10-Q 1 f10qhbi03312014.htm FORM 10-Q f10qhbi03312014.htm

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

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

For the quarterly period ended March 31, 2014

[   ] 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 o

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 o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or smaller reporting company (See definition of “large accelerated filer, accelerated filer and smaller reporting company” in Rule 12b-2 of the Act). Large Accelerated Filer  o   Accelerated Filer  o   Non-Accelerated Filer o  Smaller Reporting Company  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso  No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
        7,684,401 shares of common stock, par value $0.625 per share,
outstanding as of  May 14, 2014

 
1

 

Highlands Bankshares, Inc.

FORM 10-Q
For the Quarter Ended March 31, 2014

INDEX
   
PART I. FINANCIAL INFORMATION                                                                                                                      
PAGE
   
Item 1.  Financial Statements
 
   
Consolidated Balance Sheets
  at March 31, 2014 (Unaudited) and December 31, 2013
 
3
 
 
Consolidated Statements of Income (Unaudited)
  for the Three Months Ended March 31, 2014 and 2013
4
   
    Consolidated Statements of Comprehensive Income (Unaudited)
  for the Three Months Ended March 31, 2014 and 2013
5
   
Consolidated Statements of Cash Flows (Unaudited)
  for the Three Months Ended March 31, 2014 and 2013
6
   
Consolidated Statements of Changes in
  Stockholders’ Equity (Unaudited) for the Three Months
  Ended March 31, 2014 and 2013
7
   
Notes to Consolidated Financial Statements (Unaudited)
8-36
   
Item 2. Management’s Discussion and Analysis of
              Financial Condition and Results of Operations
37-42
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk
42
   
Item 4.  Controls and Procedures
43
 
 
PART II.  OTHER INFORMATION
 
   
Item 1.  Legal Proceedings
43
   
Item 1A. Risk Factors
44
   
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
44
   
Item 3.  Defaults Upon Senior Securities
44
   
Item 4.  Mine Safety Disclosures
44
   
Item 5.  Other Information
44
   
Item 6.  Exhibits
44
   
SIGNATURES AND CERTIFICATIONS
45

 
2

 

PART I.
FINANCIAL INFORMATION
ITEM 1.  Financial Statements

Consolidated Balance Sheets
(Amounts in thousands)
   
(Unaudited)
 March 31, 2014
   
(Note 1)
December 31, 2013
 
                                                         ASSETS
           
Cash and due from banks
  $ 16,321     $ 16,965  
Federal funds sold
    73,587       67,030  
                 
   Total Cash and Cash Equivalents
    89,908       83,995  
                 
Investment securities available for sale  (amortized cost $54,996 at  March 31, 2014, $56,582 at December 31, 2013)
    54,253       55,318  
Other investments, at cost
    4,538       4,710  
Loans, net of allowance for loan losses of  $6,679 at March 31, 2014, $6,825 at December 31, 2013
    399,386       396,961  
Premises and equipment, net
    20,193       20,188  
Deferred tax assets
    10,129       10,444  
Interest receivable
    2,307       2,171  
Bank owned life Insurance
    14,239       14,132  
Other real estate owned
    7,754       7,834  
Other assets
    2,594       2,559  
                 
    Total Assets
  $ 605,301     $ 598,312  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
                 
LIABILITIES
               
                 
Deposits:
               
  Non-interest bearing
  $ 113,441     $ 107,328  
  Interest bearing
    380,747       380,946  
                 
    Total Deposits
    494,188       488,274  
                 
Interest, taxes and other liabilities
    2,865       2,595  
Other short-term borrowings
    23,473       23,500  
Long-term debt
    47,789       47,802  
Capital securities
    3,150       3,150  
                 
    Total Other Liabilities
    77,277       77,047  
                 
    Total Liabilities
    571,465       565,321  
                 
STOCKHOLDERS’ EQUITY
               
                 
Common stock (5,011 shares issued and outstanding)
    3,132       3,132  
Additional paid-in capital
    7,783       7,783  
Retained earnings
    23,411       22,910  
Accumulated other comprehensive loss
    (490 )     (834 )
                 
  Total Stockholders’ Equity
    33,836       32,991  
                 
    Total Liabilities and Stockholders’ Equity
  $ 605,301     $ 598,312  
                 
 
See accompanying Notes to Consolidated Financial Statements

 
3

 

Consolidated Statements of Income
(Amounts in thousands, except per share data)
(Unaudited)
   
Three Months Ended 
March 31, 2014
   
Three Months Ended
March 31, 2013
 
INTEREST INCOME
           
Loans receivable and fees on loans
  $ 5,392     $ 5,403  
Securities available for sale:
               
  Taxable
    222       203  
  Exempt from taxable income
    123       141  
Other investment income
    45       30  
Federal funds sold
    38       40  
                 
    Total Interest Income
    5,820       5,817  
                 
INTEREST EXPENSE
               
Deposits
    663       785  
Other borrowed funds
    741       715  
                 
    Total Interest Expense
    1,404       1,500  
                 
    Net Interest Income
    4,416       4,317  
                 
Provision for Loan Losses
    265       219  
                 
    Net Interest Income after Provision for Loan Losses
    4,151       4,098  
                 
NON-INTEREST INCOME
               
Securities gains (losses), net
    -       (4 )
Service charges on deposit accounts
    452       499  
Other service charges, commissions and fees
    399       407  
Other  operating income
    149       165  
 
               
    Total Non-Interest Income
    1,000       1,067  
                 
NON-INTEREST EXPENSE
               
Salaries and employee benefits
    2,467       2,403  
Occupancy expense of bank premises
    280       303  
Furniture and equipment expense
    302       310  
Other operating expense
    1,189       1,351  
Foreclosed Assets – Write-down and Operating Expenses
    273       218  
                 
    Total Non-Interest Expense
    4,511       4,585  
                 
    Income Before Income Taxes
    640       580  
                 
Income Tax Expense (Note 3)
    139       116  
                 
    Net Income
  $  501     $ 464  
                 
Basic Earnings  Per Common Share (Note 6)
  $ 0.10     $ 0.09  
                 
Earnings Per Common Share – Assuming Dilution
  $ 0.10     $ 0.09  
                 
Dividends Per Share
  $ -     $ -  

See accompanying Notes to Consolidated Financial Statements


 
4

 

Consolidated Statements of Comprehensive Income
(Amounts in thousands)
(Unaudited)
   
Three Months Ended 
March 31, 2014
   
Three Months Ended March 31, 2013
 
             
             
Net Income
  $ 501     $ 464  
                 
     Other Comprehensive Income
               
  Unrealized gains  (losses) on securities during  the period
    521       (142 )
  Less: reclassification adjustment for losses  included in net income
    -       4  
          Other Comprehensive Income, before tax
    521       (138 )
           Income tax expense (benefit) related to other comprehensive income
    177       (45 )
    Other Comprehensive Income (Loss)
    344       (93 )
Comprehensive Income
  $ 845     $ 371  
                 

See accompanying Notes to Consolidated Financial Statements




































 
5

 

Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
   
Three Months Ended
   
Three Months Ended
 
   
March 31, 2014
   
March 31, 2013
 
CASH FLOWS FROM OPERATING  ACTIVITIES:
           
Net income
  $ 501     $ 464  
Adjustments to reconcile net income  to net cash provided by operating activities
               
Provision for loan losses
    265       219  
Depreciation and amortization
    221       236  
Net realized losses on available for sale securities
      -       4  
Net amortization on securities
    117       179  
Amortization of Capital issue costs
    1       1  
                Increase in interest receivable
    (136 )     (32 )
Valuation adjustment of other real estate owned
    111       61  
Decrease in other assets
    43       319  
Increase in interest, taxes and other liabilities
    297       203  
                 
Net cash provided by operating activities
     1,420        1,654  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Securities available for sale:
               
       Proceeds from sale of securities
    -       1,341  
Proceeds from maturities of debt and equity securities
    1,469       2,359  
Purchase of debt and equity securities
    -       (4,195 )
Redemption of other investments
    172       220  
Net increase in loans
    (3,020 )     (5,262 )
Proceeds from sales of other real estate owned
    219       1,300  
Premises and equipment expenditures
    (221 )     (91 )
                 
Net cash used in investing activities
    (1,381 )     (4,328 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Net decrease in time deposits
      (3,049 )     (6,656 )
Net increase in demand, savings and other deposits
    8,963       11,508  
Decrease in short-term borrowings
    (27 )     (6 )
Decrease in long-term debt
    (13 )     (40 )
                 
Net cash provided by financing activities
    5,874       4,806  
                 
Net increase in cash and cash equivalents
      5,913       2,132  
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
    83,995       81,208  
                 
CASH AND CASH EQUIVALENTS AT END OF PERIOD
  $ 89,908     $ 83,340  
                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
               
Cash paid during the year for:
               
Interest
  $ 1,139     $ 1,504  
Income taxes
  $ -     $ -  
                 
     SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
               
Transfer of loans to other real estate owned
  $ 330     $ 339  
Loans originated from sales of other real estate owned
  $ 56     $ 271  

See accompanying Notes to Consolidated Financial Statements



 
6

 


Consolidated Statements of Changes in Stockholders’ Equity
(Amounts in thousands)
(Unaudited)
                           
Accumulated
       
               
Additional
         
Other
   
Total
 
   
Common Stock
   
Paid-in
   
Retained
   
Comprehensive
   
Stockholders’
 
   
Shares
   
Par Value
   
Capital
   
Earnings
   
Income
   
Equity
 
                                     
Balance, December 31, 2012
    5,011     $ 3,132     $ 7,783     $ 21,428     $ (1,871 )   $ 30,472  
                                                 
Net income
    -       -       -       464       -       464  
                                                 
Other comprehensive loss
    -       -       -       -       (93 )     (93 )
                                                 
                                                 
Balance, March 31, 2013
    5,011     $ 3,132     $ 7,783     $ 21,892     $ (1,964 )   $ 30,843  
                                                 
Balance, December 31, 2013
    5,011     $ 3,132     $ 7,783     $ 22,910     $ (834 )   $ 32,991  
                                                 
Net income
    -       -       -       501       -       501  
                                                 
Other comprehensive income
    -       -       -       -       344       344  
                                                 
                                                 
Balance, March 31, 2014
    5,011     $ 3,132     $ 7,783     $ 23,411     $ (490 )   $ 33,836  
                                                 
                                                 

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, 2013 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, 2013 (the “2013 Form 10-K”). The notes included herein should be read in conjunction with the notes to consolidated financial statements included in the 2013 Form 10-K. The results of operations for the three-month period ended March 31, 2014 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  -  Loans and Allowance for Loan Losses  (amounts in thousands)
 
The composition of net loans is as follows:

 
March 31, 2014
   
December 31, 2013
 
Real Estate Secured:
         
Residential 1-4 family
$ 181,396     $ 175,860  
Multifamily
  20,178       20,592  
Construction and Land Loans
  18,248       18,509  
Commercial, Owner Occupied
  71,757       71,459  
Commercial, Non-owner occupied
  35,331       37,117  
Second mortgages
  7,807       7,934  
Equity lines of credit
        7,536       7,884  
Farmland
  8,922       9,322  
    351,175       348,677  
               
Secured (other) and unsecured
             
Personal
  19,900       20,472  
Commercial
  32,263       31,575  
Agricultural
  3,065       3,376  
    55,228       55,423  
               
Overdrafts
  285       304  
               
    406,688       404,404  
Less:
             
  Allowance for loan losses
        6,679             6,825  
  Net deferred fees
  623             618  
    7,302       7,443  
               
Loans, net
$ 399,386     $ 396,961  







 
8

 


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

The following table is an analysis of past due loans as of March 31, 2014:

   
30-59 Days Past Due
   
60-89 Days Past Due
   
Greater Than 90 Days
   
Total Past Due
   
Current
   
Total Financing Receivables
   
Recorded Investment > 90 Days and
Accruing
 
                                           
Real Estate Secured
                                         
Residential 1-4 family
  $ 4,646     $ 1,433     $ 3,264     $ 9,343     $ 172,053     $ 181,396     $ -  
Equity lines of credit
    60       58       281       399       7,137       7,536       -  
Multifamily
    -       -       -       -       20,178       20,178       -  
Farmland
    227       206       129       562       8,360       8,922       -  
Construction, Land Development, Other Land Loans
    726       24       1,.642       2,392       15,856       18,248       -  
Commercial Real Estate- Owner Occupied
    594       329       2,096       3,019       68,738       71,757       -  
Commercial Real Estate- Non Owner Occupied
    1,559       -       2,608       4,167       31,164       35,331       -  
Second Mortgages
    39       68       81       188       7,619       7,807       -  
Non Real Estate Secured
                                                       
Personal
    389       78       234       701       19,484       20,185       25  
Commercial
    321       133       228       682       31,581       32,263       -  
Agricultural
    -       -       -       -       3,065       3,065       -  
                                                         
          Total
  $ 8,561     $ 2,329     $ 10,563     $ 21,453     $ 385,235     $ 406,688     $ 25  
                                                         


 
9

 
 
Notes to Consolidated Financial Statements
(Unaudited)
(in thousands, except share, per share and percentage data)
 
 
The following table is an analysis of past due loans as of December 31, 2013:

   
30-59 Days Past Due
   
60-89 Days Past Due
   
Greater Than 90 Days
   
Total Past Due
   
Current
   
Total Financing Receivables
   
Recorded Investment > 90 Days and Accruing
 
                                           
Real Estate Secured
                                         
Residential 1-4 family
  $ 3,219     $ 1,805     $ 2,699     $ 7,723     $ 168,137     $ 175,860     $ -  
Equity lines of credit
    -       -       318       318       7,566       7,884       -  
Multifamily
    -       97       -       97       20,495       20,592       -  
Farmland
    38       -       129       167       9,155       9,322       -  
Construction,  Land Development, Other Land Loans
    303       117       1,615       2,035       16,474       18,509       -  
Commercial Real Estate- Owner Occupied
    665       26       1,610       2,301       69,158       71,459       -  
Commercial Real Estate- Non Owner Occupied
    234       2,257       637       3,128       33,989       37,117       -  
Second Mortgages
    341       3       56       400       7,534       7,934       -  
Non Real Estate Secured
                                                       
Personal
    357       177       146       680       20,096       20,776       2  
Commercial
    1,344       121       266       1,731       29,844       31,575       -  
Agricultural
    29       -       -       29       3,347       3,376       -  
                                                         
          Total
  $ 6,530     $ 4,603     $ 7,476     $ 18,609     $ 385,795     $ 404,404     $ 2  
                                                         



 
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.  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.

The following is a summary of non-accrual loans at March 31, 2014 and December 31, 2013:
 
March 31, 2014
   
December 31, 2013
 
Real Estate Secured
         
Residential 1-4 Family
$ 3,264     $ 2,890  
Multifamily
  -       -  
Construction and Land Loans
  1,696       1,694  
Commercial-Owner Occupied
  3,491       3,005  
Commercial- Non Owner Occupied
  2,608       2,429  
Second Mortgages
  81       92  
Equity Lines of Credit
  281       318  
Farmland
  129       146  
Secured (other) and Unsecured
             
Personal
  209       144  
Commercial
  228       266  
Agricultural
  -       -  
               
Total
$ 11,987     $ 10,984  























 
10

 

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

The following tables represent a summary of credit quality indicators of the Company’s loan portfolio at March 31, 2014 and December 31, 2013.  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.

Credit Risk Profile by Internally Assigned Grade as of March 31, 2014
Grade (1)
 
Residential 1-4 Family
   
Multifamily
   
Farmland
   
Construction, Land Loans
   
Commercial Real Estate- Owner Occupied
   
Commercial Real Estate Non-Owner Occupied
 
                                     
Quality
    32,803       -       527       3,138       4,053       1,428  
Satisfactory
    92,752       16,094       3,246       7,982       29,430       14,723  
Acceptable
    42,005       1,958       4,024       4,214       21,688       10,220  
Special Mention
    4,540       2,126       459       1,299       7,592       2,298  
Substandard
    9,296       -       666       1,615       8,994       6,662  
Doubtful
    -       -       -       -       -       -  
                                                 
     Total
  $ 181,396     $ 20,178     $ 8,922     $ 18,248     $ 71,757     $ 35,331  


Credit Risk Profile by Internally Assigned Grade as of December 31, 2013
Grade (1)
 
Residential 1-4 Family
   
Multifamily
   
Farmland
   
Construction, Land Loans
   
Commercial Real Estate- Owner Occupied
   
Commercial Real Estate Non-Owner Occupied
 
                                     
Quality
    33,137       -       823       3,425       5,831       1,495  
Satisfactory
    90,569       15,419       4,128       8,123       27,712       15,153  
Acceptable
    38,958       3,049       3,699       3,733       22,007       11,148  
Special Mention
    4,678       2,124       6       1,652       6,823       2,507  
Substandard
    8,518       -       666       1,576       8,620       6,814  
Doubtful
    -       -       -       -       466       -  
                                                 
     Total
  $ 175,860     $ 20,592     $ 9,322     $ 18,509     $ 71,459     $ 37,117  


 
(1)  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.  
 

 
11

 


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

 

 
12

 

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

 
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  March 31, 2014
   
Consumer - Non
Real Estate
   
Equity Line of Credit / Second Mortgages
   
Commercial - Non Real Estate
   
Agricultural - Non Real Estate
 
                         
Performing
  $ 19,951     $ 14,981     $ 32,035     $ 3,065  
Nonperforming (>90 days past due)
    234       362       228       -  
                                 
     Total
  $ 20,185     $ 15,343     $ 32,263     $ 3,065  
                                 


Credit Risk Profile based on payment activity as of  December 31, 2013
   
Consumer - Non
Real Estate
   
Equity Line of Credit / Second Mortgages
   
Commercial - Non Real Estate
   
Agricultural - Non Real Estate
 
                         
Performing
  $ 20,650     $ 15,444     $ 31,309     $ 3,376  
Nonperforming (>90 days past due)
    146       374       266       -  
                                 
     Total
  $ 20,796     $ 15,818     $ 31,575     $ 3,376  
                                 

















 
13

 


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

The following tables reflect the Bank’s impaired loans at March 31, 2014:
 
 
March 31, 2014
 
Recorded Investment
   
Unpaid Principal Balance
   
Related Allowance
   
Average Recorded Investment
   
Interest Income Recognized
 
With No Related Allowance
                             
Real Estate Secured
                             
Residential 1-4 family
  $ 5,587     $ 5,587     $ -     $ 5,815     $ 32  
Equity lines of credit
    349       349       -       357       1  
Multifamily
    -       -       -       -       -  
Farmland
    466       466       -       475       4  
Construction, Land Development, Other Land Loans
    1,551       1,551       -       1,623       -  
Commercial Real Estate- Owner Occupied
    7,036       7,036       -       6,215       63  
Commercial Real Estate- Non Owner Occupied
    6,571       6,571       -       6,513       93  
Second Mortgages
    61       61       -       61       1  
Non Real Estate Secured
                                       
Personal /Consumer
    -       -       -       27       -  
Commercial
    319       319       -       208       4  
Agricultural
    -       -       -       -       -  
                                         
          Total
  $ 21,940     $ 21,940     $ -     $ 21,294     $ 198  



 
 
March 31, 2014
 
Recorded Investment
   
Unpaid Principal Balance
   
Related Allowance
   
Average Recorded Investment
   
Interest Income Recognized
 
With an Allowance Recorded
                             
Real Estate Secured
                             
Residential 1-4 family
  $ 2,725     $ 2,725     $ 379     $ 2,876     $ 35  
Equity lines of credit
    -       -       -       19       -  
Multifamily
    -       -       -       -       -  
Farmland
    200       200       25       200       3  
Construction, Land Development, Other Land Loans
    -       -       -       -       -  
Commercial Real Estate- Owner Occupied
    2,904       2,904       588       3,216       17  
Commercial Real Estate- Non Owner Occupied
    4,431       4,581       1,074       4,506       12  
Second Mortgages
    -       -       -       28       -  
Non Real Estate Secured
                                       
Personal /Consumer
    92       92       42       113       1  
Commercial
    483       483       327       704       7  
Agricultural
    183       183          59       182       3  
                                         
          Total
  $ 11,018     $ 11,168     $ 2,494     $ 11,844     $ 78  



 
14

 



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

The following tables reflect the Bank’s impaired loans at December 31, 2013:
 
 
December 31, 2013
 
Recorded Investment
   
Unpaid Principal Balance
   
Related Allowance
   
Average Recorded Investment
   
Interest Income Recognized
 
With no Related Allowance
                             
Real Estate Secured
                             
Residential 1-4 family
  $ 6,042     $ 6,042     $ -     $ 6,300     $ 198  
Equity lines of credit
    364       364       -       182       6  
Multifamily
    -       -       -       -       -  
Farmland
    483       483       -       391       11  
Construction, Land Development, Other Land Loans
    1,694       1,694       -       1,677       1  
Commercial Real Estate- Owner Occupied
    5,393       5,393       -       5,201       173  
Commercial Real Estate- Non Owner Occupied
    6,454       6,454       -       4,943       250  
Second Mortgages
    62       62       -       191       3  
Non Real Estate Secured
                                       
Personal
    53       53       -       31       3  
Commercial
    96       96       -       82       5  
Agricultural
    -       -       -       10       -  
                                         
          Total
  $ 20,641     $ 20,641     $ -     $ 19,008     $ 650  


 
 
December 31, 2013
 
Recorded Investment
   
Unpaid Principal Balance
   
Related Allowance
   
Average Recorded Investment
   
Interest Income Recognized
 
With an Allowance Recorded
                             
Real Estate Secured
                             
Residential 1-4 family
  $ 3,026     $ 3,026     $ 394     $ 3,756     $ 145  
Equity lines of credit
    38       38       38       19       1  
Multifamily
    -       -       -       202       -  
Farmland
    200       200       25       201       8  
Construction, Land Development, Other Land Loans
    -       -       -       -       -  
Commercial Real Estate- Owner Occupied
    3,528       3,528       630       3,113       72  
Commercial Real Estate- Non Owner Occupied
    4,581       4,581       1,230       3,788       93  
Second Mortgages
    56       56       45       28       1  
Non Real Estate Secured
                                       
Personal
    133       133       84       77       6  
Commercial
    924       924       695       791       34  
Agricultural
    181       181       56       448       4  
                                         
          Total
  $ 12,667     $ 12,667     $ 3,197     $ 12,423     $ 364  









 
15

 

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


The following tables present the balance in the allowance for loan losses and the recorded investment in loans by loan category and is segregated by impairment
evaluation method as of March 31, 2014 and March 31, 2013.

Three  months ended March 31, 2014
 
Residential
1-4 Family
   
Multifamily
   
Construction and Land Loans
   
Commercial Owner Occupied
   
Commercial Non-Owner Occupied
   
Second Mortgages
   
Equity Line of Credit
   
Farmland
   
Personal and Overdrafts
   
Commercial and Agricultural
   
Unallocated
   
Total
 
Allowance for Credit Losses:
                                                                       
Beginning Balance December 31,  2013
  $ 975     $ 143     $ 230     $ 1,029     $ 1,415     $ 153     $ 50     $ 65     $ 483     $ 1,264     $ 1,018     $ 6,825  
Provision for Credit Losses
    148       5       (14 )     (23 )     73       (7 )     (39 )     (5 )     243       (163 )     47       265  
Charge-offs
    68       -       -       -       159       25       -       -       78       114       -       444  
Recoveries
    -       -       2       -       -       1       -       -       23       7       -       33  
Net Charge-offs
    68       -       (2 )     -       159       24       -       -       55       107