10-Q 1 sfsnwpp10q111422.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended September 30, 2022

 

or

 

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

For the transition period from ____________ to _____________

 

Commission file number: 000-33411

 

NEW PEOPLES BANKSHARES, INC.

(Exact name of registrant as specified in its charter)

 

     

Virginia

(State or other jurisdiction of

incorporation or organization)

 

 

31-1804543

(I.R.S. Employer

Identification No.)

 

67 Commerce Drive, Honaker, Virginia

(Address of principal executive offices)

 

24260

(Zip Code)

 
         

(276) 873-7000

 
(Registrant’s telephone number, including area code)

 

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

 

Title of each class Trading Symbol(s) Name of each exchange on which registered
  None  

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X]   No [ ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T ((§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes [X]   No [ ]

 

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

 

     
Large accelerated filer  [ ]   Accelerated filer  [ ]
Non-accelerated filer  [X]   Smaller reporting company  [X]
    Emerging growth company  [ ]

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

         
Yes [ ]   No [X]

 

The number of shares outstanding of the registrant’s common stock was 23,872,311 as of November 10, 2022.

 
 

 

NEW PEOPLES BANKSHARES, INC.

 

INDEX

 

    Page
PART I FINANCIAL INFORMATION  
     
Item 1. Financial Statements  
     
  Consolidated Balance Sheets - September 30, 2022 (Unaudited) and December 31, 2021 3
     
  Consolidated Statements of Income – Three and Nine months ended September 30, 2022 and 2021 (Unaudited) 4
     
  Consolidated Statements of Comprehensive Income (Loss) – Three and six months ended June 30, 2022 and 2021 (Unaudited) 5
     
  Consolidated Statements of Changes in Stockholders’ Equity – Three and Nine months ended September 30, 2022 and 2021 (Unaudited) 6
     
  Consolidated Statements of Cash Flows – Nine months ended September 30, 2022 and 2021 (Unaudited) 7
     
  Notes to Consolidated Financial Statements 8
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 25
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 37
     
Item 4. Controls and Procedures 37
     
PART II OTHER INFORMATION  
     
Item 1. Legal Proceedings 38
     
Item 1A. Risk Factors 38
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 38
     
Item 3. Defaults upon Senior Securities 38
     
Item 4. Mine Safety Disclosures 38
     
Item 5. Other Information 38
     
Item 6. Exhibits 39
     
SIGNATURES 40

 

 

 
 

Part I Financial Information

Item 1Financial Statements

 

NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2022 AND DECEMBER 31, 2021

(IN THOUSANDS EXCEPT PER SHARE AND SHARE DATA)

(UNAUDITED)

  September 30,  December 31,
   2022  2021
ASSETS      
Cash and due from banks   17,134   $14,952 
Interest-bearing deposits with banks   97,406    45,766 
Federal funds sold   378    228 
Total Cash and Cash Equivalents   114,918    60,946 
Investment securities available-for-sale   98,845    107,358 
Loans receivable   579,874    593,744 
Allowance for loan losses   (6,593)   (6,735)
Net loans   573,281    587,009 
Bank premises and equipment, net   19,675    20,735 
Other real estate owned   321    1,361 
Accrued interest receivable   2,174    2,112 
Deferred taxes, net   4,570    1,673 
Bank owned life insurance   4,602    4,685 
Right-of-use assets – operating leases   3,816    4,062 
Other assets   6,363    4,706 
        Total Assets   828,565   $794,647 
LIABILITIES          
Deposits:          
Noninterest bearing   269,052   $251,257 
Interest-bearing   454,862    456,256 
        Total Deposits   723,914    707,513 
Borrowed funds   41,496    16,496 
Lease liabilities – operating leases   3,816    4,062 
Accrued interest payable   355    272 
Accrued expenses and other liabilities   3,754    2,673 
Total Liabilities   773,335    731,016 
SHAREHOLDERS’ EQUITY          
Common stock - $2.00 par value; 50,000,000 shares authorized;          

23,877,601 and 23,922,086 shares issued and outstanding at

September 30, 2022 and December 31, 2021, respectively

   47,755    47,844 
Additional paid-in-capital   14,556    14,570 
Retained earnings   6,665    2,031 
Accumulated other comprehensive loss   (13,746)   (814)
Total Shareholders’ Equity   55,230    63,631 
Total Liabilities and Shareholders’ Equity   828,565   $794,647 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 3

 

NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)

(UNAUDITED)

 

   For the Three Months Ended  For the Nine Months Ended
   September 30,  September 30,
             
INTEREST AND DIVIDEND INCOME   2022    2021    2022    2021 
Loans including fees  $7,010    7,602   $20,476   $21,483 
Federal funds sold   2    —      3    —   
Interest-earning deposits with banks   559    28    738    69 
Investments   505    388    1,422    969 
Dividends on equity securities (restricted)   34    26    88    90 
Total Interest and Dividend Income   8,110    8,044    22,727    22,611 
                     
INTEREST EXPENSE                    
Deposits   418    522    1,252    1,780 
Borrowed funds   492    104    810    349 
Total Interest Expense   910    626    2,062    2,129 
                     
NET INTEREST INCOME   7,200    7,418    20,665    20,482 
                     
PROVISION FOR LOAN LOSSES   225    —      400    372 
                     
NET INTEREST INCOME AFTER                    
PROVISION FOR LOAN LOSSES   6,975    7,418    20,265    20,110 
                     
NONINTEREST INCOME                    
Service charges and fees   1,069    1,001    2,973    2,674 
Card processing and interchange   915    982    2,858    2,918 
Insurance and investment fees   167    222    650    723 
Net gain on sales of available-for-sale securities   —      322    —      322 
Other noninterest income   38    443    425    840 
Total Noninterest Income   2,189    2,970    6,906    7,477 
                     
NONINTEREST EXPENSES                    
Salaries and employee benefits   3,290    3,239    9,947    9,417 
Occupancy and equipment expense   1,177    2,215    3,200    4,575 
Data processing and telecommunications   607    609    1,762    1,835 
Other operating expenses   1,525    2,004    4,787    5,313 
Total Noninterest Expenses   6,599    8,067    19,696    21,140 
                     
INCOME BEFORE INCOME TAXES   2,565    2,321    7,475    6,447 
                     
INCOME TAX EXPENSE   579    476    1,645    1,354 
                     
NET INCOME  $1,986    1,845   $5,830   $5,093 
                     
Earnings per share                    
Basic and diluted  $0.08    0.08   $0.24   $0.21 
                     
Average Weighted Shares of Common Stock                    
Basic and diluted   23,893,224    23,922,086    23,910,287    23,922,086 

 

The accompanying notes are an integral part of these consolidated financial statements.

 4

 

NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

(IN THOUSANDS)

(UNAUDITED)

 

 

             
             
  

For the Three Months Ended

September 30,

 

For the Nine Months Ended

September 30,

   2022  2021  2022  2021
             
NET INCOME  $1,986   $1,845   $5,830   $5,093 
                     
Other comprehensive (loss) income:                    
  Investment securities activity                    
    Unrealized losses arising during the period   (3,614)   (45)   (16,369)   (629)
    Reclassification adjustment for net gains included                    
        in net income   —      (322)   —      (322)
    Other comprehensive loss on investment securities   (3,614)   (367)   (16,369)   (951)
    Related tax benefit   759    76    3,437    199 
TOTAL OTHER COMPREHENSIVE LOSS   (2,855)   (291)   (12,932)   (752)
TOTAL COMPREHENSIVE (LOSS) INCOME  $(869)  $1,554   $(7,102)  $4,341 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 5

 

NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

(IN THOUSANDS INCLUDING SHARE DATA)

(UNAUDITED)

 

 

   Shares of Common Stock  Common Stock  Additional Paid-in- Capital 

Retained

Earnings

(Deficit)

 

Accumulated Other

Comprehensive Income (Loss)

  Total Shareholders’ Equity
                   
Balance, December 31, 2020   23,922   $47,844   $14,570   $(4,979)  $742   $58,177 
                               
Net income   —      —      —      1,585    —      1,585 
Other comprehensive loss, net of tax   —      —      —      —      (415)   (415)
Balance, March 31, 2021   23,922   $47,844   $14,570   $(3,394)  $327   $59,347 
                               
Net income   —      —      —      1,663    —      1,663 
Other comprehensive loss, net of tax   —      —      —      —      (46)   (46)
Balance, June 30, 2021   23,922   $47,844   $14,570   $(1,731)  $281   $60,964 
                               
Net income   —      —      —      1,845    —      1,845 
Other comprehensive loss, net of tax   —      —      —      —      (291)   (291)
Balance, September 30, 2021   23,922   $47,844   $14,570   $114   $(10)  $62,518 
                               

 

 

                              
Balance, December 31, 2021   23,922   $47,844   $14,570   $2,031   $(814)  $63,631 
                               
Net income   —      —      —      1,921    —      1,921 
Other comprehensive loss, net of tax   —      —      —      —      (5,444)   (5,444)
Cash dividend declared ($0.05 per share)   —      —      —      (1,196)   —      (1,196)
Balance, March 31, 2022   23,922   $47,844   $14,570   $2,756   $(6,258)  $58,912 
                               
Net income   —      —      —      1,923    —      1,923 
Other comprehensive loss, net of tax   —      —      —      —      (4,633)   (4,633)
Repurchase of common stock   (16)   (33)   (5)   —      —      (38)
Balance, June 30, 2022   23,906   $47,811   $14,565   $4,679   $(10,891)  $56,164 
                               
Net income   —      —      —      1,986    —      1,986 
Other comprehensive loss, net of tax   —      —      —      —      (2,855)   (2,855)
Repurchase of common stock   (28)   (56)   (9)   —      —      (65)
Balance, September 30, 2022   23,878   $47,755   $14,556   $6,665   $(13,746)  $55,230 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 6

 

NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

(IN THOUSANDS)

(UNAUDITED)

 

       
   2022  2021
CASH FLOWS FROM OPERATING ACTIVITIES          
Net income  $5,830   $5,093 

Adjustments to reconcile net income to net cash provided by

operating activities:

          
Depreciation   1,337    1,609 
Provision for loan losses   400    372 
Loss (income) on bank owned life insurance   83    (25)
Net gain on sale of securities available-for-sale   —      (322)
Net gain on sale of mortgage loans   (27)   (95)
Loss (gain) on sale or disposal of premises and equipment   195    (149)
Gain on sale of other real estate owned   (70)   (122)
Loans originated for sale   (1,503)   (5,494)
Proceeds from sales of loans originated for sale   1,530    5,869 
Adjustment to carrying value of premises transferred to other real estate owned   —      1,067 
Adjustment of carrying value of other real estate owned   137    423 
Net amortization/accretion of bond premiums/discounts   392    336 
Deferred tax expense   540    1,351 
Net change in:          
Accrued interest receivable   (62)   250 
Other assets   (693)   (491)
Accrued interest payable   83    (146)
Accrued expenses and other liabilities   1,136    212 
Net Cash Provided by Operating Activities   9,308    9,738 
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Net decrease in loans   14,039    41 
Purchase of securities available-for-sale   (19,790)   (77,168)
Proceeds from sale of investment securities available-for-sale   —      7,686 
Proceeds from repayments and maturities of securities available-for-sale   11,542    11,695 
Net (purchase) redemption of equity securities (restricted)   (964)   555 
Payments for the purchase of premises and equipment   (478)   (2,217)
Proceeds from sale of premises and equipment   —      1,203 
Proceeds from insurance claims on other real estate owned or premises   6    54 
Proceeds from sales of other real estate owned   207    2,128 
Net Cash Provided by (Used) in Investing Activities   4,562    (56,023)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Net change in short term borrowings   25,000    (5,000)
Net change in noninterest bearing deposits   17,795    31,718 
Net change in interest bearing deposits   (1,394)   13,759 
Dividends paid   (1,196)   —   
Repurchase of common stock   (103)   —   
Net Cash Provided by Financing Activities   40,102    40,477 
           
Net increase (decrease) in cash and cash equivalents   53,972    (5,808)
Cash and Cash Equivalents, Beginning of the Period   60,946    92,350 
Cash and Cash Equivalents, End of the Period  $114,918   $86,542 
           
Supplemental Disclosure of Cash Paid During the Period for:          
Interest  $1,979   $2,275 
Taxes  $325   $—   
Supplemental Disclosure of Non-cash Transactions:          
Other real estate acquired in settlement of foreclosed loans  $—     $566 
Loans made to finance sale of other real estate owned  $711   $—   
Transfer of premises and equipment to other real estate  $—     $950 
Change in unrealized losses on securities available for sale  $(16,369)  $(951)

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 7

 

NEW PEOPLES BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 1 NATURE OF OPERATIONS

 

Nature of Operations – New Peoples Bankshares, Inc. (New Peoples or the Company) is a financial holding company whose principal activity is the ownership and management of a community bank, New Peoples Bank, Inc. (the Bank). New Peoples and the Bank are organized and incorporated under the laws of the Commonwealth of Virginia. As a state-chartered member bank, the Bank is subject to regulation by the Virginia Bureau of Financial Institutions, the Federal Deposit Insurance Corporation and the Board of Governors of the Federal Reserve System (the Federal Reserve). The Bank provides general banking services to individuals, small and medium size businesses and the professional community of southwest Virginia, southern West Virginia, western North Carolina and northeastern Tennessee. These services include commercial and consumer loans along with traditional deposit products such as checking and savings accounts.

 

 

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

These consolidated financial statements conform to U. S. generally accepted accounting principles (GAAP) and to general industry practices. In the opinion of management, the accompanying consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the Company’s financial position at September 30, 2022 and December 31, 2021, and the results of operations for the three- and nine-month periods ended September 30, 2022 and 2021. The Notes included herein should be read in conjunction with the notes to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The 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.

 

The consolidated financial statements include New Peoples, the Bank, NPB Insurance Services, Inc., and NPB Web Services, Inc. (hereinafter, collectively referred to as the Company, we, us or our). All significant intercompany balances and transactions have been eliminated. In accordance with Accounting Standards Codification (ASC) 942, Financial Services – Depository and Lending, NPB Capital Trust I and 2 are not included in the consolidated financial statements.

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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. The determination of the adequacy of the allowance for loan losses and the determination of the deferred tax asset are based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions.

 

Certain reclassifications have been made to prior period amounts to conform to current period presentation. None of these reclassifications are considered material and have no impact on net income.

 

 

NOTE 3 EARNINGS PER SHARE

 

Basic Earnings per share computations are based on the weighted average number of shares outstanding during each period. Diluted earnings per share reflect the additional common shares that would have been outstanding if dilutive potential common shares had been issued. For the three-month and nine-month periods ended September 30, 2022 and 2021, there were no potential common shares. Basic and diluted net income per common share calculations follows:

 

(Dollars in Thousands, Except

Share and Per Share Data)

 

For the three months

ended September 30,

 

For the Nine months

ended September 30,

   2022  2021  2022  2021
Net income  $1,986   $1,845   $5,830   $5,093 
Weighted average shares outstanding   23,893,224    23,922,086    23,910,287    23,922,086 
Weighted average dilutive shares outstanding   23,893,224    23,922,086    23,910,287    23,922,086 
                     
Basic and diluted Earnings per share  $0.08   $0.08   $0.24   $0.21 

 8

 

NOTE 4 CAPITAL

 

Capital Requirements and Ratios

 

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action.

To qualify as a "Small Bank Holding Company" under federal regulations, a bank must have consolidated assets of $3 billion or less. The primary benefit of being deemed a "Small Bank Holding Company" is the exemption from the requirement to maintain consolidated regulatory capital ratios; instead, regulatory capital ratios only apply at the subsidiary bank level.

The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (BASEL III rules) became fully phased in on January 1, 2019. Under the BASEL III rules, the Bank must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer required is 2.50%. At September 30, 2022, the Bank had a capital conservation buffer of 8.35%. Amounts recorded to accumulated other comprehensive income (loss) are not included in computing regulatory capital. Management believes as of September 30, 2022, the Bank met all capital adequacy requirements to which it was subject.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At September 30, 2022, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution's category. The Bank’s actual capital amounts and ratios are presented in the following table as of September 30, 2022 and December 31, 2021, respectively.

                   
   Actual  Minimum Capital Requirement  Minimum to Be Well Capitalized Under Prompt Corrective Action Provisions
(Dollars are in thousands)  Amount  Ratio  Amount  Ratio  Amount  Ratio
September 30, 2022:
Total Capital to Risk Weighted Assets   90,849    16.35%  $44,465    8.0%  $55,582    10.0%
Tier 1 Capital to Risk Weighted Assets   84,256    15.16%   33,349    6.0%   44,465    8.0%
Tier 1 Capital to Average Assets   84,256    9.86%   34,166    4.0%   42,707    5.0%
Common Equity Tier 1 Capital                              
to Risk Weighted Assets   84,256    15.16%   25,012    4.5%   36,128    6.5%
                               

 

December 31, 2021:

                              
Total Capital to Risk Weighted Assets   85,890    16.23%  $42,332    8.0%  $52,915    10.0%
Tier 1 Capital to Risk Weighted Assets   79,274    14.98%   31,749    6.0%   42,332    8.0%
Tier 1 Capital to Average Assets   79,274    9.86%   32,145    4.0%   40,181    5.0%
Common Equity Tier 1 Capital                              
to Risk Weighted Assets   79,274    14.98%   23,812    4.5%   34,395    6.5%

 

 9

 

NOTE 5 INVESTMENT SECURITIES

 

The amortized cost and estimated fair value of available-for-sale (AFS) securities as of September 30, 2022 and December 31, 2021 is as follows:

 

  Gross   Gross   Approximate
  Amortized   Unrealized   Unrealized   Fair
(Dollars are in thousands) Cost   Gains   Losses   Value
September 30, 2022
U.S. Treasuries $                  12,639 $                     -    $                     993 $                   11,646
U.S. Government Agencies                    10,451                        4                       695                       9,760
Taxable municipals 23,338                              -                     5,560                   17,778
Corporate bonds 3,515                     -                        340                     3,175
Mortgage backed securities 66,301                     -                     9,815                   56,486
Total Securities available for sale $                116,244 $                      4 $               17,403 $                   98,845
 
December 31, 2021
U.S. Treasuries $ 7,791 $ 2 $ 122 $ 7,671
U.S. Government Agencies   9,098   77   86   9,089
Taxable municipals   23,075   159   254   22,980
Corporate bonds   2,014   23   18   2,019
Mortgage backed securities   66,410   143   954   65,599
Total Securities available for sale $ 108,388 $ 404 $ 1,434 $ 107,358

 

 

The following table details unrealized losses and related fair values in the AFS portfolio. This information is aggregated by the length of time that individual securities have been in a continuous unrealized loss position as of September 30, 2022 and December 31, 2021.

 

                   
   Less than 12 Months  12 Months or More  Total

 

(Dollars are in thousands)

  Fair Value 

Unrealized

Losses

 

Fair

Value

 

Unrealized

Losses

 

Fair

Value

 

Unrealized

Losses

September 30, 2022                  
U.S. Treasuries  $5,115   $283   $5,564   $710   $10,679   $993 
U.S. Government Agencies   5,450    362    3,120    333    8,570    695 
Taxable municipals   7,009    2,131    9,969    3,429    16,978    5,560 
Corporate bonds   2,288    228    388    112    2,676    340 
Mortgage backed securities   14,463    1,759    39,512    8,056    53,975    9,815 
Total Securities available for sale  $34,325   $4,763   $58,553   $12,640   $92,878   $17,403 
                               
December 31, 2021                              
U.S. Treasuries  $6,200   $122   $—     $—     $6,200   $122 
U.S. Government Agencies   977    10    3,434    76    4,411    86 
Taxable municipals   13,040    237    387    17    13,427    254 
Corporate bonds   1,482    18    —      —      1,482    18 
Mortgage backed securities   52,180    758    6,282    196    58,462    954 
Total Securities available for sale  $73,879   $1,145   $10,103   $289   $83,982   $1,434 
                               

 

 

At September 30, 2022, there were 216 securities in a loss position, of which 100 have been in a loss position for twelve months or more. Management believes that all unrealized losses have resulted from temporary changes in the interest rates and current market conditions and are not a result of credit deterioration. Management does not intend to sell, and it is not likely that the Bank will be required to sell any of the securities referenced in the table above before recovery of their amortized cost.

 

Investment securities with a carrying value of $28.3 million and $12.1 million at September 30, 2022 and December 31, 2021, respectively, were pledged as collateral to secure public deposits and for other purposes required by law.

 

 10

 

The following table summarizes sales of AFS debt securities for the nine months-ended September 30,

 

(Dollars are in thousands)  2022  2021
 Proceeds  $—     $7,686 
 Gains   —      322 
 Losses   —      —   
 Tax provision (benefit)   —      68 

 

The amortized cost and fair value of investment securities at September 30, 2022, by contractual maturity, are shown in the following schedule. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

          
   Weighted
(Dollars are in thousands)  Amortized  Fair  Average
Securities Available-for-Sale  Cost  Value  Yield
Due in one year or less  $1,777   $1,776    4.30%
Due after one year through five years   16,829    15,805    2.09%
Due after five years through ten years   14,663    12,832    1.98%
Due after ten years   82,975    68,432    1.82%
Total  $116,244   $98,845    1.92%

 

The Bank, as a member bank of the Federal Reserve Bank of Richmond (Federal Reserve Bank) and the Federal Home Loan Bank of Atlanta (FHLB), is required to hold stock in each. The Bank also owns stock in CBB Financial Corp., which is a correspondent of the Bank. These equity securities, which are included in Other Assets on the consolidated balance sheet, are restricted from trading and are recorded at a cost of $3.0 million and $2.0 million at September 30, 2022 and December 31, 2021, respectively. The stock has no quoted market value and no ready market exists.

 

NOTE 6 LOANS

 

Loans receivable outstanding as of September 30, 2022, and December 31, 2021, are summarized as follows:

 

(Dollars are in thousands) 

September 30,

2022

  December 31, 2021
Real estate secured:          
Commercial  $198,101   $206,162 
Construction and land development   38,598    32,325 
Residential 1-4 family   226,706    224,530 
Multifamily   29,062    33,048 
Farmland   17,467    18,735 
Total real estate loans   509,934    514,800 
Commercial   45,126    54,325 
Agriculture   3,799    4,021 
Consumer installment loans   19,602    18,756 
All other loans   1,413    1,842 
Total loans  $579,874   $593,744 

 

 

Included in commercial loans at September 30, 2022 and December 31, 2021 were $298 thousand and $6.4 million of Paycheck Protection Program (PPP) loans, respectively, that are guaranteed by the Small Business Administration (SBA).

 

Also included in total loans above are deferred loan fees of $1.7 million and $1.8 million at September 30, 2022 and December 31, 2021, respectively. Deferred loan costs were $2.1 million and $2.0 million, at September 30, 2022 and December 31, 2021, respectively. Income from net deferred fees and costs is recognized over the lives of the respective loans as a yield adjustment. If loans repay prior to scheduled maturities any unamortized fee or costs is recognized at that time.

 11

 

 

Loans receivable on nonaccrual status as of September 30, 2022, and December 31, 2021, are summarized as follows:

       
(Dollars are in thousands) 

September 30,

2022

  December 31, 2021
Real estate secured:          
Commercial  $273   $415 
Construction and land development   735    37 
Residential 1-4 family   2,636    2,314 
Multifamily   —      111 
Farmland   43    48 
Total real estate loans   3,687    2,925 
Commercial   15    9 
Consumer installment loans and other loans   4    7 
Total loans receivable on nonaccrual status  $3,706   $2,941 

 

Total interest income not recognized on nonaccrual loans for the nine months ended September 30, 2022, and September 30, 2021, was $22 thousand and $445 thousand, respectively.

 

The following tables presents information concerning the Company’s investment in loans considered impaired as of September 30, 2022, and December 31, 2021:

 

 

 

As of September 30, 2022

(Dollars are in thousands)

 

 

 

Recorded

Investment

 

 

 

Unpaid Principal Balance

 

 

 

Related

Allowance

With no related allowance recorded:               
Real estate secured:               
Commercial  $92   $133   $—   
Construction and land development   6    279    —   
Residential 1-4 family   1,662    2,008    —   
Multifamily   —      —      —   
Farmland   268    437    —   
Commercial   24    32    —   
Agriculture   —      —      —   
Consumer installment loans   —      —      —   
All other loans   —      —      —   
With an allowance recorded:               
Real estate secured:               
Commercial   291    361    69 
Construction and land development   710    710    174 
Residential 1-4 family   34    49    26 
Multifamily   —      —      —   
Farmland   —      —      —   
Commercial   —      —      —   
Agriculture   —      —      —   
Consumer installment loans   —      —      —   
All other loans   —      —      —   
Total  $3,087   $4,009   $269 

 

 12

 

 

 

 

 

As of December 31, 2021

(Dollars are in thousands)

 

 

 

Recorded

Investment

 

 

Unpaid Principal Balance

 

 

 

Related

Allowance

With no related allowance recorded:               
Real estate secured:               
Commercial  $99   $140   $—   
Construction and land development   24    298    —   
Residential 1-4 family   1,508    1,791    —   
Multifamily   —      —      —   
Farmland   320    490    —   
Commercial   —      —      —   
Agriculture   —      —      —   
Consumer installment loans   2    2    —   
All other loans   —      —      —   
With an allowance recorded:               
Real estate secured:               
Commercial   315    372    94 
Construction and land development   —      —      —   
Residential 1-4 family   340    372    53 
Multifamily   —      —      —   
Farmland   197    209    17 
Commercial   28    35    2 
Agriculture   —      —      —   
Consumer installment loans   —      —      —   
All other loans   —      —      —   
Total  $2,833   $3,709   $166 

 

The following tables present information concerning the Company’s average impaired loans and interest recognized on those impaired loans, for the periods indicated:

  

 

Nine Months Ended

   September 30, 2022  September 30, 2021

 

 

 

(Dollars are in thousands)

 

 

Average

Recorded

Investment

 

 

Interest

Income

Recognized

 

 

Average

Recorded

Investment

 

 

Interest

Income

Recognized

With no related allowance recorded:                    
Real estate secured:                    
Commercial  $132   $4   $281   $—   
Construction and land development   25    13    75    9 
Residential 1-4 family   1,578    37    1,773    24 
Multifamily   —      —      —      —   
Farmland   322    18    467    14 
Commercial   12    1    —      —   
Agriculture   —      —      —      —   
Consumer installment loans   1    —      3    —   
All other loans   —      —      —      —   
With an allowance recorded:                    
Real estate secured:                    
Commercial   442    3    1,010    3 
Construction and land development   364    17    —      —   
Residential 1-4 family   243    6    338    6 
Multifamily   25    —      —      —   
Farmland   79    —      102    4 
Commercial   34    1    129    1 
Agriculture   —      —      —      —   
Consumer installment loans   —      —      —      —   
All other loans   —      —      —      —   
Total  $3,257   $100   $4,178   $61 

 

 

 13

 

 

  

 

Three Months Ended

   September 30, 2022  September 30, 2021

 

 

 

(Dollars are in thousands)

 

 

Average

Recorded

Investment

 

 

Interest

Income

Recognized

 

 

Average

Recorded

Investment

 

 

Interest

Income

Recognized

With no related allowance recorded:                    
Real estate secured:                    
Commercial  $94   $4   $122   $—   
Construction and land development   9    9    56    5 
Residential 1-4 family   1,553    23    1,764    10 
Multifamily   —      —      —      —   
Farmland   275    9    452    5 
Commercial   25    1    —      —   
Agriculture   —      —      —      —   
Consumer installment loans   —      —      3    —   
All other loans   —      —      —      —   
With an allowance recorded:                    
Real estate secured:                    
Commercial   295    —      519    —   
Construction and land development   727    17    —      —   
Residential 1-4 family   167    6    357    6 
Multifamily   25    —      —      —   
Farmland   —      —      100    4 
Commercial   —      —      29    —   
Agriculture   —      —      —      —   
Consumer installment loans   —      —      —      —   
All other loans   —      —      —      —   
Total  $3,170   $69   $3,402   $30 

 

An age analysis of past due loans receivable as of September 30, 2022, and December 31, 2021, is below. At September 30, 2022 and December 31, 2021, no loans over 90 days past due were accruing.

 

 

 

 

 

As of September 30, 2022

(Dollars are in thousands)

 

 

Loans

30-59

Days

Past

Due

 

 

Loans

60-89

Days

Past

Due

 

Loans

90 or

More

Days

Past

Due

 

 

 

Total

Past

Due

Loans

 

 

 

 

 

Current

Loans

 

 

 

 

 

Total

Loans

Real estate secured:                              
Commercial  $—     $—     $—     $—     $198,101   $198,101 

Construction and land

development

   50    —      710    760    37,838    38,598 
Residential 1-4 family   1,879    361    551    2,791    223,915    226,706 
Multifamily   —      —      —      —      29,062    29,062 
Farmland   43    —      —      43    17,424    17,467 
Total real estate loans   1,972    361    1,261    3,594    506,340    509,934 
Commercial   65    —      15    80    45,046    45,126 
Agriculture   —      —      —      —      3,799    3,799 

Consumer installment

loans

   28    32    4    64    19,538    19,602 
All other loans   28    —      —      28    1,385    1,413 
Total loans  $2,093   $393   $1,280   $3,766   $576,108   $579,874 

 

 14

 

 

 

 

 

 

 

As of December 31, 2021

(Dollars are in thousands)

 

 

Loans

30-59

Days

Past

Due

 

 

Loans

60-89

Days

Past

Due

 

Loans

90 or

More

Days

Past

Due

 

 

 

Total

Past

Due

Loans

 

 

 

 

 

Current

Loans

 

 

 

 

 

Total

Loans

Real estate secured:                              
Commercial  $—     $—     $—     $—     $206,162   $206,162 

Construction and land

development

   7    —      7    14    32,311    32,325 
Residential 1-4 family   2,473    240    486    3,199    221,331    224,530 
Multifamily   —      —      111    111    32,937    33,048 
Farmland   —      —      —      —      18,735    18,735 
Total real estate loans   2,480    240    604    3,324    511,476    514,800 
Commercial   5    —      —      5    54,320    54,325 
Agriculture   —      —      —      —      4,021    4,021 

Consumer installment

Loans

   56    5    —      61    18,695    18,756 
All other loans   —      —      —      —      1,842    1,842 
Total loans  $2,541   $245   $604   $3,390   $590,354   $593,744 

 

The Company categorizes loans receivable into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans receivable as to credit risk. The Company uses the following definitions for risk ratings:

 

Pass - Loans in this category are considered to have a low likelihood of loss based on relevant information analyzed about the ability of the borrowers to service their debt and other factors.

 

Special Mention - Loans in this category are currently protected but are potentially weak, including adverse trends in borrower’s operations, credit quality or financial strength. Those loans constitute an undue and unwarranted credit risk but not to the point of justifying a substandard classification. The credit risk may be relatively minor yet constitute an unwarranted risk in light of the circumstances.  Special mention loans have potential weaknesses which may, if not checked or corrected, weaken the loan or inadequately protect the Company’s credit position at some future date.

 

Substandard - A substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as substandard must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt; they are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

 

Doubtful - Loans classified doubtful have all the weaknesses inherent in loans classified as substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable.

 

 15

 

 

Based on the most recent analysis performed, the risk categories of loans receivable as of September 30, 2022, and December 31, 2021, was as follows:

 

                

As of September 30, 2022

(Dollars are in thousands)

 

 

Pass

 

Special

Mention

 

 

Substandard

  Doubtful 

 

Total

Real estate secured:                         
   Commercial  $193,557   $4,271   $273   $—     $198,101 
   Construction and land development   37,738    126    734    —      38,598 
   Residential 1-4 family        223,593     493    2,620    —      226,706 
   Multifamily           28,852     210    —      —      29,062 
   Farmland           16,538     886    43    —      17,467 
Total real estate loans   500,278    5,986    3,670    —      509,934 
Commercial   44,208    903    15    —      45,126 
Agriculture   3,799    —      —      —      3,799 
Consumer installment loans   19,595    3    4    —      19,602 
All other loans   1,413    —      —      —      1,413 
Total  $569,293   $6,892   $3,689   $—     $579,874 
                          

 

As of December 31, 2021

(Dollars are in thousands)

   

 

 

Pass

    

 

Special

Mention

    

 

 

Substandard

    Doubtful    

 

 

Total

 
Real estate secured:                         
   Commercial  $198,022   $7,725   $415   $—     $206,162 
   Construction and land development   31,366    922    37    —      32,325 
   Residential 1-4 family   221,342    915    2,273    —      224,530 
   Multifamily   32,499    438    111    —      33,048 
   Farmland   18,137    550    48    —      18,735 
Total real estate loans   501,366    10,550    2,884    —      514,800 
Commercial   53,162    1,154    9    —      54,325 
Agriculture   4,021    —      —      —      4,021 
Consumer installment loans   18,746    2    8    —      18,756 
All other loans   1,842    —      —      —      1,842 
Total  $579,137   $11,706   $2,901   $—     $593,744 

 

NOTE 7 ALLOWANCE FOR LOAN LOSSES

 

In determining the amount of our allowance for loan losses, we rely on an analysis of our loan portfolio, our experience and our evaluation of general economic conditions. If our assumptions prove to be incorrect, our current allowance may not be sufficient to cover future loan losses and we may experience significant increases to our provision. Due to the underlying SBA guarantee provided for PPP loans, these accounts were not included in either the portfolio segment or impairment calculations at September 30, 2022 and December 31, 2021. Additionally, due to uncertainties presented by the ongoing pandemic and the resulting economic uncertainty, internal and external qualitative factors were revised accordingly. This revision included reviewing our internal scoring related to loan modifications and extensions, and external factors, specifically, unemployment and other economic factors.

 

The following table presents activity in the allowance for loan losses for the nine- and three-month periods ended September 30, 2022 and 2021, respectively. Additionally, the allocation of the allowance by recorded portfolio segment and impairment method is presented as of September 30, 2022, and December 31, 2021, respectively.

 

 16

 

 

                               
     Real estate secured                           
 (Dollars are in thousands)    Commercial      Construction and Land Development      Residential 1-4 family      Multifamily      Farmland      Commercial      Agriculture      Consumer and All Other      Unallocated      Total  
 Nine months ended September 30, 2022                                                  
 Beginning balance  $2,134   $189   $2,237   $254