10-Q 1 americannb20220331_10q.htm FORM 10-Q americannb20220331_10q.htm
0000741516 AMERICAN NATIONAL BANKSHARES INC. false --12-31 Q1 2022 5 5 2,000,000 2,000,000 0 0 1 1 20,000,000 20,000,000 10,713,958 10,766,967 54,023 15,315 29,827 0.27 88,929 713 11,912 4,249 0.28 0 14 0 9 0 0 11 0 6 0 0 0 0 0 0 0 0 0 0 0 1.35 3.45 2.95 33.33 0 1,271 374 6,662 396 Derived from audited consolidated financial statements Unobservable inputs were weighted by the relative fair value of the impaired loans. Includes PPP loans, which are guaranteed by the SBA and have no related allowance. 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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

FORM 10-Q

 

☒

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

For the quarterly period ended March 31, 2022

 

☐

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: 0-12820

 

AMERICAN NATIONAL BANKSHARES INC.

(Exact name of registrant as specified in its charter)

   

Virginia

 

54-1284688

(State or other jurisdiction of incorporation or organization)

 

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

 

 

 

628 Main Street, Danville, Virginia

 

24541

(Address of principal executive offices)

 

(Zip Code)

(434) 792-5111

(Registrant's telephone number, including area code)

 

(Not applicable)

(Former name, former address and former fiscal year, if changed since last report)

 

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

AMNB

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

☒

 

At May 2, 2022, the Company had 10,705,799 shares of Common Stock outstanding, $1 par value.

 

 
Table of Contents

 

 
 

AMERICAN NATIONAL BANKSHARES INC.

 

       

Index

 

 

Page

 

 

 

 

Part I.

FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

 

 

Consolidated Balance Sheets as of March 31, 2022 (unaudited) and December 31, 2021

3

 

 

 

 

 

 

Consolidated Statements of Income for the three months ended March 31, 2022 and 2021 (unaudited)

4

 

 

 

 

 

 

Consolidated Statements of Comprehensive (Loss) Income for the three months ended March 31, 2022 and 2021 (unaudited)

5

 

 

 

 

 

 

Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31, 2022 and 2021 (unaudited)

6

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021 (unaudited)

7

 

 

 

 

 

 

Notes to Consolidated Financial Statements (unaudited)

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

41

 

 

 

 

 

Item 4.

Controls and Procedures

42

 

 

 

 

Part II.

OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

43

 

 

 

 

 

Item 1A.

Risk Factors

 43

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

43

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

44

 

 

 

 

 

Item 4.

Mine Safety Disclosures

44
       

 

Item 5.

Other Information

44

 

 

 

 

 

Item 6.

Exhibits

45

 

 

 

 

SIGNATURES

46

 

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PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

American National Bankshares Inc.

Consolidated Balance Sheets

(Dollars in thousands, except per share data)

 

  

(Unaudited) March 31, 2022

  

December 31, 2021

 

Assets

      * 

Cash and due from banks

 $34,506  $23,095 

Interest-bearing deposits in other banks

  452,562   487,773 

Securities available for sale, at fair value

  686,176   692,467 

Restricted stock, at cost

  8,484   8,056 

Loans held for sale

  2,524   8,481 

Loans, net of deferred fees and costs

  1,988,008   1,946,580 

Less allowance for loan losses

  (17,988)  (18,678)

Net loans

  1,970,020   1,927,902 

Premises and equipment, net

  35,383   35,564 

Other real estate owned, net of valuation allowance

  143   143 

Goodwill

  85,048   85,048 

Core deposit intangibles, net

  4,297   4,627 

Bank owned life insurance

  29,159   29,107 

Other assets

  37,936   32,334 

Total assets

 $3,346,238  $3,334,597 
         

Liabilities

        

Noninterest-bearing deposits

 $1,024,778  $1,009,081 

Interest-bearing deposits

  1,901,429   1,881,272 

Total deposits

  2,926,207   2,890,353 

Customer repurchase agreements

  38,527   41,128 

Long-term borrowings

  28,257   28,232 

Other liabilities

  18,173   20,092 

Total liabilities

  3,011,164   2,979,805 
         

Shareholders' equity

        

Preferred stock, $5 par value, 2,000,000 shares authorized, none outstanding

  —   — 

Common stock, $1 par value, 20,000,000 shares authorized, 10,713,958 shares outstanding at March 31, 2022 and 10,766,967 shares outstanding at December 31, 2021

  10,638   10,710 

Capital in excess of par value

  144,848   147,777 

Retained earnings

  207,373   201,380 

Accumulated other comprehensive loss, net

  (27,785)  (5,075)

Total shareholders' equity

  335,074   354,792 

Total liabilities and shareholders' equity

 $3,346,238  $3,334,597 

 

*

 Derived from audited consolidated financial statements

 

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

 

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American National Bankshares Inc.

Consolidated Statements of Income

(Dollars in thousands, except per share data) (Unaudited)

 

   

Three Months Ended March 31,

  
   

2022

    

2021

  

Interest and Dividend Income:

                

Interest and fees on loans

   $ 18,788     $ 22,273  

Interest and dividends on securities:

                

Taxable

     2,239       1,632  

Tax-exempt

     90       103  

Dividends

     113       119  

Other interest income

     177       77  

Total interest and dividend income

     21,407       24,204  

Interest Expense:

                

Interest on deposits

     569       1,287  

Interest on short-term borrowings

     6       11  

Interest on long-term borrowings

     379       483  

Total interest expense

     954       1,781  

Net Interest Income

     20,453       22,423  

Recovery of loan losses

     (758 )     —  

Net Interest Income After Recovery of Loan Losses

     21,211       22,423  

Noninterest Income:

                

Wealth management income

     1,809       1,424  

Service charges on deposit accounts

     689       622  

Interchange fees

     981       889  

Other fees and commissions

     266       250  

Mortgage banking income

     673       1,318  

Income from Small Business Investment Companies

     493       428  

Income from insurance investments

     447       788  

Gains (losses) on premises and equipment, net

     4       (49 )

Other

     238       252  

Total noninterest income

     5,600       5,922  

Noninterest Expense:

                

Salaries and employee benefits

     8,598       7,518  

Occupancy and equipment

     1,542       1,533  

FDIC assessment

     239       224  

Bank franchise tax

     476       438  

Core deposit intangible amortization

     330       381  

Data processing

     847       778  

Software

     363       329  

Other real estate owned, net

     (1 )     117  

Other

     2,955       2,747  

Total noninterest expense

     15,349       14,065  

Income Before Income Taxes

     11,462       14,280  

Income Taxes

     2,463       2,991  

Net Income

   $ 8,999     $ 11,289  

Net Income Per Common Share:

                

Basic

   $ 0.84     $ 1.03  

Diluted

   $ 0.84     $ 1.03  

Weighted Average Common Shares Outstanding:

                

Basic

     10,754,287       10,971,466  

Diluted

     10,756,902       10,976,177  

 

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

 

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American National Bankshares Inc.

Consolidated Statements of Comprehensive (Loss) Income

(Dollars in thousands) (Unaudited)

 

   

Three Months Ended March 31,

  
   

2022

    

2021

  

Net income

   $ 8,999     $ 11,289  
                 

Other comprehensive loss:

                
                 

Unrealized losses on securities available for sale

     (30,861 )     (5,882 )

Tax effect

     6,662       1,271  
                 

Unrealized gains on cash flow hedges

     1,885       1,781  

Tax effect

     (396 )     (374 )
                 

Other comprehensive loss

     (22,710 )     (3,204 )
                 

Comprehensive (loss) income

   $ (13,711 )   $ 8,085  

 

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

 

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American National Bankshares Inc.

Consolidated Statements of Changes in Shareholders' Equity

Three Months Ended March 31, 2022 and 2021

(Dollars in thousands, except per share data) (Unaudited)
  Common Stock  

Capital in Excess of Par Value

  Retained Earnings  

Accumulated Other Comprehensive Income (Loss)

  

Total Shareholders' Equity

 

Balance, December 31, 2020

 $10,926  $154,850  $169,681  $2,437  $337,894 
                     

Net income

  —   —   11,289   —   11,289 
                     

Other comprehensive loss

  —   —   —   (3,204)  (3,204)
                     

Stock repurchased (54,023)

  (54)  (1,540)  —   —   (1,594)
                     

Vesting of restricted stock (15,315 shares)

  15   (15)  —   —   — 
                     

Equity based compensation (29,827 shares)

  7   356   —   —   363 
                     

Cash dividends paid, $0.27 per share

  —   —   (2,955)  —   (2,955)
                     

Balance, March 31, 2021

 $10,894  $153,651  $178,015  $(767) $341,793 
                     

Balance, December 31, 2021

 $10,710  $147,777  $201,380  $(5,075) $354,792 
                     

Net income

  —   —   8,999   —   8,999 
                     

Other comprehensive loss

  —   —   —   (22,710)  (22,710)
                     

Stock repurchased (88,929 shares)

  (89)  (3,306)  —   —   (3,395)
                     

Stock options exercised (713 shares)

  1   11   —   —   12 
                     

Vesting of restricted stock (11,912 shares)

  12   (12)  —   —   — 
                     

Equity based compensation (4,249 shares)

  4   378   —   —   382 
                     

Cash dividends paid, $0.28 per share

  —   —   (3,006)  —   (3,006)
                     

Balance, March 31, 2022

 $10,638  $144,848  $207,373  $(27,785) $335,074 

 

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

 

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American National Bankshares Inc.

Consolidated Statements of Cash Flows

(Dollars in thousands) (Unaudited)

 

    Three Months Ended March 31,  
   

2022

    

2021

  

Cash Flows from Operating Activities:

                

Net income

   $ 8,999     $ 11,289  

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

                

(Recovery of) provision for loan losses

     (758 )     —  

Depreciation

     547       580  

Net accretion of acquisition accounting adjustments

     (556 )     (948 )

Core deposit intangible amortization

     330       381  

Net amortization of securities

     500       406  

Gain on sale of loans held for sale

     (673 )     (1,318 )

Proceeds from sales of loans held for sale

     26,414       40,166  

Originations of loans held for sale

     (19,784 )     (41,186 )

Net loss on other real estate owned

     —       111  

Net gain (loss) on sale or disposal of premises and equipment

     (4 )     49  

Equity based compensation expense

     382       363  

Net change in bank owned life insurance

     (52 )     (153 )

Deferred income tax expense

     641       106  

Net change in other assets

     114       389  

Net change in other liabilities

     (34 )     3,420  

Net cash provided by operating activities

     16,066       13,655  
                 

Cash Flows from Investing Activities:

                

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

     42,594       55,825  

Purchases of securities available for sale

     (67,664 )     (78,165 )

Net change in restricted stock

     (428 )     691  

Net (increase) decrease in loans

     (40,794 )     37,381  

Proceeds from sale of premises and equipment

     4       4  

Purchases of premises and equipment

     (366 )     (246 )

Proceeds from sales of other real estate owned

     —       404  

Net cash (used in) provided by investing activities

     (66,654 )     15,894  
                 

Cash Flows from Financing Activities:

                

Net change in noninterest-bearing deposits

     15,697       77,627  

Net change in interest-bearing deposits

     20,081       (56,401 )

Net change in customer repurchase agreements

     (2,601 )     (3,346 )

Common stock dividends paid

     (3,006 )     (2,955 )

Repurchase of common stock

     (3,395 )     (1,594 )

Proceeds from exercise of stock options

     12       —  

Net cash provided by financing activities

     26,788       13,331  

Net (Decrease) Increase in Cash and Cash Equivalents

     (23,800 )     42,880  

Cash and Cash Equivalents at Beginning of Period

     510,868       374,370  

Cash and Cash Equivalents at End of Period

   $ 487,068     $ 417,250  

 

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

 

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AMERICAN NATIONAL BANKSHARES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

Note 1 – Accounting Policies

 

The consolidated financial statements include the accounts of American National Bankshares Inc. (NASDAQ: AMNB) (the "Company") and its wholly-owned subsidiary, American National Bank and Trust Company (the "Bank"). The Company is a multi-state bank holding company headquartered in Danville, Virginia. The Bank is a community bank organization serving Virginia and North Carolina with 26 banking offices. In addition to traditional retail, commercial and mortgage offerings, the Bank also provides trust and investment services through its Trust and Investment Services Division.

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, goodwill and intangible assets, other-than-temporary impairment of securities, accounting for merger and acquisition activity, accounting for acquired loans with specific credit-related deterioration, and the valuation of deferred tax assets and liabilities.

 

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the results of the interim periods. The results of operations for the interim periods are not necessarily indicative of the results that may occur for any other period. These statements should be read in conjunction with the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021. Certain prior period balances have been reclassified to conform to the current period presentation.

 

Recently Adopted Accounting Developments

 

In May 2021, the FASB issued ASU 2021-04, “Earnings Per Share (Topic 260), Debt - Modifications and Extinguishments (Subtopic 470-50), Compensation - Stock Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity – Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force).” The ASU addresses how an issuer should account for modifications or an exchange of freestanding written call options classified as equity that is not within the scope of another Topic. Early adoption is permitted. ASU 2021-04 was effective for the Bank/Company on January 1, 2022. The adoption did not have a material impact to the consolidated financial statements.

 

Recent Accounting Pronouncements and Other Authoritative Accounting Guidance

 

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." The amendments in this ASU, among other things, require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The FASB has issued multiple updates to ASU 2016-13 as codified in Topic 326, including ASU's 2019-04, 2019-05, 2019-10, 2019-11, 2020-02, and 2020-03. These ASUs have provided for various minor technical corrections and improvements to the codification as well as other transition matters. Smaller reporting companies who file with the U.S. Securities and Exchange Commission ("SEC") and all other entities who do not file with the SEC are required to apply the guidance for fiscal years, and interim periods within those years, beginning after December 15, 2022. At the one-time evaluation date, the Company qualified as a smaller reporting company and elected to defer the adoption of the standard.  The Company has begun running parallel models to assess and refine assumptions and methodologies. Management will continue to refine the model to calculate an adjustment to reserves upon adoption.  

 

Effective  November 25, 2019, the SEC adopted Staff Accounting Bulletin ("SAB") 119. SAB 119 updated portions of SEC interpretative guidance to align with ASC 326, Financial Instruments - Credit Losses. It covers topics including (1) measuring current expected credit losses; (2) development, governance, and documentation of a systematic methodology; (3) documenting the results of a systematic methodology; and (4) validating a systematic methodology.

 

In March 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2022-02, “Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures.” ASU 2022-02 addresses areas identified by the FASB as part of its post-implementation review of the credit losses standard (ASU 2016-13) that introduced the CECL model. The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require a public business entity to disclose current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. The amendments in this ASU should be applied prospectively, except for the transition method related to the recognition and measurement of TDRs, an entity has the option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. For entities that have adopted ASU 2016-13, ASU 2022-02 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. For entities that have not yet adopted ASU 2016-13, the effective dates for ASU 2022-02 are the same as the effective dates in ASU 2016-13. Early adoption is permitted if an entity has adopted ASU 2016-13. An entity may elect to early adopt the amendments about TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures. The Company is currently assessing the impact that ASU 2022-02 will have on its consolidated financial statements.
8
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Note 2 – Securities

 

The amortized cost and fair value of investments in securities available for sale at March 31, 2022 were as follows (dollars in thousands):

 

  

March 31, 2022

 
  Amortized Cost  Unrealized Gains  Unrealized Losses  Fair Value 

Securities available for sale:

                

U.S. Treasury

 $152,260  $—  $7,425  $144,835 

Federal agencies and GSEs

  107,000   279   3,432   103,847 

Mortgage-backed and CMOs

  362,605   216   19,833   342,988 

State and municipal

  67,894   179   2,396   65,677 

Corporate

  29,450   100   721   28,829 

Total securities available for sale

 $719,209  $774  $33,807  $686,176 

 

The amortized cost and fair value of investments in securities available for sale at December 31, 2021 were as follows (dollars in thousands):

 

  

December 31, 2021

 
  Amortized Cost  Unrealized Gains  Unrealized Losses  Fair Value 

Securities available for sale:

                

U.S. Treasury

 $150,751  $—  $1,174  $149,577 

Federal agencies and GSEs

  104,518   993   931   104,580 

Mortgage-backed and CMOs

  357,981   2,854   4,525   356,310 

State and municipal

  65,939   1,021   488   66,472 

Corporate

  15,450   218   140   15,528 

Total securities available for sale

 $694,639  $5,086  $7,258  $692,467 

 

Restricted Stock

 

Due to restrictions placed upon the Bank's common stock investment in the Federal Reserve Bank of Richmond ("FRB") and Federal Home Loan Bank of Atlanta ("FHLB"), these securities have been classified as restricted equity securities and carried at cost. The restricted securities are not subject to the investment security classification requirements and are included as a separate line item on the Company's consolidated balance sheets. The FRB requires the Bank to maintain stock with a par value equal to 3.00% of its outstanding capital and an additional 3.00% is on call. The FHLB requires the Bank to maintain stock in an amount equal to 3.75% of outstanding borrowings and a specific percentage of the Bank's total assets. The cost of restricted stock at March 31, 2022 and  December 31, 2021 was as follows (dollars in thousands):

 

  March 31, 2022  December 31, 2021 

FRB stock

 $6,511  $6,500 

FHLB stock

  1,973   1,556 

Total restricted stock

 $8,484  $8,056 

 

Temporarily Impaired Securities

 

The following table shows estimated fair value and gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2022. The reference point for determining when securities are in an unrealized loss position is month end. Therefore, it is possible that a security's market value exceeded its amortized cost on other days during the past twelve-month period.

 

Available for sale securities that have been in a continuous unrealized loss position, at March 31, 2022, were as follows (dollars in thousands):

 

  

Total

  

Less than 12 Months

  

12 Months or More

 
  

Fair Value

  

Unrealized Loss

  

Fair Value

  

Unrealized Loss

  

Fair Value

  

Unrealized Loss

 

U.S. Treasury

 $144,835  $7,425  $144,835  $7,425  $—  $— 

Federal agencies and GSEs

  91,878   3,432   66,968   1,591   24,910   1,841 

Mortgage-backed and CMOs

  329,564   19,833   270,590   13,849   58,974   5,984 

State and municipal

  45,065   2,396   38,077   1,642   6,988   754 

Corporate

  21,029   721   21,029   721   —   — 

Total

 $632,371  $33,807  $541,499  $25,228  $90,872  $8,579 

 

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The table below shows estimated fair value and gross unrealized losses, aggregated by investment category and length of time that individual securities had been in a continuous unrealized loss position, at December 31, 2021 (dollars in thousands):

 

  

Total

  

Less than 12 Months

  

12 Months or More

 
  Fair Value  Unrealized Loss  Fair Value  Unrealized Loss  Fair Value  Unrealized Loss 

U.S. Treasury

 $149,577  $1,174  $149,577  $1,174  $—  $— 

Federal agencies and GSEs

  73,640   931   63,042   512   10,598   419 

Mortgage-backed and CMOs

  253,444   4,525   213,292   3,014   40,152   1,511 

State and municipal

  26,646   488   23,341   354   3,305   134 

Corporate

  7,611   140   7,611   140   —   — 

Total

 $510,918  $7,258  $456,863  $5,194  $54,055  $2,064 

 

U.S. Treasury securities: The unrealized losses on the Company's investment in 22 U.S. Treasury securities were caused by normal market fluctuations. None of these securities were in an unrealized loss position for 12 months or more. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at March 31, 2022.

 

Federal agencies and GSEs: The unrealized losses on the Company's investment in 41 government sponsored entities ("GSE") securities were caused by normal market fluctuations. Fourteen of these securities were in an unrealized loss position for 12 months or more. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at March 31, 2022.

 

Mortgage-backed securities: The unrealized losses on the Company's investment in 82 GSE mortgage-backed securities were caused by normal market fluctuations. Nine of these securities were in an unrealized loss position for 12 months or more. The contractual cash flows of those investments are guaranteed by an agency of the U.S. Government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost basis of the Company's investments. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at March 31, 2022.

 

Collateralized Mortgage Obligations: The unrealized losses associated with 49 GSE collateralized mortgage obligations ("CMOs") were due to normal market fluctuations. Six of these securities were in an unrealized loss position for 12 months or more. The contractual cash flows of these investments are guaranteed by an agency of the U.S. Government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost basis of the Company's investments. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at March 31, 2022.

 

State and municipal securities: The unrealized losses on 66 state and municipal securities were caused by normal market fluctuations. Eleven of these securities were in an unrealized loss position for 12 months or more. These securities are of high credit quality (rated AA- or higher), and principal and interest payments have been made timely. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at March 31, 2022.

 

Corporate securities: The unrealized losses on six corporate securities were caused by normal market fluctuations and not credit deterioration. None of these securities were in an unrealized loss position for 12 months or more. Only one of these securities is rated (Baa2 by Moody's), but the Company conducted thorough internal credit reviews prior to the purchase of each which determined the investment risk to be acceptable due to the issuers' experienced management teams, strong asset quality, and ample levels of capital and liquidity. The Company conducts ongoing quarterly reviews of these companies as well. The contractual terms of these investments do not permit the issuer to settle the security at a price less than the amortized cost basis of the investment. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of its amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at  March 31, 2022.

 

Restricted stock: When evaluating restricted stock for impairment, its value is based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value. The Company does not consider restricted stock to be other-than-temporarily impaired at March 31, 2022, and no impairment has been recognized.

 

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Other-Than-Temporarily-Impaired Securities

 

As of March 31, 2022 and December 31, 2021, there were no securities classified as other-than-temporarily impaired.

 

Realized Gains and Losses

 

The Company did not have any realized gains or losses on, or proceeds from the sale, of securities available for sale during the three months ended March 31, 2022 and 2021.

 
 

Note 3 – Loans

 

Loans, net of deferred fees and costs and excluding loans held for sale, at March 31, 2022 and  December 31, 2021, were comprised of the following (dollars in thousands):

 

  March 31, 2022  December 31, 2021 

Commercial

 $291,697  $299,773 

Commercial real estate:

        

Construction and land development

  148,276   134,221 

Commercial real estate - owner occupied

  402,306   391,517 

Commercial real estate - non-owner occupied

  752,817   731,034 

Residential real estate:

        

Residential

  295,949   289,757 

Home equity

  89,593   93,203 

Consumer

  7,370   7,075 

Total loans, net of deferred fees and costs

 $1,988,008  $1,946,580 

 

Acquired Loans 

 

The outstanding principal balance and the carrying amount of these loans, including loans accounted for under ASC 310-30, included in the consolidated balance sheets at March 31, 2022 and  December 31, 2021 are as follows (dollars in thousands):

 

  March 31, 2022  December 31, 2021 

Outstanding principal balance

 $152,863  $163,574 

Carrying amount

  146,863   156,975 

 

The outstanding principal balance and related carrying amount of purchased credit impaired loans, for which the Company applies ASC 310-30 to account for interest earned, as of the indicated dates are as follows (dollars in thousands):

 

  March 31, 2022  December 31, 2021 

Outstanding principal balance

 $22,174  $24,696 

Carrying amount

  17,633   19,802 

 

The following table presents changes in the accretable yield on acquired impaired loans, for which the Company applies ASC 310-30, for the three months ended March 31, 2022 and the year ended December 31, 2021 (dollars in thousands):

 

  March 31, 2022  December 31, 2021 

Balance at January 1

 $4,902  $6,513 

Accretion

  (670)  (5,292)

Reclassification from nonaccretable difference

  382   2,780 

Other changes, net (1)

  (253)  901 
  $4,361  $4,902 

  __________________________

  (1) This line item represents changes in the cash flows expected to be collected due to the impact of non-credit changes such as prepayment assumptions, changes in interest rates on variable rate acquired impaired loans, and discounted payoffs that occurred in the period.

 

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Past Due Loans

 

The following table shows an analysis by portfolio segment of the Company's past due loans at March 31, 2022 (dollars in thousands):

 

  30- 59 Days Past Due  60-89 Days Past Due  90 Days + Past Due and Still Accruing  Non Accrual Loans  Total Past Due  

Current

  Total Loans 

Commercial

 $—  $—  $—  $17  $17  $291,680  $291,697 

Commercial real estate:

                            

Construction and land development

  —   —   —   —   —   148,276   148,276 

Commercial real estate - owner occupied

  —   —   —   4   4   402,302   402,306 

Commercial real estate - non-owner occupied

  —   240   —   1,073   1,313   751,504   752,817 

Residential:

                            

Residential

  593   —   —   581   1,174   294,775   295,949 

Home equity

  24   —   50   87   161   89,432   89,593 

Consumer

  3   —   21   —   24   7,346   7,370 

Total

 $620  $240  $71  $1,762  $2,693  $1,985,315  $1,988,008 

 

The following table shows an analysis by portfolio segment of the Company's past due loans at December 31, 2021 (dollars in thousands):

 

  30- 59 Days Past Due  60-89 Days Past Due  90 Days + Past Due and Still Accruing  Non Accrual Loans  Total Past Due  

Current

  Total Loans 

Commercial

 $120  $—  $—  $26  $146  $299,627  $299,773 

Commercial real estate:

                            

Construction and land development

  —   —   —   —   —   134,221   134,221 

Commercial real estate - owner occupied

  —   —   —   12   12   391,505   391,517 

Commercial real estate - non-owner occupied

  —   —   —   1,093   1,093   729,941   731,034 

Residential:

                            

Residential

  670   20   154   792   1,636   288,121   289,757 

Home equity

  12   30   47   80   169   93,034   93,203 

Consumer

  6   —   15   3   24   7,051   7,075 

Total

 $808  $50  $216  $2,006  $3,080  $1,943,500  $1,946,580 

 

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Impaired Loans

 

The following table presents the Company's impaired loan balances by portfolio segment, excluding acquired impaired loans, at March 31, 2022 (dollars in thousands):

 

  

Recorded Investment

  Unpaid Principal Balance  Related Allowance  Average Recorded Investment