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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

 

[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017

[  ] 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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b–2 of the Exchange Act.

 

Large accelerated filer  [  ]       Accelerated filer  [x]       Non-accelerated filer  [  ]       (Do not check if a smaller reporting company)

Smaller reporting company  [  ]        Emerging growth company  [  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange act.

[ ] Yes   [ ] No

 

Note: the text of Form 10-Q does not, and this amendment will not, appear in the Code of Federal Regulations.

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 November 6, 2017 6,957,974

(This report contains 62 pages)
 

 

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NATIONAL BANKSHARES, INC. AND SUBSIDIARIES

Form 10-Q

Index

 

Part I – Financial Information		Page
Item 1	Financial Statements	3
	Consolidated Balance Sheets, September 30, 2017 (Unaudited) and December 31, 2016	3
	Consolidated Statements of Income for the Three Months Ended September 30, 2017 and 2016 (Unaudited)	4 – 5
	Consolidated Statements of Comprehensive Income for the Three Months Ended September 30, 2017 and 2016 (Unaudited)	6
	Consolidated Statements of Income for the Nine Months Ended September 30, 2017 and 2016 (Unaudited)	7 – 8
	Consolidated Statements of Comprehensive Income for the Nine Months Ended September 30, 2017 and 2016 (Unaudited)	9
	Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2017 and 2016 (Unaudited)	10
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016 (Unaudited)	11 – 12
	Notes to Consolidated Financial Statements (Unaudited)	13 – 37
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37
Item 3	Quantitative and Qualitative Disclosures About Market Risk	55
Item 4	Controls and Procedures	55
Part II – Other Information
Item 1	Legal Proceedings	55
Item 1A	Risk Factors	55
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	55
Item 3	Defaults Upon Senior Securities	55
Item 4	Mine Safety Disclosures	55
Item 5	Other Information	56
Item 6	Exhibits	56
Signatures		56
Index of Exhibits		57 – 58
Certifications		59 – 62

 

 

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Part I

    Financial Information

National Bankshares, Inc. and Subsidiaries

Consolidated Balance Sheets

Item 1. Financial Statements   

 

 

		(Unaudited)
		September 30,				December 31,
$ in thousands, except per share data		2017				2016
Assets
Cash and due from banks		$	12,066			$	13,974
Interest-bearing deposits			58,260				80,268
Securities available for sale, at fair value			309,323				304,282
Securities held to maturity (fair value of $133,859 at September 30, 2017 and $137,692 at December 31, 2016)			129,750				134,957
Restricted stock, at cost			1,200				1,170
Loans held for sale			505				478
Loans:
Loans, net of unearned income and deferred fees and costs			660,362				647,752
Less allowance for loan losses			(8,473	)			(8,300	)
Loans, net			651,889				639,452
Premises and equipment, net			8,458				8,853
Accrued interest receivable			5,123				5,260
Other real estate owned, net			2,923				3,156
Intangible assets and goodwill			5,911				5,966
Bank-owned life insurance			33,520				22,998
Other assets			13,555				13,128
Total assets		$	1,232,483			$	1,233,942
Liabilities and Stockholders' Equity
Noninterest-bearing demand deposits		$	184,483			$	171,946
Interest-bearing demand deposits			588,447				604,093
Savings deposits			140,324				136,789
Time deposits			118,719				130,614
Total deposits			1,031,973				1,043,442
Accrued interest payable			51				55
Other liabilities			12,798				12,182
Total liabilities			1,044,822				1,055,679
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 6,957,974 shares at September 30, 2017 and at December 31, 2016			8,698				8,698
Retained earnings			185,331				178,224
Accumulated other comprehensive loss, net			(6,368	)			(8,659	)
Total stockholders' equity			187,661				178,263
Total liabilities and stockholders' equity		$	1,232,483			$	1,233,942

 

See accompanying notes to consolidated financial statements.

 

 

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National Bankshares, Inc. and Subsidiaries

Consolidated Statements of Income

Three Months Ended September 30, 2017 and 2016

(Unaudited)

 

		September 30,				September 30,
$ in thousands, except per share data		2017				2016
Interest Income
Interest and fees on loans		$	7,473			$	7,409
Interest on interest-bearing deposits			224				97
Interest on securities – taxable			1,426				1,381
Interest on securities – nontaxable			1,178				1,270
Total interest income			10,301				10,157
Interest Expense
Interest on time deposits			130				172
Interest on other deposits			891				847
Total interest expense			1,021				1,019
Net interest income			9,280				9,138
Provision for loan losses			201				291
Net interest income after provision for loan losses			9,079				8,847
Noninterest Income
Service charges on deposit accounts			710				649
Other service charges and fees			41				47
Credit and debit card fees			1,030				963
Trust income			365				330
BOLI income			233				149
Other income			215				242
Realized securities gain, net			4				101
Total noninterest income			2,598				2,481
Noninterest Expense
Salaries and employee benefits			3,496				3,239
Occupancy and furniture and fixtures			459				463
Data processing and ATM			563				624
FDIC assessment			93				135
Credit and debit card processing			716				715
Intangible assets amortization			13				40
Net costs of other real estate owned			58				71
Franchise taxes			332				321
Other operating expenses			1,015				1,012
Total noninterest expense			6,745				6,620
Income before income taxes			4,932				4,708
Income tax expense			1,147				880

(continued)  

 

 

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Net Income		$	3,785			$	3,828
Basic net income per common share		$	0.54			$	0.55
Fully diluted net income per common share		$	0.54			$	0.55
Weighted average number of common shares outstanding – basic and diluted			6,957,974				6,957,974
Dividends declared per common share		$	---			$	---

 

See accompanying notes to consolidated financial statements.

 

 

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National Bankshares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

Three Months Ended September 30, 2017 and 2016

(Unaudited)

 

		September 30,				September 30,
$ in thousands		2017				2016
Net Income		$	3,785			$	3,828
Other Comprehensive Income (Loss), Net of Tax
Unrealized holding gain (loss) on available for sale securities net of tax of ($219) and $244 for the periods ended September 30, 2017 and 2016, respectively			(407	)			453
Reclassification adjustment for gain included in net income, net of tax of ($1) and ($35) for the periods ended September 30, 2017 and 2016, respectively			(3	)			(66	)
Other comprehensive income (loss), net of tax of ($220) and $209 for the periods ended September 30, 2017 and 2016, respectively			(410	)			387
Total Comprehensive Income		$	3,375			$	4,215

 

See accompanying notes to consolidated financial statements.

 

 

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National Bankshares, Inc. and Subsidiaries

Consolidated Statements of Income

Nine Months Ended September 30, 2017 and 2016

(Unaudited)

 

		September 30,				September 30,
$ in thousands, except per share data		2017				2016
Interest Income
Interest and fees on loans		$	22,379			$	22,032
Interest on interest-bearing deposits			603				409
Interest on securities – taxable			4,225				4,625
Interest on securities – nontaxable			3,627				3,867
Total interest income			30,834				30,933
Interest Expense
Interest on time deposits			410				547
Interest on other deposits			2,687				2,603
Total interest expense			3,097				3,150
Net interest income			27,737				27,783
Provision for loan losses			724				1,148
Net interest income after provision for loan losses			27,013				26,635
Noninterest Income
Service charges on deposit accounts			2,067				1,778
Other service charges and fees			151				165
Credit and debit card fees			2,947				2,802
Trust income			1,127				1,007
BOLI income			522				447
Other income			735				1,042
Realized securities gain, net			8				199
Total noninterest income			7,557				7,440
Noninterest Expense
Salaries and employee benefits			10,477				9,714
Occupancy and furniture and fixtures			1,366				1,388
Data processing and ATM			1,669				1,630
FDIC assessment			279				421
Credit and debit card processing			2,096				2,049
Intangible assets amortization			56				218
Net costs of other real estate owned			142				179
Franchise taxes			983				974
Other operating expenses			3,312				2,969
Total noninterest expense			20,380				19,542
Income before income taxes			14,190				14,533
Income tax expense			3,186				3,061

(continued)   

 

 

---

 

 

Net Income	$	11,004				$	11,472
Basic net income per common share	$	1.58				$	1.65
Fully diluted net income per common share	$	1.58				$	1.65
Weighted average number of common shares outstanding – basic and diluted		6,957,974					6,957,974
Dividends declared per common share	$	0.56				$	0.55

 

See accompanying notes to consolidated financial statements.

 

 

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National Bankshares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

Nine Months Ended September 30, 2017 and 2016

(Unaudited)

 

		September 30,				September 30,
$ in thousands		2017				2016
Net Income		$	11,004			$	11,472
Other Comprehensive Income, Net of Tax
Unrealized holding gain on available for sale securities net of tax of $1,235 and $2,415 for the periods ended September 30, 2017 and 2016, respectively			2,294				4,484
Reclassification adjustment for gain included in net income, net of tax of ($1) and ($54) for the periods ended September 30, 2017 and 2016 respectively.			(3	)			(99	)
Other comprehensive income, net of tax of $1,234 and $2,361 for the periods ended September 30, 2017 and 2016, respectively			2,291				4,385
Total Comprehensive Income		$	13,295			$	15,857

 

See accompanying notes to consolidated financial statements.

 

 

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National Bankshares, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

Nine Months Ended September 30, 2017 and 2016

(Unaudited)

 

$ in thousands		Common Stock				Retained Earnings				Accumulated Other Comprehensive Loss				Total
Balances at December 31, 2015		$	8,698			$	171,353			$	(7,937	)		$	172,114
Net income			---				11,472				---				11,472
Dividends $0.55 per share			---				(3,827	)			---				(3,827	)
Other comprehensive income, net of tax of $2,361			---				---				4,385				4,385
Balances at September 30, 2016		$	8,698				178,998				(3,552	)			184,144
Balances at December 31, 2016		$	8,698			$	178,224			$	(8,659	)		$	178,263
Net income			---				11,004				---				11,004
Dividends $0.56 per share			---				(3,897	)			---				(3,897	)
Other comprehensive income, net of tax of $1,234			---				---				2,291				2,291
Balances at September 30, 2017		$	8,698			$	185,331			$	(6,368	)		$	187,661

 

See accompanying notes to consolidated financial statements.

 

 

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National Bankshares, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2017 and 2016

(Unaudited)

 

		September 30,				September 30,
$ in thousands		2017				2016
Cash Flows from Operating Activities
Net income		$	11,004			$	11,472
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses			724				1,148
Depreciation of bank premises and equipment			601				596
Amortization of intangibles			56				218
Amortization of premiums and accretion of discounts, net			44				70
Gain on sales and calls of securities available for sale, net			(4	)			(153	)
Gain on calls of securities held to maturity, net			(4	)			(46	)
Loss and write-down on other real estate owned, net			79				101
Increase in cash value of bank-owned life insurance			(522	)			(447	)
Originations of mortgage loans held for sale			(9,666	)			(11,215	)
Proceeds from sale of mortgage loans held for sale			9,777				11,609
Gain on sale of mortgage loans held for sale			(138	)			(194	)
Net change in:
Accrued interest receivable			137				631
Other assets			(1,661	)			(701	)
Accrued interest payable			(4	)			(8	)
Other liabilities			616				271
Net cash provided by operating activities			11,039				13,352
Cash Flows from Investing Activities
Net change in interest-bearing deposits			22,008				50,641
Proceeds from calls, principal payments, sales and maturities of securities available for sale			10,589				205,110
Proceeds from calls, principal payments and maturities of securities held to maturity			6,466				13,941
Purchases of securities available for sale			(12,081	)			(253,341	)
Purchases of securities held to maturity			(1,319	)			---
Net change in restricted stock			(30	)			(41	)
Purchase of BOLI			(10,000	)			---
Purchases of loan participations			(1,296	)			(3,115	)
Collections of loan participations			751				791
Loan originations and principal collections, net			(12,851	)			(16,176	)
Proceeds from sales of other real estate owned			251				876
Recoveries on loans charged off			138				123
Proceeds from sale and purchases of premises and equipment, net			(207	)			(333	)
Net cash provided by (used in) investing activities			2,419				(1,524	)

(continued)   

 

 

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Cash Flows from Financing Activities
Net change in time deposits			(11,895	)			(16,594	)
Net change in other deposits			426				7,743
Cash dividends paid			(3,897	)			(3,827	)
Net cash used in financing activities			(15,366	)			(12,678	)
Net change in cash and due from banks			(1,908	)			(850	)
Cash and due from banks at beginning of period			13,974				12,152
Cash and due from banks at end of period		$	12,066			$	11,302
Supplemental Disclosures of Cash Flow Information
Interest paid on deposits and borrowed funds		$	3,101			$	3,158
Income taxes paid			2,872				2,780
Supplemental Disclosure of Noncash Activities
Loans charged against the allowance for loan losses		$	689			$	1,267
Loans transferred to other real estate owned			97				---
Unrealized net gain on securities available for sale			3,525				6,746

 

See accompanying notes to consolidated financial statements.

 

 

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National Bankshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2017

(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 nine month period ended September 30, 2017 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 2016 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.

 

Note 2:     Loan Portfolio

 

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

 

		September 30, 2017				December 31, 2016
Real estate construction		$	32,226			$	36,345
Consumer real estate			166,391				157,718
Commercial real estate			337,229				336,457
Commercial non real estate			43,055				39,024
Public sector and IDA			48,391				45,474
Consumer non real estate			33,699				33,528
Gross loans			660,991				648,546
Less unearned income and deferred fees and costs			(629	)			(794	)
Loans, net of unearned income and deferred fees and costs		$	660,362			$	647,752

 

Note 3:     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 value of the underlying collateral.

 

Impaired Loans

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 suggests that collection will probably not occur when due according to the loan’s contractual 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 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 that maintains current status for at least six months may be in accrual status. Please refer to Note 1 of the Company’s 2016 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.

 

 

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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 or accrued interest, the charge-off is included in the historical charge-off rates applied to the collective evaluation methodology. Restructured loans are individually evaluated for impairment and the amount of a restructured loan’s book value in excess of its fair value is accrued as a specific allocation in the allowance for loan losses. TDRs that experience a payment default are examined to determine whether the default indicates collateral dependency or cash flows below those that were 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. 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.

 

Collectively-Evaluated Loans

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 Construction, residential Construction, other   Consumer Real Estate Equity lines Residential closed-end first liens Residential closed-end junior liens Investor-owned residential real estate   Commercial Real Estate Multifamily real estate Commercial real estate, owner-occupied Commercial real estate, other

Commercial Non Real Estate Commercial and industrial   Public Sector and IDA Public sector and IDA   Consumer Non Real Estate Credit cards Automobile Other consumer loans

 

Historical Loss Rates

The Company applies historical charge-off rates on the class level. Class loss rates are calculated as the net charge-offs for the class as a percentage of average class balance. The Company averages loss rates for the most recent 8 quarters to determine the historical loss rate applied to each class.

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 lower. 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, the Company analyzes factors pertinent to credit risk for each class 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 the risk from changes in lending policies, loan officers’ average years of experience, the risk from changes in loan review, unemployment levels, bankruptcy rates, the interest rate environment, and the competitive, legal and regulatory environments. Factors analyzed for each class, with resultant allocations based upon the level of risk assessed for each class, include levels of past due loans, levels of nonaccrual loans, current class balance as a percentage of total loans, and the percentage of high risk loans within the class. Additionally, factors specific to each segment are analyzed and result in allocations to the segment. Please refer to the Company’s 2016 10-K, Note 1: Summary of Significant Accounting Policies for a discussion of risk factors pertinent to each class.

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 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.

 

 

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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 increased to a greater extent for loans rated 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 Nine Months Ended September 30, 2017
		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, 2016		$	438			$	1,830			$	3,738			$	1,063			$	330			$	644			$	257			$	8,300
Charge-offs			---				(146	)			(122	)			(73	)			---				(348	)			---				(689	)
Recoveries			---				1				44				14				---				79				---				138
Provision for loan losses			(140	)			337				33				111				55				357				(29	)			724
Balance, September 30, 2017		$	298			$	2,022			$	3,693			$	1,115			$	385			$	732			$	228			$	8,473

 

		Activity in the Allowance for Loan Losses for the Nine Months Ended September 30, 2016
		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, 2015		$	576			$	1,866			$	4,109			$	655			$	436			$	627			$	28			$	8,297
Charge-offs			(29	)			(131	)			(149	)			(767	)			---				(191	)			---				(1,267	)
Recoveries			---				2				71				6				---				44				---				123
Provision for loan losses			(43	)			111				(525	)			1,493				(66	)			152				26				1,148
Balance, September 30, 2016		$	504			$	1,848			$	3,506			$	1,387			$	370			$	632			$	54			$	8,301

 

 

		Activity in the Allowance for Loan Losses for the Year Ended December 31, 2016
		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, 2015		$	576			$	1,866			$	4,109			$	655			$	436			$	627			$	28			$	8,297
Charge-offs			(29	)			(133	)			(488	)			(883	)			---				(273	)			---				(1,806	)
Recoveries			---				2				83				10				---				64				---				159
Provision for loan losses			(109	)			95				34				1,281				(106	)			226				229				1,650
Balance, December 31, 2016		$	438			$	1,830			$	3,738			$	1,063			$	330			$	644			$	257			$	8,300

 

 

 

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		Allowance for Loan Losses as of September 30, 2017
		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		$	---			$	21			$	---			$	163			$	---			$	2			$	---			$	186
Collectively evaluated for impairment			298				2,001				3,693				952				385				730				228				8,287
Total		$	298			$	2,022			$	3,693			$	1,115			$	385			$	732			$	228			$	8,473

 

		Allowance for Loan Losses as of December 31, 2016
		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		$	---			$	25			$	1			$	---			$	---			$	---			$	---			$	26
Collectively evaluated for impairment			438				1,805				3,737				1,063				330				644				257				8,274
Total		$	438			$	1,830			$	3,738			$	1,063			$	330			$	644			$	257			$	8,300

 

 

 

		Loans as of September 30, 2017
		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		$	3,300			$	1,276			$	6,319			$	1,248			$	---			$	16			$	---			$	12,159
Collectively evaluated for impairment			28,926				165,115				330,910				41,807				48,391				33,683				---				648,832
Total		$	32,226			$	166,391			$	337,229			$	43,055			$	48,391			$	33,699			$	---			$	660,991

 

		Loans as of December 31, 2016
		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		$	270			$	877			$	7,782			$	241			$	---			$	3			$	---			$	9,173
Collectively evaluated for impairment			36,075				156,841				328,675				38,783				45,474				33,525				---				639,373
Total		$	36,345			$	157,718			$	336,457			$	39,024			$	45,474			$	33,528			$	---			$	648,546

 

 

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

 

		As of and for the
		Nine Months Ended September 30,								Year Ended December 31,
		2017				2016				2016
Ratio of allowance for loan losses to the end of period loans, net of unearned income and deferred fees and costs			1.28	%			1.30	%			1.28	%
Ratio of net charge-offs to average loans, net of unearned income and deferred fees and costs(1)			0.11	%			0.25	%			0.26	%

 

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

 

A summary of nonperforming assets follows.

 

		September 30,								December 31,
		2017				2016				2016
Nonperforming assets:
Nonaccrual loans		$	7			$	1,592			$	1,168
Restructured loans in nonaccrual			3,149				3,901				4,687
Total nonperforming loans			3,156				5,493				5,855
Other real estate owned, net			2,923				3,188				3,156
Total nonperforming assets		$	6,079			$	8,681			$	9,011
Ratio of nonperforming assets to loans, net of unearned income and deferred fees and costs, plus other real estate owned			0.92	%			1.36	%			1.38	%
Ratio of allowance for loan losses to nonperforming loans(1)			268.47	%			151.12	%			141.76	%

 

(1)	The Company defines nonperforming loans as nonaccrual loans and restructured loans that are nonaccrual. Nonperforming loans do not include loans 90 days past due and still accruing or accruing restructured loans.

 

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

 

		September 30,								December 31,
		2017				2016				2016
Loans past due 90 days or more and still accruing		$	250			$	195			$	63
Ratio of loans past due 90 days or more and still accruing to loans, net of unearned income and deferred fees and costs			0.04	%			0.03	%			0.01	%
Accruing restructured loans		$	4,815			$	4,662			$	3,769
Impaired loans:
Impaired loans with no valuation allowance		$	10,522			$	9,290			$	8,269
Impaired loans with a valuation allowance			1,637				620				904
Total impaired loans		$	12,159			$	9,910			$	9,173
Valuation allowance			(186	)			(27	)			(26	)
Impaired loans, net of allowance		$	11,973			$	9,883			$	9,147
Average recorded investment in impaired loans(1)		$	12,541			$	12,908			$	11,585
Interest income recognized on impaired loans, after designation as impaired		$	387			$	476			$	553
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.

 

 

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Nonaccrual loan relationships that meet the Company’s balance threshold of $250 and all TDRs are designated as impaired. The Company also designates as impaired other loan relationships that meet the Company’s balance threshold of $250 and for which the Company does not expect to collect according to the note’s contractual terms. No interest income was recognized on nonaccrual loans for the nine months ended September 30, 2017 or September 30, 2016 or for the year ended December 31, 2016.

 

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

 

		Impaired Loans as of September 30, 2017
		Principal Balance				Total Recorded Investment(1)				Recorded Investment(1)for Which There is No Related Allowance				Recorded Investment(1) for Which There is a Related Allowance				Related Allowance
Real Estate Construction(2)
Construction, other		$	3,300			$	3,300			$	3,300			$	---			$	---
Consumer Real Estate(2)
Residential closed-end first liens			804				766				440				326				15
Residential closed-end junior liens			180				180				---				180				6
Investor-owned residential real estate			349				330				330				---				---
Commercial Real Estate(2)
Multifamily			307				307				307				---				---
Commercial real estate, owner-occupied			3,390				3,383				3,383				---				---
Commercial real estate, other			2,936				2,629				2,629				---				---
Commercial Non Real Estate(2)
Commercial and industrial			1,268				1,248				131				1,117				163
Consumer Non Real Estate(2)
Automobile			16				16				2				14				2
Total		$	12,550			$	12,159			$	10,522			$	1,637			$	186

 

(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.

 

 

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		Impaired Loans as of December 31, 2016
		Principal Balance				Total Recorded Investment(1)				Recorded Investment(1) for Which There is No Related Allowance				Recorded Investment(1) for Which There is a Related Allowance				Related Allowance
Real Estate Construction(2)
Construction 1-4 family residential		$	280			$	270			$	270			$	---			$	---
Consumer Real Estate(2)
Residential closed-end first liens			648				609				267				342				14
Residential closed-end junior liens			195				195				---				195				7
Investor-owned residential real estate			73				73				---				73				4
Commercial Real Estate(2)
Multifamily real estate			1,364				1,091				1,091				---				---
Commercial real estate, owner occupied			4,005				3,957				3,663				294				1
Commercial real estate, other			2,997				2,734				2,734				---				---
Commercial Non Real Estate(2)
Commercial and industrial			255				241				241				---				---
Consumer Non Real Estate(2)
Automobile			3				3				3				---				---
Total		$	9,820			$	9,173			$	8,269			$	904			$	26

 

(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 Nine Months Ended September 30, 2017
		Average Recorded Investment(1)				Interest Income Recognized
Real Estate Construction(2)
Construction 1-4 family residential		$	3,323			$	133
Consumer Real Estate(2)
Residential closed-end first liens			1,107				30
Residential closed-end junior liens			188				8
Investor-owned residential real estate			333				12
Commercial Real Estate(2)
Multifamily real estate			310				12
Commercial real estate, owner occupied			3,420				140
Commercial real estate, other			2,658				45
Commercial Non Real Estate(2)
Commercial and industrial			1,187				6
Consumer Non Real Estate(2)
Automobile			15				1
Total		$	12,541			$	387

 

(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.

 

 

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		For the Nine Months Ended September 30, 2016
		Average Recorded Investment(1)				Interest Income Recognized
Real Estate Construction(2)
Construction 1-4 family residential		$	529			$	---
Consumer Real Estate(2)
Residential closed-end first liens			652				28
Residential closed-end junior liens			210				10
Investor-owned residential real estate			74				3
Commercial Real Estate(2)
Multifamily real estate			1,741				7
Commercial real estate, owner occupied			4,629				175
Commercial real estate, other			4,372				252
Commercial Non Real Estate(2)
Commercial and industrial			697				1
Consumer Non Real Estate
Automobile			4				---
Total		$	12,908			$	476

 

(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 Year Ended December 31, 2016
		Average Recorded Investment(1)				Interest Income Recognized
Real Estate Construction(2)
Construction 1-4 family residential		$	462			$	10
Consumer Real Estate(2)
Residential closed-end first liens			642				38
Residential closed-end junior liens			207				13
Investor-owned residential real estate			74				4
Commercial Real Estate(2)
Multifamily real estate			1,366				12
Commercial real estate, owner occupied			4,342				206
Commercial real estate, other			3,947				263
Commercial Non Real Estate(2)
Commercial and industrial			541				7
Consumer Non Real Estate(2)
Automobile			4				---
Total		$	11,585			$	553

 

(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.

 

 

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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 that maintains current status for at least six months may be returned to accrual status.

An analysis of past due and nonaccrual loans follows.

 

September 30, 2017
		30 – 89 Days Past Due and Accruing				90 or More Days Past Due				90 or More Days Past Due and Accruing				Nonaccruals(2)
Consumer Real Estate(1)
Residential closed-end first liens			901				88				88				266
Residential closed-end junior liens			197				---				---				---
Investor-owned residential real estate			1				7				---				---
Commercial Real Estate(1)
Multifamily real estate			307				---				---				---
Commercial real estate, owner-occupied			676				---				---				128
Commercial real estate, other			---				---				---				2,629
Commercial Non Real Estate(1)
Commercial and industrial			65				---				---				131
Consumer Non Real Estate(1)
Credit cards			7				16				16				---
Automobile			295				22				22				2
Other consumer loans			94				124				124				---
Total		$	2,543			$	257			$	250			$	3,156

 

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

(2)	Includes current and past due loans in nonaccrual status. Includes impaired loans in nonaccrual status.

 

 

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December 31, 2016
		30 – 89 Days Past Due and Accruing				90 or More Days Past Due				90 or More Days Past Due and Accruing				Nonaccruals(2)
Real Estate Construction(1)
Construction, residential		$	---			$	---			$	---			$	270
Construction, other			25				---				---				---
Consumer Real Estate(1)
Equity lines			10				---				---				---
Residential closed-end first liens			1,498				6				6				---
Residential closed-end junior liens			114				36				36				---
Investor-owned residential real estate			56				234				---				253
Commercial Real Estate(1)
Multifamily real estate			132				1,091				---				1,091
Commercial real estate, owner occupied			339				202				---				1,183
Commercial real estate, other			---				80				---				2,814
Commercial Non Real Estate(1)