NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 NATURE OF OPERATIONS
Nature
of Operations –
New Peoples Bankshares, Inc. (“New Peoples”) is a financial holding company whose principal
activity is the ownership and management of a community bank, New Peoples Bank, Inc. (the “Bank”). The Bank is organized
and incorporated under the laws of the Commonwealth of Virginia. 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 southwest
Virginia, southern West Virginia, and northeastern Tennessee. These services include commercial and consumer loans along with
traditional deposit products such as checking and savings accounts.
NOTE
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation and Consolidation
- The consolidated financial statements include the Company, the Bank, NPB Insurance Services,
Inc., and NPB Web Services, Inc. (Hereinafter, collectively referred to as “The Company.”) All significant intercompany
balances and transactions have been eliminated. In accordance with Accounting Standards Codification (“ASC”) 942,
Financial Services – Depository and Lending, NPB Capital Trust I and 2 are not included in the consolidated financial statements.
Use
of Estimates -
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.
Cash
and Cash Equivalents
– Cash and cash equivalents as used in the cash flow statements include cash and due from banks,
interest-bearing deposits with banks, and federal funds sold.
Investment
Securities
– Management determines the appropriate classification of securities at the time of purchase. If management
has the intent and the Company has the ability at the time of purchase to hold securities until maturity, they are classified
as held to maturity and carried at amortized historical cost. Securities not intended to be held to maturity are classified as
available for sale and carried at fair value. Securities available for sale are intended to be used as part of the Company’s
asset and liability management strategy and may be sold in response to changes in interest rates, prepayment risk or other similar
factors.
The
amortization of premiums and accretion of discounts are recognized in interest income using the effective interest method over
the period to maturity. Realized gains and losses on dispositions are based on the net proceeds and the adjusted book value of
the securities sold, using the specific identification method. Realized gains (losses) on securities available-for-sale are included
in noninterest income and, when applicable, are reported as a reclassification adjustment, net of tax, in other comprehensive
income. Unrealized gains and losses on investment securities available for sale are based on the difference between book value
and fair value of each security. These gains and losses are credited or charged to other comprehensive income, net of tax, whereas
realized gains and losses flow through the statements of income.
Loans
–
Loans are carried on the balance sheet at unpaid principal balance, net of any unearned interest and the allowance
for loan losses. Interest income on loans is computed using the effective interest method, except where serious doubt exists as
to the collectibility of the loan, in which case accrual of the income is discontinued.
It
is the Company’s policy to stop accruing interest on a loan, and classify that loan as non-accrual under the following circumstances:
(a) whenever we are advised by the borrower that scheduled payment or interest payments cannot be met, (b) when our best judgment
indicates that payment in full of principal and interest can no longer be expected, or (c) when any such loan or obligation becomes
delinquent for 90 days unless it is both well secured and in the process of collection. All interest accrued but not collected
for loans that are place on nonaccrual or charged off is reversed against interest income, except in the case of a nonaccrual
loan that is well secured and in the process of collection, in which case, the interest accrued but not collected is not reversed.
The interest on these loans is accounted for on the cash basis or cost-recovery method, until qualifying for return to accrual.
Generally, loans are returned to accrual status when all the principal and interest amounts contractually due are brought current,
six consecutive timely payments are made, and prospects for future contractual payments are reasonably assured.
A
loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect
the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered
by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled
principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally
are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case
basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay,
the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal
and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present
value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market
price, or the fair value of the collateral if the loan is collateral dependent.
Significant
Group Concentrations of Credit Risk –
The Company identifies a concentration as any obligation, direct or indirect,
of the same or affiliated interests which represent 25% or more of the Company’s capital structure, or $12.7 million as
of December 31, 2017. Most of the Company’s activities are with customers located within the southwest Virginia, southern
West Virginia, and northeastern Tennessee region. Certain concentrations may pose credit risk. The Company does not have any significant
concentrations to any one industry or customer.
Allowance
for Loan Losses –
The allowance for loan losses is maintained at a level that, in management’s judgment, is adequate
to absorb credit losses inherent in the loan portfolio. The loan portfolio is analyzed periodically and loans are assigned a risk
rating. Allowances for impaired loans are generally determined based on collateral values or the present value of expected cash
flows. A general allowance is made for all other loans not considered impaired as deemed appropriate by management. In determining
the adequacy of the allowance, management considers the following factors: the nature of the portfolio, credit concentrations,
trends in historical loss experience, specific impaired loans, the estimated value of any underlying collateral, prevailing environmental
factors and economic conditions, and other inherent risks. While management uses available information to recognize losses on
loans, further reductions in the carrying amounts of loans may be necessary based on changes in collateral values and changes
in estimates of cash flows on impaired loans. This evaluation is inherently subjective as it requires estimates that are susceptible
to significant revision as more information becomes available.
The
allowance is increased by a provision for loan losses, which is charged to expense and reduced by charge-offs, net of recoveries.
Loans are charged against the allowance for loan losses when management believes that collectability of all or part of the principal
is unlikely. Past due status is determined based on contractual terms.
In
regard to our consumer and consumer real estate loan portfolio, the Company uses the guidance found in the Uniform Retail Credit
Classification and Account Management Policy which affects our estimate of the allowance for loan losses. Under this approach,
a consumer or consumer real estate loan must initially have a credit risk grade of Pass or better. Subsequently, if the loan becomes
contractually 90 days past due or the borrower files for bankruptcy protection, the loan is downgraded to Substandard and placed
in nonaccrual status. If the loan is unsecured, upon being deemed Substandard, the entire loan amount is charged off. For non
1-4 family residential loans that are 90 days past due or greater, or in bankruptcy, the collateral value less estimated liquidation
costs is compared to the loan balance to calculate any potential deficiency. If the collateral is sufficient then no charge-off
is necessary. If a deficiency exists, then upon the loan becoming contractually 120 days past due, the deficiency is charged-off
against the allowance for loan loss. In the case of 1-4 family residential or home equity loans, upon the loan becoming 120 days
past due, a current value is obtained and after application of an estimated liquidation discount, a comparison is made to the
loan balance to calculate any deficiency. Subsequently, any noted deficiency is then charged-off against the allowance for loan
loss when the loan becomes contractually 180 days past due. If the customer has filed bankruptcy, then within 60 days of the bankruptcy
notice, any calculated deficiency is charged-off against the allowance for loan loss. Collection efforts continue by means of
repossessions or foreclosures, and upon bank ownership, liquidation ensues.
Other
Real Estate Owned
– Other real estate owned represents properties acquired through foreclosure or deed taken in lieu
of foreclosure. At the time of acquisition, these properties are recorded at fair value less estimated costs to sell. Expenses
incurred in connection with operating these properties and subsequent write-downs, if any, are charged to operations. Subsequent
to foreclosure, management periodically considers the adequacy of the reserve for losses on the property. Gains and losses on
the sales of these properties are credited or charged to income in the year of the sale.
Bank
Premises and Equipment
– Land, buildings and equipment are recorded at cost less accumulated depreciation. Depreciation
is computed using the straight-line method over the following estimated useful lives:
Type
|
|
Estimated
useful life
|
Buildings
|
|
39
years
|
Paving
and landscaping
|
|
15
years
|
Computer
equipment and software
|
|
3
to 5 years
|
Vehicles
|
|
5
years
|
Furniture
and other equipment
|
|
5
to 10 years
|
Leashold
improvements are amortized over the terms of the respective leases or the estimated useful lives of the improvements, whichever
is shorter. Repairs and maintenance costs are recorded as a component of noninterest expense as incurred.
Common
Stock Warrants
- The company issued common stock warrants as a result of the completion of its common stock offering in 2012.
For additional discussion concerning these transactions including the terms and value of the warrants, see Note 22, “Capital.”
Income
Taxes
– Deferred tax assets or liabilities are computed based upon the difference between financial statement and income
tax bases of assets and liabilities using the enacted marginal tax rate. The company has provided a valuation allowance on its
net deferred tax assets where it is more likely than not such assets will not be realized. At December 31, 2017, the Company had
no valuation allowance on its net deferred tax assets.
The
Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not the tax postion will be sustained
on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial
statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being
realized upon settlement. See Note 10, Income Taxes, for additional information. The Company records any penalties and interest
attributed to uncertain tax positions as a component of income tax expenses.
The
Company has adopted ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”
which is considered a change in accounting principle. Because the required adjustment of deferred taxes is required to be included
in income from continuing operations, the tax effects of items within accumulated other comprehensive income (commonly referred
to as “stranded” tax effects) would not reflect the appropriate tax rate. Adoption of this ASU eliminates the “stranded”
tax effects associated with the change in the federal corporate income tax rate in the Tax Cuts and Jobs Act of 2017. The Company
has reclassified “stranded” tax effects totaling $98 thousand from accumulated other comprehensive income (loss) to
retained earnings and these reclassified amounts are reflected in the accompanying Consolidated Balance Sheets, Consolidated Statements
of Comprehensive Income, and Consolidated Statements of Stockholders’ Equity.
Income
Per Share
– Basic income per share computations are based on the weighted average number of shares outstanding during
each year. Dilutive earnings per share reflects the additional common shares that would have been outstanding if dilutive potential
common shares had been issued. Potential common shares that may be issued relate to outstanding common stock warrants and are
determined by the Treasury Method.
Financial
Instruments – Off-balance-sheet instruments
- In the ordinary course of business, the Company has entered into commitments
to extend credit. Such financial instruments are recorded in the financial statements when they are funded.
Comprehensive
Income (Loss)
– Generally accepted accounting principles require that recognized revenue, expenses, gains and losses
be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale
securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income,
are components of comprehensive income. The change in unrealized gains and losses on available-for-sale securities is our only
component of other comprehensive income.
Advertising
Cost
– Advertising costs are expensed in the period incurred.
Reclassification
– Certain reclassifications have been made to the prior years’ financial statements to place them on a comparable
basis with the current year. Net income and stockholders’ equity previously reported were not affected by these reclassifications.
Subsequent
Events
– The Company has evaluated subsequent events for potential recognition and/or disclosure through the date these
consolidated financial statements were issued.
NOTE
3 INCOME PER SHARE
Basic
income per share computations are based on the weighted average number of shares outstanding during each year. Dilutive earnings
per share reflects the additional common shares that would have been outstanding if dilutive potential common shares had been
issued. Potential common shares that may be issued relate to outstanding common stock warrants and are determined by the Treasury
Method. For the year ended December 31, 2017 there were no potential common shares. For the year ended December 31, 2016 potential
common shares of 881,978, were anti-dilutive and were not included in the calculation. Basic and diluted net income per common
share calculations follows:
(Amounts in Thousands, Except
|
|
For the years ended
|
Share and Per Share Data)
|
|
December 31,
|
|
|
2017
|
|
2016
|
Net income
|
|
$
|
3,094
|
|
|
$
|
958
|
|
Weighted average shares outstanding
|
|
|
23,472,012
|
|
|
|
23,354,155
|
|
Weighted average dilutive shares outstanding
|
|
|
23,472,012
|
|
|
|
23,354,155
|
|
Basic and diluted income per share
|
|
$
|
0.13
|
|
|
$
|
0.04
|
|
NOTE
4 DEPOSITS IN AND FEDERAL FUNDS SOLD TO BANKS
The
Bank had federal funds sold and cash on deposit with other commercial banks amounting to $14.5 million and $16.9 million at December
31, 2017 and 2016, respectively. Deposit amounts at other commercial banks may, at times, exceed federally insured limits.
The
Bank is required to maintain average reserve balances, computed by applying prescribed percentages to its various types of deposits,
either at the Bank or on deposit with the Federal Reserve Bank. At December 31, 2017 and 2016, all required reserves were met
by the Bank’s vault cash.
The
Bank has a $5.0 million unsecured fed funds line of credit facility with a correspondent bank that was available at December 31,
2017 and 2016. A condition of this unsecured fed funds line of credit is that the Bank agreed to maintain a minimum deposit balance
with the correspondent bank of $200 thousand. As of December 31, 2017 and 2016, the Bank was in compliance with this requirement.
NOTE
5 INVESTMENT SECURITIES
The
amortized cost and estimated fair value of securities (all available-for-sale) are as follows:
|
|
|
|
Gross
|
|
Gross
|
|
Approximate
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
(Dollars are in thousands)
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
December 31, 2017
|
U.S. Government Agencies
|
$
|
23,986
|
$
|
79
|
$
|
221
|
$
|
23,844
|
Taxable municipals
|
|
4,466
|
|
9
|
|
78
|
|
4,397
|
Corporate bonds
|
|
5,437
|
|
168
|
|
26
|
|
5,579
|
Mortgage backed securities
|
|
37,950
|
|
3
|
|
685
|
|
37,268
|
Total Securities AFS
|
$
|
71,839
|
$
|
259
|
$
|
1,010
|
$
|
71,088
|
|
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 December 31, 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
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agencies
|
|
$
|
7,840
|
|
|
$
|
69
|
|
|
$
|
7,189
|
|
|
$
|
152
|
|
|
$
|
15,029
|
|
|
$
|
221
|
|
Taxable municipals
|
|
|
2,403
|
|
|
|
44
|
|
|
|
767
|
|
|
|
34
|
|
|
|
3,170
|
|
|
|
78
|
|
Corporate bonds
|
|
|
1,507
|
|
|
|
26
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,507
|
|
|
|
26
|
|
Mtg. backed securities
|
|
|
14,720
|
|
|
|
145
|
|
|
|
21,500
|
|
|
|
540
|
|
|
|
36,220
|
|
|
|
685
|
|
Total Securities AFS
|
|
$
|
26,470
|
|
|
$
|
284
|
|
|
$
|
29,456
|
|
|
$
|
726
|
|
|
$
|
55,926
|
|
|
$
|
1,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
December 31, 2017, the available-for-sale portfolio included 127 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 at December 31, 2017 or December 31, 2016.
Investment
securities with a carrying value of $11.0 million and $11.3 million at December 31, 2017 and 2016, respectively, were pledged
to secure public deposits and for other purposes required by law.
Gross
proceeds on the sale of investment securities were $3.2 million and $29.5 million, respectively, as of December 31, 2017 and 2016.
Gross realized gains and losses pertaining to the sale of investment securities available for sale are detailed as follows:
|
|
|
|
|
|
|
For the years ended
December 31,
|
(Dollars are in thousands)
|
|
2017
|
|
2016
|
Gross gains realized
|
|
$
|
30
|
|
|
$
|
366
|
|
Gross losses realized
|
|
|
(30
|
)
|
|
|
(63
|
)
|
Net realized gains
|
|
$
|
—
|
|
|
$
|
303
|
|
The
amortized cost and fair value of investment securities at December 31, 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. Also, actual maturities may differ from scheduled maturities on amortizing securities,
such as mortgage-back securities and collateralized mortgage obligations, because the underlying collateral on these type of securities
may be repaid prior to the scheduled maturity date.
|
Weighted
|
(Dollars
are in thousands)
|
Amortized
|
|
Fair
|
|
Average
|
Securities
Available for Sale
|
Cost
|
|
Value
|
|
Yield
|
Due
in one year or less
|
$
|
7
|
$
|
7
|
|
1.49%
|
Due
after one year through five years
|
3,316
|
3,267
|
1.97%
|
Due
after five years through ten years
|
|
15,822
|
|
15,847
|
|
3.10%
|
Due
after ten years
|
|
52,694
|
|
51,967
|
|
2.24%
|
Total
|
$
|
71,839
|
$
|
71,088
|
|
2.42%
|
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 December 31, 2017 and 2016, respectively. The stock has no quoted
market value and no ready market exists.
NOTE
6 LOANS
Loans
receivable outstanding at December 31, are summarized as follows:
(Dollars are in thousands)
|
|
2017
|
|
2016
|
Real estate secured:
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
127,688
|
|
|
$
|
103,331
|
|
Construction and land development
|
|
|
29,763
|
|
|
|
25,755
|
|
Residential 1-4 family
|
|
|
249,159
|
|
|
|
249,700
|
|
Multifamily
|
|
|
15,481
|
|
|
|
12,582
|
|
Farmland
|
|
|
22,998
|
|
|
|
24,948
|
|
Total real estate loans
|
|
|
445,089
|
|
|
|
416,316
|
|
Commercial
|
|
|
41,345
|
|
|
|
26,955
|
|
Agriculture
|
|
|
3,494
|
|
|
|
3,164
|
|
Consumer installment loans
|
|
|
22,411
|
|
|
|
22,188
|
|
All other loans
|
|
|
669
|
|
|
|
6
|
|
Total loans
|
|
$
|
513,008
|
|
|
$
|
468,629
|
|
Loans
receivable on nonaccrual status at December 31, are summarized as follows:
(Dollars are in thousands)
|
|
2017
|
|
2016
|
Real estate secured:
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
2,035
|
|
|
$
|
3,403
|
|
Construction and land development
|
|
|
470
|
|
|
|
319
|
|
Residential 1-4 family
|
|
|
2,991
|
|
|
|
8,355
|
|
Multifamily
|
|
|
152
|
|
|
|
166
|
|
Farmland
|
|
|
800
|
|
|
|
1,003
|
|
Total real estate loans
|
|
|
6,448
|
|
|
|
13,246
|
|
Commercial
|
|
|
1,065
|
|
|
|
—
|
|
Agriculture
|
|
|
3
|
|
|
|
83
|
|
Consumer installment loans
|
|
|
48
|
|
|
|
76
|
|
Total loans receivable on nonaccrual status
|
|
$
|
7,564
|
|
|
$
|
13,405
|
|
Total
interest income not recognized on nonaccrual loans for 2017 and 2016 was $591 thousand and $639 thousand, respectively. In 2017,
65 nonperforming loans totaling $3.9 million were sold to further reduce the level of nonaccrual loans with proceeds of $3.6 million
received. Charge offs of $256 thousand associated with the sold nonperforming loans were realized and fully absorbed by the allowance
for loan losses during 2017. There were no nonperforming loans sold in 2016.
The
following table presents information concerning the Company’s investment in loans considered impaired as of December 31,
2017 and December 31, 2016:
As of December 31, 2017
(Dollars are in thousands)
|
|
Average
Recorded
Investment
|
|
Interest
Income
Recognized
|
|
Recorded
Investment
|
|
Unpaid Principal Balance
|
|
Related
Allowance
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
2,910
|
|
|
$
|
122
|
|
|
$
|
2,646
|
|
|
$
|
2,719
|
|
|
$
|
—
|
|
Construction and land development
|
|
|
87
|
|
|
|
6
|
|
|
|
424
|
|
|
|
680
|
|
|
|
—
|
|
Residential 1-4 family
|
|
|
3,779
|
|
|
|
198
|
|
|
|
3,586
|
|
|
|
3,885
|
|
|
|
—
|
|
Multifamily
|
|
|
377
|
|
|
|
20
|
|
|
|
281
|
|
|
|
321
|
|
|
|
—
|
|
Farmland
|
|
|
2,283
|
|
|
|
59
|
|
|
|
1,264
|
|
|
|
1,664
|
|
|
|
—
|
|
Commercial
|
|
|
126
|
|
|
|
12
|
|
|
|
628
|
|
|
|
628
|
|
|
|
—
|
|
Agriculture
|
|
|
17
|
|
|
|
1
|
|
|
|
12
|
|
|
|
12
|
|
|
|
—
|
|
Consumer installment loans
|
|
|
12
|
|
|
|
1
|
|
|
|
8
|
|
|
|
8
|
|
|
|
—
|
|
All other loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
1,467
|
|
|
|
102
|
|
|
|
2,503
|
|
|
|
2,622
|
|
|
|
499
|
|
Construction and land development
|
|
|
177
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Residential 1-4 family
|
|
|
591
|
|
|
|
19
|
|
|
|
421
|
|
|
|
437
|
|
|
|
91
|
|
Multifamily
|
|
|
528
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Farmland
|
|
|
614
|
|
|
|
22
|
|
|
|
378
|
|
|
|
378
|
|
|
|
243
|
|
Commercial
|
|
|
323
|
|
|
|
26
|
|
|
|
489
|
|
|
|
572
|
|
|
|
413
|
|
Agriculture
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer installment loans
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
All other loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
13,294
|
|
|
$
|
588
|
|
|
$
|
12,640
|
|
|
$
|
13,926
|
|
|
$
|
1,246
|
|
As of December 31, 2016
(Dollars are in thousands)
|
|
Average
Recorded
Investment
|
|
Interest
Income
Recognized
|
|
Recorded
Investment
|
|
Unpaid Principal Balance
|
|
Related
Allowance
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
4,104
|
|
|
$
|
147
|
|
|
$
|
3,636
|
|
|
$
|
4,055
|
|
|
$
|
—
|
|
Construction and land development
|
|
|
72
|
|
|
|
1
|
|
|
|
5
|
|
|
|
5
|
|
|
|
—
|
|
Residential 1-4 family
|
|
|
3,745
|
|
|
|
192
|
|
|
|
3,861
|
|
|
|
4,182
|
|
|
|
—
|
|
Multifamily
|
|
|
290
|
|
|
|
21
|
|
|
|
301
|
|
|
|
342
|
|
|
|
—
|
|
Farmland
|
|
|
4,148
|
|
|
|
184
|
|
|
|
3,895
|
|
|
|
4,601
|
|
|
|
—
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Agriculture
|
|
|
27
|
|
|
|
2
|
|
|
|
19
|
|
|
|
19
|
|
|
|
—
|
|
Consumer installment loans
|
|
|
25
|
|
|
|
1
|
|
|
|
26
|
|
|
|
43
|
|
|
|
—
|
|
All other loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
1,469
|
|
|
|
8
|
|
|
|
1,191
|
|
|
|
1,270
|
|
|
|
65
|
|
Construction and land development
|
|
|
265
|
|
|
|
—
|
|
|
|
240
|
|
|
|
469
|
|
|
|
106
|
|
Residential 1-4 family
|
|
|
862
|
|
|
|
22
|
|
|
|
555
|
|
|
|
565
|
|
|
|
56
|
|
Multifamily
|
|
|
80
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Farmland
|
|
|
575
|
|
|
|
27
|
|
|
|
591
|
|
|
|
602
|
|
|
|
299
|
|
Commercial
|
|
|
70
|
|
|
|
3
|
|
|
|
67
|
|
|
|
67
|
|
|
|
18
|
|
Agriculture
|
|
|
86
|
|
|
|
1
|
|
|
|
5
|
|
|
|
5
|
|
|
|
5
|
|
Consumer installment loans
|
|
|
26
|
|
|
|
1
|
|
|
|
9
|
|
|
|
9
|
|
|
|
3
|
|
All other loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
15,844
|
|
|
$
|
610
|
|
|
$
|
14,401
|
|
|
$
|
16,234
|
|
|
$
|
552
|
|
An
age analysis of past due loans receivable is below. At December 31, 2017 and 2016, there were no loans over 90 days past due that
were accruing.
As of December 31, 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
|
|
$
|
190
|
|
|
$
|
2,396
|
|
|
$
|
453
|
|
|
$
|
3,039
|
|
|
$
|
124,649
|
|
|
$
|
127,688
|
|
Construction and land
development
|
|
|
69
|
|
|
|
246
|
|
|
|
42
|
|
|
|
357
|
|
|
|
29,406
|
|
|
|
29,763
|
|
Residential 1-4 family
|
|
|
3,789
|
|
|
|
378
|
|
|
|
969
|
|
|
|
5,136
|
|
|
|
244,023
|
|
|
|
249,159
|
|
Multifamily
|
|
|
125
|
|
|
|
89
|
|
|
|
—
|
|
|
|
214
|
|
|
|
15,267
|
|
|
|
15,481
|
|
Farmland
|
|
|
309
|
|
|
|
—
|
|
|
|
—
|
|
|
|
309
|
|
|
|
22,689
|
|
|
|
22,998
|
|
Total real estate loans
|
|
|
4,482
|
|
|
|
3,109
|
|
|
|
1,464
|
|
|
|
9,055
|
|
|
|
436,034
|
|
|
|
445,089
|
|
Commercial
|
|
|
103
|
|
|
|
25
|
|
|
|
603
|
|
|
|
731
|
|
|
|
40,614
|
|
|
|
41,345
|
|
Agriculture
|
|
|
38
|
|
|
|
—
|
|
|
|
—
|
|
|
|
38
|
|
|
|
3,456
|
|
|
|
3,494
|
|
Consumer installment
Loans
|
|
|
102
|
|
|
|
15
|
|
|
|
28
|
|
|
|
145
|
|
|
|
22,266
|
|
|
|
22,411
|
|
All other loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
669
|
|
|
|
669
|
|
Total loans
|
|
$
|
4,725
|
|
|
$
|
3,149
|
|
|
$
|
2,095
|
|
|
$
|
9,969
|
|
|
$
|
503,039
|
|
|
$
|
513,008
|
|
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 and leases 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 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. There were no loans
categorized as doubtful at December 31, 2017 or 2016.
Based
on the most recent analysis performed, the risk category of loans receivable was as follows:
As of December 31, 2017
(Dollars are in thousands)
|
|
Pass
|
|
Special
Mention
|
|
Substandard
|
|
Total
|
Real estate secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
120,104
|
|
|
$
|
3,228
|
|
|
$
|
4,356
|
|
|
$
|
127,688
|
|
Construction and land development
|
|
|
28,462
|
|
|
|
816
|
|
|
|
485
|
|
|
|
29,763
|
|
Residential 1-4 family
|
|
|
243,048
|
|
|
|
1,810
|
|
|
|
4,301
|
|
|
|
249,159
|
|
Multifamily
|
|
|
13,695
|
|
|
|
1,445
|
|
|
|
341
|
|
|
|
15,481
|
|
Farmland
|
|
|
19,273
|
|
|
|
2,445
|
|
|
|
1,280
|
|
|
|
22,998
|
|
Total real estate loans
|
|
|
424,582
|
|
|
|
9,744
|
|
|
|
10,763
|
|
|
|
445,089
|
|
Commercial
|
|
|
37,973
|
|
|
|
2,307
|
|
|
|
1,065
|
|
|
|
41,345
|
|
Agriculture
|
|
|
3,468
|
|
|
|
23
|
|
|
|
3
|
|
|
|
3,494
|
|
Consumer installment loans
|
|
|
22,357
|
|
|
|
2
|
|
|
|
52
|
|
|
|
22,411
|
|
All other loans
|
|
|
669
|
|
|
|
—
|
|
|
|
—
|
|
|
|
669
|
|
Total
|
|
$
|
489,049
|
|
|
$
|
12,076
|
|
|
|
11,883
|
|
|
$
|
513,008
|
|
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 December 31, 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 December 31, 2017
(Dollars are in thousands)
|
|
Beginning
Balance
|
|
Charge
Offs
|
|
Recoveries
|
|
Provisions
|
|
Ending Balance
|
Real estate secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
1,625
|
|
|
$
|
(179
|
)
|
|
$
|
193
|
|
|
$
|
350
|
|
|
$
|
1,989
|
|
Construction and land development
|
|
|
346
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
(154
|
)
|
|
|
191
|
|
Residential 1-4 family
|
|
|
2,376
|
|
|
|
(714
|
)
|
|
|
48
|
|
|
|
690
|
|
|
|
2,400
|
|
Multifamily
|
|
|
241
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(135
|
)
|
|
|
106
|
|
Farmland
|
|
|
428
|
|
|
|
(49
|
)
|
|
|
361
|
|
|
|
(325
|
)
|
|
|
415
|
|
Total real estate loans
|
|
|
5,016
|
|
|
|
(943
|
)
|
|
|
602
|
|
|
|
426
|
|
|
|
5,101
|
|
Commercial
|
|
|
163
|
|
|
|
(11
|
)
|
|
|
153
|
|
|
|
355
|
|
|
|
660
|
|
Agriculture
|
|
|
31
|
|
|
|
(4
|
)
|
|
|
5
|
|
|
|
(12
|
)
|
|
|
20
|
|
Consumer installment loans
|
|
|
123
|
|
|
|
(147
|
)
|
|
|
19
|
|
|
|
161
|
|
|
|
156
|
|
All other loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
|
3
|
|
Unallocated
|
|
|
739
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(483
|
)
|
|
|
256
|
|
Total
|
|
$
|
6,072
|
|
|
$
|
(1,105
|
)
|
|
$
|
779
|
|
|
$
|
450
|
|
|
$
|
6,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
Recorded Investment in Loans
|
|
|
|
|
|
|
|
|
|
As of December 31, 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
|
|
$
|
499
|
|
|
$
|
1,490
|
|
|
$
|
1,989
|
|
|
$
|
5,149
|
|
|
$
|
122,539
|
|
|
$
|
127,688
|
|
Construction and land
development
|
|
|
—
|
|
|
|
191
|
|
|
|
191
|
|
|
|
424
|
|
|
|
29,339
|
|
|
|
29,763
|
|
Residential 1-4 family
|
|
|
91
|
|
|
|
2,309
|
|
|
|
2,400
|
|
|
|
4,007
|
|
|
|
245,152
|
|
|
|
249,159
|
|
Multifamily
|
|
|
—
|
|
|
|
106
|
|
|
|
106
|
|
|
|
281
|
|
|
|
15,200
|
|
|
|
15,481
|
|
Farmland
|
|
|
243
|
|
|
|
172
|
|
|
|
415
|
|
|
|
1,642
|
|
|
|
21,356
|
|
|
|
22,998
|
|
Total real estate loans
|
|
|
833
|
|
|
|
4,268
|
|
|
|
5,101
|
|
|
|
11,503
|
|
|
|
433,586
|
|
|
|
445,089
|
|
Commercial
|
|
|
413
|
|
|
|
247
|
|
|
|
660
|
|
|
|
1,117
|
|
|
|
40,228
|
|
|
|
41,345
|
|
Agriculture
|
|
|
—
|
|
|
|
20
|
|
|
|
20
|
|
|
|
12
|
|
|
|
3,482
|
|
|
|
3,494
|
|
Consumer installment loans
|
|
|
—
|
|
|
|
156
|
|
|
|
156
|
|
|
|
8
|
|
|
|
22,403
|
|
|
|
22,411
|
|
All other loans
|
|
|
—
|
|
|
|
3
|
|
|
|
3
|
|
|
|
—
|
|
|
|
669
|
|
|
|
669
|
|
Unallocated
|
|
|
—
|
|
|
|
256
|
|
|
|
256
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
1,246
|
|
|
$
|
4,950
|
|
|
|
6,196
|
|
|
$
|
12,640
|
|
|
$
|
500,368
|
|
|
$
|
513,008
|
|
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. 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
December 31, 2017 loans classified as troubled debt restructurings totaled $6.9 million compared to $9.6 million at December 31,
2016. The following table presents information related to loans modified as troubled debt restructurings during the years ended
December 31, 2017 and 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
December 31, 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
|
|
|
$
|
336
|
|
Construction and land
Development
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Residential 1-4 family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
|
|
420
|
|
|
|
402
|
|
Multifamily
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Farmland
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
291
|
|
|
|
268
|
|
Total real estate loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4
|
|
|
|
1,052
|
|
|
|
1,006
|
|
Commercial
|
|
|
1
|
|
|
|
443
|
|
|
|
437
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Agriculture
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer installment loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
All other loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
1
|
|
|
$
|
443
|
|
|
$
|
437
|
|
|
|
4
|
|
|
$
|
1,052
|
|
|
$
|
1,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During
the year ended 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 year ended 2016, the Company modified four loans that were considered to be troubled debt restructurings. 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 were changed. On two loans, the interest rate was lowered and the payment terms and maturity date
were changed.
No
loans modified as troubled debt restructurings defaulted during the year ended December 31, 2017. One commercial real estate loan
with a recorded investment of $211 thousand that had been modified as a troubled debt restructuring defaulted during the year
ended December 31, 2016, which was within twelve months of the loan’s 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.
When
determining the level 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 BANK PREMISES AND EQUIPMENT
Depreciation
expense for 2017 and 2016 was $2.5 million and 2.4 million, respectively. Bank premises and equipment at December 31, are summarized
as follows:
(Dollars are in thousands)
|
|
2017
|
|
2016
|
Land
|
|
$
|
8,130
|
|
|
$
|
9,115
|
|
Buildings and improvements
|
|
|
18,866
|
|
|
|
22,889
|
|
Furniture and equipment
|
|
|
22,190
|
|
|
|
20,369
|
|
|
|
|
49,186
|
|
|
|
52,373
|
|
Less accumulated depreciation
|
|
|
(23,071
|
)
|
|
|
(22,388
|
)
|
Bank Premises and Equipment
|
|
$
|
26,115
|
|
|
$
|
29,985
|
|
NOTE
10 INCOME TAXES
The
Tax Cuts and Jobs Act (“TCJA”) was signed into law by the President on December 22, 2017. The TCJA includes the reduction
in the corporate tax rate from a top rate of 35% to a flat rate of 21%, changes in business deductions, and many international
provisions. The reduction in the corporate tax rate resulted in a $4.0 million adjustment to our deferred tax assets.
The
Company recognized the income tax effects of the 2017 Tax Act in its 2017 financial statements in accordance with Staff Accounting
Bulletin No. 118, which provides SEC staff guidance for the application of ASC Topic 740, Income Taxes, in the reporting period
in which the 2017 Tax Act was signed into law. As such, the Company’s results reflect the income tax effects of the 2017
Tax Act for which the accounting under ASC Topic 740 is complete and provision amounts for those specific income tax effects of
the 2017 Tax act for which the accounting under ASC Topic 740 is incomplete but a reasonable estimate could be determined. The
Company did not identify items for which the income tax effects of the 2017 Tax Act have not been completed and a reasonable estimate
could not be determined as of December 31, 2017.
The
source of pre-tax book income is summarized as follows for the years ended December 31:
(Dollars are in thousands)
|
|
2017
|
|
2016
|
Pre-tax book income
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
3,238
|
|
|
$
|
949
|
|
Total pre-tax book income
|
|
$
|
3,238
|
|
|
$
|
949
|
|
Income
tax expense (benefit) is summarized as follows for the years ended December 31:
(Dollars are in thousands)
|
|
2017
|
|
2016
|
Current income tax expense (benefit)
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
337
|
|
|
$
|
—
|
|
State
|
|
|
—
|
|
|
|
(7
|
)
|
Total current income tax expense (benefit)
|
|
|
337
|
|
|
|
(7
|
)
|
Deferred income tax expense (benefit)
|
|
|
|
|
Federal
|
|
|
(193
|
)
|
|
|
(2
|
)
|
State
|
|
|
—
|
|
|
|
—
|
|
Total deferred income tax expense
|
|
|
(193
|
)
|
|
|
(2
|
)
|
Income tax expense (benefit)
|
|
$
|
144
|
|
|
$
|
(9
|
)
|
The
following table summarizes the differences between the actual income tax expense and the amounts computed using the federal statutory
tax rate of 34%:
(Dollars are in thousands)
|
|
2017
|
|
2016
|
Income tax expense (benefit) at the applicable federal rate
|
|
$
|
1,101
|
|
|
$
|
323
|
|
Permanent differences resulting from:
|
|
|
|
|
|
|
|
|
Nondeductible expenses
|
|
|
15
|
|
|
|
7
|
|
Tax exempt interest income
|
|
|
(35
|
)
|
|
|
(44
|
)
|
State income taxes less federal tax effect
|
|
|
—
|
|
|
|
5
|
|
Bank owned life insurance
|
|
|
(39
|
)
|
|
|
(57
|
)
|
Remeasurement of deferred taxes under TCJA
|
|
|
4,046
|
|
|
|
—
|
|
Deferred tax valuation allowance change, net
|
|
|
(5,317
|
)
|
|
|
(338
|
)
|
Penalty on surrender of bank owned life insurance
|
|
|
318
|
|
|
|
—
|
|
Other adjustments
|
|
|
55
|
|
|
|
95
|
|
Income tax expense (benefit)
|
|
$
|
144
|
|
|
$
|
(9
|
)
|
The
net deferred tax assets and liabilities resulting from temporary differences as of December 31 are summarized as follows:
(Dollars are in thousands)
|
|
2017
|
|
2016
|
Deferred Tax Assets
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
1,301
|
|
|
$
|
2,064
|
|
Deferred compensation
|
|
|
89
|
|
|
|
147
|
|
Accrued employee benefits
|
|
|
—
|
|
|
|
15
|
|
Nonaccrual loan interest
|
|
|
504
|
|
|
|
896
|
|
Other real estate owned
|
|
|
264
|
|
|
|
1,911
|
|
Repossessed assets
|
|
|
—
|
|
|
|
12
|
|
Amortization of core deposits
|
|
|
51
|
|
|
|
101
|
|
Amortization of goodwill
|
|
|
260
|
|
|
|
514
|
|
Capitalized interest and repair expense
|
|
|
25
|
|
|
|
41
|
|
Net operating loss carryforward
|
|
|
3,444
|
|
|
|
5,648
|
|
AMT carryforward
|
|
|
339
|
|
|
|
320
|
|
Unrealized loss on securities available for sale
|
|
|
158
|
|
|
|
235
|
|
Total Assets, gross
|
|
|
6,435
|
|
|
|
11,904
|
|
Valuation allowance
|
|
|
—
|
|
|
|
(5,317
|
)
|
Total Assets, net
|
|
|
6,435
|
|
|
|
6,587
|
|
Deferred Tax Liabilities
|
|
|
|
|
|
|
|
|
Accelerated depreciation
|
|
|
607
|
|
|
|
867
|
|
Accrued employee benefits
|
|
|
38
|
|
|
|
—
|
|
Prepaid expenses
|
|
|
20
|
|
|
|
38
|
|
Deferred loan costs
|
|
|
271
|
|
|
|
397
|
|
Total Liabilities, gross
|
|
|
936
|
|
|
|
1,302
|
|
Net Deferred Tax Asset
|
|
$
|
5,499
|
|
|
$
|
5,285
|
|
Deferred
tax assets represent the future tax benefit of future deductible differences and, if it is more likely than not that a tax asset
will not be realized, a valuation allowance is required to reduce the recorded deferred tax assets to net realizable value. The
Company has evaluated positive and negative evidence to assess the realizability of its deferred taxes. Based on the evidence,
including taxable income projections, the Company believes it is more likely than not that its deferred tax assets will be realizable.
As a result, the Company reversed the valuation allowance of $5.3 million that existed as of December 31, 2016 during 2017. Accordingly,
the Company has not included a valuation allowance against its deferred tax assets as of December 31, 2017.
The
Company measures deferred tax assets and liabilities using enacted tax rates that will apply in the years in which the temporary
differences are expected to be recovered or paid. Accordingly, the Company’s deferred tax assets and liablities were remeasured
to reflect the reduction in the U.S. corporate income tax rate from 34 percent to 21 percent, resulting in a $4.0 million increase
in income tax expense for the year ended December 31, 2017 and a corresponding $4.0 million decrease in net deferred tax assets
as of December 31, 2017.
Tax
positions are evaluated in a two-step process. The Company first determines whether it is more likely than not that a position
will be sustained upon examination. If a tax position meets the more-likely-than-not recognition threshold, it is then measured
to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount
of benefit that is greater than 50% likely of being recognized. The Company classifies interest and penalties as a component of
income tax expense.
As
of December 31, 2017, the Company had Federal and state net operating loss carryforward amounts of approximately $15.9 million
and $2.2 million, respectively. These amounts are not limited pursuant to IRC Section 382. The Company is subject to examination
in the United States and multiple state jurisdictions. Years prior to 2014 are no longer subject to examination by taxing authorities.
NOTE
11 TIME DEPOSITS
The
aggregate amount of time deposits that meet or exceed the FDIC Insurance limit of $250,000 was $25.3 million and $13.0 million
at December 31, 2017 and 2016, respectively. We have brokered deposits totaling $2.7 million at December 31, 2017 and 2016, respectively.
At December 31, 2017, the scheduled maturities of time deposits are as follows (dollars are in thousands):
2018
|
$
|
171,073
|
2019
|
|
31,096
|
2020
|
|
24,340
|
2021
|
|
26,706
|
2022
|
|
19,115
|
After
five years
|
|
-
|
Total
|
$
|
272,330
|
NOTE
12 RELATED PARTY TRANSACTIONS
During
the year, officers, directors (and companies controlled by them), principal shareholders, and associates were customers of and
had loan transactions with the Bank in the normal course of business which amounted to $6.6 million at December 31, 2017 and $5.4
million at December 31, 2016. During the year ended December 31, 2017, total principal additions were $4.3 million and principal
payments were $3.2 million, including renewals and advances on revolving lines of credit. During the year ended December 31, 2016,
total principal additions were $4.9 million and principal payments were $3.6 million, including renewals and advances on revolving
lines of credit. These transactions were made on substantially the same terms as those prevailing for other customers and did
not involve any abnormal risk. Total related party deposits held at the Bank were $12.0 million and $11.1 million at the end of
years 2017 and 2016, respectively.
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
13 RETIREMENT PLANS
The
Company has established a qualified defined contribution plan that covers all full time employees. The Company matches employee
contributions up to a maximum of 3% of their salary. The Company contributed $263 thousand and $385 thousand to the defined contribution
plan for 2017 and 2016, respectively.
In
addition, in 2002, the Bank established a salary continuation plan for key executives, which is funded by single premium life
insurance policies. Expenses related to the plan were $5 thousand for the years 2017 and 2016, respectively.
NOTE
14 OTHER REAL ESTATE OWNED
The
following table summarizes the activity in other real estate owned for the years ended December 31, 2017 and 2016:
|
|
2017
|
|
2016
|
(Dollars are in thousands)
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
$
|
10,655
|
|
|
$
|
12,398
|
|
Additions
|
|
|
3,087
|
|
|
|
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
|
|
|
(4,742
|
)
|
|
|
(4,232
|
)
|
Proceeds from insurance claims
|
|
|
(12
|
)
|
|
|
—
|
|
Loans made to finance sales of
Other real estate owned
|
|
|
(1,477
|
)
|
|
|
(818
|
)
|
Adjustment of carrying value
|
|
|
(758
|
)
|
|
|
(1,414
|
)
|
Deferred gain from sales
|
|
|
45
|
|
|
|
—
|
|
Gain (loss) from sales
|
|
|
(64
|
)
|
|
|
221
|
|
Balance, end of year
|
|
$
|
6,859
|
|
|
$
|
10,655
|
|
NOTE
15 BANK OWNED LIFE INSURANCE
At
December 31, 2017 and 2016, we had an aggregate total cash surrender value of $4.5 million and $12.3 million, respectively, on
life insurance policies covering current and former key officers. In December 2017 several policies were surrended, due to their
lagging financial performance. This transaction resulted in net proceeds of $7.6 million after the effect of a tax penalty of
$318 thousand.
Total
income for the policies during 2017 and 2016 was $115 thousand and $169 thousand, respectively.
NOTE
16 DIVIDEND LIMITATIONS ON SUBSIDIARY BANK
A
principal source of funds of the Company is dividends paid by the Bank. The Federal Reserve Act restricts the amount of dividends
the Bank may pay. Approval by the Board of Governors of the Federal Reserve System is required if the dividends declared by a
state member bank, in any year, exceed the sum of (1) net income of the current year and (2) income net of dividends for the preceding
two years.
NOTE
17 LEASING ACTIVITIES
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 a non affiliated third party for a total purchase price of $6.2 million. 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 the purchaser 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 the purchaser
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
14.42 years.
In
anticipation of this transaction the Company early adopted ASU No. 2016-02 Leases (Topic 842). 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.
Kingsport
Loan Production Office Lease
The
Bank entered into a commercial lease for office space in Kingsport, TN for use as a loan production office, which is expected
to open during the 1
st
Quarter of 2018. The lease, which commenced on December 1, 2017, provides the Bank with use
of the office space for an intital term of three (3) years. Base rent payments are $25 thousand for year 1, $25 thousand for year
2, and $26 thousand for year 3. The Bank has the option to renew the lease one (1) time and the renewal would be for a term of
one (1) year. The base rent for the renewal would increase by 5.00%. While the cash lease payments are currently $25 thousand
a year, the Company is required to straight-line the expense over the initial term of three (3) years. As a result, the annual
lease expense will be approximately $25 thousand. The weighted average remaining life of the lease is 2.97 years.
As
a result of this transaction the Company recognized a right-to-use asset – operating lease of approximately $73 thousand,
along with corresponding lease liability of approximately $73 thousand. The $73 thousand was determined by calculating the present
value of the annual cash lease payments using a discount rate of 2.17%. The 2.17% discount rate was determined to be our three
(3) year incremental borrowing rate as of December 1, 2017.
The
Company’s operating lease cost for the year ended December 31, 2017 as a result of the transactions discussed above was
$265 thousand.
All
other operating leases the Company has were evaluated and determined that they are immaterial to the financial statements. At
December 31, 2017, future minimum rental commitments under the non-cancellable operating leases discussed above are as follows
(dollars are in thousands):
2018
|
$
|
441
|
2019
|
|
442
|
2020
|
|
440
|
2021
|
|
492
|
2022
|
|
436
|
Thereafter
|
|
4,415
|
Total
|
$
|
6,666
|
NOTE
18 AVAILABLE LINES OF CREDIT AND FEDERAL HOME LOAN BANK ADVANCES
The
following table presents the Bank’s Federal Home Loan Bank (“FHLB”) advances:
|
|
December 31,
|
(Dollars in thousands)
|
|
2017
|
|
2016
|
Advances from FHLB – short-term
|
|
$
|
558
|
|
|
$
|
5,000
|
|
Advances from FHLB – long-term
|
|
|
7,000
|
|
|
|
8,758
|
|
Total Advances from FHLB
|
|
$
|
7,558
|
|
|
$
|
13,758
|
|
Additional
information on the Bank’s short-term FHLB advances:
|
|
Years
Ended December 31,
|
(Dollars
in thousands)
|
|
2017
|
|
2016
|
Maximum
outstanding at any month-end during the year
|
$
|
6,200
|
$
|
10,000
|
Average
outstanding balance
|
|
1,981
|
|
2,477
|
Average
interest rate for the year
|
|
1.82%
|
|
0.46%
|
Average
interest rate at year end
|
|
4.07%
|
|
0.69%
|
The
Bank has the ability to borrow up to an additional $122.5 million from the FHLB under a line of credit which is secured by a blanket
lien on residential real estate loans. The Bank had no overnight borrowings subject to daily rate changes from the Federal Home
Loan Bank at December 31, 2017 or 2016.
At
December 31, 2017 long-term FHLB advances consisted of $2.0 million at a rate of 0.99% due in 2019 and $5.0 million at a rate
of 1.38% due in 2021. At December 31, 2016 long-term FHLB advances consisted of $708 thousand at a rate of 4.10% due in 2018,
$1.05 million at a rate of 4.045% due in 2018, $2.0 million at a rate of .99% due in 2019 and $5.0 million at a rate of 1.38%
due in 2021. Each of these borrowings is at fixed interest rates.
We
have used our line of credit with FHLB to issue letters of credit totaling $17.0 million to the Treasury Board of Virginia for
collateral on public funds. No draws on the letters of credit have been issued. The letters of credit are considered draws on
our Federal Home Loan Bank line of credit.
We
also had the ability to borrow $10.0 million in unsecured federal funds line of credit facilities with correspondent banks as
of December 31, 2017 and 2016, respectively. As of December 31, 2017 and 2016, no balances were outstanding on these unsecured
federal funds line of credit facilities. Additional information on unsecured federal funds line of credit facilities is as follows:
|
|
Years
Ended December 31,
|
(Dollars
in thousands)
|
|
2017
|
|
2016
|
Maximum
outstanding at any month-end during the year
|
$
|
1,227
|
$
|
-
|
Average
outstanding balance
|
|
253
|
|
117
|
Average
interest rate for the year
|
|
2.10%
|
|
1.36%
|
Average
interest rate at year end
|
|
-%
|
|
-%
|
NOTE
19 FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In
the normal course of business, the Bank has outstanding commitments and contingent liabilities, such as commitments to extend
credit and standby letters of credit, which are not included in the accompanying consolidated financial statements. The Bank’s
exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend
credit and standby letters of credit is represented by the contractual or notional amount of those instruments. The Bank uses
the same credit policies in making such commitments as it does for instruments that are included in the balance sheet.
Financial
instruments whose contract amount represents credit risk at December 31 were as follows:
|
|
|
|
|
|
|
2017
|
|
2016
|
(Dollars
are in thousands)
|
|
|
|
|
Commitments
to extend credit
|
$
|
38,540
|
$
|
34,770
|
Standby
letters of credit
|
|
2,519
|
|
2,019
|
Commitments
to extend credit are agreements to lend to a customer at either a fixed or variable interest rate as long as there is no violation
of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and
may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s
credit evaluation. Collateral held varies but may include accounts receivable, inventory, property and equipment, and income-producing
commercial properties.
Standby
letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party.
Standby letters of credit generally have fixed expiration dates or other termination clauses and may require payment of a fee.
The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to
customers. The Bank’s policy for obtaining collateral, and the nature of such collateral, is essentially the same as that
involved in making commitments to extend credit.
NOTE
20 LEGAL CONTINGENCIES
In
the course of operations, we may become a party to legal proceedings. There are no pending or threatened legal proceedings to
which the Company or any of its subsidiaries is a party or to which the property of the Company or any of its subsidiaries is
subject that, in the opinion of management, may materially impact the financial condition of the Company, except for the following:
On
June 24, 2015 New Peoples Bank filed an Amended Complaint in the Circuit Court of Russell County Virginia against Arthur Wayne
Bostic, Michael W. Bostic, Sr. and Jeffrey C. Bostic to enforce guarantees of loans made to Bostic Ford Sales, Inc. and seeking
judgment against the guarantors for $1,427,709.76 with interest and legal fees. On July 24, 2015 Arthur Bostic filed a counterclaim
against New Peoples Bank asserting lender liability theories of recovery. On March 8, 2016 Michael Bostic, Sr. and Jeffrey
Bostic filed similar counterclaims against New Peoples Bank. In January 2018, the parties reached a settlement in the matter
resolving all claims asserted by New Peoples against the guarantors and all claims asserted against New Peoples by the guarantors. An
order dismissing all claims with prejudice was entered on February 7, 2018. This settlement had no material financial impact on
our financial condition or results of operations.
In
2015, New Peoples Bank filed suit in the Circuit Court for Washington County, Virginia, seeking payment from Ms. Sandra Campbell
due to breach of a promissory note executed in 2013. Ms. Campbell asserted a Counterclaim alleging that the Bank’s requirement
that she provide her personal guaranty on a loan sought by her husband’s company was a violation of the Equal Credit Opportunity
Act. The counterclaim seeks damages in the amount of $825,000. The Bank filed a motion for summary judgment in its favor on its
Complaint and as to Defendant’s Counterclaim in May 2016. A hearing has not yet been held on this motion. If the matter
is not dismissed, the Bank plans a vigorous defense and does not believe that Ms. Campbell’s claims will be successful.
In
conjunction with the departure of Mr. Kenneth Hart, New Peoples’ former Chief Executive Officer, New Peoples entered into
a separation agreement with him. Mr. Hart originally filed suit alleging various breaches by the Company and the Bank related
to this and earlier agreements between the parties, which action was dismissed in April 2016 for failure to serve. He then refiled
the suit on October 7, 2016, providing him another 12 months to have the Company and the Bank served. On October 3, 2017, the
Company and Bank were served with the current complaint for breach of contract which is substantially the same as his original
suit. Mr. Hart is asking the Court for an award of $1.5 million plus interest alleging a breach by the Company and the Bank of
these various agreements with Mr. Hart. New Peoples filed a “demurrer” to the complaint, asking that the suit be dismissed,
on October 23, 2017. New Peoples believes there is no merit to this suit or these claims which are based on conduct that occurred
in 2010, and that the suit is a reaction to a judgment of over a million dollars awarded in favor of the Bank and against Mr.
Hart in a separate matter. The Court has not yet ruled on this motion to dismiss. Should this suit not be dismissed, New Peoples
intends to defend the matter vigorously to its conclusion and does not believe Mr. Hart’s claims will be successful.
Jonathan
Mullins, is a former President and Chief Executive Officer of New Peoples who departed in December 2014. In 2017 he filed a Complaint
in the Circuit Court of Russell County, Virginia against New Peoples Bank. This is his second lawsuit against the Bank (the first
was dismissed), and he seeks payment of deferred compensation pursuant to a 2009 agreement made with the Board of Directors, in
which he alleges it agreed to payments of $50,000/year for 15 years beginning at age 65. At the time Mullins’ severance
agreement was negotiated, the Bank determined that the accrued value of the deferred compensation at that time was $144,445. Mullins
seeks either the $50,000 annual payments when he reaches age 65 or a lump sum payment of $144,445 with prejudgment interest from
December 2014, along with $20,000 in severance pay and accrued leave. New Peoples filed its “demurrer” to this lawsuit
in January 2018, requesting dismissal. The demurrer argues that the Bank cannot make these payments to Plaintiff in compliance
with federal law, and therefore, Mullins’ case must be dismissed. A hearing has not been set on this motion. If the matter
is not dismissed, New Peoples intends to defend the matter vigorously to its conclusion and does not believe that Mr. Mullin’s
claims will be successful.
In
November 2017, Keith Carroll filed a complaint against New Peoples Bank in the United States District Court for the Western District
of Virginia alleging violations of the Americans with Disabilities Act (the “ADA”). He has filed essentially the same
lawsuit in multiple Virginia federal court divisions, alleging violations of the ADA against various banks and credit unions.
Mr. Carroll is a blind individual and asserts that he attempted to do business with the Bank through its website, which he claims
was inaccessible to him due to his disability. Mr. Carroll seeks injunctive relief and unspecified monetary damages, to include
costs and attorneys’ fees. The Bank filed a Motion to Dismiss these claims. One of Mr. Carroll’s cases filed in the
Eastern District of Virginia was recently dismissed on numerous grounds, including the ground that websites are not “places
of public accommodation under the ADA,” and that even if they were, no regulations currently exist to govern them as such.
The Bank has requested dismissal of this case for the same reason, among others. A hearing on the Bank’s motion is set for
March 21, 2018. If the matter is not resolved on motions, New Peoples intends to defend the matter vigorously to its conclusion.
NOTE
21 TRUST PREFERRED SECURITIES
The
following table details the subordinated debt transactions outstanding:
|
|
|
|
|
|
|
|
|
December
31,
|
|
Shares
|
|
12/31/2017
|
|
|
|
Maturity
|
|
|
|
|
|
Issued
|
|
Interest
Rate
|
|
Interest
Rate
(1)
|
|
Date
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
(Dollars
in thousands)
|
NPB
Capital Trust I
|
341
|
|
3.96%
|
|
3
Month LIBOR plus 2.60%
|
|
7/7/2034
|
$
|
11,341
|
$
|
11,341
|
NPB
Capital Trust 2
|
155
|
|
3.13%
|
|
3
Month LIBOR plus 1.77%
|
|
10/7/2036
|
|
5,155
|
|
5,155
|
|
|
|
|
|
|
|
|
$
|
16,496
|
$
|
16,496
|
|
(1)
|
Interest
rate on both NPB Capital Trust I and NPB Capital Trust 2 are a floating rate, which resets
quarterly.
|
Under
the terms of the subordinated debt transactions, the securities have a 30-year maturity and are redeemable, in whole or in part,
without penalty, at the option of the Company after five years of the issuance date. Due to the ability to defer interest and
principal payments for 60 months without being considered in default, the regulatory agencies consider the trust preferred securities
as Tier 1 capital up to certain limits. The Company is currently not deferring the quarterly interest payments on the trust preferred
securities.
NOTE
22 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 December
31, 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 continues to be subject to various capital requirements administered by banking agencies. The Bank’s actual capital
amounts and ratios are presented in the following table as of December 31, 2017 and 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
|
December
31, 2017:
|
Total
Capital to Risk Weighted Assets
|
$
|
68,787
|
15.30%
|
$
35,970
|
8.0%
|
$
|
44,962
|
10.0%
|
Tier
1 Capital to Risk Weighted Assets
|
|
63,160
|
14.05%
|
26,977
|
6.0%
|
|
35,970
|
8.0%
|
Tier
1 Capital to Average Assets
|
|
63,160
|
9.56%
|
26,422
|
4.0%
|
|
33,028
|
5.0%
|
Common
Equity Tier 1 Capital
|
to
Risk Weighted Assets
|
|
63,160
|
14.05%
|
20,233
|
4.5%
|
|
29,225
|
6.5%
|
|
December
31, 2016:
|
Total
Capital to Risk Weighted Assets
|
$
|
67,549
|
16.64%
|
$ 32,476
|
8.0%
|
$
|
40,595
|
10.0%
|
Tier
1 Capital to Risk Weighted Assets
|
|
62,462
|
15.39%
|
24,357
|
6.0%
|
|
32,476
|
8.0%
|
Tier
1 Capital to Average Assets
|
|
62,462
|
9.93%
|
25,149
|
4.0%
|
|
31,436
|
5.0%
|
Common
Equity Tier 1 Capital
|
to
Risk Weighted Assets
|
|
62,462
|
15.39%
|
18,268
|
4.5%
|
|
26,386
|
6.5%
|
As
of December 31, 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, beginning January 1, 2016, a capital conservation buffer of 0.625% became effective. The capital
conservation buffer is 1.25% as of December 31, 2017 and the Bank met that requirement with a buffer of 7.30%. The capital conservation
buffer will be gradually increased through January 1, 2019 to 2.5%. 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.
Common
Stock Warrants
The
company issued common stock warrants as a result of the completion of its common stock offering in 2012. The warrants were immediately
exercisable to purchase common stock over the next five years at a price of $1.75 per share with an expiration date of December
20, 2017. A summary of the activity in the common stock warrants as of December 31, 2017 and 2016 is as follows:
|
|
2017
|
|
2016
|
|
|
Number of
Warrants
|
|
Exercise
Price
|
|
Number of
Warrants
|
|
Exercise Price
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable,
beginning of year
|
|
|
881,978
|
|
|
$
|
1.75
|
|
|
|
882,353
|
|
|
$
|
1.75
|
|
Exercised
|
|
|
(636,364
|
)
|
|
|
1.75
|
|
|
|
(375
|
)
|
|
|
1.75
|
|
Expired
|
|
|
(245,614
|
)
|
|
|
1.75
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding and exercisable,
end of year
|
|
|
—
|
|
|
$
|
—
|
|
|
|
881,978
|
|
|
$
|
1.75
|
|
As
a result of the exercises shown above an additional $1.1 million of capital was raised by the Company during 2017. The additional
liquidity provided by the funds will be used by the Company to pay its operating expenses and trust preferred interest payments.
Payment
of Dividend to Company and Retirement of Stock
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. The Board
of Directors then approved for the Company to retire the 68,735 shares of the Company’s common stock. 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
23 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 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 $71.1 million
and $70.0 million at December 31, 2017 and 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. From time to time a loan is considered impaired and an allowance for loan losses is 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 the fair value of the collateral is 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 impaired loan as nonrecurring Level 3. The aggregate carrying amount of impaired loans carried at fair value were
$11.4 million and $13.8 million at December 31, 2017 and 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 estimate of disposition costs, which the Company considers
to be nonrecurring level 2 inputs. When the appraised value is not available, management determines the fair value of the collateral
is 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 $6.9 million and $10.7 million at December 31, 2017 and 2016,
respectively.
Assets
and liabilities measured at fair value are as follows as of December 31, 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
|
|
$
|
—
|
|
|
$
|
23,844
|
|
|
$
|
—
|
|
Taxable municipals
|
|
|
—
|
|
|
|
4,397
|
|
|
|
—
|
|
Corporate bonds
|
|
|
—
|
|
|
|
5,579
|
|
|
|
—
|
|
Mortgage backed securities
|
|
|
—
|
|
|
|
37,268
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(On a non-recurring basis)
Other real estate owned
|
|
|
—
|
|
|
|
—
|
|
|
|
6,859
|
|
Impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
4,650
|
|
Construction and land development
|
|
|
—
|
|
|
|
—
|
|
|
|
424
|
|
Residential 1-4 family
|
|
|
—
|
|
|
|
—
|
|
|
|
3,916
|
|
Multifamily
|
|
|
—
|
|
|
|
—
|
|
|
|
281
|
|
Farmland
|
|
|
—
|
|
|
|
—
|
|
|
|
1,399
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
704
|
|
Agriculture
|
|
|
—
|
|
|
|
—
|
|
|
|
12
|
|
Consumer installment loans
|
|
|
—
|
|
|
|
—
|
|
|
|
8
|
|
All other loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
—
|
|
|
$
|
71,088
|
|
|
$
|
18,253
|
|
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 December 31, 2017 and 2016, the significant
unobservable inputs used in the fair value measurements were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars
in thousands)
|
|
Fair
Value at December 31, 2017
|
|
Fair
Value at
December
31,
2016
|
|
Valuation
Technique
|
|
Significant
Unobservable Inputs
|
|
General
Range of Significant Unobservable Input Values
|
|
|
|
|
|
|
|
|
|
|
|
Impaired
Loans
|
$
|
11,394
|
$
|
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
|
$
|
6,859
|
$
|
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 December 31, 2017 and 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
during the months of December 2017 and 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)
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2017
|
|
|
|
|
|
|
|
|
|
|
Financial
Instruments – Assets
|
|
|
|
|
|
|
|
|
|
|
Net
Loans
|
$
|
506,812
|
$
|
506,608
|
$
|
-
|
$
|
495,214
|
$
|
11,394
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Instruments – Liabilities
|
|
|
|
|
|
|
|
|
|
|
Time
Deposits
|
|
272,330
|
|
272,352
|
|
-
|
|
272,352
|
|
-
|
FHLB
Advances
|
|
7,558
|
|
7,794
|
|
-
|
|
7,794
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
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
24 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 17, 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.
In
February 2018, the FASB Issued (ASU 2018-02), Income Statement (Topic 220): Reclassification of Certain Tax Effects from Accumulated
Other Comprehensive Income, which requires Companies to reclassify the stranded effects in other comprehensive income to retained
earnings as a result of the change in the tax rates under the Tax Cuts and Jobs Act. The Company has opted to early adopt this
pronouncement by retrospective application to each period (or periods) in which the effect of the change in the tax rate under
the Tax Cuts and Jobs Act is recognized. The impact of the reclassification from other comprehensive income to retained earnings
is $98 thousand as of December 31, 2017.
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.
NOTE
25 PARENT CORPORATION ONLY FINANCIAL STATEMENTS
CONDENSED
BALANCE SHEETS
AS
OF DECEMBER 31, 2017 AND 2016
(Dollars
in Thousands)
|
|
|
|
|
ASSETS
|
|
2017
|
|
2016
|
|
|
|
|
|
Due from banks
|
|
$
|
1,220
|
|
|
$
|
813
|
|
Investment in subsidiaries
|
|
|
65,057
|
|
|
|
62,158
|
|
Other assets
|
|
|
1,360
|
|
|
|
587
|
|
Total Assets
|
|
$
|
67,637
|
|
|
$
|
63,558
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Accrued interest payable
|
|
$
|
139
|
|
|
$
|
125
|
|
Accrued expenses and other liabilities
|
|
|
29
|
|
|
|
20
|
|
Trust preferred securities
|
|
|
16,496
|
|
|
|
16,496
|
|
Total Liabilities
|
|
|
16,664
|
|
|
|
16,641
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Common stock - $2.00 par value, 50,000,000 shares authorized;
23,922,086 and 23,354,457 shares issued and outstanding at
December 31, 2017 and 2016, respectively
|
|
|
47,844
|
|
|
|
46,709
|
|
Common stock warrants
|
|
|
—
|
|
|
|
764
|
|
Additional paid capital
|
|
|
14,570
|
|
|
|
13,965
|
|
Retained deficit
|
|
|
(10,847
|
)
|
|
|
(14,065
|
)
|
Accumulated other comprehensive loss
|
|
|
(594
|
)
|
|
|
(456
|
)
|
Total Stockholders’ Equity
|
|
|
50,973
|
|
|
|
46,917
|
|
Total Liabilities and Stockholders’ Equity
|
|
$
|
67,637
|
|
|
$
|
63,558
|
|
CONDENSED
STATEMENTS OF INCOME
FOR
THE YEARS ENDED DECEMBER 31, 2017 AND 2016
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
2017
|
|
2016
|
|
|
|
|
|
Income
|
|
|
|
|
|
|
|
|
Miscellaneous income
|
|
$
|
17
|
|
|
$
|
15
|
|
Dividends from subsidiaries
|
|
|
111
|
|
|
|
—
|
|
Undistributed income of subsidiaries
|
|
|
2,939
|
|
|
|
1,615
|
|
Total income
|
|
|
3,067
|
|
|
|
1,630
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
Trust preferred securities interest expense
|
|
|
592
|
|
|
|
508
|
|
Professional fees
|
|
|
92
|
|
|
|
105
|
|
Other operating expenses
|
|
|
62
|
|
|
|
59
|
|
Total Expenses
|
|
|
746
|
|
|
|
672
|
|
|
|
|
|
|
|
|
|
|
Income before Income Taxes
|
|
|
2,321
|
|
|
|
958
|
|
Income Tax Expense (Benefit)
|
|
|
(773
|
)
|
|
|
—
|
|
Net Income
|
|
$
|
3,094
|
|
|
$
|
958
|
|
CONDENSED
STATEMENTS OF CASH FLOWS
FOR
THE YEARS ENDED DECEMBER 31, 2017 AND 2016
|
|
|
|
|
(Dollars in Thousands)
|
|
2017
|
|
2016
|
|
|
|
|
|
Cash Flows From Operating Activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,094
|
|
|
$
|
958
|
|
Adjustments to reconcile net income to net cash used in
operating activities:
|
|
|
|
|
|
|
|
|
Income of subsidiaries
|
|
|
(3,050
|
)
|
|
|
(1,615
|
)
|
Net change in:
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
(773
|
)
|
|
|
2
|
|
Other liabilities
|
|
|
23
|
|
|
|
22
|
|
Net Cash Used in Operating Activities
|
|
|
(706
|
)
|
|
|
(633
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities
|
|
|
|
|
|
|
|
|
Exercise of common stock warrants
|
|
|
1,113
|
|
|
|
1
|
|
Net Cash Provided by Financing Activities
|
|
|
1,113
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in Cash and Cash Equivalents
|
|
|
407
|
|
|
|
(632
|
)
|
Cash and Cash Equivalents, Beginning of year
|
|
|
813
|
|
|
|
1,445
|
|
Cash and Cash Equivalents, End of Year
|
|
$
|
1,220
|
|
|
$
|
813
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Paid During the Year for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
578
|
|
|
$
|
487
|
|
Taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
Supplemental Disclosure of Non Cash Transactions:
|
|
|
|
|
|
|
|
|
Retirement of common stock
|
|
$
|
(111
|
)
|
|
$
|
—
|
|
Payment of in-kind dividend to the Company from the Bank
|
|
$
|
111
|
|
|
$
|
—
|
|
NOTE
26 SELECTED QUARTERLY INFORMATION (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
2017
QUARTERS
|
(Dollars
in thousands except per share data)
|
|
Fourth
|
|
Third
|
|
Second
|
|
First
|
|
|
|
|
|
|
|
|
|
Income
statement
|
|
|
|
|
|
|
|
|
Net
interest income
|
$
|
5,845
|
$
|
5,779
|
$
|
5,791
|
$
|
5,365
|
Noninterest
income
|
|
1,905
|
|
1,808
|
|
4,409
|
|
1,714
|
Provision
for loan losses
|
|
450
|
|
-
|
|
-
|
|
-
|
Noninterest
expense
|
|
7,229
|
|
7,098
|
|
7,623
|
|
6,978
|
Net
income (loss)
|
|
(82)
|
|
484
|
|
2,577
|
|
115
|
Earnings
(loss) per share, basic
|
|
(0.00)
|
|
0.02
|
|
0.11
|
|
0.00
|
Earnings
(loss) per share, diluted
|
|
(0.00)
|
|
0.02
|
|
0.11
|
|
0.00
|
|
|
|
|
|
|
|
|
|
Period
end balance sheet
|
|
|
|
|
|
|
|
|
Total
loans receivable
|
$
|
513,008
|
$
|
501,390
|
$
|
488,764
|
$
|
476,490
|
Total
assets
|
|
666,700
|
|
665,236
|
|
659,761
|
|
647,594
|
Total
deposits
|
|
582,544
|
|
581,616
|
|
576,346
|
|
572,751
|
Total
stockholders’ equity
|
|
50,973
|
|
50,355
|
|
50,013
|
|
47,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
QUARTERS
|
|
(Dollars
in thousands except per share data)
|
|
Fourth
|
|
Third
|
|
Second
|
|
First
|
|
|
|
|
|
|
|
|
|
|
|
Income
statement
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
$
|
5,420
|
$
|
5,453
|
$
|
5,402
|
$
|
5,451
|
|
Noninterest
income
|
|
1,909
|
|
2,043
|
|
1,753
|
|
1,586
|
|
Provision
for loan losses
|
|
-
|
|
-
|
|
(500)
|
|
-
|
|
Noninterest
expense
|
|
8,300
|
|
7,155
|
|
6,776
|
|
6,337
|
|
Net
income (loss)
|
|
(968)
|
|
346
|
|
882
|
|
698
|
|
Earnings
(loss) per share, basic
|
|
(0.04)
|
|
0.01
|
|
0.04
|
|
0.03
|
|
Earnings
(loss) per share, diluted
|
|
(0.04)
|
|
0.01
|
|
0.04
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
Period
end balance sheet
|
|
|
|
|
|
|
|
|
|
Total
loans receivable
|
$
|
468,629
|
$
|
464,721
|
$
|
459,613
|
$
|
450,309
|
|
Total
assets
|
|
634,335
|
|
633,867
|
|
632,311
|
|
636,459
|
|
Total
deposits
|
|
554,438
|
|
556,516
|
|
555,084
|
|
555,216
|
|
Total
stockholders’ equity
|
|
46,917
|
|
48,785
|
|
48,485
|
|
47,234
|
|
|
|
|