Company Quick10K Filing
Quick10K
Highlands Bankshares
10-Q 2019-06-30 Quarter: 2019-06-30
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 2017-05-10 Quarter: 2017-05-10
10-K 2017-03-30 Annual: 2017-03-30
10-Q 2016-11-11 Quarter: 2016-11-11
10-Q 2016-08-12 Quarter: 2016-08-12
10-Q 2016-05-13 Quarter: 2016-05-13
10-K 2016-03-29 Annual: 2016-03-29
10-Q 2015-11-10 Quarter: 2015-11-10
10-Q 2015-08-12 Quarter: 2015-08-12
10-Q 2015-05-14 Quarter: 2015-05-14
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-11-11 Quarter: 2014-11-11
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 2019-09-11 Enter Agreement, Officers, Other Events, Exhibits
8-K 2019-08-12 Earnings, Other Events, Exhibits
8-K 2019-08-01 Officers
8-K 2019-05-21 Shareholder Vote
8-K 2019-05-21 Leave Agreement
8-K 2019-05-03 Officers
8-K 2019-04-30 Earnings, Other Events, Exhibits
8-K 2019-04-26 Officers
8-K 2019-02-08 Earnings, Other Events, Exhibits
8-K 2019-01-14 Officers
8-K 2018-11-01 Earnings, Other Events, Exhibits
8-K 2018-08-03 Earnings, Other Events, Exhibits
8-K 2018-05-15 Shareholder Vote
8-K 2018-05-01 Earnings, Other Events, Exhibits
8-K 2018-03-29 Officers, Exhibits
8-K 2018-03-23 Amend Bylaw, Exhibits
8-K 2018-02-12 Earnings, Other Events, Exhibits
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JONE Jones Energy 2
PCYN Procyon 1
ABWN Airborne Wireless Network 0
CBBT Cerebain Biotech 0
INSUU Insurance Acquisition 0
TFVR Timefirevr 0
HBKA 2019-06-30
Part I.
Item 1. Financial Statements
Note 1 - General
Note 2 - Summary of Significant Accounting Policy Update for Certain Required Disclosures
Note 3 - Investment Securities Available for Sale
Note 4 - Loans and Allowance for Loan Losses
Note 5 - Income Taxes
Note 6 - Capital Requirements
Note 7 - Stock and Earnings per Share
Note 8 - Commitments and Contingencies
Note 9 - Fair Value
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 a2019q2ex311.htm
EX-31.2 a2019q2ex312.htm
EX-32.1 a2019q2ex321.htm
EX-32.2 a2019q2ex322.htm

Highlands Bankshares Earnings 2019-06-30

HBKA 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 a2019q210-q.htm 10-Q Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
FORM 10-Q

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

For the quarterly period ended June 30, 2019

[   ] 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:  0-27622

HIGHLANDS BANKSHARES, INC.
(Exact name of registrant as specified in its charter)

Virginia
(State or other jurisdiction of
incorporation or organization)
54-1796693
(I.R.S. Employer
Identification No.)
P.O. Box 1128
Abingdon, Virginia
(Address of principal executive offices)
 24212-1128
(Zip Code)

276-628-9181
(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 [X]  No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes [ X ]        No [    ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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  þ
 (Do not check if a smaller reporting company)
Smaller reporting company  þ
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 [X ]

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 8,250,728 shares of common stock, par value $0.625 per share, outstanding as of August 12, 2019.





Highlands Bankshares, Inc.
Form 10-Q
For the Quarter Ended June 30, 2019

INDEX
PAGE
 
 

2



PART I.
FINANCIAL INFORMATION
ITEM 1.  Financial Statements
Consolidated Balance Sheets
(Amounts in thousands) 
 
 
(Unaudited)
June 30, 2019
 
December 31, 2018
ASSETS
 
 
 
 
Cash and due from banks
 
$
26,684

 
$
19,965

Federal funds sold
 
21,138

 
10,101

Total cash and cash equivalents
 
47,822

 
30,066

Investment securities available for sale (amortized cost $66,647 at June 30, 2019, $71,260 at December 31, 2018)
 
66,227

 
68,631

Other investments, at cost
 
2,770

 
2,774

Loans held for sale
 
863

 
265

Loans
 
451,590

 
448,121

Allowance for loan losses
 
(4,243
)
 
(4,373
)
Net loans
 
447,347

 
443,748

Premises and equipment, net
 
17,159

 
17,447

Real estate held for sale
 
590

 
817

Deferred tax assets
 
5,706

 
6,526

Interest receivable
 
2,010

 
1,617

Bank-owned life insurance
 
15,215

 
15,022

Other real estate owned
 
2,892

 
2,212

Other assets
 
3,120

 
2,816

Total assets
 
$
611,721

 
$
591,941

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
LIABILITIES
 
 
 
 
Deposits:
 
 
 
 
Non-interest bearing
 
$
153,982

 
$
156,408

Interest bearing
 
364,462

 
346,408

Total deposits
 
518,444

 
502,816

Interest, taxes and other liabilities
 
3,179

 
2,391

Short-term borrowings
 
30,000

 
30,000

Long-term debt
 
67

 
93

Total liabilities
 
551,690

 
535,300

STOCKHOLDERS' EQUITY
 
 
 
 
Common stock (8,251 shares issued and outstanding at June 30, 2019 and December 31, 2018)
 
5,156

 
5,156

Preferred stock (2,092 shares issued and outstanding at June 30, 2019 and December 31, 2018)
 
4,184

 
4,184

Additional paid-in capital
 
19,292

 
19,277

Retained earnings
 
31,762

 
30,131

Accumulated other comprehensive loss
 
(363
)
 
(2,107
)
Total stockholders' equity
 
60,031

 
56,641

Total liabilities and stockholders' equity
 
$
611,721

 
$
591,941

 
See accompanying Notes to Consolidated Financial Statements

3



Consolidated Statements of Income
(Amounts in thousands, except per share data)
(Unaudited)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
 
2019
 
2018
 
2019
 
2018
 
INTEREST INCOME
 
 
 
 
 
 
 
 
 
Loans receivable and fees on loans
 
$
5,652

 
$
5,276

 
$
11,305

 
$
10,591

 
Investment securities
 
433

 
438

 
845

 
916

 
Federal funds sold
 
227

 
57

 
368

 
127

 
Total interest income
 
6,312

 
5,771

 
12,518

 
11,634

 
INTEREST EXPENSE
 
 
 
 
 
 
 
 
 
Deposits
 
955

 
463

 
1,779

 
926

 
Other borrowed funds
 
275

 
323

 
548

 
687

 
Total interest expense
 
1,230

 
786

 
2,327

 
1,613

 
Net interest income
 
5,082

 
4,985

 
10,191

 
10,021

 
Provision for loan losses
 
836

 
172

 
939

 
344

 
Net interest income after provision for loan losses
 
4,246

 
4,813

 
9,252

 
9,677

 
NONINTEREST INCOME
 
 
 
 
 
 
 
 
 
Service charges on deposit accounts
 
338

 
342

 
680

 
679

 
Other service charges, commissions and fees
 
378

 
428

 
717

 
847

 
Mortgage banking income
 
48

 
52

 
96

 
152

 
Securities gains, net
 
(7
)
 

 
(7
)
 

 
Other operating income
 
176

 
167

 
337

 
393

 
Total noninterest income
 
933

 
989

 
1,823

 
2,071

 
NONINTEREST EXPENSE
 
 
 
 
 
 
 
 
 
Salaries and employee benefits
 
2,281

 
2,380

 
4,697

 
4,783

 
Occupancy and equipment expense
 
527

 
750

 
1,142

 
1,481

 
OREO expenses, net
 
92

 
146

 
142

 
277

 
Other operating expense
 
1,633

 
1,356

 
3,106

 
3,257

 
Total noninterest expense
 
4,533

 
4,632

 
9,087

 
9,798

 
Income before income taxes
 
646

 
1,170

 
1,988

 
1,950

 
Income tax expense (Note 5)
 
75

 
247

 
357

 
417

 
Net income
 
$
571

 
$
923

 
$
1,631

 
$
1,533

 
Net income per common share (Note 7)
 
 
 
 
 
 
 
 
 
Basic
 
$
0.07

 
$
0.11

 
0.20

 
0.19

 
Fully diluted
 
0.06

 
0.09

 
0.16

 
0.15

 

See accompanying Notes to Consolidated Financial Statements

4



Consolidated Statements of Comprehensive Income
(Amounts in thousands)
(Unaudited) 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
 
2019
 
2018
 
2019
 
2018
 
Net income
 
$
571

 
$
923

 
$
1,631

 
$
1,533

 
Other comprehensive income (loss)
 
 
 
 
 
 
 
 
 
Unrealized gains (losses) on securities during the period
 
1,126

 
(332
)
 
2,209

 
(1,629
)
 
Less: reclassification adjustment
 
7

 

 
7

 

 
Other comprehensive income (loss) before tax
 
1,133

 
(332
)
 
2,216

 
(1,629
)
 
Income tax (expense) benefit related to other comprehensive income (loss)
 
(229
)
 
71

 
(472
)
 
342

 
Other comprehensive income (loss)
 
904

 
(261
)
 
1,744

 
(1,287
)
 
Comprehensive income
 
$
1,475

 
$
662

 
$
3,375

 
$
246

 

See accompanying Notes to Consolidated Financial Statements

5



Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited) 
 
 
Six Months Ended June 30,
 
 
2019
 
2018
CASH FLOWS FROM OPERATING  ACTIVITIES:
 
 
 
 
Net income
 
$
1,631

 
$
1,533

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

 
 

Provision for loan losses
 
939

 
344

Depreciation and amortization
 
681

 
809

Provision for deferred tax assets
 
356

 
351

Net realized losses on available for sale securities
 
7

 

Restricted stock expense
 
15

 
111

Originations of loans held for sale
 
(4,182
)
 
(10,471
)
Proceeds from loans held for sale
 
3,584

 
13,855

Increase (decrease) in interest receivable
 
(393
)
 
259

Valuation adjustment of real estate held for sale
 

 
60

Valuation adjustment of other real estate owned
 

 
199

(Increase) decrease in other assets
 
(504
)
 
143

Increase in interest, taxes and other liabilities
 
668

 
118

Net cash provided by operating activities
 
2,802

 
7,311

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 

 
 

Securities available for sale:
 
 

 
 

Proceeds from sale of securities
 
944

 

Proceeds from maturities of securities
 
4,475

 
5,864

Purchase of debt and equity securities
 
(1,024
)
 

Redemptions of other investments
 

 
340

Net decrease in loans
 
(5,792
)
 
(10,331
)
Proceeds from sales of other real estate owned
 
574

 
203

Proceeds from sale of real estate held for sale
 
227

 
378

Premises and equipment expenditures
 
(52
)
 
(99
)
Net cash used by investing activities
 
(648
)
 
(3,645
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 

 
 

Net increase (decrease) in time deposits
 
16,672

 
(5,787
)
Net (decrease) increase in demand, savings and other deposits
 
(1,044
)
 
5,320

Net decrease in short-term borrowings
 

 
(10,000
)
Decrease in long-term debt
 
(26
)
 
(26
)
Net cash provided (used) by financing activities
 
15,602

 
(10,493
)
Net change in cash and cash equivalents
 
17,756

 
(6,827
)
Cash and cash equivalents at beginning of period
 
30,066

 
30,797

Cash and cash equivalents at end of period
 
$
47,822

 
$
23,970

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 
 

 
 

Cash payments during the period for interest
 
$
1,901

 
$
1,623

Cash payments during the period for income taxes
 

 
65

SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
 
 

 
 

Transfer of loans to other real estate owned
 
754

 
285

See accompanying Notes to Consolidated Financial Statements

6



Consolidated Statements of Changes in Stockholders' Equity
(Amounts in thousands)
(Unaudited)
 
 
Common stock shares
 
Common stock par value
 
Preferred stock shares
 
Preferred stock par value
 
Additional paid-in-capital
 
Retained earnings
 
Accumulated
other
comprehensive
income (loss)
 
Stockholders'
equity
Three-month period
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance March 31, 2018
 
8,199

 
$
5,124

 
2,092

 
$
4,184

 
$
19,169

 
$
27,149

 
$
(2,182
)
 
$
53,444

Net income
 

 

 

 

 

 
923

 

 
923

Other comprehensive loss
 

 

 

 

 

 

 
(261
)
 
(261
)
Stock-based compensation
 

 

 

 

 
55

 

 

 
55

Balance June 30, 2018
 
8,199

 
$
5,124

 
2,092

 
$
4,184

 
$
19,224

 
$
28,072

 
$
(2,443
)
 
$
54,161

Balance March 31, 2019
 
8,251

 
$
5,156

 
2,092

 
$
4,184

 
$
19,292

 
$
31,191

 
$
(1,267
)
 
$
58,556

Net income
 

 

 

 

 

 
571

 

 
571

Other comprehensive income
 

 

 

 

 

 

 
904

 
904

Stock-based compensation
 

 

 

 

 

 

 

 

Balance June 30, 2019
 
8,251

 
$
5,156

 
2,092

 
$
4,184

 
$
19,292

 
$
31,762

 
$
(363
)
 
$
60,031

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six-month period
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance December 31, 2017
 
8,199

 
$
5,124

 
2,092

 
$
4,184

 
$
19,113

 
$
26,539

 
$
(1,156
)
 
$
53,804

Net income
 

 

 

 

 

 
1,533

 

 
1,533

Other comprehensive loss
 

 

 

 

 

 

 
(1,287
)
 
(1,287
)
Stock-based compensation
 

 

 

 

 
111

 

 

 
111

Balance June 30, 2018
 
8,199

 
$
5,124

 
2,092

 
$
4,184

 
$
19,224

 
$
28,072

 
$
(2,443
)
 
$
54,161

Balance December 31, 2018
 
8,251

 
$
5,156

 
2,092

 
$
4,184

 
$
19,277

 
$
30,131

 
$
(2,107
)
 
$
56,641

Net income
 

 

 

 

 

 
1,631

 

 
1,631

Other comprehensive income
 

 

 

 

 

 

 
1,744

 
1,744

Stock-based compensation
 

 

 

 

 
15

 

 

 
15

Balance June 30, 2019
 
8,251

 
$
5,156

 
2,092

 
$
4,184

 
$
19,292

 
$
31,762

 
$
(363
)
 
$
60,031

 
See accompanying Notes to Consolidated Financial Statements

7



Notes to Consolidated Financial Statements
(Unaudited)
(in thousands, except share, per share and percentage data)

Note 1  -  General

The consolidated financial statements of Highlands Bankshares, Inc. (the "Company") conform to United States generally accepted accounting principles and to banking industry practices. The accompanying consolidated interim financial statements are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of the consolidated financial statements have been included. All such adjustments are of a normal and recurring nature. The consolidated balance sheet as of December 31, 2018 has been extracted from the audited financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 (the "2018 Form 10-K"). The notes included herein should be read in conjunction with the notes to the consolidated financial statements included in the 2018 Form 10-K. The results of operations for the six-month period ended June 30, 2019, are not necessarily indicative of the results to be expected for the full year.

The preparation of financial statements 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Note 2 – Summary of Significant Accounting Policy Update For Certain Required Disclosures

In June 2016, ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments was issued by the FASB. This ASU significantly changes how entities will measure credit losses for most financial assets and certain other instruments that aren't measured at fair value through net income. The ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments. As initially adopted, ASU No. 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. Entities will apply the standard's provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach). During July 2019, the FASB voted to propose a deferral of the effective date for several of its recent standards, including ASU 2016-13. Based on the proposed extended adoption date, the provisions of ASU 2016-13 would be effective for the Company beginning January 1, 2023. The Company continues to evaluate the effect that implementation of the new standard will have on its financial position, results of operations, and cash flows.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company's financial position, results of operations or cash flows.

In February 2016, the FASB issued ASU 2016-02, Leases, which revised certain aspects of recognition, measurement, presentation, and disclosure of leasing transactions. ASU 2016-02 was effective for the Company on January 1, 2019. The standard provides for a modified retrospective transition approach requiring lessees to recognize and measure leases on the balance sheet at the beginning of either the earliest period presented or as of the beginning of the period of adoption with the option to elect certain practical expedients. The Company has elected to apply the standard as of the beginning of the period of adoption (January 1, 2019) and did not restate comparative periods. The Company has adopted all the optional practical expedients available under ASU 2016-02.

The operating leases of the Company relate to office space and bank branches. As a result of implementing ASU 2016-02, the Company recognized an operating lease right-of-use (“ROU”) asset and an operating lease liability of $120,000 on January 1, 2019, with no impact on net income or stockholders’ equity. The ROU asset and operating lease liability are recorded in premises and equipment and other liabilities, respectively, in the consolidated balance sheet as of March 31, 2019.

Operating lease ROU assets represent our right to use an underlying asset during the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents our incremental borrowing rate at the lease commencement date. Operating lease expense, which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized over the lease term, and is recorded in occupancy expense in the consolidated statements of operations.




8



Note 3 - Investment Securities Available For Sale

The amortized cost and market value of securities available for sale are as follows:
 
 
June 30, 2019
 
 
Amortized cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Fair value
State and political subdivisions
 
$
13,261

 
$
130

 
$
122

 
$
13,269

Mortgage backed securities
 
48,611

 
61

 
477

 
48,195

SBA pools
 
4,775

 
14

 
26

 
4,763

 
 
$
66,647

 
$
205

 
$
625

 
$
66,227


 
 
December 31, 2018
 
 
Amortized cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Fair value
State and political subdivisions
 
$
13,590

 
$
9

 
$
763

 
$
12,836

Mortgage backed securities
 
52,344

 
8

 
1,798

 
50,554

SBA pools
 
5,326

 

 
85

 
5,241

 
 
$
71,260

 
$
17

 
$
2,646

 
$
68,631


Investment securities available for sale with a fair value of $38,570 and $37,448 at June 30, 2019 and December 31, 2018, respectively, were pledged as collateral on public deposits, FHLB advances and for other purposes as required or permitted by law.
The following table presents the age of gross unrealized losses and fair value by investment category:
 
 
June 30, 2019
 
 
Less than 12 months
 
12 months or more
 
Total
 
 
Fair value
 
Unrealized losses
 
Fair value
 
Unrealized losses
 
Fair value
 
Unrealized losses
State and political subdivisions
 
$
1,017

 
$
7

 
$
6,651

 
$
115

 
$
7,668

 
$
122

Mortgage-backed securities
 
1,023

 
1

 
38,643

 
476

 
39,666

 
477

SBA pools
 

 

 
4,763

 
26

 
4,763

 
26

Total
 
$
2,040

 
$
8

 
$
50,057

 
$
617

 
$
52,097

 
$
625


 
 
December 31, 2018
 
 
Less than 12 months
 
12 months or more
 
Total
 
 
Fair value
 
Unrealized losses
 
Fair value
 
Unrealized losses
 
Fair value
 
Unrealized losses
State and political subdivisions
 
$
3,608

 
$
73

 
$
7,791

 
$
690

 
$
11,399

 
$
763

Mortgage-backed securities
 
2,319

 
8

 
46,661

 
1,790

 
48,980

 
1,798

SBA pools
 

 

 
5,218

 
85

 
5,218

 
85

Total
 
$
5,927

 
$
81

 
$
59,670

 
$
2,565

 
$
65,597

 
$
2,646


The Company assesses its securities for OTTI quarterly by reviewing credit ratings, financial and regulatory reports as well as other pertinent published financial data. As of June 30, 2019 and December 31, 2018, the Company's assessment revealed no impairment other than that deemed temporary on those securities.

The amortized cost and estimated fair value of securities available for sale at June 30, 2019 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

9




 
 
 
June 30, 2019
 
December 31, 2018
 
 
 
Amortized cost
 
Fair value
 
Amortized cost
 
Fair value
 
 
Investment securities with scheduled maturities:
 
 
 
 
 
 
 
 
 
Due in one year or less
 
$
208

 
$
209

 
$
98

 
$
100

 
Due after one year through five years
 

 

 
367

 
366

 
Due after five years through ten years
 
3,240

 
3,241

 
2,782

 
2,638

 
Due after ten years
 
14,588

 
14,582

 
15,669

 
14,973

 
Total investment securities with scheduled maturities
 
18,036

 
18,032

 
18,916

 
18,077

 
Mortgage-backed securities
 
48,611

 
48,195

 
52,344

 
50,554

 
Total investment securities available for sale
 
$
66,647

 
$
66,227

 
$
71,260

 
$
68,631



The following table summarizes the securities gains (losses) recognized for the periods presented:
 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Gross gains
 
$

 
$

 
$

 
$

Gross losses
 
(7
)
 

 
(7
)
 

Securities gains, net
 
$
(7
)
 
$

 
$
(7
)
 
$



Note 4  -  Loans and Allowance for Loan Losses

 The composition of net loans is as follows:
 
 
June 30, 2019
 
December 31, 2018
Real estate secured:
 
 
 
 
Residential 1-4 family
 
$
168,196

 
$
165,109

Multifamily
 
21,270

 
18,378

Construction and land loans
 
23,204

 
21,029

Commercial, owner occupied
 
96,530

 
96,224

Commercial, non-owner occupied
 
37,388

 
39,869

Second mortgages
 
4,012

 
4,054

Equity lines of credit
 
29,778

 
30,221

Farmland
 
10,007

 
12,149

Total real estate secured
 
390,385

 
387,033

Non-real estate secured
 
 
 
 
Personal
 
11,225

 
12,754

Commercial
 
47,533

 
46,202

Agricultural
 
3,117

 
2,830

Total non-real estate secured
 
61,875

 
61,786

Gross loans
 
452,260

 
448,819

Less:
 
 
 
 
Allowance for loan losses
 
4,243

 
4,373

Net deferred fees
 
670

 
698

Loans, net
 
$
447,347

 
$
443,748


10




The following table is an analysis of past due loans as of June 30, 2019:
 
 
Past Due
 
 
 
 
 
 
 
 
30-89 days
 
90 days and over
 
Total
 
Current
 
Total
 
> 90 Days and Accruing
Real estate secured
 
 
 
 
 
 
 
 
 
 
 
 
Residential 1-4 family
 
$
820

 
$
1,356

 
$
2,176

 
$
166,020

 
$
168,196

 
$

Equity lines of credit
 
20

 
64

 
84

 
29,694

 
29,778

 

Multifamily
 

 
402

 
402

 
20,868

 
21,270

 

Farmland
 
818

 
127

 
945

 
9,062

 
10,007

 

Construction, land development, other land loans
 
289

 
118

 
407

 
22,797

 
23,204

 

Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 
Owner-occupied
 

 
707

 
707

 
95,823

 
96,530

 

Non-owner-occupied
 
85

 

 
85

 
37,303

 
37,388

 

Second mortgages
 

 

 

 
4,012

 
4,012

 

Non-real estate secured
 
 
 
 
 
 
 
 
 
 
 
 
Personal
 
63

 
11

 
74

 
11,151

 
11,225

 

Commercial
 
253

 
575

 
828

 
46,705

 
47,533

 
168

Agricultural
 

 

 

 
3,117

 
3,117

 

Total
 
$
2,348

 
$
3,360

 
$
5,708

 
$
446,552

 
$
452,260

 
$
168


The following table is an analysis of past due loans as of December 31, 2018:
 
 
Past Due
 
 
 
 
 
 
 
 
30-89 days
 
90 days and over
 
Total
 
Current
 
Total
 
> 90 Days and Accruing
Real estate secured
 
 
 
 
 
 
 
 
 
 
 
 
Residential 1-4 family
 
$
1,481

 
$
819

 
$
2,300

 
$
162,809

 
$
165,109

 
$
105

Equity lines of credit
 
218

 
75

 
293

 
29,928

 
30,221

 

Multifamily
 
402

 

 
402

 
17,976

 
18,378

 

Farmland
 
754

 

 
754

 
11,395

 
12,149

 

Construction, land development, other land loans
 
16

 

 
16

 
21,013

 
21,029

 

Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 
Owner-occupied
 
9

 
756

 
765

 
95,459

 
96,224

 

Non-owner-occupied
 

 
1,859

 
1,859

 
38,010

 
39,869

 

Second mortgages
 

 

 

 
4,054

 
4,054

 

Non-real estate secured
 
 
 
 
 
 
 
 
 
 
 
 
Personal
 
186

 
4

 
190

 
12,564

 
12,754

 

Commercial
 
82

 
114

 
196

 
46,006

 
46,202

 
2

Agricultural
 

 

 

 
2,830

 
2,830

 

Total
 
$
3,148

 
$
3,627

 
$
6,775

 
$
442,044

 
$
448,819

 
$
107


Loans are considered delinquent when payments have not been made according to the terms of the contract. The accrual of interest on loans is discontinued at the time the loan is 90 days delinquent unless the credit is well-secured and in process of collection.  Additionally, in certain instances, loans that have been restructured or modified may also be classified as non-accrual per regulatory guidance until a satisfactory payment history has been established. Credit card loans and other personal loans are typically charged off no later than 180 days past due. In all cases, loans are placed on non-accrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.

11



The following is a summary of non-accrual loans at June 30, 2019 and December 31, 2018
 
 
June 30, 2019
 
December 31, 2018
Real estate secured
 
 
 
 
Residential 1-4 family
 
$
1,707

 
$
1,196

Multifamily
 
402

 

Construction and land loans
 
124

 
8

Commercial real estate:
 
 
 
 
Owner-occupied
 
1,967

 
2,038

Non-owner-occupied
 
143

 
2,004

Equity lines of credit
 
64

 
75

Farmland
 
127

 
142

Non-real estate secured
 
 
 
 
Personal
 
12

 
26

Commercial and agricultural
 
719

 
431

Total
 
$
5,265

 
$
5,920


The following is a summary of residential real estate currently in the process of foreclosure as well as foreclosed residential real estate as of June 30, 2019.
 
 
Number
 
Balance
Real estate in the process of foreclosure
 
7

 
$
972

Foreclosed residential real estate
 
7

 
675


The following tables represent a summary of credit quality indicators of the Company's loan portfolio at June 30, 2019 and December 31, 2018. The grades are assigned and/or modified by the Company's credit review and credit analysis departments based on the creditworthiness of the borrower and the overall strength of the loan.

The following tables provide the credit risk profile by internally assigned grade as of June 30, 2019 and December 31, 2018
June 30, 2019
 
Residential 1-4 Family
 
Multifamily
 
Farmland
 
Construction, Land Loans
 
Commercial Real Estate- Owner Occupied
 
Commercial Real Estate Non-Owner Occupied
Quality
 
$
11,706

 
$

 
$

 
$
583

 
$
1,384

 
$
339

Satisfactory
 
94,347

 
6,714

 
2,100

 
5,485

 
35,216

 
12,028

Acceptable
 
55,983

 
12,114

 
2,827

 
13,976

 
48,807

 
18,758

Special Mention
 
844

 
2,039

 

 
2,978

 
4,784

 
4,693

Substandard
 
5,316

 
403

 
5,080

 
182

 
6,339

 
1,570

Doubtful
 

 

 

 

 

 

Total
 
$
168,196

 
$
21,270

 
$
10,007

 
$
23,204

 
$
96,530

 
$
37,388


12



December 31, 2018
 
Residential 1-4 Family
 
Multifamily
 
Farmland
 
Construction, Land Loans
 
Commercial Real Estate- Owner Occupied
 
Commercial Real Estate Non-Owner Occupied
Quality
 
$
12,991

 
$

 
$

 
$
724

 
$
1,632

 
$
131

Satisfactory
 
107,925

 
4,276

 
2,736

 
5,314

 
39,679

 
13,046

Acceptable
 
37,036

 
13,700

 
3,617

 
13,349

 
47,963

 
21,073

Special Mention
 
1,696

 
402

 

 
1,565

 
2,720

 
3,615

Substandard
 
5,461

 

 
5,796

 
77

 
4,230

 
2,004

Doubtful
 

 

 

 

 

 

Total
 
$
165,109

 
$
18,378

 
$
12,149

 
$
21,029

 
$
96,224

 
$
39,869


Explanation of credit grades:
Quality-This grade is reserved for the Bank's top quality loans. These loans have excellent sources of repayment, with no significant identifiable risk of collection.  Generally, loans assigned this rating will demonstrate the following characteristics:
Conformity in all respects with Bank policy, guidelines, underwriting standards, and Federal and State regulations (no exceptions of any kind).
Documented historical cash flow that meets or exceeds required minimum Bank guidelines, or that can be supplemented with verifiable cash flow from other sources.
Adequate secondary sources to liquidate the debt, including combinations of liquidity, liquidation of collateral, or liquidation value to the net worth of the borrower or guarantor.
For existing loans, all of the requirements above apply plus all payments have been made as agreed, current financial information on all borrowers and guarantors has been obtained and analyzed, and overall business operating trends are either stable or improving.
Satisfactory-This grade is given to performing loans. These loans have adequate sources of repayment, with little identifiable risk of collection. Loans assigned this rating will demonstrate the following characteristics:
General conformity to the Bank's policy requirements, product guidelines and underwriting standards.  Any exceptions that are identified during the underwriting and approval process have been adequately mitigated by other factors.
Documented historical cash flow that meets or exceeds required minimum Bank guidelines, or that can be supplemented with verifiable cash flow from other sources.  
Adequate secondary sources to liquidate the debt, including combinations of liquidity, liquidation of collateral, or liquidation value to the net worth of the borrower or guarantor.
For existing loans, all of the requirements outlined above will apply, plus all payments have been made as agreed, current financial information on all borrowers and guarantors has been obtained and analyzed, and overall business operating trends are stable with any declines considered minor and temporary.
Acceptable-This grade is given to loans that show signs of weakness in either adequate sources of repayment or collateral, but have demonstrated mitigating factors that minimize the risk of delinquency or loss.  Loans assigned this rating may demonstrate some or all of the following characteristics:
Additional exceptions to the Bank's policy requirements, product guidelines or underwriting standards that present a higher degree of risk to the Bank.  Although the combination and/or severity of identified exceptions is greater, all exceptions have been properly mitigated by other factors.
Unproved, insufficient or marginal primary sources of repayment that appear sufficient to service the debt at this time.  Repayment weaknesses may be due to minor operational issues, financial trends, or reliance on projected (not historic) performance.
Marginal or unproven secondary sources to liquidate the debt, including combinations of liquidation of collateral and liquidation value to the net worth of the borrower or guarantor.
For existing loans, payments have generally been made as agreed with only minor and isolated delinquencies.

13



Special Mention-This grade is given to Watch List loans that include the following characteristics:
Loans with underwriting guideline tolerances and/or exceptions with no identifiable mitigating factors.
Extending loans that are currently performing satisfactorily but with potential weaknesses that may, if not corrected, weaken the asset or inadequately protect the Bank's position at some future date. Potential weaknesses are the result of deviations from prudent lending practices.
Loans where adverse economic conditions that develop subsequent to the loan origination do not jeopardize liquidation of the debt, but do substantially increase the level of risk may also warrant this rating.
Substandard-Loans in this category are characterized by deterioration in quality exhibited by any number of well-defined weaknesses requiring corrective action. A substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as substandard must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt; they are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
The weaknesses may include, but are not limited to:
High debt to worth ratios and or declining or negative earnings trends
Declining or inadequate liquidity
Improper loan structure  or questionable repayment sources
Lack of well-defined secondary repayment source, and
Unfavorable competitive comparisons.
Such loans are no longer considered to be adequately protected due to the borrower's declining net worth, lack of earnings capacity, declining collateral margins and/or unperfected collateral positions. A possibility of loss of a portion of the loan balance cannot be ruled out. The repayment ability of the borrower is marginal or weak and the loan may have exhibited excessive overdue status or extensions and/or renewals.
Doubtful-Loans classified Doubtful have all the weaknesses inherent in loans classified Substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable. The ability of the borrower to service the debt is extremely weak, overdue status is constant, the debt has been placed on non-accrual status, and no definite repayment schedule exists.
However, these loans are not yet rated as loss because certain events may occur which would salvage the debt. Among these events are:
Injection of capital
Alternative financing
Liquidation of assets or the pledging of additional collateral.

Credit Risk Profile based on payment activity as of June 30, 2019:

 
 
Consumer - Non Real Estate
 
Equity Line of Credit /Second Mortgages
 
Commercial - Non Real Estate
 
Agricultural - Non Real Estate
Performing
 
$
11,214

 
$
33,726

 
$
46,958

 
$
3,117

Nonperforming (>90 days past due)
 
11

 
64

 
575

 

Total
 
$
11,225

 
$
33,790

 
$
47,533

 
$
3,117


Credit Risk Profile based on payment activity as of December 31, 2018:

 
 
Consumer - Non Real Estate
 
Equity Line of Credit /Second Mortgages
 
Commercial - Non Real Estate
 
Agricultural - Non Real Estate
Performing
 
$
12,750

 
$
34,200

 
$
46,088

 
$
2,830

Nonperforming (>90 days past due)
 
4

 
75

 
114

 

Total
 
$
12,754

 
$
34,275

 
$
46,202

 
$
2,830


14




The following tables reflect the Bank's impaired loans at June 30, 2019:
June 30, 2019
 
Recorded Investment
 
Unpaid Principal Balance
 
Related Allowance
 
Average Recorded Investment
 
Interest Income Recognized
With no related allowance
 
 
 
 
 
 
 
 
Real estate secured
 
 
 
 
 
 
 
 
 
 
Residential 1-4 family
 
$
4,890

 
$
4,890

 
$

 
$
4,518

 
$
314

Equity lines of credit
 

 

 

 
2

 

Multifamily
 

 

 

 
134

 

Farmland
 
5,074

 
5,074

 

 
5,254

 
29

Construction, land development, other land loans
 
1,967

 
1,967

 

 
1,746

 
64

Commercial real estate- owner occupied
 
3,831

 
3,831

 

 
4,256

 
133

Commercial real estate- non owner occupied
 

 

 

 

 

Second mortgages
 

 

 

 
128

 

Non-real estate secured
 
 

 
 
 
 
 
 
 
 
Personal
 
44

 
44

 

 
15

 

Commercial and agricultural
 
1,214

 
1,214

 

 
612

 
26

Total
 
$
17,020

 
$
17,020

 
$

 
$
16,665

 
$
566


June 30, 2019
 
Recorded Investment
 
Unpaid Principal Balance
 
Related Allowance
 
Average Recorded Investment
 
Interest Income Recognized
With an allowance recorded
 
 
 
 
 
 
 
 
Real estate secured
 
 
 
 
 
 
 
 
 
 
Residential 1-4 family
 
$
732

 
$
732

 
$
209

 
$
445

 
$
71

Equity lines of credit
 
64

 
64

 
25

 
44

 
2

Multifamily
 
402

 
402

 
112

 
275

 
8

Farmland
 

 

 

 
577

 

Construction, land development, other land loans
 
58

 
58

 

 
19

 
9

Commercial real estate- owner occupied