GRANDSOUTH
BANCORPORATION AND SUBSIDIARY
Consolidated
Balance Sheets
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
September 30,
|
|
|
December 31,
|
|
(in thousands, except share data)
|
|
2021
|
|
|
2020
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
5,853
|
|
|
$
|
6,216
|
|
Interest-earning deposits
|
|
|
95,018
|
|
|
|
51,137
|
|
Federal funds sold
|
|
|
1,215
|
|
|
|
5,672
|
|
Cash and cash equivalents
|
|
|
102,086
|
|
|
|
63,025
|
|
Investments - available for sale
|
|
|
127,252
|
|
|
|
110,707
|
|
Other investments, at cost
|
|
|
3,476
|
|
|
|
6,252
|
|
Loans receivable, net of deferred fees and costs
|
|
|
937,093
|
|
|
|
878,545
|
|
Allowance for loan losses
|
|
|
(13,730
|
)
|
|
|
(12,572
|
)
|
Premises and equipment, net
|
|
|
17,504
|
|
|
|
16,680
|
|
Other real estate owned
|
|
|
1,395
|
|
|
|
1,932
|
|
Accrued interest receivable
|
|
|
5,822
|
|
|
|
5,704
|
|
Bank owned life insurance
|
|
|
14,694
|
|
|
|
14,861
|
|
Net deferred tax asset
|
|
|
2,811
|
|
|
|
2,501
|
|
Goodwill
|
|
|
737
|
|
|
|
737
|
|
Other assets
|
|
|
3,527
|
|
|
|
1,407
|
|
Total assets
|
|
$
|
1,202,667
|
|
|
$
|
1,089,779
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Noninterest-bearing
|
|
$
|
268,858
|
|
|
$
|
203,502
|
|
Interest-bearing
|
|
|
782,879
|
|
|
|
742,978
|
|
Total deposits
|
|
|
1,051,737
|
|
|
|
946,480
|
|
Federal Home Loan Bank advances
|
|
|
16,000
|
|
|
|
16,000
|
|
Junior subordinated notes
|
|
|
35,834
|
|
|
|
35,744
|
|
Accrued interest payable
|
|
|
629
|
|
|
|
336
|
|
Accrued expenses and other liabilities
|
|
|
5,748
|
|
|
|
4,694
|
|
Total liabilities
|
|
|
1,109,948
|
|
|
|
1,003,254
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ Equity:
|
|
|
|
|
|
|
|
|
Preferred stock-no par value; 20,000,000 shares authorized; Series A; 283,287 and 287,895 shares issued and outstanding
|
|
|
—
|
|
|
|
—
|
|
Common stock-no par value; 20,000,000 shares authorized; 5,148,681 and 5,271,971 shares issued and outstanding
|
|
|
—
|
|
|
|
—
|
|
Additional paid in capital
|
|
|
44,206
|
|
|
|
46,645
|
|
Retained earnings
|
|
|
47,471
|
|
|
|
37,721
|
|
Accumulated other comprehensive income
|
|
|
1,042
|
|
|
|
2,159
|
|
Total shareholders’ equity
|
|
|
92,719
|
|
|
|
86,525
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
1,202,667
|
|
|
$
|
1,089,779
|
|
The
accompanying notes are an integral part of the consolidated financial statements.
GRANDSOUTH
BANCORPORATION AND SUBSIDIARY
Consolidated
Statements of Income (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
(in thousands, except per share data)
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$
|
13,502
|
|
|
$
|
11,356
|
|
|
$
|
39,549
|
|
|
$
|
35,766
|
|
Taxable securities
|
|
|
389
|
|
|
|
293
|
|
|
|
1,015
|
|
|
|
947
|
|
Tax-exempt securities
|
|
|
69
|
|
|
|
70
|
|
|
|
209
|
|
|
|
130
|
|
Interest-earning deposits
|
|
|
27
|
|
|
|
13
|
|
|
|
69
|
|
|
|
102
|
|
Other
|
|
|
23
|
|
|
|
46
|
|
|
|
88
|
|
|
|
175
|
|
Total interest income
|
|
|
14,010
|
|
|
|
11,778
|
|
|
|
40,930
|
|
|
|
37,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
756
|
|
|
|
1,511
|
|
|
|
2,552
|
|
|
|
6,225
|
|
Federal Home Loan Bank advances
|
|
|
36
|
|
|
|
39
|
|
|
|
107
|
|
|
|
120
|
|
Junior subordinated notes
|
|
|
431
|
|
|
|
217
|
|
|
|
1,296
|
|
|
|
703
|
|
Other borrowings
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
6
|
|
Total interest expense
|
|
|
1,223
|
|
|
|
1,768
|
|
|
|
3,955
|
|
|
|
7,054
|
|
Net interest income
|
|
|
12,787
|
|
|
|
10,010
|
|
|
|
36,975
|
|
|
|
30,066
|
|
Provision for loan losses
|
|
|
494
|
|
|
|
798
|
|
|
|
1,045
|
|
|
|
2,537
|
|
Net interest income after provision for loan losses
|
|
|
12,293
|
|
|
|
9,212
|
|
|
|
35,930
|
|
|
|
27,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts
|
|
|
320
|
|
|
|
263
|
|
|
|
910
|
|
|
|
719
|
|
Gain on sale of investment securities available for sale
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
392
|
|
Bank owned life insurance
|
|
|
84
|
|
|
|
109
|
|
|
|
261
|
|
|
|
313
|
|
Net gain on sale of premises and equipment
|
|
|
6
|
|
|
|
7
|
|
|
|
90
|
|
|
|
15
|
|
Other
|
|
|
248
|
|
|
|
183
|
|
|
|
740
|
|
|
|
521
|
|
Total noninterest income
|
|
|
658
|
|
|
|
562
|
|
|
|
2,001
|
|
|
|
1,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and employee benefits
|
|
|
5,367
|
|
|
|
4,940
|
|
|
|
15,428
|
|
|
|
15,140
|
|
Net occupancy
|
|
|
584
|
|
|
|
570
|
|
|
|
1,732
|
|
|
|
1,655
|
|
Federal deposit insurance
|
|
|
157
|
|
|
|
129
|
|
|
|
482
|
|
|
|
360
|
|
Professional and advisory
|
|
|
314
|
|
|
|
317
|
|
|
|
888
|
|
|
|
951
|
|
Data processing
|
|
|
509
|
|
|
|
534
|
|
|
|
1,536
|
|
|
|
1,378
|
|
Marketing and advertising
|
|
|
49
|
|
|
|
29
|
|
|
|
128
|
|
|
|
115
|
|
Net cost of operation of other real estate owned
|
|
|
11
|
|
|
|
20
|
|
|
|
140
|
|
|
|
293
|
|
Other
|
|
|
916
|
|
|
|
682
|
|
|
|
2,643
|
|
|
|
2,358
|
|
Total noninterest expenses
|
|
|
7,907
|
|
|
|
7,221
|
|
|
|
22,977
|
|
|
|
22,250
|
|
Income tax expense
|
|
|
1,210
|
|
|
|
665
|
|
|
|
3,563
|
|
|
|
1,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
3,834
|
|
|
|
1,888
|
|
|
|
11,391
|
|
|
|
5,435
|
|
Preferred stock dividends
|
|
|
(30
|
)
|
|
|
(25
|
)
|
|
|
(90
|
)
|
|
|
(73
|
)
|
Net income applicable to common shareholders
|
|
$
|
3,804
|
|
|
$
|
1,863
|
|
|
$
|
11,301
|
|
|
$
|
5,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.71
|
|
|
$
|
0.35
|
|
|
$
|
2.09
|
|
|
$
|
0.99
|
|
Diluted
|
|
$
|
0.68
|
|
|
$
|
0.33
|
|
|
$
|
2.04
|
|
|
$
|
0.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
5,141,214
|
|
|
|
5,213,607
|
|
|
|
5,158,816
|
|
|
|
5,210,066
|
|
Diluted
|
|
|
5,292,142
|
|
|
|
5,268,412
|
|
|
|
5,270,138
|
|
|
|
5,272,721
|
|
The
accompanying notes are an integral part of the consolidated financial statements.
GRANDSOUTH
BANCORPORATION AND SUBSIDIARY
Consolidated
Statements of Comprehensive Income (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine months ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,834
|
|
|
$
|
1,888
|
|
|
$
|
11,391
|
|
|
$
|
5,435
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized holding gains (losses) on securities available for sale
|
|
|
(526
|
)
|
|
|
549
|
|
|
|
(1,427
|
)
|
|
|
2,506
|
|
Reclassification adjustment for securities gains realized in net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(392
|
)
|
Other comprehensive income (loss), before tax
|
|
|
(526
|
)
|
|
|
549
|
|
|
|
(1,427
|
)
|
|
|
2,114
|
|
Income tax effect related to items of other comprehensive income (loss)
|
|
|
114
|
|
|
|
(128
|
)
|
|
|
310
|
|
|
|
(492
|
)
|
Other comprehensive income (loss), after tax
|
|
|
(412
|
)
|
|
|
421
|
|
|
|
(1,117
|
)
|
|
|
1,622
|
|
Comprehensive income
|
|
$
|
3,422
|
|
|
$
|
2,309
|
|
|
$
|
10,274
|
|
|
$
|
7,057
|
|
The
accompanying notes are an integral part of the consolidated financial statements.
GRANDSOUTH
BANCORPORATION AND SUBSIDIARY
Consolidated
Statements of Changes in Shareholders’ Equity (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Preferred Stock
|
|
|
Additional
|
|
|
Retained
|
|
|
Accumulated
Other
Comprehensive
|
|
|
|
|
(in thousands, except share and per share data)
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid in Capital
|
|
|
Earnings
|
|
|
Income
|
|
|
Total
|
|
Balances at December 31, 2020
|
|
|
5,271,971
|
|
|
$
|
—
|
|
|
|
287,895
|
|
|
$
|
—
|
|
|
$
|
46,645
|
|
|
$
|
37,721
|
|
|
$
|
2,159
|
|
|
$
|
86,525
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,594
|
|
|
|
—
|
|
|
|
3,594
|
|
Other comprehensive loss, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,562
|
)
|
|
|
(1,562
|
)
|
Stock compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
155
|
|
|
|
—
|
|
|
|
—
|
|
|
|
155
|
|
Stock options exercised
|
|
|
36,656
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
460
|
|
|
|
—
|
|
|
|
—
|
|
|
|
460
|
|
Stock repurchase
|
|
|
(135,230
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,392
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,392
|
)
|
Common stock dividend ($0.10 per share)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(527
|
)
|
|
|
—
|
|
|
|
(527
|
)
|
Preferred stock dividend ($0.105 per share)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(30
|
)
|
|
|
—
|
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,963
|
|
|
|
—
|
|
|
|
3,963
|
|
Other comprehensive income, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
857
|
|
|
|
857
|
|
Stock compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
153
|
|
|
|
—
|
|
|
|
—
|
|
|
|
153
|
|
Stock options exercised
|
|
|
29,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
385
|
|
|
|
—
|
|
|
|
—
|
|
|
|
385
|
|
Stock repurchase
|
|
|
(75,216
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,554
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,554
|
)
|
Common stock dividend ($0.10 per share)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(510
|
)
|
|
|
—
|
|
|
|
(510
|
)
|
Preferred stock dividend ($0.105 per share)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(30
|
)
|
|
|
—
|
|
|
|
(30
|
)
|
Balances at June 30, 2021
|
|
|
5,127,681
|
|
|
|
—
|
|
|
|
287,895
|
|
|
|
—
|
|
|
|
43,852
|
|
|
|
44,181
|
|
|
|
1,454
|
|
|
|
89,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,834
|
|
|
|
—
|
|
|
|
3,834
|
|
Other comprehensive income, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(412
|
)
|
|
|
(412
|
)
|
Stock compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
146
|
|
|
|
—
|
|
|
|
—
|
|
|
|
146
|
|
Stock options exercised
|
|
|
21,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
294
|
|
|
|
—
|
|
|
|
—
|
|
|
|
294
|
|
Stock repurchase
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,608
|
)
|
|
|
—
|
|
|
|
(86
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(86
|
)
|
Common stock dividend ($0.10 per share)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(514
|
)
|
|
|
—
|
|
|
|
(514
|
)
|
Preferred stock dividend ($0.105 per share)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(30
|
)
|
|
|
—
|
|
|
|
(30
|
)
|
Balances at September 30, 2021
|
|
|
5,148,681
|
|
|
$
|
—
|
|
|
|
283,287
|
|
|
$
|
—
|
|
|
$
|
44,206
|
|
|
$
|
47,471
|
|
|
$
|
1,042
|
|
|
$
|
92,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Preferred Stock
|
|
|
Additional
|
|
|
Retained
|
|
|
Accumulated
Other
Comprehensive
|
|
|
|
|
(in thousands, except share and per share data)
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid in Capital
|
|
|
Earnings
|
|
|
Income
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
|
|
5,201,951
|
|
|
$
|
—
|
|
|
|
287,895
|
|
|
$
|
—
|
|
|
$
|
45,625
|
|
|
$
|
30,841
|
|
|
$
|
184
|
|
|
$
|
76,650
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,912
|
|
|
|
—
|
|
|
|
1,912
|
|
Other comprehensive income, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,043
|
|
|
|
1,043
|
|
Stock compensation expense
|
|
|
8,580
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
213
|
|
|
|
—
|
|
|
|
—
|
|
|
|
213
|
|
Stock options exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
48
|
|
|
|
—
|
|
|
|
—
|
|
|
|
48
|
|
Common stock dividend ($0.08 per share)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(416
|
)
|
|
|
—
|
|
|
|
(416
|
)
|
Preferred stock dividend ($0.084 per share)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(24
|
)
|
|
|
—
|
|
|
|
(24
|
)
|
Balance at March 31, 2020
|
|
|
5,210,531
|
|
|
|
—
|
|
|
|
287,895
|
|
|
|
—
|
|
|
|
45,886
|
|
|
|
32,313
|
|
|
|
1,227
|
|
|
|
79,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,635
|
|
|
|
—
|
|
|
|
1,635
|
|
Other comprehensive income, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
158
|
|
|
|
158
|
|
Stock compensation expense
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
200
|
|
|
|
—
|
|
|
|
—
|
|
|
|
200
|
|
Common stock dividend ($0.08 per share)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(417
|
)
|
|
|
—
|
|
|
|
(417
|
)
|
Preferred stock dividend ($0.084 per share)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(24
|
)
|
|
|
—
|
|
|
|
(24
|
)
|
Balance at June 30, 2020
|
|
|
5,210,531
|
|
|
|
—
|
|
|
|
287,895
|
|
|
|
—
|
|
|
|
46,086
|
|
|
|
33,507
|
|
|
|
1,385
|
|
|
|
80,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,888
|
|
|
|
—
|
|
|
|
1,888
|
|
Other comprehensive income, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
421
|
|
|
|
421
|
|
Stock compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
142
|
|
|
|
—
|
|
|
|
—
|
|
|
|
142
|
|
Stock options exercised
|
|
|
9
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
106
|
|
|
|
—
|
|
|
|
—
|
|
|
|
106
|
|
Common stock dividend ($0.08 per share)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(417
|
)
|
|
|
—
|
|
|
|
(417
|
)
|
Preferred stock dividend ($0.084 per share)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(24
|
)
|
|
|
—
|
|
|
|
(24
|
)
|
Balances at September 30, 2020
|
|
|
5,219,531
|
|
|
$
|
—
|
|
|
|
287,895
|
|
|
$
|
—
|
|
|
$
|
46,334
|
|
|
$
|
34,954
|
|
|
$
|
1,806
|
|
|
$
|
83,094
|
|
The accompanying
notes are an integral part of the consolidated financial statements.
GRANDSOUTH
BANCORPORATION AND SUBSIDIARY
Consolidated
Statements of Cash Flows (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended
September 30,
|
|
(in thousands)
|
|
2021
|
|
|
2020
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
11,391
|
|
|
$
|
5,435
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation, amortization and accretion
|
|
|
754
|
|
|
|
400
|
|
Investment amortization, net
|
|
|
903
|
|
|
|
639
|
|
Provision for loan losses
|
|
|
1,045
|
|
|
|
2,537
|
|
Provision for other real estate owned
|
|
|
113
|
|
|
|
242
|
|
Stock-based compensation expense
|
|
|
454
|
|
|
|
555
|
|
Income on bank owned life insurance, net
|
|
|
(261
|
)
|
|
|
(313
|
)
|
Gain on sale of investment securities available for sale
|
|
|
—
|
|
|
|
(392
|
)
|
Gain on sale of fixed assets
|
|
|
(90
|
)
|
|
|
(15
|
)
|
Gain on sale of other real estate owned
|
|
|
(33
|
)
|
|
|
—
|
|
Net change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accrued interest receivable
|
|
|
(118
|
)
|
|
|
360
|
|
Other assets
|
|
|
(2,120
|
)
|
|
|
(310
|
)
|
Accrued interest payable
|
|
|
293
|
|
|
|
(58
|
)
|
Other liabilities
|
|
|
1,054
|
|
|
|
(22
|
)
|
Net cash provided by operating activities
|
|
|
13,385
|
|
|
|
9,058
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Activity for investment securities available for sale:
|
|
|
|
|
|
|
|
|
Purchases
|
|
|
(38,520
|
)
|
|
|
(55,191
|
)
|
Maturities/calls and principal repayments
|
|
|
19,645
|
|
|
|
9,275
|
|
Sales
|
|
|
—
|
|
|
|
18,787
|
|
Net increase in loans
|
|
|
(58,436
|
)
|
|
|
(84,283
|
)
|
Redemption of BOLI policies
|
|
|
429
|
|
|
|
—
|
|
Proceeds from sale of fixed assets
|
|
|
113
|
|
|
|
89
|
|
Purchase of fixed assets
|
|
|
(1,511
|
)
|
|
|
(1,054
|
)
|
Proceeds from sale of other real estate owned
|
|
|
457
|
|
|
|
—
|
|
Purchase of other investments, at cost
|
|
|
—
|
|
|
|
(1,184
|
)
|
Redemption of other investments, at cost
|
|
|
2,776
|
|
|
|
3,666
|
|
Net cash provided used in investing activities
|
|
|
(75,047
|
)
|
|
|
(109,895
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Net increase in deposits
|
|
|
105,257
|
|
|
|
72,735
|
|
Repurchase of common stock
|
|
|
(3,946
|
)
|
|
|
—
|
|
Repurchase of preferred stock
|
|
|
(86
|
)
|
|
|
—
|
|
Proceeds from FHLB advances
|
|
|
—
|
|
|
|
27,000
|
|
Repayment of FHLB advances
|
|
|
—
|
|
|
|
(6,000
|
)
|
Cash received upon exercise of stock options
|
|
|
1,139
|
|
|
|
154
|
|
Dividends paid on common stock
|
|
|
(1,551
|
)
|
|
|
(1,250
|
)
|
Dividends paid on preferred stock
|
|
|
(90
|
)
|
|
|
(73
|
)
|
Net cash provided by financing activities
|
|
|
100,723
|
|
|
|
92,566
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
39,061
|
|
|
|
(8,271
|
)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period
|
|
|
63,025
|
|
|
|
42,779
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
102,086
|
|
|
$
|
34,508
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
Interest on deposits and other borrowings
|
|
$
|
3,562
|
|
|
|
7,076
|
|
Income taxes
|
|
|
4,532
|
|
|
$
|
2,387
|
|
|
|
|
|
|
|
|
|
|
Significant noncash investing activities:
|
|
|
|
|
|
|
|
|
Real estate acquired in satisfaction of mortgage loans
|
|
$
|
—
|
|
|
$
|
513
|
|
The
accompanying notes are an integral part of the consolidated financial statements.
GRANDSOUTH
BANCORPORATION AND SUBSIDIARY
Notes to Consolidated
Financial Statements (Unaudited)
NOTE
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
GrandSouth Bancorporation
(“we,” “us,” “our,” or the “Company”) was incorporated on September 7, 2000 for
the purpose of becoming the holding company for GrandSouth Bank (the “Bank”). On October 2, 2000, pursuant to the
Plan of Exchange, all of the outstanding shares of capital stock of the Bank were exchanged for shares of the Company. The Company’s
primary operation is its investment in the Bank. The Company also owns 100% of the common stock of GrandSouth Capital Trust I
(the “Trust”), a Delaware statutory trust formed in 2006 to facilitate the issuance of trust preferred securities.
The Bank
is a South Carolina state-chartered commercial bank that provides a full range of banking services. The Bank is insured and subject
to the regulation of the Federal Deposit Insurance Corporation (“FDIC”) and is also subject to the regulation of the
South Carolina State Board of Financial Institutions.
Principles
of Consolidation
The accompanying
consolidated financial statements include the accounts of the Company and the Bank. The accounts of the Trust are not consolidated
with the Company. In consolidation all significant intercompany accounts and transactions have been eliminated.
Business
Segments
Accounting Standards
Codification (“ASC”) Topic 280-10, “Segment Reporting,” requires selected segment information of
operating segments based on a management approach. The Company’s two reportable segments represent the distinct product
lines the Company offers and are viewed separately for strategic planning by management. Please refer to “Note 9 –
Reportable Segments” for further information on the reporting for the Company’s two business segments.
Estimates
The preparation
of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and 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, in the near term, relate to the determination of the allowance
for loan losses, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, and the valuation
of deferred tax assets.
Basis of
Presentation
The accompanying
unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles,
or GAAP, for interim financial information. Accordingly, they do not include all of the information and footnotes required by
GAAP for complete financial statements and should be read in conjunction with our Form 10 for the year ended December 31, 2020,
filed with the SEC on March 30, 2021, as amended on May 11, 2021 (the “2020 Form 10”). In the opinion of management,
these interim financial statements present fairly, in all material respects, the Company’s consolidated financial position
and results of operations for each of the interim periods presented. Results of operations for interim periods are not necessarily
indicative of the results of operations that may be expected for a full year or any future period.
Reclassification
Certain amounts
in the prior year’s financial statements may have been reclassified to conform to the current year’s presentation.
The reclassifications had no effect on our results of operations or financial condition as previously reported.
Recent Accounting
Standards Updates
In January 2017,
the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment. This update eliminates Step 2 from the goodwill impairment test, which required an entity to calculate the implied
fair value of goodwill by valuing a reporting unit’s assets and liabilities using the same process that would be required
to value assets and liabilities in a business combination. Instead, the amendments require that an entity perform its annual goodwill
impairment test by comparing the fair value of a reporting unit with its carrying amount. The Company adopted this update as of
January 1, 2020, with no material impact on the consolidated financial statements.
In September
2016, the FASB issued amendments to ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments. The amendments in the update require a financial asset (or a group of financial assets) measured
at amortized cost basis to be presented at the net amount expected to be collected thereby providing financial statement users
with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend
credit held by the reporting entity. The amendments will be effective for the Company for reporting periods beginning after December
15, 2022. The Company has formed a cross-functional committee to provide corporate governance over the implementation of this
update, has evaluated data sources and made process updates to capture additional relevant data, has identified a service provider
to perform the calculation, and continues to attend seminars and forums specific to this update. The Company also engaged the
service provider to assist with the implementation of the standard. While we continue to evaluate the impact the new guidance
will have on our financial position and results of operations, we currently expect the new guidance may result in an increase
to our allowance for credit losses given the change to estimated losses over the contractual life of the loan portfolio. The amount
of any change to our allowance will depend, in part, upon the composition of our loan portfolio at the adoption date as well as
economic conditions and loss forecasts at that date.
Other accounting
standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material
impact on the Company’s financial position, results of operations or cash flows.
On March 27,
2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law. The CARES Act included
a number of provisions that were applicable to the Company, including the following:
|
o
|
Accounting
relief for troubled debt restructures (“TDRs”): The CARES Act
provided that modifications under certain forbearance conditions for loans that were
not more than 30 days past due at December 31, 2020 will not be considered TDRs for regulatory
reporting and GAAP.
|
|
o
|
Paycheck
Protection Program (“PPP”): The CARES Act created the PPP through the Small
Business Administration (“SBA”), which allowed the Company to lend money
to small businesses to maintain employee payrolls through the crisis with guarantees
from the SBA. Under this program, loan amounts may be forgiven if the borrower maintains
employee payrolls or restores payrolls afterwards.
|
NOTE
2. INVESTMENTS
The amortized
cost and estimated fair values of available-for-sale (“AFS”) securities as of September 30, 2021 and December 31,
2020 are summarized as follows (in thousands):
Schedule of Securities Available-For-Sale
|
|
|
|
|
September 30, 2021
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
U.S. government agencies
|
|
$
|
7,467
|
|
|
$
|
14
|
|
|
$
|
(37
|
)
|
|
$
|
7,444
|
|
State and municipal obligations
|
|
|
19,893
|
|
|
|
868
|
|
|
|
(263
|
)
|
|
|
20,498
|
|
Mortgage-backed securities - agency
|
|
|
|
|
|
|
|
|
)
|
|
|
|
Collateralized mortgage obligations - agency
|
|
|
47,760
|
|
|
|
691
|
|
|
|
(348
|
)
|
|
|
48,103
|
|
Asset-backed securities
|
|
|
2,672
|
|
|
|
—
|
|
|
|
(5
|
)
|
|
|
2,667
|
|
Corporate bonds
|
|
|
8,950
|
|
|
|
399
|
|
|
|
(58
|
)
|
|
|
9,291
|
|
Total
|
|
$
|
125,921
|
|
|
$
|
2,378
|
|
|
$
|
(1,047
|
)
|
|
$
|
127,252
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
State and municipal obligations
|
|
$
|
16,684
|
|
|
$
|
1,136
|
|
|
$
|
—
|
|
|
$
|
17,820
|
|
Mortgage-backed securities - agency
|
|
|
|
|
|
|
|
|
)
|
|
|
|
Collateralized mortgage obligations - agency
|
|
|
49,441
|
|
|
|
1,194
|
|
|
|
(75
|
)
|
|
|
50,560
|
|
Asset-backed securities
|
|
|
6,268
|
|
|
|
5
|
|
|
|
(38
|
)
|
|
|
6,235
|
|
Corporate bonds
|
|
|
4,500
|
|
|
|
127
|
|
|
|
(22
|
)
|
|
|
4,605
|
|
Total
|
|
$
|
107,949
|
|
|
$
|
2,925
|
|
|
$
|
(167
|
)
|
|
$
|
110,707
|
|
Information
pertaining to securities with gross unrealized losses, aggregated by investment category and length of time that individual securities
have been in a continuous loss position, follows (in thousands):
Schedule
of Securities Available-For-Sale, Unrealized Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
|
|
Less Than 12 Months
|
|
|
More Than 12 Months
|
|
|
Total
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
U.S. government agencies
|
|
$
|
3,447
|
|
|
$
|
37
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,447
|
|
|
$
|
37
|
|
State and municipal obligations
|
|
|
3,550
|
|
|
|
263
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,550
|
|
|
|
263
|
|
Collateralized mortgage obligations - agency
|
|
|
14,729
|
|
|
|
196
|
|
|
|
7,419
|
|
|
|
152
|
|
|
|
22,148
|
|
|
|
348
|
|
Asset-backed securities
|
|
|
—
|
|
|
|
—
|
|
|
|
2,667
|
|
|
|
5
|
|
|
|
2,667
|
|
|
|
5
|
|
Corporate bonds
|
|
|
2,142
|
|
|
|
58
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,142
|
|
|
|
58
|
|
Total
|
|
$
|
46,884
|
|
|
$
|
890
|
|
|
$
|
10,086
|
|
|
$
|
157
|
|
|
$
|
56,970
|
|
|
$
|
1,047
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
Less Than 12 Months
|
|
|
More Than 12 Months
|
|
|
Total
|
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
Collateralized mortgage obligations - agency
|
|
|
20,673
|
|
|
|
75
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20,673
|
|
|
|
75
|
|
Asset-backed securities
|
|
|
—
|
|
|
|
—
|
|
|
|
2,808
|
|
|
|
38
|
|
|
|
2,808
|
|
|
|
38
|
|
Corporate bonds
|
|
|
1,478
|
|
|
|
22
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,478
|
|
|
|
22
|
|
Total
|
|
$
|
28,374
|
|
|
$
|
129
|
|
|
$
|
2,808
|
|
|
$
|
38
|
|
|
$
|
31,182
|
|
|
$
|
167
|
|
Information
pertaining to the number of securities with gross unrealized losses is detailed in the table below:
Schedule of Number of Securities Available-For-Sale, Unrealized Loss
|
|
September 30, 2021
|
|
|
|
Less Than
12 Months
|
|
|
More Than
12 Months
|
|
|
Total
|
|
U.S. government agencies
|
|
|
2
|
|
|
|
—
|
|
|
|
2
|
|
State and municipal obligations
|
|
|
3
|
|
|
|
—
|
|
|
|
3
|
|
Mortgage-backed securities - agency
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations - agency
|
|
|
6
|
|
|
|
2
|
|
|
|
8
|
|
Asset-backed securities
|
|
|
—
|
|
|
|
2
|
|
|
|
2
|
|
Corporate bonds
|
|
|
5
|
|
|
|
—
|
|
|
|
5
|
|
|
|
|
23
|
|
|
|
4
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
Less Than
12 Months
|
|
|
More Than
12 Months
|
|
|
Total
|
|
Mortgage-backed securities - agency
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations - agency
|
|
|
5
|
|
|
|
—
|
|
|
|
5
|
|
Asset-backed securities
|
|
|
—
|
|
|
|
2
|
|
|
|
2
|
|
Corporate bonds
|
|
|
4
|
|
|
|
—
|
|
|
|
4
|
|
|
|
|
10
|
|
|
|
2
|
|
|
|
12
|
|
Management of
the Company believes all unrealized losses as of September 30, 2021 and December 31, 2020 represent temporary impairment. The
unrealized losses have resulted from temporary changes in the interest rate market and not as a result of credit deterioration.
We do not intend to sell and it is not likely that we will be required to sell any of the securities referenced in the table below
before recovery of their amortized cost.
Schedule
of Realized Gain Loss
|
|
Three Months Ended
September 30,
2020
|
|
|
Nine Months Ended
September 30,
2020
|
|
AFS
|
|
|
|
|
|
|
|
|
Gross proceeds
|
|
$
|
—
|
|
|
$
|
18,787
|
|
Gross realized gains
|
|
|
—
|
|
|
|
392
|
|
There were no AFS investment security
sales for the three or nine months ended September 30, 2021.
The amortized
cost and estimated fair value of AFS investments in debt securities at September 30, 2021, by contractual maturity, are shown
below (in thousands).
Schedule of Securities Available-For-Sale by Contractual Maturity
|
|
September 30, 2021
|
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
Over 5 years through 10 years
|
|
$
|
16,903
|
|
|
$
|
17,247
|
|
Over 10 years
|
|
|
19,407
|
|
|
|
19,986
|
|
Total securities other than asset-backed and mortgage-backed securities
|
|
|
36,310
|
|
|
|
37,233
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
Collaterized mortgage obligations
|
|
|
47,760
|
|
|
|
48,103
|
|
Asset-backed securities
|
|
|
2,672
|
|
|
|
2,667
|
|
Total
|
|
$
|
125,921
|
|
|
$
|
127,252
|
|
Expected maturities
may differ from contractual maturities when issuers and borrowers have the right to call or prepay the obligations.
AFS securities
totaling $0.2 million were pledged against deposits and borrowings at September 30, 2021. No AFS securities were pledged at December
31, 2020.
Other investments are comprised of
the following and are recorded at cost which approximates fair value (in thousands):
Schedule of Other Investment
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Federal Home Loan Bank stock
|
|
$
|
1,225
|
|
|
$
|
1,501
|
|
Investment in Trust Preferred Securities
|
|
|
247
|
|
|
|
247
|
|
Certificates of deposit
|
|
|
1,504
|
|
|
|
4,004
|
|
Other investments
|
|
|
500
|
|
|
|
500
|
|
Total other investments, at cost
|
|
$
|
3,476
|
|
|
$
|
6,252
|
|
Certificates of deposit totaling
$1.2 million and $0.8 million were pledged against customer deposits at September 30, 2021, and December 31, 2020, respectively.
Federal Home Loan Bank of Atlanta (“FHLB”) stock is used to collateralize advances with the FHLB.
NOTE
3. LOANS RECEIVABLE
Loans receivable are summarized in
the table below as of the dates indicated (in thousands):
Schedule of Loans Receivable
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
$
|
129,660
|
|
|
$
|
114,119
|
|
Commercial real estate
|
|
|
421,857
|
|
|
|
369,706
|
|
Home equity loans and lines of credit
|
|
|
20,581
|
|
|
|
17,174
|
|
Residential construction
|
|
|
35,041
|
|
|
|
30,989
|
|
Other construction and land
|
|
|
73,010
|
|
|
|
68,611
|
|
Total real estate loans
|
|
|
680,149
|
|
|
|
600,599
|
|
Commercial
|
|
|
225,355
|
|
|
|
243,617
|
|
Consumer
|
|
|
32,358
|
|
|
|
35,362
|
|
Total commercial and consumer
|
|
|
257,713
|
|
|
|
278,979
|
|
Loans receivable, gross
|
|
|
937,862
|
|
|
|
879,578
|
|
Net deferred loan fees
|
|
|
(707
|
)
|
|
|
(956
|
)
|
Unaccreted discount
|
|
|
(247
|
)
|
|
|
(274
|
)
|
Unamortized premium
|
|
|
185
|
|
|
|
197
|
|
Loans receivable, net of deferred fees and costs
|
|
$
|
937,093
|
|
|
$
|
878,545
|
|
Commercial loans
includes PPP loans with recorded investments of $6.7 million and $22.5 million as of September 30, 2021 and December 31, 2020,
respectively. Net deferred fee income recognized on PPP loans in the nine months ended September 30, 2021 totaled $0.8 million
and is included in loan interest income with $0.3 million remaining to be recognized in future periods.
The Bank had
$51.3 million and $41.1 million of loans pledged as collateral to secure funding with the FHLB at September 30, 2021 and December
31, 2020, respectively.
NOTE 4. ALLOWANCE FOR LOAN LOSSES
The changes
in the allowance for loan losses by portfolio segment are presented in the following tables for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2021
|
|
|
|
One-to-four
Family
Residential
|
|
|
Commercial
Real Estate
|
|
|
Home Equity and
Lines of Credit
|
|
|
Residential
Construction
|
|
|
Other
Construction
and Land
|
|
|
Commercial
|
|
|
Consumer
|
|
|
Total
|
|
Beginning balance
|
|
$
|
1,227
|
|
|
$
|
4,714
|
|
|
$
|
226
|
|
|
$
|
372
|
|
|
$
|
777
|
|
|
$
|
5,750
|
|
|
$
|
259
|
|
|
$
|
13,325
|
|
Provision
|
|
|
130
|
|
|
|
267
|
|
|
|
10
|
|
|
|
21
|
|
|
|
29
|
|
|
|
46
|
|
|
|
(9
|
)
|
|
|
494
|
|
Charge-offs
|
|
|
(1
|
)
|
|
|
(52
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(100
|
)
|
|
|
—
|
|
|
|
(153
|
)
|
Recoveries
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
62
|
|
|
|
—
|
|
|
|
64
|
|
Ending balance
|
|
$
|
1,358
|
|
|
$
|
4,929
|
|
|
$
|
236
|
|
|
$
|
393
|
|
|
$
|
806
|
|
|
$
|
5,758
|
|
|
$
|
250
|
|
|
$
|
13,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2020
|
|
|
|
One-to-four
Family
Residential
|
|
|
Commercial
Real Estate
|
|
|
Home Equity and
Lines of Credit
|
|
|
Residential
Construction
|
|
|
Other
Construction
and Land
|
|
|
Commercial
|
|
|
Consumer
|
|
|
Total
|
|
Beginning balance
|
|
$
|
1,323
|
|
|
$
|
3,941
|
|
|
$
|
237
|
|
|
$
|
211
|
|
|
$
|
710
|
|
|
$
|
4,800
|
|
|
$
|
147
|
|
|
$
|
11,369
|
|
Provision
|
|
|
(102
|
)
|
|
|
(107
|
)
|
|
|
(5
|
)
|
|
|
142
|
|
|
|
114
|
|
|
|
741
|
|
|
|
15
|
|
|
|
798
|
|
Charge-offs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(412
|
)
|
|
|
(1
|
)
|
|
|
(413
|
)
|
Recoveries
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
233
|
|
|
|
—
|
|
|
|
234
|
|
Ending balance
|
|
$
|
1,222
|
|
|
$
|
3,834
|
|
|
$
|
232
|
|
|
$
|
353
|
|
|
$
|
824
|
|
|
$
|
5,362
|
|
|
$
|
161
|
|
|
$
|
11,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2021
|
|
|
|
One-to-four
Family
Residential
|
|
|
Commercial
Real Estate
|
|
|
Home Equity and
Lines of Credit
|
|
|
Residential
Construction
|
|
|
Other
Construction
and Land
|
|
|
Commercial
|
|
|
Consumer
|
|
|
Total
|
|
Beginning balance
|
|
$
|
1,297
|
|
|
$
|
4,559
|
|
|
$
|
231
|
|
|
$
|
389
|
|
|
$
|
843
|
|
|
$
|
5,118
|
|
|
$
|
135
|
|
|
$
|
12,572
|
|
Provision
|
|
|
70
|
|
|
|
422
|
|
|
|
5
|
|
|
|
4
|
|
|
|
(54
|
)
|
|
|
483
|
|
|
|
115
|
|
|
|
1,045
|
|
Charge-offs
|
|
|
(30
|
)
|
|
|
(52
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(304
|
)
|
|
|
—
|
|
|
|
(386
|
)
|
Recoveries
|
|
|
21
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17
|
|
|
|
461
|
|
|
|
—
|
|
|
|
499
|
|
Ending balance
|
|
$
|
1,358
|
|
|
$
|
4,929
|
|
|
$
|
236
|
|
|
$
|
393
|
|
|
$
|
806
|
|
|
$
|
5,758
|
|
|
$
|
250
|
|
|
$
|
13,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020
|
|
|
|
One-to-four
Family
Residential
|
|
|
Commercial
Real Estate
|
|
|
Home Equity and
Lines of Credit
|
|
|
Residential
Construction
|
|
|
Other
Construction
and Land
|
|
|
Commercial
|
|
|
Consumer
|
|
|
Total
|
|
Beginning balance
|
|
$
|
1,098
|
|
|
$
|
3,122
|
|
|
$
|
188
|
|
|
$
|
84
|
|
|
$
|
584
|
|
|
$
|
5,024
|
|
|
$
|
187
|
|
|
$
|
10,287
|
|
Provision
|
|
|
121
|
|
|
|
712
|
|
|
|
44
|
|
|
|
269
|
|
|
|
240
|
|
|
|
1,174
|
|
|
|
(23
|
)
|
|
|
2,537
|
|
Charge-offs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,623
|
)
|
|
|
(27
|
)
|
|
|
(1,650
|
)
|
Recoveries
|
|
|
3
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
787
|
|
|
|
24
|
|
|
|
814
|
|
Ending balance
|
|
$
|
1,222
|
|
|
$
|
3,834
|
|
|
$
|
232
|
|
|
$
|
353
|
|
|
$
|
824
|
|
|
$
|
5,362
|
|
|
$
|
161
|
|
|
$
|
11,988
|
|
The allocation of the allowance
for loan losses and the recorded investment in loans is presented in the following tables by portfolio segment and reserving methodology
as of the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
|
|
One-to-four
Family
Residential
|
|
|
Commercial
Real Estate
|
|
|
Home Equity and
Lines of Credit
|
|
|
Residential
Construction
|
|
|
Other
Construction
and Land
|
|
|
Commercial
|
|
|
Consumer
|
|
|
Total
|
|
Allowance for loan losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
21
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
21
|
|
Collectively evaluated for impairment
|
|
|
1,337
|
|
|
|
4,929
|
|
|
|
236
|
|
|
|
393
|
|
|
|
806
|
|
|
|
5,758
|
|
|
|
250
|
|
|
|
13,709
|
|
Ending Balance
|
|
$
|
1,358
|
|
|
$
|
4,929
|
|
|
$
|
236
|
|
|
$
|
393
|
|
|
$
|
806
|
|
|
$
|
5,758
|
|
|
$
|
250
|
|
|
$
|
13,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
741
|
|
|
$
|
2,129
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
30
|
|
|
$
|
—
|
|
|
$
|
2,900
|
|
Collectively evaluated for impairment
|
|
|
128,695
|
|
|
|
419,058
|
|
|
|
20,624
|
|
|
|
34,899
|
|
|
|
72,714
|
|
|
|
225,794
|
|
|
|
32,409
|
|
|
|
934,193
|
|
Loans and Leases Receivable, Gross
|
|
$
|
129,436
|
|
|
$
|
421,187
|
|
|
$
|
20,624
|
|
|
$
|
34,899
|
|
|
$
|
72,714
|
|
|
$
|
225,824
|
|
|
$
|
32,409
|
|
|
$
|
937,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
One-to-four
Family
Residential
|
|
|
Commercial
Real Estate
|
|
|
Home Equity and
Lines of Credit
|
|
|
Residential
Construction
|
|
|
Other
Construction
and Land
|
|
|
Commercial
|
|
|
Consumer
|
|
|
Total
|
|
Allowance for loan losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
1
|
|
Collectively evaluated for impairment
|
|
|
1,297
|
|
|
|
4,559
|
|
|
|
231
|
|
|
|
389
|
|
|
|
843
|
|
|
|
5,117
|
|
|
|
135
|
|
|
|
12,571
|
|
Ending Balance
|
|
$
|
1,297
|
|
|
$
|
4,559
|
|
|
$
|
231
|
|
|
$
|
389
|
|
|
$
|
843
|
|
|
$
|
5,118
|
|
|
$
|
135
|
|
|
$
|
12,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
281
|
|
|
$
|
987
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
126
|
|
|
$
|
320
|
|
|
$
|
66
|
|
|
$
|
1,780
|
|
Collectively evaluated for impairment
|
|
|
113,658
|
|
|
|
368,149
|
|
|
|
17,213
|
|
|
|
30,838
|
|
|
|
68,160
|
|
|
|
243,401
|
|
|
|
35,346
|
|
|
|
876,765
|
|
Loans and Leases Receivable, Gross
|
|
$
|
113,939
|
|
|
$
|
369,136
|
|
|
$
|
17,213
|
|
|
$
|
30,838
|
|
|
$
|
68,286
|
|
|
$
|
243,721
|
|
|
$
|
35,412
|
|
|
$
|
878,545
|
|
Portfolio
Quality Indicators
The
Company’s loan portfolio grading analysis estimates the capability of the borrower to repay the contractual obligations
of the loan agreements as scheduled. The Company’s internal credit risk grading system is based on experiences with similarly
graded loans, industry best practices, and regulatory guidance. Credit risk grades are refreshed each quarter, at which time management
analyzes the resulting information, as well as other external statistics and factors, to track loan performance.
The
Company’s internally assigned grades pursuant to the Board-approved lending policy are as follows:
|
·
|
Pass
(1-5) – Acceptable loans with any identifiable weaknesses appropriately mitigated.
|
|
·
|
Special
Mention (6) – Potential weakness or identifiable weakness present without appropriate
mitigating factors; however, loan continues to perform satisfactorily with no material
delinquency noted. This may include some deterioration in repayment capacity and/or
loan-to-value of securing collateral.
|
|
·
|
Substandard
(7) – Significant weakness that remains unmitigated, most likely due to diminished
repayment capacity, serious delinquency, and/or marginal performance based upon restructured
loan terms.
|
|
·
|
Doubtful
(8) – Significant weakness that remains unmitigated and collection in full is highly
questionable or improbable.
|
|
·
|
Loss
(9) – Collectability is unlikely resulting in immediate charge-off.
|
Description of Segment and Class
Risks
Each of our
portfolio segments and the classes within those segments are subject to risks that could have an adverse impact on the credit
quality of our loan portfolio. Management has identified the most significant risks as described below which are generally similar
among our segments and classes. While the list is not exhaustive, it provides a description of the risks that management has determined
are the most significant.
One-to-four
family residential
We centrally
underwrite each of our one-to-four family residential loans using credit scoring and analytical tools consistent with the Board-approved
lending policy and internal procedures based upon industry best practices and regulatory directives. We also evaluate the value
and marketability of the collateral. Common risks to each class of non-commercial loans, including one-to-four family residential,
include risks that are not specific to individual transactions such as general economic conditions within our markets, particularly
unemployment and potential declines in real estate values. Personal events such as death, disability or change in marital status
also add risk to non-commercial loans.
Commercial real estate
Commercial mortgage
loans are primarily dependent on the ability of our customers to achieve business results consistent with those projected at loan
origination resulting in cash flow sufficient to service the debt. To the extent that a customer’s business results are
significantly unfavorable versus the original projections, the ability for our loan to be serviced on a basis consistent with
the contractual terms may be at risk. While these loans are secured by real property and possibly other business assets such as
inventory or accounts receivable, it is possible that the liquidation of the collateral will not fully satisfy the obligation.
Other commercial real estate loans consist primarily of loans secured by multifamily housing. The primary risk associated with
multifamily loans is the ability of the income-producing property that collateralizes the loan to produce adequate cash flow to
service the debt. High unemployment or generally weak economic conditions may result in our customer having to provide rental
rate concessions to achieve adequate occupancy rates.
Home equity
and lines of credit
Home equity
loans are often secured by first or second liens on residential real estate, thereby making such loans particularly susceptible
to declining collateral values. A substantial decline in collateral value could render our second lien position to be effectively
unsecured. Additional risks include lien perfection inaccuracies and disputes with first lienholders that may further weaken our
collateral position. Further, the open-end structure of these loans creates the risk that customers may draw on the lines of credit
in excess of the collateral value if there have been significant declines since origination.
Residential
construction and other construction and land
Residential
mortgage construction loans are typically secured by undeveloped or partially developed land with funds to be disbursed as home
construction is completed contingent upon receipt and satisfactory review of invoices and inspections. Declines in real estate
values can result in residential mortgage loan borrowers having debt levels in excess of the collateral’s current market
value. Non-commercial construction and land development loans can experience delays in completion and/or cost overruns that exceed
the borrower’s financial ability to complete the project. Cost overruns can result in foreclosure of partially completed
collateral with unrealized value and diminished marketability. Commercial construction and land
development loans are dependent on the supply and demand for commercial real estate in the markets we serve as well as the demand
for newly constructed residential homes and building lots. Deterioration in demand could result in significant decreases in the
underlying collateral values and make repayment of the outstanding loans more difficult for our customers.
Commercial
We centrally
underwrite each of our commercial loans, which includes agricultural loans and specialty floor-plan lending, based primarily upon
the customer’s ability to generate the required cash flow to service the debt in accordance with the contractual terms and
conditions of the loan agreement. We strive to gain a complete understanding of our borrower’s businesses, including the
experience and background of the principals of such businesses. To the extent that the loan is secured by collateral, which is
a predominant feature of the majority of our commercial loans, or other assets including accounts receivable and inventory, we
gain an understanding of the likely value of the collateral and what level of strength it brings to the loan transaction. To the
extent that the principals or other parties are obligated under the note or guaranty agreements, we analyze the relative financial
strength and liquidity of each guarantor. Common risks to each class of commercial loans include risks that are not specific to
individual transactions such as general economic conditions within our markets, as well as risks that are specific to each transaction
including volatility or seasonality of cash flows, changing demand for products and services, personal events such as death, disability
or change in marital status, and reductions in the value of our collateral. Common risks to specialty floor-plan lending includes
adverse conditions in the automobile market and risks associated with declining values. The performance of agricultural loans
is highly dependent on favorable weather, reasonable costs for seed and fertilizer, and the ability to successfully market the
product at a profitable margin. The demand for these products is also dependent on macroeconomic conditions that are beyond the
control of the borrower.
Consumer
The consumer
loan portfolio includes loans secured by personal property such as automobiles, marketable securities, other titled recreational
vehicles including boats and motorcycles, purchased student loans for which there is a 98% guarantee, as well as unsecured consumer
debt. The value of underlying collateral within this class is especially volatile due to potential rapid depreciation in values
since the date of loan origination in excess of principal repayment.
The recorded investment in
loans by portfolio segment and loan grade is presented in the following tables as of the dates indicated (in thousands):
Schedule of Loans by Portfolio and Grade
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
Loan Grade
|
|
|
One-to-Four
Family
Residential
|
|
|
Commercial
Real Estate
|
|
|
Home Equity
and Lines of Credit
|
|
|
Residential
Construction
|
|
|
Other
Construction
and Land
|
|
|
Commercial
|
|
|
Consumer
|
|
|
Total
|
|
1
|
|
|
$
|
410
|
|
|
$
|
2,246
|
|
|
$
|
115
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,934
|
|
|
$
|
246
|
|
|
$
|
4,951
|
|
2
|
|
|
|
—
|
|
|
|
251
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
261
|
|
|
|
—
|
|
|
|
512
|
|
3
|
|
|
|
8,840
|
|
|
|
40,501
|
|
|
|
3,490
|
|
|
|
—
|
|
|
|
10,093
|
|
|
|
13,558
|
|
|
|
46
|
|
|
|
76,528
|
|
4
|
|
|
|
104,484
|
|
|
|
309,881
|
|
|
|
15,006
|
|
|
|
31,597
|
|
|
|
51,797
|
|
|
|
98,494
|
|
|
|
30,619
|
|
|
|
641,878
|
|
5
|
|
|
|
13,276
|
|
|
|
59,626
|
|
|
|
1,677
|
|
|
|
3,302
|
|
|
|
10,824
|
|
|
|
109,943
|
|
|
|
1,406
|
|
|
|
200,054
|
|
6
|
|
|
|
1,317
|
|
|
|
6,281
|
|
|
|
258
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,287
|
|
|
|
29
|
|
|
|
9,172
|
|
7
|
|
|
|
1,109
|
|
|
|
2,401
|
|
|
|
78
|
|
|
|
—
|
|
|
|
—
|
|
|
|
347
|
|
|
|
63
|
|
|
|
3,998
|
|
Total
|
|
|
$
|
129,436
|
|
|
$
|
421,187
|
|
|
$
|
20,624
|
|
|
$
|
34,899
|
|
|
$
|
72,714
|
|
|
$
|
225,824
|
|
|
$
|
32,409
|
|
|
$
|
937,093
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Loan Grade
|
|
|
One-to-Four
Family
Residential
|
|
|
Commercial
Real Estate
|
|
|
Home Equity
and Lines of Credit
|
|
|
Residential
Construction
|
|
|
Other
Construction
and Land
|
|
|
Commercial
|
|
|
Consumer
|
|
|
Total
|
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
432
|
|
|
$
|
168
|
|
|
$
|
600
|
|
2
|
|
|
|
—
|
|
|
|
269
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
984
|
|
|
|
21
|
|
|
|
1,274
|
|
3
|
|
|
|
10,946
|
|
|
|
50,287
|
|
|
|
834
|
|
|
|
190
|
|
|
|
17,202
|
|
|
|
21,624
|
|
|
|
304
|
|
|
|
101,387
|
|
4
|
|
|
|
92,055
|
|
|
|
281,473
|
|
|
|
14,363
|
|
|
|
25,359
|
|
|
|
38,869
|
|
|
|
124,579
|
|
|
|
33,671
|
|
|
|
610,369
|
|
5
|
|
|
|
8,898
|
|
|
|
29,716
|
|
|
|
1,856
|
|
|
|
5,289
|
|
|
|
12,074
|
|
|
|
94,496
|
|
|
|
1,108
|
|
|
|
153,437
|
|
6
|
|
|
|
1,231
|
|
|
|
5,453
|
|
|
|
9
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,030
|
|
|
|
54
|
|
|
|
7,777
|
|
7
|
|
|
|
809
|
|
|
|
1,938
|
|
|
|
151
|
|
|
|
—
|
|
|
|
141
|
|
|
|
576
|
|
|
|
86
|
|
|
|
3,701
|
|
Total
|
|
|
$
|
113,939
|
|
|
$
|
369,136
|
|
|
$
|
17,213
|
|
|
$
|
30,838
|
|
|
$
|
68,286
|
|
|
$
|
243,721
|
|
|
$
|
35,412
|
|
|
$
|
878,545
|
|
Delinquency
Analysis of Loans by Class
An aging analysis
of the recorded investment of loans by portfolio segment, including loans on nonaccrual status as well as accruing TDRs and purchased
student loans for which there is a 98% guarantee, is presented in the following tables as of the dates indicated (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
|
|
30-59 Days
Past Due
|
|
|
60-89 Days
Past Due
|
|
|
90 Days and
Over Past
Due
|
|
|
Total Past
Due
|
|
|
Current
|
|
|
Total
Loans
Receivable
|
|
One-to-four family residential
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
129,436
|
|
|
$
|
129,436
|
|
Commercial real estate
|
|
|
98
|
|
|
|
—
|
|
|
|
120
|
|
|
|
218
|
|
|
|
420,969
|
|
|
|
421,187
|
|
Home equity and lines of credit
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20,624
|
|
|
|
20,624
|
|
Residential construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
34,899
|
|
|
|
34,899
|
|
Other construction and land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
72,714
|
|
|
|
72,714
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
225,824
|
|
|
|
225,824
|
|
Consumer
|
|
|
1,130
|
|
|
|
238
|
|
|
|
2,189
|
|
|
|
3,557
|
|
|
|
28,852
|
|
|
|
32,409
|
|
Total
|
|
$
|
1,228
|
|
|
$
|
238
|
|
|
$
|
2,309
|
|
|
$
|
3,775
|
|
|
$
|
933,318
|
|
|
$
|
937,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
30-59 Days
Past Due
|
|
|
60-89 Days
Past Due
|
|
|
90 Days and
Over Past
Due
|
|
|
Total Past
Due
|
|
|
Current
|
|
|
Total
Loans
Receivable
|
|
One-to-four family residential
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
15
|
|
|
$
|
15
|
|
|
$
|
113,924
|
|
|
$
|
113,939
|
|
Commercial real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
369,136
|
|
|
|
369,136
|
|
Home equity and lines of credit
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17,213
|
|
|
|
17,213
|
|
Residential construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30,838
|
|
|
|
30,838
|
|
Other construction and land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
68,286
|
|
|
|
68,286
|
|
Commercial
|
|
|
6
|
|
|
|
—
|
|
|
|
2
|
|
|
|
8
|
|
|
|
243,713
|
|
|
|
243,721
|
|
Consumer
|
|
|
1,840
|
|
|
|
727
|
|
|
|
2,549
|
|
|
|
5,116
|
|
|
|
30,296
|
|
|
|
35,412
|
|
Total
|
|
$
|
1,846
|
|
|
$
|
727
|
|
|
$
|
2,566
|
|
|
$
|
5,139
|
|
|
$
|
873,406
|
|
|
$
|
878,545
|
|
Impaired
Loans
The following
table presents recorded investments in loans considered to be impaired and related information on those impaired loans as of September
30, 2021 and December 31, 2020 (in thousands).
Schedule of Impaired Loans
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
|
|
Recorded
Balance
|
|
|
Unpaid
Principal
Balance
|
|
|
Specific
Allowance
|
|
|
Recorded
Balance
|
|
|
Unpaid
Principal
Balance
|
|
|
Specific
Allowance
|
|
Loans without a valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
$
|
389
|
|
|
$
|
390
|
|
|
$
|
—
|
|
|
$
|
281
|
|
|
$
|
352
|
|
|
$
|
—
|
|
Commercial real estate
|
|
|
2,129
|
|
|
|
2,181
|
|
|
|
—
|
|
|
|
987
|
|
|
|
994
|
|
|
|
—
|
|
Other construction and land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
126
|
|
|
|
152
|
|
|
|
—
|
|
Commercial
|
|
|
30
|
|
|
|
30
|
|
|
|
—
|
|
|
|
308
|
|
|
|
434
|
|
|
|
—
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
66
|
|
|
|
68
|
|
|
|
—
|
|
|
|
|
2,548
|
|
|
|
2,601
|
|
|
|
—
|
|
|
|
1,768
|
|
|
|
2,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with a valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
|
352
|
|
|
|
351
|
|
|
|
21
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12
|
|
|
|
12
|
|
|
|
1
|
|
|
|
|
352
|
|
|
|
351
|
|
|
|
21
|
|
|
|
12
|
|
|
|
12
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
|
741
|
|
|
|
741
|
|
|
|
21
|
|
|
|
281
|
|
|
|
352
|
|
|
|
—
|
|
Commercial real estate
|
|
|
2,129
|
|
|
|
2,181
|
|
|
|
—
|
|
|
|
987
|
|
|
|
994
|
|
|
|
—
|
|
Other construction and land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
126
|
|
|
|
152
|
|
|
|
—
|
|
Commercial
|
|
|
30
|
|
|
|
30
|
|
|
|
—
|
|
|
|
320
|
|
|
|
446
|
|
|
|
1
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
66
|
|
|
|
68
|
|
|
|
—
|
|
|
|
$
|
2,900
|
|
|
$
|
2,952
|
|
|
$
|
21
|
|
|
$
|
1,780
|
|
|
$
|
2,012
|
|
|
$
|
1
|
|
The average recorded investment
in impaired loans by portfolio segment and interest income recognized on those impaired loans is presented in the following table
for the periods indicated (in thousands):
|
|
Three Months Ended September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
Average
Investment in
Impaired
Loans
|
|
|
Interest
Income
Recognized
|
|
|
Average
Investment in
Impaired
Loans
|
|
|
Interest
Income
Recognized
|
|
Loans without a valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
$
|
391
|
|
|
$
|
3
|
|
|
$
|
356
|
|
|
$
|
10
|
|
Commercial real estate
|
|
|
2,202
|
|
|
|
19
|
|
|
|
2,403
|
|
|
|
70
|
|
Other construction and land
|
|
|
—
|
|
|
|
—
|
|
|
|
281
|
|
|
|
10
|
|
Commercial
|
|
|
33
|
|
|
|
—
|
|
|
|
266
|
|
|
|
5
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
|
|
77
|
|
|
|
2
|
|
|
|
|
2,626
|
|
|
|
22
|
|
|
|
3,383
|
|
|
|
97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with a valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
|
352
|
|
|
|
3
|
|
|
|
—
|
|
|
|
—
|
|
Commercial real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Other construction and land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
260
|
|
|
|
—
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
|
|
16
|
|
|
|
—
|
|
|
|
|
352
|
|
|
|
3
|
|
|
|
276
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
|
743
|
|
|
|
6
|
|
|
|
356
|
|
|
|
10
|
|
Commercial real estate
|
|
|
2,202
|
|
|
|
19
|
|
|
|
2,403
|
|
|
|
70
|
|
Other construction and land
|
|
|
—
|
|
|
|
—
|
|
|
|
281
|
|
|
|
10
|
|
Commercial
|
|
|
33
|
|
|
|
—
|
|
|
|
526
|
|
|
|
5
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
|
|
93
|
|
|
|
2
|
|
|
|
$
|
2,978
|
|
|
$
|
25
|
|
|
$
|
3,659
|
|
|
$
|
97
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
Average
Investment in
Impaired
Loans
|
|
|
Interest
Income
Recognized
|
|
|
Average
Investment in
Impaired
Loans
|
|
|
Interest
Income
Recognized
|
|
Loans without a valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
$
|
394
|
|
|
$
|
9
|
|
|
$
|
359
|
|
|
$
|
15
|
|
Commercial real estate
|
|
|
2,243
|
|
|
|
59
|
|
|
|
2,429
|
|
|
|
94
|
|
Other construction and land
|
|
|
35
|
|
|
|
—
|
|
|
|
283
|
|
|
|
10
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
392
|
|
|
|
7
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
|
|
83
|
|
|
|
3
|
|
|
|
|
2,672
|
|
|
|
68
|
|
|
|
3,546
|
|
|
|
129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with a valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
|
355
|
|
|
|
9
|
|
|
|
—
|
|
|
|
—
|
|
Commercial real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Other construction and land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
311
|
|
|
|
—
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
|
|
16
|
|
|
|
1
|
|
|
|
|
355
|
|
|
|
9
|
|
|
|
327
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
|
749
|
|
|
|
18
|
|
|
|
359
|
|
|
|
15
|
|
Commercial real estate
|
|
|
2,243
|
|
|
|
59
|
|
|
|
2,429
|
|
|
|
94
|
|
Other construction and land
|
|
|
35
|
|
|
|
—
|
|
|
|
283
|
|
|
|
10
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
703
|
|
|
|
7
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
|
|
99
|
|
|
|
4
|
|
|
|
$
|
3,027
|
|
|
$
|
77
|
|
|
$
|
3,873
|
|
|
$
|
130
|
|
Nonperforming
Loans
The recorded investment of
nonperforming loans by portfolio segment is presented in the table below as of the dates indicated (in thousands):
Schedule of Non-Performaing Loans
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
One-to-four family residential
|
|
$
|
129
|
|
|
$
|
39
|
|
Commercial real estate
|
|
|
790
|
|
|
|
31
|
|
Other construction and land
|
|
|
—
|
|
|
|
126
|
|
Commercial
|
|
|
230
|
|
|
|
324
|
|
Consumer
|
|
|
4
|
|
|
|
13
|
|
Non-performing loans
|
|
$
|
1,153
|
|
|
$
|
533
|
|
TDRs
The recorded investment in
performing and nonperforming TDRs by portfolio segment is presented in the tables below as of the dates indicated (in thousands):
Schedule of TDR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
|
|
Performing
|
|
|
Nonperforming
|
|
|
Total
|
|
|
|
TDRs
|
|
|
TDRs
|
|
|
TDRs
|
|
One-to-four family residential
|
|
$
|
582
|
|
|
$
|
21
|
|
|
$
|
603
|
|
Commercial real estate
|
|
|
888
|
|
|
|
—
|
|
|
|
888
|
|
Other construction and land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial
|
|
|
301
|
|
|
|
118
|
|
|
|
419
|
|
Consumer
|
|
|
43
|
|
|
|
4
|
|
|
|
47
|
|
|
|
$
|
1,814
|
|
|
$
|
143
|
|
|
$
|
1,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
Performing
|
|
|
Nonperforming
|
|
|
Total
|
|
|
|
TDRs
|
|
|
TDRs
|
|
|
TDRs
|
|
One-to-four family residential
|
|
$
|
241
|
|
|
$
|
40
|
|
|
$
|
281
|
|
Commercial real estate
|
|
|
956
|
|
|
|
—
|
|
|
|
956
|
|
Other construction and land
|
|
|
—
|
|
|
|
126
|
|
|
|
126
|
|
Commercial
|
|
|
—
|
|
|
|
132
|
|
|
|
132
|
|
Consumer
|
|
|
57
|
|
|
|
10
|
|
|
|
67
|
|
|
|
$
|
1,254
|
|
|
$
|
308
|
|
|
$
|
1,562
|
|
Loan modifications that were
deemed TDRs at the time of the modification are presented in the table below for the periods indicated (in thousands):
|
|
Modification Type
|
|
Number of
TDR Loans
|
|
Pre-Modification
Recorded Investment
|
|
|
Post-Modification
Recorded Investment
|
|
Three months ended September 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
Extended payment terms
|
|
3
|
|
$
|
302
|
|
|
$
|
302
|
|
There were no loan modifications
deemed TDRs for the three months ended September 30, 2020.
|
|
Modification
Type
|
|
Number
of
TDR Loans
|
|
Pre-Modification
Recorded Investment
|
|
|
Post-Modification
Recorded Investment
|
|
Nine months
ended September 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate concession
|
|
1
|
|
$
|
357
|
|
|
$
|
357
|
|
|
|
Extended payment terms
|
|
3
|
|
|
302
|
|
|
|
302
|
|
Total
|
|
|
|
4
|
|
$
|
659
|
|
|
$
|
659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Extended payment terms
|
|
3
|
|
$
|
173
|
|
|
$
|
172
|
|
There were no TDRs that defaulted
during the three or nine month period ending September 30, 2021 or 2020 and which were modified as TDRs within the previous 12
months.
NOTE
5. DEPOSITS
Deposit
balances and interest expense by type of deposit are summarized as follows as of and for the periods indicated (in thousands):
Schedule
of Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the
|
|
|
As of and for the Year Ended
|
|
|
|
Nine Months Ended September 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
2020
|
|
|
|
Balance
|
|
|
Interest
Expense
|
|
|
Balance
|
|
|
Interest
Expense
|
|
|
Balance
|
|
|
Interest
Expense
|
|
Noninterest-bearing demand
|
|
$
|
268,858
|
|
|
$
|
—
|
|
|
$
|
189,776
|
|
|
$
|
—
|
|
|
$
|
203,502
|
|
|
$
|
—
|
|
Interest-bearing demand
|
|
|
67,027
|
|
|
|
130
|
|
|
|
49,147
|
|
|
|
44
|
|
|
|
63,614
|
|
|
|
75
|
|
Money Market
|
|
|
478,897
|
|
|
|
1,401
|
|
|
|
322,203
|
|
|
|
1,442
|
|
|
|
384,838
|
|
|
|
1,915
|
|
Savings
|
|
|
14,927
|
|
|
|
9
|
|
|
|
18,904
|
|
|
|
26
|
|
|
|
10,584
|
|
|
|
8
|
|
Time Deposits
|
|
|
222,028
|
|
|
|
1,012
|
|
|
|
305,206
|
|
|
|
4,713
|
|
|
|
283,942
|
|
|
|
5,416
|
|
|
|
$
|
1,051,737
|
|
|
$
|
2,552
|
|
|
$
|
885,236
|
|
|
$
|
6,225
|
|
|
$
|
946,480
|
|
|
$
|
7,414
|
|
NOTE
6. COMMITMENTS AND CONTINGENCIES
In the normal
course of business, we make various commitments and incur certain contingent liabilities, which are not reflected in the accompanying
financial statements. The commitments and contingent liabilities include guarantees, commitments to extend credit, and standby
letters of credit. At September 30, 2021, commitments to extend credit and standby letters of credit totaled $300.0 million. We
do not anticipate any material losses as a result of these transactions.
In the normal
course of business, the Company is periodically involved in litigation and other matters. In the opinion of the Company’s
management, none of the litigation and other matters are expected to have a material adverse effect on the accompanying consolidated
financial statements.
NOTE
7. EARNINGS PER SHARE
The following
is a reconciliation of the numerator and denominator of basic and diluted net income per share of common stock as of the dates
indicated (in thousands, except per share data):
Schedule of Earning per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,834
|
|
|
$
|
1,888
|
|
|
$
|
11,391
|
|
|
$
|
5,435
|
|
Less: Preferred stock dividends
|
|
|
(30
|
)
|
|
|
(25
|
)
|
|
|
(90
|
)
|
|
|
(73
|
)
|
Net income applicable to common equity
|
|
|
3,804
|
|
|
|
1,863
|
|
|
|
11,301
|
|
|
|
5,362
|
|
Undistributed earnings allocated to participating securities
|
|
|
(182
|
)
|
|
|
(79
|
)
|
|
|
(539
|
)
|
|
|
(225
|
)
|
Net income applicable to common stockholders
|
|
$
|
3,622
|
|
|
$
|
1,784
|
|
|
$
|
10,762
|
|
|
$
|
5,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic - Total weighted-average basic shares outstandings
|
|
|
5,141,214
|
|
|
|
5,213,607
|
|
|
|
5,158,816
|
|
|
|
5,210,066
|
|
Stock options
|
|
|
150,928
|
|
|
|
54,805
|
|
|
|
111,322
|
|
|
|
62,655
|
|
Diluted - Total weighted-average diluted shares outstanding
|
|
|
5,292,142
|
|
|
|
5,268,412
|
|
|
|
5,270,138
|
|
|
|
5,272,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share
|
|
$
|
0.71
|
|
|
$
|
0.35
|
|
|
$
|
2.09
|
|
|
$
|
0.99
|
|
Diluted income per share
|
|
$
|
0.68
|
|
|
$
|
0.33
|
|
|
$
|
2.04
|
|
|
$
|
0.97
|
|
The Company
excluded 107,500 potentially dilutive shares of common stock issuable upon exercise of stock options with a weighted average exercise
price of $24.21 from the computation of diluted earnings per share for the three and nine months ended September 30, 2021 because
of their antidilutive effect.
The Company
excluded 559,000 potentially dilutive shares of common stock issuable upon exercise of stock options with weighted average exercise
prices of $15.93 from the computation of diluted earnings per share for the three and nine months ended September 30, 2020 because
of their antidilutive effect.
NOTE 8. ACCUMULATED OTHER COMPREHENSIVE
INCOME
The components
of accumulated other comprehensive income and changes in those components are presented in the tables below as of and for the
years indicated (in thousands).
Schedule of Changes in Accumulated Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2021
|
|
|
Nine Months Ended
September 30, 2021
|
|
|
|
AFS
Securities
|
|
|
Total
|
|
|
AFS
Securities
|
|
|
Total
|
|
Balance, beginning of period
|
|
$
|
1,454
|
|
|
$
|
1,454
|
|
|
$
|
2,159
|
|
|
$
|
2,159
|
|
Change in net unrealized holding gains on AFS securities
|
|
|
(526
|
)
|
|
|
(526
|
)
|
|
|
(1,427
|
)
|
|
|
(1,427
|
)
|
Income tax effect
|
|
|
114
|
|
|
|
114
|
|
|
|
310
|
|
|
|
310
|
|
Balance, end of period
|
|
$
|
1,042
|
|
|
$
|
1,042
|
|
|
$
|
1,042
|
|
|
$
|
1,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2020
|
|
|
Nine Months Ended
September 30, 2020
|
|
|
|
AFS
Securities
|
|
|
Total
|
|
|
AFS
Securities
|
|
|
Total
|
|
Balance, beginning of period
|
|
$
|
1,385
|
|
|
$
|
1,385
|
|
|
$
|
184
|
|
|
$
|
184
|
|
Change in net unrealized holding losses on AFS securities
|
|
|
549
|
|
|
|
549
|
|
|
|
2,506
|
|
|
|
2,506
|
|
Reclassification adjustment for securities gains realized in net income
|
|
|
—
|
|
|
|
—
|
|
|
|
(392
|
)
|
|
|
(392
|
)
|
Income tax effect
|
|
|
(128
|
)
|
|
|
(128
|
)
|
|
|
(492
|
)
|
|
|
(492
|
)
|
Balance, end of period
|
|
$
|
1,806
|
|
|
$
|
1,806
|
|
|
$
|
1,806
|
|
|
$
|
1,806
|
|
There were no AFS securities
sold during the three or nine months ended September 30, 2021.
NOTE
9. REPORTABLE SEGMENTS
Grandsouth Bank
conducts traditional banking operations (as Grandsouth Bank, or Core Bank) and offers specialty lending (as Carbucks). The Core
Bank and Carbucks are Grandsouth’s primary reportable segments for management financial reporting. This business segment
structure along primary lending products is consistent with the way management internally reviews financial information and allocates
resources. Results for prior periods have been restated for comparability.
Segment information
is shown in the tables below as of and for the periods indicated (in thousands).
Schedule of Reportable Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Three Months Ended
September 30, 2021
|
|
|
As of and for the Three Months Ended
September 30, 2020
|
|
|
|
Core Bank
|
|
|
Carbucks
|
|
|
Other
|
|
|
Total
|
|
|
Core Bank
|
|
|
Carbucks
|
|
|
Other
|
|
|
Total
|
|
Interest income
|
|
$
|
8,795
|
|
|
$
|
4,754
|
|
|
$
|
461
|
|
|
$
|
14,010
|
|
|
$
|
7,841
|
|
|
$
|
3,574
|
|
|
$
|
363
|
|
|
$
|
11,778
|
|
Interest expense
|
|
|
418
|
|
|
|
374
|
|
|
|
431
|
|
|
|
1,223
|
|
|
|
1,284
|
|
|
|
265
|
|
|
|
219
|
|
|
|
1,768
|
|
Net interest income
|
|
|
8,377
|
|
|
|
4,380
|
|
|
|
30
|
|
|
|
12,787
|
|
|
|
6,557
|
|
|
|
3,309
|
|
|
|
144
|
|
|
|
10,010
|
|
Provision for loan losses
|
|
|
386
|
|
|
|
108
|
|
|
|
—
|
|
|
|
494
|
|
|
|
125
|
|
|
|
673
|
|
|
|
—
|
|
|
|
798
|
|
Noninterest income
|
|
|
443
|
|
|
|
38
|
|
|
|
177
|
|
|
|
658
|
|
|
|
423
|
|
|
|
31
|
|
|
|
108
|
|
|
|
562
|
|
Noninterest expense
|
|
|
5,409
|
|
|
|
2,487
|
|
|
|
11
|
|
|
|
7,907
|
|
|
|
4,966
|
|
|
|
2,240
|
|
|
|
15
|
|
|
|
7,221
|
|
Income tax expense
|
|
|
726
|
|
|
|
436
|
|
|
|
48
|
|
|
|
1,210
|
|
|
|
492
|
|
|
|
123
|
|
|
|
50
|
|
|
|
665
|
|
Net income
|
|
$
|
2,299
|
|
|
$
|
1,387
|
|
|
$
|
148
|
|
|
$
|
3,834
|
|
|
$
|
1,397
|
|
|
$
|
304
|
|
|
$
|
187
|
|
|
$
|
1,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
.
|
|
|
|
|
|
|
|
|
|
Total loans, net of deferred fees and costs
|
|
$
|
845,962
|
|
|
$
|
91,131
|
|
|
$
|
—
|
|
|
$
|
937,093
|
|
|
$
|
769,324
|
|
|
$
|
70,237
|
|
|
$
|
—
|
|
|
$
|
839,561
|
|
Total assets
|
|
$
|
970,034
|
|
|
$
|
90,434
|
|
|
$
|
142,199
|
|
|
$
|
1,202,667
|
|
|
$
|
825,180
|
|
|
$
|
69,730
|
|
|
$
|
117,888
|
|
|
$
|
1,012,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Nine Months Ended
September 30, 2021
|
|
|
As of and for the Nine Months Ended
September 30, 2020
|
|
|
|
Core Bank
|
|
|
Carbucks
|
|
|
Other
|
|
|
Total
|
|
|
Core Bank
|
|
|
Carbucks
|
|
|
Other
|
|
|
Total
|
|
Interest income
|
|
$
|
25,823
|
|
|
$
|
13,879
|
|
|
$
|
1,228
|
|
|
$
|
40,930
|
|
|
$
|
23,740
|
|
|
$
|
12,298
|
|
|
$
|
1,082
|
|
|
$
|
37,120
|
|
Interest expense
|
|
|
1,580
|
|
|
|
1,079
|
|
|
|
1,296
|
|
|
|
3,955
|
|
|
|
5,028
|
|
|
|
1,323
|
|
|
|
703
|
|
|
|
7,054
|
|
Net interest income
|
|
|
24,243
|
|
|
|
12,800
|
|
|
|
(68
|
)
|
|
|
36,975
|
|
|
|
18,712
|
|
|
|
10,975
|
|
|
|
379
|
|
|
|
30,066
|
|
Provision for loan losses
|
|
|
977
|
|
|
|
68
|
|
|
|
—
|
|
|
|
1,045
|
|
|
|
1,727
|
|
|
|
810
|
|
|
|
—
|
|
|
|
2,537
|
|
Noninterest income
|
|
|
1,561
|
|
|
|
112
|
|
|
|
328
|
|
|
|
2,001
|
|
|
|
1,132
|
|
|
|
95
|
|
|
|
733
|
|
|
|
1,960
|
|
Noninterest expense
|
|
|
15,568
|
|
|
|
7,362
|
|
|
|
47
|
|
|
|
22,977
|
|
|
|
15,026
|
|
|
|
7,178
|
|
|
|
46
|
|
|
|
22,250
|
|
Income tax expense
|
|
|
2,206
|
|
|
|
1,306
|
|
|
|
51
|
|
|
|
3,563
|
|
|
|
771
|
|
|
|
769
|
|
|
|
264
|
|
|
|
1,804
|
|
Net income
|
|
$
|
7,053
|
|
|
$
|
4,176
|
|
|
$
|
162
|
|
|
$
|
11,391
|
|
|
$
|
2,320
|
|
|
$
|
2,313
|
|
|
$
|
802
|
|
|
$
|
5,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
.
|
|
|
|
|
|
|
|
|
|
Total loans, net of deferred fees and costs
|
|
$
|
845,962
|
|
|
$
|
91,131
|
|
|
$
|
—
|
|
|
$
|
937,093
|
|
|
$
|
769,324
|
|
|
$
|
70,237
|
|
|
$
|
—
|
|
|
$
|
839,561
|
|
Total assets
|
|
$
|
970,034
|
|
|
$
|
90,434
|
|
|
$
|
142,199
|
|
|
$
|
1,202,667
|
|
|
$
|
825,180
|
|
|
$
|
69,730
|
|
|
$
|
117,888
|
|
|
$
|
1,012,798
|
|
Core
Bank - The bank’s primary business is to provide traditional deposit and lending products and services to commercial and
retail banking clients.
Carbucks –
The banking division that provides specialty floor plan lending to small automobile dealers in over 20 states.
Other –
Includes AFS securities portfolio, BOLI, parent company activities, net intercompany eliminations, and certain other activities
not currently allocated to the aforementioned segments.
NOTE 10. FAIR VALUE DISCLOSURES
Overview
Fair value measurements
are determined based on the assumptions that market participants would use in pricing an asset or liability. As a basis for considering
market participant assumptions in fair value measurements, ASC Topic 820, Fair Value Measurements and Disclosures (“ASC
820”) establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data
obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of
the hierarchy) and the reporting entity’s own assumptions about market participant assumptions developed based on the best information
available in the circumstances (unobservable inputs classified within Level 3 of the hierarchy).
Fair Value
Hierarchy
Level 1
- Valuation is based on inputs that are quoted prices (unadjusted) in active markets for identical assets or liabilities that
the Company has the ability to access at the measurement date.
Level 2
- Valuation is based on inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly or indirectly, such as interest rates, yield curves observable at commonly quoted intervals, and other
market-corroborated inputs.
Level 3
- Valuation is generated from techniques that use at least one significant assumption not observable in the market. These
unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability.
Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques.
In general,
fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is
based upon models that primarily use, as inputs, observable market-based parameters. In instances where the determination of the
fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy
within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value
measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement
in its entirety requires judgment and considers factors specific to the asset or liability. The Company evaluates fair value measurement
inputs on an ongoing basis in order to determine if there is a change of sufficient significance to warrant a transfer between
levels. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that
caused the transfer, which generally coincides with the Company’s valuation process.
Financial Assets and Financial
Liabilities Measured on a Recurring Basis
The Company
uses the following methods and assumptions in estimating the fair value of its financial assets and financial liabilities on a
recurring basis:
Investment Securities Available-for-Sale
We obtain fair
values for debt securities from a third-party pricing service, which utilizes several sources for valuing fixed-income securities.
The market evaluation sources for debt securities include observable inputs rather than significant unobservable inputs and are
classified as Level 2. The service provider utilizes pricing models that vary by asset class and include available trade, bid
and other market information. Generally, the methodologies include broker quotes, proprietary models, vast descriptive terms and
conditions databases, as well as extensive quality control programs.
Also included
in securities are corporate bonds which are valued using significant unobservable inputs and are classified as Level 2 or Level
3 based on market information available during the period.
Financial assets measured
at fair value on a recurring basis segregated by the level of valuation inputs within the fair value hierarchy utilized to measure
fair value are presented below as of the dates indicated (in thousands):
Schedule of Financial Assets Measured at Fair Value on Recurring Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies
|
|
$
|
—
|
|
|
$
|
7,444
|
|
|
$
|
—
|
|
|
$
|
7,444
|
|
State and municipal obligations
|
|
|
—
|
|
|
|
20,498
|
|
|
|
—
|
|
|
|
20,498
|
|
Collateralized mortgage obligations - agency
|
|
|
—
|
|
|
|
48,103
|
|
|
|
—
|
|
|
|
48,103
|
|
Asset-backed securities
|
|
|
—
|
|
|
|
2,667
|
|
|
|
—
|
|
|
|
2,667
|
|
Corporate bonds
|
|
|
—
|
|
|
|
—
|
|
|
|
9,291
|
|
|
|
9,291
|
|
Total recurring assets at fair value
|
|
$
|
—
|
|
|
$
|
117,961
|
|
|
$
|
9,291
|
|
|
$
|
127,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal obligations
|
|
$
|
—
|
|
|
$
|
17,820
|
|
|
$
|
—
|
|
|
$
|
17,820
|
|
Collateralized mortgage obligations - agency
|
|
|
—
|
|
|
|
50,560
|
|
|
|
—
|
|
|
|
50,560
|
|
Asset-backed securities
|
|
|
—
|
|
|
|
6,235
|
|
|
|
—
|
|
|
|
6,235
|
|
Corporate bonds
|
|
|
—
|
|
|
|
—
|
|
|
|
4,605
|
|
|
|
4,605
|
|
Total recurring assets at fair value
|
|
$
|
—
|
|
|
$
|
106,102
|
|
|
$
|
4,605
|
|
|
$
|
110,707
|
|
There were no
financial liabilities measured at fair value on a recurring basis as of September 30, 2021, or December 31, 2020.
The changes
in assets measured at fair value on a recurring basis for which we have utilized Level 3 inputs to determine fair value are presented
in the following table for the years indicated (in thousands):
Schedule of Changes in Assets Measured at Fair Value on Recurring Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Balance at beginning of period
|
|
$
|
7,604
|
|
|
$
|
500
|
|
|
$
|
4,605
|
|
|
$
|
500
|
|
Corporate bond additions
|
|
|
1,500
|
|
|
|
2,000
|
|
|
|
4,450
|
|
|
|
2,000
|
|
Corporate bond fair value adjustments
|
|
|
187
|
|
|
|
—
|
|
|
|
236
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
9,291
|
|
|
$
|
2,500
|
|
|
$
|
9,291
|
|
|
$
|
2,500
|
|
Financial Assets Measured on a
Nonrecurring Basis
The Company
uses the following methods and assumptions in estimating the fair value of its financial assets on a nonrecurring basis:
Impaired Loans
Impaired loans
are carried at the lower of recorded investment or fair value. The fair value of collateral dependent impaired loans is estimated
using the value of the collateral less selling costs if repayment is expected from liquidation of the collateral. Appraisals may
be discounted based on our historical knowledge, changes in market conditions from the time of appraisal or our knowledge of the
borrower and the borrower’s business. Impaired loans carried at fair value are classified as Level 3. Impaired loans measured
using the present value of expected future cash flows are not deemed to be measured at fair value.
Other Real Estate Owned
Other real estate
owned, or REO, obtained in partial or total satisfaction of a loan is recorded at the lower of recorded investment in the loan
or fair value less cost to sell. Subsequent to foreclosure, these assets are carried at the lower of the amount recorded at acquisition
date or fair value less cost to sell. Accordingly, it may be necessary to record nonrecurring fair value adjustments. Fair value,
when recorded, is generally based upon appraisals by approved, independent, state certified appraisers. Like impaired loans, appraisals
may be discounted based on our historical knowledge, changes in market conditions from the time of appraisal or other information
available to us. REO carried at fair value is classified as Level 3.
Nonfinancial
assets measured at fair value on a nonrecurring basis segregated by the level of the valuation inputs within the fair value hierarchy
utilized to measure fair value are presented below as of the dates indicated (in thousands):
Schedule of NonFinancial Assets Measured at Fair Value on NonRecurring Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Real estate owned:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other construction and land
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,395
|
|
|
$
|
1,395
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,395
|
|
|
$
|
1,395
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Collateral dependent impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four family residential
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
40
|
|
|
$
|
40
|
|
Commercial real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
31
|
|
|
|
31
|
|
Other construction and land
|
|
|
—
|
|
|
|
—
|
|
|
|
126
|
|
|
|
126
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
320
|
|
|
|
320
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
|
|
10
|
|
|
|
10
|
|
Real estate owned:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
513
|
|
|
|
513
|
|
Other construction and land
|
|
|
—
|
|
|
|
—
|
|
|
|
1,419
|
|
|
|
1,419
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,459
|
|
|
$
|
2,459
|
|
There were no liabilities measured
at fair value on a nonrecurring basis as of September 30, 2021, or December 31, 2020.
Impaired loans
totaling $2.1 million at September 30, 2021 and $1.3 million at December 31, 2020 were measured using the present value of expected
future cash flows. These impaired loans were not deemed to be measured at fair value on a nonrecurring basis.
The following
table provides information describing the unobservable inputs used in Level 3 fair value measurements at September 30, 2021 and
December 31, 2020.
Schedule of Unobservable Inputs measured at Fair Value
|
|
|
|
|
|
September
30, 2021
|
|
|
December
31, 2020
|
|
|
|
Valuation
Technique
|
|
Unobservable
Input
|
|
General
Range
|
|
|
General
Range
|
|
Impaired
loans
|
|
Discounted
Appraisals
|
|
Collateral
discounts
|
|
|
0%
- 30%
|
|
|
|
0%
- 30%
|
|
Real
estate owned
|
|
Discounted
Appraisals
|
|
Collateral
discounts and estimated selling cost
|
|
|
0%
- 30%
|
|
|
|
0%
- 40%
|
|
Corporate
bonds
|
|
Discounted
Cash Flows
|
|
Recent
similar executed financing transactions
|
|
|
0%
-3.5%
|
|
|
|
0%
-5.5%
|
|
Fair Value of Financial Assets
and Financial Liabilities
The estimated
fair value of the Company’s financial assets and financial liabilities are summarized as follows at the dates indicated (in
thousands):
Schedule of Estimated Fair Value Financial Assets and Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Fair Value Measurements at September 30, 2021
|
|
|
|
Amount
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents
|
|
$
|
102,086
|
|
|
$
|
102,086
|
|
|
$
|
102,086
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Securities available for sale
|
|
|
127,252
|
|
|
|
127,252
|
|
|
|
—
|
|
|
|
117,961
|
|
|
|
9,291
|
|
Loans receivable, net of deferred fees and costs
|
|
|
937,093
|
|
|
|
928,372
|
|
|
|
—
|
|
|
|
—
|
|
|
|
928,372
|
|
Other investments, at cost
|
|
|
3,476
|
|
|
|
3,476
|
|
|
|
—
|
|
|
|
3,476
|
|
|
|
—
|
|
Accrued interest receivable
|
|
|
5,822
|
|
|
|
5,822
|
|
|
|
—
|
|
|
|
5,822
|
|
|
|
—
|
|
BOLI
|
|
|
14,694
|
|
|
|
14,694
|
|
|
|
—
|
|
|
|
14,694
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits, money market and savings
|
|
$
|
829,709
|
|
|
$
|
829,709
|
|
|
$
|
—
|
|
|
$
|
829,709
|
|
|
$
|
—
|
|
Time deposits
|
|
|
222,028
|
|
|
|
222,117
|
|
|
|
—
|
|
|
|
222,117
|
|
|
|
|
|
Federal Home Loan Bank advances
|
|
|
16,000
|
|
|
|
16,140
|
|
|
|
—
|
|
|
|
16,140
|
|
|
|
—
|
|
Junior subordinated debentures
|
|
|
35,834
|
|
|
|
35,805
|
|
|
|
—
|
|
|
|
35,805
|
|
|
|
—
|
|
Accrued interest payable
|
|
|
629
|
|
|
|
629
|
|
|
|
—
|
|
|
|
629
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Fair Value Measurements at December 31, 2020
|
|
|
|
Amount
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents
|
|
$
|
63,025
|
|
|
$
|
63,025
|
|
|
$
|
63,025
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Securities available for sale
|
|
|
110,707
|
|
|
|
110,707
|
|
|
|
—
|
|
|
|
106,102
|
|
|
|
4,605
|
|
Loans receivable, net of deferred fees and costs
|
|
|
878,545
|
|
|
|
869,602
|
|
|
|
—
|
|
|
|
—
|
|
|
|
869,602
|
|
Other investments, at cost
|
|
|
6,252
|
|
|
|
6,252
|
|
|
|
—
|
|
|
|
6,252
|
|
|
|
—
|
|
Accrued interest receivable
|
|
|
5,704
|
|
|
|
5,704
|
|
|
|
—
|
|
|
|
5,704
|
|
|
|
—
|
|
BOLI
|
|
|
14,861
|
|
|
|
14,861
|
|
|
|
—
|
|
|
|
14,861
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits, money market and savings
|
|
$
|
662,538
|
|
|
$
|
662,538
|
|
|
$
|
—
|
|
|
$
|
662,538
|
|
|
$
|
—
|
|
Time deposits
|
|
|
283,942
|
|
|
|
284,655
|
|
|
|
—
|
|
|
|
284,655
|
|
|
|
|
|
Junior subordinated debentures
|
|
|
35,744
|
|
|
|
34,234
|
|
|
|
—
|
|
|
|
34,234
|
|
|
|
—
|
|
Accrued interest payable
|
|
|
336
|
|
|
|
336
|
|
|
|
—
|
|
|
|
336
|
|
|
|
—
|
|
NOTE 11. SHARE REPURCHASES
On
September 16, 2021, the Company’s Board of Directors approved an extension of the duration of the previously announced common
stock repurchase program through December 31, 2021. The previous common stock repurchase plan was set to expire September 30,
2021. Repurchased shares will become treasury shares and may be utilized for general corporate purposes.
On
August 18, 2021, the Company’s Board of Directors approved a preferred stock repurchase plan to repurchase up to 75,000
shares of Series A preferred stock at a price acceptable to the Company through December 31, 2021.
The following
table summarizes repurchase activity for the nine months ended September 30, 2021.
Schedule
of Share Repurchase
Period
|
|
Total Number of
Common Shares
Purchased
|
|
|
Average Price
Paid per Share
|
|
|
Total Number of
Shares Purchased as
Part of the Publicly
Announced Program
|
|
|
Maximum Number
of Shares that
May Yet Be
Purchased Under
the Program
|
|
January 1, 2021 - March 31, 2021
|
|
|
135,230
|
|
|
$
|
17.65
|
|
|
|
135,230
|
|
|
|
114,770
|
|
April 1, 2021- June 30, 2021
|
|
|
75,216
|
|
|
|
20.62
|
|
|
|
210,446
|
|
|
|
39,554
|
|
July 1, 2021 - July 31, 2021
|
|
|
—
|
|
|
|
—
|
|
|
|
210,446
|
|
|
|
39,554
|
|
August 1, 2021 - August 31, 2021
|
|
|
—
|
|
|
|
—
|
|
|
|
210,446
|
|
|
|
39,554
|
|
September 1, 2021 - September 30, 2021
|
|
|
—
|
|
|
|
—
|
|
|
|
210,446
|
|
|
|
39,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
Total Number of
Preferred Shares
Purchased
|
|
|
Average Price
Paid per Share
|
|
|
Total Number of
Shares Purchased as
Part of the Publicly
Announced Program
|
|
|
Maximum Number
of Shares that
May Yet Be
Purchased Under
the Program
|
|
July 1, 2021 - July 31, 2021
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
August 1, 2021- August 31, 2021
|
|
|
4,608
|
|
|
$
|
18.67
|
|
|
|
4,608
|
|
|
|
70,392
|
|
September 1, 2021 - September 30, 2021
|
|
|
—
|
|
|
|
—
|
|
|
|
4,608
|
|
|
|
70,392
|
|
NOTE 12. SUBSEQUENT EVENTS
Management has
evaluated the effects of events and transactions through the date of this filing that have occurred subsequent to September 30,
2021. The Company does not believe there were any material subsequent events during this period that require further recognition
or disclosure in the unaudited consolidated financial statements included in this report other than the item noted below.
On October 18,
2021, the Company’s Board of Directors approved regular cash dividends of $0.10 per common share and $0.105 per Series A
preferred share payable on November 19, 2021 to shareholders of record on November 5, 2021.
On October 20,
2021, the Company’s Board of Directors approved the definitive settlement of litigation related to the Bank’s former
factoring division. The settlement agreement, signed by all parties on November 4, 2021, awards the Company $1.25 million as reimbursement
for legal fees.
Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly
Report on Form 10-Q (this “Form 10-Q”) contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1932 (the “Exchange Act”), which can be
identified by the use of words such as “estimate,” “project,” “believe,” “intend,”
“anticipate,” “plan,” “continue,” “seek,” “could,” “expect,”
“will,” “may” and words of similar meaning. These forward-looking statements include, but are not limited
to:
|
·
|
|
statements
of our goals, intentions and expectations;
|
|
·
|
|
statements
regarding our business plans, prospects, growth and operating strategies;
|
|
·
|
|
statements
regarding the asset quality of our loan and investment portfolios; and
|
|
·
|
|
estimates
of our risks and future costs and benefits.
|
These forward-looking
statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and
competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements
are subject to assumptions with respect to future business strategies and decisions that are subject to change. The Company is
under no duty to and does not undertake any obligation to update any forward-looking statements after the date of this Form 10-Q
except as required by law.
The following
factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed
in the forward-looking statements:
|
·
|
Restrictions
or conditions imposed by our regulators on our operations;
|
|
·
|
Increases
in competitive pressure in the banking and financial services industries;
|
|
·
|
Changes
in access to funding or increased regulatory requirements with regard to funding;
|
|
·
|
Changes
in deposit flows;
|
|
·
|
Credit
losses as a result of declining real estate values, increasing interest rates, increasing
unemployment, changes in payment behavior or other factors;
|
|
·
|
Credit
losses due to loan concentration;
|
|
·
|
Changes
in the amount of our loan portfolio collateralized by real estate and weaknesses in the
real estate market;
|
|
·
|
Our
ability to attract and retain key personnel;
|
|
·
|
The
success and costs of our expansion into potential new markets;
|
|
·
|
Changes
in the interest rate environment which could reduce anticipated or actual margins;
|
|
·
|
Changes
in political conditions or the legislative or regulatory environment, including governmental
initiatives affecting the financial services industry, including as a result of the presidential
administration and Democratic control of Congress;
|
|
·
|
Changes
in economic conditions in the United States and the strength of the local economies in
which we conduct our operations, including, but not limited to, due to the continuing
negative impacts and disruptions resulting from the outbreak of COVID-19 on the economies
and communities we serve, which may have an adverse impact on our business, operations
and performance, and could have a negative impact on our credit portfolio, share price,
borrowers, and on the economy as a whole, both domestically and globally;
|
|
·
|
Changes
occurring in business conditions and inflation;
|
|
·
|
Increased
cybersecurity risk, including potential business disruptions or financial losses;
|
|
·
|
The
adequacy of the level of our allowance for loan losses and the amount of loan loss provisions
required in future periods;
|
|
·
|
Examinations
by our regulatory authorities, including the possibility that the regulatory authorities
may, among other things, require us to increase our allowance for loan losses or write-down
assets;
|
|
·
|
Changes
in monetary and tax policies;
|
|
·
|
Risks
associated with actual or potential litigation or investigations by customers, regulatory
agencies or others;
|
|
·
|
The
rate of delinquencies and amounts of loans charged-off;
|
|
·
|
The
rate of loan growth in recent years and the lack of seasoning of a portion of our loan
portfolio;
|
|
·
|
Our
ability to maintain appropriate levels of capital and to comply with our capital ratio
requirements;
|
|
·
|
Adverse
changes in asset quality and resulting credit risk-related losses and expenses;
|
|
·
|
Changes
in accounting policies, practices or guidelines;
|
|
·
|
Adverse
effects of failures by our vendors to provide agreed upon services in the manner and
at the cost agreed; and
|
|
·
|
The
potential effects of events beyond our control that may have a destabilizing effect on
financial markets and the economy, such as epidemics and pandemics, (including the potential
continuing negative effects of COVID-19 on trade) supply chains disruptions in transportation,
war or terrorist activities, essential utility outages or trade disputes and tariffs.
|
For additional
information with respect to factors that could cause actual results to differ from the expectations stated in the forward-looking
statements, see “Risk Factors” under Part I, Item 1A of our Form 10 as filed with the Securities and Exchange Commission
(the “SEC”) on March 30, 2021, as amended on May 11, 2021 (” 2020 Form 10”).
Non-GAAP
Measures
This
release includes financial information determined by methods other than in accordance with generally accepted accounting principles
(“GAAP”). This financial information includes certain operating performance measures such as “Tangible book
value per common share, outstanding”.
Management
has included these non-GAAP measures because it believes these measures may provide useful supplemental information for evaluating
the Company’s underlying performance trends. Further, management uses these measures in managing and evaluating the Company’s
business and intends to refer to them in discussions about our operations and performance. Operating performance measures should
be viewed in addition to, and not as an alternative to or substitute for, measures determined in accordance with GAAP, and are
not necessarily comparable to non-GAAP measures that may be presented by other companies.
Critical Accounting Policies
and Estimates
Our critical
accounting policies involving significant judgments and assumptions used in the preparation of the Consolidated Financial Statements
as of September 30, 2021 have remained unchanged from the disclosures presented in our 2020 Form 10. Refer to Note 1 of this Form
10-Q for more information about our accounting policies and recent accounting updates.
Overview
GrandSouth Bancorporation
(“we,” “us,” “our,” or the “Company) was incorporated in 2000 under the laws of South
Carolina and is a bank holding company registered under the Bank Holding Company Act of 1956. The Company’s primary purpose
is to serve as the holding company for GrandSouth Bank (the “Bank”). On October 2, 2000, pursuant to a Plan of Exchange
approved by the shareholders of the Bank, all of the outstanding shares of capital stock of the Bank were exchanged for shares
of the Company, and the Company became the owner of all of the outstanding capital stock of the Bank. The Company presently engages
in no business other than that of owning the Bank and has no employees.
The Company
has one non-bank subsidiary, GrandSouth Capital Trust I (the “Trust”), a Delaware statutory trust, formed to facilitate
the issuance of trust preferred securities. The GrandSouth Trust is not consolidated in the Company’s financial statements.
We
provide a full range of financial services through offices located throughout South Carolina. We provide full-service retail and
commercial banking products.
Our results
of operations are significantly affected by general economic and competitive conditions in our market areas and nationally, as
well as changes in interest rates, sources of funding, government policies and actions of regulatory authorities. Future changes
in applicable laws, regulations or government policies may materially affect our financial condition and results of operations.
The following
discussion and analysis is presented on a consolidated basis and focuses on the major components of the Company’s operations
and significant changes in its results of operations for the periods presented. We encourage you to read this discussion and analysis
in conjunction with the financial statements and the related notes and the other statistical information included in this Form
10-Q and in our 2020 Form 10.
Discussion
of Financial Condition
General
Total
assets increased $112.9 million to $1.2 billion at September 30, 2021, or 10.4%, from December 31, 2020. This increase in assets
was primarily due to increases in cash and cash equivalents of $39.1 million, investments available for sale (“AFS”)
of $16.5 million, and loans of $58.5 million.
Total
liabilities increased $106.7 million to $1.1 billion at September 30, 2021, or 10.6%, from December 31, 2020, due primarily to
increases in total deposits of $105.3 million, which includes increases in noninterest-bearing deposits of $65.4 million.
Total
shareholders’ equity increased $6.2 million to $92.7 million, or 7.2%, from December 31, 2020, due to normal retention of
earnings, exercise of stock options, and stock-based compensation partially offset by changes in the fair value of AFS investments,
payment of dividends, and repurchases of common and preferred shares. Tangible book value per common share, a non-GAAP measure,
increased $1.60 to $17.63 at September 30, 2021 from $16.03 at December 31, 2020.
The following
is a reconciliation of book value per common share to tangible book value per common share for the periods indicated:
|
|
As of
|
|
(in thousands, except share data)
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Book Value (GAAP)
|
|
$
|
92,719
|
|
|
$
|
86,525
|
|
Book Value Attributable to Preferred Shares
|
|
|
(1,212
|
)
|
|
|
(1,298
|
)
|
Book Value Attributable to Common Shares
|
|
|
91,507
|
|
|
|
85,227
|
|
Goodwill and intangibles
|
|
|
(737
|
)
|
|
|
(737
|
)
|
Book Value Attributable to Common Shares (Tangible)
|
|
$
|
90,770
|
|
|
$
|
84,490
|
|
Outstanding common shares
|
|
|
5,148,681
|
|
|
|
5,271,971
|
|
Tangible Book Value Per Common Share
|
|
$
|
17.63
|
|
|
$
|
16.03
|
|
Cash
and Cash Equivalents
Total
cash and cash equivalents increased $39.1 million to $102.1 million at September 30, 2021 from $63.0 million at December 31, 2020,
primarily due to the increase in customer deposits. We continue to look for opportunities to re-invest excess cash in higher yielding
assets, but will continue to hold adequate levels of liquid and short-term assets.
Investment
Securities
Our investment
securities portfolio is classified as AFS, which is carried at fair value. The following table shows the amortized cost and fair
value for our AFS investment portfolio at the dates indicated (in thousands).
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
U.S. government agencies
|
|
$
|
7,467
|
|
|
$
|
7,444
|
|
|
$
|
—
|
|
|
$
|
—
|
|
State and municipal obligations
|
|
|
19,893
|
|
|
|
20,498
|
|
|
|
16,684
|
|
|
|
17,820
|
|
Mortgage-backed securities - agency
|
|
|
39,179
|
|
|
|
39,249
|
|
|
|
31,056
|
|
|
|
31,487
|
|
Collateralized mortgage obligations - agency
|
|
|
47,760
|
|
|
|
48,103
|
|
|
|
49,441
|
|
|
|
50,560
|
|
Asset-backed securities
|
|
|
2,672
|
|
|
|
2,667
|
|
|
|
6,268
|
|
|
|
6,235
|
|
Corporate bonds
|
|
|
8,950
|
|
|
|
9,291
|
|
|
|
4,500
|
|
|
|
4,605
|
|
|
|
$
|
125,921
|
|
|
$
|
127,252
|
|
|
$
|
107,949
|
|
|
$
|
110,707
|
|
AFS investment
securities increased $16.5 million, or 14.9%, to $127.3 million at September 30, 2021 from $110.7 million at December 31, 2020.
We continue to look for opportunities to re-deploy funds from investment securities to higher yielding loans.
Loans
The following
table presents our loan portfolio composition and the corresponding percentage of total loans as of the dates indicated (in
thousands). Other construction and land loans include residential acquisition and development loans and loans on commercial
undeveloped land and one-to-four family improved and unimproved lots. Commercial real estate loans include loans on non-residential
owner-occupied and non-owner-occupied real estate, multi-family, and owner-occupied investment property. Commercial and industrial
loans include unsecured commercial loans and commercial loans secured by business assets.
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
$
|
129,660
|
|
|
|
13.8
|
%
|
|
$
|
114,119
|
|
|
|
13.0
|
%
|
Commercial
|
|
|
421,857
|
|
|
|
45.0
|
|
|
|
369,706
|
|
|
|
42.0
|
|
Home equity loans and lines of credit
|
|
|
20,581
|
|
|
|
2.2
|
|
|
|
17,174
|
|
|
|
2.0
|
|
Residential construction
|
|
|
35,041
|
|
|
|
3.7
|
|
|
|
30,989
|
|
|
|
3.5
|
|
Other construction and land
|
|
|
73,010
|
|
|
|
7.8
|
|
|
|
68,611
|
|
|
|
7.8
|
|
Commercial
|
|
|
225,355
|
|
|
|
24.0
|
|
|
|
243,617
|
|
|
|
27.7
|
|
Consumer
|
|
|
32,358
|
|
|
|
3.5
|
|
|
|
35,362
|
|
|
|
4.0
|
|
Loans receivable, gross
|
|
$
|
937,862
|
|
|
|
100.0
|
%
|
|
$
|
879,578
|
|
|
|
100.0
|
%
|
Deferred loan fees, net
|
|
|
(707
|
)
|
|
|
|
|
|
|
(956
|
)
|
|
|
|
|
Unaccreted discount
|
|
|
(247
|
)
|
|
|
|
|
|
|
(274
|
)
|
|
|
|
|
Unamortized premium
|
|
|
185
|
|
|
|
|
|
|
|
197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net of deferred fees and costs
|
|
$
|
937,093
|
|
|
|
|
|
|
$
|
878,545
|
|
|
|
|
|
Included in
commercial loans are PPP loans totaling $6.7 million and $22.5 million as of September 30, 2021 and December 31, 2020, respectively.
Delinquent Loans
When
a loan becomes 15 days past due, we contact the borrower to inquire as to the status of the loan payment. When a loan becomes
30 days or more past due, we increase collection efforts to include all available forms of communication. Once a loan becomes
45 days past due, we generally issue a demand letter and further explore the reasons for non-repayment, discuss repayment options,
and inspect the collateral. In the event the loan officer or collections staff has reason to believe restructuring will be mutually
beneficial to the borrower and the Bank, the borrower is referred to the Bank’s Credit Administration staff to explore restructuring
alternatives to foreclosure. Once the demand period has expired and it has been determined that restructuring is not a viable
option, the Bank’s counsel is instructed to pursue foreclosure.
The accrual
of interest on loans is discontinued at the time a loan becomes 90 days delinquent or when it becomes impaired, whichever occurs
first, unless the loan is well secured and in the process of collection. All interest accrued but not collected for loans that
are placed on nonaccrual is reversed. Interest payments received on nonaccrual loans are generally applied as a direct reduction
to the principal outstanding until the loan is returned to accrual status. Interest payments received on nonaccrual loans may
be recognized as income on a cash basis if recovery of the remaining principal is reasonably assured. Loans are returned to accrual
status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Interest payments applied to principal while the loan was on nonaccrual may be recognized in income over the remaining life of
the loan after the loan is returned to accrual status.
If a
loan is modified in a troubled debt restructure (“TDR”), the loan is generally placed on non-accrual until there is
a period of satisfactory payment performance by the borrower (either immediately before or after the restructuring), generally
nine consecutive months, and the ultimate collectability of all amounts contractually due is not in doubt. For a discussion of
TDRs, see the section entitled “Troubled Debt Restructurings” below.
The following
table sets forth certain information with respect to our loan portfolio carrying balances of delinquencies at the dates indicated
(in thousands). We had no loans 90 days or more past due that are still accruing interest as of September 30, 2021 or December
31, 2020 that are not 98% guaranteed by the issuing agency.
|
|
Delinquent loans
|
|
|
|
30-59 Days
|
|
|
60-89 Days
|
|
|
90 Days
and over
|
|
|
Total
|
|
September 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
98
|
|
|
$
|
—
|
|
|
$
|
120
|
|
|
$
|
218
|
|
Consumer
|
|
|
1,130
|
|
|
|
238
|
|
|
|
2,189
|
|
|
|
3,557
|
|
Total delinquent loans
|
|
$
|
1,228
|
|
|
$
|
238
|
|
|
$
|
2,309
|
|
|
$
|
3,775
|
|
% of total loans, net
|
|
|
0.13
|
%
|
|
|
0.02
|
%
|
|
|
0.25
|
%
|
|
|
0.40
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
15
|
|
|
$
|
15
|
|
Commercial
|
|
|
6
|
|
|
|
—
|
|
|
|
2
|
|
|
|
8
|
|
Consumer
|
|
|
1,840
|
|
|
|
727
|
|
|
|
2,549
|
|
|
|
5,116
|
|
Total delinquent loans
|
|
$
|
1,846
|
|
|
$
|
727
|
|
|
$
|
2,566
|
|
|
$
|
5,139
|
|
% of total loans, net of deferred fees and costs
|
|
|
0.21
|
%
|
|
|
0.08
|
%
|
|
|
0.29
|
%
|
|
|
0.58
|
%
|
Total
delinquencies as a percentage of loans have decreased from 0.58% at December 31, 2020 to 0.40% at September 30, 2021. Delinquent
loans decreased $1.3 million, or 26.5%, to $3.8 million at September 30, 2021 from $5.1 million at December 31, 2020. We continue
to focus on collection efforts and favorable resolutions.
Nonperforming Assets
Nonperforming
loans include all loans past due 90 days and over that are not 98% guaranteed by the issuing agency, certain impaired loans, and
TDR loans that have not yet established a satisfactory period of payment performance (some of which may be contractually current).
Nonperforming assets include nonperforming loans and other real estate owned (“REO”). The table below sets forth the
amounts and categories of our nonperforming assets at the dates indicated (in thousands).
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Nonaccrual loans:
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
$
|
129
|
|
|
$
|
39
|
|
Commercial
|
|
|
790
|
|
|
|
31
|
|
Other construction and land
|
|
|
—
|
|
|
|
126
|
|
Commercial
|
|
|
230
|
|
|
|
324
|
|
Consumer
|
|
|
4
|
|
|
|
13
|
|
Total nonperforming loans
|
|
|
1,153
|
|
|
|
533
|
|
|
|
|
|
|
|
|
|
|
REO:
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
—
|
|
|
|
513
|
|
Other construction and land
|
|
|
1,395
|
|
|
|
1,419
|
|
Total foreclosed real estate
|
|
|
1,395
|
|
|
|
1,932
|
|
Total nonperforming assets
|
|
$
|
2,548
|
|
|
$
|
2,465
|
|
|
|
|
|
|
|
|
|
|
TDRs still accruing
|
|
$
|
1,814
|
|
|
$
|
1,254
|
|
|
|
|
|
|
|
|
|
|
Ratios:
|
|
|
|
|
|
|
|
|
Nonperforming loans to total loans
|
|
|
0.12
|
%
|
|
|
0.06
|
%
|
Nonperforming assets to total assets
|
|
|
0.21
|
%
|
|
|
0.23
|
%
|
The decrease
in nonperforming loans and nonperforming assets is the result of the successful resolution and disposal of nonperforming loans
and nonperforming assets by means of restructure, foreclosure, deed in lieu of foreclosure and sales.
Troubled Debt Restructurings
In situations
where, for economic or legal reasons related to a borrower’s financial difficulties, we grant a concession that we would
not otherwise consider, for other than an insignificant period of time, the related loan is classified as a TDR. We strive to
identify borrowers in financial difficulty early so that we may work with them to modify their loans before they reach nonaccrual
status. Modified terms generally include extensions of maturity dates at a stated interest rate lower than the current market
rate for a new loan with similar risk characteristics, reductions in contractual interest rates, periods of interest-only payments,
and principal deferments. A restructuring that results in only a delay in payments that is insignificant is not considered an
economic concession. While unusual, there may be instances of forgiveness of loan principal. We individually evaluate all criticized
loans that experience a modification of terms to determine if a TDR has occurred. In accordance with the CARES Act and interagency
guidance, the Company implemented loan modification programs in response to the COVID-19 pandemic and elected the accounting policy
allowed in the CARES Act and interagency guidance to not apply TDR accounting to these modifications.
Classification of Loans
The following
table sets forth amounts of classified and criticized loans at the dates indicated. As indicated in the table, loans classified
as “doubtful” or “loss” are charged off immediately (in thousands).
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Classified loans:
|
|
|
|
|
|
|
|
|
Substandard
|
|
$
|
3,998
|
|
|
$
|
3,701
|
|
Doubtful
|
|
|
—
|
|
|
|
—
|
|
Loss
|
|
|
—
|
|
|
|
—
|
|
Total classified loans:
|
|
|
3,998
|
|
|
|
3,701
|
|
Special mention
|
|
|
9,172
|
|
|
|
7,777
|
|
Total criticized loans
|
|
$
|
13,170
|
|
|
$
|
11,478
|
|
|
|
|
|
|
|
|
|
|
Total classified loans as a % of total loans, net of deferred fees and costs
|
|
|
0.43
|
%
|
|
|
0.42
|
%
|
Total criticized loans as a % of total loans, net of deferred fees and costs
|
|
|
1.41
|
%
|
|
|
1.31
|
%
|
Management
continues to dedicate resources to monitoring and resolving classified and criticized loans.
Certain
industries have been particularly hard-hit by the COVID-19 pandemic, including the travel and hospitality industry, the restaurant
industry, and the retail industry. Although we do not have any known credit problems that are not included in the table above,
we had $8.2 million of loans to the restaurant and food service industry and $4.9 million of loans to the hotel industry as of
September 30, 2021.
Allowance for Loan Losses
The allowance
for loan losses reflects our estimates of probable losses inherent in our loan portfolio at the balance sheet date. The allowance
for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability
of our loans in light of historical experience, the nature and volume of our loan portfolio, adverse situations that may affect
our borrowers’ abilities to repay, the estimated value of any underlying collateral and prevailing economic conditions.
This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information
becomes available. The methodology for determining the allowance for loan losses has two main components: the evaluation of individual
loans for impairment and the evaluation of certain groups of homogeneous loans with similar risk characteristics.
A loan
is considered impaired when it is probable that we will be unable to collect all principal and interest payments due according
to the original contractual terms of the loan. We individually evaluate loans, or relationships, greater than $200,000 for impairment
that are classified as nonaccrual, TDRs, or performing substandard loans. If the impaired loan is considered collateral dependent,
a charge-off is taken based upon the appraised value of the property less an estimate of selling costs if foreclosure or sale
of the property is anticipated. If the impaired loan is not collateral dependent, a specific reserve is established based upon
an estimate of the future discounted cash flows after consideration of modifications and the likelihood of future default and
prepayment.
The allowance
for homogenous loans consists of a base loss reserve and a qualitative reserve. The loss rates for the base loss reserve, segmented
into eight loan categories, contain average net loss rates ranging from approximately 0.00% to 0.72%.
The qualitative
reserve adjusts the weighted average loss rates utilized in the base loss reserve for trends in the following internal and external
factors:
|
·
|
Changes
in lending and loan review policies;
|
|
·
|
Experience,
ability, and depth of lending management;
|
|
·
|
Volume
and severity of past due, nonaccrual, and classified loans;
|
|
·
|
Loan
concentrations and loan growth; and
|
|
·
|
Economic
conditions – including unemployment rates, housing prices and sales, and regional
economic outlooks.
|
Qualitative reserve adjustment
factors are decreased for favorable trends and increased for unfavorable trends.
Our evaluation
considers changes in international, national, regional, and local economic and business conditions and developments that affect
the collectability of our loans, including the condition of various market segments, considered changes in economic activity and
unemployment rates resulting from the COVID-19 pandemic. This evaluation resulted in a reduction in reserve during 2021 related
to the economic conditions qualitative factor as a result of improvement in economic conditions and unemployment rates at both
national and regional levels. These factors are subject to further adjustment as economic and other conditions change.
The following
table sets forth activity in our allowance for loan losses at the dates and for the periods indicated (in thousands).
|
|
As of and for the
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2021
|
|
|
2020
|
|
Balance at beginning of period
|
|
$
|
12,572
|
|
|
$
|
10,287
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
|
30
|
|
|
|
—
|
|
Commercial
|
|
|
52
|
|
|
|
—
|
|
Home equity loans and lines of credit
|
|
|
—
|
|
|
|
—
|
|
Residential construction
|
|
|
—
|
|
|
|
—
|
|
Other construction and land
|
|
|
—
|
|
|
|
—
|
|
Commercial
|
|
|
304
|
|
|
|
1,623
|
|
Consumer
|
|
|
—
|
|
|
|
27
|
|
Total charge-offs
|
|
|
386
|
|
|
|
1,650
|
|
|
|
|
|
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
|
21
|
|
|
|
3
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
Home equity loans and lines of credit
|
|
|
—
|
|
|
|
—
|
|
Residential construction
|
|
|
—
|
|
|
|
—
|
|
Other construction and land
|
|
|
17
|
|
|
|
—
|
|
Commercial
|
|
|
461
|
|
|
|
787
|
|
Consumer
|
|
|
—
|
|
|
|
24
|
|
Total recoveries
|
|
|
499
|
|
|
|
814
|
|
Net (recoveries) chargeoffs
|
|
|
(113
|
)
|
|
|
836
|
|
Provision for loan losses
|
|
|
1,045
|
|
|
|
2,537
|
|
Balance at end of period
|
|
$
|
13,730
|
|
|
$
|
11,988
|
|
|
|
|
|
|
|
|
|
|
Ratios:
|
|
|
|
|
|
|
|
|
Net (recoveries) charge-offs to average loans outstanding
|
|
|
(0.01
|
)%
|
|
|
0.11
|
%
|
Allowance to nonperforming loans at period end
|
|
|
1,190.81
|
%
|
|
|
2,011.41
|
%
|
Allowance to total loans at period end
|
|
|
1.47
|
%
|
|
|
1.43
|
%
|
Our allowance
as a percentage of total loans increased to 1.47% at September 30, 2021 from 1.43% at both December 31, 2020, and September 30,
2020, primarily as the result of loan growth in our more heavily reserved Carbucks segment.
We have continued
to experience limited charge-off amounts and stable collections of amounts previously charged-off. The overall historical loss
rate used in our allowance for loan losses calculation continues to decline as previous quarters with larger loss rates are eliminated
from the calculation as time passes. However, in light of the COVID-19 pandemic, there is a risk that loss rates could increase.
Our coverage ratio of nonperforming loans decreased to 1,190.81% at September 30, 2021 from 2,358.72% at December 31, 2020, and
2,011.41% at September 30, 2020, primarily as the result of the increased balance of nonperforming loans during the period.
Deposits
The
following table presents deposits by category and percentage of total deposits as of the periods indicated (in thousands).
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
|
|
Balance
|
|
|
Percent
|
|
|
Balance
|
|
|
Percent
|
|
Deposit type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings accounts
|
|
$
|
14,927
|
|
|
|
1.4
|
|
|
$
|
10,584
|
|
|
|
1.1
|
|
Time deposits
|
|
|
222,028
|
|
|
|
21.1
|
|
|
|
283,942
|
|
|
|
30.1
|
|
Money market accounts
|
|
|
478,897
|
|
|
|
45.5
|
|
|
|
384,838
|
|
|
|
40.7
|
|
Interest-bearing demand accounts
|
|
|
67,027
|
|
|
|
6.4
|
|
|
|
63,614
|
|
|
|
6.7
|
|
Noninterest-bearing demand accounts
|
|
|
268,858
|
|
|
|
25.6
|
|
|
|
203,502
|
|
|
|
21.5
|
|
Total deposits
|
|
$
|
1,051,737
|
|
|
|
100.0
|
|
|
$
|
946,480
|
|
|
|
100.0
|
|
As indicated
in the above table, deposit balances increased approximately $105.3 million, or 11.1%, for the nine months ended September 30,
2021 compared to December 31, 2020. The increase in total deposits was mainly attributable to the $94.1 million, or 24.4%, increase
in money market accounts and $65.4 million, or 32.1%, increase in noninterest-bearing demand accounts, partially offset by a $61.9
million, or 21.8%, decline in time deposits.
Discussion
of Results of Operation
Comparison
of the Three Months Ended September 30, 2021 and September 30, 2020.
General
Net income
for the three months ended September 30, 2021 was $3.8 million, compared to $1.9 million for the same period in 2020. The increase
in net income for the period was primarily the result of increases in net interest income and noninterest income of $2.8 million
and $0.1 million, respectively, and a decrease in the provision for loan losses of $0.3 million, partially offset by an increase
in noninterest expenses totaling $0.7 million.
Net Interest
Income
Net interest
income increased $2.8 million, or 27.7%, to $12.8 million for the three months ended September 30, 2021, compared to $10.0 million
for the same period in 2020. The increase in net interest income was primarily due to a higher volume in loans (both Core Bank
and Carbucks) and taxable investments, and decreases in costs on time deposits, partially offset by the decline in yields on our
Core Bank loans and taxable investments during the period.
The following
table sets forth the average balances of assets and liabilities, the total dollar amounts of interest income and dividends from
average interest-earning assets on a tax-equivalent basis, the total dollar amounts of interest expense on average interest-bearing
liabilities, and the resulting average tax-equivalent yields and cost for the periods indicated. All average balances are daily
average balances. Nonaccrual loans were included in the computation of average balances, but have been reflected in the table
as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are
amortized or accreted to interest income or expense.
|
|
For the Three Months
Ended September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
Average
Outstanding
Balance
|
|
|
Interest
|
|
|
Yield/ Rate
|
|
|
Average
Outstanding
Balance
|
|
|
Interest
|
|
|
Yield/ Rate
|
|
|
|
(Dollars in thousands)
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, Core Bank(1)
|
|
$
|
835,818
|
|
|
$
|
8,748
|
|
|
|
4.15
|
%
|
|
$
|
748,508
|
|
|
$
|
7,782
|
|
|
|
4.14
|
%
|
Loans, Carbucks(2)
|
|
|
92,110
|
|
|
|
4,754
|
|
|
|
20.48
|
%
|
|
|
60,682
|
|
|
|
3,574
|
|
|
|
23.37
|
%
|
Investments - taxable
|
|
|
117,879
|
|
|
|
389
|
|
|
|
1.32
|
%
|
|
|
90,522
|
|
|
|
293
|
|
|
|
1.29
|
%
|
Investments - tax exempt (3)
|
|
|
12,738
|
|
|
|
88
|
|
|
|
2.76
|
%
|
|
|
12,650
|
|
|
|
89
|
|
|
|
2.81
|
%
|
Federal funds sold and other interest earning deposits
|
|
|
81,085
|
|
|
|
27
|
|
|
|
0.13
|
%
|
|
|
35,992
|
|
|
|
14
|
|
|
|
0.15
|
%
|
Other investments, at cost
|
|
|
4,147
|
|
|
|
23
|
|
|
|
2.22
|
%
|
|
|
7,927
|
|
|
|
45
|
|
|
|
2.24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
1,143,777
|
|
|
|
14,029
|
|
|
|
4.87
|
%
|
|
|
956,281
|
|
|
|
11,797
|
|
|
|
4.91
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-earning assets
|
|
|
36,627
|
|
|
|
|
|
|
|
|
|
|
|
33,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,180,404
|
|
|
|
|
|
|
|
|
|
|
$
|
989,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings accounts
|
|
$
|
13,437
|
|
|
$
|
3
|
|
|
|
0.10
|
%
|
|
$
|
8,603
|
|
|
$
|
2
|
|
|
|
0.10
|
%
|
Time deposits
|
|
|
234,642
|
|
|
|
221
|
|
|
|
0.37
|
%
|
|
|
317,511
|
|
|
|
1,076
|
|
|
|
1.35
|
%
|
Money market accounts
|
|
|
453,974
|
|
|
|
487
|
|
|
|
0.43
|
%
|
|
|
310,602
|
|
|
|
410
|
|
|
|
0.52
|
%
|
Interest bearing transaction accounts
|
|
|
68,525
|
|
|
|
45
|
|
|
|
0.26
|
%
|
|
|
38,404
|
|
|
|
23
|
|
|
|
0.24
|
%
|
Total interest bearing deposits
|
|
|
770,578
|
|
|
|
756
|
|
|
|
0.39
|
%
|
|
|
675,120
|
|
|
|
1,511
|
|
|
|
0.89
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB advances
|
|
|
16,000
|
|
|
|
36
|
|
|
|
0.89
|
%
|
|
|
17,003
|
|
|
|
39
|
|
|
|
0.92
|
%
|
Junior subordinated debentures
|
|
|
35,816
|
|
|
|
431
|
|
|
|
4.78
|
%
|
|
|
18,113
|
|
|
|
218
|
|
|
|
4.78
|
%
|
Other borrowings
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
822,394
|
|
|
|
1,223
|
|
|
|
0.59
|
%
|
|
|
710,236
|
|
|
|
1,768
|
|
|
|
0.99
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits
|
|
|
260,396
|
|
|
|
|
|
|
|
|
|
|
|
193,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non interest bearing liabilities
|
|
|
5,537
|
|
|
|
|
|
|
|
|
|
|
|
3,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,088,327
|
|
|
|
|
|
|
|
|
|
|
|
907,203
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
92,077
|
|
|
|
|
|
|
|
|
|
|
|
82,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
1,180,404
|
|
|
|
|
|
|
|
|
|
|
$
|
989,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-equivalent net interest income
|
|
|
|
|
|
$
|
12,806
|
|
|
|
|
|
|
|
|
|
|
$
|
10,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest-earning assets (4)
|
|
$
|
321,383
|
|
|
|
|
|
|
|
|
|
|
$
|
246,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest-earning assets to interest-bearing liabilities
|
|
|
139.08
|
%
|
|
|
|
|
|
|
|
|
|
|
134.64
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-equivalent net interest rate spread (5)
|
|
|
|
|
|
|
|
|
|
|
4.28
|
%
|
|
|
|
|
|
|
|
|
|
|
3.92
|
%
|
Tax-equivalent net interest margin (6)
|
|
|
|
|
|
|
|
|
|
|
4.44
|
%
|
|
|
|
|
|
|
|
|
|
|
4.17
|
%
|
|
(1)
|
Core Bank is the bank’s primary
business to provide traditional deposit and lending products and services to commercial and retail banking clients.
|
|
(2)
|
Carbucks is the bank’s division
that provides specialty floor plan lending to small automobile dealers in over 20 states.
|
|
(3)
|
Tax exempt investments are
calculated giving effect to a 21% federal tax rate, or $19,000 for both of the three months ended September 30, 2021 and 2020.
|
|
(4)
|
Net interest-earning assets
represents total interest-earning assets less total interest-bearing liabilities.
|
|
(5)
|
Tax-equivalent net interest
rate spread represents the difference between the tax equivalent yield on average interest-earning assets and the cost of average
interest-bearing liabilities.
|
|
(6)
|
Tax-equivalent net interest
margin represents tax equivalent net interest income divided by average total interest-earning assets.
|
The following
table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column
shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects
attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior
columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated
proportionately, based on the absolute values of changes due to rate and the changes due to volume.
|
|
For the Three Months Ended
September 30, 2021
|
|
|
|
Compared to the Three Months Ended September 30, 2020
|
|
|
|
Increase (decrease) due to:
|
|
(in thousands)
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, Core Bank(1)
|
|
$
|
935
|
|
|
$
|
31
|
|
|
$
|
966
|
|
Loans, Carbucks(1)
|
|
|
1,666
|
|
|
|
(486
|
)
|
|
|
1,180
|
|
Investments - taxable
|
|
|
90
|
|
|
|
6
|
|
|
|
96
|
|
Investments - tax exempt (2)
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
(1
|
)
|
Federal funds sold and other interest earning deposits
|
|
|
15
|
|
|
|
(2
|
)
|
|
|
13
|
|
Other investments, at cost
|
|
|
(22
|
)
|
|
|
—
|
|
|
|
(22
|
)
|
Total interest-earning assets
|
|
|
2,685
|
|
|
|
(453
|
)
|
|
|
2,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings accounts
|
|
|
1
|
|
|
|
—
|
|
|
|
1
|
|
Time deposits
|
|
|
(227
|
)
|
|
|
(628
|
)
|
|
|
(855
|
)
|
Money market accounts
|
|
|
165
|
|
|
|
(88
|
)
|
|
|
77
|
|
Interest bearing transaction accounts
|
|
|
20
|
|
|
|
2
|
|
|
|
22
|
|
FHLB advances
|
|
|
(3
|
)
|
|
|
—
|
|
|
|
(3
|
)
|
Junior subordinated debentures
|
|
|
213
|
|
|
|
—
|
|
|
|
213
|
|
Total interest-bearing liabilities
|
|
|
169
|
|
|
|
(714
|
)
|
|
|
(545
|
)
|
Change in tax-equivalent net interest income
|
|
$
|
2,516
|
|
|
$
|
261
|
|
|
$
|
2,777
|
|
|
(1)
|
Non-accrual loans are included
in the above analysis.
|
|
(2)
|
Interest income on tax exempt
loans and investments are adjusted for based on a 21% federal tax rate
|
Net interest
income before provision for loan losses increased to $12.8 million for the three months ended September 30, 2021, compared to
$10.0 million for the same period in 2020 due to both improvements in volume and favorable movements in rates.
The increase
in tax-equivalent net interest income of $2.5 million related to volume was primarily the result of higher average loan (both
Core Bank and Carbucks) and taxable investment balances which increased $118.7 million and $27.4 million, respectively, and an
$82.9 million decrease in average time deposits for the three months ended September 30, 2021 compared to the same period in 2020.
The increase in average loan and taxable investment balances was partially offset by increases of $143.4 million in money market
balances and $30.1 million in interest bearing transaction accounts.
The increase
in tax-equivalent net interest income of $0.3 million related to rate was primarily the result of decreased costs on time deposits,
partially offset by decreased yields on Carbucks loans.
Our tax-equivalent
net interest margin was 4.44% for the three months ended September 30, 2021, compared to 4.17% for the same period in 2020, an
increase of 27 basis points. The increase in net interest margin was primarily attributable to higher average loan and taxable
investment balances combined with interest rate reductions on our cost of funds partially offset by reduced yields on our Carbucks
loans.
Provision
for Loan Losses
We recorded
a provision for loan losses for the three months ended September 30, 2021 of $0.5 million due to organic loan growth, compared
to a $0.8 million provision for loan losses for the same period in 2020 which included certain qualitative adjustments in response
to the COVID-19 pandemic. We are experiencing continued stabilization in asset quality, low charge-off amounts, and a continued
decline in the historical loss rates used in our allowance for loan losses model. However, in light of the continued COVID-19
pandemic, there is a risk that loss rates could increase.
Noninterest
Income
The following
table summarizes the components of noninterest income and the corresponding changes between the three months ended September 30,
2021 and 2020 (in thousands):
|
|
Three Months Ended September 30,
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Change
|
|
Service charges on deposit accounts
|
|
$
|
320
|
|
|
$
|
263
|
|
|
$
|
57
|
|
BOLI
|
|
|
84
|
|
|
|
109
|
|
|
|
(25
|
)
|
Net gain on sale of premises and equipment
|
|
|
6
|
|
|
|
7
|
|
|
|
(1
|
)
|
Other
|
|
|
248
|
|
|
|
183
|
|
|
|
65
|
|
Total noninterest income
|
|
$
|
658
|
|
|
$
|
562
|
|
|
$
|
96
|
|
Our noninterest
income increased $0.1 million to $0.7 million in the three months ended September 30, 2021, compared to the same period in 2020
due primarily to increases in service charges on deposit accounts of $0.1 million and other noninterest of $0.1 million, partially
offset by reduced income realized on BOLI policies.
Noninterest Expense
The following table summarizes the
components of noninterest expense and the corresponding change between the three months ended September 30, 2021 and 2020 (in
thousands):
|
|
Three Months Ended September 30,
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Change
|
|
Compensation and employee benefits
|
|
$
|
5,367
|
|
|
$
|
4,940
|
|
|
$
|
427
|
|
Net occupancy
|
|
|
584
|
|
|
|
570
|
|
|
|
14
|
|
Federal deposit insurance
|
|
|
157
|
|
|
|
129
|
|
|
|
28
|
|
Professional and advisory
|
|
|
314
|
|
|
|
317
|
|
|
|
(3
|
)
|
Data processing
|
|
|
509
|
|
|
|
534
|
|
|
|
(25
|
)
|
Marketing and advertising
|
|
|
49
|
|
|
|
29
|
|
|
|
20
|
|
Net cost of operation of REO
|
|
|
11
|
|
|
|
20
|
|
|
|
(9
|
)
|
Other
|
|
|
916
|
|
|
|
682
|
|
|
|
234
|
|
Total noninterest expenses
|
|
$
|
7,907
|
|
|
$
|
7,221
|
|
|
$
|
686
|
|
Our noninterest
expense increased $0.7 million to $7.9 million in the three months ended September 30, 2021, compared to the same period in 2020
primarily as the result of increases in compensation and employee benefits of and other noninterest expense of $0.4 million and
$0.2 million, respectively. The increase in compensation and employee benefits is primarily related to increased full-time equivalent
employees combined with annual raises and increases in employee benefits, incentives and commissions. The increase in other noninterest
expense includes miscellaneous loan fees related to Carbucks.
Income Taxes
Income tax expense
totaled $1.2 million for the three months ended September 30, 2021, compared to $0.7 million for the same period in 2020. Income
tax expense benefited from tax-exempt income related to municipal bond investments and BOLI income resulting in effective tax
rates of 24.0% and 26.0% for the three months ended September 30, 2021 and 2020, respectively.
We continue
to have unutilized net operating losses for state income tax purposes and no material current tax receivables or liabilities.
Comparison
of the Nine Months Ended September 30, 2021 and September 30, 2020.
General
Net income
for the nine months ended September 30, 2021 was $11.4 million, compared to $5.4 million for the same period in 2020. The increase
in net income for the period was primarily the result of an increase in net interest income of $6.9 million and a decrease in
the provision for loan losses of $1.5 million, offset by increases in noninterest expenses $0.7 million and in income tax expense
of $1.8 million.
Net Interest
Income
Net interest
income increased $6.9 million, or 23.0%, to $37.0 million for the nine months ended September 30, 2021, compared to $30.1 million
for the same period in 2020. The increase in net interest income was primarily due to a $116.0 million increase in average loans
(both Core Bank and Carbucks), a $42.7 million increase in average investments (both taxable and tax exempt), and decreases in
costs on our average time deposits and money market accounts, partially offset by the decline in yields on our loans (both Core
Bank and Carbucks) and taxable investments during the period and a $106.9 million increase in our average interest-bearing liabilities.
The following
table sets forth the average balances of assets and liabilities, the total dollar amounts of interest income and dividends from
average interest-earning assets on a tax-equivalent basis, the total dollar amounts of interest expense on average interest-bearing
liabilities, and the resulting annualized average tax-equivalent yields and cost for the periods indicated. All average balances
are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in
the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums
that are amortized or accreted to interest income or expense.
|
|
For the Nine Months Ended September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
Average
Outstanding
Balance
|
|
|
Interest
|
|
|
Yield/ Rate
|
|
|
Average
Outstanding
Balance
|
|
|
Interest
|
|
|
Yield/ Rate
|
|
|
|
(Dollars in thousands)
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, Core Bank(1)
|
|
$
|
820,177
|
|
|
$
|
25,670
|
|
|
|
4.18
|
%
|
|
$
|
721,065
|
|
|
$
|
23,469
|
|
|
|
4.35
|
%
|
Loans, Carbucks(2)
|
|
|
87,504
|
|
|
|
13,879
|
|
|
|
21.21
|
%
|
|
|
70,654
|
|
|
|
12,297
|
|
|
|
23.19
|
%
|
Investments - taxable
|
|
|
112,538
|
|
|
|
1,015
|
|
|
|
1.20
|
%
|
|
|
75,144
|
|
|
|
947
|
|
|
|
1.68
|
%
|
Investments - tax exempt (3)
|
|
|
12,708
|
|
|
|
265
|
|
|
|
2.78
|
%
|
|
|
7,383
|
|
|
|
165
|
|
|
|
2.97
|
%
|
Federal funds sold and other interest earning deposits
|
|
|
71,678
|
|
|
|
69
|
|
|
|
0.13
|
%
|
|
|
35,669
|
|
|
|
102
|
|
|
|
0.38
|
%
|
Other investments, at cost
|
|
|
5,118
|
|
|
|
88
|
|
|
|
2.30
|
%
|
|
|
9,067
|
|
|
|
175
|
|
|
|
2.58
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
1,109,723
|
|
|
|
40,986
|
|
|
|
4.94
|
%
|
|
|
918,982
|
|
|
|
37,155
|
|
|
|
5.40
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-earning assets
|
|
|
37,046
|
|
|
|
|
|
|
|
|
|
|
|
36,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,146,769
|
|
|
|
|
|
|
|
|
|
|
$
|
955,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings accounts
|
|
$
|
12,301
|
|
|
$
|
9
|
|
|
|
0.10
|
%
|
|
$
|
7,788
|
|
|
$
|
6
|
|
|
|
0.10
|
%
|
Time deposits
|
|
|
252,665
|
|
|
|
1,012
|
|
|
|
0.54
|
%
|
|
|
346,055
|
|
|
|
4,714
|
|
|
|
1.82
|
%
|
Money market accounts
|
|
|
427,296
|
|
|
|
1,401
|
|
|
|
0.44
|
%
|
|
|
287,254
|
|
|
|
1,462
|
|
|
|
0.68
|
%
|
Interest bearing transaction accounts
|
|
|
66,654
|
|
|
|
130
|
|
|
|
0.26
|
%
|
|
|
28,853
|
|
|
|
44
|
|
|
|
0.20
|
%
|
Total interest bearing deposits
|
|
|
758,916
|
|
|
|
2,552
|
|
|
|
0.45
|
%
|
|
|
669,950
|
|
|
|
6,226
|
|
|
|
1.24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB advances
|
|
|
16,000
|
|
|
|
107
|
|
|
|
0.89
|
%
|
|
|
15,500
|
|
|
|
120
|
|
|
|
1.03
|
%
|
Junior subordinated debentures
|
|
|
35,787
|
|
|
|
1,296
|
|
|
|
4.84
|
%
|
|
|
18,103
|
|
|
|
703
|
|
|
|
5.19
|
%
|
Other borrowings
|
|
|
135
|
|
|
|
—
|
|
|
|
—
|
|
|
|
432
|
|
|
|
5
|
|
|
|
1.55
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
810,838
|
|
|
|
3,955
|
|
|
|
0.65
|
%
|
|
|
703,985
|
|
|
|
7,054
|
|
|
|
1.34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits
|
|
|
241,491
|
|
|
|
|
|
|
|
|
|
|
|
166,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non interest bearing liabilities
|
|
|
5,605
|
|
|
|
|
|
|
|
|
|
|
|
4,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,057,934
|
|
|
|
|
|
|
|
|
|
|
|
874,929
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
88,835
|
|
|
|
|
|
|
|
|
|
|
|
80,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
1,146,769
|
|
|
|
|
|
|
|
|
|
|
$
|
955,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-equivalent net interest income
|
|
|
|
|
|
$
|
37,031
|
|
|
|
|
|
|
|
|
|
|
$
|
30,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest-earning assets (4)
|
|
$
|
298,885
|
|
|
|
|
|
|
|
|
|
|
$
|
214,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest-earning assets to interest-bearing liabilities
|
|
|
136.86
|
%
|
|
|
|
|
|
|
|
|
|
|
130.54
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-equivalent net interest rate spread (5)
|
|
|
|
|
|
|
|
|
|
|
4.29
|
%
|
|
|
|
|
|
|
|
|
|
|
4.06
|
%
|
Tax-equivalent net interest margin (6)
|
|
|
|
|
|
|
|
|
|
|
4.46
|
%
|
|
|
|
|
|
|
|
|
|
|
4.38
|
%
|
|
(1)
|
Core Bank is the bank’s primary
business to provide traditional deposit and lending products and services to commercial and retail banking clients.
|
|
(2)
|
Carbucks is the bank’s division
that provides specialty floor plan lending to small automobile dealers in over 20 states.
|
|
(3)
|
Tax exempt investments are
calculated giving effect to a 21% federal tax rate, or $56,000 and $35,000 for the nine months ended September 30, 2021 and 2020,
respectively.
|
|
(4)
|
Net interest-earning assets
represents total interest-earning assets less total interest-bearing liabilities.
|
|
(5)
|
Tax-equivalent net interest
rate spread represents the difference between the tax equivalent yield on average interest-earning assets and the cost of average
interest-bearing liabilities.
|
|
(6)
|
Tax-equivalent net interest
margin represents tax equivalent net interest income divided by average total interest-earning assets.
|
The following
table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column
shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects
attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior
columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated
proportionately, based on changes due to rate and the changes due to volume.
|
|
For the Nine Months Ended September 30, 2021
Compared to the Nine Months Ended September 30, 2020
|
|
|
|
Increase (decrease) due to:
|
|
(In thousands)
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, Core Bank (1)
|
|
$
|
3,111
|
|
|
$
|
(910
|
)
|
|
$
|
2,201
|
|
Loans, Carbucks (1)
|
|
|
2,729
|
|
|
|
(1,147
|
)
|
|
|
1,582
|
|
Investments - taxable
|
|
|
390
|
|
|
|
(322
|
)
|
|
|
68
|
|
Investments - tax exempt (2)
|
|
|
111
|
|
|
|
(11
|
)
|
|
|
100
|
|
Interest-earning deposits
|
|
|
62
|
|
|
|
(95
|
)
|
|
|
(33
|
)
|
Other investments, at cost
|
|
|
(70
|
)
|
|
|
(17
|
)
|
|
|
(87
|
)
|
Total interest-earning assets
|
|
|
6,333
|
|
|
|
(2,502
|
)
|
|
|
3,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings accounts
|
|
|
3
|
|
|
|
—
|
|
|
|
3
|
|
Time deposits
|
|
|
(1,024
|
)
|
|
|
(2,678
|
)
|
|
|
(3,702
|
)
|
Money market accounts
|
|
|
565
|
|
|
|
(626
|
)
|
|
|
(61
|
)
|
Interest bearing transaction accounts
|
|
|
71
|
|
|
|
15
|
|
|
|
86
|
|
FHLB advances
|
|
|
4
|
|
|
|
(17
|
)
|
|
|
(13
|
)
|
Junior subordinated debentures
|
|
|
643
|
|
|
|
(50
|
)
|
|
|
593
|
|
Other borrowings
|
|
|
(1
|
)
|
|
|
(4
|
)
|
|
|
(5
|
)
|
Total interest-bearing liabilities
|
|
|
261
|
|
|
|
(3,360
|
)
|
|
|
(3,099
|
)
|
Change in tax-equivalent net interest income
|
|
$
|
6,072
|
|
|
|
858
|
|
|
|
6,930
|
|
|
(1)
|
Non-accrual loans are included
in the above analysis.
|
|
(2)
|
Interest income on tax exempt
loans and investments are adjusted for based on a 21% federal tax rate
|
Net interest
income before provision for loan losses increased to $37.0 million for the nine months ended September 30, 2021, compared to $30.1
million for the same period in 2020. As indicated in the table above, the increase of $6.1 million in net interest income earned
attributable to an improvement in volume was combined with a $0.9 million favorable movement in rates.
The increase
in tax-equivalent net interest income of $6.1 million related to volume was primarily the result of higher average loan (both
Core Bank and Carbucks) and investment balances (both taxable and tax exempt) which increased $116.0 million and $42.7 million,
respectively, and lower time deposits which decreased $93.4 million for the nine months ended September 30, 2021 compared to the
same period in 2020. The increase in average loan and investment balances and lower time deposits was partially offset by increases
of $140.0 million and $17.7 million in money market and junior subordinated debentures balances, respectively.
The increase
in tax-equivalent net interest income of $0.9 million related to rate was primarily the result of decreased costs on time deposits
and money markets accounts. These decreased costs were partially offset by decreased yields on loans (both Core Bank and Carbucks),
taxable investments, and interest-earning deposits.
Our tax-equivalent
net interest margin was 4.46% for the nine months ended September 30, 2021, compared to 4.38% for the same period in 2020. The
increase in net interest margin was primarily attributable to interest rate reductions on our cost of funds, partially offset
by the impact of these interest rate reductions on loans, investments, and interest-earning deposits.
Provision
for Loan Losses
We recorded
a provision for loan losses for the nine months ended September 30, 2021 of $1.0 million due to organic loan growth, compared
to $2.5 million for the same period in 2020 which included certain qualitative adjustments in response to the COVID-19 pandemic.
We are experiencing continued stabilization in asset quality, low charge-off amounts, and a continued decline in the historical
loss rates used in our allowance for loan losses model. However, in light of the continued COVID-19 pandemic, there is a risk
that loss rates could increase.
Noninterest
Income
The following
table summarizes the components of noninterest income and the corresponding changes between the nine months ended September 30,
2021 and 2020 (in thousands):
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Change
|
|
Service charges on deposit accounts
|
|
$
|
910
|
|
|
$
|
719
|
|
|
$
|
191
|
|
Gain on sale of AFS investments
|
|
|
—
|
|
|
|
392
|
|
|
|
(392
|
)
|
BOLI
|
|
|
261
|
|
|
|
313
|
|
|
|
(52
|
)
|
Net gain on sale of premises and equipment
|
|
|
90
|
|
|
|
15
|
|
|
|
75
|
|
Other
|
|
|
740
|
|
|
|
521
|
|
|
|
219
|
|
Total noninterest income
|
|
$
|
2,001
|
|
|
$
|
1,960
|
|
|
$
|
41
|
|
Our noninterest
income increased $41 thousand to $2.0 million in the nine months ended September 30, 2021, compared to the same period in 2020
due primarily to increases in service charges on deposit accounts, third-party loan referral fees and excess death benefits in
2021, offset by the gain on sale of AFS securities of $0.4 million in 2020.
Noninterest Expense
The following table summarizes the
components of noninterest expense and the corresponding change between the nine months ended September 30, 2021 and 2020 (in
thousands):
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Change
|
|
Compensation and employee benefits
|
|
$
|
15,428
|
|
|
$
|
15,140
|
|
|
$
|
288
|
|
Net occupancy
|
|
|
1,732
|
|
|
|
1,655
|
|
|
|
77
|
|
Federal deposit insurance
|
|
|
482
|
|
|
|
360
|
|
|
|
122
|
|
Professional and advisory
|
|
|
888
|
|
|
|
951
|
|
|
|
(63
|
)
|
Data processing
|
|
|
1,536
|
|
|
|
1,378
|
|
|
|
158
|
|
Marketing and advertising
|
|
|
128
|
|
|
|
115
|
|
|
|
13
|
|
Net cost of operation of REO
|
|
|
140
|
|
|
|
293
|
|
|
|
(153
|
)
|
Other
|
|
|
2,643
|
|
|
|
2,358
|
|
|
|
285
|
|
Total noninterest expenses
|
|
$
|
22,977
|
|
|
$
|
22,250
|
|
|
$
|
727
|
|
Our noninterest
expense increased $0.7 million to $23.0 million in the nine months ended September 30, 2021, compared to the same period in 2020.
Compensation and employee benefits increased $0.3 million for the nine months ended September 30, 2021, as compared to the same
period in 2020. The increase is primarily related to increased full-time equivalent employees combined with annual raises and
increases in employee benefits, incentives and commissions.
Federal deposit
insurance increased $0.1 million for the nine months ended September 30, 2021, compared to the same period in 2020 due to increased
deposit balances.
Data processing
expenses increased $0.2 million for the nine months ended September 30, 2021, compared to the same period in 2020, primarily due
to an increased number of accounts and transactions.
Net cost of
operation of REO decreased $0.2 million for the nine months ended September 30, 2021, compared to the same period in 2020, primarily
due to valuation adjustments for updated appraisals or sales contract amounts in 2020.
Other noninterest
expense increased $0.3 million for the nine months ended September 30, 2021, compared to the same period in 2020 primarily due
to increased software maintenance and licensing expenses.
Income Taxes
Income tax expense
totaled $3.6 million for the nine months ended September 30, 2021, compared to $1.8 million for the same period in 2020. Income
tax expense benefited from tax-exempt income related to municipal bond investments and BOLI income resulting in effective tax
rates of 23.8% and 24.9% for the nine months ended September 30, 2021 and 2020, respectively.
We continue
to have unutilized net operating losses for state income tax purposes and no material current tax receivables or liabilities.
Discussion of Segment Results
See Note
9, “Reportable Segments” in notes to the consolidated financial statements included under Item 1 -“Financial
Statements” for additional disclosures related to our reportable business segments. Fluctuations in noninterest income and
noninterest expense incurred directly by the segments are more fully discussed in the “Noninterest income” and “Noninterest
expense” sections above.
Comparison of the Three Months
Ended September 30, 2021 and 2020.
|
|
As of and for the Three Months Ended
September 30, 2021
|
|
|
As of and for the Three Months Ended
September 30, 2020
|
|
|
|
Core Bank
|
|
|
Carbucks
|
|
|
Other
|
|
|
Total
|
|
|
Core Bank
|
|
|
Carbucks
|
|
|
Other
|
|
|
Total
|
|
Interest income
|
|
$
|
8,795
|
|
|
$
|
4,754
|
|
|
$
|
461
|
|
|
$
|
14,010
|
|
|
$
|
7,841
|
|
|
$
|
3,574
|
|
|
$
|
363
|
|
|
$
|
11,778
|
|
Interest expense
|
|
|
418
|
|
|
|
374
|
|
|
|
431
|
|
|
|
1,223
|
|
|
|
1,284
|
|
|
|
265
|
|
|
|
219
|
|
|
|
1,768
|
|
Net interest income
|
|
|
8,377
|
|
|
|
4,380
|
|
|
|
30
|
|
|
|
12,787
|
|
|
|
6,557
|
|
|
|
3,309
|
|
|
|
144
|
|
|
|
10,010
|
|
Provision for loan losses
|
|
|
386
|
|
|
|
108
|
|
|
|
—
|
|
|
|
494
|
|
|
|
125
|
|
|
|
673
|
|
|
|
—
|
|
|
|
798
|
|
Noninterest income
|
|
|
443
|
|
|
|
38
|
|
|
|
177
|
|
|
|
658
|
|
|
|
423
|
|
|
|
31
|
|
|
|
108
|
|
|
|
562
|
|
Noninterest expense
|
|
|
5,409
|
|
|
|
2,487
|
|
|
|
11
|
|
|
|
7,907
|
|
|
|
4,966
|
|
|
|
2,240
|
|
|
|
15
|
|
|
|
7,221
|
|
Net income before taxes
|
|
|
3,025
|
|
|
|
1,823
|
|
|
|
196
|
|
|
|
5,044
|
|
|
|
1,889
|
|
|
|
427
|
|
|
|
237
|
|
|
|
2,553
|
|
Income tax expense
|
|
|
726
|
|
|
|
436
|
|
|
|
48
|
|
|
|
1,210
|
|
|
|
492
|
|
|
|
123
|
|
|
|
50
|
|
|
|
665
|
|
Net income
|
|
$
|
2,299
|
|
|
$
|
1,387
|
|
|
$
|
148
|
|
|
$
|
3,834
|
|
|
$
|
1,397
|
|
|
$
|
304
|
|
|
$
|
187
|
|
|
$
|
1,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans, net of deferred fees and costs
|
|
$
|
845,962
|
|
|
$
|
91,131
|
|
|
$
|
—
|
|
|
$
|
937,093
|
|
|
$
|
769,324
|
|
|
$
|
70,237
|
|
|
$
|
—
|
|
|
$
|
839,561
|
|
Total assets
|
|
$
|
970,034
|
|
|
$
|
90,434
|
|
|
$
|
142,199
|
|
|
$
|
1,202,667
|
|
|
$
|
825,180
|
|
|
$
|
69,730
|
|
|
$
|
117,888
|
|
|
$
|
1,012,798
|
|
Core Bank
Core Bank consists
of commercial and consumer lending and full-service branches in its geographic region with its own management team. The branches
provide a full range of traditional banking products as well as treasury services and merchant services.
Core Bank net
income increased $0.9 million to $2.3 million for the three months ended September 30, 2021 compared to $1.4 million for the same
period in 2020. Net interest income increased $1.8 million to $8.4 million for the three months ended September 30, 2021 from
$6.6 million for the same period a year ago primarily due to increased loan volume and reduced funding costs. Provision for loan
losses increased $0.3 million for the three months ended September 30, 2021 compared to 2020 due to organic growth. Noninterest
expense increased $0.4 million to $5.4 million for the 2021 period compared to $5.0 million for the same period in 2020 due to
primarily to net cost of operation of REO in 2020 partially offset by increased data processing expense in 2021.
Carbucks
Carbucks provides
specialty floor plan inventory financing for more than 1,500 small automobile dealers in over 20 states. Credit lines are established
for each approved dealer using Board approved underwriting guidelines. Advances and repayments on credit lines averaging $0.1
million are vehicle specific. The inventory typically consists of over 12,000 floored used vehicles with an average price of $7,000
per unit, generally has an average 66-day turnover, and generates approximately $200 in financing fees per vehicle which is included
in loan interest income.
Carbucks net
income increased $1.1 million to $1.4 million for the three months ended September 30, 2021 compared to $0.3 million for the same
three-month period in 2020. Net interest income increased $1.1 million to $4.4 million for the 2021 period from $3.3 million for
the same period a year ago primarily due to increased fees related to increases in inventory. Provision for loan losses decreased
$0.6 million for the three months ended September 30, 2021 compared to 2020 due to additional qualitative adjustments in 2020
related to COVID-19 uncertainty. Noninterest expense increased $0.3 million to $2.5 million for the 2021 period compared to $2.2
million for the same period in 2020 due primarily to increased vehicle identification related fees as a result of increased inventory.
Other
Other includes
parent company transactions, investment securities portfolio, BOLI, excess death benefits, net intercompany eliminations, and
certain other activities not currently allocated to the aforementioned segments.
Other net income
decreased $39 thousand to $0.1 million for the three months ended September 30, 2021 compared to the same period in 2020 primarily
due increased interest expense related to the Company’s subordinated debt issuance and gain on sale of AFS securities in
2020, partially offset by increased AFS investment interest.
Comparison of the Nine Months
Ended September 30, 2021 and 2020.
|
|
As of and for the Nine Months Ended
September 30, 2021
|
|
|
As of and for the Nine Months Ended
September 30, 2020
|
|
|
|
Core Bank
|
|
|
Carbucks
|
|
|
Other
|
|
|
Total
|
|
|
Core Bank
|
|
|
Carbucks
|
|
|
Other
|
|
|
Total
|
|
Interest income
|
|
$
|
25,823
|
|
|
$
|
13,879
|
|
|
$
|
1,228
|
|
|
$
|
40,930
|
|
|
$
|
23,740
|
|
|
$
|
12,298
|
|
|
$
|
1,082
|
|
|
$
|
37,120
|
|
Interest expense
|
|
|
1,580
|
|
|
|
1,079
|
|
|
|
1,296
|
|
|
|
3,955
|
|
|
|
5,028
|
|
|
|
1,323
|
|
|
|
703
|
|
|
|
7,054
|
|
Net interest income
|
|
|
24,243
|
|
|
|
12,800
|
|
|
|
(68
|
)
|
|
|
36,975
|
|
|
|
18,712
|
|
|
|
10,975
|
|
|
|
379
|
|
|
|
30,066
|
|
Provision for loan losses
|
|
|
977
|
|
|
|
68
|
|
|
|
—
|
|
|
|
1,045
|
|
|
|
1,727
|
|
|
|
810
|
|
|
|
—
|
|
|
|
2,537
|
|
Noninterest income
|
|
|
1,561
|
|
|
|
112
|
|
|
|
328
|
|
|
|
2,001
|
|
|
|
1,132
|
|
|
|
95
|
|
|
|
733
|
|
|
|
1,960
|
|
Noninterest expense
|
|
|
15,568
|
|
|
|
7,362
|
|
|
|
47
|
|
|
|
22,977
|
|
|
|
15,026
|
|
|
|
7,178
|
|
|
|
46
|
|
|
|
22,250
|
|
Net income before taxes
|
|
|
9,259
|
|
|
|
5,482
|
|
|
|
213
|
|
|
|
14,954
|
|
|
|
3,091
|
|
|
|
3,082
|
|
|
|
1,066
|
|
|
|
7,239
|
|
Income tax expense
|
|
|
2,206
|
|
|
|
1,306
|
|
|
|
51
|
|
|
|
3,563
|
|
|
|
771
|
|
|
|
769
|
|
|
|
264
|
|
|
|
1,804
|
|
Net income
|
|
$
|
7,053
|
|
|
$
|
4,176
|
|
|
$
|
162
|
|
|
$
|
11,391
|
|
|
$
|
2,320
|
|
|
$
|
2,313
|
|
|
$
|
802
|
|
|
$
|
5,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans, net of deferred fees and costs
|
|
$
|
845,962
|
|
|
$
|
91,131
|
|
|
$
|
—
|
|
|
$
|
937,093
|
|
|
$
|
769,324
|
|
|
$
|
70,237
|
|
|
$
|
—
|
|
|
$
|
839,561
|
|
Total assets
|
|
$
|
970,034
|
|
|
$
|
90,434
|
|
|
$
|
142,199
|
|
|
$
|
1,202,667
|
|
|
$
|
825,180
|
|
|
$
|
69,730
|
|
|
$
|
117,888
|
|
|
$
|
1,012,798
|
|
Core Bank
Core Bank consists
of commercial and consumer lending and full-service branches in its geographic region with its own management team. The branches
provide a full range of traditional banking products as well as treasury services and merchant services.
Core Bank net
income increased $4.7 million to $7.0 million for the nine months ended September 30, 2021 compared to $2.3 million for the same
period in 2020. Net interest income increased $5.5 million to $24.2 million for the nine months ended September 30, 2021 from
$18.7 million for the same period a year ago primarily due to increased loan and volume and reduced funding costs. Provision for
loan losses decreased $0.7 million for the nine months ended September 30, 2021 compared to 2020 due to certain qualitative adjustments
made in the nine months ended September 30, 2020 in response to the COVID-19 pandemic, offset by organic growth in the nine months
ended September 30, 2021. Noninterest income increased $0.4 million for the nine months ended September 30, 2021 compared to the
same period in 2020 due to increases in service charges on deposit accounts, third-party loan referral fees, and excess death
benefits. Noninterest expense increased $0.6 million to $15.6 million for the 2021 period compared to $15.0 million for the same
period in 2020 due to primarily to increases in federal deposit insurance and data processing expense partially offset by net
cost of operation of REO in 2020.
Carbucks
Carbucks provides
specialty floor plan inventory financing for more than 1,500 small automobile dealers in over 20 states. Credit lines are established
for each approved dealer using Board approved underwriting guidelines. Advances and repayments on credit lines averaging $0.1
million are vehicle specific. The inventory typically consists of over 12,000 floored used vehicles with an average price of $7,000
per unit, generally has an average 66-day turnover, and generates approximately $200 in financing fees per vehicle which is included
in loan interest income.
Carbucks net
income increased $1.9 million to $4.2 million for the nine months ended September 30, 2021 compared to $2.3 million for the same
period in 2020. Net interest income increased $1.8 million to $12.8 million for the 2021 period from $11.0 million for the same
period a year ago primarily due to increased fees related to increases in inventory. Provision for loan losses decreased $0.7
million for the nine months ended September 30, 2021 compared to 2020 due to improvements in certain qualitative factors related
to COVID-19 in 2020. Noninterest expense increased $0.2 million to $7.4 million for the 2021 period compared to $7.2 million for
the same period in 2020 due primarily to decreased vehicle identification related fees as a result of reduced inventory in early
2021.
Other
Other includes
parent company transactions, investment securities portfolio, BOLI, excess death benefits, net intercompany eliminations, and
certain other activities not currently allocated to the aforementioned segments.
Other net income
decreased $0.6 million to $0.2 million for the nine months ended September 30, 2021 compared to net income of $0.8 million for
the same period in 2020 primarily due to increased interest expense related to the Company’s subordinated debt issuance
and gain on sale of AFS securities in 2020.
Liquidity
and Capital Resources
Liquidity
and Market Risk. Our primary sources of funds consist of deposit inflows, loan repayments, advances from the Federal Home
Loan Bank of Atlanta (“FHLB”), and the sale of available-for-sale securities. While maturities and scheduled amortization
of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions and competition. Our ALCO, under the direction of our Chief Financial Officer, is responsible
for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting
the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies. We have not experienced any
unusual pressure on our deposit balances or our liquidity position as a result of the COVID-19 pandemic. We believe that we have
enough sources of liquidity to satisfy our short- and long-term liquidity needs as of September 30, 2021.
We regularly
monitor and adjust our investments in liquid assets based upon our assessment of expected loan demand, expected deposit flows
and borrowing maturities, yields available on interest-earning deposits and securities, and the objectives of our asset/liability
management program. Excess liquid assets are invested generally in FHLB and Federal Reserve Bank of Richmond (“FRB”)
interest-earning deposits and investment securities and are also used to pay off short-term borrowings. At September 30, 2021,
cash and cash equivalents totaled $102.1 million. Included in this total was $63.8 million held at the FRB, $0.7 million held
at the FHLB, and $31.8 million held at correspondent banks in interest-earning accounts.
Our cash
flows are derived from operating activities, investing activities and financing activities as reported in our consolidated statements
of cash flows included in our unaudited consolidated financial statements of this From 10-Q. The following summarizes the most
significant sources and uses of liquidity during the nine months ended September 30, 2021, and 2020 (in thousands):
|
|
Nine Months Ended September 30,
|
|
|
|
2021
|
|
|
2020
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Purchases of investments
|
|
$
|
(38,520
|
)
|
|
$
|
(55,191
|
)
|
Maturities and principal repayments of investments
|
|
|
19,644
|
|
|
|
9,275
|
|
Sales of investments
|
|
|
—
|
|
|
|
18,787
|
|
Net increase in loans
|
|
|
(58,435
|
)
|
|
|
(84,283
|
)
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
Net increase in deposits
|
|
$
|
105,257
|
|
|
$
|
72,735
|
|
Repurchase of common stock
|
|
|
(3,946
|
)
|
|
|
—
|
|
Proceeds from FHLB advances
|
|
|
—
|
|
|
|
27,000
|
|
Repayment of FHLB advances
|
|
|
|
|
|
|
(6,000
|
)
|
In addition,
because the Company is a separate entity from the Bank, it must provide for its own liquidity. The Company is responsible for
payment of dividends declared on its common and preferred stock and interest and principal on any outstanding debt or trust preferred
securities. The Company currently has internal capital resources to meet these obligations. While the Company has access to capital,
the ultimate sources of its liquidity are dividends from the Bank and tax allocation agreements, which are limited by applicable
law and regulations. The Bank paid no dividends to the Company in the three or nine months ended September 30, 2021 or 2020.
At September
30, 2021, we had $300.0 million in outstanding commitments to extend credit through unused lines of credit and stand-by letters
of credit.
Depending on
market conditions, we may be required to pay higher rates on our deposits or other borrowings than we currently pay on certificates
of deposit. Based on historical experience and current market interest rates, we anticipate that following their maturity we will
retain a large portion of our retail certificates of deposit with maturities of one year or less as September 30, 2021.
In addition
to loans, we invest in securities that provide a source of liquidity, both through repayments and as collateral for borrowings.
Our securities portfolio includes both callable securities (which allow the issuer to exercise call options) and mortgage-backed
securities (which allow borrowers to prepay loans). Accordingly, a decline in interest rates would likely prompt issuers to exercise
call options and borrowers to prepay higher-rate loans, producing higher than otherwise scheduled cash flows.
Liquidity management is both
a daily and long-term function of management. If we require more funds than we are able to generate locally, we have a borrowing
agreement with the FHLB. The following summarizes our borrowing capacity as of September 30, 2021 (in thousands):
|
|
Total
|
|
|
Used
|
|
|
Unused
|
|
|
|
Capacity
|
|
|
Capacity
|
|
|
Capacity
|
|
FHLB
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan collateral capacity
|
|
$
|
348,966
|
|
|
|
|
|
|
|
|
|
Pledgeable marketable securities
|
|
|
127,252
|
|
|
|
|
|
|
|
|
|
FHLB totals
|
|
|
476,218
|
|
|
$
|
16,000
|
|
|
$
|
460,218
|
|
Fed funds lines
|
|
|
56,000
|
|
|
|
—
|
|
|
|
56,000
|
|
|
|
$
|
532,218
|
|
|
$
|
16,000
|
|
|
$
|
516,218
|
|
Capital
Resources. Shareholders’ equity increased $6.2 million to $92.7 million at September 30, 2021 compared to $86.5 million
at December 31, 2020. This increase was primarily attributable to net income of $11.4 million, stock-based compensation of $0.5
million, and stock options exercised of $1.1 million partially offset by stock repurchases of $4.0 million, after-tax decreases
in market value of AFS investment securities of $1.1 million and dividends declared of $1.6 million.
On June
16, 2021, the Company’s Board of Directors approved an extension of the duration of the previously announced common stock
repurchase program (“Common Stock Repurchase Plan”) through December 31, 2021. The previous Common Stock Repurchase
Plan was set to expire September 30, 2021. Pursuant to the Common Stock Repurchase Plan, the Company may repurchase 250,000
common shares including shares repurchased prior to the extension of the Common Stock Repurchase Plan. The
Company has repurchased 210,446 shares for an aggregate amount of $3.9 million under the Common Stock Repurchase Plan.
The remaining capacity under the Common Stock Repurchase Plan is 39,554 common shares.
On August
18, 2021, the Company’s Board of Directors approved the preferred stock repurchase program (“Preferred Stock Repurchase
Plan”) to repurchase up to 75,000 shares of Series A preferred stock at a price acceptable to the Company through December
31, 2021. The Company has repurchased 4,608 shares for an aggregate amount of $0.1 million under the Preferred Stock Repurchase Plan.
The remaining capacity under the Preferred Stock Repurchase Plan is 70,392 common shares.
Repurchased
shares will become treasury shares and may be utilized for general corporate purposes.
The tables
below summarize the capital amounts and ratios of the Bank and the minimum regulatory requirements in accordance with Basel III
and the prompt corrective action provisions at September 30, 2021 and December 31, 2020 (dollars in thousands).
|
|
Actual
|
|
|
For Capital Adequacy
Purposes (1)
|
|
|
To Be Well-
Capitalized Under
Prompt Corrective
Action Provisions
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
As of September 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Leverage Capital
|
|
$
|
118,269
|
|
|
|
10.03
|
%
|
|
$
|
47,177
|
|
|
|
>4%
|
|
|
$
|
58,971
|
|
|
|
>5%
|
|
Common Equity Tier 1 Capital
|
|
$
|
118,269
|
|
|
|
12.05
|
%
|
|
$
|
68,686
|
|
|
|
>7.0%
|
|
|
$
|
63,780
|
|
|
|
>6.5%
|
|
Tier 1 Risk-based Capital
|
|
$
|
118,269
|
|
|
|
12.05
|
%
|
|
$
|
83,404
|
|
|
|
>8.5%
|
|
|
$
|
78,498
|
|
|
|
>8%
|
|
Total Risk-based Capital
|
|
$
|
130,552
|
|
|
|
13.30
|
%
|
|
$
|
103,029
|
|
|
|
>10.5%
|
|
|
$
|
98,122
|
|
|
|
>10%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Leverage Capital
|
|
$
|
105,820
|
|
|
|
10.05
|
%
|
|
$
|
36,100
|
|
|
|
>4%
|
|
|
$
|
45,125
|
|
|
|
>5%
|
|
Common Equity Tier 1 Capital
|
|
$
|
105,820
|
|
|
|
11.73
|
%
|
|
$
|
63,174
|
|
|
|
>7.0%
|
|
|
$
|
58,662
|
|
|
|
>6.5%
|
|
Tier 1 Risk-based Capital
|
|
$
|
105,820
|
|
|
|
11.73
|
%
|
|
$
|
76,712
|
|
|
|
>8.5%
|
|
|
$
|
72,199
|
|
|
|
>8%
|
|
Total Risk-based Capital
|
|
$
|
117,117
|
|
|
|
12.98
|
%
|
|
$
|
94,761
|
|
|
|
>10.5%
|
|
|
$
|
90,249
|
|
|
|
>10%
|
|
|
1)
|
Includes
capital conservation buffer of 2.50%.
|
The tables below
summarize the capital amounts and ratios of the Company and the minimum regulatory requirements in accordance with Basel III at
September 30, 2021, and December 31, 2020 (in thousands).
|
|
Actual
|
|
|
For Capital Adequacy
Purposes (1)
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
As of September 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I Leverage Capital
|
|
$
|
99,187
|
|
|
|
8.41
|
%
|
|
$
|
47,187
|
|
|
|
>4%
|
|
Common Equity Tier 1 Capital
|
|
$
|
90,940
|
|
|
|
9.26
|
%
|
|
$
|
68,741
|
|
|
|
>7.0%
|
|
Tier I Risk-based Capital
|
|
$
|
99,187
|
|
|
|
10.10
|
%
|
|
$
|
83,472
|
|
|
|
>8.5%
|
|
Total Risk Based Capital
|
|
$
|
139,067
|
|
|
|
14.16
|
%
|
|
$
|
103,112
|
|
|
|
>10.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I Leverage Capital
|
|
$
|
91,876
|
|
|
|
8.72
|
%
|
|
$
|
42,189
|
|
|
|
>4%
|
|
Common Equity Tier 1 Capital
|
|
$
|
83,629
|
|
|
|
9.26
|
%
|
|
$
|
63,248
|
|
|
|
>7.0%
|
|
Tier I Risk-based Capital
|
|
$
|
91,876
|
|
|
|
10.17
|
%
|
|
$
|
76,801
|
|
|
|
>8.5%
|
|
Total Risk Based Capital
|
|
$
|
130,683
|
|
|
|
14.46
|
%
|
|
$
|
94,871
|
|
|
|
>10.5%
|
|
|
1)
|
Includes
capital conservation buffer of 2.50%.
|