NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 NATURE OF OPERATIONS:
New Peoples Bankshares, Inc. (“The Company”)
is a financial holding company whose principal activity is the ownership and management of a community bank. New Peoples Bank,
Inc. (“Bank”) was organized and incorporated under the laws of the Commonwealth of Virginia on December 9, 1997. The
Bank commenced operations on October 28, 1998, after receiving regulatory approval. As a state-chartered member bank, the Bank
is subject to regulation by the Virginia Bureau of Financial Institutions, the Federal Deposit Insurance Corporation and the Federal
Reserve Bank. The Bank provides general banking services to individuals, small and medium size businesses and the professional
community of southwestern Virginia, southern West Virginia, and eastern Tennessee. On June 9, 2003, the Company formed two wholly-owned
subsidiaries; NPB Financial Services, Inc. and NPB Web Services, Inc. On July 7, 2004 the Company established NPB Capital Trust
I for the purpose of issuing trust preferred securities. On September 27, 2006, the Company established NPB Capital Trust 2 for
the purpose of issuing additional trust preferred securities. NPB Financial Services, Inc. was a subsidiary of the Company until
January 1, 2009 when it became a subsidiary of the Bank. In June 2012 the name of NPB Financial Services, Inc. was changed to NPB
Insurance Services, Inc. which operates solely as an insurance agency. On March 4, 2016 the Federal Reserve Bank of Richmond approved
the Company’s election to become a financial holding company. In July 2016, the Bank and its wholly-owned subsidiary NPB
Insurance Services, Inc. announced that it was forming a business relationship with The Hilb Group of Virginia dba CSE Insurance
Services, a division of the Hilb Group, LLC (“CSE”), located in Abingdon, Virginia, to provide insurance services for
its current and future customers. Effective July 1, 2016, NPB Insurance Services, Inc. sold its existing book of business to CSE.
These customers are now serviced by CSE and the Bank refers future insurance needs of its customers to CSE. On June 7, 2017, NPB
Insurance Services, Inc. purchased a 39% membership interest in Lonesome Pine Title Agency, LLC, which provides title insurance.
Another member of the agency is a related party to the Company.
NOTE
2 ACCOUNTING PRINCIPLES:
These
consolidated financial statements conform to U. S. generally accepted accounting principles and to general industry practices.
In the opinion of management, the accompanying consolidated financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the Company’s financial position at September 30, 2017 and December 31,
2016, and the results of operations for the three and nine month periods ended September 30, 2017 and 2016. The notes included
herein should be read in conjunction with the notes to the consolidated financial statements included in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2016. The results of operations for the three and nine month periods ended
September 30, 2017 and 2016 are not necessarily indicative of the results to be expected for the full year.
The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The determination of the adequacy of the allowance for loan losses and the determination of
the deferred tax asset and related valuation allowance are based on estimates that are particularly susceptible to significant
changes in the economic environment and market conditions.
NOTE
3 EARNINGS PER SHARE:
Basic
earnings per share computations are based on the weighted average number of shares outstanding during each period. Dilutive earnings
per share reflect the additional common shares that would have been outstanding if dilutive potential common shares had been issued.
Potential common shares that may be issued related to outstanding common stock warrants are determined by the Treasury method.
For the three and nine months ended September 30, 2017 and 2016, potential common shares of 879,803 and 882,178, respectively,
were anti-dilutive and were not included in the calculation. Basic and diluted net income per common share calculations follows:
(Amounts in Thousands, Except
Share and Per Share Data)
|
|
For the three months
ended September 30,
|
|
For the nine months
ended September 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net income
|
|
$
|
484
|
|
|
$
|
346
|
|
|
$
|
3,176
|
|
|
$
|
1,926
|
|
Weighted average shares outstanding
|
|
|
23,355,580
|
|
|
|
23,354,111
|
|
|
|
23,355,611
|
|
|
|
23,354,092
|
|
Dilutive shares for stock options and warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Weighted average dilutive shares outstanding
|
|
|
23,355,580
|
|
|
|
23,354,111
|
|
|
|
23,355,611
|
|
|
|
23,354,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted income per share
|
|
$
|
0.02
|
|
|
$
|
0.01
|
|
|
$
|
0.14
|
|
|
$
|
0.08
|
|
NOTE
4 CAPITAL:
Capital
Requirements and Ratios
The
Bank is subject to various capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and, possibly, additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework
for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities,
and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification
are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative
measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth
in the following table) of total and Tier 1 capital (as defined) to risk-weighted assets (as defined), Tier 1 capital (as defined)
to average assets (as defined), and Common Equity Tier 1 capital (as defined) to risk-weighted assets (as defined). As of September
30, 2017, the Bank meets all capital adequacy requirements to which it is subject.
The
Company meets eligibility criteria of a small bank holding company in accordance with the Federal Reserve Board’s Small
Bank Holding Company Policy Statement issued in February 2015, and is no longer obligated to report consolidated regulatory capital.
The Bank’s actual capital amounts and ratios are presented in the following table as of September 30, 2017 and December
31, 2016, respectively. These ratios comply with Federal Reserve rules to align with the Basel III Capital requirements effective
January 1, 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
Minimum Capital Requirement
|
|
Minimum to Be Well Capitalized Under Prompt Corrective Action Provisions
|
(Dollars are in thousands)
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
September 30, 2017:
|
Total Capital to Risk Weighted Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Peoples Bank, Inc.
|
|
|
70,084
|
|
|
|
15.96
|
%
|
|
$
|
35,119
|
|
|
|
8.0
|
%
|
|
$
|
43,899
|
|
|
|
10.0
|
%
|
Tier 1 Capital to Risk Weighted Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Peoples Bank, Inc.
|
|
|
64,590
|
|
|
|
14.71
|
%
|
|
|
26,339
|
|
|
|
6.0
|
%
|
|
|
35,119
|
|
|
|
8.0
|
%
|
Tier 1 Capital to Average Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Peoples Bank, Inc.
|
|
|
64,590
|
|
|
|
9.84
|
%
|
|
|
26,249
|
|
|
|
4.0
|
%
|
|
|
32,811
|
|
|
|
5.0
|
%
|
Common Equity Tier 1 Capital
to Risk Weighted Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Peoples Bank, Inc.
|
|
|
64,590
|
|
|
|
14.71
|
%
|
|
|
19,754
|
|
|
|
4.5
|
%
|
|
|
28,534
|
|
|
|
6.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital to Risk Weighted Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Peoples Bank, Inc.
|
|
|
67,549
|
|
|
|
16.64
|
%
|
|
$
|
32,476
|
|
|
|
8.0
|
%
|
|
$
|
40,595
|
|
|
|
10.0
|
%
|
Tier 1 Capital to Risk Weighted Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Peoples Bank, Inc.
|
|
|
62,462
|
|
|
|
15.39
|
%
|
|
|
24,357
|
|
|
|
6.0
|
%
|
|
|
32,476
|
|
|
|
8.0
|
%
|
Tier 1 Capital to Average Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Peoples Bank, Inc.
|
|
|
62,462
|
|
|
|
9.93
|
%
|
|
|
25,149
|
|
|
|
4.0
|
%
|
|
|
31,436
|
|
|
|
5.0
|
%
|
Common Equity Tier 1 Capital
to Risk Weighted Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Peoples Bank, Inc.
|
|
|
62,462
|
|
|
|
15.39
|
%
|
|
|
18,268
|
|
|
|
4.5
|
%
|
|
|
26,386
|
|
|
|
6.5
|
%
|
As
of September 30, 2017, the Bank was well capitalized under the regulatory framework for prompt corrective action. To be categorized
as well capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based, Tier 1 leverage, and Common Equity
Tier 1 ratios as set forth in the above tables. There are no conditions or events since the notification that management believes
have changed the Bank’s category.
Under
Basel III Capital requirements, a capital conservation buffer of 0.625% became effective beginning on January 1, 2016. The capital
conservation buffer is 1.25% as of September 30, 2017 and the Bank met that requirement with a buffer of 7.96%. The capital conservation
buffer will be gradually increased through January 1, 2019 to 2.50%. Banks will be required to maintain levels that meet the required
minimum plus the capital conservation buffer in order to make distributions, such as dividends, or discretionary bonus payments.
NOTE
5 INVESTMENT SECURITIES:
The
amortized cost and estimated fair value of securities (all available-for-sale (“AFS”)) are as follows:
|
|
|
|
|
|
|
|
|
|
Gross
|
|
Gross
|
|
Approximate
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
(Dollars
are in thousands)
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
September
30, 2017
|
U.S.
Government Agencies
|
$
|
24,363
|
$
|
103
|
$
|
155
|
$
|
24,311
|
Taxable
municipals
|
2,318
|
7
|
32
|
2,293
|
Corporate
bonds
|
3,906
|
191
|
-
|
4,097
|
Mortgage
backed securities
|
37,944
|
23
|
437
|
37,530
|
Total
Securities AFS
|
$
|
68,531
|
$
|
324
|
$
|
624
|
$
|
68,231
|
|
December
31, 2016
|
U.S.
Government Agencies
|
$
|
24,821
|
$
|
80
|
$
|
269
|
$
|
24,632
|
Taxable
municipals
|
2,340
|
2
|
50
|
2,292
|
Corporate
bonds
|
3,600
|
149
|
-
|
3,749
|
Mortgage
backed securities
|
39,941
|
25
|
628
|
39,338
|
Total
Securities AFS
|
$
|
70,702
|
$
|
256
|
$
|
947
|
$
|
70,011
|
The
following table details unrealized losses and related fair values in the available-for-sale portfolio. This information is aggregated
by the length of time that individual securities have been in a continuous unrealized loss position as of September 30, 2017 and
December 31, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
12 Months or More
|
|
Total
|
(Dollars are in thousands)
|
|
Fair Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agencies
|
|
$
|
12,043
|
|
|
$
|
134
|
|
|
$
|
1,681
|
|
|
$
|
21
|
|
|
$
|
13,724
|
|
|
$
|
155
|
|
Taxable municipals
|
|
|
1,055
|
|
|
|
28
|
|
|
|
262
|
|
|
|
4
|
|
|
|
1,317
|
|
|
|
32
|
|
Corporate bonds
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Mtg. backed securities
|
|
|
21,749
|
|
|
|
230
|
|
|
|
9,980
|
|
|
|
207
|
|
|
|
31,729
|
|
|
|
437
|
|
Total Securities AFS
|
|
$
|
34,847
|
|
|
$
|
392
|
|
|
$
|
11,923
|
|
|
$
|
232
|
|
|
$
|
46,770
|
|
|
$
|
624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agencies
|
|
$
|
12,081
|
|
|
$
|
250
|
|
|
$
|
2,449
|
|
|
$
|
19
|
|
|
$
|
14,530
|
|
|
$
|
269
|
|
Taxable municipals
|
|
|
1,561
|
|
|
|
50
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,561
|
|
|
|
50
|
|
Corporate bonds
|
|
|
500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
500
|
|
|
|
—
|
|
Mtg. backed securities
|
|
|
28,680
|
|
|
|
543
|
|
|
|
4,655
|
|
|
|
85
|
|
|
|
33,335
|
|
|
|
628
|
|
Total Securities AFS
|
|
$
|
42,822
|
|
|
$
|
843
|
|
|
$
|
7,104
|
|
|
$
|
104
|
|
|
$
|
49,926
|
|
|
$
|
947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
September 30, 2017, the available-for-sale portfolio included 107 investments for which the fair market value was less than amortized
cost. At December 31, 2016, the available-for-sale portfolio included 107 investments for which the fair market value was less
than amortized cost. Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more
frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the
extent to which the fair value has been less than cost, (2) the financial conditions and near-term prospects of the issuer, and
(3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for
any anticipated recovery in fair value. Based on the Company’s analysis, the Company concluded that no securities had an
other-than-temporary impairment.
Investment
securities with a carrying value of $10.6 million and $11.3 million at September 30, 2017 and December 31, 2016, respectively,
were pledged as collateral to secure public deposits and for other purposes required by law.
Gross
proceeds on the sale of investment securities were $3.2 million and $24.8 million, respectively, for the nine months ended September
30, 2017 and 2016. Gross realized gains and losses pertaining to the sale of investment securities available for sale are detailed
as follows:
|
|
|
|
|
|
|
|
|
|
|
For the three months
ended September 30,
|
|
For the nine months
ended September 30,
|
(Dollars are in thousands)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Gross gains realized
|
|
$
|
30
|
|
|
$
|
—
|
|
|
$
|
30
|
|
|
$
|
275
|
|
Gross losses realized
|
|
|
(30
|
)
|
|
|
—
|
|
|
|
(30
|
)
|
|
|
(35
|
)
|
Net realized gains
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
240
|
|
The
amortized cost and fair value of investment securities at September 30, 2017, by contractual maturity, are shown in the following
schedule. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
|
|
|
|
|
|
|
|
Weighted
|
(Dollars
are in thousands)
|
Amortized
|
|
Fair
|
|
Average
|
Securities
Available-for-Sale
|
Cost
|
|
Value
|
|
Yield
|
Due
in one year or less
|
$
|
11
|
$
|
11
|
|
1.57%
|
Due
after one year through five years
|
3,636
|
3,622
|
2.03%
|
Due
after five years through ten years
|
|
14,853
|
|
14,977
|
|
3.03%
|
Due
after ten years
|
|
50,031
|
|
49,621
|
|
2.14%
|
Total
|
$
|
68,531
|
$
|
68,231
|
|
2.32%
|
The
Bank, as a member of the Federal Reserve Bank and the Federal Home Loan Bank, is required to hold stock in each. The Bank also
owns stock in CBB Financial Corp., which is a correspondent of the Bank. These equity securities are restricted from trading and
are recorded at a cost of $2.6 million and $2.8 million as of September 30, 2017 and December 31, 2016, respectively.
NOTE
6 LOANS:
Loans
receivable outstanding are summarized as follows:
|
|
|
|
|
(Dollars are in thousands)
|
|
September 30, 2017
|
|
December 31, 2016
|
Real estate secured:
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
114,880
|
|
|
$
|
103,331
|
|
Construction and land development
|
|
|
30,878
|
|
|
|
25,755
|
|
Residential 1-4 family
|
|
|
254,234
|
|
|
|
249,700
|
|
Multifamily
|
|
|
14,790
|
|
|
|
12,582
|
|
Farmland
|
|
|
23,287
|
|
|
|
24,948
|
|
Total real estate loans
|
|
|
438,069
|
|
|
|
416,316
|
|
Commercial
|
|
|
36,382
|
|
|
|
26,955
|
|
Agriculture
|
|
|
3,733
|
|
|
|
3,164
|
|
Consumer installment loans
|
|
|
22,519
|
|
|
|
22,188
|
|
All other loans
|
|
|
687
|
|
|
|
6
|
|
Total loans
|
|
$
|
501,390
|
|
|
$
|
468,629
|
|
Loans
receivable on nonaccrual status are summarized as follows:
|
|
|
|
|
|
|
|
|
|
(Dollars are in thousands)
|
|
September 30, 2017
|
|
December 31, 2016
|
Real estate secured:
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
2,040
|
|
|
$
|
3,403
|
|
Construction and land development
|
|
|
274
|
|
|
|
319
|
|
Residential 1-4 family
|
|
|
6,640
|
|
|
|
8,355
|
|
Multifamily
|
|
|
155
|
|
|
|
166
|
|
Farmland
|
|
|
1,062
|
|
|
|
1,003
|
|
Total real estate loans
|
|
|
10,171
|
|
|
|
13,246
|
|
Agriculture
|
|
|
7
|
|
|
|
83
|
|
Consumer installment loans
|
|
|
45
|
|
|
|
76
|
|
Total loans receivable on nonaccrual status
|
|
$
|
10,223
|
|
|
$
|
13,405
|
|
Total
interest income not recognized on nonaccrual loans for the nine months ended September 30, 2017 and 2016 was $456 thousand and
$397 thousand, respectively.
The
following table presents information concerning the Company’s investment in loans considered impaired as of September 30,
2017 and December 31, 2016:
|
|
|
|
|
|
|
As of September 30, 2017
(Dollars are in thousands)
|
|
Recorded
Investment
|
|
Unpaid Principal Balance
|
|
Related
Allowance
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
2,497
|
|
|
$
|
2,581
|
|
|
$
|
—
|
|
Construction and land development
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Residential 1-4 family
|
|
|
3,813
|
|
|
|
4,112
|
|
|
|
—
|
|
Multifamily
|
|
|
285
|
|
|
|
326
|
|
|
|
—
|
|
Farmland
|
|
|
1,501
|
|
|
|
1,884
|
|
|
|
—
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Agriculture
|
|
|
18
|
|
|
|
18
|
|
|
|
—
|
|
Consumer installment loans
|
|
|
8
|
|
|
|
8
|
|
|
|
—
|
|
All other loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
2,322
|
|
|
|
2,420
|
|
|
|
339
|
|
Construction and land development
|
|
|
202
|
|
|
|
447
|
|
|
|
69
|
|
Residential 1-4 family
|
|
|
564
|
|
|
|
593
|
|
|
|
104
|
|
Multifamily
|
|
|
1,310
|
|
|
|
1,377
|
|
|
|
194
|
|
Farmland
|
|
|
609
|
|
|
|
621
|
|
|
|
245
|
|
Commercial
|
|
|
496
|
|
|
|
496
|
|
|
|
181
|
|
Agriculture
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer installment loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
All other loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
13,625
|
|
|
$
|
14,883
|
|
|
$
|
1,132
|
|
As of December 31, 2016
(Dollars are in thousands)
|
|
|
Recorded
Investment
|
|
|
|
Unpaid Principal Balance
|
|
|
|
Related
Allowance
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
3,636
|
|
|
$
|
4,055
|
|
|
$
|
—
|
|
Construction and land development
|
|
|
5
|
|
|
|
5
|
|
|
|
—
|
|
Residential 1-4 family
|
|
|
3,861
|
|
|
|
4,182
|
|
|
|
—
|
|
Multifamily
|
|
|
301
|
|
|
|
342
|
|
|
|
—
|
|
Farmland
|
|
|
3,895
|
|
|
|
4,601
|
|
|
|
—
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Agriculture
|
|
|
19
|
|
|
|
19
|
|
|
|
—
|
|
Consumer installment loans
|
|
|
26
|
|
|
|
43
|
|
|
|
—
|
|
All other loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
1,191
|
|
|
|
1,270
|
|
|
|
65
|
|
Construction and land development
|
|
|
240
|
|
|
|
469
|
|
|
|
106
|
|
Residential 1-4 family
|
|
|
555
|
|
|
|
565
|
|
|
|
56
|
|
Multifamily
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Farmland
|
|
|
591
|
|
|
|
602
|
|
|
|
299
|
|
Commercial
|
|
|
67
|
|
|
|
67
|
|
|
|
18
|
|
Agriculture
|
|
|
5
|
|
|
|
5
|
|
|
|
5
|
|
Consumer installment loans
|
|
|
9
|
|
|
|
9
|
|
|
|
3
|
|
All other loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
14,401
|
|
|
$
|
16,234
|
|
|
$
|
552
|
|
The
following table presents information concerning the Company’s average impaired loans and interest recognized on those impaired
loans, for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
September 30, 2017
|
|
September 30, 2016
|
(Dollars are in thousands)
|
|
Average
Recorded
Investment
|
|
Interest
Income
Recognized
|
|
Average
Recorded
Investment
|
|
Interest
Income
Recognized
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
2,976
|
|
|
$
|
73
|
|
|
$
|
4,222
|
|
|
$
|
77
|
|
Construction and land development
|
|
|
2
|
|
|
|
—
|
|
|
|
89
|
|
|
|
—
|
|
Residential 1-4 family
|
|
|
3,827
|
|
|
|
152
|
|
|
|
3,716
|
|
|
|
140
|
|
Multifamily
|
|
|
402
|
|
|
|
15
|
|
|
|
288
|
|
|
|
14
|
|
Farmland
|
|
|
2,538
|
|
|
|
52
|
|
|
|
4,211
|
|
|
|
163
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Agriculture
|
|
|
19
|
|
|
|
1
|
|
|
|
29
|
|
|
|
2
|
|
Consumer installment loans
|
|
|
13
|
|
|
|
—
|
|
|
|
24
|
|
|
|
—
|
|
All other loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
1,208
|
|
|
|
80
|
|
|
|
1,539
|
|
|
|
6
|
|
Construction and land development
|
|
|
222
|
|
|
|
—
|
|
|
|
271
|
|
|
|
—
|
|
Residential 1-4 family
|
|
|
634
|
|
|
|
14
|
|
|
|
939
|
|
|
|
18
|
|
Multifamily
|
|
|
660
|
|
|
|
48
|
|
|
|
100
|
|
|
|
—
|
|
Farmland
|
|
|
673
|
|
|
|
26
|
|
|
|
572
|
|
|
|
18
|
|
Commercial
|
|
|
282
|
|
|
|
24
|
|
|
|
71
|
|
|
|
2
|
|
Agriculture
|
|
|
2
|
|
|
|
—
|
|
|
|
107
|
|
|
|
1
|
|
Consumer installment loans
|
|
|
2
|
|
|
|
—
|
|
|
|
30
|
|
|
|
1
|
|
All other loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
13,460
|
|
|
$
|
485
|
|
|
$
|
16,208
|
|
|
$
|
442
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
September 30, 2017
|
|
September 30, 2016
|
(Dollars are in thousands)
|
|
Average
Recorded
Investment
|
|
Interest
Income
Recognized
|
|
Average
Recorded
Investment
|
|
Interest
Income
Recognized
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
2,757
|
|
|
$
|
9
|
|
|
$
|
3,965
|
|
|
$
|
4
|
|
Construction and land development
|
|
|
—
|
|
|
|
—
|
|
|
|
7
|
|
|
|
—
|
|
Residential 1-4 family
|
|
|
3,833
|
|
|
|
50
|
|
|
|
3,833
|
|
|
|
37
|
|
Multifamily
|
|
|
287
|
|
|
|
4
|
|
|
|
307
|
|
|
|
3
|
|
Farmland
|
|
|
1,193
|
|
|
|
26
|
|
|
|
4,274
|
|
|
|
61
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Agriculture
|
|
|
18
|
|
|
|
—
|
|
|
|
23
|
|
|
|
—
|
|
Consumer installment loans
|
|
|
9
|
|
|
|
—
|
|
|
|
22
|
|
|
|
(2
|
)
|
All other loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
1,516
|
|
|
|
74
|
|
|
|
1,309
|
|
|
|
6
|
|
Construction and land development
|
|
|
209
|
|
|
|
—
|
|
|
|
259
|
|
|
|
—
|
|
Residential 1-4 family
|
|
|
567
|
|
|
|
5
|
|
|
|
606
|
|
|
|
7
|
|
Multifamily
|
|
|
1,321
|
|
|
|
16
|
|
|
|
83
|
|
|
|
(4
|
)
|
Farmland
|
|
|
756
|
|
|
|
10
|
|
|
|
504
|
|
|
|
6
|
|
Commercial
|
|
|
497
|
|
|
|
8
|
|
|
|
68
|
|
|
|
—
|
|
Agriculture
|
|
|
—
|
|
|
|
—
|
|
|
|
97
|
|
|
|
3
|
|
Consumer installment loans
|
|
|
—
|
|
|
|
—
|
|
|
|
32
|
|
|
|
1
|
|
All other loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
12,963
|
|
|
$
|
202
|
|
|
$
|
15,389
|
|
|
$
|
122
|
|
An
age analysis of past due loans receivable is below. At September 30, 2017 and December 31, 2016, there were no loans over 90 days
past due that were accruing.
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2017
(Dollars are in thousands)
|
|
Loans
30-59
Days
Past
Due
|
|
Loans
60-89
Days
Past
Due
|
|
Loans
90 or
More
Days
Past
Due
|
|
Total
Past
Due
Loans
|
|
Current
Loans
|
|
Total
Loans
|
Real estate secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
203
|
|
|
$
|
530
|
|
|
$
|
528
|
|
|
$
|
1,261
|
|
|
$
|
113,619
|
|
|
$
|
114,880
|
|
Construction and land
development
|
|
|
19
|
|
|
|
—
|
|
|
|
43
|
|
|
|
62
|
|
|
|
30,816
|
|
|
|
30,878
|
|
Residential 1-4 family
|
|
|
3,523
|
|
|
|
1,076
|
|
|
|
1,121
|
|
|
|
5,720
|
|
|
|
248,514
|
|
|
|
254,234
|
|
Multifamily
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
14,790
|
|
|
|
14,790
|
|
Farmland
|
|
|
55
|
|
|
|
—
|
|
|
|
284
|
|
|
|
339
|
|
|
|
22,948
|
|
|
|
23,287
|
|
Total real estate loans
|
|
|
3,800
|
|
|
|
1,606
|
|
|
|
1,976
|
|
|
|
7,382
|
|
|
|
430,687
|
|
|
|
438,069
|
|
Commercial
|
|
|
127
|
|
|
|
—
|
|
|
|
—
|
|
|
|
127
|
|
|
|
36,255
|
|
|
|
36,382
|
|
Agriculture
|
|
|
1
|
|
|
|
—
|
|
|
|
4
|
|
|
|
5
|
|
|
|
3,728
|
|
|
|
3,733
|
|
Consumer installment
Loans
|
|
|
66
|
|
|
|
1
|
|
|
|
20
|
|
|
|
87
|
|
|
|
22,432
|
|
|
|
22,519
|
|
All other loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
687
|
|
|
|
687
|
|
Total loans
|
|
$
|
3,994
|
|
|
$
|
1,607
|
|
|
$
|
2,000
|
|
|
$
|
7,601
|
|
|
$
|
493,789
|
|
|
$
|
501,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
(Dollars are in thousands)
|
|
Loans
30-59
Days
Past
Due
|
|
Loans
60-89
Days
Past
Due
|
|
Loans
90 or
More
Days
Past
Due
|
|
Total
Past
Due
Loans
|
|
Current
Loans
|
|
Total
Loans
|
Real estate secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
1,676
|
|
|
$
|
307
|
|
|
$
|
1,083
|
|
|
$
|
3,066
|
|
|
$
|
100,265
|
|
|
$
|
103,331
|
|
Construction and land
development
|
|
|
103
|
|
|
|
17
|
|
|
|
44
|
|
|
|
164
|
|
|
|
25,591
|
|
|
|
25,755
|
|
Residential 1-4 family
|
|
|
4,237
|
|
|
|
1,547
|
|
|
|
2,233
|
|
|
|
8,017
|
|
|
|
241,683
|
|
|
|
249,700
|
|
Multifamily
|
|
|
1,367
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,367
|
|
|
|
11,215
|
|
|
|
12,582
|
|
Farmland
|
|
|
2,987
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,987
|
|
|
|
21,961
|
|
|
|
24,948
|
|
Total real estate loans
|
|
|
10,370
|
|
|
|
1,871
|
|
|
|
3,360
|
|
|
|
15,601
|
|
|
|
400,715
|
|
|
|
416,316
|
|
Commercial
|
|
|
20
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20
|
|
|
|
26,935
|
|
|
|
26,955
|
|
Agriculture
|
|
|
19
|
|
|
|
—
|
|
|
|
78
|
|
|
|
97
|
|
|
|
3,067
|
|
|
|
3,164
|
|
Consumer installment
Loans
|
|
|
110
|
|
|
|
15
|
|
|
|
36
|
|
|
|
161
|
|
|
|
22,027
|
|
|
|
22,188
|
|
All other loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6
|
|
|
|
6
|
|
Total loans
|
|
$
|
10,519
|
|
|
$
|
1,886
|
|
|
$
|
3,474
|
|
|
$
|
15,879
|
|
|
$
|
452,750
|
|
|
$
|
468,629
|
|
The
Company categorizes loans receivable into risk categories based on relevant information about the ability of borrowers to service
their debt such as: current financial information, historical payment experience, credit documentation, public information, and
current economic trends, among other factors. The Company analyzes loans individually by classifying the loans receivable as to
credit risk. The Company uses the following definitions for risk ratings:
Pass
- Loans in this category are considered to have a low likelihood of loss based on relevant information analyzed about the
ability of the borrowers to service their debt and other factors.
Special
Mention
- Loans in this category are currently protected but are potentially weak, including adverse trends in borrower’s
operations, credit quality or financial strength. Those loans constitute an undue and unwarranted credit risk but not to the point
of justifying a substandard classification. The credit risk may be relatively minor yet constitute an unwarranted risk in light
of the circumstances. Special mention loans have potential weaknesses which may, if not checked or corrected, weaken the
loan or inadequately protect the Company’s credit position at some future date.
Substandard
-
A substandard loan is inadequately protected by the current sound net worth and paying capacity
of the obligor or of the collateral pledged, if any. Loans classified as substandard must have a well-defined weakness or weaknesses
that jeopardize the liquidation of the debt; they are characterized by the distinct possibility that the institution will sustain
some loss if the deficiencies are not corrected.
Doubtful
-
Loans classified Doubtful have all the
weaknesses inherent in loans classified as Substandard, plus the added characteristic that the weaknesses make collection or liquidation
in full on the basis of currently existing facts, conditions, and values highly questionable and improbable.
Based
on the most recent analysis performed, the risk category of loans receivable was as follows:
|
|
|
|
|
|
|
|
|
As of September 30, 2017
(Dollars are in thousands)
|
|
Pass
|
|
Special
Mention
|
|
Substandard
|
|
Total
|
Real estate secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
106,115
|
|
|
$
|
4,772
|
|
|
$
|
3,993
|
|
|
$
|
114,880
|
|
Construction and land development
|
|
|
29,757
|
|
|
|
847
|
|
|
|
274
|
|
|
|
30,878
|
|
Residential 1-4 family
|
|
|
244,924
|
|
|
|
1,971
|
|
|
|
7,339
|
|
|
|
254,234
|
|
Multifamily
|
|
|
12,977
|
|
|
|
157
|
|
|
|
1,656
|
|
|
|
14,790
|
|
Farmland
|
|
|
19,491
|
|
|
|
2,049
|
|
|
|
1,747
|
|
|
|
23,287
|
|
Total real estate loans
|
|
|
413,264
|
|
|
|
9,796
|
|
|
|
15,009
|
|
|
|
438,069
|
|
Commercial
|
|
|
33,665
|
|
|
|
2,221
|
|
|
|
496
|
|
|
|
36,382
|
|
Agriculture
|
|
|
3,700
|
|
|
|
26
|
|
|
|
7
|
|
|
|
3,733
|
|
Consumer installment loans
|
|
|
22,459
|
|
|
|
3
|
|
|
|
57
|
|
|
|
22,519
|
|
All other loans
|
|
|
687
|
|
|
|
—
|
|
|
|
—
|
|
|
|
687
|
|
Total
|
|
$
|
473,775
|
|
|
$
|
12,046
|
|
|
$
|
15,569
|
|
|
$
|
501,390
|
|
As of December 31, 2016
(Dollars are in thousands)
|
|
|
Pass
|
|
|
|
Special
Mention
|
|
|
|
Substandard
|
|
|
|
Total
|
|
Real estate secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
92,562
|
|
|
$
|
6,922
|
|
|
$
|
3,847
|
|
|
$
|
103,331
|
|
Construction and land development
|
|
|
23,905
|
|
|
|
1,531
|
|
|
|
319
|
|
|
|
25,755
|
|
Residential 1-4 family
|
|
|
238,400
|
|
|
|
2,117
|
|
|
|
9,183
|
|
|
|
249,700
|
|
Multifamily
|
|
|
10,848
|
|
|
|
1,367
|
|
|
|
367
|
|
|
|
12,582
|
|
Farmland
|
|
|
19,070
|
|
|
|
1,545
|
|
|
|
4,333
|
|
|
|
24,948
|
|
Total real estate loans
|
|
|
384,785
|
|
|
|
13,482
|
|
|
|
18,049
|
|
|
|
416,316
|
|
Commercial
|
|
|
26,197
|
|
|
|
691
|
|
|
|
67
|
|
|
|
26,955
|
|
Agriculture
|
|
|
3,076
|
|
|
|
—
|
|
|
|
88
|
|
|
|
3,164
|
|
Consumer installment loans
|
|
|
22,086
|
|
|
|
—
|
|
|
|
102
|
|
|
|
22,188
|
|
All other loans
|
|
|
6
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6
|
|
Total
|
|
$
|
436,150
|
|
|
$
|
14,173
|
|
|
|
18,306
|
|
|
$
|
468,629
|
|
NOTE
7 ALLOWANCE FOR LOAN LOSSES:
The
following table details activity in the allowance for loan losses by portfolio segment for the period ended September 30, 2017.
Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other
categories.
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2017
(Dollars are in thousands)
|
|
Beginning
Balance
|
|
Charge
Offs
|
|
Recoveries
|
|
Provisions
|
|
Ending Balance
|
Real estate secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
1,625
|
|
|
$
|
(179
|
)
|
|
$
|
191
|
|
|
$
|
(58
|
)
|
|
$
|
1,579
|
|
Construction and land development
|
|
|
346
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(53
|
)
|
|
|
293
|
|
Residential 1-4 family
|
|
|
2,376
|
|
|
|
(369
|
)
|
|
|
39
|
|
|
|
48
|
|
|
|
2,094
|
|
Multifamily
|
|
|
241
|
|
|
|
—
|
|
|
|
—
|
|
|
|
181
|
|
|
|
422
|
|
Farmland
|
|
|
428
|
|
|
|
(49
|
)
|
|
|
358
|
|
|
|
(309
|
)
|
|
|
428
|
|
Total real estate loans
|
|
|
5,016
|
|
|
|
(597
|
)
|
|
|
588
|
|
|
|
(191
|
)
|
|
|
4,816
|
|
Commercial
|
|
|
163
|
|
|
|
(11
|
)
|
|
|
147
|
|
|
|
127
|
|
|
|
426
|
|
Agriculture
|
|
|
31
|
|
|
|
—
|
|
|
|
4
|
|
|
|
(10
|
)
|
|
|
25
|
|
Consumer installment loans
|
|
|
123
|
|
|
|
(134
|
)
|
|
|
17
|
|
|
|
160
|
|
|
|
166
|
|
All other loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4
|
|
|
|
4
|
|
Unallocated
|
|
|
739
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(90
|
)
|
|
|
649
|
|
Total
|
|
$
|
6,072
|
|
|
$
|
(742
|
)
|
|
$
|
756
|
|
|
$
|
—
|
|
|
$
|
6,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for Loan Losses
|
|
Recorded
Investment in Loans
|
As
of September 30, 2017
(Dollars
are in thousands)
|
|
Individually
Evaluated
for
Impairment
|
|
Collectively
Evaluated for Impairment
|
|
Total
|
|
Individually
Evaluated
for Impairment
|
|
Collectively
Evaluated for Impairment
|
|
Total
|
Real
estate secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
$
|
339
|
$
|
1,240
|
$
|
1,579
|
$
|
4,819
|
$
|
110,061
|
$
|
114,880
|
Construction
and land
development
|
|
69
|
|
224
|
|
293
|
|
202
|
|
30,676
|
|
30,878
|
Residential
1-4 family
|
|
104
|
|
1,990
|
|
2,094
|
|
4,377
|
|
249,857
|
|
254,234
|
Multifamily
|
|
194
|
|
228
|
|
422
|
|
1,595
|
|
13,195
|
|
14,790
|
Farmland
|
|
245
|
|
183
|
|
428
|
|
2,110
|
|
21,177
|
|
23,287
|
Total
real estate loans
|
|
951
|
|
3,865
|
|
4,816
|
|
13,103
|
|
424,966
|
|
438,069
|
Commercial
|
|
181
|
|
245
|
|
426
|
|
496
|
|
35,886
|
|
36,382
|
Agriculture
|
|
-
|
|
25
|
|
25
|
|
18
|
|
3,715
|
|
3,733
|
Consumer
installment loans
|
|
-
|
|
166
|
|
166
|
|
8
|
|
22,511
|
|
22,519
|
All
other loans
|
|
-
|
|
4
|
|
4
|
|
-
|
|
687
|
|
687
|
Unallocated
|
|
-
|
|
649
|
|
649
|
|
-
|
|
-
|
|
-
|
Total
|
$
|
1,132
|
$
|
4,954
|
$
|
6,086
|
$
|
13,625
|
$
|
487,765
|
$
|
501,390
|
The
following table details activity in the allowance for loan losses by portfolio segment for the period ended December 31, 2016.
Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other
categories.
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
(Dollars are in thousands)
|
|
Beginning
Balance
|
|
Charge
Offs
|
|
Recoveries
|
|
Provisions
|
|
Ending Balance
|
Real estate secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
2,384
|
|
|
$
|
(557
|
)
|
|
$
|
220
|
|
|
$
|
(422
|
)
|
|
$
|
1,625
|
|
Construction and land development
|
|
|
332
|
|
|
|
(5
|
)
|
|
|
26
|
|
|
|
(7
|
)
|
|
|
346
|
|
Residential 1-4 family
|
|
|
2,437
|
|
|
|
(720
|
)
|
|
|
87
|
|
|
|
572
|
|
|
|
2,376
|
|
Multifamily
|
|
|
232
|
|
|
|
(18
|
)
|
|
|
—
|
|
|
|
27
|
|
|
|
241
|
|
Farmland
|
|
|
675
|
|
|
|
(2
|
)
|
|
|
103
|
|
|
|
(348
|
)
|
|
|
428
|
|
Total real estate loans
|
|
|
6,060
|
|
|
|
(1,302
|
)
|
|
|
436
|
|
|
|
(178
|
)
|
|
|
5,016
|
|
Commercial
|
|
|
266
|
|
|
|
(65
|
)
|
|
|
62
|
|
|
|
(100
|
)
|
|
|
163
|
|
Agriculture
|
|
|
124
|
|
|
|
—
|
|
|
|
7
|
|
|
|
(100
|
)
|
|
|
31
|
|
Consumer installment loans
|
|
|
128
|
|
|
|
(83
|
)
|
|
|
24
|
|
|
|
54
|
|
|
|
123
|
|
All other loans
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
—
|
|
Unallocated
|
|
|
914
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(175
|
)
|
|
|
739
|
|
Total
|
|
$
|
7,493
|
|
|
$
|
(1,450
|
)
|
|
$
|
529
|
|
|
$
|
(500
|
)
|
|
$
|
6,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for Loan Losses
|
|
Recorded
Investment in Loans
|
As
of December 31, 2016
(Dollars
are in thousands)
|
|
Individually
Evaluated
for
Impairment
|
|
Collectively
Evaluated for Impairment
|
|
Total
|
|
Individually
Evaluated
for Impairment
|
|
Collectively
Evaluated for Impairment
|
|
Total
|
Real
estate secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
$
|
65
|
$
|
1,560
|
$
|
1,625
|
$
|
4,827
|
$
|
98,504
|
$
|
103,331
|
Construction
and land
development
|
|
106
|
|
240
|
|
346
|
|
245
|
|
25,510
|
|
25,755
|
Residential
1-4 family
|
|
56
|
|
2,320
|
|
2,376
|
|
4,416
|
|
245,284
|
|
249,700
|
Multifamily
|
|
-
|
|
241
|
|
241
|
|
301
|
|
12,281
|
|
12,582
|
Farmland
|
|
299
|
|
129
|
|
428
|
|
4,486
|
|
20,462
|
|
24,948
|
Total
real estate loans
|
|
526
|
|
4,490
|
|
5,016
|
|
14,275
|
|
402,041
|
|
416,316
|
Commercial
|
|
18
|
|
145
|
|
163
|
|
67
|
|
26,888
|
|
26,955
|
Agriculture
|
|
5
|
|
26
|
|
31
|
|
24
|
|
3,140
|
|
3,164
|
Consumer
installment loans
|
|
3
|
|
120
|
|
123
|
|
35
|
|
22,153
|
|
22,188
|
All
other loans
|
|
-
|
|
-
|
|
-
|
|
-
|
|
6
|
|
6
|
Unallocated
|
|
-
|
|
739
|
|
739
|
|
-
|
|
-
|
|
-
|
Total
|
$
|
552
|
$
|
5,520
|
|
6,072
|
$
|
14,401
|
$
|
454,228
|
$
|
468,629
|
In
determining the amount of our allowance, we rely on an analysis of our loan portfolio, our experience and our evaluation of general
economic conditions, as well as the requirements of the written agreement and other regulatory input. If our assumptions prove
to be incorrect, our current allowance may not be sufficient to cover future loan losses and we may experience significant increases
to our provision.
NOTE
8 TROUBLED DEBT RESTRUCTURINGS:
At
September 30, 2017 there were $7.3 million in loans that are classified as troubled debt restructurings compared to $9.6 million
at December 31, 2016. The following table presents information related to loans modified as troubled debt restructurings during
the nine and three months ended September 30, 2017 and 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended
September 30, 2017
|
|
For the nine months ended
September 30, 2016
|
Troubled Debt Restructurings
(Dollars are in thousands)
|
|
# of Loans
|
|
Pre-Mod. Recorded Investment
|
|
Post-Mod.
Recorded
Investment
|
|
# of
Loans
|
|
Pre-Mod.
Recorded Investment
|
|
Post-Mod.
Recorded
Investment
|
Real estate secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
1
|
|
|
$
|
341
|
|
|
$
|
341
|
|
Construction and land
Development
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Residential 1-4 family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Multifamily
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Farmland
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
291
|
|
|
|
280
|
|
Total real estate loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
|
|
632
|
|
|
|
621
|
|
Commercial
|
|
|
1
|
|
|
|
443
|
|
|
|
443
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Agriculture
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer installment loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
All other loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
1
|
|
|
$
|
443
|
|
|
$
|
443
|
|
|
|
2
|
|
|
$
|
632
|
|
|
$
|
621
|
|
During
the nine months ended September 30, 2017, the Company modified the terms of one loan for which the modification was
considered to be a troubled debt restructuring. The interest rate was not modified on this loan; however, the payment terms
and maturity date were changed.
During
the nine months ended September 30, 2016, the Company modified the terms of two loans for which the modification was considered
to be a troubled debt restructuring. On one loan, the interest rate and maturity date were not modified; however, the payment
terms were changed. On one loan, the interest rate was lowered and the payment terms and maturity date were changed.
During
the three months ended September 30, 2017 and 2016, the Company modified no loans that were considered to be a troubled debt restructuring.
No
loans previously modified as troubled debt restructurings defaulted during the nine months ended September 30, 2017. There
was one commercial real estate loan with a recorded investment of $302 thousand that had been modified as a troubled debt
restructuring that defaulted during the nine months ended September 30, 2016, which was within twelve months of the
loan’s modification date.
There
were no loans modified as troubled debt restructurings that defaulted during the three months ended September 30, 2017 and 2016,
which were within twelve months of their modification date. Generally, a troubled debt restructuring is considered to be in default
once it becomes 90 days or more past due following a modification.
In
determination of the allowance for loan losses, management considers troubled debt restructurings and subsequent defaults in these
restructurings in its estimate. The Company evaluates all troubled debt restructurings for possible further impairment. As a result,
the allowance may be increased, adjustments may be made in the allocation of the allowance, or charge-offs may be taken to further
writedown the carrying value of the loan.
NOTE
9 OTHER REAL ESTATE OWNED:
The
following table summarizes the activity in other real estate owned for the nine months ended September 30, 2017 and the year ended
December 31, 2016:
(Dollars are in thousands)
|
|
September 30,
2017
|
|
December 31, 2016
|
Balance, beginning of period
|
|
$
|
10,655
|
|
|
$
|
12,398
|
|
Additions
|
|
|
2,761
|
|
|
|
4,577
|
|
Purchases of/improvements to
other real estate owned
|
|
|
—
|
|
|
|
48
|
|
Transfers of premises and equipment
to other real estate owned
|
|
|
125
|
|
|
|
—
|
|
Transfers of other real estate owned
to premises and equipment
|
|
|
—
|
|
|
|
(125
|
)
|
Proceeds from sales of
other real estate owned
|
|
|
(4,145
|
)
|
|
|
(4,232
|
)
|
Proceeds from insurance claims
on other real estate owned
|
|
|
(12
|
)
|
|
|
—
|
|
Loans made to finance sales of
other real estate owned
|
|
|
(1,225
|
)
|
|
|
(818
|
)
|
Adjustment of carrying value
|
|
|
(668
|
)
|
|
|
(1,414
|
)
|
Deferred gain from sales
|
|
|
44
|
|
|
|
—
|
|
Gain (loss) from sales
|
|
|
(29
|
)
|
|
|
221
|
|
Balance, end of period
|
|
$
|
7,506
|
|
|
$
|
10,655
|
|
NOTE
10 FAIR VALUES:
The
financial reporting standard, “Fair Value Measurements and Disclosures” provides a framework for measuring fair value
under generally accepted accounting principles and requires disclosures about the fair value of assets and liabilities recognized
in the balance sheet in periods subsequent to initial recognition, whether the measurements are made on a recurring basis (for
example, available-for-sale investment securities) or on a nonrecurring basis (for example, impaired loans and other real estate
acquired through foreclosure).
Fair
value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal
or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement
date. Fair Value Measurements and Disclosures also establishes a fair value hierarchy which requires an entity to maximize the
use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels
of inputs that may be used to measure fair value:
Level
1: Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity
securities and derivative contracts that are traded in an exchange market, as well as U. S. Treasury, other U. S. Government and
agency mortgage-backed debt securities that are highly liquid and are actively traded in over-the-counter markets.
Level
2: Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets
that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the
full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded
less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with
inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category
generally includes certain derivative contracts and impaired loans.
Level
3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets
and liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models,
discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires
significant management judgment or estimation. For example, this category generally includes certain private equity investments,
retained residual interests in securitizations, residential mortgage servicing rights, and highly structured or long-term derivative
contracts.
Investment
Securities Available-for-Sale –
Investment securities available-for-sale are recorded at fair value on a recurring basis.
Fair value measurement is based upon quoted prices. The Company’s available-for-sale securities, totaling $68.2 million
and $70.0 million at September 30, 2017 and December 31, 2016, respectively, are the only assets whose fair values are measured
on a recurring basis using Level 2 inputs from an independent pricing service.
Loans
-
The Company does not record loans at fair value on a recurring basis. Real estate serves as collateral on a substantial
majority of the Company’s loans. When a loan is considered impaired a specific reserve may be established. Loans which are
deemed to be impaired and require a reserve are primarily valued on a non-recurring basis at the fair values of the underlying
real estate collateral. Such fair values are obtained using independent appraisals, which management evaluates and determines
whether or not the fair value of the collateral is further impaired below the appraised value and there is no observable market
price, or whether or not an appraised value does not include estimated costs of disposition. The Company records impaired loans
as nonrecurring Level 3 assets. The aggregate carrying amounts of impaired loans carried at fair value were $12.5 million and
$13.8 million at September 30, 2017 and December 31, 2016, respectively.
Foreclosed
Assets
–
Foreclosed assets are adjusted to fair value upon transfer of the loans to foreclosed assets.
Foreclosed assets are carried at the lower of the carrying value or fair value. Fair value is based upon independent observable
market prices or appraised values of the collateral with a third party less an estimate of disposition costs, which the Company
considers to be level 2 inputs. When the appraised value is not available, management determines the fair value of the collateral
if further impaired below the appraised value and there is no observable market price, or an appraised value does not include
estimated costs of disposition and management must make an estimate, the Company records the foreclosed asset as nonrecurring
Level 3. The aggregate carrying amounts of foreclosed assets were $7.5 million and $10.7 million at September 30, 2017 and December
31, 2016, respectively.
Assets
and liabilities measured at fair value are as follows as of September 30, 2017 (for purpose of this table the impaired loans are
shown net of the related allowance):
|
|
|
|
|
|
|
(Dollars are in thousands)
|
|
Quoted market price in active markets
(Level 1)
|
|
Significant other observable inputs
(Level 2)
|
|
Significant unobservable inputs
(Level 3)
|
(On a recurring basis)
Available-for-sale investments
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agencies
|
|
$
|
—
|
|
|
$
|
24,311
|
|
|
$
|
—
|
|
Taxable municipals
|
|
|
—
|
|
|
|
2,293
|
|
|
|
—
|
|
Corporate bonds
|
|
|
—
|
|
|
|
4,097
|
|
|
|
—
|
|
Mortgage backed securities
|
|
|
—
|
|
|
|
37,530
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(On a non-recurring basis)
Other real estate owned
|
|
|
—
|
|
|
|
—
|
|
|
|
7,506
|
|
Impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
4,480
|
|
Construction and land development
|
|
|
—
|
|
|
|
—
|
|
|
|
133
|
|
Residential 1-4 family
|
|
|
—
|
|
|
|
—
|
|
|
|
4,273
|
|
Multifamily
|
|
|
—
|
|
|
|
—
|
|
|
|
1,401
|
|
Farmland
|
|
|
—
|
|
|
|
—
|
|
|
|
1,865
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
315
|
|
Agriculture
|
|
|
—
|
|
|
|
—
|
|
|
|
18
|
|
Consumer installment loans
|
|
|
—
|
|
|
|
—
|
|
|
|
8
|
|
All other loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
—
|
|
|
$
|
68,231
|
|
|
$
|
19,999
|
|
Assets
and liabilities measured at fair value are as follows as of December 31, 2016 (for purpose of this table the impaired loans are
shown net of the related allowance):
|
|
|
|
|
|
|
(Dollars are in thousands)
|
|
Quoted market price in active markets
(Level 1)
|
|
Significant other observable inputs
(Level 2)
|
|
Significant unobservable inputs
(Level 3)
|
(On a recurring basis)
Available-for-sale investments
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agencies
|
|
$
|
—
|
|
|
$
|
24,632
|
|
|
$
|
—
|
|
Taxable municipals
|
|
|
—
|
|
|
|
2,292
|
|
|
|
—
|
|
Corporate bonds
|
|
|
—
|
|
|
|
3,749
|
|
|
|
—
|
|
Mortgage backed securities
|
|
|
—
|
|
|
|
39,338
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(On a non-recurring basis)
Other real estate owned
|
|
|
—
|
|
|
|
—
|
|
|
|
10,655
|
|
Impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
4,762
|
|
Construction and land development
|
|
|
—
|
|
|
|
—
|
|
|
|
139
|
|
Residential 1-4 family
|
|
|
—
|
|
|
|
—
|
|
|
|
4,360
|
|
Multifamily
|
|
|
—
|
|
|
|
—
|
|
|
|
301
|
|
Farmland
|
|
|
—
|
|
|
|
—
|
|
|
|
4,187
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
49
|
|
Agriculture
|
|
|
—
|
|
|
|
—
|
|
|
|
19
|
|
Consumer installment loans
|
|
|
—
|
|
|
|
—
|
|
|
|
32
|
|
All other loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
—
|
|
|
$
|
70,011
|
|
|
$
|
24,504
|
|
For
Level 3 assets measured at fair value on a recurring or non-recurring basis as of September 30, 2017 and December 31, 2016, the
significant unobservable inputs used in the fair value measurements were as follows:
For Level 3 assets measured at fair value on a recurring or non-recurring basis as of March 31, 2014, the significant unobservable inputs used in the fair value measurements were as follows:
|
(Dollars
in thousands)
|
|
Fair
Value at September 30,
2017
|
|
Fair
Value at December 31, 2016
|
|
Valuation
Technique
|
|
Significant
Unobservable Inputs
|
|
General
Range of Significant Unobservable Input Values
|
|
|
|
|
|
|
|
|
|
|
|
Impaired
Loans
|
$
|
12,493
|
$
|
13,849
|
|
Appraised
Value/Discounted Cash Flows/Market Value of Note
|
|
Discounts
to reflect current market conditions, ultimate collectability, and estimated costs to sell
|
|
0
– 18%
|
|
|
|
|
|
|
|
|
|
|
|
Other
Real Estate Owned
|
$
|
7,506
|
$
|
10,655
|
|
Appraised
Value/Comparable Sales/Other Estimates from Independent Sources
|
|
Discounts
to reflect current market conditions and estimated costs to sell
|
|
0
– 18%
|
Fair
Value of Financial Instruments
Fair
value information about financial instruments, whether or not recognized in the balance sheet, for which it is practical to
estimate the value is based upon the characteristics of the instruments and relevant market information. Financial
instruments include cash, evidence of ownership in an entity, or contracts that convey or impose on an entity that
contractual right or
obligation to either receive or deliver cash for another financial instrument.
The
following summary presents the methodologies and assumptions used to estimate the fair value of the Company’s financial
instruments presented below. The information used to determine fair value is highly subjective and judgmental in nature and, therefore,
the results may not be precise. Subjective factors include, among other things, estimates of cash flows, risk characteristics,
credit quality, and interest rates, all of which are subject to change. Since the fair value is estimated as of the balance sheet
date, the amounts that will actually be realized or paid upon settlement or maturity on these various instruments could be significantly
different.
The
following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial
instruments as of September 30, 2017 and December 31, 2016. This table excludes financial instruments for which the carrying amount
approximates fair value. The carrying value of cash and due from banks, federal funds sold, interest-bearing deposits, deposits
with no stated maturities, trust preferred securities and accrued interest approximates fair value. The remaining financial instruments
were valued based on the present value of estimated future cash flows, discounted at various rates in effect for similar instruments
as of September 30, 2017 and December 31, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
(Dollars are in thousands)
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Quoted market price in active markets
(Level 1)
|
|
Significant other observable inputs
(Level 2)
|
|
Significant unobservable inputs
(Level 3)
|
September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
Financial Instruments – Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loans
|
|
$
|
495,304
|
|
|
$
|
497,359
|
|
|
$
|
—
|
|
|
$
|
484,866
|
|
|
$
|
12,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instruments – Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time Deposits
|
|
|
267,283
|
|
|
|
266,990
|
|
|
|
—
|
|
|
|
266,990
|
|
|
|
—
|
|
FHLB Advances
|
|
|
7,858
|
|
|
|
8,053
|
|
|
|
—
|
|
|
|
8,053
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instruments – Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loans
|
|
$
|
462,557
|
|
|
$
|
467,707
|
|
|
$
|
—
|
|
|
$
|
453,858
|
|
|
$
|
13,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instruments – Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time Deposits
|
|
|
247,819
|
|
|
|
247,258
|
|
|
|
—
|
|
|
|
247,258
|
|
|
|
—
|
|
FHLB Advances
|
|
|
13,758
|
|
|
|
13,993
|
|
|
|
—
|
|
|
|
13,993
|
|
|
|
—
|
|
NOTE
11 SALE AND LEASEBACK TRANSACTIONS:
On May 31, 2017 the Bank, the wholly-owned
subsidiary of the Company, sold four (4) of its properties, one each located in Abingdon, Bristol, Gate City and Castlewood, Virginia
to NPB Good Steward Properties, LLC (“Good Steward”) for a total purchase price of $6.2 million. Good Steward is not
an affiliate of the Company or the Bank. After selling expenses of $192 thousand, the net proceeds on the transactions were $6.0
million. The sales prices for the properties were based on outside appraisals obtained by the Bank. The Bank provided $4.9 million
of financing to Good Steward for a term of 10 years for this transaction.
In connection with the sale of the four properties,
the Bank on May 31, 2017 entered into commercial lease agreements with Good Steward for the properties (the “Leases”),
which will allow the Bank to continue to service customers from these locations. The Leases, which commenced on June 1, 2017, provide
the Bank with use of the properties for an initial term of fifteen (15) years. Base rent payments for years 1 through 5 of
the Leases are approximately $417 thousand a year. The base rent payments will increase by 8% for years 6 through 10 of the
Leases and then by another 8% for years 11 through 15 of the Leases. The Bank has the option to renew the Leases five (5)
times and each renewal would be for a term of five (5) years. The base rent for the renewals would be negotiated at the time
the renewal option is exercised by the Bank. While the cash lease payments are currently $417 thousand a year, the Company is required
to straight-line the expense over the initial term of fifteen (15) years. As a result, the annual lease expense will be approximately
$451 thousand. The weighted average remaining life of the leases is 14.68 years.
In anticipation of this transaction the Company
adopted ASU No. 2016-02 Leases (Topic 842) early. This ASU revised certain aspects of recognition, measurement, presentation, and
disclosure of leasing transactions. As a result of this transaction the Company recognized right-to-use assets – operating
leases of approximately $5.3 million, along with corresponding lease liabilities of approximately $5.3 million. The $5.3 million
was determined by calculating the present value of the annual cash lease payments using a discount rate of 3.25%. The 3.25% discount
rate was determined to be our fifteen (15) year incremental borrowing rate as of May 31, 2017.
As a result of the sale and the determination
that the corresponding leases were operating leases, the Company recognized a gain of $2.6 million on the sale and leaseback transactions.
The Bank and its parent, New Peoples Bankshares, Inc. and affiliates have no relationship with Good Steward other than those discussed
above.
The Company’s operating lease cost for
the three and nine months ended September 30, 2017 as a result of the transactions discussed above was $112 thousand and $150 thousand,
respectively. All other operating leases the Company has were evaluated and determined that they are immaterial to the financial
statements.
NOTE
12 SUBSEQUENT EVENTS:
During the month of October 2017, a principal
shareholder of the Company exercised 506,666 common stock warrants at a price of $1.75 per share. As a result of this exercise
an additional $887 thousand of capital was raised by the Company. The additional liquidity provided by the funds will be used by
the Company to pay its operating expenses and trust preferred interest payments.
On October 23, 2017, the Board of Directors
approved for the Bank to pay the Company a dividend of $111 thousand using 68,735 shares of the Company’s common stock that
had been repossessed by the Bank as a result of collection activities on loans. By law the 68,735 shares of the Company’s
common stock became part of the Company’s authorized and unissued shares and would be available for reissuance in the future.
NOTE
13 RECENT ACCOUNTING DEVELOPMENTS:
The
following is a summary of recent authoritative announcements:
In
May 2014, the Financial Accounting Standards Board (“FASB”) issued guidance to change the recognition of revenue from
contracts with customers. The core principle of the new guidance is that an entity should recognize revenue to reflect the transfer
of goods and services to customers in an amount equal to the consideration the entity receives or expects to receive. The guidance
will be effective for the Company for reporting periods beginning after December 15, 2017.
The
Company will apply the guidance using a modified retrospective approach. The Company’s revenue is comprised of net interest
income and noninterest income. The scope of the guidance explicitly excludes net interest income as well as many other revenues
for financial assets and liabilities including loans, leases, securities, and derivatives. Accordingly, the majority of our revenues
will not be affected. The Company is currently assessing our revenue contracts related to revenue streams that are within the
scope of the standard. Our accounting policies will not change materially since the principles of revenue recognition from the
ASU are largely consistent with existing guidance and current practices applied by our businesses. We have not identified material
changes to the timing or amount of revenue recognition. Based on the updated guidance, we do anticipate changes in our disclosures
associated with our revenues. We will provide qualitative disclosures of our performance obligations related to our revenue recognition
and we continue to evaluate disaggregation for significant categories of revenue in the scope of the guidance.
In
August 2015, the FASB deferred the effective date of ASU 2014-09, Revenue from Contracts with Customers. As a result of the deferral
the guidance in ASU 2014-09 will be effective for the Company for reporting periods beginning after December 15, 2017. The Company
does not expect these amendments to have a material effect on its financial statements.
In
January 2016, the FASB amended the Financial Instruments topic of the Accounting Standards Codification (“ASC”), to
address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments will
be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company
will apply the guidance by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year
of adoption. The amendments related to equity securities without readily determinable fair values will be applied prospectively
to equity investments that exist as of the date of adoption of the amendments. The Company does not expect these amendments to
have a material effect on its financial statements.
In
February 2016, the FASB amended the Leases topic of the ASC to revise certain aspects of recognition, measurement, presentation,
and disclosure of leasing transactions. The amendments will be effective for fiscal years beginning after December 15, 2018, including
interim periods within those fiscal years. As discussed in Note 11, the Company early adopted ASU No. 2016-02 Leases (Topic 842).
In
March 2016, the FASB amended the Revenue from Contracts with Customers topic of the ASC to clarify the implementation guidance
on principal versus agent considerations and address how an entity should assess whether it is the principal or the agent in contracts
that include three or more parties. The amendments will be effective for the Company for reporting periods beginning after December
15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.
In
June 2016, the FASB issued guidance to change the accounting for credit losses and modify the impairment model for certain debt
securities. The amendments will be effective for the Company for reporting periods beginning after December 15, 2019. Early adoption
is permitted for all organizations for periods beginning after December 15, 2018.
The
Company will apply the amendments to the ASU through a cumulative-effect adjustment to retained earnings as of the beginning of
the year of adoption. While early adoption is permitted beginning in first quarter 2019, we do not expect to elect that option.
We are evaluating the impact of the ASU on our consolidated financial position, results of operations, and cash flows. In addition
to our allowance for loan losses, we will also record an allowance for credit losses on debt securities instead of applying the
impairment model currently utilized. The amount of the adjustments will be impacted by each portfolio’s composition and
credit quality at the adoption date as well as economic conditions and forecasts at that time.
In
December 2016, the FASB issued technical corrections and improvements to the Revenue from Contracts with Customers Topic. These
corrections make a limited number of revisions to several pieces of the revenue recognition standard issued in 2014. The effective
date and transition requirements for the technical corrections will be effective for the Company for reporting periods beginning
after December 15, 2017. The Company will apply the guidance using a modified retrospective approach. The Company does not expect
these amendments to have a material effect on its financial statements.
In
January 2017, the FASB updated the Accounting Changes and Error Corrections and the Investments—Equity Method and Joint
Ventures Topics of the Accounting Standards Codification. The ASU incorporates into the Accounting Standards Codification recent
SEC guidance about disclosing, under SEC SAB Topic 11.M, the effect on financial statements of adopting the revenue, leases, and
credit losses standards. The ASU was effective upon issuance. The Company is currently evaluating the impact on additional disclosure
requirements as each of the standards is adopted, however it does not expect these amendments to have a material effect on its
financial position, results of operations or cash flows.
In
February 2017, the FASB amended the Other Income Topic of the ASC to clarify the scope of the guidance on nonfinancial asset derecognition
as well as the accounting for partial sales of nonfinancial assets. The amendments conform the derecognition guidance on nonfinancial
assets with the model for transactions in the new revenue standard. The amendments will be effective for the Company for reporting
periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial
statements.
Other
accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have
a material impact on the Company’s financial position, results of operations or cash flows.