Peoples Bancorp Of North Carolina Inc 10-Q for FY2023 Q3

Peoples Bancorp Of North Carolina Inc (PEBK)

10-Q 2023-11-07 For: 2023-09-30

Added on April 12, 2026

About this 10-Q

Peoples Bancorp Of North Carolina Inc filed this 10-Q on November 7, 2023, covering the quarter ended September 30, 2023 (FY2023 Q3).

Headline figures

Quarter ended September 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.

Net income: $4.13M; down 22.2% from net income of $5.31M a year earlier
Diluted EPS: $0.74; down 20.4% from $0.93 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

	Consolidated Balance Sheets at September 30, 2023 (Unaudited) and December 31, 2022 (Audited)	4

	Consolidated Statements of Earnings for the three and nine months ended September 30, 2023 and 2022 (Unaudited)	5

	Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2023 and 2022 (Unaudited)	6

	Consolidated Statements of Changes in Shareholders' Equity for the three and nine months ended September 30, 2023 and 2022 (Unaudited)	7

	Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022 (Unaudited)	8-9

	Notes to Consolidated Financial Statements (Unaudited)	10-28

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29-40

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41

Item 4.	Controls and Procedures	41

Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3.	Defaults upon Senior Securities	43
Item 5.	Other Information	43
Item 6.	Exhibits	44
Signatures		45
Certifications

PEOPLES BANCORP OF NORTH CAROLINA, INC.

Consolidated Balance Sheets

September 30, 2023 and December 31, 2022

(Dollars in thousands)
	September 30,			December 31,
Assets	2023			2022
	(Unaudited)			(Audited)

Cash and due from banks, including reserve requirements of $0 at both 9/30/23 and 12/31/22	$	35,762			50,061
Interest-bearing deposits		40,857			21,535
Cash and cash equivalents		76,619			71,596

Investment securities available for sale		378,794			445,394
Other investments		2,900			2,656
Total securities		381,694			448,050

Mortgage loans held for sale		1,848			211

Loans		1,078,173			1,032,608
Less allowance for credit losses		(10,285	)		(10,494	)
Net loans		1,067,888			1,022,114

Premises and equipment, net		16,782			18,205
Cash surrender value of life insurance		18,021			17,703
Right of use lease asset		4,908			5,116
Accrued interest receivable and other assets		39,504			37,932
Total assets	$	1,607,264			1,620,927

Liabilities and Shareholders' Equity

Deposits:
Noninterest-bearing demand	$	444,627			523,088
Interest-bearing demand, MMDA & savings		633,003			814,128
Time, over $250,000		137,715			31,001
Other time		165,423			66,998
Total deposits		1,380,768			1,435,215

Securities sold under agreements to repurchase		83,024			47,688
Junior subordinated debentures		15,464			15,464
Lease liability		5,002			5,185
Accrued interest payable and other liabilities		15,654			12,180
Total liabilities		1,499,912			1,515,732

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 5,549,799 shares at September 30, 2023 and 5,636,830 shares at December 31, 2022		50,969			52,636
Common stock held by deferred compensation trust, at cost; 167,193 shares at September 30, 2023 and 169,094 shares at December 31, 2022		(2,011	)		(2,181	)
Deferred compensation		2,011			2,181
Retained earnings		107,372			100,156
Accumulated other comprehensive loss		(50,989	)		(47,597	)
Total shareholders' equity		107,352			105,195
Total liabilities and shareholders' equity	$	1,607,264			1,620,927

See accompanying Notes to Consolidated Financial Statements.

PEOPLES BANCORP OF NORTH CAROLINA, INC.

Consolidated Statements of Earnings

Three and Nine Months Ended September 30, 2023 and 2022

(Dollars in thousands, except per share amounts)

	Three months ended				Nine months ended
	September 30,				September 30,
	2023		2022		2023			2022
	(Unaudited)		(Unaudited)		(Unaudited)			(Unaudited)

Interest income:
Interest and fees on loans	$	14,145		11,051		40,695			30,727
Interest on due from banks		606		900		1,506			1,453
Interest on investment securities:
U.S. Government sponsored enterprises		2,358		1,288		6,868			2,280
State and political subdivisions		696		1,056		2,254			3,009
Other		501		316		1,383			463
Total interest income		18,306		14,611		52,706			37,932

Interest expense:
NOW, MMDA & savings deposits		1,752		494		4,888			1,263
Time deposits		2,512		134		4,666			421
Junior subordinated debentures		284		146		791			324
Other		418		44		912			117
Total interest expense		4,966		818		11,257			2,125

Net interest income		13,340		13,793		41,449			35,807

Provision for credit losses		562		408		1,161			889

Net interest income after provision for loan losses		12,778		13,385		40,288			34,918

Non-interest income:
Service charges		1,412		1,458		4,081			4,000
Other service charges and fees		165		169		510			540
Loss on sale of securities, net		-		-		(2,488	)		-
Mortgage banking income		72		59		204			358
Insurance and brokerage commissions		291		213		725			709
Appraisal management fee income		2,785		2,711		7,469			9,656
Miscellaneous		2,049		2,183		6,286			5,904
Total non-interest income		6,774		6,793		16,787			21,167

Non-interest expense:
Salaries and employee benefits		6,722		6,177		19,508			18,469
Occupancy		1,988		2,038		5,983			5,886
Professional fees		406		413		1,255			1,241
Advertising		217		175		562			509
Debit card expense		392		228		947			826
FDIC Insurance		186		121		556			346
Appraisal management fee expense		2,182		2,151		5,881			7,680
Miscellaneous		2,162		2,152		6,884			6,082
Total non-interest expense		14,255		13,455		41,576			41,039

Earnings before income taxes		5,297		6,723		15,499			15,046

Income tax expense		1,170		1,416		3,393			3,070

Net earnings	$	4,127		5,307		12,106			11,976

Basic net earnings per share	$	0.76		0.96		2.22			2.18
Diluted net earnings per share	$	0.74		0.93		2.15			2.11
Cash dividends declared per share	$	0.19		0.18		0.72			0.69

See accompanying Notes to Consolidated Financial Statements.

PEOPLES BANCORP OF NORTH CAROLINA, INC.

Consolidated Statements of Comprehensive Income (Loss)

Three and Nine Months Ended September 30, 2023 and 2022

(Dollars in thousands)

	Three months ended						Nine months ended
	September 30,						September 30,
	2023			2022			2023			2022
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)

Net earnings	$	4,127			5,307			12,106			11,976

Other comprehensive loss:
Unrealized holding losses on securities available for sale		(9,408	)		(16,578	)		(6,892	)		(59,661	)
Reclassification adjustment for losses on securities available for sale included in net earnings		-			-			2,488			-

Total other comprehensive loss, before income taxes		(9,408	)		(16,578	)		(4,404	)		(59,661	)

Income tax benefit related to other comprehensive income:

Unrealized holding losses on securities available for sale		(2,162	)		(3,808	)		(1,584	)		(13,708	)
Reclassification adjustment for losses on securities available for sale included in net earnings		-			-			572			-

Total income tax benefit related to other comprehensive income		(2,162	)		(3,808	)		(1,012	)		(13,708	)

Total other comprehensive loss, net of tax		(7,246	)		(12,770	)		(3,392	)		(45,953	)

Total comprehensive income (loss)	$	(3,119	)		(7,463	)		8,714			(33,977	)

See accompanying Notes to Consolidated Financial Statements.

PEOPLES BANCORP OF NORTH CAROLINA, INC.

Consolidated Statements of Changes in Shareholders' Equity

Three and Nine Months Ended September 30, 2023 and 2022

(Dollars in thousands)

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

Balance, December 31, 2022		5,636,830		$	52,636			100,156			2,181			(2,181	)		(47,597	)		105,195

Adoption of new accounting standard, net of tax		-			-			(838	)		-			-			-			(838	)
Cash dividends declared on common stock ($0.34 per share)		-			-			(1,925	)		-			-			-			(1,925	)
Restricted stock units exercised		191			6			-			-			-			-			6
Equity incentive plan, net		-			-			-			(344	)		344			-			-
Net earnings		-			-			3,171			-			-			-			3,171
Change in accumulated other comprehensive loss, net of tax		-			-			-			-			-			9,173			9,173
Balance, March 31, 2023		5,637,021		$	52,642			100,564			1,837			(1,837	)		(38,424	)		114,782

Common stock repurchase		(46,222	)		(833	)		-			-			-			-			(833	)
Cash dividends declared on common stock ($0.19 per share)		-			-			(1,069	)		-			-			-			(1,069	)
Equity incentive plan, net		-			-			-			130			(130	)		-			-
Net earnings		-			-			4,808			-			-			-			4,808
Change in accumulated other comprehensive loss, net of tax		-			-			-			-			-			(5,319	)		(5,319	)
Balance, June 30, 2023		5,590,799		$	51,809			104,303			1,967			(1,967	)		(43,743	)		112,369

Common stock repurchase		(41,000	)		(840	)		-			-			-			-			(840	)
Cash dividends declared on common stock ($0.19 per share)		-			-			(1,058	)		-			-			-			(1,058	)
Equity incentive plan, net		-			-			-			44			(44	)		-			-
Net earnings		-			-			4,127			-			-			-			4,127
Change in accumulated other comprehensive loss, net of tax		-			-			-			-			-			(7,246	)		(7,246	)
Balance, September 30, 2023		5,549,799		$	50,969			107,372			2,011			(2,011	)		(50,989	)		107,352

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 ($0.33 per share)		-			-			(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

Common stock repurchase		(15,000	)		(395	)		-			-			-			-			(395	)
Cash dividends declared on common stock ($0.18 per share)		-			-			(1,019	)		-			-			-			(1,019	)
Equity incentive plan, net		-			-			-			57			(57	)		-			-
Net earnings		-			-			3,217			-			-			-			3,217
Change in accumulated other comprehensive loss, net of tax		-			-			-			-			-			(14,841	)		(14,841	)
Balance, June 30, 2022		5,641,030		$	52,752			92,741			2,099			(2,099	)		(33,087	)		112,406

Cash dividends declared on common stock ($0.18 per share)		-			-			(1,019	)		-			-			-			(1,019	)
Equity incentive plan, net		-			-			-			51			(51	)		-			-
Net earnings		-			-			5,307			-			-			-			5,307
Change in accumulated other comprehensive loss, net of tax		-			-			-			-			-			(12,770	)		(12,770	)
Balance, September 30, 2022		5,641,030		$	52,752			97,029			2,150			(2,150	)		(45,857	)		103,924

See accompanying Notes to Consolidated Financial Statements.

PEOPLES BANCORP OF NORTH CAROLINA, INC.

Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2023 and 2022

(Dollars in thousands)

	2023			2022
	(Unaudited)			(Unaudited)

Cash flows from operating activities:
Net earnings	$	12,106			11,976
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation, amortization and accretion		2,416			4,914
Provision for credit losses		1,161			889
Deferred income taxes		(248	)		(31	)
Loss on sale of investment securities, net		2,488			-
Gain on sale of premises and equipment		(185	)		-
Restricted stock expense		(7	)		(95	)
Proceeds from sales of mortgage loans held for sale		11,031			20,475
Origination of mortgage loans held for sale		(12,668	)		(17,813	)
Change in:
Cash surrender value of life insurance		(318	)		(301	)
Right of use lease asset		578			568
Other assets		(93	)		(2,944	)
Lease liability		(553	)		(556	)
Other liabilities		1,357			232
Net cash provided by operating activities		17,066			17,314

Cash flows from investing activities:
Purchases of investment securities available for sale		(6,992	)		(139,657	)
Proceeds from sales, calls and maturities of investment securities available for sale		52,023			7,870
Proceeds from paydowns of investment securities available for sale		13,898			31,186
Proceeds from paydowns on other investments		112			1,011
Purchases of FHLB stock		(323	)		(105	)
Net change in loans		(45,862	)		(120,252	)
Purchases of premises and equipment		(1,522	)		(4,196	)
Proceeds from sale of premises and equipment		1,460			-
Proceeds from bank owned life insurance		-			65
Net cash provided (used) by investing activities		12,793			(224,078	)

Cash flows from financing activities:
Net change in deposits		(54,447	)		88,343
Net change in securities sold under agreement to repurchase		35,336			892
Common stock repurchased		(1,673	)		(594	)
Cash dividends paid on common stock		(4,052	)		(3,915	)
Net cash provided (used) by financing activities		(24,836	)		84,726

Net change in cash and cash equivalents		5,023			(122,038	)
Cash and cash equivalents at beginning of period		71,596			277,499
Cash and cash equivalents at end of period	$	76,619			155,461

PEOPLES BANCORP OF NORTH CAROLINA, INC.

Consolidated Statements of Cash Flows, continued

Nine Months Ended September 30, 2023 and 2022

(Dollars in thousands)

	2023			2022
	(Unaudited)			(Unaudited)

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	10,766			2,112
Income taxes	$	3,462			3,069

Noncash investing and financing activities:
Change in unrealized loss on investment securities available for sale, net	$	(3,392	)		(45,953	)
Issuance of accrued restricted stock units	$	6			41
Initial recognition of lease right-of-use asset and lease liability	$	370			1,726
Allowance for credit losses record upon adoption of ASU 326, net of tax	$	(838	)		-

See accompanying Notes to Consolidated Financial Statements.

ASU	Description	Effective Date	Effect on Financial Statements or Other Significant Matters
ASU 2019-10: Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates	Guidance to defer the effective dates for private companies, not-for-profit organizations, and certain smaller reporting companies applying standards on current expected credit losses (CECL), leases and hedging.	January 1, 2023	The adoption of this guidance did not have a material impact on the Company’s results of operations or financial position but did impact disclosure requirements.
ASU 2019-11: Codification Improvements to Topic 326, Financial Instruments—Credit Losses	Guidance that addresses issues raised by stakeholders during the implementation of ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments affect a variety of Topics in the ASC.	January 1, 2023	The adoption of this guidance did not have a material impact on the Company’s results of operations or financial position but did impact disclosure requirements.
ASU 2020-03: Codification Improvements to Financial Instruments	Guidance to clarify that the contractual term of a net investment in a lease, determined in accordance with the leases standard, should be the contractual term used to measure expected credit losses under ASC 326.	January 1, 2023	The adoption of this guidance did not have a material impact on the Company’s results of operations, financial position or disclosures.
ASU 2022-02: Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures	Eliminates the guidance on troubled debt restructurings (TDRs) for creditors in ASC 310-40 2 and amends the guidance on “vintage disclosures” to require disclosure of current-period gross write-offs by year of origination.	January 1, 2023	The adoption of this guidance did not have a material impact on the Company’s results of operations or financial position but did impact disclosure requirements.

(Dollars in thousands)
	September 30, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S Treasuries	$	10,968		-		1,130		9,838
U.S. Government sponsored enterprises		11,510		-		765		10,745
Mortgage-backed securities		292,512		70		32,715		259,867
State and political subdivisions		130,000		-		31,656		98,344
Total	$	444,990		70		66,266		378,794

(Dollars in thousands)
	December 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S Treasuries	$	10,951		-		1,137		9,814
U.S. Government sponsored enterprises		12,245		-		706		11,539
Mortgage-backed securities		299,222		445		25,829		273,838
State and political subdivisions		184,768		91		34,656		150,203
Total	$	507,186		536		62,328		445,394

(Dollars in thousands)
	September 30, 2023
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Treasuries	$	-		-		9,838		1,130		9,838		1,130
U.S. Government sponsored enterprises		-		-		10,745		765		10,745		765
Mortgage-backed securities		33,158		1,336		221,918		31,379		255,076		32,715
State and political subdivisions		-		-		98,344		31,656		98,344		31,656
Total	$	33,158		1,336		340,845		64,930		374,003		66,266

(Dollars in thousands)
	September 30, 2023			December 31, 2022
Real estate loans:
Construction and land development	$	127,706			114,446
Single-family residential		344,415			322,262
Single-family residential -
Banco de la Gente non-traditional		18,388			20,019
Commercial		430,270			406,750
Multifamily and farmland		64,313			65,562
Total real estate loans		985,092			929,039

Loans not secured by real estate:
Commercial loans		68,738			81,307
Farm loans		574			938
Consumer loans		7,680			6,834
All other loans		16,089			14,490

Total loans		1,078,173			1,032,608

Less allowance for credit losses		(10,285	)		(10,494	)

Total net loans	$	1,067,888			1,022,114

	·	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.

	·	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.

	·	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.

	·	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.

	·	Multifamily and farmland loans – Decreased real estate values and higher than normal levels of unemployment could contribute to losses on these loans.

September 30, 2023
(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	$	39		-		39		127,667		127,706		-
Single-family residential		938		217		1,155		343,260		344,415		-
Single-family residential -
Banco de la Gente non-traditional		840		89		929		17,459		18,388		-
Commercial		481		-		481		429,789		430,270		-
Multifamily and farmland		-		-		-		64,313		64,313		-
Total real estate loans		2,298		306		2,604		982,488		985,092		-

Loans not secured by real estate:
Commercial loans		375		99		474		68,264		68,738		99
Farm loans		-		-		-		574		574		-
Consumer loans		37		-		37		7,643		7,680		-
All other loans		-		-		-		16,089		16,089		-
Total loans	$	2,710		405		3,115		1,075,058		1,078,173		99

	CECL Methodology						Incurred Loss Methodology
	September 30, 2023						December 31, 2022
	Nonaccrual Loans		Nonaccrual Loans		Total		Total
	With No		With		Nonaccrual		Nonaccrual
(Dollars in thousands)	Allowance		Allowance		Loans		Loans
Real estate loans:
Construction and land development	$	46		-		46		53
Single-family residential		1,878		-		1,878		1,914
Single-family residential -
Banco de la Gente non-traditional		1,575		-		1,575		1,532
Commercial		-		-		-		129
Multifamily and farmland		80		-		80		91
Total real estate loans		3,579		-		3,579		3,719

Loans not secured by real estate:
Commercial loans		33		-		33		-
Consumer loans		2		-		2		9
Total	$	3,614		-		3,614		3,728

(Dollars in thousands)
	Term Extension
	Amortized Cost Basis at September 30, 2023		% of Loan Class
Loan class:
Single-family residential		154		0.04	%
Commercial real estate		673		0.16	%
Total	$	827

Term Extension
Loan Class		Financial Effect
Single-family residential		Forbearance agreement on matured home equity line of credit (HELOC) that was modified to 180 month term.
Commercial real estate		Extended existing amortization from 148 months to 173 months to keep existing payment the same with the current market rate.

(Dollars in thousands)
	Payment Status (Amortized Cost Basis)
	Current		30 - 89 Days Past Due		90 + Days Past Due
Loan type:
Single-family residential		154		-		-
Commercial real estate		673		-		-
Total	$	827		-		-

December 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	$	110		-		110		110		2
Single-family residential		3,912		236		3,300		3,536		60
Single-family residential -
Banco de la Gente non-traditional		10,441		-		9,748		9,748		611
Commercial		1,785		421		1,346		1,767		9
Multifamily and farmland		104		-		91		91		-
Total impaired real estate loans		16,352		657		14,595		15,252		682

Loans not secured by real estate:
Commercial loans		116		-		116		116		1
Consumer loans		11		-		9		9		-
Total impaired loans	$	16,479		657		14,720		15,377		683

(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 September 30, 2023
Allowance for credit losses:
Beginning balance	$	5,394			3,207			183			2,365			288			367			2		242			-			12,048
Charge-offs		-			-			-			-			-			(94	)		-		(141	)		-			(235	)
Recoveries		-			8			-			1			-			8			-		24			-			41
Provision (recovery) for
unfunded commitments		(95	)		(31	)		-			-			-			3			-		(4	)		-			(127	)
Provision (recovery) for
loan losses		390			111			(5	)		(12	)		(15	)		87			-		133			-			689
Ending balance	$	5,689			3,295			178			2,354			273			371			2		254			-			12,416

Nine months ended September 30, 2023
Allowance for credit losses:
Beginning balance	$	1,415			2,322			763			3,207			164			657			-		214			1,752			10,494
Adjustment for CECL implementation		3,781			715			(576	)		(986	)		115			(295	)		2		54			(1,752	)		1,058
Charge-offs		-			-			-			-			-			(129	)		-		(450	)		-			(579	)
Recoveries		-			131			-			5			-			40			-		106			-			282
Provision (recovery) for unfunded commitments		(125	)		(18	)		-			-			-			3			-		(6	)		-			(146	)
Provision (recovery) for loan losses		618			145			(9	)		128			(6	)		95			-		336			-			1,307
Ending balance	$	5,689			3,295			178			2,354			273			371			2		254			-			12,416
Allowance for credit loss-loans	$	3,618			3,237			178			2,354			273			371			2		252			-			10,285
Allowance for credit losses unfunded loan commitments		2,071			58			-			-			-			-			-		2			-			2,131
Total allowance for credit losses	$	5,689			3,295			178			2,354			273			371			2		254			-			12,416

	·	Pass – Includes loans ranging from excellent quality with a minimal amount of credit risk to loans with higher risk and servicing needs but still are considered to be acceptable. The higher risk loans in this category are not problem credits presently, but may be in the future if the borrower is unable to change its present course.

	·	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.

	·	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.

	Term Loans by Origination Year														Revolving
															Loans
(dollars in thousands)													Revolving		Converted to		Total
	2023		2022		2021		2020		2019		Prior		Loans		Term Loans		Loans
September 30, 2023
Real Estate Loans
Construction and land
development
Pass	$	28,242		72,097		12,409		6,798		2,019		4,409		1,638		-		127,612
Watch		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		94		-		-		94
Total Construction and
land development	$	28,242		72,097		12,409		6,798		2,019		4,503		1,638		-		127,706
Single family
Pass	$	27,917		71,607		47,350		25,406		13,323		52,180		102,493		-		340,276
Watch		-		-		-		-		90		372		630		-		1,092
Substandard		-		-		-		-		-		2,664		383		-		3,047
Total single family	$	27,917		71,607		47,350		25,406		13,413		55,216		103,506		-		344,415
Single family-Banco de la
Gente non-traditional
Pass	$	-		-		-		-		-		15,894		-		-		15,894
Watch		-		-		-		-		-		381		-		-		381
Substandard		-		-		-		-		-		2,113		-		-		2,113
Total Banco de la Gente
non-traditional	$	-		-		-		-		-		18,388		-		-		18,388
Commercial
Pass	$	34,136		110,380		81,144		69,611		30,713		96,897		1,610		-		424,491
Watch		235		-		-		117		-		5,015		-		-		5,367
Substandard		-		-		-		412		-		-		-		-		412
Total commercial	$	34,371		110,380		81,144		70,140		30,713		101,912		1,610		-		430,270
Multifamily and farmland
Pass	$	7,921		13,464		22,026		6,789		3,245		10,056		620		-		64,121
Watch		-		-		-		-		-		112		-		-		112
Substandard		-		-		-		-		-		80		-		-		80
Total multifamily and
farmland	$	7,921		13,464		22,026		6,789		3,245		10,248		620		-		64,313
Total real estate loans	$	98,451		267,548		162,929		109,133		49,390		190,267		107,374		-		985,092
Loans not secured by real estate
Commercial
Pass	$	7,370		15,184		4,335		3,193		2,630		12,973		21,663		-		67,348
Watch		-		85		-		-		81		110		1,081		-		1,357
Substandard		33		-		-		-		-		-		-		-		33
Total Commercial	$	7,403		15,269		4,335		3,193		2,711		13,083		22,744		-		68,738
Farm
Pass	$	202		46		91		-		11		53		171		-		574
Watch		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-		-
Total farm	$	202		46		91		-		11		53		171		-		574
Consumer
Pass	$	2,603		1,558		484		253		84		67		2,624		-		7,673
Watch		-		-		-		-		-		-		-		-		-
Substandard		-		-		3		-		-		-		4		-		7
Total consumer	$	2,603		1,558		487		253		84		67		2,628		-		7,680
All other
Pass	$	1,074		6,455		498		433		648		4,030		2,812		-		15,950
Watch		-		-		-		-		-		75		64		-		139
Substandard		-		-		-		-		-		-		-		-		-
Total all other	$	1,074		6,455		498		433		648		4,105		2,876		-		16,089
Total loans not secured
by real estate	$	11,282		23,328		5,411		3,879		3,454		17,308		28,419		-		93,081
Total loans	$	109,733		290,876		168,340		113,012		52,844		207,575		135,793		-		1,078,173
Current period gross charge-offs	$	-		87		104		21		1		366		-		-		579

For the three months ended September 30, 2023
	Net Earnings (Dollars in thousands)		Weighted Average Number of Shares		Per Share Amount
Basic earnings per share	$	4,127		5,402,048	$	0.76
Effect of dilutive securities:
Restricted stock units - unvested				19,070
Shares held in deferred comp plan by deferred compensation trust				166,168
Diluted earnings per share	$	4,127		5,587,286	$	0.74

For the nine months ended September 30, 2023
	Net Earnings (Dollars in thousands)		Weighted Average Number of Shares		Per Share Amount
Basic earnings per share	$	12,106		5,442,788	$	2.22
Effect of dilutive securities:
Restricted stock units - unvested				18,899
Shares held in deferred comp plan by deferred compensation trust				168,099
Diluted earnings per share	$	12,106		5,629,786	$	2.15

	·	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 September 30, 2023		Level 1 Valuation		Level 2 Valuation		Level 3 Valuation
Mortgage loans held for sale	$	1,848		-		-		1,848
Individually evaluated loans		-		-		-		-

(Dollars in thousands)
	Fair Value Measurements December 31, 2022		Level 1 Valuation		Level 2 Valuation		Level 3 Valuation
Mortgage loans held for sale	$	211		-		-		211
Impaired loans		14,694		-		-		14,694

(Dollars in thousands)
			Fair Value Measurements at September 30, 2023
	Carrying Amount		Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	76,619		76,619		-		-		76,619
Investment securities available for sale		378,794		-		378,794		-		378,794
Other investments		2,900		-		-		2,900		2,900
Mortgage loans held for sale		1,848		-		-		1,848		1,848
Loans, net		1,067,888		-		-		1,053,008		1,053,008
Mutual funds held in deferred compensation trust		1,850		-		1,850		-		1,850

Liabilities:
Deposits	$	1,380,768		-		-		1,384,977		1,384,977
Securities sold under agreements to repurchase		83,024		-		83,024		-		83,024
Junior subordinated debentures		15,464		-		15,464		-		15,464

(Dollars in thousands)
			Fair Value Measurements at December 31, 2022
	Carrying Amount		Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	71,596		71,596		-		-		71,596
Investment securities available for sale		445,394		-		445,394		-		445,394
Other investments		2,656		-		-		2,656		2,656
Mortgage loans held for sale		211		-		-		211		211
Loans, net		1,022,114		-		-		998,587		998,587
Mutual funds held in deferred compensation trust		1,327		-		1,327		-		1,327

Liabilities:
Deposits	$	1,435,215		-		-		1,434,871		1,434,871
Securities sold under agreements to repurchase		47,688		-		47,688		-		47,688
Junior subordinated debentures		15,464		-		15,464		-		15,464

(Dollars in thousands)
	September 30, 2023			September 30, 2022

Operating lease cost	$	605		$	617

Other information:
Cash paid for amounts included in the measurement of lease liabilities		583			605
Operating cash flows from operating leases		-			-
Right-of-use assets obtained in exchange for new lease liabilities - operating leases		370			1,726
Weighted-average remaining lease term - operating leases		8.61			9.01
Weighted-average discount rate - operating leases		2.71	%		2.30	%

(Dollars in thousands)

Maturity Analysis of Operating Lease Liabilities:	September 30, 2023

2023	$	203
2024		819
2025		773
2026		650
2027		612
Thereafter		2,625
Total		5,682
Less: Imputed Interest		(680	)
Operating Lease Liability	$	5,002

(Dollars in thousands)
	Banking
	Operations		CBRES		Other			Consolidated
As of and for the three months ended September 30, 2023
Interest income	$	18,297	$	-	$	9		$	18,306
Interest expense		4,681		-		285			4,966
Net interest income		13,616		-		(276	)		13,340
Provision for credit losses		562		-		-			562
Noninterest income		3,989		-		-			3,989
Appraisal management fee income		-		2,785		-			2,785
Noninterest expense		11,515		401		157			12,073
Appraisal management fee expense		-		2,182		-			2,182
Income tax expense (benefit)		1,215		46		(91	)		1,170
Net income (loss)	$	4,313	$	156	$	(342	)	$	4,127
Total assets	$	1,601,541	$	3,713	$	2,010		$	1,607,264
As of and for the three months ended September 30, 2022
Interest income	$	14,606	$	-	$	5		$	14,611
Interest expense		671		-		147			818
Net interest income		13,935		-		(142	)		13,793
Provision for loan losses		408		-		-			408
Noninterest income		4,080		2		-			4,082
Appraisal management fee income		-		2,711		-			2,711
Noninterest expense		10,607		538		159			11,304
Appraisal management fee expense		-		2,151		-			2,151
Income tax expense (benefit)		1,473		6		(63	)		1,416
Net income (loss)	$	5,527	$	18	$	(238	)	$	5,307
Total assets	$	1,670,896	$	3,298	$	2,096		$	1,676,290
As of and for the nine months ended September 30, 2023
Interest income	$	52,680	$	-	$	26		$	52,706
Interest expense		10,466		-		791			11,257
Net interest income		42,214		-		(765	)		41,449
Provision for credit losses		1,161		-		-			1,161
Noninterest income		9,318		-		-			9,318
Appraisal management fee income		-		7,469		-			7,469
Noninterest expense		34,118		1,094		483			35,695
Appraisal management fee expense		-		5,881		-			5,881
Income tax expense (benefit)		3,541		114		(262	)		3,393
Net income (loss)	$	12,712	$	380	$	(986	)	$	12,106
Total assets	$	1,601,541	$	3,713	$	2,010		$	1,607,264
As of and for the nine months ended September 30, 2022
Interest income	$	37,921	$	-	$	11		$	37,932
Interest expense		1,801		-		324			2,125
Net interest income		36,120		-		(313	)		35,807
Provision for loan losses		889		-		-			889
Noninterest income		11,497		14		-			11,511
Appraisal management fee income		-		9,656		-			9,656
Noninterest expense		31,518		1,360		481			33,359
Appraisal management fee expense		-		7,680		-			7,680
Income tax expense (benefit)		3,091		146		(167	)		3,070
Net income (loss)	$	12,119	$	484	$	(627	)	$	11,976
Total assets	$	1,670,896	$	3,298	$	2,096		$	1,676,290

	Three months ended September 30, 2023 compared to three months ended September 30, 2022								Nine months ended September 30, 2023 compared to nine months ended September 30, 2022
(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	$	1,141			1,953		3,094			4,577			5,391		9,968
Investments - taxable		(385	)		1,078		693			(27	)		4,114		4,087
Investments - nontaxable		48			59		107			91			362		453
Due from banks		(1,063	)		770		(293	)		(3,873	)		3,926		53
Total interest income		(259	)		3,860		3,601			768			13,793		14,561

Interest expense:
Interest-bearing demand, MMDA & savings deposits		(312	)		1,570		1,258			(473	)		4,098		3,625
Time deposits		902			1,476		2,378			1,353			2,892		4,245
Junior subordinated debentures		-			138		138			-			467		467
Other		146			228		374			215			580		795
Total interest expense		736			3,412		4,148			1,095			8,037		9,132
Net interest income	$	(995	)		448		(547	)		(327	)		5,756		5,429