10-Q 1 nwpp_10q.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 March 31, 2023

 

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  [ ]   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. o

 

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 23,823,503 as of May 5, 2023.

 
 

 

NEW PEOPLES BANKSHARES, INC.

INDEX

 

    Page
PART I FINANCIAL INFORMATION  
     
Item 1. Financial Statements  
     
  Consolidated Balance Sheets - March 31, 2023 (Unaudited) and December 31, 2021 3
     
  Consolidated Statements of Income – Three months ended March 31, 2023 and 2022 (Unaudited) 4
     
  Consolidated Statements of Comprehensive Income (Loss) – Three months ended March 31, 2023 and 2022 (Unaudited) 5
     
  Consolidated Statements of Changes in Stockholders’ Equity – Three months ended March 31, 2023 and 2022 (Unaudited) 6
     
  Consolidated Statements of Cash Flows – Three months ended March 31, 2023 and 2022 (Unaudited) 7
     
  Notes to Consolidated Financial Statements 8
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 27
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 35
     
Item 4. Controls and Procedures 35
     
PART II OTHER INFORMATION  
     
Item 1. Legal Proceedings 35
     
Item 1A. Risk Factors 35
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 35
   
Item 3. Defaults upon Senior Securities 36
   
Item 4. Mine Safety Disclosures 36
     
Item 5. Other Information 36
     
Item 6. Exhibits 36
     
SIGNATURES 37

 

 
 

Part I Financial Information

Item 1Financial Statements

 

NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED BALANCE SHEETS

MARCH 31, 2023 AND DECEMBER 31, 2022

(IN THOUSANDS EXCEPT PER SHARE AND SHARE DATA)

(UNAUDITED)

  March 31,  December 31,
   2023  2022
ASSETS      
Cash and due from banks   16,908   $13,979 
Interest-bearing deposits with banks   57,047    46,747 
Federal funds sold   378    960 
Total cash and cash equivalents   74,333    61,686 
Investment securities available-for-sale   96,722    96,076 
Loans receivable   590,490    584,613 
Allowance for credit losses   (6,661)   (6,727)
Net loans   583,829    577,886 
Bank premises and equipment, net   18,485    19,290 
Other real estate owned   261    261 
Accrued interest receivable   2,418    2,555 
Deferred taxes, net   4,111    4,623 
Bank owned life insurance   4,563    4,549 
Right-of-use assets – operating leases   3,641    3,725 
Other assets   5,272    4,707 
        Total assets   793,635   $775,358 
LIABILITIES          
Deposits:          
Noninterest bearing   254,574   $249,924 
Interest-bearing   454,243    442,783 
        Total deposits   708,817    692,707 
Borrowed funds   16,496    16,496 
Lease liabilities – operating leases   3,641    3,725 
Accrued interest payable   749    526 
Accrued expenses and other liabilities   4,244    4,685 
Total liabilities   733,947    718,139 
SHAREHOLDERS’ EQUITY          
Common stock - $2.00 par value; 50,000,000 shares authorized;          
23,828,559 and 23,848,491 shares issued and outstanding at
March 31, 2023 and December 31, 2022, respectively
   47,657    47,697 
Additional paid-in-capital   14,540    14,546 
Retained earnings   9,296    8,917 
Accumulated other comprehensive loss   (11,805)   (13,941)
Total shareholders’ equity   59,688    57,219 
Total liabilities and shareholders’ equity   793,635   $775,358 

 

 

 

 

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

3

 


NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)

(UNAUDITED)

 

   For the Three Months Ended
   March 31,
INTEREST AND DIVIDEND INCOME  2023  2022
Loans including fees  $7,382   $6,674 
Federal funds sold   7    —   
Interest-earning deposits with banks   533    21 
Investments   560    435 
Dividends on equity securities (restricted)   40    27 
Total interest and dividend income   8,522    7,157 
           
INTEREST EXPENSE          
Deposits   1,146    430 
Borrowed funds   308    106 
Total interest expense   1,454    536 
           
NET INTEREST INCOME   7,068    6,621 
           
PROVISION FOR CREDIT LOSSES   —      100 
           
NET INTEREST INCOME AFTER          
PROVISION FOR CREDIT LOSSES   7,068    6,521 
           
NONINTEREST INCOME          
Service charges and fees   917    1,007 
Card processing and interchange   899    916 
Insurance and investment fees   257    241 
Net gain on sale and disposal of premise and equipment   129    —   
Other noninterest income   197    205 
Total noninterest income   2,399    2,369 
           
NONINTEREST EXPENSES          
Salaries and employee benefits   3,550    3,275 
Occupancy and equipment expense   960    1,006 
Data processing and telecommunications   641    554 
Other operating expenses   1,719    1,604 
Total noninterest expenses   6,870    6,439 
           
INCOME BEFORE INCOME TAXES   2,597    2,451 
           
INCOME TAX EXPENSE   576    530 
           
NET INCOME  $2,021   $1,921 
           
Earnings per share          
Basic and diluted  $0.08   $0.08 
           
Average weighted shares of common stock          
Basic and diluted   23,841,162    23,922,086 
           

 

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

4

 

NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(IN THOUSANDS)

(UNAUDITED) 

       
       
   For the Three Months Ended
March 31,
   2023  2022
       
NET INCOME  $2,021   $1,921 
           
Other comprehensive income (loss):          
  Investment securities activity          
    Unrealized gains (losses) arising during the period   2,706    (6,892)
    Other comprehensive income (loss) on investment securities   2,706    (6,892)
    Related tax (expense) benefit   (570)   1,448 
TOTAL OTHER COMPREHENSIVE INCOME (LOSS)   2,136    (5,444)
TOTAL COMPREHENSIVE INCOME (LOSS)  $4,157   $(3,523)

 

 

 

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 MONTHS ENDED MARCH 31, 2023 AND 2022

(IN THOUSANDS INCLUDING SHARE DATA)

(UNAUDITED)

 

 

   Shares of Common Stock  Common Stock  Additional Paid-in- Capital  Retained
Earnings
  Accumulated Other
Comprehensive Income (Loss)
  Total Shareholders’ Equity
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 
                               
Balance, December 31, 2022   23,848   $47,697   $14,546   $8,917   $(13,941)  $57,219 
Adoption of ASU 2016-13   —      —      —      (212)   —      (212)
Net income   —      —      —      2,021    —      2,021 
Other comprehensive income, net of tax   —      —      —      —      2,136    2,136 
Repurchase of common stock, shares   (20)   (40)   (6)   —      —      (46)
Cash dividend declared ($0.06 per share)   —      —      —      (1,430)   —      (1,430)
Balance, March 31, 2023   23,828   $47,657   $14,540   $9,296   $(11,805)  $59,688 

 

 

 

 

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

6

 

NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(IN THOUSANDS)

(UNAUDITED)

 

       
   2023  2022
CASH FLOWS FROM OPERATING ACTIVITIES          
Net income  $2,021   $1,921 
Adjustments to reconcile net income to net cash provided by
operating activities:
          
Depreciation   401    471 
Provision for credit losses   —      100 
Income on bank owned life insurance   (14)   (5)
Net gain on sale of mortgage loans   (4)   (6)
Net gain on sale or disposal of premises and equipment   (129)   —   
Gain on sale of other real estate owned   —      (27)
Loans originated for sale   (81)   (337)
Proceeds from sales of loans originated for sale   85    243 
Adjustment of carrying value of other real estate owned   —      137 
Net amortization/accretion of bond premiums/discounts   74    134 
Deferred tax (benefit) expense   (2)   511 
Net change in:          
Accrued interest receivable   137    25 
Other assets   (575)   (185)
Accrued interest payable   223    (18)
Accrued expenses and other liabilities   (766)   262 
Net cash provided by operating activities   1,370    3,226 
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Net increase in loans   (5,886)   (1,156)
Purchase of securities available-for-sale   —      (10,677)
Proceeds from repayments and maturities of securities available-for-sale   1,986    4,189 
Net redemption (purchase) of equity securities (restricted)   10    (32)
Payments for the purchase of premises and equipment   (271)   (29)
Proceeds from sale of premises and equipment   804    —   
Proceeds from sales of other real estate owned   —      138 
Net cash used in investing activities   (3,357)   (7,567)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Net change in noninterest bearing deposits   4,650    17,994 
Net change in interest bearing deposits   11,460    5,461 
Dividends paid   (1,430)   (1,196)
Repurchase of common stock   (46)   —   
Net cash provided by financing activities   14,634    22,259 
           
Net increase in cash and cash equivalents   12,647    17,918 
Cash and cash equivalents, beginning of the period   61,686    60,946 
Cash and cash equivalents, end of the period  $74,333   $78,864 
           
Supplemental Disclosure of cash paid during the period for:          
Interest  $1,231   $554 
Taxes   1,225    —   
Supplemental Disclosure of Non-cash Transactions:          
Loans made to finance sale of other real estate owned   —      308 
Change in unrealized losses on securities available for sale, net   2,706    (6,892)

 

 

 

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 as of March 31, 2023 and December 31, 2022, and the results of operations for the three months ended March 31, 2023 and 2022. 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, 2022. 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 credit is 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.

 

The Company’s significant accounting policies followed in the preparation of the unaudited consolidated financial statements are disclosed in the Company’s Annual Report on Form 10-K. There have been no significant changes to the application of significant accounting policies since December 31, 2022, except for the following:

 

Accounting Standards Adopted in 2023

 

On January 1, 2023, the Company adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASC 326). This standard replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. CECL requires an estimate of credit losses for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts and generally applies to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities, and some off-balance sheet credit exposures such as unfunded commitments to extend credit. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses.

 

In addition, CECL made changes to the accounting for available-for-sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available for sale debt securities if management does not intend to sell and does not believe that it is more likely than not, they will be required to sell.

 

The Company adopted ASC 326 and all related subsequent amendments thereto effective January 1, 2023 using the modified retrospective approach for all financial assets measured at amortized cost and off-balance sheet credit exposures. The transition adjustment of the adoption of CECL included a decrease in the allowance for credit losses on loans of $80,000, which is presented as a reduction to net loans outstanding, and an increase in the allowance for credit losses on unfunded loan commitments of $348,000, which is recorded within other liabilities. The Company recorded a net decrease to retained earnings of $212,000 as of January 1, 2023 for the cumulative effect of adopting CECL, which reflects the transition adjustments noted above, net of the applicable deferred tax assets recorded. Results for reporting periods beginning after January 1, 2023 are presented under CECL while prior period amounts continue to be reported in accordance with previously applicable accounting standards (“Incurred Loss”).

8

 

 

The Company adopted ASC 326 using the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2023. As of December 31, 2022, the Company did not have any other-than-temporarily impaired investment securities. Therefore, upon adoption of ASC 326, the Company determined that an allowance for credit losses on available for sale securities was not deemed material.

 

The following table illustrates the impact on the allowance for credit losses from the adoption of ASC 326:

 

  January 1, 2023
As Reported Under ASC 326
  December 31, 2022 Pre-ASC 326 Adoption  Impact of ASC 326 Adoption
(Dollars in thousands)               
Assets:               
Loans, at amortized cost   584,613    584,613   $—   
Allowance for credit losses on loans:               
Real estate secured:               
Commercial   2,065    2,364    (299)
Construction and land development   509    345    164 
Residential 1-4 family   2,639    2,364    275 
Multifamily   274    262    12 
Farmland   228    153    75 
     Total real estate loans   5,715    5,488    227 
Commercial   622    381    241 
Agriculture   27    32    (5)
Consumer and other loans   283    386    (103)
Unallocated   —      440    (440)
    Total allowance for credit losses for loans   6,647    6,727    (80)
Deferred tax asset   4,679    4,623    56 
Liabilities:               
Allowance for credit losses for unfunded commitments   348    —      348 

 

 

The Company elected not to measure an allowance for credit losses for accrued interest receivable and instead elected to reverse interest income on loans or securities that are placed on nonaccrual status, which is generally when the instrument is 90 days past due, or earlier if the Company believes the collection of interest is doubtful. The Company has concluded that this policy results in the timely reversal of uncollectible interest.

 

Allowance for Credit Losses – Available for Sale Securities

 

For available for sale securities, management evaluates all investments in an unrealized loss position on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. If the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security, the security is written down to fair value and the entire loss is recorded in earnings.

 

If either of the above criteria is not met, the Company evaluates whether the decline in fair value is the result of credit losses or other factors. In making the assessment, the Company may consider various factors including the extent to which fair value is less than amortized cost, performance on any underlying collateral, downgrades in the ratings of the security by a rating agency, the failure of the issuer to make scheduled interest or principal payments and adverse conditions specifically related to the security. If the assessment indicates that a credit loss exists, the present value of cash flows expected to be collected are compared to the amortized cost basis of the security and any excess is recorded as an allowance for credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any amount of unrealized loss that has not been recorded through an allowance for credit loss is recognized in other comprehensive income.

 

9

 

Changes in the allowance for credit loss are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance for credit loss when management believes an available for sale security is confirmed to be uncollectible or when either of the criteria regarding intent or requirement to sell is met. As of March 31, 2023, there was no allowance for credit loss related to the available for sale portfolio.

 

Loans

 

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts and deferred fees and costs. Accrued interest receivable related to loans totaled $1.9 million at March 31, 2023 and was reported in accrued interest receivable on the consolidated balance sheets. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using methods that approximate a level yield without anticipating prepayments.

 

The accrual of interest is generally discontinued when a loan becomes 90 days past due and is not well collateralized and in the process of collection, or when management believes, after considering economic and business conditions and collection efforts, that the principal or interest will not be collectible in the normal course of business. Past due status is based on contractual terms of the loan. A loan is considered to be past due when a scheduled payment has not been received 30 days after the contractual due date.

 

All accrued interest is reversed against interest income when a loan is placed on nonaccrual status. Interest received on such loans is accounted for using the cost-recovery method, until qualifying for return to accrual. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, there is a sustained period of repayment performance, and future payments are reasonably assured.

 

Allowance for Credit Losses – Loans

 

The allowance for credit losses is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Accrued interest receivable is excluded from the estimate of credit losses.

 

The allowance for credit losses represents management’s estimate of lifetime credit losses inherent in loans as of the balance sheet date. The allowance for credit losses is estimated by management using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.

 

The Company primarily utilizes the cohort and the probability of default/loss given default methodologies for its reasonable and supportable forecasting of current expected credit losses. To further adjust the allowance for credit losses for expected losses not already included within the quantitative component of the calculation, the Company may consider the following qualitative adjustment factors: changes to: lending policies and procedures, national and local economic conditions, the experience and ability of management and staff; the volume and severity of past due, rated and nonaccrual assets, loan review system, collateral value, concentrations of credit, and legal or regulatory requirements and competition.

 

The Company measures expected credit losses for loans on a pooled basis when similar risk characteristics exist. The Company has identified the following portfolio segments and calculates the allowance for credit losses for each using a discounted cash flow methodology:

 

·Commercial Loans. We make commercial loans to qualified businesses in our market area. Our commercial lending consists primarily of commercial and industrial loans to finance accounts receivable, inventory, property, plant and equipment. Commercial business loans generally have a higher degree of risk than residential mortgage loans, but have commensurately higher yields. Residential mortgage loans are generally made on the basis of the borrower’s ability to make repayment from employment and other income and are secured by real estate whose value tends to be easily ascertainable. In contrast, commercial business loans typically are made on the basis of the borrower’s ability to make repayment from cash flow from its business and are secured by business assets, such as commercial real estate, accounts receivable, equipment and inventory. As a result, the availability of funds for the repayment of commercial business loans may be substantially dependent on the success of the business itself. Further, the collateral for commercial business loans may depreciate over time and cannot be appraised with as much precision as residential real estate. To manage these risks, our underwriting guidelines generally require us to secure commercial loans with both the assets of the borrowing business and other additional collateral and guarantees that may be available. In addition, we actively monitor certain measures of the borrower, including advance rate, cash flow, collateral value and other appropriate credit factors.

10

 

·Residential Mortgage Loans. Our residential mortgage loans consist of residential first and second mortgage loans, residential construction loans, home equity lines of credit and term loans secured by first and second mortgages on the residences of borrowers for home improvements, education and other personal expenditures. We make mortgage loans with a variety of terms, including fixed and floating or variable rates and a variety of maturities. Under our underwriting guidelines, residential mortgage loans are generally made on the basis of the borrower’s ability to make repayment from employment and other income and are secured by real estate whose value tends to be easily ascertainable. These loans are made consistent with our appraisal policies and real estate lending policies, which detail maximum loan-to-value ratios and maturities.
·Construction Loans. Construction lending entails significant additional risks compared to residential mortgage lending. Construction loans often involve larger loan balances concentrated with single borrowers or groups of related borrowers. Construction loans also involve additional risks attributable to the fact that loan funds are advanced upon the security of property under construction, which is of uncertain value prior to the completion of construction. Thus, it is more difficult to evaluate the total loan funds required to complete a project and related loan-to-value ratios accurately. To minimize the risks associated with construction lending, loan-to-value limitations for residential, multi-family and non-residential construction loans are in place. These are in addition to the usual credit analyses of borrowers. Management feels that the loan-to-value ratios help to minimize the risk of loss and to compensate for normal fluctuations in the real estate market. Maturities for construction loans generally range from 4 to 12 months for residential property and from 6 to 18 months for non-residential and multi-family properties.
·Consumer Loans. Our consumer loans consist primarily of installment loans to individuals for personal, family and household purposes. The specific types of consumer loans that we make include home improvement loans, debt consolidation loans and general consumer lending. Consumer loans entail greater risk than residential mortgage loans, particularly in the case of consumer loans that are unsecured, such as lines of credit, or secured by rapidly depreciating assets such as automobiles. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance due to the greater likelihood of damage, loss or depreciation. The remaining deficiency often does not warrant further substantial collection efforts against the borrower. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans. A borrower may also be able to assert against the Bank as an assignee any claims and defenses that it has against the seller of the underlying collateral.

 

Loans that do not share risk characteristics are evaluated on an individual basis. The Company designates loan relationships of $250,000 or more that have been determined to meet the regulatory definitions of “special mention” or “classified” (together known as “criticized”) as individually evaluated. The fair value of individually evaluated loans is measured using the fair value of collateral (“collateral method”) or the DCF method.

 

·The collateral method is applied to individually evaluated loans for which foreclosure is probable. The collateral method is also applied to individually evaluated loans when borrowers are experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral (“collateral dependent”). The allowance for credit loss is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date. When repayment is expected to be from the operation of the collateral, the allowance for credit loss is calculated as the amount by which the amortized cost basis of the loan exceeds the present value of expected cash flows from the operation of the collateral. When repayment is expected to be from the sale of the collateral, the allowance for credit loss is calculated as the amount by which the loan's amortized cost basis exceeds the fair value of the underlying collateral less estimated cost to sell. The allowance for credit loss may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the loan.
·The DCF method is applied to individually evaluated loans that do not meet the criteria for collateral method measurement. Cash flows are projected and discounted using the same method as for collectively evaluated loans, and the Company considers default and prepayment assumptions.

 

Allowance for Credit Losses – Unfunded Commitments

 

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit issued to meet customer financing needs. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded.

 

The Company records an allowance for credit losses on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancelable, through a charge to provision for unfunded commitments, which is included in the provision for credit losses, in the Company’s income statements. The allowance for credit losses on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur as well as any third-party guarantees. The allowance for unfunded commitments is included in other liabilities on the Company’s consolidated balance sheets.

11

 

 

On January 1, 2023, concurrent with its adoption of ASU No. 2016-13, the Company adopted ASU No. 2022-02, “Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures.” The amendments eliminate the accounting guidance for troubled debt restructurings (“TDRs”) by creditors that have adopted the CECL model and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty. Disclosures about periods prior to adoption will be presented under GAAP applicable for that period.

 

Similar to its policy under previous GAAP, the Company continues to identify modifications to loans and to determine whether the borrower is experiencing financial difficulty. If the Company determines that the borrower is experiencing financial difficulty, the loan's risk rating is evaluated to determine whether it falls within the regulatory definition of “criticized” and requires individual evaluation. Under previous GAAP, modifications to loans when the borrower was experiencing financial difficulty were designated as TDR and were individually evaluated for the duration of the loan. Under CECL, if a previously modified loan with financial difficulty is subsequently upgraded to a pass rating, it will no longer be individually evaluated.

 

 

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 period ended March 31, 2023 and 2022, 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 March 31,
   2023  2022
Net income  $2,021   $1,921 
Weighted average shares outstanding   23,841,162    23,922,086 
Weighted average dilutive shares outstanding   23,841,162    23,922,086 
Basic and diluted earnings per share  $0.08   $0.08 

 

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%. As of March 31, 2023, the Bank had a capital conservation buffer of 8.58%. Amounts recorded to accumulated other comprehensive income (loss) are not included in computing regulatory capital. Management believes as of March 31, 2023, 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. As of March 31, 2023, 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.

12

 

In February 2019, the U.S. federal bank regulatory agencies approved a final rule modifying their regulatory capital rules and providing an option to phase-in over a three-year period the Day 1 adverse regulatory capital effects of the CECL accounting standard. Additionally, in March 2020, the U.S. Federal bank regulatory agencies issued an interim final rule that provides banking organizations an option to delay the estimated CECL impact on regulatory capital for an additional two years for a total transition period of up to five years. The final rule was adopted and became effective in September 2020. The Company implemented the CECL model commencing January 1, 2023, and elected not to phase in the effect of CECL on regulatory capital.

The Bank’s actual capital amounts and ratios are presented in the following table as of March 31, 2023 and December 31, 2022, 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
March 31, 2023:
Total capital to risk weighted assets   94,092    16.58%  $45,389    8.0%  $56,736    10.0%
Tier 1 capital to risk weighted assets   87,106    15.35%   34,041    6.0%   45,389    8.0%
Tier 1 capital to average assets   87,106    10.98%   31,743    4.0%   39,679    5.0%
Common equity Tier 1 capital                              
to risk weighted assets   87,106    15.35%   25,531    4.5%   36,878    6.5%
                               
 December 31, 2022:                              
Total capital to risk weighted assets   93,028    16.50%  $45,106    8.0%  $56,382    10.0%
Tier 1 capital to risk weighted assets   86,301    15.31%   33,829    6.0%   45,106    8.0%
Tier 1 capital to average assets   86,301    10.40%   33,206    4.0%   41,508    5.0%
Common Equity Tier 1 capital                              
to risk weighted assets   86,301    15.31%   25,372    4.5%   36,648    6.5%

 

NOTE 5 INVESTMENT SECURITIES

 

The amortized cost and estimated fair value of securities (all available-for-sale) as of March 31, 2023 and December 31, 2022 are as follows:

 

    Gross  Gross  Approximate
  Amortized  Unrealized  Unrealized  Fair
(Dollars are in thousands)  Cost  Gains  Losses  Value
March 31, 2023            
U.S. Treasuries  $12,645   $—     $743   $11,902 
U.S. Government Agencies   9,678    4    569    9,113 
Taxable municipals   23,011    —      5,192    17,819 
Corporate bonds   3,508    —      346    3,162 
Mortgage backed securities   62,822    2    8,098    54,726 
Total securities available for sale  $111,664   $6   $14,948   $96,722 
December 31, 2022                    
U.S. Treasuries  $12,642   $—     $957   $11,685 
U.S. Government Agencies   10,129    4    734    9,399 
Taxable municipals   23,022    —      6,207    16,815 
Corporate bonds   3,512    —      376    3,136 
Mortgage backed securities   64,419    —      9,378    55,041 
Total securities available for sale  $113,724   $4   $17,652   $96,076 

 

The following table details unrealized losses and related fair values in the available-for-sale portfolio, for which no allowance for credit loss is recorded. This information is aggregated by the length of time that individual securities have been in a continuous unrealized loss position as of March 31, 2023 and December 31, 2022.

                         

13

 

 

   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
March 31, 2023                  
U.S. Treasuries  $1,442   $9   $10,460   $734   $11,902   $743 
U.S. Government Agencies   3,552    85    5,398    484    8,950    569 
Taxable municipals   —      —      17,319    5,192    17,319    5,192 
Corporate bonds   997    5    2,165    341    3,162    346 
Mortgage backed securities   2,392    28    52,247    8,070    54,639    8,098 
Total securities available for sale  $8,383   $127   $87,589   $14,821   $95,972   $14,948 
                               
December 31, 2022                              
U.S. Treasuries  $4,761   $145   $6,922   $812   $11,683   $957 
U.S. Government Agencies   5,925    348    3,295    386    9,220    734 
Taxable municipals   3,689    1,113    13,127    5,094    16,816    6,207 
Corporate bonds   2,375    136    761    240    3,136    376 
Mortgage backed securities   11,338    861    43,612    8,517    54,950    9,378 
Total securities available for sale  $28,088   $2,603   $67,717   $15,049   $95,805   $17,652 
                               

 

As of March 31, 2023, there were 218 securities in a loss position, of which 200 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. None of the individual securities held are past due as to principal or interest payments and a number of these securities held have explicit or implicit payment guarantees. The remaining securities have credit ratings at or above that necessary to be considered “bank qualified”.

 

Investment securities with a carrying value of $37.9 million and $27.3 million as of March 31, 2023 and December 31, 2022, respectively, were pledged as collateral to secure public deposits and for other purposes required or permitted by law.

 

There were no sales of available for sale investment securities during the three months ended March 31, 2023 and 2022.

 

The amortized cost and fair value of investment securities as of March 31, 2023, 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  $2,488   $2,454    3.31%
Due after one year through five years   15,775    15,032    2.18%
Due after five years through ten years   17,139    15,225    2.09%
Due after ten years   76,262    64,011    1.91%
Total  $111,664   $96,722    2.01%
                

 

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 $2.0 million and $2.1 million at March 31, 2023 and December 31, 2022, respectively. The stock has no quoted market value and no ready market exists.

 

 

14

 

NOTE 6 LOANS

 

Loans receivable outstanding as of March 31, 2023, and December 31, 2022, are summarized as follows:

 

(Dollars are in thousands) 

March 31,

2023

  December 31, 2022
Real estate secured:          
Commercial   197,820   $197,069 
Construction and land development   42,742    42,470 
Residential 1-4 family   228,727    227,232 
Multifamily   34,167    29,710 
Farmland   16,892    17,744 
Total real estate loans   520,348    514,225 
Commercial   46,338    46,697 
Agriculture   3,931    3,756 
Consumer installment loans   19,271    19,309 
All other loans   602    626 
Total loans   590,490   $584,613 

 

 

Also included in total loans above are deferred loan fees of $1.6 million as of March 31, 2023 and December 31, 2022. Deferred loan costs were $1.9 million, as of March 31, 2023 and December 31, 2022. 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 cost is recognized at that time.

 

Loans receivable on nonaccrual status as of March 31, 2023, and December 31, 2022, are summarized as follows:

 

        CECL   Incurred Loss
        March 31, 2023   December 31, 2022
(Dollars are in thousands)   With No Allowance   With an Allowance   Total    
Real estate secured:                
  Commercial $ - $ 268 $ 268 $ -
  Construction and land development   447   -   447   471
  Residential 1-4 family   1,869   -   1,869   2,597
  Multifamily   207   -   207   268
  Farmland   -   -   -   41
    Total real estate loans   2,523   268   2,791   3,377
Commercial   -   -   -   -
Consumer installment loans and other loans   36   -   36   36
Total loans receivable on nonaccrual status $ 2,559 $ 268 $ 2,827 $ 3,413
                     

Total interest income not recognized on nonaccrual loans for the three months ended March 31, 2023 and 2022, was $13,000 and $5,000, respectively.

 

Prior to the adoption of ASU 2016-13, loans were considered impaired when, based on current information and events, it was probable the Company would be unable to collect all amounts due in accordance with the original contractual terms of the loan agreements. Impaired loans include loans on nonaccrual status and accruing troubled debt restructurings. When determining if the Company would be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement, the Company considered the borrower’s capacity to pay, which included such factors as the borrower’s current financial statements, an analysis of global cash flow sufficient to pay all debt obligations and an evaluation of secondary sources of repayment, such as guarantor support and collateral value. The Company individually assessed for impairment all nonaccrual loans greater than $250,000 and all troubled debt restructurings, whether or not currently classified as such. The tables below include all loans deemed impaired, whether or not individually assessed for impairment. If a loan was deemed impaired, a specific valuation allowance was allocated, if necessary, so that the loan was reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment was expected solely from the collateral. Interest payments on impaired loans were typically applied to principal unless collectability of the principal amount was reasonably assured, in which case interest was recognized on a cash basis.

15

 

 

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2022:

 

 

As of December 31, 2022

(Dollars are in thousands)

  Recorded
Investment
  Unpaid Principal Balance  Related
Allowance
  Average
Recorded
Investment
With no related allowance recorded:                    
Real estate secured:                    
Commercial  $90   $131   $—     $124 
Construction and land development   471    491    —      114 
Residential 1-4 family   1,617    1,972    —      1,585 
Multifamily   —      —      —      —   
Farmland   248    417    —      307 
Commercial   23    31    —      14 
Agriculture   —      —      —      —   
Consumer installment loans   —      —      —      1 
All other loans   —      —      —      —   
With an allowance recorded:                    
Real estate secured:                    
Commercial   268    338    63    407 
Construction and land development   —      —      —      291 
Residential 1-4 family   32    48    23    201 
Multifamily   —      —      —      20 
Farmland   —      —      —      63 
Commercial   —      —      —      27 
Agriculture   —      —      —      —   
Consumer installment loans   —      —      —      —   
All other loans   —      —      —      —   
Total  $2,749   $3,428   $86   $3,154 
                     

 

Upon adoption of ASU 2016-13 the Company began evaluating loans that do not share risk characteristics on an individual basis utilizing the collateral or discounted cash flow methods as described in Note 2 Summary of Significant Accounting Policies. The following table presents the amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses, and the related ACL allocated to those loans as March 31, 2023:

 

 

 

As of March 31, 2023

(Dollars are in thousands)

  Unpaid Principal Balance  Related
Allowance
Real estate secured:          
Commercial  $268   $64 
Construction and land development   447    —   
Residential 1-4 family   —      —   
Multifamily   —      —   
Farmland   —      —   
Total real estate secured   715      
Commercial   —      —   
Agriculture   —      —   
Consumer installment loans   —      —   
Total  $715   $64 
           

 

 

16

 

The following table is an age analysis of past due loans receivable as of March 31, 2023, segregated by class:

 

 

 

 

 

As of March 31, 2023

(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  $—     $—     $268   $268   $197,552   $197,820 
Construction and land
development
   6    —      —      6    42,736    42,742 
Residential 1-4 family   1,174    475    260    1,909    226,818    228,727 
Multifamily   207    —      —      207    33,960    34,167 
Farmland   10    —      —      10    16,882    16,892 
Total real estate loans   1,397    475    528    2,400    517,948    520,348 
Commercial   75    —      —      75    46,263    46,338 
Agriculture   2    —      —      2    3,929    3,931 
Consumer installment
loans
   54    22    36    112    19,159    19,271 
All other loans   —      —      —      —      602    602 
Total loans  $1,528   $497   $564   $2,589   $587,901   $590,490 

 

The following table is an age analysis of past due loans receivable as of December 31, 2022, segregated by class:

 

 

 

 

 

As of December 31, 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  $268   $—     $—     $268   $196,801   $197,069 
Construction and land
development
   89    —      —      89    42,381    42,470 
Residential 1-4 family   3,521    543    341    4,405    222,827    227,232 
Multifamily   229    —      —      229    29,481    29,710 
Farmland   285    —      —      285    17,459    17,744 
Total real estate loans   4,392    543    341    5,276    508,949    514,225 
Commercial   56    —      —      56    46,641    46,697 
Agriculture   —      —      —      —      3,756    3,756 
Consumer installment
Loans
   73    17    17    107    19,202    19,309 
All other loans   59    —      —      59    567    626 
Total loans  $4,580   $560   $358   $5,498   $579,115   $584,613 

 

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.

 

The following table present the credit risk grade of loans by origination year as of March 31, 2023:

 

17

 

                         
                         
As of March 31, 2023                        
Dollars in thousands  2023  2022  2021  2020  2019  Prior  Revolving  Total
 Commercial real estate                                        
 Pass  $5,884   $41,352   $48,047   $31,056   $22,063   $47,937   $1,112   $197,451 
 Special mention   —      —      —      —      —      101    —      101 
 Substandard   —      —      —      —      —      268    —      268 
 Total commercial real estate  $5,884   $41,352   $48,047   $31,056   $22,063   $48,306   $1,112   $197,820 
                                         
 Current period gross charge-offs  $—     $—     $—     $—     $—     $—     $—     $—   
                                         
 Construction and Land Development                                        
 Pass  $1,531   $20,860   $11,315   $4,643   $1,558   $2,204   $71   $42,182 
 Special mention   —      —      —      —      —      113    —      113 
 Substandard   —      —      —      —      447    —      —      447 
 Total construction and land development  $1,531   $20,860   $11,315   $4,643   $2,005   $2,317   $71   $42,742 
                                         
 Current period gross charge-offs  $—     $—     $—     $—     $—     $—     $—     $—   
                                         
 Residential 1-4 family                                        
 Pass  $6,741   $34,122   $44,471   $14,619   $14,799   $92,868   $18,922   $226,542 
 Special mention   —      —      —      —      —      316    —      316 
 Substandard   —      —      152    —      41    1,620    56    1,869 
 Total residential 1-4 family  $6,741   $34,122   $44,623   $14,619   $14,840   $94,804   $18,978   $228,727 
                                         
 Current period gross charge-offs  $—     $—     $—     $—     $—     $—     $—     $—   
                                         
 Multifamily                                        
 Pass  $3,766   $12,142   $8,320   $2,714   $1,117   $5,901   $—     $33,960 
 Special mention   —      —      —      —      —      —      —      —   
 Substandard   —      —      —      —      —      207    —      207 
 Total multifamily  $3,766   $12,142   $8,320   $2,714   $1,117   $6,108   $—     $34,167 
                                         
 Current period gross charge-offs  $—     $—     $—     $—     $—     $—     $—     $—   
                                         
 Farmland                                        
 Pass  $171   $2,280   $3,637   $849   $1,246   $8,507   $—     $16,690 
 Special mention   —      —      —      —      1    201    —      202 
 Substandard   —      —      —      —      —      —      —      —   
 Total farmland  $171   $2,280   $3,637   $849   $1,247   $8,708   $—     $16,892 
                                         
 Current period gross charge-offs  $—     $—     $—     $—     $—     $—     $—     $—   
                                         
 Commercial                                        
 Pass  $4,925   $13,233   $7,513   $2,124   $2,886   $7,894   $7,760   $46,335 
 Special mention   —      —      —      —      —      3    —      3 
 Substandard   —      —      —      —      —      —      —      —   
 Total commercial  $4,925   $13,233   $7,513   $2,124   $2,886   $7,897   $7,760   $46,338 
                                         
 Current period gross charge-offs  $—     $(5)  $—     $—     $—     $—     $—     $(5)
                                         
 Agriculture                                        
 Pass  $239   $711   $517   $906   $151   $1,178   $229   $3,931 
 Special mention   —      —      —      —      —      —      —      —   
 Substandard   —      —      —      —      —      —      —      —   
 Total agriculture  $239   $711   $517   $906   $151   $1,178   $229   $3,931 
                                         
 Current period gross charge-offs  $—     $—     $—     $—     $—     $—     $—     $—   
                                         
 Consumer and All Other                                        
 Pass  $2,165   $7,860   $3,934   $1,461   $954   $1,429   $2,032   $19,835 
 Special mention   —      2    —      —      —      —      —      2 
 Substandard   —      —      17    —      —      19    —      36 
 Total consumer and all other  $2,165   $7,862   $3,951   $1,461   $954   $1,448   $2,032   $19,873 
                                         
 Current period gross charge-offs  $(58)  $(17)  $(3)  $—     $—     $—          $(78)
                                         
 Total  $25,422   $132,562   $127,923   $58,372   $45,263   $170,766   $30,182   $590,490 
 Total current period gross charge-offs  $(58)  $(22)  $(3)  $—     $—     $—     $—     $(83)

18

 

The following table presents the credit risk grade of loans as of December 31, 2022, prior to the adoption of ASU 2016-13, under the incurred loss model:

 

 

As of December 31, 2022

(Dollars are in thousands)

  Pass  Special
Mention
  Substandard  Doubtful  Total
Real estate secured:                         
   Commercial  $195,376   $1,425   $268   $—     $197,069 
   Construction and land development   41,882    117    471    —      42,470 
   Residential 1-4 family   224,228    406    2,598    —      227,232 
   Multifamily   29,503    207    —      —      29,710 
   Farmland   16,848    855    41    —      17,744 
Total real estate loans   507,837    3,010    3,378    —      514,225 
Commercial   46,471    226    —      —      46,697 
Agriculture   3,756    —      —      —      3,756 
Consumer installment loans   19,272    2    35    —      19,309 
All other loans   626    —