Exhibit 99.3

 

TwinCo, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

 

(Unaudited)
 

		September 30,
		2017				2016
ASSETS
Cash and due from banks		$	2,521			$	1,441
Interest-bearing deposits in banks			4,323				2,787
Total cash and cash equivalents			6,844				4,228
Certificates of deposit in banks			250				250
Investment securities available for sale			29,882				33,854
Federal Home Loan Bank stock			111				111
Federal Reserve Bank stock			-				30
Loans, net of allowance for loan losses of $1,385 and $1,440 at September 30, 2017 and 2016, respectively			54,884				53,968
Accrued interest receivable			1,091				1,020
Premises and equipment, net			1,123				1,166
Cash surrender value of life insurance			180				172
Foreclosed real estate held for sale			135				-
Goodwill			422				422
Other assets			68				105
Total assets		$	94,990			$	95,326
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing		$	21,572			$	23,003
Interest-bearing			58,694				57,497
Total deposits			80,266				80,500
Accrued expenses and other liabilities			91				96
Total liabilities			80,357				80,596
Stockholders' equity
Common stock - $1.00 par value; 100,000 shares authorized; 76,000 shares issued; 40,055 shares outstanding			76				76
Additional paid-in capital			1,560				1,560
Treasury stock - 35,945 shares at cost			(1,197	)			(1,197	)
Retained earnings			14,468				13,934
Accumulated other comprehensive income (loss)			(274	)			357
Total stockholders' equity			14,633				14,730
Total liabilities and stockholders' equity		$	94,990			$	95,326

 

 

The accompanying notes are an integral part of these unaudited consolidated statements.

 

 

 

 

 

		Nine Months Ended September 30,
		2017				2016
Interest and dividend income
Loans, including fees		$	2,628			$	2,749
Investment securities available for sale			486				475
Federal Home Loan and Federal Reserve stock dividends			1				2
Interest-bearing deposits in banks			23				16
Total interest and dividend income			3,138				3,242
Interest expense
Deposits			113				108
Borrowed funds			-				4
Total interest expense			113				112
Net interest income			3,025				3,130
Provision (credit) for loan losses			-				(86	)
Net interest income after provision for loan losses			3,025				3,216
Noninterest income
Service charges on deposit accounts			92				78
Interchange and ATM fees			101				99
Appreciation in cash value of life insurance			5				5
Net gain on sale of securities available for sale			8				2
Other noninterest income			33				31
Total noninterest income			239				215
Noninterest expense
Salaries and employee benefits			1,062				1,035
Occupancy and equipment			168				149
Data processing and software			164				161
Advertising and marketing			69				187
Federal insurance premiums			21				66
Postage			19				20
Legal, accounting and examination fees			214				110
Other noninterest expense			237				226
Total noninterest expense			1,954				1,954
NET INCOME		$	1,310			$	1,477
EARNINGS PER SHARE		$	32.71			$	36.87

 

 

The accompanying notes are an integral part of these unaudited consolidated statements.

 

 

TwinCo, Inc. and Subsidiary

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

(dollars in thousands)

 

(Unaudited)

 

		Nine Months Ended September 30,
		2017				2016
Net income		$	1,310			$	1,477
Other comprehensive income
Change in unrealized gain/loss on securities available for sale			286				527
Reclassification adjustment for net gain on sale of securities available for sale realized in net income			(8	)			(2	)
Total other comprehensive income			278				525
TOTAL COMPREHENSIVE INCOME		$	1,588			$	2,002

 

 

The accompanying notes are an integral part of these unaudited consolidated statements.

 

 

TwinCo, Inc. and Subsidiary

 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

 

Nine Months Ended September 30, 2017 and 2016

 

(dollars in thousands, except per share amounts)

 

(Unaudited)

 

 

																		Accumulated
																		other
		Common				Additional				Treasury				Retained				comprehensive
		stock				paid-in capital				stock				earnings				income (loss)				Total
		(in thousands)
Balance at January 1, 2016		$	76			$	1,560			$	(1,197	)		$	13,539			$	(168	)		$	13,810
Net income			-				-				-				1,477				-				1,477
Other comprehensive income			-				-				-				-				525				525
Cash dividends paid ($27.00 per share)			-				-				-				(1,082	)			-				(1,082	)
Balance at September 30, 2016		$	76			$	1,560			$	(1,197	)		$	13,934			$	357			$	14,730
Balance at January 1, 2017		$	76			$	1,560			$	(1,197	)		$	14,079			$	(552	)		$	13,966
Net income			-				-				-				1,310				-				1,310
Other comprehensive income			-				-				-				-				278				278
Cash dividends paid ($23.00 per share)			-				-				-				(921	)			-				(921	)
Balance at September 30, 2017		$	76			$	1,560			$	(1,197	)		$	14,468			$	(274	)		$	14,633

 

 

The accompanying notes are an integral part of these unaudited consolidated statements.

 

 

TwinCo, Inc. and Subsidiary

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(dollars in thousands)

 

(Unaudited)

 

 

		Nine Months Ended September 30,
		2017				2016
Cash flows from operating activities
Net income		$	1,310			$	1,477
Adjustments to reconcile net income to net cash from operating activities
Provision (credit) for loan losses			-				(86	)
Depreciation			48				40
Net amortization on investment securities			194				231
Net gain on sale of securities available for sale			(8	)			(2	)
Appreciation in cash value of life insurance			(5	)			(5	)
Net change in:
Accrued interest receivable			(403	)			(295	)
Other asssets			15				(28	)
Accrued expenses and other liabilities			(16	)			(16	)
Net cash provided by operating activities			1,135				1,316
Cash flows from investing activities
Purchase of securities available for sale			(1,714	)			(12,390	)
Maturities, calls and paydowns of securities available for sale			4,401				4,556
Sale of securities available for sale			2,091				2,939
Purchase of Federal Home Loan Bank stock			-				(5	)
Loan originations and principal collections, net			(3,647	)			(1,161	)
Net cash provided by (used in) investing activities			1,131				(6,061	)
Cash flows from financing activities
Net change in deposits			610				1,759
Dividends paid			(921	)			(1,082	)
Net cash provided by (used in) investing activities			(311	)			677
Change in cash and cash equivalents			1,955				(4,068	)
Cash and cash equivalents at beginning of period			4,889				8,296
Cash and cash equivalents at end of period		$	6,844			$	4,228
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for interest		$	109			$	105
Supplemental Disclosures of Non-Cash Transactions
Net change in unrealized gain/loss on securities available for sale		$	278			$	525
Loan balances transferred to foreclosed real estate		$	145			$	-

 

 

The accompanying notes are an integral part of these unaudited consolidated statements.

  

 

TwinCo, Inc. and Subsidiary

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

September 30, 2017 and 2016

 

(Unaudited)

 

 

NOTE 1 – BASIS OF PRESENTATION and OTHER ACCOUNTING MATTERS

 

Basis of Presentation

 

TwinCo, Inc. (“Twinco”) is a bank holding company that owns 100% of the stock of Ruby Valley Bank (“the Bank”).  Twinco and the Bank are collectively referred to as “the Company.” 

 

The accompanying unaudited consolidated financial statements include the consolidated totals of the accounts of Twinco and the Bank, and have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission.  Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements.  However, such information reflects all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the Company’s financial condition, results of operations, changes in comprehensive income and cash flows for the unaudited interim periods.

 

The results of operations for the nine month period ended September 30, 2017 are not necessarily indicative of the results to be expected for the year ending December 31, 2017 or any other period.  The unaudited consolidated financial statements and notes presented herein should be read in conjunction with the Company’s audited consolidated financial statements and related notes thereto for the year ended December 31, 2016.

 

Subsequent Events

 

The Company evaluated subsequent events for potential recognition and/or disclosure through November 17, 2017, date the unaudited consolidated financial statements were issued.

 

Comprehensive Income

 

Comprehensive income consists of net income and other comprehensive income/loss. The only component of other comprehensive income/loss consists of net unrealized holding gains and losses on available for sale securities, with no related tax effects. 

 

Earnings Per Share

  

Earnings per share is computed by dividing net income by the weighted average number of shares outstanding.  The Company has no dilutive instruments and accordingly reports only basic earnings per share. 

 

Significant Applicable Accounting Standards Updates Not Yet Effective

 

The Financial Accounting Standards Board recently issued Accounting Standards Update 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.  Under the new standard, certain equity investments are required to be carried at fair value, with changes in fair value recognized in net income. This applies to equity investments with readily determinable fair values that are not consolidated or carried on the equity method.  Debt securities classified as available-for-sale will continue to be carried at fair value with changes in fair value recorded through other comprehensive income.  The standard is effective for the Company beginning January 1, 2019, and is not expected to have a significant impact to the financial statements. 

 

 

 

 

 

 

The Financial Accounting Standards Board recently issued Accounting Standards Update 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.   Under the new standard, the Company will be required to convert from the existing incurred-loss model for determining the allowance for loan losses to an expected-loss model.  An expected-loss model will determine the allowance for loan losses balance based upon credit losses expected to be incurred over the life of the loan portfolio, and will consider not only current credit conditions but also reasonably supportable expectations as to future credit conditions.  The standard will also require securities held to maturity to be evaluated for impairment under an expected-loss model.  The standard is effective for the Company beginning January 1, 2021.  The Company has not yet completed an evaluation of the impact on its financial statements and its accounting and reporting practices.

 

The Financial Accounting Standards Board recently issued Accounting Standards Update 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization of Purchased Callable Debt Securities.   Under the new standard, the Company will be required to amortize investment purchase premiums on callable securities to the earliest call date.  Purchase discounts will continue to be accreted to final maturity.  The standard is effective for the Company beginning January 1, 2020, and is not expected to have a significant impact to the financial statements. 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2017 and 2016

(Unaudited)

 

NOTE 2 - INVESTMENT SECURITIES

 

The amortized cost and fair value of investment securities, with gross unrealized gains and losses, follows:

 

		September 30, 2017
		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
		(in thousands)
Debt securities available for sale
U.S. Government agency		$	122			$	1			$	-			$	123
U.S. agency mortgage-backed			26,171				4				(358	)			25,817
State and municipal			3,863				81				(2	)			3,942
		$	30,156			$	86			$	(360	)		$	29,882

 

 

		September 30, 2016
		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
		(in thousands)
Debt securities available for sale
U.S. Government agency		$	657			$	13			$	-			$	670
U.S. agency mortgage-backed			29,786				233				(2	)			30,017
State and municipal			3,054				113				-				3,167
		$	33,497			$	359			$	(2	)		$	33,854

 

The Company purchases only high-grade investment securities.  U.S. Government Agency securities are comprised entirely of bonds issued by the Federal Home Loan Bank.   U.S. agency mortgage-backed securities are comprised entirely of bonds issued by the Federal Home Loan Mortgage Corporation and Fannie Mae.  State and municipal securities are comprised of bonds issued by various states and municipalities, and are all rated “A” or better by a nationally recognized statistical rating organization.

 

 

TwinCo, Inc. and Subsidiary

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

September 30, 2017 and 2016

 

(Unaudited)

 

The amortized cost and fair value of debt securities available for sale at September 30, 2017, by contractual maturity, are shown below.  Expected maturities may differ from contractual maturities because obligors may have the right to call or prepay obligations with call or prepayment penalties.  Mortgage-backed securities are not broken out by maturity period as repayment of the securities occurs on monthly basis based on the repayment of the mortgage loans underlying the securities:

 

		Amortized Cost				Fair Value
		(in thousands)
Due in one year or less		$	122			$	123
Due after one through five years			150				151
Due after five years through ten years			832				853
Due after ten years			2,881				2,938
			3,985				4,065
Mortgage-backed			26,171				25,817
		$	30,156			$	29,882

 

Information pertaining to securities available-for-sale, with gross unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

 

		September 30, 2017
		Less than 12 months								Over 12 months
		Gross Unrealized Losses				Fair Value				Gross Unrealized Losses				Fair Value
		(in thousands)
U.S. agency mortgage-backed		$	(329	)		$	24,213			$	(29	)		$	1,055
State and municipal			(2	)			314				-				-
		$	(331	)		$	24,527			$	(29	)		$	1,055

 

 

		September 30, 2016
		Less than 12 months								Over 12 months
		Gross Unrealized Losses				Fair Value				Gross Unrealized Losses				Fair Value
		(in thousands)
U.S. agency mortgage-backed		$	(2	)		$	1,226			$	-			$	-

 

 

TwinCo, Inc. and Subsidiary

 

 

 

 

At September 30, 2017 there are 34 mortgage-backed securities with unrealized losses and one municipal security with an unrealized loss.   None of the unrealized losses on mortgage-backed securities exceed 3% of the securities’ amortized cost basis, and the municipal security’s unrealized loss is less than 1% of the amortized cost basis.  At September 30, 2016, there is one mortgage-backed security with an unrealized losses under 1% of the security’s amortized cost basis.  Unrealized losses are due to differences in market yields as compared to yields available at the time securities were purchased, and management has performed analyses of investment credit quality and cash flows and does not believe that any securities are impaired due to reasons of credit quality.  The Company has the ability and intent to hold investment securities for a period of time sufficient for a recovery of cost, and fair value is expected to recover as bonds approach maturity.  Accordingly, as of September 30, 2017, management believes the impairments detailed in the table above are temporary.

 

The Company realized $31,000 in gains and $23,000 in losses on sales and early redemptions of investment securities during the nine months ended September 30, 2017.  The Company realized $8,000 in gains and $6,000 in losses on sales and early redemptions of investment securities during the nine months ended September 30, 2016. 

 

Investment securities with a fair value of $1,592,000 and $1,801,000 at September 30, 2017 and 2016, respectively, were pledged as collateral on public deposits and for other purposes as required or permitted by law.

  

 

 

 

 

 

NOTE 3 – LOANS AND ALLOWANCE FOR LOAN LOSSES

 

Major classifications of loans are as follows:

 

		September 30,
		2017				2016
		(in thousands)
Agricultural loans
Farmland		$	14,226			$	15,587
Production and other			16,593				14,057
			30,819				29,644
Commercial loans
Real estate			9,900				9,426
Operating and other			8,404				8,306
			18,304				17,732
Other real estate loans
Construction, land and land development			1,009				1,421
Residential 1-4 family			3,943				4,208
Multifamily			575				591
			5,527				6,220
Consumer and other loans			1,619				1,812
Total loans			56,269				55,408
Less allowance for loan losses			(1,385	)			(1,440	)
		$	54,884			$	53,968

 

 

At September 30, 2017, agricultural loans include $5,293,000 of loans guaranteed by the United States Department of Agriculture’s Farm Service Agency, with a guaranty amount of $4,763,000, and commercial loans include $1,190,000 of loans guaranteed by the United States Small Business Administration, with a guaranty amount of $1,071,000.  At September 30, 2016, agricultural loans include $4,834,000 of loans guaranteed by the United States Department of Agriculture’s Farm Service Agency, with a guaranty amount of $3,946,000, and commercial loans include $1,223,000 of loans guaranteed by the United States Small Business Administration, with a guaranty amount of $1,102,000.

 

In the ordinary course of business, the Company may grant loans to its executive officers, significant shareholders, directors, and parties affiliated with those persons (collectively, “related parties”).  However, the Company had no loans to related parties at any time in 2017 or 2016.

 

At September 30, 2017 and 2016, loans totaling $17,890,000 and $17,584,000, respectively, are pledged to secure credit facilities with the Federal Home Loan Bank of Des Moines.

 

 

 

 

 

 

Transactions in the allowance for loan losses are as follows:

 

		Agricultural				Commercial				Other Real Estate Loans				Consumer and Other				Total
		(in thousands)
Balance at January 1, 2017		$	750			$	442			$	173			$	55			$	1,420
Provision (credit) for loan losses			(6	)			46				(22	)			(18	)			-
(Charge-offs)			-				(52	)			-				-				(52	)
Recoveries			10				-				-				7				17
Net (charge-offs) recoveries			10				(52	)			-				7				(35	)
Balance at September 30, 2017		$	754			$	436			$	151			$	44			$	1,385

 

 

Balance at January 1, 2016		$	753			$	523			$	130			$	69			$	1,475
Provision (credit) for loan losses			(46	)			(73	)			52				(19	)			(86	)
(Charge-offs)			-				-				-				(1	)			(1	)
Recoveries			43				4				4				1				52
Net (charge-offs) recoveries			43				4				4				-				51
Balance at September 30, 2016		$	750			$	454			$	186			$	50			$	1,440

 

 

 

 

 

 

Components of the allowance for loan losses, and the related carrying amount of loans for which the allowance is determined, are as follows:

 

		September 30, 2017
		Agricultural				Commercial				Other Real Estate Loans				Consumer and Other				Total
		(in thousands)
Allocation of Allowance to:
Impaired loans - evaluated individually		$	-			$	-			$	-			$	-			$	-
Impaired loans - evaluated collectively			-				-				-				-				-
Total impaired loans			-				-				-				-				-
Unimpaired loans - evaluated collectively			754				436				151				44				1,385
		$	754			$	436			$	151			$	44			$	1,385
Recorded Investment In:
Impaired loans - evaluated individually		$	136			$	1,874			$	689			$	1			$	2,700
Impaired loans - evaluated collectively			-				-				-				-				-
Total impaired loans			136				1,874				689				1				2,700
Unimpaired loans - evaluated collectively			30,683				16,430				4,838				1,618				53,569
		$	30,819			$	18,304			$	5,527			$	1,619			$	56,269

 

 

		September 30, 2016
		Agricultural				Commercial				Other Real Estate Loans				Consumer and Other				Total
		(in thousands)
Allocation of Allowance to:
Impaired loans - evaluated individually		$	-			$	77			$	-			$	-			$	77
Impaired loans - evaluated collectively			-				-				-				-				-
Total impaired loans			-				77				-				-				77
Unimpaired loans - evaluated collectively			750				377				186				50				1,363
		$	750			$	454			$	186			$	50			$	1,440
Recorded Investment In:
Impaired loans - evaluated individually		$	2,827			$	2,161			$	676			$	12			$	5,676
Impaired loans - evaluated collectively			-				-				-				-				-
Total impaired loans			2,827				2,161				676				12				5,676
Unimpaired loans - evaluated collectively			26,817				15,571				5,544				1,800				49,732
		$	29,644			$	17,732			$	6,220			$	1,812			$	55,408

 

 

TwinCo, Inc. and Subsidiary

 

 

 

 

Information relative to impaired loans is as follows:

 

		September 30, 2017																				Nine Months Ended September 30, 2017
		Recorded Investment in Impaired Loans With No Valuation Allowance				Recorded Investment in Impaired Loans With A Valuation Allowance				Total Impaired Loans				Valuation Allowance on Impaired Loans				Commitments to Extend Credit on Impaired Loans				Average Impaired Loans
		(in thousands)
Agricultural loans
Farmland			-			$	-			$	-			$	-			$	-			$	307
Production and other			136				-				136				-				-				72
Commercial loans
Real estate			1,273				-				1,273				-				-				1,357
Operating and other			601				-				601				-				-				656
Other real estate loans
Construction, land and land development			-				-				-				-				-				-
Residential 1-4 family			689				-				689				-				-				697
Multifamily			-				-				-				-				-				-
Consumer and other loans			1				-				1				-				-				2
		$	2,700			$	-			$	2,700			$	-			$	-			$	3,091

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2017 and 2016

(Unaudited)

 

		September 30, 2016																				Nine Months Ended September 30, 2016
		Recorded Investment in Impaired Loans With No Valuation Allowance				Recorded Investment in Impaired Loans With A Valuation Allowance				Total Impaired Loans				Valuation Allowance on Impaired Loans				Commitments to Extend Credit on Impaired Loans				Average Impaired Loans
		(in thousands)
Agricultural loans
Farmland		$	2,777			$	-			$	2,777			$	-			$	-			$	2,409
Production and other			50				-				50				-				-				25
Commercial loans
Real estate			663				801				1,464				77				-				1,597
Operating and other			697				-				697				-				-				701
Other real estate loans
Construction, land and land development			-				-				-				-				-				-
Residential 1-4 family			676				-				676				-				-				684
Multifamily			-				-				-				-				-				-
Consumer and other loans			12				-				12				-				-				10
		$	4,875			$	801			$	5,676			$	77			$	-			$	5,426

 

Interest income recognized on impaired loans is $99,000 and $191,000 during the nine months ended September 30, 2017 and 2016, respectively.  The difference between the recorded investment in impaired loans and the unpaid contractual principal balance of those loans is immaterial at September 30, 2017 and 2016.

 

At September 30, 2017, there are no loans in the process of foreclosure.

 

 

TwinCo, Inc. and Subsidiary

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

September 30, 2017 and 2016

 

(Unaudited)

Information related to troubled debt restructurings, all of which are included in impaired loans, is as follows:

 

 

 

		September 30, 2017
		Nonaccrual Troubled Debt Restructurings				Accruing Troubled Debt Restructurings				Total Troubled Debt Restructurings				Valuation Allowance on Troubled Debt Restructurings				Commitments to Extend Credit on Troubled Debt Restructurings
		(in thousands)
Agricultural loans
Farmland		$	-			$	-			$	-			$	-			$	-
Production and other			-				-				-				-				-
Commercial loans
Real estate			-				1,010				1,010				-				-
Operating and other			-				53				53				-				-
Other real estate loans
Construction, land and land development			-				-				-				-				-
Residential 1-4 family			-				632				632				-				-
Multifamily			-				-				-				-				-
Consumer and other loans			-				-				-				-				-
		$	-			$	1,695			$	1,695			$	-			$	-

 

 

 

 

 

 

 

 

		September 30, 2016
		Nonaccrual Troubled Debt Restructurings				Accruing Troubled Debt Restructurings				Total Troubled Debt Restructurings				Valuation Allowance on Troubled Debt Restructurings				Commitments to Extend Credit on Troubled Debt Restructurings
		(in thousands)
Agricultural loans
Farmland		$	-			$	-			$	-			$	-			$	-
Production and other			-				-				-				-				-
Commercial loans
Real estate			230				1,032				1,262				77				-
Operating and other			-				59				59				-				-
Other real estate loans
Construction, land and land development			-				-				-				-				-
Residential 1-4 family			-				644				644				-				-
Multifamily			-				-				-				-				-
Consumer and other loans			-				-				-				-				-
		$	230			$	1,735			$	1,965			$	77			$	-

 

There were no loans modified as a troubled debt restructuring that defaulted during the nine months ended September 30, 2017 or September 30, 2016 where the default occurred within 12 months of the restructuring.  For the purpose of this disclosure, a default is considered a payment delinquency of 90 days or greater, or foreclosure and repossession of the applicable collateral.

 

 

 

 

 

 

The following summarizes the performance status of loans:

 

		September 30, 2017
		Performance Status
		Nonaccrual				Past Due Greater Than 90 Days and Accruing				Total Nonperforming Loans				Performing Troubled Debt Restructurings				Performing Non- Restructured				Total loans
		(in thousands)
Agricultural loans
Farmland		$	-			$	-			$	-			$	-			$	14,226			$	14,226
Production and other			-				115				115				-				16,478				16,593
Commercial loans
Real estate			-				-				-				1,010				8,890				9,900
Operating and other			548				59				607				53				7,744				8,404
Other real estate loans
Construction, land and land development			-				-				-				-				1,009				1,009
Residential 1-4 family			57				-				57				632				3,254				3,943
Multifamily			-				-				-				-				575				575
Consumer and other loans			1				-				1				-				1,618				1,619
		$	606			$	174			$	780			$	1,695			$	53,794			$	56,269

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2017 and 2016

(Unaudited)

		September 30, 2016
		Performance Status
		Nonaccrual				Past Due Greater Than 90 Days and Accruing				Total Nonperforming Loans				Performing Troubled Debt Restructurings				Performing Non- Restructured				Total loans
		(in thousands)
Agricultural loans
Farmland		$	-			$	-			$	-			$	-			$	15,587			$	15,587
Production and other			-				-				-				-				14,057				14,057
Commercial loans
Real estate			230				-				230				1,032				8,164				9,426
Operating and other			635				-				635				59				7,612				8,306
Other real estate loans
Construction, land and land development			-				-				-				-				1,421				1,421
Residential 1-4 family			32				-				32				644				3,532				4,208
Multifamily			-				-				-				-				591				591
Consumer and other loans			12				-				12				-				1,800				1,812
		$	909			$	-			$	909			$	1,735			$	52,764			$	55,408

   

 

 

 

The following summarizes the delinquency status of loans:

 

		September 30, 2017
		Past Due Status
		30-89 Days Past Due				90 Days or More Past Due				Total Past Due				Current				Total loans				Past Due Greater Than 90 Days and Accruing
		(in thousands)
Agricultural loans
Farmland		$	-			$	-			$	-			$	14,226			$	14,226			$	-
Production and other			25				115				140				16,453				16,593				115
Commercial loans
Real estate			67				-				67				9,833				9,900				-
Operating and other			-				580				580				7,824				8,404				59
Other real estate loans
Construction, land and land development			-				-				-				1,009				1,009				-
Residential 1-4 family			-				32				32				3,911				3,943				-
Multifamily			-				-				-				575				575				-
Consumer and other loans			25				-				25				1,594				1,619				-
		$	117			$	727			$	844			$	55,425			$	56,269			$	174

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2017 and 2016

(Unaudited)

		September 30, 2016
		Past Due Status
		30-89 Days Past Due				90 Days or More Past Due				Total Past Due				Current				Total loans				Past Due Greater Than 90 Days and Accruing
		(in thousands)
Agricultural loans
Farmland		$	636			$	-			$	636			$	14,951			$	15,587			$	-
Production and other			-				-				-				14,057				14,057				-
Commercial loans
Real estate			69				230				299				9,127				9,426				-
Operating and other			-				604				604				7,702				8,306				-
Other real estate loans
Construction, land and land development			240				-				240				1,181				1,421				-
Residential 1-4 family			44				32				76				4,132				4,208				-
Multifamily			-				-				-				591				591				-
Consumer and other loans			12				-				12				1,800				1,812				-
		$	1,001			$	866			$	1,867			$	53,541			$	55,408			$	-

  

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2017 and 2016

(Unaudited)

The following summarizes loans by credit rating:

 

		September 30, 2017
		Credit Rating
		Pass				Special Mention				Substandard				Doubtful				Total loans
		(in thousands)
Agricultural loans
Farmland		$	14,226			$	-			$	-			$	-			$	14,226
Production and other			16,455				-				138				-				16,593
Commercial loans
Real estate			9,076				-				824				-				9,900
Operating and other			7,807				-				597				-				8,404
Other real estate loans
Construction, land and land development			1,009				-				-				-				1,009
Residential 1-4 family			3,254				-				689				-				3,943
Multifamily			575				-				-				-				575
Consumer and other loans			1,615				-				4				-				1,619
		$	54,017			$	-			$	2,252			$	-			$	56,269

  

 

 

 

 

 

		September 30, 2016
		Credit Rating
		Pass				Special Mention				Substandard				Doubtful				Total loans
		(in thousands)
Agricultural loans
Farmland		$	12,811			$	-			$	2,776			$	-			$	15,587
Production and other			14,007				-				50				-				14,057
Commercial loans
Real estate			7,919				-				1,507				-				9,426
Operating and other			7,403				200				703				-				8,306
Other real estate loans
Construction, land and land development			1,421				-				-				-				1,421
Residential 1-4 family			3,532				644				32				-				4,208
Multifamily			591				-				-				-				591
Consumer and other loans			1,786				-				26				-				1,812
		$	49,470			$	844			$	5,094			$	-			$	55,408

  

 

 

 

 

 

NOTE 4 - DEPOSITS

 

Information on deposits and related interest expense is as follows:

 

		As-of and for the Nine Months Ended September 30, 2017												As-of and for the Nine Months Ended September 30, 2016
		Balance, end of Period				Interest Expense, for the Period				Weighted Average Rate, For the Period				Balance, end of Period				Interest Expense, for the Period				Weighted Average Rate, For the Period
		(dollars in thousands)												(dollars in thousands)
Noninterest-bearing		$	21,572			$	-				0.00%			$	23,003			$	-				0.00%
Interest-bearing checking and NOW accounts			10,296				6				0.08%				9,183				5				0.07%
Money market accounts			14,299				32				0.29%				14,760				32				0.29%
Savings accounts			15,504				11				0.10%				13,631				11				0.10%
Time certificates of deposit			18,595				64				0.45%				19,923				60				0.40%
		$	80,266			$	113				0.19%			$	80,500			$	108				0.18%

 

At September 30, 2017, there is $20,296,000 in accounts with a balance exceeding $250,000, including $3,699,000 in time certificates of deposit.  At September 30, 2017, time certificates of deposit also include $671,000 in reciprocal brokered certificates through the Certificate of Deposit Account Registry Service (CDARS).  At September 30, 2016, there is $19,746,000 in accounts with a balance exceeding $250,000, including $3,935,000 in time certificates of deposit.  At September 30, 2016, time certificates of deposit also include $1,248,000 in reciprocal brokered certificates through CDARS.

 

At September 30, 2017, time deposits of $15,445,000 mature within one year and the remainder mature in one through three years.

 

NOTE 5 –BORROWED FUNDS

 

Federal Home Loan Bank

 

The Company is eligible to borrow from the Federal Home Loan Bank of Des Moines on both a short term and long term basis.  The amount of credit available is based on discounted amounts of any loans and investment securities pledged as collateral, subject to a maximum amount based on the Company’s asset size.  Any outstanding borrowings are also secured by the Company’s Federal Home Loan Bank stock.  At September 30, 2017 and 2016, no borrowings are outstanding.  At September 30, 2017 the Company is eligible to borrow up to approximately $12,000,000.

 

Federal Funds

 

The Company has unsecured federal funds lines at various correspondent banks with a maximum credit limit of $4,300,000 at September 30, 2017. No amounts were outstanding under these lines at September 30, 2017 and 2016. The federal funds lines are uncommitted, and funding requests made by the Company are subject to the lending institutions’ approval and funding availability at the time of request.

  

 

TwinCo, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2017 and 2016

(Unaudited)

 

NOTE 6 – SHAREHOLDER EQUITY

 

Various restrictions limit the extent to which dividends may be paid by the Bank to Twinco.  Generally, regulatory approval is required for the Bank to pay dividends in any calendar year that exceed the Bank’s net profit for that year combined with its retained profits for the preceding two years.  In addition, dividends paid by the Bank would be prohibited if the effect thereof would cause the Bank’s capital to be reduced below applicable minimum capital requirements.

 

The Bank paid dividends to Twinco totaling $1,100,000 and $1,150,000 during the nine months ended September 30, 2017 and 2016, respectively.

 

NOTE 7 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

 

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers.  These financial instruments include commitments to extend credit and letters of credit.   The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet.  The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

    

The Company's exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amounts of those instruments.  The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

 

Commitments to extend credit are agreements to lend to a customer as long as there is no breach of any condition established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Since many of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.  The Company evaluates each customer's credit-worthiness on a case-by-case basis.  The amount of collateral obtained, if deemed necessary, by the Company upon extension of credit is based on management's credit evaluation of the customer.  Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment and real estate.

 

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party.  The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

 

 

 

 

 

 

 

 

September 30, 2017 and 2016

(Unaudited)

 

The Company has established an allowance for losses on unfunded credit commitments as losses are estimated to have occurred.  During the nine months ended September 30, 2017 and 2016, there was no provision for losses on unfunded credit commitments.  At both September 30, 2017 and 2016, the balance of the allowance for losses on unfunded credit commitments was $60,000 and is carried as a component of accrued expenses and other liabilities.

 

 

NOTE 8 - REGULATORY MATTERS

 

Banks and bank holding companies are subject to various regulatory capital requirements administered by state and federal banking agencies.  Capital adequacy guidelines, and additionally for banks prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices.  Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weighting and other factors.

 

The Basel III Capital Rules became effective for the Bank on January 1, 2015, subject to a phase-in for certain provisions.  Quantitative measures established by the Basel III Capital Rules to ensure capital adequacy require the maintenance of minimum amounts and ratios (set forth in the table below) of common equity tier 1 capital, tier 1 capital and total capital (as defined in the regulations) to risk-weighted assets (as defined), and of tier 1 capital to quarterly average assets (as defined).

 

The Bank’s regulatory capital is comprised of the following:  1) Common equity tier 1 capital – consisting of common stock, related paid-in-capital and retained earnings; 2) Additional tier 1 capital – there are no components of tier 1 capital beyond common equity tier 1 capital; 3) Tier 2 capital - consisting of a permissible portion of the allowance for loan losses; and 4) total capital - the aggregate of  all tier 1 and tier 2 capital.  In connection with the adoption of the Basel III Capital Rules, the Bank elected to opt-out of the requirement to include most components of accumulated other comprehensive income/loss in common equity tier 1 capital.

 

When fully phased in on January 1, 2019, the Basel III capital rules will require the Bank to maintain a minimum ratio of common equity tier 1 capital to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5% common equity tier 1 capital ratio as the buffer is phased in, effectively resulting in a minimum ratio of common equity tier 1 capital to risk-weighted assets of 7.0% upon full phase in).  The Bank will also be required to maintain a tier 1 capital to risk-weighted assets ratio of 6.0% (8.5% including the capital conservation buffer), a total capital to risk-weighted assets ratio of 8.0% (10.5% including the capital conservation buffer), and a tier 1 capital to quarterly average assets ratio of 4.0%. 

 

The aforementioned capital conservation buffer phases in at 0.625% annually over a four year period beginning January 1, 2016, and is designed to absorb losses during periods of economic stress.  Banking institutions with capital ratios above the base minimums but below the effective minimums (which include the buffer) will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall.

 

 

 

 

 

 

The following table presents actual and required capital ratios as of September 30, 2017 for the Bank under the Basel III Capital Rules.  The minimum required capital amounts presented include the minimum required capital levels as of September 30, 2017 based on the phase-in provisions of the Basel III Capital Rules and the minimum required capital levels as of January 1, 2019 when the Basel III Capital rules have been fully phased-in, and include the capital conservation buffer.  Capital levels required to be considered well capitalized are based on prompt corrective action regulations, as amended to reflect changes under the Basel III Capital Rules.

 

 

		Actual			Minimum required for capital adequacy purposes - Basel III phase-in schedule			Minimum required for capital adequacy purposes - Basel III fully phased-in			Required to be considered well capitalized
		Amount	Ratio		Amount	Ratio		Amount	Ratio		Amount	Ratio
		(dollars in thousands)
As of September 30, 2017
Total capital (to risk weighted assets)		$  15,261	23.40%		$    6,032	9.250%		$     6,848	10.5%		$   6,522	10.0%
Tier 1 capital (to risk weighted assets)		14,438	22.14%		4,728	7.250%		5,543	8.5%		5,217	8.0%
Common equity tier 1 capital (to risk weighted assets)		14,438	22.14%		3,750	5.750%		4,565	7.0%		4,239	6.5%
Tier 1 capital (to average assets)		14,438	15.56%		3,712	4.000%		3,712	4.0%		4,640	5.0%

 

Regulatory authorities can initiate certain mandatory actions if the Bank fails to meet the minimum capital requirements, which could have a direct and material effect on the Company’s financial statements.  Management believes, as of September 30, 2017, that the Bank meets all capital adequacy requirements to which it is subject and that the Bank exceeds the minimum levels necessary to be considered “well capitalized.”

 

 

Note 9 - Fair Value MEASUREMENTS AND DISCLOSURES

 

The following is a description of the Company’s valuation methodologies for assets and liabilities recorded at fair value:

 

Securities Available for Sale –Debt securities are reported at fair value based upon measurements obtained from an independent pricing service. The fair value measurements for debt securities are determined by quoted market prices, if available (Level 1), or consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, market consensus prepayment speeds, credit information and the bonds’ terms and conditions, among other things (Level 2).

 

 

TwinCo, Inc. and Subsidiary

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(Unaudited) 

 

Impaired Loans - The Company does not record loans at fair value on a recurring basis. However, from time to time, valuation allowances are recorded on these loans to reflect (1) the current appraised or market-quoted value of the underlying collateral, or (2) the discounted value of expected cash flows. In some cases, the properties for which market quotes or appraised values have been obtained are located in areas where comparable sales data is limited, outdated, or unavailable. Fair value estimates for impaired loans measured for impairment based upon the value of the collateral are obtained from independent appraisers or other third-party consultants, and for other impaired loans are based on discounted cash flow analyses (Level 3).

 

Foreclosed Real Estate Held for Sale - The Company does not record foreclosed real estate held for sale at fair value on a recurring basis. Rather, properties are initially recorded at fair value at the time of acquisition, and from time to time valuation allowances are recorded on the properties to reflect any declines in fair value subsequent to acquisition. Valuation allowances may be reversed if property values recover, but increases in value above the amount established at acquisition cannot be recorded.  Fair value estimates for foreclosed real estate are obtained from independent appraisers or real estate consultants, depending on the significance of the properties, and are netted against internal estimates of the cost to sell (Level 3).   In some cases, the properties for which market quotes or appraised values have been obtained are located in areas where comparable sales data is limited, outdated, or unavailable.

 

The following table provides the hierarchy and fair value for each major category of assets and liabilities recorded at fair value on a recurring basis:

 

		Quoted prices in active markets for identical assets (Level 1)				Other observable inputs (Level 2)				Significant unobservable inputs (Level 3)				Carrying amount
		(in thousands)
September 30, 2017
Securities Available for Sale
U.S. Government agency		$	-			$	123			$	-			$	123
U.S. agency mortgage-backed			-				25,817				-				25,817
State and municipal			-				3,942				-				3,942
		$	-			$	29,882			$	-			$	29,882
September 30, 2016
Securities Available for Sale
U.S. Government agency		$	-			$	670			$	-			$	670
U.S. agency mortgage-backed			-				30,017				-				30,017
State and municipal			-				3,167				-				3,167
		$	-			$	33,854			$	-			$	33,854

 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

September 30, 2017 and 2016

 

(Unaudited)

 

During the nine months ended September 30, 2017 and 2016, there were no changes or amounts in Level 3 assets or liabilities recorded at fair value on a recurring basis.

 

The following table provides the hierarchy and fair value for each major category of assets and liabilities recorded at fair value on a non-recurring basis:

 

		Quoted prices in active markets for identical assets (Level 1)				Other observable inputs (Level 2)				Significant unobservable inputs (Level 3)				Carrying amount
		(in thousands)
September 30, 2017
Impaired loans		$	-			$	-			$	2,700			$	2,700
Foreclosed real estate held for sale			-				-				135				135
September 30, 2016
Impaired loans		$	-			$	-			$	5,599			$	5,599

 

 

At September 30, 2017 there are $2,700,000 of impaired loans, none of which have a valuation allowance.  At September 30, 2016, impaired loans with a valuation allowance have a gross recorded investment of $801,000 and a related valuation allowance of $77,000, and impaired loans with a gross recorded investment of $4,875,000 have no valuation allowance.

 

At September 30, 2017, foreclosed real estate initially recorded at $145,000 has a $10,000 valuation allowance.  There is no foreclosed real estate at September 30, 2016.

 

 

 

 

The following presents the estimated fair value and carrying amount of the Company’s financial instruments:

 

		September 30, 2017
		Quoted prices in active markets for identical assets (Level 1)				Other observable inputs (Level 2)				Significant unobservable inputs (Level 3)				Total Fair Value				Carrying amount
		(in thousands)
Financial Assets
Cash and cash equivalents		$	6,844			$	-			$	-			$	6,844			$	6,844
Certificates of deposit in banks			-				250				-				250				250
Investment securities available for sale			-				29,882				-				29,882				29,882
Nonmarketable equity securities			111				-				-				111				111
Loans, net of allowance for loan losses			-				-				57,143				57,143				54,884
Accrued interest receivable			1,091				-				-				1,091				1,091
Cash surrender value of life insurance			180				-				-				180				180
Financial Assets
Noninterest-bearing deposits			21,572				-				-				21,572				21,572
Interest-bearing deposits (non-maturity)			40,099				-				-				40,099				40,099
Interest-bearing deposits (time deposits)			-				-				18,477				18,477				18,595
Accrued interest payable			17				-				-				17				17

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2017 and 2016

(Unaudited)

 

		September 30, 2016
		Quoted prices in active markets for identical assets (Level 1)				Other observable inputs (Level 2)				Significant unobservable inputs (Level 3)				Total Fair Value				Carrying amount
		(in thousands)
Financial Assets
Cash and cash equivalents		$	4,228			$	-			$	-			$	4,228			$	4,228
Certificates of deposit in banks			-				250				-				250				250
Investment securities available for sale			-				33,854				-				33,854				33,854
Nonmarketable equity securities			141				-				-				141				141
Loans, net of allowance for loan losses			-				-				57,476				57,476				53,968
Accrued interest receivable			1,020				-				-				1,020				1,020
Cash surrender value of life insurance			172				-				-				172				172
Financial Assets
Noninterest-bearing deposits			23,003				-				-				23,003				23,003
Interest-bearing deposits (non-maturity)			37,574				-				-				37,574				37,574
Interest-bearing deposits (time deposits)							-				19,939				19,939				19,923
Accrued interest payable			18				-				-				18				18

 

The following summary presents the methodologies and assumptions used to estimate the fair value of the Company’s financial instruments.  The Company operates as a going concern and, except for investment securities available for sale, no active market exists for its financial instruments.  Much of the information used to determine the fair value is highly subjective and judgmental in nature and, therefore, the results may not be precise.  The subjective factors include, among other things, estimates of cash flows, risk characteristics, credit quality and interest rates, all of which are subject to change.  Since the fair value is estimated as of the balance sheet date, the amounts that will actually be realized or paid upon settlement or maturity of the various financial instruments could be significantly different.

 

Cash and Cash Equivalents, Accrued Interest Receivable, Accrued Interest Payable

 

Fair value approximates the carrying amount as these are assets held for the short term, or liabilities payable in the short term, which would be realized or paid at their carrying amount.

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2017 and 2016

(Unaudited)

 

Certificates of Deposit in Banks

 

Fair value approximates fair value based on the short term nature and minimal balance of these instruments.

 

Investment Securities Available For Sale

 

Fair value is provided by a third-party investment accounting provider and considers observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, market consensus prepayment speeds, credit information and the bonds’ terms and conditions, among other things.

 

Nonmarketable Equity Securities

 

Fair value approximates carrying amount based on the securities’ redemption provisions.

 

Loans, Net

 

For fixed rate loans, fair value is estimated by discounting contractual future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining securities.  For variable rate loans, fair value is estimated to be carrying amount due to the re-pricing provisions.  Loans are presented net of the allowance for loan losses.

 

Cash Surrender Value of Life Insurance

 

Fair value approximates carrying amount based as the policies are carried at their redemption value.

 

Deposits

 

Fair value for noninterest-bearing accounts and interest-bearing accounts with no stated maturity approximates carrying amount as these deposits are payable on demand and can be re-priced at any time.  Fair value of interest-bearing time deposits is estimated by discounting future contractual cash flows using interest rates currently offered for time deposits of similar remaining maturities.

 

Off-Balance-Sheet Instruments

 

Fair value for off-balance-sheet instruments such as unfunded loan commitments and letters of credit is not estimated because of the difficulty in assessing the likelihood and timing of advances, and management believes that it is not feasible or practical to fairly and accurately disclose a fair value for these instruments.

 

 

TwinCo, Inc. and Subsidiary

 

 

(Unaudited)

 

NOTE 10– SALE OF COMPANY

 

In September 2017, the Company entered into a definitive agreement to be acquired by, and merged with and into, Eagle Bancorp Montana, Inc. through the shareholders’ exchange of all the Company’s common stock for cash and stock of Eagle (NASDAQ:  EBMT).  The transaction is subject to regulatory approval, shareholder approval and customary closing conditions, and is expected to close in the first quarter of 2018.

 

 

 

34