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

lmst20200331_10q.htm
 

 

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


 FORM 10-Q  

 

(Mark One)

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

 

For the Quarterly Period Ended March 31, 2020

 

Or

 

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

 

For the transition period from              to             

 

Commission file number: 001-33033

 

LIMESTONE BANCORP, INC.

(Exact name of registrant as specified in its charter)

 

  

  

Kentucky

61-1142247

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

  

  

2500 Eastpoint Parkway, Louisville, Kentucky

40223

(Address of principal executive offices)

(Zip Code)

 

(502) 499-4800

(Registrant’s telephone number, including area code)

 


Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which

registered

Common shares

LMST

Nasdaq

 

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 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 every Interactive Data File required to be submitted 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 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  ☐

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 ☒

 

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

 

6,269,305 Common Shares and 1,220,000 Non-Voting Common Shares were outstanding at April 30, 2020.

 

 

1

 

 

 

INDEX

 

 

  

  

Page

PART I –

FINANCIAL INFORMATION

  

     

ITEM 1.

FINANCIAL STATEMENTS

3

     

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

  31

     

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

45

     

ITEM 4.

CONTROLS AND PROCEDURES

45

  

  

  

PART II –

OTHER INFORMATION

  

     

ITEM 1.

LEGAL PROCEEDINGS

46

     

ITEM 1A.

RISK FACTORS

46

     

ITEM 2.

UNREGISTERED SALES ON EQUITY SECURITIES AND USE OF PROCEEDS

46

     

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

46

     

ITEM 4.

MINE SAFETY DISCLOSURES

46

     

ITEM 5.

OTHER INFORMATION

46

     

ITEM 6.

EXHIBITS

47

 

2

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

The following consolidated financial statements of Limestone Bancorp, Inc. and subsidiary, Limestone Bank, Inc. are submitted:

 

Unaudited Consolidated Balance Sheets for March 31, 2020 and December 31, 2019

Unaudited Consolidated Statements of Income for the three months ended March 31, 2020 and 2019

Unaudited Consolidated Statements of Comprehensive Income for the three months ended March 31, 2020 and 2019

Unaudited Consolidated Statement of Changes in Stockholders’ Equity for the three months ended March 31, 2020 and 2019

Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019

Notes to Unaudited Consolidated Financial Statements

 

3

 

 

LIMESTONE BANCORP, INC.

Unaudited Consolidated Balance Sheets

(dollars in thousands except share data)

 

   

March 31,

2020

   

December 31,

2019

 

Assets

               

Cash and due from banks

  $ 9,509     $ 8,241  

Interest bearing deposits in banks

    23,639       21,962  

Cash and cash equivalents

    33,148       30,203  

Securities available for sale

    198,657       209,000  

Loans, net of allowance of $9,150 and $8,376, respectively

    952,411       917,895  

Premises and equipment, net

    19,282       19,658  

Premises held for sale

    1,185       900  

Other real estate owned

    3,225       3,225  

Federal Home Loan Bank stock

    6,837       6,237  

Bank owned life insurance

    16,128       16,037  

Deferred taxes, net

    28,208       27,765  

Goodwill

    6,252       6,252  

Other intangible assets, net

    2,436       2,500  

Accrued interest receivable and other assets

    6,441       6,107  

Total assets

  $ 1,274,210     $ 1,245,779  
                 

Liabilities and Stockholders’ Equity

               

Deposits

               

Non-interest bearing

  $ 185,658     $ 187,551  

Interest bearing

    872,242       839,424  

Total deposits

    1,057,900       1,026,975  

Federal Home Loan Bank advances

    61,349       61,389  

Accrued interest payable and other liabilities

    7,450       8,665  

Junior subordinated debentures

    21,000       21,000  

Subordinated capital note

    17,000       17,000  

Senior debt

    5,000       5,000  

Total liabilities

    1,169,699       1,140,029  

Commitments and contingent liabilities (Note 15)

           

Stockholders’ equity

               

Common stock, no par, 39,000,000 shares authorized, 6,269,305 and 6,251,975 voting, and 1,220,000 and 1,220,000 non-voting issued and outstanding, respectively

    140,639       140,639  

Additional paid-in capital

    24,577       24,508  

Retained deficit

    (53,843

)

    (55,683

)

Accumulated other comprehensive loss

    (6,862

)

    (3,714

)

Total stockholders' equity

    104,511       105,750  

Total liabilities and stockholders’ equity

  $ 1,274,210     $ 1,245,779  

 

See accompanying notes to unaudited consolidated financial statements.

 

4

 

 

LIMESTONE BANCORP, INC.

Unaudited Consolidated Statements of Income

(dollars in thousands, except per share data)

 

   

Three Months Ended

March 31,

 
   

2020

   

2019

 

Interest income

               

Loans, including fees

  $ 11,611     $ 10,254  

Taxable securities

    1,467       1,573  

Tax exempt securities

    70       93  

Federal funds sold and other

    119       266  
      13,267       12,186  

Interest expense

               

Deposits

    2,772       2,587  

Federal Home Loan Bank advances

    220       281  

Senior debt

    56       96  

Junior subordinated debentures

    215       263  

Subordinated capital note

    242        
      3,505       3,227  
                 

Net interest income

    9,762       8,959  

Provision for loan losses

    1,050        

Net interest income after provision for loan losses

    8,712       8,959  
                 

Non-interest income

               

Service charges on deposit accounts

    668       496  

Bank card interchange fees

    750       508  

Income from bank owned life insurance

    96       99  

Other

    210       181  
      1,724       1,284  

Non-interest expense

               

Salaries and employee benefits

    4,538       3,915  

Occupancy and equipment

    999       898  

Professional fees

    208       165  

Marketing expense

    214       227  

FDIC insurance

          108  

Data processing expense

    359       313  

State franchise and deposit tax

    360       315  

Deposit account related expense

    451       281  

Other real estate owned expense

    16       166  

Litigation and loan collection expense

    65       46  

Communications expense

    218       190  

Insurance expense

    103       114  

Postage and delivery

    168       141  

Other

    536       402  
      8,235       7,281  

Income before income taxes

    2,201       2,962  

Income tax expense

    361       123  

Net income

    1,840       2,839  

Basic and diluted income per common share

  $ 0.25     $ 0.38  

 

See accompanying notes to unaudited consolidated financial statements.

 

5

 

 

LIMESTONE BANCORP, INC.

Unaudited Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

                                              

   

Three Months Ended

March 31,

 
   

2020

   

2019

 

Net income

  $ 1,840     $ 2,839  

Other comprehensive income (loss):

               

Unrealized gain (loss) on securities:

               

Unrealized gain (loss) arising during the period

    (4,126

)

    1,995  

Reclassification adjustment for gains (losses) included in net income

           

Net unrealized gain (loss) recognized in comprehensive income (loss)

    (4,126

)

    1,995  

Tax effect

    978       (418

)

Other comprehensive income (loss)

    (3,148

)

    1,577  
                 

Comprehensive income (loss)

  $ (1,308

)

  $ 4,416  

 

See accompanying notes to unaudited consolidated financial statements.

 

6

 

 

LIMESTONE BANCORP, INC.

Unaudited Consolidated Statements of Changes in Stockholders’ Equity

For Three Months Ended March 31, 2020 and 2019

(Dollar amounts in thousands except share and per share data)

 

   

Shares

   

Amount

 
   

Common

   

Common

 
   

Common

   

Non-Voting Common

   

Total

Common

   

Common and

Non-Voting Common

   

Additional

Paid-In Capital

   

 

 

Retained Deficit

   

Accumulated Other Comprehensive Loss

   

Total

 
                                                                 

Balances, January 1, 2020

    6,251,975       1,220,000       7,471,975     $ 140,639     $ 24,508     $ (55,683

)

  $ (3,714

)

  $ 105,750  

Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations upon award

    17,330             17,330             (37

)

                (37

)

Forfeited unvested stock

                                               

Stock-based compensation expense

                            106                   106  

Net income

                                  1,840             1,840  

Net change in accumulated other comprehensive loss, net of taxes

                                        (3,148

)

    (3,148

)

Balances, March 31, 2020

    6,269,305       1,220,000       7,489,305     $ 140,639     $ 24,577     $ (53,843

)

  $ (6,862

)

  $ 104,511  

 

    Shares     Amount  
   

Common

   

Common

 
   

Common

   

Non-Voting Common

   

Total

Common

   

Common and Non-Voting Common

   

Additional

Paid-In Capital

   

 

 

Retained Deficit

   

Accumulated Other Comprehensive Loss

   

Total

 
                                                                 

Balances, January 1, 2019

    6,242,720       1,220,000       7,462,720     $ 140,639     $ 24,287     $ (66,201

)

  $ (6,628

)

  $ 92,097  

Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations upon award

    1,642             1,642             (276

)

                (276

)

Forfeited unvested stock

    (3,748

)

          (3,748

)

                             

Stock-based compensation expense

                            82                   82  

Net income

                                  2,839             2,839  

Net change in accumulated other comprehensive loss, net of taxes

                                        1,577       1,577  

Balances, March 31, 2019

    6,240,614       1,220,000       7,460,614     $ 140,639     $ 24,093     $ (63,362

)

  $ (5,051

)

  $ 96,319  

 

See accompanying notes to unaudited consolidated financial statements.

 

7

 

 

LIMESTONE BANCORP, INC.

Unaudited Consolidated Statements of Cash Flows

For Three Months Ended March 31, 2020 and 2019

(dollars in thousands)

 

   

2020

   

2019

 

Cash flows from operating activities

               

Net income

  $ 1,840     $ 2,839  

Adjustments to reconcile net income to net cash from operating activities

               

Depreciation and amortization

    479       679  

Provision for loan losses

    1,050        

Net amortization on securities

    146       189  

Stock-based compensation expense

    106       82  

Deferred taxes, net

    535       295  

Net write-down of other real estate owned

          150  

Impairment of premises held for sale

    25        

Increase in cash surrender value of life insurance, net of premium expense

    (91

)

    (93

)

Amortization of operating lease right-of-use assets

    187       62  

Net change in accrued interest receivable and other assets

    (334

)

    (668

)

Net change in accrued interest payable and other liabilities

    (1,215

)

    (2,671

)

Net cash from operating activities

    2,728       864  
                 

Cash flows from investing activities

               

Purchases of available for sale securities

    (6,869

)

    (8,096

)

Proceeds from sales and calls of available for sale securities

    6,000       1,000  

Proceeds from maturities and prepayments of available for sale securities

    6,940       3,683  

Purchases of Federal Home Loan Bank stock

    (600

)

     

Proceeds from mandatory redemptions of Federal Home Loan Bank stock

          420  

Net changes in loans

    (35,712

)

    (22,002

)

Purchases of premises and equipment

    (390

)

    (37

)

Net cash from investing activities

    (30,631

)

    (25,032

)

                 

Cash flows from financing activities

               

Net change in deposits

    30,925       14,611  

Repayment of Federal Home Loan Bank advances

    (95,040

)

    (30,038

)

Advances from Federal Home Loan Bank

    95,000       35,000  

Common shares withheld for taxes

    (37

)

    (276

)

Net cash from financing activities

    30,848       19,297  

Net change in cash and cash equivalents

    2,945       (4,871

)

Beginning cash and cash equivalents

    30,203       35,361  

Ending cash and cash equivalents

  $ 33,148     $ 30,490  
                 

Supplemental cash flow information:

               

Interest paid

  $ 3,919     $ 3,193  

Supplemental non-cash disclosure:

               

Transfer from loans to other real estate

  $     $  

Transfer from premises and equipment to premises held for sale

    310        

Initial recognition of right-of-use lease assets

          507  

 

See accompanying notes to unaudited consolidated financial statements.

 

8

 

LIMESTONE BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

 

 

Note 1 – Basis of Presentation and Summary of Significant Accounting Policies

 

Basis of Presentation – The consolidated financial statements include Limestone Bancorp, Inc. (Company) and its subsidiary, Limestone Bank, Inc. (Bank). The Company owns a 100% interest in the Bank. All significant inter-company transactions and accounts have been eliminated in consolidation.

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the entire year. A description of other significant accounting policies is presented in the notes to the Consolidated Financial Statements for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K.

 

Use of Estimates – To prepare financial statements in conformity with U.S. generally accepted accounting principles, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could differ.

 

In March 2020, the World Health Organization declared novel coronavirus disease 2019 ("COVID-19") as a global pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, lowered equity market valuations, created significant volatility and disruption in financial markets, and increased unemployment levels. In addition, the pandemic has resulted in temporary closures of many businesses and the institution of social distancing and sheltering in place requirements in many states and communities, including those in markets in which the Company is located or does business.

 

The extent to which the COVID-19 pandemic impacts the Company’s business, liquidity, asset valuations, results of operations, and financial condition, as well as its regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic. Moreover, the effects of the COVID-19 pandemic may have a material adverse effect on all or a combination of valuation impairments on the Company's intangible assets, investments, loans, or deferred tax assets.

 

Reclassifications – Some items in the prior year financial statements were reclassified to conform to the current presentation. The reclassifications did not impact net income or stockholders’ equity.

 

New Accounting Standards In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The final standard will change estimates for credit losses related to financial assets measured at amortized cost such as loans, held-to-maturity debt securities, and certain other contracts. For estimating credit losses, the FASB is replacing the incurred loss model with an expected loss model, which is referred to as the current expected credit loss (CECL) model. Under the CECL model, certain financial assets that are carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, are required to be presented at the net amount expected to be collected. The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the “incurred loss” model required under current GAAP, which delays recognition until it is probable a loss has been incurred. The change could materially affect how the allowance for loan losses is determined. The impact of CECL model implementation is being evaluated, but it is expected that a one-time cumulative-effect adjustment to the allowance for loan losses will be recognized in retained earnings on the consolidated balance sheet as of the beginning of the first reporting period in which the new standard is effective, as is consistent with regulatory expectations set forth in interagency guidance. In December 2018, the OCC, The Board of Governors of the Federal Reserve System, and the FDIC approved a final rule to address changes to the credit loss accounting under GAAP, including banking organizations’ implementation of CECL. The final rule provides banking organizations the option to phase in over a three-year period the day-one adverse effects on regulatory capital that may result from adoption of the new accounting standard. In October 2019, the FASB voted to delay implementation for smaller reporting companies, private companies, and not-for-profit entities. The Company currently qualifies as a smaller reporting company. Companies qualifying for the delay will be required to implement CECL for fiscal year and interim periods beginning after December 15, 2022.

 

9

 

 

Note 2 – Securities

 

Securities are classified as available for sale (AFS). AFS securities may be sold if needed for liquidity, asset liability management, or other reasons. AFS securities are reported at fair value, with unrealized gains or losses included as a separate component of equity, net of tax.

 

The amortized cost and fair value of securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows:

 

   

Amortized

Cost

   

Gross Unrealized

Gains

   

Gross Unrealized

Losses

   

Fair Value

 
   

(in thousands)

 

March 31, 2020

                               

Available for sale

                               

U.S. Government and federal agency

  $ 20,751     $ 353     $     $ 21,104  

Agency mortgage-backed: residential

    86,840       2,428       (167

)

    89,101  

Collateralized loan obligations

    44,732             (3,978

)

    40,754  

State and municipal

    28,301       346       (493

)

    28,154  

Corporate bonds

    20,831       199       (1,486

)

    19,544  

Total available for sale

  $ 201,455     $ 3,326     $ (6,124

)

  $ 198,657  

 

December 31, 2019

 

Amortized

Cost

   

Gross Unrealized

Gains

   

Gross Unrealized

Losses

   

Fair Value

 

Available for sale

                               

U.S. Government and federal agency

  $ 22,281     $ 196     $ (147

)

  $ 22,330  

Agency mortgage-backed: residential

    91,269       1,186       (255

)

    92,200  

Collateralized loan obligations

    49,831             (412

)

    49,419  

State and municipal

    27,819       550       (3

)

    28,366  

Corporate bonds

    16,472       213             16,685  

Total available for sale

  $ 207,672     $ 2,145     $ (817

)

  $ 209,000  

 

Sales and calls of securities were as follows:

 

   

Three Months Ended

March 31,

 
   

2020

   

2019

 
   

(in thousands)

 

Proceeds

  $ 6,000     $ 1,000  

Gross gains

           

Gross losses

           

 

The amortized cost and fair value of our debt securities are shown by contractual maturity. Expected maturities may differ from actual maturities when borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities not due at a single maturity date are shown separately.  

 

   

March 31, 2020

 
   

Amortized

Cost

   

Fair

Value

 
   

(in thousands)

 

Maturity

               

Available for sale

               

Within one year

  $ 31,403     $ 30,003  

One to five years

    40,037       40,515  

Five to ten years

    23,970       22,852  

Beyond ten years

    19,205       16,186  

Agency mortgage-backed: residential

    86,840       89,101  

Total

  $ 201,455     $ 198,657  

 

Securities pledged at March 31, 2020 and December 31, 2019 had carrying values of approximately $80.9 million and $75.8 million, respectively, and were pledged to secure public deposits.

 

10

 

At March 31, 2020 and December 31, 2019, the Bank held securities issued by the Commonwealth of Kentucky or Kentucky municipalities having a book value of $17.0 million and $14.5 million, respectively. At March 31, 2020 and December 31, 2019, there were no other holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.

 

The Bank owns Collateralized Loan Obligations (CLOs), which are debt securities secured by professionally managed portfolios of senior-secured loans to corporations. CLOs are typically managed by large non-bank financial institutions or banks and are typically $300 million to $1 billion in size, contain one hundred or more loans, have five to six credit tranches ranging from AAA, AA, A, BBB, BB, B and equity tranche. Interest and principal are paid first to the AAA tranche then to the next lower rated tranche. Losses are borne first by the equity tranche then by the subsequently higher rated tranche. CLOs may be less liquid than government securities from time to time and volatility in the CLO market may cause the value of these investments to decline.

 

The market value of CLOs may be affected by, among other things, changes in composition of the underlying loans, changes in the cash flows from the underlying loans, defaults and recoveries on the underlying loans, capital gains and losses on the underlying loans, prepayments on the underlying loans, and other conditions or economic factors.

 

At March 31, 2020, $25.7 million and $15.0 million of our CLOs were AA and A rated, respectively. There were no CLOs rated below A and none of the CLOs were subject to ratings downgrade in the three months ended March 31, 2020. All of our CLOs are floating rate, with rates set on a quarterly basis at three-month LIBOR plus a spread. Stress testing was completed on each security in the CLO portfolio as of March 31, 2020. Each security in the portfolio passed, without dollar loss, a stress scenario characterized as severe, which assumed a ten percent per annum constant prepayment rate, a twelve percent per annum constant default rate for four years followed by a four percent rate thereafter, and a forty-five percent recovery rate on a one-year lag.

 

The Company evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, underlying credit quality of the issuer, and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. In analyzing an issuer’s financial condition, the Company may consider whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, the sector or industry trends and cycles affecting the issuer, and the results of reviews of the issuer’s financial condition. As of March 31, 2020, management does not believe any securities in the portfolio with unrealized losses should be classified as other than temporarily impaired.

 

Securities with unrealized losses at March 31, 2020 and December 31, 2019, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position, are as follows:

 

   

Less than 12 Months

   

12 Months or More

   

Total

 

Description of Securities

 

Fair

Value

   

Unrealized

Loss

   

Fair

Value

   

Unrealized

Loss

   

Fair

Value

   

Unrealized

Loss

 
   

(in thousands)

 

March 31, 2020

                                               

Available for sale

                                               

U.S. Government and federal agency

  $     $     $     $     $     $  

Agency mortgage-backed: residential

    10,843       (120

)

    1,617       (47

)

    12,460       (167

)

Collateralized loan obligations

    10,702       (843

)

    30,052       (3,135

)

    40,754       (3,978

)

State and municipal

    10,192       (493

)

                10,192       (493

)

Corporate bonds

    11,008       (1,486

)

                11,008       (1,486

)

Total temporarily impaired

  $ 42,745     $ (2,942

)

  $ 31,669     $ (3,182

)

  $ 74,414     $ (6,124

)

                                                 
                                                 

December 31, 2019

                                               

Available for sale

                                               

U.S. Government and federal agency

  $ 12,567     $ (147

)

  $     $     $ 12,567     $ (147

)

Agency mortgage-backed: residential

    18,457       (97

)

    10,665       (158

)

    29,122       (255

)

Collateralized loan obligations

    9,539       (46

)

    35,336       (366

)

    44,875       (412

)

State and municipal

    911       (3

)

                911       (3

)

Corporate bonds

                                   

Total temporarily impaired

  $ 41,474     $ (293

)

  $ 46,001     $ (524

)

  $ 87,475     $ (817

)

 

11

 

 

Note 3 – Loans

 

Loans net of unearned income, deferred loan origination costs, and net premiums on acquired loans by class were as follows:

 

   

March 31,

   

December 31,

 
   

2020

   

2019

 
   

(in thousands)

 

Commercial

  $ 169,176     $ 145,551  

Commercial Real Estate:

               

Construction

    71,267       64,911  

Farmland

    80,579       79,118  

Nonfarm nonresidential

    261,807       255,459  

Residential Real Estate:

               

Multi-family

    75,525       70,950  

1-4 Family

    220,701       226,629  

Consumer

    44,814       47,790  

Agriculture

    36,977       35,064  

Other

    715       799  

Subtotal

    961,561       926,271  

Less: Allowance for loan losses

    (9,150

)

    (8,376

)

Loans, net

  $ 952,411     $ 917,895  

 

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2020 and 2019:

 

   

Commercial

   

Commercial

Real Estate

   

Residential

Real Estate

   

Consumer

   

Agriculture

   

Other

   

Total

 
   

(in thousands)

 

March 31, 2020:

                                                       

Beginning balance

  $ 1,710     $ 4,080     $ 1,743     $ 485     $ 355     $ 3     $ 8,376  

Provision (negative provision)

    339       141       220       265       87       (2

)

    1,050  

Loans charged off

    (29

)

    (29

)

    (75

)

    (161

)

    (41

)

          (335

)

Recoveries

    5       20       21       4       8       1       59  

Ending balance

  $ 2,025     $ 4,212     $ 1,909     $ 593     $ 409     $ 2     $ 9,150  
                                                         
                                                         

March 31, 2019:

                                                       

Beginning balance

  $ 1,299     $ 4,676     $ 2,452     $ 130     $ 321     $ 2     $ 8,880  

Provision (negative provision)

    143       (165

)

    (204

)

    193       33              

Loans charged off

          (15

)

    (82

)

    (180

)

    (1

)

          (278

)

Recoveries

    5       2       61       16                   84  

Ending balance

  $ 1,447     $ 4,498     $ 2,227     $ 159     $ 353     $ 2     $ 8,686  

 

12

 

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on the impairment method as of March 31, 2020:

 

   

Commercial

   

Commercial

Real Estate

   

Residential

Real Estate

   

Consumer

   

Agriculture

   

Other

   

Total

 
   

(in thousands)

 

Allowance for loan losses:

                                                       

Ending allowance balance attributable to loans:

                                                       

Individually evaluated for impairment

  $     $ 19     $ 1     $     $     $     $ 20  

Collectively evaluated for impairment

    2,025       4,193       1,908       593       409       2       9,130  

Total ending allowance balance

  $ 2,025     $ 4,212     $ 1,909     $ 593     $ 409     $ 2     $ 9,150  
                                                         

Loans:

                                                       

Loans individually evaluated for impairment

  $ 158     $ 922     $ 921     $ 143     $     $     $ 2,144  

Loans collectively evaluated for impairment

    169,018       412,731       295,305       44,671       36,977       715       959,417  

Total ending loans balance

  $ 169,176     $ 413,653     $ 296,226     $ 44,814     $ 36,977     $ 715     $ 961,561  

 

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on the impairment method as of December 31, 2019:

 

   

Commercial

   

Commercial

Real Estate

   

Residential

Real Estate

   

Consumer

   

Agriculture

   

Other

   

Total

 
   

(in thousands)

 

Allowance for loan losses:

                                                       

Ending allowance balance attributable to loans:

                                                       

Individually evaluated for impairment

  $ 3     $ 37     $ 2     $     $     $     $ 42  

Collectively evaluated for impairment

    1,707       4,043       1,741       485       355       3       8,334  

Total ending allowance balance

  $ 1,710     $ 4,080     $ 1,743     $ 485     $ 355     $ 3     $ 8,376  
                                                         
                                                         

Loans:

                                                       

Loans individually evaluated for impairment

  $ 74     $ 1,064     $ 892     $ 98     $ 42     $     $ 2,170  

Loans collectively evaluated for impairment

    145,477       398,424       296,687       47,692       35,022       799       924,101  

Total ending loans balance

  $ 145,551     $ 399,488     $ 297,579     $ 47,790     $ 35,064     $ 799     $ 926,271  

 

13

 

Impaired Loans

 

Impaired loans include restructured loans and loans on nonaccrual or classified as doubtful, whereby collection of the total amount is improbable, or loss, whereby all or a portion of the loan has been written off or a specific allowance for loss had been provided.

 

The following tables present information related to loans individually evaluated for impairment by class of loans as of March 31, 2020 and December 31, 2019 and for the three months ended March 31, 2020 and 2019:

 

   

As of March 31, 2020

   

Three Months Ended March 31, 2020

 
   

Unpaid

Principal

Balance

   

Recorded

Investment

   

Allowance

For Loan

Losses

Allocated

   

Average

Recorded

Investment

   

Interest

Income

Recognized

   

Cash

Basis

Income

Recognized

 
   

(in thousands)

         

With No Related Allowance Recorded:

                                               

Commercial

  $ 265     $ 158     $     $ 104     $     $  

Commercial real estate:

                                               

Construction

                                   

Farmland

    414       299             296       10       10  

Nonfarm nonresidential

    1,043       480             485       8        

Residential real estate:

                                               

Multi-family

                                   

1-4 Family

    1,862       846             795       3       3  

Consumer

    354       143             121       1       1  

Agriculture

    297                   21              

Other

                                   

Subtotal

    4,235       1,926             1,822       22       14  
                                                 

With An Allowance Recorded:

                                               

Commercial

                      12              

Commercial real estate:

                                               

Construction

                                   

Farmland

    143       143       19       212       2        

Nonfarm nonresidential

                                   

Residential real estate:

                                               

Multi-family

                                   

1-4 Family

    75       75       1       111       2        

Consumer

                                   

Agriculture

                                   

Other

                                   

Subtotal

    218       218       20       335       4        

Total

  $ 4,453     $ 2,144     $ 20     $ 2,157     $ 26     $ 14  

 

14

 

   

As of December 31, 2019

   

Three Months Ended March 31, 2019

 
   

Unpaid

Principal

Balance

   

Recorded

Investment

   

Allowance

For Loan

Losses

Allocated

   

Average

Recorded

Investment

   

Interest

Income

Recognized

   

Cash

Basis

Income

Recognized

 
   

(in thousands)

         

With No Related Allowance Recorded:

                                               

Commercial

  $ 138     $ 50     $     $ 52     $     $  

Commercial real estate:

                                               

Construction

                                   

Farmland

    380       293             98       5       5  

Nonfarm nonresidential

    1,057       489             256       3       3  

Residential real estate:

                                               

Multi-family

                                   

1-4 Family

    1,679       745             1,544       22       22  

Consumer

    309       98             14              

Agriculture

    304       42             32              

Other

                                   

Subtotal

    3,867       1,717             1,996       30       30  

With An Allowance Recorded:

                                               

Commercial

    24       24       3                    

Commercial real estate:

                                               

Construction

                                   

Farmland

    282       282       37       158              

Nonfarm nonresidential

                                   

Residential real estate:

                                               

Multi-family

                                   

1-4 Family

    183       147       2       719       11        

Consumer

                                   

Agriculture

                                   

Other

                                   

Subtotal

    489       453       42       877       11        

Total

  $ 4,356     $ 2,170     $ 42     $ 2,873     $ 41     $ 30  

 

15

 

Troubled Debt Restructuring

 

A troubled debt restructuring (TDR) occurs when the Bank has agreed to a loan modification in the form of a concession for a borrower who is experiencing financial difficulty. The Bank’s TDRs typically involve a reduction in interest rate, a deferral of principal for a stated period of time, or an interest only period. All TDRs are considered impaired and the Bank has allocated reserves for these loans to reflect the present value of the concessionary terms granted to the borrower.

 

The following table presents the types of TDR loan modifications by portfolio segment outstanding as of March 31, 2020 and December 31, 2019:

 

   

TDRs

Performing to

Modified Terms

   

TDRs Not

Performing to

Modified Terms

   

Total

TDRs

 
   

(in thousands)

 

March 31, 2020

                       

Commercial Real Estate:

                       

Nonfarm nonresidential

  $ 391     $     $ 391  

Residential Real Estate:

                       

1-4 Family

    75             75  

Total TDRs

  $ 466     $     $ 466  

 

   

TDRs

Performing to

Modified Terms

   

TDRs Not

Performing to

Modified Terms

   

Total

TDRs

 
   

(in thousands)

 

December 31, 2019

                       

Commercial Real Estate:

                       

Nonfarm nonresidential

  $ 400     $     $ 400  

Residential Real Estate:

                       

1-4 Family

    75             75  

Total TDRs

  $ 475     $     $ 475  

 

At March 31, 2020 and December 31, 2019, 100% of the Company’s TDRs were performing according to their modified terms. The Company allocated $1,000 in reserves to borrowers whose loan terms have been modified in TDRs as of March 31, 2020 and December 31, 2019. The Company has committed to lend no additional amounts as of March 31, 2020 and December 31, 2019 to borrowers with outstanding loans classified as TDRs.

 

Management periodically reviews renewals and modifications of previously identified TDRs, for which there was no principal forgiveness, to consider if it is appropriate to remove the TDR classification. If the borrower is no longer experiencing financial difficulty and the renewal/modification did not contain a concessionary interest rate or other concessionary terms, management considers the potential removal of the TDR classification. If deemed appropriate based upon current underwriting, the TDR classification is removed as the borrower has complied with the terms of the loan at the date of renewal/modification and there was a reasonable expectation that the borrower would continue to comply with the terms of the loan subsequent to the date of the renewal/modification. In this instance, the TDR was originally considered a restructuring in a prior year as a result of a modification with an interest rate that was not commensurate with the risk of the underlying loan. Additionally, TDR classification can be removed in circumstances in which the Company performs a non-concessionary re-modification of the loan at terms that were considered to be at market for loans with comparable risk. Management expects the borrower will continue to perform under the re-modified terms based on the borrower’s past history of performance.

 

No TDR loan modifications occurred during the three months ended March 31, 2020 or March 31, 2019. During the first three months of 2020 and 2019, no TDRs defaulted on their restructured loan within the 12-month period following the loan modification. A default is considered to have occurred once the TDR is past due 90 days or more or it has been placed on nonaccrual.

 

16

 

Non-performing Loans

 

Non-performing loans include impaired loans and smaller balance homogeneous loans, such as residential mortgage and consumer loans, that are collectively evaluated for impairment. The following table presents the recorded investment in nonaccrual and loans past due 90 days and still on accrual by class of loan as of March 31, 2020, and December 31, 2019:

 

   

Nonaccrual

   

Loans Past Due 90 Days

And Over Still Accruing

 
   

March 31,

2020

   

December 31,

2019

   

March 31,

2020

   

December 31,

2019

 
   

(in thousands)

 

Commercial

  $ 158     $ 50     $     $  

Commercial Real Estate:

                               

Construction

                       

Farmland

    298       431              

Nonfarm nonresidential

    89       90              

Residential Real Estate:

                               

Multi-family

                       

1-4 Family

    812       817              

Consumer

    143       98              

Agriculture

          42              

Other

                       

Total

  $ 1,500     $ 1,528     $     $  

 

The following table presents the aging of the recorded investment in past due loans as of March 31, 2020 and December 31, 2019:

 

   

30 – 59

Days

Past Due

   

60 – 89

Days

Past Due

   

90 Days

And Over

Past Due

   

 

 

Nonaccrual

   

Total

Past Due

And

Nonaccrual

 
   

(in thousands)

 

March 31, 2020

                                       

Commercial

  $     $ 1     $     $ 158     $ 159  

Commercial Real Estate:

                                       

Construction

                             

Farmland

    81                   298       379