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Section 1: 10-Q (FORM 10-Q)

fcbc20180930_10q.htm
 

 

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended September 30, 2018

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number: 000-19297

 

 

FIRST COMMUNITY BANKSHARES, INC.

 
 

(Exact name of registrant as specified in its charter)

 

 

Virginia

 

55-0694814

(State or other jurisdiction of incorporation or organization)

 

(IRS Employer Identification No.)

 

P.O. Box 989

Bluefield, Virginia

 

24605-0989

(Address of principal executive offices)

 

(Zip Code)

 

 

(276) 326-9000

 
 

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

☑ Yes ☐ 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).

☑ Yes ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 ☑

 

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. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐ Yes ☑ No

 

As of October 26, 2018, there were 16,285,370 shares outstanding of the registrant’s Common Stock, $1.00 par value.

 

 

 
 
 

FIRST COMMUNITY BANKSHARES, INC.

FORM 10-Q

INDEX

 

PART I.

FINANCIAL INFORMATION

Page

     

Item 1.

Financial Statements

 
   

Condensed Consolidated Balance Sheets as of September 30, 2018 (Unaudited) and December 31, 2017

4

   

Condensed Consolidated Statements of Income for the Three and Nine months Ended September 30, 2018 and 2017 (Unaudited)

5

   

Condensed Consolidated Statements of Comprehensive Income for the Three and Nine months Ended September 30, 2018 and 2017 (Unaudited)

6

   

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Nine months Ended September 30, 2018 and 2017 (Unaudited)

7

   

Condensed Consolidated Statements of Cash Flows for the Nine months Ended September 30, 2018 and 2017 (Unaudited)

8

   

Notes to Condensed Consolidated Financial Statements (Unaudited)

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

38

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

53

Item 4.

Controls and Procedures

54

     

PART II.

OTHER INFORMATION

 
     

Item 1.

Legal Proceedings

54

Item 1A.

Risk Factors

54

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

54

Item 3.

Defaults Upon Senior Securities

55

Item 4.

Mine Safety Disclosures

55

Item 5.

Other Information

55

Item 6.

Exhibits

55

     

Signatures

57

 

2

 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

Forward-looking statements in filings with the Securities and Exchange Commission, including this Quarterly Report on Form 10-Q and the accompanying Exhibits, filings incorporated by reference, reports to shareholders, and other communications that represent the Company’s beliefs, plans, objectives, goals, guidelines, expectations, anticipations, estimates, and intentions are made in good faith pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict. The words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” and other similar expressions identify forward-looking statements. The following factors, among others, could cause financial performance to differ materially from that expressed in such forward-looking statements:

 

 

the strength of the U.S. economy in general and the strength of the local economies in which we conduct operations;

 

the effects of, and changes in, trade, monetary, and fiscal policies and laws, including interest rate policies of the Federal Reserve System;

 

inflation, interest rate, market and monetary fluctuations;

 

timely development of competitive new products and services and the acceptance of these products and services by new and existing customers;

 

the willingness of customers to substitute competitors’ products and services for the Company’s products and services and vice versa;

 

the impact of changes in financial services laws and regulations, including laws about taxes, banking, securities, and insurance, and the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act;

 

the impact of the U.S. Department of the Treasury and federal banking regulators’ continued implementation of programs to address capital and liquidity in the banking system;

 

further, future, and proposed rules, including those that are part of the process outlined in the Basel Committee on Banking Supervision’s “Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems,” which require banking institutions to increase levels of capital;

 

technological changes;

 

the effect of acquisitions, including, without limitation, the failure to achieve the expected revenue growth and/or expense savings from such acquisitions;

 

the growth and profitability of noninterest, or fee, income being less than expected;

 

unanticipated regulatory or judicial proceedings;

 

changes in consumer spending and saving habits; and

 

the Company’s success at managing the risks mentioned above.

 

This list of important factors is not exclusive. If one or more of the factors affecting these forward-looking statements proves incorrect, actual results, performance, or achievements could differ materially from those expressed in, or implied by, forward-looking statements contained in this Quarterly Report on Form 10-Q and other reports we file with the Securities and Exchange Commission. Therefore, the Company cautions you not to place undue reliance on forward-looking information and statements. The Company does not intend to update any forward-looking statements, whether written or oral, to reflect changes. These cautionary statements expressly qualify all forward-looking statements that apply to the Company including the risk factors presented in Part II, Item 1A, “Risk Factors,” of this report and Part I, Item 1A, “Risk Factors,” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

 

3

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PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

 

FIRST COMMUNITY BANKSHARES, INC.

 CONDENSED CONSOLIDATED BALANCE SHEETS

 

   

September 30,

   

December 31,

 
   

2018

    2017(1)  

(Amounts in thousands, except share and per share data)

 

(Unaudited)

         

Assets

               

Cash and due from banks

  $ 44,719     $ 37,115  

Federal funds sold

    27,965       119,891  

Interest-bearing deposits in banks

    995       945  

Total cash and cash equivalents

    73,679       157,951  

Debt securities available for sale

    163,593       165,525  

Debt securities held to maturity

    25,047       25,149  

Loans held for investment, net of unearned income (including covered loans of $20,483 and $27,948)

    1,790,909       1,817,184  

Allowance for loan losses

    (18,256 )     (19,276 )

Loans held for investment, net

    1,772,653       1,797,908  

FDIC indemnification asset

    5,653       7,161  

Premises and equipment, net

    45,537       48,126  

Other real estate owned (including covered OREO of $44 and $105)

    4,798       2,514  

Interest receivable

    5,374       5,778  

Goodwill

    94,287       95,779  

Other intangible assets

    5,366       6,151  

Other assets

    73,701       76,418  

Total assets

  $ 2,269,688     $ 2,388,460  
                 

Liabilities

               

Deposits

               

Noninterest-bearing

  $ 463,945     $ 454,143  

Interest-bearing

    1,411,906       1,475,748  

Total deposits

    1,875,851       1,929,891  

Securities sold under agreements to repurchase

    30,151       30,086  

FHLB borrowings

    -       50,000  

Interest, taxes, and other liabilities

    25,284       27,769  

Total liabilities

    1,931,286       2,037,746  
                 

Stockholders' equity

               

Preferred stock, undesignated par value; 1,000,000 shares authorized; Series A Noncumulative Convertible Preferred Stock, $0.01 par value; 25,000 shares authorized; none outstanding

     -       -  
Common stock, $1 par value; 50,000,000 shares authorized; 21,381,779 shares issued at September 30, 2018, and December 31, 2017; 4,991,277 and 4,383,553 shares in treasury at September 30, 2018, and December 31, 2017, respectively      21,382       21,382  

Additional paid-in capital

    229,182       228,750  

Retained earnings

    189,902       180,543  

Treasury stock, at cost

    (99,247 )     (79,121 )

Accumulated other comprehensive loss

    (2,817 )     (840 )

Total stockholders' equity

    338,402       350,714  

Total liabilities and stockholders' equity

  $ 2,269,688     $ 2,388,460  

(1) Derived from audited financial statements

 

See Notes to Condensed Consolidated Financial Statements.

 

4

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FIRST COMMUNITY BANKSHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 

(Amounts in thousands, except share and per share data)

 

2018

   

2017

   

2018

   

2017

 

Interest income

                               

Interest and fees on loans

  $ 22,556     $ 22,694     $ 67,733     $ 67,435  

Interest on securities -- taxable

    666       341       1,704       1,157  

Interest on securities -- tax-exempt

    706       739       2,133       2,299  

Interest on deposits in banks

    358       275       1,343       655  

Total interest income

    24,286       24,049       72,913       71,546  

Interest expense

                               

Interest on deposits

    1,269       1,275       3,847       3,674  

Interest on short-term borrowings

    204       213       606       634  

Interest on long-term debt

    488       511       1,494       1,753  

Total interest expense

    1,961       1,999       5,947       6,061  

Net interest income

    22,325       22,050       66,966       65,485  

Provision for loan losses

    495       730       1,485       2,156  

Net interest income after provision for loan losses

    21,830       21,320       65,481       63,329  

Noninterest income

                               

Wealth management

    791       758       2,408       2,339  

Service charges on deposits

    3,803       3,605       10,883       10,078  

Other service charges and fees

    1,925       1,709       5,716       5,156  

Insurance commissions

    299       306       966       1,004  

Net loss on sale of securities

    (618 )     -       (618 )     (657 )

Net FDIC indemnification asset amortization

    (645 )     (268 )     (1,602 )     (3,186 )

Other operating income

    964       593       2,393       2,336  

Total noninterest income

    6,519       6,703       20,146       17,070  

Noninterest expense

                               

Salaries and employee benefits

    8,983       9,001       27,417       26,771  

Occupancy expense

    1,075       1,082       3,408       3,671  

Furniture and equipment expense

    985       1,133       2,976       3,311  

Service fees

    1,134       705       2,813       2,645  

Advertising and public relations

    478       551       1,461       1,700  

Professional fees

    337       339       1,074       1,978  

Amortization of intangibles

    261       266       785       790  

FDIC premiums and assessments

    234       227       697       698  

Loss on extinguishment of debt

    1,096       -       1,096       -  

Goodwill impairment

    1,492       -       1,492       -  

Other operating expense

    2,056       3,173       9,188       8,655  

Total noninterest expense

    18,131       16,477       52,407       50,219  

Income before income taxes

    10,218       11,546       33,220       30,180  

Income tax expense

    1,118       3,894       6,186       9,908  

Net income

    9,100       7,652       27,034       20,272  
                                 

Earnings per common share

                               

Basic

  $ 0.55     $ 0.45     $ 1.62     $ 1.19  

Diluted

    0.55       0.45       1.61       1.19  

Cash dividends per common share

    0.21       0.18       1.05       0.50  

Weighted average shares outstanding

                               

Basic

    16,512,823       17,005,654       16,717,704       17,005,350  

Diluted

    16,612,416       17,082,729       16,810,425       17,076,958  

 

See Notes to Condensed Consolidated Financial Statements.

 

5

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FIRST COMMUNITY BANKSHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2018

   

2017

   

2018

   

2017

 

(Amounts in thousands)

                               

Net income

  $ 9,100     $ 7,652     $ 27,034     $ 20,272  

Other comprehensive income, before tax

                               

Available-for-sale debt securities:

                               

Change in net unrealized (losses) gains on debt securities without other-than-temporary impairment

    (983 )     (169 )     (3,426 )     2,127  

Reclassification adjustment for net losses recognized in net income

    618       -       618       657  

Net unrealized (losses) gains on available-for-sale debt securities

    (365 )     (169 )     (2,808 )     2,784  

Employee benefit plans:

                               

Net actuarial (loss) gain

    (1 )     (1 )     91       133  

Reclassification adjustment for amortization of prior service cost and net actuarial loss recognized in net income

    72       65       214       194  

Net unrealized gains on employee benefit plans

    71       64       305       327  

Other comprehensive (loss) income, before tax

    (294 )     (105 )     (2,503 )     3,111  

Income tax (benefit) expense

    (62 )     (39 )     (526 )     1,167  

Other comprehensive (loss) income, net of tax

    (232 )     (66 )     (1,977 )     1,944  

Total comprehensive income

  $ 8,868     $ 7,586     $ 25,057     $ 22,216  

 

See Notes to Condensed Consolidated Financial Statements.

 

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FIRST COMMUNITY BANKSHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)

 

                                           

Accumulated

         
                   

Additional

                   

Other

         
   

Preferred

   

Common

   

Paid-in

   

Retained

   

Treasury

   

Comprehensive

         

 

 

Stock

   

Stock

   

Capital

   

Earnings

   

Stock

   

Income (Loss)

   

Total

 

(Amounts in thousands, except share and per share data)

                                                       

Balance January 1, 2017

  $ -     $ 21,382     $ 228,142     $ 170,377     $ (78,833 )   $ (2,011 )   $ 339,057  

Net income

    -       -       -       20,272       -       -       20,272  

Other comprehensive income

    -       -       -       -       -       1,944       1,944  

Common dividends declared -- $0.50 per share

    -       -       -       (8,504 )     -       -       (8,504 )

Equity-based compensation expense

    -       -       250       -       387       -       637  

Common stock options exercised -- 8,036 shares

    -       -       6       -       145       -       151  

Issuance of treasury stock to 401(k) plan -- 12,834 shares

    -       -       112       -       231       -       343  

Purchase of treasury shares -- 50,118 shares at $25.20 per share

    -       -       -       -       (1,263 )     -       (1,263 )

Balance September 30, 2017

  $ -     $ 21,382     $ 228,510     $ 182,145     $ (79,333 )   $ (67 )   $ 352,637  
                                                         

Balance January 1, 2018

  $ -     $ 21,382     $ 228,750     $ 180,543     $ (79,121 )   $ (840 )   $ 350,714  

Net income

    -       -       -       27,034       -       -       27,034  

Other comprehensive loss

    -       -       -       -       -       (1,977 )     (1,977 )

Common dividends declared -- $0.57 per share

    -       -       -       (9,541 )     -       -       (9,541 )

Special common dividend declared -- $0.48 per share

    -       -       -       (8,134 )     -       -       (8,134 )

Equity-based compensation expense

    -       -       345       -       602       -       947  

Common stock options exercised -- 18,979 shares

    -       -       (41 )     -       362       -       321  

Issuance of treasury stock to 401(k) plan -- 10,543 shares

    -       -       128       -       197       -       325  

Purchase of treasury shares -- 670,016 shares at $31.77 per share

    -       -       -       -       (21,287 )     -       (21,287 )

Balance September 30, 2018

  $ -     $ 21,382     $ 229,182     $ 189,902     $ (99,247 )   $ (2,817 )   $ 338,402  

 

See Notes to Condensed Consolidated Financial Statements.

 

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FIRST COMMUNITY BANKSHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

   

Nine Months Ended

 
   

September 30,

 

(Amounts in thousands)

 

2018

   

2017

 

Operating activities

               

Net income

  $ 27,034     $ 20,272  

Adjustments to reconcile net income to net cash provided by operating activities

               

Provision for loan losses

    1,485       2,156  

Depreciation and amortization of premises and equipment

    2,221       2,688  

Amortization (accretion) of premiums on investments, net

    26       63  

Amortization of FDIC indemnification asset, net

    1,602       3,186  

Amortization of intangible assets

    785       790  

Goodwill impairment

    1,492       -  

Accretion on acquired loans

    (4,257 )     (4,257 )

Equity-based compensation expense

    947       637  

Issuance of treasury stock to 401(k) plan

    325       343  

(Gain) loss on sale of premises and equipment, net

    (8 )     13  

Loss on sale of other real estate owned

    833       940  

Loss on sale of securities

    618       657  

Loss on extinguishment of debt

    1,096       -  

Decrease in accrued interest receivable

    404       397  

Decrease (increase) in other operating activities

    2,543       (4,647 )

Net cash provided by operating activities

    37,146       23,238  

Investing activities

               

Proceeds from sale of securities available for sale

    8,937       12,273  

Proceeds from maturities, prepayments, and calls of securities available for sale

    57,056       18,022  

Proceeds from maturities and calls of securities held to maturity

    -       21,840  

Payments to acquire securities available for sale

    (67,355 )     (36,966 )

Proceeds from loans, net

    23,929       17,304  

Proceeds from bank owned life insurance

    458       2,639  

(Redemption of) proceeds from FHLB stock, net

    (2,122 )     694  

(Payments to) proceeds from the FDIC

    (117 )     1,701  

Proceeds from sale of premises and equipment

    507       29  

Payments to acquire premises and equipment

    (1,076 )     (2,028 )

Proceeds from sale of other real estate owned

    981       2,130  

Net cash provided by investing activities

    21,198       37,638  

Financing activities

               

Increase in noninterest-bearing deposits, net

    9,802       25,235  

Decrease in interest-bearing deposits, net

    (63,842 )     (2,753 )

Proceeds from (repayments of) securities sold under agreements to repurchase, net

    65       (14,222 )

Repayments of FHLB and other borrowings, net

    (50,000 )     (30,708 )

Proceeds from stock options exercised

    321       151  

Payments for repurchase of treasury stock

    (21,287 )     (1,263 )

Payments of common dividends

    (17,675 )     (8,504 )

Net cash used in financing activities

    (142,616 )     (32,064 )

Net (decrease) increase in cash and cash equivalents

    (84,272 )     28,812  

Cash and cash equivalents at beginning of period

    157,951       76,307  

Cash and cash equivalents at end of period

  $ 73,679     $ 105,119  
                 

Supplemental disclosure -- cash flow information

               

Cash paid for interest

  $ 6,447     $ 6,257  

Cash paid for income taxes

    4,800       12,942  
                 

Supplemental transactions -- noncash items

               

Transfer of loans to other real estate owned

    4,135       1,282  

Loans originated to finance other real estate owned

    92       -  

(Increase) decrease in accumulated other comprehensive loss

    (1,977 )     1,944  

 

See Notes to Condensed Consolidated Financial Statements.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

 

Note 1. Basis of Presentation

 

General

 

First Community Bankshares, Inc. (the “Company”), a financial holding company, was incorporated under the laws of the Commonwealth of Virginia in 2018. The Company is the successor to First Community Bancshares, Inc., a Nevada corporation, pursuant to an Agreement and Plan of Reincorporation and Merger, the sole purpose of which was to change the Company’s state of incorporation from Nevada to Virginia. The reincorporation was completed on October 2, 2018. The Company’s principal executive office is located at One Community Place, Bluefield, Virginia. The Company provides banking products and services to individual and commercial customers through its wholly owned subsidiary First Community Bank (the “Bank”), a Virginia-chartered banking institution founded in 1874. The Bank operates as First Community Bank in Virginia, West Virginia, and North Carolina and People’s Community Bank, a Division of First Community Bank, in Tennessee. The Bank provides insurance services through its wholly owned subsidiary First Community Insurance Services (“FCIS”) and offers wealth management and investment advice through its Trust Division and wholly owned subsidiary First Community Wealth Management (“FCWM”). Unless the context suggests otherwise, the terms “First Community,” “Company,” “we,” “our,” and “us” refer to First Community Bankshares, Inc. and its subsidiaries as a consolidated entity.

 

On September 17, 2018, the Company announced its intention to sell its remaining insurance agency assets to Bankers Insurance, LLC (“BI”) of Glen Allen, Virginia in exchange for an equity interest in BI. The sale, which closed October 1, 2018, strategically allows the Company to continue offering insurance products to its customers through a larger, more diversified insurance agency. In connection with the decision to divest the insurance agency assets, the Company recognized a one-time goodwill impairment charge of $1.49 million during the third quarter of 2018. The Company used the fair value of the equity interest in BI as the basis for determining the goodwill impairment.

 

Principles of Consolidation

 

The Company’s accounting and reporting policies conform with U.S. generally accepted accounting principles (“GAAP”) and prevailing practices in the banking industry. The consolidated financial statements include all accounts of the Company and its wholly owned subsidiaries and eliminate all intercompany balances and transactions. The Company operates in one business segment, Community Banking, which consists of all operations, including commercial and consumer banking, lending activities, wealth management, and insurance services. Operating results for interim periods are not necessarily indicative of results that may be expected for other interim periods or for the full year. In management’s opinion, the accompanying unaudited interim condensed consolidated financial statements contain all necessary adjustments, including normal recurring accruals, and disclosures for a fair presentation.

 

These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 (the “2017 Form 10-K”), as filed with the Securities and Exchange Commission (the “SEC”) on March 5, 2018. The condensed consolidated balance sheet as of December 31, 2017, has been derived from the audited consolidated financial statements.

 

Reclassifications

 

Certain amounts reported in prior years have been reclassified to conform to the current year’s presentation. These reclassifications had no effect on the Company’s results of operations, financial position, or net cash flow.

 

Use of Estimates

 

Preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that require the most subjective or complex judgments relate to fair value measurements, investment securities, the allowance for loan losses, goodwill and other intangible assets, and income taxes. A discussion of the Company’s application of critical accounting estimates is included in “Critical Accounting Estimates” in Item 2 of this report.

 

9

 

Significant Accounting Policies

 

A complete and detailed description of the Company’s significant accounting policies is included in Note 1, “Basis of Presentation,” of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2018, and in Note 1, “Basis of Presentation and Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in Part II, Item 8 of the Company’s 2017 Form 10-K.

 

Recent Accounting Standards

 

Standards Adopted in 2018

 

In May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updated (“ASU”) 2017-09, “Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting.” This ASU clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The Company adopted ASU 2017-09 in the first quarter of 2018. The adoption of the standard did not have a material effect on the Company’s financial statements.

 

In March 2017, the FASB issued ASU 2017-08, “Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Securities.” This ASU amends the amortization period for certain purchased callable debt securities. The Company early adopted ASU 2017-08 in the first quarter of 2018. The adoption of the standard did not have a material effect on the Company’s financial statements since securities held at a premium were already being amortized to the earliest call date.

 

In March 2017, the FASB issued ASU 2017-07, “Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” This ASU intends to improve the presentation of net periodic pension cost and net periodic postretirement benefit costs in the income statement and to narrow the amounts eligible for capitalization in assets. The Company adopted ASU 2017-07 in the first quarter of 2018. The adoption of the standard did not have a material effect on the Company’s financial statements. In accordance with the standard, the Company reclassified the non-service components of the net periodic benefit costs from salaries and employee benefits to other expense on a retrospective basis, which totaled $136 thousand for the three months ended September 30, 2017, and $407 thousand for the nine months ended September 30, 2017.

 

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash.” This ASU requires that a statement of cash flows explains the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted ASU 2016-18 in the first quarter of 2018. The adoption of the standard did not have a material effect on the Company’s financial statements.

 

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” This ASU makes eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The update should be applied on a retrospective basis, if practicable. The Company adopted ASU 2016-15 in the first quarter of 2018. The adoption of the standard did not have a material effect on the Company’s financial statements. In accordance with the standard, the Company reclassified proceeds from bank owned life insurance from operating activities to investing activities on a retrospective basis, which totaled $2.64 million for the nine months ended September 30, 2017.

 

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” This ASU significantly revises how entities account and disclose financial assets and liabilities. The guidance (1) requires most equity investments to be measured at fair value with changes in fair value recognized in net income; (2) simplifies the impairment assessment of equity investments without a readily determinable fair value; (3) eliminates the requirement to disclose the methods and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost on the balance sheet; (4) requires public business entities to use exit price notion, rather than entry prices, when measuring fair value of financial instruments for disclosure purposes; (5) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial assets on the balance sheet or the accompanying notes to the financial statements; (6) requires separate presentation in other comprehensive income of the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; and (7) states that a valuation allowance on deferred tax assets related to available-for-sale securities should be evaluated in combination with other deferred tax assets. In February 2018, the FASB issued ASU 2018-03, which included technical corrections and improvements to clarify the guidance in ASU 2016-01. The Company adopted ASU 2016-01 in the first quarter of 2018. The adoption of the standard did not have a material effect on the Company’s financial statements. In accordance with the prospective application of the standard, the Company measured the fair value of loans using an exit price notion as of March 31, 2018. For additional information, see Note 13, “Fair Value” to the Condensed Consolidated Financial Statements of this report.

 

10

 

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” This ASU’s core principle is that an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under existing guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers” deferring the effective date of ASU 2014-09 for the Company until fiscal years beginning after December 15, 2017, with early adoption permitted for fiscal years beginning after December 15, 2016. The Company adopted Topic 606, and related updates, in the first quarter of 2018 using the modified retrospective method. The Company’s primary source of revenue is interest income, which is excluded from the scope of this guidance; however, the Company evaluated the impact on other income; which includes fees for services, commissions on sales, and various deposit service charges; revenue contracts; and disclosures and determined that no cumulative-effect adjustment to retained earnings was necessary. The adoption of the standard did not have a material effect on the Company’s financial statements.

 

Revenue Recognition

 

Accounting Standards Codification Topic 606 (“ASC 606”), “Revenue from Contracts with Customers,” establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the Company's contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.

 

The great majority of the Company’s revenue-generating transactions are not subject to ASC 606, including revenue generated from financial instruments, such as loans, letters of credit, and derivatives and investment securities, as these activities are subject to other GAAP discussed elsewhere within our disclosures. Descriptions of the Company’s revenue-generating activities that are within the scope of ASC 606, which are discussed below, are presented in the Company’s consolidated statements of income as components of noninterest income.

 

Wealth management. Wealth management income represents monthly fees due from wealth management customers as consideration for managing the customers' assets. Wealth management and trust services include custody of assets, investment management, escrow services, fees for trust services and similar fiduciary activities. Revenue is recognized when the performance obligation is completed each month, which is generally the time that payment is received. Income also includes fees received from a third party broker-dealer as part of a revenue-sharing agreement for fees earned from customers that are referred to the third party. These fees are paid to the Company by the third party on a quarterly basis and recognized ratably throughout the quarter as the performance obligation is satisfied.

 

Service charges on deposits and other service charges and fees. Service charges on deposits and other service charges and fees represent general service fees for account maintenance and activity and transaction-based fees that consist of transaction-based revenue, time-based revenue (service period), item-based revenue, or some other individual attribute-based revenue. Revenue is recognized when the performance obligation is completed, which is generally monthly for account maintenance services or when a transaction has been completed. Payment for such performance obligations is generally received at the time the performance obligations are satisfied. Other service charges and fees include interchange income from debit and credit card transaction fees. In accordance with the adoption of ASC 606, the Company reclassified interchange expense, which was previously a component of noninterest expense, to net against interchange income on a retrospective basis, which totaled $432 thousand for the three months ended September 30, 2017, and $1.23 million for the nine months ended September 30, 2017.

 

Other operating income. Other operating income consists primarily of third-party incentive payments, income on life insurance contracts, and dividends received, which are not subject to the requirements of ASC 606.

 

Standards Not Yet Adopted

 

In July 2018, the FASB issued ASU 2018-09, “Codification Improvements.” This ASU makes changes to a variety of topics to clarify, correct errors in, or make minor improvements to the Accounting Standards Codification. The majority of the amendments in ASU 2018-09 will be effective for the Company for fiscal years beginning after December 15, 2018. The Company expects to adopt ASU 2018-09 in the first quarter of 2019. The Company is evaluating the impact of the standard and does not expect the guidance to have a material effect on its financial statements.

 

11

 

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” This ASU intends to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements and simplify the application of hedge accounting guidance. ASU 2017-12 will be effective for the Company for fiscal years beginning after December 15, 2018. The Company expects to adopt ASU 2017-12 in the first quarter of 2019. The Company is evaluating the impact of the standard and does not expect the guidance to have a material effect on its financial statements.

 

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This ASU intends to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. This ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, the update amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 will be effective for the Company for fiscal years beginning after December 15, 2019, with early adoption permitted for fiscal years beginning after December 15, 2018. The Company expects to adopt ASU 2016-13 in the first quarter of 2020 and recognize a cumulative adjustment to retained earnings as of the beginning of the year of adoption. The Company is evaluating the impact of the standard.

 

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” This ASU increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and requiring more disclosures related to leasing transactions. In July 2018, the FASB issued ASU 2018-10, “Codification Improvements to Topic 842, Leases,” which updates narrow aspects of the guidance issued in ASU 2016-02. ASU 2016-02 will be effective for the Company for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company expects to adopt ASU 2016-02 in the first quarter of 2019. The Company leases certain banking offices under lease agreements it classifies as operating leases. The Company is evaluating the impact of the standard and expects an increase in assets and liabilities; however, the Company does not expect the guidance to have a material effect on its financial statements or resulting operations.

 

The Company does not expect other recent accounting standards issued by the FASB or other standards-setting bodies to have a material impact on the consolidated financial statements.

 

 

Note 2. Debt Securities

 

The following tables present the amortized cost and fair value of available-for-sale debt securities, including gross unrealized gains and losses, as of the dates indicated:

 

   

September 30, 2018

 
   

Amortized

   

Unrealized

   

Unrealized

   

Fair

 
   

Cost

   

Gains

   

Losses

   

Value

 

(Amounts in thousands)

                               

U.S. Agency securities

  $ 1,137     $ 4     $ -     $ 1,141  

U.S. Treasury securities

    29,910       -       (22 )     29,888  

Municipal securities

    97,857       766       (1,112 )     97,511  

Mortgage-backed Agency securities

    36,263       15       (1,225 )     35,053  

Total

  $ 165,167     $ 785     $ (2,359 )   $ 163,593  

 

   

December 31, 2017

 
   

Amortized

   

Unrealized

   

Unrealized

   

Fair

 
   

Cost

   

Gains

   

Losses

   

Value

 

(Amounts in thousands)

                               

U.S. Agency securities

  $ 11,289     $ 17     $ (10 )   $ 11,296  

U.S. Treasury securities

    19,987       -       (16 )     19,971  

Municipal securities

    101,552       2,203       (107 )     103,648  

Single issue trust preferred securities

    9,367       -       (483 )     8,884  

Mortgage-backed Agency securities

    22,095       46       (415 )     21,726  

Total

  $ 164,290     $ 2,266     $ (1,031 )   $ 165,525  

 

12

 

The following tables present the amortized cost and fair value of held-to-maturity debt securities, including gross unrealized gains and losses, as of the dates indicated:

 

   

September 30, 2018

 
   

Amortized

   

Unrealized

   

Unrealized

   

Fair

 
   

Cost

   

Gains

   

Losses

   

Value

 

(Amounts in thousands)

                               

U.S. Agency securities

  $ 17,900     $ -     $ (53 )   $ 17,847  

Corporate securities

    7,147       -       (15 )     7,132  

Total

  $ 25,047     $ -     $ (68 )   $ 24,979  

 

   

December 31, 2017

 
   

Amortized

   

Unrealized

   

Unrealized

   

Fair

 
   

Cost

   

Gains

   

Losses

   

Value

 

(Amounts in thousands)

                               

U.S. Agency securities

  $ 17,937     $ -     $ (49 )   $ 17,888  

Corporate securities

    7,212       -       (16 )     7,196  

Total

  $ 25,149     $ -     $ (65 )   $ 25,084  

 

The following table presents the amortized cost and aggregate fair value of available-for-sale debt securities and held-to-maturity debt securities, by contractual maturity, as of the date indicated. Actual maturities could differ from contractual maturities because issuers may have the right to call or prepay obligations with or without penalties.

 

   

September 30, 2018

 
   

Amortized

         

(Amounts in thousands)

 

Cost

   

Fair Value

 

Available-for-sale debt securities

               

Due within one year

  $ 29,910     $ 29,888  

Due after one year but within five years

    11,547       11,644  

Due after five years but within ten years

    86,662       86,226  

Due after ten years

    785       782  
      128,904       128,540  

Mortgage-backed securities

    36,263       35,053  

Total debt securities available for sale

  $ 165,167     $ 163,593  
                 

Held-to-maturity debt securities

               

Due within one year

  $ 25,047     $ 24,979  

Due after one year but within five years

    -       -  

Due after five years but within ten years

    -       -  

Due after ten years

    -       -  

Total debt securities held to maturity

  $ 25,047     $ 24,979  

 

The following tables present the fair values and unrealized losses for available-for-sale debt securities in a continuous unrealized loss position for less than 12 months and for 12 months or longer as of the dates indicated:

 

   

September 30, 2018

 
   

Less than 12 Months

   

12 Months or Longer

   

Total

 
   

Fair

   

Unrealized

   

Fair

   

Unrealized

   

Fair

   

Unrealized

 
   

Value

   

Losses

   

Value

   

Losses

   

Value

   

Losses

 

(Amounts in thousands)

                                               

U.S. Treasury securities

  $ 29,888     $ (22 )   $ -     $ -     $ 29,888     $ (22 )

Municipal securities

    26,034       (720 )     6,938       (392 )     32,972       (1,112 )

Mortgage-backed Agency securities

    20,213       (369 )     13,062       (856 )     33,275       (1,225 )

Total

  $ 76,135     $ (1,111 )   $ 20,000     $ (1,248 )   $ 96,135     $ (2,359 )

 

13

 

   

December 31, 2017

 
   

Less than 12 Months

   

12 Months or Longer

   

Total

 
   

Fair

   

Unrealized

   

Fair

   

Unrealized

   

Fair

   

Unrealized

 
   

Value

   

Losses

   

Value

   

Losses

   

Value

   

Losses

 

(Amounts in thousands)

                                               

U.S. Agency securities

  $ 10,054     $ (10 )   $ -     $ -     $ 10,054     $ (10 )

U.S. Treasury securities

    19,972       (16 )     -       -       19,972       (16 )

Municipal securities

    8,047       (55 )     2,314       (52 )     10,361       (107 )

Single issue trust preferred securities

    -       -       8,884       (483 )     8,884       (483 )

Mortgage-backed Agency securities

    4,276       (25 )     14,069       (390 )     18,345       (415 )

Total

  $ 42,349     $ (106 )   $ 25,267     $ (925 )   $ 67,616     $ (1,031 )

 

The following tables present the fair values and unrealized losses for held-to-maturity debt securities in a continuous unrealized loss position for less than 12 months and for 12 months or longer as of the dates indicated:

 

   

September 30, 2018

 
   

Less than 12 Months

   

12 Months or Longer

   

Total

 
   

Fair

   

Unrealized

   

Fair

   

Unrealized

   

Fair

   

Unrealized

 
   

Value

   

Losses

   

Value

   

Losses

   

Value

   

Losses

 

(Amounts in thousands)

                                               

U.S. Agency securities

  $ 14,104     $ (41 )   $ 3,743     $ (12 )   $ 17,847     $ (53 )

Corporate securities

    3,746       (5 )     3,386       (10 )     7,132       (15 )

Total

  $ 17,850     $ (46 )   $ 7,129     $ (22 )   $ 24,979     $ (68 )

 

   

December 31, 2017

 
   

Less than 12 Months

   

12 Months or Longer

   

Total

 
   

Fair

   

Unrealized

   

Fair

   

Unrealized

   

Fair

   

Unrealized

 
   

Value

   

Losses

   

Value

   

Losses

   

Value

   

Losses

 

(Amounts in thousands)

                                               

U.S. Agency securities

  $ 17,888     $ (49 )   $ -     $ -     $ 17,888     $ (49 )

Corporate securities

    7,196       (16 )     -       -       7,196       (16 )

Total

  $ 25,084     $ (65 )   $ -     $ -     $ 25,084     $ (65 )

 

There were 116 individual debt securities in an unrealized loss position as of September 30, 2018, and their combined depreciation in value represented 1.29% of the debt securities portfolio. There were 45 individual debt securities in an unrealized loss position as of December 31, 2017, and their combined depreciation in value represented 0.57% of the debt securities portfolio.

 

The Company reviews its investment portfolio quarterly for indications of other-than-temporary impairment (“OTTI”). The initial indicator of OTTI for debt securities is a decline in fair value below book value and the severity and duration of the decline. The credit-related OTTI is recognized as a charge to noninterest income and the noncredit-related OTTI is recognized in other comprehensive income (“OCI”). During the three and nine months ended September 30, 2018 and 2017, the Company incurred no OTTI charges on debt securities. Temporary impairment on debt securities is primarily related to changes in benchmark interest rates, changes in pricing in the credit markets, and other current economic factors.

 

The following table presents gross realized gains and losses from the sale of available-for-sale debt securities for the periods indicated:

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2018

   

2017

   

2018

   

2017

 

(Amounts in thousands)

                               

Gross realized gains

  $ -     $ -     $ -     $ -  

Gross realized losses

    (618 )     -       (618 )     (657 )

Net loss on sale of securities

  $ (618 )   $ -     $ (618 )   $ (657 )

 

The carrying amount of securities pledged for various purposes totaled $37.79 million as of September 30, 2018, and $51.34 million as of December 31, 2017.

 

14

 

 

Note 3. Loans

 

The Company groups loans held for investment into three segments (commercial loans, consumer real estate loans, and consumer and other loans) with each segment divided into various classes. Covered loans are those loans acquired in Federal Deposit Insurance Corporation (“FDIC”) assisted transactions that are covered by loss share agreements. Customer overdrafts reclassified as loans totaled $1.83 million as of September 30, 2018, and $1.71 million as of December 31, 2017. Deferred loan fees, net of loan costs, totaled $4.64 million as of September 30, 2018, and $4.44 million as of December 31, 2017. For information about off-balance sheet financing, see Note 14, “Litigation, Commitments, and Contingencies,” to the Condensed Consolidated Financial Statements of this report.

 

The following table presents loans, net of unearned income, with the non-covered portfolio by loan class, as of the dates indicated:

 

   

September 30, 2018

   

December 31, 2017

 

(Amounts in thousands)

 

Amount

   

Percent

   

Amount

   

Percent

 

Non-covered loans held for investment

                               

Commercial loans

                               

Construction, development, and other land

  $ 62,657       3.50 %   $ 60,017       3.30 %

Commercial and industrial

    105,603       5.90 %     92,188       5.07 %

Multi-family residential

    112,710       6.29 %     125,202       6.89 %

Single family non-owner occupied

    142,591       7.96 %     141,670       7.80 %

Non-farm, non-residential

    606,800       33.88 %     616,633       33.93 %

Agricultural

    9,016       0.50 %     7,035       0.39 %

Farmland

    20,872       1.17 %     25,649       1.41 %

Total commercial loans

    1,060,249       59.20 %     1,068,394       58.79 %

Consumer real estate loans

                               

Home equity lines

    96,819       5.41 %     103,205       5.68 %

Single family owner occupied

    520,363       29.05 %     502,686       27.66 %

Owner occupied construction

    17,889       1.00 %     39,178       2.16 %

Total consumer real estate loans

    635,071       35.46 %     645,069       35.50 %

Consumer and other loans

                               

Consumer loans

    69,974       3.91 %     70,772       3.89 %

Other

    5,132       0.29 %     5,001       0.28 %

Total consumer and other loans

    75,106       4.20 %     75,773       4.17 %

Total non-covered loans

    1,770,426       98.86 %     1,789,236       98.46 %

Total covered loans

    20,483       1.14 %     27,948       1.54 %

Total loans held for investment, net of unearned income

  $ 1,790,909       100.00 %   $ 1,817,184       100.00 %

 

The following table presents the covered loan portfolio, by loan class, as of the dates indicated:

 

   

September 30, 2018

   

December 31, 2017

 

(Amounts in thousands)

               

Covered loans

               

Commercial loans

               

Construction, development, and other land

  $ 35     $ 39  

Single family non-owner occupied

    245       284  

Non-farm, non-residential

    7       9  

Total commercial loans

    287       332  

Consumer real estate loans

               

Home equity lines

    16,804       23,720  

Single family owner occupied

    3,392       3,896  

Total consumer real estate loans

    20,196       27,616  

Total covered loans

  $ 20,483     $ 27,948  

 

The Company identifies certain purchased loans as impaired when fair values are established at acquisition and groups those purchased credit impaired (“PCI”) loans into loan pools with common risk characteristics. The Company estimates cash flows to be collected on PCI loans and discounts those cash flows at a market rate of interest.

 

 

15

 

The following table presents the recorded investment and contractual unpaid principal balance of PCI loans, by acquisition, as of the dates indicated:

 

   

September 30, 2018

   

December 31, 2017

 

(Amounts in thousands)

 

Recorded Investment

   

Unpaid Principal Balance

   

Recorded Investment

   

Unpaid Principal Balance

 

PCI Loans, by acquisition

                               

Peoples

  $ 5,420     $ 7,546     $ 5,278     $ 8,111  

Waccamaw

    7,354       22,930       12,176       31,335  

Other acquired

    899       925       986       1,012  

Total PCI Loans

  $ 13,673     $ 31,401     $ 18,440     $ 40,458  

 

The following table presents the changes in the accretable yield on PCI loans, by acquisition, during the periods indicated:

 

   

Peoples

   

Waccamaw

   

Total

 

(Amounts in thousands)

                       

Balance January 1, 2017

  $ 4,392     $ 21,834     $ 26,226  

Accretion

    (969 )     (4,690 )     (5,659 )

Reclassifications from nonaccretable difference(1)

    782       2,525       3,307  

Other changes, net

    (375 )     (311 )     (686 )

Balance September 30, 2017

  $ 3,830     $ 19,358     $ 23,188  
                         

Balance January 1, 2018

  $ 3,388     $ 19,465     $ 22,853  

Accretion

    (986 )     (4,157 )     (5,143 )

Reclassifications (to) from nonaccretable difference(1)

    (5 )     1,416       1,411  

Other changes, net

    354       (302 )     52  

Balance September 30, 2018

  $ 2,751     $ 16,422     $ 19,173  

____________________________________________________________________________________________________________________________________________________________

(1) Represents changes attributable to expected loss assumptions

 

 

 

Note 4. Credit Quality

 

The Company uses a risk grading matrix to assign a risk grade to each loan in its portfolio. Loan risk ratings may be upgraded or downgraded to reflect current information identified during the loan review process. The general characteristics of each risk grade are as follows:

 

 

Pass -- This grade is assigned to loans with acceptable credit quality and risk. The Company further segments this grade based on borrower characteristics that include capital strength, earnings stability, liquidity, leverage, and industry conditions.

 

Special Mention -- This grade is assigned to loans that require an above average degree of supervision and attention. These loans have the characteristics of an asset with acceptable credit quality and risk; however, adverse economic or financial conditions exist that create potential weaknesses deserving of management’s close attention. If potential weaknesses are not corrected, the prospect of repayment may worsen.

 

Substandard -- This grade is assigned to loans that have well defined weaknesses that may make payment default, or principal exposure, possible. These loans will likely be dependent on collateral liquidation, secondary repayment sources, or events outside the normal course of business to meet repayment terms.

 

Doubtful -- This grade is assigned to loans that have the weaknesses inherent in substandard loans; however, the weaknesses are so severe that collection or liquidation in full is unlikely based on current facts, conditions, and values. Due to certain specific pending factors, the amount of loss cannot yet be determined.

 

Loss -- This grade is assigned to loans that will be charged off or charged down when payments, including the timing and value of payments, are uncertain. This risk grade does not imply that the asset has no recovery or salvage value, but simply means that it is not practical or desirable to defer writing off, either all or a portion of, the loan balance even though partial recovery may be realized in the future.

 

16

 

The following tables present the recorded investment of the loan portfolio, by loan class and credit quality, as of the dates indicated. Losses on covered loans are generally reimbursable by the FDIC at the applicable loss share percentage, 80%; therefore, covered loans are disclosed separately.

 

   

September 30, 2018

 
           

Special

                                 

(Amounts in thousands)

 

Pass

   

Mention

   

Substandard

   

Doubtful

   

Loss

   

Total

 

Non-covered loans

                                               

Commercial loans

                                               

Construction, development, and other land

  $ 60,665     $ 800     $ 1,192     $ -     $ -     $ 62,657  

Commercial and industrial

    102,590       2,187       826       -       -       105,603  

Multi-family residential

    106,488       4,077       2,145       -       -       112,710  

Single family non-owner occupied

    133,820       4,500       4,271       -       -       142,591  

Non-farm, non-residential

    588,273       8,556       9,825       146       -       606,800  

Agricultural

    8,716       198       102       -       -       9,016  

Farmland

    18,427       626       1,819       -       -       20,872  

Consumer real estate loans

                                               

Home equity lines

    94,401       648       1,770       -       -       96,819  

Single family owner occupied

    491,179       4,562       24,622       -       -       520,363  

Owner occupied construction

    17,588       -       301       -       -       17,889  

Consumer and other loans

                                               

Consumer loans

    69,611       5       354       -       4       69,974  

Other

    5,132       -       -       -       -       5,132  

Total non-covered loans

    1,696,890       26,159       47,227       146       4       1,770,426  

Covered loans

                                               

Commercial loans

                                               

Construction, development, and other land

    -       35       -       -       -       35  

Single family non-owner occupied

    230       -       15       -       -       245  

Non-farm, non-residential

    -       -       7       -       -       7  

Consumer real estate loans

                                               

Home equity lines

    9,864       6,329       611       -       -       16,804  

Single family owner occupied

    2,610       372       410       -       -       3,392  

Total covered loans

    12,704       6,736       1,043       -       -       20,483  

Total loans

  $ 1,709,594     $ 32,895     $ 48,270     $ 146     $ 4     $ 1,790,909  

 

17

 

   

December 31, 2017

 
           

Special

                                 

(Amounts in thousands)

 

Pass

   

Mention

   

Substandard

   

Doubtful

   

Loss

   

Total

 

Non-covered loans

                                               

Commercial loans

                                               

Construction, development, and other land

  $ 57,768     $ 1,367     $ 882     $ -     $ -     $ 60,017  

Commercial and industrial

    87,181       3,721       1,286       -       -       92,188  

Multi-family residential

    118,509       5,663       1,030       -       -       125,202  

Single family non-owner occupied

    130,689       7,271       3,710       -       -       141,670  

Non-farm, non-residential

    596,616       12,493       7,351       173       -       616,633  

Agricultural

    6,639       294       102       -       -       7,035  

Farmland

    22,875       210       2,564       -       -       25,649  

Consumer real estate loans

                                               

Home equity lines

    100,833       618       1,754       -       -       103,205