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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

 Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2021

OR

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 001-39068

METROCITY BANKSHARES, INC.

(Exact name of registrant as specified in its charter)

Georgia

47-2528408

(State or other jurisdiction of
incorporation)

(I.R.S. Employer
Identification No.)

5114 Buford Highway
Doraville, Georgia

30340

(Address of principal executive offices)

(Zip Code)

(770) 455-4989

(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

Common Stock, par value $0.01 per share

MCBS

Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted  pursuant to Rule 405 of Regulation S-T (§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   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 

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 

As of May 6, 2021, the registrant had 25,647,268 shares of common stock, par value $0.01 per share, issued and outstanding.

METROCITY BANKSHARES, INC.

Quarterly Report on Form 10-Q

March 31, 2021

TABLE OF CONTENTS

    

Page

Part I.

Financial Information

Item l.

Financial Statements:

Consolidated Balance Sheets as of March 31, 2021 (unaudited) and December 31, 2020

3

Consolidated Statements of Income (unaudited) for the Three Months Ended March 31, 2021 and 2020

4

Consolidated Statements of Comprehensive Income (unaudited) for the Three Months Ended March 31, 2021 and 2020

5

Consolidated Statements of Shareholders’ Equity (unaudited) for the Three Months Ended March 31, 2021 and 2020

6

Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 2021 and 2020

7

Notes to Consolidated Financial Statements (unaudited)

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

31

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

48

Item 4.

Controls and Procedures

49

Part II.

Other Information

Item 1.

Legal Proceedings

50

Item 1A.

Risk Factors

50

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

50

Item 3.

Defaults Upon Senior Securities

50

Item 4.

Mine Safety Disclosures

50

Item 5.

Other Information

50

Item 6.

Exhibits

51

Signatures

52

2

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

METROCITY BANKSHARES, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)

March 31, 

December 31, 

    

2021

    

2020

(Unaudited)

Assets:

 

 

  

Cash and due from banks

$

169,775

$

140,744

Federal funds sold

 

4,444

 

9,944

Cash and cash equivalents

 

174,219

 

150,688

Securities available for sale (at fair value)

 

18,739

 

18,117

Loans, less allowance for loan losses of $11,735 and $10,135, respectively

 

1,855,050

 

1,620,209

Accrued interest receivable

 

10,515

 

10,671

Federal Home Loan Bank stock

 

3,951

 

6,147

Premises and equipment, net

 

13,663

 

13,854

Operating lease right-of-use asset

 

10,483

 

10,348

Foreclosed real estate, net

3,844

3,844

SBA servicing asset, net

 

10,535

 

9,643

Mortgage servicing asset, net

 

11,722

 

12,991

Bank owned life insurance

 

36,033

 

35,806

Other assets

 

5,606

 

5,171

Total assets

$

2,154,360

$

1,897,489

Liabilities:

 

  

 

  

Deposits:

 

  

 

  

Non-interest-bearing demand

$

546,164

$

462,909

Interest-bearing

 

1,199,756

 

1,016,980

Total deposits

 

1,745,920

 

1,479,889

Federal Home Loan Bank advances

80,000

110,000

Other borrowings

 

479

 

483

Operating lease liability

 

11,048

 

10,910

Accrued interest payable

 

206

 

222

Other liabilities

 

61,332

 

51,154

Total liabilities

$

1,898,985

$

1,652,658

Shareholders' Equity:

 

  

 

  

Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued or outstanding

Common stock, $0.01 par value, 40,000,000 shares authorized, 25,674,573 shares issued and outstanding as of March 31, 2021 and December 31, 2020

257

257

Additional paid-in capital

 

55,977

 

55,674

Retained earnings

 

199,102

 

188,705

Accumulated other comprehensive income

 

39

 

195

Total shareholders' equity

 

255,375

 

244,831

Total liabilities and shareholders' equity

$

2,154,360

$

1,897,489

See accompanying notes to unaudited consolidated financial statements.

3

METROCITY BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(Dollars in thousands, except per share data)

Three Months Ended

March 31, 

    

2021

    

2020

Interest and dividend income:

  

  

Loans, including fees

$

22,500

$

19,508

Other investment income

 

170

 

882

Federal funds sold

 

2

 

166

Total interest income

 

22,672

 

20,556

Interest expense:

Deposits

 

992

 

4,514

FHLB advances and other borrowings

 

146

 

132

Total interest expense

 

1,138

 

4,646

Net interest income

 

21,534

 

15,910

Provision for loan losses

 

1,599

 

Net interest income after provision for loan losses

 

19,935

 

15,910

Noninterest income:

Service charges on deposit accounts

 

373

 

376

Other service charges, commissions and fees

 

3,398

 

2,256

Gain on sale of residential mortgage loans

 

 

2,529

Mortgage servicing income, net

 

166

 

372

Gain on sale of SBA loans

 

1,854

 

1,301

SBA servicing income, net

 

2,133

 

516

Other income

 

262

 

259

Total noninterest income

 

8,186

 

7,609

Noninterest expense:

Salaries and employee benefits

 

6,699

 

6,513

Occupancy and equipment

 

1,275

 

1,211

Data processing

 

308

 

277

Advertising

 

145

 

161

Other expenses

 

2,281

 

1,987

Total noninterest expense

 

10,708

 

10,149

Income before provision for income taxes

 

17,413

 

13,370

Provision for income taxes

 

4,432

 

3,554

Net income available to common shareholders

$

12,981

$

9,816

Earnings per share:

Basic

$

0.51

$

0.38

Diluted

$

0.50

$

0.38

See accompanying notes to unaudited consolidated financial statements.

4

METROCITY BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(Dollars in thousands)

Three Months Ended

March 31, 

    

2021

    

2020

Net income

$

12,981

$

9,816

Other comprehensive loss:

 

 

  

Unrealized holding losses on securities available for sale arising during the period

 

(210)

 

(337)

Tax effect

 

54

 

70

Other comprehensive loss

 

(156)

 

(267)

Comprehensive income

$

12,825

$

9,549

See accompanying notes to unaudited consolidated financial statements.

5

METROCITY BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)

(Dollars in thousands, except per share data)

Accumulated

Common Stock

Additional

Other

Number of

Paid-in

Retained

Comprehensive

    

Shares

    

Amount

    

Capital

    

Earnings

    

Income (Loss)

    

Total

Three Months Ended:

Balance, January 1, 2021

 

25,674,573

$

257

$

55,674

$

188,705

$

195

$

244,831

Net income

 

 

 

 

12,981

 

 

12,981

Stock based compensation expense

 

 

 

303

 

 

 

303

Other comprehensive loss

 

 

 

 

 

(156)

 

(156)

Dividends on common stock ($0.10 per share)

 

 

 

(2,584)

 

 

(2,584)

Balance, March 31, 2021

 

25,674,573

$

257

$

55,977

$

199,102

$

39

$

255,375

Balance, January 1, 2020

 

25,529,891

$

255

$

53,854

$

162,616

$

(1)

$

216,724

Net income

 

 

 

 

9,816

 

 

9,816

Stock based compensation expense

 

 

 

288

 

 

288

Other comprehensive loss

 

 

 

(267)

 

(267)

Dividends on common stock ($0.11 per share)

 

 

(2,826)

 

 

(2,826)

Balance, March 31, 2020

 

25,529,891

$

255

$

54,142

$

169,606

$

(268)

$

223,735

See accompanying notes to unaudited consolidated financial statements.

6

METROCITY BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Dollars in thousands)

Three Months Ended March 31, 

    

2021

    

2020

Cash flow from operating activities:

 

  

 

  

Net income

$

12,981

$

9,816

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation, amortization and accretion

 

732

 

716

Provision for loan losses

 

1,599

 

Stock based compensation expense

 

303

 

288

Gain on sale of foreclosed real estate

 

 

(99)

Origination of residential real estate loans held for sale

 

 

(6,992)

Proceeds from sales of residential real estate loans

 

 

95,314

Gain on sale of residential mortgages

 

 

(2,529)

Origination of SBA loans held for sale

 

(22,949)

 

(30,609)

Proceeds from sales of SBA loans held for sale

 

24,803

 

31,910

Gain on sale of SBA loans

 

(1,854)

 

(1,301)

Increase in cash value of bank owned life insurance

 

(227)

 

(116)

Decrease (increase) in accrued interest receivable

 

156

 

(433)

(Increase) decrease in SBA servicing rights

 

(892)

 

590

Decrease in mortgage servicing rights

 

1,269

 

1,277

(Increase) decrease in other assets

 

(381)

 

29

Decrease in accrued interest payable

 

(16)

 

(130)

Increase in other liabilities

 

9,739

 

10,181

Net cash flow provided by operating activities

 

25,263

 

107,912

Cash flow from investing activities:

 

  

 

  

Purchases of securities under resell agreements

(25,000)

Purchases of securities available for sale

(1,034)

(3,718)

Proceeds from maturities, calls or paydowns of securities available for sale

 

185

 

885

Redemption (purchase) of Federal Home Loan Bank stock

 

2,196

 

(1,031)

Increase in loans, net

(236,440)

 

(101,781)

Purchases of premises and equipment

 

(99)

 

(166)

Proceeds from sales of foreclosed real estate owned

1,459

Net cash flow used by investing activities

 

(235,192)

 

(129,352)

Cash flow from financing activities:

 

  

 

  

Dividends paid on common stock

 

(2,567)

 

(2,807)

Increase (decrease) in deposits, net

 

266,031

 

(64,496)

Decrease in other borrowings, net

 

(4)

 

(32)

Proceeds from Federal Home Loan Bank advances

20,000

Repayments of Federal Home Loan Bank advances

 

(30,000)

 

Net cash flow provided (used) by financing activities

 

233,460

 

(47,335)

See accompanying notes to unaudited consolidated financial statements.

7

METROCITY BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Dollars in thousands)

Three Months Ended March 31, 

    

2021

    

2020

Net change in cash and cash equivalents

 

23,531

 

(68,775)

Cash and cash equivalents at beginning of period

 

150,688

 

276,413

Cash and cash equivalents at end of period

$

174,219

$

207,638

Supplemental schedule of noncash investing and financing activities:

Transfer of loan principal to foreclosed real estate, net of write-downs

$

$

1,360

Initial recognition of operating lease right-of-use assets

$

560

$

131

Initial recognition of operating lease liabilities

$

560

$

131

Supplemental disclosures of cash flow information - Cash paid during the year for:

Interest

$

1,154

$

4,776

Income taxes

$

261

$

516

See accompanying notes to unaudited consolidated financial statements.

8

METROCITY BANKSHARES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2021

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited consolidated financial statements include the accounts of MetroCity Bankshares, Inc. (“Company”) and its wholly-owned subsidiary, Metro City Bank (the “Bank”). The Company owns 100% of the Bank. The “Company” or “our,” as used herein, includes Metro City Bank.

These unaudited consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) followed within the financial services industry for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all of the information or notes required for complete financial statements.

The Company principally operates in one business segment, which is community banking.

In the opinion of management, all adjustments, consisting of normal and recurring items, considered necessary for a fair presentation of the consolidated financial statements for the interim periods have been included. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain amounts reported in prior periods have been reclassified to conform to current year presentation. These reclassifications did not have a material effect on previously reported net income, shareholders’ equity or cash flows.

Operating results for the three month period ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. These statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2020.

The Company’s significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements for the year ended December 31, 2020, which are included in the Company’s 2020 Form 10-K. There were no new accounting policies or changes to existing policies adopted during the first three months of 2021 which had a significant effect on the Company’s results of operations or statement of financial condition. For interim reporting purposes, the Company follows the same basic accounting policies and considers each interim period as an integral part of an annual period.

Contingencies

Due to the nature of their activities, the Company and its subsidiary are at times engaged in various legal proceedings that arise in the course of normal business, some of which were outstanding as of March 31, 2021. Although the ultimate outcome of all claims and lawsuits outstanding as of March 31, 2021 cannot be ascertained at this time, it is the opinion of management that these matters, when resolved, will not have a material adverse effect on the Company’s results of operations or financial condition.

Operating, Accounting and Reporting Considerations Related to COVID-19

The COVID-19 pandemic has negatively impacted the global economy, including the Company’s market areas. In response to this crisis, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was passed by Congress and signed into law on March 27, 2020. The CARES Act provides an estimated $2.2 trillion to fight the COVID-19 pandemic and stimulate the economy by supporting individuals and businesses through loans, grants, tax changes, and other types of relief. Some of the provisions applicable to the Company include, but are not limited to:

Accounting for Loan Modifications - The CARES Act provides that financial institutions may elect to suspend (1) the requirements under GAAP for certain loan modifications that would otherwise be categorized as a troubled debt restructure (“TDR”) and (2) any determination that such loan modifications would be considered a TDR, including the related impairment for accounting purposes. The Consolidated Appropriations Act (“CAA”), signed

9

into law on December 27, 2020, extends the applicable period to include modification to loans held by financial institutions executed between March 1, 2020 and the earlier of (i) January 1, 2022, or (ii) 60 days after the date of termination of the COVID-19 national emergency.
Paycheck Protection Program - The CARES Act established the Paycheck Protection Program (“PPP”), an expansion of the Small Business Administration’s 7(a) loan program and the Economic Injury Disaster Loan Program (“EIDL”), administered directly by the SBA. The CAA provides serveral amendments to the PPP, including additional funding for first and second draws of PPP loans up to March 31, 2021. On March 30, 2021, the PPP Extension Act of 2021 was signed into law, which extends the program to May 31, 2021. The Company is a participant in the PPP.

Also in response to the COVID-19 pandemic, the Board of Governors of the Federal Reserve System (“FRB”), the Federal Deposit Insurance Corporation (“FDIC”), the National Credit Union Administration (“NCUA”), the Office of the Comptroller of the Currency (“OCC”), and the Consumer Financial Protection Bureau (“CFPB”), in consultation with the state financial regulators (collectively, the “agencies”) issued a joint interagency statement (issued March 22, 2020; revised statement issued April 7, 2020). Some of the provisions applicable to the Company include, but are not limited to:

Accounting for Loan Modifications - Loan modifications that do not meet the conditions of the CARES Act may still qualify as a modification that does not need to be accounted for as a TDR. The agencies confirmed with the Financial Accounting Standards Board (“FASB”) staff that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs. This includes short-term (e.g., three months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or insignificant delays in payment.
Past Due Reporting - With regard to loans not otherwise reportable as past due, financial institutions are not expected to designate loans with deferrals granted due to COVID-19 as past due because of the deferral. A loan’s payment date is governed by the due date stipulated in the legal agreement. If a financial institution agrees to a payment deferral, these loans would not be considered past due reporting during the period of the deferral.
Nonaccrual Status - During short-term COVID-19 modifications, these loans generally should not be reported as nonaccrual or as classified.

The Company began offering short-term loan modifications to assist borrowers during the COVID-19 pandemic.  These modifications generally involve principal and/or interest payment deferrals for up to six months. These modifications generally meet the criteria of both Section 4013 of the CARES Act and the joint interagency statement, and therefore, the Company does not account for such loan modifications as TDRs.  As the COVID-19 pandemic persists in negatively impacting the economy, the Company continues to offer additional loan modifications to borrowers struggling as a result of COVID-19.  Similar to the initial modifications granted, the additional round of loan modifications are granted specifically under Section 4013 of the CARES Act and generally involve principal and/or interest payment deferrals for up to an additional six months for commercial and consumer loans, and principal-only deferrals for up to an additional 12 months for selected commercial loans. On August 3, 2020, the Federal Financial Institutions Examination Council on behalf of its members (collectively “the FFIEC members”) issued a joint statement on additional loan accommodations related to COVID-19. The joint statement clarifies that for loan modifications in which Section 4013 is being applied, subsequent modifications could also be eligible under Section 4013. To be eligible, each loan modification must be (1) related to the COVID-19 event; (2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020, and the earlier of (A) 60 days after the date of termination of the National Emergency or (B) December 31, 2020.  The December 31, 2020 deadline was subsequently extended to January 1, 2022, by the CAA. Substantially all of the Company’s additional round of loan modifications granted under Section 4013 of the CARES Act are in compliance with the aforementioned FFIEC requirements. Accordingly, the Company does not account for such loan modifications as TDRs.

10

Recently Issued Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) to replace the incurred loss model with an expected loss model, which is referred to as the current expected credit loss (“CECL”) model. The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and similar instruments) and net investments in leases recognized by a lessor. For debt securities with other-than-temporary impairment (“OTTI”), the guidance will be applied prospectively. Existing purchased credit impaired (“PCI”) assets will be grandfathered and classified as purchased credit deteriorated (“PCD”) assets at the date of adoption. The assets will be grossed up for the allowance of expected credit losses for all PCD assets at the date of adoption and will continue to recognize the noncredit discount in interest income based on the yield of such assets as of the adoption date. Subsequent changes in expected credit losses will be recorded through the allowance. Adoption is effective for interim and annual reporting periods beginning after December 15, 2022. Early adoption is permitted; however, we plan to adopt ASU 2016-13 on January 1, 2023. The Company has selected a software solution supported by a third-party vendor to be used in developing an expected credit loss model compliant with ASU 2016-13. We will continue to evaluate the impact of this new accounting standard through its effective date.

The Company has further evaluated other Accounting Standards Updates issued during 2021 to date but does not expect updates other than those summarized above to have a material impact on the consolidated financial statements.

NOTE 2 – SECURITIES AVAILABLE FOR SALE

The amortized costs, gross unrealized gains and losses, and estimated fair values of securities available for sale as of March 31, 2021 and December 31, 2020 are summarized as follows:

March 31, 2021

    

Gross

    

Gross

    

Gross

    

Estimated

Amortized

Unrealized

Unrealized

Fair

(Dollars in thousands)

Cost

Gains

Losses

Value

Obligations of U.S. Government entities and agencies

$

9,232

$

$

$

9,232

States and political subdivisions

 

8,205

 

127

 

(96)

 

8,236

Mortgage-backed GSE residential

 

1,251

 

20

 

1,271

Total

$

18,688

$

147

$

(96)

$

18,739

December 31, 2020

    

Gross

    

Gross

    

Gross

    

Estimated

Amortized

Unrealized

Unrealized

Fair

(Dollars in thousands)

Cost

Gains

Losses

Value

Obligations of U.S. Government entities and agencies

$

9,306

$

$

$

9,306

States and political subdivisions

 

7,182

 

247

 

 

7,429

Mortgage-backed GSE residential

 

1,368

 

14

 

 

1,382

Total

$

17,856

$

261

$

$

18,117

11

The amortized costs and estimated fair values of investment securities available for sale at March 31, 2021 by contractual maturity are shown below. 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.

Securities Available for Sale

    

Amortized

    

Estimated

(Dollars in thousands)

Cost

Fair Value

Due in one year or less

$

1,192

$

1,192

Due after one year but less than five years

 

8,688

 

8,706

Due after five years but less than ten years

 

6,954

 

6,967

Due in more than ten years

 

603

 

603

Mortgage-backed GSE residential

 

1,251

 

1,271

Total

$

18,688

$

18,739

There were no securities pledged as of March 31, 2021 and December 31, 2020 to secure public deposits and repurchase agreements. There were no securities sold during the three months ended March 31, 2021 and 2020.

Information pertaining to securities with gross unrealized losses at March 31, 2021 aggregated by investment category and length of time that individual securities have been in a continuous loss position, are summarized in the table below. There were no securities in an unrealized loss position at December 31, 2020.

March 31, 2021

Twelve Months or Less

Over Twelve Months

    

Gross

    

Estimated

    

Gross

    

Estimated

Unrealized

Fair

Unrealized

Fair

(Dollars in thousands)

Losses

Value

Losses

Value

States and political subdivisions

$

3,765

$

(96)

$

$

Total

$

3,765

$

(96)

$

$

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

At March 31, 2021, the four securities available for sale with unrealized losses have depreciated 2.48% from the Company’s amortized cost basis. These securities have not been in a loss position for greater than twelve months.

State and political subdivisions. The Company’s unrealized losses on four investments in state and political subdivision bonds relates to interest rate increases. Management currently does not believe it is probable that it will be unable to collect all amounts due according to the contractual terms of the investment. Because the Company does not plan to sell the investments, and because it is not more likely than not that the Company will be required to sell the investments before the recovery of the par value, which may be at maturity, management does not consider these investments to be other-than-temporarily impaired at March 31, 2021.

12

NOTE 3 – LOANS AND ALLOWANCE FOR LOAN LOSSES

Major classifications of loans at March 31, 2021 and December 31, 2020 are summarized as follows:

    

March 31,

    

December 31, 

(Dollars in thousands)

 

2021

 

2020

Construction and development

$

52,202

$

45,653

Commercial real estate

 

473,281

 

477,419

Commercial and industrial

 

166,915

 

137,239

Residential real estate

 

1,181,385

 

974,445

Consumer and other

 

169

 

183

  Total loans receivable

 

1,873,952

 

1,634,939

Unearned income

 

(7,167)

 

(4,595)

Allowance for loan losses

 

(11,735)

 

(10,135)

  Loans, net

$

1,855,050

$

1,620,209

Included in the commercial and industrial loans are PPP loans totaling $125.6 million and $92.4 million as of March 31, 2021 and December 31 2020, respectively.

The Company is not committed to lend additional funds to borrowers with non-accrual or restructured loans.

In the normal course of business, the Company may sell and purchase loan participations to and from other financial institutions and related parties. Loan participations are typically sold to comply with the legal lending limits per borrower as imposed by regulatory authorities. The participations are sold without recourse and the Company imposes no transfer or ownership restrictions on the purchaser.

A summary of changes in the allowance for loan losses by portfolio segment for the three months ended March 31, 2021 and 2020 is as follows:

 

Three Months Ended March 31, 2021

Construction

 

and

 

Commercial 

 

Commercial

 

Residential

Consumer

(Dollars in thousands)

    

Development

    

Real Estate

    

and Industrial

    

Real Estate

    

and Other

    

Unallocated

    

Total

Allowance for loan losses:

Beginning balance

$

178

$

5,161

$

438

$

4,350

$

8

$

$

10,135

Charge-offs

 

 

 

(4)

 

 

 

 

(4)

Recoveries

 

 

3

 

 

 

2

 

 

5

Provision

 

12

 

574

 

174

 

792

 

(10)

 

57

 

1,599

Ending balance

$

190

$

5,738

$

608

$

5,142

$

$

57

$

11,735

Three Months Ended March 31, 2020

Construction

and

Commercial

Commercial

Residential

Consumer

(Dollars in thousands)

    

Development

    

Real Estate

    

and Industrial

    

Real Estate

    

and Other

    

Unallocated

    

Total

Allowance for loan losses:

Beginning balance

$

131

$

2,320

$

448

$

3,457

$

91

$

392

$

6,839

Charge-offs

 

 

 

 

 

(23)

 

 

(23)

Recoveries

 

 

2

 

25

 

 

16

 

 

43

Provision

 

21

 

325

 

50

 

16

 

(20)

 

(392)

 

Ending balance

$

152

$

2,647

$

523

$

3,473

$

64

$

$

6,859

13

The following tables present, by portfolio segment, the balance in the allowance for loan losses disaggregated on the basis of the Company’s impairment measurement method and the related unpaid principal balance in loans as of March 31, 2021 and December 31, 2020.

 

March 31, 2021

Construction

 

and

 

Commercial 

 

Commercial 

 

Residential

Consumer

(Dollars in thousands)

    

Development

    

Real Estate

    

and Industrial

    

Real Estate

    

and Other

    

Unallocated

    

Total

Allowance for loan losses: