|
| | | | |
| | | | | Exhibit 99.2 |
| TENNESSEE BANCSHARES, INC. |
| AND SUBSIDIARY |
| | | | | |
| CONSOLIDATED BALANCE SHEETS |
| | | | | |
| Assets | Unaudited March 31, 2018 | Audited December 31, 2017 |
| | | | | |
| Cash and due from banks | $ | 4,302,709 | $ | 6,005,456 |
| Interest-bearing deposits in banks | | 151,002 | | 3,409,041 |
| Cash and cash equivalents | | 4,453,711 | | 9,414,497 |
| | | | | |
| Securities available for sale, at fair value | | 26,293,105 | | 27,340,599 |
| Securities held to maturity, at cost (fair value $3,858,391 and $3,940,766, respectively) | | 3,893,577 | | 3,899,005 |
| Restricted equity securities | | 464,300 | | 464,300 |
| Mortgage loans held for sale | | 147,205 | | 363,361 |
| | | | | |
| Loans | | 191,068,304 | | 196,848,759 |
| Less allowance for loan losses | | 2,035,590 | | 2,074,600 |
| Loans, net | | 189,032,714 | | 194,774,159 |
| | | | | |
| Premises and equipment | | 8,790,672 | | 8,841,669 |
| Accrued interest receivable | | 891,781 | | 986,266 |
| Goodwill | | 1,571,053 | | 1,571,053 |
| Other assets | | 1,587,486 | | 1,467,403 |
| | | | | |
| Total assets | $ | 237,125,604 | $ | 249,122,312 |
| | | | | |
| Liabilities and Stockholders' Equity | | | | |
| | | | | |
| Liabilities: | | | | |
| Deposits | | | | |
| Noninterest-bearing | $ | 18,612,138 | $ | 21,510,446 |
| Interest-bearing | | 186,297,163 | | 194,185,432 |
| Total deposits | | 204,909,301 | | 215,695,878 |
| Other borrowings | | 7,680,559 | | 9,264,075 |
| Accrued interest payable | | 75,911 | | 89,734 |
| Other liabilities | | 865,943 | | 661,304 |
| Total liabilities | | 213,531,714 | | 225,710,991 |
| | | | | |
| Commitments and contingencies | | | | |
| | | | | |
| Stockholders' equity | | | | |
| Common stock, $1 par value, 10,000,000 shares authorized; | | | | |
| 1,809,282 and 1,809,282 shares issued and outstanding, respectively | | 1,809,282 | | 1,809,282 |
| Capital surplus | | 16,493,056 | | 16,493,056 |
| Retained earnings | | 5,585,647 | | 5,164,471 |
| Accumulated other comprehensive loss | | (294,095) | | (55,488) |
| | | | | |
| Total stockholders' equity | | 23,593,890 | | 23,411,321 |
| | | | | |
| Total liabilities and stockholders' equity | $ | 237,125,604 | $ | 249,122,312 |
| | | | | |
| See Notes to Consolidated Financial Statements. | | | | |
|
| | | | | |
| TENNESSEE BANCSHARES, INC. |
| AND SUBSIDIARY |
| | | | | | |
| CONSOLIDATED STATEMENTS OF INCOME |
| | | | | | |
| | Unaudited |
| | Three Months Ended March 31, |
| | 2018 | | 2017 |
| Interest income: | | | | | |
| Loans, including fees | $ | 2,478,305 | | $ | 2,387,022 |
| Taxable securities | | 120,725 | | | 127,579 |
| Non-taxable securities | | 61,369 | | | 51,555 |
| Other interest income | | 10,944 | | | 9,662 |
| Total interest income | | 2,671,343 | | | 2,575,818 |
| | | | | | |
| Interest expense: | | | | | |
| Deposits | | 432,611 | | | 382,645 |
| Other borrowings | | 67,083 | | | 28,740 |
| Total interest expense | | 499,694 | | | 411,385 |
| | | | | | |
| Net interest income | | 2,171,649 | | | 2,164,433 |
| Provision for loan losses | | 0 | | | 85,347 |
| Net interest income after provision for loan losses | | 2,171,649 | | | 2,079,086 |
| | | | | | |
| Other income: | | | | | |
| Service charges on deposit accounts | | 98,860 | | | 106,150 |
| Mortgage fee income | | 81,714 | | | 47,351 |
| Investment services | | 141,029 | | | 154,409 |
| Other operating income | | 44,406 | | | 39,141 |
| Total other income | | 366,009 | | | 347,051 |
| | | | | | |
| Other expenses: | | | | | |
| Salaries and employee benefits | | 734,539 | | | 684,732 |
| Equipment and occupancy expenses | | 210,429 | | | 197,868 |
| Other operating expenses | | 903,718 | | | 602,638 |
| Total other expenses | | 1,848,686 | | | 1,485,238 |
| | | | | | |
| Income before income tax expense | | 688,972 | | | 940,899 |
| | | | | | |
| Income tax expense | | 267,796 | | | 360,276 |
| | | | | | |
| Net income | $ | 421,176 | | $ | 580,623 |
| | | | | | |
| | | | | | |
| See Notes to Consolidated Financial Statements. | | | | | |
|
| | | | | | | | | | | |
| TENNESSEE BANCSHARES, INC. |
| AND SUBSIDIARY |
| | | | | | | |
| CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - UNAUDITED |
| FOR THE THREE MONTHS ENDED MARCH 31, 2018 |
| | | | | | | |
| | | | | | Accumulated | |
| | | | | | Other | Total |
| | Common Stock | Capital | Retained | Comprehensive | Stockholders' |
| | Shares | Par Value | Surplus | Earnings | Loss | Equity |
| | | | | | | |
| Balance, December 31, 2017 | 1,809,282 |
| $1,809,282 | $16,493,056 | $5,164,471 | $(55,488) | $23,411,321 |
| Net income | — |
| — |
| — |
| 421,176 |
| — |
| 421,176 |
| Other comprehensive loss | — |
| — |
| — |
| — |
| (238,607) |
| (238,607) |
| Balance, March 31, 2018 | 1,809,282 |
| $1,809,282 | $16,493,056 | $5,585,647 | $(294,095) | $23,593,890 |
| | | | | | | |
| | | | | | | |
| See Notes to Consolidated Financial Statements. | | | | |
| | | | | | | |
|
| | | | |
| TENNESSEE BANCSHARES, INC. |
| AND SUBSIDIARY |
| | | | | |
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
| | | | | |
| | Unaudited |
| | Three Months Ended March 31, |
| | 2018 | 2017 |
| OPERATING ACTIVITIES | | | | |
| Net income | $ | 421,176 | $ | 580,623 |
| Adjustments to reconcile net income to net cash | | | | |
| provided by operating activities: | | | | |
| Depreciation and software amortization | | 83,093 | | 94,921 |
| Net amortization of securities | | 55,425 | | 73,603 |
| Provision for loan losses | | 0 | | 85,347 |
| Loss on sale of foreclosed assets | | 22,607 | | 0 |
| Writedowns of foreclosed assets | | 15,000 | | 0 |
| Increase (decrease) in interest receivable | | 94,485 | | (8,147) |
| Increase in interest payable | | (13,823) | | (18,584) |
| Net decrease in mortgage loans held for sale | | 216,156 | | 144,949 |
| Decrease in advance compensation agreement | | 15,115 | | 15,924 |
| Net other operating activities | | 69,540 | | 121,036 |
| | | | | |
| Net cash provided by operating activities | | 978,774 | | 1,089,672 |
| | | | | |
| INVESTING ACTIVITIES | | | | |
| Purchases of securities available for sale | | 0 | | (5,972,142) |
| Proceeds from maturities, calls, and paydowns of securities available for sale | | 672,901 | | 488,971 |
| Net (increase) decrease in loans | | 5,741,445 | | (7,927,989) |
| Proceeds from sale of foreclosed assets | | 47,893 | | 0 |
| Purchase of premises and equipment | | (31,706) | | (28,325) |
| | | | | |
| Net cash provided by (used in) investing activities | | 6,430,533 | | (13,439,485) |
| | | | | |
| FINANCING ACTIVITIES | | | | |
| Net decrease in deposits | | (10,786,577) | | (829,032) |
| Net (repayments) advances of other borrowings | | (1,583,516) | | 505,392 |
| Proceeds from issuance of common stock | | 0 | | 5,682 |
| | | | | |
| Net cash provided by financing activities | | (12,370,093) | | (317,958) |
| | | | | |
| Net decrease in cash and cash equivalents | | (4,960,786) | | (12,667,771) |
| | | | | |
| Cash and cash equivalents at beginning of year | | 9,414,497 | | 18,208,540 |
| | | | | |
| Cash and cash equivalents at end of year | $ | 4,453,711 | $ | 5,540,769 |
TENNESSEE BANCSHARES, INC.
AND SUBSIDIARY
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| |
| NOTE 1. | BASIS OF PRESENTATION AND OVERVIEW |
Tennessee Bancshares, Inc. (the “Company”) is a bank holding company whose principal activity is the ownership and management of its wholly-owned subsidiary, Southern Community Bank (the “Bank”). Southern Community Bank is a commercial bank headquartered in Tullahoma, Tennessee with four branch offices located in portions of the Tennessee Valley. In addition, The Financial Group, LLC, a subsidiary of the Bank, offers financial management services, including a full service brokerage operation.
NOTE 2. SECURITIES
The amortized cost and fair value of securities with gross unrealized gains and losses are summarized as follows:
|
| | | | | | | | | | | | |
| | |
Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | |
Fair Value |
| | Securities Available for Sale | | | | | | | | | | | |
| | March 31, 2018: | | | | | | | | | | | |
| | U.S. Government sponsored | | | | | | | | | | | |
| | agency securities | $ | 3,978,900 | | $ | - | | $ | (108,562) | | $ | 3,870,338 |
| | Municipal securities | | 8,447,977 | | | 8,913 | | | (268,101) | | | 8,188,789 |
| | Corporate securities | | 2,552,459 | | | - | | | (28,038) | | | 2,524,421 |
| | U.S. Government sponsored | | | | | | | | | | | |
| | mortgage-backed securities | | 11,713,485 | | | 130,208 | | | (134,136) | | | 11,709,557 |
| | | $ | 26,692,821 | | $ | 139,121 | | $ | (538,837) | | $ | 26,293,105 |
|
| | | | | | | | | | | | |
| | Securities Held to Maturity | | | | | | | | | | | |
| | March 31, 2018: | | | | | | | | | | | |
| | Municipal securities | $ | 1,941,399 | | $ | 1,860 | | $ | (16,206) | | $ | 1,927,053 |
| | Corporate securities | | 1,952,179 | | | 1 | | | (20,842) | | | 1,931,338 |
| | | $ | 3,893,578 | | $ | 1,861 | | $ | (37,048) | | $ | 3,858,391 |
|
| | | | | | | | | | | | |
| | Securities Available for Sale | | | | | | | | | | | |
| | December 31, 2017: | | | | | | | | | | | |
| | U.S. Government sponsored | | | | | | | | | | | |
| | agency securities | $ | 3,982,757 | | $ | - | | $ | (65,267) | | $ | 3,917,490 |
| | Municipal securities | | 8,461,118 | | | 20,310 | | | (160,939) | | | 8,320,489 |
| | Corporate securities | | 2,559,105 | | | 7,461 | | | (22,989) | | | 2,543,577 |
| | U.S. Government sponsored | | | | | | | | | | | |
| | mortgage-backed securities | | 12,412,739 | | | 200,435 | | | (54,131) | | | 12,559,043 |
| | | $ | 27,415,719 | | $ | 228,206 | | $ | (303,326) | | $ | 27,340,599 |
|
| | | | | | | | | | | | |
| | Securities Held to Maturity | | | | | | | | | | | |
| | December 31, 2017: | | | | | | | | | | | |
| | Municipal securities | $ | 1,942,904 | | $ | 14,541 | | $ | - | | $ | 1,957,445 |
| | Corporate securities | | 1,956,101 | | | 27,319 | | | (99) | | | 1,983,321 |
| | | $ | 3,899,005 | | $ | 41,860 | | $ | (99) | | $ | 3,940,766 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. SECURITIES (Continued)
The amortized cost and fair value of securities as of March 31, 2018, by contractual maturity are shown below. Actual maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying the securities may be called or repaid with or without penalty. Therefore, these securities are not included in the maturity categories in the following summary:
|
| | | | | | | | | | | | |
| | | Securities Available for Sale | | Securities Held to Maturity |
| | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
| | | | | | | | | | | | | |
| | Due from one to five years | $ | 3,161,791 | | $ | 3,125,062 | | $ | - | | $ | - |
| | Due from five to ten years | | 6,454,658 | | | 6,267,327 | | | 1,952,179 | | | 1,931,338 |
| | Due after ten years | | 5,362,887 | | | 5,191,159 | | | 1,941,399 | | | 1,927,053 |
| | Mortgage-backed securities | | 11,713,485 | | | 11,709,557 | | | - | | | - |
| | | $ | 26,692,821 | | $ | 26,293,105 | | $ | 3,893,578 | | $ | 3,858,391 |
Restricted equity securities consist of the following:
|
| | | | | | |
| | | March 31, | | December 31, |
| | | 2018 | | 2017 |
| | | | | | | |
| | Federal Home Loan Bank of Cincinnati stock | $ | 464,300 | | $ | 464,300 |
Temporarily Impaired Securities
The following tables show the gross unrealized losses and fair value of the Company’s securities with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2018 and December 31, 2017.
Securities that have been in a continuous unrealized loss position are as follows:
|
| | | | | | | | | | | | | | |
| | Less Than Twelve Months | | Over Twelve Months | | |
| | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Total Unrealized Losses |
| Securities Available for Sale | | | | | | | | | | | | | | |
| March 31, 2018: | | | | | | | | | | | | | | |
| U.S. Government sponsored | | | | | | | | | | | | | | |
| agency securities | $ | - | | $ | - | | $ | 3,870,338 | | $ | (108,562) | | $ | (108,562) |
| Municipal securities | | 4,445,627 | | | (125,294) | | | 3,048,953 | | | (142,807) | | | (268,101) |
| Corporate securities | | 1,545,951 | | | (9,771) | | | 978,470 | | | (18,267) | | | (28,038) |
| U.S. Government sponsored | | | | | | | | | | | | | | |
| mortgage-backed securities | | 5,485,054 | | | (102,136) | | | 1,012,296 | | | (32,000) | | | (134,136) |
| | $ | 11,476,632 | | $ | (237,201) | | $ | 8,910,057 | | $ | (301,636) | | $ | (538,837) |
| | | | | | | | | | | | | | | |
| Securities Held to Maturity | | | | | | | | | | | | | | |
| March 31, 2018: | | | | | | | | | | | | | | |
| Municipal securities | $ | 1,573,098 | | $ | (16,206) | | $ | - | | $ | - | | $ | (16,206) |
| Corporate securities | | 1,694,203 | | | (20,842) | | | - | | | - | | | (20,842) |
| | $ | 3,267,301 | | $ | (37,048) | | $ | - | | $ | - | | $ | (37,048) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. SECURITIES (Continued)
Temporarily Impaired Securities (Continued)
|
| | | | | | | | | | | | | | |
| | Less Than Twelve Months | | Over Twelve Months | | |
| | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Total Unrealized Losses |
| Securities Available for Sale | | | | | | | | | | | | | | |
| December 31, 2017: | | | | | | | | | | | | | | |
| U.S. Government sponsored | | | | | | | | | | | | | | |
| agency securities | $ | - | | $ | - | | $ | 3,917,490 | | $ | (65,267) | | $ | (65,267) |
| Municipal securities | | 3,762,773 | | | (73,229) | | | 3,109,861 | | | (87,710) | | | (160,939) |
| Corporate securities | | 1,056,116 | | | (6,385) | | | 480,000 | | | (16,604) | | | (22,989) |
| U.S. Government sponsored | | | | | | | | | | | | | | |
| mortgage-backed securities | | 4,865,102 | | | (39,287) | | | 1,072,134 | | | (14,844) | | | (54,131) |
| | $ | 9,683,991 | | $ | (118,901) | | $ | 8,579,485 | | $ | (184,425) | | $ | (303,326) |
| | | | | | | | | | | | | | | |
| Securities Held to Maturity | | | | | | | | | | | | | | |
| December 31, 2017: | | | | | | | | | | | | | | |
| Corporate securities | $ | 211,883 | | $ | (99) | | $ | - | | $ | - | | $ | (99) |
| | $ | 211,883 | | $ | (99) | | $ | - | | $ | - | | $ | (99) |
The unrealized losses on fifty-seven securities were caused by interest rate changes. Because the Company does not intend to sell the securities and it is not more likely than not that the Company will be required to sell the securities before recovery of the amortized cost bases, which may be maturity, the Company does not consider these securities to be other-than-temporarily impaired at March 31, 2018.
Other-Than-Temporary Impairment
Upon acquisition of a security, the Company evaluates for impairment under the accounting guidance for investments in debt and equity securities. The Company routinely conducts periodic reviews to identify and evaluate each investment security to determine whether an other-than-temporary impairment has occurred. Factors included in the evaluation process may include geographic concentrations, credit ratings, and other performance indicators of the underlying asset. As of March 31, 2018 and December 31, 2017, no securities within the Company’s investment securities portfolio were considered other-than-temporarily impaired, and no impairment losses were recognized in 2018 or 2017.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Portfolio Segments and Classes
The composition of loans, excluding mortgage loans held for sale, is summarized as follows.
|
| | | | | | |
| | | March 31, | | December 31, |
| | | 2018 | | 2017 |
| | Real estate loans: | | | | | |
| | Construction and development | $ | 27,764,154 | | $ | 34,820,819 |
| | 1-4 family first mortgages | | 47,811,781 | | | 47,256,479 |
| | Commercial | | 68,085,867 | | | 68,432,705 |
| | Other | | 15,255,834 | | | 15,094,645 |
| | Commercial loans | | 27,648,258 | | | 27,406,390 |
| | Consumer loans | | 4,061,504 | | | 3,435,487 |
| | | | 190,627,398 | | | 196,446,525 |
| | Net deferred loan costs | | 440,906 | | | 402,234 |
| | Allowance for loan losses | | (2,035,590) | | | (2,074,600) |
| | | $ | 189,032,714 | | $ | 194,774,159 |
For purposes of the disclosures required pursuant to ASC 310, the loan portfolio was disaggregated into segments and then further disaggregated into classes for certain disclosures. A portfolio segment is defined as the level at which an entity develops and documents a systematic method for determining its allowance for loan losses. There are three loan portfolio segments that include real estate, commercial, and consumer. A class is generally determined based on the initial measurement attribute, risk characteristic of the loan, and the Company’s method for monitoring and assessing credit risk. Classes within the real estate portfolio segment include construction and development loans, 1-4 family first mortgage loans, commercial real estate loans, and other real estate loans. The portfolio segments of non-real estate commercial loans and consumer loans have not been further segregated by class.
The following describe risk characteristics relevant to each of the portfolio segments and classes:
Real Estate - As discussed below, the Company offers various types of real estate loan products. All loans within this portfolio segment are particularly sensitive to the valuation of real estate:
| |
| • | Construction and development loans are repaid through cash flow related to the operations, sale or refinance of the underlying property. This portfolio class includes extensions of credit to real estate developers or investors where repayment is dependent on the sale of the real estate or income generated from the real estate collateral. The majority of construction and development loans are originated under interest only terms with principal due at maturity. |
| |
| • | 1-4 family first mortgage loans are repaid by various means such as a borrower’s income, sale of the property, or rental income derived from the property. |
| |
| • | Commercial real estate loans include both owner-occupied commercial real estate loans and loans secured by income producing properties. Owner-occupied commercial real estate loans to operating businesses are long-term financing of land and buildings and are repaid by cash flow generated from the business operations. Real estate loans for income-producing properties such as apartment buildings, office and industrial buildings, and retail shopping centers are repaid from rent income derived from the properties. |
| |
| • | Other real estate mortgage loans include 1-4 family junior liens, home equity lines of credit, loans secured by farmland and multi-family residential loans. These are repaid by various means such as a borrower’s income, sale of the property, or rental income derived from the property. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Portfolio Segments and Classes (Continued)
Commercial - The non-real estate commercial loan portfolio segment includes commercial and industrial loans. These loans include those loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases, or expansion projects. Loans are repaid by business cash flows. Collection risk in this portfolio is driven by the creditworthiness of the underlying borrower, particularly cash flows from the customers’ business operations.
Consumer - The consumer loan portfolio segment includes direct consumer installment loans, overdrafts and other revolving credit loans. Loans in this portfolio are sensitive to unemployment and other key consumer economic measures.
Credit Risk Management
Credit Administration directs the credit risk management process and assesses the accuracy of risk ratings, the quality of the portfolio and the estimation of inherent loan losses in the loan portfolio. This comprehensive process also assists in the prompt identification of problem loans. The Company has taken a number of measures to manage and reduce risk within the loan portfolio.
The Company employs a credit risk management process with defined policies, accountability and routine reporting to manage credit risk in the loan portfolio segments. Credit policies provide for a consistent and prudent approach to underwriting and approvals of credits. Within the Board approved Loan Policy, procedures exist that elevate the approval requirements as credits become larger and more complex. All loans are individually underwritten, risk-rated, approved, and monitored.
Responsibility and accountability for adherence to underwriting policies and accurate risk ratings lies in each portfolio segment. For the consumer portfolio segment, the risk management process focuses on managing customers who become delinquent in their payments. For the commercial and real estate portfolio segments, the risk management process focuses on underwriting new business and, on an ongoing basis, monitoring the credit quality of the portfolios. To insure problem credits are identified on a timely basis, portfolio reviews are conducted to assess the larger adversely rated credits for proper risk rating and accrual status.
Credit quality and trends in the loan portfolio segments are measured and monitored regularly. Detailed reports, by product, collateral, accrual status, etc., are reviewed by the Chief Executive Officer, Chief Lending Officer, Officers Loan Committee, and Directors Loan Committee.
The following risk grade categories are utilized by management to analyze and manage the credit quality and risk of the loan portfolio:
| |
| • | Pass - includes obligations where the probability of default is considered low. |
| |
| • | Special Mention - includes obligations that exhibit potential credit weaknesses or downward trends deserving management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects or credit position at a future date. These loans are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Credit Risk Management (Continued)
| |
| • | Substandard - includes obligations considered to be inadequately protected by the current sound worth and debt service capacity of the borrower or of any pledged collateral. These obligations, even if apparently protected by collateral value, have well-defined weaknesses related to adverse financial, managerial, economic, market, or political conditions, which have clearly jeopardized repayment of principal and interest as originally intended. Furthermore, there is the possibility that the Company will sustain some future loss if such weaknesses are not corrected. Clear loss potential, however, does not have to exist in any individual assets classified as substandard. |
| |
| • | Doubtful - includes obligations with all the weaknesses inherent in those graded “Substandard,” with the added characteristic that the severity of the weakness makes collection or liquidation in full highly questionable and improbable based on currently existing facts, conditions, and values. The probability of some loss is extremely high, but because of certain important and reasonably specific factors, the amount of loss cannot be determined. Such pending factors could include merger or liquidation, additional capital injection, refinancing plans, or perfection of liens on additional collateral. There are no loans with a doubtful rating in the Company’s portfolio as of March 31, 2018 and December 31, 2017. |
| |
| • | Loss - includes obligations that are considered uncollectible and cannot be justified as a viable asset of the Company. This classification does not mean the loan has absolutely no recovery value, but that it is neither practical nor desirable to defer writing off the loan even though partial recovery may be obtained in the future. There are no loans with a loss rating in the Company’s portfolio as of March 31, 2018 and December 31, 2017. |
The following tables summarize the risk categories, as defined above, of the Company’s loan portfolio based upon the most recent analysis performed as of March 31, 2018 and December 31, 2017.
|
| | | | | | | | | | | | | | | |
| | | Pass | | Special Mention | | Substandard | | Doubtful | | Total |
| March 31, 2018 | (Dollars in Thousands) |
| | Real estate loans: | | | | | | | | | | | | | | |
| | Construction and development | $ | 27,046 | | $ | 718 | | $ | - | | $ | - | | $ | 27,764 |
| | 1-4 family first mortgages | | 47,159 | | | 653 | | | - | | | - | | | 47,812 |
| | Commercial | | 66,434 | | | 1,317 | | | 335 | | | - | | | 68,086 |
| | Other | | 14,883 | | | 373 | | | - | | | - | | | 15,256 |
| | Commercial loans | | 27,145 | | | 311 | | | 192 | | | - | | | 27,648 |
| | Consumer loans | | 3,511 | | | 548 | | | 2 | | | - | | | 4,061 |
| | Total: | $ | 186,178 | | $ | 3,920 | | $ | 529 | | $ | - | | $ | 190,627 |
|
| | | | | | | | | | | | | | | |
| December 31, 2017 | |
| | Real estate loans: | | | | | | | | | | | | | | |
| | Construction and development | $ | 34,103 | | $ | 718 | | $ | - | | $ | - | | $ | 34,821 |
| | 1-4 family first mortgages | | 46,600 | | | 656 | | | - | | | - | | | 47,256 |
| | Commercial | | 67,972 | | | 124 | | | 337 | | | - | | | 68,433 |
| | Other | | 14,979 | | | 116 | | | - | | | - | | | 15,095 |
| | Commercial loans | | 27,149 | | | 57 | | | 200 | | | - | | | 27,406 |
| | Consumer loans | | 2,887 | | | 546 | | | 3 | | | - | | | 3,436 |
| | Total: | $ | 193,690 | | $ | 2,217 | | $ | 540 | | $ | - | | $ | 196,447 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Past Due Loans
A loan is considered past due if any required principal and interest payments have not been received as of the date such payments were required to be made under the terms of the loan agreement. Generally, the Company places loans on non-accrual when there is a clear indication that the borrower’s cash flow may not be sufficient to meet payments as they become due, which is generally when a loan is 90 days past due. The following tables present the aging of the recorded investment in loans as of March 31, 2018 and December 31, 2017.
|
| | | | | | | | | | | | | | | | | | | | |
| | | | Past Due Status (Accruing Loans) | | | | |
| | | Current | 30-59 Days | | 60-89 Days | | 90+ Days | | Total Past Due | | Non-accrual | | Total |
| March 31, 2018 | (Dollars in Thousands) |
| | Real estate loans: | | | | | | | | | | | | | | | | | | | |
| | Construction and development | $ | 27,764 | $ | - | | $ | - | | $ | - | | $ | - | | $ | - | | $ | 27,764 |
| | 1-4 family first mortgages | | 47,725 | | 87 | | | - | | | - | | | 87 | | | - | | | 47,812 |
| | Commercial | | 68,086 | | - | | | - | | | - | | | - | | | - | | | 68,086 |
| | Other | | 15,256 | | - | | | - | | | - | | | - | | | - | | | 15,256 |
| | Commercial loans | | 27,645 | | 3 | | | - | | | - | | | 3 | | | - | | | 27,648 |
| | Consumer loans | | 4,061 | | - | | | - | | | - | | | - | | | - | | | 4,061 |
| | Total: | $ | 190,537 | $ | 90 | | $ | - | | $ | - | | $ | 90 | | $ | - | | $ | 190,627 |
|
| | | | | | | | | | | | | | | | | | | | |
| December 31, 2017 | |
| | Real estate loans: | | | | | | | | | | | | | | | | | | | |
| | Construction and development | $ | 34,665 | $ | 156 | | $ | - | | $ | - | | $ | 156 | | $ | - | | $ | 34,821 |
| | 1-4 family first mortgages | | 47,020 | | 236 | | | - | | | - | | | 236 | | | - | | | 47,256 |
| | Commercial | | 68,433 | | - | | | - | | | - | | | - | | | - | | | 68,433 |
| | Other | | 15,095 | | - | | | - | | | - | | | - | | | - | | | 15,095 |
| | Commercial loans | | 27,369 | | 37 | | | - | | | - | | | 37 | | | - | | | 27,406 |
| | Consumer loans | | 3,436 | | - | | | - | | | - | | | - | | | - | | | 3,436 |
| | Total: | $ | 196,018 | $ | 429 | | $ | - | | $ | - | | $ | 429 | | $ | - | | $ | 196,447 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Allowance for Loan Losses (Continued)
An analysis of the allowance for loan losses is detailed below.
|
| | | | | | |
| | | March 31, | | December 31, |
| | | 2018 | | 2017 |
| | | | | | | |
| | Balance, beginning of year | $ | 2,074,600 | | $ | 2,079,692 |
| | Provision for loan losses | | - | | | 158,187 |
| | Loans charged off | | (39,010) | | | (163,279) |
| | Recoveries of loans previously charged off | | - | | | - |
| | Balance, end of year | $ | 2,035,590 | | $ | 2,074,600 |
The following tables further detail activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2017 and 2016. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.
|
| | | | | | | | | | | | | |
| | | Real Estate | | Commercial | | Consumer | | Total |
| | (Dollars in Thousands) |
| | Allowance for loan losses: | | | | | | | | | | | |
| | Balance, December 31, 2017 | $ | 1,652 | | $ | 378 | | $ | 45 | | $ | 2,075 |
| | Provision (credit) for loan losses | | (52) | | | 55 | | | (3) | | | - |
| | Loans charged off | | - | | | (39) | | | - | | | (39) |
| | Recoveries of loans previously charged off | | - | | | - | | | - | | | - |
| | Balance, March 31, 2018 | $ | 1,600 | | $ | 394 | | $ | 42 | | $ | 2,036 |
| | | | | | | | | | | | | |
| | Ending balance: individually evaluated for impairment | $ | - | | $ | 39 | | $ | 9 | | $ | 48 |
| | Ending balance: collectively evaluated for impairment | | 1,600 | | | 355 | | | 33 | | | 1,988 |
| | Total ending balance | $ | 1,600 | | $ | 394 | | $ | 42 | | $ | 2,036 |
| | | | | | | | | | | | | |
| | Loans: | | | | | | | | | | | |
| | Ending balance: individually evaluated for impairment | $ | 3,871 | | $ | 551 | | $ | 548 | | $ | 4,970 |
| | Ending balance: collectively evaluated for impairment | | 155,047 | | | 27,097 | | | 3,513 | | | 185,657 |
| | Total ending balance | $ | 158,918 | | $ | 27,648 | | $ | 4,061 | | $ | 190,627 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Allowance for Loan Losses (Continued)
|
| | | | | | | | | | | | |
| | |
| | Allowance for loan losses: | | | | | | | | | | | |
| | Balance, December 31, 2016 | $ | 1,779 | | $ | 270 | | $ | 31 | | $ | 2,080 |
| | Provision (credit) for loan losses | | (143) | | | 112 | | | 116 | | | 85 |
| | Loans charged off | | - | | | (19) | | | - | | | (19) |
| | Recoveries of loans previously charged off | | - | | | - | | | - | | | - |
| | Balance, March 31, 2017 | $ | 1,636 | | $ | 363 | | $ | 147 | | $ | 2,146 |
| | | | | | | | | | | | | |
| | Ending balance: individually evaluated for impairment | $ | - | | $ | 40 | | $ | 13 | | $ | 53 |
| | Ending balance: collectively evaluated for impairment | | 1,636 | | | 323 | | | 134 | | | 2,093 |
| | Total ending balance | $ | 1,636 | | $ | 363 | | $ | 147 | | $ | 2,146 |
| | | | | | | | | | | | | |
| | Loans: | | | | | | | | | | | |
| | Ending balance: individually evaluated for impairment | $ | 3,377 | | $ | 382 | | $ | 541 | | $ | 4,300 |
| | Ending balance: collectively evaluated for impairment | | 159,891 | | | 26,411 | | | 3,433 | | | 189,735 |
| | Total ending balance | $ | 163,268 | | $ | 26,793 | | $ | 3,974 | | $ | 194,035 |
Impaired Loans
A loan held for investment is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due (both principal and interest) according to the terms of the loan agreement. The following tables detail impaired loans, by portfolio class as of March 31, 2018 and December 31, 2017.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Impaired Loans (Continued)
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | Unpaid | | Related | | Average | | Interest | |
| | | | Recorded | | Principal | | Allowance for | | Recorded | | Income | |
| | | | Investment | | Balance | | Loan Losses | | Investment | | Recognized | |
| March 31, 2018 | | (Dollars in Thousands) | |
| | With no related allowance recorded: | | | |
| | Real estate loans: | | | | | | | | | | | | | | | |
| | Construction and development | | $ | 718 | | $ | 718 | | $ | - | | $ | 718 | | $ | 9 |
| | 1-4 family first mortgages | | | 627 | | | 627 | | | - | | | 633 | | | 7 |
| | Commercial | | | 1,693 | | | 1,693 | | | - | | | 1,699 | | | 23 |
| | Other | | | 833 | | | 833 | | | - | | | 816 | | | 11 |
| | Commercial loans | | | 512 | | | 512 | | | - | | | 513 | | | 8 |
| | Consumer loans | | | 539 | | | 539 | | | - | | | 544 | | | 8 |
| | Total with no related | | | | | | | | | | | | | | | |
| | allowance recorded | | | 4,922 | | | 4,922 | | | - | | | 4,923 | | | 66 |
| | | | | | | | | | | | | | | | | |
| | With an allowance recorded: | | | | | | | | | | | | | | | |
| | Real estate loans: | | | | | | | | | | | | | | | |
| | Construction and development | | | - | | | - | | | - | | | - | | | - |
| | 1-4 family first mortgages | | | - | | | - | | | - | | | - | | | - |
| | Commercial | | | - | | | - | | | - | | | - | | | - |
| | Other | | | - | | | - | | | - | | | - | | | - |
| | Commercial loans | | | 39 | | | 39 | | | 39 | | | 40 | | | 1 |
| | Consumer loans | | | 9 | | | 9 | | | 9 | | | 9 | | | - |
| | Total with an allowance recorded | | | 48 | | | 48 | | | 48 | | | 49 | | | 1 |
| | | | | | | | | | | | | | | | | |
| | Total impaired loans: | | $ | 4,970 | | $ | 4,970 | | $ | 48 | | $ | 4,972 | | $ | 67 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Impaired Loans (Continued)
|
| | | | | | | | | | | | | | | | | |
| December 31, 2017 | | | |
| | With no related allowance recorded: | | | |
| | Real estate loans: | | | | | | | | | | | | | | | |
| | Construction and development | | $ | 718 | | $ | 718 | | $ | - | | $ | 709 | | $ | 25 |
| | 1-4 family first mortgages | | | 656 | | | 656 | | | - | | | 659 | | | 23 |
| | Commercial | | | 1,383 | | | 1,383 | | | - | | | 1,389 | | | 46 |
| | Other | | | 116 | | | 116 | | | - | | | 110 | | | 5 |
| | Commercial loans | | | 287 | | | 287 | | | - | | | 293 | | | 11 |
| | Consumer loans | | | 536 | | | 536 | | | - | | | 536 | | | 33 |
| | Total with no related | | | | | | | | | | | | | | | |
| | allowance recorded | | | 3,696 | | | 3,696 | | | - | | | 3,696 | | | 143 |
| | | | | | | | | | | | | | | | | |
| | With an allowance recorded: | | | | | | | | | | | | | | | |
| | Real estate loans: | | | | | | | | | | | | | | | |
| | Construction and development | | | - | | | - | | | - | | | - | | | - |
| | 1-4 family first mortgages | | | - | | | - | | | - | | | - | | | - |
| | Commercial | | | - | | | - | | | - | | | - | | | - |
| | Other | | | - | | | - | | | - | | | - | | | - |
| | Commercial loans | | | 41 | | | 41 | | | 41 | | | 48 | | | 4 |
| | Consumer loans | | | 10 | | | 10 | | | 10 | | | 10 | | | - |
| | Total with an allowance recorded | | | 51 | | | 51 | | | 51 | | | 58 | | | 4 |
| | | | | | | | | | | | | | | | | |
| | Total impaired loans: | | $ | 3,747 | | $ | 3,747 | | $ | 51 | | $ | 3,754 | | $ | 147 |
Troubled Debt Restructurings
At December 31, 2017 and 2016, impaired loans included loans that were classified as Troubled Debt Restructurings (TDRs). The restructuring of a loan is considered a TDR if both (i) the borrower is experiencing financial difficulties and (ii) the Company has granted a concession.
The Company restructured no loans in first three months of 2018 or during the year ended.
The Company considers a loan to have defaulted when it becomes 90 or more days delinquent under the modified terms, has been transferred to non-accrual status subsequent to the modification or has been transferred to foreclosed assets. The Company had no loans modified in 2018 or 2017 that subsequently defaulted during the three months ended March 31, 2018 or the year ended December 31, 2017.
NOTE 4. OTHER BORROWINGS
Other borrowings consist of the following:
|
| | | | | | |
| | | March 31, | | December 31, |
| | | 2018 | | 2017 |
| | Advances from the Federal Home Loan Bank of | | | | | |
| | Cincinnati, payable at various maturity dates from | | | | | |
| | May 29, 2024 through May 29, 2025; | | | | | |
| | interest is payable at various dates at fixed rates | | | | | |
| | ranging from 2.64% to 2.77%. | $ | 4,000,000 | | $ | 5,500,000 |
| | | | | | | |
| | Note payable to a commercial bank at a fixed interest | | | | | |
| | rate of 4.10%, maturing on December 20, 2021, | | | | | |
| | with principal and interest due quarterly. | | 3,680,559 | | | 3,764,075 |
| | | $ | 7,680,559 | | $ | 9,264,075 |
NOTE 5. COMMITMENTS AND CONTINGENCIES
Loan Commitments
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Such commitments involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amount recognized in the balance sheets. The majority of all commitments to extend credit and standby letters of credit are variable rate instruments.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. COMMITMENTS AND CONTINGENCIES (Continued)
Loan Commitments (Continued)
The Company’s exposure to credit loss is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance sheet instruments. A summary of the Company’s commitments is as follows:
|
| | | | | | |
| | | March 31, | | December 31, |
| | | 2018 | | 2017 |
| | | | | | | |
| | Commitments to extend credit | $ | 25,728,000 | | $ | 25,002,000 |
| | Financial standby letters of credit | | 1,195,000 | | | 1,442,000 |
| | | $ | 26,923,000 | | $ | 26,444,000 |
NOTE 6. CONTINGENCIES
In the normal course of business, the Company is involved in various legal proceedings. In the opinion of management, any liability resulting from such proceedings would not have a material adverse effect on the Company’s financial statements.
NOTE 7. FAIR VALUE DISCLOSURES
This note was omitted as the information it would have provided has been superseded by the subsequent event of the merger with SmartFinancial and the fair value of the assets and liabilities in accordance with ASC 805 as detailed in the Pro Forma Financial information included as Exhibit 99.3 in this filing.
