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These terms and conditions govern your use of the website alphaminr.com and its related services.
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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 March 31, 2021
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)
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 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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☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: 7,035,758 shares of common stock outstanding as of April 28, 2021.
Table of Contents
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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 March 31, 2021 and December 31, 2020 |
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3 |
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Consolidated Statements of Income for the Three Months Ended March 31, 2021 and 2020 |
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4 |
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Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2021 and 2020 |
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5 |
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6 |
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Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020 |
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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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33 |
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Item 4 - |
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33 |
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Part II. |
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Item 1 - |
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34 |
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Item 1A - |
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34 |
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Item 2 - |
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34 |
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Item 3 - |
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34 |
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Item 4 - |
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34 |
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Item 5 - |
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34 |
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Item 6 - |
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35 |
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36 |
-2-
Uwharrie Capital Corp and Subsidiaries
Consolidated Balance Sheets
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March 31, 2021 (Unaudited) |
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December 31, 2020* |
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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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$ |
5,144 |
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$ |
6,301 |
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Interest-earning deposits with banks |
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91,916 |
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82,567 |
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Cash and cash equivalents |
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97,060 |
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88,868 |
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Securities available for sale, at fair value |
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190,083 |
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191,513 |
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Securities held to maturity, at amortized cost (fair value $28,818 and $29,600, respectively) |
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27,802 |
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28,207 |
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Equity security, at fair value |
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404 |
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1,352 |
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Loans held for sale |
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14,213 |
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6,959 |
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Loans: |
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Loans held for investment |
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460,441 |
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467,741 |
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Less allowance for loan losses |
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(4,252 |
) |
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(4,402 |
) |
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Net loans held for investment |
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456,189 |
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463,339 |
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Premises and equipment, net |
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16,698 |
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16,982 |
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Interest receivable |
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2,344 |
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2,524 |
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Restricted stock |
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921 |
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1,166 |
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Bank-owned life insurance |
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8,968 |
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8,936 |
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Prepaid assets |
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1,218 |
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1,146 |
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Loan servicing assets |
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4,511 |
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3,957 |
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Mortgage interest rate lock commitments, at fair value |
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2,108 |
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2,073 |
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Mortgage forward sales commitments |
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623 |
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— |
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Other assets |
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9,455 |
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10,748 |
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Total assets |
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$ |
832,597 |
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$ |
827,770 |
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LIABILITIES |
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Deposits: |
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Demand noninterest-bearing |
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$ |
240,651 |
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$ |
205,788 |
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Interest checking and money market accounts |
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347,962 |
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381,502 |
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Savings deposits |
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82,336 |
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74,792 |
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Time deposits, $250,000 and over |
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22,981 |
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28,825 |
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Other time deposits |
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50,219 |
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52,289 |
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Total deposits |
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744,149 |
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743,196 |
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Short-term borrowed funds |
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1,338 |
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|
710 |
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Long-term debt |
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11,242 |
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10,992 |
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Interest payable |
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16 |
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|
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21 |
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Mortgage forward sales commitments |
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— |
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|
|
388 |
|
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Other liabilities |
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16,026 |
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13,226 |
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Total liabilities |
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772,771 |
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768,533 |
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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 7,039,942 and 7,052,143, at March 31, 2021 and December 31, 2020, respectively |
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8,800 |
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8,815 |
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Additional paid-in capital |
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12,539 |
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12,607 |
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Undivided profits |
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27,444 |
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23,000 |
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Accumulated other comprehensive income |
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|
388 |
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|
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4,160 |
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Total Uwharrie Capital Corp shareholders’ equity |
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49,171 |
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48,582 |
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Noncontrolling interest |
|
|
10,655 |
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10,655 |
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Total shareholders’ equity |
|
|
59,826 |
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|
59,237 |
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Total liabilities and shareholders’ equity |
|
$ |
832,597 |
|
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$ |
827,770 |
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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 March 31, |
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2021 |
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2020 |
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(in thousands, except share and per share data) |
|
|||||
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Interest Income |
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|
|
|
|
|
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Loans, including fees |
|
$ |
6,062 |
|
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$ |
4,553 |
|
|
Investment securities |
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|
|
|
|
|
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U.S. Treasury |
|
|
— |
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|
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33 |
|
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U.S. Government agencies and corporations |
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|
455 |
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|
|
369 |
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State and political subdivisions, non-taxable |
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253 |
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|
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99 |
|
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State and political subdivisions, taxable |
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371 |
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90 |
|
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Interest-earning deposits with banks and federal funds sold |
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16 |
|
|
|
552 |
|
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Total interest income |
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|
7,157 |
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|
|
5,696 |
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|
|
|
|
|
|
|
|
|
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Interest Expense |
|
|
|
|
|
|
|
|
|
Interest checking and money market accounts |
|
|
91 |
|
|
|
298 |
|
|
Savings deposits |
|
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15 |
|
|
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21 |
|
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Time deposits, $250,000 and over |
|
|
29 |
|
|
|
256 |
|
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Other time deposits |
|
|
76 |
|
|
|
153 |
|
|
Short-term borrowed funds |
|
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1 |
|
|
|
1 |
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Long-term debt |
|
|
136 |
|
|
|
131 |
|
|
Total interest expense |
|
|
348 |
|
|
|
860 |
|
|
Net interest income |
|
|
6,809 |
|
|
|
4,836 |
|
|
Provision for (recovery of) loan losses |
|
|
(34 |
) |
|
|
632 |
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Net interest income after provision for (recovery of) loan losses |
|
|
6,843 |
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|
|
4,204 |
|
|
|
|
|
|
|
|
|
|
|
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Noninterest Income |
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
|
|
242 |
|
|
|
313 |
|
|
Interchange and card transaction fees, net |
|
|
219 |
|
|
|
192 |
|
|
Other service fees and commissions |
|
|
630 |
|
|
|
765 |
|
|
Gain on sale of securities |
|
|
940 |
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|
|
58 |
|
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Realized/unrealized gain (loss) on equity securities |
|
|
(19 |
) |
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|
231 |
|
|
Income from mortgage banking |
|
|
5,106 |
|
|
|
1,065 |
|
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Other income (expense) |
|
|
(11 |
) |
|
|
382 |
|
|
Total noninterest income |
|
|
7,107 |
|
|
|
3,006 |
|
|
|
|
|
|
|
|
|
|
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Noninterest Expense |
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
5,389 |
|
|
|
4,424 |
|
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Net occupancy expense |
|
|
426 |
|
|
|
415 |
|
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Equipment expense |
|
|
172 |
|
|
|
183 |
|
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Data processing costs |
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|
165 |
|
|
|
158 |
|
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Loan costs |
|
|
306 |
|
|
|
87 |
|
|
Foreclosed real estate expense |
|
|
— |
|
|
|
(7 |
) |
|
Professional fees and services |
|
|
236 |
|
|
|
194 |
|
|
Marketing and donations |
|
|
621 |
|
|
|
219 |
|
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Electronic banking expense |
|
|
89 |
|
|
|
105 |
|
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Software amortization and maintenance |
|
|
390 |
|
|
|
264 |
|
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FDIC insurance |
|
|
71 |
|
|
|
17 |
|
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Other noninterest expense |
|
|
280 |
|
|
|
738 |
|
|
Total noninterest expense |
|
|
8,145 |
|
|
|
6,797 |
|
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Income before income taxes |
|
|
5,805 |
|
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|
413 |
|
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Income taxes |
|
|
1,222 |
|
|
|
85 |
|
|
Net income |
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$ |
4,583 |
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$ |
328 |
|
|
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|
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Consolidated net income |
|
$ |
4,583 |
|
|
$ |
328 |
|
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Less: net income attributable to noncontrolling interest |
|
|
(139 |
) |
|
|
(141 |
) |
|
Net income attributable to Uwharrie Capital Corp and common shareholders |
|
|
4,444 |
|
|
|
187 |
|
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Net income per common share |
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|
|
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|
|
|
|
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Basic |
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$ |
0.63 |
|
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$ |
0.03 |
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Diluted |
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$ |
0.63 |
|
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$ |
0.03 |
|
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Weighted average shares outstanding |
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|
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Basic |
|
|
7,050,790 |
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|
|
7,209,107 |
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Diluted |
|
|
7,050,790 |
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|
|
7,209,107 |
|
See accompanying notes
=
-4-
Uw harrie Capital Corp and Subsidiaries
Consolidated Statements of Comprehensive Income (Unaudited)
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|
|
Three Months Ended March 31, |
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|||||
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|
|
2021 |
|
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2020 |
|
||
|
|
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(in thousands) |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
4,583 |
|
|
$ |
328 |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on available for sale securities |
|
|
(3,959 |
) |
|
|
2,141 |
|
|
Related tax effect |
|
|
937 |
|
|
|
(490 |
) |
|
Reclassification of gain recognized in net income |
|
|
(940 |
) |
|
|
(58 |
) |
|
Related tax effect |
|
|
190 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss) |
|
|
(3,772 |
) |
|
|
1,604 |
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
811 |
|
|
|
1,932 |
|
|
|
|
|
|
|
|
|
|
|
|
Less: Comprehensive income attributable to noncontrolling interest |
|
|
(139 |
) |
|
|
(141 |
) |
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to Uwharrie Capital Corp |
|
$ |
672 |
|
|
$ |
1,791 |
|
See accompanying notes
-5-
Uwharrie Capital Corp and Subsidiaries
Consolidated Statement of Changes in Shareholders’ Equity (Unaudited)
|
|
|
Number of Common Shares Issued |
|
|
Common Stock |
|
|
Additional Paid-in Capital |
|
|
Undivided Profits |
|
|
Accumulated Other Comprehensive Income (Loss) |
|
|
Non Controlling Interest |
|
|
Total |
|
|||||||
|
|
|
(dollars in thousands, except share data) |
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|||||||||||||||||||||||||
|
Balance, December 31, 2019 |
|
|
7,095,920 |
|
|
$ |
8,870 |
|
|
$ |
12,784 |
|
|
$ |
16,226 |
|
|
$ |
323 |
|
|
$ |
10,655 |
|
|
$ |
48,858 |
|
|
Net Income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
187 |
|
|
|
— |
|
|
|
141 |
|
|
|
328 |
|
|
Repurchase and retirement of common stock |
|
|
(111,338 |
) |
|
|
(139 |
) |
|
|
(473 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(612 |
) |
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,604 |
|
|
|
— |
|
|
|
1,604 |
|
|
Record preferred stock dividend Series B (noncontrolling interest) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(104 |
) |
|
|
(104 |
) |
|
Record preferred stock dividend Series C (noncontrolling interest) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(37 |
) |
|
|
(37 |
) |
|
Balance, March 31, 2020 |
|
|
6,984,582 |
|
|
$ |
8,731 |
|
|
$ |
12,311 |
|
|
$ |
16,413 |
|
|
$ |
1,927 |
|
|
$ |
10,655 |
|
|
$ |
50,037 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2020 |
|
|
7,052,143 |
|
|
$ |
8,815 |
|
|
$ |
12,607 |
|
|
$ |
23,000 |
|
|
$ |
4,160 |
|
|
$ |
10,655 |
|
|
$ |
59,237 |
|
|
Net Income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,444 |
|
|
|
— |
|
|
|
139 |
|
|
|
4,583 |
|
|
Repurchase and retirement of common stock |
|
|
(12,201 |
) |
|
|
(15 |
) |
|
|
(68 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(83 |
) |
|
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,772 |
) |
|
|
— |
|
|
|
(3,772 |
) |
|
Record preferred stock dividend Series B (noncontrolling interest) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(103 |
) |
|
|
(103 |
) |
|
Record preferred stock dividend Series C (noncontrolling interest) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(36 |
) |
|
|
(36 |
) |
|
Balance, March 31, 2021 |
|
|
7,039,942 |
|
|
$ |
8,800 |
|
|
$ |
12,539 |
|
|
$ |
27,444 |
|
|
$ |
388 |
|
|
$ |
10,655 |
|
|
$ |
59,826 |
|
See accompanying notes
-6-
Uwharrie Capital Corp and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
|
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
|
|
(dollars in thousands) |
|
|||||
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
4,583 |
|
|
$ |
328 |
|
|
Adjustments to reconcile net income to net cash used by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
271 |
|
|
|
285 |
|
|
Right of use asset amortization |
|
|
85 |
|
|
|
81 |
|
|
Provision for (recovery of) loan losses |
|
|
(34 |
) |
|
|
632 |
|
|
Gain on sale of securities available for sale |
|
|
(940 |
) |
|
|
(58 |
) |
|
Gain on sale of mortgage loans |
|
|
3,041 |
|
|
|
621 |
|
|
Gain on sale of OREO |
|
|
— |
|
|
|
(42 |
) |
|
OREO write-downs |
|
|
— |
|
|
|
21 |
|
|
Realized/unrealized (gain) loss on equity securities |
|
|
19 |
|
|
|
(231 |
) |
|
Net amortization of premium on investment securities available for sale |
|
|
174 |
|
|
|
98 |
|
|
Net amortization of premium on investment securities held to maturity |
|
|
39 |
|
|
|
26 |
|
|
Amortization of mortgage servicing rights |
|
|
383 |
|
|
|
187 |
|
|
Originations and purchases of mortgage loans for sale |
|
|
(108,979 |
) |
|
|
(27,736 |
) |
|
Proceeds from sales of mortgage loans for sale |
|
|
98,313 |
|
|
|
24,737 |
|
|
Mortgage interest rate lock commitments |
|
|
(35 |
) |
|
|
— |
|
|
Loan servicing assets |
|
|
(938 |
) |
|
|
(373 |
) |
|
Accrued interest receivable |
|
|
179 |
|
|
|
(93 |
) |
|
Prepaid assets |
|
|
(72 |
) |
|
|
(653 |
) |
|
Cash surrender value of life insurance |
|
|
(32 |
) |
|
|
(36 |
) |
|
Miscellaneous other assets |
|
|
2,056 |
|
|
|
1,151 |
|
|
Accrued interest payable |
|
|
(5 |
) |
|
|
(17 |
) |
|
Mortgage forward sales commitments |
|
|
(1,011 |
) |
|
|
— |
|
|
Miscellaneous other liabilities |
|
|
2,412 |
|
|
|
(1,276 |
) |
|
Net cash used by operating activities |
|
|
(491 |
) |
|
|
(2,348 |
) |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
Proceeds from sales of investment securities available for sale |
|
|
34,237 |
|
|
|
7,586 |
|
|
Proceeds from sale of equity securities |
|
|
929 |
|
|
|
— |
|
|
Proceeds from maturities, calls and paydowns of securities available for sale |
|
|
4,505 |
|
|
|
1,471 |
|
|
Proceeds from maturities, calls and paydowns of securities held to maturity |
|
|
366 |
|
|
|
1,668 |
|
|
Purchase of investment securities available for sale |
|
|
(41,445 |
) |
|
|
(26,694 |
) |
|
Purchase of investment securities held to maturity |
|
|
— |
|
|
|
(4,064 |
) |
|
Purchase of equity securities |
|
|
— |
|
|
|
(901 |
) |
|
Proceeds from sales of investments in other assets |
|
|
1,125 |
|
|
|
— |
|
|
Net change in restricted stock |
|
|
245 |
|
|
|
(22 |
) |
|
Net (increase) decrease in loans |
|
|
7,184 |
|
|
|
(10,288 |
) |
|
Purchase of premises and equipment |
|
|
(72 |
) |
|
|
(269 |
) |
|
Proceeds from sale of OREO |
|
|
— |
|
|
|
77 |
|
|
Net cash provided (used) by investing activities |
|
|
7,074 |
|
|
|
(31,436 |
) |
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
Net increase in deposit accounts |
|
|
953 |
|
|
|
18,448 |
|
|
Net increase (decrease) in federal funds purchased and other short-term borrowings |
|
|
628 |
|
|
|
(101 |
) |
|
Proceeds from long-term borrowings |
|
|
250 |
|
|
|
— |
|
|
Repurchase of common stock, net |
|
|
(83 |
) |
|
|
(612 |
) |
|
Dividends paid on preferred stock (noncontrolling interest) |
|
|
(139 |
) |
|
|
(141 |
) |
|
Net cash provided by financing activities |
|
|
1,609 |
|
|
|
17,594 |
|
|
Increase (decrease) in cash and cash equivalents |
|
|
8,192 |
|
|
|
(16,190 |
) |
|
Cash and cash equivalents, beginning of period |
|
|
88,868 |
|
|
|
155,198 |
|
|
Cash and cash equivalents, end of period |
|
$ |
97,060 |
|
|
$ |
139,008 |
|
|
Supplemental disclosures of cash flow information |
|
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
328 |
|
|
$ |
767 |
|
|
Income taxes paid |
|
|
— |
|
|
|
— |
|
|
Supplemental schedule of non-cash activities |
|
|
|
|
|
|
|
|
|
Net change in fair value of securities available for sale, net of tax |
|
$ |
3,772 |
|
|
$ |
1,604 |
|
See accompanying notes
-7-
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
Note 1 – Basis of Presentation
The financial statements and accompanying notes are presented on a consolidated basis including Uwharrie Capital Corp (the “Company”) and its subsidiaries, Uwharrie Bank (the “Bank”), Uwharrie Investment Advisors, Inc. (“UIA”), and Uwharrie Mortgage, Inc. The Bank consolidates its subsidiaries, the Strategic Alliance Corporation, BOS Agency, Inc. and Gateway Mortgage, Inc., each of which is wholly owned by the Bank.
The information contained in the consolidated financial statements is unaudited. In the opinion of management, the consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”) and material adjustments necessary for a fair presentation of results of interim periods, all of which are of a normal recurring nature, have been made. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for an entire year. Management continues to evaluate the impact of COVID-19, the disease caused by the novel Coronavirus, beyond the current impacts as of March 31, 2021, which are discussed throughout the accompanying notes of this report. Management is not aware of additional economic events, outside influences or changes in concentrations of business that would require additional clarification or disclosure in the consolidated financial statements.
The organization and business of the Company, accounting policies followed by the Company and other information are contained in the notes to consolidated financial statements filed as part of the Company’s 2020 Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 5, 2021. This Quarterly Report should be read in conjunction with such Annual Report.
Use of Estimates
The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America (“GAAP”), requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses.
Accounting Changes, Reclassifications and Restatements
Certain amounts in the 2020 financial statements have been reclassified to conform to the 2021 presentation. These reclassifications did not have an impact on net income or shareholders’ equity.
Note 2 – Comprehensive Income
The Company reports as comprehensive income all changes in shareholders’ equity during the year from sources other than shareholders. Other comprehensive income refers to all components (revenues, expenses, gains, and losses) of comprehensive income that are excluded from net income. The Company’s only component of other comprehensive income is unrealized gains and losses, net of income tax, on investment securities available for sale.
The following table presents the changes in accumulated other comprehensive income (loss) for the three months ended March 31, 2021 and 2020:
|
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
|
|
(dollars in thousands) |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
4,160 |
|
|
$ |
323 |
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications, net of $937 and ($490) tax effect, respectively |
|
|
(3,022 |
) |
|
|
1,651 |
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive income, net of $190 and $11 tax effect, respectively |
|
|
(750 |
) |
|
|
(47 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net current-period other comprehensive income (loss) |
|
|
(3,772 |
) |
|
|
1,604 |
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
388 |
|
|
$ |
1,927 |
|
-8-
Note 3 – Noncontrolling Interest
In 2013, the Company’s subsidiary bank issued a total of $10.7 million of Fixed Rate Noncumulative Perpetual Preferred Stock, Series B and Series C. The preferred stock qualifies as Tier 1 capital at the bank and pays dividends at an annual rate of 5.30%. The preferred stock has no voting rights. This capital is presented as noncontrolling interest in the consolidated balance sheets. Dividends declared on this preferred stock are presented as earnings allocated to the noncontrolling interest in the consolidated statements of income.
Note 4 – Per Share Data
Basic and diluted net income per common share is computed based on the weighted average number of shares outstanding during each period after retroactively adjusting for stock dividends. Diluted net income per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the net income of the Company. The Company had no stock options outstanding at March 31, 2021 or December 31, 2020.
Basic and diluted net income per common share have been computed based upon net income available to common shareholders as presented in the accompanying consolidated statements of income divided by the weighted average number of common shares outstanding or assumed to be outstanding.
The weighted average number of common shares outstanding was 7,050,790 for the three-month period ended March 31, 2021 compared to 7,209,107 for the three-month period ended March 31, 2020.
Note 5 – Investment and Equity Securities
Carrying amounts and fair values of securities available for sale and held to maturity are summarized below:
|
March 31, 2021 |
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
||||
|
|
|
(dollars in thousands) |
|
|||||||||||||
|
Securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies |
|
$ |
43,768 |
|
|
$ |
330 |
|
|
$ |
30 |
|
|
$ |
44,068 |
|
|
GSE - Mortgage-backed securities and CMO’s |
|
|
48,363 |
|
|
|
322 |
|
|
|
336 |
|
|
|
48,349 |
|
|
Asset-backed securities |
|
|
37,904 |
|
|
|
1,098 |
|
|
|
— |
|
|
|
39,002 |
|
|
State and political subdivisions |
|
|
55,636 |
|
|
|
634 |
|
|
|
1,743 |
|
|
|
54,527 |
|
|
Corporate bonds |
|
|
3,908 |
|
|
|
229 |
|
|
|
— |
|
|
|
4,137 |
|
|
Total securities available for sale |
|
$ |
189,579 |
|
|
$ |
2,613 |
|
|
$ |
2,109 |
|
|
$ |
190,083 |
|
|
March 31, 2021 |
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
||||
|
|
|
(dollars in thousands) |
|
|||||||||||||
|
Securities held to maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies |
|
$ |
247 |
|
|
$ |
5 |
|
|
$ |
— |
|
|
$ |
252 |
|
|
State and political subdivisions |
|
|
17,555 |
|
|
|
879 |
|
|
|
— |
|
|
|
18,434 |
|
|
Corporate bonds |
|
|
10,000 |
|
|
|
136 |
|
|
|
4 |
|
|
|
10,132 |
|
|
Total securities held to maturity |
|
$ |
27,802 |
|
|
$ |
1,020 |
|
|
$ |
4 |
|
|
$ |
28,818 |
|
|
December 31, 2020 |
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
||||
|
|
|
(dollars in thousands) |
|
|||||||||||||
|
Securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies |
|
$ |
36,804 |
|
|
$ |
611 |
|
|
$ |
26 |
|
|
$ |
37,389 |
|
|
GSE - Mortgage-backed securities and CMO’s |
|
|
39,720 |
|
|
|
1,844 |
|
|
|
68 |
|
|
|
41,496 |
|
|
Asset-backed securities |
|
|
38,536 |
|
|
|
748 |
|
|
|
3 |
|
|
|
39,281 |
|
|
State and political subdivisions |
|
|
67,148 |
|
|
|
2,107 |
|
|
|
91 |
|
|
|
69,164 |
|
|
Corporate bonds |
|
|
3,902 |
|
|
|
281 |
|
|
|
— |
|
|
|
4,183 |
|
|
Total securities available for sale |
|
$ |
186,110 |
|
|
$ |
5,591 |
|
|
$ |
188 |
|
|
$ |
191,513 |
|
-9-
|
December 31, 2020 |
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
||||
|
|
|
(dollars in thousands) |
|
|||||||||||||
|
Securities held to maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies |
|
$ |
459 |
|
|
$ |
11 |
|
|
$ |
— |
|
|
$ |
470 |
|
|
State and political subdivisions |
|
|
17,748 |
|
|
|
1,382 |
|
|
|
— |
|
|
|
19,130 |
|
|
Corporate bonds |
|
|
10,000 |
|
|
|
— |
|
|
|
— |
|
|
|
10,000 |
|
|
Total securities held to maturity |
|
$ |
28,207 |
|
|
$ |
1,393 |
|
|
$ |
— |
|
|
$ |
29,600 |
|
At March 31, 2021 and December 31, 2020, the Company owned Federal Reserve Bank (FRB) stock reported at cost of $509,000 for both periods, and Federal Home Loan Bank (FHLB) stock reported at a cost of $411,000 and $657,000 at March 31, 2021 and December 31, 2020, respectively. The investments in FRB stock and FHLB stock are required investments related to the Company’s membership in, and borrowings with, these banks and is classified as restricted stock on the consolidated balance sheet. These investments are carried at cost since there is no ready market and redemption has historically been made at par value. The Company estimated that the fair value approximated cost and that these investments were not impaired at March 31, 2021.
Results from sales of securities available for sale for the three-month periods ended March 31, 2021 and 2020 are as follows:
|
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
|
|
(dollars in thousands) |
|
|||||
|
Gross proceeds from sales |
|
$ |
34,237 |
|
|
$ |
7,586 |
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains from sales |
|
$ |
1,454 |
|
|
$ |
58 |
|
|
Realized losses from sales |
|
|
514 |
|
|
|
— |
|
|
Net realized gains |
|
$ |
940 |
|
|
$ |
58 |
|
At March 31, 2021 and December 31, 2020, securities available for sale with a carrying amount of $71.0 million and $82.8 million, respectively, were pledged as collateral on public deposits and for other purposes as required or permitted by law.
The following tables show the gross unrealized losses and fair value of investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2021 and December 31, 2020. We believe these unrealized losses on investment securities are a result of a volatile market and fluctuations in market prices due to a rise in interest rates, which will adjust if rates decline. Management does not believe these fluctuations are a reflection of the credit quality of the investments. At March 31, 2021, the unrealized losses on available for sale securities less than twelve months related to four government agency bonds, five government-sponsored enterprise (“GSE”) mortgage-backed securities and twenty-nine state and political subdivision bonds. There was one corporate held to maturity bond that had been in a loss position less than twelve months at March 31, 2021. At December 31, 2020, the unrealized losses on available for sale securities less than twelve months related to four government agency bonds, three GSE mortgage-backed securities, two asset-backed securities and ten state and political subdivision bonds. At March 31, 2021, the Company had two government agency bonds, two GSE mortgage-backed securities and two state and political subdivision bonds that had been in a loss position for twelve months or more.
|
|
|
Less than 12 Months |
|
|
12 Months or More |
|
|
Total |
|
|||||||||||||||
|
March 31, 2021 |
|
Fair Value |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Unrealized Losses |
|
||||||
|
|
|
(dollars in thousands) |
|
|||||||||||||||||||||
|
Securities available for sale temporary impairment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies |
|
$ |
5,237 |
|
|
$ |
19 |
|
|
$ |
2,805 |
|
|
$ |
11 |
|
|
$ |
8,042 |
|
|
$ |
30 |
|
|
GSE-Mortgage-backed securities and CMO’s |
|
|
21,216 |
|
|
|
315 |
|
|
|
3,563 |
|
|
|
21 |
|
|
|
24,779 |
|
|
|
336 |
|
|
State and political subdivisions |
|
|
38,709 |
|
|
|
1,679 |
|
|
|
1,414 |
|
|
|
64 |
|
|
|
40,123 |
|
|
|
1,743 |
|
|
Total securities available for sale |
|
$ |
65,162 |
|
|
$ |
2,013 |
|
|
$ |
7,782 |
|
|
$ |
96 |
|
|
$ |
72,944 |
|
|
$ |
2,109 |
|
-10-
|
|
|
Less than 12 Months |
|
|
12 Months or More |
|
|
Total |
|
|||||||||||||||
|
March 31, 2021 |
|
Fair Value |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Unrealized Losses |
|
||||||
|
|
|
(dollars in thousands) |
|
|||||||||||||||||||||
|
Securities held to maturity temporary impairment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
State and political subdivisions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Corporate bonds |
|
|
1,246 |
|
|
|
4 |
|
|
|
— |
|
|
|
— |
|
|
|
1,246 |
|
|
|
4 |
|
|
Total securities held to maturity |
|
$ |
1,246 |
|
|
$ |
4 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,246 |
|
|
$ |
4 |
|
|
|
|
Less than 12 Months |
|
|
12 Months or More |
|
|
Total |
|
|||||||||||||||
|
December 31, 2020 |
|
Fair Value |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Unrealized Losses |
|
||||||
|
|
|
(dollars in thousands) |
|
|||||||||||||||||||||
|
Securities available for sale temporary impairment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies |
|
$ |
5,061 |
|
|
$ |
26 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
5,061 |
|
|
$ |
26 |
|
|
GSE-Mortgage-backed securities and CMO’s |
|
|
10,263 |
|
|
|
68 |
|
|
|
— |
|
|
|
— |
|
|
|
10,263 |
|
|
|
68 |
|
|
Asset-backed securities |
|
|
2,686 |
|
|
|
3 |
|
|
|
— |
|
|
|
— |
|
|
|
2,686 |
|
|
|
3 |
|
|
State and political subdivisions |
|
|
11,286 |
|
|
|
91 |
|
|
|
— |
|
|
|
— |
|
|
|
11,286 |
|
|
|
91 |
|
|
Total securities available for sale |
|
$ |
29,296 |
|
|
$ |
188 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
29,296 |
|
|
$ |
188 |
|
|
|
|
Less than 12 Months |
|
|
12 Months or More |
|
|
Total |
|
|||||||||||||||
|
December 31, 2020 |
|
Fair Value |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Unrealized Losses |
|
||||||
|
|
|
(dollars in thousands) |
|
|||||||||||||||||||||
|
Securities held to maturity temporary impairment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
State and political subdivisions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Corporate bonds |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Total securities held to maturity |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Declines in the fair value of the investment portfolio are believed by management to be temporary in nature. When evaluating an investment for other-than-temporary impairment, management considers, among other things, the length of time and the extent to which the fair value has been in a loss position, the financial condition of the issuer and the intent and the ability of the Company to hold the investment until the loss position is recovered.
Any unrealized losses were largely due to increases in market interest rates over the yields available at the time of purchase. The fair value is expected to recover as the bonds approach their maturity date or market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of credit quality, but that the losses are temporary in nature. At March 31, 2021, the Company does not intend to sell and is not likely to be required to sell the available for sale securities that were in a loss position prior to full recovery.
-11-
The following tables show contractual maturities of the investment portfolio as of March 31, 2021 :
|
|
|
March 31, 2021 |
|
|||||||||
|
|
|
Amortized Cost |
|
|
Estimated Fair Value |
|
|
Book Yield |
|
|||
|
|
|
(dollars in thousands) |
|
|||||||||
|
Securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within twelve months |
|
$ |
14,986 |
|
|
$ |
15,088 |
|
|
|
1.49 |
% |
|
Due after one but within five years |
|
|
4,004 |
|
|
|
4,103 |
|
|
|
1.80 |
% |
|
Due after five but within ten years |
|
|
14,601 |
|
|
|
14,608 |
|
|
|
1.36 |
% |
|
Due after ten years |
|
|
10,177 |
|
|
|
10,269 |
|
|
|
1.22 |
% |
|
|
|
|
43,768 |
|
|
|
44,068 |
|
|
|
1.41 |
% |
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Due after one but within five years |
|
|
4,484 |
|
|
|
4,495 |
|
|
|
3.75 |
% |
|
Due after five but within ten years |
|
|
15,934 |
|
|
|
16,046 |
|
|
|
0.91 |
% |
|
Due after ten years |
|
|
27,945 |
|
|
|
27,808 |
|
|
|
0.93 |
% |
|
|
|
|
48,363 |
|
|
|
48,349 |
|
|
|
1.18 |
% |
|
Asset-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Due after ten years |
|
|
37,904 |
|
|
|
39,002 |
|
|
|
1.29 |
% |
|
|
|
|
37,904 |
|
|
|
39,002 |
|
|
|
1.29 |
% |
|
State and political subdivisions |
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within twelve months |
|
|
708 |
|
|
|
714 |
|
|
|
2.15 |
% |
|
Due after one but within five years |
|
|
1,877 |
|
|
|
1,932 |
|
|
|
3.44 |
% |
|
Due after five but within ten years |
|
|
1,594 |
|
|
|
1,527 |
|
|
|
2.10 |
% |
|
Due after ten years |
|
|
51,457 |
|
|
|
50,354 |
|
|
|
2.28 |
% |
|
|
|
|
55,636 |
|
|
|
54,527 |
|
|
|
2.31 |
% |
|
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
Due after one but within five years |
|
|
3,908 |
|
|
|
4,137 |
|
|
|
3.20 |
% |
|
|
|
|
3,908 |
|
|
|
4,137 |
|
|
|
3.20 |
% |
|
Total securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within twelve months |
|
|
15,694 |
|
|
|
15,802 |
|
|
|
1.52 |
% |
|
Due after one but within five years |
|
|
14,273 |
|
|
|
14,667 |
|
|
|
3.01 |
% |
|
Due after five but within ten years |
|
|
32,129 |
|
|
|
32,181 |
|
|
|
1.17 |
% |
|
Due after ten years |
|
|
127,483 |
|
|
|
127,433 |
|
|
|
1.60 |
% |
|
|
|
$ |
189,579 |
|
|
$ |
190,083 |
|
|
|
1.63 |
% |
-12-
|
|
|
March 31, 2021 |
|
|||||||||
|
|
|
Amortized Cost |
|
|
Estimated Fair Value |
|
|
Book Yield |
|
|||
|
|
|
(dollars in thousands) |
|
|||||||||
|
Securities held to maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. Government agencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
Due after one but within five years |
|
$ |
247 |
|
|
$ |
252 |
|
|
|
2.97 |
% |
|
|
|
|
247 |
|
|
|
252 |
|
|
|
2.97 |
% |
|
State and political subdivisions |
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within twelve months |
|
|
1,369 |
|
|
|
1,375 |
|
|
|
2.06 |
% |
|
Due after one but within five years |
|
|
2,724 |
|
|
|
2,796 |
|
|
|
2.64 |
% |
|
Due after ten years |
|
|
13,462 |
|
|
|
14,263 |
|
|
|
3.45 |
% |
|
|
|
|
17,555 |
|
|
|
18,434 |
|
|
|
3.22 |
% |
|
Corporate Bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
Due after five but within ten years |
|
|
10,000 |
|
|
|
10,132 |
|
|
|
5.01 |
% |
|
|
|
|
10,000 |
|
|
|
10,132 |
|
|
|
5.01 |
% |
|
Total securities held for maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within twelve months |
|
|
1,369 |
|
|
|
1,375 |
|
|
|
2.06 |
% |
|
Due after one but within five years |
|
|
2,971 |
|
|
|
3,048 |
|
|
|
2.67 |
% |
|
Due after five but within ten years |
|
|
10,000 |
|
|
|
10,132 |
|
|
|
5.01 |
% |
|
Due after ten years |
|
|
13,462 |
|
|
|
14,263 |
|
|
|
3.45 |
% |
|
|
|
$ |
27,802 |
|
|
$ |
28,818 |
|
|
|
3.86 |
% |
The portion of unrealized gains and losses for the three-month periods ended March 31, 2021 and 2020 related to equity securities still held at the reporting date is calculated as follows:
|
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
|
|
(dollars in thousands) |
|
|||||
|
Gross proceeds from sales |
|
$ |
929 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
Net gains (losses) recognized during the period on equity securities |
|
$ |
(19 |
) |
|
$ |
231 |
|
|
Less: Realized gains from equity securities sold during the period |
|
|
298 |
|
|
|
— |
|
|
Unrealized gains (losses) from equity securities still held at the reporting date |
|
$ |
(317 |
) |
|
$ |
231 |
|
-13-
Note 6 – Loans Held for Investment
The composition of net loans held for investment by class as of March 31, 2021 and December 31, 2020 are as follows:
|
|
|
March 31, 2021 |
|
|
December 31, 2020 |
|
||
|
|
|
(dollars in thousands) |
|
|||||
|
Commercial |
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
63,329 |
|
|
$ |
64,334 |
|
|
SBA Paycheck Protection Program (PPP) |
|
|
76,504 |
|
|
|
76,398 |
|
|
Real estate - commercial |
|
|
142,625 |
|
|
|
147,229 |
|
|
Other real estate construction loans |
|
|
31,955 |
|
|
|
32,920 |
|
|
Other loans |
|
|
2,966 |
|
|
|
3,098 |
|
|
Noncommercial |
|
|
|
|
|
|
|
|
|
Real estate 1-4 family construction |
|
|
3,825 |
|
|
|
7,709 |
|
|
Real estate - residential |
|
|
81,379 |
|
|
|
75,000 |
|
|
Home equity |
|
|
49,411 |
|
|
|
51,615 |
|
|
Consumer loans |
|
|
11,085 |
|
|
|
11,073 |
|
|
|
|
|
463,079 |
|
|
|
469,376 |
|
|
Less: |
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
(4,252 |
) |
|
|
(4,402 |
) |
|
Deferred loan fees net |
|
|
(2,638 |
) |
|
|
(1,635 |
) |
|
|
|
|
|
|
|
|
|
|
|
Loans held for investment, net |
|
$ |
456,189 |
|
|
$ |
463,339 |
|
T he Paycheck Protection Program (“PPP”), which is administered by the Small Business Administration (“SBA”), was created as part of the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act. The Company participated in assisting its customers with applications for funds through the program. PPP loans have a two-year term or, if approved after June 5, 2020, a five-year term and earn interest at 1%. The Company believes that the majority of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program. As of March 31, 2021, the Company had funded 1,202 PPP loans representing $81.0 million. Of the loans funded, 598 loans totaling $47.0 million had been paid off or forgiven by the SBA as of March 31, 2021. The Consolidated Appropriations Act, 2021, or CAA, established another round of PPP loan funding for certain eligible borrowers, and the Company has funded 672 PPP loans totaling $42.5 million under this additional round as of March 31, 2021. It is the Company’s understanding that loans funded through the PPP are fully guaranteed by the U.S. government. Should those circumstances change, the Company could be required to establish additional allowance for loan loss through additional provision expense charged to earnings.
Note 7 – Allowance for Loan Losses
The following tables show the change in the allowance for loan losses by loan segment for the three months ended March 31, 2021 and 2020, respectively:
|
Commercial |
|
Three Months Ended March 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
|
|
(dollars in thousands) |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
$ |
2,753 |
|
|
$ |
1,087 |
|
|
Provision for (recovery of) loan losses |
|
|
(87 |
) |
|
|
422 |
|
|
Charge-offs |
|
|
(118 |
) |
|
|
(3 |
) |
|
Recoveries |
|
|
7 |
|
|
|
6 |
|
|
Net (charge-offs) recoveries |
|
|
(111 |
) |
|
|
3 |
|
|
Balance at end of period |
|
$ |
2,555 |
|
|
$ |
1,512 |
|
-14-
|
Non-Commercial |
|
Three Months Ended March 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
|
|
(dollars in thousands) |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
$ |
1,649 |
|
|
$ |
894 |
|
|
Provision for loan losses |
|
|
53 |
|
|
|
210 |
|
|
Charge-offs |
|
|
(20 |
) |
|
|
(7 |
) |
|
Recoveries |
|
|
15 |
|
|
|
18 |
|
|
Net (charge-offs) recoveries |
|
|
(5 |
) |
|
|
11 |
|
|
Balance at end of period |
|
$ |
1,697 |
|
|
$ |
1,115 |
|
|
Total |
|
Three Months Ended March 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
|
|
(dollars in thousands) |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
$ |
4,402 |
|
|
$ |
1,981 |
|
|
Provision for (recovery of) loan losses |
|
|
(34 |
) |
|
|
632 |
|
|
Charge-offs |
|
|
(138 |
) |
|
|
(10 |
) |
|
Recoveries |
|
|
22 |
|
|
|
24 |
|
|
Net (charge-offs) recoveries |
|
|
(116 |
) |
|
|
14 |
|
|
Balance at end of period |
|
$ |
4,252 |
|
|
$ |
2,627 |
|
The following tables show period-end loans and reserve balances by loan segment both individually and collectively evaluated for impairment at March 31, 2021 and December 31, 2020:
|
March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually Evaluated |
|
|
Collectively Evaluated |
|
|
Total |
|
|||||||||||||||
|
|
|
Reserve |
|
|
Loans |
|
|
Reserve |
|
|
Loans |
|
|
Reserve |
|
|
Loans |
|
||||||
|
|
|
(dollars in thousands) |
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
98 |
|
|
$ |
4,272 |
|
|
$ |
2,457 |
|
|
$ |
310,346 |
|
|
$ |
2,555 |
|
|
$ |
314,618 |
|
|
Non-Commercial |
|
|
91 |
|
|
|
2,977 |
|
|
|
1,606 |
|
|
|
142,846 |
|
|
|
1,697 |
|
|
|
145,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
189 |
|
|
$ |
7,249 |
|
|
$ |
4,063 |
|
|
$ |
453,192 |
|
|
$ |
4,252 |
|
|
$ |
460,441 |
|
|
December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually Evaluated |
|
|
Collectively Evaluated |
|
|
Total |
|
|||||||||||||||
|
|
|
Reserve |
|
|
Loans |
|
|
Reserve |
|
|
Loans |
|
|
Reserve |
|
|
Loans |
|
||||||
|
|
|
(dollars in thousands) |
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
53 |
|
|
$ |
5,237 |
|
|
$ |
2,700 |
|
|
$ |
317,094 |
|
|
$ |
2,753 |
|
|
$ |
322,331 |
|
|
Non-Commercial |
|
|
94 |
|
|
|
2,917 |
|
|
|
1,555 |
|
|
|
142,493 |
|
|
|
1,649 |
|
|
|
145,410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
147 |
|
|
$ |
8,154 |
|
|
$ |
4,255 |
|
|
$ |
459,587 |
|
|
$ |
4,402 |
|
|
$ |
467,741 |
|
-15-
Past due loan information is used by management when assessing the adequacy of the allowance for loan losses. The following tables summarize the past due information of the loan portfolio by class as of the dates indicated:
|
March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans 30-89 Days Past Due |
|
|
Loans 90 Days or More Past due and Non - Accrual |
|
|
Total Past Due Loans |
|
|
Current Loans |
|
|
Total Loans |
|
|
Accruing Loans 90 or More Days Past Due |
|
||||||
|
|
|
(dollars in thousands) |
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
63,329 |
|
|
$ |
63,329 |
|
|
$ |
— |
|
|
SBA Paycheck Protection Program (PPP) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
73,743 |
|
|
|
73,743 |
|
|
|
— |
|
|
Real estate - commercial |
|
|
— |
|
|
|
2,165 |
|
|
|
2,165 |
|
|
|
140,460 |
|
|
|
142,625 |
|
|
|
— |
|
|
Other real estate construction |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
31,955 |
|
|
|
31,955 |
|
|
|
— |
|
|
Real estate 1-4 family construction |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,825 |
|
|
|
3,825 |
|
|
|
— |
|
|
Real estate - residential |
|
|
94 |
|
|
|
532 |
|
|
|
626 |
|
|
|
80,876 |
|
|
|
81,502 |
|
|
|
— |
|
|
Home equity |
|
|
21 |
|
|
|
237 |
|
|
|
258 |
|
|
|
49,153 |
|
|
|
49,411 |
|
|
|
— |
|
|
Consumer loans |
|
|
14 |
|
|
|
— |
|
|
|
14 |
|
|
|
11,071 |
|
|
|
11,085 |
|
|
|
— |
|
|
Other loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,966 |
|
|
|
2,966 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
129 |
|
|
$ |
2,934 |
|
|
$ |
3,063 |
|
|
$ |
457,378 |
|
|
$ |
460,441 |
|
|
$ |
— |
|
|
December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans 30-89 Days Past Due |
|
|
Loans 90 Days or More Past due and Non - Accrual |
|
|
Total Past Due Loans |
|
|
Current Loans |
|
|
Total Loans |
|
|
Accruing Loans 90 or More Days Past Due |
|
||||||
|
|
|
(dollars in thousands) |
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
64,334 |
|
|
$ |
64,334 |
|
|
$ |
— |
|
|
SBA Paycheck Protection Program (PPP) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
74,750 |
|
|
|
74,750 |
|
|
|
— |
|
|
Real estate - commercial |
|
|
— |
|
|
|
2,076 |
|
|
|
2,076 |
|
|
|
145,153 |
|
|
|
147,229 |
|
|
|
— |
|
|
Other real estate construction |
|
|
52 |
|
|
|
1,039 |
|
|
|
1,091 |
|
|
|
31,829 |
|
|
|
32,920 |
|
|
|
— |
|
|
Real estate 1-4 family construction |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7,709 |
|
|
|
7,709 |
|
|
|
— |
|
|
Real estate - residential |
|
|
299 |
|
|
|
595 |
|
|
|
894 |
|
|
|
74,119 |
|
|
|
75,013 |
|
|
|
— |
|
|
Home equity |
|
|
— |
|
|
|
48 |
|
|
|
48 |
|
|
|
51,567 |
|
|
|
51,615 |
|
|
|
— |
|
|
Consumer loan |
|
|
46 |
|
|
|
— |
|
|
|
46 |
|
|
|
11,027 |
|
|
|
11,073 |
|
|
|
— |
|
|
Other loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,098 |
|
|
|
3,098 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
397 |
|
|
$ |
3,758 |
|
|
$ |
4,155 |
|
|
$ |
463,586 |
|
|
$ |
467,741 |
|
|
$ |
— |
|
Once a loan becomes 90 days past due, the loan is automatically transferred to a non-accrual status. The exception to this policy is credit card loans that remain in accruing status 90 days or more until they are paid current or charged off.
The Company had $0 in foreclosed residential real estate and $0 of residential real estate in process of foreclosure at March 31, 2021. At December 31, 2020, the Company had $0 in foreclosed residential real estate and $51,000 of residential real estate in process of foreclosure.
-16-
The composition of non - accrual loans by class as of March 31, 2021 and December 31, 2020 was as follows:
|
|
|
March 31, 2021 |
|
|
December 31, 2020 |
|
||
|
|
|
(dollars in thousands) |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
— |
|
|
$ |
— |
|
|
SBA Paycheck Protection Program (PPP) |
|
|
— |
|
|
|
— |
|
|
Real estate - commercial |
|
|
2,165 |
|
|
|
2,076 |
|
|
Other real estate construction |
|
|
— |
|
|
|
1,039 |
|
|
Real estate 1 – 4 family construction |
|
|
— |
|
|
|
— |
|
|
Real estate – residential |
|
|
532 |
|
|
|
595 |
|
|
Home equity |
|
|
237 |
|
|
|
48 |
|
|
Consumer loans |
|
|
— |
|
|
|
— |
|
|
Other loans |
|
|
— |
|
|
|
— |
|
|
|
|
$ |
2,934 |
|
|
$ |
3,758 |
|
Management uses a risk-grading program to facilitate the evaluation of probable inherent loan losses and to measure the adequacy of the allowance for loan losses. In this program, risk grades are initially assigned by the loan officers and reviewed and monitored by the lenders and credit administration. The program has eight risk grades summarized in five categories as follows:
Pass : Loans that are pass grade credits include loans that are fundamentally sound, with risk factors that are reasonable and acceptable. They generally conform to policy with only minor exceptions; any major exceptions are clearly mitigated by other economic factors.
Watch : Loans that are watch credits include loans on management’s watch list where a risk concern may be anticipated in the near future.
Substandard : Loans that are considered substandard are loans that are inadequately protected by current sound net worth and paying capacity of the obligor or the value of the collateral pledged. All non-accrual loans are graded as substandard.
Doubtful: Loans that are considered to be doubtful have all weaknesses inherent in loans classified substandard, plus the added characteristic that the weaknesses make the collection or liquidation in full on the basis of current existing facts, conditions and values highly questionable and improbable.
Loss: Loans that are considered to be a loss are considered to be uncollectible and of such little value that their continuance as bankable assets is not warranted.
The tables below summarize risk grades of the loan portfolio by class at March 31, 2021 and December 31, 2020:
|
March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
|
|
Watch |
|
|
Sub- standard |
|
|
Doubtful |
|
|
Total |
|
|||||
|
|
|
(dollars in thousands) |
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
60,871 |
|
|
$ |
2,282 |
|
|
$ |
176 |
|
|
$ |
— |
|
|
$ |
63,329 |
|
|
SBA Paycheck Protection Program (PPP) |
|
|
73,743 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
73,743 |
|
|
Real estate - commercial |
|
|
135,051 |
|
|
|
4,601 |
|
|
|
2,973 |
|
|
|
— |
|
|
|
142,625 |
|
|
Other real estate construction |
|
|
31,342 |
|
|
|
339 |
|
|
|
274 |
|
|
|
— |
|
|
|
31,955 |
|
|
Real estate 1 - 4 family construction |
|
|
3,825 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,825 |
|
|
Real estate - residential |
|
|
78,889 |
|
|
|
1,894 |
|
|
|
719 |
|
|
|
— |
|
|
|
81,502 |
|
|
Home equity |
|
|
48,417 |
|
|
|
607 |
|
|
|
387 |
|
|
|
— |
|
|
|
49,411 |
|
|
Consumer loans |
|
|
11,016 |
|
|
|
17 |
|
|
|
52 |
|
|
|
— |
|
|
|
11,085 |
|
|
Other loans |
|
|
2,966 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
446,120 |
|
|
$ |
9,740 |
|
|
$ |
4,581 |
|
|
$ |
— |
|
|
$ |
460,441 |
|
-17-
|
December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
|
|
Watch |
|
|
Sub- standard |
|
|
Doubtful |
|
|
Total |
|
|||||
|
|
|
(dollars in thousands) |
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
61,828 |
|
|
$ |
2,321 |
|
|
$ |
185 |
|
|
$ |
— |
|
|
$ |
64,334 |
|
|
SBA Paycheck Protection Program (PPP) |
|
|
74,750 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
74,750 |
|
|
Real estate - commercial |
|
|
143,222 |
|
|
|
1,113 |
|
|
|
2,894 |
|
|
|
— |
|
|
|
147,229 |
|
|
Other real estate construction |
|
|
31,263 |
|
|
|
344 |
|
|
|
1,313 |
|
|
|
— |
|
|
|
32,920 |
|
|
Real estate 1 - 4 family construction |
|
|
7,709 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7,709 |
|
|
Real estate - residential |
|
|
72,085 |
|
|
|
2,145 |
|
|
|
783 |
|
|
|
— |
|
|
|
75,013 |
|
|
Home equity |
|
|
50,661 |
|
|
|
661 |
|
|
|
293 |
|
|
|
— |
|
|
|
51,615 |
|
|
Consumer loans |
|
|
11,001 |
|
|
|
19 |
|
|
|
53 |
|
|
|
— |
|
|
|
11,073 |
|
|
Other loans |
|
|
3,098 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
455,617 |
|
|
$ |
6,603 |
|
|
$ |
5,521 |
|
|
$ |
— |
|
|
$ |
467,741 |
|
Loans that are in non-accrual status or 90 days past due and still accruing are considered to be nonperforming. At both March 31, 2021 and December 31, 2020 there were no loans 90 days past due and still accruing. The following tables show the breakdown between performing and nonperforming loans by class at March 31, 2021 and December 31, 2020:
|
March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing |
|
|
Non- Performing |
|
|
Total |
|
|||
|
|
|
(dollars in thousands) |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
63,329 |
|
|
$ |
— |
|
|
$ |
63,329 |
|
|
SBA Paycheck Protection Program (PPP) |
|
|
73,743 |
|
|
|
— |
|
|
|
73,743 |
|
|
Real estate - commercial |
|
|
140,460 |
|
|
|
2,165 |
|
|
|
142,625 |
|
|
Other real estate construction |
|
|
31,955 |
|
|
|
— |
|
|
|
31,955 |
|
|
Real estate 1 – 4 family construction |
|
|
3,825 |
|
|
|
— |
|
|
|
3,825 |
|
|
Real estate – residential |
|
|
80,970 |
|
|
|
532 |
|
|
|
81,502 |
|
|
Home equity |
|
|
49,174 |
|
|
|
237 |
|
|
|
49,411 |
|
|
Consumer loans |
|
|
11,085 |
|
|
|
— |
|
|
|
11,085 |
|
|
Other loans |
|
|
2,966 |
|
|
|
— |
|
|
|
2,966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
457,507 |
|
|
$ |
2,934 |
|
|
$ |
460,441 |
|
|
December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing |
|
|
Non- Performing |
|
|
Total |
|
|||
|
|
|
(dollars in thousands) |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
64,334 |
|
|
$ |
— |
|
|
$ |
64,334 |
|
|
SBA Paycheck Protection Program (PPP) |
|
|
74,750 |
|
|
|
— |
|
|
|
74,750 |
|
|
Real estate - commercial |
|
|
145,153 |
|
|
|
2,076 |
|
|
|
147,229 |
|
|
Other real estate construction |
|
|
31,881 |
|
|
|
1,039 |
|
|
|
32,920 |
|
|
Real estate 1 – 4 family construction |
|
|
7,709 |
|
|
|
— |
|
|
|
7,709 |
|
|
Real estate – residential |
|
|
74,418 |
|
|
|
595 |
|
|
|
75,013 |
|
|
Home equity |
|
|
51,567 |
|
|
|
48 |
|
|
|
51,615 |
|
|
Consumer loans |
|
|
11,073 |
|
|
|
— |
|
|
|
11,073 |
|
|
Other loans |
|
|
3,098 |
|
|
|
— |
|
|
|
3,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
463,983 |
|
|
$ |
3,758 |
|
|
$ |
467,741 |
|
-18-
Loans are considered impaired when, based on current information and events, it is probable the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement. If a loan is deemed impaired, a specific calculation is performed and a specific reserve is allocated, if necessary. The tables below summarize the loans deemed impaired and the amount of specific reserves allocated by class at March 31, 2021 and December 31, 2020.
|
March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid Principal Balance |
|
|
Recorded Investment With No Allowance |
|
|
Recorded Investment With Allowance |
|
|
Related Allowance |
|
||||
|
|
|
(dollars in thousands) |
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
651 |
|
|
$ |
— |
|
|
$ |
651 |
|
|
$ |
20 |
|
|
SBA Paycheck Protection Program (PPP) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Real estate - commercial |
|
|
3,621 |
|
|
|
2,075 |
|
|
|
1,546 |
|
|
|
78 |
|
|
Other real estate construction |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Real estate 1 - 4 family construction |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Real estate - residential |
|
|
2,729 |
|
|
|
1,348 |
|
|
|
1,381 |
|
|
|
81 |
|
|
Home equity |
|
|
237 |
|
|
|
204 |
|
|
|
33 |
|
|
|
10 |
|
|
Consumer loans |
|
|
11 |
|
|
|
— |
|
|
|
11 |
|
|
|
— |
|
|
Other loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
7,249 |
|
|
$ |
3,627 |
|
|
$ |
3,622 |
|
|
$ |
189 |
|
|
December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid Principal Balance |
|
|
Recorded Investment With No Allowance |
|
|
Recorded Investment With Allowance |
|
|
Related Allowance |
|
||||
|
|
|
(dollars in thousands) |
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
651 |
|
|
$ |
— |
|
|
$ |
651 |
|
|
$ |
20 |
|
|
SBA Paycheck Protection Program (PPP) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Real estate - commercial |
|
|
3,547 |
|
|
|
2,076 |
|
|
|
1,471 |
|
|
|
33 |
|
|
Other real estate construction |
|
|
1,039 |
|
|
|
1,039 |
|
|
|
— |
|
|
|
— |
|
|
Real estate 1 - 4 family construction |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Real estate - residential |
|
|
2,856 |
|
|
|
1,416 |
|
|
|
1,440 |
|
|
|
84 |
|
|
Home equity |
|
|
48 |
|
|
|
15 |
|
|
|
33 |
|
|
|
10 |
|
|
Consumer loans |
|
|
13 |
|
|
|
— |
|
|
|
13 |
|
|
|
— |
|
|
Other loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Total |
|
$ |
8,154 |
|
|
$ |
4,546 |
|
|
$ |
3,608 |
|
|
$ |
147 |
|
The table below shows interest income received on impaired loans by class for the three months ended March 31, 2021 and 2020.
|
|
|
Three Months Ended March 31, 2021 |
|
|
Three Months Ended March 31, 2020 |
|
||||||||||
|
|
|
Average Recorded Investment |
|
|
Interest Income |
|
|
Average Recorded Investment |
|
|
Interest Income |
|
||||
|
|
|
(dollars in thousands) |
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
651 |
|
|
$ |
5 |
|
|
$ |
82 |
|
|
$ |
— |
|
|
SBA Paycheck Protection Program (PPP) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Real estate - commercial |
|
|
3,621 |
|
|
|
24 |
|
|
|
3,598 |
|
|
|
29 |
|
|
Other real estate construction |
|
|
— |
|
|
|
— |
|
|
|
3,848 |
|
|
|
43 |
|
|
Real estate 1- 4 family construction |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Real estate - residential |
|
|
2,729 |
|
|
|
38 |
|
|
|
3,303 |
|
|
|
40 |
|
|
Home equity |
|
|
237 |
|
|
|
1 |
|
|
|
124 |
|
|
|
1 |
|
|
Consumer loans |
|
|
11 |
|
|
|
— |
|
|
|
28 |
|
|
|
— |
|
|
Other loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
7,249 |
|
|
$ |
68 |
|
|
$ |
10,983 |
|
|
$ |
113 |
|
-19-
Note 8 – Troubled Debt Restructures
A modification of a loan constitutes a troubled debt restructuring (“TDR”) when a borrower is experiencing financial difficulty and the modification involves providing a concession to the existing loan contract. The Company offers various types of concessions when modifying loans to troubled borrowers, however, forgiveness of principal is rarely granted. Concessions offered are term extensions, capitalizing accrued interest, reducing interest rates to below current market rates or a combination of any of these. Combinations from time to time may include allowing a customer to be placed on interest-only payments. The presentations below in the “other” category are TDRs with a combination of concessions. At the time of a TDR, additional collateral or a guarantor may be requested.
Loans modified as TDRs are typically already on non-accrual status and in some cases, partial charge-offs may have already been taken against the outstanding loan balance. The Company classifies TDR loans as impaired loans and evaluates the need for an allowance for loan loss on a loan-by-loan basis. An allowance is based on either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price or the estimated fair value of the underlying collateral less any selling costs, if the loan is deemed to be collateral dependent.
At both March 31, 2021 and December 31, 2020 , the Company had $4.4 million in TDRs outstanding, of which one with a balance totaling $46,000 was on a non-accruing basis.
There were no loans modified as TDRs during the first quarter of 2021. For the three months ended March 31, 2020, the following table presents a breakdown of the types of concessions made by loan class:
|
|
|
For the three months ended March 31, 2020 |
|
|||||||||
|
|
|
Number of Contracts |
|
|
Pre-Modification Outstanding Recorded Investment |
|
|
Post-Modification Outstanding Recorded Investment |
|
|||
|
|
|
(dollars in thousands) |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
1 |
|
|
$ |
41 |
|
|
$ |
41 |
|
|
SBA Paycheck Protection Program (PPP) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Real estate - commercial |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Other real estate construction |
|
|
1 |
|
|
|
2,725 |
|
|
|
2,725 |
|
|
Real estate 1 – 4 family construction |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Real estate – residential |
|
|
2 |
|
|
|
335 |
|
|
|
332 |
|
|
Home equity |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Consumer loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Other loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
4 |
|
|
$ |
3,101 |
|
|
$ |
3,098 |
|
During the twelve months ended March 31, 2021, there was one TDR for which there was a payment default. During the twelve months ended March 31, 2020, there were two TDRs for which there was a payment default.
A default on a TDR is defined as being past due 90 days or being out of compliance with the modification agreement. As previously mentioned, the Company considers TDRs to be impaired loans and has $139,000 in the allowance for loan losses as of March 31, 2021, as a direct result of these TDRs. At March 31, 2020, there was $114,000 in the allowance for loan losses related to TDRs.
-20-
The following table presents the status of the types of loan s modifi ed as TDRs within the previous twelve months as of March 31 , 202 1 and 20 20 :
|
|
|
Paid In Full |
|
|
Paying as restructured |
|
|
Converted to non-accrual |
|
|
Foreclosure/ Default |
|
||||||||||||||||||||
|
|
|
Number of Loans |
|
|
Recorded Investments |
|
|
Number of Loans |
|
|
Recorded Investments |
|
|
Number of Loans |
|
|
Recorded Investments |
|
|
Number of Loans |
|
|
Recorded Investments |
|
||||||||
|
|
|
(dollars in thousands) |
|
|||||||||||||||||||||||||||||
|
March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below market interest rate |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
Extended payment Terms |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Forgiveness of Principal/Other |
|
|
6 |
|
|
|
639 |
|
|
|
5 |
|
|
|
1,745 |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
6 |
|
|
$ |
639 |
|
|
|
5 |
|
|
$ |
1,745 |
|
|
|
— |
|
|
$ |
— |
|
|
|
1 |
|
|
$ |
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below market interest rate |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
Extended payment Terms |
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
221 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Forgiveness of Principal/Other |
|
|
1 |
|
|
|
37 |
|
|
|
6 |
|
|
|
3,094 |
|
|
|
1 |
|
|
|
46 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1 |
|
|
$ |
37 |
|
|
|
7 |
|
|
$ |
3,315 |
|
|
|
1 |
|
|
$ |
46 |
|
|
|
— |
|
|
$ |
— |
|
The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, which was signed into law on March 27, 2020, allows the Company to suspend the TDR classifications described above in an effort to provide relief to borrowers impacted by COVID-19. The Consolidated Appropriations Act, 2021, or CAA, which was signed into law on December 27, 2020, extends the expiration of TDR suspensions as set forth in the CARES Act. The Company has elected to adopt this suspension until January 1, 2022 or 60 days after the national emergency terminates, per the CAA. Modifications of loans subsequent to March 1, 2020 for COVID-19 reasons, and that were current as of December 31, 2019, are not considered TDRs and are tracked internally as “COVID-19 Modifications” .
The Company initially provided up to a three-month deferral period or conversion to interest-only repayment for up to three months. Additional extensions have been considered. Loans are reviewed on a case-by-case basis and the Company will generally work with borrowers that express an interest in the assistance program. As of March 31, 2021, the Company had three current outstanding modified loans with a recorded investment of $37,000. Of the loans currently under accommodation, one has entered payment deferral a second time. Additionally, 205 previously modified loans with outstanding balances totaling $55.3 million have come out of deferment. Of the loans removed from deferment, 30 with balances totaling $9.0 million were paid off, 172 loans totaling $46.2 million were out of accommodation and current at March 31, 2021 and three loans totaling $179,000 were removed due to noncompliance.
As of March 31, 2021, the Company’s modifications of loans for COVID-19 related reasons are disclosed in the table below:
|
|
|
Interest only |
|
|
Payment deferral |
|
|
Other |
|
|
Total COVID-19 modifications |
|
||||||||||||||||||||
|
|
|
Number of Loans |
|
|
Recorded Investments |
|
|
Number of Loans |
|
|
Recorded Investments |
|
|
Number of Loans |
|
|
Recorded Investments |
|
|
Number of Loans |
|
|
Recorded Investments |
|
||||||||
|
|
|
(dollars in thousands) |
|
|||||||||||||||||||||||||||||
|
March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
— |
|
|
$ |
— |
|
|
|
1 |
|
|
$ |
4 |
|
|
|
— |
|
|
$ |
— |
|
|
|
1 |
|
|
$ |
4 |
|
|
Real estate - commercial |
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
27 |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
27 |
|
|
Other real estate construction |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Other loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Real estate – residential |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Home equity |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Consumer loans |
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
6 |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
6 |
|
|
Total |
|
|
— |
|
|
|
— |
|
|
|
3 |
|
|
|
37 |
|
|
|
— |
|
|
|
— |
|
|
|
3 |
|
|
|
37 |
|
Note 9 - Leases
Operating leases in which we are the lessee are recorded as operating lease right of use (“ROU”) assets and operating lease liabilities, included in premises and equipment and other liabilities, respectively, on our consolidated balance sheets. Operating lease ROU assets
-21-
represent our right to use an underlying asset during the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents our incremental collateralized borrowing rate at the lease commencement date. ROU assets are further adjusted for the lease incentives. Operating lease expense, which is comp o sed 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 s of income. We do not currently have any finance leases in which we are the lessee.
Our leases relate to three office locations, two of which are branch locations, with remaining terms of five to nine years. Certain lease arrangements contain extension options which range from five to ten years at the then fair market rental rates. As these extension options are not generally considered reasonably certain of exercise, they are not included in the lease term. As of March 31, 2021, operating lease ROU assets were $2.4 million and the lease liability was $2.5 million, compared to ROU assets of $1.9 million and a lease liability of $1.9 million at March 31, 2020. Lease costs associated with all leases was $99,000 and $96,000 for the three months ended March 31, 2021 and 2020, respectively.
The table below summarizes other information related to our operating leases:
|
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
|
|
(in thousands except percent and period data) |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases |
|
$ |
96 |
|
|
$ |
94 |
|
|
Right-of-use assets obtained in exchange for new operating lease liabilities |
|
|
2,354 |
|
|
|
1,864 |
|
|
Weighted-average remaining lease term - operating leases, in years |
|
|
6.6 |
|
|
|
7.4 |
|
|
Weighted-average discount rate - operating leases |
|
|
2.45 |
% |
|
|
2.90 |
% |
The table below summarizes the maturity of remaining lease liabilities:
|
|
|
|
|
|
|
|
|
March 31, 2021 |
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
2021 |
|
$ |
293 |
|
|
2022 |
|
|
400 |
|
|
2023 |
|
|
408 |
|
|
2024 |
|
|
417 |
|
|
2025 |
|
|
427 |
|
|
2026 and thereafter |
|
|
753 |
|
|
Total lease payments |
|
|
2,698 |
|
|
Less: Interest |
|
|
(220 |
) |
|
Present value of lease liabilities |
|
|
2,478 |
|
Note 10 - Commitments and Contingencies
The Company’s subsidiary bank is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, lines of credit and standby letters of credit. These instruments involve elements of credit risk in excess of amounts recognized in the accompanying financial statements.
The Bank’s risk of loss with unfunded loans and lines of credit or standby letters of credit is represented by the contractual amount of these instruments. The Bank uses the same credit policies in making commitments under such instruments as it does for on-balance sheet instruments. The amount of collateral obtained, if any, is based on management’s credit evaluation of the borrower. Collateral held varies, but may include accounts receivable, inventory, real estate and time deposits with financial institutions. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Credit card commitments are unsecured.
-22-
At March 31, 2021 and December 31, 2020, outstanding financial instruments whose contract amounts represent credit risk were approximately:
|
|
|
March 31, 2021 |
|
|
December 31, 2020 |
|
||
|
|
|
(dollars in thousands) |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit |
|
$ |
143,254 |
|
|
$ |
127,986 |
|
|
Credit card commitments |
|
|
13,709 |
|
|
|
12,821 |
|
|
Standby letters of credit |
|
|
8,071 |
|
|
|
8,277 |
|
|
Total commitments |
|
$ |
165,034 |
|
|
$ |
149,084 |
|
Note 11 – Fair Value Disclosures
Accounting Standards Codification (“ASC”) 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 does not require any new fair value measurements but clarifies and standardizes some divergent practices that have emerged since prior guidance was issued. ASC 820 creates a three-level hierarchy under which individual fair value estimates are to be ranked based on the relative reliability of the inputs used in the valuation.
ASC 820 defines fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, the Company considers the principal or most advantageous market in which those assets or liabilities are sold and considers assumptions that market participants would use when pricing those assets or liabilities. Fair values determined using Level 1 inputs rely on active and observable markets to price identical assets or liabilities. In situations where identical assets and liabilities are not traded in active markets, fair values may be determined based on Level 2 inputs, which exist when observable data exists for similar assets and liabilities. Fair values for assets and liabilities for which identical or similar assets and liabilities are not actively traded in observable markets are based on Level 3 inputs, which are considered to be unobservable.
Among the Company’s assets and liabilities, investment securities available for sale and mortgage banking derivatives are reported at their fair values on a recurring basis. Certain other assets are adjusted to their fair value on a nonrecurring basis, including other real estate owned, impaired loans, loans held for sale, which are carried at the lower of cost or market, and loan servicing rights, where fair value is determined using similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. Deposits, short-term borrowings and long-term obligations are not reported at fair value.
Prices for US Treasury and marketable equity securities are readily available in the active markets in which those securities are traded, and the resulting fair values are shown in the Level 1 input column. Prices for government agency securities, mortgage-backed securities, asset-backed securities and for state, county and municipal securities are obtained for similar securities, and the resulting fair values are shown in the Level 2 input column. Prices for all other non-marketable investments are determined based on various assumptions that are not observable. The fair values for these investment securities are shown in the Level 3 input column. Non-marketable investment securities, which are carried at their purchase price, include those that may only be redeemed by the issuer. The changes in securities between Level 1 and Level 2 were related to the purchase and sale of several securities and not the transfer of securities.
Mortgage banking derivatives, which are comprised of interest rate lock commitments, or IRLCs, and mortgage forward sales commitments, are recorded at fair value on a recurring basis. Fair value of the IRLCs is based on projected pull-through rates, anticipated margins based on changes in market interest rates, and remaining origination costs to be incurred. The Company considers these to be Level 3 valuations. The fair value of mortgage forward sales commitments is based on the gain or loss that would occur if the Company were to pair-off the transaction at the measurement date and is considered to be a Level 2 input.
The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment by using one of several methods including collateral value, fair value of similar debt or discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the present value of the expected repayments or fair value of collateral exceed the recorded investments in such loans. The Company typically bases the fair value of the collateral on appraised values which the Company considers Level 3 valuations.
Foreclosed assets are adjusted to fair value upon transfer of the loans to other real estate owned. Real estate acquired in settlement of loans is recorded initially at the estimated fair value of the property less estimated selling costs at the date of foreclosure. The initial recorded value may be subsequently reduced by additional allowances, which are charged to earnings if the estimated fair value of the property less estimated selling costs declines below the initial recorded value. Fair value is based upon independent market prices,
-23-
appraised values of the collateral or management’s estimation of the value of the collateral. The Company typically bases the fair value of the collateral on appraised values , which the Company considers Level 3 valuations.
Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate, based on secondary market prices. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income. These loans are recorded in Level 2.
The following tables provides fair value information for assets and liabilities measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020:
|
|
March 31, 2021 |
|
||||||||||||||
|
|
|
(dollars in thousands) |
|
|||||||||||||
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies |
|
$ |
44,068 |
|
|
$ |
— |
|
|
$ |
44,068 |
|
|
$ |
— |
|
|
GSE - Mortgage-backed securities and CMO’s |
|
|
48,349 |
|
|
|
— |
|
|
|
48,349 |
|
|
|
— |
|
|
Asset-backed securities |
|
|
39,002 |
|
|
|
— |
|
|
|
39,002 |
|
|
|
— |
|
|
State and political subdivisions |
|
|
54,527 |
|
|
|
— |
|
|
|
54,527 |
|
|
|
— |
|
|
Corporate bonds |
|
|
4,137 |
|
|
|
— |
|
|
|
4,137 |
|
|
|
— |
|
|
Equity securities |
|
|
404 |
|
|
|
404 |
|
|
|
— |
|
|
|
— |
|
|
Mortgage interest rate lock commitments |
|
|
2,108 |
|
|
|
— |
|
|
|
— |
|
|
|
2,108 |
|
|
Mortgage forward sales commitments |
|
|
623 |
|
|
|
— |
|
|
|
623 |
|
|
|
— |
|
|
Total assets at fair value on a recurring basis |
|
$ |
193,218 |
|
|
$ |
404 |
|
|
$ |
190,706 |
|
|
$ |
2,108 |
|
|
|
December 31, 2020 |
|
||||||||||||||
|
|
|
(dollars in thousands) |
|
|||||||||||||
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies |
|
$ |
37,389 |
|
|
$ |
— |
|
|
$ |
37,389 |
|
|
$ |
— |
|
|
GSE - Mortgage-backed securities and CMO’s |
|
|
41,496 |
|
|
|
— |
|
|
|
41,496 |
|
|
|
— |
|
|
Asset-backed securities |
|
|
39,281 |
|
|
|
— |
|
|
|
39,281 |
|
|
|
— |
|
|
State and political subdivisions |
|
|
69,164 |
|
|
|
— |
|
|
|
69,164 |
|
|
|
— |
|
|
Corporate bonds |
|
|
4,183 |
|
|
|
— |
|
|
|
4,183 |
|
|
|
— |
|
|
Equity securities |
|
|
1,352 |
|
|
|
1,352 |
|
|
|
— |
|
|
|
— |
|
|
Mortgage interest rate lock commitments |
|
|
2,073 |
|
|
|
— |
|
|
|
— |
|
|
|
2,073 |
|
|
Total assets at fair value on a recurring basis |
|
$ |
194,938 |
|
|
$ |
1,352 |
|
|
$ |
191,513 |
|
|
$ |
2,073 |
|
|
Mortgage forward sales commitments |
|
$ |
388 |
|
|
$ |
— |
|
|
$ |
388 |
|
|
$ |
— |
|
|
Total liabilities at fair value on a recurring basis |
|
$ |
388 |
|
|
$ |
— |
|
|
$ |
388 |
|
|
$ |
— |
|
The following table provides a rollforward for recurring Level 3 fair value measurements:
|
|
March 31, 2021 |
|
|||||
|
|
(dollars in thousands) |
|
|||||
|
|
Mortgage interest rate lock commitments |
|
|
Total |
|
||
|
Balance at December 31, 2020 |
|
2,073 |
|
|
|
2,073 |
|
|
Change in fair value: |
|
|
|
|
|
|
|
|
Included in income from mortgage banking |
|
35 |
|
|
|
35 |
|
|
Balance at March 31, 2021 |
|
2,108 |
|
|
|
2,108 |
|
-24-
The fair value of mortgage interest rate lock commitments at March 31, 2021 wa s calculated based on a notional amount of $63.9 million. Significant unobservable inputs are used to determine the fair value of these derivatives. For the three months ended March 31, 2021, such inputs include anticipated remaining costs associated with origination of the loan of 0.85% and a projected pull-through rate of 86.1%. The fair value of mortgage interest rate lock commitments at December 31, 2020 was calculated based on a notional amount of $69.0 million. Significant unobservable inputs included anticipated remaining costs associated with origination of the loan of 0.83% and a projected pull-through rate of 86.0% at December 31, 2020. The estimated net margin to be earned from loan sales is also applied in the calculation. Changes in interest rates and other assumptions could significantly change these estimated values.
The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market value that were recognized at fair value less cost to sell at the end of the period. Assets measured at fair value on a nonrecurring basis are included in the table below as of March 31, 2021 and December 31, 2020:
|
|
March 31, 2021 |
|
||||||||||||||
|
|
|
(dollars in thousands) |
|
|||||||||||||
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans |
|
$ |
3,434 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
3,434 |
|
|
Total assets at fair value on a nonrecurring basis |
|
$ |
3,434 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
3,434 |
|
|
|
|
December 31, 2020 |
|
|||||||||||||
|
|
|
(dollars in thousands) |
|
|||||||||||||
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans |
|
$ |
3,461 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
3,461 |
|
|
Total assets at fair value on a nonrecurring basis |
|
$ |
3,461 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
3,461 |
|
Quantitative Information about Level 3 Fair Value Measurements
|
March 31, 2021 |
|
|
|
|
|
|
|
|
|
Valuation Technique |
|
Unobservable Input |
|
General Range |
|
Nonrecurring measurements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans |
|
Discounted appraisals |
|
Collateral discounts and Estimated costs to sell |
|
0 – 25% |
|
|
|
Discounted cash flows |
|
Discount rates |
|
4%-8.75% |
|
December 31, 2020 |
|
|
|
|
|
|
|
|
|
Valuation Technique |
|
Unobservable Input |
|
General Range |
|
Nonrecurring measurements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans |
|
Discounted appraisals |
|
Collateral discounts and Estimated costs to sell |
|
0 – 25% |
|
|
|
Discounted cash flows |
|
Discount rates |
|
4%-8.75% |
At March 31, 2021, impaired loans were being evaluated with discounted expected cash flows for performing TDRs and discounted appraisals were being used on collateral dependent loans.
Note 12 – Fair Values of Financial Instruments and Interest Rate Risk
ASC 825, “Disclosures about Fair Value of Financial Instruments,” requires disclosure of the fair value of financial assets and financial liabilities, including those that are not measured and reported at fair value on a recurring basis or non-recurring basis.
The fair value estimates presented at March 31, 2021 and December 31, 2020 are based on relevant market information and information about the financial instruments. Fair value estimates are intended to represent the price an asset could be sold at or the price at which a liability could be settled. However, given there is no active market or observable market transactions for many of the Company’s financial instruments, the Company has made estimates of many of these fair values which are subjective in nature, involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimated values. The estimated fair values disclosed in the following table do not represent market values of all assets and liabilities of the Company and should not be interpreted to represent the underlying value of the Company. The
-25-
following table reflects a comparison of carrying amounts and the estimated fair value of the financial instruments as of March 31 , 202 1 and December 31, 2020 :
|
March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value |
|
|
Estimated Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|||||
|
|
|
(dollars in thousands) |
|
|||||||||||||||||
|
FINANCIAL ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
97,060 |
|
|
$ |
97,062 |
|
|
$ |
95,815 |
|
|
$ |
1,247 |
|
|
$ |
— |
|
|
Securities available for sale |
|
|
190,083 |
|
|
|
190,083 |
|
|
|
— |
|
|
|
190,083 |
|
|
|
— |
|
|
Securities held to maturity |
|
|
27,802 |
|
|
|
28,818 |
|
|
|
— |
|
|
|
18,686 |
|
|
|
10,132 |
|
|
Equity securities |
|
|
404 |
|
|
|
404 |
|
|
|
404 |
|
|
|
— |
|
|
|
— |
|
|
Loans held for investment, net |
|
|
456,189 |
|
|
|
451,627 |
|
|
|
— |
|
|
|
— |
|
|
|
451,627 |
|
|
Loans held for sale |
|
|
14,213 |
|
|
|
14,213 |
|
|
|
— |
|
|
|
14,213 |
|
|
|
— |
|
|
Restricted stock |
|
|
921 |
|
|
|
921 |
|
|
|
921 |
|
|
|
— |
|
|
|
— |
|
|
Loan servicing rights |
|
|
4,511 |
|
|
|
4,865 |
|
|
|
— |
|
|
|
4,865 |
|
|
|
— |
|
|
Mortgage interest rate lock commitments |
|
|
2,108 |
|
|
|
2,108 |
|
|
|
— |
|
|
|
— |
|
|
|
2,108 |
|
|
Mortgage forward sales commitments |
|
|
623 |
|
|
|
623 |
|
|
|
— |
|
|
|
623 |
|
|
|
— |
|
|
Accrued interest receivable |
|
|
2,344 |
|
|
|
2,344 |
|
|
|
— |
|
|
|
— |
|
|
|
2,344 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
744,149 |
|
|
$ |
744,222 |
|
|
$ |
— |
|
|
$ |
744,222 |
|
|
$ |
— |
|
|
Short-term borrowings |
|
|
1,338 |
|
|
|
1,338 |
|
|
|
— |
|
|
|
1,338 |
|
|
|
— |
|
|
Long-term borrowings |
|
|
11,242 |
|
|
|
11,002 |
|
|
|
— |
|
|
|
— |
|
|
|
11,002 |
|
|
Accrued interest payable |
|
|
16 |
|
|
|
16 |
|
|
|
— |
|
|
|
— |
|
|
|
16 |
|
|
December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value |
|
|
Estimated Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|||||
|
|
|
(dollars in thousands) |
|
|||||||||||||||||
|
FINANCIAL ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
88,868 |
|
|
$ |
88,879 |
|
|
$ |
87,623 |
|
|
$ |
1,256 |
|
|
$ |
— |
|
|
Securities available for sale |
|
|
191,513 |
|
|
|
191,513 |
|
|
|
— |
|
|
|
191,513 |
|
|
|
— |
|
|
Securities held to maturity |
|
|
28,207 |
|
|
|
29,600 |
|
|
|
— |
|
|
|
19,664 |
|
|
|
9,936 |
|
|
Equity securities |
|
|
1,352 |
|
|
|
1,352 |
|
|
|
1,352 |
|
|
|
— |
|
|
|
— |
|
|
Loans held for investment, net |
|
|
463,339 |
|
|
|
458,706 |
|
|
|
— |
|
|
|
— |
|
|
|
458,706 |
|
|
Loans held for sale |
|
|
6,959 |
|
|
|
6,959 |
|
|
|
— |
|
|
|
6,959 |
|
|
|
— |
|
|
Restricted stock |
|
|
1,166 |
|
|
|
1,166 |
|
|
|
1,166 |
|
|
|
— |
|
|
|
— |
|
|
Loan servicing rights |
|
|
3,957 |
|
|
|
4,054 |
|
|
|
— |
|
|
|
4,054 |
|
|
|
— |
|
|
Mortgage interest rate lock commitments |
|
|
2,073 |
|
|
|
2,073 |
|
|
|
— |
|
|
|
— |
|
|
|
2,073 |
|
|
Accrued interest receivable |
|
|
2,523 |
|
|
|
2,523 |
|
|
|
— |
|
|
|
— |
|
|
|
2,523 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
743,196 |
|
|
$ |
743,378 |
|
|
$ |
— |
|
|
$ |
743,378 |
|
|
$ |
— |
|
|
Short-term borrowings |
|
|
710 |
|
|
|
710 |
|
|
|
— |
|
|
|
710 |
|
|
|
— |
|
|
Long-term debt |
|
|
10,992 |
|
|
|
10,909 |
|
|
|
— |
|
|
|
— |
|
|
|
10,909 |
|
|
Mortgage forward sales commitments |
|
|
388 |
|
|
|
388 |
|
|
|
— |
|
|
|
388 |
|
|
|
— |
|
|
Accrued interest payable |
|
|
21 |
|
|
|
21 |
|
|
|
— |
|
|
|
— |
|
|
|
21 |
|
At March 31, 2021 the subsidiary bank had outstanding standby letters of credit and commitments to extend credit. These off-balance sheet financial instruments are generally exercisable at the market rate prevailing at the date the underlying transaction will be completed; therefore, the fair value is the fee the Bank is expected to receive. This amount is deemed immaterial by management. See Note 10.
Note 13 – Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. ASU 2016-13 requires an entity to utilize a new impairment model known as the current expected credit loss (“CECL”) model to estimate its lifetime “expected credit loss” and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The CECL model is expected to result in earlier recognition of credit losses. ASU 2016-13 also requires new disclosures for financial assets measured at amortized
-26-
cost, loans and available-for-sale debt securities. During 2019, the effective date was extended to fiscal years beginning on or after December 15, 2022 for public entities that qualify as smaller reporting companies, per the Securities and Exchange Commission definition, which currently includes the Company. Early adoption is permitted. Entities will apply the standard’s provisions as a cumulative effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. We have entered into a contract to outsource our current model with a CECL-ready vendor. We are currently evaluating the various methods of determining credit losses within the software. The impact of the adoption is dependent on loan portfolio composition and credit quality at adoption date, as well as economic conditions and forecasts at that time.
ASC 848, “Reference Rate Reform,” was set forth to eliminate certain reference rates and introduce new reference rates that are based on a larger, more liquid population of observable transactions that are less vulnerable to manipulation. The reference rate reform will discontinue the use of certain widely used reference rates such as the London Interbank Offered Rate, or LIBOR. In response to likely challenges arising from contract modifications due to reference rate reform, the FASB issued ASU 2020-04 in March 2020 to provide optional expedients and exceptions for applying GAAP to contract modifications. As such, modifications to debt contracts may be accounted for as a continuation of the existing contract by prospectively adjusting the effective interest rate. This amendment can be applied beginning March 12, 2020 and will sunset December 31, 2022. The Company currently holds loan contracts that reference LIBOR, and is evaluating the most effective manner in which to modify those contracts, but does not anticipate material financial impact.
From time to time the FASB issues exposure drafts of proposed statements of financial accounting standards. Such exposure drafts are subject to comment from the public, to revisions by the FASB and to final issuance by the FASB as statements of financial accounting standards. Management considers the effect of the proposed statements on the consolidated financial statements of the Company and monitors the status of changes to and proposed effective dates of exposure drafts.
-27-
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Caution Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q may contain certain forward-looking statements consisting of estimates with respect to the financial condition, results of operations and business of the Company that are subject to various factors that could cause actual results to differ materially from these estimates. These factors include, but are not limited to: the impact of the novel Coronavirus disease, or COVID-19, on our borrowers’ ability to meet their financial obligations to us; increases in our past due loans and provisions for loan losses that may result from COVID-19; declines in general economic conditions, including increased stress in the financial markets due to COVID-19; changes in interest rates, deposit flows, loan demand, real estate values, and competition; changes in accounting principles, policies, or guidelines; changes in legislation or regulation; and other economic, competitive, governmental, regulatory, and technological factors affecting the Company’s operations, pricing, products and services. Any use of “we” or “our” in the following discussion refers to the Company on a consolidated basis.
Comparison of Financial Condition at March 31, 2021 and December 31, 2020.
During the three months ended March 31, 2021, the Company’s total assets increased $4.8 million, from $827.8 million to $832.6 million.
Cash and cash equivalents increased $8.2 million during the three months ended March 31, 2021. The increase is related to sales of investments in the securities portfolio in an effort to reduce duration risk as long-term interest rates rise.
Investment securities consist of securities available for sale and securities held to maturity. Investment securities decreased $1.8 million to $217.9 million for the three-month period ended March 31, 2021. At March 31, 2021, the Company had net unrealized gains on securities available for sale of $388,000, compared to net unrealized gains of $4.2 million as December 31, 2020. The significant decline is directly related to the increase of interest rates at March 31, 2021 compared to December 31, 2020, as the market signals recovery from the COVID-19 outbreak worldwide.
During the first quarter of 2021, the Company sold a portion of its equity security investment bringing the principal value down from $901,000 to $270,000. At March 31, 2021, unrealized gains on the investment totaled $134,000, resulting in a fair value of $404,000 for the security.
Loans held for investment decreased from $467.7 million to $460.4 million, a decrease of $7.3 million for the three-month period. The Company experienced net decline in nearly all sectors with the largest decline (not including PPP loans) occurring in the commercial real estate segment related to large payoffs, one of which was a nonaccrual loan. During the first quarter of 2021, the Company funded 672 SBA PPP Round 2 loans for a total of $42.5 million. These loans are unsecured commercial loans, but are 100% guaranteed by the SBA. The growth in PPP loans was offset by forgiveness of $42.0 million of SBA PPP loans originally funded during 2020. Loans held for sale increased 104%, or $7.3 million, as many of the loans produced near the March 31, 2021 quarter-end date were not sold on the secondary market until early April.
The allowance for loan losses was $4.3 million at March 31, 2021, which represented 0.92% of the total loans held for investment compared to $4.4 million or 0.94% of the total loans held for investment at December 31, 2020. Additional discussion regarding the decrease in the allowance is included in the Asset Quality section below.
Other changes in our consolidated assets are primarily related to loan servicing assets, mortgage forward sales commitments, and other assets. Loan servicing assets increased $554,000 from December 31, 2020 to March 31, 2021 due to retention of servicing rights related to sustained sales of residential mortgage loans. Mortgage forward sales commitments are recognized as an asset this quarter compared to a liability at December 31, 2020, because of the significant rise in interest rates since year-end. As rates rise, the value of the mandatory commitment deteriorates and the price received to exit out of the commitment increases. Other assets decreased $1.3 million during the first three months of 2021, primarily due to the sale of an investment in a community development project, originally purchased in the first quarter of 2020.
Customer deposits, our primary funding source, experienced a $953,000 increase during the three-month period ended March 31, 2021, increasing from $743.2 million to $744.1 million, a 0.13% increase. A portion of this increase is related to funding of SBA PPP loans, some of the proceeds of which were deposited by our customers into their deposit accounts held at the Company’s subsidiary bank. The growth was offset by a significant reduction due to one account. The subsidiary bank has more than replaced the exited account’s balances during the first quarter of 2021. Demand noninterest-bearing checking accounts increased $34.9 million and savings deposits increased $7.5 million during the three months ended March 31, 2021. Interest checking and money market accounts decreased by $33.4 million, primarily due to a $42.0 million decrease related to the deposit account closure referenced above. Time deposits have decreased by $7.9 million as customers transition to liquid accounts.
-28-
Total short-term borrowings increased $ 628,000 for the period. At March 31, 2021 , the C ompany had $ 11.2 million in long-term debt outstanding, which consisted primarily of its fixed rate junior subordinated deb t securities issued during the third quarter of 2019 . The subordinated debt securities have a final maturity date of September 30, 2029, though may be redeemed by the Company on or after September 30, 2024. The junior subordinated debt pays interest quarterly at an annual fixed rate of 5.25%. The Company has a $3 .0 million line of credit of which $1 .3 million was in use at March 31, 2021 .
Other liabilities increased from $13.2 million at December 31, 2020 to $16.0 million at March 31, 2021, an increase of $2.8 million, primarily due to the accrual for payment of income taxes.
At March 31, 2021, total shareholders’ equity was $59.8 million, an increase of $589,000 from December 31, 2020. Net income for the three-month period was $4.6 million. Unrealized gains/losses on investment securities, net of tax, declined by $3.8 million as the yield curve continues to steepen. The Company repurchased 12,201 shares of common stock at a total cost of $83,000 during the first three months of 2021. The Company paid $139,000 in dividends attributed to noncontrolling interest during the first three months of 2021. See Note 3 (Noncontrolling Interest) to the Company’s Notes to Consolidated Financial Statements for additional discussion of the noncontrolling interest.
Results of Operations for the Three Months Ended March 31, 2021 and 2020.
Net Income and Net Income Available to Common Shareholders
Uwharrie Capital Corp reported net income of $4.6 million for the three months ended March 31, 2021, as compared to $328,000 for the three months ended March 31, 2020, an increase of $4.3 million. Net income available to common shareholders was $4.4 million or $0.63 per common share, for the three months ended March 31, 2021, compared to $187,000 or $0.03 per common share, for the three months ended March 31, 2020. Net income available to common shareholders is net income less dividends on the aforementioned noncontrolling interest.
Net Interest Income
Net interest income for the three months ended March 31, 2021 was $6.8 million, compared to $4.8 million for the three months ended March 31, 2020, an increase of $2.0 million. During the first quarter of 2021, the average yield on our interest-earning assets increased eight basis points to 3.80%, and the average rate we paid for our interest-bearing liabilities decreased fifty basis points to 0.27%. These changes resulted in a higher interest rate spread of 3.53% as of March 31, 2021, compared to 2.95% as of March 31, 2020. Our net interest margin was 3.62% and 3.17% for the comparable periods in 2021 and 2020, respectively.
The following table presents average balance sheet and a net interest income analysis for the three months ended March 31, 2021 and 2020:
Average Balance Sheet and Net Interest Income Analysis
For the Three Months Ended March 31,
|
(dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Balance |
|
|
Income/Expenses |
|
|
Rate/Yield |
|
|||||||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||||
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable securities |
|
$ |
193,755 |
|
|
$ |
88,396 |
|
|
$ |
826 |
|
|
$ |
492 |
|
|
|
1.73 |
% |
|
|
2.24 |
% |
|
Nontaxable securities (1) |
|
|
39,490 |
|
|
|
16,053 |
|
|
|
253 |
|
|
|
99 |
|
|
|
3.26 |
% |
|
|
3.10 |
% |
|
Short-term investments |
|
|
58,384 |
|
|
|
150,879 |
|
|
|
16 |
|
|
|
552 |
|
|
|
0.11 |
% |
|
|
1.47 |
% |
|
Equity Securities |
|
|
721 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Taxable loans |
|
|
471,456 |
|
|
|
355,018 |
|
|
|
6,004 |
|
|
|
4,485 |
|
|
|
5.16 |
% |
|
|
5.08 |
% |
|
Non-taxable loans (1) |
|
|
8,197 |
|
|
|
9,792 |
|
|
|
58 |
|
|
|
68 |
|
|
|
3.60 |
% |
|
|
3.49 |
% |
|
Total interest-earning assets |
|
|
772,003 |
|
|
|
620,138 |
|
|
|
7,157 |
|
|
|
5,696 |
|
|
|
3.80 |
% |
|
|
3.72 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits |
|
|
510,486 |
|
|
|
438,683 |
|
|
|
211 |
|
|
|
728 |
|
|
|
0.17 |
% |
|
|
0.67 |
% |
|
Short-term borrowed funds |
|
|
1,621 |
|
|
|
501 |
|
|
|
1 |
|
|
|
1 |
|
|
|
0.25 |
% |
|
|
0.80 |
% |
|
Long-term debt |
|
|
12,004 |
|
|
|
9,992 |
|
|
|
136 |
|
|
|
131 |
|
|
|
4.59 |
% |
|
|
5.72 |
% |
|
Total interest-bearing liabilities |
|
|
524,111 |
|
|
|
449,176 |
|
|
|
348 |
|
|
|
860 |
|
|
|
0.27 |
% |
|
|
0.77 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread |
|
$ |
247,892 |
|
|
$ |
170,962 |
|
|
$ |
6,809 |
|
|
$ |
4,836 |
|
|
|
3.53 |
% |
|
|
2.95 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin (1) (% of earning assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.62 |
% |
|
|
3.17 |
% |
|
(1) |
Yields related to securities and loans exempt from income taxes are stated on a fully tax-equivalent basis, assuming a 23% tax rate. |
-29-
Provision (Recovery) and Allowance for Loan Losses
The recovery for loan losses was $34,000 for the three months ended March 31, 2021, compared to a provision of $632,000 for the same period in 2020. There were net loan charge-offs of $116,000 for the three months ended March 31, 2021, as compared with net loan recoveries of $14,000 during the same period of 2020. Refer to the Asset Quality section below for further information.
Noninterest Income
The Company generates most of its revenue from net interest income; however, diversification of our revenue sources is important as well. Total noninterest income increased by $4.1 million for the three-month period ended March 31, 2021, as compared to the same period in 2020. The primary factor contributing to the overall increase was an increase of $4.0 million in income from mortgage loan sales. This increase is due to stronger margins and increased production from refinance and purchase transactions during the first quarter of 2021.
In addition, the gain on sale of securities increased $882,000 to $940,000 at March 31, 2021 compared to $58,000 at March 31, 2020 as the Company worked to reduce the duration of the investment portfolio in an attempt to protect capital as long-term interest rates rise.
Interchange fees, or “swipe” fees, are charges that merchants pay to us and other card-issuing banks for processing electronic payment transactions. Interchange and card transaction fees consist of income from check card usage, point-of-sale income from PIN-based debit card transactions, ATM service fees, and credit card usage. A comparison of gross interchange and card transaction fees and interchange and card transaction fees net of associated network costs for the reported periods is presented in the table below:
|
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
|
|
(in thousands) |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
Income from debit card transactions |
|
$ |
492 |
|
|
$ |
385 |
|
|
Income from credit card transactions |
|
|
114 |
|
|
|
121 |
|
|
Gross interchange and transaction fee income |
|
|
606 |
|
|
|
506 |
|
|
Network costs - debit card |
|
|
251 |
|
|
|
172 |
|
|
Network costs - credit card |
|
|
136 |
|
|
|
142 |
|
|
Total net income |
|
$ |
219 |
|
|
$ |
192 |
|
Noninterest Expense
Noninterest expense for the three months ended March 31, 2021 increased by $1.3 million from the same period in 2020, to $8.1 million. Salaries and benefits, the largest component of noninterest expense, increased $965,000 to account for wage and benefit cost increases as well as increased commissions for increased production in the mortgage division. As a result of production growth in the mortgage division, loan costs increased by $219,000 to $306,000 for the three months ended March 31, 2021. Marketing and donations increased $402,000 as the Company makes a conscious effort to support the communities we serve by giving back and supporting economic development and growth.
Total other noninterest expense decreased for the three months ended March 31, 2021 compared to the same period in 2020. This decline was due to market valuation adjustments that reduced the expense associated with supplemental executive retirement plans by $462,000. The table below reflects the composition of other noninterest expense.
|
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
|
|
(in thousands) |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
Postage |
|
$ |
46 |
|
|
$ |
44 |
|
|
Telephone and data lines |
|
|
49 |
|
|
|
47 |
|
|
Office supplies and printing |
|
|
26 |
|
|
|
22 |
|
|
Shareholder relations expense |
|
|
33 |
|
|
|
34 |
|
|
Dues and subscriptions |
|
|
109 |
|
|
|
64 |
|
|
Other |
|
|
17 |
|
|
|
527 |
|
|
Total |
|
$ |
280 |
|
|
$ |
738 |
|
Income Tax Expense
The Company had income tax expense of $1.2 million for the three months ended March 31, 2021 at an effective tax rate of 21.1% compared to income tax expense of $85,000 with an effective tax rate of 20.6% in the comparable 2020 period. Income taxes
-30-
computed at the statutory rate are affected primarily by the eligible amount of interest earned on state and municipal securities, tax-free municipal loans and income earned on bank- owned life insurance. For the three months ended March 31, 20 2 1 , the effective tax rate increased slightly due to the reduction in tax-free securities as a part of the duration reduction of the investment portfolio.
Asset Quality
The Company’s allowance for loan losses is established through charges to earnings in the form of a provision for loan losses. The allowance is increased by provisions charged to operations and recoveries of amounts previously charged off and is reduced by recovery of provisions and loans charged off. Management continuously evaluates the adequacy of the allowance for loan losses. In evaluating the adequacy of the allowance, management considers the following: the growth, composition and industry diversification of the portfolio; historical loan loss experience; current delinquency levels; adverse situations that may affect a borrower’s ability to repay; estimated value of any underlying collateral; prevailing economic conditions; and other relevant factors. The Company’s credit administration function, through a review process, periodically validates the accuracy of the initial risk grade assessment. In addition, as a given loan’s credit quality improves or deteriorates, the credit administration department has the responsibility to change the borrower’s risk grade accordingly. For loans determined to be impaired, the allowance is based on either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the estimated fair value of the underlying collateral less the selling costs. This evaluation is inherently subjective, as it requires material estimates, including the amounts and timing of future cash flows expected to be received on impaired loans, which may be susceptible to significant change. In addition, regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses and may require additions for estimated losses based upon judgments different from those of management.
Management uses a risk-grading program designed to evaluate the credit risk in the loan portfolio. In this program, risk grades are initially assigned by loan officers and then reviewed and monitored by credit administration. This process includes the maintenance of an internally classified loan list that is designed to help management assess the overall quality of the loan portfolio and the adequacy of the allowance for loan losses. In establishing the appropriate classification for specific assets, management considers, among other factors, the estimated value of the underlying collateral, the borrower’s ability to repay, the borrower’s payment history, and the current delinquent status. Because of this process, certain loans are deemed to be impaired and evaluated as an impaired loan.
The portion of the Company’s allowance for loan loss model related to general reserves captures the mean loss of individual loans within the loan portfolio and adds additional loss based on economic uncertainty and specific indicators of potential issues in the market. Specifically, the Company calculates probable losses on loans by computing a probability of loss and multiplying that by a loss given default derived from historical experience. An additional calculation based on economic uncertainty is added to the probable losses, thus deriving the estimated loss scenario by FDIC call report codes. Together, these expected components, as well as a reserve for qualitative factors based on management’s discretion of economic conditions, form the basis of the allowance model. The loans that are impaired and included in the specific reserve are excluded from these calculations.
The Company assesses the probability of losses inherent in the loan portfolio using probability of default data derived from the Company’s internal historical data, representing a one-year loss horizon for each obligor. Credit scores are used within the model to determine the probability of default. The Company updates the credit scores for individuals that either have a loan, or are financially responsible for the loan, semi-annually, during the first and third quarters. During the first three months of 2021, the average effective credit score of the portfolio, excluding loans in default, decreased slightly from 772 to 768. The probability of default associated with each credit score is a major driver in the allowance for loan losses.
The allowance for loan losses represents management’s best estimate of an appropriate amount to provide for probable credit risk inherent in the loan portfolio in the normal course of business. While management believes that it uses the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary and results of operations could be adversely affected if circumstances differ from the assumptions used in making the determinations. Furthermore, while management believes it has established the allowance for loan losses in conformity with generally accepted accounting principles, there can be no assurance that banking regulators, in reviewing the Company’s portfolio, will not require an adjustment to the allowance for loan losses. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that increases will not be necessary, should the quality of any loans deteriorate. Unexpected global events, such as the unprecedented economic disruption due to COVID-19, are the type of future events that often cause material adjustments to the allowance to be necessary. Any material increase in the allowance for loan losses may adversely affect the Company’s financial condition, results of operations and the value of its securities.
At March 31, 2021, the level of our impaired loans, which includes all loans in non-accrual status, TDRs, and other loans deemed by management to be impaired, was $7.2 million, compared to $8.2 million at December 31, 2020, a net decrease of $906,000. The decrease is related to one large relationship paying off in the first quarter of 2021. Total non-accrual loans, which are a component of impaired loans, decreased from $3.8 million at December 31, 2020 to $2.9 million at March 31, 2021. During the first three months of 2021, two additional loans totaling $289,000 were added to impaired loans; however, four loans totaling $1.1 million were paid off. That was offset by net pay downs of $53,000.
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The allowance, expressed as a percentage of gross loans held for investment, decreased two basis point s from 0. 94 % at December 31, 20 20 to 0. 92 % at March 31, 2021 . The collectively evaluated reserve allowance as a percentage of collectively evaluated loans was 0. 93 % at December 31, 20 20 and 0. 90 % at March 31, 2021 . The decrease is attributable to the economic recovery occurring as the COVID-19 outbreak is contained and business es increase operations . The individually evaluated allowance as a percentage of individually evaluated loans increased from 1.81 % to 2.60 % for the same periods , mainly due to one relationship deemed impaired during the first three months of 20 2 1, which required additional reserves to cover p robable losses.
The ratio of nonperforming loans, which consists of non-accrual loans and loans past due 90 days and still accruing, to total loans decreased from 0.80% at December 31, 2020 to 0.64% at March 31, 2021, and was related to the large nonaccrual relationship that was paid off in the first quarter.
As of March 31, 2021, management believed the level of the allowance for loan losses was appropriate in light of the risk inherent in the loan portfolio.
Other real estate owned remained at $0 through March 31, 2021, as there were no loans foreclosed on during the first three months of 2021.
Troubled debt restructured loans at March 31, 2021 totaled $4.3 million compared to $4.4 million at December 31, 2020 and are included in impaired loans. The slight decrease is related to one relationship paying off in the first three months of 2021. At March 31, 2021, there was one troubled debt restructured loan in non-accrual status, which had a balance of $46,000.
As discussed in Note 8 of our Notes to Consolidated Financial Statements, the CARES Act allows for loan modifications related to COVID-19 impacts to be excluded from TDR status. As of March 31, 2021, the Company had three current outstanding loan portfolio modifications of COVID-19 impacted loans for $37,000. Of the loans currently under accommodation, one had entered payment deferral a second time. Additionally, 205 previously modified loans with outstanding balances totaling $55.4 million have come out of deferment. Of the loans removed from deferment, 30 loans totaling $9.0 million have paid off, 172 loans totaling $46.2 million were out of accommodation and current at March 31, 2021 and three loans totaling $179,000 were removed due to noncompliance.
The following table shows the comparison of nonperforming assets at March 31, 2021 and December 31, 2020:
Nonperforming Assets
(dollars in thousands)
|
|
|
March 31, 2021 |
|
|
December 31, 2020 |
|
||
|
Nonperforming assets: |
|
|
|
|
|
|
|
|
|
Accruing loans past due 90 days or more |
|
$ |
— |
|
|
$ |
— |
|
|
Non-accrual loans |
|
|
2,934 |
|
|
|
3,758 |
|
|
Other real estate owned |
|
|
— |
|
|
|
— |
|
|
Total nonperforming assets |
|
$ |
2,934 |
|
|
$ |
3,758 |
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loans losses |
|
$ |
4,252 |
|
|
$ |
4,402 |
|
|
Nonperforming loans to total loans |
|
|
0.64 |
% |
|
|
0.80 |
% |
|
Allowance for loan losses to total loans |
|
|
0.92 |
% |
|
|
0.94 |
% |
|
Nonperforming assets to total assets |
|
|
0.35 |
% |
|
|
0.45 |
% |
|
Allowance for loan losses to nonperforming loans |
|
|
144.92 |
% |
|
|
117.14 |
% |
Liquidity and Capital Resources
The objective of the Company’s liquidity management policy is to ensure the availability of sufficient cash flows to meet all financial commitments and to capitalize on any opportunities for expansion. Liquidity management addresses the ability to meet deposit withdrawals on demand or at contractual maturity, to repay borrowings as they mature and to fund new loans and investments as opportunities arise.
The Company’s primary sources of internally generated funds are principal and interest payments on loans, cash flows generated from operations and cash flow generated by investments. Growth in deposits is typically the primary source of funds for loan growth. The Company and its subsidiary bank have multiple funding sources, in addition to deposits, that can be used to increase liquidity and provide additional financial flexibility. These sources are the subsidiary bank’s established federal funds lines with correspondent banks aggregating $28.0 million at March 31, 2021, with available credit of $28.0 million; established borrowing relationships with the Federal Home Loan Bank, with available credit of $92.9 million; access to borrowings from the Federal Reserve Bank discount window, with available credit of $27.2 million and the issuance of commercial paper. The Company also secured a $3.0 million line of
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credit with TIB The Independent Bankers Bank , N.A . The line is secured with 100% of the outstanding common shares of the Company’s subsidiary bank. As of March 31, 2021 , we had $ 1.8 million that had not been extended and remained available for use on the line of credit. The Company has also previously secured long-term debt from other sources. Total outstanding debt from these sources include d $ 10.0 million of junior subordinated debt at both March 31, 2021 and December 31, 20 20 .
Banks and bank holding companies, as regulated institutions, must meet required levels of capital. The Federal Reserve, the primary federal regulator of the Company and its subsidiary bank, has adopted minimum capital regulations or guidelines that categorize components and the level of risk associated with various types of assets.
The Company continues to maintain capital ratios that support its asset growth. The federal bank regulatory agencies have implemented regulatory capital rules known as “Basel III.” The Basel III rules require a common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.50%, a minimum ratio of Tier 1 capital to risk-weighted assets of 6.00%, a minimum ratio of total capital to risk-weighted assets of 8.00%, and a minimum Tier 1 leverage ratio of 4.00%. There is also a capital conservation buffer that requires banks to hold common equity Tier 1 capital in excess of minimum risk-based capital ratios by at least 2.5% to avoid limits on capital distributions and certain discretionary bonus payments to executive officers and similar employees.
As of March 31, 2021, the Company’s subsidiary bank continued to exceed minimum capital standards and remained well-capitalized under the applicable rules.
The Company’s subsidiary bank has a net total of $10.6 million in outstanding Fixed Rate Noncumulative Perpetual Preferred Stock. The preferred stock qualifies as Tier 1 capital at the Bank and pays dividends at an annual rate of 5.30%. The net total of $10.6 million is presented as noncontrolling interest at the Company level and qualifies as Tier 1 capital at the Company. At March 31, 2021, the Company had $10.0 million in subordinated debt outstanding, which qualifies as Tier 2 capital at the Company level. The Company has made all interest and dividend payments in a timely manner.
Off-Balance Sheet Arrangements
Off-balance sheet arrangements include transactions, agreements or other contractual arrangements to which an unconsolidated entity of the Company is a party and pursuant to which the Company has obligations, including an obligation to provide guarantees on behalf of an unconsolidated entity, or retains an interest in assets transferred to an unconsolidated entity. We currently have no off-balance sheet arrangements of this kind.
Derivative financial instruments include futures contracts, forward contracts, interest rate swaps, options contracts, and other financial instruments with similar characteristics. We have not engaged in significant derivative activities through March 31, 2021 and have no current plans to do so.
Contractual Obligations
The timing and amount of our contractual obligations has not changed materially since our 2020 Annual Report to Shareholders, which is filed as Exhibit 13 to our 2020 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 5, 2021.
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.
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Changes in Internal Control over Financial Reporting
Management of the Company has evaluated, with the participation of the Company’s principal executive officer and principal financial officer, changes in the Company’s internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the first quarter of 2021. In connection with such evaluation, the Company has determined that there were no changes in the Company’s internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company reviews its disclosure controls and procedures, which may include its internal control over financial reporting, on an ongoing basis, and may from time to time make changes aimed at enhancing their effectiveness and ensuring that the Company’s systems evolve with its business.
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 March 31, 2021.
|
|
|
(a) Total Number of Shares Purchased |
|
|
(b) Average Price Paid per Share |
|
|
(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Program ( 1) |
|
|
(d) Maximum Dollar Value (in thousands) of Shares that May Yet Be Purchased Under the Plans |
|
||||
|
January 1, 2021 Through January 31, 2021 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
February 1, 2021 Through February 28, 2021 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
March 1, 2021 Through March 31, 2021 |
|
|
12,201 |
|
|
$ |
6.79 |
|
|
|
— |
|
|
$ |
1,000 |
|
|
Total |
|
|
12,201 |
|
|
$ |
6.79 |
|
|
|
— |
|
|
$ |
1,000 |
|
(1) Trades of the Company’s common stock are quoted on the OTCQX Market from time to time. The Company also has in place a Stock Repurchase Plan that provides liquidity to its shareholders in the event a willing buyer is not available to purchase shares that are offered for sale. The Company is under no obligation to purchase shares offered; however, it will accommodate such offers as its Stock Repurchase Plan allows.
None.
Not applicable.
None.
-34-
Set forth below is the exhibit index for this quarterly report:
|
Exhibit Number |
|
Description of Exhibit |
|
|
|
|
|
|
|
|
|
31.1 |
|
|
|
|
|
|
|
31.2 |
|
|
|
|
|
|
|
32 |
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith) |
|
|
|
|
|
101 |
|
Interactive data files providing financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021, in XBRL (eXtensible Business Reporting Language) (filed herewith) |
-35-
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
UWHARRIE CAPITAL CORP |
||
|
|
|
|
|
(Registrant) |
||
|
|
|
|
|
|
|
|
|
Date: |
|
May 4, 2021 |
|
By: |
|
/s/ Roger L. Dick |
|
|
|
|
|
Roger L. Dick |
||
|
|
|
|
|
President and Chief Executive Officer |
||
|
|
|
|
|
|
|
|
|
Date: |
|
May 4, 2021 |
|
By: |
|
/s/ R. David Beaver, III |
|
|
|
|
|
R. David Beaver, III |
||
|
|
|
|
|
Principal Financial Officer |
||
-36-
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 |
|---|