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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

(Mark One)

 

x   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended            March 31, 2021

 

or

 

o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                                                                                           to    

 

Commission File Number: 0-31525

 

AMERICAN RIVER BANKSHARES
(Exact name of registrant as specified in its charter)

 

California  68-0352144
(State or other jurisdiction of incorporation or organization)  (I.R.S. Employer Identification No.)

 

3100 Zinfandel Drive, Suite 450, Rancho Cordova, California  95670
(Address of principal executive offices)  (Zip Code)

 

(916) 851-0123
(Registrant’s telephone number, including area code)
 
Not Applicable
(Former name, former address and former fiscal year, if changed since last report.)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading symbol(s) Name of each exchange on which registered
Common Stock, no par value AMRB Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

  Large accelerated filer o Accelerated filer o
  Non-accelerated Filer x Smaller reporting company x
 

Emerging growth company o 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

No par value Common Stock 5,968,994 shares outstanding at May 6, 2021

 
 

AMERICAN RIVER BANKSHARES

INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2021

Part I.   Page
     
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 27
Item 3. Quantitative and Qualitative Disclosures About Market Risk 46
Item 4. Controls and Procedures 47
     
Part II.    
     
Item 1. Legal Proceedings 47
Item 1A. Risk Factors 47
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 51
Item 3. Defaults Upon Senior Securities 51
Item 4. Mine Safety Disclosures 51
Item 5. Other Information 51
Item 6. Exhibits 51
     
Signatures   51
     
Exhibits    
     
31.1 Certifications of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 53
31.2 Certifications of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 54
32.1 Certification of American River Bankshares by its Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 55
     
101.INS XBRL Instance Document  
101.SCH XBRL Taxonomy Extension Schema  
101.CAL XBRL Taxonomy Extension Calculation  
101.DEF XBRL Taxonomy Extension Definition  
101.LAB XBRL Taxonomy Extension Label  
101.PRE XBRL Taxonomy Extension Presentation  
2
 

PART I-FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

AMERICAN RIVER BANKSHARES

CONSOLIDATED BALANCE SHEET

(Unaudited)

 

(dollars in thousands) 

March 31,

2021

  

December 31,

2020

 
ASSETS
          
Cash and due from banks  $18,927   $14,030 
Interest-bearing deposits in banks   78,871    28,479 
Total cash and cash equivalents   97,798    42,509 
Investment securities:          
Available-for-sale, at fair value   301,628    306,966 
Held-to-maturity, at amortized cost fair value of $11 in 2021 and $13 in 2020   10    12 
Loans, less allowance for loan losses of $6,696 at March 31, 2021 and $6,628 at December 31, 2020   468,718    471,853 
Premises and equipment, net   956    1,002 
Federal Home Loan Bank stock   4,212    4,212 
Goodwill   16,321    16,321 
Other real estate owned   800    800 
Bank owned life insurance   16,162    16,101 
Accrued interest receivable and other assets   9,458    9,215 
Total assets  $916,063   $868,991 
           
LIABILITIES AND SHAREHOLDERS' EQUITY          
           
Deposits:          
Noninterest bearing   $339,714   $330,095 
Interest-bearing   448,855    414,082 
Total deposits   788,569    744,177 
           
Short-term borrowings   7,000    7,000 
Long-term borrowings   13,787    13,787 
Accrued interest payable and other liabilities   13,816    10,932 
           
Total liabilities    823,172    775,896 
           
Shareholders' equity:          
Preferred stock, no par value; 10,000,000 shares authorized; none outstanding          
Common stock, no par value; 20,000,000 shares authorized; issued and outstanding – 5,962,466 shares at March 31, 2021 and 5,937,529 shares at December 31, 2020   31,066    30,961 
Retained earnings   58,209    55,978 
Accumulated other comprehensive income, net of taxes   3,616    6,156 
           
Total shareholders' equity   92,891    93,095 
Total liabilities and shareholders' equity  $916,063   $868,991 

 

See Notes to Unaudited Consolidated Financial Statements

3
 

AMERICAN RIVER BANKSHARES

CONSOLIDATED STATEMENT OF INCOME

(Unaudited)

 

(dollars in thousands, except per share data)        
For the three months ended March 31,        
   2021   2020 
Interest income:          
Interest and fees on loans:          
Taxable  $5,604   $4,675 
Exempt from Federal income taxes   193    230 
Interest on deposits in banks   8    34 
Interest and dividends on investment securities:          
Taxable   1,515    1,739 
Exempt from Federal income taxes   34    37 
Total interest income   7,354    6,715 
Interest expense:          
Interest on deposits   160    440 
Interest on borrowings   62    87 
Total interest expense   222    527 
           
Net interest income   7,132    6,188 
           
Provision for loan losses       495 
           
Net interest income after provision for loan losses   7,132    5,693 
           
Noninterest income:          
Service charges on deposit accounts   164    155 
Gain on sale of securities   172    38 
Other noninterest income   255    259 
Total noninterest income   591    452 
           
Noninterest expense:          
Salaries and employee benefits   2,762    2,865 
Occupancy   259    256 
Furniture and equipment   134    143 
Federal Deposit Insurance Corporation assessments   54    27 
Expenses related to other real estate owned   4    5 
Other expense   850    920 
Total noninterest expense   4,063    4,216 
           
Income before provision for income taxes   3,660    1,929 
           
Provision for income taxes   1,013    497 
           
Net income  $2,647   $1,432 
           
Basic earnings per share  $0.45   $0.24 
Diluted earnings per share  $0.45   $0.24 
           

See notes to Unaudited Consolidated Financial Statements

4
 

AMERICAN RIVER BANKSHARES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(Unaudited)

 

(dollars in thousands)        
For the three months ended March 31,    
   2021   2020 
Net income  $2,647   $1,432 
Other comprehensive (loss) income:          
(Decrease) increase in net unrealized gains on investment securities   (3,434)   4,053 
Deferred tax benefit (expense)   1,016    (1,198)
(Decrease) increase in net unrealized gains on investment securities, net of tax   (2,418)   2,855 
           
Reclassification adjustment for realized gains included in net income   (172)   (38)
Tax effect   50    11 
Realized gains, net of tax   (122)   (27)
           
Total other comprehensive (loss) income   (2,540)   2,828 
           
Comprehensive income  $107   $4,260 

 

See notes to Unaudited Consolidated Financial Statements

5
 

AMERICAN RIVER BANKSHARES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

(Unaudited)

 

               Accumulated     
(dollars in thousands)         Other   Total 
   Common Stock   Retained   Comprehensive   Shareholders' 
   Shares   Amount   Earnings   Income (Loss)   Equity 
Balance, January 1, 2020   5,898,878   $30,536   $50,581   $1,792   $82,909 
Net income             1,432         1,432 
Other comprehensive income, net of tax:                         
Net change in unrealized gains on available-for-sale investment securities                  2,828    2,828 
                          
Cash dividends ($0.07 per share)             (413)        (413)
Net restricted stock award activity and related compensation expense   19,497    96              96 
Stock option compensation expense        2              2 
                          
Balance, March 31, 2020   5,918,375   $30,634   $51,600   $4,620   $86,854 
                          
Balance, January 1, 2021   5,937,529   $30,961   $55,978   $6,156   $93,095 
Net income             2,647         2,647 
Other comprehensive loss, net of tax:                         
Net change in unrealized gains on available-for-sale investment securities                  (2,540)   (2,540)
                          
Cash dividends ($0.07 per share)             (416)        (416)
Net restricted stock award activity and related compensation expense   22,761    90              90 
Stock options exercised   2,176    15              15 
                          
Balance, March 31, 2021   5,962,466   $31,066   $58,209   $3,616   $92,891 
                          

See Notes to Unaudited Consolidated Financial Statements

6
 

AMERICAN RIVER BANKSHARES

CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)

 

(dollars in thousands)        
For the three months ended March 31,        
   2021   2020 
Cash flows from operating activities:          
Net income  $2,647   $1,432 
Adjustments to reconcile net income to net cash provided by operating activities:          
Provision for loan losses       495 
Increase (decrease) in deferred loan origination fees and costs, net   305    (64)
Depreciation and amortization   48    219 
Gain on sale of investment securities   (172)   (38)
Amortization of investment security premiums and discounts, net   764    304 
Increase in cash surrender values of life insurance policies   (61)   (84)
Stock based compensation expense   90    98 
Decrease (increase) in accrued interest receivable and other assets   651    (407)
Decrease in accrued interest payable and other liabilities   (239)   (2,380)
           
Net cash provided by (used in) operating activities   4,033    (425)
           
Cash flows from investing activities:          
Proceeds from the sale of available-for-sale investment securities   11,048    4,229 
Proceeds from matured available-for-sale investment securities   734     
Purchases of available-for-sale investment securities   (22,793)   (4,987)
Proceeds from principal repayments for available-for-sale investment securities   15,446    10,848 
Proceeds from principal repayments for held-to-maturity investment securities   2    8 
Net decrease in loans   4,115    8,164 
Purchases of loans   (1,285)   (2,837)
Purchases of equipment   (2)   (24)
           
Net cash provided by investing activities   7,265    15,401 
           

(Continued)

7
 

AMERICAN RIVER BANKSHARES

CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
(Unaudited)

 

(dollars in thousands)        
For the three months ended March 31,        
   2021   2020 
Cash flows from financing activities:          
           
Net increase in demand, interest-bearing and savings deposits  $38,552   $1,193 
Net increase (decrease) in time deposits   5,840    (2,894)
Increase in short term borrowing       (4,000)
Proceeds from exercised options   15     
Cash dividends paid   (416)   (413)
           
Net cash provided by (used in) financing activities   43,991    (6,114)
           
Increase in cash and cash equivalents   55,289    8,862 
           
Cash and cash equivalents at beginning of year   42,509    17,810 
           
Cash and cash equivalents at end of period  $97,798   $26,672 
           
Supplemental noncash disclosures:          
           
Cash paid during the year for:          
Interest expense  $227   $533 
Income taxes  $   $ 
           

See Notes to Unaudited Consolidated Financial Statements

8
 

AMERICAN RIVER BANKSHARES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

 

1. CONSOLIDATED FINANCIAL STATEMENTS

 

In the opinion of management, the unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the consolidated financial position of American River Bankshares (the "Company") at March 31, 2021 and December 31, 2020, the results of its operations and its cash flows for the three-month periods ended March 31, 2021 and 2020 in conformity with accounting principles generally accepted in the United States of America.

 

Certain disclosures normally presented in the notes to the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. The Company believes that the disclosures are adequate to make the information not misleading. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2020. The results of operations for the three-month period ended March 31, 2021 may not necessarily be indicative of the operating results for the full year.

 

In preparing such financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates.

 

Management has determined that since all of the banking products and services offered by the Company are available in each branch office of American River Bank, all branch offices are located within the same economic environment and management does not allocate resources based on the performance of different lending or transaction activities, it is appropriate to aggregate all of the branch offices and report them as a single operating segment. No client accounts for more than ten percent (10%) of revenues for the Company or American River Bank.

 

2. STOCK-BASED COMPENSATION 

Equity Plans

On March 18, 2020, the Board of Directors adopted the 2020 Equity Incentive Plan (the “2020 Plan”). The 2020 Plan was approved by the Company’s shareholders on May 21, 2020. At March 31, 2021 there were 42,395 restricted shares outstanding, zero stock options outstanding, and the total number of authorized shares that remain available for issuance under the 2020 Plan, including the 42,395 restricted shares that have not yet vested, was 250,000. The 2020 Plan provides for the following types of stock-based awards: incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted performance stock, unrestricted Company stock, and performance units. Under the 2020 Plan, the awards may be granted to employees and directors under incentive and nonqualified option agreements, restricted stock agreements, and other award agreements. The unvested restricted stock under the 2020 Plan have dividend and voting rights. The 2020 Plan requires that the option price may not be less than the fair market value of the stock at the date the option is awarded. The option awards expire on dates determined by the Board of Directors, but not later than ten years from the date of award. The vesting period is generally one to five years; however, the vesting period can be modified at the discretion of the Company’s Board of Directors. Outstanding option awards are exercisable until their expiration. New shares are issued upon exercise of an option.

 

On March 17, 2010, the Board of Directors adopted the 2010 Equity Incentive Plan (the “2010 Plan”). The 2010 Plan was approved by the Company’s shareholders on May 20, 2010. At March 31, 2021 there were 27,782 stock options and 23,364 restricted shares outstanding. The 2010 Plan expired by its term on March 17, 2020. Accordingly, outstanding awards under the 2010 Plan are exercisable and will continue to vest until their expiration, but no new awards may be granted under the 2010 Plan. The unvested restricted stock under the 2010 Plan have dividend and voting rights. The 2010 Plan required that the option price may not be less than the fair market value of the stock at the date the option is awarded. The option awards expire on dates determined by the Board of Directors, but not later than ten years from the date of award. All of the stock options previously awarded under the 2010 Plan are fully vested. New shares are issued upon exercise of an option. The initial vesting period for restricted stock issued under the 2010 Plan was generally three to five years; however, the vesting period can be modified at the discretion of the Company’s Board of Directors.

9
 

The award date fair value of awards is determined by the market price of the Company's common stock on the date of award and is recognized ratably as compensation expense or director expense over the vesting periods. The shares of common stock awarded pursuant to such agreements vest in increments over one to five years from the date of award. The shares awarded to employees and directors under the restricted stock agreements vest on the applicable vesting dates only to the extent the recipient of the shares is then an employee or a director of the Company or one of its subsidiaries, and each recipient will forfeit all of the shares that have not vested on the date his or her employment or service is terminated.

Equity Compensation

For the three-month periods ended March 31, 2021 and 2020, the compensation cost recognized for equity compensation was $90,000 and $98,000, respectively. The recognized tax benefit for equity compensation expense was $27,000 and $26,000, for the three-month periods ended March 31, 2021 and 2020, respectively.

At March 31, 2021, there was no unrecognized pre-tax compensation cost related to nonvested stock option awards. At March 31, 2021 the total compensation cost related to restricted stock awards not yet recorded is $705,000. This amount will be recognized over the next 4.25 years and the weighted average period of recognizing these costs is expected to be 1.3 years.

Equity Plans Activity

Stock Options

 

There were no stock options awarded during the three-month periods ended March 31, 2021 and 2020. A summary of option activity under the Plans as of March 31, 2021 and changes during the period then ended is presented below:

 

Options  Shares  

Weighted
Average
Exercise
Price

   Weighted
Average
Remaining
Contractual
Term
   Aggregate
Intrinsic
Value ($000)
 
Outstanding at January 1, 2021   29,958   $8.79    3.4 years   $131 
Granted                
Exercised   (2,176)   7.07         
Expired, forfeited or cancelled                
Outstanding at March 31, 2021   27,782   $8.93    3.3 years   $205 
Vested at March 31, 2021   27,782   $8.93    3.3 years   $205 
Non-vested at March 31, 2021      $       $ 

Restricted Stock

 

There were 22,761 shares of restricted stock awarded during the three-month period ended March 31, 2021 and 19,497 shares of restricted stock awarded during the three-month period ended March 31, 2020. There were 15,501 and 9,000 restricted stock awards that were fully vested during the three-month periods ended March 31, 2021 and 2020, respectively. The intrinsic value of nonvested restricted stock at March 31, 2021 was $1,073,000.

10
 
Restricted Stock  Shares   Weighted
Average Grant
Date Fair Value
 
Nonvested at January 1, 2021   58,499   $13.03 
Awarded   22,761    15.25 
Less:  Vested   15,501    14.61 
Less:  Expired, forfeited or cancelled        
Nonvested at March 31, 2021   65,759   $13.43 

 

Other Equity Awards

 

There were no stock appreciation rights, restricted performance stock, unrestricted Company stock, or performance units awarded during the three-month periods ended March 31, 2021 or 2020 or outstanding at March 31, 2021 or December 31, 2020.

 

The intrinsic value used for stock options and restricted stock was derived from the market price of the Company’s common stock of $16.31 as of March 31, 2021.

 

3. COMMITMENTS AND CONTINGENCIES

 

In the normal course of business there are outstanding various commitments to extend credit which are not reflected in the financial statements, including loan commitments of approximately $43,649,000 and standby letters of credit of approximately $60,000 at March 31, 2021 and loan commitments of approximately $32,851,000 and standby letters of credit of zero at December 31, 2020. Such commitments relate primarily to real estate construction loans, revolving lines of credit and other commercial loans. However, all such commitments will not necessarily culminate in actual extensions of credit by the Company during 2021 as some of these are expected to expire without being fully drawn upon.

 

Standby letters of credit are commitments issued to guarantee the performance or financial obligation of a client to a third party. These guarantees are issued primarily relating to purchases of inventory, insurance programs, performance obligations to government agencies, or as security for real estate rents by commercial clients and are typically short-term in nature. Credit risk is similar to that involved in extending loan commitments to clients and accordingly, evaluation and collateral requirements similar to those for loan commitments are used. The majority of all such commitments are collateralized. The fair value of the liability related to these standby letters of credit, which represents the fees received for issuing the guarantees, was not significant at March 31, 2021 or December 31, 2020.

4. EARNINGS PER SHARE COMPUTATION

 

Basic earnings per share is computed by dividing net income by the weighted average common shares outstanding for the period (5,886,297 shares and 5,858,919 shares for the three-month periods ended March 31, 2021 and 2020, respectively). Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock, such as stock options or restricted stock, result in the issuance of common stock. Diluted earnings per share is computed by dividing net income by the weighted average common shares outstanding for the period plus the dilutive effect of stock based awards (35,661 shares for the three-month period ended March 31, 2021 and 24,657 shares for the three-month period ended March 31, 2020). For the three-month periods ended March 31, 2021 and 2020, there were zero stock options that were excluded from the calculation as they were considered antidilutive. Earnings per share is retroactively adjusted for stock dividends and stock splits, if applicable, for all periods presented.

11
 

5. INVESTMENT SECURITIES

The amortized cost and estimated fair values of investment securities at March 31, 2021 and December 31, 2020 consisted of the following (dollars in thousands):

 

Available-for-Sale

   March 31, 2021 
   Amortized
Cost
   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
   Estimated
Fair
Value
 
Debt securities:                    
U.S. Government Agencies and Sponsored Agencies  $261,826   $6,326   $(1,665)  $266,487 
Obligations of states and political subdivisions   16,257    495    (29)   16,723 
U. S Treasury securities   11,663        (99)   11,564 
Corporate bonds   6,749    110    (5)   6,854 
   $296,495   $6,931   $(1,798)  $301,628 
     
   December 31, 2020 
   Amortized
Cost
   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
   Estimated
Fair
Value
 
Debt securities:                    
U.S. Government Agencies and Sponsored Agencies  $276,191   $8,474   $(832)  $283,833 
Obligations of states and political subdivisions   15,288    1,013        16,301 
Corporate bonds   6,748    85    (1)   6,832 
   $298,227   $9,572   $(833)  $306,966 

 

Net unrealized gains on available-for-sale investment securities totaling $5,133,000 were recorded, net of $1,517,000 in tax liabilities, as accumulated other comprehensive income within shareholders’ equity at March 31, 2021. Proceeds and gross realized gains from the sale and call of available-for-sale investment securities for the three-month period ended March 31, 2021 totaled $11,048,000 and $172,000, respectively. There were no transfers of available-for-sale investment securities for the three-month period ended March 31, 2021.

 

Net unrealized gains on available-for-sale investment securities totaling $8,739,000 were recorded, net of $2,583,000 in tax liabilities, as accumulated other comprehensive loss within shareholders’ equity at December 31, 2020. Proceeds and gross realized gains from the sale and call of available-for-sale investment securities for the three-month period ended March 31, 2020 totaled $4,229,000 and $38,000, respectively. There were no transfers of available-for-sale investment securities for the three-month period ended March 31, 2020.

 

Held-to-Maturity

March 31, 2021                
   Amortized
Cost
         Gross
Unrealized
Gains
        Gross
Unrealized
Losses
        Estimated
Fair Value
 
Debt securities:                    
U.S. Government Agencies and Sponsored Agencies  $10   $1   $   $11 
                     
December 31, 2020                
   Amortized
Cost
   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
   Estimated
Fair Value
 
Debt securities:                    
U.S. Government Agencies and Sponsored Agencies  $12   $1   $   $13 

12
 

There were no sales or transfers of held-to-maturity investment securities for the periods ended March 31, 2021 and March 31, 2020. Investment securities with unrealized losses at March 31, 2021 and December 31, 2020 are summarized and classified according to the duration of the loss period as follows (dollars in thousands):

March 31, 2021  Less than 12 Months   12 Months or More   Total 
   Fair Value   Unrealized
Losses
   Fair Value   Unrealized
Losses
   Fair Value   Unrealized
Losses
 
Available-for-Sale                              
                               
Debt securities:                              
U.S. Government Agencies and Sponsored Agencies  $81,619   $(1,307)  $21,350   $(358)  $102,969   $(1,665)
Obligations of states and political subdivisions   2,328    (29)           2,328    (29)
U. S Treasury securities   11,564    (99)             11,564    (99)
Corporate bonds   745    (5)           745    (5)
   $96,256   $(1,440)  $21,350   $(358)  $117,606   $(1,798)
                                           
December 31, 2020  Less than 12 Months   12 Months or More   Total 
   Fair Value   Unrealized
Losses
   Fair Value   Unrealized
Losses
   Fair Value   Unrealized
Losses
 
Available-for-Sale                              
                               
Debt securities:                              
U.S. Government Agencies and Sponsored Agencies  $58,886   $(403)  $31,138   $(429)  $90,024   $(832)
Corporate bonds   749    (1)           749    (1)
   $59,635   $(404)  $31,138   $(429)  $90,773   $(833)

There were no held-to-maturity investment securities with unrealized losses as of March 31, 2021 or December 31, 2020.

 

At March 31, 2021, the Company held 218 securities of which 40 were in a loss position for less than twelve months and 16 were in a loss position for twelve months or more.  All 16 of these securities consisted of mortgage-backed securities.  At December 31, 2020, the Company held 204 securities of which 29 were in a loss position for less than twelve months and 21 were in a loss position for twelve months or more.  These 50 securities consisted of mortgage-backed and corporate securities.  

 

The unrealized loss on the Company's investment securities is primarily driven by interest rates.  Because the decline in market value is attributable to a change in interest rates and not credit quality, and because the Company has the ability and intent to hold these investments until recovery of fair value, which may be until maturity, management does not consider these investments to be other-than-temporarily impaired. The amortized cost and estimated fair values of investment securities at March 31, 2021 by contractual maturity are shown below (dollars in thousands).

13
 
   Available-for-Sale   Held-to-Maturity 
   Amortized
Cost
   Estimated
Fair
Value
   Amortized
Cost
   Estimated
Fair
Value
 
                     
Within one year  $2,279   $2,292           
After one year through five years   360    361           
After five years through ten years   28,523    28,956           
After ten years   3,507    3,532           
    34,669    35,141           
Investment securities not due at a single maturity date:                    
U.S. Government Agencies and Sponsored Agencies   261,826    266,487   $10   $11 
   $296,495   $301,628   $10   $11 

 

Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.

 

6. IMPAIRED AND NONPERFORMING LOANS AND OTHER REAL ESTATE OWNED

 

At March 31, 2021 and December 31, 2020 the recorded investment in nonperforming loans was zero in both periods. Nonperforming loans include all such loans that are either placed on nonaccrual status or are 90 days past due as to principal or interest but still accrue interest because such loans are well-secured and in the process of collection.

 

At March 31, 2021 and December 31, 2020, the recorded investment in other real estate owned (“OREO”) was $800,000. During the first quarter of 2021, the Company repossessed and sold two automobiles that had combined loan balances of $66,000 and took a combined charge to the Allowance for Loan Losses (“ALLL”) of $9,000. At March 31, 2021, the Company did not own any residential OREO properties nor were there any residential properties in the process of foreclosure. During 2021, the Company did not add any new or sell any of the OREO properties, nor did we decrease the book value on any of the properties. The March 31, 2021 OREO balance of $800,000 consisted of one parcel of land zoned for commercial use. Nonperforming loans and other assets and OREO at March 31, 2021 and December 31, 2020 are summarized as follows (in thousands):

   March 31,
2021
   December 31,
2020
 
Nonaccrual loans that are current to terms (less than 30 days past due)  $   $ 
Nonaccrual loans that are past due        
Loans past due 90 days and accruing interest        
Other real estate owned   800    800 
Other assets        
Total nonperforming assets  $800   $800 
           
Nonperforming loans to total loans        
Total nonperforming assets to total assets   0.09%   0.09%

 

The Company considers a loan to be impaired when, based on current information and events, it is probable that it will be unable to collect all amounts due (principal and interest) according to the contractual terms of the original loan agreement. Impaired loans as of and for the periods ended March 31, 2021 and December 31, 2020 are summarized as follows:

14
 

Impaired loans as of and for the periods ended June 30, 2020 and December 31, 2019 are summarized as follows:

(in thousands)  As of March 31, 2021   As of December 31, 2020 
  

 

Recorded
Investment

  

Unpaid
Principal
Balance

  

 

Related
Allowance

  

 

Recorded
Investment

  

Unpaid
Principal
Balance

  

 

Related
Allowance

 
With no related allowance recorded:                              
Real estate-commercial  $5,046   $5,180   $   $5,075   $5,209   $ 
Real estate-residential   311    398        312    399     
Subtotal  $5,357   $5,578   $   $5,387   $5,608   $ 
                               
With an allowance recorded:                              
Real estate-commercial  $1,512   $1,572   $100    1,539    1,599    106 
Real estate-residential   120    120    9    124    124    6 
Subtotal  $1,632   $1,692   $109   $1,663   $1,723   $112 
                               
Total:                              
Real estate-commercial  $6,558   $6,752   $100   $6,614   $5,808   $106 
Real estate-residential   431    518    9    436    523    6 
   $6,989   $7,270   $109   $7,050   $7,331   $112 

 

The following table presents the average balance related to impaired loans for the periods indicated (in thousands):

 

   Average Recorded Investments
for the three months ended
 
   March 31,
2021
   March 31,
2020
 
Real estate-commercial  $6,586   $7,125 
Real estate-residential   433    449 
Total  $7,019   $7,574 

The following table presents the interest income recognized on impaired loans for the periods indicated (in thousands):

 

   Interest Income Recognized
for the three months ended
 
   March 31,
2021
   March 31,
2020
 
Real estate-commercial  $99   $106 
Real estate-residential   7    7 
Total  $106   $113 

 

7. TROUBLED DEBT RESTRUCTURINGS

 

During the periods ended March 31, 2021 and 2020, there were no loans that were modified as troubled debt restructurings (“TDRs”).

 

There were no payment defaults during the three months ended March 31, 2021 or March 31, 2020 on troubled debt restructurings made in the preceding twelve months. At March 31, 2021 and December 31, 2020, there were no unfunded commitments on those loans considered troubled debt restructures. See also “Impaired Loans” in Item 2.

8. ALLOWANCE FOR LOAN LOSSES

 

The Company’s loan portfolio allocated by management's internal risk ratings as of March 31, 2021 and December 31, 2020 are summarized below (Commercial “Pass” loans includes $57,486,000 and $55,546,000 in Paycheck Protection Program (“PPP”) loans at March 31, 2021 and December 31, 2020, respectively):

15
 

March 31, 2021  Credit Risk Profile by Internally Assigned Grade 
(dollars in thousands)      Real Estate 
   Commercial   Commercial   Multi-family   Construction   Residential 
Grade:                         
Pass  $87,216   $227,925   $45,254   $25,242   $31,234 
Watch   6,766    18,100            515 
Special mention       1,437             
Substandard       1,198             
Doubtful or loss                    
Total  $93,982   $248,660   $45,254   $25,242   $31,749 
             
   Credit Risk Profile by Internally Assigned Grade
Other Credit Exposure
         
   Agriculture   Consumer           Total 
Grade:                         
Pass  $6,034   $26,462             $449,367 
Watch       133              25,514 
Special mention                     1,437 
Substandard                     1,198 
Doubtful or loss                      
Total  $6,034   $26,595             $477,516 
                          
December 31, 2020  Credit Risk Profile by Internally Assigned Grade 
(dollars in thousands)      Real Estate 
   Commercial   Commercial   Multi-family   Construction   Residential 
Grade:                         
Pass  $90,021   $229,887   $48,760   $18,424   $31,760 
Watch   4,501    20,143            569 
Special mention       118             
Substandard       1,200             
Doubtful or loss                    
Total  $94,522   $251,348   $48,760   $18,424   $32,329 
                          
   Credit Risk Profile by Internally Assigned Grade
Other Credit Exposure
         
   Agriculture   Consumer           Total 
Grade:                         
Pass  $6,091   $28,668             $453,611 
Watch       136              25,349 
Special mention                     118 
Substandard                     1,200 
Doubtful or loss                      
Total  $6,091   $28,804             $480,278 

16
 

The allocation of the Company’s allowance for loan losses and by portfolio segment and by impairment methodology are summarized below (Commercial loans includes $57,486,000 and $55,546,000 in PPP loans at March 31, 2021 and December 31, 2020, respectively, and do not carry any associated allowance for loan loss, as they are 100% guaranteed by the Small Business Administration (“SBA” )):

March 31, 2021                    
(dollars in thousands)      Real Estate   Other         
   Commercial   Commercial   Multi-family   Construction   Residential   Agriculture   Consumer   Unallocated   Total 
Allowance for Loan Losses                                             
Beginning balance, January 1, 2021  $922   $3,466   $411   $687   $388   $85   $391   $278   $6,628 
Provision for loan losses   (149)   (61)   (34)   236    (1)       (19)   28     
Loans charged-off                           (9)       (9)
Recoveries   76    1                            77 
                                              
Ending balance, March 31, 2021  $849   $3,406   $377   $923   $387   $85   $363   $306   $6,696 
                                              
Ending balance:                                             
Individually evaluated for impairment  $   $100   $   $   $9   $   $   $   $109 
                                              
Ending balance:                                             
Collectively evaluated for impairment  $849   $3,306   $377   $923   $378   $85   $363   $306   $6,587 
                                              
Loans                                             
                                              
Ending balance  $93,982   $248,660   $45,254   $25,242   $31,749   $6,034   $26,595   $   $477,516 
                                              
Ending balance:                                             
Individually evaluated for impairment  $   $6,558   $   $   $431   $   $   $   $6,989 
                                              
Ending balance:                                             
Collectively evaluated for impairment  $93,982   $242,102   $45,254   $25,242   $31,318   $6,034   $26,595   $   $470,527 
17
 
December 31, 2020                                    
(dollars in thousands)      Real Estate   Other         
   Commercial   Commercial   Multi-family   Construction   Residential   Agriculture   Consumer   Unallocated   Total 
Allowance for Loan Losses                                             
                                              
Ending balance  $922   $3,466   $411   $687   $388   $85   $391   $278   $6,628 
                                              
Ending balance:                                             
Individually evaluated for impairment  $   $106   $   $   $6   $   $   $   $112 
                                              
Ending balance:                                             
Collectively evaluated for impairment  $922   $3,360   $411   $687   $382   $85   $391   $278   $6,516 
                                              
Loans                                             
                                              
Ending balance  $94,522   $251,348   $48,760   $18,424   $32,329   $6,091   $28,804   $   $480,278 
                                              
Ending balance: