PFBX 10-Q Quarter ended Sept. 30, 2018

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, 2018

or

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

Commission File Number 001-12103

PEOPLES FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

Mississippi		64-0709834
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Lameuse and Howard Avenues, Biloxi, Mississippi		39533
(Address of principal executive offices)		(Zip Code)

(228) 435-5511

(Registrant’s telephone number, including area code)

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 for such shorter period that the registrant was required to submit such files.)     Yes  ☒    No  ☐

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

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

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date. Peoples Financial Corporation has only one class of common stock authorized. At October 31, 2018, there were 15,000,000 shares of $1 par value common stock authorized, with 4,999,058 shares issued and outstanding.

Part 1 – Financial Information

Item 1: Financial Statements

Peoples Financial Corporation and Subsidiaries

Consolidated Statements of Condition

(in thousands except share data)

		September 30, 2018				December 31, 2017
		(unaudited)				(audited)
Assets
Cash and due from banks		$	21,453			$	25,281
Available for sale securities			220,954				245,206
Held to maturity securities, fair value of $50,620 at September 30, 2018; $50,538 at December 31, 2017			52,366				51,163
Other investments			2,979				3,193
Federal Home Loan Bank Stock, at cost			1,446				1,370
Loans			273,947				280,449
Less: Allowance for loan losses			5,391				6,153
Loans, net			268,556				274,296
Bank premises and equipment, net of accumulated depreciation			19,331				20,153
Other real estate			9,892				8,232
Accrued interest receivable			2,252				1,904
Cash surrender value of life insurance			18,716				18,301
Other assets			1,450				1,325
Total assets		$	619,395			$	650,424

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Peoples Financial Corporation and Subsidiaries

Consolidated Statements of Condition (continued)

(in thousands except share data)

		September 30, 2018				December 31, 2017
		(unaudited)				(audited)
Liabilities and Shareholders’ Equity
Liabilities:
Deposits:
Demand, non-interest bearing		$	130,746			$	127,274
Savings and demand, interest bearing			292,371				318,278
Time, $100,000 or more			54,068				43,991
Other time deposits			27,608				40,027
Total deposits			504,793				529,570
Borrowings from Federal Home Loan Bank			9,156				11,198
Employee and director benefit plans liabilities			18,767				18,370
Other liabilities			1,711				1,787
Total liabilities			534,427				560,925
Shareholders’ Equity:
Common stock, $1 par value, 15,000,000 shares authorized, 5,013,186 and 5,083,186 shares issued and outstanding at September 30, 2018 and December 31, 2017			5,013				5,083
Surplus			65,780				65,780
Undivided profits			21,085				21,563
Accumulated other comprehensive loss, net of tax			(6,910	)			(2,927	)
Total shareholders’ equity			84,968				89,499
Total liabilities and shareholders’ equity		$	619,395			$	650,424

See notes to consolidated financial statements.

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Peoples Financial Corporation and Subsidiaries

Consolidated Statements of Income

(in thousands except per share data)(unaudited)

		Three Months Ended September 30,								Nine Months Ended September 30,
		2018				2017				2018				2017
Interest income:
Interest and fees on loans		$	3,335			$	3,165			$	9,798			$	9,734
Interest and dividends on securities:
U.S. Treasuries			343				413				1,090				1,203
U.S. Government agencies			114				126				350				404
Mortgage-backed securities			662				343				1,835				876
States and political subdivisions			438				420				1,317				1,199
Corporate bonds															8
Other investments			10				8				20				14
Interest on balances due from depository institutions			80				148				179				384
Total interest income			4,982				4,623				14,589				13,822
Interest expense:
Deposits			682				381				1,689				981
Federal funds purchased			1								8				1
Borrowings from Federal Home Loan Bank			26				8				131				31
Total interest expense			709				389				1,828				1,013
Net interest income			4,273				4,234				12,761				12,809
Provision for allowance for loan losses			28				29				91				85
Net interest income after provision for allowance for loan losses		$	4,245			$	4,205			$	12,670			$	12,724

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Peoples Financial Corporation and Subsidiaries

Consolidated Statements of Income (continued)

(in thousands except per share data)(unaudited)

		Three Months Ended September 30,								Nine Months Ended September 30,
		2018				2017				2018				2017
Non-interest income:
Trust department income and fees		$	475			$	430			$	1,360			$	1,224
Service charges on deposit accounts			941				947				2,771				2,799
Gain on liquidation, sales and calls of securities															137
Income (loss) from other investments			(115	)			7				(214	)			36
Increase in cash surrender value of life insurance			109				98				349				326
Gain from death benefits from life insurance															429
Other income			123				128				364				376
Total non-interest income			1,533				1,610				4,630				5,327
Non-interest expense:
Salaries and employee benefits			2,706				2,746				8,260				8,344
Net occupancy			559				493				1,449				1,548
Equipment rentals, depreciation and maintenance			753				722				2,352				2,251
FDIC and state banking assessments			111				130				322				327
Data processing			359				322				1,016				972
ATM expense			167				141				439				399
Other real estate expense			174				305				658				635
Other expense			777				720				2,277				2,450
Total non-interest expense			5,606				5,579				16,773				16,926
Income before income taxes			172				236				527				1,125
Income tax benefit															(338	)
Net income		$	172			$	236			$	527			$	1,463
Basic and diluted earnings per share		$	.03			$	.05			$	.10			$	.29
Dividends declared per share		$	.01			$	.01			$	.02			$	.01

See notes to consolidated financial statements.

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Peoples Financial Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(in thousands)(unaudited)

		Three Months Ended September 30,								Nine Months Ended September 30,
		2018				2017				2018				2017
Net income		$	172			$	236			$	527			$	1,463
Other comprehensive income (loss):
Net unrealized gain (loss) on available for sale securities			(898	)			(319	)			(3,983	)			2,063
Reclassification adjustment for realized gain on available for sale securities called or sold															(137	)
Total other comprehensive income (loss)			(898	)			(319	)			(3,983	)			1,926
Total comprehensive income (loss)		$	(726	)		$	(83	)		$	(3,456	)		$	3,389

See notes to consolidated financial statements.

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Peoples Financial Corporation and Subsidiaries

Consolidated Statement of Changes in Shareholders’ Equity

(in thousands except share data)

																		Accumulated
		Number of																Other
		Common				Common								Undivided				Comprehensive
		Shares				Stock				Surplus				Profits				Loss				Total
Balance, January 1, 2018			5,083,186			$	5,083			$	65,780			$	21,563			$	(2,927	)		$	89,499
Net income															527								527
Other comprehensive loss																			(3,983	)			(3,983	)
Dividends ($ .01 per share)															(51	)							(51	)
Dividend declared ($ .01 per share)															(50	)							(50	)
Retirement of stock			(70,000	)			(70	)							(904	)							(974	)
Balance, September 30, 2018			5,013,186			$	5,013			$	65,780			$	21,085			$	(6,910	)		$	84,968

Note: Balances as of January 1, 2018 were audited.

See notes to consolidated financial statements.

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Peoples Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)(unaudited)

		Nine Months Ended September 30,
		2018				2017
Cash flows from operating activities:
Net income		$	527			$	1,463
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			1,462				1,426
Provision for allowance for loan losses			91				85
Writedown of other real estate			320				397
Losses on sales of other real estate							95
(Income) loss from other investments			214				(36	)
Gain from death benefits from life insurance							(429	)
Amortization of held to maturity securities			192				190
Amortization of available for sale securities			249				130
Gain on sales and calls of securities							(137	)
Change in accrued interest receivable			(348	)			(136	)
Increase in cash surrender value of life insurance			(349	)			(326	)
Change in other assets			(126	)			(18	)
Change in employee and director benefit plan liabilities and other liabilities			271				574
Net cash provided by operating activities		$	2,503			$	3,278

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Peoples Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows (continued)

(in thousands) (unaudited)

		Nine Months Ended September 30,
		2018				2017
Cash flows from investing activities:
Proceeds from maturities, sales and calls of available for sale securities		$	46,506			$	58,201
Proceeds from maturities of held to maturity securities			760				7,725
Purchases of available for sale securities			(26,486	)			(68,478	)
Purchases of held to maturity securities			(2,155	)			(9,170	)
Purchases of Federal Home Loan Bank stock			(76	)			(5	)
Proceeds from sales of other real estate			1,972				1,296
Loans, net change			1,697				41,777
Acquisition of bank premises and equipment			(640	)			(323	)
Investment in cash surrender value of life insurance			(65	)			(78	)
Proceeds from death benefits from life insurance							1,929
Net cash provided by investing activities			21,513				32,874
Cash flows from financing activities:
Demand and savings deposits, net change			(22,435	)			(38,656	)
Time deposits, net change			(2,342	)			8,707
Borrowings from Federal Home Loan Bank			851,800
Repayments to Federal Home Loan Bank			(853,842	)			(5,041	)
Cash dividends paid			(51	)
Stock repurchase			(974	)
Net cash used in financing activities			(27,844	)			(34,990	)
Net increase (decrease) in cash and cash equivalents			(3,828	)			1,162
Cash and cash equivalents, beginning of period			25,281				41,116
Cash and cash equivalents, end of period		$	21,453			$	42,278

See notes to consolidated financial statements.

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PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

For the Nine Months Ended September 30, 2018 and 2017

1. Basis of Presentation:

Peoples Financial Corporation (the “Company”) is a one-bank holding company headquartered in Biloxi, Mississippi. It has two operating subsidiaries, PFC Service Corp., an inactive company, and The Peoples Bank, Biloxi, Mississippi (the “Bank”). The Bank provides a full range of banking, financial and trust services to state, county and local government entities and individuals and small and commercial businesses operating in those portions of Mississippi, Louisiana and Alabama which are within a fifty mile radius of the Waveland, Wiggins and Gautier branches, the Bank’s three most outlying locations (the “trade area”).

The accompanying unaudited consolidated financial statements and notes thereto contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly, in accordance with accounting principles generally accepted in the United States of America (“GAAP”), the financial position of the Company and its subsidiaries as of September 30, 2018 and the results of their operations and their cash flows for the periods presented. The interim financial information should be read in conjunction with the annual consolidated financial statements and the notes thereto included in the Company’s 2017 Annual Report and Form 10-K.

The results of operations for the quarter or nine months ended September 30, 2018, are not necessarily indicative of the results to be expected for the full year.

Use of Estimates - The preparation of 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. Material estimates common to the banking industry that are particularly susceptible to significant change in the near term include, but are not limited to, the determination of the allowance for loan losses, the valuation of other real estate acquired in connection with foreclosure or in satisfaction of loans and valuation allowances associated with the realization of deferred tax assets, which are based on future taxable income.

Summary of Significant Accounting Policies - The accounting and reporting policies of the Company conform to GAAP and general practices within the banking industry. There have been no material changes or developments in the application of principles or in our evaluation of the accounting estimates and the underlying assumptions or methodologies that we believe to be Critical Accounting Policies as disclosed in our Form 10-K for the year ended December 31, 2017.

Revenue Recognition - As of January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), using the modified retrospective method. Disclosures of revenue from contracts with customers for periods beginning after January 1, 2018 are presented under ASC Topic 606 and have not materially changed from the prior year amounts. This update prescribes the process related to the recognition of revenue to

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depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 excludes revenue streams relating to loans and investment securities, which are the major source of revenue for the Company, from its scope. As a result, the adoption of the guidance had no material impact on the measurement or recognition of revenue. Consistent with this guidance, the Company recognizes noninterest income within the scope of this guidance as services are transferred to its customers in an amount that reflects the consideration it expects to be entitled to in exchange for those services. Other types of revenue contracts, the income from which is included in non-interest income, that are within the scope of ASU 2014-09 are:

Trust department income and fees : A contract for fiduciary and/or investment administration services on personal trust accounts and corporate trust services. Personal trust fee income is determined as a percentage of assets under management and is recognized over the period the underlying trust is serviced. Corporate trust fee income is recognized over the period the Company provides service to the entity.

Service charges on deposit accounts : The deposit contract obligates the Company to serve as a custodian of the customer’s deposited funds and is generally terminable at will by either party. The contract permits the customer to access the funds on deposit and request additional services for which the Company earns a fee, including NSF and analysis charges, related to the deposit account. Income for deposit accounts is recognized over the statement cycle period (typically on a monthly basis) or at the time the service is provided, if additional services are requested.

ATM fee income : A contract between the Company, as a card-issuing bank, and its customers whereby the Company receives a transaction fee from the merchant’s bank whenever a customer uses a debit or credit card to make a purchase. These fees are earned as the service is provided (i.e., when the customer uses a debit or ATM card).

Other noninterest income : Other noninterest income includes several items, such as wire transfer income, check cashing fees, the increase in cash surrender value of life insurance, rental income from bank properties and safe deposit box rental fees. This income is generally recognized at the time the service is provided and/or the income is earned.

New Accounting Pronouncements – In February 2018, the Financial Accounting Standards Board (the “FASB”) issued ASU 2018-03, Technical Corrections and Improvements to Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, that Clarifies the Guidance in ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10). ASU 2018-03 clarifies guidance in ASU No. 2016-01 relating to equity securities without a readily determinable fair value, forward contracts and purchased options and fair value option liabilities. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after June 15, 2018. The Company adopted the amendments in this ASU effective January 1, 2018. The adoption of this ASU did not have a material effect on the Company’s financial position, result of operations or cash flows.

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In March 2018, the FASB issued ASU 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. ASU 2018-05 adds SEC guidance to the accounting standards codification regarding the Tax Cuts and Jobs Act. This update became effective upon addition to the FASB Codification. The adoption of this ASU is not expected to have a material effect on the Company’s financial position, result of operations or cash flows.

In May 2018, the FASB issued ASU 2018-06, Codification Improvements to Topic 942, Financial Services – Depository and Lending. ASU 2018-06 removes outdated guidance related to Circular 202 because that guidance has been rescinded by the Office of the Comptroller of the Currency. The amendments in this update are effective upon issuance. The adoption of this ASU did not have a material effect on the Company’s financial position, result of operations or cash flows.

In July 2018, the FASB issued ASU 2018-09, Codification Improvements . ASU 2018-09 amends topics that clarify, correct errors in or make minor improvements to the Codification. Topics affected include reporting comprehensive income, debt modifications and extinguishments, distinguishing liabilities from equity, income taxes on stock compensation, income taxes relating to business combinations, derivatives and hedging, fair value measurement, financial services and defined contribution plan accounting. The transition and effective date guidance is based on the facts and circumstances of each amendment. The adoption of this ASU did not have a material effect on the Company’s financial position, result of operations or cash flows.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement . ASU 2018-13 changes the fair value measurement disclosure requirements. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The adoption of this ASU is not expected to have a material effect on the Company’s financial position, result of operations or cash flows.

2. Earnings Per Share:

Per share data is based on the weighted average shares of common stock outstanding of 5,051,306 and 5,123,186 for the nine months ended September 30, 2018 and 2017, respectively. Per share data is based on the weighted average shares of common stock outstanding of 5,020,021 and 5,123,186 for the quarters ended September 30, 2018 and 2017, respectively.

3. Statements of Cash Flows:

The Company has defined cash and cash equivalents as cash and due from banks. The Company paid $1,816,998 and $1,006,350 for the nine months ended September 30, 2018 and 2017, respectively, for interest on deposits and borrowings. No income tax payments were made during the nine months ended September 30, 2018 and 2017. Loans transferred to other real estate amounted to $3,952,191 and $1,355,642 during the nine months ended September 30, 2018 and 2017, respectively.

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4. Investments:

The amortized cost and fair value of securities at September 30, 2018 and December 31, 2017, are as follows (in thousands):

						Gross				Gross
						Unrealized				Unrealized
September 30, 2018		Amortized Cost				Gains				Losses				Fair Value
Available for sale securities:
Debt securities:
U.S. Treasuries		$	95,853			$				$	(3,183	)		$	92,670
U.S. Government agencies			14,991								(362	)			14,629
Mortgage-backed securities			105,188				26				(3,570	)			101,644
States and political subdivisions			11,892				119								12,011
Total available for sale securities		$	227,924			$	145			$	(7,115	)		$	220,954
Held to maturity securities:
U.S. Government agencies		$	8,185			$				$	(496	)		$	7,689
States and political subdivisions			44,181				28				(1,278	)			42,931
Total held to maturity securities		$	52,366			$	28			$	(1,774	)		$	50,620

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						Gross				Gross
						Unrealized				Unrealized
December 31, 2017		Amortized Cost				Gains				Losses				Fair Value
Available for sale securities:
Debt securities:
U.S. Treasuries		$	124,820			$				$	(2,176	)		$	122,644
U.S. Government agencies			19,989								(158	)			19,831
Mortgage-backed securities			89,207				96				(1,042	)			88,261
States and political subdivisions			14,178				292								14,470
Total available for sale securities		$	248,194			$	388			$	(3,376	)		$	245,206
Held to maturity securities:
U.S. Government agencies		$	8,185			$				$	(302	)		$	7,883
States and political subdivisions			42,978				227				(550	)			42,655
Total held to maturity securities		$	51,163			$	227			$	(852	)		$	50,538

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The amortized cost and fair value of debt securities at September 30, 2018 (in thousands), by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

		Amortized Cost				Fair Value
Available for sale securities:
Due in one year or less		$	33,108			$	32,901
Due after one year through five years			73,364				71,173
Due after five years through ten years			15,930				14,890
Due after ten years			334				346
Mortgage-backed securities			105,188				101,644
Totals		$	227,924			$	220,954
Held to maturity securities:
Due in one year or less		$	1,742			$	1,744
Due after one year through five years			13,718				13,510
Due after five years through ten years			22,815				22,022
Due after ten years			14,091				13,344
Totals		$	52,366			$	50,620

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Available for sale and held to maturity securities with gross unrealized losses at September 30, 2018 and December 31, 2017, aggregated by investment category and length of time that individual securities have been in a continuous loss position, are as follows (in thousands):

		Less Than Twelve Months								Over Twelve Months								Total
		Fair Value				Gross Unrealized Losses				Fair Value				Gross Unrealized Losses				Fair Value				Gross Unrealized Losses
September 30, 2018:
U.S. Treasuries		$	10,778			$	209			$	81,892			$	2,974			$	92,670			$	3,183
U.S. Government agencies			9,909				91				12,409				767				22,318				858
Mortgage-backed securities			72,034				2,153				22,278				1,417				94,312				3,570
States and political subdivisions			26,714				679				6,805				599				33,519				1,278
TOTAL		$	119,435			$	3,132			$	123,384			$	5,757			$	242,819			$	8,889
December 31, 2017:
U.S. Treasuries		$	49,586			$	364			$	73,058			$	1,812			$	122,644			$	2,176
U.S. Government agencies			8,145				37				14,567				423				22,712				460
Mortgage-backed securities			60,230				415				13,492				627				73,722				1,042
States and political subdivisions			11,552				168				7,010				382				18,562				550
TOTAL		$	129,513			$	984			$	108,127			$	3,244			$	237,640			$	4,228

At September 30, 2018, 20 of 20 securities issued by the U.S. Treasury, 5 of the 5 securities issued by U.S. Government agencies, 70 of the 148 securities issued by states and political subdivisions and 37 of the 42 mortgage-backed securities contained unrealized losses.

Management evaluates securities for other-than-temporary impairment on a monthly basis. In performing this evaluation, the length of time and the extent to which the fair value has been less than cost, the fact that the Company’s securities are primarily issued by U.S. Treasury and U.S. Government Agencies and the cause of the decline in value are considered. In addition, the Company does not intend to sell and it is not more likely than not that it will be required to sell these securities before maturity. While some available for sale securities have been sold for liquidity purposes or for gains, the Company has traditionally held its securities, including those classified as available for sale, until maturity. As a result of the evaluation of these securities, the Company has determined that the unrealized losses summarized in the tables above are not deemed to be other-than-temporary.

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Proceeds from sales and calls of available for sale securities were $23,703,484 during the nine months ended September 30, 2017. Available for sale debt securities were sold or called for a realized gain of $136,781 for the nine months ended September 30, 2017. There were no sales or calls of securities in 2018.

Securities with a fair value of $202,977,752 and $196,702,218 at September 30, 2018 and December 31, 2017, respectively, were pledged to secure public deposits, federal funds purchased and other balances required by law.

5. Loans:

The composition of the loan portfolio at September 30, 2018 and December 31, 2017, is as follows (in thousands):

		September 30, 2018				December 31, 2017
Gaming		$	25,160			$	26,142
Residential and land development			239				263
Real estate, construction			32,097				31,947
Real estate, mortgage			185,906				189,201
Commercial and industrial			22,939				26,360
Other			7,606				6,536
Total		$	273,947			$	280,449

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The age analysis of the loan portfolio, segregated by class of loans, as of September 30, 2018 and December 31, 2017, is as follows (in thousands):

		Number of Days Past Due																								Loans Past Due Greater Than 90
		30 - 59				60 - 89				Greater Than 90				Total Past Due				Current				Total Loans				Days & Still Accruing
September 30, 2018:
Gaming		$				$				$				$				$	25,160			$	25,160			$
Residential and land development																			239				239
Real estate, construction			1,150				26				841				2,017				30,080				32,097
Real estate, mortgage			8,223				1,601				1,527				11,351				174,555				185,906
Commercial and industrial			87				49				1,805				1,941				20,998				22,939
Other			76				2								78				7,528				7,606
Total		$	9,536			$	1,678			$	4,173			$	15,387			$	258,560			$	273,947			$
December 31, 2017:
Gaming		$				$				$				$				$	26,142			$	26,142			$
Residential and land development																			263				263
Real estate, construction			747				121				522				1,390				30,557				31,947
Real estate, mortgage			5,321				790				4,884				10,995				178,206				189,201
Commercial and industrial			375				2				2,344				2,721				23,639				26,360
Other			26				3								29				6,507				6,536
Total		$	6,469			$	916			$	7,750			$	15,135			$	265,314			$	280,449			$

The Company monitors the credit quality of its loan portfolio through the use of a loan grading system. A score of 1 – 5 is assigned to the loan on factors including repayment ability, trends in net worth and/or financial condition of the borrower and guarantors, employment stability, management ability, loan to value fluctuations, the type and structure of the loan, conformity of the loan to bank policy and payment performance. Based on the total score, a loan grade of A, B, C, S, D, E or F is applied. A grade of A will generally be applied to loans for customers that are well known to the Company and that have excellent sources of repayment. A grade of B will generally be applied to loans for customers that have excellent sources of repayment which have no identifiable risk of collection. A grade of C will generally be applied to loans for customers that have adequate sources of repayment which have little identifiable risk of collection. A grade of S will generally be applied to loans for customers who meet the criteria for a grade of C but also warrant additional monitoring by placement on the watch list. A grade of D will generally be applied to loans for customers that are inadequately protected by current sound net worth, paying capacity of the borrower, or pledged collateral. Loans with a grade of D have unsatisfactory characteristics such as cash flow deficiencies, bankruptcy filing by the borrower or dependence on the sale of collateral for the primary source of repayment, causing more than acceptable levels of risk. Loans 60 to 89 days past due receive a grade of D. A grade of E will generally be applied to loans for customers with weaknesses inherent in the “D” classification and in which collection or liquidation in full is questionable. In addition, on a monthly basis the Company determines which loans are 90 days or more past due and assigns a grade of E to them. A grade of F is applied to loans which are considered uncollectible and of such little value that their continuance in an active bank is not warranted. Loans with this grade are charged off, even though partial or full recovery may be possible in the future.

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An analysis of the loan portfolio by loan grade, segregated by class of loans, as of September 30, 2018 and December 31, 2017, is as follows (in thousands):

		Loans With A Grade Of:
		A, B or C				S				D				E				F				Total
September 30, 2018:
Gaming		$	20,271			$				$	4,889			$				$				$	25,160
Residential and land development			6												233								239
Real estate, construction			30,649								251				1,197								32,097
Real estate, mortgage			155,658				10,744				14,202				5,302								185,906
Commercial and industrial			20,657								171				2,111								22,939
Other			7,596								4				6								7,606
Total		$	234,837			$	10,744			$	19,517			$	8,849			$				$	273,947
December 31, 2017:
Gaming		$	26,142			$				$				$				$				$	26,142
Residential and land development															263								263
Real estate, construction			30,412								358				1,177								31,947
Real estate, mortgage			148,284				11,550				19,606				9,761								189,201
Commercial and industrial			23,133								265				2,962								26,360
Other			6,516								16				4								6,536
Total		$	234,487			$	11,550			$	20,245			$	14,167			$				$	280,449

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A loan may be impaired but not on nonaccrual status when the loan is well secured and in the process of collection. Total loans on nonaccrual as of September 30, 2018 and December 31, 2017, are as follows (in thousands):

		September 30, 2018				December 31, 2017
Residential and land development		$	233			$	263
Real estate, construction			1,197				1,177
Real estate, mortgage			5,120				9,548
Commercial and industrial			2,008				2,818
Other			2				4
Total		$	8,560			$	13,810

Prior to 2017, certain loans were modified by granting interest rate concessions to these customers with such loans being classified as troubled debt restructurings. During 2017 and 2018, the Company did not restructure any additional loans. Specific reserves of $73,000 and $86,000 were allocated to troubled debt restructurings as of September 30, 2018 and December 31, 2017, respectively. The Bank had no commitments to lend additional amounts to customers with outstanding loans classified as troubled debt restructurings as of September 30, 2018 and December 31, 2017.

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Impaired loans, which include loans classified as nonaccrual and troubled debt restructurings, segregated by class of loans, as of September 30, 2018 and December 31, 2017, are as follows (in thousands):

		Unpaid Principal Balance				Recorded Investment				Related Allowance				Average Recorded Investment				Interest Income Recognized
September 30, 2018:
With no related allowance recorded:
Real estate, construction		$	1,478			$	1,003			$				$	959			$
Real estate, mortgage			6,539				5,645								5,737				21
Commercial and industrial			2,236				2,008								2,307
Other			2				2								3
Total			10,255				8,658								9,006				21
With a related allowance recorded:
Residential and land development			233				233				20				250
Real estate, construction			194				194				98				203
Real estate, mortgage			582				582				88				593				19
Total			1,009				1,009				206				1,046				19
Total by class of loans:
Residential and land development			233				233				20				250
Real estate, construction			1,672				1,197				98				1,162
Real estate, mortgage			7,121				6,227				88				6,330				40
Commercial and industrial			2,236				2,008								2,307
Other			2				2								3
Total		$	11,264			$	9,667			$	206			$	10,052			$	40

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