CIZN 10-Q Quarter ended Sept. 30, 2019

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2019

or

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

For the transition period from __________ to __________

Commission File Number: 001-15375

CITIZENS HOLDING COMPANY

(Exact name of registrant as specified in its charter)

Mississippi		64-0666512
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)
521 Main Street, Philadelphia, MS		39350
(Address of principal executive offices)		(Zip Code)

601-656-4692

(Registrant’s telephone number, including area code)

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

Title of Each Class		Trading Symbol(s)		Name of Each Exchange on Which Registered
Common Stock, $0.20 par value		CIZN		NASDAQ Global Market

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

None

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒  Yes    ☐  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit such files).    ☒  Yes    ☐  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer		☐		Accelerated filer		☒
Non-accelerated filer		☐		Smaller Reporting Company		☒
Emerging growth company		☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     ☐  Yes     ☒   No

Number of shares outstanding of each of the issuer’s classes of common stock, as of November 6, 2019:

Title		Outstanding
Common Stock, $0.20 par value		5,578,131

CITIZENS HOLDING COMPANY

TABLE OF CONTENTS

PART I.		FINANCIAL INFORMATION			1
Item 1.		Consolidated Financial Statements.
		Consolidated Statements of Financial Condition, as of September 30, 2019 (Unaudited) and December 31, 2018 (Audited)			1
		Consolidated Statements of Income for the Three and nine months ended September 30, 2019 (Unaudited) and 2018 (Unaudited)			2
		Consolidated Statements of Comprehensive Income (Loss) for the Three and nine months ended September 30, 2019 (Unaudited) and 2018 (Unaudited)			3
		Condensed Consolidated Statements of Cash Flows for the Nine months ended September 30, 2019 (Unaudited) and 2018 (Unaudited)			4
		Notes to Consolidated Financial Statements (Unaudited)			5
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations.			30
Item 3.		Quantitative and Qualitative Disclosures About Market Risk.			43
Item 4.		Controls and Procedures.			45
PART II.		OTHER INFORMATION			46
Item 1.		Legal Proceedings.			46
Item 1A.		Risk Factors.			46
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds.*
Item 3.		Defaults Upon Senior Securities.*
Item 4.		Mine Safety Disclosures.*
Item 5.		Other Information.*
Item 6.		Exhibits.			46
*		None or Not Applicable.
SIGNATURES					47

PART I. FINANCIAL INFORMATION

ITEM 1.

CONSOLIDATED FINANCIAL STATEMENTS.

CITIZENS HOLDING COMPANY CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

		September 30,				December 31,
		2019				2018
		(Unaudited)				(Audited)
ASSETS
Cash and due from banks		$	21,106,679			$	12,592,130
Interest bearing deposits with other banks			61,234,815				8,079,742
Investment securities available for sale, at fair value			434,145,569				444,746,454
Loans, net of allowance for loan losses of $3,805,579 in 2019 and $3,371,695 in 2018			469,692,103				425,905,093
Premises and equipment, net			20,029,997				19,717,305
Other real estate owned, net			3,383,444				3,440,148
Accrued interest receivable			3,596,005				4,165,783
Cash surrender value of life insurance			25,866,655				25,383,931
Deferred tax assets, net			1,899,036				6,633,539
Other assets			8,649,342				7,965,952
TOTAL ASSETS		$	1,049,603,645			$	958,630,077
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Deposits:
Noninterest-bearing demand		$	168,317,216			$	170,029,729
Interest-bearing NOW and money market accounts			326,982,928				298,220,430
Savings deposits			78,474,191				76,735,710
Certificates of deposit			220,539,672				211,235,641
Total deposits			794,314,007				756,221,510
Securities sold under agreement to repurchase			144,502,629				107,965,505
Accrued interest payable			685,777				470,710
Deferred compensation payable			9,336,912				9,052,972
Other liabilities			1,765,255				1,053,063
Total liabilities			950,604,580				874,763,760
SHAREHOLDERS’ EQUITY
Common stock, $0.20 par value, 22,500,000 shares authorized, 4,912,030 shares issued and outstanding at September 30, 2019 and 4,904,530 at December 31, 2018			982,406				980,906
Additional paid-in capital			4,419,406				4,298,499
Retained earnings			93,957,055				93,561,515
Accumulated other comprehensive loss, net of tax benefit of $119,614 at September 30, 2019 and $4,978,232 at December 31, 2018			(359,802	)			(14,974,603	)
Total shareholders’ equity			98,999,065				83,866,317
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	1,049,603,645			$	958,630,077

The accompanying notes are an integral part of these financial statements.

1

CITIZENS HOLDING COMPANY

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

		For the Three Months								For the Nine Months
		Ended September 30,								Ended September 30,
		2019				2018				2019				2018
INTEREST INCOME
Interest and fees on loans		$	5,940,805			$	5,166,554			$	17,220,751			$	14,867,465
Interest on securities
Taxable			1,945,053				2,074,424				6,252,649				6,320,482
Nontaxable			345,238				622,050				1,474,886				1,933,104
Other interest			212,319				24,291				529,098				144,635
Total interest income			8,443,415				7,887,319				25,477,384				23,265,686
INTEREST EXPENSE
Deposits			1,922,396				709,985				5,567,837				1,726,700
Other borrowed funds			602,730				458,039				1,575,580				1,062,505
Total interest expense			2,525,126				1,168,024				7,143,417				2,789,205
NET INTEREST INCOME			5,918,289				6,719,295				18,333,967				20,476,481
PROVISION FOR LOAN LOSSES			11,738				288,576				472,036				140,765
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES			5,906,551				6,430,719				17,861,931				20,335,716
OTHER INCOME
Service charges on deposit accounts			1,125,631				1,170,956				3,268,578				3,381,809
Other service charges and fees			863,407				761,935				2,316,715				2,147,452
Other operating income			516,862				287,683				1,039,696				870,153
Total other income			2,505,900				2,220,574				6,624,989				6,399,414
OTHER EXPENSES
Salaries and employee benefits			3,508,723				3,668,012				10,525,116				11,011,291
Occupancy expense			1,287,320				1,486,232				4,119,609				4,373,233
Other expense			2,071,595				1,739,780				5,185,179				5,505,070
Total other expenses			6,867,638				6,894,024				19,829,904				20,889,594
INCOME BEFORE PROVISION FOR INCOME TAXES			1,544,813				1,757,269				4,657,016				5,845,536
PROVISION FOR INCOME TAXES			211,925				260,475				726,615				888,215
NET INCOME		$	1,332,888			$	1,496,794			$	3,930,401			$	4,957,321
NET INCOME PER SHARE -Basic		$	0.27			$	0.31			$	0.80			$	1.01
-Diluted		$	0.27			$	0.31			$	0.80			$	1.01
DIVIDENDS PAID PER SHARE		$	0.24			$	0.24			$	0.72			$	0.72

The accompanying notes are an integral part of these financial statements.

2

CITIZENS HOLDING COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

		For the Three Months								For the Nine Months
		Ended September 30,								Ended September 30,
		2019				2018				2019				2018
Net income		$	1,332,888			$	1,496,794			$	3,930,401			$	4,957,321
Other comprehensive income (loss)
Securities available-for-sale
Unrealized holding gains (losses)			3,311,002				(3,006,277	)			19,283,111				(13,656,532	)
Income tax effect			(826,095	)			750,067				(4,811,136	)			3,407,305
			2,484,907				(2,256,210	)			14,471,975				(10,249,227	)
Reclassification adjustment for gains included in net income			244,457				11,047				190,308				11,047
Income tax effect			(60,992	)			(2,756	)			(47,482	)			(2,756	)
			183,465				8,291				142,826				8,291
Total other comprehensive income (loss)			2,668,372				(2,247,919	)			14,614,801				(10,240,936	)
Comprehensive income (loss)		$	4,001,260			$	(751,125	)		$	18,545,202			$	(5,283,615	)

The accompanying notes are an integral part of these financial statements.

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CITIZENS HOLDING COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

		For the Nine Months
		Ended September 30,
		2019				2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by operating activities		$	8,867,757			$	8,832,306
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities and calls of securities available for sale			39,516,994				32,579,774
Proceeds from sale of investment securities			96,171,622				17,609,890
Purchases of investment securities available for sale			(108,814,987	)			(10,550,000	)
Purchases of bank premises and equipment			(955,550	)			(268,708	)
Proceeds from sales of bank premises and equipment			—				264,000
(Increase) decrease in interest bearing deposits with other banks			(53,155,073	)			180,675
Proceeds from sale of other real estate			170,356				802,372
Net increase in loans			(44,381,330	)			(29,407,770	)
Net cash (used in) provided by investing activities			(71,447,968	)			11,210,233
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits			38,092,497				36,694,834
Increase (decrease) in securities sold under agreement to repurchase			36,537,124				(53,589,022	)
Increase in federal funds purchased			—				5,000,000
Repayment of Federal Home Loan Bank advances			—				(10,000,000	)
Proceeds from exercise of stock options			—				27,000
Payment of dividends			(3,534,861	)			(3,528,904	)
Net cash provided by (used in) financing activities			71,094,760				(25,396,092	)
Net increase (decrease) in cash and due from banks			8,514,549				(5,353,553	)
Cash and due from banks, beginning of period			12,592,130				17,962,990
Cash and due from banks, end of period		$	21,106,679			$	12,609,437

The accompanying notes are an integral part of these financial statements.

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CITIZENS HOLDING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of and for the nine months ended September 30, 2019

(Unaudited)

Note 1. Summary of Significant Accounting Policies

Basis of Presentation

These interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). However, these interim consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. The interim consolidated financial statements are unaudited and reflect all adjustments and reclassifications, which, in the opinion of management, are necessary for a fair presentation of the results of operations and financial condition as of and for the interim periods presented. All adjustments and reclassifications are of a normal and recurring nature. Results for the period ended September 30, 2019 are not necessarily indicative of the results that may be expected for any other interim period or for the year as a whole.

The interim consolidated financial statements of Citizens Holding Company (the “Company”) include the accounts of its wholly-owned subsidiary, The Citizens Bank of Philadelphia (the “Bank” and collectively with the Company, the “Corporation”). In addition to full service commercial banking, the Bank offers title insurance services through its subsidiary, Title Services LLC. All significant intercompany transactions have been eliminated in consolidation.

For further information and significant accounting policies of the Corporation, see the Notes to Consolidated Financial Statements of Citizens Holding Company included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission on March 15, 2019.

Nature of Business

The Bank operates under a state bank charter and provides general banking services. As a state bank, the Bank is subject to regulations of the Mississippi Department of Banking and Consumer Finance and the Federal Deposit Insurance Corporation. The Company is also subject to the regulations of the Federal Reserve. The area served by the Bank is east central and southern counties of Mississippi and the surrounding areas. Services are provided at several branch offices.

Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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Estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowance for loan losses and valuation of foreclosed real estate, management obtains independent appraisals for significant properties.

While management uses available information to recognize losses on loans and to value foreclosed real estate, future additions to the allowance or adjustments to the valuation may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses and valuations of foreclosed real estate. Such agencies may require the Company to recognize additions to the allowance or to make adjustments to the valuation based on their judgments about information available to them at the time of their examination. Due to these factors, it is reasonably possible that the allowance for loan losses and valuation of foreclosed real estate may change materially in the near term.

Adoption of New Accounting Standards

ASU 2016-02 “Leases (Topic 842)” (“ASU 2016-02”) requires lessees and lessors recognize lease assets and lease liabilities on the statement of financial condition and disclose key information about leasing arrangements. ASU 2016-02 was effective for the Company on January 1, 2019. ASU 2016-02 provides for a modified retrospective transition approach requiring lessees to recognize and measure leases on the balance sheet at the beginning of either the earliest period presented or as of the beginning of the period of adoption with the option to elect certain practical expedients. The Company has elected to apply ASU 2016-02 as of the beginning of the period of adoption (January 1, 2019) and has not restated comparative periods. Of the optional practical expedients available under ASU 2016-02, all that apply have been adopted.

The Company’s operating leases relate primarily to branch properties and related equipment. As a result of implementing ASU 2016-02, we recognized an operating lease right-of-use (“ROU”) asset of $1.086 million and an operating lease liability of $1.086 million on January 1, 2019, with no impact on our consolidated statements of income or condensed consolidated statements of cash flows compared to the prior lease accounting model. The ROU asset and liability are recorded in other assets and other liabilities, respectively, in the consolidated statements of condition. See Note 9. Premises and Equipment for additional information.

Newly Issued, But Not Yet Effective Accounting Standards

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 makes significant changes to the accounting for credit losses on financial instruments and disclosures about them. The new current expected credit loss (CECL) impairment model will require an estimate of expected credit losses, measured over the contractual life of an instrument, which considers reasonable and supportable forecasts of future economic conditions in addition

6

to information about past events and current conditions. The standard provides significant flexibility and requires a high degree of judgment with regards to pooling financial assets with similar risk characteristics, determining the contractual terms of said financial assets and adjusting the relevant historical loss information in order to develop an estimate of expected lifetime losses. In addition, ASU 2016-13 amends the accounting for credit losses on debt securities and purchased financial assets with credit deterioration. The amendments in ASU 2016-13 are currently effective for fiscal years beginning after December 31, 2019, and interim periods within those years for public business entities that are SEC filers. However, in October 2019, the FASB approved deferral of the effective date for ASU 2016-13 for certain companies. The new effective date for the Company is January 1, 2023. ASU 2016-13 permits the use of estimation techniques that are practical and relevant to the Company’s circumstances, as long as they are applied consistently over time and faithfully estimate expected credit losses in accordance with the standard. The ASU lists several common credit loss methods that are acceptable such as a discounted cash flow method, loss-rate method and probability of default/loss given default (PD/LGD) method. Depending on the nature of each identified pool of financial assets with similar risk characteristics, the Company currently plans on implementing a PD/LGD method or a loss-rate method to estimate expected credit losses. The Company expects ASU 2016-13 to have a significant impact on the Company’s accounting policies, internal controls over financial reporting and footnote disclosures. The Company has assessed its data and system needs and has begun designing its financial models to estimate expected credit losses in accordance with the standard. Further development, testing and evaluation of said models is required to determine the impact that adoption of this standard will have on the financial condition and results of operations of the Company.

ASU 2018-13 “ Fair Value Measurement (Topic 820) – Changes in the Disclosure Requirements for Fair Value Measurement ” (“ASU 2018-13”) removes the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 fair value measurement methodologies, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements. It also adds a requirement to disclose changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 measurements. For certain unobservable inputs, entities may disclose other quantitative information in lieu of the weighted average if the other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 is effective for annual and interim periods beginning after December 15, 2019. Management is currently evaluating the impact this ASU will have on the Company’s financial statements.

Note 2. Mergers and Acquisitions

Merger with Charter Bank

Effective October 1, 2019, the Company completed its acquisition by merger of Charter Bank (“Charter”), in a transaction valued at approximately $19.7 million. The Company issued 666,099 shares of common stock and paid approximately $6.1 million in cash to Charter shareholders, excluding cash paid for fractional shares. At closing, Charter merged with and into the Bank, with the Bank the surviving corporation in the merger. Operations of Charter will be included in the consolidated financial statements of the Corporation for periods subsequent to the acquisition date.

7

Prior to any determination of purchase accounting adjustments, as a result of the acquisition, the Company acquired total assets of approximately $149 million, which include total loans of approximately $104 million, total deposits of approximately $126 million, and 4 banking locations on the Mississippi Gulf Coast. The Company is finalizing the fair value of assets acquired and liabilities assumed as part of the acquisition.

Note 3. Commitments and Contingent Liabilities

In the ordinary course of business, the Corporation enters into commitments to extend credit to its customers. The unused portion of these commitments is not reflected in the accompanying financial statements. As of September 30, 2019, the Corporation had entered into loan commitments with certain customers with an aggregate unused balance of $70,933,230 compared to an aggregate unused balance of $58,835,208 at December 31, 2018. There were $2,435,810 of letters of credit outstanding at September 30, 2019 and $2,516,810 at December 31, 2018. The fair value of such commitments is not considered material because letters of credit and loan commitments often are not used in their entirety, if at all, before they expire. The balances of such letters and commitments should not be used to project actual future liquidity requirements. However, the Corporation does incorporate expectations about the utilization under its credit-related commitments into its asset and liability management program.

The Corporation is a party to lawsuits and other claims that arise in the ordinary course of business, all of which are being vigorously contested. In the regular course of business, management evaluates estimated losses or costs related to litigation, and provisions are made for anticipated losses whenever management believes that such losses are probable and can be reasonably estimated. At the present time, management believes, based on the advice of legal counsel, that the final resolution of pending legal proceedings will not likely have a material impact on the Corporation’s consolidated financial condition or results of operations.

8

Note 4. Net Income per Share

Net income per share - basic has been computed based on the weighted average number of shares outstanding during each period. Net income per share - diluted has been computed based on the weighted average number of shares outstanding during each period plus the dilutive effect of outstanding stock options and restricted stock using the treasury stock method. Net income per share was computed as follows:

		For the Three Months								For the Nine Months
		Ended September 30,								Ended September 30,
		2019				2018				2019				2018
Basic weighted average shares outstanding			4,900,030				4,899,520				4,896,871				4,888,372
Dilutive effect of granted options			1,465				5,093				2,321				9,586
Diluted weighted average shares outstanding			4,901,495				4,904,613				4,899,192				4,897,958
Net income		$	1,332,888			$	1,496,794			$	3,930,401			$	4,957,321
Net income per share-basic		$	0.27			$	0.31			$	0.80			$	1.01
Net income per share-diluted		$	0.27			$	0.31			$	0.80			$	1.01

Note 5. Equity Compensation Plans

The Corporation has adopted the 2013 Incentive Compensation Plan (the “2013 Plan”), which the Corporation intends to use for future equity grants to employees, directors or consultants until the termination or expiration of the 2013 Plan.

Prior to the adoption of the 2013 Plan, the Corporation issued awards to directors from the 1999 Directors’ Stock Compensation Plan (the “Directors’ Plan”), which has expired.

The following table is a summary of the stock option activity for the nine months ended September 30, 2019:

		Directors’ Plan								2013 Plan
						Weighted								Weighted
		Number				Average				Number				Average
		of				Exercise				of				Exercise
		Shares				Price				Shares				Price
Outstanding at December 31, 2018			52,500			$	21.55				—			$	—
Granted			—				—				—				—
Exercised			—				—				—				—
Expired			(12,000	)			21.75				—				—
Outstanding at September 30, 2019			40,500			$	21.49				—			$	—

The intrinsic value of options outstanding under the Directors’ Plan at September 30, 2019, was $25,920. No options were outstanding under the 2013 Plan as of September 30, 2019.

During 2019, the Corporation’s directors received restricted stock grants totaling 7,500 shares of common stock under the 2013 Plan. These grants vest over a one-year period ending April 23, 2020 during which time the recipients have rights to vote the shares and to receive dividends. The grant date fair value of these shares was $161,475 and will be expensed ratably over the one-year vesting period.

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Note 6. Income Taxes

For the three months ended September 30, 2019 and 2018, the Company recorded a provision for income taxes totaling $212 thousand and $260 thousand, respectively. The effective tax rate was 13.7% and 14.8% for the three months ending September 30, 2019 and 2018, respectively.

For the nine months ended September 30, 2019 and 2018, the Company recorded a provision for income taxes totaling $727 thousand and $888 thousand, respectively. The effective tax rate was 15.6% and 15.2% for the nine months ending September 30, 2019 and 2018, respectively. The provision for income taxes includes both federal and state income taxes and differs from the statutory rate due to favorable permanent differences primarily related to tax free municipal investments.

Note 7. Securities

The amortized cost and estimated fair value of securities available-for-sale and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income were as follows:

						Gross				Gross
		Amortized				Unrealized				Unrealized				Estimated
September 30, 2019		Cost				Gains				Losses				Fair Value
Securities available-for-sale
Obligations of U.S. Government agencies		$	98,400,709			$	22,134			$	441,703			$	97,981,140
Mortgage backed securities			276,342,668				839,052				1,583,407				275,598,313
State, County, Municipals			59,881,608				744,167				59,659				60,566,116
Total		$	434,624,985			$	1,605,353			$	2,084,769			$	434,145,569
						Gross				Gross
		Amortized				Unrealized				Unrealized				Estimated
December 31, 2018		Cost				Gains				Losses				Fair Value
Securities available-for-sale
Obligations of U.S. Government agencies		$	99,365,930			$	—			$	3,388,147			$	95,977,783
Mortgage backed securities			259,742,501				4,921				12,373,269				247,374,153
State, County, Municipals			105,590,858				67,888				4,264,228				101,394,518
Total		$	464,699,289			$	72,809			$	20,025,644			$	444,746,454

At September 30, 2019 and December 31, 2018, securities with a carrying value of $376,127,226 and $357,231,440, respectively, were pledged to secure government and public deposits and securities sold under agreement to repurchase.

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The amortized cost and estimated fair value of securities by contractual maturity at September 30, 2019 and December 31, 2018 are shown below. Actual maturities may differ from contractual maturities because issuers have the right to call or prepay certain obligations.

		September 30, 2019								December 31, 2018
		Amortized				Estimated				Amortized				Estimated
		Cost				Fair Value				Cost				Fair Value
Available-for-sale
Due in one year or less		$	345,000			$	344,200			$	1,875,288			$	1,877,665
Due after one year through five years			95,296,476				94,888,785				91,948,838				89,121,194
Due after five years through ten years			12,338,444				12,457,030				32,801,788				31,718,293
Due after ten years			50,302,397				50,857,242				78,330,873				74,655,149
Residential mortgage backed securities			217,007,709				216,247,964				187,776,954				179,235,806
Commercial mortgage backed securities			59,334,959				59,350,348				71,965,548				68,138,347
Total		$	434,624,985			$	434,145,569			$	464,699,289			$	444,746,454

The tables below show the Corporation’s gross unrealized losses and fair value of available-for-sale investments, aggregated by investment category and length of time that individual investments were in a continuous loss position at September 30, 2019 and December 31, 2018.

A summary of unrealized loss information for securities available-for-sale, categorized by security type follows:

September 30, 2019		Less than 12 months								12 months or more								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
Description of Securities		Value				Losses				Value				Losses				Value				Losses
Obligations of U.S. government agencies		$	38,652,471			$	308,973			$	20,367,270			$	132,730			$	59,019,741			$	441,703
Mortgage backed securities			32,441,833				187,039				108,373,816				1,396,368				140,815,649				1,583,407
State, County, Municipal			7,174,822				24,415				3,732,036				35,244				10,906,858				59,659
Total		$	78,269,126			$	520,427			$	132,473,122			$	1,564,342			$	210,742,248			$	2,084,769
December 31, 2018		Less than 12 months								12 months or more								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
Description of Securities		Value				Losses				Value				Losses				Value				Losses
Obligations of U.S. government agencies		$	—			$	—			$	95,977,783			$	3,388,147			$	95,977,783			$	3,388,147
Mortgage backed securities			12,257,636				179,281				234,928,705				12,193,988				247,186,341				12,373,269
State, County, Municipal			12,623,964				285,275				76,535,741				3,978,953				89,159,705				4,264,228
Total		$	24,881,600			$	464,556			$	407,442,229			$	19,561,088			$	432,323,829			$	20,025,644

The Corporation’s unrealized losses on its obligations of United States government agencies, mortgage backed securities and state, county and municipal bonds are the result of an upward trend in interest rates since purchase, mainly in the mid-term sector. None of the unrealized losses disclosed in the previous table are related to credit deterioration. The Corporation does not intend to sell any securities in an unrealized loss position that it holds and it is not more likely than not that the Corporation will be required to sell any such security prior to the recovery of its amortized cost basis, which may be at maturity. Furthermore, even though a number of these securities have been in a continuous unrealized loss position for greater than twelve months, the Corporation is collecting principal and interest payments as scheduled. The Corporation has determined that none of the securities in this classification were other-than-temporarily impaired at September 30, 2019 nor at December 31, 2018.

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Note 8. Loans

The composition of net loans (in thousands) at September 30, 2019 and December 31, 2018 was as follows:

		September 30, 2019				December 31, 2018
Real Estate:
Land Development and Construction		$	63,491			$	41,134
Farmland			15,985				14,498
1-4 Family Mortgages			86,516				88,747
Commercial Real Estate			205,968				203,595
Total Real Estate Loans			371,960				347,974
Business Loans:
Commercial and Industrial Loans			87,480				66,421
Farm Production and Other Farm Loans			742				907
Total Business Loans			88,222				67,328
Consumer Loans:
Credit Cards			1,744				1,648
Other Consumer Loans			11,584				12,372
Total Consumer Loans			13,328				14,020
Total Gross Loans			473,510				429,322
Unearned Income			(12	)			(45	)
Allowance for Loan Losses			(3,806	)			(3,372	)
Loans, net		$	469,692			$	425,905

Loans are considered to be 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 such loans are considered past due. When interest accruals are 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.

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Period-end, non-accrual loans (in thousands), segregated by class, were as follows:

		September 30, 2019				December 31, 2018
Real Estate:
Land Development and Construction		$	113			$	—
Farmland			246				200
1-4 Family Mortgages			2,057				1,831
Commercial Real Estate			9,484				7,612
Total Real Estate Loans			11,900				9,643
Business Loans:
Commercial and Industrial Loans			363				76
Farm Production and Other Farm Loans			31				31
Total Business Loans			394				107
Consumer Loans:
Other Consumer Loans			65				89
Total Consumer Loans			65				89
Total Nonaccrual Loans		$	12,359			$	9,839

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An aging analysis of past due loans (in thousands), segregated by class, as of September 30, 2019, was as follows:

																						Accruing
						Loans																Loans
		Loans				90 or more																90 or more
		30-89 Days				Days				Total Past				Current				Total				Days
		Past Due				Past Due				Due Loans				Loans				Loans				Past Due
Real Estate:
Land Development and Construction		$	2,218			$	—			$	2,218			$	61,273			$	63,491			$	—
Farmland			339				—				339				15,646				15,985				—
1-4 Family Mortgages			1,832				912				2,744				83,772				86,516				220
Commercial Real Estate			1,688				2,335				4,023				201,945				205,968				—
Total Real Estate Loans			6,077				3,247				9,324				362,636				371,960				220
Business Loans:
Commercial and Industrial Loans			648				262				910				86,570				87,480				—
Farm Production and Other Farm Loans			—				31				31				711				742				—
Total Business Loans			648				293				941				87,281				88,222				—
Consumer Loans:
Credit Cards			18				47				65				1,679				1,744				47
Other Consumer Loans			141				5				146				11,438				11,584				—
Total Consumer Loans			159				52				211				13,117				13,328				47
Total Loans		$	6,884			$	3,592			$	10,476			$	463,034			$	473,510			$	267

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An aging analysis of past due loans (in thousands), segregated by class, as of December 31, 2018 was as follows:

																						Accruing
						Loans																Loans
		Loans				90 or more																90 or more
		30-89 Days				Days				Total Past				Current				Total				Days
		Past Due				Past Due				Due Loans				Loans				Loans				Past Due
Real Estate:
Land Development and Construction		$	1,494			$	54			$	1,548			$	39,586			$	41,134			$	54
Farmland			779				29				808				13,690				14,498				—
1-4 Family Mortgages			3,456				330				3,786				84,961				88,747				—
Commercial Real Estate			1,059				2,981				4,040				199,555				203,595				—
Total Real Estate Loans			6,788				3,394				10,182				337,792				347,974				54
Business Loans:
Commercial and Industrial Loans			1,672				21				1,693				64,728				66,421				—
Farm Production and Other Farm Loans			9				—				9				898				907				—
Total Business Loans			1,681				21				1,702				65,626				67,328				—
Consumer Loans:
Credit Cards			16				4				20				1,628				1,648				4
Other Consumer Loans			212				33				245				12,127				12,372				15
Total Consumer Loans			228				37				265				13,755				14,020				19
Total Loans		$	8,697			$	3,452			$	12,149			$	417,173			$	429,322			$	73

Loans are considered impaired when, based on current information and events, it is probable that the Corporation will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. In determining which loans to evaluate for impairment, management looks at all loans over $100,000 that are past due loans, bankruptcy filings and any situation that might lend itself to cause a borrower to be unable to repay the loan according to the original agreement terms. If a loan is determined to be impaired and the collateral is deemed to be insufficient to fully repay the loan, a specific reserve will be established. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis. Impaired loans or portions thereof, are charged-off when deemed uncollectible.

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Impaired loans (in thousands) as of September 30, 2019, segregated by class, were as follows:

						Recorded				Recorded
		Unpaid				Investment				Investment				Total								Average
		Principal				With No				With				Recorded				Related				Recorded
		Balance				Allowance				Allowance				Investment				Allowance				Investment
Real Estate:
Land Development and Construction		$	113			$	59			$	54			$	113			$	17			$	57
Farmland			253				253				—				253				—			$	261
1-4 Family Mortgages			863				761				102				863				30			$	1,008
Commercial Real Estate			11,919				6,104				4,099				10,203				459			$	9,544
Total Real Estate Loans			13,148				7,177				4,255				11,432				506			$	10,869
Business Loans:
Commercial and Industrial Loans			144				—				144				144				72			$	72
Total Business Loans			144				—				144				144				72			$	72
Total Loans		$	13,292			$	7,177			$	4,399			$	11,576			$	578			$	10,941

Impaired loans (in thousands) as of December 31, 2018, segregated by class, were as follows:

						Recorded				Recorded
		Unpaid				Investment				Investment				Total								Average
		Principal				With No				With				Recorded				Related				Recorded
		Balance				Allowance				Allowance				Investment				Allowance				Investment
Real Estate:
Land Development and Construction		$	—			$	—			$	—			$	—			$	—			$	—
Farmland			269				269				—				269				—			$	135
1-4 Family Mortgages			1,153				1,062				91				1,153				27			$	728
Commercial Real Estate			10,601				5,209				3,675				8,884				374			$	6,489
Total Real Estate Loans			12,023				6,540				3,766				10,306				401			$	7,352
Total Loans		$	12,023			$	6,540			$	3,766			$	10,306			$	401			$	7,352

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