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

---

Statements made in this Form 10-Q, other than those concerning historical information, should be considered forward-looking statements pursuant to the safe harbor provisions of the Securities Exchange Act of 1934 and the Private Securities Litigation Act of 1995.  These forward-looking statements involve risks and uncertainties and are based on the beliefs and assumptions of management and on the information available to management at the time that this Form 10-Q was prepared.  These statements can be identified by the use of words like "expect," "anticipate," "estimate," and "believe," variations of these words and other similar expressions.  Readers should not place undue reliance on forward-looking statements as a number of important factors could cause actual results to differ materially from those in the forward-looking statements.  Factors that could cause actual results to differ  include, but are not limited to, (1) competition in the markets served by Peoples Bank, (2) changes in the interest rate environment, (3) general national, regional or local economic conditions may be less favorable than expected, resulting in, among other things, a deterioration in credit quality and the possible impairment of collectibility of loans, (4) legislative or regulatory changes, including changes in accounting standards, (5) significant changes in the federal and state legal and regulatory environments and tax laws, (6) the impact of changes in monetary and fiscal policies, laws, rules and regulations and (7) other risks and factors identified in other filings with the Securities and Exchange Commission, including but not limited to, those described in Peoples Bancorp of North Carolina, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2015.

 

PEOPLES BANCORP OF NORTH CAROLINA, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 2016 and December 31, 2015
(Dollars in thousands)
		March 31,				December 31,
Assets		2016				2015
		(Unaudited)				(Audited)
Cash and due from banks, including reserve requirements		$	45,566				29,194
of $15,589 and $14,587
Interest-bearing deposits			30,826				10,569
Cash and cash equivalents			76,392				39,763
Investment securities available for sale			264,092				268,530
Other investments			3,633				3,636
Total securities			267,725				272,166
Mortgage loans held for sale			996				4,149
Loans			693,033				689,091
Less allowance for loan losses			(9,116	)			(9,589	)
Net loans			683,917				679,502
Premises and equipment, net			16,408				16,976
Cash surrender value of life insurance			14,652				14,546
Other real estate			85				739
Accrued interest receivable and other assets			10,169				10,640
Total assets		$	1,070,344				1,038,481
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing demand		$	246,677				244,231
NOW, MMDA & savings			452,158				431,052
Time, $250,000 or more			26,352				26,891
Other time			127,930				130,001
Total deposits			853,117				832,175
Securities sold under agreements to repurchase			36,056				27,874
FHLB borrowings			43,500				43,500
Junior subordinated debentures			20,619				20,619
Accrued interest payable and other liabilities			9,292				9,449
Total liabilities			962,584				933,617
Commitments
Shareholders' equity:
Series A preferred stock, $1,000 stated value; authorized
5,000,000 shares; no shares issued and outstanding			-				-
Common stock, no par value; authorized
20,000,000 shares; issued and outstanding 5,510,538
shares at March 31, 2016 and December 31, 2015			46,171				46,171
Retained earnings			55,189				53,183
Accumulated other comprehensive income			6,400				5,510
Total shareholders' equity			107,760				104,864
Total liabilities and shareholders' equity		$	1,070,344				1,038,481
See accompanying Notes to Consolidated Financial Statements.

 

PEOPLES BANCORP OF NORTH CAROLINA, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
Three Months Ended March 31, 2016 and 2015
(Dollars in thousands, except per share amounts)
		2016				2015
		(Unaudited)				(Unaudited)
Interest income:
Interest and fees on loans		$	8,023				7,593
Interest on due from banks			17				10
Interest on investment securities:
U.S. Government sponsored enterprises			658				713
State and political subdivisions			1,127				1,163
Other			80				88
Total interest income			9,905				9,567
Interest expense:
NOW, MMDA & savings deposits			120				111
Time deposits			162				247
FHLB borrowings			406				418
Junior subordinated debentures			113				97
Other			8				11
Total interest expense			809				884
Net interest income			9,096				8,683
Provision for (reduction of provision for) loan losses			(216	)			173
Net interest income after provision for loan losses			9,312				8,510
Non-interest income:
Service charges			1,041				1,134
Other service charges and fees			334				355
Mortgage banking income			369				239
Insurance and brokerage commissions			158				161
Gain/(loss) on sale and write-down of
other real estate			77				87
Miscellaneous			1,345				1,269
Total non-interest income			3,324				3,245
Non-interest expense:
Salaries and employee benefits			4,581				4,801
Occupancy			1,754				1,483
Professional fees			935				256
Advertising			162				186
Debit card expense			266				235
FDIC Insurance			171				177
Other			1,623				1,610
Total non-interest expense			9,492				8,748
Earnings before income taxes			3,144				3,007
Income tax expense			691				679
Net earnings		$	2,453				2,328
Basic net earnings per share		$	0.45				0.41
Diluted net earnings per share		$	0.44				0.41
Cash dividends declared per share		$	0.08				0.06
See accompanying Notes to Consolidated Financial Statements.

 

PEOPLES BANCORP OF NORTH CAROLINA, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Three Months Ended March 31, 2016 and 2015
(Dollars in thousands)
		2016				2015
		(Unaudited)				(Unaudited)
Net earnings		$	2,453				2,328
Other comprehensive income:
Unrealized holding gains on securities
available for sale			1,472				1,413
Total other comprehensive income,
before income taxes			1,472				1,413
Income tax expense related to other
comprehensive income:
Unrealized holding gains on securities
available for sale			582				550
Total income tax expense related to
other comprehensive income			582				550
Total other comprehensive income,
net of tax			890				863
Total comprehensive income		$	3,343				3,191
See accompanying Notes to Consolidated Financial Statements.

 

PEOPLES BANCORP OF NORTH CAROLINA, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity
Three Months Ended March 31, 2016 and 2015
(Dollars in thousands)
														Accumulated
														Other
		Common Stock								Retained				Comprehensive
		Shares				Amount				Earnings				Income				Total
Balance, December 31, 2015			5,510,538			$	46,171				53,183				5,510				104,864
Cash dividends declared on
common stock			-				-				(447	)			-				(447	)
Net earnings			-				-				2,453				-				2,453
Change in accumulated other
comprehensive loss, net of tax			-				-				-				890				890
Balance, March 31, 2016			5,510,538			$	46,171				55,189				6,400				107,760
Balance, December 31, 2014			5,612,588			$	48,088				45,124				5,453				98,665
Cash dividends declared on
common stock			-				-				(342	)			-				(342	)
Net earnings			-				-				2,328				-				2,328
Change in accumulated other
comprehensive income, net of tax			-				-				-				863				863
Balance, March 31, 2015			5,612,588			$	48,088				47,110				6,316				101,514
See accompanying Notes to Consolidated Financial Statements.

PEOPLES BANCORP OF NORTH CAROLINA, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2016 and 2015
(Dollars in thousands)
		2016				2015
		(Unaudited)				(Unaudited)
Cash flows from operating activities:
Net earnings		$	2,453				2,328
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation, amortization and accretion			1,475				1,471
(Reduction)/Provision for loan losses			(216	)			173
Deferred income taxes			(547	)			-
Gain on sale of other real estate			(79	)			(87	)
Write-down of other real estate			2				-
Restricted stock expense			70				117
Change in:
Mortgage loans held for sale			3,153				569
Cash surrender value of life insurance			(106	)			(104	)
Other assets			435				(344	)
Other liabilities			(227	)			580
Net cash provided by operating activities			6,413				4,703
Cash flows from investing activities:
Purchases of investment securities available for sale			(94	)			(7,359	)
Proceeds from sales, calls and maturities of investment securities
available for sale			40				505
Proceeds from paydowns of investment securities available for sale			5,130				5,872
Purchases of FHLB stock			-				(6	)
FHLB stock redemption			2				125
Net change in loans			(4,254	)			(11,601	)
Purchases of premises and equipment			(71	)			(297	)
Proceeds from sale of other real estate and repossessions			786				1,283
Net cash provided (used) by investing activities			1,539				(11,478	)
Cash flows from financing activities:
Net change in deposits			20,942				15,260
Net change in securities sold under agreement to repurchase			8,182				(9,728	)
Cash dividends paid on common stock			(447	)			(342	)
Net cash provided by financing activities			28,677				5,190
Net change in cash and cash equivalents			36,629				(1,585	)
Cash and cash equivalents at beginning of period			39,763				69,098
Cash and cash equivalents at end of period		$	76,392				67,513

 

 

PEOPLES BANCORP OF NORTH CAROLINA, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, continued
Three Months Ended March 31, 2016 and 2015
(Dollars in thousands)
		2016				2015
		(Unaudited)				(Unaudited)
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest		$	809				904
Income taxes		$	397				-
Noncash investing and financing activities:
Change in unrealized gain on investment securities
available for sale, net		$	890				863
Transfers of loans to other real estate and repossessions		$	55				2,603
See accompanying Notes to Consolidated Financial Statements.

 

 

PEOPLES BANCORP OF NORTH CAROLINA, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(1)	Summary of Significant Accounting Policies

The consolidated financial statements include the financial statements of Peoples Bancorp of North Carolina, Inc. and its wholly owned subsidiaries, Peoples Bank (the "Bank") and Community Bank Real Estate Solutions, LLC, along with the Bank's wholly owned subsidiaries, Peoples Investment Services, Inc., Real Estate Advisory Services, Inc. ("REAS") and PB Real Estate Holdings, LLC (collectively called the "Company").  All significant intercompany balances and transactions have been eliminated in consolidation.

The Bank operates four banking offices focused on the Latino population under the name Banco de la Gente ("Banco").  These offices are operated as a division of the Bank.  Banco offers normal and customary banking services as are offered in the Bank's other branches such as the taking of deposits and the making of loans and therefore is not considered a reportable segment of the Company.   The Bank operates one Banco loan production office in Durham County and one Banco loan production office in Forsyth County specifically designed to serve the growing Latino market.

The consolidated financial statements in this report (other than the Consolidated Balance Sheet at December 31, 2015) are unaudited.  In the opinion of management, all adjustments (none of which were other than normal accruals) necessary for a fair presentation of the financial position and results of operations for the periods presented have been included.  Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with generally accepted accounting principles in the United States ("GAAP").  Actual results could differ from those estimates.

The Company's accounting policies are fundamental to understanding management's discussion and analysis of results of operations and financial condition.  Many of the Company's accounting policies require significant judgment regarding valuation of assets and liabilities and/or significant interpretation of the specific accounting guidance.  A description of the Company's significant accounting policies can be found in Note 1 of the Notes to Consolidated Financial Statements in the Company's 2015 Annual Report to Shareholders which is Appendix A to the Proxy Statement for the May 5, 2016 Annual Meeting of Shareholders.

Recently Issued Accounting Pronouncements

In January 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-01, (Subtopic 825-10):  Recognition and Measurement of Financial Assets and Financial Liabilities. ASU No. 2016-01 addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments.  ASU No. 2016-01 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017.  The adoption of this guidance is not expected to have a material impact on the Company's results of operations, financial position or disclosures.

In February 2016, FASB issued ASU No. 2016-02, (Topic 842):  Leases.  ASU No. 2016-02 increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.  ASU No. 2016-02 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018.  The adoption of this guidance is not expected to have a material impact on the Company's results of operations, financial position or disclosures.

In March 2016, FASB issued ASU No. 2016-07, (Topic 323):  Simplifying the Transition to the Equity Method of Accounting.  ASU No. 2016-07 eliminates the requirement to retrospectively apply the equity method to an investment that subsequently qualifies for such accounting as a result of an increase in the level of ownership interest or degree of influence.  ASU No. 2016-07 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016.  The adoption of this guidance is not expected to have a material impact on the Company's results of operations, financial position or disclosures.

In March 2016, FASB issued ASU No. 2016-08, (Topic 606):  Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net).  ASU No. 2016-08 addresses how an entity should assess whether it is the principal or the agent in contracts that include three or more parties.  ASU No. 2016-08 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017.  The adoption of this guidance is not expected to have a material impact on the Company's results of operations, financial position or disclosures.

 

In March 2016, FASB issued ASU No. 2016-09, (Topic 718):  Improvements to Employee Share-Based Payment Accounting.  ASU No. 2016-09 was issued in an effort to improve the accounting for employee share-based payments.  ASU No. 2016-09 is effective for annual periods beginning after December 15, 2016.  The adoption of this guidance is not expected to have a material impact on the Company's results of operations, financial position or disclosures.

 

In April 2016, FASB issued ASU No. 2016-10, (Topic 606):  Identifying Performance Obligations and Licensing. ASU No. 2016-10 clarifies guidance on the recognition of revenue from contracts with customers.  ASU No. 2016-10 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017.  The adoption of this guidance is not expected to have a material impact on the Company's results of operations, financial position or disclosures.

Other accounting standards that have been issued or proposed by FASB or other standards-setting bodies are not expected to have a material impact on the Company's results of operations, financial position or disclosures.

(2)	Investment Securities

Investment securities available for sale at March 31, 2016 and December 31, 2015 are as follows:

(Dollars in thousands)
		March 31, 2016
		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Estimated Fair Value
Mortgage-backed securities		$	72,066				1,836				23				73,879
U.S. Government
sponsored enterprises			37,021				622				126				37,517
State and political subdivisions			141,091				7,688				14				148,765
Corporate bonds			1,918				11				18				1,911
Trust preferred securities			750				-				-				750
Equity securities			748				522				-				1,270
Total		$	253,594				10,679				181				264,092

 

 

(Dollars in thousands)
		December 31, 2015
		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Estimated Fair Value
Mortgage-backed securities		$	76,406				1,526				45				77,887
U.S. Government
sponsored enterprises			38,173				399				155				38,417
State and political subdivisions			141,500				6,817				72				148,245
Corporate bonds			1,928				-				22				1,906
Trust preferred securities			750				-				-				750
Equity securities			748				577				-				1,325
Total		$	259,505				9,319				294				268,530

 

The current fair value and associated unrealized losses on investments in securities with unrealized losses at March 31, 2016 and December 31, 2015 are summarized in the tables below, with the length of time the individual securities have been in a continuous loss position.

 

(Dollars in thousands)
		March 31, 2016
		Less than 12 Months								12 Months or More								Total
		Fair Value				Unrealized Losses				Fair Value				Unrealized Losses				Fair Value				Unrealized Losses
Mortgage-backed securities		$	4,277				23				-				-				4,277				23
U.S. Government
sponsored enterprises			-				-				10,684				126				10,684				126
State and political subdivisions			3,749				14				596				-				4,345				14
Corporate bonds			982				18				-				-				982				18
Total		$	9,008				55				11,280				126				20,288				181

 

 

(Dollars in thousands)
			December 31, 2015
		Less than 12 Months								12 Months or More								Total
		Fair Value				Unrealized Losses				Fair Value				Unrealized Losses				Fair Value				Unrealized Losses
Mortgage-backed securities		$	7,891				45				-				-				7,891				45
U.S. Government
sponsored enterprises			3,074				13				10,828				142				13,902				155
State and political subdivisions			2,198				4				3,930				68				6,128				72
Corporate bonds			1,500				22				-				-				1,500				22
Total		$	14,663				84				14,758				210				29,421				294

 

At March 31, 2016, unrealized losses in the investment securities portfolio relating to debt securities totaled $181,000.  The unrealized losses on these debt securities arose due to changing interest rates and are considered to be temporary.  From the March 31, 2016 tables above, five out of 174 securities issued by state and political subdivisions contained unrealized losses, seven out of 78 securities issued by U.S. Government sponsored enterprises, including mortgage-backed securities, contained unrealized losses, and one out of three securities issued by corporations contained unrealized losses.  These unrealized losses are considered temporary because of acceptable financial condition and results of operations of entities that issued each security and the repayment sources of principal and interest on U.S. Government sponsored enterprises, including mortgage-backed securities, are government backed.

The amortized cost and estimated fair value of investment securities available for sale at March 31, 2016, by contractual maturity, are shown below. Expected maturities of mortgage-backed securities will differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

 

March 31, 2016
(Dollars in thousands)
		Amortized Cost				Estimated Fair Value
Due within one year		$	5,360				5,414
Due from one to five years			73,089				69,928
Due from five to ten years			87,563				98,330
Due after ten years			14,768				15,271
Mortgage-backed securities			72,066				73,879
Equity securities			748				1,270
Total		$	253,594				264,092

 

No securities available for sale were sold during the three months ended March 31, 2016 and 2015.

Securities with a fair value of approximately $88.0 million and $91.0 million at March 31, 2016 and December 31, 2015, respectively, were pledged to secure public deposits and for other purposes as required by law.

 

(3)

Loans

Major classifications of loans at March 31, 2016 and December 31, 2015 are summarized as follows:

 

(Dollars in thousands)
		March 31, 2016				December 31, 2015
Real estate loans:
Construction and land development		$	63,973				65,791
Single-family residential			223,104				220,690
Single-family residential -
Banco de la Gente stated income			42,951				43,733
Commercial			228,166				228,526
Multifamily and farmland			18,122				18,080
Total real estate loans			576,316				576,820
Loans not secured by real estate:
Commercial loans			91,784				91,010
Farm loans			2				3
Consumer loans			9,705				10,027
All other loans			15,226				11,231
Total loans			693,033				689,091
Less allowance for loan losses			9,116				9,589
Total net loans		$	683,917				679,502

 

The Bank grants loans and extensions of credit primarily within the Catawba Valley region of North Carolina, which encompasses Catawba, Alexander, Iredell and Lincoln counties, and also in Mecklenburg, Union, Wake, Durham and Forsyth counties of North Carolina.  Although the Bank has a diversified loan portfolio, a substantial portion of the loan portfolio is collateralized by improved and unimproved real estate, the value of which is dependent upon the real estate market.  Risk characteristics of the major components of the Bank's loan portfolio are discussed below:

·

Construction and land development loans – The risk of loss is largely dependent on the initial estimate of whether the property's value at completion equals or exceeds the cost of property construction and the availability of take-out financing.  During the construction phase, a number of factors can result in delays or cost overruns.  If the estimate is inaccurate or if actual construction costs exceed estimates, the value of the property securing the loan may be insufficient to ensure full repayment when completed through a permanent loan, sale of the property, or by seizure of collateral.  As of March 31, 2016, construction and land development loans comprised approximately 9% of the Bank's total loan portfolio.

·

Single-family residential loans – Declining home sales volumes, decreased real estate values and higher than normal levels of unemployment could contribute to losses on these loans.  As of March 31, 2016, single-family residential loans comprised approximately 38% of the Bank's total loan portfolio, and include Banco's single-family residential stated income loans, which were approximately 6% of the Bank's total loan portfolio.

·

Commercial real estate loans – Repayment is dependent on income being generated in amounts sufficient to cover operating expenses and debt service.  These loans also involve greater risk because they are generally not fully amortizing over a loan period, but rather have a balloon payment due at maturity.  A borrower's ability to make a balloon payment typically will depend on being able to either refinance the loan or timely sell the underlying property.  As of March 31, 2016, commercial real estate loans comprised approximately 33% of the Bank's total loan portfolio.

·

Commercial loans – Repayment is generally dependent upon the successful operation of the borrower's business.   In addition, the collateral securing the loans may depreciate over time, be difficult to appraise, be illiquid or fluctuate in value based on the success of the business.  As of March 31, 2016, commercial loans comprised approximately 13% of the Bank's total loan portfolio.

 

 

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on non-accrual status when, in management's opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Loans may be placed on non-accrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

 

The following tables present an age analysis of past due loans, by loan type, as of March 31, 2016 and December 31, 2015:

 

March 31, 2016
(Dollars in thousands)
		Loans 30-89 Days Past Due				Loans 90 or More Days Past Due				Total Past Due Loans				Total Current Loans				Total Loans				Accruing Loans 90 or More Days Past Due
Real estate loans:
Construction and land development		$	76				17				93				63,880				63,973				-
Single-family residential			2,964				1,101				4,065				219,039				223,104				-
Single-family residential -
Banco de la Gente stated income			6,416				315				6,731				36,220				42,951				127
Commercial			860				1,824				2,684				225,482				228,166				-
Multifamily and farmland			-				-				-				18,122				18,122				-
Total real estate loans			10,316				3,257				13,573				562,743				576,316				127
Loans not secured by real estate:
Commercial loans			74				23				97				91,687				91,784				-
Farm loans			-				-				-				2				2				-
Consumer loans			83				7				90				9,615				9,705				-
All other loans			16				-				16				15,210				15,226				-
Total loans		$	10,489				3,287				13,776				679,257				693,033				127

 

 

December 31, 2015
(Dollars in thousands)
		Loans 30-89 Days Past Due				Loans 90 or More Days Past Due				Total Past Due Loans				Total Current Loans				Total Loans				Accruing Loans 90 or More Days Past Due
Real estate loans:
Construction and land development		$	330				17				347				65,444				65,791				-
Single-family residential			2,822				1,385				4,207				216,483				220,690				-
Single-family residential -
Banco de la Gente stated income			7,021				114				7,135				36,598				43,733				-
Commercial			2,619				157				2,776				225,750				228,526				-
Multifamily and farmland			-				-				-				18,080				18,080				-
Total real estate loans			12,792				1,673				14,465				562,355				576,820				-
Loans not secured by real estate:
Commercial loans			185				40				225				90,785				91,010				17
Farm loans			-				-				-				3				3				-
Consumer loans			136				8				144				9,883				10,027				-
All other loans			-				-				-				11,231				11,231				-
Total loans		$	13,113				1,721				14,834				674,257				689,091				17

 

 

The following table presents non-accrual loans as of March 31, 2016 and December 31, 2015:

 

(Dollars in thousands)
		March 31, 2016				December 31, 2015
Real estate loans:
Construction and land development		$	149				146
Single-family residential			3,540				4,023
Single-family residential -
Banco de la Gente stated income			1,007				1,106
Commercial			3,431				2,992
Multifamily and farmland			-				-
Total real estate loans			8,127				8,267
Loans not secured by real estate:
Commercial loans			102				113
Consumer loans			39				52
Total		$	8,268				8,432

 

At each reporting period, the Bank determines which loans are impaired.  Accordingly, the Bank's impaired loans are reported at their estimated fair value on a non-recurring basis.  An allowance for each impaired loan that is collateral-dependent is calculated based on the fair value of its collateral.  The fair value of the collateral is based on appraisals performed by REAS, a subsidiary of the Bank.  REAS is staffed by certified appraisers that also perform appraisals for other companies.  Factors, including the assumptions and techniques utilized by the appraiser, are considered by management.  If the recorded investment in the impaired loan exceeds the measure of fair value of the collateral, a valuation allowance is recorded as a component of the allowance for loan losses.  An allowance for each impaired loan that is not collateral dependent is calculated based on the present value of projected cash flows.  If the recorded investment in the impaired loan exceeds the present value of projected cash flows, a valuation allowance is recorded as a component of the allowance for loan losses.  Impaired loans under $250,000 are not individually evaluated for impairment with the exception of the Bank's troubled debt restructured ("TDR") loans in the residential mortgage loan portfolio, which are individually evaluated for impairment.  Accruing impaired loans were $24.8 million, $25.0 million and $25.9 million at March 31, 2016, December 31, 2015 and March 31, 2015, respectively.  Interest income recognized on accruing impaired loans was $314,000, $335,000 and $1.3 million for the three months ended March 31, 2016, the three months ended March 31, 2015 and the year ended December 31, 2015, respectively.  No interest income is recognized on non-accrual impaired loans subsequent to their classification as non-accrual.

The following tables present impaired loans as of March 31, 2016 and December 31, 2015:

 

March 31, 2016
(Dollars in thousands)
		Unpaid Contractual Principal Balance				Recorded  Investment With No Allowance				Recorded Investment With Allowance				Recorded Investment in Impaired Loans				Related Allowance				Average Outstanding Impaired Loans
Real estate loans:
Construction and land development		$	497				-				433				433				22				459
Single-family residential			8,097				1,479				6,206				7,685				179				11,287
Single-family residential -
Banco de la Gente stated income			19,621				-				19,061				19,061				1,304				17,951
Commercial			5,984				4,720				604				5,324				4				6,739
Multifamily and farmland			78				-				78				78				-				80
Total impaired real estate loans			34,277				6,199				26,382				32,581				1,509				36,516
Loans not secured by real estate:
Commercial loans			179				-				148				148				2				129
Consumer loans			245				-				238				238				4				245
Total impaired loans		$	34,701				6,199				26,768				32,967				1,515				36,890

 

 

December 31, 2015
(Dollars in thousands)
		Unpaid Contractual Principal Balance				Recorded Investment With No Allowance				Recorded Investment With Allowance				Recorded Investment in Impaired Loans				Related Allowance				Average Outstanding Impaired Loans
Real estate loans:
Construction and land development		$	643				216				226				442				12				705
Single-family residential			8,828				1,489				6,805				8,294				189				10,852
Single-family residential -
Banco de la Gente stated income			20,375				-				19,215				19,215				1,143				18,414
Commercial			4,556				-				4,893				4,893				179				5,497
Multifamily and farmland			96				-				83				83				-				93
Total impaired real estate loans			34,498				1,705				31,222				32,927				1,523				35,561
Loans not secured by real estate:
Commercial loans			180				-				161				161				3				132
Consumer loans			286				-				260				260				4				283
Total impaired loans		$	34,964				1,705				31,643				33,348				1,530				35,976

 

Changes in the allowance for loan losses for the three months ended March 31, 2016 and 2015 were as follows:

 

(Dollars in thousands)
		Real Estate Loans
		Construction and Land Development			Single- Family Residential		Single- Family Residential - Banco de la Gente Stated  Income		Commercial		Multifamily and Farmland		Commercial		Farm		Consumer  and All Other		Unallocated		Total
Three months ended March 31, 2016
Allowance for loan losses:
Beginning balance		$	2,185		2,534		1,460		1,917		-		842		-		172		479		9,589
Charge-offs			-		(59	)	-		(106	)	-		(29	)	-		(128	)	-		(322	)
Recoveries			3		8		-		5		-		6		-		43		-		65
Provision			(344	)	(8	)	(37	)	(28	)	-		(9	)	-		103		107		(216	)
Ending balance		$	1,844		2,475		1,423		1,788		-		810		-		190		586		9,116
Allowance for loan losses March 31, 2016:
Ending balance: individually
evaluated for impairment		$	-		95		1,107		170		-		-		-		-		-		1,372
Ending balance: collectively
evaluated for impairment			1,844		2,380		316		1,618		-		810		-		190		586		7,744
Ending balance		$	1,844		2,475		1,423		1,788		-		810		-		190		586		9,116
Loans March 31, 2016:
Ending balance		$	63,973		223,104		42,951		228,166		18,122		91,784		2		24,931		-		693,033
Ending balance: individually
evaluated for impairment		$	-		2,612		17,711		4,890		-		-		-		-		-		25,213
Ending balance: collectively
evaluated for impairment		$	63,973		220,492		25,240		223,276		18,122		91,784		2		24,931		-		667,820