The following consolidated financial statements of Limestone Bancorp, Inc. and subsidiary, Limestone Bank, Inc. are submitted:
Unaudited Consolidated Balance Sheets for June 30, 2020 and December 31, 2019
Unaudited Consolidated Statements of Income for the three and six months ended June 30, 2020 and 2019
Unaudited Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2020 and 2019
Unaudited Consolidated Statement of Changes in Stockholders’ Equity for the three and six months ended June 30, 2020 and 2019
Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019
Notes to Unaudited Consolidated Financial Statements
LIMESTONE BANCORP, INC.
Unaudited Consolidated Balance Sheets
(dollars in thousands except share data)
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
9,990
|
|
|
$
|
8,241
|
|
Interest bearing deposits in banks
|
|
|
39,027
|
|
|
|
21,962
|
|
Cash and cash equivalents
|
|
|
49,017
|
|
|
|
30,203
|
|
Securities available for sale
|
|
|
202,596
|
|
|
|
209,000
|
|
Loans, net of allowance of $10,228 and $8,376, respectively
|
|
|
965,531
|
|
|
|
917,895
|
|
Premises and equipment, net
|
|
|
19,000
|
|
|
|
19,658
|
|
Premises held for sale
|
|
|
1,149
|
|
|
|
900
|
|
Other real estate owned
|
|
|
1,625
|
|
|
|
3,225
|
|
Federal Home Loan Bank stock
|
|
|
6,142
|
|
|
|
6,237
|
|
Bank owned life insurance
|
|
|
16,238
|
|
|
|
16,037
|
|
Deferred taxes, net
|
|
|
27,054
|
|
|
|
27,765
|
|
Goodwill
|
|
|
6,252
|
|
|
|
6,252
|
|
Other intangible assets, net
|
|
|
2,372
|
|
|
|
2,500
|
|
Accrued interest receivable and other assets
|
|
|
7,532
|
|
|
|
6,107
|
|
Total assets
|
|
$
|
1,304,508
|
|
|
$
|
1,245,779
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
Non-interest bearing
|
|
$
|
224,901
|
|
|
$
|
187,551
|
|
Interest bearing
|
|
|
899,887
|
|
|
|
839,424
|
|
Total deposits
|
|
|
1,124,788
|
|
|
|
1,026,975
|
|
Federal Home Loan Bank advances
|
|
|
20,644
|
|
|
|
61,389
|
|
Accrued interest payable and other liabilities
|
|
|
7,020
|
|
|
|
8,665
|
|
Junior subordinated debentures
|
|
|
21,000
|
|
|
|
21,000
|
|
Subordinated capital notes
|
|
|
17,000
|
|
|
|
17,000
|
|
Senior debt
|
|
|
5,000
|
|
|
|
5,000
|
|
Total liabilities
|
|
|
1,195,452
|
|
|
|
1,140,029
|
|
Commitments and contingent liabilities (Note 15)
|
|
|
—
|
|
|
|
—
|
|
Stockholders’ equity
|
|
|
|
|
|
|
|
|
Common stock, no par, 39,000,000 shares authorized, 6,265,872 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
|
|
|
24,643
|
|
|
|
24,508
|
|
Retained deficit
|
|
|
(51,861
|
)
|
|
|
(55,683
|
)
|
Accumulated other comprehensive loss
|
|
|
(4,365
|
)
|
|
|
(3,714
|
)
|
Total stockholders' equity
|
|
|
109,056
|
|
|
|
105,750
|
|
Total liabilities and stockholders’ equity
|
|
$
|
1,304,508
|
|
|
$
|
1,245,779
|
|
See accompanying notes to unaudited consolidated financial statements.
LIMESTONE BANCORP, INC.
Unaudited Consolidated Statements of Income
(dollars in thousands, except per share data)
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees
|
|
$
|
11,356
|
|
|
$
|
10,465
|
|
|
$
|
22,967
|
|
|
$
|
20,719
|
|
Taxable securities
|
|
|
1,307
|
|
|
|
1,608
|
|
|
|
2,774
|
|
|
|
3,181
|
|
Tax exempt securities
|
|
|
77
|
|
|
|
88
|
|
|
|
147
|
|
|
|
181
|
|
Federal funds sold and other
|
|
|
46
|
|
|
|
215
|
|
|
|
165
|
|
|
|
481
|
|
|
|
|
12,786
|
|
|
|
12,376
|
|
|
|
26,053
|
|
|
|
24,562
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
2,127
|
|
|
|
2,965
|
|
|
|
4,899
|
|
|
|
5,552
|
|
Federal Home Loan Bank advances
|
|
|
73
|
|
|
|
255
|
|
|
|
293
|
|
|
|
536
|
|
Senior debt
|
|
|
51
|
|
|
|
98
|
|
|
|
107
|
|
|
|
194
|
|
Junior subordinated debentures
|
|
|
172
|
|
|
|
258
|
|
|
|
387
|
|
|
|
521
|
|
Subordinated capital notes
|
|
|
253
|
|
|
|
—
|
|
|
|
495
|
|
|
|
—
|
|
|
|
|
2,676
|
|
|
|
3,576
|
|
|
|
6,181
|
|
|
|
6,803
|
|
Net interest income
|
|
|
10,110
|
|
|
|
8,800
|
|
|
|
19,872
|
|
|
|
17,759
|
|
Provision for loan losses
|
|
|
1,100
|
|
|
|
—
|
|
|
|
2,150
|
|
|
|
—
|
|
Net interest income after provision for loan losses
|
|
|
9,010
|
|
|
|
8,800
|
|
|
|
17,722
|
|
|
|
17,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts
|
|
|
441
|
|
|
|
571
|
|
|
|
1,109
|
|
|
|
1,067
|
|
Bank card interchange fees
|
|
|
863
|
|
|
|
596
|
|
|
|
1,613
|
|
|
|
1,104
|
|
Income from bank owned life insurance
|
|
|
116
|
|
|
|
118
|
|
|
|
212
|
|
|
|
217
|
|
Net loss on sales and calls of investment securities
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
(5
|
)
|
Other
|
|
|
186
|
|
|
|
166
|
|
|
|
396
|
|
|
|
347
|
|
|
|
|
1,601
|
|
|
|
1,446
|
|
|
|
3,325
|
|
|
|
2,730
|
|
Non-interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
4,633
|
|
|
|
3,915
|
|
|
|
9,171
|
|
|
|
7,830
|
|
Occupancy and equipment
|
|
|
983
|
|
|
|
854
|
|
|
|
1,982
|
|
|
|
1,752
|
|
Professional fees
|
|
|
235
|
|
|
|
179
|
|
|
|
443
|
|
|
|
344
|
|
Marketing expense
|
|
|
104
|
|
|
|
212
|
|
|
|
318
|
|
|
|
439
|
|
FDIC Insurance
|
|
|
67
|
|
|
|
103
|
|
|
|
67
|
|
|
|
211
|
|
Data processing expense
|
|
|
380
|
|
|
|
315
|
|
|
|
739
|
|
|
|
628
|
|
State franchise and deposit tax
|
|
|
360
|
|
|
|
315
|
|
|
|
720
|
|
|
|
630
|
|
Deposit account related expense
|
|
|
460
|
|
|
|
310
|
|
|
|
911
|
|
|
|
591
|
|
Other real estate owned expense
|
|
|
22
|
|
|
|
142
|
|
|
|
38
|
|
|
|
308
|
|
Litigation and loan collection expense
|
|
|
59
|
|
|
|
34
|
|
|
|
124
|
|
|
|
80
|
|
Communications expense
|
|
|
247
|
|
|
|
189
|
|
|
|
465
|
|
|
|
379
|
|
Insurance expense
|
|
|
111
|
|
|
|
112
|
|
|
|
214
|
|
|
|
226
|
|
Postage and delivery
|
|
|
152
|
|
|
|
134
|
|
|
|
320
|
|
|
|
275
|
|
Other
|
|
|
423
|
|
|
|
410
|
|
|
|
959
|
|
|
|
812
|
|
|
|
|
8,236
|
|
|
|
7,224
|
|
|
|
16,471
|
|
|
|
14,505
|
|
Income before income taxes
|
|
|
2,375
|
|
|
|
3,022
|
|
|
|
4,576
|
|
|
|
5,984
|
|
Income tax expense (benefit)
|
|
|
393
|
|
|
|
(611
|
)
|
|
|
754
|
|
|
|
(488
|
)
|
Net income
|
|
|
1,982
|
|
|
|
3,633
|
|
|
|
3,822
|
|
|
|
6,472
|
|
Basic and diluted income per common share
|
|
$
|
0.26
|
|
|
$
|
0.49
|
|
|
$
|
0.51
|
|
|
$
|
0.87
|
|
See accompanying notes to unaudited consolidated financial statements.
LIMESTONE BANCORP, INC.
Unaudited Consolidated Statements of Comprehensive Income
(in thousands)
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Net income
|
|
$
|
1,982
|
|
|
$
|
3,633
|
|
|
$
|
3,822
|
|
|
$
|
6,472
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) arising during the period
|
|
|
3,254
|
|
|
|
1,882
|
|
|
|
(872
|
)
|
|
|
3,877
|
|
Less reclassification adjustment for gains (losses) included in net income
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
(5
|
)
|
Net unrealized gain (loss) recognized in comprehensive income (loss)
|
|
|
3,259
|
|
|
|
1,887
|
|
|
|
(867
|
)
|
|
|
3,882
|
|
Tax effect
|
|
|
(762
|
)
|
|
|
(471
|
)
|
|
|
216
|
|
|
|
(889
|
)
|
Other comprehensive income (loss)
|
|
|
2,497
|
|
|
|
1,416
|
|
|
|
(651
|
)
|
|
|
2,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
4,479
|
|
|
$
|
5,049
|
|
|
$
|
3,171
|
|
|
$
|
9,465
|
|
See accompanying notes to unaudited consolidated financial statements.
LIMESTONE BANCORP, INC.
Unaudited Consolidated Statements of Changes in Stockholders’ Equity
For Three and Six Months Ended June 30, 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
|
|
Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations upon award
|
|
|
(3,433
|
)
|
|
|
—
|
|
|
|
(3,433
|
)
|
|
|
—
|
|
|
|
(38
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(38
|
)
|
Forfeited unvested stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Stock-based compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
104
|
|
|
|
—
|
|
|
|
—
|
|
|
|
104
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,982
|
|
|
|
—
|
|
|
|
1,982
|
|
Net change in accumulated other comprehensive loss, net of taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,497
|
|
|
|
2,497
|
|
Balances, June 30, 2020
|
|
|
6,265,872
|
|
|
|
1,220,000
|
|
|
|
7,485,872
|
|
|
$
|
140,639
|
|
|
$
|
24,643
|
|
|
$
|
(51,861
|
)
|
|
$
|
(4,365
|
)
|
|
$
|
109,056
|
|
See accompanying notes to unaudited consolidated financial statements.
LIMESTONE BANCORP, INC.
Unaudited Consolidated Statements of Changes in Stockholders’ Equity
For Three and Six Months Ended June 30, 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, 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
|
|
Stock issued for share-based awards, net of withholdings to satisfy employee tax obligations upon award
|
|
|
(2,532
|
)
|
|
|
—
|
|
|
|
(2,532
|
)
|
|
|
—
|
|
|
|
(39
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(39
|
)
|
Forfeited unvested stock
|
|
|
(250
|
)
|
|
|
—
|
|
|
|
(250
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Stock-based compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
93
|
|
|
|
—
|
|
|
|
—
|
|
|
|
93
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,633
|
|
|
|
—
|
|
|
|
3,633
|
|
Net change in accumulated other comprehensive loss, net of taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,416
|
|
|
|
1,416
|
|
Balances, June 30, 2019
|
|
|
6,237,832
|
|
|
|
1,220,000
|
|
|
|
7,457,832
|
|
|
$
|
140,639
|
|
|
$
|
24,147
|
|
|
$
|
(59,729
|
)
|
|
$
|
(3,635
|
)
|
|
$
|
101,422
|
|
See accompanying notes to unaudited consolidated financial statements.
LIMESTONE BANCORP, INC.
Unaudited Consolidated Statements of Cash Flows
For Six Months Ended June 30, 2020 and 2019
(dollars in thousands)
|
|
2020
|
|
|
2019
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,822
|
|
|
$
|
6,472
|
|
Adjustments to reconcile net income to net cash from operating activities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,080
|
|
|
|
979
|
|
Provision for loan losses
|
|
|
2,150
|
|
|
|
—
|
|
Net amortization on securities
|
|
|
321
|
|
|
|
363
|
|
Stock-based compensation expense
|
|
|
210
|
|
|
|
175
|
|
Deferred taxes, net
|
|
|
927
|
|
|
|
(317
|
)
|
Net write-down of other real estate owned
|
|
|
—
|
|
|
|
260
|
|
Net realized loss on sales and calls of investment securities
|
|
|
5
|
|
|
|
5
|
|
Net write-down on premises held for sale
|
|
|
61
|
|
|
|
55
|
|
Increase in cash surrender value of life insurance, net of premium expense
|
|
|
(201
|
)
|
|
|
(207
|
)
|
Amortization of operating lease right-of-use assets
|
|
|
375
|
|
|
|
123
|
|
Net change in accrued interest receivable and other assets
|
|
|
(1,425
|
)
|
|
|
(552
|
)
|
Net change in accrued interest payable and other liabilities
|
|
|
(1,645
|
)
|
|
|
(1,903
|
)
|
Net cash from operating activities
|
|
|
5,680
|
|
|
|
5,453
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchases of available for sale securities
|
|
|
(18,309
|
)
|
|
|
(13,894
|
)
|
Proceeds from sales and calls of available for sale securities
|
|
|
8,530
|
|
|
|
2,452
|
|
Proceeds from maturities and prepayments of available for sale securities
|
|
|
14,990
|
|
|
|
7,534
|
|
Purchases of Federal Home Loan Bank stock
|
|
|
(600
|
)
|
|
|
—
|
|
Proceeds from mandatory redemptions of Federal Home Loan Bank stock
|
|
|
695
|
|
|
|
540
|
|
Proceeds from sale of other real estate owned
|
|
|
1,600
|
|
|
|
—
|
|
Net change in loans
|
|
|
(50,212
|
)
|
|
|
(38,476
|
)
|
Purchases of premises and equipment
|
|
|
(553
|
)
|
|
|
(208
|
)
|
Proceeds from sale of premises and equipment
|
|
|
—
|
|
|
|
1
|
|
Net cash from investing activities
|
|
|
(43,859
|
)
|
|
|
(42,051
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Net change in deposits
|
|
|
97,813
|
|
|
|
44,246
|
|
Repayment of Federal Home Loan Bank advances
|
|
|
(135,745
|
)
|
|
|
(65,079
|
)
|
Advances from Federal Home Loan Bank
|
|
|
95,000
|
|
|
|
70,000
|
|
Common shares withheld for taxes
|
|
|
(75
|
)
|
|
|
(315
|
)
|
Net cash from financing activities
|
|
|
56,993
|
|
|
|
48,852
|
|
Net change in cash and cash equivalents
|
|
|
18,814
|
|
|
|
12,254
|
|
Beginning cash and cash equivalents
|
|
|
30,203
|
|
|
|
35,361
|
|
Ending cash and cash equivalents
|
|
$
|
49,017
|
|
|
$
|
47,615
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
6,549
|
|
|
$
|
6,771
|
|
Supplemental non-cash disclosure:
|
|
|
|
|
|
|
|
|
Transfer from loans to other real estate
|
|
|
—
|
|
|
|
—
|
|
Transfer from premises and equipment to premises held for sale
|
|
|
310
|
|
|
|
—
|
|
Financed sales of other real estate owned
|
|
|
1,360
|
|
|
|
—
|
|
Initial recognition of right-of-use lease assets
|
|
|
—
|
|
|
|
507
|
|
See accompanying notes to unaudited consolidated financial statements.
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 six months ended June 30, 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.
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)
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency
|
|
$
|
20,302
|
|
|
$
|
772
|
|
|
$
|
—
|
|
|
$
|
21,074
|
|
Agency mortgage-backed: residential
|
|
|
85,048
|
|
|
|
3,152
|
|
|
|
(21
|
)
|
|
|
88,179
|
|
Collateralized loan obligations
|
|
|
44,730
|
|
|
|
—
|
|
|
|
(3,042
|
)
|
|
|
41,688
|
|
State and municipal
|
|
|
28,708
|
|
|
|
917
|
|
|
|
(57
|
)
|
|
|
29,568
|
|
Corporate bonds
|
|
|
23,347
|
|
|
|
313
|
|
|
|
(1,573
|
)
|
|
|
22,087
|
|
Total available for sale
|
|
$
|
202,135
|
|
|
$
|
5,154
|
|
|
$
|
(4,693
|
)
|
|
$
|
202,596
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Proceeds
|
|
$
|
2,530
|
|
|
$
|
1,452
|
|
|
$
|
8,530
|
|
|
$
|
2,452
|
|
Gross gains
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
1
|
|
Gross losses
|
|
|
5
|
|
|
|
6
|
|
|
|
5
|
|
|
|
6
|
|
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.
|
|
June 30, 2020
|
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
|
|
(in thousands)
|
|
Maturity
|
|
|
|
|
|
|
|
|
Available for sale
|
|
|
|
|
|
|
|
|
Within one year
|
|
$
|
15,142
|
|
|
$
|
14,048
|
|
One to five years
|
|
|
41,133
|
|
|
|
42,486
|
|
Five to ten years
|
|
|
37,615
|
|
|
|
36,545
|
|
Beyond ten years
|
|
|
23,197
|
|
|
|
21,338
|
|
Agency mortgage-backed: residential
|
|
|
85,048
|
|
|
|
88,179
|
|
Total
|
|
$
|
202,135
|
|
|
$
|
202,596
|
|
Securities pledged at June 30, 2020 and December 31, 2019 had carrying values of approximately $85.1 million and $75.8 million, respectively, and were pledged to secure public deposits.
At June 30, 2020 and December 31, 2019, the Bank held securities issued by the Commonwealth of Kentucky or Kentucky municipalities having a book value of $15.4 million and $14.5 million, respectively. At June 30, 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 June 30, 2020, $26.4 million and $15.3 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 six months ended June 30, 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 June 30, 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 fair value of the Bank’s corporate bond portfolio was also impacted by market disruption and declining rates. The corporate bond portfolio consists of eleven subordinated debt securities of U.S. banks and bank holding companies with maturities ranging from 2024 to 2037. The securities are either fixed for five years converting to floating at an index over LIBOR or floating at an index over LIBOR from inception. Management regularly monitors the financial condition of these corporate issuers by reviewing their regulatory and public filings.
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 June 30, 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 June 30, 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)
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Agency mortgage-backed: residential
|
|
|
6,100
|
|
|
|
(21
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
6,100
|
|
|
|
(21
|
)
|
Collateralized loan obligations
|
|
|
10,813
|
|
|
|
(732
|
)
|
|
|
30,875
|
|
|
|
(2,310
|
)
|
|
|
41,688
|
|
|
|
(3,042
|
)
|
State and municipal
|
|
|
3,258
|
|
|
|
(57
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
3,258
|
|
|
|
(57
|
)
|
Corporate bonds
|
|
|
14,760
|
|
|
|
(1,573
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
14,760
|
|
|
|
(1,573
|
)
|
Total temporarily impaired
|
|
$
|
34,931
|
|
|
$
|
(2,383
|
)
|
|
$
|
30,875
|
|
|
$
|
(2,310
|
)
|
|
$
|
65,806
|
|
|
$
|
(4,693
|
)
|
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
|
)
|
Note 3 – Loans
Loans net of unearned income, deferred loan origination costs, and net premiums on acquired loans by class were as follows:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Commercial (1)
|
|
$
|
221,292
|
|
|
$
|
145,551
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
Construction
|
|
|
73,195
|
|
|
|
64,911
|
|
Farmland
|
|
|
79,555
|
|
|
|
79,118
|
|
Nonfarm nonresidential
|
|
|
254,616
|
|
|
|
255,459
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
65,113
|
|
|
|
70,950
|
|
1-4 Family
|
|
|
204,283
|
|
|
|
226,629
|
|
Consumer
|
|
|
38,828
|
|
|
|
47,790
|
|
Agriculture
|
|
|
38,286
|
|
|
|
35,064
|
|
Other
|
|
|
591
|
|
|
|
799
|
|
Subtotal
|
|
|
975,759
|
|
|
|
926,271
|
|
Less: Allowance for loan losses
|
|
|
(10,228
|
)
|
|
|
(8,376
|
)
|
Loans, net
|
|
$
|
965,531
|
|
|
$
|
917,895
|
|
_______________________________________________________________________________________________
(1) Includes PPP loans of $41.9 million at June 30, 2020.
The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended June 30, 2020 and 2019:
|
|
Commercial
|
|
|
Commercial
Real Estate
|
|
|
Residential
Real Estate
|
|
|
Consumer
|
|
|
Agriculture
|
|
|
Other
|
|
|
Total
|
|
|
|
(in thousands)
|
|
June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
2,025
|
|
|
$
|
4,212
|
|
|
$
|
1,909
|
|
|
$
|
593
|
|
|
$
|
409
|
|
|
$
|
2
|
|
|
$
|
9,150
|
|
Provision (negative provision)
|
|
|
504
|
|
|
|
210
|
|
|
|
189
|
|
|
|
134
|
|
|
|
65
|
|
|
|
(2
|
)
|
|
|
1,100
|
|
Loans charged off
|
|
|
(3
|
)
|
|
|
(28
|
)
|
|
|
(7
|
)
|
|
|
(152
|
)
|
|
|
(3
|
)
|
|
|
–
|
|
|
|
(193
|
)
|
Recoveries
|
|
|
6
|
|
|
|
100
|
|
|
|
55
|
|
|
|
6
|
|
|
|
1
|
|
|
|
3
|
|
|
|
171
|
|
Ending balance
|
|
$
|
2,532
|
|
|
$
|
4,494
|
|
|
$
|
2,146
|
|
|
$
|
581
|
|
|
$
|
472
|
|
|
$
|
3
|
|
|
$
|
10,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
1,447
|
|
|
$
|
4,498
|
|
|
$
|
2,227
|
|
|
$
|
159
|
|
|
$
|
353
|
|
|
$
|
2
|
|
|
$
|
8,686
|
|
Provision (negative provision)
|
|
|
(45
|
)
|
|
|
(46
|
)
|
|
|
52
|
|
|
|
(16
|
)
|
|
|
55
|
|
|
|
–
|
|
|
|
–
|
|
Loans charged off
|
|
|
–
|
|
|
|
–
|
|
|
|
(35
|
)
|
|
|
(34
|
)
|
|
|
(3
|
)
|
|
|
–
|
|
|
|
(72
|
)
|
Recoveries
|
|
|
90
|
|
|
|
1
|
|
|
|
83
|
|
|
|
44
|
|
|
|
–
|
|
|
|
–
|
|
|
|
218
|
|
Ending balance
|
|
$
|
1,492
|
|
|
$
|
4,453
|
|
|
$
|
2,327
|
|
|
$
|
153
|
|
|
$
|
405
|
|
|
$
|
2
|
|
|
$
|
8,832
|
|
The following table presents the activity in the allowance for loan losses by portfolio segment for the six months ended June 30, 2020 and 2019:
|
|
Commercial
|
|
|
Commercial
Real Estate
|
|
|
Residential
Real Estate
|
|
|
Consumer
|
|
|
Agriculture
|
|
|
Other
|
|
|
Total
|
|
|
|
(in thousands)
|
|
June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
1,710
|
|
|
$
|
4,080
|
|
|
$
|
1,743
|
|
|
$
|
485
|
|
|
$
|
355
|
|
|
$
|
3
|
|
|
$
|
8,376
|
|
Provision (negative provision)
|
|
|
843
|
|
|
|
351
|
|
|
|
409
|
|
|
|
399
|
|
|
|
152
|
|
|
|
(4
|
)
|
|
|
2,150
|
|
Loans charged off
|
|
|
(32
|
)
|
|
|
(57
|
)
|
|
|
(82
|
)
|
|
|
(313
|
)
|
|
|
(44
|
)
|
|
|
–
|
|
|
|
(528
|
)
|
Recoveries
|
|
|
11
|
|
|
|
120
|
|
|
|
76
|
|
|
|
10
|
|
|
|
9
|
|
|
|
4
|
|
|
|
230
|
|
Ending balance
|
|
$
|
2,532
|
|
|
$
|
4,494
|
|
|
$
|
2,146
|
|
|
$
|
581
|
|
|
$
|
472
|
|
|
$
|
3
|
|
|
$
|
10,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
1,299
|
|
|
$
|
4,676
|
|
|
$
|
2,452
|
|
|
$
|
130
|
|
|
$
|
321
|
|
|
$
|
2
|
|
|
$
|
8,880
|
|
Provision (negative provision)
|
|
|
98
|
|
|
|
(211
|
)
|
|
|
(152
|
)
|
|
|
177
|
|
|
|
88
|
|
|
|
–
|
|
|
|
–
|
|
Loans charged off
|
|
|
–
|
|
|
|
(15
|
)
|
|
|
(117
|
)
|
|
|
(214
|
)
|
|
|
(4
|
)
|
|
|
–
|
|
|
|
(350
|
)
|
Recoveries
|
|
|
95
|
|
|
|
3
|
|
|
|
144
|
|
|
|
60
|
|
|
|
–
|
|
|
|
–
|
|
|
|
302
|
|
Ending balance
|
|
$
|
1,492
|
|
|
$
|
4,453
|
|
|
$
|
2,327
|
|
|
$
|
153
|
|
|
$
|
405
|
|
|
$
|
2
|
|
|
$
|
8,832
|
|
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 June 30, 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
|
|
$
|
–
|
|
|
$
|
24
|
|
|
$
|
1
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
25
|
|
Collectively evaluated for impairment
|
|
|
2,532
|
|
|
|
4,470
|
|
|
|
2,145
|
|
|
|
581
|
|
|
|
472
|
|
|
|
3
|
|
|
|
10,203
|
|
Total ending allowance balance
|
|
$
|
2,532
|
|
|
$
|
4,494
|
|
|
$
|
2,146
|
|
|
$
|
581
|
|
|
$
|
472
|
|
|
$
|
3
|
|
|
$
|
10,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
|
$
|
103
|
|
|
$
|
1,014
|
|
|
$
|
940
|
|
|
$
|
14
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
2,071
|
|
Loans collectively evaluated for impairment
|
|
|
221,189
|
|
|
|
406,352
|
|
|
|
268,456
|
|
|
|
38,814
|
|
|
|
38,286
|
|
|
|
591
|
|
|
|
973,688
|
|
Total ending loans balance
|
|
$
|
221,292
|
|
|
$
|
407,366
|
|
|
$
|
269,396
|
|
|
$
|
38,828
|
|
|
$
|
38,286
|
|
|
$
|
591
|
|
|
$
|
975,759
|
|
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
|
|
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 has been provided.
The following tables present information related to loans individually evaluated for impairment by class of loans as of June 30, 2020 and December 31, 2019 and for the three and six months ended June 30, 2020 and 2019:
|
|
As of June 30, 2020
|
|
|
Three Months Ended
June 30, 2020
|
|
|
Six Months Ended
June 30, 2020
|
|
|
|
Unpaid
Principal
Balance
|
|
|
Recorded
Investment
|
|
|
Allowance
For Loan
Losses
Allocated
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
|
(in thousands)
|
|
With No Related Allowance Recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
210
|
|
|
$
|
103
|
|
|
$
|
—
|
|
|
$
|
131
|
|
|
$
|
—
|
|
|
$
|
104
|
|
|
$
|
—
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Farmland
|
|
|
411
|
|
|
|
295
|
|
|
|
—
|
|
|
|
297
|
|
|
|
3
|
|
|
|
296
|
|
|
|
13
|
|
Nonfarm nonresidential
|
|
|
986
|
|
|
|
426
|
|
|
|
—
|
|
|
|
453
|
|
|
|
10
|
|
|
|
465
|
|
|
|
18
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
1-4 Family
|
|
|
1,819
|
|
|
|
866
|
|
|
|
—
|
|
|
|
856
|
|
|
|
51
|
|
|
|
819
|
|
|
|
54
|
|
Consumer
|
|
|
224
|
|
|
|
14
|
|
|
|
—
|
|
|
|
78
|
|
|
|
—
|
|
|
|
85
|
|
|
|
1
|
|
Agriculture
|
|
|
297
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
14
|
|
|
|
—
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Subtotal
|
|
|
3,947
|
|
|
|
1,704
|
|
|
|
—
|
|
|
|
1,815
|
|
|
|
64
|
|
|
|
1,783
|
|
|
|
86
|
|
With An Allowance Recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8
|
|
|
|
—
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Farmland
|
|
|
143
|
|
|
|
143
|
|
|
|
19
|
|
|
|
143
|
|
|
|
2
|
|
|
|
189
|
|
|
|
4
|
|
Nonfarm nonresidential
|
|
|
161
|
|
|
|
150
|
|
|
|
5
|
|
|
|
75
|
|
|
|
—
|
|
|
|
50
|
|
|
|
—
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
1-4 Family
|
|
|
74
|
|
|
|
74
|
|
|
|
1
|
|
|
|
74
|
|
|
|
1
|
|
|
|
98
|
|
|
|
3
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Agriculture
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Subtotal
|
|
|
378
|
|
|
|
367
|
|
|
|
25
|
|
|
|
292
|
|
|
|
3
|
|
|
|
345
|
|
|
|
7
|
|
Total
|
|
$
|
4,325
|
|
|
$
|
2,071
|
|
|
$
|
25
|
|
|
$
|
2,107
|
|
|
$
|
67
|
|
|
$
|
2,128
|
|
|
$
|
93
|
|
|
|
As of December 31, 2019
|
|
|
Three Months Ended
June 30, 2019
|
|
|
Six Months Ended
June 30, 2019
|
|
|
|
Unpaid
Principal
Balance
|
|
|
Recorded
Investment
|
|
|
Allowance
For Loan
Losses
Allocated
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
|
(in thousands)
|
|
With No Related Allowance Recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
138
|
|
|
$
|
50
|
|
|
$
|
—
|
|
|
$
|
66
|
|
|
$
|
—
|
|
|
$
|
62
|
|
|
$
|
—
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Farmland
|
|
|
380
|
|
|
|
293
|
|
|
|
—
|
|
|
|
156
|
|
|
|
3
|
|
|
|
134
|
|
|
|
8
|
|
Nonfarm nonresidential
|
|
|
1,057
|
|
|
|
489
|
|
|
|
—
|
|
|
|
246
|
|
|
|
4
|
|
|
|
251
|
|
|
|
7
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
1-4 Family
|
|
|
1,679
|
|
|
|
745
|
|
|
|
—
|
|
|
|
1,448
|
|
|
|
28
|
|
|
|
1,508
|
|
|
|
50
|
|
Consumer
|
|
|
309
|
|
|
|
98
|
|
|
|
—
|
|
|
|
14
|
|
|
|
2
|
|
|
|
9
|
|
|
|
2
|
|
Agriculture
|
|
|
304
|
|
|
|
42
|
|
|
|
—
|
|
|
|
65
|
|
|
|
—
|
|
|
|
43
|
|
|
|
—
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Subtotal
|
|
|
3,867
|
|
|
|
1,717
|
|
|
|
—
|
|
|
|
1,995
|
|
|
|
37
|
|
|
|
2,007
|
|
|
|
67
|
|
With An Allowance Recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
24
|
|
|
|
24
|
|
|
|
3
|
|
|
|
13
|
|
|
|
1
|
|
|
|
9
|
|
|
|
1
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Farmland
|
|
|
282
|
|
|
|
282
|
|
|
|
37
|
|
|
|
225
|
|
|
|
—
|
|
|
|
203
|
|
|
|
—
|
|
Nonfarm nonresidential
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
1-4 Family
|
|
|
183
|
|
|
|
147
|
|
|
|
2
|
|
|
|
715
|
|
|
|
10
|
|
|
|
717
|
|
|
|
21
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Agriculture
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Subtotal
|
|
|
489
|
|
|
|
453
|
|
|
|
42
|
|
|
|
953
|
|
|
|
11
|
|
|
|
929
|
|
|
|
22
|
|
Total
|
|
$
|
4,356
|
|
|
$
|
2,170
|
|
|
$
|
42
|
|
|
$
|
2,948
|
|
|
$
|
48
|
|
|
$
|
2,936
|
|
|
$
|
89
|
|
Cash basis income recognized for the three and six months ended June 30, 2020 was $54,000 and $68,000, respectively, compared to $30,000 and $60,000 for the three and six months ended June 30, 2019, respectively.
Troubled Debt Restructuring
A troubled debt restructuring (TDR) occurs when the Bank has agreed to an other than short-term loan modification in the form of a concession for a borrower who is experiencing financial difficulty. The Bank’s TDRs may 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 June 30, 2020 and December 31, 2019:
|
|
TDRs
Performing to
Modified Terms
|
|
|
TDRs Not
Performing to
Modified Terms
|
|
|
Total
TDRs
|
|
|
|
(in thousands)
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonfarm nonresidential
|
|
$
|
388
|
|
|
$
|
—
|
|
|
$
|
388
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family
|
|
|
74
|
|
|
|
—
|
|
|
|
74
|
|
Total TDRs
|
|
$
|
462
|
|
|
$
|
—
|
|
|
$
|
462
|
|
|
|
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 June 30, 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 June 30, 2020 and December 31, 2019. The Company has committed to lend no additional amounts as of June 30, 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 and six months ended June 30, 2020 or June 30, 2019. During the three and six months ended June 30, 2020 and June 30, 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.
Non-TDR Loan Modifications due to COVID-19
The Company has elected to account for eligible loan modifications under Section 4013 of the CARES Act. To be an eligible loan under Section 4013 of the CARES Act, a loan modification must be (1) related to the COVID 19 pandemic; (2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020 and the earlier of (A) 60 days after the date of termination of the national emergency declared by the President on March 13, 2020 concerning the COVID-19 outbreak (the “national emergency”) or (B) December 31, 2020. Eligible loan modifications are not required to be classified as TDRs and will not be reported as past due provided that they are performing in accordance with the modified terms. Interest income will continue to be recognized in accordance with GAAP unless the loan is placed on nonaccrual status.
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 June 30, 2020, and December 31, 2019:
|
|
Nonaccrual
|
|
|
Loans Past Due 90 Days
And Over Still Accruing
|
|
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
104
|
|
|
$
|
50
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Farmland
|
|
|
295
|
|
|
|
431
|
|
|
|
—
|
|
|
|
—
|
|
Nonfarm nonresidential
|
|
|
188
|
|
|
|
90
|
|
|
|
—
|
|
|
|
—
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
1-4 Family
|
|
|
809
|
|
|
|
817
|
|
|
|
—
|
|
|
|
—
|
|
Consumer
|
|
|
14
|
|
|
|
98
|
|
|
|
—
|
|
|
|
—
|
|
Agriculture
|
|
|
—
|
|
|
|
42
|
|
|
|
—
|
|
|
|
—
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
1,410
|
|
|
$
|
1,528
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The following table presents the aging of the recorded investment in past due loans as of June 30, 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)
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
104
|
|
|
$
|
104
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Farmland
|
|
|
55
|
|
|
|
—
|
|
|
|
—
|
|
|
|
295
|
|
|
|
350
|
|
Nonfarm nonresidential
|
|
|
—
|
|
|
|
40
|
|
|
|
—
|
|
|
|
188
|
|
|
|
228
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
1-4 Family
|
|
|
331
|
|
|
|
88
|
|
|
|
—
|
|
|
|
809
|
|
|
|
1,228
|
|
Consumer
|
|
|
67
|
|
|
|
69
|
|
|
|
—
|
|
|
|
14
|
|
|
|
150
|
|
Agriculture
|
|
|
5
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
458
|
|
|
$
|
197
|
|
|
$
|
—
|
|
|
$
|
1,410
|
|
|
$
|
2,065
|
|
|
|
30 – 59
Days
Past Due
|
|
|
60 – 89
Days
Past Due
|
|
|
90 Days
And Over
Past Due
|
|
|
Nonaccrual
|
|
|
Total
Past Due
And
Nonaccrual
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
14
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
50
|
|
|
$
|
67
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Farmland
|
|
|
274
|
|
|
|
—
|
|
|
|
—
|
|
|
|
431
|
|
|
|
705
|
|
Nonfarm nonresidential
|
|
|
206
|
|
|
|
—
|
|
|
|
—
|
|
|
|
90
|
|
|
|
296
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
1-4 Family
|
|
|
1,162
|
|
|
|
503
|
|
|
|
—
|
|
|
|
817
|
|
|
|
2,482
|
|
Consumer
|
|
|
91
|
|
|
|
164
|
|
|
|
—
|
|
|
|
98
|
|
|
|
353
|
|
Agriculture
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
42
|
|
|
|
42
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
1,747
|
|
|
$
|
670
|
|
|
$
|
—
|
|
|
$
|
1,528
|
|
|
$
|
3,945
|
|
Credit Quality Indicators
Management categorizes all loans into risk categories at origination based upon original underwriting. Thereafter, management categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends. Loans are analyzed through internal and external loan review processes and are routinely analyzed through credit administration processes which classify the loans as to credit risk. The following definitions are used for risk ratings:
Watch – Loans classified as watch are those loans which have or may experience a potentially adverse development which necessitates increased monitoring.
Special Mention – Loans classified as special mention do not have all of the characteristics of substandard or doubtful loans. They have one or more deficiencies which warrant special attention and which corrective action, such as accelerated collection practices, may remedy.
Substandard – Loans classified as substandard are those loans with clear and defined weaknesses such as a highly leveraged position, unfavorable financial ratios, uncertain repayment sources or poor financial condition which may jeopardize the repayment of the debt as contractually agreed. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
Doubtful – Loans classified as doubtful are those loans which have characteristics similar to substandard loans but with an increased risk that collection or liquidation in full is highly questionable and improbable.
As of June 30, 2020, and December 31, 2019, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:
|
|
Pass
|
|
|
Watch
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
|
|
(in thousands)
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
203,360
|
|
|
$
|
16,048
|
|
|
$
|
—
|
|
|
$
|
1,884
|
|
|
$
|
—
|
|
|
$
|
221,292
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
73,195
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
73,195
|
|
Farmland
|
|
|
72,750
|
|
|
|
6,008
|
|
|
|
—
|
|
|
|
797
|
|
|
|
—
|
|
|
|
79,555
|
|
Nonfarm nonresidential
|
|
|
246,118
|
|
|
|
6,726
|
|
|
|
—
|
|
|
|
1,772
|
|
|
|
—
|
|
|
|
254,616
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
54,665
|
|
|
|
10,448
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
65,113
|
|
1-4 Family
|
|
|
198,014
|
|
|
|
3,617
|
|
|
|
—
|
|
|
|
2,652
|
|
|
|
—
|
|
|
|
204,283
|
|
Consumer
|
|
|
38,780
|
|
|
|
3
|
|
|
|
—
|
|
|
|
45
|
|
|
|
—
|
|
|
|
38,828
|
|
Agriculture
|
|
|
38,085
|
|
|
|
164
|
|
|
|
—
|
|
|
|
37
|
|
|
|
—
|
|
|
|
38,286
|
|
Other
|
|
|
591
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
591
|
|
Total
|
|
$
|
925,558
|
|
|
$
|
43,014
|
|
|
$
|
—
|
|
|
$
|
7,187
|
|
|
$
|
—
|
|
|
$
|
975,759
|
|
|
|
Pass
|
|
|
Watch
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
130,312
|
|
|
$
|
11,280
|
|
|
$
|
—
|
|
|
$
|
3,959
|
|
|
$
|
—
|
|
|
$
|
145,551
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
64,911
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
64,911
|
|
Farmland
|
|
|
71,503
|
|
|
|
6,663
|
|
|
|
—
|
|
|
|
952
|
|
|
|
—
|
|
|
|
79,118
|
|
Nonfarm nonresidential
|
|
|
245,995
|
|
|
|
6,986
|
|
|
|
—
|
|
|
|
2,478
|
|
|
|
—
|
|
|
|
255,459
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
70,950
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
70,950
|
|
1-4 Family
|
|
|
221,727
|
|
|
|
2,420
|
|
|
|
—
|
|
|
|
2,482
|
|
|
|
—
|
|
|
|
226,629
|
|
Consumer
|
|
|
47,657
|
|
|
|
5
|
|
|
|
—
|
|
|
|
128
|
|
|
|
—
|
|
|
|
47,790
|
|
Agriculture
|
|
|
34,853
|
|
|
|
168
|
|
|
|
—
|
|
|
|
43
|
|
|
|
—
|
|
|
|
35,064
|
|
Other
|
|
|
799
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
799
|
|
Total
|
|
$
|
888,707
|
|
|
$
|
27,522
|
|
|
$
|
—
|
|
|
$
|
10,042
|
|
|
$
|
—
|
|
|
$
|
926,271
|
|
Note 4 – Leases
As of June 30, 2020, the Company leases real estate for six branch offices or offsite ATM machines under various operating lease agreements. The lease agreements have maturity dates ranging from 2021 to 2055, including all expected extension periods. The weighted average remaining life of the lease term for these leases was 22 years as of June 30, 2020.
In determining the present value of lease payments, the Bank uses the implicit lease rate when readily determinable. As most of the Bank’s leases do not provide an implicit rate, the incremental borrowing rate based on the information available at commencement date is used. The incremental borrowing rate is the rate of interest that the Bank estimates it would pay to borrow on a collateralized basis over a similar term in an amount equal to the lease payments in a similar economic environment. The weighted average discount rate for the leases was 5.47% as of June 30, 2020.
Total rental expense was $136,000 and $256,000, respectively, for the three and six months ended June 30, 2020, compared to $65,000 and $130,000, respectively, for the three and six months ended June 30, 2019. The right-of-use asset, included in premises and equipment, and lease liability, included in other liabilities, was $2.7 million as of June 30, 2020 and $384,000 as of June 30, 2019.
Total estimated rental commitments for the operating leases were as follows as of June 30, 2020 (in thousands):
|
|
June 30,
2020
|
|
|
|
|
|
|
July – December 2020
|
|
$
|
255
|
|
2021
|
|
|
241
|
|
2022
|
|
|
223
|
|
2023
|
|
|
226
|
|
2024
|
|
|
225
|
|
Thereafter
|
|
|
3,720
|
|
Total minimum lease payments
|
|
|
4,890
|
|
Discount effect of cash flows
|
|
|
(2,195
|
)
|
Present value of lease liabilities
|
|
$
|
2,695
|
|
Note 5 – Other Real Estate Owned
Other real estate owned (OREO) is real estate acquired as a result of foreclosure or by deed in lieu of foreclosure. It is classified as real estate owned until such time as it is sold. When property is acquired as a result of foreclosure or by deed in lieu of foreclosure, it is recorded at its fair market value less estimated cost to sell. Any write-down of the property at the time of acquisition is charged to the allowance for loan losses.
The following table presents the major categories of OREO at the period-ends indicated:
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
|
|
(in thousands)
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
Construction, land development, and other land
|
|
$
|
1,625
|
|
|
$
|
3,225
|
|
|
|
$
|
1,625
|
|
|
$
|
3,225
|
|
Residential loans secured by 1-4 family residential properties in the process of foreclosure totaled $154,000 and $172,000 at June 30, 2020 and December 31, 2019, respectively.
Activity relating to OREO during the six months ended June 30, 2020 and 2019 is as follows:
|
|
For the Six
Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
OREO Activity
|
|
|
|
|
|
|
|
|
OREO as of January 1
|
|
$
|
3,225
|
|
|
$
|
3,485
|
|
Real estate acquired
|
|
|
—
|
|
|
|
—
|
|
Valuation adjustment write-downs
|
|
|
—
|
|
|
|
(260
|
)
|
Net gain on sales
|
|
|
—
|
|
|
|
—
|
|
Proceeds from sales of properties
|
|
|
(1,600
|
)
|
|
|
—
|
|
OREO as of June 30
|
|
$
|
1,625
|
|
|
$
|
3,225
|
|
Expenses related to other real estate owned include:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Net gain on sales
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Valuation adjustment write-downs
|
|
|
—
|
|
|
|
110
|
|
|
|
—
|
|
|
|
260
|
|
Operating expense
|
|
|
22
|
|
|
|
32
|
|
|
|
38
|
|
|
|
48
|
|
Total
|
|
$
|
22
|
|
|
$
|
142
|
|
|
$
|
38
|
|
|
$
|
308
|
|
Note 6 – Goodwill and Intangible Assets
The following table summarizes the Company’s acquired goodwill and intangible assets as of June 30, 2020 and December 31, 2019 (in thousands):
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
Goodwill
|
|
$
|
6,252
|
|
|
$
|
—
|
|
|
$
|
6,252
|
|
|
$
|
—
|
|
Core deposit intangibles
|
|
|
2,500
|
|
|
|
128
|
|
|
|
2,500
|
|
|
|
—
|
|
Outstanding, ending
|
|
$
|
8,752
|
|
|
$
|
128
|
|
|
$
|
8,752
|
|
|
$
|
—
|
|
The Company has $6.3 million of goodwill related to a 2019 branch acquisition transaction. Goodwill represents the excess of the total purchase price paid over the fair value of the identifiable assets acquired, net of the fair value of the liabilities assumed. Goodwill is not amortized but is evaluated for impairment on an annual basis or whenever events or changes in circumstances indicate the carrying value may not be recoverable. Impairment exists when a reporting unit’s carrying amount exceeds its fair value. Based upon current economic conditions as a result of COVID-19, management assessed goodwill for impairment as of June 30, 2020 and concluded there was no impairment. Goodwill is the Company’s sole intangible asset with an indefinite life.
The Company also has a core deposit intangible asset, which is amortized over the weighted average estimated life of the related deposits and is not estimated to have a significant residual value. During the three and six months ended June 30, 2020, the Company recorded intangible amortization expense totaling $64,000 and $128,000, respectively.
Amortization expense related to the core deposit intangible for the remainder of 2020 and beyond is estimated as follows (in thousands):
|
|
June 30,
2020
|
|
July 2020 – December 2020
|
|
$
|
128
|
|
2021
|
|
|
256
|
|
2022
|
|
|
256
|
|
2023
|
|
|
256
|
|
2024
|
|
|
256
|
|
Thereafter
|
|
|
1,220
|
|
|
|
$
|
2,372
|
|
Note 7 – Deposits
The following table details deposits by category:
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
|
|
(in thousands)
|
|
Non-interest bearing
|
|
$
|
224,901
|
|
|
$
|
187,551
|
|
Interest checking
|
|
|
167,814
|
|
|
|
146,038
|
|
Money market
|
|
|
166,376
|
|
|
|
160,837
|
|
Savings
|
|
|
119,327
|
|
|
|
56,015
|
|
Certificates of deposit
|
|
|
446,370
|
|
|
|
476,534
|
|
Total
|
|
$
|
1,124,788
|
|
|
$
|
1,026,975
|
|
Time deposits of $250,000 or more were $66.6 million and $51.2 million at June 30, 2020 and December 31, 2019, respectively.
Scheduled maturities of total time deposits at June 30, 2020 for each of the next five years and thereafter are as follows (in thousands):
Year 1
|
|
$
|
362,819
|
|
Year 2
|
|
|
42,047
|
|
Year 3
|
|
|
17,112
|
|
Year 4
|
|
|
12,242
|
|
Year 5
|
|
|
11,801
|
|
Thereafter
|
|
|
349
|
|
|
|
$
|
446,370
|
|
Note 8 – Advances from the Federal Home Loan Bank
Advances from the Federal Home Loan Bank were as follows:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Short term advances
|
|
$
|
—
|
|
|
$
|
60,000
|
|
Long term advances (fixed rates 0.00% to 0.77%) maturing April 2021 to February 2030
|
|
|
20,644
|
|
|
|
1,389
|
|
Total advances from the Federal Home Loan Bank
|
|
$
|
20,644
|
|
|
$
|
61,389
|
|
FHLB advances had a weighted-average rate of 0.75% at June 30, 2020 and 1.70% at December 31, 2019. Each advance is payable per terms on agreement, with a prepayment penalty. No prepayment penalties were incurred during 2020 or 2019. The advances were collateralized by approximately $147.2 million and $166.0 million of first mortgage loans, under a blanket lien arrangement at June 30, 2020 and December 31, 2019, respectively, and $41.9 million of loans originated under the SBA Payment Protection Plan at June 30, 2020. At June 30, 2020, our additional borrowing capacity with the FHLB was $124.9 million.
Scheduled principal payments on the above during the next five years and thereafter (in thousands):
|
|
Advances
|
|
Year 1
|
|
$
|
644
|
|
Year 2
|
|
|
—
|
|
Year 3
|
|
|
—
|
|
Year 4
|
|
|
—
|
|
Year 5
|
|
|
—
|
|
Thereafter
|
|
|
20,000
|
|
|
|
$
|
20,644
|
|
Note 9 – Borrowings
Junior Subordinated Debentures – The junior subordinated debentures are redeemable at par prior to maturity at the option of the Company as defined within the trust indenture. The Company has the option to defer interest payments on the junior subordinated debentures from time to time for a period not to exceed 20 consecutive quarters. A deferral period may begin at the Company’s discretion so long as interest payments are current. The Company is prohibited from paying dividends on preferred and common shares when interest payments are in deferral. At June 30, 2020, the Company is current on all interest payments.
Subordinated Capital Notes – The Company’s $17.0 million subordinated notes mature on July 31, 2029. The notes carry interest at a fixed rate of 5.75% until July 30, 2024 and then convert to variable at three-month LIBOR plus 395 basis points until maturity. The subordinated capital notes qualify as Tier 2 regulatory capital. Subsequent to quarter end on July 31, 2020, the Company completed the issuance of an additional $8.0 million in subordinated notes under the July 23, 2019 indenture with the same terms as the current outstanding subordinated notes with the additional commitment by the Company to extend the optional prepayment date to July 31, 2025 so long as the additional notes qualify as Tier 2 regulatory capital. The Company used the net proceeds from the issuance of the additional notes to retire its senior debt and retained the remaining balance for general corporate purposes. The subordinated capital notes qualify as Tier 2 regulatory capital.
Senior Debt - The Company’s $5.0 million senior secured loan matures on June 30, 2022. Interest is payable quarterly at a rate of three-month LIBOR plus 250 basis points through June 30, 2020, at which time quarterly principal payments of $250,000 plus interest will commence. The loan is secured by a first priority pledge of 100% of the issued and outstanding stock of the Bank. The Company may prepay any amount due under the promissory note at any time without premium or penalty. Subsequent to quarter end, the Company retired this loan.
The loan agreement contains customary representations, warranties, covenants and events of default, including the following financial covenants: (i) the Company must maintain minimum cash on hand of not less than $2,500,000, (ii) the Company must maintain a total risk based capital ratio at least equal to 10% of risk-weighted assets, (iii) the Bank must maintain a total risk based capital ratio at least equal to 11% of risk-weighted assets, and (iv) non-performing assets of the Bank may not exceed 2.5% of the Bank’s total assets. Both the Company and Bank were in compliance with the covenants as of June 30, 2020.
Note 10 – Fair Values Measurement
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Various valuation techniques are used to determine fair value, including market, income and cost approaches. There are three levels of inputs that may be used to measure fair values:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that an entity has the ability to access as of the measurement date, or observable inputs.
Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. When that occurs, the fair value hierarchy is classified on the lowest level of input that is significant to the fair value measurement. The following methods and significant assumptions are used to estimate fair value.
Securities: The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges, if available. This valuation method is classified as Level 1 in the fair value hierarchy. For securities where quoted prices are not available, fair values are calculated on market prices of similar securities, or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. Matrix pricing relies on the securities’ relationship to similarly traded securities, benchmark curves, and the benchmarking of like securities. Matrix pricing utilizes observable market inputs such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and industry and economic events. In instances where broker quotes are used, these quotes are obtained from market makers or broker-dealers recognized to be market participants. This valuation method is classified as Level 2 in the fair value hierarchy. For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators. This valuation method is classified as Level 3 in the fair value hierarchy. Discounted cash flows are calculated using spread to swap and LIBOR curves that are updated to incorporate loss severities, volatility, credit spread and optionality. During times when trading is more liquid, broker quotes are used (if available) to validate the model. Rating agency and industry research reports as well as defaults and deferrals on individual securities are reviewed and incorporated into the calculations.
Impaired Loans: An impaired loan is evaluated at the time the loan is identified as impaired and is recorded at fair value less costs to sell. Fair value is measured based on the value of the collateral securing the loan and is classified as Level 3 in the fair value hierarchy. Fair value is determined using several methods. Generally, the fair value of real estate is determined based on appraisals by qualified licensed appraisers. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach.
Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. These routine adjustments are made to adjust the value of a specific property relative to comparable properties for variations in qualities such as location, size, and income production capacity relative to the subject property of the appraisal. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.
Management routinely applies internal discounts to the value of appraisals used in the fair value evaluation of our impaired loans. The deductions to the appraisal take into account changing business factors and market conditions, as well as potential value impairment in cases where our appraisal date predates a likely change in market conditions. These deductions range from 10% for routine real estate collateral to 25% for real estate that is determined to have a thin trading market or to be specialized collateral. This is in addition to estimated discounts for cost to sell of six to ten percent.
Management also applies discounts to the expected fair value of collateral for impaired loans where the likely resolution involves litigation or foreclosure. Resolution of this nature generally results in receiving lower values for real estate collateral in a more aggressive sales environment. Discounts ranging from 10% to 33% have been utilized in our impairment evaluations when applicable.
Impaired loans are evaluated quarterly for additional impairment. Management obtains updated appraisals on properties securing our loans when circumstances are warranted such as at the time of renewal or when market conditions have significantly changed. This determination is made on a property-by-property basis in light of circumstances in the broader economic climate and the assessment of deterioration of real estate values in the market in which the property is located.
Other Real Estate Owned (OREO): OREO is evaluated at the time of acquisition and recorded at fair value as determined by independent appraisal or internal evaluation less estimated cost to sell. Quarterly evaluations of OREO for impairment are driven by property type. For smaller dollar single family homes, management consults with staff from the Bank’s special assets group as well as external realtors and appraisers. Based on these consultations, management determines asking prices for OREO properties being marketed for sale. If the internally evaluated fair value or asking price is below the recorded investment in the property, appropriate write-downs are taken.
For larger dollar commercial real estate properties, management obtains a new appraisal of the subject property or has staff in the special assets group evaluate the latest in-file appraisal in connection with the transfer to OREO. Management generally obtains updated appraisals within five quarters of the anniversary date of ownership unless a sale is imminent. When an asking price is lowered below the most recent appraised value, appropriate write-downs are taken.
Financial assets measured at fair value on a recurring basis at June 30, 2020 and December 31, 2019 are summarized below:
|
|
|
|
|
|
Fair Value Measurements at June 30, 2020 Using
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Quoted Prices In
|
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
Carrying
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
Description
|
|
Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Available for sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency
|
|
$
|
21,074
|
|
|
$
|
—
|
|
|
$
|
21,074
|
|
|
$
|
—
|
|
Agency mortgage-backed: residential
|
|
|
88,179
|
|
|
|
—
|
|
|
|
88,179
|
|
|
|
—
|
|
Collateralized loan obligations
|
|
|
41,688
|
|
|
|
—
|
|
|
|
41,688
|
|
|
|
—
|
|
State and municipal
|
|
|
29,568
|
|
|
|
—
|
|
|
|
29,568
|
|
|
|
—
|
|
Corporate bonds
|
|
|
22,087
|
|
|
|
—
|
|
|
|
22,087
|
|
|
|
—
|
|
Total
|
|
$
|
202,596
|
|
|
$
|
—
|
|
|
$
|
202,596
|
|
|
$
|
—
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2019 Using
|
|
|
|
|
|
|
|
(in thousands)
|
|
Description
|
|
Carrying
Value
|
|
|
Quoted Prices In
Active Markets for
Identical Assets
(Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Available for sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency
|
|
$
|
22,330
|
|
|
$
|
—
|
|
|
$
|
22,330
|
|
|
$
|
—
|
|
Agency mortgage-backed: residential
|
|
|
92,200
|
|
|
|
—
|
|
|
|
92,200
|
|
|
|
—
|
|
Collateralized loan obligations
|
|
|
49,419
|
|
|
|
—
|
|
|
|
49,419
|
|
|
|
—
|
|
State and municipal
|
|
|
28,366
|
|
|
|
—
|
|
|
|
28,366
|
|
|
|
—
|
|
Corporate bonds
|
|
|
16,685
|
|
|
|
—
|
|
|
|
16,685
|
|
|
|
—
|
|
Total
|
|
$
|
209,000
|
|
|
$
|
—
|
|
|
$
|
209,000
|
|
|
$
|
—
|
|
There were no transfers between Level 1 and Level 2 during 2020 or 2019.
Financial assets measured at fair value on a non-recurring basis are summarized below:
|
|
|
|
|
|
Fair Value Measurements at June 30, 2020 Using
|
|
|
|
|
|
|
|
(in thousands)
|
|
Description
|
|
Carrying
Value
|
|
|
Quoted Prices In
Active Markets for
Identical Assets
(Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmland
|
|
$
|
124
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
124
|
|
Nonfarm nonresidential
|
|
|
145
|
|
|
|
—
|
|
|
|
—
|
|
|
|
145
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family
|
|
|
73
|
|
|
|
—
|
|
|
|
—
|
|
|
|
73
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2019 Using
|
|
|
|
|
|
|
|
(in thousands)
|
|
Description
|
|
Carrying
Value
|
|
|
Quoted Prices In
Active Markets for
Identical Assets
(Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
21
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
21
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmland
|
|
|
245
|
|
|
|
—
|
|
|
|
—
|
|
|
|
245
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family
|
|
|
145
|
|
|
|
—
|
|
|
|
—
|
|
|
|
145
|
|
Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $367,000 at June 30, 2020 with a valuation allowance of $25,000, resulting in $5,000 and no additional provision for loan losses for the three and six months ended June 30, 2020, respectively. Impaired loans had a carrying amount of $1.0 million with a valuation allowance of $195,000, resulting in $2,000 and no additional provision for loan losses for the three and six months ended June 30, 2019, respectively. At December 31, 2019, impaired loans had a carrying amount of $453,000, with a valuation allowance of $42,000.
Carrying amount and estimated fair values of financial instruments were as follows for the periods indicated:
|
|
|
|
|
|
Fair Value Measurements at June 30, 2020 Using
|
|
|
|
Carrying
Amount
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
49,017
|
|
|
$
|
49,017
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
49,017
|
|
Securities available for sale
|
|
|
202,596
|
|
|
|
—
|
|
|
|
202,596
|
|
|
|
—
|
|
|
|
202,596
|
|
Federal Home Loan Bank stock
|
|
|
6,142
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Loans, net
|
|
|
965,531
|
|
|
|
—
|
|
|
|
—
|
|
|
|
940,327
|
|
|
|
940,327
|
|
Accrued interest receivable
|
|
|
5,231
|
|
|
|
—
|
|
|
|
982
|
|
|
|
4,249
|
|
|
|
5,231
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
1,124,788
|
|
|
$
|
224,901
|
|
|
$
|
902,166
|
|
|
$
|
—
|
|
|
$
|
1,127,067
|
|
Federal Home Loan Bank advances
|
|
|
20,644
|
|
|
|
—
|
|
|
|
20,701
|
|
|
|
—
|
|
|
|
20,701
|
|
Junior subordinated debentures
|
|
|
21,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
14,436
|
|
|
|
14,436
|
|
Subordinated capital notes
|
|
|
17,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16,358
|
|
|
|
16,358
|
|
Senior Debt
|
|
|
5,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,919
|
|
|
|
4,919
|
|
Accrued interest payable
|
|
|
761
|
|
|
|
—
|
|
|
|
324
|
|
|
|
437
|
|
|
|
761
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2019 Using
|
|
|
|
Carrying
Amount
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
30,203
|
|
|
$
|
30,203
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
30,203
|
|
Securities available for sale
|
|
|
209,000
|
|
|
|
—
|
|
|
|
209,000
|
|
|
|
—
|
|
|
|
209,000
|
|
Federal Home Loan Bank stock
|
|
|
6,237
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Loans, net
|
|
|
917,895
|
|
|
|
—
|
|
|
|
—
|
|
|
|
925,388
|
|
|
|
925,388
|
|
Accrued interest receivable
|
|
|
4,257
|
|
|
|
—
|
|
|
|
1,118
|
|
|
|
3,139
|
|
|
|
4,257
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
1,026,975
|
|
|
$
|
187,551
|
|
|
$
|
839,882
|
|
|
$
|
—
|
|
|
$
|
1,027,433
|
|
Federal Home Loan Bank advances
|
|
|
61,389
|
|
|
|
—
|
|
|
|
61,395
|
|
|
|
—
|
|
|
|
61,395
|
|
Junior subordinated debentures
|
|
|
21,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17,466
|
|
|
|
17,466
|
|
Subordinated capital notes
|
|
|
17,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17,003
|
|
|
|
17,003
|
|
Senior Debt
|
|
|
5,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,022
|
|
|
|
5,022
|
|
Accrued interest payable
|
|
|
1,129
|
|
|
|
—
|
|
|
|
647
|
|
|
|
482
|
|
|
|
1,129
|
|
In accordance with ASU 2016-01, the methods utilized to measure the fair value of financial instruments represent an approximation of exit price; however, an actual exit price may differ.
Note 11 – Income Taxes
Deferred tax assets and liabilities were due to the following as of:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carry-forward
|
|
$
|
23,662
|
|
|
$
|
22,915
|
|
Allowance for loan losses
|
|
|
2,552
|
|
|
|
2,090
|
|
OREO write-down
|
|
|
769
|
|
|
|
2,665
|
|
Alternative minimum tax credit carry-forward
|
|
|
—
|
|
|
|
173
|
|
Net assets from acquisitions
|
|
|
149
|
|
|
|
228
|
|
New market tax credit carry-forward
|
|
|
208
|
|
|
|
208
|
|
Nonaccrual loan interest
|
|
|
307
|
|
|
|
303
|
|
Accrued expenses
|
|
|
104
|
|
|
|
102
|
|
Lease liability
|
|
|
672
|
|
|
|
766
|
|
Other
|
|
|
265
|
|
|
|
309
|
|
|
|
|
28,688
|
|
|
|
29,759
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
FHLB stock dividends
|
|
|
500
|
|
|
|
563
|
|
Fixed assets
|
|
|
55
|
|
|
|
57
|
|
Deferred loan costs
|
|
|
186
|
|
|
|
170
|
|
Net unrealized gain on securities
|
|
|
115
|
|
|
|
331
|
|
Lease right-of-use assets
|
|
|
672
|
|
|
|
766
|
|
Other
|
|
|
106
|
|
|
|
107
|
|
|
|
|
1,634
|
|
|
|
1,994
|
|
Net deferred tax asset
|
|
$
|
27,054
|
|
|
$
|
27,765
|
|
At June 30, 2020, the Company had net federal operating loss carryforwards of $106.4 million, which will begin to expire in 2031, and state net operating loss carryforwards of $33.6 million, which begin to expire in 2025. As of June 30, 2020, a total of $173,000 in alternative minimum tax credit carryforward was reclassified to other assets as it is currently refundable for the 2019 tax year due to the enactment of the Coronavirus Aid Relief and Economic Security Act (“CARES Act”).
The Company does not have any beginning and ending unrecognized tax benefits. The Company does not expect the total amount of unrecognized tax benefits to significantly increase or decrease in the next twelve months. There were no interest and penalties recorded in the income statement or accrued for the three or six months ended June 30, 2020 or June 30, 2019 related to unrecognized tax benefits.
Under Section 382 of the Internal Revenue Code, as amended (“Section 382”), the Company’s net operating loss carryforwards and other deferred tax assets can generally be used to offset future taxable income and therefore reduce federal income tax obligations. However, the Company's ability to use its NOLs would be limited if there was an “ownership change” as defined by Section 382. This would occur if shareholders owning (or deemed to own under the tax rules) 5% or more of the Company's voting and non-voting common shares increase their aggregate ownership of the Company by more than 50 percentage points over a defined period of time.
In 2015, the Company took two measures to preserve the value of its NOLs. First, the Company adopted a tax benefits preservation plan designed to reduce the likelihood of an “ownership change” occurring as a result of purchases and sales of the Company's common shares. Upon adoption of this plan, the Company declared a dividend of one preferred stock purchase right for each common share outstanding as of the close of business on July 10, 2015. Any shareholder or group that acquires beneficial ownership of 5% or more of the Company (an “acquiring person”) could be subject to significant dilution in its holdings if the Company's Board of Directors does not approve such acquisition. Existing shareholders holding 5% or more of the Company will not be considered acquiring persons unless they acquire additional shares, subject to certain exceptions described in the plan. In addition, the Board of Directors has the discretion to exempt certain transactions and certain persons whose acquisition of securities is determined by the Board not to jeopardize the Company's deferred tax assets. The rights plan was extended in May 2018 to expire upon the earlier of (i) June 30, 2021, (ii) the beginning of a taxable year with respect to which the Board of Directors determines that no tax benefits may be carried forward, (iii) the repeal or amendment of Section 382 or any successor statute, if the Board of Directors determines that the plan is no longer needed to preserve the tax benefits, and (iv) certain other events as described in the plan.
On September 23, 2015, the Company’s shareholders approved an amendment to its articles of incorporation to further help protect the long-term value of the Company’s NOLs. The amendment provides a means to block transfers of our common shares that could result in an ownership change under Section 382. The transfer restrictions were extended in May 2018 by shareholder vote and will expire on the earlier of (i) May 23, 2021, (ii) the beginning of a taxable year with respect to which the Board of Directors determines that no tax benefit may be carried forward, (iii) the repeal of Section 382 or any successor statute if our Board determines that the transfer restrictions are no longer needed to preserve the tax benefits of our NOLs, or (iv) such date as the Board otherwise determines that the transfer restrictions are no longer necessary.
The Company and its subsidiaries are subject to U.S. federal income tax and the Company is subject to income tax in the Commonwealth of Kentucky. The Company is no longer subject to examination by taxing authorities for years before 2016.
Note 12 – Stock Plans and Stock Based Compensation
Shares available for issuance under the 2018 Omnibus Equity Compensation Plan (“2018 Plan”) total 275,367. Shares issued to employees under the plan vest annually on the anniversary date of the grant over three years. Shares issued annually to non-employee directors have a fair market value of $25,000 and vest on December 31 in the year of grant.
The fair value of the 2020 unvested shares issued was $349,000, or $17.03 per weighted-average share. The Company recorded $104,000 and $210,000 of stock-based compensation to salaries for the three and six months ended June 30, 2020, respectively, and $93,000 and $175,000 for the three and six months ended June 30, 2019, respectively. Management expects substantially all of the unvested shares outstanding at the end of the period to vest according to the vesting schedule. A deferred tax benefit of $22,000 and $44,000 was recognized related to this expense during the three and six months ended June 30, 2020, respectively, and $19,000 and $37,000 for the three and six months ended June 30, 2019, respectively.
The following table summarizes unvested share activity as of and for the periods indicated for the Stock Compensation Plan:
|
|
Six Months Ended
|
|
|
Twelve Months Ended
|
|
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Grant
|
|
|
|
|
|
|
Grant
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
Outstanding, beginning
|
|
|
57,774
|
|
|
$
|
13.35
|
|
|
|
116,909
|
|
|
$
|
8.69
|
|
Granted
|
|
|
20,507
|
|
|
|
17.03
|
|
|
|
34,501
|
|
|
|
14.81
|
|
Vested
|
|
|
(27,625
|
)
|
|
|
12.35
|
|
|
|
(89,388
|
)
|
|
|
7.83
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,248
|
)
|
|
|
13.07
|
|
Outstanding, ending
|
|
|
50,656
|
|
|
$
|
15.39
|
|
|
|
57,774
|
|
|
$
|
13.35
|
|
Unrecognized stock based compensation expense related to unvested shares for the remainder of 2020 and beyond is estimated as follows (in thousands):
July 2020 – December 2020
|
|
$
|
201
|
|
2021
|
|
|
311
|
|
2022
|
|
|
136
|
|
2023
|
|
|
14
|
|
Note 13 – Earnings per Share
The factors used in the basic and diluted earnings per share computations follow:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,982
|
|
|
$
|
3,633
|
|
|
$
|
3,822
|
|
|
$
|
6,472
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings allocated to unvested shares
|
|
|
15
|
|
|
|
32
|
|
|
|
30
|
|
|
|
71
|
|
Net income available to common shareholders, basic and diluted
|
|
$
|
1,967
|
|
|
$
|
3,601
|
|
|
$
|
3,792
|
|
|
$
|
6,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares including unvested common shares outstanding
|
|
|
7,488,173
|
|
|
|
7,459,631
|
|
|
|
7,485,028
|
|
|
|
7,464,743
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average unvested common shares
|
|
|
57,804
|
|
|
|
64,974
|
|
|
|
57,794
|
|
|
|
82,285
|
|
Weighted average common shares outstanding
|
|
|
7,430,369
|
|
|
|
7,394,657
|
|
|
|
7,427,234
|
|
|
|
7,382,458
|
|
Basic income per common share
|
|
$
|
0.26
|
|
|
$
|
0.49
|
|
|
$
|
0.51
|
|
|
$
|
0.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: Dilutive effects of assumed exercises of common stock warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Weighted average common shares and potential common shares
|
|
|
7,430,369
|
|
|
|
7,394,657
|
|
|
|
7,427,234
|
|
|
|
7,382,458
|
|
Diluted income per common share
|
|
$
|
0.26
|
|
|
$
|
0.49
|
|
|
$
|
0.51
|
|
|
$
|
0.87
|
|
The Company had no outstanding stock options or warrants at June 30, 2020 or 2019.
Note 14 – Regulatory Capital Matters
Banks and bank holding companies are subject to regulatory capital requirements in accordance with Basel III, as administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can result in regulatory action.
The Basel III rules established a “capital conservation buffer” of 2.5% above the regulatory minimum risk-based capital ratios. The minimum ratios are a common equity Tier 1 risk-based capital ratio of 7.0%, a Tier 1 risk-based capital ratio of 8.5%, and a total risk-based capital ratio of 10.5%. An institution is subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if capital levels fall below minimum levels plus the buffer amounts. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions without prior regulatory approval.
As of June 30, 2020, Management believes the Company and Bank met all capital adequacy requirements to which they are subject. As of June 30, 2020, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since the notification that management believes have changed the institution’s category.
The following tables show the ratios (excluding capital conservation buffer) and amounts of common equity Tier 1, Tier 1 capital, and total capital to risk-adjusted assets and the leverage ratios for the Bank at the dates indicated (dollars in thousands):
|
|
Actual
|
|
|
Minimum Requirement
for Capital Adequacy
Purposes
|
|
|
Minimum Requirement
to be Well Capitalized
Under Prompt Corrective
Action Provisions
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
As of June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital (to risk- weighted assets)
|
|
$
|
131,788
|
|
|
|
12.78
|
|
|
$
|
82,499
|
|
|
|
8.00
|
|
|
$
|
103,124
|
|
|
|
10.00
|
%
|
Total common equity Tier 1 risk- based capital (to risk-weighted assets)
|
|
|
121,560
|
|
|
|
11.79
|
|
|
|
46,406
|
|
|
|
4.50
|
|
|
|
67,030
|
|
|
|
6.50
|
|
Tier 1 capital (to risk-weighted assets)
|
|
|
121,560
|
|
|
|
11.79
|
|
|
|
61,874
|
|
|
|
6.00
|
|
|
|
82,499
|
|
|
|
8.00
|
|
Tier 1 capital (to average assets)
|
|
|
121,560
|
|
|
|
9.54
|
|
|
|
50,992
|
|
|
|
4.00
|
|
|
|
63,739
|
|
|
|
5.00
|
|
|
|
Actual
|
|
|
Minimum Requirement
for Capital Adequacy
Purposes
|
|
|
Minimum Requirement
to be Well Capitalized
Under Prompt Corrective
Action Provisions
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
As of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital (to risk- weighted assets)
|
|
$
|
121,335
|
|
|
|
12.08
|
%
|
|
$
|
80,341
|
|
|
|
8.00
|
%
|
|
$
|
100,426
|
|
|
|
10.00
|
%
|
Total common equity Tier 1 risk- based capital (to risk-weighted assets)
|
|
|
112,959
|
|
|
|
11.25
|
|
|
|
45,192
|
|
|
|
4.50
|
|
|
|
65,277
|
|
|
|
6.50
|
|
Tier 1 capital (to risk-weighted assets)
|
|
|
112,959
|
|
|
|
11.25
|
|
|
|
60,256
|
|
|
|
6.00
|
|
|
|
80,341
|
|
|
|
8.00
|
|
Tier 1 capital (to average assets)
|
|
|
112,959
|
|
|
|
9.99
|
|
|
|
45,208
|
|
|
|
4.00
|
|
|
|
56,510
|
|
|
|
5.00
|
|
Kentucky banking laws limit the amount of dividends that may be paid to a holding company by its subsidiary banks without prior approval. These laws limit the amount of dividends that may be paid in any calendar year to current year’s net income, as defined in the laws, combined with the retained net income of the preceding two years, less any dividends declared during those periods. In addition, a bank must have positive retained earnings.
Note 15 – Off Balance Sheet Risks, Commitments, and Contingent Liabilities
The Company, in the normal course of business, is party to financial instruments with off balance sheet risk. The financial instruments include commitments to extend credit and standby letters of credit. The contract or notional amounts of these instruments reflect the potential future obligations of the Company pursuant to those financial instruments. Creditworthiness for all instruments is evaluated on a case-by-case basis in accordance with the Company’s credit policies. Collateral from the client may be required based on the Company’s credit evaluation of the client and may include business assets of commercial clients, as well as personal property and real estate of individual clients or guarantors.
An approved but unfunded loan commitment represents a potential credit risk and a liquidity risk, since the Company’s client(s) may demand immediate cash that would require funding. In addition, unfunded loan commitments represent interest rate risk as market interest rates may rise above the rate committed to the Company’s client. Since a portion of these loan commitments normally expire unused, the total amount of outstanding commitments at any point in time may not require future funding. Commitments to make loans are generally made for periods of one year or less.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a client to a third party. The terms and risk of loss involved in issuing standby letters of credit are similar to those involved in issuing loan commitments and extending credit. In addition to credit risk, the Company also has liquidity risk associated with standby letters of credit because funding for these obligations could be required immediately. The Company does not deem this risk to be material. No liability is currently established for standby letters of credit.
The following table presents the contractual amounts of financial instruments with off-balance sheet risk for each period ended:
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
|
Fixed
Rate
|
|
|
Variable
Rate
|
|
|
Fixed
Rate
|
|
|
Variable
Rate
|
|
|
|
(in thousands)
|
|
Commitments to make loans
|
|
$
|
13,118
|
|
|
$
|
21,199
|
|
|
$
|
11,577
|
|
|
$
|
20,415
|
|
Unused lines of credit
|
|
|
6,697
|
|
|
|
118,606
|
|
|
|
7,916
|
|
|
|
111,230
|
|
Standby letters of credit
|
|
|
531
|
|
|
|
1,336
|
|
|
|
531
|
|
|
|
3,164
|
|
Commitments to make loans are generally made for periods of one year or less.
In connection with the purchase of loan participations, the Bank entered into risk participation agreements, which had notional amounts totaling $26.6 million at June 30, 2020 and December 31, 2019. The risk participation agreements are not designated against specific assets or liabilities under ASC 815, Derivatives and Hedging, and, therefore, do not qualify for hedge accounting. The derivatives are recorded in other liabilities on the balance sheet at fair value and changes in fair value of both the borrower and the offsetting swap agreements are recorded (and essentially offset) in non-interest income.
In the normal course of business, the Company and its subsidiaries have been named, from time to time, as defendants in various legal actions. Certain of the actual or threatened legal actions may include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages.
The Company contests liability and/or the amount of damages as appropriate in each pending matter. In view of the inherent difficulty of predicting the outcome of such matters, particularly in cases where claimants seek substantial or indeterminate damages or where investigations and proceedings are in the early stages, the Company cannot predict with certainty the loss or range of loss, if any, related to such matters, how or if such matters will be resolved, when they will ultimately be resolved, or what the eventual settlement, or other relief, if any, might be. Subject to the foregoing, the Company believes, based on current knowledge and after consultation with counsel, that the outcome of such pending matters will not have a material adverse effect on the consolidated financial condition of the Company, although the outcome of such matters could be material to the Company’s operating results and cash flows for a particular future period, depending on, among other things, the level of the Company’s revenues or income for such period. The Company will accrue for a loss contingency if (1) it is probable that a future event will occur and confirm the loss and (2) the amount of the loss can be reasonably estimated. The Company is not currently involved in any material litigation.
Note 16 – Revenue from Contracts with Customers
All of the Company’s revenue from customers within the scope of ASC 606 is recognized as non-interest income. A description of the Company’s revenue streams accounted for under ASC 606 follows:
Service Charges on Deposit Accounts: The Company earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges are withdrawn from the customer’s account balance.
Bank Card Interchange Income: The Company earns interchange fees from bank cardholder transactions conducted through a third-party payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder. Prior to adopting ASC 606, the Company reported bank card interchange fees net of expenses. Under ASC 606, bank card interchange fees are reported gross.
Gains/Losses on Sales of OREO: The Company records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of OREO to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain (loss) on sale if a significant financing component is present. Gains and losses on sales of OREO are netted with OREO expense and reported in non-interest expense.
Other Non-interest Income: Other non-interest income includes revenue from several sources that are within the scope of ASC 606, including title insurance commissions, income from secondary market loan sales, and other transaction-based revenue that is individually immaterial. Other non-interest income included approximately $129,000 and $285,000 of revenue for the three and six months ended June 30, 2020, respectively, within the scope of ASC 606. Other non-interest income included approximately $119,000 and $255,000 of revenue for the three and six months ended June 30, 2019, respectively, within the scope of ASC 606. The remaining other non-interest income for the three and six months is excluded from the scope of ASC 606.