Peoples Bancorp Of North Carolina Inc 10-Q for FY2022 Q1

Peoples Bancorp Of North Carolina Inc (PEBK)

10-Q 2022-05-06 For: 2022-03-31

Added on April 12, 2026

About this 10-Q

Peoples Bancorp Of North Carolina Inc filed this 10-Q on May 6, 2022, covering the quarter ended March 31, 2022 (FY2022 Q1).

Headline figures

Quarter ended March 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.

Net income: $3.45M; down 16.2% from net income of $4.12M a year earlier
Diluted EPS: $0.61; down 14.1% from $0.71 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)
Item 1.	Financial Statements	4

	Consolidated Balance Sheets at March 31, 2022 (Unaudited) and December 31, 2021 (Audited)	4

	Consolidated Statements of Earnings for the three months ended March 31, 2022 and 2021 (Unaudited)	5

	Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2022 and 2021 (Unaudited)	6

	Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31, 2022 and 2021 (Unaudited)	7

	Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021 (Unaudited)	8-9

	Notes to Consolidated Financial Statements (Unaudited)	10-25

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26-38

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39

Item 4.	Controls and Procedures	39

Item 1.	Legal Proceedings	40

Item 1A.	Risk Factors	40

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40

Item 3.	Defaults upon Senior Securities	40

Item 5.	Other Information	40

Item 6.	Exhibits	41

Signatures		42

Certifications

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

	March 31,			December 31,
Assets	2022			2021
	(Unaudited)			(Audited)

Cash and due from banks, including reserve requirements
of $0 at both 3/31/22 and 12/31/21	$	47,462			44,711
Interest-bearing deposits		257,644			232,788
Cash and cash equivalents		305,106			277,499

Investment securities available for sale		408,037			406,549
Other investments		3,569			3,668
Total securities		411,606			410,217

Mortgage loans held for sale		885			3,637

Loans		889,758			884,869
Less allowance for loan losses		(9,426	)		(9,355	)
Net loans		880,332			875,514

Premises and equipment, net		15,658			16,104
Cash surrender value of life insurance		17,401			17,365
Right of use lease asset		6,204			4,612
Accrued interest receivable and other assets		25,467			19,245
Total assets	$	1,662,659			1,624,193

Liabilities and Shareholders' Equity

Deposits:
Noninterest-bearing demand	$	553,185			514,319
Interest-bearing demand, MMDA & savings		816,779			797,179
Time, $250,000 or more		25,516			26,333
Other time		73,255			74,917
Total deposits		1,468,735			1,412,748

Securities sold under agreements to repurchase		34,823			37,094
Junior subordinated debentures		15,464			15,464
Lease liability		6,275			4,677
Accrued interest payable and other liabilities		11,918			11,841
Total liabilities		1,537,215			1,481,824

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 5,656,030 shares
at March 31, 2022 and 5,661,569 shares at December 31, 2021		53,147			53,305
Common stock held by deferred compensation trust, at cost; 163,883
shares at March 31, 2022 and 162,193 shares at December 31, 2021		(2,042	)		(1,992	)
Deferred compensation		2,042			1,992
Retained earnings		90,543			88,968
Accumulated other comprehensive income (loss)		(18,246	)		96
Total shareholders' equity		125,444			142,369

Total liabilities and shareholders' equity	$	1,662,659			1,624,193

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

Balance, December 31, 2021		5,661,569		$	53,305			88,968			1,992		(1,992	)		96			142,369

Common stock repurchase		(7,000	)		(199	)		-			-		-			-			(199	)

Cash dividends declared on common stock		-			-			(1,877	)		-		-			-			(1,877	)
Restricted stock units exercised		1,461			41			-			-		-			-			41
Equity incentive plan, net		-			-			-			50		(50	)		-			-
Net earnings		-			-			3,452			-		-			-			3,452

Change in accumulated other comprehensive loss, net of tax		-			-			-			-		-			(18,342	)		(18,342	)
Balance, March 31, 2022		5,656,030		$	53,147			90,543			2,042		(2,042	)		(18,246	)		125,444

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

Common stock repurchase		-			-			-			-		-			-			-

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 income, 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

Recently Issued Accounting Guidance Not Yet Adopted
ASU	Description	Effective Date	Effect on Financial Statements or Other Significant Matters
ASU 2016-13: Measurement of Credit Losses on Financial Instruments	Provides guidance to change the accounting for credit losses and modify the impairment model for certain debt securities.	See ASU 2019-10 below.	The Company will apply this guidance through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. The Company is still evaluating the impact of this guidance on its consolidated financial statements. The Company has formed a Current Expected Credit Losses (“CECL”) committee and implemented a model from a third-party vendor for running CECL calculations. The Company is currently developing CECL model assumptions and comparing results to current allowance for loan loss calculations. The Company plans to run parallel calculations leading up to the effective date of this guidance to ensure it is prepared for implementation by the effective date. In addition to the Company’s allowance for loan losses, it will also record an allowance for credit losses on debt securities instead of applying the impairment model currently utilized. The amount of the adjustments will be impacted by each portfolio’s composition and credit quality at the adoption date as well as economic conditions and forecasts at that time.

(Dollars in thousands)
	March 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S Treasuries	$	10,934		-		565		10,369
U.S. Government
sponsored enterprises		13,724		56		372		13,408
Mortgage-backed securities		233,773		783		9,901		224,655
State and political subdivisions		173,292		691		14,378		159,605
Total	$	431,723		1,530		25,216		408,037

(Dollars in thousands)
	December 31, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S Treasuries	$	7,964		-		75		7,889
U.S. Government
sponsored enterprises		14,252		200		185		14,267
Mortgage-backed securities		218,402		1,769		3,019		217,152
State and political subdivisions		165,804		3,694		2,257		167,241
Total	$	406,422		5,663		5,536		406,549

(Dollars in thousands)
	March 31, 2022
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Treasuries	$	10,369		565		-		-		10,369		565
U.S. Government
sponsored enterprises		2,415		182		7,949		190		10,364		372
Mortgage-backed securities		146,319		8,509		21,727		1,392		168,046		9,901
State and political subdivisions		106,097		11,285		16,608		3,093		122,705		14,378
Total	$	265,200		20,541		46,284		4,675		311,484		25,216

March 31, 2022
(Dollars in thousands)
	Amortized Cost		Fair Value
Due within one year	$	2,608		2,623
Due from one to five years		11,047		11,150
Due from five to ten years		83,496		80,272
Due after ten years		100,799		89,337
Mortgage-backed securities		233,773		224,655
Total	$	431,723		408,037

	·	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 March 31, 2022, construction and land development loans comprised approximately 11% 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 March 31, 2022, single-family residential loans comprised approximately 33% of the Bank’s total loan portfolio, including Banco single-family residential non-traditional loans which were approximately 2% 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 the 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 March 31, 2022, commercial real estate loans comprised approximately 40% 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 March 31, 2022, commercial loans comprised approximately 8% of the Bank’s total loan portfolio, including $6.6 million in Paycheck Protection Program (“PPP”) loans.

	·	Multifamily and farmland loans – Decreased real estate values and higher than normal levels of unemployment could contribute to losses on these loans. As of March 31, 2022, construction and land development loans comprised approximately 7% of the Bank’s total loan portfolio.

March 31, 2022
(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	$	274		-		274		94,751		95,025		-
Single-family residential		3,545		542		4,087		268,904		272,991		-
Single-family residential -
Banco de la Gente non-traditional		2,700		136		2,836		19,301		22,137		-
Commercial		219		-		219		353,950		354,169		-
Multifamily and farmland		-		-		-		58,927		58,927		-
Total real estate loans		6,738		678		7,416		795,833		803,249		-

Loans not secured by real estate:
Commercial loans		17		-		17		73,392		73,409		-
Farm loans		-		-		-		863		863		-
Consumer loans		74		-		74		6,096		6,170		-
All other loans		-		-		-		6,067		6,067		-
Total loans	$	6,829		678		7,507		882,251		889,758		-


	2022		2021
	(Unaudited)		(Unaudited)

Interest income:
Interest and fees on loans	$	9,742		10,664
Interest on due from banks		111		35
Interest on investment securities:
U.S. Government sponsored enterprises		511		538
State and political subdivisions		943		639
Other		22		46
Total interest income		11,329		11,922

Interest expense:
Interest-bearing demand, MMDA & savings deposits		403		497
Time deposits		146		212
Junior subordinated debentures		75		71
Other		39		35
Total interest expense		663		815

Net interest income		10,666		11,107

Provision for (reduction of) loan losses		71		(455	)

Net interest income after provision for loan losses		10,595		11,562

Non-interest income:
Service charges		1,168		926
Other service charges and fees		193		212
Mortgage banking income		200		870
Insurance and brokerage commissions		240		260
Appraisal management fee income		3,506		1,816
Miscellaneous		1,739		1,789
Total non-interest income		7,046		5,873

Non-interest expense:
Salaries and employee benefits		5,849		6,183
Occupancy		1,916		1,953
Professional fees		373		337
Advertising		165		143

	2022			2021
	(Unaudited)			(Unaudited)

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	653			802
Income taxes	$	-			-

Noncash investing and financing activities:

Change in unrealized loss on investment securities available for sale, net	$	(18,342	)		(3,100	)
Issuance of accrued restricted stock units	$	41			39
Initial recognition of lease right-of-use asset and lease liability	$	1,759			-

December 31, 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	$	-		-		-		95,760		95,760		-
Single-family residential		2,323		634		2,957		263,154		266,111		-
Single-family residential -
Banco de la Gente non-traditional		2,593		112		2,705		20,442		23,147		-
Commercial		488		-		488		337,353		337,841		-
Multifamily and farmland		-		-		-		58,366		58,366		-
Total real estate loans		5,404		746		6,150		775,075		781,225		-

Loans not secured by real estate:
Commercial loans		43		-		43		91,129		91,172		-
Farm loans		-		-		-		796		796		-
Consumer loans		38		-		38		6,398		6,436		-
All other loans		-		-		-		5,240		5,240		-
Total loans	$	5,485		746		6,231		878,638		884,869		-

March 31, 2022
(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	$	68		-		68		68		2
Single-family residential		4,361		520		3,581		4,101		64
Single-family residential -
Banco de la Gente non-traditional		11,306		-		10,658		10,658		671
Commercial		2,112		433		1,587		2,020		10
Multifamily and farmland		111		-		101		101		-
Total impaired real estate loans		17,958		953		15,995		16,948		747

Loans not secured by real estate:
Commercial loans		157		-		157		157		2
Consumer loans		14		-		10		10		-
Total impaired loans	$	18,129		953		16,162		17,115		749

(Dollars in thousands)
	Three months ended								Twelve months ended
	March 31, 2022				March 31,2021				December 31, 2021
	Average Balance		Interest Income Recognized		Average Balance		Interest Income Recognized		Average Balance		Interest Income Recognized
Real estate loans:
Construction and land development	$	71		2		106		2		82		6
Single-family residential		5,723		47		5,490		60		6,017		253
Single-family residential -
Banco de la Gente stated income		9,566		139		11,832		177		10,325		609
Commercial		2,032		25		2,955		36		2,385		109
Multifamily and farmland		103		1		116		1		110		6
Total impaired real estate loans		17,495		214		20,499		276		18,919		983

Loans not secured by real estate:
Commercial loans		188		2		413		6		271		19
Consumer loans		7		-		28		1		11		1
Total impaired loans	$	17,690		216		20,940		283		19,201		1,003

(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
Three months ended March 31, 2022
Allowance for loan losses:
Beginning balance	$	1,193			2,013			864			2,234		150			711			-		110			2,080			9,355
Charge-offs		-			(31	)		-			-		-			(4	)		-		(125	)		-			(160	)
Recoveries		-			117			-			2		-			19			-		22			-			160
Provision (recovery)		(30	)		(4	)		(23	)		775		(3	)		(80	)		-		121			(685	)		71
Ending balance	$	1,163			2,095			841			3,011		147			646			-		128			1,395			9,426

Allowance for loan losses March 31, 2022
Ending balance: individually
evaluated for impairment	$	1			38			657			6		-			-			-		-			-			702
Ending balance: collectively
evaluated for impairment		1,162			2,057			184			3,005		147			646			-		128			1,395			8,724
Ending balance	$	1,163			2,095			841			3,011		147			646			-		128			1,395			9,426

Loans at March 31, 2022:
Ending balance	$	95,025			272,991			22,137			354,169		58,927			73,409			863		12,237			-			889,758

Ending balance: individually
evaluated for impairment	$	4			859			9,494			1,426		-			-			-		-			-			11,783
Ending balance: collectively
evaluated for impairment	$	95,021			272,132			12,643			352,743		58,927			73,409			863		12,237			-			877,975

	·	Risk Grade 1 – Excellent Quality: Loans are well above average quality and a minimal amount of credit risk exists. CD 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 Bank’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 Bank’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). PPP loans are classified as risk grade 3.

	·	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 Bank’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 Bank 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 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.

For the three months ended March 31, 2022
	Net Earnings (Dollars in thousands)		Weighted Average Number of Shares		Per Share Amount
Basic earnings per share	$	3,452		5,497,107	$	0.63
Effect of dilutive securities:
Restricted stock units - unvested				13,159
Shares held in deferred comp plan
by deferred compensation trust				163,038
Diluted earnings per share	$	3,452		5,673,304	$	0.61

	·	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.

(Dollars in thousands)
	Fair Value Measurements March 31, 2022		Level 1 Valuation		Level 2 Valuation		Level 3 Valuation
Mortgage loans held for sale	$	885		-		-		885
Impaired loans	$	16,366		-		-		16,366

(Dollars in thousands)
	Fair Value Measurements December 31, 2021		Level 1 Valuation		Level 2 Valuation		Level 3 Valuation
Mortgage loans held for sale	$	3,637		-		-		3,637
Impaired loans	$	17,475		-		-		17,475

(Dollars in thousands)
			Fair Value Measurements at March 31, 2022
	Carrying Amount		Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	305,106		305,106		-		-		305,106
Investment securities available for sale		408,037		-		408,037		-		408,037
Other investments		3,569		-		-		3,569		3,569
Mortgage loans held for sale		885		-		-		885		885
Loans, net		880,332		-		-		858,361		858,361
Mutual funds held in deferred
compensation trust		1,410		-		1,410		-		1,410

Liabilities:
Deposits	$	1,468,735		-		-		1,430,431		1,430,431
Securities sold under agreements
to repurchase		34,823		-		34,823		-		34,823
Junior subordinated debentures		15,464		-		15,464		-		15,464

(Dollars in thousands)
			Fair Value Measurements at December 31, 2021
	Carrying Amount		Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	277,499		277,499		-		-		277,499
Investment securities available for sale		406,549		-		406,549		-		406,549
Other investments		3,668		-		-		3,668		3,668
Mortgage loans held for sale		3,637		-		-		3,637		3,637
Loans, net		875,514		-		-		855,814		855,814
Mutual funds held in deferred
compensation trust		1,510		-		1,510		-		1,510

Liabilities:
Deposits	$	1,412,748		-		-		1,401,833		1,401,833
Securities sold under agreements
to repurchase		37,094		-		37,094		-		37,094
Junior subordinated debentures		15,464		-		15,464		-		15,464

(Dollars in thousands)
	March 31,2022			March 31,2021

Operating lease cost	$	189		$	195

Other information:
Cash paid for amounts included in the measurement of lease liabilities		575			189
Right-of-use assets obtained in exchange for new lease liabilities - operating leases		1,759			-
Weighted-average remaining lease term - operating leases		8.92			6.95
Weighted-average discount rate - operating leases		2.04	%		2.69	%

(Dollars in thousands)

Maturity Analysis of Operating Lease Liabilities:	March 31, 2022			December 31, 2021

2022	$	690		$	740
2023		922			746
2024		867			691
2025		812			635
2026		694			518
Thereafter		2,975			1,838
Total		6,960			5,168
Less: Imputed Interest		(685	)		(491	)
Operating Lease Liability	$	6,275		$	4,677

	·	The FOMC decreased the range for the federal funds target rate by 0.5 percent on March 3, 2020, and by another 1.0 percent on March 16, 2020.

	·	On March 27, 2020, President Trump signed the CARES Act, which established a $2 trillion economic stimulus package, including cash payments to individuals, supplemental unemployment insurance benefits and a $349 billion loan program administered through the Small Business Administration (“SBA”), referred to as the Paycheck Protection Program (“PPP”). Under the PPP, small businesses, sole proprietorships, independent contractors and self-employed individuals could apply for loans from existing SBA lenders and other approved regulated lenders that enrolled in the PPP loan program, subject to certain limitations and eligibility criteria. After the initial $349 billion in funds for the PPP was exhausted, an additional $320 billion in funding for PPP loans was authorized. On December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act (the “Economic Aid Act”) became law. The Economic Aid Act reopened and expanded the PPP loan program. The changes to the PPP loan program allowed new borrowers to apply for a loan under the original PPP loan program and the creation of an additional PPP loan for eligible borrowers. The Economic Aid Act also revised certain PPP requirements, including aspects of loan forgiveness on existing PPP loans. Under the Economic Aid Act, the PPP loan program was set to expire on March 31, 2021; however, the PPP Extension Act which was signed into law on March 30, 2021 extended the PPP loan program until May 31, 2021. The Bank participated as a lender in the PPP loan program. In addition, the CARES Act provides financial institutions the option to temporarily suspend certain requirements under GAAP related to troubled debt restructurings (“TDR loans”) for a limited period of time to account for the effects of COVID-19. See Note 3 of the financial statements for additional disclosure of loan modifications as of March 31, 2022.

	·	On April 7, 2020, federal banking regulators issued a revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions, which, among other things, encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19, and stated that institutions generally do not need to categorize COVID-19-related modifications as TDRs and that the agencies will not direct supervised institutions to automatically categorize all COVID-19 related loan modifications as TDRs. See Note 3 of the financial statements for additional disclosure of loan modifications as of December 31, 2021.

	·	On April 9, 2020, the Federal Reserve announced additional measures aimed at supporting small-and mid-sized businesses, as well as state and local governments impacted by COVID-19. The Federal Reserve announced the Main Street Business Lending Program, which established two new loan facilities intended to facilitate lending to small and mid-sized businesses: (1) the Main Street New Loan Facility, or MSNLF, and (2) the Main Street Expanded Loan Facility, or MSELF. The Bank did not participate in the MSELF or MSNLF.

	·	In addition to the policy responses described above, the federal bank regulatory agencies, along with their state counterparts, issued a stream of guidance in response to the COVID-19 pandemic and taken a number of unprecedented steps to help banks navigate the pandemic and mitigate its impact. These included, without limitation: requiring banks to focus on business continuity and pandemic planning; adding pandemic scenarios to stress testing; encouraging bank use of capital buffers and reserves in lending programs; permitting certain regulatory reporting extensions; reducing margin requirements on swaps; permitting certain otherwise prohibited investments in investment funds; issuing guidance to encourage banks to work with customers affected by the pandemic and encourage loan workouts; and providing credit under the Community Reinvestment Act (“CRA”) for certain pandemic related loans, investments and public service. Moreover, because of the need for social distancing measures, the agencies revamped the manner in which they conducted periodic examinations of their regular institutions, including making greater use of off-site reviews. The Federal Reserve also issued guidance encouraging banking institutions to utilize its discount window for loans and intraday credit extended by its Reserve Banks to help households and businesses impacted by the pandemic and announced numerous funding facilities. The FDIC also acted to mitigate the deposit insurance assessment effects of participating in the PPP loan program and the Federal Reserve's PPP Liquidity Facility and Money Market Mutual Fund Liquidity Facility.

	·	On March 13, 2020 we enacted our Pandemic Plan. We used available physical resources to achieve appropriate social distancing protocols in all facilities; in addition, we established mandatory remote work through June 30, 2021 to isolate certain personnel essential to critical business continuity operations. We also expanded and tested remote access for the core banking system, funds transfer and loan operations.

	·	We continue to actively work with loan customers to evaluate prudent loan modification terms.

	·	We continue to promote our digital banking options through our website. Customers are encouraged to utilize online and mobile banking tools, and our customer service and retail departments are fully staffed and available to assist customers remotely.

	·	We were a participating lender in the PPP loan program. We believed it was our responsibility as a community bank to assist the SBA in the distribution of funds authorized under the CARES Act to our customers and communities.

	·	On March 19, 2020, we restricted branch customer activity to drive-up and appointment only services. Branch lobbies were reopened on May 20, 2020. One small branch located in an assisted living facility was permanently closed effective December 31, 2020 due to limited lobby space and COVID-19 restrictions. All business functions continue to be operational. We continue to pay all employees according to their normal work schedule, even if their work has been reduced. No employees have been furloughed. While the majority of employees are now working on-site, some employees whose job responsibilities can be effectively carried out remotely continue to work from home. Employees working on-site are observing current public health guidelines. Effective August 19, 2021, the Company implemented mask requirements for employees. On January 6, 2022, we restricted branch customer activity to drive-up and appointment only services due to an increase in COVID-19 cases.

	Three months ended March 31, 2022 compared to three months ended March 31, 2021									Three months ended March 31, 2021 compared to three months ended March 31, 2020
(Dollars in thousands)	Changes in average volume			Changes in average rates			Total Increase (Decrease)			Changes in average volume			Changes in average rates			Total Increase (Decrease)
Interest income:
Loans: Net of unearned income	$	(691	)		(231	)		(922	)		1,012			(1,028	)		(16	)
Investments - taxable		435			31			466			419			(501	)		(82	)
Investments - nontaxable		120			(363	)		(243	)		(29	)		(106	)		(135	)
Federal funds sold		-			-			-			(62	)		(61	)		(123	)
Other		32			44			76			193			(201	)		(8	)
Total interest income		(104	)		(519	)		(623	)		1,533			(1,897	)		(364	)

Interest expense:
NOW, MMDA & savings deposits		79			(173	)		(94	)		132			(160	)		(28	)
Time deposits		(13	)		(52	)		(65	)		4			(69	)		(65	)
FHLB borrowings		-			-			-			(33	)		(32	)		(65	)
Trust preferred securities		-			4			4			-			(59	)		(59	)
Other		13			(10	)		3			7			(15	)		(8	)
Total interest expense		79			(231	)		(152	)		110			(335	)		(225	)
Net interest income	$	(183	)		(288	)		(471	)		1,423			(1,562	)		(139	)

	·	the Bank’s loan loss experience;

	·	the amount of past due and non-performing loans;

	·	specific known risks;

	·	the status and amount of other past due and non-performing assets;

	·	underlying estimated values of collateral securing loans;

	·	current and anticipated economic conditions (including those arising out of the COVID-19 pandemic); and

	·	other factors which management believes affect the allowance for potential credit losses.

	Percentage of Loans
	By Risk Grade
Risk Grade	31-3-22			31-12-21
Risk Grade 1 (Excellent Quality)		0.46	%		0.78	%
Risk Grade 2 (High Quality)		19.33	%		19.12	%
Risk Grade 3 (Good Quality)		71.39	%		70.41	%
Risk Grade 4 (Management Attention)		7.25	%		7.70	%
Risk Grade 5 (Watch)		0.83	%		1.23	%
Risk Grade 6 (Substandard)		0.74	%		0.76	%
Risk Grade 7 (Doubtful)		0.00	%		0.00	%
Risk Grade 8 (Loss)		0.00	%		0.00	%

ISSUER PURCHASES OF EQUITY SECURITIES

Period	Total Number of Shares Purchased (1)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)		Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (3)

January 1 - 31, 2022		1,123	$	29.38		-	$	2,000,000

February 1 - 28, 2022		1,077		29.00		-	$	2,000,000

March 1 - 31, 2022		7,000		28.50		7,000	$	1,800,500

Total		9,200	$	29.05		7,000