61,452 |
|
|
$ |
57,176 |
|
|
Real estate - commercial |
|
|
143,720 |
|
|
|
130,634 |
|
|
Other real estate construction loans |
|
|
21,384 |
|
|
|
31,141 |
|
|
Noncommercial |
|
|
|
|
|
|
|
|
|
Real estate 1-4 family construction |
|
|
6,906 |
|
|
|
7,805 |
|
|
Real estate - residential |
|
|
75,553 |
|
|
|
76,564 |
|
|
Home equity |
|
|
51,094 |
|
|
|
52,541 |
|
|
Consumer loans |
|
|
12,706 |
|
|
|
12,159 |
|
|
Other loans |
|
|
2,012 |
|
|
|
2,110 |
|
|
|
|
|
374,827 |
|
|
|
370,130 |
|
|
Less: |
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
(2,179 |
) |
|
|
(2,374 |
) |
|
Deferred loan (fees) costs, net |
|
|
(261 |
) |
|
|
(160 |
) |
|
|
|
|
|
|
|
|
|
|
|
Loans held for investment, net |
|
$ |
372,387 |
|
|
$ |
367,596 |
|
Note 7 – Allowance for Loan Losses
During the second quarter of 2019, the Company transitioned its current in-house incurred loss allowance for loan loss model to an external vendor incurred loss model that is CECL-ready. The overall financial impact related to switching models is considered immaterial. As a result of the change in models, there has been a change is methodology.
For example, default in the allowance for loan loss model is now considered 90 days past due, whereas default was defined as a charge-off event in the previous model. This increases the probabilities of default for the Company, but reduces the loss given default ratio in the portfolio.
Probabilities of default are now more representative of the Company’s customers. Previously, an analysis was performed with a sample of North Carolina consumers to calculate the probabilities of default by credit score. In the new model, the Company is able to track
-13-
probabilities of default based on historical information of loans in the portfolio. This is the largest impact of the model transition, resulting in an immaterial recovery of provision for loan loss.
In addition, the Company now uses better defined qualitative factors including qualitative factors to model recessionary impact to expected loss based on historical impact, current volatility in the market, and management’s analysis of local economic factors and industry-specific outlooks.
The following table shows the change in the allowance for loss losses by loan segment for the three and six months ended June 30, 2019 and 2018, respectively:
|
Commercial |
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
|
|
|
(dollars in thousands) |
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
$ |
1,281 |
|
|
$ |
1,461 |
|
|
$ |
1,334 |
|
|
$ |
1,401 |
|
|
Provision for (recovery of) loan losses |
|
|
(350 |
) |
|
|
21 |
|
|
|
(414 |
) |
|
|
66 |
|
|
Charge-offs |
|
|
— |
|
|
|
(31 |
) |
|
|
(5 |
) |
|
|
(31 |
) |
|
Recoveries |
|
|
341 |
|
|
|
9 |
|
|
|
357 |
|
|
|
24 |
|
|
Net (charge-offs) / Recoveries |
|
|
341 |
|
|
|
(22 |
) |
|
|
352 |
|
|
|
(7 |
) |
|
Reclassification of reserve for off balance sheet commitments |
|
|
(32 |
) |
|
|
— |
|
|
|
(32 |
) |
|
|
— |
|
|
Balance at end of period |
|
$ |
1,240 |
|
|
$ |
1,460 |
|
|
$ |
1,240 |
|
|
$ |
1,460 |
|
|
Non-Commercial |
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
|
|
|
(dollars in thousands) |
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
$ |
952 |
|
|
$ |
1,086 |
|
|
$ |
1,040 |
|
|
$ |
1,057 |
|
|
Provision for (recovery of) loan losses |
|
|
35 |
|
|
|
17 |
|
|
|
(14 |
) |
|
|
50 |
|
|
Charge-offs |
|
|
(12 |
) |
|
|
(40 |
) |
|
|
(65 |
) |
|
|
(57 |
) |
|
Recoveries |
|
|
18 |
|
|
|
60 |
|
|
|
32 |
|
|
|
73 |
|
|
Net (charge-offs) / Recoveries |
|
|
6 |
|
|
|
20 |
|
|
|
(33 |
) |
|
|
16 |
|
|
Reclassification of reserve for off balance sheet commitments |
|
|
(54 |
) |
|
|
— |
|
|
|
(54 |
) |
|
|
— |
|
|
Balance at end of period |
|
$ |
939 |
|
|
$ |
1,123 |
|
|
$ |
939 |
|
|
$ |
1,123 |
|
|
Total |
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
|
|
|
(dollars in thousands) |
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
$ |
2,233 |
|
|
$ |
2,547 |
|
|
$ |
2,374 |
|
|
$ |
2,458 |
|
|
Provision for (recovery of) loan losses |
|
|
(315 |
) |
|
|
38 |
|
|
|
(428 |
) |
|
|
116 |
|
|
Charge-offs |
|
|
(12 |
) |
|
|
(71 |
) |
|
|
(70 |
) |
|
|
(88 |
) |
|
Recoveries |
|
|
359 |
|
|
|
69 |
|
|
|
389 |
|
|
|
97 |
|
|
Net (charge-offs) / Recoveries |
|
|
347 |
|
|
|
(2 |
) |
|
|
319 |
|
|
|
9 |
|
|
Reclassification of reserve for off balance sheet commitments |
|
|
(86 |
) |
|
|
— |
|
|
|
(86 |
) |
|
|
— |
|
|
Balance at end of period |
|
$ |
2,179 |
|
|
$ |
2,583 |
|
|
$ |
2,179 |
|
|
$ |
2,583 |
|
The following table shows period-end loans and reserve balances by loan segment both individually and collectively evaluated for impairment at June 30, 2019 and December 31, 2018:
|
June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually Evaluated |
|
|
Collectively Evaluated |
|
|
Total |
|
|||||||||||||||
|
|
|
Reserve |
|
|
Loans |
|
|
Reserve |
|
|
Loans |
|
|
Reserve |
|
|
Loans |
|
||||||
|
|
|
(dollars in thousands) |
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
29 |
|
|
$ |
1,774 |
|
|
$ |
1,211 |
|
|
$ |
224,782 |
|
|
$ |
1,240 |
|
|
$ |
226,556 |
|
|
Non-Commercial |
|
|
126 |
|
|
|
3,218 |
|
|
|
813 |
|
|
|
144,792 |
|
|
|
939 |
|
|
|
148,010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
155 |
|
|
$ |
4,992 |
|
|
$ |
2,024 |
|
|
$ |
369,574 |
|
|
$ |
2,179 |
|
|
$ |
374,566 |
|
-14-
|
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually Evaluated |
|
|
Collectively Evaluated |
|
|
Total |
|
|||||||||||||||
|
|
|
Reserve |
|
|
Loans |
|
|
Reserve |
|
|
Loans |
|
|
Reserve |
|
|
Loans |
|
||||||
|
|
|
(dollars in thousands) |
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
42 |
|
|
$ |
1,359 |
|
|
$ |
1,292 |
|
|
$ |
217,592 |
|
|
$ |
1,334 |
|
|
$ |
218,951 |
|
|
Non-Commercial |
|
|
112 |
|
|
|
3,119 |
|
|
|
928 |
|
|
|
147,900 |
|
|
|
1,040 |
|
|
|
151,019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
154 |
|
|
$ |
4,478 |
|
|
$ |
2,220 |
|
|
$ |
365,492 |
|
|
$ |
2,374 |
|
|
$ |
369,970 |
|
Past due loan information is used by management when assessing the adequacy of the allowance for loan losses. The following table summarizes the past due information of the loan portfolio by class:
|
June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
$ |
46 |
|
|
$ |
— |
|
|
$ |
46 |
|
|
$ |
61,406 |
|
|
$ |
61,452 |
|
|
$ |
— |
|
|
Real estate - commercial |
|
|
— |
|
|
|
173 |
|
|
|
173 |
|
|
|
143,547 |
|
|
|
143,720 |
|
|
|
— |
|
|
Other real estate construction |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
21,384 |
|
|
|
21,384 |
|
|
|
— |
|
|
Real estate 1-4 family construction |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,906 |
|
|
|
6,906 |
|
|
|
— |
|
|
Real estate - residential |
|
|
767 |
|
|
|
760 |
|
|
|
1,527 |
|
|
|
73,765 |
|
|
|
75,292 |
|
|
|
— |
|
|
Home equity |
|
|
211 |
|
|
|
168 |
|
|
|
379 |
|
|
|
50,715 |
|
|
|
51,094 |
|
|
|
— |
|
|
Consumer loans |
|
|
32 |
|
|
|
— |
|
|
|
32 |
|
|
|
12,674 |
|
|
|
12,706 |
|
|
|
— |
|
|
Other loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,012 |
|
|
|
2,012 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,056 |
|
|
$ |
1,101 |
|
|
$ |
2,157 |
|
|
$ |
372,409 |
|
|
$ |
374,566 |
|
|
$ |
— |
|
|
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
$ |
54 |
|
|
$ |
— |
|
|
$ |
54 |
|
|
$ |
57,122 |
|
|
$ |
57,176 |
|
|
$ |
— |
|
|
Real estate - commercial |
|
|
— |
|
|
|
273 |
|
|
$ |
273 |
|
|
|
130,361 |
|
|
|
130,634 |
|
|
|
— |
|
|
Other real estate construction |
|
|
— |
|
|
|
47 |
|
|
$ |
47 |
|
|
|
31,094 |
|
|
|
31,141 |
|
|
|
— |
|
|
Real estate 1-4 family construction |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7,805 |
|
|
|
7,805 |
|
|
|
— |
|
|
Real estate - residential |
|
|
890 |
|
|
|
606 |
|
|
|
1,496 |
|
|
|
74,908 |
|
|
|
76,404 |
|
|
|
— |
|
|
Home equity |
|
|
100 |
|
|
|
118 |
|
|
|
218 |
|
|
|
52,323 |
|
|
|
52,541 |
|
|
|
— |
|
|
Consumer loan |
|
|
86 |
|
|
|
— |
|
|
|
86 |
|
|
|
12,073 |
|
|
|
12,159 |
|
|
|
— |
|
|
Other loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,110 |
|
|
|
2,110 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,130 |
|
|
$ |
1,044 |
|
|
$ |
2,174 |
|
|
$ |
367,796 |
|
|
$ |
369,970 |
|
|
$ |
— |
|
Once a loan becomes 90 days past due, the loan is automatically transferred to a nonaccrual 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 $115,000 in foreclosed residential real estate and $497,000 of residential real estate in process of foreclosure at June 30, 2019. At December 31, 2018, the Company had $371,000 in foreclosed residential real estate and $161,000 of residential real estate in process of foreclosure.
-15-
The composition of nonaccrual loans by cla ss as of June 30, 2019 and December 31, 2018 is as follows:
|
|
|
June 30, 2019 |
|
|
December 31, 2018 |
|
||
|
|
|
(dollars in thousands) |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
— |
|
|
$ |
— |
|
|
Real estate - commercial |
|
|
173 |
|
|
|
273 |
|
|
Other real estate construction |
|
|
— |
|
|
|
47 |
|
|
Real estate 1 – 4 family construction |
|
|
— |
|
|
|
— |
|
|
Real estate – residential |
|
|
760 |
|
|
|
606 |
|
|
Home equity |
|
|
168 |
|
|
|
118 |
|
|
Consumer loans |
|
|
— |
|
|
|
— |
|
|
Other loans |
|
|
— |
|
|
|
— |
|
|
|
|
$ |
1,101 |
|
|
$ |
1,044 |
|
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 and risk factors are reasonable and acceptable. They generally conform to policy with only minor exceptions and 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, paying capacity of the obligor or the value of the collateral pledged. All nonaccrual 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 June 30, 2019 and December 31, 2018:
|
June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
|
|
Watch |
|
|
Sub- standard |
|
|
Doubtful |
|
|
Total |
|
|||||
|
|
|
(dollars in thousands) |
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
59,495 |
|
|
$ |
1,950 |
|
|
$ |
7 |
|
|
$ |
— |
|
|
$ |
61,452 |
|
|
Real estate - commercial |
|
|
137,847 |
|
|
|
4,426 |
|
|
|
1,447 |
|
|
|
— |
|
|
|
143,720 |
|
|
Other real estate construction |
|
|
19,205 |
|
|
|
1,866 |
|
|
|
313 |
|
|
|
— |
|
|
|
21,384 |
|
|
Real estate 1 - 4 family construction |
|
|
6,906 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,906 |
|
|
Real estate - residential |
|
|
69,949 |
|
|
|
4,315 |
|
|
|
1,028 |
|
|
|
— |
|
|
|
75,292 |
|
|
Home equity |
|
|
49,986 |
|
|
|
940 |
|
|
|
168 |
|
|
|
— |
|
|
|
51,094 |
|
|
Consumer loans |
|
|
12,615 |
|
|
|
85 |
|
|
|
6 |
|
|
|
— |
|
|
|
12,706 |
|
|
Other loans |
|
|
2,012 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
358,015 |
|
|
$ |
13,582 |
|
|
$ |
2,969 |
|
|
$ |
— |
|
|
$ |
374,566 |
|
-16-
|
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
|
|
Watch |
|
|
Sub- standard |
|
|
Doubtful |
|
|
Total |
|
|||||
|
|
|
(dollars in thousands) |
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
55,883 |
|
|
$ |
1,284 |
|
|
$ |
9 |
|
|
$ |
— |
|
|
$ |
57,176 |
|
|
Real estate - commercial |
|
|
127,592 |
|
|
|
1,518 |
|
|
|
1,524 |
|
|
|
— |
|
|
|
130,634 |
|
|
Other real estate construction |
|
|
28,711 |
|
|
|
2,070 |
|
|
|
360 |
|
|
|
— |
|
|
|
31,141 |
|
|
Real estate 1 - 4 family construction |
|
|
7,805 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7,805 |
|
|
Real estate - residential |
|
|
69,900 |
|
|
|
5,470 |
|
|
|
1,034 |
|
|
|
— |
|
|
|
76,404 |
|
|
Home equity |
|
|
52,028 |
|
|
|
395 |
|
|
|
118 |
|
|
|
— |
|
|
|
52,541 |
|
|
Consumer loans |
|
|
12,085 |
|
|
|
73 |
|
|
|
1 |
|
|
|
— |
|
|
|
12,159 |
|
|
Other loans |
|
|
2,110 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
356,114 |
|
|
$ |
10,810 |
|
|
$ |
3,046 |
|
|
$ |
— |
|
|
$ |
369,970 |
|
Loans that are in nonaccrual status or 90 days past due and still accruing are considered to be nonperforming. At both June 30, 2019 and December 31, 2018 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 June 30, 2019 and December 31, 2018:
|
June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing |
|
|
Non- Performing |
|
|
Total |
|
|||
|
|
|
(dollars in thousands) |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
61,452 |
|
|
$ |
— |
|
|
$ |
61,452 |
|
|
Real estate - commercial |
|
|
143,547 |
|
|
|
173 |
|
|
|
143,720 |
|
|
Other real estate construction |
|
|
21,384 |
|
|
|
— |
|
|
|
21,384 |
|
|
Real estate 1 – 4 family construction |
|
|
6,906 |
|
|
|
— |
|
|
|
6,906 |
|
|
Real estate – residential |
|
|
74,532 |
|
|
|
760 |
|
|
|
75,292 |
|
|
Home equity |
|
|
50,926 |
|
|
|
168 |
|
|
|
51,094 |
|
|
Consumer loans |
|
|
12,706 |
|
|
|
— |
|
|
|
12,706 |
|
|
Other loans |
|
|
2,012 |
|
|
|
— |
|
|
|
2,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
373,465 |
|
|
$ |
1,101 |
|
|
$ |
374,566 |
|
|
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing |
|
|
Non- Performing |
|
|
Total |
|
|||
|
|
|
(dollars in thousands) |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
57,176 |
|
|
$ |
— |
|
|
$ |
57,176 |
|
|
Real estate - commercial |
|
|
130,361 |
|
|
|
273 |
|
|
|
130,634 |
|
|
Other real estate construction |
|
|
31,094 |
|
|
|
47 |
|
|
|
31,141 |
|
|
Real estate 1 – 4 family construction |
|
|
7,805 |
|
|
|
— |
|
|
|
7,805 |
|
|
Real estate – residential |
|
|
75,798 |
|
|
|
606 |
|
|
|
76,404 |
|
|
Home equity |
|
|
52,423 |
|
|
|
118 |
|
|
|
52,541 |
|
|
Consumer loans |
|
|
12,159 |
|
|
|
— |
|
|
|
12,159 |
|
|
Other loans |
|
|
2,110 |
|
|
|
— |
|
|
|
2,110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
368,926 |
|
|
$ |
1,044 |
|
|
$ |
369,970 |
|
-17-
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 June 30 , 201 9 and December 31, 201 8 .
|
June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid Principal Balance |
|
|
Recorded Investment With No Allowance |
|
|
Recorded Investment With Allowance |
|
|
Related Allowance |
|
||||
|
|
|
(dollars in thousands) |
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
5 |
|
|
$ |
— |
|
|
$ |
5 |
|
|
$ |
— |
|
|
Real estate - commercial |
|
|
1,724 |
|
|
|
536 |
|
|
|
1,188 |
|
|
|
26 |
|
|
Other real estate construction |
|
|
45 |
|
|
|
— |
|
|
|
45 |
|
|
|
3 |
|
|
Real estate 1 - 4 family construction |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Real estate - residential |
|
|
3,023 |
|
|
|
1,023 |
|
|
|
2,000 |
|
|
|
97 |
|
|
Home equity |
|
|
168 |
|
|
|
50 |
|
|
|
118 |
|
|
|
29 |
|
|
Consumer loans |
|
|
27 |
|
|
|
— |
|
|
|
27 |
|
|
|
— |
|
|
Other loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,992 |
|
|
$ |
1,609 |
|
|
$ |
3,383 |
|
|
$ |
155 |
|
|
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid Principal Balance |
|
|
Recorded Investment With No Allowance |
|
|
Recorded Investment With Allowance |
|
|
Related Allowance |
|
||||
|
|
|
(dollars in thousands) |
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
7 |
|
|
$ |
— |
|
|
$ |
7 |
|
|
$ |
— |
|
|
Real estate - commercial |
|
|
1,258 |
|
|
|
93 |
|
|
|
1,165 |
|
|
|
38 |
|
|
Other real estate construction |
|
|
632 |
|
|
|
47 |
|
|
|
47 |
|
|
|
4 |
|
|
Real estate 1 - 4 family construction |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Real estate - residential |
|
|
3,005 |
|
|
|
901 |
|
|
|
2,104 |
|
|
|
110 |
|
|
Home equity |
|
|
83 |
|
|
|
51 |
|
|
|
32 |
|
|
|
1 |
|
|
Consumer loans |
|
|
31 |
|
|
|
— |
|
|
|
31 |
|
|
|
1 |
|
|
Other loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
5,016 |
|
|
$ |
1,092 |
|
|
$ |
3,386 |
|
|
$ |
154 |
|
|
|
|
Three Months ended June 30, 2019 |
|
|
Three Months ended June 30, 2018 |
|
||||||||||
|
|
|
Average Recorded Investment |
|
|
Interest Income |
|
|
Average Recorded Investment |
|
|
Interest Income |
|
||||
|
|
|
(dollars in thousands) |
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
6 |
|
|
$ |
— |
|
|
$ |
25 |
|
|
$ |
— |
|
|
Real estate - commercial |
|
|
1,434 |
|
|
|
15 |
|
|
|
1,541 |
|
|
|
15 |
|
|
Other real estate construction |
|
|
69 |
|
|
|
— |
|
|
|
123 |
|
|
|
— |
|
|
Real estate 1- 4 family construction |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Real estate - residential |
|
|
2,975 |
|
|
|
33 |
|
|
|
3,540 |
|
|
|
41 |
|
|
Home equity |
|
|
124 |
|
|
|
3 |
|
|
|
66 |
|
|
|
2 |
|
|
Consumer loans |
|
|
28 |
|
|
|
— |
|
|
|
38 |
|
|
|
— |
|
|
Other loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,636 |
|
|
$ |
51 |
|
|
$ |
5,333 |
|
|
$ |
58 |
|
-18-
|
|
|
Six Months Ended June 30, 2019 |
|
|
Six Months Ended June 30, 2018 |
|
||||||||||
|
|
|
Average Recorded Investment |
|
|
Interest Income |
|
|
Average Recorded Investment |
|
|
Interest Income |
|
||||
|
|
|
(dollars in thousands) |
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
6 |
|
|
$ |
— |
|
|
$ |
32 |
|
|
$ |
— |
|
|
Real estate - commercial |
|
|
1,375 |
|
|
|
35 |
|
|
|
1,566 |
|
|
|
30 |
|
|
Other real estate construction |
|
|
77 |
|
|
|
1 |
|
|
|
132 |
|
|
|
2 |
|
|
Real estate 1- 4 family construction |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Real estate - residential |
|
|
2,985 |
|
|
|
72 |
|
|
|
3,598 |
|
|
|
82 |
|
|
Home equity |
|
|
110 |
|
|
|
4 |
|
|
|
55 |
|
|
|
2 |
|
|
Consumer loans |
|
|
29 |
|
|
|
1 |
|
|
|
41 |
|
|
|
1 |
|
|
Other loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,582 |
|
|
$ |
113 |
|
|
$ |
5,424 |
|
|
$ |
117 |
|
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 nonaccrual 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 June 30, 2019, the Company had $3.9 million in TDRs outstanding, of which one with a balance of $28,000 was on a non-accruing basis.
For the three and six months ended June 30, 2019 and 2018, the following table presents a breakdown of the types of concessions made by loan class:
|
|
|
For the three months ended June 30, 2019 |
|
|||||||||
|
|
|
Number of Contracts |
|
|
Pre-Modification Outstanding Recorded Investment |
|
|
Post-Modification Outstanding Recorded Investment |
|
|||
|
|
|
(dollars in thousands) |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Real estate - commercial |
|
|
1 |
|
|
|
1,629 |
|
|
|
857 |
|
|
Other real estate construction |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Real estate 1 – 4 family construction |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Real estate – residential |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Home equity |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Consumer loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Other loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1 |
|
|
$ |
1,629 |
|
|
$ |
857 |
|
-19-
|
|
|
For the three months ended June 30, 2018 |
|
|||||||||
|
|
|
Number of Contracts |
|
|
Pre-Modification Outstanding Recorded Investment |
|
|
Post-Modification Outstanding Recorded Investment |
|
|||
|
|
|
(dollars in thousands) |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Real estate - commercial |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Other real estate construction |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Real estate 1 – 4 family construction |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Real estate – residential |
|
|
3 |
|
|
|
387 |
|
|
|
387 |
|
|
Home equity |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Consumer loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Other loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
3 |
|
|
$ |
387 |
|
|
$ |
387 |
|
|
|
|
For the six months ended June 30, 2019 |
|
|||||||||
|
|
|
Number of Contracts |
|
|
Pre-Modification Outstanding Recorded Investment |
|
|
Post-Modification Outstanding Recorded Investment |
|
|||
|
|
|
(dollars in thousands) |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Real estate - commercial |
|
|
1 |
|
|
|
1,629 |
|
|
|
857 |
|
|
Other real estate construction |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Real estate 1 – 4 family construction |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Real estate – residential |
|
|
3 |
|
|
|
217 |
|
|
|
198 |
|
|
Home equity |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Consumer loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Other loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
4 |
|
|
$ |
1,846 |
|
|
$ |
1,055 |
|
|
|
|
For the six months ended June 30, 2018 |
|
|||||||||
|
|
|
Number of Contracts |
|
|
Pre-Modification Outstanding Recorded Investment |
|
|
Post-Modification Outstanding Recorded Investment |
|
|||
|
|
|
(dollars in thousands) |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Real estate - commercial |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Other real estate construction |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Real estate 1 – 4 family construction |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Real estate – residential |
|
|
4 |
|
|
|
445 |
|
|
|
444 |
|
|
Home equity |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Consumer loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Other loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
4 |
|
|
$ |
445 |
|
|
$ |
444 |
|
During the twelve months ended for June 30, 2019, there were two TDRs for which there was a payment default. During the twelve months ended June 30, 2018, there was one TDR 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 $117,000 in the allowance for loan losses as of June 30, 2019, as a direct result of these TDRs. At June 30, 2018, there was $156,000 in the allowance for loan losses related to TDRs.
-20-
The following table presents the status of the types of loan modifications within the previous twelve months as of June 30 , 201 9 and 201 8 :
|
|
|
Paid In Full |
|
|
Paying as restructured |
|
|
Converted to nonaccrual |
|
|
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) |
|
|||||||||||||||||||||||||||||
|
June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below market |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
Extended payment Terms |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Forgiveness of Principal/Other |
|
|
5 |
|
|
|
895 |
|
|
|
4 |
|
|
|
1,847 |
|
|
|
— |
|
|
|
— |
|
|
|
2 |
|
|
|
282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
5 |
|
|
$ |
895 |
|
|
|
4 |
|
|
$ |
1,847 |
|
|
|
— |
|
|
$ |
— |
|
|
|
2 |
|
|
$ |
282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below market |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
Extended payment Terms |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Forgiveness of Principal/Other |
|
|
5 |
|
|
|
109 |
|
|
|
8 |
|
|
|
687 |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
5 |
|
|
$ |
109 |
|
|
|
8 |
|
|
$ |
687 |
|
|
|
— |
|
|
$ |
— |
|
|
|
1 |
|
|
$ |
17 |
|
The Company has not committed to fund any additional disbursements for TDRs as of June 30, 2019.
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 sheet. We do not currently have any significant finance leases in which we are the lessee.
Operating lease ROU assets 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 comprised 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 statement of income.
Our leases relate to three office locations, two of which are branch locations, with remaining terms of two to ten 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 June 30, 2019, operating lease ROU assets were $2.1 million and the lease liability was $2.2 million. Lease costs associated with all leases is $133,000 and $244,000 for the three and six months ended June 30, 2019, respectively.
The table below summarizes other information related to our operating leases:
-21-
|
|
Six Months Ended June 30, |
|
||
|
|
|
2019 |
|
|
|
|
|
(in thousands except percent and period data) |
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
|
Operating cash flows from operating leases |
|
$ |
169 |
|
|
Right-of-use assets obtained in exchange for new operating lease liabilities |
|
|
2,107 |
|
|
Weighted-average remaining lease term - operating leases, in years |
|
|
7.9 |
|
|
Weighted-average discount rate - operating leases |
|
|
2.8 |
% |
The table below summarizes the maturity of remaining lease liabilities:
|
|
|
|
|
|
|
|
|
June 30, 2019 |
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
2019 |
|
$ |
188 |
|
|
2020 |
|
|
381 |
|
|
2021 |
|
|
347 |
|
|
2022 |
|
|
225 |
|
|
2023 |
|
|
229 |
|
|
2024 and thereafter |
|
|
1,079 |
|
|
Total lease payments |
|
|
2,449 |
|
|
Less: Interest |
|
|
(280 |
) |
|
Present value of lease liabilities |
|
|
2,169 |
|
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. 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.
At June 30, 2019, outstanding financial instruments whose contract amounts represent credit risk were approximately:
|
|
|
(dollars in thousands) |
|
|
|
Commitments to extend credit |
|
$ |
118,650 |
|
|
Credit card commitments |
|
|
11,278 |
|
|
Standby letters of credit |
|
|
1,044 |
|
|
Total commitments |
|
$ |
130,972 |
|
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
-22-
participants would use when pricing those assets or liabilities. Fair values determined using Level 1 inputs rely on active and observable markets to pr ice 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. F air 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 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 value; 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; and goodwill, which is periodically tested for impairment. Deposits, short-term borrowings and long-term obligations are not reported at fair value.
Prices for U.S. Treasury 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 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.
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, 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 table provides fair value information for assets and liabilities measured at fair value on a recurring basis as of June 30, 2019 and December 31, 2018:
|
|
|
June 30, 2019 |
|
|||||||||||||
|
|
|
(dollars in thousands) |
|
|||||||||||||
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
$ |
5,008 |
|
|
$ |
5,008 |
|
|
$ |
— |
|
|
$ |
— |
|
|
U.S. Government agencies |
|
|
33,003 |
|
|
|
— |
|
|
|
33,003 |
|
|
$ |
— |
|
|
GSE - Mortgage-backed securities and CMO’s |
|
|
32,320 |
|
|
|
— |
|
|
|
32,320 |
|
|
|
— |
|
|
State and political subdivisions |
|
|
12,436 |
|
|
|
— |
|
|
|
12,436 |
|
|
|
— |
|
|
Corporate bonds |
|
|
4,974 |
|
|
|
— |
|
|
|
4,974 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value |
|
$ |
87,741 |
|
|
$ |
5,008 |
|
|
$ |
82,733 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
-23-
|
|
|
December 31, 2018 |
|
|||||||||||||
|
|
|
(dollars in thousands) |
|
|||||||||||||
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
$ |
4,955 |
|
|
$ |
4,955 |
|
|
$ |
— |
|
|
$ |
— |
|
|
U.S. Government agencies |
|
|
51,916 |
|
|
|
— |
|
|
|
51,916 |
|
|
|
— |
|
|
GSE - Mortgage-backed securities and CMO’s |
|
|
16,702 |
|
|
|
— |
|
|
|
16,702 |
|
|
|
— |
|
|
State and political subdivisions |
|
|
12,955 |
|
|
|
— |
|
|
|
12,955 |
|
|
|
— |
|
|
Corporate bonds |
|
|
4,771 |
|
|
|
— |
|
|
|
4,771 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value |
|
$ |
91,299 |
|
|
$ |
4,955 |
|
|
$ |
86,344 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
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. GAAP. 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 June 30, 2019 and December 31, 2018:
|
|
|
June 30, 2019 |
|
|||||||||||||
|
|
|
(dollars in thousands) |
|
|||||||||||||
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans |
|
$ |
3,228 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
3,228 |
|
|
Other real estate owned |
|
|
686 |
|
|
|
— |
|
|
|
— |
|
|
|
686 |
|
|
Total assets at fair value |
|
$ |
3,914 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
3,914 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
December 31, 2018 |
|
|||||||||||||
|
|
|
(dollars in thousands) |
|
|||||||||||||
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans |
|
$ |
3,279 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
3,279 |
|
|
Other real estate owned |
|
|
951 |
|
|
|
— |
|
|
|
— |
|
|
|
951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value |
|
$ |
4,230 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
4,230 |
|
|
Total liabilities at fair value |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Quantitative Information about Level 3 Fair Value Measurements
|
June 30, 2019 |
|
|
|
|
|
|
|
|
|
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 Rate |
|
4%-8.75% |
|
|
|
|
|
|
|
|
|
OREO |
|
Discounted appraisals |
|
Collateral discounts and Estimated costs to sell |
|
0 – 10% |
-24-
|
December 31, 2018 |
|
|
|
|
|
|
|
|
|
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% |
|
|
|
|
|
|
|
|
|
OREO |
|
Discounted appraisals |
|
Collateral discounts and Estimated costs to sell |
|
0 – 10% |
At June 30, 2019, impaired loans were being evaluated with discounted expected cash flows 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 June 30, 2019 and December 31, 2018 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 valuations at June 30, 2019 are observed under the exit price notion as a result of adoption of ASU 2016-01. The following table reflects a comparison of carrying amounts and the estimated fair value of the financial instruments as of June 30, 2019 and December 31, 2018:
|
June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value |
|
|
Estimated Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|||||
|
|
|
(dollars in thousands) |
|
|||||||||||||||||
|
FINANCIAL ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
112,858 |
|
|
$ |
112,853 |
|
|
$ |
110,617 |
|
|
$ |
2,236 |
|
|
$ |
— |
|
|
Securities available for sale |
|
|
87,741 |
|
|
|
87,741 |
|
|
|
5,008 |
|
|
|
82,733 |
|
|
|
— |
|
|
Securities held to maturity |
|
|
10,639 |
|
|
|
10,704 |
|
|
|
— |
|
|
|
10,704 |
|
|
|
— |
|
|
Loans held for investment, net |
|
|
374,566 |
|
|
|
373,442 |
|
|
|
— |
|
|
|
— |
|
|
|
373,442 |
|
|
Loans held for sale |
|
|
2,517 |
|
|
|
2,517 |
|
|
|
— |
|
|
|
2,517 |
|
|
|
— |
|
|
Restricted stock |
|
|
1,144 |
|
|
|
1,144 |
|
|
|
1,144 |
|
|
|
— |
|
|
|
— |
|
|
Loan servicing rights |
|
|
1,657 |
|
|
|
3,338 |
|
|
|
— |
|
|
|
3,338 |
|
|
|
— |
|
|
Accrued interest receivable |
|
|
1,733 |
|
|
|
1,733 |
|
|
|
— |
|
|
|
— |
|
|
|
1,733 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
556,916 |
|
|
$ |
530,741 |
|
|
$ |
— |
|
|
$ |
530,741 |
|
|
$ |
— |
|
|
Short-term borrowings |
|
|
839 |
|
|
|
839 |
|
|
|
— |
|
|
|
839 |
|
|
|
— |
|
|
Long-term borrowings |
|
|
9,974 |
|
|
|
9,984 |
|
|
|
— |
|
|
|
— |
|
|
|
9,984 |
|
|
Accrued interest payable |
|
|
47 |
|
|
|
47 |
|
|
|
— |
|
|
|
— |
|
|
|
47 |
|
-25-
|
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value |
|
|
Estimated Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|||||
|
|
|
(dollars in thousands) |
|
|||||||||||||||||
|
FINANCIAL ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
117,934 |
|
|
$ |
117,901 |
|
|
$ |
115,693 |
|
|
$ |
2,208 |
|
|
$ |
— |
|
|
Securities available for sale |
|
|
91,299 |
|
|
|
91,299 |
|
|
|
4,955 |
|
|
|
86,344 |
|
|
|
— |
|
|
Securities held to maturity |
|
|
10,837 |
|
|
|
10,750 |
|
|
|
— |
|
|
|
10,750 |
|
|
|
— |
|
|
Loans held for investment, net |
|
|
367,596 |
|
|
|
364,636 |
|
|
|
— |
|
|
|
— |
|
|
|
364,636 |
|
|
Loans held for sale |
|
|
4,800 |
|
|
|
4,800 |
|
|
|
— |
|
|
|
4,800 |
|
|
|
— |
|
|
Restricted stock |
|
|
1,094 |
|
|
|
1,094 |
|
|
|
1,094 |
|
|
|
— |
|
|
|
— |
|
|
Mortgage servicing rights |
|
|
1,850 |
|
|
|
3,455 |
|
|
|
— |
|
|
|
3,455 |
|
|
|
|
|
|
Accrued interest receivable |
|
|
1,763 |
|
|
|
1,763 |
|
|
|
— |
|
|
|
— |
|
|
|
1,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
566,901 |
|
|
|
521,508 |
|
|
|
— |
|
|
|
521,508 |
|
|
|
— |
|
|
Short-term borrowings |
|
|
1,190 |
|
|
|
1,190 |
|
|
|
— |
|
|
|
1,190 |
|
|
|
— |
|
|
Long-term debt |
|
|
9,974 |
|
|
|
10,086 |
|
|
|
— |
|
|
|
— |
|
|
|
10,086 |
|
|
Accrued interest payable |
|
|
16 |
|
|
|
16 |
|
|
|
— |
|
|
|
— |
|
|
|
16 |
|
The following methods and assumptions were used by the Company in estimating the fair value of financial instruments:
|
|
• |
Cash and cash equivalents – The carrying amount of cash and cash equivalents approximate their fair values due to the short period of time until their expected realization and are recorded in Level 1, with the exception of time deposits due from banks that are in Level 2. |
|
|
• |
Securities available for sale – Securities available for sale are carried at fair value based on quoted and observable market prices and are recorded in Levels 1 and 2. Also see discussion in Note 5. |
|
|
• |
Securities held to maturity – Securities held to maturity are carried at amortized cost and are recorded in Level 2. |
|
|
• |
Loans – The fair value of loans is estimated based on discounted expected cash flows using the current interest rates at which similar loans would be made, a future expected credit loss based on historical charge-offs, and a liquidity discount based on the overall risk grade of the loan portfolio. These loans are carried in Level 3. Loans held for sale, which represent current mortgage production forward sales not yet delivered, are valued based on secondary market prices. The fair value of loans held for sale does not consider uncertainty in the market that would affect the valuation. Loans held for sale are recorded in Level 2. |
|
|
• |
Restricted stock – It is not practicable to determine fair value of restricted stock, which is comprised of Federal Home Loan Bank and Federal Reserve Bank stock, due to restrictions placed on its transferability and it is presented at its carrying value and is recorded in Level 1 due to the redemption provisions of the Federal Home Loan Bank and the Federal Reserve Bank stock. |
|
|
• |
Loan servicing rights – The fair value disclosed for loan servicing rights is based on an independent market valuation and is recorded at Level 2. |
|
|
• |
Accrued interest receivable and payable – Both accrued interest receivable and payable are recorded in Level 3, as there are not active markets for these. |
|
|
• |
Deposits – The fair value of deposits is estimated based on discounted cash flow analyses using offered market rates and is recorded in Level 2. The fair value of deposits does not consider any customer-related intangibles. |
|
|
• |
Borrowings – The fair value disclosed for short-term borrowings, which are composed of overnight borrowings and debt due within one year approximate the carrying value for such debt and is recorded in Level 2. The estimated fair value for long-term borrowings are estimated based on discounted cash flow analyses using offered market rates. Total borrowings are carried in Level 2. Long-term debt is fair valued based on discounted cash flow analyses and is recorded in Level 3. |
At June 30, 2019, 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.
-26-
Note 1 3 – 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 cost, loans and available-for-sale debt securities. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years. 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.
On July 17, 2019, FASB voted to propose a delay in implementation of CECL until January 2023 for certain companies, which includes smaller reporting companies (as defined by the SEC). The Company qualifies as a smaller reporting company. The Company is currently revising their implementation project plan to allow for additional time to evaluate the impact and effectively implement the standard.
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 which could cause actual results to differ materially from these estimates. These factors include, but are not limited to, general economic conditions, 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 June 30, 2019 and December 31, 2018.
During the six months ended June 30, 2019, the Company’s total assets decreased $4.9 million, from $632.3 million to $627.4 million.
Cash and cash equivalents decreased $5.1 million during the six months ended June 30, 2019. Cash and due from banks increased $841,000, while interest-earning deposits with banks decreased $5.9 million. The decrease is directly related to the decrease in interest-bearing deposits.
Investment securities consist of securities available for sale and securities held to maturity. Investment securities decreased $3.8 million to $98.4 million for the six-month period ended June 30, 2019, due to contracted principal pay downs and maturities. At June 30, 2019, the Company had net unrealized gains on securities available for sale of $120,000, compared to net unrealized losses of $2.2 million as December 31, 2018. The significant improvement is directly related to the decline of the mid- to long-term bond yields during the second quarter of 2019.
Loans held for investment increased from $370 million to $374.6 million, an increase of $4.6 million for the six months. The Company experienced growth in the commercial real estate, commercial, and consumer loan segments during the first six months of 2019. The commercial real estate segment had the largest increase in the portfolio of 10.8% or $14.1 million. The largest decline is in the commercial real estate construction segment of $9.8 million or 31.3%. Loans held for sale decreased 47.6%, or $2.2 million, as many of the loans produced near year-end were not sold on the secondary market until 2019.
The allowance for loan losses was $2.2 million at June 30, 2019, which represented 0.58% of the total loan portfolio compared to $2.4 million or 0.64% of the total loan portfolio at December 31, 2018. During the second quarter of 2019, the Company reclassified its reserve for unfunded liabilities (i.e. lines of credit that were available, but not yet drawn by the customer) of $86,000 from allowance for loan loss to other liabilities.
Other changes in our consolidated assets are primarily related to premises and equipment, other real estate owned, prepaid assets, and other assets. Premises and equipment increased $2.0 million from $14.8 million at December 31, 2018 to $16.8 million at June 30, 2019, due to the adoption of ASU 2016-02, Leases, Topic 842 (“ASU 2016-02”). A $2.1 million right-of-use asset is recorded to reflect the applicable lease agreements held by the Company. Other real estate owned decreased $361,000. During the six months ended June 30, 2019, the Company sold four pieces of property totaling $368,000. The Company recorded $38,000 of losses associated with the sold property. Prepaid assets have increased $551,000 from December 31, 2018 to June 30, 2019, as a large 3-year prepaid invoice for company-wide insurance was paid. Other assets decreased $905,000, primarily due to the reduction in deferred tax based on the net unrealized gain/loss on securities.
Customer deposits, our primary funding source, experienced a $10 million decrease during the six-month period ended June 30, 2019, decreasing from $566.9 million to $556.9 million, a 1.8% decline. Demand noninterest-bearing checking increased $19.2 million and savings deposits increased $2.0 million. Interest checking and money market accounts decreased by $86.7 million. Time deposits greater than $250,000 increased by $49.8 million. One relationship moved $40 million from a money market to a time deposit and, in addition, transferred its remaining $45 million in money market funds to another institution. Other time deposits increased $5.6 million.
Total short-term borrowings decreased $351,000 for the period.
Other liabilities increased from $9.0 million at December 31, 2018 to $11.5 million at June 30, 2019, an increase of $2.5 million, of which $2.2 million is related to the adoption of ASU 2016-02, regarding the recognition of a lease liability to reflect the contractual lease obligations of the Company.
At June 30, 2019, total shareholders’ equity was $48.1 million, an increase of $2.9 million from December 31, 2018. Net income for the six-month period was $1.6 million. Unrealized gains/losses on investment securities, net of tax, improved by $1.8 million. The
-28-
Company repurchased 54,479 share s of common stock for a total value of $ 270 ,000 during the first six months of 2019 . The Company paid $ 280 ,000 in dividends attributed to noncontrolling interest during the first six months of 2019 .
Comparison of Results of Operations for the Three Months Ended June 30, 2019 and 2018.
Net Income and Net Income Available to Common Shareholders
Uwharrie Capital Corp reported net income of $951,000 for the three months ended June 30, 2019, as compared to $467,000 for the three months ended June 30, 2018, an increase of $484,000. Net income available to common shareholders was $811,000, or $0.11 per common share, at June 30, 2019, compared to $326,000, or $0.04 per common share, at June 30, 2018. Net income available to common shareholders is net income less dividends on the aforementioned noncontrolling interest.
Net Interest Income
As with most financial institutions, the primary component of earnings for our subsidiary bank is net interest income. Net interest income is the difference between interest income, principally from loan and investment securities portfolios, and interest expense, principally on customer deposits and wholesale borrowings. Changes in net interest income result from changes in volume, spread and margin. For this purpose, volume refers to the average dollar level of interest-earning assets and interest-bearing liabilities, spread refers to the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities, and margin refers to net interest income divided by average interest-earning assets. Margin is influenced by the level and relative mix of interest-earning assets and interest-bearing liabilities, as well as by levels of noninterest-bearing liabilities and capital.
Net interest income for the three months ended June 30, 2019 was $5.0 million, compared to $4.9 million for the three months ended June 30, 2018, an increase of $97,000. During the second quarter of 2019, the average yield on our interest-earning assets increased sixteen basis points to 3.99%, as the average rate we paid for our interest-bearing liabilities increased forty-four basis points to 0.83%. The aforementioned changes resulted in a lower interest rate spread of 3.16% as of June 30, 2019, compared to 3.44% as of June 30, 2018. Our net interest margin was 3.38% and 3.54% for the comparable periods in 2019 and 2018, respectively.
The following table presents average balance sheet and a net interest income analysis for the three months ended June 30, 2019 and 2018:
Average Balance Sheet and Net Interest Income Analysis
For the Three Months Ended June 30,
|
(dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Balance |
|
|
Income/Expenses |
|
|
Rate/Yield |
|
|||||||||||||||
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||||
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable securities |
|
$ |
82,866 |
|
|
$ |
85,170 |
|
|
$ |
386 |
|
|
$ |
374 |
|
|
|
1.87 |
% |
|
|
1.76 |
% |
|
Nontaxable securities (1) |
|
|
16,839 |
|
|
|
17,495 |
|
|
|
104 |
|
|
|
110 |
|
|
|
3.10 |
% |
|
|
3.20 |
% |
|
Short-term investments |
|
|
125,399 |
|
|
|
88,255 |
|
|
|
687 |
|
|
|
365 |
|
|
|
2.20 |
% |
|
|
1.66 |
% |
|
Taxable loans |
|
|
365,105 |
|
|
|
360,202 |
|
|
|
4,680 |
|
|
|
4,403 |
|
|
|
5.14 |
% |
|
|
4.90 |
% |
|
Non-taxable loans (1) |
|
|
8,871 |
|
|
|
10,581 |
|
|
|
55 |
|
|
|
66 |
|
|
|
3.14 |
% |
|
|
3.17 |
% |
|
Total interest-earning assets |
|
|
599,080 |
|
|
|
561,703 |
|
|
|
5,912 |
|
|
|
5,318 |
|
|
|
3.99 |
% |
|
|
3.83 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits |
|
|
429,304 |
|
|
|
408,331 |
|
|
|
762 |
|
|
|
269 |
|
|
|
0.71 |
% |
|
|
0.26 |
% |
|
Short-term borrowed funds |
|
|
1,207 |
|
|
|
1,848 |
|
|
|
5 |
|
|
|
4 |
|
|
|
1.66 |
% |
|
|
0.87 |
% |
|
Long-term debt |
|
|
9,972 |
|
|
|
9,538 |
|
|
|
141 |
|
|
|
138 |
|
|
|
5.67 |
% |
|
|
5.80 |
% |
|
Total interest bearing liabilities |
|
|
440,483 |
|
|
|
419,717 |
|
|
|
908 |
|
|
|
411 |
|
|
|
0.83 |
% |
|
|
0.39 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread |
|
$ |
158,597 |
|
|
$ |
141,986 |
|
|
$ |
5,004 |
|
|
$ |
4,907 |
|
|
|
3.16 |
% |
|
|
3.44 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin (1) (% of earning assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.38 |
% |
|
|
3.54 |
% |
|
(1) |
Yields related to securities and loans exempt from income taxes are stated on a fully tax-equivalent basis, assuming a 21% tax rate. |
-29-
Provision and Allowance for Loan Losses
The recovery for loan losses was $315,000 for the three months ending June 30, 2019, compared to a provision of $38,000 for the same period in 2018. There were net loan recoveries of $347,000 for the three months ended June 30, 2019, as compared with net loan charge offs of $2,000 during the same period of 2018. Refer to the Asset Quality discussion 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 slightly by $36,000 for the three-month period ending June 30, 2019, as compared to the same period in 2018. The primary factor contributing to the overall increase was an increase in income from mortgage loan sales of $218,000, increasing from $869,000 for the quarter ended June 30, 2018 to $1.1 million for the same period in 2019. Stronger production due to the continued expansion in the Mecklenburg County market has impacted revenue from our mortgage division. Furthermore, valuation adjustments for assets in a rabbi trust for the supplemental employee retirement plans resulted in a decrease of other income by $151,000 from June 30, 2018 to June 30, 2019.
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 June 30, |
|
|||||
|
|
|
2019 |
|
|
2018 |
|
||
|
|
|
(in thousands) |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
Income from debit card transactions |
|
$ |
389 |
|
|
$ |
350 |
|
|
Income from credit card transactions |
|
|
112 |
|
|
|
75 |
|
|
Gross interchange and transaction fee income |
|
|
501 |
|
|
|
425 |
|
|
Network costs - debit card |
|
|
152 |
|
|
|
179 |
|
|
Network costs - credit card |
|
|
145 |
|
|
|
102 |
|
|
Total |
|
$ |
204 |
|
|
$ |
144 |
|
Noninterest Expense
Noninterest expense for the quarter ended June 30, 2019 declined $197,000 from $6.5 million at June 30, 2018, compared to $6.3 million for the same period of 2019. Salaries and benefits, the largest component of noninterest expense, increased $131,000 to account for wage and benefit cost increases
This increase is offset by declines in both data processing and other noninterest expense. Data processing decreased $111,000 from $283,000 for the quarter ended June 30, 2018 to $172,000 for the same period in 2019, due to one-time de-conversion expenses in 2018.
The table below reflects the composition of other noninterest expense.
|
|
|
Three Months Ended June 30, |
|
|||||
|
|
|
2019 |
|
|
2018 |
|
||
|
|
|
(dollars in thousands) |
|
|||||
|
Postage |
|
$ |
44 |
|
|
$ |
55 |
|
|
Telephone and data lines |
|
|
46 |
|
|
|
45 |
|
|
Insurance expense |
|
|
56 |
|
|
|
102 |
|
|
Shareholder relations expense |
|
|
37 |
|
|
|
35 |
|
|
Dues and subscriptions |
|
|
71 |
|
|
|
66 |
|
|
Other |
|
|
231 |
|
|
|
335 |
|
|
Total |
|
$ |
485 |
|
|
$ |
638 |
|
Income Tax Expense
The Company had income tax expense of $277,000 for the three months ended June 30, 2019 at an effective tax rate of 22.6%, compared to income tax expense of $78,000 at an effective tax rate of 14.3% in the comparable 2018 period. Income taxes 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. In 2019, the effective tax rate increased due to less impact from tax-free instruments.
-30-
Comparison of Results of Operations for the Six Months Ended June 30, 2019 and 2018.
Net Income and Net Income Available to Common Shareholders
Uwharrie Capital Corp reported net income of $1.6 million for the six months ended June 30, 2019, as compared to $701,000 for the six months ended June 30, 2018, an increase of $940,000. Net income available to common shareholders was $1.4 million, or $0.19 per common share, at June 30, 2019, compared to $417,000, or $0.06 per common share, at June 30, 2018. Net income available to common shareholders is net income less dividends on the aforementioned noncontrolling interest.
Net Interest Income
Net interest income for the six months ended June 30, 2019 was $10.2 million, compared to $9.6 million for the six months ended June 30, 2018, an increase of $620,000. During 2019, the average yield on our interest-earning assets increased seventeen basis points to 4.01%, as the average rate we paid for our interest-bearing liabilities increased thirty-eight basis points to 0.75%. The aforementioned changes resulted in a lower interest rate spread of 3.26% as of June 30, 2019, compared to 3.47% as of June 30, 2018. Our net interest margin was 3.46% and 3.56% for the comparable periods in 2019 and 2018, respectively.
The following table presents average balance sheet and a net interest income analysis for the six months ended June 30, 2019 and 2018:
Average Balance Sheet and Net Interest Income Analysis
For the Six Months Ended June 30,
|
(dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Balance |
|
|
Income/Expenses |
|
|
Rate/Yield |
|
|||||||||||||||
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||||
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable securities |
|
$ |
83,671 |
|
|
$ |
86,438 |
|
|
$ |
776 |
|
|
$ |
771 |
|
|
|
1.87 |
% |
|
|
1.80 |
% |
|
Nontaxable securities (1) |
|
|
16,995 |
|
|
|
17,726 |
|
|
|
210 |
|
|
|
224 |
|
|
|
3.12 |
% |
|
|
3.23 |
% |
|
Short-term investments |
|
|
127,055 |
|
|
|
78,067 |
|
|
|
1,480 |
|
|
|
642 |
|
|
|
2.35 |
% |
|
|
1.66 |
% |
|
Taxable loans |
|
|
364,110 |
|
|
|
356,566 |
|
|
|
9,290 |
|
|
|
8,592 |
|
|
|
5.15 |
% |
|
|
4.86 |
% |
|
Non-taxable loans (1) |
|
|
8,993 |
|
|
|
10,717 |
|
|
|
112 |
|
|
|
133 |
|
|
|
3.15 |
% |
|
|
3.17 |
% |
|
Total interest-earning assets |
|
|
600,824 |
|
|
|
549,514 |
|
|
|
11,868 |
|
|
|
10,362 |
|
|
|
4.01 |
% |
|
|
3.84 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits |
|
|
434,726 |
|
|
|
403,354 |
|
|
|
1,359 |
|
|
|
486 |
|
|
|
0.63 |
% |
|
|
0.24 |
% |
|
Short-term borrowed funds |
|
|
1,326 |
|
|
|
1,912 |
|
|
|
11 |
|
|
|
7 |
|
|
|
1.67 |
% |
|
|
0.74 |
% |
|
Long-term debt |
|
|
9,973 |
|
|
|
9,536 |
|
|
|
282 |
|
|
|
273 |
|
|
|
5.72 |
% |
|
|
5.77 |
% |
|
Total interest-bearing liabilities |
|
|
446,025 |
|
|
|
414,802 |
|
|
|
1,652 |
|
|
|
766 |
|
|
|
0.75 |
% |
|
|
0.37 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread |
|
$ |
154,799 |
|
|
$ |
134,712 |
|
|
$ |
10,216 |
|
|
$ |
9,596 |
|
|
|
3.26 |
% |
|
|
3.47 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin (1) (% of earning assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.46 |
% |
|
|
3.56 |
% |
|
(1) |
Yields related to securities and loans exempt from income taxes are stated on a fully tax-equivalent basis, assuming a 21% tax rate. |
Provision and Allowance for Loan Losses
The recovery for loan losses was $428,000 for the six months ending June 30, 2019, compared to a provision of $116,000 for the same period in 2018. There were net loan recoveries of $319,000 for the six months ended June 30, 2019, as compared with net loan recoveries of $9,000 during the same period of 2018. 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 decreased by $110,000 for the six-month period ending June 30, 2019, as compared to the same period in 2018. The primary factor contributing to the overall decrease was a decrease of $404,000 in other income. This decrease is due to valuation adjustments on the assets held in a rabbi trust for the supplemental employee retirement plans.
-31-
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 interchan ge 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:
|
|
|
Six Months Ended June 30, |
|
|||||
|
|
|
2019 |
|
|
2018 |
|
||
|
|
|
(in thousands) |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
Income from debit card transactions |
|
$ |
731 |
|
|
$ |
647 |
|
|
Income from credit card transactions |
|
|
219 |
|
|
|
157 |
|
|
Gross interchange and transaction fee income |
|
|
950 |
|
|
|
804 |
|
|
Network costs - debit card |
|
|
313 |
|
|
|
332 |
|
|
Network costs - credit card |
|
|
239 |
|
|
|
186 |
|
|
Total |
|
$ |
398 |
|
|
$ |
286 |
|
Noninterest Expense
Noninterest expense for the six months ended June 30, 2019 declined $210,000 from $12.7 million at June 30, 2018, compared to $12.5 million for the same period of 2019. Salaries and benefits, the largest component of noninterest expense, increased $318,000 to account for wage and benefit cost increases.
This increase is offset by declines in data processing, professional fees and services, and other noninterest expense. Data processing decreased $139,000 from $533,000 for the six months ended June 30, 2018 to $394,000 for the same period in 2019, due to one-time de-conversion expenses in 2018. Professional fees and services decreased $110,000 from $462,000 for the six months ended June 30, 2018 to $352,000 for the same period in 2019, due to consulting and training expenses regarding the core conversion project in 2018.
The table below reflects the composition of other noninterest expense.
|
|
|
Six Months Ended June 30, |
|
|||||
|
|
|
2019 |
|
|
2018 |
|
||
|
|
|
(in thousands) |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
Postage |
|
$ |
108 |
|
|
$ |
104 |
|
|
Telephone and data lines |
|
|
92 |
|
|
|
90 |
|
|
Loan costs |
|
|
145 |
|
|
|
179 |
|
|
Shareholder relations expense |
|
|
77 |
|
|
|
74 |
|
|
Dues and subscriptions |
|
|
132 |
|
|
|
133 |
|
|
Other |
|
|
357 |
|
|
|
627 |
|
|
Total |
|
$ |
911 |
|
|
$ |
1,207 |
|
Income Tax Expense
The Company had income tax expense of $460,000 for the six months ended June 30, 2019 at an effective tax rate of 21.9% compared to income tax expense of $136,000 with an effective tax rate of 16.2% in the comparable 2018 period. Income taxes 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. In 2019, the effective tax rate increased due to less impact from tax-free instruments.
Asset Quality
During the second quarter of 2019, the Company transitioned its current in-house incurred loss allowance for loan loss model to an external vendor incurred loss model that is CECL-ready. The overall financial impact related to switching models is considered immaterial. As a result of the change in models, there has been a change is methodology.
For example, default in the allowance for loan loss model is now considered 90 days past due, whereas default was defined as a charge-off event in the previous model. This increases the probabilities of default for the Company, but reduces the loss given default ratio in the portfolio.
Probabilities of default are now more representative of the Company’s customers. Previously, an analysis was performed with a sample of North Carolina consumers to calculate the probabilities of default by credit score. In the new model, the Company is able to track
-32-
probabilities of default based on historical information of loans in the portfolio. This is the largest impact of the model transition, resulting in an immaterial recovery of provision for loan loss.
In addition, the Company now uses better defined qualitative factors including qualitative factors to model recessionary impact to expected loss based on historical impact, current volatility in the market, and management’s analysis of local economic factors and industry-specific outlooks.
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 decreased by 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 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 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 because of the factors discussed herein. Any material increase in the allowance for loan losses may adversely affect the Company’s financial condition and results of operations.
At June 30, 2019, the levels of our impaired loans, which includes all loans in nonaccrual status, TDRs, and other loans deemed by management to be impaired, were $5.0 million, compared to $4.5 million at December 31, 2018, a net increase of $514,000. Total nonaccrual loans, which are a component of impaired loans, increased from $1.0 million at December 31, 2018 to $1.1 million at June 30, 2019. During the first six months of 2019, four additional loans totaling $681,000 were added to impaired loans. That was offset by the pay-off of five impaired relationships totaling $302,000 as well as net pay downs of $135,000.
The allowance, expressed as a percentage of gross loans held for investment, decreased six basis points from 0.64% at December 31, 2018 to 0.58% at June 30, 2019. The collectively evaluated reserve allowance as a percentage of collectively evaluated loans was 0.61% at December 31, 2018 and 0.55% at June 30, 2019. The decrease is attributable to a continued improvement in the credit quality of the current portfolio as charge offs remain low and classified assets continue to improve. Additionally, $86,000, or 0.02%, of the collectively evaluated allowance was reclassified to other liabilities, which represents the reserve associated with exposures on loans not yet funded, such as credit limits available. The individually evaluated allowance as a percentage of individually evaluated loans decreased from 3.43% to 3.11% for the same periods, mainly due to a $535,000 relationship that was deemed impaired during the second quarter of 2019 due to its TDR classification, though no reserve is recognized based on the present value of the expected future cash flows discounted at the loan’s effective interest rate. 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 volatility. 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.
-33-
The Company assesses the probability of losses inherent in the loan portfolio using probability of default data derived from the Comp any’ 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 own a loan, or are fin ancially responsible for the loan, semi-annually, during the first and third quarters. During the first quarter, the average effective credit score of the portfolio, excluding loans in default, rose from 766 to 768. The probability of default associated with each credit score is a major driver in the allowance for loan losses.
The ratio of nonperforming loans, which consist of nonaccrual loans and loans past due 90 days and still accruing, to total loans increased slightly from 0.28% at December 31, 2018, to 0.29% at June 30, 2019.
Management believes the current level of the allowance for loan losses is appropriate in light of the risk inherent in the loan portfolio.
Other real estate owned decreased $361,000 during the first six months of 2019. The Company sold four pieces of foreclosed property totaling $368,000, realizing a loss of $38,000. The Company had no write-downs for the period ending June 30, 2019. There have been no loans foreclosed on during the first six months of 2019.
Troubled debt restructured loans at June 30, 2019 totaled $3.9 million compared to $3.4 million at December 31, 2018 and are included in impaired loans. At June 30, 2019, there was one troubled debt restructured loan in nonaccrual status, which had a balance of $28,000.
The following table shows the comparison of nonperforming assets at June 30, 2019 to December 31, 2018:
Nonperforming Assets
(dollars in thousands)
|
|
|
June 30, 2019 |
|
|
December 31, 2018 |
|
||
|
Nonperforming assets: |
|
|
|
|
|
|
|
|
|
Loans past due 90 days or more |
|
$ |
— |
|
|
$ |
— |
|
|
Nonaccrual loans |
|
|
1,101 |
|
|
|
1,044 |
|
|
Other real estate owned |
|
|
686 |
|
|
|
1,047 |
|
|
Total nonperforming assets |
|
$ |
1,787 |
|
|
$ |
2,091 |
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loans losses |
|
$ |
2,179 |
|
|
$ |
2,374 |
|
|
Nonperforming loans to total loans |
|
|
0.29 |
% |
|
|
0.28 |
% |
|
Allowance for loan losses to total loans |
|
|
0.58 |
% |
|
|
0.64 |
% |
|
Nonperforming assets to total assets |
|
|
0.28 |
% |
|
|
0.33 |
% |
|
Allowance for loan losses to nonperforming loans |
|
|
197.91 |
% |
|
|
227.39 |
% |
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 million at June 30, 2019, with available credit of $28 million; established borrowing relationships with the Federal Home Loan Bank, with available credit of $71.3 million; access to borrowings from the Federal Reserve Bank discount window, with available credit of $20.6 million and the issuance of commercial paper. The Company has also secured long-term debt from other sources. Total debt from these sources include $9.5 million of junior subordinated debt and notes payable of $440,000 at both June 30, 2019 and December 31, 2018.
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.
-34-
The Company continues to maintain capital ratios that support its asset growth. The federal bank regulatory agencie s 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 leas t 2.5% to avoid limits on capital distributions and certain discretionary bonus payments to executive officers and similar employees.
The Basel III rules began to phase in for the Company and its subsidiary bank on January 1, 2015, with full compliance of all the rules’ requirements effective on January 1, 2019. Pursuant to the Federal Reserve’s Small Bank Holding Company Policy Statement, the Company is exempt from the requirement to maintain consolidated regulatory capital ratios; instead, regulatory capital ratios only apply at the subsidiary bank level. As of June 30, 2019, the Bank continues to exceed minimum capital standards and remain 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 June 30, 2019, the Company had $9.5 million in subordinated debt outstanding, of which $7.6 million qualifies as Tier 2 capital. 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 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 June 30, 2019 and have no current plans to do so.
Contractual Obligations
The timing and amount of our contractual obligations has not changed materially since December 31, 2018, detail of which is presented on page 77 of our 2018 Annual Report to Shareholders, filed as Exhibit 13 with our 2018 Annual Report on Form 10-K.
Disclosure under this item is not required for smaller reporting companies.
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.
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 second quarter of 2019. In connection with such evaluation, the Company has determined that there
-35-
were no changes in the Company’s internal control over financial reporting during t he 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 intern al 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.
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.
Disclosure under this item is not required for smaller reporting companies.
The following table sets forth information with respect to shares of common stock repurchased by the Company during the three months ended June 30, 2019.
|
|
|
(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 of Shares that May Yet Be Purchased Under the Plans |
|
||||
|
April 1, 2019 Through April 30, 2019 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
May 1, 2019 Through May 31, 2019 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
June 1, 2019 Through June 30, 2019 |
|
|
25,165 |
|
|
$ |
4.95 |
|
|
|
— |
|
|
$ |
— |
|
|
Total |
|
|
25,165 |
|
|
$ |
4.95 |
|
|
|
— |
|
|
$ |
— |
|
|
|
(1) |
Trades of the Company’s common stock are quoted on the OTC Pink 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. |
None
Not applicable
None
-36-
The following exhibits are being filed herewith:
|
Exhibit Number |
|
Description of Exhibit |
|
|
|
|
|
|
|
|
|
31.1 |
|
|
|
|
|
|
|
31.2 |
|
|
|
|
|
|
|
32 |
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith) |
|
|
|
|
|
101 |
|
Interactive data files providing financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2019, in XBRL (eXtensible Business Reporting Language) (filed herewith) |
-37-
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: |
|
August 6, 2019 |
|
By: |
|
/s/ Roger L. Dick |
|
|
|
|
|
Roger L. Dick |
||
|
|
|
|
|
President and Chief Executive Officer |
||
|
|
|
|
|
|
|
|
|
Date: |
|
August 6, 2019 |
|
By: |
|
/s/ R. David Beaver, III |
|
|
|
|
|
R. David Beaver, III |
||
|
|
|
|
|
Principal Financial Officer |
||
-38-
No information found
* THE VALUE IS THE MARKET VALUE AS OF THE LAST DAY OF THE QUARTER FOR WHICH THE 13F WAS FILED.
| FUND | NUMBER OF SHARES | VALUE ($) | PUT OR CALL |
|---|
| DIRECTORS | AGE | BIO | OTHER DIRECTOR MEMBERSHIPS |
|---|
No information found
No Customers Found
No Suppliers Found
Price
Yield
| Owner | Position | Direct Shares | Indirect Shares |
|---|