A complete 2016 Audited Financial Statement may be obtained by contacting the little bank. Please request by contacting Doyle M. Thigpen by mail at the little bank, 1011-A Red Banks Road, Greenville, NC 27858, or via our website at www.unionbanknc.com — please remember to give your return address information.
Annual Shareholders Meeting
The annual meeting of shareholders of the little bank will be held on May 18, 2017 at 10:00 a.m. at the Spirit AeroSystems Composite Center of Excellence, 3800 Hwy 58 North, Kinston, NC.
Dear little bank shareholders,
The little bank (the “Bank”) board of directors and management are pleased to report 2016 results and a fifth consecutive year of record “core” earnings. Outstanding loan quality, solid net interest margins, increased non-interest income and controlled expenses were the drivers of our results.
The Bank continues to be in excellent financial condition. Capital and liquidity ratios are strong and our loan quality indicators are excellent. As a result, the Bank was able to continue its policy of paying semi-annual cash dividends on its common stock. The Bank paid out $552,000 in cash dividends to shareholders in 2016; the equivalent of $0.17 per share. The Bank also paid shareholders another 5% stock dividend in 2016. Shareholders received an increase of 10.6% in total cash dividends, compared to 2015. In addition, the Bank maintained its common stock repurchase program throughout 2016, purchasing 20,155 shares of common stock at an average price of $12.46. Management and the board of directors will continue the common stock repurchase plan as it deems beneficial to the Company and the shareholders.
Net income for the year decreased 1.2% to $3,085,000 or $0.92 per basic share. Return on average assets and average equity were well above peer averages at .85% and 8.46%, respectively, for the year. Net income was impacted by merger related expenses of $256,000 during the fourth quarter of 2016. Adjusted for merger expenses, “core” earnings for the year were up 5.52% to $3,294,000. For the purposes of this letter, “core” earnings are defined as net income adjusted for non-recurring merger expenses. Deposits increased 1.0% to $300.6 million over December 31, 2015 levels. Net interest income was up 2.6% to $11,958,000 while noninterest income was up 12.2% to $1,753,000. Total noninterest expenses (adjusted for merger expenses) were up 4.0% for the year. The Bank’s efficiency ratio, adjusted for merger related expense, of 65.3% continues to be among the best in our peer group.
While the beginning of 2017 has produced optimism for the banking industry and the economy in general, a combination of low interest rates, mixed global economic trends, mixed economic data in our own country, and changing consumer buying patterns continue to create a challenging environment for businesses to navigate. We are cautiously optimistic about the economy in general; however, we will continue to maintain a disciplined approach to growth and overall risk management.
In the past we have talked about our industry’s need for consolidation. We have also talked about the fact that our Bank was poised to take advantage of consolidation opportunities when they are available. In November we announced the acquisition of Oxford, NC based Union Bank. The combined bank, which will be headquartered in Greenville, NC and operate under the Union Bank brand name, will have approximately $670 million in total assets, $485 million in total loans, and $548 million in total deposits based on reported amounts as of December 31, 2016. The combined bank will operate a 15 branch network, including locations in Cary, Creedmoor, Goldsboro, Greenville, Henderson, Jacksonville, Kinston, LaGrange, Louisburg, New Bern, Oxford, Raleigh, Roxboro, Wilmington and Youngsville. Although we refer you to the enclosed joint proxy statement / offering circular for details associated with this proposed merger, the boards of directors and management of both banks are excited about the opportunity created by this potential business combination.
Our final message is the same as last year in that we continue to believe that the industry is positioned for consolidation. We also believe this consolidation will create a variety of opportunities which include attracting new customers, strengthening our sales force and other strategic opportunities, including whole bank or branch acquisitions. The Bank is well positioned to take advantage of these situations as they present themselves. We continue to be excited about the long-term prospects for community banking and the markets we serve. The board of directors, management, and all of our associates would like to thank you for your continued support.
President & Chief Executive Officer
“At the little bank, it’s all about getting to know YOU.”
Founded in November of 1998, the little bank’s guiding principal is that old fashion personal service is as valuable today as it was 100 years ago. At the little bank, we do want to know who you are. We pride ourselves at being big enough to handle your needs and small enough to know what your needs are.
Local decision-making has been critical to our success, as has our ability to offer a full array of banking products, providing everything from complicated commercial lending transactions to basic mortgage financing for primary and secondary homes. Through technology, we are able to offer the convenience of online and mobile banking services to our business and consumer customers, and save them time and money through the use of our remote deposit services.
We are proud of the personalized service we provide to all of our customers.
“The little bank has always been there for me and my business. It’s great to have a relationship with someone who cares.”
—Stephen Howell | Owner, Howell Funeral Home & Crematory, Inc.
“The little bank has been instrumental in my business growing over the last year. Wesley Barnes and his team made my switch to the little bank from another banking institution very seamless. I greatly appreciate the little bank and look forward to a wonderful relationship with them.”
—Brian Corbett | Owner, Flagship Property Management, LLC
“At the little bank, you are treated like their #1 customer.”
—Stephen P. Clary | Owner, Spunky McDoogle’s and 37th Street Pizzeria
Years Ended December 31, 2016, 2015 and 2014 (Dollars in thousands, except per share data)
|Per Common Share:|
|Net income basic||$0.92||$0.92||$0.86|
|Net income diluted||$0.91||$0.92||$0.85|
|Book value per common share||$10.91||$10.30||$9.60|
|Selected Year-End Balances:|
|Loans, net of unearned income||$246,522||$242,516||$246,147|
|Other interest earning assets||91,814||98,579||69,323|
|Selected Performance Ratios:|
|Return on average assets||.85%||.89%||.88%|
|Return on average equity||8.46%||9.20%||9.29%|
|Asset Quality Ratios:|
|Allowance for loan losses to period-end loans||1.40%||1.44%||1.50%|
|Net loan charge-offs to average loans||0.02%||0.04%||0.13%|
|Total risk-based capital||15.51%||14.76%||13.97%|
|Tier 1 risk-based capital||14.26%||13.51%||12.71%|
|Common equity Tier 1 to risk-based capital||14.26%||13.51%||N/A|
|Tier 1 leverage ratio||10.21%||9.48%||9.58%|
|Equity to assets||10.11%||9.57%||9.60%|
|Number of Common Shares:|
December 31, 2016 and 2015 (Dollars in thousands)
Loans 246,522242,516 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$362,009$362,127
|Cash and due from banks||$9,085||$7,842|
|Interest-earning deposits with banks||8,345||15,661|
|Federal funds sold||1,645||1,177|
|Investment securities available for sale||81,824||81,741|
|Allowance for laon losses||(3,444)||(3,496)|
|Accrued interest receivable||934||950|
|Federal Home Loan Bank stock||1,346||1,623|
|Bank premises and equipment, net||4,464||4,831|
|Bank-owned life insurance||9,016||7,730|
|Other real estate owned||50||–|
|LIABILITIES AND STOCKHOLDERS’ EQUITY|
|Money market and NOW||53,396||54,770|
|Federal Home Loan Bank advances||24,000||29,000|
|Accrued interest payable||98||103|
|Accrued expenses and other liabilities||739||748|
|Common stock, no par value, 24,000,000 shares authorized||31,507||29,590|
|Accumulated other comprehensive income (loss)||(453)||(3)|
|TOTAL STOCKHOLDERS’ EQUITY||36,598||34,655|
Statements of Operations
Years Ended December 31, 2016, 2015 and 2014 (Dollars in thousands, except per share data)
|Federal funds sold||9||4||4|
|Interest-bearing deposits with banks||112||59||34|
|TOTAL INTEREST INCOME||12,241||12,959||12,695|
|Money market, NOW and savings deposits||242||237||230|
|Advances from the Federal Home Loan Bank||252||244||202|
|TOTAL INTEREST EXPENSE||1,283||1,304||1,352|
|NET INTEREST INCOME||11,958||11,655||11,343|
|PROVISION (RECOVERY) FOR LOAN LOSSES||–||(100)||150|
|NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES||11,958||11,755||11,193|
|Service charges and fees on deposit accounts||518||485||463|
|Fees from presold mortgages||344||323||276|
|TOTAL NONINTEREST INCOME||1,753||1,563||1,408|
|Salaries and employee benefits||5,338||5,193||5,028|
|TOTAL NONINTEREST EXPENSE||9,214||8,611||8,146|
|INCOME BEFORE INCOME TAXES||4,497||4,707||4,455|
|NET INCOME PER COMMON SHARE|
|WEIGHTED AVERAGE COMMON SHARES OUTSTANDING|
NOTES TO SUMMARY FINANCIAL STATEMENTS
Organization and Nature of Operations
the little bank (the “Bank”) was incorporated as a North Carolina chartered savings bank on September 16, 1998 and began operations on November 9, 1998. The Bank is headquartered in Kinston, North Carolina and has as its principal market area, Lenoir, Wayne, Onslow, Craven, Pitt and New Hanover Counties. The Bank operates under the laws of North Carolina and the rules and regulations of the Federal Deposit Insurance Corporation and the North Carolina Banking Commission. The Bank undergoes periodic examinations by those regulatory authorities.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for losses on loans and other real estate owned.
Available-for-sale securities are reported at fair value and consist of bonds and notes not classified as trading securities nor as held-to-maturity securities. Unrealized holding gains and losses on available-for-sale securities are reported as a net amount in other comprehensive income, net of income taxes. Gains and losses on the sale of available-for-sale securities are recorded on the trade date and determined using the specific-identification method. Declines in the fair value of individual held-to-maturity and available-for-sale securities below their cost that are other than temporary would result in write-downs of the individual securities to their fair value. Such write-downs would be included in earnings as realized losses. Premiums and discounts are recognized in interest income using the interest method over the period to maturity.
Loans that management has the intent and ability to hold for the foreseeable future or until maturity are reported at their outstanding principal balance adjusted for any charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans. Loan origination fees and certain direct origination costs are capitalized and recognized as an adjustment to the yield over the lives of the related loans. The recognition of interest income is discontinued when, in management’s opinion, the collection of all or a portion of interest becomes doubtful or the loan becomes ninety days delinquent. Loans are returned to accrual status when the factors indicating doubtful collectability cease to exist and the loan has performed in accordance with its terms for a demonstrated period of time. The past due status of loans is based on the contractual payment terms.
A loan is considered impaired when, based on current information or events, it is probable that a borrower will be unable to pay all amounts due according to the contractual terms of the loan agreement. For loans determined to be impaired, the allowance is based on discounted cash flows using the loan’s initial effective interest rate or the fair value of the collateral for certain collateral dependent loans. When the ultimate collectability of the impaired loan’s principal is doubtful, all cash receipts are applied to principal. Once the recorded principal balance has been reduced to zero, future cash receipts are first recorded as recoveries of any amounts previously charged-off and are then applied to interest income, to the extent that any interest has been foregone.
Loans, including impaired loans, are generally classified as nonaccrual if they are past due as to maturity or payment of principal or interest for a period of more than 90 days, unless such loans are well secured and in the process of collection. Loans that are current or past due less than 90 days may also be classified as nonaccrual if repayment in full of principal and/or interest is in doubt (as determined by the contractual terms of the note). Loans may be returned to accrual status when all principal and interest amounts contractually due (including arrearages) are reasonably assured of repayment within an acceptable period of time, and there is a sustained period of repayment performance (generally a minimum of six months) by the borrower, in accordance with the contractual terms.
While a loan (including an impaired loan) is classified as nonaccrual and the future collectability of the recorded loan balance is doubtful, collections of interest and principal are generally applied as a reduction to the principal outstanding. When the future collectability of the recorded loan balance is not in doubt, interest income may be recognized on a cash basis. In the case where a nonaccrual loan had been partially charged-off, recognition of interest on a cash basis is limited to that which would have been recognized on the recorded loan balance at the contractual interest rate. Receipts in excess of that amount are recorded as recoveries to the allowance for loan losses until prior charge-offs have been fully recovered.
Allowance for Loan Losses
The provision for loan losses is based upon management’s estimate of the amount needed to maintain the allowance for loan losses at an adequate level. In making the evaluation of the adequacy of the allowance for loan losses, management gives consideration to current and anticipated economic conditions, statutory examinations of the loan portfolio by regulatory agencies, delinquency information and management’s internal review of the loan portfolio. Loans are considered impaired when it is probable that all amounts due under the contractual terms of the loan will not be collected. The measurement of impaired loans is generally based on the present value of expected future cash flows discounted at the historical effective interest rate, or upon the fair value of the collateral if the loss is collateral dependent. If the recorded investment in the loan exceeds the measure of fair value, a valuation allowance is established as a component of the allowance for loan losses. While management uses the best information available to make evaluations, future adjustments to the allowance may be necessary if conditions differ substantially from the assumptions previously used in making the evaluations. In addition, regulatory examiners may require the Bank to recognize changes to the allowance for loan losses based on their judgments about information available to them at the time of their examination. Historical loss calculations are based on a twelve quarter rolling average loss ratio calculation with the most recent year’s loss history included in the model. The impact is to more quickly recognize and apply the most relevant loss history for the loan portfolio.
Real Estate Owned
Real estate acquired through, or in lieu of, loan foreclosure is initially recorded at fair value, less estimated selling costs, at the date of foreclosure establishing a new cost basis. After foreclosure, valuations of the property are periodically performed by management and the real estate is carried at fair value minus the estimated cost to sell the property. Revenues and expenses from operations and changes in the valuation allowance are charged to operations.
Earnings Per Common Share
Basic and diluted earnings per common share have been computed by dividing net income available to common stockholders for each period by the weighted average number of shares of common stock outstanding during each period. Diluted earnings per common share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Bank relate solely to outstanding stock options. Diluted earnings per common share is computed by dividing net income available to common stockholders by the weighted average number of common stock equivalents and other potentially dilutive securities using the treasury stock method.
The Bank is subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory – and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. As of December 31, 2016, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Bank’s category.
the little bank Leadership
Vincent R. Jones
Chief Executive Officer
Anne R. Corey
Executive Vice President
Chief Credit Officer
Doyle M. Thigpen
Executive Vice President
Chief Financial Officer & Secretary
Susan W. Barrett
Executive Vice President
Chief Operations Officer
Board of Directors
Robert Lee Burrows, Jr.
Chairman of the Board,
the little bank
CEO of Banks Street Partners. LLC
Vincent R. Jones
President & Chief Executive Officer, the little bank
Dr. Raymond C. Ball, Jr.
Coastal Carolina Orthodontics
J.P. Davenport & Son Inc.
C. Dwight Howard
President, Carolina Greenhouses, Carolina Soil Company, Howard Development, Ince., East Coast Modular, Inc., How Corp, LLC, and Eastern Warehouses, LLC
President, Tands Inc., Bojangles Franchisee President, McRae & Associates, Inc., Management Company for the Franchise
President & Owner,
W.A. Moore & Co.
President, Weil Enterprises, Real Estate Development & Management
James T. Hill, Jr.
Tull Hill Farms, Ince.
President and Owner,
Contract Flooring Design
Womack Electric Supply Co., Inc.
Stock Transfer Agent
Broadridge Corporate Issuer Solutions, Inc.
51 Mercedes Way
Edgewood, NY 11717
Market for Common Stock
The little bank’s common stock is traded on the OTCQX under the symbol “LTLB”.
Dixon Hughes Goodman LLP
1003 Red Banks Road
Greenville, NC 27858