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, 2015

[  ] 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 0-15204

 

NATIONAL BANKSHARES, INC.

 (Exact name of registrant as specified in its charter)

 

Virginia (State or other jurisdiction of incorporation or organization)

54-1375874 (I.R.S. Employer Identification No.)

 

101 Hubbard Street P. O. Box 90002 Blacksburg, VA	24062-9002
(Address of principal executive offices)	(Zip Code)

 

(540) 951-6300

(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.  [x] Yes   [  ] 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). [x] Yes   [ ] No

 

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

 

Large accelerated filer  [  ]           Accelerated filer  [x]           Non-accelerated filer  [  ]            Smaller reporting company  [  ]

               (Do not check if a smaller reporting company)

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class Common Stock, $1.25 Par Value

Outstanding at May 1, 2015 6,950,474

 

(This report contains 52 pages)

 

 

NATIONAL BANKSHARES, INC. AND SUBSIDIARIES

Form 10-Q

Index

 

Part I – Financial Information		Page
Item 1	Financial Statements	3
	Consolidated Balance Sheets, March 31, 2015 (Unaudited) and December 31, 2014	3
	Consolidated Statements of Income for the Three Months Ended March 31, 2015 and 2014 (Unaudited)	4
	Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2015 and 2014 (Unaudited)	5
	Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2015 and 2014 (Unaudited)	6
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2015 and 2014 (Unaudited)	7
	Notes to Consolidated Financial Statements (Unaudited)	8 – 31
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31 – 43
Item 3	Quantitative and Qualitative Disclosures About Market Risk	43
Item 4	Controls and Procedures	44
Part II – Other Information
Item 1	Legal Proceedings	44
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		45
Index of Exhibits		46 – 47
Certifications		48– 51

 

 

	Part I
Item 1. Financial Statements	Financial Information
National Bankshares, Inc. and Subsidiaries
	Consolidated Balance Sheets

      

 

		(Unaudited)				(Audited)
		March 31,				December 31,
$ in thousands, except per share data		2015				2014
Assets
Cash and due from banks		$	12,452			$	12,894
Interest-bearing deposits			87,676				102,548
Securities available for sale, at fair value			238,496				222,844
Securities held to maturity (fair value approximates $163,143 at March 31, 2015 and $167,703 at December 31, 2014)			156,135				161,452
Restricted stock, at cost			1,129				1,089
Loans held for sale			1,091				291
Loans:
Loans, net of unearned income and deferred fees			622,171				605,466
Less allowance for loan losses			(8,257	)			(8,263	)
Loans, net			613,914				597,203
Premises and equipment, net			8,998				9,131
Accrued interest receivable			5,506				5,748
Other real estate owned, net			4,573				4,744
Intangible assets and goodwill			6,954				7,223
Bank-owned life insurance			21,946				21,797
Other assets			5,975				7,767
Total assets		$	1,164,845			$	1,154,731
Liabilities and Stockholders' Equity
Noninterest-bearing demand deposits		$	160,217			$	150,744
Interest-bearing demand deposits			526,388				533,641
Savings deposits			85,615				81,297
Time deposits			212,737				216,746
Total deposits			984,957				982,428
Accrued interest payable			70				68
Other liabilities			7,096				5,932
Total liabilities			992,123				988,428
Commitments and contingencies
Stockholders' Equity
Preferred stock, no par value, 5,000,000 shares authorized; none issued and outstanding			---				---
Common stock of $1.25 par value. Authorized 10,000,000 shares; issued and outstanding 6,950,474 shares at March 31, 2015 and at December 31, 2014			8,688				8,688
Retained earnings			167,253				163,287
Accumulated other comprehensive loss, net			(3,219	)			(5,672	)
Total stockholders' equity			172,722				166,303
Total liabilities and stockholders' equity		$	1,164,845			$	1,154,731

 

See accompanying notes to consolidated financial statements.

 

 

National Bankshares, Inc. and Subsidiaries

Consolidated Statements of Income

Three Months Ended March 31, 2015 and 2014

(Unaudited)

 

		March 31,				March 31,
$ in thousands, except per share data		2015				2014
Interest Income
Interest and fees on loans		$	7,649			$	7,935
Interest on interest-bearing deposits			64				65
Interest on securities – taxable			1,734				1,653
Interest on securities – nontaxable			1,386				1,500
Total interest income			10,833				11,153
Interest Expense
Interest on time deposits			128				153
Interest on other deposits			959				1,162
Total interest expense			1,087				1,315
Net interest income			9,746				9,838
Provision for loan losses			201				103
Net interest income after provision for loan losses			9,545				9,735
Noninterest Income
Service charges on deposit accounts			535				592
Other service charges and fees			71				65
Credit card fees			895				797
Trust income			289				293
BOLI income			170				175
Other income			282				277
Realized securities gains (losses), net			(2	)			1
Total noninterest income			2,240				2,200
Noninterest Expense
Salaries and employee benefits			3,072				2,999
Occupancy and furniture and fixtures			452				440
Data processing and ATM			434				363
FDIC assessment			135				147
Credit card processing			610				549
Intangible assets amortization			269				269
Net costs of other real estate owned			471				77
Franchise taxes			308				279
Other operating expenses			957				1,059
Total noninterest expense			6,708				6,182
Income before income taxes			5,077				5,753
Income tax expense			1,111				1,349
Net Income		$	3,966			$	4,404
Basic net income per common share		$	0.57			$	0.63
Fully diluted net income per common share		$	0.57			$	0.63
Weighted average number of common shares outstanding – basic			6,950,474				6,947,974
Weighted average number of common shares outstanding – diluted			6,955,023				6,963,865
Dividends declared per common share		$	---			$	---

  

See accompanying notes to consolidated financial statements.

  

 

National Bankshares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

Three Months Ended March 31, 2015 and 2014

(Unaudited)

 

		March 31,				March 31,
$ in thousands		2015				2014
Net Income		$	3,966			$	4,404
Other Comprehensive Income, Net of Tax
Unrealized holding gains on available for sale securities net of tax of $1,320 and $1,681 for the periods ended March 31, 2015 and 2014, respectively			2,452				3,121
Reclassification adjustment, net of tax of $1 and $0 for the periods ended March 31, 2015 and 2014, respectively			1				---
Other comprehensive income, net of tax of $1,321 and $1,681 for the periods ended March 31, 2015 and 2014, respectively			2,453				3,121
Total Comprehensive Income		$	6,419			$	7,525

 

See accompanying notes to consolidated financial statements.

 

 

National Bankshares, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

Three Months March 31, 2015 and 2014

(Unaudited)

 

$ in thousands		Common Stock				Retained Earnings				Accumulated Other Comprehensive Loss				Total
Balances at December 31, 2013		$	8,685			$	154,171			$	(16,964	)		$	145,892
Net income			---				4,404				---				4,404
Other comprehensive income, net of tax $1,681			---				---				3,121				3,121
Balances at March 31, 2014		$	8,685			$	158,575			$	(13,843	)		$	153,417
Balances at December 31, 2014		$	8,688			$	163,287			$	(5,672	)		$	166,303
Net income			---				3,966				---				3,966
Other comprehensive income, net of tax $1,321			---				---				2,453				2,453
Balances at March 31, 2015		$	8,688			$	167,253			$	(3,219	)		$	172,722

 

See accompanying notes to consolidated financial statements.

 

 

National Bankshares, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

Three Months Ended March 31, 2015 and 2014

(Unaudited)

		March 31,				March 31,
$ in thousands		2015				2014
Cash Flows from Operating Activities
Net income		$	3,966			$	4,404
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses			201				103
Depreciation of bank premises and equipment			191				177
Amortization of intangibles			269				269
Amortization of premiums and accretion of discounts, net			29				42
Losses on disposal of premises and equipment			---				94
Losses on sales and calls of securities available for sale, net			2				---
Gains on calls of securities held to maturity, net			---				(1	)
Losses and write-downs on other real estate owned, net			386				16
Increase in cash value of bank-owned life insurance			(149	)			(154	)
Net change in:
Loans held for sale			(800	)			1,276
Accrued interest receivable			242				56
Other assets			471				(661	)
Accrued interest payable			2				(14	)
Other liabilities			1,164				919
Net cash provided by operating activities			5,974				6,526
Cash Flows from Investing Activities
Net change interest-bearing deposits			14,872				(11,465	)
Proceeds from calls, principal payments, sales and maturities of securities available for sale			11,126				2,173
Proceeds from calls, principal payments and maturities of securities held to maturity			5,265				3,929
Purchases of securities available for sale			(22,983	)			(5,375	)
Purchases of securities held to maturity			---				(5,381	)
Net change in restricted stock			(40	)			325
Purchases of loan participations			(994	)			---
Collections of loan participations			1,933				1,348
Loan originations and principal collections, net			(18,267	)			4,702
Proceeds from sale of other real estate owned			148				196
Recoveries on loans charged off			53				158
Proceeds from sale and purchases of premises and equipment, net			(58	)			254
Net cash (used in) investing activities			(8,945	)			(9,136	)
Cash Flows from Financing Activities
Net change in time deposits			(4,009	)			(4,649	)
Net change in other deposits			6,538				8,699
Net cash provided by financing activities			2,529				4,050
Net change in cash and due from banks			(442	)			1,440
Cash and due from banks at beginning of period			12,894				13,283
Cash and due from banks at end of period		$	12,452			$	14,723
Supplemental Disclosures of Cash Flow Information
Interest paid on deposits and borrowed funds		$	1,085			$	1,329
Income taxes paid			1,310				1,472
Supplemental Disclosure of Noncash Activities
Loans charged against the allowance for loan losses		$	260			$	191
Loans transferred to other real estate owned			363				401
Unrealized net gains on securities available for sale			3,774				4,802

 

See accompanying notes to consolidated financial statements.

 

 

National Bankshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

March 31, 2015

(Unaudited)

 

$ in thousands, except per share data

 

Note 1:  General

 

The consolidated financial statements of National Bankshares, Inc. (“NBI”) and its wholly-owned subsidiaries, The National Bank of Blacksburg (“NBB”) and National Bankshares Financial Services, Inc. (“NBFS”) (collectively, the “Company”), conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. The accompanying interim period consolidated financial statements are unaudited; however, in the opinion of management, all adjustments consisting of normal recurring adjustments, which are necessary for a fair presentation of the consolidated financial statements, have been included.  The results of operations for the three months ended March 31, 2015 are not necessarily indicative of results of operations for the full year or any other interim period.  The interim period consolidated financial statements and financial information included in this Form 10-Q should be read in conjunction with the notes to consolidated financial statements included in the Company’s 2014 Form 10-K.  The Company posts all reports required to be filed under the Securities and Exchange Act of 1934 on its web site at www.nationalbankshares.com.

Subsequent events have been considered through the date when the Form 10-Q was issued.

 

Note 2:  Stock-Based Compensation

 

The Company’s 1999 Stock Option Plan was terminated on March 9, 2009. Incentive stock options were granted annually to key employees of NBI and its subsidiaries from 1999 to 2005 and none have been granted since 2005. All of the stock options are vested.

 

Options		Shares				Weighted Average Exercise Price Per Share				Weighted Average Remaining Contractual Term				Aggregate Intrinsic Value
Outstanding at January 1, 2015			20,500			$	23.00
Exercised			---				---
Forfeited or expired			---				---
Outstanding March 31, 2015			20,500			$	23.00				0.61			$	140
Exercisable at March 31, 2015			20,500			$	23.00				0.61			$	140

 

Options		Shares				Weighted Average Exercise Price Per Share				Weighted Average Remaining Contractual Term				Aggregate Intrinsic Value
Outstanding at January 1, 2014			46,000			$	23.96
Exercised			(2,500	)			23.00
Forfeited or expired			(23,000	)			24.93
Outstanding December 31, 2014			20,500			$	23.00				0.85			$	151
Exercisable at December 31, 2014			20,500			$	23.00				0.85			$	151

 

There were no shares exercised during the three months ended March 31, 2015. There were 2,500 shares with an intrinsic value of $15 exercised in 2014.

 

 

Note 3:    Loan Portfolio

 

The loan portfolio, excluding loans held for sale, was comprised of the following.

 

		March 31, 2015				December 31, 2014
Real estate construction		$	41,647			$	45,562
Consumer real estate			145,700				147,040
Commercial real estate			321,838				310,762
Commercial non real estate			32,182				33,412
Public sector and IDA			53,441				41,361
Consumer non real estate			28,204				28,182
Gross loans			623,012				606,319
Less unearned income and deferred fees			(841	)			(853	)
Loans, net of unearned income and deferred fees		$	622,171			$	605,466

 

Note 4:    Allowance for Loan Losses, Nonperforming Assets and Impaired Loans

 

The allowance for loan losses methodology incorporates individual evaluation of impaired loans and collective evaluation of groups of non-impaired loans. The Company performs ongoing analysis of the loan portfolio to determine credit quality and to identify impaired loans. Credit quality is rated based on the loan’s payment history, the borrower’s current financial situation and the value of the underlying collateral.

Impaired loans are those loans that have been modified in a troubled debt restructure (“TDR” or “restructure”) and larger, non-homogeneous loans that are in nonaccrual or exhibit payment history or financial status that indicate the probability that collection will not occur according to the loan’s original terms. Generally, impaired loans are given risk ratings that indicate higher risk, such as “classified” or “other assets especially mentioned.” Impaired loans are individually evaluated to determine appropriate reserves and are measured at the lower of the invested amount or the fair market value. Impaired loans that are not troubled debt restructures and for which fair value measurement indicates an impairment loss are designated nonaccrual. A restructured loan for which impairment measurement does not indicate a loss and that maintains current status for at least six months may be returned to accrual status. Please refer to Note 1 of the Company’s 2014 Form 10-K, “Summary of Significant Accounting Policies” for additional information on evaluation of impaired loans and associated specific reserves, and policies regarding nonaccruals, past due status and charge-offs.

Troubled debt restructures impact the estimation of the appropriate level of the allowance for loan losses. If the restructuring included forgiveness of a portion of principal, the charge-off is included in the historical charge-off rates applied to the collective evaluation methodology. Further, restructured loans are individually evaluated for impairment and any amount of book value that exceeds fair value is accrued in the allowance for loan losses. TDRs that experience a payment default are examined to determine whether the default indicates collateral dependency or a decline in estimates of cash flow used in the fair value measurement. TDRs, as well as all impaired loans, that are determined to be collateral dependent are charged down to fair value net of estimated costs to dispose. Deficiencies indicated by impairment measurements for TDRs that are not collateral dependent may be accrued in the allowance for loan losses or charged off if deemed uncollectible.

The Company evaluated characteristics in the loan portfolio and determined major segments and smaller classes within each segment. These characteristics include collateral type, repayment sources, and (if applicable) the borrower’s business model. The methodology for calculating reserves for collectively-evaluated loans is applied at the class level.

 

 

Portfolio Segments and Classes

The segments and classes used in determining the allowance for loan losses are as follows.

 

Real Estate Construction	Commercial Non Real Estate
Construction, residential Construction, other	Commercial and Industrial
	Public Sector and IDA
Consumer Real Estate	Public sector and IDA
Equity lines Residential closed-end first liens	Consumer Non Real Estate
Residential closed-end junior liens Investor-owned residential real estate	Credit cards Automobile Other consumer loans
Commercial Real Estate
Multifamily real estate Commercial real estate, owner-occupied Commercial real estate, other

 

Historical Loss Rates

The Company’s allowance methodology for collectively-evaluated loans applies historical loss rates by class to current class balances as part of the process of determining required reserves. Class loss rates are calculated as the net charge-offs for the class as a percentage of average class balance. The loss rate for the current quarter is averaged with that of prior periods to obtain the historical loss rate. Two loss rates for each class are calculated: total net charge-offs for the class as a percentage of average class loan balance (“class loss rate”), and total net charge-offs for the class as a percentage of average classified loans in the class (“classified loss rate”). Classified loans are those with risk ratings of “substandard” or higher. Net charge-offs in both calculations include charge-offs and recoveries of classified and non-classified loans as well as those associated with impaired loans. Class historical loss rates are applied to non-classified loan balances at the reporting date, and classified historical loss rates are applied to classified balances at the reporting date.

 

Risk Factors

In addition to historical loss rates, risk factors pertinent to credit risk for each class are analyzed to estimate reserves for collectively-evaluated loans. Factors include changes in national and local economic and business conditions, the nature and volume of classes within the portfolio, loan quality, loan officers’ experience, lending policies and the Company’s loan review system.

The analysis of certain factors results in standard allocations to all segments and classes. These factors include loan officers’ average years of experience, the risk from changes in lending policies, and the risk from changes in loan review. Factors analyzed for each class, with resultant allocations based upon the level of risk assessed for each class, include levels of past due loans, nonaccrual loans, current class balance as a percentage of total loans, and the percentage of high risk loans (defined to be junior lien mortgages, high loan-to-value loans, and interest only loans) within the class. Additionally, factors specific to each segment are analyzed and result in allocations to the segment.

Real estate construction loans are subject to general risks from changing commercial building and housing market trends and economic conditions that may impact demand for completed properties and the costs of completion. These risks are measured by market-area unemployment rates, bankruptcy rates, housing and commercial building market trends, and interest rates.

The credit quality of consumer real estate is subject to risks associated with the borrower’s repayment ability and collateral value, measured generally by analyzing local unemployment and bankruptcy trends, local housing market trends, and interest rates.

The commercial real estate segment includes loans secured by multifamily residential real estate, commercial real estate occupied by the owner/borrower, and commercial real estate leased to non-owners. Loans in the commercial real estate segment are impacted by economic risks from changing commercial real estate markets, rental markets for multi-family housing and commercial buildings, business bankruptcy rates, local unemployment and interest rate trends that would impact the businesses housed by the commercial real estate.

Commercial non real estate loans are secured by collateral other than real estate, or are unsecured. Credit risk for commercial non real estate loans is subject to economic conditions, generally monitored by local business bankruptcy trends, and interest rates. Public sector and IDA loans are extended to municipalities and related entities. Credit risk is based upon the entity’s ability to repay and interest rate trends.

Consumer non real estate includes credit cards, automobile and other consumer loans. Credit cards and certain other consumer loans are unsecured, while collateral is obtained for automobile loans and other consumer loans. Credit risk stems primarily from the borrower’s ability to repay, measured by average unemployment, average personal bankruptcy rates and interest rates.

Factor allocations applied to each class are increased for loans rated special mention and classified. The Company allocates additional reserves for “high risk” loans. High risk loans include junior liens, interest only and high loan to value loans.

 

 

A detailed analysis showing the allowance roll-forward by portfolio segment and related loan balance by segment follows.

 

		Activity in the Allowance for Loan Losses for the Three Months Ended March 31, 2015
		Real Estate Construction				Consumer Real Estate				Commercial Real Estate				Commercial Non Real Estate				Public Sector and IDA				Consumer Non Real Estate				Unallocated				Total
Balance, December 31, 2014		$	612			$	1,662			$	3,537			$	1,475			$	327			$	602			$	48			$	8,263
Charge-offs			---				(72	)			(100	)			---				---				(88	)			---				(260	)
Recoveries			---				---				12				---				---				41				---				53
Provision for loan losses			(145	)			30				262				(59	)			106				21				(14	)			201
Balance, March 31, 2015		$	467			$	1,620			$	3,711			$	1,416			$	433			$	576			$	34			$	8,257

 

 

		Activity in the Allowance for Loan Losses for the Three Months Ended March 31, 2014
		Real Estate Construction				Consumer Real Estate				Commercial Real Estate				Commercial Non Real Estate				Public Sector and IDA				Consumer Non Real Estate				Unallocated				Total
Balance, December 31, 2013		$	863			$	1,697			$	3,685			$	989			$	132			$	576			$	285			$	8,227
Charge-offs			(2	)			(54	)			(52	)			---				---				(83	)			---				(191	)
Recoveries			---				---				8				131				---				19				---				158
Provision for loan losses			(11	)			171				53				(259	)			70				17				62				103
Balance, March 31, 2014		$	850			$	1,814			$	3,694			$	861			$	202			$	529			$	347			$	8,297

 

 

		Allowance for Loan Losses as of March 31, 2015
		Real Estate Construction				Consumer Real Estate				Commercial Real Estate				Commercial Non Real Estate				Public Sector and IDA				Consumer Non Real Estate				Unallocated				Total
Individually evaluated for impairment		$	---			$	10			$	216			$	10			$	---			$	---			$	---			$	236
Collectively evaluated for impairment			467				1,610				3,495				1,406				433				576				34				8,021
Total		$	467			$	1,620			$	3,711			$	1,416			$	433			$	576			$	34			$	8,257

 

 

		Allowance for Loan Losses as of December 31, 2014
		Real Estate Construction				Consumer Real Estate				Commercial Real Estate				Commercial Non Real Estate				Public Sector and IDA				Consumer Non Real Estate				Unallocated				Total
Individually evaluated for impairment		$	---			$	14			$	258			$	10			$	---			$	---			$	---			$	282
Collectively evaluated for impairment			612				1,648				3,279				1,465				327				602				48				7,981
Total		$	612			$	1,662			$	3,537			$	1,475			$	327			$	602			$	48			$	8,263

 

 

		Loans as of March 31, 2015
		Real Estate Construction				Consumer Real Estate				Commercial Real Estate				Commercial Non Real Estate				Public Sector and IDA				Consumer Non Real Estate				Unallocated				Total
Individually evaluated for impairment		$	---			$	809			$	13,513			$	672			$	---			$	---			$	---			$	14,994
Collectively evaluated for impairment			41,647				144,891				308,325				31,510				53,441				28,204				---				608,018
Total loans		$	41,647			$	145,700			$	321,838			$	32,182			$	53,441			$	28,204			$	---			$	623,012

 

 

		Loans as of December 31, 2014
		Real Estate Construction				Consumer Real Estate				Commercial Real Estate				Commercial Non Real Estate				Public Sector and IDA				Consumer Non Real Estate				Unallocated				Total
Individually evaluated for impairment		$	---			$	819			$	13,624			$	678			$	---			$	---			$	---			$	15,121
Collectively evaluated for impairment			45,562				146,221				297,138				32,734				41,361				28,182				---				591,198
Total		$	45,562			$	147,040			$	310,762			$	33,412			$	41,361			$	28,182			$	---			$	606,319

 

A summary of ratios for the allowance for loan losses follows.

 

		As of the Three Months Ended March 31,								For the Year Ended December 31,
		2015				2014				2014
Ratio of allowance for loan losses to the end of period loans, net of unearned income and deferred fees			1.33	%			1.41	%			1.36	%
Ratio of net charge-offs to average loans, net of unearned income and deferred fees(1)			0.14	%			0.02	%			0.27	%

 

⁽¹⁾     Net charge-offs are on an annualized basis.

 

 

A summary of nonperforming assets follows.

 

		March 31,								December 31,
		2015				2014				2014
Nonperforming assets:
Nonaccrual loans		$	3,102			$	5,071			$	3,999
Restructured loans in nonaccrual			6,123				1,007				5,288
Total nonperforming loans			9,225				6,078				9,287
Other real estate owned, net			4,573				4,901				4,744
Total nonperforming assets		$	13,798			$	10,979			$	14,031
Ratio of nonperforming assets to loans, net of unearned income and deferred fees, plus other real estate owned			2.20	%			1.85	%			2.30	%
Ratio of allowance for loan losses to nonperforming loans(1)			89.51	%			136.51	%			88.97	%

 

⁽¹⁾     The Company defines nonperforming loans as nonaccrual loans. Loans 90 days or more past due and still accruing and accruing restructured loans are excluded.

 

 

A summary of loans past due 90 days or more and impaired loans follows.

 

		March 31,								December 31,
		2015				2014				2014
Loans past due 90 days or more and still accruing		$	272			$	163			$	207
Ratio of loans past due 90 days or more and still accruing to loans, net of unearned income and deferred fees			0.04	%			0.03	%			0.03	%
Accruing restructured loans		$	5,992			$	6,145			$	6,040
Impaired loans:
Impaired loans with no valuation allowance		$	11,265			$	10,139			$	7,615
Impaired loans with a valuation allowance			3,729				2,463				7,506
Total impaired loans		$	14,994			$	12,602			$	15,121
Valuation allowance			(236	)			(280	)			(282	)
Impaired loans, net of allowance		$	14,758			$	12,322			$	14,839
Average recorded investment in impaired loans(1)		$	15,192			$	13,075			$	16,311
Interest income recognized on impaired loans, after designation as impaired		$	174			$	99			$	473
Amount of income recognized on a cash basis		$	---			$	---			$	---

 

⁽¹⁾      Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.

 

Nonaccrual loans that meet the Company’s balance threshold of $250 and all TDRs are designated as impaired. No interest income was recognized on nonaccrual loans for the three months ended March 31, 2015 or March 31, 2014 or for the year ended December 31, 2014.

 

A detailed analysis of investment in impaired loans, associated reserves and interest income recognized, segregated by loan class follows.     

 

		Impaired Loans as of March 31, 2015
		Principal Balance				(A) Total Recorded Investment(1)				Recorded Investment(1) in (A) for Which There is No Related Allowance				Recorded Investment(1) in (A) for Which There is a Related Allowance				Related Allowance
Consumer Real Estate(2)
Residential closed-end first liens		$	526			$	499			$	309			$	190			$	2
Residential closed-end junior liens			234				234				---				234				8
Investor-owned residential real estate			76				76				76				---				---
Commercial Real Estate(2)
Multifamily real estate			2,907				2,705				868				1,837				148
Commercial real estate, owner-occupied			4,902				4,799				3,404				1,395				68
Commercial real estate, other			6,058				6,009				6,009				---				---
Commercial Non Real Estate(2)
Commercial and Industrial			672				672				599				73				10
Total		$	15,375			$	14,994			$	11,265			$	3,729			$	236

 

⁽¹⁾     Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.

⁽²⁾     Only classes with impaired loans are shown.

 

 

		Impaired Loans as of December 31, 2014
		Principal Balance				(A) Total Recorded Investment(1)				Recorded Investment(1) in (A) for Which There is No Related Allowance				Recorded Investment(1) in (A) for Which There is a Related Allowance				Related Allowance
Consumer Real Estate(2)
Residential closed-end first liens		$	530			$	503			$	311			$	192			$	2
Residential closed-end junior liens			239				239				---				239				8
Investor-owned residential real estate			77				77				---				77				4
Commercial Real Estate(2)
Multifamily real estate			2,911				2,735				868				1,866				170
Commercial real estate, owner occupied			4,919				4,821				3,314				1,508				74
Commercial real estate, other			6,080				6,068				3,072				2,996				14
Commercial Non Real Estate(2)
Commercial and Industrial			678				678				50				628				10
Total		$	15,434			$	15,121			$	7,615			$	7,506			$	282

 

⁽¹⁾     Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.

⁽²⁾     Only classes with impaired loans are shown.

 

 

The following tables show the average recorded investment and interest income recognized for impaired loans.

 

		For the Three Months Ended March 31, 2015
		Average Recorded Investment(1)				Interest Income Recognized
Consumer Real Estate(2)
Residential closed-end first liens		$	501			$	7
Residential closed-end junior liens			236				4
Investor-owned residential real estate			76				1
Commercial Real Estate(2)
Multifamily real estate			2,708				25
Commercial real estate, owner occupied			4,974				58
Commercial real estate, other			6,023				80
Commercial Non Real Estate(2)
Commercial and Industrial			674				(1	)
Total		$	15,192			$	174

 

⁽¹⁾     Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.

⁽²⁾     Only classes with impaired loans are shown.

 

		For the Three Months Ended March 31, 2014
		Average Recorded Investment(1)				Interest Income Recognized
Consumer Real Estate(2)
Residential closed-end first liens			561				4
Residential closed-end junior liens			257				5
Investor-owned residential real estate			79				1
Commercial Real Estate(2)
Multifamily real estate			3,386				---
Commercial real estate, owner occupied			5,515				44
Commercial real estate, other			3,150				44
Commercial Non Real Estate(2)
Commercial and Industrial			101				1
Consumer Non Real Estate(2)
Automobile			26				---
Total		$	13,075			$	99

 

⁽¹⁾     Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.

⁽²⁾     Only classes with impaired loans are shown.

 

 

 

The Company reviews nonaccrual loans on an individual loan basis to determine whether future payments are reasonably assured. To satisfy this criteria, the Company’s evaluation must determine that the underlying cause of the original delinquency or weakness that indicated nonaccrual status has been resolved, such as receipt of new guarantees, increased cash flows that cover the debt service or other resolution. Nonaccrual loans that demonstrate reasonable assurance of future payments and that have made at least six consecutive payments in accordance with repayment terms and timeframes may be returned to accrual status.

A restructured loan for which impairment measurement does not indicate a loss and that maintains current status for at least six months may be returned to accrual status.

 

An analysis of past due and nonaccrual loans follows.

 

March 31, 2015
		30 – 89 Days Past Due				90 or More Days Past Due				90 or More Days Past Due and Still Accruing				Nonaccruals (Including Impaired Nonaccruals)
Real Estate Construction(1)
Construction, other		$	---			$	---			$	---			$	---
Consumer Real Estate(1)
Equity lines			80				---				---				---
Residential closed-end first liens			1,117				131				131				4
Residential closed-end junior liens			68				---				---				---
Investor-owned residential real estate			378				---				---				14
Commercial Real Estate(1)
Multifamily real estate			844				868				---				2,705
Commercial real estate, owner-occupied			647				1,588				---				2,841
Commercial real estate, other			---				---				---				2,959
Commercial Non Real Estate(1)
Commercial and Industrial			777				732				83				702
Consumer Non Real Estate(1)
Credit cards			3				7				7				---
Automobile			172				51				51				---
Other consumer loans			19				---				---				---
Total		$	4,105			$	3,377			$	272			$	9,225

 

⁽¹⁾     Only classes with past-due or nonaccrual loans are shown.

 

 

An analysis of past due and nonaccrual loans follows.

 

December 31, 2014

30 – 89 Days Past Due

90 or More Days Past Due

90 or More Days Past Due and Still Accruing

Nonaccruals (Including Impaired Nonaccruals)

Real Estate Construction(1)