Company Quick10K Filing
Highlands Bankshares
Price5.40 EPS0
Shares10 P/E23
MCap56 P/FCF8
Net Debt-23 EBIT6
TEV33 TEV/EBIT5
TTM 2019-09-30, in MM, except price, ratios
10-Q 2019-09-30 Filed 2019-11-14
10-Q 2019-06-30 Filed 2019-08-12
10-Q 2019-03-31 Filed 2019-05-15
10-K 2018-12-31 Filed 2019-03-28
10-Q 2018-09-30 Filed 2018-11-13
10-Q 2018-06-30 Filed 2018-08-10
10-Q 2018-03-31 Filed 2018-05-14
10-K 2017-12-31 Filed 2018-04-02
10-Q 2017-09-30 Filed 2017-11-13
10-Q 2017-06-30 Filed 2017-08-10
10-Q 2017-05-10 Filed 2017-05-10
10-K 2017-03-30 Filed 2017-03-30
10-Q 2016-11-11 Filed 2016-11-14
10-Q 2016-08-12 Filed 2016-08-12
10-Q 2016-05-13 Filed 2016-05-13
10-K 2016-03-29 Filed 2016-03-30
10-Q 2015-11-10 Filed 2015-11-13
10-Q 2015-08-12 Filed 2015-08-14
10-Q 2015-05-14 Filed 2015-05-14
10-K 2014-12-31 Filed 2015-03-30
10-Q 2014-11-11 Filed 2014-11-14
10-Q 2014-06-30 Filed 2014-08-14
10-Q 2014-03-31 Filed 2014-05-14
10-K 2013-12-31 Filed 2014-03-31
10-Q 2013-09-30 Filed 2013-11-04
10-Q 2013-06-30 Filed 2013-08-14
10-Q 2013-03-31 Filed 2013-05-14
10-K 2012-12-31 Filed 2013-03-29
10-Q 2012-09-30 Filed 2012-11-14
10-Q 2012-06-30 Filed 2012-08-14
10-Q 2012-03-31 Filed 2012-05-14
10-K 2011-12-31 Filed 2012-03-30
10-Q 2011-09-30 Filed 2011-11-14
10-Q 2011-06-30 Filed 2011-08-12
10-Q 2011-03-31 Filed 2011-05-13
10-K 2010-12-31 Filed 2011-03-31
10-Q 2010-09-30 Filed 2010-11-15
10-Q 2010-06-30 Filed 2010-08-16
10-Q 2010-03-31 Filed 2010-05-14
10-K 2009-12-31 Filed 2010-04-15
8-K 2019-12-17
8-K 2019-09-11
8-K 2019-08-12
8-K 2019-08-01
8-K 2019-05-21
8-K 2019-05-21
8-K 2019-05-03
8-K 2019-04-30
8-K 2019-04-26
8-K 2019-02-08
8-K 2019-01-14
8-K 2018-11-01
8-K 2018-08-03
8-K 2018-05-15
8-K 2018-05-01
8-K 2018-03-29
8-K 2018-03-23
8-K 2018-02-12

HBKA 10Q Quarterly Report

Part I.
Item 1. Financial Statements
Note 1 - General
Note 2 - Proposed Merger with First Community Bankshares, Inc.
Note 3 - Summary of Significant Accounting Policy Update for Certain Required Disclosures
Note 4 - Investment Securities Available for Sale
Note 5 - Loans and Allowance for Loan Losses
Note 6 - Income Taxes
Note 7 - Capital Requirements
Note 8 - Stock and Earnings per Share
Note 9 - Commitments and Contingencies
Note 10 - 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 a2019q3ex311.htm
EX-31.2 a2019q3ex312.htm
EX-32.1 a2019q3ex321.htm
EX-32.2 a2019q3ex322.htm

Highlands Bankshares Earnings 2019-09-30

Balance SheetIncome StatementCash Flow

10-Q 1 a2019q310-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 September 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

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 November 14, 2019.





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

INDEX
PAGE
 
 

2



PART I.
FINANCIAL INFORMATION
ITEM 1.  Financial Statements
Consolidated Balance Sheets
(Amounts in thousands) 
 
 
(Unaudited)
September 30, 2019
 
December 31, 2018
ASSETS
 
 
 
 
Cash and due from banks
 
$
20,248

 
$
19,965

Federal funds sold
 
2,627

 
10,101

Total cash and cash equivalents
 
22,875

 
30,066

Investment securities available for sale (amortized cost $56,337 at September 30, 2019, $71,260 at December 31, 2018)
 
56,472

 
68,631

Other investments, at cost
 
1,493

 
2,774

Loans held for sale
 
233

 
265

Loans
 
453,239

 
448,121

Allowance for loan losses
 
(4,168
)
 
(4,373
)
Net loans
 
449,071

 
443,748

Premises and equipment, net
 
16,969

 
17,447

Real estate held for sale
 
590

 
817

Deferred tax assets
 
5,358

 
6,526

Interest receivable
 
1,962

 
1,617

Bank-owned life insurance
 
15,307

 
15,022

Other real estate owned
 
2,484

 
2,212

Other assets
 
2,460

 
2,816

Total assets
 
$
575,274

 
$
591,941

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
LIABILITIES
 
 
 
 
Deposits:
 
 
 
 
Non-interest bearing
 
$
154,279

 
$
156,408

Interest bearing
 
355,826

 
346,408

Total deposits
 
510,105

 
502,816

Interest, taxes and other liabilities
 
3,747

 
2,391

Short-term borrowings
 

 
30,000

Long-term debt
 
54

 
93

Total liabilities
 
513,906

 
535,300

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

 
5,156

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

 
4,184

Additional paid-in capital
 
19,312

 
19,277

Retained earnings
 
32,608

 
30,131

Accumulated other comprehensive loss
 
108

 
(2,107
)
Total stockholders' equity
 
61,368

 
56,641

Total liabilities and stockholders' equity
 
$
575,274

 
$
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 September 30,
 
Nine Months Ended September 30,
 
 
 
2019
 
2018
 
2019
 
2018
 
INTEREST INCOME
 
 
 
 
 
 
 
 
 
Loans receivable and fees on loans
 
$
5,912

 
$
5,558

 
$
17,217

 
$
16,149

 
Investment securities
 
388

 
434

 
1,233

 
1,350

 
Federal funds sold
 
85

 
17

 
453

 
144

 
Total interest income
 
6,385

 
6,009

 
18,903

 
17,643

 
INTEREST EXPENSE
 
 
 
 
 
 
 
 
 
Deposits
 
967

 
497

 
2,746

 
1,423

 
Other borrowed funds
 
116

 
294

 
664

 
981

 
Total interest expense
 
1,083

 
791

 
3,410

 
2,404

 
Net interest income
 
5,302

 
5,218

 
15,493

 
15,239

 
Provision for loan losses
 
548

 
198

 
1,487

 
542

 
Net interest income after provision for loan losses
 
4,754

 
5,020

 
14,006

 
14,697

 
NONINTEREST INCOME
 
 
 
 
 
 
 
 
 
Service charges on deposit accounts
 
348

 
396

 
1,028

 
1,075

 
Other service charges, commissions and fees
 
393

 
404

 
1,110

 
1,251

 
Mortgage banking income
 
54

 
116

 
150

 
268

 
Securities gains, net
 
28

 

 
21

 

 
Other operating income
 
152

 
152

 
489

 
545

 
Total noninterest income
 
975

 
1,068

 
2,798

 
3,139

 
NONINTEREST EXPENSE
 
 
 
 
 
 
 
 
 
Salaries and employee benefits
 
2,262

 
2,347

 
6,959

 
7,130

 
Occupancy and equipment expense
 
575

 
607

 
1,770

 
2,088

 
OREO expenses, net
 
40

 
89

 
182

 
366

 
Other operating expense
 
1,775

 
1,665

 
4,828

 
4,922

 
Total noninterest expense
 
4,652

 
4,708

 
13,739

 
14,506

 
Income before income taxes
 
1,077

 
1,380

 
3,065

 
3,330

 
Income tax expense (Note 6)
 
231

 
289

 
588

 
706

 
Net income
 
$
846

 
$
1,091

 
$
2,477

 
$
2,624

 
Net income per common share (Note 8)
 
 
 
 
 
 
 
 
 
Basic
 
$
0.10

 
$
0.13

 
0.30

 
0.32

 
Fully diluted
 
0.08

 
0.11

 
0.24

 
0.25

 

See accompanying Notes to Consolidated Financial Statements

4



Consolidated Statements of Comprehensive Income
(Amounts in thousands)
(Unaudited) 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
 
2019
 
2018
 
2019
 
2018
 
Net income
 
$
846

 
$
1,091

 
$
2,477

 
$
2,624

 
Other comprehensive income (loss)
 
 
 
 
 
 
 
 
 
Unrealized gains (losses) on securities during the period
 
555

 
(913
)
 
2,764

 
(2,210
)
 
Less: reclassification adjustment
 
(28
)
 

 
(21
)
 

 
Other comprehensive income (loss) before tax
 
527

 
(913
)
 
2,743

 
(2,210
)
 
Income tax (expense) benefit related to other comprehensive income (loss)
 
(56
)
 
185

 
(528
)
 
456

 
Other comprehensive income (loss)
 
471

 
(728
)
 
2,215

 
(1,754
)
 
Comprehensive income
 
$
1,317

 
$
363

 
$
4,692

 
$
870

 

See accompanying Notes to Consolidated Financial Statements

5



Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited) 
 
 
Nine Months Ended September 30,
 
 
2019
 
2018
CASH FLOWS FROM OPERATING  ACTIVITIES:
 
 
 
 
Net income
 
$
2,477

 
$
2,624

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

 
 

Provision for loan losses
 
1,487

 
542

Depreciation and amortization
 
1,015

 
1,161

Provision for deferred tax assets
 
487

 
633

Net realized gains on available for sale securities
 
(21
)
 

Restricted stock expense
 
35

 
165

Originations of loans held for sale
 
(5,453
)
 
(10,661
)
Proceeds from loans held for sale
 
5,485

 
13,855

Increase (decrease) in interest receivable
 
(345
)
 
83

Valuation adjustment of real estate held for sale
 

 
250

Valuation adjustment of other real estate owned
 

 
215

Decrease in other assets
 
191

 
1,345

Increase in interest, taxes and other liabilities
 
1,236

 
573

Net cash provided by operating activities
 
6,594

 
10,785

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 

 
 

Securities available for sale:
 
 

 
 

Proceeds from sale of securities
 
9,402

 

Proceeds from maturities of securities
 
7,395

 
8,405

Purchase of debt and equity securities
 
(2,170
)
 
(2,706
)
Redemptions of other investments
 
1,281

 
19

Net increase in loans
 
(8,926
)
 
(21,728
)
Proceeds from sales of other real estate owned
 
1,844

 
359

Proceeds from sale of real estate held for sale
 
227

 
378

Premises and equipment expenditures
 
(88
)
 
(164
)
Net cash provided (used) by investing activities
 
8,965

 
(15,437
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 

 
 

Net increase (decrease) in time deposits
 
11,634

 
(4,687
)
Net (decrease) increase in demand, savings and other deposits
 
(4,345
)
 
510

Net change in short-term borrowings
 
(30,000
)
 
2,120

Decrease in long-term debt
 
(39
)
 
(39
)
Net cash used by financing activities
 
(22,750
)
 
(2,096
)
Net change in cash and cash equivalents
 
(7,191
)
 
(6,748
)
Cash and cash equivalents at beginning of period
 
30,066

 
30,797

Cash and cash equivalents at end of period
 
$
22,875

 
$
24,049

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 
 

 
 

Cash payments during the period for interest
 
$
2,936

 
$
2,376

Cash payments during the period for income taxes
 

 
65

SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
 
 

 
 

Transfer of loans to other real estate owned
 
2,116

 
466

Reclassification of long-term debt to short-term borrowings
 

 
30,000

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 June 30, 2018
 
8,199

 
$
5,124

 
2,092

 
$
4,184

 
$
19,224

 
$
28,072

 
$
(2,443
)
 
$
54,161

Net income
 

 

 

 

 

 
1,091

 

 
1,091

Other comprehensive loss
 

 

 

 

 

 

 
(467
)
 
(467
)
Restricted stock award
 
50

 
32

 

 

 
(32
)
 

 

 

Stock-based compensation
 

 

 

 

 
54

 

 

 
54

Balance September 30, 2018
 
8,249

 
$
5,156

 
2,092

 
$
4,184

 
$
19,246

 
$
29,163

 
$
(2,910
)
 
$
54,839

Balance June 30, 2019
 
8,251

 
$
5,156

 
2,092

 
$
4,184

 
$
19,292

 
$
31,762

 
$
(363
)
 
$
60,031

Net income
 

 

 

 

 

 
846

 

 
846

Other comprehensive income
 

 

 

 

 

 

 
471

 
471

Stock-based compensation
 

 

 

 

 
20

 

 

 
20

Balance September 30, 2019
 
8,251

 
$
5,156

 
2,092

 
$
4,184

 
$
19,312

 
$
32,608

 
$
108

 
$
61,368

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

 
$
5,124

 
2,092

 
$
4,184

 
$
19,113

 
$
26,539

 
$
(1,156
)
 
$
53,804

Net income
 

 

 

 

 

 
2,624

 

 
2,624

Other comprehensive loss
 

 

 

 

 

 

 
(1,754
)
 
(1,754
)
Stock-based compensation
 

 

 

 

 
165

 

 

 
165

Restricted stock award
 
50

 
32

 
 

 
 

 
(32
)
 
 

 
 

 

Balance September 30, 2018
 
8,249

 
$
5,156

 
2,092

 
$
4,184

 
$
19,246

 
$
29,163

 
$
(2,910
)
 
$
54,839

Balance December 31, 2018
 
8,251

 
$
5,156

 
2,092

 
$
4,184

 
$
19,277

 
$
30,131

 
$
(2,107
)
 
$
56,641

Net income
 

 

 

 

 

 
2,477

 

 
2,477

Other comprehensive income
 

 

 

 

 

 

 
2,215

 
2,215

Stock-based compensation
 

 

 

 

 
35

 

 

 
35

Balance September 30, 2019
 
8,251

 
$
5,156

 
2,092

 
$
4,184

 
$
19,312

 
$
32,608

 
$
108

 
$
61,368

 
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 nine-month period ended September 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 - Proposed Merger with First Community Bankshares, Inc.
On September 11, 2019, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with First Community Bankshares, Inc., a Virginia corporation (“First Community”). The Merger Agreement provides that, upon the terms and conditions set forth therein, the Company will merge with and into First Community (the “Merger”), with First Community continuing as the surviving corporation. At the effective time of the Merger, the Company’s wholly-owned subsidiary, Highlands Union Bank, will merge with and into First Community's wholly-owned subsidiary, First Community Bank with First Community Bank continuing as the surviving entity.
Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger, the Company’s shareholders will have the right to receive 0.2703 shares of First Community common stock, par value $1.00, for each share of the Company’s common stock. Based on First Community's 20-day average price prior to announcement of the Merger, the estimated aggregate purchase price was $91,000,000.
The transaction is expected to close on December 31, 2019 or in the first quarter of 2020, subject to shareholder and regulatory approval and other customary closing conditions.

Note 3 – 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.

8




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 September 30, 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.


Note 4 - Investment Securities Available For Sale

The amortized cost and market value of securities available for sale are as follows:
 
 
September 30, 2019
 
 
Amortized cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Fair value
State and political subdivisions
 
$
9,877

 
$
221

 
$
9

 
$
10,089

Mortgage backed securities
 
41,920

 
103

 
201

 
41,822

SBA pools
 
4,540

 
29

 
8

 
4,561

 
 
$
56,337

 
$
353

 
$
218

 
$
56,472


 
 
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 $35,767 and $37,448 at September 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.

9



The following tables present the age of gross unrealized losses and fair value by investment category:
 
 
September 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
 
$
1,352

 
$
3

 
$
469

 
$
6

 
$
1,821

 
$
9

Mortgage-backed securities
 
4,215

 
15

 
26,352

 
186

 
30,567

 
201

SBA pools
 
1,607

 
8

 

 

 
1,607

 
8

Total
 
$
7,174

 
$
26

 
$
26,821

 
$
192

 
$
33,995

 
$
218


 
 
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 September 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 September 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.

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

 
$

 
$
98

 
$
100

 
Due after one year through five years
 

 

 
367

 
366

 
Due after five years through ten years
 
2,109

 
2,163

 
2,782

 
2,638

 
Due after ten years
 
12,308

 
12,487

 
15,669

 
14,973

 
Total investment securities with scheduled maturities
 
14,417

 
14,650

 
18,916

 
18,077

 
Mortgage-backed securities
 
41,920

 
41,822

 
52,344

 
50,554

 
Total investment securities available for sale
 
$
56,337

 
$
56,472

 
$
71,260

 
$
68,631



The following table summarizes the securities gains (losses) recognized for the periods presented:
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Gross gains
 
$
62

 
$

 
$
62

 
$

Gross losses
 
(34
)
 

 
(41
)
 

Securities gains, net
 
$
28

 
$

 
$
21

 
$




10



Note 5  -  Loans and Allowance for Loan Losses

 The composition of net loans is as follows:
 
 
September 30, 2019
 
December 31, 2018
Real estate secured:
 
 
 
 
Residential 1-4 family
 
$
161,939

 
$
165,109

Multifamily
 
23,758

 
18,378

Construction and land loans
 
24,587

 
21,029

Commercial, owner occupied
 
96,224

 
96,224

Commercial, non-owner occupied
 
38,166

 
39,869

Second mortgages
 
3,151

 
4,054

Equity lines of credit
 
28,528

 
30,221

Farmland
 
9,523

 
12,149

Total real estate secured
 
385,876

 
387,033

Non-real estate secured
 
 
 
 
Personal
 
11,627

 
12,754

Commercial
 
53,401

 
46,202

Agricultural
 
2,967

 
2,830

Total non-real estate secured
 
67,995

 
61,786

Gross loans
 
453,871

 
448,819

Less:
 
 
 
 
Allowance for loan losses
 
4,168

 
4,373

Net deferred fees
 
632

 
698

Loans, net
 
$
449,071

 
$
443,748


11




The following table is an analysis of past due loans as of September 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
 
$
1,368

 
$
780

 
$
2,148

 
$
159,791

 
$
161,939

 
$

Equity lines of credit
 
105

 
18

 
123

 
28,405

 
28,528

 

Multifamily
 

 

 

 
23,758

 
23,758

 

Farmland
 

 

 

 
9,523

 
9,523

 

Construction, land development, other land loans
 
50

 
69

 
119

 
24,468

 
24,587

 

Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 
Owner-occupied
 
690

 
1,244

 
1,934

 
94,290

 
96,224

 

Non-owner-occupied
 
84

 

 
84

 
38,082

 
38,166

 

Second mortgages
 

 

 

 
3,151

 
3,151

 

Non-real estate secured
 
 
 
 
 
 
 
 
 
 
 
 
Personal
 
91

 
23

 
114

 
11,513

 
11,627

 

Commercial
 
657

 
32

 
689

 
52,712

 
53,401

 
168

Agricultural
 
10

 

 
10

 
2,957

 
2,967

 

Total
 
$
3,055

 
$
2,166

 
$
5,221

 
$
448,650

 
$
453,871

 
$
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.

12



The following is a summary of non-accrual loans at September 30, 2019 and December 31, 2018
 
 
September 30, 2019
 
December 31, 2018
Real estate secured
 
 
 
 
Residential 1-4 family
 
$
873

 
$
1,196

Multifamily
 

 

Construction and land loans
 
352

 
8

Commercial real estate:
 
 
 
 
Owner-occupied
 
2,493

 
2,038

Non-owner-occupied
 

 
2,004

Equity lines of credit
 
18

 
75

Farmland
 
940

 
142

Non-real estate secured
 
 
 
 
Personal
 
28

 
26

Commercial and agricultural
 
651

 
431

Total
 
$
5,355

 
$
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 September 30, 2019.
 
 
Number
 
Balance
Real estate in the process of foreclosure
 
5

 
$
736

Foreclosed residential real estate
 
6

 
753


The following tables represent a summary of credit quality indicators of the Company's loan portfolio at September 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 September 30, 2019 and December 31, 2018
September 30, 2019
 
Residential 1-4 Family
 
Multifamily
 
Farmland
 
Construction, Land Loans
 
Commercial Real Estate- Owner Occupied
 
Commercial Real Estate Non-Owner Occupied
Quality
 
$
11,542

 
$

 
$

 
$
561

 
$
1,292

 
$
336

Satisfactory
 
93,155

 
8,348

 
2,077

 
4,855

 
31,743

 
11,404

Acceptable
 
51,432

 
13,390

 
2,714

 
15,763

 
51,094

 
21,253

Special Mention
 
674

 
2,020

 
395

 
2,954

 
4,818

 
3,663

Substandard
 
5,136

 

 
4,337

 
454

 
7,277

 
1,510

Doubtful
 

 

 

 

 

 

Total
 
$
161,939

 
$
23,758

 
$
9,523

 
$
24,587

 
$
96,224

 
$
38,166


13



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.

14



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 September 30, 2019:

 
 
Consumer - Non Real Estate
 
Equity Line of Credit /Second Mortgages
 
Commercial - Non Real Estate
 
Agricultural - Non Real Estate
Performing
 
$
11,604

 
$
31,661

 
$
53,369

 
$
2,967

Nonperforming (>90 days past due)
 
23

 
18

 
32

 

Total
 
$
11,627

 
$
31,679

 
$
53,401

 
$
2,967


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