10-Q 1 mcbs-20200930x10q.htm 10-Q

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 September 30, 2020

OR

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

For the transition period _______ 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 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 November 10, 2020, the registrant had 25,674,067 shares of common stock, par value $0.01 per share, issued and outstanding.


METROCITY BANKSHARES, INC.

Quarterly Report on Form 10-Q

September 30, 2020

TABLE OF CONTENTS

    

Page

Part I.

Financial Information

Item l.

Financial Statements:

Consolidated Balance Sheets as of September 30, 2020 (unaudited) and December 31, 2019

3

Consolidated Statements of Income (unaudited) for the Three and Nine Months Ended September 30, 2020 and 2019

4

Consolidated Statements of Comprehensive Income (unaudited) for the Three and Nine Months Ended September 30, 2020 and 2019

5

Consolidated Statements of Shareholders’ Equity (unaudited) for the Three and Nine Months Ended September 30, 2020 and 2019

6

Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September 30, 2020 and 2019

7

Notes to Consolidated Financial Statements (unaudited)

9

Item 2.

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

32

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

52

Item 4.

Controls and Procedures

54

Part II.

Other Information

Item 1.

Legal Proceedings

54

Item 1A.

Risk Factors

54

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

55

Item 3.

Defaults Upon Senior Securities

55

Item 4.

Mine Safety Disclosures

55

Item 5.

Other Information

55

Item 6.

Exhibits

55

Signatures

56

2


PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

METROCITY BANKSHARES, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)

September 30, 

December 31, 

    

2020

    

2019

(Unaudited)

Assets:

 

 

  

Cash and due from banks

$

109,263

$

270,496

Federal funds sold

 

17,268

 

5,917

Cash and cash equivalents

 

126,531

 

276,413

Securities purchased under agreements to resell

 

40,000

 

15,000

Securities available for sale (at fair value)

 

18,204

 

15,695

Loans held for sale

 

 

85,793

Loans, less allowance for loan losses of $9,339 and $6,839, respectively

 

1,450,560

 

1,154,323

Accrued interest receivable

 

7,999

 

5,101

Federal Home Loan Bank stock

 

5,723

 

3,842

Premises and equipment, net

 

14,083

 

14,460

Operating lease right-of-use asset

 

10,786

 

11,957

Foreclosed real estate, net

282

423

SBA servicing asset, net

 

10,173

 

8,188

Mortgage servicing asset, net

 

14,599

 

18,068

Bank owned life insurance

 

35,578

 

20,219

Other assets

 

5,355

 

2,376

Total assets

$

1,739,873

$

1,631,858

Liabilities:

 

  

 

  

Deposits:

 

  

 

  

Non-interest-bearing demand

$

460,679

$

292,008

Interest-bearing

 

877,112

 

1,015,369

Total deposits

 

1,337,791

 

1,307,377

Federal Home Loan Bank advances

100,000

60,000

Other borrowings

 

491

 

3,129

Operating lease liability

 

11,342

 

12,476

Accrued interest payable

 

310

 

890

Other liabilities

 

52,843

 

31,262

Total liabilities

$

1,502,777

$

1,415,134

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, 25,674,067 and 25,529,891 shares issued and outstanding as of September 30, 2020 and December 31, 2019

257

255

Additional paid-in capital

 

55,098

 

53,854

Retained earnings

 

181,576

 

162,616

Accumulated other comprehensive income (loss)

 

165

 

(1)

Total shareholders' equity

 

237,096

 

216,724

Total liabilities and shareholders' equity

$

1,739,873

$

1,631,858

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

Nine Months Ended

September 30, 

September 30, 

    

2020

    

2019

    

2020

    

2019

Interest and dividend income:

  

  

  

Loans, including fees

$

17,880

$

20,857

$

56,214

$

59,855

Other investment income

 

187

 

907

 

1,265

 

2,271

Federal funds sold

 

64

 

144

 

291

 

462

Total interest income

 

18,131

 

21,908

 

57,770

 

62,588

Interest expense:

Deposits

 

2,046

 

5,873

 

9,656

 

16,375

FHLB advances and other borrowings

 

146

 

56

 

422

 

182

Total interest expense

 

2,192

 

5,929

 

10,078

 

16,557

Net interest income

 

15,939

 

15,979

 

47,692

 

46,031

Provision for loan losses

 

1,450

 

 

2,511

 

Net interest income after provision for loan losses

 

14,489

 

15,979

 

45,181

 

46,031

Noninterest income:

Service charges on deposit accounts

 

215

 

294

 

704

 

811

Other service charges, commissions and fees

 

2,023

 

2,592

 

5,196

 

8,049

Gain on sale of residential mortgage loans

 

 

2,901

 

2,529

 

6,454

Mortgage servicing income, net

 

235

 

2,594

 

1,390

 

7,248

Gain on sale of SBA loans

 

2,265

 

1,404

 

4,842

 

4,296

SBA servicing income, net

 

2,931

 

900

 

5,406

 

3,080

Other income

 

295

 

316

 

1,006

 

595

Total noninterest income

 

7,964

 

11,001

 

21,073

 

30,533

Noninterest expense:

Salaries and employee benefits

 

6,416

 

6,573

 

18,678

 

18,926

Occupancy and equipment

 

1,302

 

1,161

 

3,790

 

3,547

Data processing

 

287

 

245

 

765

 

765

Advertising

 

127

 

142

 

428

 

455

Other expenses

 

2,018

 

2,041

 

6,362

 

6,467

Total noninterest expense

 

10,150

 

10,162

 

30,023

 

30,160

Income before provision for income taxes

 

12,303

 

16,818

 

36,231

 

46,404

Provision for income taxes

 

2,918

 

4,462

 

9,291

 

12,356

Net income available to common shareholders

$

9,385

$

12,356

$

26,940

$

34,048

Earnings per share:

Basic

$

0.37

$

0.51

$

1.05

$

1.40

Diluted

$

0.36

$

0.50

$

1.05

$

1.39

See accompanying notes to unaudited consolidated financial statements.

4


METROCITY BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(Dollars in thousands)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2020

    

2019

    

2020

    

2019

Net income

$

9,385

$

12,356

$

26,940

$

34,048

Other comprehensive income:

 

  

 

  

 

  

 

  

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

 

64

 

15

 

197

 

134

Tax effect

 

(21)

 

(3)

 

(31)

 

(29)

Other comprehensive income

 

43

 

12

 

166

 

105

Comprehensive income

$

9,428

$

12,368

$

27,106

$

34,153

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, July 1, 2020

 

25,674,067

$

257

$

54,524

$

174,518

$

122

$

229,421

Net income

 

 

 

 

9,385

 

 

9,385

Stock based compensation expense

 

 

 

574

 

 

 

574

Other comprehensive income

 

 

 

 

 

43

 

43

Dividends on common stock ($0.09 per share)

 

 

 

(2,327)

 

 

(2,327)

Balance, September 30, 2020

 

25,674,067

$

257

$

55,098

$

181,576

$

165

$

237,096

Balance, July 1, 2019

 

24,305,378

$

243

$

39,096

$

144,989

$

(11)

$

184,317

Net income

 

 

 

 

12,356

 

 

12,356

Stock based compensation expense

 

 

 

430

 

 

430

Other comprehensive income

 

 

 

12

 

12

Dividends on common stock ($0.11 per share)

 

 

(2,693)

 

 

(2,693)

Balance, September 30, 2019

 

24,305,378

$

243

$

39,526

$

154,652

$

1

$

194,422

Nine Months Ended:

 

  

 

  

 

  

 

  

 

  

 

  

Balance, January 1, 2020

 

25,529,891

$

255

$

53,854

$

162,616

$

(1)

$

216,724

Net income

 

 

 

26,940

 

 

26,940

Stock based compensation expense

 

 

 

1,246

 

 

 

1,246

Vesting of restricted stock

 

144,176

 

2

 

(2)

 

 

 

Other comprehensive income

 

 

 

 

166

 

166

Dividends on common stock ($0.31 per share)

 

 

 

(7,980)

 

 

(7,980)

Balance, September 30, 2020

 

25,674,067

$

257

$

55,098

$

181,576

$

165

$

237,096

Balance, January 1, 2019

 

24,258,062

$

242

$

39,915

$

128,555

$

(104)

$

168,608

Net income

 

 

 

34,048

 

 

34,048

Stock based compensation expense

 

 

 

1,097

 

 

1,097

Vesting of restricted stock

 

157,316

 

2

 

(2)

 

 

Repurchase and retirement of common stock

 

(110,000)

 

(1)

 

(1,484)

 

 

 

(1,485)

Impact of adoption of new accounting standard(1)

 

 

 

(362)

 

 

(362)

Other comprehensive income

 

 

 

 

105

 

105

Dividends on common stock ($0.31 per share)

 

 

(7,589)

 

 

(7,589)

Balance, September 30, 2019

 

24,305,378

$

243

$

39,526

$

154,652

$

1

$

194,422


(1)Represents the impact of the adoption of Accounting Standards Update ("ASU") No. 2016-02: Leases

See accompanying notes to unaudited consolidated financial statements.

6


METROCITY BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Dollars in thousands)

Nine Months Ended September 30, 

    

2020

    

2019

Cash flow from operating activities:

 

  

 

  

Net income

$

26,940

$

34,048

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

Depreciation, amortization and accretion

 

2,193

 

1,972

Provision for loan losses

 

2,511

 

Stock based compensation expense

 

1,246

 

1,097

Gain on sale of foreclosed real estate

 

(99)

 

Writedown of foreclosed real estate

141

Origination of residential real estate loans held for sale

 

(6,992)

 

(356,715)

Proceeds from sales of residential real estate loans

 

95,314

 

420,034

Gain on sale of residential mortgages

 

(2,529)

 

(6,454)

Origination of SBA loans held for sale

 

(104,762)

 

(90,353)

Proceeds from sales of SBA loans held for sale

 

109,604

 

94,649

Gain on sale of SBA loans

 

(4,842)

 

(4,296)

Increase in cash value of bank owned life insurance

 

(359)

 

(352)

Increase in accrued interest receivable

 

(2,898)

 

(508)

Increase in SBA servicing rights

 

(1,985)

 

(120)

Decrease (increase) in mortgage servicing rights

 

3,469

 

(2,806)

Increase in other assets

 

(3,010)

 

(1,164)

Decrease in accrued interest payable

 

(580)

 

(311)

Increase in other liabilities

 

20,311

 

22,603

Net cash flow provided by operating activities

 

133,673

 

111,324

Cash flow from investing activities:

 

  

 

  

Purchases of securities under resell agreements

(25,000)

Purchases of securities available for sale

(3,719)

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

 

1,374

 

3,080

Purchase of Federal Home Loan Bank stock

 

(1,881)

 

(2,679)

Increase in loans, net

(300,108)

 

(115,689)

Purchases of premises and equipment

 

(481)

 

(858)

Proceeds from sales of foreclosed real estate owned

1,459

Purchase of bank owned life insurance

 

(15,000)

 

Net cash flow used by investing activities

 

(343,356)

 

(116,146)

Cash flow from financing activities:

 

  

 

  

Dividends paid on common stock

 

(7,975)

 

(7,589)

Repurchase of common stock

 

 

(1,485)

Increase in deposits, net

 

30,414

 

91,120

Decrease in other borrowings, net

 

(2,638)

 

(1,103)

Proceeds from Federal Home Loan Bank advances

 

40,000

 

60,000

Net cash flow provided by financing activities

 

59,801

 

140,943

See accompanying notes to unaudited consolidated financial statements.

7


METROCITY BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Dollars in thousands)

Nine Months Ended September 30, 

    

2020

    

2019

Net change in cash and cash equivalents

 

(149,882)

 

136,121

Cash and cash equivalents at beginning of period

 

276,413

 

138,427

Cash and cash equivalents at end of period

$

126,531

$

274,548

Supplemental schedule of noncash investing and financing activities:

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

$

1,360

$

423

Initial recognition of operating lease right-of-use assets

$

131

$

13,610

Initial recognition of operating lease liabilities

$

131

$

14,011

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

Interest

$

10,658

$

16,868

Income taxes

$

11,639

$

10,390

See accompanying notes to unaudited consolidated financial statements.

8


METROCITY BANKSHARES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2020

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 and nine month period ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. These statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2019.

The Company’s significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements for the year ended December 31, 2019, which are included in the Company’s 2019 Form 10-K. There were no new accounting policies or changes to existing policies adopted during the first nine months of 2020 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 September 30, 2020. Although the ultimate outcome of all claims and lawsuits outstanding as of September 30, 2020 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 by 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.

9


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.

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, as long as such modifications are (1) related to COVID-19; (2) executed on a loan that was not more than 30 days past due at the time of modification; and (3) executed between March 1, 2020 and the earlier of (a) 60 days after the date of termination of the national emergency declaration or (b) December 31, 2020.
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.
Beginning in late March 2020, the Company provided relief programs consisting primarily of 90 to 180 day payment deferral relief of principal and interest to borrowers negatively impacted by COVID-19 and has accounted for these loan modifications in accordance with ASC 310-40.

Recently Adopted Accounting Pronouncements

In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” The amendments in this update modify the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. Among the changes, entities will no longer be required to disclose the amount of and reasons for transfers between the Level 1 and Level 2 hierarchy, but will be required to disclose the range and weighted average used to develop unobservable inputs for Level 3 fair value measurements. The update was effective for interim and annual periods in fiscal years beginning after December 31, 2019, with early adoption permitted for the removed disclosures and delayed adoption until fiscal year 2020 permitted for new disclosures. As ASU 2018-13 only revises disclosure requirements, it did not have a material impact on the Company’s consolidated financial statements.

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

10


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. 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 2020 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 September 30, 2020 and December 31, 2019 are summarized as follows:

September 30, 2020

    

Gross

    

Gross

    

Gross

    

Estimated

Amortized

Unrealized

Unrealized

Fair

(Dollars in thousands)

Cost

Gains

Losses

Value

Obligations of U.S. Government entities and agencies

$

11,484

$

$

$

11,484

States and political subdivisions

 

4,954

 

181

 

(1)

 

5,134

Mortgage-backed GSE residential

 

1,571

 

15

 

1,586

Total

$

18,009

$

196

$

(1)

$

18,204

December 31, 2019

    

Gross

    

Gross

    

Gross

    

Estimated

Amortized

Unrealized

Unrealized

Fair

(Dollars in thousands)

Cost

Gains

Losses

Value

Obligations of U.S. Government entities and agencies

$

12,436

$

$

$

12,436

States and political subdivisions

 

1,246

 

33

 

 

1,279

Mortgage-backed GSE residential

 

2,015

 

 

(35)

 

1,980

Total

$

15,697

$

33

$

(35)

$

15,695

The amortized costs and estimated fair values of investment securities available for sale at September 30, 2020, 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

$

265

$

265

Due after one year but less than five years

 

11,868

 

11,891

Due after five years but less than ten years

 

4,305

 

4,462

Due in more than ten years

 

 

Mortgage-backed GSE residential

 

1,571

 

1,586

Total

$

18,009

$

18,204

There were no securities pledged as of September 30, 2020 and December 31, 2019 to secure public deposits and repurchase agreements. There were no securities sold during the three and nine months ended September 30, 2020 and 2019.

11


Information pertaining to securities with gross unrealized losses at September 30, 2020 and December 31, 2019 aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

September 30, 2020

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

$

(1)

$

601

$

$

Total

$

(1)

$

601

$

$

December 31, 2019

Twelve Months or Less

Over Twelve Months

    

Gross

    

Estimated

    

Gross

    

Estimated

Unrealized

Fair

Unrealized

Fair

(Dollars in thousands)

Losses

Value

Losses

Value

Mortgage-backed GSE residential

$

$

$

(35)

$

1,975

Total

$

$

$

(35)

$

1,975

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 September 30, 2020, the one security available for sale with an unrealized loss has depreciated 0.05% from the Company’s amortized cost basis. This security has not been in a loss position for greater than twelve months.

State and political subdivisions. The Company’s unrealized losses on one investment 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 investment, and because it is not more likely than not that the Company will be required to sell the investment before the recovery of the par value, which may be at maturity, management does not consider this investment to be other-than-temporarily impaired at September 30, 2020.

NOTE 3 – LOANS AND ALLOWANCE FOR LOAN LOSSES

Major classifications of loans at September 30, 2020 and December 31, 2019 are summarized as follows:

    

September 30,

    

December 31, 

(Dollars in thousands)

 

2020

 

2019

Construction and development

$

38,607

$

31,739

Commercial real estate

 

447,596

 

424,950

Commercial and industrial

 

146,880

 

53,105

Residential real estate

 

831,334

 

651,645

Consumer and other

 

505

 

1,768

Total loans receivable

 

1,464,922

 

1,163,207

Unearned income

 

(5,023)

 

(2,045)

Allowance for loan losses

 

(9,339)

 

(6,839)

Loans, net

$

1,450,560

$

1,154,323

Included in the commercial and industrial loans are PPP loans totaling $96.9 million as of September 30, 2020.

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

12


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 and nine months ended September 30, 2020 and 2019 is as follows:

 

Three Months Ended September 30, 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

$

263

$

3,768

$

404

$

3,423

$

36

$

$

7,894

Charge-offs

 

 

 

 

 

(17)

 

 

(17)

Recoveries

 

 

3

 

 

 

9

 

 

12

Provision

 

(113)

 

1,381

 

(79)

 

272

 

(11)

 

 

1,450

Ending balance

$

150

$

5,152

$

325

$

3,695

$

17

$

$

9,339

Three Months Ended September 30, 2019

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

$

129

$

2,384

$

587

$

3,165

$

197

$

21

$

6,483

Charge-offs

 

 

(237)

 

 

 

(162)

 

 

(399)

Recoveries

 

 

738

 

 

 

28

 

 

766

Provision

 

93

 

(570)

 

(132)

 

252

 

61

 

296

 

Ending balance

$

222

$

2,315

$

455

$

3,417

$

124

$

317

$

6,850

Nine Months Ended September 30, 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

 

(89)

 

 

(89)

Recoveries

 

8

25

45

 

 

78

Provision

 

19

2,824

(148)

238

(30)

 

(392)

 

2,511

Ending balance

$

150

$

5,152

$

325

$

3,695

$

17

$

$

9,339

Nine Months Ended September 30, 2019

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

$

235

$

2,601

$

380

$

3,042

$

387

$

$

6,645

Charge-offs

 

 

(237)

 

(14)

 

 

(493)

 

 

(744)

Recoveries