Company Quick10K Filing
American National Bankshares
Price34.97 EPS1
Shares11 P/E29
MCap389 P/FCF31
Net Debt-143 EBIT30
TEV247 TEV/EBIT8
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-08
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8-K 2020-05-19
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8-K 2018-01-18

AMNB 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements
Note 1 - Accounting Policies
Note 2 - Acquisitions
Note 3 - Securities
Note 4 - Loans
Note 5 - Allowance for Loan Losses and Reserve for Unfunded Lending Commitments
Note 6 - Goodwill and Other Intangible Assets
Note 7 - Leases
Note 8 - Short - Term Borrowings
Note 9 - Long - Term Borrowings
Note 10 - Subordinated Debt
Note 11 - Junior Subordinated Debt
Note 12 - Derivative Financial Instruments and Hedging Activities
Note 13 - Stock Based Compensation
Note 14 - Earnings per Common Share
Note 15 - Employee Benefit Plans
Note 16 - Fair Value Measurements
Note 17 - Segment and Related Information
Note 18 - Supplemental Cash Flow Information
Note 19 - Accumulated Other Comprehensive Income (Loss)
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ex_177965.htm
EX-31.2 ex_177966.htm
EX-32.1 ex_177967.htm
EX-32.2 ex_177968.htm

American National Bankshares Earnings 2020-03-31

Balance SheetIncome StatementCash Flow

10-Q 1 americannb20200331_10q.htm FORM 10-Q americannb20200331_10q.htm
 

 

Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2020

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from             to           

 

Commission file number:  0-12820

 

AMERICAN NATIONAL BANKSHARES INC.

(Exact name of registrant as specified in its charter)

     

VIRGINIA

 

54-1284688

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

628 Main Street, Danville, Virginia

 

24541

(Address of principal executive offices)

 

(Zip Code)

(434) 792-5111

(Registrant's telephone number, including area code)

 

(Not applicable)

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

 

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

     

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

AMNB

Nasdaq Global Select Market

 

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

 

Yes

No

 

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

 

Yes

No

 

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

   

Large accelerated filer  ☐

Accelerated filer  ☒

Non-accelerated filer  ☐ 

Smaller reporting company ☒

 

Emerging growth company ☐

 

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

 

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

 

Yes

No

 

At May 1, 2020, the Company had 10,957,552 shares of Common Stock outstanding, $1 par value.

 

 

 

AMERICAN NATIONAL BANKSHARES INC.

 

       

Index

 

 

Page

 

 

 

 

Part I.

FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

 

 

Consolidated Balance Sheets as of March 31, 2020 (unaudited) and December 31, 2019

3

 

 

 

 

 

 

Consolidated Statements of Income for the three months ended March 31, 2020 and 2019 (unaudited)

4

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income for the three months ended March 31, 2020 and 2019 (unaudited)

5

 

 

 

 

 

 

Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31, 2020 and 2019 (unaudited)

6

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019 (unaudited)

7

 

 

 

 

 

 

Notes to Consolidated Financial Statements (unaudited)

8

 

 

 

 

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

29

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

43

 

 

 

 

 

Item 4.

Controls and Procedures

44

 

 

 

 

Part II.

OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

45

 

 

 

 

 

Item 1A.

Risk Factors

45

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

45

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

46

 

 

 

 

 

Item 4.

Mine Safety Disclosures

46

       

 

Item 5.

Other Information

46

 

 

 

 

 

Item 6.

Exhibits

47

 

 

 

 

SIGNATURES

48

 

 

 

 

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

American National Bankshares Inc.

Consolidated Balance Sheets

(Dollars in thousands, except per share data)

 

    (Unaudited) March 31, 2020     (*) December 31, 2019  

Assets

               

Cash and due from banks

  $ 39,602     $ 32,505  

Interest-bearing deposits in other banks

    69,968       47,077  
                 

Securities available for sale, at fair value

    342,769       379,195  

Restricted stock, at cost

    8,682       8,630  

Loans held for sale

    2,666       2,027  
                 

Loans, net of unearned income

    1,854,928       1,830,815  

Less allowance for loan losses

    (14,065 )     (13,152 )

Net loans

    1,840,863       1,817,663  
                 

Premises and equipment, net

    39,632       39,848  

Other real estate owned, net of valuation allowance of $407 in 2020 and $153 in 2019

    984       1,308  

Goodwill

    85,048       84,002  

Core deposit intangibles, net

    7,301       7,728  

Bank owned life insurance

    27,970       27,817  

Accrued interest receivable and other assets

    29,580       30,750  

Total assets

  $ 2,495,065     $ 2,478,550  
                 

Liabilities

               

Demand deposits -- noninterest bearing

  $ 567,772     $ 578,606  

Demand deposits -- interest bearing

    343,291       328,015  

Money market deposits

    524,234       504,651  

Savings deposits

    181,564       177,505  

Time deposits

    453,806       471,770  

Total deposits

    2,070,667       2,060,547  
                 

Customer repurchase agreements

    42,114       40,475  

Subordinated debt

    7,513       7,517  

Junior subordinated debt

    28,054       28,029  

Accrued interest payable and other liabilities

    23,424       21,724  

Total liabilities

    2,171,772       2,158,292  
                 

Shareholders' equity

               

Preferred stock, $5 par, 2,000,000 shares authorized, none outstanding

           

Common stock, $1 par, 20,000,000 shares authorized, 10,957,502 shares outstanding at March 31, 2020 and 11,071,540 shares outstanding at December 31, 2019

    10,898       11,019  

Capital in excess of par value

    153,817       158,244  

Retained earnings

    157,064       151,478  

Accumulated other comprehensive income (loss), net

    1,514       (483 )

Total shareholders' equity

    323,293       320,258  

Total liabilities and shareholders' equity

  $ 2,495,065     $ 2,478,550  

 

(*) -  Derived from audited consolidated financial statements.

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

 

American National Bankshares Inc.

Consolidated Statements of Income

(Dollars in thousands, except per share data) (Unaudited)

 

   

Three Months Ended March 31,

 
   

2020

   

2019

 

Interest and Dividend Income:

               

Interest and fees on loans

  $ 21,321     $ 15,638  

Interest and dividends on securities:

               

Taxable

    2,037       1,821  

Tax-exempt

    112       287  

Dividends

    132       84  

Other interest income

    264       266  

Total interest and dividend income

    23,866       18,096  

Interest Expense:

               

Interest on deposits

    3,312       2,472  

Interest on short-term borrowings

    129       172  

Interest on subordinated debt

    122        

Interest on junior subordinated debt

    384       384  

Total interest expense

    3,947       3,028  

Net Interest Income

    19,919       15,068  

Provision for loan losses

    953       16  

Net Interest Income After Provision for Loan Losses

    18,966       15,052  

Noninterest Income:

               

Trust fees

    1,012       914  

Service charges on deposit accounts

    721       594  

Other fees and commissions

    941       708  

Mortgage banking income

    549       406  

Securities gains, net

    814       323  

Brokerage fees

    211       147  

Income from Small Business Investment Companies

    55       168  

Losses on premises and equipment, net

    (82 )      

Other

    274       191  

Total noninterest income

    4,495       3,451  

Noninterest Expense:

               

Salaries

    6,059       4,664  

Employee benefits

    1,301       1,230  

Occupancy and equipment

    1,366       1,084  

FDIC assessment

    95       125  

Bank franchise tax

    426       290  

Core deposit intangible amortization

    427       55  

Data processing

    763       532  

Software

    356       324  

Other real estate owned, net

    (9 )     13  

Merger related expenses

          451  

Other

    2,550       2,161  

Total noninterest expense

    13,334       10,929  

Income Before Income Taxes

    10,127       7,574  

Income Taxes

    1,585       1,571  

Net Income

  $ 8,542     $ 6,003  

Net Income Per Common Share:

               

Basic

  $ 0.77     $ 0.69  

Diluted

  $ 0.77     $ 0.69  

Weighted Average Common Shares Outstanding:

               

Basic

    11,025,185       8,745,174  

Diluted

    11,031,310       8,745,723  

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

 

American National Bankshares Inc.

Consolidated Statements of Comprehensive Income

(Dollars in thousands) (Unaudited)

 

    Three Months Ended March 31,  
   

2020

   

2019

 

Net income

  $ 8,542     $ 6,003  
                 

Other comprehensive income:

               
                 

Unrealized gains on securities available for sale

    6,189       3,969  

Tax effect

    (1,336 )     (889 )
                 

Reclassification adjustment for gains on sales or calls of securities available for sale

    (814 )     (4 )

Tax effect

    176       1  
                 

Unrealized losses on cash flow hedges

    (2,829 )     (725 )

Tax effect

    611       162  
                 

Other comprehensive income

    1,997       2,514  
                 

Comprehensive income

  $ 10,539     $ 8,517  

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

 

American National Bankshares Inc.

Consolidated Statements of Changes in Shareholders' Equity

Three Months Ended March 31, 2020 and 2019

(Dollars in thousands, except per share data) (Unaudited)

   

Common Stock

   

Capital in Excess of Par Value

   

Retained Earnings

   

Accumulated Other Comprehensive Income (Loss)

   

Total Shareholders' Equity

 

Balance, December 31, 2018

  $ 8,668     $ 78,172     $ 141,537     $ (5,835 )   $ 222,542  
                                         

Net income

                6,003             6,003  
                                         

Other comprehensive income

                      2,514       2,514  
                                         

Stock options exercised (13,200 shares)

    13       277                   290  
                                         

Vesting of restricted stock (20,285 shares)

    20       (20 )                  
                                         

Equity based compensation (23,032 shares)

    4       309                   313  
                                         

Cash dividends paid, $0.25 per share

                (2,189 )           (2,189 )
                                         

Balance, March 31, 2019

  $ 8,705     $ 78,738     $ 145,351     $ (3,321 )   $ 229,473  
                                         

Balance, December 31, 2019

  $ 11,019     $ 158,244     $ 151,478     $ (483 )   $ 320,258  
                                         

Net income

                8,542             8,542  
                                         

Other comprehensive income

                      1,997       1,997  
                                         

Stock repurchased (140,526 shares)

    (141 )     (4,840 )                 (4,981 )
                                         

Stock options exercised (1,743 shares)

    2       27                   29  
                                         

Vesting of restricted stock (12,245 shares)

    12       (12 )                  
                                         

Equity based compensation (24,745 shares)

    6       398                   404  
                                         

Cash dividends paid, $0.27 per share

                (2,956 )           (2,956 )
                                         

Balance, March 31, 2020

  $ 10,898     $ 153,817     $ 157,064     $ 1,514     $ 323,293  

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

 

American National Bankshares Inc.

Consolidated Statements of Cash Flows

(Dollars in thousands) (Unaudited)

 

    Three Months Ended March 31,  
   

2020

   

2019

 

Cash Flows from Operating Activities:

               

Net income

  $ 8,542     $ 6,003  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Provision for loan losses

    953       16  

Depreciation

    521       405  

Net accretion of acquisition accounting adjustments

    (957 )     (255 )

Core deposit intangible amortization

    427       55  

Net amortization of securities

    202       311  

Net gain on sale or call of securities available for sale

    (814 )     (4 )

Net change in fair value of equity securities

          (319 )

Gain on sale of loans held for sale

    (549 )     (406 )

Proceeds from sales of loans held for sale

    25,655       15,366  

Originations of loans held for sale

    (25,745 )     (15,572 )

Net gain on other real estate owned

    (27 )     (8 )

Valuation allowance on other real estate owned

          6  

Net loss on sale or disposal of premises and equipment

    82        

Equity based compensation expense

    404       313  

Earnings on bank owned life insurance

    (153 )     (106 )

Deferred income tax expense

    800       222  

Net change in interest receivable

    173       76  

Net change in other assets

    (352 )     (602 )

Net change in interest payable

    80       51  

Net change in other liabilities

    (1,481 )     (873 )

Net cash provided by operating activities

    7,761       4,679  
                 

Cash Flows from Investing Activities:

               

Proceeds from sales of equity securities

          81  

Proceeds from sales of securities available for sale

    5,811        

Proceeds from maturities, calls and paydowns of securities available for sale

    94,731       18,586  

Purchases of securities available for sale

    (58,129 )     (6,565 )

Net change in restricted stock

    (52 )     (52 )

Net increase in loans

    (23,295 )     (2,321 )

Purchases of premises and equipment

    (907 )     (393 )

Proceeds from sales of other real estate owned

    144       225  

Net cash provided by investing activities

    18,303       9,561  
                 

Cash Flows from Financing Activities:

               

Net change in demand, money market, and savings deposits

    28,084       (20,932 )

Net change in time deposits

    (17,891 )     14,495  

Net change in customer repurchase agreements

    1,639       702  

Common stock dividends paid

    (2,956 )     (2,189 )

Repurchase of common stock

    (4,981 )      

Proceeds from exercise of stock options

    29       290  

Net cash provided by (used in) financing activities

    3,924       (7,634 )

Net Increase in Cash and Cash Equivalents

    29,988       6,606  

Cash and Cash Equivalents at Beginning of Period

    79,582       64,255  

Cash and Cash Equivalents at End of Period

  $ 109,570     $ 70,861  

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

AMERICAN NATIONAL BANKSHARES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1 – Accounting Policies

 

The consolidated financial statements include the accounts of American National Bankshares Inc. (the "Company") and its wholly owned subsidiary, American National Bank and Trust Company (the "Bank"). The Bank offers a wide variety of retail, commercial, secondary market mortgage lending, and trust and investment services which also include non-deposit products such as mutual funds and insurance policies.

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, goodwill and intangible assets, other-than-temporary impairment of securities, accounting for merger and acquisition activity, accounting for acquired loans with specific credit-related deterioration, and the valuation of deferred tax assets and liabilities.  The novel coronavirus (“COVID-19”) spread rapidly across the world in the first quarter of 2020 and was declared a pandemic by the World Health Organization. The government and private sector responses to contain its spread began to significantly affect our operations in March and will likely adversely affect our operations in the further quarters of 2020, although such effects may vary significantly. The duration and extent of the effects over longer terms cannot be reasonably estimated at this time. The risks and uncertainties resulting from the pandemic will most likely affect future earnings, cash flows and overall financial condition of the Company.  These uncertainties include the nature and duration of the financial effects felt by our customers impacting their ability to perform in accordance with their underlying loan agreements, the Company’s ability to generate demand for non-loan related products and services, as well as potential declines in real estate values resulting from the market disruption which may impair the recorded values of collateral-dependent loans and other real estate owned. Further, these factors, in addition to those pervasive to the industry and overall U.S. economy, may necessitate an overall valuation of our franchise in such a way an impairment charge to the carrying value of goodwill would be required. Accordingly, significant estimates used in the preparation of our financial statements including those associated with the evaluation of the allowance for loan losses as well as other valuation-based estimates may be subject to significant adjustments in future periods.  The greater the duration and severity of the pandemic the more likely that estimates will be materially impacted by its effects.

 

All significant inter-company transactions and accounts are eliminated in consolidation, with the exception of the AMNB Statutory Trust I and the MidCarolina Trusts, as detailed in Note 11.

 

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the results of the interim periods. The results of operations for the interim periods are not necessarily indicative of the results that may occur for any other period. Certain reclassifications have been made to prior period balances to conform to the current period presentation. These reclassifications did not have an impact on net income and were considered immaterial. These statements should be read in conjunction with the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.

 

Adoption of New Accounting Standards

 

In January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." ASU 2017-04 simplifies the accounting for goodwill impairment for all entities by requiring impairment charges to be based on the first step in the previous two-step impairment test. Under the new guidance, if a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. The standard eliminates the prior requirement to calculate a goodwill impairment charge using Step 2, which requires an entity to calculate any impairment charge by comparing the implied fair value of goodwill with its carrying amount. ASU 2017-04 was effective for the Company on January 1, 2020. The adoption of ASU 2017-04 did not have a material effect on the Company's consolidated financial statements.

 

In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement." ASU 2018-13 modifies the disclosure requirements on fair value measurements by requiring that Level 3 fair value disclosures include the range and weighted average of significant unobservable inputs used to develop those fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements. Certain disclosure requirements in Topic 820 were also removed or modified. ASU 2018-13 was effective for the Company on January 1, 2020. The adoption of ASU 2018-13 did not have a material effect on the Company's consolidated financial statements.

 

Recent Accounting Pronouncements and other Authoritative Accounting Guidance

 

On March 20, 2020, the federal banking agencies issued an "Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus."  This was in response to the COVID-19 pandemic affecting societies and economies around the world.  This guidance encourages financial institutions to work prudently with borrowers that may be unable to meet their contractual obligations because of the effects of COVID-19.  The guidance explains that, in consultation with the FASB staff, the federal banking agencies have concluded that short-term modifications (e.g. six months) made on a good faith basis to borrowers who were current as of the implementation date of a relief program are not troubled debt restructurings ("TDRs").  The Coronavirus Aid, Relief and Economic Security ("CARES") Act was passed by the U.S. Congress on March 27, 2020.  Section 4013 of the CARES Act also addressed COVID-19 related modifications and specified that COVID-19 related modifications on loans that were current as of December 31, 2019 are not TDRs.  Through March 31, 2020, the Bank had applied this guidance and modified loans to over 450 customers on loan balances of approximately $200 million.  The Bank implemented a Disaster Assistance Program ("DAP") to provide relief to its borrowers under this guidance. The majority of modifications involved three-month deferments of principal and interest.  This interagency guidance is expected to have a material impact on the Company’s financial statements; however, this impact cannot be quantified at this time.

 

The CARES Act included an initial allocation of $349 billion for loans to be issued by financial institutions through the Small Business Administration ("SBA").  This program is known as the Paycheck Protection Program ("PPP").  PPP loans are forgivable, in whole or in part, if the proceeds are used for payroll and other permitted purposes in accordance with the requirements of the PPP. These loans carry a fixed rate of 1.00% and a term of two years, if not forgiven, in whole or in part.  Payments are deferred for the first six months of the loan.  The loans are 100% guaranteed by the SBA.  The SBA pays the bank a processing fee ranging from 1% to 5%, based on the size of the loan.  The SBA began accepting submissions for these loans on April 3, 2020, and the SBA reached its initial limit on April 16, 2020.  Prior to the initial limit being reached, the SBA approved 1,321 applications submitted by the Bank for loans in excess of $228 million, representing 96% of applications received and processed by the Bank.  There was an additional $310 billion in funding authorized, and applications were accepted beginning April 27, 2020.  In total, the SBA approved 1,913 applications submitted by the Bank totaling $267 million for an acceptance rate of  99.8% for both rounds. From a funding perspective, the Bank expects to utilize core and wholesale funding for liquidity needs related to the DAP loan program and both the Federal Reserve discount window and their newly created Paycheck Protection Program Liquidity Facility ("PPPLF") to fund the PPP.

 

8

 

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." The amendments in this ASU, among other things, require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The FASB has issued multiple updates to ASU 2016-13 as codified in Topic 326, including ASU’s 2019-04, 2019-05, 2019-10, 2019-11, 2020-02, and 2020-03.  These ASUs have provided for various minor technical corrections and improvements to the codification as well as other transition matters.  Smaller reporting companies who file with the U.S. Securities and Exchange Commission ("SEC"), including the Company, and all other entities who do not file with the SEC are required to apply the guidance for fiscal years, and interim periods within those years, beginning after December 15, 2022. The Company will continue to validate its models that will be used upon future adoption of the standard. The implementation of this ASU will likely result in increases to the Company's reserves when implemented.

 

In August 2018, the FASB issued ASU 2018-14, "Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans." The amendments in this ASU modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. Certain disclosure requirements have been deleted while the following disclosure requirements have been added: the weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates and an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. The amendments also clarify the disclosure requirements in paragraph 715-20-50-3, which state that the following information for defined benefit pension plans should be disclosed: the projected benefit obligation ("PBO") and fair value of plan assets for plans with PBOs in excess of plan assets and the accumulated benefit obligation ("ABO") and fair value of plan assets for plans with ABOs in excess of plan assets. The amendments are effective for fiscal years ending after December 15, 2020. Early adoption is permitted. The Company is currently assessing the impact that ASU 2018-14 will have on its consolidated financial statements.

 

In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes." The ASU is expected to reduce cost and complexity related to the accounting for income taxes by removing specific exceptions to general principles in Topic 740 (eliminating the need for an organization to analyze whether certain exceptions apply in a given period) and improving financial statement preparers' application of certain income tax-related guidance. This ASU is part of the FASB's simplification initiative to make narrow-scope simplifications and improvements to accounting standards through a series of short-term projects. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently assessing the impact that ASU 2019-12 will have on its consolidated financial statements.

 

In January 2020, the FASB issued ASU 2020-01, "Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815." The ASU is based on a consensus of the Emerging Issues Task Force and is expected to increase comparability in accounting for these transactions. ASU 2016-01 made targeted improvements to accounting for financial instruments, including providing an entity the ability to measure certain equity securities without a readily determinable fair value at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Among other topics, the amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting. For public business entities, such as the Company, the amendments in the ASU are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of ASU 2020-01 to have a material impact on its consolidated financial statements.

 

In March 2020, the FASB issued ASU 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. The Company is assessing ASU 2020-04 and its impact on the Company’s transition away from LIBOR for its loan and other financial instruments.

 

Effective November 25, 2019, the SEC adopted Staff Accounting Bulletin ("SAB") 119. SAB 119 updated portions of SEC interpretative guidance to align with FASB ASC 326, "Financial Instruments - Credit Losses." It covers topics including (1) measuring current expected credit losses; (2) development, governance, and documentation of a systematic methodology; (3) documenting the results of a systematic methodology; and (4) validating a systematic methodology.

 

On March 12, 2020, the SEC finalized amendments to the definitions of its "accelerated filer" and "large accelerated filer" definitions. The amendments increase the threshold criteria for meeting these filer classifications and are effective on April 27, 2020. Any changes in filer status are to be applied beginning with the filer’s first annual report filed with the SEC subsequent to the effective date. Prior to these changes, the Company was required to comply with section 404(b) of the Sarbanes Oxley Act concerning auditor attestation over internal control over financial reporting as an "accelerated filer" as it had more than $75 million in public float but less than $700 million at the end of the Company’s most recent second quarter. The rule change expands the definition of "smaller reporting companies" to include entities with public float of less than $700 million and less than $100 million in annual revenues. If an entity’s annual revenues exceed $100 million, its category will change back to "accelerated filer". The classifications of "accelerated filer" and "large accelerated filer" require a public company to obtain an auditor attestation concerning the effectiveness of internal control over financial reporting ("ICFR") and include the opinion on ICFR in its annual report on Form 10-K.  Smaller reporting companies also have additional time to file quarterly and annual financial statements. All public companies are required to obtain and file annual financial statement audits, as well as provide management’s assertion on effectiveness of ICFR, but the external auditor attestation of ICFR is not required for smaller reporting companies. The Company expects its annual revenues to exceed $100 million and to remain an "accelerated filer."  Therefore, this change is not expected to have a significant impact on the Company’s annual reporting and audit requirements.

 

 

Note 2 - Acquisitions

 

On April 1, 2019, the Company completed its acquisition of Roanoke-based HomeTown Bankshares Corporation ("HomeTown") and its wholly owned subsidiary bank, HomeTown Bank. Pursuant and subject to the terms of the merger agreement, as a result of the merger, the holders of shares of HomeTown common stock received 0.4150 shares of the Company's common stock for each share of HomeTown common stock held immediately prior to the effective date of the merger.

 

9

 

The transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration exchanged were recorded at estimated fair values on the acquisition date. Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition, in accordance with Accounting Standards Codification ("ASC") 350, Intangibles-Goodwill and Other. The following table provides an assessment of the consideration transferred, assets acquired, and liabilities assumed as of the date of the acquisition (dollars in thousands):

 

Consideration Paid:

       

Common shares issued (2,361,686)

  $ 82,470  

Issuance of replacement stock options/restricted stock

    753  

Cash paid in lieu of fractional shares

    27  

Value of consideration

    83,250  
         

Assets acquired:

       

Cash and cash equivalents

    26,283  

Investment securities

    34,876  

Restricted stock

    2,588  

Loans

    444,324  

Premises and equipment

    12,034  

Deferred income taxes

    2,960  

Core deposit intangible

    8,200  

Other real estate owned

    1,188  

Bank owned life insurance

    8,246  

Other assets

    14,244  

Total assets

    554,943  
         

Liabilities assumed:

       

Deposits

    483,626  

Short-term FHLB advances

    14,883  

Long-term FHLB advances

    778  

Subordinated debt

    7,530  

Other liabilities

    6,052  

Total liabilities

    512,869  

Net assets acquired

    42,074  

Goodwill resulting from merger with HomeTown

  $ 41,176  

 

The following table details the changes in fair vale of net assets acquired and liabilities assumed from the amounts reported in the Form 10-K for the year ended December 31, 2019 (dollars in thousands):

 

Goodwill at December 31, 2019

  $ 40,130  

Effect of adjustments to:

       

Premises and equipment

    520  

Other real estate owned

    254  

Other liabilities

    272  

Goodwill at March 31, 2020

  $ 41,176  

 

The increase in goodwill made during the first quarter of 2020 was due to adjustments to the valuations of several acquired buildings and other real estate owned ("OREO") obtained on the date of merger.  The additional goodwill adjustment for other liabilities related to a reassessment of the interest rate prevailing for supplemental early retirement plan obligations at the merger date.

 

The acquired loans were recorded at fair value at the acquisition date without carryover of HomeTown's previously established allowance for loan losses. The fair value of the loans was determined using market participant assumptions in estimating the amount and timing of both principal and interest cash flows expected to be collected on the loans and leases and then applying a market-based discount rate to those cash flows. In this regard, the acquired loans were segregated into pools based on loan type and credit risk. Loan type was determined based on collateral type, purpose, and lien position. Credit risk characteristics included risk rating groups (pass rated loans and adversely classified loans), and past due status. For valuation purposes, these pools were further disaggregated by maturity, pricing characteristics (e.g., fixed-rate, adjustable-rate) and re-payment structure (e.g., interest only, fully amortizing, balloon). Fair values determined at the acquisition date were preliminary and subject to refinement during the one-year measurement period as additional information was obtained regarding facts and circumstances about expected cash flows that existed as of the acquisition date.

 

The acquired loans were divided into loans with evidence of credit quality deterioration, which are accounted for under ASC 310-30, Receivables - Loans and Debt Securities Acquired with Deteriorated Credit Quality (acquired impaired), and loans that do not meet these criteria, which are accounted for under ASC 310-20, Receivables - Nonrefundable Fees and Other Costs (acquired performing).

 

10

 

The following table presents the acquired impaired loans receivable at the acquisition date (dollars in thousands):

 

Contractually required principal and interest at acquisition

  $ 45,551  

Contractual cash flows not expected to be collected (nonaccretable difference)

    8,296  

Expected cash flows at acquisition

    37,255  

Interest component of expected cash flows (accretable yield)

    4,410  

Fair value of acquired loans accounted for under FASB ASC 310-30

  $ 32,845  

 

Direct costs related to the acquisition were expensed as incurred. There were no merger related expenses during the three months ended March 31, 2020. During the three months ended March 31, 2019, merger expenses totaled $451,000. During the year ended December 31, 2019, the Company incurred $11.8 million in merger and acquisition integration expenses related to the merger, including $9.1 million in data processing termination and conversion costs, $1.7 million in legal and professional fees, $0.4 million in salary related expense, and $0.6 million in other noninterest expenses. The majority of these expenses were related to integration and are deductible for tax purposes.

 

The following table presents unaudited pro forma information as if the acquisition of HomeTown had occurred on January 1, 2018. These results combine the historical results of HomeTown in the Company's Consolidated Statements of Income and, while certain adjustments were made for the estimated impact of certain fair value adjustments and other acquisition-related activity, they are not indicative of what would have occurred had the acquisition taken place on January 1, 2018. In particular, no adjustments have been made to eliminate the amount of HomeTown's provision for loan losses that would not have been necessary had the acquired loans been recorded at fair value as of January 1, 2018. Pro forma adjustments below include the elimination of merger-related costs for 2019. The Company expects to achieve further operating cost savings and other business synergies as a result of the acquisition which are not reflected in the pro forma amounts below (dollars in thousands):

 

   

Unaudited Pro forma Three Months Ended

 
   

March 31, 2019

 

Total revenues (1)

  $ 21,097  

Net income

    5,876  

__________________________

(1) Includes net interest income and noninterest income.

 

 

Note 3 – Securities

 

The amortized cost and fair value of investments in debt securities at March 31, 2020 were as follows (dollars in thousands):

 

   

March 31, 2020

 
    Amortized Cost     Unrealized Gains     Unrealized Losses     Fair Value  

Securities available for sale:

                               
U.S. Treasury   $ 14,992     $ 8     $     $ 15,000  

Federal agencies and GSEs

    56,191       1,864       23       58,032  

Mortgage-backed and CMOs

    209,513       6,271       320       215,464  

State and municipal

    41,484       1,153       5       42,632  

Corporate

    11,513       158       30       11,641  

Total securities available for sale

  $ 333,693     $ 9,454     $ 378     $ 342,769  

 

The Company had no remaining equity securities at March 31, 2020. The Company had equity securities with a fair value of $2,069,000 at March 31, 2019 and recognized in income a $319,000 change in the fair value of equity securities during the first three months of 2019. During the 2019 period, the Company sold $81,000 in equity securities at fair value.

 

The amortized cost and fair value of investments in debt securities at December 31, 2019 were as follows (dollars in thousands):

 

   

December 31, 2019

 
    Amortized Cost     Unrealized Gains     Unrealized Losses     Fair Value  

Securities available for sale:

                               
U.S. Treasury   $ 14,992     $     $ 5     $ 14,987  

Federal agencies and GSEs

    126,829       1,504       219       128,114  

Mortgage-backed and CMOs

    182,732       1,901       393       184,240  

State and municipal

    41,427       769       42       42,154  

Corporate

    9,514       186             9,700  

Total securities available for sale

  $ 375,494     $ 4,360     $ 659     $ 379,195  

 

11

 

Restricted Stock

 

Due to restrictions placed upon the Bank's common stock investment in the Federal Reserve Bank of Richmond ("FRB") and Federal Home Loan Bank of Atlanta ("FHLB"), these securities have been classified as restricted equity securities and carried at cost. The restricted securities are not subject to the investment security classification requirements and are included as a separate line item on the Company's consolidated balance sheets. The FRB requires the Bank to maintain stock with a par value equal to 3.00% of its outstanding capital and an additional 3.00% is on call.  The FHLB requires the Bank to maintain stock in an amount equal to 4.25% of outstanding borrowings and a specific percentage of the Bank's total assets. The cost of restricted stock at March 31, 2020 and December 31, 2019 was as follows (dollars in thousands):

 

    March 31, 2020     December 31, 2019  

FRB stock

  $ 6,425     $ 6,415  

FHLB stock

    2,257       2,215  

Total restricted stock

  $ 8,682     $ 8,630  

 

Temporarily Impaired Securities

 

The following table shows estimated fair value and gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2020.  The reference point for determining when securities are in an unrealized loss position is month end.  Therefore, it is possible that a security's market value exceeded its amortized cost on other days during the past twelve-month period.

 

Available for sale securities that have been in a continuous unrealized loss position, at March 31, 2020, are as follows (dollars in thousands):

 

   

Total

   

Less than 12 Months

   

12 Months or More

 
    Fair Value     Unrealized Loss     Fair Value     Unrealized Loss     Fair Value     Unrealized Loss  

Federal agencies and GSEs

  $ 6,534     $ 23     $     $     $ 6,534     $ 23  

Mortgage-backed and CMOs

    24,558       320       24,001       311       557       9  

State and municipal

    1,710       5       1,710       5              
Corporate     2,978       30                   2,978       30  

Total

  $ 35,780     $ 378     $ 25,711     $ 316     $ 10,069     $ 62  

Federal agencies and GSEs: The unrealized losses on the Company's investment in 13 government sponsored entities ("GSE") securities were caused by interest rate increases. All of these securities were in an unrealized loss position for 12 months or more. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at March 31, 2020.

Mortgage-backed securities: The unrealized losses on the Company's investment in six GSE mortgage-backed securities were caused by interest rate increases. Three of these securities were in an unrealized loss position for 12 months or more. The contractual cash flows of those investments are guaranteed by an agency of the U.S. Government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost basis of the Company's investments. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at March 31, 2020.

 

Collateralized Mortgage Obligations: The unrealized losses associated with four private GSE collateralized mortgage obligations ("CMOs") were due to normal market fluctuations. None of these securities were in an unrealized loss position for 12 months or more. The contractual cash flows of those investments are guaranteed by an agency of the U.S. Government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost basis of the Company's investments. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at March 31, 2020.

 

State and municipal securities:  The unrealized losses on three state and municipal securities were caused by interest rate increases. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at March 31, 2020.

 

Corporate securities:  The unrealized losses on four corporate securities were caused by interest rate increases and not credit deterioration. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at  March 31, 2020.

 

Restricted stock: When evaluating restricted stock for impairment, its value is based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value. The Company does not consider restricted stock to be other-than-temporarily impaired at March 31, 2020, and no impairment has been recognized.

 

12

 

The table below shows estimated fair value and gross unrealized losses, aggregated by investment category and length of time that individual securities had been in a continuous unrealized loss position, at December 31, 2019 (dollars in thousands):

 

   

Total

   

Less than 12 Months

   

12 Months or More

 
    Fair Value     Unrealized Loss     Fair Value     Unrealized Loss     Fair Value     Unrealized Loss  

U.S. Treasury

  $ 14,987     $ 5     $ 14,987     $ 5     $     $  

Federal agencies and GSEs

    69,095       219       31,779       44       37,316       175  

Mortgage-backed and CMOs

    89,391       393       66,324       266       23,067       127  

State and municipal

    4,262       42       3,108       37       1,154       5  

Total

  $ 177,735     $ 659     $ 116,198     $ 352     $ 61,537     $ 307  

Other-Than-Temporarily-Impaired Securities

As of March 31, 2020 and December 31, 2019, there were no securities classified as other-than-temporarily impaired.

 

Realized Gains and Losses

 

The following table presents the gross realized gains and losses on and the proceeds from the sale of securities available for sale during the three months ended March 31, 2020 and 2019 (dollars in thousands):

 

   

Three Months Ended March 31, 2020

 

Realized gains (losses):

       

Gross realized gains

  $ 814  

Gross realized losses

     

Net realized gains

  $ 814  

Proceeds from sales of securities

  $ 5,811  

 

   

Three Months Ended March 31, 2019

 

Realized gains (losses):

       

Gross realized gains

  $  

Gross realized losses

     

Net realized gains

  $  

Proceeds from sales of securities

  $  

 

 

Note 4 – Loans

 

Loans, excluding loans held for sale, at March 31, 2020 and December 31, 2019, were comprised of the following (dollars in thousands):

 

    March 31, 2020     December 31, 2019  

Commercial

  $ 331,507     $ 339,077  

Commercial real estate:

               

Construction and land development

    141,154       137,920  

Commercial real estate

    953,363       899,199  

Residential real estate:

               

Residential

    301,284       324,315  

Home equity

    118,030       119,423  

Consumer

    9,590       10,881  

Total loans

  $ 1,854,928     $ 1,830,815  
                 

 

Acquired Loans 

 

The outstanding principal balance and the carrying amount of these loans, including loans accounted for under ASC 310-30, included in the consolidated balance sheets at March 31, 2020 and December 31, 2019 are as follows (dollars in thousands):

 

    March 31, 2020     December 31, 2019  

Outstanding principal balance

  $ 345,450     $ 393,618  

Carrying amount

    329,839       377,130  

 

The outstanding principal balance and related carrying amount of acquired impaired loans, for which the Company applies ASC 310-30 to account for interest earned, as of the indicated dates are as follows (dollars in thousands):

 

    March 31, 2020     December 31, 2019  

Outstanding principal balance

  $ 50,815     $ 53,600  

Carrying amount

    40,353       43,028  

 

13

 

The following table presents changes in the accretable yield on acquired impaired loans, for which the Company applies ASC 310-30, for the three months ended March 31, 2020 and the year ended December 31, 2019 (dollars in thousands):

 

    March 31, 2020     December 31, 2019  

Balance at January 1

  $ 7,893     $ 4,633  

Additions from merger with HomeTown

          4,410  

Accretion

    (784 )     (3,304 )

Reclassification from nonaccretable difference

    1,330       736  

Other changes, net*

    (69 )     1,418  
    $ 8,370     $ 7,893  

* This line item represents changes in the cash flows expected to be collected due to the impact of non-credit changes such as prepayment assumptions, changes in interest rates on variable rate acquired impaired loans, and discounted payoffs that occurred in the period.

 

Past Due Loans

 

The following table shows an analysis by portfolio segment of the Company's past due loans at March 31, 2020 (dollars in thousands):

 

    30- 59 Days Past Due     60-89 Days Past Due     90 Days + Past Due and Still Accruing     Non Accrual Loans     Total Past Due    

Current

    Total Loans  

Commercial

  $ 404     $ 68     $ 31     $ 958     $ 1,461     $ 330,046     $ 331,507  

Commercial real estate:

                                                       

Construction and land development

          37             9       46       141,108       141,154  

Commercial real estate

    216       216       121       513       1,066       952,297       953,363  

Residential:

                                                       

Residential

    255       139       278       942       1,614       299,670       301,284  

Home equity

    262             29       154       445       117,585       118,030  

Consumer

    122       9             3       134       9,456       9,590  

Total

  $ 1,259     $ 469     $ 459     $ 2,579     $ 4,766     $ 1,850,162     $ 1,854,928  

 

The following table shows an analysis by portfolio segment of the Company's past due loans at December 31, 2019 (dollars in thousands):

 

    30- 59 Days Past Due     60-89 Days Past Due     90 Days + Past Due and Still Accruing     Non Accrual Loans     Total Past Due    

Current

    Total Loans  

Commercial

  $ 325     $ 163     $ 52     $ 857     $ 1,397     $ 337,680     $ 339,077  

Commercial real estate:

                                                       

Construction and land development

    58                   11       69       137,851       137,920  

Commercial real estate

    217       434             274       925       898,274       899,199  

Residential:

                                                       

Residential

    639       260       282       685       1,866       322,449       324,315  

Home equity

    49       90       27       113       279       119,144       119,423  

Consumer

    73       13             4       90       10,791       10,881  

Total

  $ 1,361     $ 960     $ 361     $ 1,944     $ 4,626     $ 1,826,189     $ 1,830,815  

 

14

 

Impaired Loans

 

The following table presents the Company's impaired loan balances by portfolio segment, excluding acquired impaired loans, at March 31, 2020 (dollars in thousands):

 

   

Recorded Investment

    Unpaid Principal Balance     Related Allowance     Average Recorded Investment     Interest Income Recognized  

With no related allowance recorded:

                                       

Commercial

  $ 49     $ 49     $     $ 49     $ 1  

Commercial real estate:

                                       

Construction and land development

                             

Commercial real estate

    476       473             489       9  

Residential:

                                       

Residential

    953       959             782       12  

Home equity

    39       39             40       1  

Consumer

                             
    $ 1,517     $ 1,520     $     $ 1,360     $ 23  

With a related allowance recorded:

                                       

Commercial

  $ 839     $ 833     $ 247     $ 787     $ 11  

Commercial real estate:

                                       

Construction and land development

                             

Commercial real estate

    259       259       138       130       4  

Residential

                                       

Residential

    250       250       26       252       3  

Home equity

                             

Consumer

                             
    $ 1,348     $ 1,342     $ 411     $ 1,169     $ 18  

Total:

                                       

Commercial

  $ 888     $ 882     $ 247     $ 836     $ 12  

Commercial real estate:

                                       

Construction and land development

                             

Commercial real estate

    735       732       138       619       13  

Residential:

                                       

Residential

    1,203       1,209       26       1,034       15  

Home equity

    39       39             40       1  

Consumer

                             
    $ 2,865     $ 2,862     $ 411     $ 2,529     $ 41  

 

In the table above, recorded investment may exceed unpaid principal balance due to acquired loans with a premium and loans with unearned costs that exceed unearned fees.

 

15

 

The following table presents the Company's impaired loan balances by portfolio segment, excluding acquired impaired loans, at December 31, 2019 (dollars in thousands):

 

   

Recorded Investment

    Unpaid Principal Balance     Related Allowance     Average Recorded Investment     Interest Income Recognized  

With no related allowance recorded:

                                       

Commercial

  $ 49     $ 49     $     $ 16     $ 5  

Commercial real estate:

                                       

Construction and land development

                             

Commercial real estate

    502       500             424       39  

Residential:

                                       

Residential

    611       612             652       38  

Home equity

    41       41             45       6  

Consumer

                             
    $ 1,203     $ 1,202     $     $ 1,137     $ 88  

With a related allowance recorded:

                                       

Commercial

  $ 735     $ 730     $ 204     $ 191     $ 41  

Commercial real estate:

                                       

Construction and land development

                             

Commercial real estate

                             

Residential:

                                       

Residential

    254       254       26       225       16  

Home equity

                             

Consumer

                             
    $ 989     $ 984     $ 230     $ 416     $ 57  

Total:

                                       

Commercial

  $ 784     $ 779     $ 204     $ 207     $ 46  

Commercial real estate:

                                       

Construction and land development

                             

Commercial real estate