Item 2.
| Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
Management’s discussion and analysis is presented to aid the reader in understanding and evaluating the financial condition and results of operations of Old Point Financial Corporation and its subsidiaries (collectively, the Company). This discussion and analysis should be read with the consolidated financial statements, the notes to the financial statements, and the other financial data included in this report, as well as the Company’s 20192020 Annual Report on Form 10-K and management’s discussion and analysis for the year ended December 31, 2019.2020. Highlighted in the discussion are material changes from prior reporting periods and certain identifiable trends affecting the Company. Results of operations for the three and ninesix months ended SeptemberJune 30, 20202021 and 20192020 are not necessarily indicative of results that may be attained for any other period. Amounts are rounded for presentation purposes while some of the percentages presented are computed based on unrounded amounts.
Caution AboutCautionary Statement Regarding Forward-Looking Statements
In addition to historical information, certainThis report contains statements in this report which use language such as “believes,” “expects,” “plans,” “may,” “will,” “should,” “projects,” “contemplates,” “anticipates,” “forecasts,” “intends” and similar expressions, may identify forward-looking statements. For this purpose, any statement that is not a statement of historical fact may be deemed to be a forward-looking statement. These forward-looking statements are based on the beliefs ofconcerning the Company’s management, as well as estimates and assumptions made by, and information currently available to, management. These statements are inherently uncertain, and there can be no assurance that the underlying estimates, assumptionsexpectations, plans, objectives or beliefs will prove to be accurate. Actual results could differ materially from historical results or those anticipated by such statements. Forward-looking statements in this report may include, without limitation: statements regarding future financial performance and profitability; performance ofother statements that are not historical facts. These statements may constitute “forward-looking statements” as defined by federal securities laws and may include, but are not limited to: statements regarding expected future operations and financial performance; the investmentCompany’s technology and loan portfolios, including performance of the purchased student loan portfolioefficiency initiatives and expected trends in the quality of the loan portfolio; the ability of the Company to manage the impactanticipated completion timelines; potential effects of the COVID-19 pandemic;pandemic, including on asset quality, the allowance for loan losses, provision for loan losses, interest rates, and results of operations, certain items that management does not expect to have an ongoing impact on consolidated net income, future dividend payments, net interest margin compression and items affecting net interest margin, strategic business initiatives and the anticipated effects thereof, lending under the Paycheck Protection Program (PPP) of the Small Business Administration (SBA), asset quality, adequacy of allowances for loan losses and the level of future chargeoffs, liquidity and capital levels, the Company’s assessment of and ability to manage and remediate the impact of cyber incidents, including those involving theft and fraudulent activity directed at the Bank and its customers and employees, perpetrated by third-party cybercriminals;cybercriminals, the impacteffect of potential changes in the political landscape; planned branch closures;future market and industry trends and the effects of diversifying the loan portfolio; strategic business and growth initiatives, including digital and technological strategies; management’s efforts to reposition the balance sheetand manage asset quality; revenue generation, efficiency initiatives and expense controls; deposit growth;future interest rate levels and sources of liquidity; the securities portfolio; use of proceeds from the sale of securities; future levels of charge-offs or net recoveries; the impact of changes in NPAs on future earnings; write-downsfluctuations. These forward-looking statements are subject to significant risks and expected sales of other real estate owned; income taxes; monetary policy actions of the FOMC; and changes in interest rates.
Factorsuncertainties due to factors that could have a material adverse effect on the operations and future prospects of the Company include,including, but are not limited to, changes in:
interest rates, such as volatility in short-term interest rates or yields on U.S. Treasury bonds and yields; increases or volatility in mortgage interest rates
general business conditions, as well as conditions within the financial markets
general economic and business conditions, including unemployment levels and slowdowns in economic growth, especiallyand particularly related to further and sustained economic impacts of the COVID-19 pandemic; pandemic
the effecteffectiveness of steps the Company takes in responseCompany’s efforts to the pandemic,respond to COVID-19, the severity and duration of the pandemic, the impact of loosening of governmental restrictions, the effectuncertainty regarding new variants, the pace and efficacy of any potential resurgence in infections,vaccinations and treatment developments, the pace of recovery when the pandemic subsides and the heightened impact it has on many of the risks described herein the effects of the COVID-19 pandemic on, among other things, the Company’s business, financial condition, results of operations, liquidity, and credit quality and
potential claims, damages and fines related to litigation or government actions, including litigation or actions arising from the Company’s participation in theand administration of programs related to the COVID-19, pandemic (including,including, among other things, the PPP under the CARES Act); demand for loan products; Act, as subsequently amended
the Company’s branch realignment initiatives
the Company’s technology, efficiency, and other strategic initiatives
the legislative/regulatory climate, regulatory initiatives with respect to financial institutions, products and services, the Consumer Financial Protection Bureau (the CFPB) and the regulatory and enforcement activities of the CFPB
monetary and fiscal policies of the U.S. Government, including policies of the U.S. Department of the Treasury and the Board of Governors of the Federal Reserve System (the Federal Reserve), and the effect of these policies on interest rates and business in our markets
future levels of government defense spending particularly in the Company’s service area; uncertainty over future federal spending or budget priorities of the current administration, particularly in connection with the Department of Defense, on the Company’s service area; the performance of the Company’s dealer lending program; area
the impact of potential changes in the political landscape and related policy changes, including monetary, regulatory and trade policies; monetary and fiscal policies
the US. Government’s guarantee of repayment of student or small business loans purchased by the U.S. government, including policiesCompany
the value of securities held in the U.S. TreasuryCompany’s investment portfolios
demand for loan products and the Federal Reserve Board and anyimpact of changes associated with the current administration; in demand on loan growth
the quality or composition of the loan or securities portfolios; portfolios and the value of the collateral securing those loans
changes in the volume and mix of interest-earning assets and interest-bearing liabilities; liabilities
the effects of management’s investment strategy and strategy to manage the net interest margin; the U.S. government’s guarantee of repayment of student or small business loans purchased by the Company; margin
the level of net charge-offs on loans; loans and the adequacy of our allowance for loan and lease losses
performance of the Company’s dealer lending program
deposit flows; competition; flows
the strength of the Company’s counterparties
competition from both banks and non-banks
demand for financial services in the Company’s market area; area
implementation of new technologies; technologies
the Company’s ability to develop and maintain secure and reliable electronic systems; systems
any interruption or breach of security in the Company’s information systems or those of the Company’s third partythird-party vendors or othertheir service providers; cyberattacks, threats and events; providers
reliance on third parties for key services; services
cyber threats, attacks or events
the use of inaccurate assumptions in management’s modeling systems; systems
technological risks and developments; developments
the commercial and residential real estate market; markets
the demand in the secondary residential mortgage loan markets
expansion of the Company’s product offerings
accounting principles, policies and guidelines;guidelines and other factors detailed inelections made by the Company’s publicly filed documents.Company thereunder
These risks and uncertainties, in addition to the risks and uncertainties identified in the Company’s 2020 Annual Report on Form 10-K, the Company’s Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K should be considered in evaluating the forward-looking statements contained herein,herein. Forward-looking statements generally can be identified by the use of words such as “believe,” “expect,” “anticipate,” “estimate,” “plan,” “may,” “will,” “intend,” “should,” “could,” or similar expressions, are not statements of historical fact, and readersare based on management’s beliefs, assumptions and expectations regarding future events or performance as of the date of this report, taking into account all information currently available. Readers are cautioned not to place undue reliance on such statements. Any forward-looking statement speaks only as of the date on which it is made, and the Company undertakes no obligation to update or revise any forward-looking statement to reflect events or circumstances arising after the date on which it is made, except as otherwise required by law. In addition, past results of operations are not necessarily indicative of future results.
Available Information
The Company maintains a website on the Internet at www.oldpoint.com. The Company makes available free of charge, on or through its website, its proxy statements, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission (SEC). This reference to the Company’s Internet address shall not, under any circumstances, be deemed to incorporate the information available at such Internet address into this Form 10-Q or other SEC filings. The information available on the Company’s Internet website is not part of this Form 10-Q or any other report filed by the Company with the SEC. The Company’s SEC filings can also be obtained on the SEC’s website on the Internet at www.sec.gov.
About Old Point Financial Corporation
The Company is the parent company of The Old Point National Bank of Phoebus (the Bank) and Old Point Trust & Financial Services, N. A. (Trust). The Bank is a locally managed community bank serving the Hampton Roads localities of Chesapeake, Hampton, Isle of Wight County, Newport News, Norfolk, Virginia Beach, Williamsburg/James City County and York County.Richmond regions. The Bank currently has 1916 branch offices. The Bank also has a loan production office in Richmond and a mortgage loan origination office in Charlotte, NC. Trust is a wealth management services provider.
On April 1, 2018, the Company acquired Citizens National Bank (Citizens). Under the terms of the merger agreement, Citizens stockholders received 0.1041 shares of Company stock and $2.19 in cash for each share of Citizens stock. Systems integration was completed in May 2018.
On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. The effectsoutbreak of COVID-19 did havehas caused a materialsignificant disruption in economic activity worldwide, and has had a significant impact on the financialbusiness and customers in our market areas and on our results of operations, which the Company as of September 30, 2020. Due to orders issued byexpects may continue. Substantial uncertainty remains about critical factors that may affect the Governor of Virginiaeconomy and employment, including a rising trend in an abundance of caution for the health of our customers and employees, the Company closed lobbies of all branches but remained fully operational through appointments and drive thru capabilities. Beginning on September 28, 2020, branch lobbies have re-opened for service on a one-by-one customer basis. The Company actively assisted both customers and non-customers in obtaining loans through the PPP administered by the SBA. Additionally, the Company is working with customers affected by COVID-19 through payment deferrals and is tracking all payment accommodations to customers to identify and quantify any impact they might have on the Company. As of September 30, 2020, the Company had loan modifications on $7.5 million, or 0.86% of gross loans, down from approximately $128.9 million, or 15.0%, of gross loans as of June 30, 2020. Of the loans still under modifications at September 30, 2020, $729 thousand were under initial modification with the remaining $6.8 million under a second modification. Initial and second modifications consisted primarily of 60- or 90-day principal and interest payment deferral periods. Continued uncertainty regarding the duration and scope of the pandemic and related effectsnew cases of COVID-19 may negatively impact management assumptionsin the U.S.; and estimates,the emergence of new COVID-19 variants; the efficacy of a vaccine against COVID-19; vaccination rates; potential re-tightening of policies that had previously allowed businesses to open; and any further government stimulus efforts, including the nature, timing and extent of such as the allowance for loan losses and resulting provision for loan losses. Management considered the COVID-19 pandemic a triggering event for an interim impairment evaluation of goodwill and determined no impairment should be recorded as of September 30, 2020. stimulus. The Company currently expects to be able to manage the economic risks and uncertainties associated with the COVID-19 pandemic with sufficient liquidity and capital levels. However, the ultimate extent of the impact of the COVID-19 pandemic on the Company’s business, financial condition and results of operations liquidity position and resources, credit quality, and capital levels is currently not yet estimable and the Company believes that it will depend on various developments and other factors, including, among others, the duration and scope of the pandemic, as well as governmental, regulatory and private sector responses to the pandemic, and the associated impacts on the economy, financial markets and our customers, employees and vendors. The Company’s results of operations may be impacted by elevated loans losses, net interest margin compression, falling demand for loans, and potential impairments of securities available for sale and goodwill. The Company currently expects to manage through the negative impacts of the COVID-19 pandemic by maintaining sufficient liquidity and capital levels.
The Company actively assisted both customers and non-customers in obtaining loans through the PPP administered by the SBA. Additionally, the Company has worked with customers affected by COVID-19 through payment deferrals and tracked all payment accommodations to customers to identify and quantify any impact they might have on the Company. As of June 30, 2021, the Company had loan modifications on $54 thousand down from approximately $7.4 million as of December 31, 2020. Continued uncertainty regarding the duration and scope of the pandemic and related effects of COVID-19 may negatively impact management assumptions and estimates, such as the allowance for loan losses and resulting provision for loan losses.
Critical Accounting Policies and Estimates
The accounting and reporting policies of the Company are in accordance with U.S. GAAP and conform to general practices within the banking industry. The Company’s financial position and results of operations are affected by management’s application of accounting policies, including estimates, assumptions, and judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues, expenses, and related disclosures. Different assumptions in the application of these policies could result in material changes in the Company’s consolidated financial position and/or results of operations. The Company evaluates its critical accounting estimates and assumptions on an ongoing basis and updates them, as needed. Management has discussed the Company’s critical accounting policies and estimates with the Audit Committee of the Board of Directors.
The critical accounting and reporting policies include the Company’s accounting for the allowance for loan losses. Accordingly, the Company’s significant accounting policies are discussed in Note 31 of the Notes to the Consolidated Financial Statements included in this quarterly report on Form 10-Q, and are discussed in further detail in the Company’s 20192020 Annual Report on Form 10-K.
Non-GAAP Financial Measures
In reporting the results of the quarter ended September 30, 2020, the Company has provided supplemental financial measures on an adjusted basis. These non-GAAP financial measures are a supplement to GAAP, which is used to prepare the Company’s financial statements, and should not be considered in isolation or as a substitute for comparable measures calculated in accordance with GAAP. In addition, the Company’s non-GAAP financial measures may not be comparable to non-GAAP financial measures of other companies. The Company uses the non-GAAP financial measures discussed herein in its analysis of the Company’s performance. The Company’s management believes that these non-GAAP financial measures provide additional understanding of ongoing operations and enhance comparability of results of operations with prior periods presented without the impact of items or events that may obscure trends in the Company’s underlying performance.
The PPP adjustment impact to the ALLL as a percentage of loans held for investment, net of deferred fees and costs, excludes the SBA guaranteed PPP loans funded by the Company during the first nine months of 2020. The Company believes that the ALLL as a percentage of loans held for investment, net of deferred fees and costs, excluding PPP, is useful to investors because of the size of the Company’s PPP originations and the impact of the embedded credit enhancement provided by the SBA guarantee. At September, 30, 2020, loans held for investment, net of deferred fees and costs (GAAP) were $871.9 million; the PPP adjustment to exclude $104.2 million of PPP originations resulted in $767.6 million of loans held for investment, net of deferred fees and costs, net of adjustments excluding PPP (non-GAAP).
Executive Overview
For the three months ended SeptemberJune 30, 20202021 net income was $1.1$1.8 million, or $0.21$0.35 earnings per diluted common share. This compares to net income of $2.2$2.5 million, or $0.43$0.48 earnings per diluted common share, for the thirdsecond quarter of 2019.2020. ThisThe decrease was principally attributable to decreased noninterest income and increased noninterest expense partially offset by increased net interest income and decreased provision for loan losses, decreased noninterest income related to gain available-for-sale securities, and increased noninterest expense.losses.
For the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, net income was $4.8$4.9 million, or $0.93 earnings per diluted common share, and $5.9$3.7 million, or $1.13$0.72 earnings per diluted common share, respectively. The decreaseincrease was the result ofprimarily attributable to increased net interest income, decreased provision for loan losses, and increased noninterest income partially offset by increased noninterest expense.
Highlights of the quarter are as follows:
Total assets were $1.3 billion at SeptemberJune 30, 2020,2021, growing $201.6$48.6 million or 19.1%4.0% from December 31, 2019.
Net loans grew $123.8 million from December 31, 2019 to September 30, 2020. Net loan growth included Paycheck Protection Program (PPP) loan originations of $104.2 million as of September 30, 2020.
Deposits grew $161.6$66.8 million to $1.1 billion at SeptemberJune 30, 20202021 from December 31, 2019.2020.
Non-performing assets (NPAs) improvedincreased slightly to $5.7$2.4 million at SeptemberJune 30, 2021 compared to $2.0 million at December 31, 2020, decreasingbut decreased significantly from $7.1 million and $9.1$7.0 million as of December 31, 2019 and SeptemberJune 30, 2019, respectively.2020. NPAs as a percentage of total assets continued to improve to 0.45%was 0.19% at SeptemberJune 30, 20202021, which compared to 0.68%0.16% at December 31, 20192020 and 0.87%0.57% at SeptemberJune 30, 2019.2020.
Quarterly average earning assets grew $111.6 million, or 10.5%, to $1.2 billion as of June 30, 2021 compared to $1.1 billion as of June 30, 2020.
Book value per share at June 30, 2021 increased 1.3% over March 31, 2021 and 3.0% from June 30, 2020.
Net interest income remained essentially steady at $8.5 million for the third and second quarters of 2020 compared to $8.6 million for the third quarter of 2019.
Noninterest income was $3.7 million for the third quarter of 2020 compared to $4.0$9.1 million for the second quarter of 2020 and $3.72021, compared to $10.2 million for the thirdprior quarter, and increasing from $8.5 million for the second quarter of 2019.2020.
Net Interest Income
The principal source of earnings for the Company is net interest income. Net interest income is the difference between interest and fees generated by earning assets and interest expense paid to fund them. Changes in the volume and mix of interest-earning assets and interest-bearing liabilities, as well as their respective yields and rates, have a significant impact on the level of net interest income. The net interest margin is calculated by dividing tax-equivalent net interest income by average earning assets.
For the thirdsecond quarter of 2020,2021, net interest income was $8.5$9.1 million, a decreasean increase of $84$633 thousand or 1.0%7.5% from the thirdsecond quarter of 2019. Net interest income, on a fully tax-equivalent basis, for the third quarters of 2020 and 2019 was $8.5 million and $8.6 million, respectively.2020. The slight decreaseincrease was primarily due to the impact of highersignificant growth in average earning asset balances at lower average earning yields partially offset by higher average interest bearing liabilities balances at lower average interest bearing costs. The compression on yield and cost was primarily due to the reduction of the federal funds target rate in the first quarter of 2020 by the Federal Reserve to a range of 0.00% to 0.25% in March 2020 in response to the COVID-19 pandemic, but is also impacted by PPP loan originationoriginations (which bear interest at a rate of 1%) and higher levels of liquidity. Average earning assets increased year-over-year $207.6by $111.6 million, or 21.8%10.5%. The average tax-equivalent yield on earning assets for the thirdsecond quarter of 20202021 decreased by 9136 basis points compared to the same period of 2019.2020. Average interest bearing liabilities increased $85.4$17.6 million, or 12.5%2.4%, and the average rate on interest-bearing liabilities for the quarter ended SeptemberJune 30, 20202021 was 0.66%0.40%, down from 0.96%0.75% for the same period of 2019.2020, benefiting from the lower rate environment and reduced interest expense related to repayment of higher-cost long-term borrowings during 2020.
For each of the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, net interest income was $25.4$19.3 million, respectively. and $16.9 million, respectively. Net interest income, on a fully tax-equivalent basis, was $25.5$19.4 million for the ninesix months ended SeptemberJune 30, 2020,2021, compared to $25.7$17.0 million for the ninesix months ended SeptemberJune 30, 2019, a decrease2020, an increase of 0.6%$2.4 million, or 14.2%. The decreaseincrease was driven principally by decreasedthe growth in average earning asset yields partially offset byassets and the lower cost of funds despitefrom the growth in both averagefirst half of 2020, tempered by the impacts of lower yields on earning assets and increases in average interest bearing liabilities relative. Accelerated recognition of deferred fees and costs related to PPP forgiveness also positively impacted net interest income for the first nine months of 2019.2021 period. Average earning assets for the ninesix months ended SeptemberJune 30, 20202021 increased $122.8$149.5 million, or 13.1%14.7%, compared to the first ninesix months of 2019.2020, primarily due to growth in loans (including PPP loans) and investment securities, funded by deposit growth. Average interest bearing liabilities increased $49.3$35.9 million, or 7.2%5.0%, for the ninesix months ended SeptemberJune 30, 20202021 compared to the comparative 20192020 period. The average tax-equivalent yield and average interest bearing cost decreased by 5931 basis points and 1741 basis points, respectively, for the first ninesix months of 20202021 compared to the first ninesix months of 2019.2020.
The tax-equivalent net interest margin compressedNIM for the thirdsecond quarter of 2020 to 2.92%2021 was 3.10%, a decrease from 3.58%3.19% for the thirdsecond quarter of 2019.2020. On a fully tax-equivalent basis, (FTE), NIM decreased to 3.12% for the second quarter of 2021, down from 3.21% for the prior year quarter. For the first ninesix months of 2021 and 2020, NIM was 3.33% and 3.35%, respectively, and NIM (FTE) was 3.36% and 3.36%, respectively. Average loan yields were lower for the tax-equivalent net interest margin was 3.20%second quarter of 2021 compared to 3.65% for the same period of 2019. In addition to2020 by 8 basis points, but higher by 4 basis points for the reductionsix month ended June 20, 2021 over the same period of the federal funds target rate to a range of 0.00% to 0.25%, the net interest margin was impacted by PPP loan originations. While accretive to net interest income, the fixed 1%2020. The lower interest rate combined withenvironment resulted in lower average yields on new loan originations, including PPP loans which earn at a fixed 1%, and repricing within the deferral of relatedexisting loan portfolio. Loan fees and costs compresses the net interest margin. Related loan fees and costsrelated to PPP loans are deferred at time of loan origination, andare amortized into interest income over the remaining livesterm of the loans which for the majority of PPP loans was 24 months at origination. Recognition of these deferred fees and costs will be accelerated upon forgiveness or repayment of the PPP loans. Net PPP fees of $2.0 million were recognized in the first six months of 2021. As of SeptemberJune 30, 2020,2021, unamortized net deferred PPP fees to be recognized related to PPP loans was $2.5were $1.8 million. The net interest margin was also impacted by increasedFor more information about these FTE financial measures, please see “Non-GAAP- Financial Measures” below. High levels of liquidity invested at lower yielding short-term levels.levels in the low interest rate environment also continue to impact the NIM.
Average money market, savings and interest-bearing demand deposits increased $107.4 million and $107.2 million for the second quarter and first six months of 2021, respectively, and average time deposits decreased $28.5 million and $30.2 million for the second quarter and first six months of 2021, respectively, compared to the same periods in 2020, due to growth in consumer and business deposits primarily as a result of new accounts and liquidity from government stimulus programs as well as a shift from time deposits as a result of lower interest rates. Average noninterest-bearing demand deposits increased $74.8 million for the second quarter of 2021 and increased $94.8 million for the first six months of 2021, compared to the same periods in 2020. The average cost of interest-bearing deposits decreased 32 basis points for the second quarter of 2021 and decreased 34 basis points for the first six months of 2021, compared to the same periods in 2020, due primarily to lower rates on deposits and a shift in composition from time deposits. While changes in rates take effect immediately for interest checking, money market and savings accounts, changes in the average cost of time deposits lag changes in pricing based on the repricing of time deposits at maturity.
Average borrowings decreased $61.4 million for the second quarter of 2021 and decreased $41.1 million for the first six months of 2021, compared to the same periods in 2020 due primarily to the repayment of long-term borrowings in 2020. The average cost of borrowings decreased 82 basis points during the second quarter of 2021 and 118 basis points during the first six months of 2021, compared to the same periods in 2020 due primarily to the repayment of higher-cost long-term borrowings during 2020. However, the Company’s borrowings and related interest expense will be impacted beginning during the third quarter of 2021 due to the issuance of subordinated notes by the Company during July 2021. For more information, see “Capital Resources.”
The Company believes NIM may be affected in future periods by several factors that are difficult to predict, including (1) changes in interest rates, which may depend on the severity of adverse economic conditions, the timing and extent of any economic recovery, and the extent of government stimulus measures, which are inherently uncertain, (2) possible changes in the composition of earning assets which may result from decreased loan demand as a result of the current economic environment; and (3) the recognition of net deferred fees on PPP loans, which is subject to the timing of repayment or forgiveness.
The following tables show analyses of average earning assets, interest-bearing liabilities and rates and yields for the periods indicated. Nonaccrual loans are included in loans outstanding.
AVERAGE BALANCE SHEETS, NET INTEREST INCOME AND RATES
| | For the quarter ended September 30, | | | For the quarter ended June 30, | |
| | | 2020 | | | 2019 | | | 2021 | | 2020 | |
| (dollars in thousands) | | Average Balance | | | Interest Income/ Expense | | | Yield/ Rate** | | | Average Balance | | | Interest Income/ Expense | | | Yield/ Rate** | | | Average Balance | | | Interest Income/ Expense | | Yield/ Rate** | | Average Balance | | | Interest Income/ Expense | | Yield/ Rate** | |
| ASSETS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Loans* | | $ | 873,772 | | | $ | 8,801 | | | | 4.01 | % | | $ | 750,908 | | | $ | 8,986 | | | | 4.75 | % | | $ | 831,563 | | $ | 8,826 | | 4.26 | % | | $ | 828,896 | | $ | 8,937 | | 4.34 | % |
| Investment securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Taxable | | | 147,942 | | | | 720 | | | | 1.94 | % | | | 126,055 | | | | 770 | | | | 2.42 | % | | 162,859 | | 791 | | 1.95 | % | | 134,372 | | 712 | | 2.13 | % |
| Tax-exempt* | | | 19,795 | | | | 178 | | | | 3.58 | % | | | 21,117 | | | | 185 | | | | 3.48 | % | | | 32,822 | | 242 | | 2.96 | % | | 18,853 | | 173 | | 3.69 | % |
| Total investment securities | | | 167,737 | | | | 898 | | | | 2.13 | % | | | 147,172 | | | | 955 | | | | 2.57 | % | | 195,681 | | 1,033 | | 2.12 | % | | 153,225 | | 885 | | 2.32 | % |
| Interest-bearing due from banks | | | 114,646 | | | | 41 | | | | 0.14 | % | | | 48,997 | | | | 257 | | | | 2.08 | % | | 150,995 | | 52 | | 0.14 | % | | 82,399 | | 32 | | 0.15 | % |
| Federal funds sold | | | 5 | | | | - | | | | 0.04 | % | | | 1,688 | | | | 10 | | | | 2.12 | % | | 4 | | - | | 0.02 | % | | 6 | | 0 | | 0.02 | % |
| Other investments | | | 3,098 | | | | 46 | | | | 6.04 | % | | | 3,433 | | | | 53 | | | | 6.13 | % | | | 1,033 | | 11 | | 4.19 | % | | 3,153 | | 43 | | 5.56 | % |
| Total earning assets | | | 1,159,258 | | | $ | 9,787 | | | | 3.36 | % | | | 952,198 | | | $ | 10,261 | | | | 4.27 | % | | 1,179,276 | | $ | 9,922 | | 3.37 | % | | 1,067,679 | | $ | 9,897 | | 3.73 | % |
| Allowance for loan losses | | | (9,739 | ) | | | | | | | | | | | (10,951 | ) | | | | | | | | | | (9,619 | ) | | | | | | | | | (9,626 | ) | | | | | | | | |
| Other non-earning assets | | | 100,984 | | | | | | | | | | | | 104,939 | | | | | | | | | | | | 106,058 | | | | | | | | | | | 116,890 | | | | | | | | | |
| Total assets | | $ | 1,250,503 | | | | | | | | | | | $ | 1,046,186 | | | | | | | | | | | $ | 1,275,715 | | | | | | | | | | $ | 1,174,943 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | | | | | | | | | | | | | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | | | | | | | | | | | | |
| Time and savings deposits: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest-bearing transaction accounts | | $ | 54,065 | | | $ | 3 | | | | 0.02 | % | | $ | 33,320 | | | $ | 3 | | | | 0.04 | % | | $ | 70,532 | | $ | 3 | | 0.02 | % | | $ | 56,465 | | $ | 3 | | 0.02 | % |
| Money market deposit accounts | | | 319,674 | | | | 222 | | | | 0.28 | % | | | 257,627 | | | | 266 | | | | 0.41 | % | | 372,691 | | 220 | | 0.24 | % | | 300,028 | | 283 | | 0.38 | % |
| Savings accounts | | | 99,933 | | | | 13 | | | | 0.05 | % | | | 86,133 | | | | 22 | | | | 0.10 | % | | 113,963 | | 12 | | 0.04 | % | | 93,307 | | 12 | | 0.05 | % |
| Time deposits | | | 205,240 | | | | 791 | | | | 1.53 | % | | | 234,841 | | | | 1,012 | | | | 1.71 | % | | | 183,936 | | | 511 | | | 1.11 | % | | | 212,386 | | | 883 | | | 1.67 | % |
| Total time and savings deposits | | | 678,912 | | | | 1,029 | | | | 0.60 | % | | | 611,921 | | | | 1,303 | | | | 0.84 | % | | 741,122 | | 746 | | 0.40 | % | | 662,186 | | 1,181 | | 0.72 | % |
| Federal funds purchased, repurchase agreements and other borrowings | | | 48,740 | | | | 69 | | | | 0.56 | % | | | 22,114 | | | | 32 | | | | 0.57 | % | | 14,505 | | 7 | | 0.21 | % | | 33,859 | | 15 | | 0.18 | % |
| Federal Home Loan Bank advances | | | 40,706 | | | | 171 | | | | 1.67 | % | | | 48,924 | | | | 321 | | | | 2.61 | % | | | - | | - | | 0.00 | % | | 42,000 | | 179 | | 1.71 | % |
| Total interest-bearing liabilities | | | 768,358 | | | | 1,269 | | | | 0.66 | % | | | 682,959 | | | | 1,656 | | | | 0.96 | % | | 755,627 | | 753 | | 0.40 | % | | 738,045 | | 1,375 | | 0.75 | % |
| Demand deposits | | | 357,078 | | | | | | | | | | | | 250,634 | | | | | | | | | | | 394,337 | | | | | | | | | | 319,574 | | | | | | | | | |
| Other liabilities | | | 7,880 | | | | | | | | | | | | 3,647 | | | | | | | | | | | 6,131 | | | | | | | | | | 3,982 | | | | | | | | | |
| Stockholders’ equity | | | 117,187 | | | | | | | | | | | | 108,946 | | | | | | | | | | | | 119,620 | | | | | | | | | | 113,342 | | | | | | | | | |
| Total liabilities and stockholders’ equity | | $ | 1,250,503 | | | | | | | | | | | $ | 1,046,186 | | | | | | | | | | | $ | 1,275,715 | | | | | | | | | | $ | 1,174,943 | | | | | | | | | |
| Net interest margin | | | | | | $ | 8,518 | | | | 2.92 | % | | | | | | $ | 8,605 | | | | 3.58 | % | | | | | $ | 9,169 | | 3.12 | % | | | | | $ | 8,522 | | 3.21 | % |
*Computed on a fully tax-equivalent basis (non-GAAP) using a 21% rate, adjusting interest income by $50$63 thousand and $53$49 thousand for SeptemberJune 30, 20202021 and 20192020, respectively.
**Annualized
AVERAGE BALANCE SHEETS, NET INTEREST INCOME AND RATES
| | For the nine months ended September 30, | |
| | | 2020 | | | 2019 | |
| (dollars in thousands) | | Average Balance | | | Interest Income/ Expense | | | Yield/ Rate** | | | Average Balance | | | Interest Income/ Expense | | | Yield/ Rate** | |
| ASSETS | | | | | | | | | | | | | | | | | | |
| Loans* | | $ | 819,325 | | | $ | 26,577 | | | | 4.33 | % | | $ | 763,074 | | | $ | 26,949 | | | | 4.72 | % |
| Investment securities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Taxable | | | 141,746 | | | | 2,296 | | | | 2.16 | % | | | 112,543 | | | | 2,038 | | | | 2.42 | % |
| Tax-exempt* | | | 16,635 | | | | 460 | | | | 3.69 | % | | | 34,339 | | | | 818 | | | | 3.17 | % |
| Total investment securities | | | 158,381 | | | | 2,756 | | | | 2.32 | % | | | 146,882 | | | | 2,856 | | | | 2.60 | % |
| Interest-bearing due from banks | | | 81,779 | | | | 224 | | | | 0.37 | % | | | 26,005 | | | | 425 | | | | 2.19 | % |
| Federal funds sold | | | 1,122 | | | | 12 | | | | 1.45 | % | | | 1,320 | | | | 23 | | | | 2.28 | % |
| Other investments | | | 3,080 | | | | 136 | | | | 5.86 | % | | | 3,603 | | | | 176 | | | | 6.52 | % |
| Total earning assets | | | 1,063,687 | | | $ | 29,705 | | | | 3.73 | % | | | 940,884 | | | $ | 30,429 | | | | 4.32 | % |
| Allowance for loan losses | | | (9,667 | ) | | | | | | | | | | | (10,583 | ) | | | | | | | | |
| Other nonearning assets | | | 106,970 | | | | | | | | | | | | 103,901 | | | | | | | | | |
| Total assets | | $ | 1,160,990 | | | | | | | | | | | $ | 1,034,202 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | | | | | | | | | | | | |
| Time and savings deposits: | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest-bearing transaction accounts | | $ | 53,254 | | | $ | 9 | | | | 0.02 | % | | $ | 30,858 | | | $ | 8 | | | | 0.03 | % |
| Money market deposit accounts | | | 300,290 | | | | 823 | | | | 0.37 | % | | | 254,564 | | | | 743 | | | | 0.39 | % |
| Savings accounts | | | 93,306 | | | | 44 | | | | 0.06 | % | | | 87,292 | | | | 66 | | | | 0.10 | % |
| Time deposits | | | 213,553 | | | | 2,646 | | | | 1.65 | % | | | 232,517 | | | | 2,829 | | | | 1.63 | % |
| Total time and savings deposits | | | 660,403 | | | | 3,522 | | | | 0.71 | % | | | 605,231 | | | | 3,646 | | | | 0.81 | % |
| Federal funds purchased, repurchase agreements and other borrowings | | | 30,465 | | | | 106 | | | | 0.47 | % | | | 23,456 | | | | 105 | | | | 0.60 | % |
| Federal Home Loan Bank advances | | | 40,398 | | | | 584 | | | | 1.93 | % | | | 53,264 | | | | 1,024 | | | | 2.57 | % |
| Total interest-bearing liabilities | | | 731,266 | | | | 4,212 | | | | 0.77 | % | | | 681,951 | | | | 4,775 | | | | 0.94 | % |
| Demand deposits | | | 310,199 | | | | | | | | | | | | 241,924 | | | | | | | | | |
| Other liabilities | | | 5,328 | | | | | | | | | | | | 4,003 | | | | | | | | | |
| Stockholders’ equity | | | 114,197 | | | | | | | | | | | | 106,324 | | | | | | | | | |
| Total liabilities and stockholders’ equity | | $ | 1,160,990 | | | | | | | | | | | $ | 1,034,202 | | | | | | | | | |
| Net interest margin | | | | | | $ | 25,493 | | | | 3.20 | % | | | | | | $ | 25,654 | | | | 3.65 | % |
| | | For the six months ended June 30, | |
| | | 2021 | | | 2020 | |
| (dollars in thousands) | | Average Balance | | | Interest Income/ Expense | | | Yield/ Rate | | | Average Balance | | | Interest Income/ Expense | | | Yield/ Rate | |
| ASSETS | | | | | | | | | | | | | | | | | | |
| Loans* | | $ | 833,446 | | | $ | 18,791 | | | | 4.55 | % | | $ | 791,803 | | | $ | 17,776 | | | | 4.51 | % |
| Investment securities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Taxable | | | 161,196 | | | | 1,561 | | | | 1.95 | % | | | 138,613 | | | | 1,576 | | | | 2.29 | % |
| Tax-exempt* | | | 31,268 | | | | 471 | | | | 3.04 | % | | | 15,038 | | | | 283 | | | | 3.78 | % |
| Total investment securities | | | 192,464 | | | | 2,032 | | | | 2.13 | % | | | 153,651 | | | | 1,859 | | | | 2.43 | % |
| Interest-bearing due from banks | | | 137,744 | | | | 95 | | | | 0.14 | % | | | 65,165 | | | | 183 | | | | 0.56 | % |
| Federal funds sold | | | 4 | | | | 0 | | | | 0.03 | % | | | 1,687 | | | | 12 | | | | 1.45 | % |
| Other investments | | | 1,176 | | | | 41 | | | | 6.96 | % | | | 3,072 | | | | 89 | | | | 5.85 | % |
| Total earning assets | | | 1,164,834 | | | $ | 20,959 | | | | 3.63 | % | | | 1,015,378 | | | $ | 19,919 | | | | 3.94 | % |
| Allowance for loan losses | | | (9,633 | ) | | | | | | | | | | | (9,631 | ) | | | | | | | | |
| Other nonearning assets | | | 101,615 | | | | | | | | | | | | 109,995 | | | | | | | | | |
| Total assets | | $ | 1,256,816 | | | | | | | | | | | $ | 1,115,742 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | | | | | | | | | | | | |
| Time and savings deposits: | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest-bearing transaction accounts | | $ | 69,153 | | | $ | 6 | | | | 0.02 | % | | $ | 52,844 | | | $ | 6 | | | | 0.02 | % |
| Money market deposit accounts | | | 360,180 | | | | 422 | | | | 0.24 | % | | | 290,492 | | | | 600 | | | | 0.42 | % |
| Savings accounts | | | 111,128 | | | | 22 | | | | 0.04 | % | | | 89,956 | | | | 32 | | | | 0.07 | % |
| Time deposits | | | 187,597 | | | | 1,095 | | | | 1.18 | % | | | 217,756 | | | | 1,855 | | | | 1.71 | % |
| Total time and savings deposits | | | 728,058 | | | | 1,545 | | | | 0.43 | % | | | 651,048 | | | | 2,493 | | | | 0.77 | % |
Federal funds purchased, repurchase agreements and other borrowings | | | 20,347 | | | | 30 | | | | 0.30 | % | | | 21,227 | | | | 37 | | | | 0.35 | % |
| Federal Home Loan Bank advances | | | - | | | | - | | | | 0.00 | % | | | 40,242 | | | | 413 | | | | 2.06 | % |
| Total interest-bearing liabilities | | | 748,405 | | | | 1,575 | | | | 0.42 | % | | | 712,517 | | | | 2,943 | | | | 0.83 | % |
| Demand deposits | | | 381,278 | | | | | | | | | | | | 286,502 | | | | | | | | | |
| Other liabilities | | | 8,008 | | | | | | | | | | | | 4,037 | | | | | | | | | |
| Stockholders’ equity | | | 119,125 | | | | | | | | | | | | 112,686 | | | | | | | | | |
| Total liabilities and stockholders’ equity | | $ | 1,256,816 | | | | | | | | | | | $ | 1,115,742 | | | | | | | | | |
| Net interest margin | | | | | | $ | 19,384 | | | | 3.36 | % | | | | | | $ | 16,976 | | | | 3.36 | % |
*Computed on a fully tax-equivalent basis (non-GAAP) using a 21% rate, adjusting interest income by $134$122 thousand and $212$85 thousand for SeptemberJune 30, 2021 and 2020, and 2019 respectively.
Provision for Loan Losses and Credity Quality
The provision for loan losses is a charge against earnings necessary to maintain the allowance for loan losses at a level consistent with management’s evaluation of the portfolio. This expense is based on management’s estimate of probable credit losses inherent to the loan portfolio. Management’s evaluation included credit quality trends, collateral values, discounted cash flow analysis, loan volumes, geographic, borrower and industry concentrations, the findings of internal credit quality assessments and results from external regulatory examinations. These factors, as well as identified impaired loans, historical losses and current economic and business conditions including uncertainties associated with the COVID-19 pandemic, were used in developing estimated loss factors for determining the loan loss provision. Based on its analysis of the adequacy of the allowance for loan losses, management concluded that the provision was appropriate.
For the three months ended SeptemberJune 30, 2020, the Company recorded $300 thousand for the provision for loan losses. For the third quarter of 2019,2021, the Company did not recognize anya provision for loan losses duecompared to a decline in net loans and an upgradeprovision of one large classified relationship.$300 thousand for the second quarter of 2020. The provision for loan losses was $900$150 thousand in the first ninesix months of 2020,2021, compared to $1.0 million$600 thousand in the first ninesix months of 2019.2020.
The allowance for loan and lease losses (ALLL) was $9.99.5 million at SeptemberJune 30, 20202021 and $9.7 million at December 31, 2019.2020, respectively. The ALLL as a percentage of loans held for investment was 1.14% at SeptemberJune 30, 2020 compared to 1.29% at2021 and December 31, 2019. The decrease in the ALLL as a percentage of loans held for investment at September 30, 2020, was directly attributable to PPP loan originations, creating a 0.15% compression.respectively. Excluding PPP loans, which are 100% guaranteed by the SBA, the ALLL as a percentage of loans held for investment was 1.29%1.23% at SeptemberJune 30, 2021 and 1.27% at December 31, 2020. LoansThe decrease in ALLL as a percentage of loans held for investment, excluding PPP loans, is a non-GAAP financial measure. For a reconciliation of this non-GAAP financial measure, see the Non-GAAP Financial Measures section above.
Historicalwas primarily attributable to an increase in loans held for investment combined with improving historical loss rates, partially offset by increased qualitative reserves. Quarterly annualized net charge offs as a percentage of average loans outstanding decreased to 0.04%was 0.09% for the thirdsecond quarter of 20202021 compared to 0.08%0.13% in the thirdsecond quarter of 2019. Net loans charged off as a percent2020. For more information about financial measures that are not calculated in accordance with GAAP, please see “Non-GAAP Financial Measures” below.
As of average loans on an annualized basis were 0.10% for the first nine months of 2020, or $853 thousand,June 30, 2021, compared to 0.13%, or $1 millionDecember 31, 2020, there have not been significant changes in the first nine monthsoverall credit quality of 2019.
Overall improving asset quality combined with continuedthe loan portfolio, however the effects of government stimulus, including PPP loans, may be delaying signs of credit deterioration. Low levels of NPAs and year-over-year quantitative historical loss rates continue to demonstrate improvement, in non-performing assets resultedresulting in a 69 basis point reduction in the historical loss rate as a percentage of loans evaluated collectively for impairment overall. The overall, but are being partially offset by a 6 basis point increase in qualitative factor components for loans evaluated collectively for impairment increased 4 basis points during the third quarter of 2020 based primarily on segment adjustments forrelated to economic uncertainty changes in volume, and COVID-19-related deferral requests. stemming from the COVID-19 pandemic. As the economic impact of the COVID-19 pandemic and the related federal relief efforts continuecontinues to evolve, elevated levels of risk within the loan portfolio may require additional increases in the allowance for loan losses.
OnThe Company has made loan modifications under the CARES Act, enacted on March 22,27, 2020, and subsequently revised on April 7, 2020,amended by the five federal bank regulatory agencies issued joint guidance encouraging action with respect toConsolidated Appropriations Act 2021, which provided that certain loan modifications that were (1) related to COVID-19 and (2) for borrowers affected by COVID-19. The guidance assured prudent loan modifications would not receive supervisory criticism andloans that lenders would not be required by examiners to automatically categorize COVID-19 related loan modifications as TDRs, provided the modification was short-term and made on good faith basis to borrowers who were not more than thirty30 days past due on contractual payments. Asas of SeptemberDecember 31, 2019 are not required to be designated as TDRs. At June 30, 2020,2021, the Company had loan modifications on approximately $7.5of $54 thousand down from $7.4 million or 0.86%,as of gross loans. Of the $7.5 million, $729 thousand were under the initial deferral with the remaining $6.8 million under a second deferral. Both initial and second modifications consisted primarily of 60- or 90-day principal and interest payment deferral periods. Of the modified loans, $3.8 million, or 50.6%, was secured by owner occupied commercial real estate, and $2.4 million, or 31.5%, was secured by various other types of real estate.December 31, 2020. The Company recognizes interest income as earned and management expects that the deferred interest owed on each such loan modification will be repaid by the borrower in a future period.
Noninterest Income
Noninterest income was $3.7$3.5 million and $10.9$7.7 million , respectively, in the three and ninesix months ended SeptemberJune 30, 2020,2021, a decrease of $80$420 thousand or 2.1%10.6% from the third quarter of 2019 and an increase of $167 thousand or 1.6% from the nine months ended September 30, 2019. These quarter over quarter decrease was primarily driven by an increase in mortgage banking income due to the current interest rate environment offset by decreases in service charges on deposit accounts and gains on sales of securities. The year over year increase is primarily related to gains on sale of fixed assets and increased mortgage banking income partially offset by decreased service charges on deposit accounts.
The disposition of non-earning fixed assets, a component of management’s strategy to reduce overhead expenses through balance sheet repositioning, created a net gain on the sale of fixed assets in 2020 of $818 thousand. Net gains on sales of securities in the third quarter of 2020 were $1 thousand compared to $286 thousand in the third quarter of 2019. For the nine months ended September 30, 2020 and 2019, net gains on sales of securities were $185 thousand and $312 thousand, respectively. Service charges on deposit accounts declined $335 thousand, or 33.5%, when comparing the third quarters of 2020 and 2019 and $906 thousand or 29.4% when comparing the nine months ended September 30, 2020 and 2019. These decreases are primarily attributable to lower nonsufficient fund, or NSF, and overdraft charges. Mortgage banking income increased $436 thousand, or 213.7%, when comparing the third quarters of 2020 and 2019 and $298 thousand or 41.3% when comparing the nine months ended September 30, 2020 and 2019. The increase in mortgage banking income is primarily due to expansion of the mortgage lending team early in the second quarter of 2020 and an increase of $436 thousand from the lowsix months ended June 30, 2020. Increases in fiduciary and asset management fees, other service charges, commissions and fees, and mortgage banking income were offset by the impact of non-recurring gains on available for sale securities and fixed assets that were recognized during the second quarter of 2020, which resulted in a decline in noninterest income for the second quarter of 2021 when compared to the prior year quarter. Year over year, fiduciary and asset management fees and other service charges, commission and fees increased while service charges on deposit accounts decreased primarily due to lower nonsufficient funds, or NSF, fees which historically trend downward during periods of economic uncertainty and lower service charges due to higher deposit balances. Mortgage banking income increased primarily due to (i) higher volume resulting from the current interest rate environment.environment, (ii) higher gains on sales of loans as a result of higher margins on loan originated for resale and (iii) expansion of the mortgage lending team. Excluding non-recurring gains recognized in 2020, noninterest income increased quarter-over-quarter and year-over-year.
Noninterest Expense
Noninterest expense increased $1.4was $10.6 million for the second quarter of 2021, an increase of $1.3 million, or 4.9% when comparing14.5%, from the ninesecond quarter of 2020. For the six months ended SeptemberJune 30, 2021, noninterest expense was $21.1 million, an increase of $1.9 million, or 9.7% over the comparative 2020 and 2019, and $968 thousand or 10.0% when comparing the third quarters of 2020 and 2019.period. The quarter-over-quarter and year-over-year increases are primarily related to salaries and employee benefits, data processing, other taxes expense, and other operating expense, partially offset by decreases in occupancy and equipment, customer development, and professional services.equipment.
Total salaries and benefits costs increased $669$763 thousand, or 11.2%14.0%, when comparing the thirdsecond quarters of 2021 and 2020 and 2019 and $501$996 thousand, or 2.8%8.7%, when comparing the ninesix months ended SeptemberJune 30, 20202021 to the same period in 2019.2020. The year-over-year increase in salaries and employee benefits is primarily attributable to (i) the full-year effect of the addition of highly skilled bankers in lending, credit management, and executive management to the team in 2019; (ii) increased commission expense related to higher mortgage activity;loan origination volume in 2021; (ii) increased temporary employee expense; and (iii) increased overtime and incentive pay related to the COVID-19 pandemic, which were partially offset by the deferrallower levels of deferred costs related to PPP loan origination.origination, partially offset by reduced salary expense related primarily to lower full time equivalent employee levels. The costs related to PPP loan originations were deferred at time of origination and are being amortized to interest income over the remaining lives of the loans, which for the majority of PPP loans wasmay be 24 or 60 months at origination. These costs are amortized against the related loan fees received for the origination of the PPP loans. Recognition of the deferred costs and related fees will be accelerated upon forgiveness or repayment of the PPP loans. The Company has benefited from the early retirement transitions to redeploy resources in highly skilled and experienced relationship officers as well as officers with experience in creating efficiencies through improvements in operations and technology.
As part of the Company’s 2021 roadmap for implementing bank-wide technology and equipment expenses decreased $251 thousand, or 16.9%,efficiency initiatives, the Company has fully implemented a new loan origination system and a new online appointment scheduling solution. In addition, the Company remains on track to implement a deposit origination platform and a new online account opening solution, and complete the ATM upgrade project in the third quarter of 2020 relative to the third quarter of 2019 and $595 thousand, or 13.9% when comparing the nine months ended September 30, 2020 and 2019.2021. The Company continuesplans to implement bank-wide digital, technological and efficiency initiatives through implementation of a new loan origination system,complete upgrades to critical infrastructure software related to imaging outsourcing of item processing, and implementation ofto implement a new deposit originationdata analytics solution and teller systems. The outsourcingsystem during the fourth quarter of the Bank’s core application and digital platform migration to a new vendor are initiatives that have been effectively completed in 2020.2021. These initiatives have driven quarter-over-quarteran increase of $393 thousand from the quarter ended June 30, 2020 to the quarter ended June 30, 2021 and year-over-year increases of $486 thousand and $1.3 million, respectively,are expected to continue to contribute to increased noninterest expenses during the implementation and transition time framestimeframes as our operational structure pivoted from in-house to outsourced environments and shifted costs previously included in occupancy and equipment expense. The Company expects to continue its bank-wide technology initiative implementations into 2022.
DecreasesIncrease in customer development and employee professional development for the three and nine months ended 2020 over the comparative 2019 periods are directlyother tax expenses was driven by resolution of certain tax credits related to the COVID-19 pandemic. Otherbank franchise tax of $94 thousand and increases in other operating expense increased $273 thousand, or 46.6%, in the third quarter of 2020 when compared to the third quarter of 2019 and $566 thousand, or 28.8% when comparing the nine months ended September 30, 2020 and 2019. The increase wasis primarily related to directors fees, otherincreased FDIC assessments and loan expenses, and a single loss event of $85 thousand in the first quarter of 2020.processing expense due to increased volume levels.
The Company’s income tax expense decreased $166 thousand for the thirdsecond quarter and increased $288 thousand for first ninesix months of 2020 decreased $300 thousand and $165 thousand respectively,2021 when compared to the same periodperiods in 20192020 primarily due to overallchanges in the levels of net income and lower net income.federal income tax credits for investment in certain housing projects. The effective federal income tax rates for the three and ninesix months ended SeptemberJune 30, 2020 were 5.3%2021 was 12.7% and 11.2%, respectively;14.7% and the effective tax rates for the three and ninesix months ended SeptemberJune 30, 2019 were 13.9%2020 was 14.7% and 11.6%12.8%, respectively. The decrease in the third quarter 2020 effective federal income tax rate was primarily due to lower taxable income combined with receipt of federal income tax credits for investment in certain housing projects.
Balance Sheet Review
Unless otherwise noted, all comparisons in this section are between balances at December 31, 20192020 and SeptemberJune 30, 2020.2021.
Total assets of $1.3 billion as of SeptemberJune 30, 2020 were $1.3 billion, an increase of $201.62021 increased by $48.6 million or 19.1%, compared to $1.1 billion atfrom December 31, 2019. 2020. Net loans held for investment increased $123.8decreased $3.6 million, or 16.8%0.4%, from December 31, 20192020 to $862.0 million. Net loan growth of $104.2$823.2 million at June 30, 2021. The change in net loans held for investment was primarily attributed to a decline of $25.7 million in the PPP originations with the remaining $18.9loan segment due to forgiveness of $74.0 million increase from the real estate secured portfolio segmentsof PPP loans, which was partially offset by pay-downsnew PPP originations of $48.3 million. Loan growth in the indirect automobile segment. commercial real estate and construction, land deployment, and other land loan segments was $20.9 million on a combined basis for the same period. Cash and cash equivalents increased $42.0$35.1 million, or 46.8%29.1%. Securities available-for-saleavailable for sale, at fair value, increased $22.8$26.8 million or 15.7% from December 31, 20192020 to $168.5$213.2 million at SeptemberJune 30, 2020.2021, as additional liquidity provided by growth in deposit accounts continues to be deployed in the Company’s investment portfolio.
Total deposits increased $161.6$66.8 million, or 18.2%6.3%, to $1.1 billion at SeptemberJune 30, 2020.2021. Noninterest-bearing deposits increased $101.0$38.5 million, or 38.5%10.6%, savings deposits increased $86.6$42.8 million, or 21.7%8.3%, and time deposits decreased $26.0$14.3 million, or 11.4%7.4%. The impact ofGrowth in the Company’s deposits continues to be driven by government stimulus, and PPP loan related deposits, were primary driversand higher levels of consumer savings. Key strategies continue to be expanding the increase in total deposits. Strategies for expanding low cost depositsdeposit base and re-pricing to reduce interest expense continued to shift deposit growth with year-over-year average balance increases in non-interest bearing or lower interest bearing deposit segments.and buffer NIM compression during this low rate environment. Total borrowings increased $38.4 million.decreased $21.0 million from December 31, 2020 to June 30, 2021. The primary driver of the increasedecrease was the utilizationrepayment of borrowing under the Paycheck Protection Program Liquidity Facility (PPPLF) initiated by the Federal Reserve to partially fund PPP loan originations, resulting in the Company borrowing $37.3$3.3 million as of SeptemberJune 30, 2021 as compared to $28.6 million at December 31, 2020. PPPLF borrowings are fully collateralized by PPP loans and will mature in concert with the underlying collateral, all of which will mature within 24 months of origination.
Average assets for the first ninesix months of 20202021 increased $126.8$141.1 million, or 12.3%12.6%, compared to the first ninesix months of 2019.2020. Comparing the first ninesix months of 2021 to the first six months of 2020, to the first nine months of 2019, average loans increased $56.3$41.6 million, and average investment securities increased $11.5$38.8 million. Total average deposits increased $123.4$171.8 million with year-over-year average balance increases of 28.2%33.1% in non-interest bearing deposits and 19.9%24.7% in savings deposits, including interest-bearing transaction and money market accounts. Average borrowings decreased $5.9$41.1 million.
Liquidity
Liquidity is the ability of the Company to meet present and future financial obligations through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. Liquid assets include cash, interest-bearing deposits with banks, federal funds sold, investments in securities and loans maturing within one year. The Company’s internal sources of such liquidity are deposits, loan and investment repayments and securities available-for-sale. As of SeptemberJune 30, 2020,2021, the Bank’s unpledged, available-for-sale securities totaled $92.0$143.2 million. The Company’s primary external source of liquidity is advances from the FHLB. In addition, the Company had cash and cash equivalents of $155.5 million at June 30, 2021, including interest-bearing deposits in other banks of $134.4 million, that could provide additional liquidity to the Company
A major source of the Company’s liquidity is its large, stable deposit base. In addition, secondary liquidity sources are available through the use of borrowed funds if the need should arise, including secured advances from the FHLB and FRB. As of the end of the thirdsecond quarter of 2020,2021, the Company had $325.9$375.1 million in additional FHLB borrowing availability based on loans and securities currently available for pledging, less advances currently outstanding.pledging. The Company believes that the availability at the FHLB is sufficient to meet future cash-flow needs. The Company also has available short-term, unsecured borrowed funds in the form of federal funds lines of credit with correspondent banks. As of the end of the thirdsecond quarter of 2020,2021, the Company had $100.0$105.0 million available in federal funds lines to address any short-term borrowing needs.
As disclosed in the Company’s consolidated statements of cash flows, net cash used inprovided by operating activities was $9.4$15.9 million, net cash used in investing activities was $142.6$25.5 million, and net cash provided by financing activities was $193.0$44.6 million for the ninesix months ended SeptemberJune 30, 2020.2021. Combined, this contributed to a $42.0$35.1 million increase in cash and cash equivalents for the ninesix months ended SeptemberJune 30, 2020.2021.
Management is not aware of any market or institutional trends, events or uncertainties, other than potential impacts from the COVID-19 pandemic, that are expected to have a material effect on the liquidity, capital resources or operations of the Company. Nor is management aware of any current recommendations by regulatory authorities that would have a material effect on liquidity, capital resources or operations.
Based on the Company’s management of liquid assets, the availability of borrowed funds, and the Company’s ability to generate liquidity through liability funding, management believes that the Company maintains overall liquidity sufficient to satisfy its depositors’ requirements and to meet its customers’ future borrowing needs.
Notwithstanding the foregoing, the Company’s ability to maintain sufficient liquidity may be affected by numerous factors, including economic conditions nationally and in the Company’s markets. Depending on its liquidity levels, its capital position, conditions in the capital markets and other factors, the Company may from time to time consider the issuance of debt, equity, other securities or other possible capital markets transactions, the proceeds of which could provide additional liquidity for the Company’s operations.
Nonperforming Assets
Nonperforming assets consist of nonaccrual loans, loans past due 90 days or more and accruing interest, restructured loans that are accruing interest and not performing according to their modified terms, and OREO. OREO consists of real estate from a foreclosure on loan collateral. The Company had $236 thousand of OREO as of September 30, 2020 and no OREO as of June 30, 2021 and December 31, 2019.2020.
The majority of the loans past due 90 days or more and accruing interest at SeptemberJune 30, 20202021 are student loans with principal and interest amounts that are 97 - 98% guaranteed by the federal government. When a loan changes from “past due 90 days or more and accruing interest” status to “nonaccrual” status, the loan is reviewed for impairment. In most cases, if the loan is considered impaired, then the difference between the value of the collateral and the principal amount outstanding on the loan is charged off. If the Company is waiting on an appraisal to determine the collateral’s value or is in negotiations with the borrower or other parties that may affect the value of the collateral, management allocates funds to the allowance for loan losses to cover the anticipated deficiency, based on information available to management at that time.
In the case of TDRs, the restructuring may be to modify to an unsecured loan (e.g., a short sale) that the borrower can afford to repay. In these circumstances, the entire balance of the loan would be specifically allocated for, unless the present value of expected future cash flows was more than the current balance on the loan. It would not be charged off if the loan documentation supports the borrower’s ability to repay the modified loan.
The following table presents information on nonperforming assets, as of the dates indicated:
| (dollars in thousands) | | September 30, 2020 | | | December 31, 2019 | | | Increase (Decrease) | | | June 30, 2021 | | December 31, 2020 | | Increase (Decrease) | |
| Nonaccrual loans | | | | | | | | | | | | | | | | | | |
| Commercial and industrial | | $ | 226 | | | $ | 257 | | | $ | (31 | ) | |
| Real estate-mortgage (1) | | | 4,332 | | | | 5,780 | | | | (1,448 | ) | | $ | 245 | | $ | 311 | | $ | (66 | ) |
| Real estate-commercial | | | 1,028 | | 903 | | 125 | |
| Construction | | | 130 | | - | | 130 | |
| Total nonaccrual loans | | $ | 4,558 | | | $ | 6,037 | | | $ | (1,479 | ) | | $ | 1,403 | | $ | 1,214 | | $ | 189 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Loans past due 90 days or more and accruing interest | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial and industrial (2) | | $ | 90 | | | $ | - | | | $ | 90 | | |
| Real estate-mortgage (1) | | | 86 | | | | - | | | | 86 | | | $ | 58 | | $ | - | | $ | 58 | |
| Consumer loans (2) | | | 701 | | | | 1,091 | | | | (390 | ) | | $ | 935 | | $ | 744 | | $ | 191 | |
| Total loans past due 90 days or more and accruing interest | | $ | 877 | | | $ | 1,091 | | | $ | (214 | ) | | $ | 993 | | $ | 744 | | $ | 249 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Restructured loans | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial and industrial | | $ | 402 | | | $ | 257 | | | $ | 145 | | |
| Real estate-construction | | | 84 | | | | 88 | | | | (4 | ) | | $ | 81 | | $ | 83 | | $ | (2 | ) |
| Real estate-mortgage (1) | | | 4,638 | | | | 6,754 | | | | (2,116 | ) | | 471 | | 492 | | (21 | ) |
| Real estate-commercial | | | 1,276 | | 1,352 | | (76 | ) |
| Total restructured loans | | $ | 5,124 | | | $ | 7,099 | | | $ | (1,975 | ) | | $ | 1,828 | | $ | 1,927 | | $ | (99 | ) |
| Less nonaccrual restructured loans (included above) | | | 4,306 | | | | 4,693 | | | | (387 | ) | | 1,047 | | 1,120 | | (73 | ) |
| Less restructured loans currently in compliance (3) | | | 818 | | | | 2,406 | | | | (1,588 | ) | | | 781 | | | 807 | | | (26 | ) |
| Net nonperforming, accruing restructured loans | | $ | - | | | $ | - | | | $ | - | | | $ | - | | $ | - | | $ | - | |
| Nonperforming loans | | $ | 5,435 | | | $ | 7,128 | | | $ | (1,693 | ) | | $ | 2,396 | | $ | 1,958 | | $ | 438 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Other real estate owned | | | | | | | | | | | | | |
| 1-4 family residential properties | | $ | 236 | | | | - | | | | 236 | | |
| Total other real estate owned | | $ | 236 | | | $ | - | | | $ | 236 | | |
| | | | | | | | | | | | | | |
| Total nonperforming assets | | $ | 5,671 | | | $ | 7,128 | | | $ | (1,457 | ) | | $ | 2,396 | | $ | 1,958 | | $ | 438 | |
(1) The real estate-mortgage segment includes residential 1 – 4 family, commercial real estate, second mortgages and equity lines of credit.
(2) Amounts listed include student loans and small business loans with principal and interest amounts that are 97 - 100%98% guaranteed by the federal government. The
portion of these guaranteed loans that is past due 90 days or more totaled $663$626 thousand at SeptemberJune 30, 20202021 and $885 thousand$547 million at December 31, 2019.2020.
(3) As of SeptemberJune 30, 20202021 and December 31, 2019,2020, all of the Company’s restructured accruing loans were performing in compliance with their modified terms.
Nonperforming assets as of SeptemberJune 30, 20202021 were $5.7$2.4 million,, $1.5 million lower $438 thousand higher than nonperforming assets as of December 31, 2019.2020. Nonaccrual loans decreased$1.5 millionincreased $189 thousand when comparing the balances as of SeptemberJune 30, 20202021 to December 31, 2019.2020. The increase was primarily driven by one credit relationship of $130 thousand which has subsequently been resolved. See Note 3 of the Notes to the Consolidated Financial Statements included in this quarterly report on Form 10-Q for additional information about the change in nonaccrual loans. Management has set aside specific allocations on those loans where it is deemed appropriate based on the information available to management at this time regarding the cash flow, anticipated financial performance, and collateral securing these loans. Management believes that the collateral and/or discounted cash flow on these loans will be sufficient to cover balances for which it has no specific allocation.
The majority of the balance of nonaccrual loans at SeptemberJune 30, 20202021 was related to a fewone large credit relationships. Ofrelationship of $843 thousand, representing 60.1% of the $4.6$1.4 million of nonaccrual loans at SeptemberJune 30, 2020, $3.9 million, or approximately 85.4%, was comprised of three credit relationships. All loans in these relationships have2021. This relationship has been analyzed to determine whether the cash flow of the borrower and the Company believes that the collateral pledged to secure the loans is sufficient to cover the outstanding principal balances.balance. The Company has set aside specific allocations for those loans without sufficient cash flow or collateral and charged off any balance that management does not expect to collect.
Loans past due 90 days or more and accruing interest decreased $214 thousand.increased $249 thousand. As of SeptemberJune 30, 2020, $6632021, $626 thousand of the $877$993 thousand of loans past due 90 days or more and accruing interest were government-guaranteed student loans on which the Company expects to experience minimal losses. Because the federal government has provided guarantees of repayment of these loans in an amount ranging from 97% to 100% 98% of the total principal and interest of the loans, management does not expect even significant increases in past due student loans or small business loans to have a material effect on the Company.
Total restructured loans decreased by $2.0 million $99 thousand from December 31, 20192020 to SeptemberJune 30, 20202021 primarily due to pay-offs and paydowns. All accruing TDRs are performing in accordance with their modified terms and have been evaluated for impairment, with any necessary reserves recorded as needed.
Management believes the Company has excellent credit quality review processes in place to identify problem loans quickly. This allows management to work with problem loan relationships to identify any payment shortfall and assist these borrowers to improve performance or correct the problems.
Allowance for Loan Losses
The allowance for loan losses is based on several components. The first component of the allowance for loan losses is determined based on specifically identified loans that may become impaired. These loans are individually analyzed for impairment and include nonperforming loans and both performing and nonperforming TDRs. This component may also include loans considered impaired for other reasons, such as outdated financial information on the borrower or guarantors or financial problems of the borrower, including operating losses, marginal working capital, inadequate cash flow, or business interruptions. Changes in TDRs and nonperforming loans affect the dollar amount of the allowance. Increases in the impairment allowance for TDRs and nonperforming loans are reflected as an increase in the allowance for loan losses except in situations where the TDR or nonperforming loan does not require a specific allocation (i.e. the discounted present value of expected future cash flows or the collateral value is considered sufficient).
The majority of the Company’s TDRs and nonperforming loans are collateralized by real estate. When reviewing loans for impairment, the Company obtains current appraisals when applicable. If the Company is waiting on an appraisal to determine the collateral’s value or is in negotiations with the borrower or other parties that may affect the value of the collateral, any loan balance that is in excess of the estimated appraised value is allocated in the allowance. As of SeptemberJune 30, 20202021 and December 31, 2019,2020, the impaired loan component of the allowance for loan losses was $465$51 thousand and $481$11 thousand, respectively.
The second component of the allowance consists of qualitative factors and includes items such as economic conditions, growth trends, loan concentrations, changes in certain loans, changes in underwriting, changes in management and legal and regulatory changes.changes, and as of June 30, 2021 and December 31, 2020 included factors related to the COVID-19 pandemic.
Historical loss is the final component of the allowance for loan losses and is calculated based on the migration of loans from performing to charge-off over a period of time that management deems appropriate to provide a reasonable estimate of losses inherent in the loan portfolio. Historical loss is based on eight migration periods of twelve quarters each.
Both the historical loss and qualitative factor components of the allowance are applied to loans evaluated collectively for impairment. The portfolio is segmented based on the loan classifications set by the Federal Financial Institutions Examination Council in the instructions for the call report applicable to the Bank. Consumer loans not secured by real estate and made to individuals for household, family and other personal expenditures are segmented into pools based on whether the loan’s payments are current (including loans 1 – 29 days past due), or are 30 – 59 days past due, 60 – 89 days past due, or 90 days or more past due. All other loans, including loans to consumers that are secured by real estate, are segmented by the Company’s internally assigned risk grades: substandard, other assets especially mentioned (OAEM, rated just above substandard), and pass (all other loans). The Company may also assign loans to the risk grades of Doubtful or Loss, but as of SeptemberJune 30, 20202021 and December 31, 20192020 the Company had no loans in these categories.
The overall historical loss rate from December 31, 20192020 to SeptemberJune 30, 2020,2021, decreased 69 basis points as a percentage of loans evaluated collectively for impairment as a result of overall improving asset quality combined with continued improvement insustained levels of non-performing assets. For the same period, the qualitative factor components increased 46 basis points as a percentage of loans evaluated collectively for impairment overall. This increase was primarily due to segment adjustments for economic conditions and uncertainty related to the COVID-19 pandemic and change in volume and deferral requests relatedfor certain segments. While there have not been significant changes in overall credit quality of the loan portfolio from December 31, 2020 to COVID-19. AsJune 30, 2021, the economic impact of the COVID-19 pandemic and the related federal relief programs continue to evolve,effects of government stimulus, including PPP loans, may be delaying signs of credit deterioration, potentially resulting in elevated levels of risk within the loan portfolio which may require additional increases in the allowance for loan losses.
On a combined basis, the historical loss and qualitative factor components amounted to $9.5$9.4 million as of SeptemberJune 30, 20202021 and $9.2$9.5 million at December 31, 2019.2020. Management is monitoring portfolio activity, such as levels of deferral and/or modification requests, deferral and/or modification concentration levels by collateral, as well as industry concentration levels to identify areas within the loan portfolio which may create elevated levels of risk should the economic environment created by the COVID-19 pandemic or limited positive impact fromeffects of federal government relief programs present indications of economic instability that is other than temporary in nature.
The allowance for loan losses was 1.14% of total loans held for investment on SeptemberJune 30, 20202021 and 1.29% on December 31, 2019. The decrease in the ALLL as a percentage of loans held for investment at September 30, 2020 was directly attributable to PPP loan originations, creating a 0.15% compression.2020. Excluding PPP loans, the ALLL as a percentage of loans held for investment was 1.29%1.23% at SeptemberJune 30, 2021 and 1.27% at December 31, 2020. The decrease in the ALLL as a percentage of loans held for investment, excluding PPP loans, from December 31, 2020 to June 30, 2021 is primarily related to higher outstanding loan balances, excluding PPP, combined with decreasing historical loss rates partially offset by increased qualitative reserves. Loans held for investment excluding PPP loans is a non-GAAP financial measure. For a reconciliation of this non-GAAPmore information about financial measure,measures that are not calculated in accordance with GAAP, please see the Non-GAAP“Non-GAAP Financial Measures section above.Measures” below. As of SeptemberJune 30, 2020,2021, the allowance for loan losses was 182.5%395.4% of nonperforming loans and 174.9% of nonperforming assets;assets, respectively; this compares to 135.5%487.3% of both nonperforming loans and nonperforming assets as of December 31, 2019.2020. Management believes it has provided an adequate reserve for nonperforming loans at SeptemberJune 30, 2020.2021.
Acquired loans are recorded at their fair value at acquisition date without carryover of the acquiree’s previously established ALLL, as credit discounts are included in the determination of fair value. The fair value of the loans is determined using market participant assumptions in estimating the amount and timing of both principal and interest cash flows expected to be collected on the loans and then applying a market-based discount rate to those cash flows. During evaluation upon acquisition, acquired loans are also classified as either purchased credit-impaired (or PCI) or purchased performing.
Purchased credit-impaired loans reflect credit quality deterioration since origination, as it is probable at acquisition that the Company will not be able to collect all contractually required payments. These purchased credit-impaired loans are accounted for under ASC 310-30, Receivables – Loans and Debt Securities Acquired with Deteriorated Credit Quality. The purchased credit-impaired loans are segregated into pools based on loan type and credit risk. Loan type is determined based on collateral type, purpose, and lien position. Credit risk characteristics include risk rating groups, nonaccrual status, and past due status. For valuation purposes, these pools are further disaggregated by maturity, pricing characteristics, and re-payment structure. Purchased credit-impaired loans are written down at acquisition to fair value using an estimate of cash flows deemed to be collectible.
A PCI loan will be removed from a pool (at its carrying value) only if the loan is sold, foreclosed, or assets are received in full satisfaction of the loan. For purposes of removing the loan from the pool, the carrying value is deemed to equal the amount of principal cash flows received in lieu of the loan balance. This treatment ensures that the percentage yield calculation used to recognize accretable yield on the pool of loans is not affected.
Quarterly, management will evaluate purchased credit-impaired loans based on updated future expected cash flows. The excess of the cash flows expected to be collected over a pool’s carrying value is considered to be the accretable yield and is recognized as interest income over the estimated life of the loan or pool using the effective yield method. The accretable yield may change due to changes in the timing and amounts of expected cash flows; these changes are disclosed in Note 3 “Loans and Allowance for Loan Losses.”
The excess of the undiscounted contractual balances due over the cash flows expected to be collected is considered to be the nonaccretable difference, which represents the estimate of credit losses expected to occur and was considered in determining the fair value of loan at the acquisition date. Any subsequent increases in expected cash flows over those expected at the acquisition date in excess of fair value are adjusted through an increase in the accretable yield on a prospective basis; any decreases in expected cash flows attributable to credit deterioration are recognized by recording a provision for loan losses.
The Company’s policy is to remove an individual loan from a pool based on comparing the amount received from its resolution with its contractual amount. Any difference between these amounts is absorbed by the nonaccretable difference for the entire pool. This removal method assumes that the amount received from resolution approximates pool performance expectations. The remaining accretable yield balance is unaffected and any material change in remaining effective yield caused by this removal method is addressed by the quarterly cash flow evaluation process for each pool. For loans that are resolved by payment in full, there is no release of the nonaccretable difference for the pool because there is no difference between the amount received at resolution and the contractual amount of the loan.
The purchased credit-impaired loans are and will continue to be subject to the Company’s internal and external credit review and monitoring. If further credit deterioration is experienced, such deterioration will be measured and the provision for loan losses will be increased.
Purchased performing loans are accounted for under ASC 310-20, Receivables – Nonrefundable Fees and Other Costs. The difference between the fair value and unpaid principal balance of the loan at acquisition date (premium or discount) is amortized or accreted into interest income over the life of the loans. If the purchased performing loan has revolving privileges, it is accounted for using the straight-line method; otherwise, the effective interest method is used. The adequacy of the remaining discount as compared to the reserve that would be required under the Company’s allowance for loan loss methodology is evaluated quarterly. Should the methodology reserve exceed the remaining discount, additional provision would be recognized.
Capital Resources
Total stockholders’ equity as of SeptemberJune 30, 20202021 was $116.9$119.9 million, an increase of $7.1$2.8 million or 6.5%2.4% from $109.8$117.1 million at December 31, 2019.2020. The increase was the result of increased retained earnings andpartially offset by net unrealized gainloss on available-for-sale securities, a component of accumulated other comprehensive income (loss) on the consolidated balance sheets. The improvementmovement in the unrealized gain/loss position was driven by changes in market rates and shift in portfolio composition.
The maintenance of appropriate levels of capital is a management priority and is monitored on a regular basis. The Company’s principal goals related to the maintenance of capital are to provide adequate capital to support the Company’s risk profile consistent with the board approved risk appetite, provide financial flexibility to support future growth and client needs, comply with relevant laws, regulations, and supervisory guidance, and provide a competitive return to stockholders. Risk-based capital ratios, which include CET1 capital, Tier 1 capital and Total capital for the Bank capital are calculated based on regulatory guidance related to the measurement of capital and risk-weighted assets.
In June 2013, the federal bank regulatory agencies adopted the Basel III Capital Rules (i) to implement the Basel III capital framework and (ii) for calculating risk-weighted assets. These rules became effective January 1, 2015, subject to limited phase-in periods. The Economic Growth, Regulatory Relief and Consumer Protection Act of 2018 (EGRRCPA),EGRRCPA, enacted in May 2018, contains a variety of provisions that will affect regulations applicable to the Company and the Bank. Certain provisions of the EGRRCPA were effective immediately, while others depend upon future rulemaking by federal banking regulatory agencies. The EGRRCPA required action by the Federal Reserve Board to expand the applicability of its small bank holding company policy statement, which, among other things, exempts certain bank holding companies from reporting consolidated regulatory capital ratios and from minimum regulatory capital requirements that apply to other bank holding companies. In August 2018, the Federal Reserve Board issued an interim final rule provisionally expanding the applicability of the small bank holding company policy statement to bank holding companies with consolidated total assets of less than $3 billion. The statement previously applied only to bank holding companies with consolidated total assets of less than $1 billion. As a result of the interim final rule, which was effective upon its issuance, the Company expects that it will be treated as a small bank holding company and will no longer be subject to regulatory capital requirements. At September 30, 2020,For an overview of the Basel III Capital Rules and the EGRRCPA, refer to “Regulation and Supervision” included in Item 1, “Business” of the Company’s capital ratios exceed all minimum capital requirements that would apply to the Company if it were not a small bank holding company.2020 Annual Report on Form 10-K.
On September 17, 2019 the Federal Deposit Insurance Corporationfederal bank regulatory agencies finalized a rule that introduces an optional simplified measure of capital adequacy for qualifying community banking organizations (i.e., the community bank leverage ratio (CBLR) framework), as required by the EGRRCPA. The CBLR framework is designed to reduce burden by removing the requirements for calculating and reporting risk-based capital ratios for qualifying community banking organizations that opt into the framework.
In order to qualify for the CBLR framework, a community banking organization must have a Tier 1 leverage ratio of greater than 9 percent, less than $10 billion in total consolidated assets, and limited amounts of off-balance-sheet exposures and trading assets and liabilities. A qualifying community banking organization that opts into the CBLR framework and meets all requirements under the framework will be considered to have met the well-capitalized ratio requirements under the Prompt Corrective Action regulations and will not be required to report or calculate risk-based capital. The CBLR framework was available for banks to begin using in their March 31, 2020, Call Report. The CompanyBank did not opt into the CBLR framework.
The following is a summary of the Bank’s capital ratios at SeptemberJune 30, 2020.2021. As shown below, these ratios were all well above the recommended regulatory minimum levels.
| | 2020 Regulatory Minimums | | | September 30, 2020 | | | 2021 Regulatory Minimums | | June 30, 2021 | |
| Common Equity Tier 1 Capital to Risk-Weighted Assets | | | 4.500 | % | | | 11.62 | % | | 4.500 | % | | 11.49 | % |
| Tier 1 Capital to Risk-Weighted Assets | | | 6.000 | % | | | 11.62 | % | | 6.000 | % | | 11.49 | % |
| Tier 1 Leverage to Average Assets | | | 4.000 | % | | | 8.65 | % | | 4.000 | % | | 8.52 | % |
| Total Capital to Risk-Weighted Assets | | | 8.000 | % | | | 12.74 | % | | 8.000 | % | | 12.51 | % |
| Capital Conservation Buffer | | | 2.500 | % | | | 4.74 | % | | 2.500 | % | | 4.51 | % |
| Risk-Weighted Assets (in thousands) | | | | | | $ | 892,460 | | | | | | $ | 931,383 | |
On July 14, 2021, the Company issued $30.0 million in aggregate principal amount of 3.50% fixed-to-floating rate subordinated notes due 2031 (the Notes) in a private placement transaction. The Notes initially bear interest at a fixed rate of 3.50% for five years and at the three month SOFR plus 286 basis points, resetting quarterly, thereafter. The Notes were structured to qualify as Tier 2 capital for regulatory purposes, and the Company expects that the Notes will be included in certain of the Company’s regulatory capital ratios as of September 30, 2021 and thereafter.
Book value per share was $22.38$22.87 at SeptemberJune 30, 20202021 as compared to $20.98$22.19 at SeptemberJune 30, 2019.2020. Cash dividends were $1.9$1.3 million or $0.36$0.24 per share in the first ninesix months of 20202021 and 2019,2020, respectively.
Contractual Obligations
In the normal course of business there are various outstanding contractual obligations of the Company that will require future cash outflows. In addition, there are commitments and contingent liabilities, such as commitments to extend credit that may or may not require cash outflows.
The Company obtained a loan maturing on April 1, 2023 from a correspondent bank during the second quarter of 2018 to provide partial funding for the Citizens acquisition. The terms ofCompany elected to pay the loan include a LIBOR based interest rate that adjusts monthly and quarterly principal curtailments. At September 30, 2020in full during the outstanding balance was $1.5 million, and the then-current interest rate was 2.66%.
The loan agreement with the lender contains financial covenants including minimum return on average asset ratio, maintenancefirst quarter of a well-capitalized position as defined by regulatory guidance and a maximum level of non-performing assets as a percentage of capital plus the allowance for loan losses. The Company was in compliance with each covenant at September 30, 2020.2021.
As of SeptemberJune 30, 2020,2021, there have been no material changes outside the ordinary course of business in the Company’s contractual obligations disclosed in the Company’s 20192020 Annual Report on Form 10-K.
Off-Balance Sheet Arrangements
As of SeptemberJune 30, 2020,2021, there were no material changes in the Company’s off-balance sheet arrangements disclosed in the Company’s 20192020 Annual Report on Form 10-K.
Non-GAAP Financial Measures
In reporting the results of the quarter ended June 30, 2021, the Company has provided supplemental financial measures on a tax equivalent or an adjusted basis. These non-GAAP financial measures are a supplement to GAAP, which is used to prepare the Company’s financial statements, and should not be considered in isolation or as a substitute for comparable measures calculated in accordance with GAAP. In addition, the Company’s non-GAAP financial measures may not be comparable to non-GAAP financial measures of other companies. The Company uses the non-GAAP financial measures discussed herein in its analysis of the Company’s performance. The Company’s management believes that these non-GAAP financial measures provide additional understanding of ongoing operations and enhance comparability of results of operations with prior periods presented without the impact of items or events that may obscure trends in the Company’s underlying performance. A reconciliation of the non-GAAP financial measures used by the Company to evaluate and measure the Company’s performance to the most directly comparable GAAP financial measures is presented below.
| | | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| (dollar in thousands, except per share data) | | 2021 | | | 2020 | | | 2021 | | | 2020 | |
| Fully Taxable Equivalent Net Interest Income | | | | | | | | | | | | |
| Net interest income (GAAP) | | $ | 9,106 | | | $ | 8,473 | | | $ | 19,262 | | | $ | 16,891 | |
| FTE adjustment | | | 63 | | | | 49 | | | | 122 | | | | 85 | |
| Net interest income (FTE) (non-GAAP) | | $ | 9,169 | | | $ | 8,522 | | | $ | 19,384 | | | $ | 16,976 | |
| Noninterest income (GAAP) | | | 3,538 | | | | 3,958 | | | | 7,672 | | | | 7,236 | |
| Total revenue (FTE) (non-GAAP) | | $ | 12,707 | | | $ | 12,480 | | | $ | 27,056 | | | $ | 24,212 | |
| Noninterest expense (GAAP) | | | 10,535 | | | | 9,204 | | | | 21,093 | | | | 19,234 | |
| | | | | | | | | | | | | | | | | |
| Average earning assets | | $ | 1,179,276 | | | $ | 1,067,679 | | | $ | 1,164,834 | | | $ | 1,015,378 | |
| Net interest margin | | | 3.10 | % | | | 3.19 | % | | | 3.33 | % | | | 3.35 | % |
| Net interest margin (FTE) (non-GAAP) | | | 3.12 | % | | | 3.21 | % | | | 3.36 | % | | | 3.36 | % |
| | | | | | | | | | | | | | | | | |
| Efficiency ratio | | | 83.32 | % | | | 74.04 | % | | | 78.31 | % | | | 79.72 | % |
| Efficiency ratio (FTE) (non-GAAP) | | | 82.91 | % | | | 73.75 | % | | | 77.96 | % | | | 79.44 | % |
| ALLL as a Percentage of Loans Held for Investment | | June 30, 2021 | | | December 31, 2020 | |
| Loans held for investment (net of deferred fees and costs) (GAAP) | | $ | 832,673 | | | $ | 836,300 | |
| Less PPP originations | | | 6,306 | | | | 85,983 | |
| Loans held for investment, (net of deferred fees and costs), excluding PPP (non-GAAP) | | $ | 826,367 | | | $ | 750,317 | |
| | | | | | | | | |
| ALLL | | $ | 9,473 | | | $ | 9,541 | |
| | | | | | | | | |
| ALLL as a Percentage of Loans Held for Investment | | | 1.14 | % | | | 1.14 | % |
| ALLL as a Percentage of Loans Held for Investment, net of PPP originations | | | 1.23 | % | | | 1.27 | % |
Item 3. Quantitative and Qualitative Disclosures About Market Risk.| Item 3. | Quantitative and Qualitative Disclosures About Market Risk. |
Not required.
Item 4. Controls and Procedures.| Item 4. | Controls and Procedures. |
Disclosure Controls and Procedures.Management evaluated, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) underof the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this report. Based on that evaluation, the Company’s Chief Executive Officer and the Chief
Financial Officer have concluded that the Company’s disclosure controls and procedures arewere effective as of the end of the period covered by this report to ensure that information required to be disclosed by the Company in the reports that the Companyit files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’sSEC rules and forms and that such information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
In designing and evaluating its disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Internal Control over Financial Reporting. Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). No changes in the Company’s internal control over financial reporting occurred during the fiscal quarter ended September 30, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Management assessed the impact of the remote work practices related to the COVID-19 pandemic and determined they did not materially affect the Company’s internal control environment at September 30, 2020. Because of its inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Controls. There were no changes in the Company’s internal control over financial reporting during the Company’s second quarter ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.| Item 1. | Legal Proceedings. |
There are no pending legal proceedings to which the Company, or any of its subsidiaries, is a party or to which the property of the Company or any of its subsidiaries is subject that, in the opinion of management, may materially impact the financial condition of the Company.
There have been no material changes in the risk factors faced by the Company from those disclosed in the Company’s 2020 Annual Report on Form 10-K for the year ended December 31, 2019, as supplemented by the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, except as described below.10-K.
The Company and its subsidiaries, including the Bank, and its and their employees and customers, have recently been and may in the future be the target of criminal cyberattacks; and we could be exposed to liability and remedial costs, and our reputation and business could suffer.
Like many major financial institutions, we are, from time to time, a target of criminal cyber-attacks, phishing schemes and similar fraudulent activity and cyber incidents, and we expect these threats to continue. As the numerous and evolving cybersecurity threats, including advanced and persistent cyber-attacks and schemes, utilized by cybercriminals in attempts to obtain unauthorized access to our systems or our customers’ accounts have become increasingly more complex and sophisticated and may be difficult to detect for periods of time, we may – like many other major financial institutions – not anticipate, safeguard against, or respond to, these acts adequately. As these threats continue to evolve and increase, we – like many other major financial institutions – may be required to devote significant additional resources in order to modify and enhance our security controls and to identify and remediate any security vulnerabilities.
Subsequent to the quarterly period ended September 30, 2020, the Company detected and confirmed that the Bank and certain of its customers and employees were the target of an external, criminal cyber-attack involving theft and fraudulent activity perpetrated by third-party cybercriminals. On or about October 8, 2020, Bank management discovered that one or more unauthorized persons had gained unlawful access to the account information of two customers (as identified to date), using such information to fraudulently create online banking accounts. These fraudulent online accounts were then used to originate three fraudulent wire transfers (as identified to date) during the first week of October 2020. While Bank management was able to timely prevent any further fraudulent wire transfer attempts, the cybercriminals managed to execute fraudulent wire transfers of cash in an amount totaling approximately $199 thousand. Based on an internal forensic investigation, management believes that Microsoft Office 365 accounts of two Bank employees' information may have been targeted by the cybercriminals, as well, beginning in late July 2020. The Company’s internal forensic investigation suggests that the Bank and certain of its customers and employee' information may have been illegally accessed by an external, criminal threat. Investigations into this cyber incident by management, outside legal counsel, a third-party forensics advisor and law enforcement remain ongoing.
As part of our regular cybersecurity efforts, including enhancements to these efforts made following management’s discovery of this cyber incident, we have implemented physical, technical and administrative safeguards designed to help protect our systems. However, these safeguards may not be as effective as intended, and may not prevent future cybersecurity breaches, fraudulent activity or cyber incidents.
It is expected that we will continue to experience increased costs related to our response to this cyber incident and our efforts to further enhance our security measures. We may need to expend significant additional resources to further enhance our safeguards and protection against cybersecurity breaches, fraudulent activity and cyber incidents, or to redress problems or potential liability caused by such cybersecurity breaches, fraudulent activity or cyber incidents; and such efforts may not be fully effective. Furthermore, even though we carry cyber and other insurance policies that may provide insurance coverage under certain circumstances, we might suffer losses as a result of a cyber incident that exceed the coverage available under our insurance policies or for which we do not have coverage.
Though it is difficult to determine what, if any, harm may directly result from any specific cyber incident or cyber-attack, any failure to maintain the security of, or any actual or perceived loss or unauthorized disclosure or use of, customer or account information likely may lead to our customers losing trust and confidence in us. Damage to our reputation could adversely affect deposits and loans and otherwise negatively affect the Company’s business, financial condition and results of operations. In addition, it is possible that this cyber incident and any material fraudulent activity, cyber-attacks, breaches of our information security or successful penetration or circumvention of our system security may cause us significant negative consequences, including loss of Bank customers and financial assets and business opportunities, disruption to our operations and business, or misappropriation of our and/or our customers’ confidential information, and may expose us to additional regulatory scrutiny or may result in a violation of applicable privacy laws and other laws, litigation exposure, regulatory fines, penalties or intervention, loss of confidence in our security measures, reputational damage, reimbursement or other compensatory costs, devotion of substantial management time, increased costs to maintain insurance coverage (including increased deposit insurance premiums), or additional compliance costs, all of which could adversely impact our business, financial condition, liquidity and results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
Pursuant to the Company’s equity compensation plans, participants may pay the exercise price of certain awards or satisfy tax withholding requirements associated with awards by surrendering shares of the Company’s common stock that the participants already own. Additionally, participants may also surrender shares upon vesting of restricted stock awards to satisfy tax withholding requirements. Shares surrendered by participants of these plans are repurchased at current market value pursuant to the terms of the applicable awards. During the ninesix months ended SeptemberJune 30, 2020,2021, the Company did not repurchase any shares related to the equity compensation plan awards.
During the ninesix months ended SeptemberJune 30, 2020,2021, the Company did not repurchase any shares pursuant to the Company’s stock repurchase program. The Company is authorized to repurchase, during any given calendar year, up to an aggregate of 5 percent of the shares of the Company’s common stock outstanding as of January 1 of that calendar year.
Item 3. Defaults Upon Senior Securities.| Item 3. | Defaults Upon Senior Securities. |
None.
Item 4. Mine Safety Disclosures.| Item 4. | Mine Safety Disclosures. |
None.
Item 5. Other Information.| Item 5. | Other Information. |
Information Required by Item 407(c)(3) of Regulation S-K:
The Company has made no changes to the process by which security holders may recommend nominees to its Board of Directors, which is discussed in the Company’s Proxy Statement for the Company’s 20202021 Annual Meeting of Stockholders.
Other Information – Recent Cyber Incident Under Investigation:
SubsequentAmendment No. 1 to the quarterly period ended September 30, 2020, the Company detected and confirmed that the Bank and certain of its customers and employees were the target of an external, criminal cyber-attack involving theft and fraudulent activity perpetrated by third-party cybercriminals.Settlement Agreement
On or about October 8, 2020, Bank management discovered that one or more unauthorized persons had gained unlawful accessAugust 12, 2021, the Company entered into Amendment No. 1 (the “Amendment”) to the account informationSettlement Agreement, which was initially entered into as of two customersMarch 16, 2016 (as identified to date)amended, the “Settlement Agreement”), using such information to fraudulently create online banking accounts. These fraudulent online accounts were then used to originate three fraudulent wire transfers (as identified to date) duringwith Financial Edge Fund, L.P., Financial Edge-Strategic Fund, L.P., PL Capital/Focused Fund, L.P., PL Capital, LLC, PL Capital Advisors, LLC, Goodbody/PL Capital, L.P., Goodbody/PL Capital, LLC, Mr. John W. Palmer and Mr. Richard J. Lashley, as Managing Members of PL Capital, LLC, PL Capital Advisors, LLC and Goodbody/PL Capital, LLC (collectively, the first week of October 2020. While Bank management was able to timely prevent any further fraudulent wire transfer attempts, the cybercriminals managed to execute fraudulent wire transfers of cash in an amount totaling approximately $199 thousand.“PL Capital Group”), and Mr. William F. Keefe (“Mr. Keefe”).
ImmediatelyAmong other things, the Amendment increases from 9.99% to 14.99% the proportionate ownership, control or beneficial ownership of the Company’s common stock that the PL Capital Group and Mr. Keefe may acquire, offer or agree to acquire, or acquire rights to acquire without the prior written consent of the Company’s Board of Directors.
As amended, the Settlement Agreement may be terminated by either party, upon discoveryfive (5) Business Days’ advance written notice, beginning on the day after the Company’s 2022 Annual Meeting of this cyber incident, management recalledStockholders, provided that the wires fromtermination date may not occur during any time period between the other relevant financial institutions and reportednotice deadline pursuant to the matterCompany’s bylaws for nominating director candidates for election to appropriate Virginia and Federal law enforcement authorities, including the Virginia State Police High Tech Crimes Division and the U.S. Federal Bureau of Investigation Cyber Division, as well as the Bank’s regulators. In addition, management also engaged outside legal counsel, Woods Rogers PLC, who engaged a third-party information technology forensics advisor to oversee an internal forensic investigation and advise Bank management and the Company’s Board of Directors concerning this matter. Management has received confirmation fromfor an annual meeting of shareholders and the banks receiving the fraudulent wires that a significant portionconclusion of such annual meeting. In addition, certain obligations of the wired funds are held and anticipated to be returned toparties under the Bank.
Based on this internal forensic investigation, management believes that two Bank employeesSettlement Agreement may have been the target of phishing attempts by cybercriminals, resultingterminate in Microsoft Office 365 accounts of two Bank employees being accessed by a threat actor beginning in late July 2020. The Company’s internal forensic investigation suggests that the Bank and certain of its customers and employees' information may have been illegally accessed by an external, criminal threat. It is unknown at this time whether the suspected Microsoft Office 365 account incident and the fraudulent wire transfers are related. The subset of Bank customers whose personal information was, or may have been, accessed as part of this cyber incident are in the process of being notified and supplied with additional information and resources, including credit monitoring.
Based on the nature of the incident, our research and internal forensic investigation and third party (including law enforcement) investigations, management has determined that, to date, this cyber incident has not had, and is not expected to have, any material effect on the Company or its financial statements, legal proceedings, reputation or customer relationships. However, investigations into this cyber incident by management, outside legal counsel, the third-party forensics advisor and law enforcement remain ongoing.
As part of our regular cybersecurity efforts, including enhancements to these efforts made following management’s discovery of this cyber incident, we have implemented physical, technical and administrative safeguards designed to help protect our systems. Management expects that the Company’s cyber incident investigation and attention to security enhancements will continue for the foreseeable future. The Company and the Bank continue to work closely with Virginia and Federal law enforcement authoritiescircumstances in connection with their ongoing investigationsa material breach of the Settlement Agreement.
Capitalized terms under this Item 5, unless otherwise defined herein, have the meaning ascribed to them in the Settlement Agreement.
See the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 16, 2016 for additional disclosure regarding the ultimate prosecutionterms of those determinedthe Settlement Agreement.
The above summary is qualified in its entirety by reference to be responsible forthe full text of the Amendment, a copy of which is filed as Exhibit 10.14.1 to this cyber incident.Quarterly Report on Form 10-Q and incorporated herein by reference.
Exhibit No. | | Description |
2.1 | | Description |
| | Agreement and Plan of Reorganization, dated as of October 27, 2017, by and among Old Point Financial Corporation, The Old Point National Bank of Phoebus, and Citizens National Bank (incorporated by reference to Exhibit 2.1 to Form 8-K filed November 2, 2017) |
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| | Form of Subordinated Note (incorporated by reference to Exhibit 4.1 to Form 8-K filed July 16, 2021) |
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| | Form of Subordinated Note Purchase Agreement (incorporated by reference to Exhibit 10.1 to Form 8-K filed July 16, 2021) |
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| | Amendment No. 1 to Settlement Agreement, dated August 12, 2021, among Old Point Financial Corporation, Financial Edge Fund, L.P., Financial Edge-Strategic Fund, L.P., PL Capital/Focused Fund, L.P., PL Capital, LLC, PL Capital Advisors, LLC, Goodbody/PL Capital, L.P., Goodbody/PL Capital, LLC, Mr. John W. Palmer and Mr. Richard J. Lashley, as Managing Members of PL Capital, LLC, PL Capital Advisors, LLC and Goodbody/PL Capital, LLC and Mr. William F. Keefe |
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101 | | The following materials from Old Point Financial Corporation’s quarterly report on Form 10-Q for the quarter ended SeptemberJune 30, 2020,2021, formatted in iXBRL (Inline Extensible Business Reporting Language),Inline XBRL, filed herewith: (i) Consolidated Balance Sheets (unaudited for SeptemberJune 30, 2020)2021), (ii) Consolidated Statements of Income (unaudited), (iii) Consolidated Statements of Comprehensive Income (unaudited), (iv) Consolidated Statements of Changes in Stockholders’ Equity (unaudited), (v) Consolidated Statements of Cash Flows (unaudited), and (vi) Notes to Consolidated Financial Statements (unaudited) |
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104 | | The cover page from Old Point Financial Corporation’sthe Company’s Quarterly Report on Form 10-Q for the quarterperiod ended SeptemberJune 30, 2020, (formatted2021, formatted in iXBRL (Inline Extensible Business Reporting Language)Inline XBRL (included with Exhibit 101) |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | OLD POINT FINANCIAL CORPORATION |
| | | |
November 9, 2020August 16, 2021 | /s/Robert F. Shuford, Jr. | |
| | Robert F. Shuford, Jr. | |
| | Chairman, President & Chief Executive Officer | |
| | (Principal Executive Officer) | |
| | | |
November 9, 2020August 16, 2021 | /s/Elizabeth T. Beale | |
| | Elizabeth T. Beale | |
| | Chief Financial Officer & Senior Vice President/Finance | |
| | (Principal Financial & Accounting Officer) | |
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