Peoples Bancorp Of North Carolina Inc 10-Q for FY2021 Q3

Peoples Bancorp Of North Carolina Inc (PEBK)

10-Q 2021-11-04 For: 2021-09-30

Added on April 12, 2026

About this 10-Q

Peoples Bancorp Of North Carolina Inc filed this 10-Q on November 4, 2021, covering the quarter ended September 30, 2021 (FY2021 Q3).

Headline figures

Quarter ended September 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.

Net income: $3.39M; down 24.8% from net income of $4.51M a year earlier
Diluted EPS: $0.59; down 24.4% from $0.78 a year earlier

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North Carolina		56-2132396
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

518 West C Street, Newton, North Carolina		28658
(Address of principal executive offices)		(Zip Code)

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

		PAGE(S)

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Consolidated Balance Sheets at September 30, 2021 (Unaudited) and December 31, 2020 (Audited)	3

	Consolidated Statements of Earnings for the three and nine months ended September 30, 2021 and 2020 (Unaudited)	4

	Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2021 and 2020 (Unaudited)	5

	Consolidated Statements of Changes in Shareholders’ Equity for the three and nine months ended September 30, 2021 and 2020 (Unaudited)	6

	Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2021 and 2020 (Unaudited)	7-8

	Notes to Consolidated Financial Statements (Unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45

Item 4.	Controls and Procedures	45

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	46

Item 1A.	Risk Factors	46

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46

Item 3.	Defaults upon Senior Securities	46

Item 5.	Other Information	46

Item 6.	Exhibits	47

Signatures		49

Certifications

PEOPLES BANCORP OF NORTH CAROLINA, INC.

Consolidated Balance Sheets

September 30, 2021 and December 31, 2020

(Dollars in thousands)
	September 30,			December 31,
Assets	2021			2020
	(Unaudited)			(Audited)

Cash and due from banks, including reserve requirements of $0 at both September 30, 2021 and December 31, 2020	$	42,098			42,737
Interest-bearing deposits		221,210			118,843
Cash and cash equivalents		263,308			161,580

Investment securities available for sale		402,905			245,249
Other investments		3,725			4,155
Total securities		406,630			249,404

Mortgage loans held for sale		9,086			9,139

Loans		891,005			948,639
Less allowance for loan losses		(8,963	)		(9,908	)
Net loans		882,042			938,731

Premises and equipment, net		16,625			18,600
Cash surrender value of life insurance		17,265			16,968
Other real estate		-			128
Right of use lease asset		2,861			3,423
Accrued interest receivable and other assets		18,434			18,202
Total assets	$	1,616,251			1,416,175

Liabilities and Shareholders' Equity

Deposits:
Noninterest-bearing demand	$	529,118			456,980
Interest-bearing demand, MMDA & savings		777,721			657,834
Time, $250,000 or more		26,357			25,771
Other time		76,769			80,501
Total deposits		1,409,965			1,221,086

Securities sold under agreements to repurchase		32,332			26,201
Junior subordinated debentures		15,464			15,464
Lease liability		2,922			3,471
Accrued interest payable and other liabilities		12,026			10,054
Total liabilities		1,472,709			1,276,276

Commitments

Shareholders' equity:
Preferred stock, no par value; authorized
5,000,000 shares; no shares issued and outstanding		-			-
Common stock, no par value; authorized
20,000,000 shares; issued and outstanding 5,661,569 shares
at September 30, 2021 and 5,787,504 shares at December 31, 2020		53,305			56,871
Common stock held by deferred compensation trust, at cost; 160,611
shares at September 30, 2021 and 155,469 shares at December 31, 2020		(1,946	)		(1,796	)
Deferred compensation		1,946			1,796
Retained earnings		86,927			77,628
Accumulated other comprehensive income		3,310			5,400
Total shareholders' equity		143,542			139,899

Total liabilities and shareholders' equity	$	1,616,251			1,416,175

PEOPLES BANCORP OF NORTH CAROLINA, INC.

Consolidated Statements of Earnings

Three and Nine Months Ended September 30, 2021 and 2020

(Dollars in thousands, except per share amounts)

	Three months ended						Nine months ended
	September 30,						September 30,
	2021			2020			2021			2020
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)

Interest income:
Interest and fees on loans	$	9,807			10,507			31,474			31,367
Interest on due from banks		89			19			172			103
Interest on federal funds sold		-			33			-			178
Interest on investment securities:
U.S. Government sponsored enterprises		679			528			1,899			1,864
State and political subdivisions		825			717			2,222			2,042
Other		21			64			93			202
Total interest income		11,421			11,868			35,860			35,756

Interest expense:
Interest-bearing demand, MMDA & savings		577			482			1,617			1,455
Time deposits		181			224			584			725
FHLB borrowings		-			103			-			269
Junior subordinated debentures		69			76			211			296
Other		34			57			106			150
Total interest expense		861			942			2,518			2,895

Net interest income		10,560			10,926			33,342			32,861

Provision for (recovery of) loan losses		(182	)		522			(863	)		3,460

Net interest income after provision for loan losses		10,742			10,404			34,205			29,401

Non-interest income:
Service charges		1,023			809			2,859			2,635
Other service charges and fees		187			188			570			543
Gain on sale of investment securities		-			1,688			-			2,145
Mortgage banking income		516			750			2,109			1,635
Insurance and brokerage commissions		266			200			764			647
Appraisal management fee income		1,954			1,871			5,775			4,955
Gain on sale of other assets		104			-			104			-
Gain (loss) on sale of other real estate		-			(47	)		21			(47	)
Miscellaneous		1,990			1,673			5,855			4,453
Total non-interest income		6,040			7,132			17,953			16,966

Non-interest expense:
Salaries and employee benefits		6,054			5,737			17,903			16,996
Occupancy		1,999			1,943			5,891			5,725
Professional fees		582			374			1,354			1,121
Advertising		91			152			388			566
Debit card expense		244			278			740			766
FDIC Insurance		108			81			304			169
Appraisal management fee expense		1,556			1,478			4,646			3,845
Other		1,934			1,871			5,742			5,627
Total non-interest expense		12,568			11,914			36,968			34,815

Earnings before income taxes		4,214			5,622			15,190			11,552

Income tax expense		824			1,113			3,064			2,115

Net earnings	$	3,390			4,509			12,126			9,437

Basic net earnings per share	$	0.61			0.80			2.16			1.67
Diluted net earnings per share	$	0.59			0.78			2.10			1.62
Cash dividends declared per share	$	0.17			0.15			0.49			0.60

Title of each class	Trading Symbol(s)	Name on each exchange on which registered

PEOPLES BANCORP OF NORTH CAROLINA, INC.

Consolidated Statements of Comprehensive Income

Three and Nine Months Ended September 30, 2021 and 2020

(Dollars in thousands)

	Three months ended						Nine months ended
	September 30,						September 30,
	2021			2020			2021			2020
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)

Net earnings	$	3,390			4,509			12,126			9,437

Other comprehensive income (loss):
Unrealized holding gains (losses) on securities available for sale		(844	)		93			(2,714	)		5,204
Reclassification adjustment for gains on securities available for sale included in net earnings		-			(1,688	)		-			(2,145	)
Total other comprehensive income (loss), before income taxes		(844	)		(1,595	)		(2,714	)		3,059

Income tax expense (benefit) related to other
comprehensive income:

Unrealized holding gains (losses) on securities available for sale		(194	)		21			(624	)		1,196
Reclassification adjustment for gains on securities available for sale included in net earnings		-			(388	)		-			(493	)

Total income tax expense (benefit) related to other comprehensive income		(194	)		(367	)		(624	)		703

Total other comprehensive income (loss), net of tax		(650	)		(1,228	)		(2,090	)		2,356

Total comprehensive income	$	2,740			3,281			10,036			11,793

PEOPLES BANCORP OF NORTH CAROLINA, INC.

Consolidated Statements of Changes in Shareholders' Equity

Three and Nine Months Ended September 30, 2021 and 2020

(Dollars in thousands)
												Common Stock
												Held By			Accumulated
												Deferred			Other
	Common Stock						Retained			Deferred		Compensation			Comprehensive
	Shares			Amount			Earnings			Compensation		Trust			Income			Total
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)		(Unaudited)			(Unaudited)			(Unaudited)

Balance, December 31, 2020		5,787,504		$	56,871			77,628			1,796		(1,796	)		5,400			139,899

Cash dividends declared on common stock		-			-			(930	)		-		-			-			(930	)
Restricted stock units exercised		1,662			39			-			-		-			-			39
Equity incentive plan, net		-			-			-			53		(53	)		-			-
Net earnings		-			-			4,121			-		-			-			4,121
Change in accumulated other comprehensive loss, net of tax		-			-			-			-		-			(3,100	)		(3,100	)
Balance, March 31, 2021		5,789,166		$	56,910			80,819			1,849		(1,849	)		2,300			140,029

Cash dividends declared on common stock		-			-			(930	)		-		-			-			(930	)
Equity incentive plan, net		-			-			-			52		(52	)		-			-
Net earnings		-			-			4,615			-		-			-			4,615
Change in accumulated other comprehensive income, net of tax		-			-			-			-		-			1,660			1,660
Balance, June 30, 2021		5,789,166		$	56,910			84,504			1,901		(1,901	)		3,960			145,374

Common stock repurchase		(127,597	)		(3,605	)		-			-		-			-			(3,605	)
Cash dividends declared on common stock		-			-			(967	)		-		-			-			(967	)
Equity incentive plan, net		-			-			-			45		(45	)		-			-
Net earnings		-			-			3,390			-		-			-			3,390
Change in accumulated other comprehensive loss, net of tax		-			-			-			-		-			(650	)		(650	)
Balance, September 30, 2021		5,661,569		$	53,305			86,927			1,946		(1,946	)		3,310			143,542

Balance, December 31, 2019		5,912,300		$	59,813			70,663			1,588		(1,588	)		3,644			134,120

Common stock repurchase		(126,800	)		(2,999	)		-			-		-			-			(2,999	)
Cash dividends declared on common stock		-			-			(1,779	)		-		-			-			(1,779	)
Restricted stock units exercised		2,004			57			-			-		-			-			57
Equity incentive plan, net		-			-			-			64		(64	)		-			-
Net earnings		-			-			2,367			-		-			-			2,367
Change in accumulated other comprehensive income, net of tax		-			-			-			-		-			2,090			2,090
Balance, March 31, 2020		5,787,504		$	56,871			71,251			1,652		(1,652	)		5,734			133,856


Cash dividends declared on common stock		-			-			(870	)		-		-			-			(870	)
Equity incentive plan, net		-			-			-			48		(48	)		-			-
Net earnings		-			-			2,561			-		-			-			2,561
Change in accumulated other comprehensive income, net of tax		-			-			-			-		-			1,494			1,494
Balance, June 30, 2020		5,787,504		$	56,871			72,942			1,700		(1,700	)		7,228			137,041

Cash dividends declared on common stock		-			-			(871	)		-		-			-			(871	)
Equity incentive plan, net		-			-			-			47		(47	)		-			-
Net earnings		-			-			4,509			-		-			-			4,509
Change in accumulated other comprehensive loss, net of tax		-			-			-			-		-			(1,228	)		(1,228	)
Balance, September 30, 2020		5,787,504		$	56,871			76,580			1,747		(1,747	)		6,000			139,451

PEOPLES BANCORP OF NORTH CAROLINA, INC.

Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2021 and 2020

(Dollars in thousands)

	2021			2020
	(Unaudited)			(Unaudited)

Cash flows from operating activities:
Net earnings	$	12,126			9,437
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation, amortization and accretion		3,991			3,080
Provision for (recovery of) loan losses		(863	)		3,460
Deferred income taxes		(27	)		(25	)
Gain on sale of investment securities		-			(2,145	)
Gain on sale of other real estate		(21	)		-
Write-down of other real estate		-			47
Gain on sale of other assets		(104	)		-
Restricted stock expense		(166	)		(73	)
Proceeds from sales of mortgage loans held for sale		76,086			78,526
Origination of mortgage loans held for sale		(76,033	)		(83,069	)
Change in:
Cash surrender value of life insurance		(297	)		(283	)
Right of use lease asset		562			525
Other assets		416			(219	)
Lease liability		(549	)		(508	)
Other liabilities		2,138			(677	)

Net cash provided by operating activities		17,259			8,076

Cash flows from investing activities:
Purchases of investment securities available for sale		(186,793	)		(90,233	)
Proceeds from sales, calls and maturities of investment securities available for sale		6,010			52,289
Proceeds from paydowns of investment securities available for sale		18,335			14,635
Proceeds from paydowns on other investments		132			132
Redemptions (purchases) of FHLB stock		331			(3,031	)
Net change in loans		57,552			(120,781	)
Purchases of premises and equipment		(379	)		(2,298	)
Purchases of bank owned life insurance		-			(140	)
Proceeds from sale of other assets		515			-
Proceeds from sale of other real estate and repossessions		149			-

Net cash used by investing activities		(104,148	)		(149,427	)

Cash flows from financing activities:
Net change in deposits		188,879			219,879
Net change in securities sold under agreement to repurchase		6,131			9,930
Proceeds from FHLB borrowings		-			70,000
Repayment of Junior Subordinated Debt		-			(155	)
Proceeds from Fed Funds purchased		-			(6,935	)
Repayments of Fed Funds purchased		-			6,935
Restricted stock units exercised		39			57
Common stock repurchased		(3,605	)		(2,999	)
Cash dividends paid on common stock		(2,827	)		(3,520	)

Net cash provided by financing activities		188,617			293,192

Net change in cash and cash equivalents		101,728			151,841

Cash and cash equivalents at beginning of period		161,580			52,387

Cash and cash equivalents at end of period	$	263,308			204,228

PEOPLES BANCORP OF NORTH CAROLINA, INC.

Consolidated Statements of Cash Flows, continued

Nine Months Ended September 30, 2021 and 2020

(Dollars in thousands)

	2021			2020
	(Unaudited)			(Unaudited)

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	1,658			1,908
Income taxes	$	3,221			1,651

Noncash investing and financing activities:
Change in unrealized gain on investment securities available for sale, net	$	(2,090	)		2,356
Issuance of accrued restricted stock units	$	39			57
Transfers of loans to other real estate and repossessions	$	-			175
Transfers of premises and equipment to other assets held for sale	$	408			-

ASU	Description	Effective Date	Effect on Financial Statements or Other Significant Matters
ASU 2019-07: Codification Updates to SEC Sections	Guidance updated for various Topics of the ASC to align the guidance in various SEC sections of the ASC with the requirements of certain SEC final rules.	Effective upon issuance	The adoption of this guidance did not have a material impact on the Company’s results of operations, financial position or disclosures.
ASU 2018-13: Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820)	Updates the disclosure requirements on fair value measurements in ASC 820, Fair Value Measurement.	January 1, 2020	The adoption of this guidance did not have a material impact on the Company’s results of operations, financial position or disclosures.
ASU 2018-18: Clarifying the Interaction between Topic 808 and Topic 606	Clarifies the interaction between the guidance for certain collaborative arrangements and the new revenue recognition financial accounting and reporting standard.	January 1, 2020	The adoption of this guidance did not have a material impact on the Company’s results of operations, financial position or disclosures.
ASU 2018-19: Leases (Topic 842): Codification Improvements	Provides guidance to address concerns companies had raised about an accounting exception they would lose when assessing the fair value of underlying assets under the leases standard and clarify that lessees and lessors are exempt from a certain interim disclosure requirement associated with adopting the new standard.	January 1, 2020	The adoption of this guidance did not have a material impact on the Company’s results of operations, financial position or disclosures.
ASU 2018-14: Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans (Subtopic 715-20)	Updates disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans.	January 1, 2021	The adoption of this guidance did not have a material impact on the Company’s results of operations, financial position or disclosures.
ASU 2019-12: Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes	Guidance to simplify accounting for income taxes by removing specific technical exceptions that often produce information investors have a hard time understanding. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance.	January 1, 2021	The adoption of this guidance did not have a material impact on the Company’s results of operations, financial position or disclosures.

	The following table provides a summary of ASU’s issued by the FASB that the Company has not adopted as of September 30, 2021, which may impact the Company’s financial statements.

	Recently Issued Accounting Guidance Not Yet Adopted

(2)	Investment Securities

	Investment securities available for sale at September 30, 2021 and December 31, 2020 are as follows:

(Dollars in thousands)
	September 30, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S Treasuries	$	7,963		39		12		7,990
U.S. Government
sponsored enterprises		14,566		289		178		14,677
Mortgage-backed securities		222,526		2,427		1,648		223,305
State and political subdivisions		153,551		4,327		945		156,933
Total	$	398,606		7,082		2,783		402,905

(Dollars in thousands)
	December 31, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Government
sponsored enterprises	$	7,384		331		208		7,507
Mortgage-backed securities		143,095		2,812		593		145,314
State and political subdivisions		87,757		4,758		87		92,428
Total	$	238,236		7,901		888		245,249

(Dollars in thousands)
	September 30, 2021
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Treasuries	$	4,994		12		-		-		4,994		12
U.S. Government
sponsored enterprises		5,386		5		3,442		173		8,828		178
Mortgage-backed securities		114,889		1,505		5,897		143		120,786		1,648
State and political subdivisions		37,729		800		3,757		145		41,486		945
Total	$	162,998		2,322		13,096		461		176,094		2,783

(3)	Loans

	Major classifications of loans at September 30, 2021 and December 31, 2020 are summarized as follows:

(Dollars in thousands)
	September 30, 2021			December 31, 2020
Real estate loans:
Construction and land development	$	80,009			94,124
Single-family residential		258,403			272,325
Single-family residential -
Banco de la Gente non-traditional		24,043			26,883
Commercial		363,174			332,971
Multifamily and farmland		58,856			48,880
Total real estate loans		784,485			775,183

Loans not secured by real estate:
Commercial loans		94,376			161,740
Farm loans		633			855
Consumer loans		6,321			7,113
All other loans		5,190			3,748

Total loans		891,005			948,639

Less allowance for loan losses		(8,963	)		(9,908	)

Total net loans	$	882,042			938,731

	The Bank grants loans and extensions of credit primarily within the Catawba Valley region of North Carolina, which encompasses Catawba, Alexander, Iredell and Lincoln counties, and also in Mecklenburg, Wake, Durham and Rowan counties of North Carolina. Although the Bank has a diversified loan portfolio, a substantial portion of the loan portfolio is collateralized by improved and unimproved real estate, the value of which is dependent upon the real estate market. Risk characteristics of the major components of the Bank’s loan portfolio are discussed below:

	·	Construction and land development loans – The risk of loss is largely dependent on the initial estimate of whether the property’s value at completion equals or exceeds the cost of property construction and the availability of take-out financing. During the construction phase, a number of factors can result in delays or cost overruns. If the estimate is inaccurate or if actual construction costs exceed estimates, the value of the property securing the loan may be insufficient to ensure full repayment when completed through a permanent loan, sale of the property, or by seizure of collateral. As of September 30, 2021, construction and land development loans comprised approximately9% of the Bank’s total loan portfolio.

	·	Single-family residential loans – Declining home sales volumes, decreased real estate values and higher than normal levels of unemployment could contribute to losses on these loans. As of September 30, 2021, single-family residential loans comprised approximately 32% of the Bank’s total loan portfolio, and include Banco’s non-traditional single-family residential loans, which were approximately 3% of the Bank’s total loan portfolio.

	·	Commercial real estate loans – Repayment is dependent on income being generated in amounts sufficient to cover operating expenses and debt service. These loans also involve greater risk because they are generally not fully amortizing over a loan period, but rather have a balloon payment due at maturity. A borrower’s ability to make a balloon payment typically will depend on being able to either refinance the loan or timely sell the underlying property. As of September 30, 2021, commercial real estate loans comprised approximately 41% of the Bank’s total loan portfolio.

	·	Commercial loans – Repayment is generally dependent upon the successful operation of the borrower’s business. In addition, the collateral securing the loans may depreciate over time, be difficult to appraise, be illiquid or fluctuate in value based on the success of the business. As of September 30, 2021, commercial loans comprised approximately 11% of the Bank’s total loan portfolio, including $25.6 million in Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) loans. The Company had $75.8 million in PPP loans at December 31, 2020.

	Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on non-accrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Loans may be placed on non-accrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all of the principal and interest amounts contractually due are brought current and future payments are reasonably assured. The following tables present an age analysis of past due loans, by loan type, as of September 30, 2021 and December 31, 2020:

September 30, 2021
(Dollars in thousands)
	Loans 30-89 Days Past Due		Loans 90 or More Days Past Due		Total Past Due Loans		Total Current Loans		Total Loans		Accruing Loans 90 or More Days Past Due
Real estate loans:
Construction and land development	$	6		-		6		80,003		80,009		-
Single-family residential		850		230		1,080		257,323		258,403		-
Single-family residential -
Banco de la Gente non-traditional		450		39		489		23,554		24,043		-
Commercial		28		37		65		363,109		363,174		-
Multifamily and farmland		-		-		-		58,856		58,856		-
Total real estate loans		1,334		306		1,640		782,845		784,485		-

Loans not secured by real estate:
Commercial loans		176		-		176		94,200		94,376		-
Farm loans		-		-		-		633		633		-
Consumer loans		66		1		67		6,254		6,321		-
All other loans		8		-		8		5,182		5,190		-
Total loans	$	1,584		307		1,891		889,114		891,005		-

September 30, 2021
(Dollars in thousands)

	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Recorded Investment in Impaired Loans		Related Allowance
Real estate loans:
Construction and land development	$	75		-		75		75		3
Single-family residential		4,506		275		4,021		4,296		80
Single-family residential -
Banco de la Gente non-traditional		12,269		-		11,383		11,383		724
Commercial		2,229		439		1,692		2,131		12
Multifamily and farmland		115		-		109		109		-
Total impaired real estate loans		19,194		714		17,280		17,994		819

Loans not secured by real estate:
Commercial loans		299		54		183		237		3
Consumer loans		12		-		8		8		-
Total impaired loans	$	19,505		768		17,471		18,239		822

December 31, 2020
(Dollars in thousands)

	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Recorded Investment in Impaired Loans		Related Allowance		Average Outstanding Impaired Loans		Interest Income Recognized
Real estate loans:
Construction and land development	$	108		-		108		108		4		134		8
Single-family residential		5,302		379		4,466		4,845		33		4,741		262
Single-family residential -
Banco de la Gente non-traditional		13,417		-		12,753		12,753		862		13,380		798
Commercial		2,999		1,082		1,891		2,973		14		2,940		139
Multifamily and farmland		119		-		117		117		-		29		6
Total impaired real estate loans		21,945		1,461		19,335		20,796		913		21,224		1,213

Loans not secured by real estate:
Commercial loans		515		211		244		455		5		564		32
Consumer loans		41		-		37		37		1		60		5
Total impaired loans	$	22,501		1,672		19,616		21,288		919		21,848		1,250

(Dollars in thousands)
	Real Estate Loans
	Construction and Land Development			Single-Family Residential			Single-Family Residential - Banco de la Gente Non-traditional			Commercial		Multifamily and Farmland			Commercial			Farm		Consumer and All Other			Unallocated			Total
Nine months ended September 30, 2021:
Allowance for loan losses:
Beginning balance	$	1,196			1,843			1,052			2,212		122			1,345			-		128			2,010			9,908
Charge-offs		-			-			-			-		-			(293	)		-		(249	)		-			(542	)
Recoveries		121			165			-			50		3			7			-		114			-			460
Provision		(421	)		(306	)		(162	)		46		22			(153	)		-		98			13			(863	)
Ending balance	$	896			1,702			890			2,308		147			906			-		91			2,023			8,963

Three months ended September 30, 2021:
Allowance for loan losses:
Beginning balance	$	1,038			1,723			980			2,180		148			996			-		89			2,133			9,287
Charge-offs		-			-			-			-		-			(215	)		-		(91	)		-			(306	)
Recoveries		31			86			-			2		4			1			-		40			-			164
Provision		(173	)		(107	)		(90	)		126		(5	)		124			-		53			(110	)		(182	)
Ending balance	$	896			1,702			890			2,308		147			906			-		91			2,023			8,963

Allowance for loan losses at September 30, 2021:
Ending balance: individually
evaluated for impairment	$	1			58			710			7		-			-			-		-			-			776
Ending balance: collectively
evaluated for impairment		895			1,644			180			2,301		147			906			-		91			2,023			8,187
Ending balance	$	896			1,702			890			2,308		147			906			-		91			2,023			8,963

Loans at September 30, 2021:
Ending balance	$	80,009			258,403			24,043			363,174		58,856			94,376			633		11,511			-			891,005

Ending balance: individually
evaluated for impairment	$	6			1,398			10,236			1,450		-			54			-		-			-			13,144
Ending balance: collectively
evaluated for impairment	$	80,003			257,005			13,807			361,724		58,856			94,322			633		11,511			-			877,861

	The Company utilizes an internal risk grading matrix to assign a risk grade to each of its loans. Loans are graded on a scale of 1 to 8. These risk grades are evaluated on an ongoing basis. A description of the general characteristics of the eight risk grades is as follows:

	·	Risk Grade 1 – Excellent Quality: Loans are well above average quality and a minimal amount of credit risk exists. Certificates of deposit or cash secured loans or properly margined actively traded stock or bond secured loans would fall in this grade.
	·	Risk Grade 2 – High Quality: Loans are of good quality with risk levels well within the Company’s range of acceptability. The organization or individual is established with a history of successful performance though somewhat susceptible to economic changes.
	·	Risk Grade 3 – Good Quality: Loans of average quality with risk levels within the Company’s range of acceptability but higher than normal. This may be a new organization or an existing organization in a transitional phase (e.g. expansion, acquisition, market change).
	·	Risk Grade 4 – Management Attention: These loans have higher risk and servicing needs but still are acceptable. Evidence of marginal performance or deteriorating trends is observed. These are not problem credits presently, but may be in the future if the borrower is unable to change its present course.
	·	Risk Grade 5 – Watch: These loans are currently performing satisfactorily, but there has been some recent past due history on repayment and there are potential weaknesses that may, if not corrected, weaken the asset or inadequately protect the Company’s position at some future date.
	·	Risk Grade 6 – Substandard: A Substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or the collateral pledged (if there is any). There is a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. There is a distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
	·	Risk Grade 7 – Doubtful: Loans classified as Doubtful have all the weaknesses inherent in loans classified as Substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable. Doubtful is a temporary grade where a loss is expected but is presently not quantified with any degree of accuracy. Once the loss position is determined, the amount is charged off.
	·	Risk Grade 8 – Loss: Loans classified as Loss are considered uncollectable and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this worthless loan even though partial recovery may be realized in the future. Loss is a temporary grade until the appropriate authority is obtained to charge the loan off.

	The following tables present the credit risk profile of each loan type based on internally assigned risk grades as of September 30, 2021 and December 31, 2020:

For the three months ended September 30, 2021
	Net Earnings (Dollars in thousands)		Weighted Average Number of Shares		Per Share Amount
Basic earnings per share	$	3,390		5,544,596	$	0.61
Effect of dilutive securities:
Restricted stock units		-		14,690
Shares held in deferred comp plan				159,797
Diluted earnings per share	$	3,390		5,719,083	$	0.59

For the nine months ended September 30, 2021
	Net Earnings (Dollars in thousands)		Weighted Average Number of Shares		Per Share Amount
Basic earnings per share	$	12,126		5,601,879	$	2.16
Effect of dilutive securities:
Restricted stock units		-		13,190
Shares held in deferred comp plan				158,039
Diluted earnings per share	$	12,126		5,773,108	$	2.10

(5)	Stock-Based Compensation
	The Company has an Omnibus Stock Ownership and Long Term Incentive Plan that was approved by shareholders on May 7, 2009 (the “2009 Plan”) whereby certain stock-based rights, such as stock options, restricted stock, restricted stock units, performance units, stock appreciation rights or book value shares, may be granted to eligible directors and employees. The 2009 Plan expired on May 7, 2019 but still governs the rights and obligations of the parties for grants made thereunder. As of September 30, 2021, there were no outstanding shares reserved for possible issuance under the 2009 Plan. The Company granted 16,583 restricted stock units under the 2009 Plan at a grant date fair value of $16.34 per share during the first quarter of 2015. The Company granted 5,544 restricted stock units under the 2009 Plan at a grant date fair value of $16.91 per share during the first quarter of 2016. The Company granted 4,114 restricted stock units under the 2009 Plan at a grant date fair value of $25.00 per share during the first quarter of 2017. The Company granted 3,725 restricted stock units under the 2009 Plan at a grant date fair value of $31.43 per share during the first quarter of 2018. The Company granted 5,290 restricted stock units under the 2009 Plan at a grant date fair value of $28.43 per share during the first quarter of 2019. The number of restricted stock units granted and grant date fair values for the restricted stock units granted in 2015 through 2017 have been restated to reflect the 10% stock dividend that was paid in the fourth quarter of 2017. The Company recognizes compensation expense on the restricted stock units over the period of time the restrictions are in place (four years from the grant date for the 2015, 2016, 2017, 2018 and 2019 grants). The amount of expense recorded each period reflects the changes in the Company’s stock price during such period. As of September 30, 2021, the total unrecognized compensation expense related to the restricted stock unit grants under the 2009 Plan was $57,000. The Company also has an Omnibus Stock Ownership and Long Term Incentive Plan that was approved by shareholders on May 7, 2020 (the “2020 Plan”) whereby certain stock-based rights, such as stock options, restricted stock, restricted stock units, performance units, stock appreciation rights or book value shares, may be granted to eligible directors and employees. A total of 300,000 shares were reserved for possible issuance under the 2020 Plan when it was adopted. As of September 30, 2021, a total of 285,075 shares out of the initial 300,000 shares reserved remain available for future issuance under the 2020 Plan. All stock-based rights under the 2020 Plan must be granted or awarded by May 7, 2030 (or ten years from the 2020 Plan effective date). The Company granted 7,635 restricted stock units under the 2020 Plan at a grant date fair value of $17.08 per share during the second quarter of 2020. The Company granted 7,290 restricted stock units under the 2020 Plan at a grant date fair value of $22.04 per share during the first quarter of 2021. The Company recognizes compensation expense on the restricted stock units over the period of time the restrictions are in place (four years from the grant date for 2020 and 2021 grants). As of September 30, 2021, the total unrecognized compensation expense related to the restricted stock unit grants under the 2020 Plan was $312,000.

	The Company recognized compensation expense for restricted stock unit awards granted under the 2009 Plan and 2020 Plan of $166,000 for the nine months ended September 30, 2021. The Company recognized a $73,000 credit to compensation expense for restricted stock unit awards granted under the 2009 Plan and 2020 Plan for the nine months ended September 30, 2020 due to a reduction in the Company’s stock price from $32.85 per share at December 31, 2019, compared to $15.43 per share at September 30, 2020.

	·	Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets.
	·	Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
	·	Level 3 – Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

		Cash and Cash Equivalents For cash, due from banks and interest-bearing deposits, the carrying amount is a reasonable estimate of fair value. Cash and cash equivalents are reported in the Level 1 fair value category. Investment Securities Available for Sale Fair values of investment securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges when available. If quoted prices are not available, fair value is determined using matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. Fair values for investment securities with quoted market prices are reported in the Level 1 fair value category. Fair value measurements obtained from independent pricing services are reported in the Level 2 fair value category. All other fair value measurements are reported in the Level 3 fair value category. Other Investments For other investments, the carrying value is a reasonable estimate of fair value. Other investments are reported in the Level 3 fair value category. Mortgage Loans Held for Sale Mortgage loans held for sale are carried at the lower of aggregate cost or market value. The cost of mortgage loans held for sale approximates the market value. Mortgage loans held for sale are reported in the Level 3 fair value category. Loans In accordance with ASU No. 2016-01, the fair value of loans, excluding previously presented impaired loans measured at fair value on a non-recurring basis, is estimated using discounted cash flow analyses. The discount rates used to determine fair value use interest rate spreads that reflect factors such as liquidity, credit, and nonperformance risk of the loans. Loans are reported in the Level 3 fair value category, as the pricing of loans is more subjective than the pricing of other financial instruments.

(Dollars in thousands)
	September 30, 2021
	Fair Value Measurements		Level 1 Valuation		Level 2 Valuation		Level 3 Valuation
U. S Treasuries	$	7,990		-	$	7,990		-
U.S. Government
sponsored enterprises		14,677		-		14,677		-
Mortgage-backed securities		223,305		-		223,305		-
State and political subdivisions		156,933		-		156,933		-

(Dollars in thousands)
	Fair Value Measurements September 30, 2021		Level 1 Valuation		Level 2 Valuation		Level 3 Valuation
Mortgage loans held for sale	$	9,086		-		-		9,086
Impaired loans		17,417		-		-		17,417

(Dollars in thousands)
	Fair Value Measurements December 31, 2020		Level 1 Valuation		Level 2 Valuation		Level 3 Valuation
Mortgage loans held for sale	$	9,139		-		-		9,139
Impaired loans		20,369		-		-		20,369
Other real estate		128		-		-		128

(Dollars in thousands)
	Fair Value September 30, 2021		Fair Value December 31, 2020		Valuation Technique	Significant Unobservable Inputs		General Range of Significant Unobservable Input Values
Mortgage loans held for sale	$	9,086		9,139	Rate lock commitment		N/A		N/A
Impaired loans		17,417		20,369	Appraised value and discounted cash flows	Discounts to reflect current market conditions and ultimate collectability			0-25	%
Other real estate		-		128	Appraised value	Discounts to reflect current market conditions and estimated costs to sell			0-25	%

(Dollars in thousands)
			Fair Value Measurements at September 30, 2021
	Carrying Amount		Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	263,308		263,308		-		-		263,308
Investment securities available for sale		402,905		-		402,905		-		402,905
Other investments		3,725		-		-		3,725		3,725
Mortgage loans held for sale		9,086		-		-		9,086		9,086
Loans, net		882,042		-		-		862,462		862,462
Mutual funds held in deferred
compensation trust		1,514		-		1,514		-		1,514

Liabilities:
Deposits	$	1,409,965		-		-		1,407,770		1,407,770
Securities sold under agreements
to repurchase		32,332		-		32,332		-		32,332
Junior subordinated debentures		15,464		-		15,464		-		15,464

(Dollars in thousands)
			Fair Value Measurements at December 31, 2020
	Carrying Amount		Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	161,580		161,580		-		-		161,580
Investment securities available for sale		245,249		-		245,249		-		245,249
Other investments		4,155		-		-		4,155		4,155
Mortgage loans held for sale		9,139		-		-		9,139		9,139
Loans, net		938,731		-		-		924,845		924,845
Mutual funds held in deferred
compensation trust		1,320		-		1,320		-		1,320

Liabilities:
Deposits	$	1,221,086		-		-		1,216,503		1,216,503
Securities sold under agreements
to repurchase		26,201		-		26,201		-		26,201
Junior subordinated debentures		15,464		-		15,464		-		15,464