10-Q 1 npbs10q051117.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended March 31, 2017

 

[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from ____________ to _____________

 

Commission file number: 000-33411

 

NEW PEOPLES BANKSHARES, INC.

(Exact name of registrant as specified in its charter)

 

     

Virginia

(State or other jurisdiction of

incorporation or organization)

 

 

31-1804543

(I.R.S. Employer

Identification No.)

 
       

67 Commerce Drive

Honaker, Virginia

(Address of principal executive offices)

 

 

24260

(Zip Code)

 
         

 

 
(Registrant’s telephone number, including area code) (276) 873-7000

 

 

n/a

(Former name, former address and former fiscal year, if changed since last report)

 

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

 

Yes [X]   No [ ]

 

 

 
 

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

 

Yes [X]   No [ ]

 

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

     
Large accelerated filer  [ ]   Accelerated filer  [ ]
Non-accelerated filer  [ ]   Smaller reporting company  [X]

 

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

 

Yes [ ]   No [X]

 

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

     
Class   Outstanding at May 12, 2017
Common Stock, $2.00 par value   23,355,457

 

 

 
 

NEW PEOPLES BANKSHARES, INC.

 

        INDEX        
                 
                Page
PART I FINANCIAL INFORMATION          
Item 1. Financial Statements            
Consolidated Statements of Income – Three Months      
Ended March 31, 2017 and 2016 (Unaudited)       1
Consolidated Statements of Comprehensive Income – Three Months    
Ended March 31, 2017 and 2016 (Unaudited)       3
Consolidated Balance Sheets – March 31, 2017 (Unaudited) and December 31, 2016 4
                 
Consolidated Statements of Changes in Stockholders’ Equity -     
Three Months Ended March 31, 2017 and 2016 (Unaudited)     6
                 
Consolidated Statements of Cash Flows – Three Months      
Ended March 31, 2017 and 2016 (Unaudited)       7
                 
Notes to Consolidated Financial Statements       9
                 
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations 26
                 
Item 3.    Quantitative and Qualitative Disclosures about Market Risk     32
                 
Item 4.    Controls and Procedures         32
                 
PART II   OTHER INFORMATION          
                 
Item 1.     Legal Proceedings           33
                 
Item 1A.    Risk Factors           33
                 
Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds   33
                 
Item 3.     Defaults upon Senior Securities         33
                 
Item 4.     Mine Safety Disclosures         33
                 
Item 5.     Other Information           33
                 
Item 6.     Exhibits             33
                 
SIGNATURES             34

 

 
 

Part I Financial Information

Item 1 Financial Statements

 

 

NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016

(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)

(UNAUDITED)

         
INTEREST AND DIVIDEND INCOME   2017   2016
Loans including fees   $ 5,664     $ 5,565  
Interest-earning deposits with banks     43       21  
Investments     350       464  
Dividends on equity securities (restricted)     32       32  
Total Interest and Dividend Income     6,089       6,082  
                 
INTEREST EXPENSE                
Deposits                
  Demand     13       11  
  Savings     47       41  
  Time deposits below $100,000     289       265  
  Time deposits above $100,000     189       154  
FHLB advances     45       36  
Federal funds purchased     —         2  
Trust preferred securities     141       122  
Total Interest Expense     724       631  
                 
NET INTEREST INCOME     5,365       5,451  
                 
PROVISION FOR LOAN LOSSES     —         —    
                 
NET INTEREST INCOME AFTER                
PROVISION FOR LOAN LOSSES     5,365       5,451  
                 
NONINTEREST INCOME                
Service charges     833       488  
Fees, commissions and other income     802       805  
Insurance and investment fees     52       158  
Net realized gains on sale of investment securities     —         105  
Life insurance investment income     27       30  
Total Noninterest Income     1,714       1,586  
                 

 

 

NONINTEREST EXPENSES                
Salaries and employee benefits     3,381       3,210  
Occupancy and equipment expense     1,127       853  
Advertising and public relations     93       104  
Data processing and telecommunications     553       581  
FDIC insurance premiums     102       134  
Other real estate owned and repossessed vehicles, net     300       163  
Other operating expenses     1,422       1,292  
Total Noninterest Expenses     6,978       6,337  
                 
INCOME BEFORE INCOME TAXES     101       700  
                 
INCOME TAX EXPENSE (BENEFIT)     (14 )     2  
                 
NET INCOME   $ 115     $ 698  
                 
Income Per Share                
Basic   $ 0.00     $ 0.03  
Fully Diluted   $ 0.00     $ 0.03  
                 
Average Weighted Shares of Common Stock                
Basic     23,354,890       23,354,082  
Fully Diluted     23,354,890       23,354,082  

 

The accompanying notes are an integral part of this statement. 

 

 

NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016

(IN THOUSANDS)

(UNAUDITED)

 

    2017   2016
         
NET INCOME   $ 115     $ 698  
                 
Other comprehensive income:                
  Investment Securities Activity                
    Unrealized gains arising during the period     89       785  
    Tax related to unrealized gains     (30 )     (267 )
    Reclassification of realized gains during the period     —         (105 )
    Tax related to realized gains     —         36  
TOTAL OTHER COMPREHENSIVE INCOME     59       449  
TOTAL COMPREHENSIVE INCOME   $ 174     $ 1,147  

 

 

 The accompanying notes are an integral part of this statement.

 

NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS EXCEPT PER SHARE AND SHARE DATA)

         
ASSETS   March 31,   December 31,
    2017   2016
      (Unaudited)       (Audited)  
                 
Cash and due from banks   $ 17,924     $ 18,500  
Interest-bearing deposits with banks     21,664       16,816  
Federal funds sold     108       132  
Total Cash and Cash Equivalents     39,696       35,448  
                 
Investment securities available-for-sale     72,010       70,011  
                 
Loans receivable     476,490       468,629  
Allowance for loan losses     (5,968 )     (6,072 )
Net Loans     470,522       462,557  
                 
Bank premises and equipment, net     29,937       29,985  
Equity securities (restricted)     2,585       2,802  
Other real estate owned     10,161       10,655  
Accrued interest receivable     1,734       1,848  
Life insurance investments     12,301       12,274  
Deferred taxes, net     5,255       5,285  
Other assets     3,393       3,470  
                 
Total Assets   $ 647,594     $ 634,335  
                 
LIABILITIES                
                 
Deposits:                
Demand deposits:                
Noninterest bearing   $ 159,301     $ 151,914  
Interest-bearing     41,663       40,213  
Savings deposits     123,403       114,492  
Time deposits     248,384       247,819  
        Total Deposits     572,751       554,438  
                 
Federal Home Loan Bank advances     8,458       13,758  
Accrued interest payable     342       331  
Accrued expenses and other liabilities     2,455       2,395  
Trust preferred securities     16,496       16,496  
                 
Total Liabilities     600,502       587,418  
                 
Commitments and contingencies                
                 

 

 

STOCKHOLDERS’ EQUITY                
                 
Common stock - $2.00 par value; 50,000,000 shares authorized;                
23,355,457 and 23,354,457 shares issued and outstanding at
March 31, 2017 and December 31, 2016, respectively
    46,711       46,709  
Common stock warrants     763       764  
Additional paid-in-capital     13,965       13,965  
Retained deficit     (13,950 )     (14,065 )
Accumulated other comprehensive loss     (397 )     (456 )
                 
Total Stockholders’ Equity     47,092       46,917  
                 
Total Liabilities and Stockholders’ Equity   $ 647,594     $ 634,335  

  

 

The accompanying notes are an integral part of this statement.

 


NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016

(IN THOUSANDS INCLUDING SHARE DATA)

(UNAUDITED)

                             
    Shares of Common Stock   Common Stock   Common Stock Warrants   Additional Paid-in- Capital   Retained Earnings (Deficit)  

Accum-ulated Other

Compre-hensive Income (Loss)

  Total Stockholders’ Equity
                             
Balance, December 31, 2015     23,354     $ 46,708     $ 764     $ 13,965     $ (15,023 )   $ (327 )   $ 46,087  
                                                         
Net income     —         —         —         —         698       —         698  
                                                         
Other comprehensive income,
net of tax
    —         —         —         —         —         449       449  
Balance, March 31, 2016     23,354     $ 46,708     $ 764     $ 13,965     $ (14,325 )   $ 122     $ 47,234  
                                                         
Balance, December 31, 2016     23,354     $ 46,709     $ 764     $ 13,965     $ (14,065 )   $ (456 )   $ 46,917  
                                                         
Net income     —         —         —         —         115       —         115  
                                                         
Exercise of common
stock warrants
    1       2       (1 )     —         —         —         1  
                                                         
Other comprehensive income,
net of tax
    —         —         —         —         —         59       59  
Balance, March 31, 2017     23,355     $ 46,711     $ 763     $ 13,965     $ (13,950 )   $ (397 )   $ 47,092  
                                                         

 

 The accompanying notes are an integral part of this statement.

 

NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016

(IN THOUSANDS)

(UNAUDITED)

 

    2017   2016
CASH FLOWS FROM OPERATING ACTIVITIES                
Net income   $ 115     $ 698  
Adjustments to reconcile net income to net cash                
provided by operating activities:                
Depreciation     638       551  
Income on life insurance     (27 )     (30 )
Gain on sale of securities available-for-sale     —         (105 )
Gain on sale of premises and equipment     (1 )     —    
Gain on sale of foreclosed assets     (24 )     (43 )
Adjustment of carrying value of foreclosed real estate     176       (4 )
Accretion of bond premiums/discounts     201       253  
Deferred tax benefit     —         (70 )
Net change in:                
Interest receivable     114       22  
Other assets     77       (1,407 )
Accrued interest payable     11       (1 )
Accrued expenses and other liabilities     60       2,518  
Net Cash Provided by Operating Activities     1,340       2,382  
                 
CASH FLOWS FROM INVESTING ACTIVITIES                
Net increase in loans     (8,777 )     (10,233 )
Purchase of securities available-for-sale     (6,564 )     (100 )
Proceeds from sale and maturities of securities available-for-sale     4,453       17,564  
Net sale (purchase) of equity securities (restricted)     217       (314 )
Payments for the purchase of premises and equipment     (593 )     (3,215 )
Proceeds from sale of premises and equipment     4       —    
Proceeds from sales of other real estate owned     1,154       68  
Net Cash Provided by (Used in) Investing Activities     (10,106 )     3,770  
                 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES                
Exercise of common stock warrants     1       —    
Net increase (decrease) in Federal Home Loan Bank advances     (5,300 )     9,700  
Net change in:                
Demand deposits     8,837       10,696  
Savings deposits     8,911       (7,816 )
Time deposits     565       (5,683 )
Net Cash Provided by Financing Activities     13,014       6,897  
                 
Net increase in cash and cash equivalents     4,248       13,049  
Cash and Cash Equivalents, Beginning of Period     35,448       26,338  
Cash and Cash Equivalents, End of Period   $ 39,696     $ 39,387  
                 
Supplemental Disclosure of Cash Paid During the Period for:                
     Interest   $ 713     $ 632  
     Taxes   $ —       $ 70  
                 
Supplemental Disclosure of Non Cash Transactions:                
     Other real estate acquired in settlement of foreclosed loans   $ 1,624     $ 1,063  
     Loans made to finance sale of foreclosed real estate   $ 812     $ 244  
Change in unrealized gains on securities available-for-sale   $ 89     $ 680  

 

The accompanying notes are an integral part of this statement.

 

NEW PEOPLES BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 NATURE OF OPERATIONS:

 

New Peoples Bankshares, Inc. (“The Company”) is a financial holding company whose principal activity is the ownership and management of a community bank. New Peoples Bank, Inc. (“Bank”) was organized and incorporated under the laws of the Commonwealth of Virginia on December 9, 1997. The Bank commenced operations on October 28, 1998, after receiving regulatory approval. As a state-chartered member bank, the Bank is subject to regulation by the Virginia Bureau of Financial Institutions, the Federal Deposit Insurance Corporation and the Federal Reserve Bank. The Bank provides general banking services to individuals, small and medium size businesses and the professional community of southwestern Virginia, southern West Virginia, and eastern Tennessee. On June 9, 2003, the Company formed two wholly-owned subsidiaries; NPB Financial Services, Inc. and NPB Web Services, Inc. On July 7, 2004 the Company established NPB Capital Trust I for the purpose of issuing trust preferred securities. On September 27, 2006, the Company established NPB Capital Trust 2 for the purpose of issuing additional trust preferred securities. NPB Financial Services, Inc. was a subsidiary of the Company until January 1, 2009 when it became a subsidiary of the Bank. In June 2012 the name of NPB Financial Services, Inc. was changed to NPB Insurance Services, Inc. which operates solely as an insurance agency. On March 4, 2016 the Federal Reserve Bank of Richmond approved the Company’s election to become a financial holding company. In July 2016, the Bank and its wholly-owned subsidiary NPB Insurance Services, Inc. announced by press release its teaming up with The Hilb Group of Virginia dba CSE Insurance Services, a division of the Hilb Group, LLC (“CSE”), located in Abingdon, Virginia, to provide insurance services for its current and future customers. Effective July 1, 2016, NPB Insurance Services, Inc. sold its existing book of business to CSE. These customers are now serviced by CSE and the Bank refers future insurance needs of its bank customers to CSE.

 

NOTE 2 ACCOUNTING PRINCIPLES:

 

These consolidated financial statements conform to U. S. generally accepted accounting principles and to general industry practices. In the opinion of management, the accompanying consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the Company’s financial position at March 31, 2017 and December 31, 2016, and the results of operations for the three-month periods ended March 31, 2017 and 2016. The notes included herein should be read in conjunction with the notes to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. The results of operations for the three month periods ended March 31, 2017 and 2016 are not necessarily indicative of the results to be expected for the full year.

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The determination of the adequacy of the allowance for loan losses and the determination of the deferred tax asset and related valuation allowance are based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions.

 

NOTE 3 EARNINGS PER SHARE:

 

Basic earnings per share computations are based on the weighted average number of shares outstanding during each period. Dilutive earnings per share reflect the additional common shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares that may be issued related to outstanding common stock warrants are determined by the Treasury method. For the three-months ended March 31, 2017 and 2016, potential common shares of 880,978 and 882,353, respectively, were anti-dilutive and were not included in the calculation. Basic and diluted net income per common share calculations follows:

 

 

(Amounts in Thousands, Except
Share and Per Share Data)
  For the three months
ended March 31,
    2017   2016
Net income   $ 115     $ 698  
Weighted average shares outstanding     23,354,890       23,354,082  
Dilutive shares for stock warrants     —         —    
Weighted average dilutive shares outstanding     23,354,890       23,354,082  
                 
Basic income per share   $ 0.00     $ 0.03  
Diluted income per share   $ 0.00     $ 0.03  

 

NOTE 4 CAPITAL:

 

Capital Requirements and Ratios

 

The Bank is subject to various capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and, possibly, additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

 

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier 1 capital (as defined) to risk-weighted assets (as defined), Tier 1 capital (as defined) to average assets (as defined), and Common Equity Tier 1 capital (as defined) to risk-weighted assets (as defined). As of March 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’s actual capital amounts and ratios are presented in the following table as of March 31, 2017 and December 31, 2016, respectively. These ratios comply with Federal Reserve rules to align with the Basel III Capital requirements effective January 1, 2015.

 

 

    Actual   Minimum Capital Requirement   Minimum to Be Well Capitalized Under Prompt Corrective Action Provisions
(Dollars are in thousands)   Amount   Ratio   Amount   Ratio   Amount   Ratio
March 31, 2017:
Total Capital to Risk Weighted Assets:                                                
New Peoples Bank, Inc.     67,196       16.19 %   $ 33,197       8.0 %   $ 41,496       10.0 %
Tier 1 Capital to Risk Weighted Assets:                                                
New Peoples Bank, Inc.     61,999       14.94 %     24,898       6.0 %     33,197       8.0 %
Tier 1 Capital to Average Assets:                                                
New Peoples Bank, Inc.     61,999       9.73 %     25,498       4.0 %     31,873       5.0 %
Common Equity Tier 1 Capital
to Risk Weighted Assets:
                                               
New Peoples Bank, Inc.     61,999       14.94 %     18,673       4.5 %     26,973       6.5 %
                                                 
 December 31, 2016:                                                
Total Capital to Risk Weighted Assets:                                                
New Peoples Bank, Inc.     67,549       16.64 %   $ 32,476       8.0 %   $ 40,595       10.0 %
Tier 1 Capital to Risk Weighted Assets:                                                
New Peoples Bank, Inc.     62,462       15.39 %     24,357       6.0 %     32,476       8.0 %
Tier 1 Capital to Average Assets:                                                
New Peoples Bank, Inc.     62,462       9.93 %     25,149       4.0 %     31,436       5.0 %
Common Equity Tier 1 Capital
to Risk Weighted Assets:
                                               
New Peoples Bank, Inc.     62,462       15.39 %     18,268       4.5 %     26,386       6.5 %

 

As of March 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, a capital conservation buffer of 0.625% became effective beginning on January 1, 2016. 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.


 

NOTE 5 INVESTMENT SECURITIES:

 

The amortized cost and estimated fair value of securities (all available-for-sale (“AFS”)) are as follows:

 

  Gross   Gross   Approximate
  Amortized   Unrealized   Unrealized   Fair
(Dollars are in thousands) Cost   Gains   Losses   Value
March 31, 2017
U.S. Government Agencies $ 24,611 $ 77 $ 218 $ 24,470
Taxable municipals 2,332 3 48 2,287
Corporate bonds 3,600 189 - 3,789
Mortgage backed securities 42,069 26 631 41,464
Total Securities AFS $ 72,612 $ 295 $ 897 $ 72,010
 
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 March 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
March 31, 2017                        
U.S. Government Agencies   $ 12,661     $ 204     $ 2,461     $ 14     $ 15,122     $ 218  
Taxable municipals     1,559       48       —         —         1,559       48  
Corporate bonds     —         —         —         —         —         —    
Mtg. backed securities     29,695       541       5,195       90       34,890       631  
Total Securities AFS   $ 43,915     $ 793     $ 7,656     $ 104     $ 51,571     $ 897  
                                                 
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 March 31, 2017, the available-for-sale portfolio included 112 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.

 

There were no sales of investment securities during the three months ended March 31, 2017. Gross proceeds on the sale of investment securities were $12.9 million for the three months ended March 31, 2016, with $119 thousand of gross gains realized and $14 thousand of gross losses realized.

 

The amortized cost and fair value of investment securities at March 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.

             
  Weighted
(Dollars are in thousands) Amortized   Fair   Average
Securities Available-for-Sale Cost   Value   Yield
Due in one year or less $ - $ -   -%
Due after one year through five years 2,184 2,177 2.04%
Due after five years through ten years   14,026   14,149   2.64%
Due after ten years   56,402   55,684   2.04%
Total $ 72,612 $ 72,010   2.16%

 

Investment securities with a carrying value of $9.4 million and $11.3 million at March 31, 2017 and December 31, 2016, respectively, were pledged as collateral to secure public deposits and for other purposes required by law.

 

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 March 31, 2017 and December 31, 2016, respectively.

 

NOTE 6 LOANS:

 

Loans receivable outstanding are summarized as follows:

 

         
(Dollars are in thousands)   March 31, 2017   December 31, 2016
Real estate secured:                
Commercial   $ 103,457     $ 103,331  
Construction and land development     26,588       25,755  
Residential 1-4 family     252,917       249,700  
Multifamily     14,135       12,582  
Farmland     24,912       24,948  
Total real estate loans     422,009       416,316  
Commercial     28,259       26,955  
Agriculture     3,662       3,164  
Consumer installment loans     21,839       22,188  
All other loans     721       6  
Total loans   $ 476,490     $ 468,629  

 

 

Loans receivable on nonaccrual status are summarized as follows:

 

         
(Dollars are in thousands)   March 31, 2017   December 31, 2016
Real estate secured:                
Commercial   $ 2,102     $ 3,403  
Construction and land development     328       319  
Residential 1-4 family     7,706       8,355  
Multifamily     162       166  
Farmland     3,541       1,003  
Total real estate loans     13,839       13,246  
Commercial     11       —    
Agriculture     83       83  
Consumer installment loans     49       76  
All other loans     —         —    
Total loans receivable on nonaccrual status   $ 13,982     $ 13,405  

 

Total interest income not recognized on nonaccrual loans for the three months ended March 31, 2017 and 2016 was $363 thousand and $94 thousand, respectively.

 

The following table presents information concerning the Company’s investment in loans considered impaired as of March 31, 2017 and December 31, 2016:

 

 

 

As of March 31, 2017

(Dollars are in thousands)

  Recorded
Investment
  Unpaid Principal Balance   Related
Allowance
With no related allowance recorded:                        
Real estate secured:                        
Commercial   $ 2,755     $ 3,128     $ —    
Construction and land development     4       4       —    
Residential 1-4 family     3,781       4,084       —    
Multifamily     731       772       —    
Farmland     3,872       4,592       —    
Commercial     —         —         —    
Agriculture     19       19       —    
Consumer installment loans     9       9       —    
All other loans     —         —         —    
With an allowance recorded:                        
Real estate secured:                        
Commercial     611       697       125  
Construction and land development     229       463       95  
Residential 1-4 family     846       872       103  
Multifamily     —         —         —    
Farmland     589       602       297  
Commercial     66       66       17  
Agriculture     1       1       1  
Consumer installment loans     —         —         —    
All other loans     —         —         —    
Total   $ 13,513     $ 15,309     $ 638  

 

 

 

 

As of December 31, 2016

(Dollars are in thousands)

   

 

 

Recorded

Investment

     

 

Unpaid Principal Balance

     

 

 

Related

Allowance

 
With no related allowance recorded:                        
Real estate secured:                        
Commercial   $ 3,636     $ 4,055     $ —    
Construction and land development     5       5       —    
Residential 1-4 family     3,861       4,182       —    
Multifamily     301       342       —    
Farmland     3,895       4,601       —    
Commercial     —         —         —    
Agriculture     19       19       —    
Consumer installment loans     26       43       —    
All other loans     —         —         —    
With an allowance recorded:                        
Real estate secured:                        
Commercial     1,191       1,270       65  
Construction and land development     240       469       106  
Residential 1-4 family     555       565       56  
Multifamily     —         —         —    
Farmland     591       602       299  
Commercial     67       67       18  
Agriculture     5       5       5  
Consumer installment loans     9       9       3  
All other loans     —         —         —    
Total   $ 14,401     $ 16,234     $ 552  

 

The following table presents information concerning the Company’s average impaired loans and interest recognized on those impaired loans, for the periods indicated:

 

 

    Three Months Ended
    March 31, 2017   March 31, 2016

 

 

(Dollars are in thousands)

  Average
Recorded
Investment
  Interest
Income
Recognized
  Average
Recorded
Investment
  Interest
Income
Recognized
With no related allowance recorded:                                
Real estate secured:                                
Commercial   $ 3,196     $ 25     $ 4,479     $ 35  
Construction and land development     5       —         171       (1 )
Residential 1-4 family     3,821       49       3,599       51  
Multifamily     516       12       269       2  
Farmland     3,884       (115 )     4,149       51  
Commercial     —         —         —         —    
Agriculture     19       —         36       1  
Consumer installment loans     18       —         27       1  
All other loans     —         —         —         —    
With an allowance recorded:                                
Real estate secured:                                
Commercial     901       2       1,768       —    
Construction and land development     235       —         283       —    
Residential 1-4 family     701       9       1,271       5  
Multifamily     —         —         117       2  
Farmland     590       5       640       6  
Commercial     67       —         74       1  
Agriculture     3       —         117       (2 )
Consumer installment loans     5       —         28       —    
All other loans     —         —         —         —    
Total   $ 13,961     $ (13 )   $ 17,028     $ 152  

 

An age analysis of past due loans receivable is below. At March 31, 2017 and December 31, 2016, there were no loans over 90 days past due that were accruing.

                         

 

 

 

 

 

As of March 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   $ 1,239     $ 200     $ 18     $ 1,457     $ 102,000     $ 103,457  
Construction and land
development
    —         16       66       82       26,506       26,588  
Residential 1-4 family     3,509       1,319       1,372       6,200       246,717       252,917  
Multifamily     —         436       —         436       13,699       14,135  
Farmland     245       475       2,562       3,282       21,630       24,912  
Total real estate loans     4,993       2,446       4,018       11,457       410,552       422,009  
Commercial     76       —         11       87       28,172       28,259  
Agriculture     27       —         79       106       3,556       3,662  
Consumer installment
Loans
    42       3       24       69       21,770       21,839  
All other loans     —         —         —         —         721       721  
Total loans   $ 5,138     $ 2,449     $ 4,132     $ 11,719     $ 464,771     $ 476,490  

 

 

 

 

 

 

 

As of December 31, 2016

(Dollars are in thousands)

  Loans
30-59
Days
Past
Due
  Loans
60-89
Days
Past
Due
  Loans
90 or
More
Days
Past
Due
  Total
Past
Due
Loans
  Current
Loans
  Total
Loans
Real estate secured:                                                
Commercial   $ 1,676     $ 307     $ 1,083     $ 3,066     $ 100,265     $ 103,331  
Construction and land
development
    103       17       44       164       25,591       25,755  
Residential 1-4 family     4,237       1,547       2,233       8,017       241,683       249,700  
Multifamily     1,367       —         —         1,367       11,215       12,582  
Farmland     2,987       —         —         2,987       21,961       24,948  
Total real estate loans     10,370       1,871       3,360       15,601       400,715       416,316  
Commercial     20       —         —         20       26,935       26,955  
Agriculture     19       —         78       97       3,067       3,164  
Consumer installment
Loans
    110       15       36       161       22,027       22,188  
All other loans     —         —         —         —         6       6  
Total loans   $ 10,519     $ 1,886     $ 3,474     $ 15,879     $ 452,750     $ 468,629  

 

The Company categorizes loans receivable into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans receivable as to credit risk. The Company uses the following definitions for risk ratings:

 

Pass - Loans in this category are considered to have a low likelihood of loss based on relevant information analyzed about the ability of the borrowers to service their debt and other factors.

 

Special Mention - Loans in this category are currently protected but are potentially weak, including adverse trends in borrower’s operations, credit quality or financial strength. Those loans constitute an undue and unwarranted credit risk but not to the point of justifying a substandard classification. The credit risk may be relatively minor yet constitute an unwarranted risk in light of the circumstances.  Special mention loans have potential weaknesses which may, if not checked or corrected, weaken the loan or inadequately protect the Company’s credit position at some future date.

 

Substandard - A substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as substandard must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt; they are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

 

Doubtful - Loans classified Doubtful have all the weaknesses inherent in loans classified as Substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable.

 

 

Based on the most recent analysis performed, the risk category of loans receivable was as follows:

                 

 

As of March 31, 2017

(Dollars are in thousands)

  Pass   Special
Mention
  Substandard   Total
Real estate secured:                                
   Commercial   $ 92,675     $ 8,465     $ 2,317     $ 103,457  
   Construction and land development     24,826       1,434       328       26,588  
   Residential 1-4 family     242,254       2,083       8,580       252,917  
   Multifamily     11,989       1,350       796       14,135  
   Farmland     18,993       1,613       4,306       24,912  
Total real estate loans     390,737       14,945       16,327       422,009  
Commercial     27,485       708       66       28,259  
Agriculture     3,564       14       84       3,662  
Consumer installment loans     21,762       —         77       21,839  
All other loans     721       —         —         721  
Total   $ 444,269     $ 15,667     $ 16,554     $ 476,490  

 

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 March 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 March 31, 2017

(Dollars are in thousands)

  Beginning
Balance
  Charge
Offs
  Recoveries   Provisions   Ending Balance
Real estate secured:                                        
Commercial   $ 1,625     $ (73 )   $ —       $ 9     $ 1,561  
Construction and land development     346       —         —         (33 )     313  
Residential 1-4 family     2,376       (162 )     23       2       2,239  
Multifamily     241       —         —         33       274  
Farmland     428       —         5       60       493  
Total real estate loans     5,016       (235 )     28       71       4,880  
Commercial     163       —         119       (69 )     213  
Agriculture     31       —         1       (5 )     27  
Consumer installment loans     123       (30 )     13       7       113  
All other loans     —         —         —         5       5  
Unallocated     739       —         —         (9 )     730  
Total   $ 6,072     $ (265 )   $ 161     $ —       $ 5,968  

 

 

    Allowance for Loan Losses   Recorded Investment in Loans

 

 

As of March 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 $ 125 $ 1,436 $ 1,561 $ 3,366 $ 100,091 $ 103,457

Construction and land

development

  95   218   313   233   26,355   26,588
Residential 1-4 family   103   2,136   2,239   4,627   248,290   252,917
Multifamily   -   274   274   731   13,404   14,135
Farmland   297   196   493   4,461   20,451   24,912
Total real estate loans   620   4,260   4,880   13,418   408,591   422,009
Commercial   17   196   213   66   28,193   28,259
Agriculture   1   26   27   20   3,642   3,662
Consumer installment loans   -   113   113   9   21,830   21,839
All other loans   -   5   5   -   721   721
Unallocated   -   730   730   -   -   -
Total $ 638 $ 5,330 $ 5,968 $ 13,513 $ 462,977 $ 476,490

 

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 )