Attached files
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EXCEL - IDEA: XBRL DOCUMENT - NATIONAL BANKSHARES INC | Financial_Report.xls |
EX-32.I - EXHIBIT 32.I - NATIONAL BANKSHARES INC | ex32-i.htm |
EX-31.I - EXHIBIT 31.I - NATIONAL BANKSHARES INC | ex31-i.htm |
EX-32.II - EXHIBIT 32.II - NATIONAL BANKSHARES INC | ex32-ii.htm |
EX-31.II - EXHIBIT 31.II - NATIONAL BANKSHARES INC | ex31-ii.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, 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 |
Weighted |
|
||||||||||||
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 |
Weighted |
|
||||||||||||
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 |