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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, 2022

OR

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

For the transition period from _______ to _______

Commission File Number 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 2, 2022, the registrant had 25,465,236 shares of common stock, par value $0.01 per share, issued and outstanding.

METROCITY BANKSHARES, INC.

Quarterly Report on Form 10-Q

March 31, 2022

TABLE OF CONTENTS

    

Page

Part I.

Financial Information

Item l.

Financial Statements:

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

3

Consolidated Statements of Income (unaudited) for the Three Months Ended March 31, 2022 and 2021

4

Consolidated Statements of Comprehensive Income (unaudited) for the Three Months Ended March 31, 2022 and 2021

5

Consolidated Statements of Shareholders’ Equity (unaudited) for the Three Months Ended March 31, 2022 and 2021

6

Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 2022 and 2021

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

48

Item 4.

Controls and Procedures

50

Part II.

Other Information

Item 1.

Legal Proceedings

50

Item 1A.

Risk Factors

51

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

51

Item 3.

Defaults Upon Senior Securities

51

Item 4.

Mine Safety Disclosures

51

Item 5.

Other Information

51

Item 6.

Exhibits

51

Signatures

53

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, 

    

2022

    

2021

(Unaudited)

Assets:

 

 

  

Cash and due from banks

$

418,988

$

432,523

Federal funds sold

 

5,743

 

8,818

Cash and cash equivalents

 

424,731

 

441,341

Equity securities

11,024

11,386

Securities available for sale (at fair value)

 

23,886

 

25,733

Loans held for sale

 

37,928

 

Loans, less allowance for loan losses of $16,674 and $16,952, respectively

 

2,495,626

 

2,488,118

Accrued interest receivable

 

10,644

 

11,052

Federal Home Loan Bank stock

 

15,806

 

19,701

Premises and equipment, net

 

12,814

 

13,068

Operating lease right-of-use asset

 

8,925

 

9,338

Foreclosed real estate, net

3,562

3,618

SBA servicing asset, net

 

10,554

 

10,234

Mortgage servicing asset, net

 

6,925

 

7,747

Bank owned life insurance

 

67,841

 

59,437

Other assets

 

12,051

 

5,385

Total assets

$

3,142,317

$

3,106,158

Liabilities:

 

  

 

  

Deposits:

 

  

 

  

Non-interest-bearing demand

$

615,650

$

592,444

Interest-bearing

 

1,766,491

 

1,670,576

Total deposits

 

2,382,141

 

2,263,020

Federal Home Loan Bank advances

380,000

500,000

Other borrowings

 

405

 

459

Operating lease liability

 

9,445

 

9,861

Accrued interest payable

 

207

 

204

Other liabilities

 

59,709

 

42,391

Total liabilities

$

2,831,907

$

2,815,935

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, 25,465,236 shares issued and outstanding as of March 31, 2022 and December 31, 2021

255

255

Additional paid-in capital

 

51,753

 

51,559

Retained earnings

 

254,165

 

238,577

Accumulated other comprehensive income (loss)

 

4,237

 

(168)

Total shareholders' equity

 

310,410

 

290,223

Total liabilities and shareholders' equity

$

3,142,317

$

3,106,158

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, 

    

2022

    

2021

Interest and dividend income:

  

  

Loans, including fees

$

31,459

$

22,500

Other investment income

 

492

 

170

Federal funds sold

 

2

 

2

Total interest income

 

31,953

 

22,672

Interest expense:

Deposits

 

1,139

 

992

FHLB advances and other borrowings

 

161

 

146

Total interest expense

 

1,300

 

1,138

Net interest income

 

30,653

 

21,534

Provision for loan losses

 

104

 

1,599

Net interest income after provision for loan losses

 

30,549

 

19,935

Noninterest income:

Service charges on deposit accounts

 

481

 

373

Other service charges, commissions and fees

 

2,159

 

3,398

Gain on sale of residential mortgage loans

 

1,211

 

Mortgage servicing income, net

 

101

 

166

Gain on sale of SBA loans

 

1,568

 

1,854

SBA servicing income, net

 

1,644

 

2,133

Other income

 

492

 

262

Total noninterest income

 

7,656

 

8,186

Noninterest expense:

Salaries and employee benefits

 

7,096

 

6,699

Occupancy and equipment

 

1,227

 

1,275

Data processing

 

277

 

308

Advertising

 

150

 

145

Other expenses

 

3,429

 

2,281

Total noninterest expense

 

12,179

 

10,708

Income before provision for income taxes

 

26,026

 

17,413

Provision for income taxes

 

6,597

 

4,432

Net income available to common shareholders

$

19,429

$

12,981

Earnings per share:

Basic

$

0.76

$

0.51

Diluted

$

0.76

$

0.50

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, 

    

2022

    

2021

Net income

$

19,429

$

12,981

Other comprehensive gain (loss):

 

 

  

Unrealized holding losses on securities available for sale

 

(1,484)

 

(210)

Net changes in fair value of cash flow hedges

7,358

Tax effect

 

(1,469)

 

54

Other comprehensive gain (loss)

 

4,405

 

(156)

Comprehensive income

$

23,834

$

12,825

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, 2022

 

25,465,236

$

255

$

51,559

$

238,577

$

(168)

$

290,223

Net income

 

 

 

 

19,429

 

 

19,429

Stock based compensation expense

 

 

 

194

 

 

 

194

Other comprehensive income

 

 

 

 

 

4,405

 

4,405

Dividends on common stock ($0.15 per share)

 

 

 

(3,841)

 

 

(3,841)

Balance, March 31, 2022

 

25,465,236

$

255

$

51,753

$

254,165

$

4,237

$

310,410

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

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, 

    

2022

    

2021

Cash flow from operating activities:

 

  

 

  

Net income

$

19,429

$

12,981

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

Depreciation, amortization and accretion

 

711

 

732

Provision for loan losses

 

104

 

1,599

Stock based compensation expense

 

194

 

303

Unrealized losses recognized on equity securities

362

Loss on sale of foreclosed real estate

 

15

 

Proceeds from sales of residential real estate loans

 

58,198

 

Gain on sale of residential mortgages

 

(1,211)

 

Origination of SBA loans held for sale

 

(23,391)

 

(22,949)

Proceeds from sales of SBA loans held for sale

 

24,959

 

24,803

Gain on sale of SBA loans

 

(1,568)

 

(1,854)

Increase in cash value of bank owned life insurance

 

(404)

 

(227)

Decrease in accrued interest receivable

 

408

 

156

Increase in SBA servicing rights

 

(320)

 

(892)

Decrease in mortgage servicing rights

 

822

 

1,269

Increase in other assets

 

(810)

 

(381)

Increase (decrease) in accrued interest payable

 

3

 

(16)

Increase in other liabilities

 

16,915

 

9,739

Net cash flow provided by operating activities

 

94,416

 

25,263

Cash flow from investing activities:

 

  

 

  

Purchases of securities available for sale

(1,034)

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

 

345

 

185

Redemption of Federal Home Loan Bank stock

 

3,895

 

2,196

Increase in loans, net

(102,527)

 

(236,440)

Purchases of premises and equipment

 

(26)

 

(99)

Proceeds from sales of foreclosed real estate owned

41

Purchase of bank owned life insurance

(8,000)

Net cash flow used by investing activities

 

(106,272)

 

(235,192)

Cash flow from financing activities:

 

  

 

  

Dividends paid on common stock

 

(3,821)

 

(2,567)

Increase in deposits, net

 

119,121

 

266,031

Decrease in other borrowings, net

 

(54)

 

(4)

Proceeds from Federal Home Loan Bank advances

Repayments of Federal Home Loan Bank advances

 

(120,000)

 

(30,000)

Net cash flow (used) provided by financing activities

 

(4,754)

 

233,460

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, 

    

2022

    

2021

Net change in cash and cash equivalents

 

(16,610)

 

23,531

Cash and cash equivalents at beginning of period

 

441,341

 

150,688

Cash and cash equivalents at end of period

$

424,731

$

174,219

Supplemental schedule of noncash investing and financing activities:

Transfer of loans to loans held for sale

$

94,915

$

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

$

$

Initial recognition of operating lease right-of-use assets

$

$

560

Initial recognition of operating lease liabilities

$

$

560

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

Interest

$

1,297

$

1,154

Income taxes

$

488

$

261

See accompanying notes to unaudited consolidated financial statements.

8

METROCITY BANKSHARES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

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 unless the context indicates that we refer only to MetroCity Bankshares, Inc.

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, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. These statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2021.

The Company’s significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements for the year ended December 31, 2021, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “Company’s 2021 Form 10-K”). There were no new accounting policies or changes to existing policies adopted during the first three months of 2022 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, 2022. Although the ultimate outcome of all claims and lawsuits outstanding as of March 31, 2022 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 provided 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 provided 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,

9

including the related impairment for accounting purposes. The Consolidated Appropriations Act (“CAA”), signed into law on December 27, 2020, extended 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 (“SBA”) 7(a) loan program and the Economic Injury Disaster Loan Program (“EIDL”), administered directly by the SBA. The CAA provided several 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 extended the program to May 31, 2021. The Company was 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. The Company has also contracted with a third-party vendor to assist with our CECL implementation and help establish the necessary policies and procedures to be fully 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 2022 to date but does not expect updates other than those summarized above to have a material impact on the consolidated financial statements.

NOTE 2 – INVESTMENT SECURITIES

The amortized costs, gross unrealized gains and losses, and estimated fair values of securities available for sale as of March 31, 2022 and December 31, 2021 are summarized as follows:

March 31, 2022

    

Gross

    

Gross

    

Gross

    

Estimated

Amortized

Unrealized

Unrealized

Fair

(Dollars in thousands)

Cost

Gains

Losses

Value

Obligations of U.S. Government entities and agencies

$

6,729

$

$

$

6,729

States and political subdivisions

 

8,157

 

3

 

(590)

 

7,570

Mortgage-backed GSE residential

 

10,431

 

(844)

 

9,587

Total

$

25,317

$

3

$

(1,434)

$

23,886

December 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

$

6,949

$

$

$

6,949

States and political subdivisions

 

8,169

 

203

 

(11)

 

8,361

Mortgage-backed GSE residential

 

10,562

 

11

 

(150)

 

10,423

Total

$

25,680

$

214

$

(161)

$

25,733

11

The amortized costs and estimated fair values of investment securities available for sale at March 31, 2022 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

$

5,961

$

5,961

Due after one year but less than five years

 

2,010

 

2,012

Due after five years but less than ten years

 

1,175

 

1,082

Due in more than ten years

 

5,740

 

5,244

Mortgage-backed GSE residential

 

10,431

 

9,587

Total

$

25,317

$

23,886

There were no securities pledged as of March 31, 2022 and December 31, 2021 to secure public deposits and repurchase agreements. There were no securities sold during the three months ended March 31, 2022 and 2021.

Information pertaining to securities with gross unrealized losses at March 31, 2022 and December 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.

March 31, 2022

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

$

590

$

6,589

$

$

Mortgage-backed GSE residential

844

9,587

Total

$

1,434

$

16,176

$

$

December 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

$

11

$

2,201

$

$

Mortgage-backed GSE residential

150

9,530

Total

$

161

$

11,731

$

$

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, 2022, the eighteen securities available for sale with an unrealized loss have depreciated 8.15% 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 loss on nine investments in state and political subdivision bonds relate 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 these investments. Because the Company does not plan to sell these investments, and because it is not more likely than not that the Company will be required to sell these 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, 2022.

12

Mortgage-backed GSE residential. The Company’s unrealized loss on nine investments in residential GSE mortgage-backed securities was caused by interest rate increases. The contractual cash flows of the investment are guaranteed by an agency of the U.S. Government. Accordingly, it is expected that the security would not be settled at a price less than the amortized cost base of the Company’s investment. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company has no immediate plans to sell the investment, and because it is not more likely than not that the Company will be required to sell the investment before recovery of their amortized cost base, which may be maturity, management does not consider this investment to be other-than-temporarily impaired at March 31, 2022.

Equity Securities

As of March 31, 2022 and December 31, 2021, the Company had equity securities with carrying values totaling $11.0 and $11.4 million, respectively. The equity securities consist of our investment in a market-rate bond mutual fund that invests in high quality fixed income bonds, mainly government agency securities whose proceeds are designed to positively impact community development throughout the United States. The mutual fund focuses exclusively on providing affordable housing to low- and moderate-income borrowers and renters, including those in Majority Minority Census Tracts.

During the three months ended March 31, 2022, we recognized an unrealized loss of $362,000 in net income on our equity securities. The unrealized loss is recorded in Other Expenses on the Consolidated Statements of Income. No unrealized gains or losses on equity securities were recognized in net income during the three months ended March 31, 2021.

NOTE 3 – LOANS AND ALLOWANCE FOR LOAN LOSSES

Major classifications of loans at March 31, 2022 and December 31, 2021 are summarized as follows:

    

March 31,

    

December 31, 

(Dollars in thousands)

 

2022

 

2021

Construction and development

$

38,683

$

38,857

Commercial real estate

 

567,031

 

520,488

Commercial and industrial

 

66,073

 

73,072

Residential real estate

 

1,846,434

 

1,879,012

Consumer and other

 

130

 

79

  Total loans receivable

 

2,518,351

 

2,511,508

Unearned income

 

(6,051)

 

(6,438)

Allowance for loan losses

 

(16,674)

 

(16,952)

  Loans, net

$

2,495,626

$

2,488,118

Included in the commercial and industrial loans are PPP loans totaling $19.8 million and $31.0 million as of March 31, 2022 and December 31 2021, 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.

13

A summary of changes in the allowance for loan losses by portfolio segment for the three months ended March 31, 2022 and 2021 is as follows:

 

Three Months Ended March 31, 2022

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

$

100

$

4,146

$

4,989

$

7,717

$

$

$

16,952

Charge-offs

 

 

 

(390)

 

 

 

 

(390)

Recoveries

 

 

2

 

1

 

 

5

 

 

8

Provision

 

(7)

 

146

 

(159)

 

(93)

 

 

217

 

104

Ending balance

$

93

$

4,294

$

4,441

$

7,624

$

5

$

217

$

16,674