Company Quick10K Filing
Quick10K
First National
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$20.61 5 $102
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-09 Shareholder Vote, Regulation FD, Other Events, Exhibits
8-K 2019-04-23 Earnings, Exhibits
8-K 2019-04-16 Other Events, Exhibits
8-K 2019-03-15 Officers, Exhibits
8-K 2019-02-15 Other Events, Exhibits
8-K 2019-01-30 Regulation FD, Exhibits
8-K 2019-01-23 Earnings, Exhibits
8-K 2019-01-23 Earnings, Exhibits
8-K 2018-10-24 Earnings, Exhibits
8-K 2018-08-08 Officers, Amend Bylaw, Exhibits
8-K 2018-07-24 Earnings, Exhibits
8-K 2018-05-08 Shareholder Vote
8-K 2018-04-18 Earnings, Exhibits
8-K 2018-02-20 Officers, Amend Bylaw, Other Events, Exhibits
8-K 2018-01-30 Earnings, Exhibits
NKE Nike 130,420
WBK Westpac Banking 64,930
WTR Aqua America 8,140
SXT Sensient Technologies 2,980
GPRO Gopro 1,020
STML Stemline Therapeutics 700
RST Rosetta Stone 627
CDZI Cadiz 268
NYMX Nymox Pharmaceutical 109
FNGR Fingermotion 0
FXNC 2019-03-31
Part I - Financial Information
Item 1. Financial Statements
Note 1. General
Note 2. Securities
Note 3. Loans
Note 4. Allowance for Loan Losses
Note 5. Other Real Estate Owned (Oreo)
Note 6. Other Borrowings
Note 7. Capital Requirements
Note 8. Subordinated Debt
Note 9. Junior Subordinated Debt
Note 10. Benefit Plans
Note 11. Earnings per Common Share
Note 12. Fair Value Measurements
Note 13. Stock Compensation Plans
Note 14. Accumulated Other Comprehensive Loss
Note 15. Revenue Recognition
Note 16. Leases
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 exhibit3113312019.htm
EX-31.2 exhibit3123312019.htm
EX-32.1 exhibit3213312019.htm
EX-32.2 exhibit3223312019.htm

First National Earnings 2019-03-31

FXNC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 fxnc331201910-q.htm 10-Q Document


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
 
FORM 10-Q
 
 
 
S
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
or
£
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: 0-23976
 
  first1nationalcorporationa09.jpg
 (Exact name of registrant as specified in its charter)
 
Virginia
 
54-1232965
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
112 West King Street, Strasburg, Virginia
 
22657
(Address of principal executive offices)
 
(Zip Code)
(540) 465-9121
(Registrant’s telephone number, including area code)
 
 
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  S    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 (Section 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  S    No  £
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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
 
S
Non-accelerated filer
 
£
  
Smaller reporting company
 
S
 
 
 
  
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  S
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, par value $1.25 per share
FXNC
The Nasdaq Stock Market LLC
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of May 9, 2019, 4,963,487 shares of common stock, par value $1.25 per share, of the registrant were outstanding.
 




TABLE OF CONTENTS
 
 
 
 
 
 
Page
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.


2



PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
FIRST NATIONAL CORPORATION
Consolidated Balance Sheets
(in thousands, except share and per share data)
 
 
(unaudited) March 31,
2019
 
December 31,
2018*
Assets
 
 
 
Cash and due from banks
$
10,862

 
$
13,378

Interest-bearing deposits in banks
31,833

 
15,240

Securities available for sale, at fair value
121,202

 
99,857

Securities held to maturity, at amortized cost (fair value, 2019, $19,190; 2018, $42,394)
19,489

 
43,408

Restricted securities, at cost
1,701

 
1,688

Loans held for sale
200

 
419

Loans, net of allowance for loan losses, 2019, $4,946; 2018, $5,009
545,529

 
537,847

Premises and equipment, net
20,282

 
20,066

Accrued interest receivable
2,143

 
2,113

Bank owned life insurance
17,094

 
13,991

Core deposit intangibles, net
382

 
472

Other assets
4,361

 
4,490

Total assets
$
775,078

 
$
752,969

 
 
 
 
Liabilities and Shareholders’ Equity
 
 
 
 
 
 
 
Liabilities
 
 
 
Deposits:
 
 
 
Noninterest-bearing demand deposits
$
189,261

 
$
181,964

Savings and interest-bearing demand deposits
377,673

 
369,383

Time deposits
117,290

 
119,219

Total deposits
$
684,224

 
$
670,566

Other borrowings
5,000

 

Subordinated debt
4,969

 
4,965

Junior subordinated debt
9,279

 
9,279

Accrued interest payable and other liabilities
1,878

 
1,485

Total liabilities
$
705,350

 
$
686,295

Shareholders’ Equity
 
 
 
Preferred stock, par value $1.25 per share; authorized 1,000,000 shares; none issued and outstanding
$

 
$

Common stock, par value $1.25 per share; authorized 8,000,000 shares; issued and outstanding, 2019, 4,963,487 shares; 2018, 4,957,694 shares
6,204

 
6,197

Surplus
7,515

 
7,471

Retained earnings
56,629

 
54,814

Accumulated other comprehensive loss, net
(620
)
 
(1,808
)
Total shareholders’ equity
$
69,728

 
$
66,674

Total liabilities and shareholders’ equity
$
775,078

 
$
752,969

*Derived from audited consolidated financial statements.
See Notes to Consolidated Financial Statements

3



FIRST NATIONAL CORPORATION
Consolidated Statements of Income (Unaudited)
(in thousands, except per share data)
 
 
Three Months Ended
 
March 31,
2019
 
March 31,
2018
Interest and Dividend Income
 
 
 
Interest and fees on loans
$
6,996

 
$
6,305

Interest on deposits in banks
110

 
160

Interest and dividends on securities:
 
 
 
Taxable interest
737

 
680

Tax-exempt interest
156

 
145

Dividends
24

 
22

Total interest and dividend income
$
8,023

 
$
7,312

Interest Expense
 
 
 
Interest on deposits
$
922

 
$
590

Interest on subordinated debt
89

 
89

Interest on junior subordinated debt
111

 
86

Interest on other borrowings
2

 

Total interest expense
$
1,124

 
$
765

Net interest income
$
6,899

 
$
6,547

Provision for loan losses

 
100

Net interest income after provision for loan losses
$
6,899

 
$
6,447

Noninterest Income
 
 
 
Service charges on deposit accounts
$
701

 
$
762

ATM and check card fees
517

 
519

Wealth management fees
437

 
407

Fees for other customer services
175

 
153

Income from bank owned life insurance
103

 
559

Net gains on sale of loans
22

 
9

Other operating income
30

 
224

Total noninterest income
$
1,985

 
$
2,633

Noninterest Expense
 
 
 
Salaries and employee benefits
$
3,443

 
$
3,383

Occupancy
438

 
400

Equipment
420

 
423

Marketing
141

 
109

Supplies
73

 
80

Legal and professional fees
241

 
191

ATM and check card expense
216

 
203

FDIC assessment
69

 
82

Bank franchise tax
130

 
115

Telecommunications expense
83

 
36

Data processing expense
173

 
162

Postage expense
48

 
61

Amortization expense
90

 
131

Other real estate owned income, net

 
(23
)
Other operating expense
533

 
513

Total noninterest expense
$
6,098

 
$
5,866

See Notes to Consolidated Financial Statements

4



FIRST NATIONAL CORPORATION
Consolidated Statements of Income (Unaudited)
(Continued)
(in thousands, except per share data)
 
 
Three Months Ended
 
March 31,
2019
 
March 31,
2018
Income before income taxes
$
2,786

 
$
3,214

Income tax expense
525

 
527

Net income
$
2,261

 
$
2,687

Earnings per common share
 
 
 
Basic
$
0.46

 
$
0.54

Diluted
$
0.46

 
$
0.54

See Notes to Consolidated Financial Statements


5



FIRST NATIONAL CORPORATION
Consolidated Statements of Comprehensive Income (Unaudited)
(in thousands)
 
 
Three Months Ended
 
March 31,
2019
 
March 31,
2018
Net income
$
2,261

 
$
2,687

Other comprehensive income (loss), net of tax,
 
 
 
Unrealized holding gains (losses) on available for sale securities, net of tax $407 and ($229), respectively
1,528

 
(862
)
Unrealized holding losses on securities transferred from held to maturity to available for sale, net of tax ($91) and $0, respectively
(340
)
 

Pension liability adjustment, net of tax $0 and ($27), respectively

 
(99
)
Total other comprehensive income (loss)
1,188

 
(961
)
Total comprehensive income
$
3,449

 
$
1,726

See Notes to Consolidated Financial Statements


6



FIRST NATIONAL CORPORATION
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
 
 
Three Months Ended
 
March 31,
2019
 
March 31,
2018
Cash Flows from Operating Activities
 
 
 
Net income
$
2,261

 
$
2,687

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization of premises and equipment
337

 
345

Amortization of core deposit intangibles
90

 
131

Amortization of debt issuance costs
4

 
4

Origination of loans held for sale
(1,602
)
 
(192
)
Proceeds from sale of loans held for sale
1,843

 
571

Net gains on sales of loans held for sale
(22
)
 
(9
)
Provision for loan losses

 
100

Net gains on sale of other real estate owned

 
(24
)
Increase in cash value of bank owned life insurance
(103
)
 
(91
)
Accretion of discounts and amortization of premiums on securities, net
138

 
138

Accretion of premium on time deposits
(16
)
 
(22
)
Stock-based compensation
43

 
70

Excess tax benefits on stock-based compensation
(2
)
 
(7
)
Deferred income tax (benefit) expense
(16
)
 
37

Changes in assets and liabilities:
 
 
 
(Increase) decrease in interest receivable
(30
)
 
47

(Increase) decrease in other assets
(170
)
 
1,394

Increase (decrease) in accrued expenses and other liabilities
394

 
(743
)
Net cash provided by operating activities
$
3,149

 
$
4,436

Cash Flows from Investing Activities
 
 
 
Proceeds from maturities, calls, and principal payments of securities available for sale
$
3,990

 
$
3,052

Proceeds from maturities, calls, and principal payments of securities held to maturity
452

 
1,368

Purchases of securities available for sale
(502
)
 
(8,676
)
Net purchase of restricted securities
(13
)
 
(20
)
Purchase of premises and equipment
(553
)
 
(287
)
Proceeds from sale of other real estate owned

 
350

Purchase of bank owned life insurance
(3,000
)
 

Proceeds from cash value of bank owned life insurance

 
347

Net (increase) decrease in loans
(7,682
)
 
1,111

Net cash used in investing activities
$
(7,308
)
 
$
(2,755
)
See Notes to Consolidated Financial Statements


7



FIRST NATIONAL CORPORATION
Consolidated Statements of Cash Flows (Unaudited)
(Continued)
(in thousands)
 
 
Three Months Ended
 
March 31,
2019
 
March 31,
2018
Cash Flows from Financing Activities
 
 
 
Net increase in demand deposits and savings accounts
$
15,587

 
$
25,461

Net (decrease) increase in time deposits
(1,913
)
 
2,406

Net increase in other borrowings
5,000

 

Cash dividends paid on common stock, net of reinvestment
(418
)
 
(233
)
Repurchase of common stock
(20
)
 
(24
)
Net cash provided by financing activities
$
18,236

 
$
27,610

Increase in cash and cash equivalents
$
14,077

 
$
29,291

Cash and Cash Equivalents
 
 
 
Beginning
$
28,618

 
$
39,986

Ending
$
42,695

 
$
69,277

Supplemental Disclosures of Cash Flow Information
 
 
 
Cash payments for:
 
 
 
Interest
$
1,123

 
$
779

Supplemental Disclosures of Noncash Investing and Financing Activities
 
 
 
Unrealized gains (losses) on securities available for sale
$
1,935

 
$
(1,091
)
Unrealized losses on securities transferred from held to maturity to available for sale
$
(431
)
 
$

Fair value of securities transferred from held to maturity to available for sale
$
23,036

 
$

Change in pension liability
$

 
$
(126
)
Issuance of common stock, dividend reinvestment plan
$
28

 
$
15

See Notes to Consolidated Financial Statements

8



FIRST NATIONAL CORPORATION
Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
(in thousands, except share and per share data)
 
 
Common
Stock
 
Surplus
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
Balance, December 31, 2017
$
6,182

 
$
7,260

 
$
45,670

 
$
(958
)
 
$
58,154

Net income

 

 
2,687

 

 
2,687

Other comprehensive loss

 

 

 
(961
)
 
(961
)
Cash dividends on common stock ($0.05 per share)

 

 
(248
)
 

 
(248
)
Stock-based compensation

 
70

 

 

 
70

Issuance of 851 shares common stock, dividend reinvestment plan
1

 
14

 

 

 
15

Issuance of 7,339 shares common stock, stock incentive plan
9

 
(9
)
 

 

 

Repurchase of 1,317 shares of common stock, stock incentive plan
(1
)
 
(23
)
 

 

 
(24
)
Balance, March 31, 2018
$
6,191

 
$
7,312

 
$
48,109

 
$
(1,919
)
 
$
59,693

 
 
 
 
 
 
 
 
 
 
 
Common
Stock
 
Surplus
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
Balance, December 31, 2018
$
6,197

 
$
7,471

 
$
54,814

 
$
(1,808
)
 
$
66,674

Net income

 

 
2,261

 

 
2,261

Other comprehensive income

 

 

 
1,188

 
1,188

Cash dividends on common stock ($0.09 per share)

 

 
(446
)
 

 
(446
)
Stock-based compensation

 
43

 

 

 
43

Issuance of 1,397 shares common stock, dividend reinvestment plan
2

 
26

 

 

 
28

Issuance of 5,402 shares common stock, stock incentive plan
7

 
(7
)
 

 

 

Repurchase of 1,006 shares of common stock, stock incentive plan
(2
)
 
(18
)
 

 

 
(20
)
Balance, March 31, 2019
$
6,204

 
$
7,515

 
$
56,629

 
$
(620
)
 
$
69,728

See Notes to Consolidated Financial Statements

9



FIRST NATIONAL CORPORATION
Notes to Consolidated Financial Statements (Unaudited)
 
 
 




Note 1. General

The accompanying unaudited consolidated financial statements of First National Corporation (the Company) and its subsidiary, First Bank (the Bank), have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP. All significant intercompany balances and transactions have been eliminated. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments and reclassifications of a normal and recurring nature considered necessary to present fairly the financial positions at March 31, 2019 and December 31, 2018, the statements of income and comprehensive income for the three months ended March 31, 2019 and 2018 and the cash flows and changes in shareholders’ equity for the three months ended March 31, 2019 and 2018. The statements should be read in conjunction with the consolidated financial statements and related notes included in the Annual Report on Form 10-K for the year ended December 31, 2018. Operating results for the three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.

Adoption of New Accounting Standards

On January 1, 2019, the Company adopted ASU No. 2016-02, “Leases (Topic 842).” Among other things, in the amendments in ASU 2016-02, lessees are required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) A lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach does not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The FASB made subsequent amendments to Topic 842 through ASU 2018-10 (“Codification Improvements to Topic 842, Leases.”) and ASU 2018-11 (“Leases (Topic 842): Targeted Improvements.”) Among these amendments is the provision in ASU 2018-11 that provides entities with an additional (and optional) transition method to adopt the new leases standard. Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, an entity’s reporting for the comparative periods presented in the financial statements in which it adopts the new leases standard will continue to be in accordance with current GAAP (Topic 840, Leases). The adoption of this standard did not have a material effect on the Company's consolidated financial statements. For further information about the Company's leases, see Note 16.

On January 1, 2019, the Company adopted ASU No. 2017-08, "Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities.” The amendments in ASU 2017-08 shorten the amortization period for certain callable debt securities purchased at a premium. Under the new guidance, premiums on these qualifying callable debt securities are amortized to the earliest call date. Discounts on purchased debt securities continue to be accreted to maturity. The adoption of this standard did not have a material effect on the Company's consolidated financial statements and no cumulative effect adjustment was recorded.

On January 1, 2019, the Company adopted ASU No. 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities." The amendments in ASU 2017-12 modify the designation and measurement guidance for hedge accounting as well as provide for increased transparency regarding the presentation of economic results on both the financial statements and related footnotes. Certain aspects of hedge effectiveness assessments were simplified upon implementation of this updated. The new guidance also provides for a reclassification of certain debt securities from held to maturity to available for sale if the security is eligible to be hedged using the last-of-layer method. Any unrealized gain or loss existing at the time of transfer is recorded in accumulated comprehensive income or loss. As a permitted activity, the reclassification of securities will not taint future held to maturity classification so long as the securities transferred are eligible to be hedged under the last-of-layer method. Accordingly, on January 1, 2019, the Company reclassified eligible held to maturity securities with amortized costs totaling $23.4 million as available for sale. The unrealized loss associated with the reclassified securities totaled $431 thousand and was included in the Company's accumulated other comprehensive loss on the date of reclassification.

10



Notes to Consolidated Financial Statements (Unaudited)
 
 
 



Recent Accounting Pronouncements

In June 2016, the FASB issued ASU No. 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 amendments in this ASU are effective for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is currently assessing the impact that ASU 2016-13 will have on its consolidated financial statements. The Company has formed a committee to address the compliance requirements of this ASU, which has analyzed gathered data, definined loan pools and segments, and selected methods for applying the concepts included in this ASU. The Company is in the process of testing selected models, building policy and processing documentation, modeling the impact of the ASU on the capital and strategic plans, performing model validation, and finalizing policies and procedures. This guidance may result in material changes in the Company's accounting for credit losses of financial instruments.

11



Notes to Consolidated Financial Statements (Unaudited)
 
 
 


Note 2. Securities

The Company invests in U.S. agency and mortgage-backed securities, obligations of state and political subdivisions, and corporate debt securities. Amortized costs and fair values of securities at March 31, 2019 and December 31, 2018 were as follows (in thousands):
 
March 31, 2019
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
(Losses)
 
Fair
Value
Securities available for sale:
 
 
 
 
 
 
 
U.S. agency and mortgage-backed securities
$
96,345

 
$
295

 
$
(1,074
)
 
$
95,566

Obligations of states and political subdivisions
25,643

 
153

 
(160
)
 
25,636

Total securities available for sale
$
121,988

 
$
448

 
$
(1,234
)
 
$
121,202

Securities held to maturity:
 
 
 
 
 
 
 
U.S. agency and mortgage-backed securities
$
14,193

 
$

 
$
(332
)
 
$
13,861

Obligations of states and political subdivisions
3,796

 
22

 
(2
)
 
3,816

Corporate debt securities
1,500

 
13

 

 
1,513

Total securities held to maturity
$
19,489

 
$
35

 
$
(334
)
 
$
19,190

Total securities
$
141,477

 
$
483

 
$
(1,568
)
 
$
140,392

 
 
December 31, 2018
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
(Losses)
 
Fair
Value
Securities available for sale:
 
 
 
 
 
 
 
U.S. agency and mortgage-backed securities
$
86,944

 
$
44

 
$
(2,066
)
 
$
84,922

Obligations of states and political subdivisions
15,203

 
31

 
(299
)
 
14,935

Total securities available for sale
$
102,147

 
$
75

 
$
(2,365
)
 
$
99,857

Securities held to maturity:
 
 
 
 
 
 
 
U.S. agency and mortgage-backed securities
$
27,420

 
$

 
$
(869
)
 
$
26,551

Obligations of states and political subdivisions
14,488

 
20

 
(174
)
 
14,334

Corporate debt securities
1,500

 
9

 

 
1,509

Total securities held to maturity
$
43,408

 
$
29

 
$
(1,043
)
 
$
42,394

Total securities
$
145,555

 
$
104

 
$
(3,408
)
 
$
142,251


12



Notes to Consolidated Financial Statements (Unaudited)
 
 
 


At March 31, 2019 and December 31, 2018, investments in an unrealized loss position that were temporarily impaired were as follows (in thousands):
 
March 31, 2019
 
Less than 12 months
 
12 months or more
 
Total
 
Fair Value
 
Unrealized
(Loss)
 
Fair Value
 
Unrealized
(Loss)
 
Fair Value
 
Unrealized
(Loss)
Securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
U.S. agency and mortgage-backed securities
$
369

 
$
(2
)
 
$
60,381

 
$
(1,072
)
 
$
60,750

 
$
(1,074
)
Obligations of states and political subdivisions

 

 
8,793

 
(160
)
 
8,793

 
(160
)
Total securities available for sale
$
369

 
$
(2
)
 
$
69,174

 
$
(1,232
)
 
$
69,543

 
$
(1,234
)
Securities held to maturity:
 
 
 
 
 
 
 
 
 
 
 
U.S. agency and mortgage-backed securities
$

 
$

 
$
13,861

 
$
(332
)
 
$
13,861

 
$
(332
)
Obligations of states and political subdivisions

 

 
761

 
(2
)
 
761

 
(2
)
Total securities held to maturity
$

 
$

 
$
14,622

 
$
(334
)
 
$
14,622

 
$
(334
)
Total securities
$
369

 
$
(2
)
 
$
83,796

 
$
(1,566
)
 
$
84,165

 
$
(1,568
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
Less than 12 months
 
12 months or more
 
Total
 
Fair Value
 
Unrealized
(Loss)
 
Fair Value
 
Unrealized
(Loss)
 
Fair Value
 
Unrealized
(Loss)
Securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
U.S. agency and mortgage-backed securities
$
26,350

 
$
(215
)
 
$
49,652

 
$
(1,851
)
 
$
76,002

 
$
(2,066
)
Obligations of states and political subdivisions
3,761

 
(25
)
 
5,127

 
(274
)
 
8,888

 
(299
)
Total securities available for sale
$
30,111

 
$
(240
)
 
$
54,779

 
$
(2,125
)
 
$
84,890

 
$
(2,365
)
Securities held to maturity:
 
 
 
 
 
 
 
 
 
 
 
U.S. agency and mortgage-backed securities
$

 
$

 
$
26,551

 
$
(869
)
 
$
26,551

 
$
(869
)
Obligations of states and political subdivisions
5,326

 
(37
)
 
6,115

 
(137
)
 
11,441

 
(174
)
Total securities held to maturity
$
5,326

 
$
(37
)
 
$
32,666

 
$
(1,006
)
 
$
37,992

 
$
(1,043
)
Total securities
$
35,437

 
$
(277
)
 
$
87,445

 
$
(3,131
)
 
$
122,882

 
$
(3,408
)
The tables above provide information about securities that have been in an unrealized loss position for less than twelve consecutive months and securities that have been in an unrealized loss position for twelve consecutive months or more. 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. Impairment is considered to be other-than-temporary if the Company (1) intends to sell the security, (2) more likely than not will be required to sell the security before recovering its cost, or (3) does not expect to recover the security’s entire amortized cost basis. Presently, the Company does not intend to sell any of these securities, does not expect to be required to sell these securities, and expects to recover the entire amortized cost of all the securities.

13



Notes to Consolidated Financial Statements (Unaudited)
 
 
 


At March 31, 2019, there were sixty-six out of ninety U.S. agency and mortgage-backed securities and twenty-six out of eighty-two obligations of states and political subdivisions in an unrealized loss position. One hundred percent of the Company’s investment portfolio is considered investment grade. The weighted-average re-pricing term of the portfolio was 4.2 years at March 31, 2019. At December 31, 2018, there were eighty-three out of ninety U.S. agency and mortgage-backed securities and fifty-six out of eighty-two obligations of states and political subdivisions in an unrealized loss position. One hundred percent of the Company’s investment portfolio was considered investment grade at December 31, 2018. The weighted-average re-pricing term of the portfolio was 4.6 years at December 31, 2018. The unrealized losses at March 31, 2019 in the U.S. agency and mortgage-backed securities portfolio and the obligations of states and political subdivisions portfolio were related to changes in market interest rates and not credit concerns of the issuers.

The amortized cost and fair value of securities at March 31, 2019 by contractual maturity are shown below (in thousands). Expected maturities of mortgage-backed securities will differ from contractual maturities because borrowers may have the right to prepay obligations with or without call or prepayment penalties.
 
 
Available for Sale
 
Held to Maturity
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
Due within one year
$
1,836

 
$
1,844

 
$
185

 
$
185

Due after one year through five years
9,009

 
8,992

 
4,179

 
4,159

Due after five years through ten years
27,051

 
27,048

 
4,586

 
4,565

Due after ten years
84,092

 
83,318

 
10,539

 
10,281

 
$
121,988

 
$
121,202

 
$
19,489

 
$
19,190

On January 1, 2019, the Company adopted ASU No. 2017-12 and reclassified eligible securities with a fair value of $23.0 million from the held to maturity portfolio to the available for sale portfolio. The unrealized loss associated with the reclassified securities totaled $431 thousand on the date of reclassification. The securities were reclassified to provide the Company with opportunities to maximize asset utilization.
Federal Home Loan Bank, Federal Reserve Bank, and Community Bankers’ Bank stock are generally viewed as long-term investments and as restricted securities, which are carried at cost, because there is a minimal market for the stock. Therefore, when evaluating restricted securities for impairment, their value is based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value. The Company does not consider these investments to be other-than-temporarily impaired at March 31, 2019, and no impairment has been recognized.

The composition of restricted securities at March 31, 2019 and December 31, 2018 was as follows (in thousands):
 
March 31,
2019
 
December 31,
2018
Federal Home Loan Bank stock
$
776

 
$
763

Federal Reserve Bank stock
875

 
875

Community Bankers’ Bank stock
50

 
50

 
$
1,701

 
$
1,688


14



Notes to Consolidated Financial Statements (Unaudited)
 
 
 


Note 3. Loans

Loans at March 31, 2019 and December 31, 2018 are summarized as follows (in thousands):
 
March 31,
2019
 
December 31,
2018
Real estate loans:
 
 
 
Construction and land development
$
48,948

 
$
45,867

Secured by 1-4 family residential
217,527

 
215,945

Other real estate loans
221,396

 
219,553

Commercial and industrial loans
46,045

 
44,605

Consumer and other loans
16,559

 
16,886

Total loans
$
550,475

 
$
542,856

Allowance for loan losses
(4,946
)
 
(5,009
)
Loans, net
$
545,529

 
$
537,847


Net deferred loan fees included in the above loan categories were $287 thousand and $274 thousand at March 31, 2019 and December 31, 2018, respectively. Consumer and other loans included $204 thousand and $275 thousand of demand deposit overdrafts at March 31, 2019 and December 31, 2018, respectively.
Risk characteristics of each loan portfolio class that are considered by the Company include:
 
1-4 family residential mortgage loans carry risks associated with the continued creditworthiness of the borrower and changes in the value of the collateral.

Real estate construction and land development loans carry risks that the project may not be finished according to schedule, the project may not be finished according to budget, and the value of the collateral may, at any point in time, be less than the principal amount of the loan. Construction loans also bear the risk that the general contractor, who may or may not be a loan customer, may be unable to finish the construction project as planned because of financial pressure or other factors unrelated to the project.

Other real estate loans carry risks associated with the successful operation of a business or a real estate project, in addition to other risks associated with the ownership of real estate, because repayment of these loans may be dependent upon the profitability and cash flows of the business or project.

Commercial and industrial loans carry risks associated with the successful operation of a business because repayment of these loans may be dependent upon the profitability and cash flows of the business. In addition, there is risk associated with the value of collateral other than real estate which may depreciate over time and cannot be appraised with as much reliability.

Consumer and other loans carry risk associated with the continued creditworthiness of the borrower and the value of the collateral, if any. These loans are typically either unsecured or secured by rapidly depreciating assets such as automobiles. They are also likely to be immediately and adversely affected by job loss, divorce, illness, personal bankruptcy, or other changes in circumstances. Consumer and other loans also include purchased consumer loans which could have been originated outside of the Company's market area.

15



Notes to Consolidated Financial Statements (Unaudited)
 
 
 


The following tables provide a summary of loan classes and an aging of past due loans as of March 31, 2019 and December 31, 2018 (in thousands):
 
March 31, 2019
 
30-59
Days Past
Due
 
60-89
Days
Past Due
 
> 90
Days Past
Due
 
Total
Past Due
 
Current
 
Total
Loans
 
Non-accrual
Loans
 
90 Days
or More
Past Due
and
Accruing
Real estate loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction and land development
$

 
$

 
$
80

 
$
80

 
$
48,868

 
$
48,948

 
$
398

 
$

Secured by 1-4 family residential
493

 

 
575

 
1,068

 
216,459

 
217,527

 
989

 
115

Other real estate loans
403

 

 
477

 
880

 
220,516

 
221,396

 
528

 

Commercial and industrial
54

 
2

 
2

 
58

 
45,987

 
46,045

 

 
2

Consumer and other loans
14

 
84

 
16

 
114

 
16,445

 
16,559

 

 
16

Total
$
964

 
$
86

 
$
1,150

 
$
2,200

 
$
548,275

 
$
550,475

 
$
1,915

 
$
133


 
December 31, 2018
 
30-59
Days Past
Due
 
60-89
Days
Past Due
 
> 90
Days Past
Due
 
Total
Past Due
 
Current
 
Total
Loans
 
Non-accrual
Loans
 
90 Days
or More
Past Due
and
Accruing
Real estate loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction and land development
$
88

 
$
80

 
$

 
$
168

 
$
45,699

 
$
45,867

 
$
327

 
$

Secured by 1-4 family residential
747

 
393

 
423

 
1,563

 
214,382

 
215,945

 
663

 

Other real estate loans
145

 
36

 
2,207

 
2,388

 
217,165

 
219,553

 
1,985

 
222

Commercial and industrial

 
25

 
210

 
235

 
44,370

 
44,605

 
197

 
13

Consumer and other loans
90

 

 

 
90

 
16,796

 
16,886

 

 

Total
$
1,070

 
$
534

 
$
2,840

 
$
4,444

 
$
538,412

 
$
542,856

 
$
3,172

 
$
235


Credit Quality Indicators

As part of the ongoing monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends related to the risk grading of specified classes of loans. The Company utilizes a risk grading matrix to assign a rating to each of its loans. The loan ratings are summarized into the following categories: pass, special mention, substandard, doubtful and loss. Pass rated loans include all risk rated credits other than those included in special mention, substandard or doubtful. Loans classified as loss are charged-off. Loan officers assign risk grades to loans at origination and as renewals arise. The Bank’s Credit Administration department reviews risk grades for accuracy on a quarterly basis and as credit issues arise. In addition, a certain amount of loans are reviewed each year through the Company’s internal and external loan review process. A description of the general characteristics of the loan grading categories is as follows:
Pass – Loans classified as pass exhibit acceptable operating trends, balance sheet trends, and liquidity. Sufficient cash flow exists to service the loan. All obligations have been paid by the borrower as agreed.
Special Mention – Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or the Bank’s credit position at some future date.

16



Notes to Consolidated Financial Statements (Unaudited)
 
 
 


Substandard – Loans classified as substandard are inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
Doubtful – Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with 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. The Company considers all doubtful loans to be impaired and places the loan on non-accrual status.
Loss – Loans classified as loss are considered uncollectable and of such little value that their continuance as bankable assets is not warranted.

The following tables provide an analysis of the credit risk profile of each loan class as of March 31, 2019 and December 31, 2018 (in thousands):
 
March 31, 2019
 
Pass
 
Special
Mention
 
Substandard
 
Doubtful
 
Total
Real estate loans:
 
 
 
 
 
 
 
 
 
Construction and land development
$
48,151

 
$
231

 
$
566

 
$

 
$
48,948

Secured by 1-4 family residential
215,492

 
781

 
1,254

 

 
217,527

Other real estate loans
217,298

 
883

 
3,215

 

 
221,396

Commercial and industrial
46,018

 
15

 
12

 

 
46,045

Consumer and other loans
16,559

 

 

 

 
16,559

Total
$
543,518

 
$
1,910

 
$
5,047

 
$

 
$
550,475

 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
Pass
 
Special
Mention
 
Substandard
 
Doubtful
 
Total
Real estate loans:
 
 
 
 
 
 
 
 
 
Construction and land development
$
45,054

 
$
235

 
$
578

 
$

 
$
45,867

Secured by 1-4 family residential
214,089

 
924

 
932

 

 
215,945

Other real estate loans
213,681

 
900

 
4,972

 

 
219,553

Commercial and industrial
44,373

 
19

 
213

 

 
44,605

Consumer and other loans
16,886

 

 

 

 
16,886

Total
$
534,083

 
$
2,078

 
$
6,695

 
$

 
$
542,856


17



Notes to Consolidated Financial Statements (Unaudited)
 
 
 


Note 4. Allowance for Loan Losses

The following tables present, as of March 31, 2019, December 31, 2018 and March 31, 2018, the total allowance for loan losses, the allowance by impairment methodology, and loans by impairment methodology (in thousands):
 
March 31, 2019
 
Construction
and Land
Development
 
Secured by
1-4 Family
Residential
 
Other Real
Estate
 
Commercial
and
Industrial
 
Consumer
and Other
Loans
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
Beginning Balance, December 31, 2018
$
561

 
$
895

 
$
2,160

 
$
464

 
$
929

 
$
5,009

Charge-offs

 
(49
)
 

 

 
(179
)
 
(228
)
Recoveries
50

 
2

 

 
2

 
111

 
165

Provision for (recovery of) loan losses
(6
)
 
(82
)
 
115

 
26

 
(53
)
 

Ending Balance, March 31, 2019
$
605

 
$
766

 
$
2,275

 
$
492

 
$
808

 
$
4,946

Ending Balance:
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
71

 
23

 
35

 

 

 
129

Collectively evaluated for impairment
534

 
743

 
2,240

 
492

 
808

 
4,817

Loans:
 
 
 
 
 
 
 
 
 
 
 
Ending Balance
$
48,948

 
$
217,527

 
$
221,396

 
$
46,045

 
$
16,559

 
$
550,475

Individually evaluated for impairment
398

 
990

 
787

 

 

 
2,175

Collectively evaluated for impairment
48,550

 
216,537

 
220,609

 
46,045

 
16,559

 
548,300


 
December 31, 2018
 
Construction
and Land
Development
 
Secured by
1-4 Family
Residential
 
Other Real
Estate
 
Commercial
and
Industrial
 
Consumer
and Other
Loans
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
Beginning Balance, December 31, 2017
$
414

 
$
775

 
$
2,948

 
$
418

 
$
771

 
$
5,326

Charge-offs

 
(55
)
 

 
(10
)
 
(1,104
)
 
(1,169
)
Recoveries

 
13

 
5

 
8

 
226

 
252

Provision for (recovery of) loan losses
147

 
162

 
(793
)
 
48

 
1,036

 
600

Ending Balance, December 31, 2018
$
561

 
$
895

 
$
2,160

 
$
464

 
$
929

 
$
5,009

Ending Balance:
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
71

 
172

 

 

 

 
243

Collectively evaluated for impairment
490

 
723

 
2,160

 
464

 
929

 
4,766

Loans:
 
 
 
 
 
 
 
 
 
 
 
Ending Balance
$
45,867

 
$
215,945

 
$
219,553

 
$
44,605

 
$
16,886

 
$
542,856

Individually evaluated for impairment
327

 
663

 
2,249

 
197

 

 
3,436

Collectively evaluated for impairment
45,540

 
215,282

 
217,304

 
44,408

 
16,886

 
539,420

 

18



Notes to Consolidated Financial Statements (Unaudited)
 
 
 


 
March 31, 2018
 
Construction
and Land
Development
 
Secured by
1-4 Family
Residential
 
Other Real
Estate
 
Commercial
and
Industrial
 
Consumer
and Other
Loans
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
Beginning Balance, December 31, 2017
$
414

 
$
775

 
$
2,948

 
$
418

 
$
771

 
$
5,326

Charge-offs

 
(2
)
 

 
(8
)
 
(196
)
 
(206
)
Recoveries

 
3

 
1

 
1

 
47

 
52

Provision for (recovery of) loan losses
(18
)
 
2

 
18

 
40

 
58

 
100

Ending Balance, March 31, 2018
$
396

 
$
778

 
$
2,967

 
$
451

 
$
680

 
$
5,272

Ending Balance:
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment

 

 

 

 

 

Collectively evaluated for impairment
396

 
778

 
2,967

 
451

 
680

 
5,272

Loans:
 
 
 
 
 
 
 
 
 
 
 
Ending Balance
$
33,941

 
$
208,338

 
$
222,352

 
$
39,253

 
$
17,052

 
$
520,936

Individually evaluated for impairment
874

 
1,332

 
1,263

 
61

 

 
3,530

Collectively evaluated for impairment
33,067

 
207,006

 
221,089

 
39,192

 
17,052

 
517,406



19



Notes to Consolidated Financial Statements (Unaudited)
 
 
 


Impaired loans and the related allowance at March 31, 2019, December 31, 2018 and March 31, 2018, were as follows (in thousands):
 
March 31, 2019
 
Unpaid
Principal
Balance
 
Recorded
Investment
with No
Allowance
 
Recorded
Investment
with
Allowance
 
Total
Recorded
Investment
 
Related
Allowance
 
Average
Recorded
Investment
 
Interest
Income
Recognized
Real estate loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction and land development
$
412

 
$

 
$
398

 
$
398

 
$
71

 
$
326

 
$
1

Secured by 1-4 family
1,055

 
836

 
154

 
990

 
23

 
661

 
2

Other real estate loans
792

 
752

 
35

 
787

 
35

 
1,329

 
7

Commercial and industrial

 

 

 

 

 
90

 

Total
$
2,259

 
$
1,588

 
$
587

 
$
2,175

 
$
129

 
$
2,406

 
$
10

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
Unpaid
Principal
Balance
 
Recorded
Investment
with No
Allowance
 
Recorded
Investment
with
Allowance
 
Total
Recorded
Investment
 
Related
Allowance
 
Average
Recorded
Investment
 
Interest
Income
Recognized
Real estate loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction and land development
$
336

 
$

 
$
327

 
$
327

 
$
71

 
$
758

 
$
12

Secured by 1-4 family
720

 
356

 
307

 
663

 
172