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Share Name | Share Symbol | Market | Type |
---|---|---|---|
CB Financial Services Inc | NASDAQ:CBFV | NASDAQ | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 24.57 | 9.78 | 39.10 | 0 | 01:00:00 |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2016
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: 001-36706
CB FINANCIAL SERVICES, INC. | ||
(Exact name of registrant as specified in its charter) |
Pennsylvania | 51-0534721 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
100 N. Market Street, Carmichaels, PA | 15320 | |
(Address of principal executive offices) | (Zip Code) |
(724) 966-5041 | ||
(Registrant’s telephone number, including area code) |
N/A | ||
(Former name, former address and former fiscal year, if changed since last report) |
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☒ | |
Non-accelerated filer ☐ (Do not check if a smaller reporting company) | Smaller reporting company ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 7, 2016, the number of shares outstanding of the Registrant’s Common Stock was 4,081,017.
|
FORM 10-Q
INDEX
|
PART I – FINANCIAL INFORMATION
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(Unaudited) | ||||||||
(Dollars in thousands, except share data) |
September
30,
2016 |
December
31,
2015 |
||||||
ASSETS | ||||||||
Cash and Due From Banks: | ||||||||
Interest Bearing | $ | 2,420 | $ | 2,316 | ||||
Non-Interest Bearing | 12,524 | 9,024 | ||||||
Total Cash and Due From Banks | 14,944 | 11,340 | ||||||
Investment Securities: | ||||||||
Available-for-Sale | 96,473 | 95,863 | ||||||
Loans, Net | 671,928 | 676,864 | ||||||
Premises and Equipment, Net | 13,109 | 10,277 | ||||||
Bank-Owned Life Insurance | 18,571 | 18,209 | ||||||
Goodwill | 4,953 | 4,953 | ||||||
Core Deposit Intangible, Net | 3,952 | 4,353 | ||||||
Accrued Interest and Other Assets | 9,623 | 8,818 | ||||||
TOTAL ASSETS | $ | 833,553 | $ | 830,677 | ||||
LIABILITIES | ||||||||
Deposits: | ||||||||
Demand Deposits | $ | 162,810 | $ | 161,053 | ||||
NOW Accounts | 99,362 | 99,514 | ||||||
Money Market Accounts | 140,435 | 134,294 | ||||||
Savings Accounts | 121,837 | 121,415 | ||||||
Time Deposits | 138,197 | 145,651 | ||||||
Brokered Deposits | 15,707 | 17,372 | ||||||
Total Deposits | 678,348 | 679,299 | ||||||
Short-Term Borrowings | 33,615 | 32,448 | ||||||
Other Borrowed Funds | 28,000 | 28,000 | ||||||
Accrued Interest and Other Liabilities | 3,510 | 4,034 | ||||||
TOTAL LIABILITIES | 743,473 | 743,781 | ||||||
STOCKHOLDERS' EQUITY | ||||||||
Preferred Stock, No Par Value; 5,000,000 Shares Authorized | - | - | ||||||
Common Stock, $0.4167 Par Value; 35,000,000 Shares Authorized, 4,363,346 Shares Issued and 4,081,017 Shares Outstanding at September 30, 2016 and December 31, 2015, Respectively | 1,818 | 1,818 | ||||||
Capital Surplus | 41,876 | 41,614 | ||||||
Retained Earnings | 50,589 | 47,725 | ||||||
Treasury Stock, at Cost (282,329 Shares at September 30, 2016 and December 31, 2015, Respectively) | (4,836 | ) | (4,836 | ) | ||||
Accumulated Other Comprehensive Income | 633 | 575 | ||||||
TOTAL STOCKHOLDERS' EQUITY | 90,080 | 86,896 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 833,553 | $ | 830,677 |
The accompanying notes are an integral part of these consolidated financial statements
1 |
|
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
|||||||||||||||
(Dollars in thousands, except share and per share data) | 2016 | 2015 | 2016 | 2015 | ||||||||||||
INTEREST AND DIVIDEND INCOME | ||||||||||||||||
Loans, Including Fees | $ | 7,093 | $ | 7,390 | $ | 21,913 | $ | 22,256 | ||||||||
Federal Funds Sold | 3 | 4 | 15 | 11 | ||||||||||||
Investment Securities: | ||||||||||||||||
Taxable | 287 | 237 | 918 | 704 | ||||||||||||
Exempt From Federal Income Tax | 261 | 278 | 787 | 848 | ||||||||||||
Other Interest and Dividend Income | 40 | 37 | 123 | 241 | ||||||||||||
TOTAL INTEREST AND DIVIDEND INCOME | 7,684 | 7,946 | 23,756 | 24,060 | ||||||||||||
INTEREST EXPENSE | ||||||||||||||||
Deposits | 557 | 577 | 1,678 | 1,769 | ||||||||||||
Federal Funds Purchased | 1 | - | 2 | 1 | ||||||||||||
Short-Term Borrowings | 21 | 16 | 50 | 61 | ||||||||||||
Other Borrowed Funds | 129 | 66 | 383 | 218 | ||||||||||||
TOTAL INTEREST EXPENSE | 708 | 659 | 2,113 | 2,049 | ||||||||||||
NET INTEREST INCOME | 6,976 | 7,287 | 21,643 | 22,011 | ||||||||||||
Provision For Loan Losses | 450 | 300 | 1,600 | 975 | ||||||||||||
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES | 6,526 | 6,987 | 20,043 | 21,036 | ||||||||||||
NONINTEREST INCOME | ||||||||||||||||
Service Fees on Deposit Accounts | 619 | 632 | 1,811 | 1,834 | ||||||||||||
Insurance Commissions | 676 | 772 | 2,291 | 2,640 | ||||||||||||
Other Commissions | 112 | 142 | 341 | 379 | ||||||||||||
Net Gains on Sales of Loans | 249 | 205 | 559 | 248 | ||||||||||||
Net Gains on Sales of Investments | 22 | - | 80 | - | ||||||||||||
Income from Bank-Owned Life Insurance | 123 | 119 | 362 | 354 | ||||||||||||
Other | 20 | 35 | 93 | 82 | ||||||||||||
TOTAL NONINTEREST INCOME | 1,821 | 1,905 | 5,537 | 5,537 | ||||||||||||
NONINTEREST EXPENSE | ||||||||||||||||
Salaries and Employee Benefits | 3,291 | 3,131 | 9,945 | 9,466 | ||||||||||||
Occupancy | 544 | 428 | 1,456 | 1,326 | ||||||||||||
Equipment | 463 | 411 | 1,317 | 1,215 | ||||||||||||
FDIC Assessment | 112 | 120 | 353 | 373 | ||||||||||||
PA Shares Tax | 138 | 165 | 543 | 513 | ||||||||||||
Contracted Services | 155 | 156 | 444 | 440 | ||||||||||||
Legal and Professional Fees | 140 | 118 | 395 | 359 | ||||||||||||
Advertising | 189 | 233 | 543 | 679 | ||||||||||||
Bankcard Processing Expense | 125 | 116 | 359 | 343 | ||||||||||||
Other Real Estate Owned Expense (Income) | 4 | 32 | (531 | ) | (210 | ) | ||||||||||
Amortization of Core Deposit Intangible | 134 | 134 | 401 | 401 | ||||||||||||
Other | 870 | 816 | 2,542 | 2,237 | ||||||||||||
TOTAL NONINTEREST EXPENSE | 6,165 | 5,860 | 17,767 | 17,142 | ||||||||||||
Income Before Income Taxes | 2,182 | 3,032 | 7,813 | 9,431 | ||||||||||||
Income Taxes | 607 | 904 | 2,255 | 2,768 | ||||||||||||
NET INCOME | $ | 1,575 | $ | 2,128 | $ | 5,558 | $ | 6,663 | ||||||||
EARNINGS PER SHARE | ||||||||||||||||
Basic | $ | 0.38 | $ | 0.52 | $ | 1.36 | $ | 1.64 | ||||||||
Diluted | 0.38 | 0.52 | 1.36 | 1.64 | ||||||||||||
WEIGHTED AVERAGE SHARES OUTSTANDING | ||||||||||||||||
Basic | 4,081,017 | 4,071,462 | 4,081,017 | 4,071,462 | ||||||||||||
Diluted | 4,087,337 | 4,071,462 | 4,084,730 | 4,071,462 |
The accompanying notes are an integral part of these consolidated financial statements
2 |
|
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
|||||||||||||||
(Dollars in thousands) | 2016 | 2015 | 2016 | 2015 | ||||||||||||
Net Income | $ | 1,575 | $ | 2,128 | $ | 5,558 | $ | 6,663 | ||||||||
Other Comprehensive (Loss) Income: | ||||||||||||||||
Unrealized (Losses) Gains on Available-for-Sale Securities Net of Income (Benefit) Tax of $(106) and $151 for the Three Months Ended September 30, 2016 and 2015, Respectively, and $57 and $128 for the Nine Months Ended September 30, 2016 and 2015, Respectively | (205 | ) | 294 | 111 | 249 | |||||||||||
Reclassification Adjustment for Gains on Securities: Included in Net Income, Net of Income Tax of $7 for the Three Months Ended September 30, 2016, and $27 for the Nine Months Ended September 30, 2016 (1) | (15 | ) | - | (53 | ) | - | ||||||||||
Other Comprehensive (Loss) Income, Net of Income Tax | (220 | ) | 294 | 58 | 249 | |||||||||||
Total Comprehensive Income | $ | 1,355 | $ | 2,422 | $ | 5,616 | $ | 6,912 |
(1) | The gross amount of gains on securities of $22 for the Three Months Ended September 30, 2016 and $80 for the Nine Months Ended September 30, 2016, are reported as Net Gains on Sales of Investments on the Consolidated Statement of Income. The income tax effect is included in Income Taxes on the Consolidated Statement of Income. |
The accompanying notes are an integral part of these consolidated financial statements
3 |
|
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
(Dollars in thousands, except share and per share data) |
Shares
Issued |
Common
Stock |
Capital
Surplus |
Retained
Earnings |
Treasury
Stock |
Accumulated
Other Comprehensive Income |
Total
Stockholders Equity |
|||||||||||||||||||||
December 31, 2014 | 4,363,346 | $ | 1,818 | $ | 41,762 | $ | 42,766 | $ | (4,999 | ) | $ | 565 | $ | 81,912 | ||||||||||||||
Comprehensive Income: | ||||||||||||||||||||||||||||
Net Income | - | - | - | 6,663 | - | - | 6,663 | |||||||||||||||||||||
Other Comprehensive Income | - | - | - | - | - | 249 | 249 | |||||||||||||||||||||
Dividends Paid ($0.63 Per Share) | - | - | - | (2,565 | ) | - | - | (2,565 | ) | |||||||||||||||||||
September 30, 2015 | 4,363,346 | $ | 1,818 | $ | 41,762 | $ | 46,864 | $ | (4,999 | ) | $ | 814 | $ | 86,259 |
(Dollars in thousands, except share and per share data) |
Shares
Issued |
Common
Stock |
Capital
Surplus |
Retained
Earnings |
Treasury
Stock |
Accumulated
Other Comprehensive Income |
Total
Stockholders Equity |
|||||||||||||||||||||
December 31, 2015 | 4,363,346 | $ | 1,818 | $ | 41,614 | $ | 47,725 | $ | (4,836 | ) | $ | 575 | $ | 86,896 | ||||||||||||||
Comprehensive Income: | ||||||||||||||||||||||||||||
Net Income | - | - | - | 5,558 | - | - | 5,558 | |||||||||||||||||||||
Other Comprehensive Income | - | - | - | - | - | 58 | 58 | |||||||||||||||||||||
Stock-Based Compensation Expense | - | - | 262 | - | - | - | 262 | |||||||||||||||||||||
Dividends Paid ($0.66 Per Share) | - | - | - | (2,694 | ) | - | - | (2,694 | ) | |||||||||||||||||||
September 30, 2016 | 4,363,346 | $ | 1,818 | $ | 41,876 | $ | 50,589 | $ | (4,836 | ) | $ | 633 | $ | 90,080 |
The accompanying notes are an integral part of these consolidated financial statements
4 |
|
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Nine Months Ended
September 30, |
||||||||
(Dollars in thousands) | 2016 | 2015 | ||||||
OPERATING ACTIVITIES | ||||||||
Net Income | $ | 5,558 | $ | 6,663 | ||||
Αdjustmеnts to Rеconcilе Net Income to Net Cash Provided By Operating Activities: | ||||||||
Net Amortization on Investments | 154 | 523 | ||||||
Depreciation and Amortization | 2,051 | 1,944 | ||||||
Provision for Loan Losses | 1,600 | 975 | ||||||
Income from Bank-Owned Life Insurance | (362 | ) | (354 | ) | ||||
Proceeds From Mortgage Loans Sold | 18,757 | 53,476 | ||||||
Originations of Mortgage Loans for Sale | (18,386 | ) | (15,053 | ) | ||||
Gains on Sales of Loans | (559 | ) | (248 | ) | ||||
Gains on Sales of Investment Securities | (80 | ) | - | |||||
Gains on Sales of Other Real Estate Owned and Repossessed Assets | (49 | ) | (284 | ) | ||||
Noncash Expense for Stock-Based Compensation | 262 | - | ||||||
Decrease in Accrued Interest Receivable | 197 | 268 | ||||||
Valuation Adjustment on Foreclosed Real Estate | (566 | ) | - | |||||
Deferred Income Tax | (94 | ) | - | |||||
Increase in Taxes Payable | 1,123 | 111 | ||||||
Decrease in Accrued Interest Payable | (10 | ) | (36 | ) | ||||
Net (Payment) Refund of Federal/State Income Taxes | (2,115 | ) | 1,218 | |||||
Other, Net | 701 | 49 | ||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES | 8,182 | 49,252 | ||||||
INVESTING ACTIVITIES | ||||||||
Investment Securities Available for Sale: | ||||||||
Proceeds From Principal Repayments and Maturities | 59,023 | 32,068 | ||||||
Purchases of Securities | (60,035 | ) | (28,276 | ) | ||||
Proceeds from Sales of Securities | 416 | - | ||||||
Investment Securities Held-to-Maturity: | ||||||||
Proceeds From Principal Repayments and Maturities | - | 500 | ||||||
Net Increase in Loans | (572 | ) | (21,194 | ) | ||||
Purchase of Premises and Equipment | (1,229 | ) | (365 | ) | ||||
Proceeds From Sales of Other Real Estate Owned and Repossessed Assets | 175 | 15 | ||||||
Decrease in Restricted Equity Securities | 122 | 738 | ||||||
NET CASH USED IN INVESTING ACTIVITIES | (2,100 | ) | (16,514 | ) | ||||
FINANCING ACTIVITIES | ||||||||
Net Decrease in Deposits | (951 | ) | (7,548 | ) | ||||
Net Increase (Decrease) in Short-Term Borrowings | 1,167 | (18,776 | ) | |||||
Principal Payments on Other Borrowed Funds | - | (15,136 | ) | |||||
Proceeds from Other Borrowed Funds | - | 15,000 | ||||||
Cash Dividends Paid | (2,694 | ) | (2,565 | ) | ||||
NET CASH USED IN FINANCING ACTIVITIES | (2,478 | ) | (29,025 | ) | ||||
INCREASE IN CASH AND CASH EQUIVALENTS | 3,604 | 3,713 | ||||||
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR | 11,340 | 11,751 | ||||||
CASH AND DUE FROM BANKS AT END OF PERIOD | $ | 14,944 | $ | 15,464 | ||||
SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
Cash paid for: | ||||||||
Interest on deposits and borrowings (including interest credited to deposit accounts of $1,686 and $1,765 respectively) | $ | 2,123 | $ | 2,086 | ||||
Income taxes | 2,115 | 1,433 | ||||||
Real estate acquired in settlement of loans | 3,236 | 431 | ||||||
Transfer of real estate acquired in settlement of loans to premise and equipment | 2,350 | - |
The accompanying notes are an integral part of these consolidated financial statements
5 |
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The accompanying consolidated financial statements include the accounts of CB Financial Services, Inc. (“CB Financial”) and its wholly owned subsidiary, Community Bank (the “Bank”), and the Bank’s wholly-owned subsidiary, Exchange Underwriters, Inc. (“Exchange Underwriters”). CB Financial and the Bank are collectively referred to as the “Company”. All intercompany transactions and balances have been eliminated in consolidation.
The accompanying unaudited interim financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading in any material respect. In preparing financial statements in conformity with GAAP, management is required 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 income and expenses during the reporting period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to determination of the allowance for losses on loans, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, evaluation of securities for other-than-temporary impairment including related cash flow projections, goodwill impairment, and the valuation of deferred tax assets.
In the opinion of management, the accompanying unaudited interim financial statements include all adjustments considered necessary for a fair presentation of the Company’s financial position and results of operations at the dates and for the periods presented. All of these adjustments are of a normal, recurring nature, and they are the only adjustments included in the accompanying unaudited interim financial statements. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. Interim results are not necessarily indicative of results for a full year.
The Company evaluated the provisions of Accounting Standards Codification (“ASC”) Topic 280 and determined that segment reporting information related to Exchange Underwriters was not required to be presented because the segment comprises less than 10% of total interest and noninterest income and less than 10% of the combined assets of the Company.
The Company evaluated subsequent events through the date the consolidated financial statements were filed with the Securities and Exchange Commission and incorporated into the consolidated financial statements the effect of all material known events determined by ASC Topic 855, Subsequent Events , to be recognizable events.
Nature of Operations
The Company derives substantially all its income from banking and bank-related services which include interest earnings on commercial, commercial mortgage, residential real estate and consumer loan financing, as well as interest earnings on investment securities and fees generated from deposit services to its customers. The Company provides banking services primarily to communities in Greene, Allegheny, Washington, Fayette, and Westmoreland Counties located in southwestern Pennsylvania. The Company also conducts insurance brokerage activities through Exchange Underwriters.
Acquired Loans
Loans that were acquired in the merger with FedFirst Financial Corporation were recorded at fair value with no carryover of the related allowance for credit losses. The fair value of the acquired loans was estimated by management with the assistance of a third party valuation specialist.
For performing loans acquired in the merger, the excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable discount and is recognized into interest income over the remaining life of the loan. For purchased credit impaired (“PCI”) loans acquired in the merger, the difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the nonaccretable discount. The nonaccretable discount represents estimated future credit losses expected to be incurred over the life of the loan. Subsequent decreases to the expected cash flows require an evaluation to determine the need for an allowance for loan losses. Subsequent improvements in expected cash flows result in the reversal of a corresponding amount of the nonaccretable discount which is then reclassified as accretable discount that is recognized into interest income over the remaining life of the loan using the interest method. The evaluation of the amount of future cash flows that is expected to be collected is performed in a similar manner as that used to determine our allowance for credit losses. Charge-offs of the principal amount on acquired loans would be first applied to the nonaccretable discount portion of the fair value adjustment.
6 |
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Reclassifications
Certain comparative amounts for the prior year have been reclassified to conform to the current year presentation. Such reclassifications did not affect net income or stockholders’ equity.
Recent Accounting Standards
In August 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-15, Statement of Cash Flow (Topic 230): Classification of Certain Cash Receipts and Cash Payments . ASU 2016-15 addresses the following eight specific cash flow issues: debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted and the amendments should be applied using a retrospective transition method to each period presented. The Company is currently evaluating the impact that the amendments of ASU 2016-15, will have on the Company’s consolidated financial condition and results of operations.
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 amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, ASU 2016-13 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however this ASU will require that credit losses be presented as an allowance rather than as a write-down. ASU 2016-13 affects companies holding financial assets and net investment in leases that are not accounted for at fair value through net income. The ASU 2016-13 amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact that the amendments of ASU 2016-13, will have on the Company’s consolidated financial condition and results of operations.
In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting . ASU 2016-09 introduces amendments intended to simplify the accounting for stock compensation. ASU 2016-09 requires all excess tax benefits and tax deficiencies to be recognized as income tax expense or benefit in the income statement. The tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity should also recognize excess tax benefits, and assess the need for a valuation allowance, regardless of whether the benefit reduces taxes payable in the current period. The ASU also requires excess tax benefits be classified along with other income tax cash flows as an operating activity in the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods, with early adoption permitted. The Company is evaluating the provisions of ASU 2016-09, but, believes that its adoption will not have a material impact on the Company’s consolidated financial condition or results of operations.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) , which increases the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 will require lessees to recognize a right-of-use (ROU) asset for its right to use the underlying asset and a lease liability for the corresponding lease obligation for leases with terms of more than twelve months. Both the ROU asset and lease liability will initially be measured at the present value of the future minimum lease payments over the lease term. Subsequent measurement, including the presentation of expenses and cash flows, will depend on the classification of the lease as either a finance or an operating lease. Accounting by lessors will remain largely unchanged from current U.S. GAAP. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted, and is to be applied as of the beginning of the earliest period presented using a modified retrospective approach. The Company is currently evaluating the impact that the provisions of ASU 2016-02, will have on the Company’s consolidated financial condition and results of operations.
7 |
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Recent Accounting Standards (continued)
In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10) , which enhances the reporting model for financial instruments regarding certain aspects of recognition, measurement, presentation, and disclosure. ASU 2016-01 (i) requires equity investments (except those accounted for under the equity method or that are consolidated) to be measured at fair value with changes in fair value recognized in net income; (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (iii) eliminates the requirement for an entity to disclose the methods and significant assumptions used to estimate the fair value of financial instruments measured at amortized cost; (iv) requires an entity to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; and (v) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or in the accompanying notes to the financial statements. ASU 2016-01 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and is to be applied using a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The Company is evaluating the provisions of ASU 2016-01, but does not believe that its adoption will have a material impact on the Company’s consolidated financial condition and results of operations.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers , which establishes a comprehensive revenue recognition standard for virtually all industries under GAAP, including those that previously followed industry-specific guidance such as the real estate, construction and software industries. ASU 2014-09 specifies that an entity shall recognize revenue when, or as, the entity satisfies a performance obligation by transferring a promised good or service (i.e. an asset) to a customer. An asset is transferred when, or as, the customer obtains control of the asset. Entities are required to disclose qualitative and quantitative information on the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In August 2015, the FASB issued ASU 2015-14, which defers the effective date of ASU 2014-09. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Company may elect, to early adopt the standard, but not before fiscal years beginning after December 15, 2016. The amendments may be applied retrospectively to each period presented or retrospectively with the cumulative effect recognized as of the date of initial application. The Company is evaluating the provisions of ASUs 2014-09 and 2015-14, but does not believe that their adoption will have a material impact on the Company’s consolidated financial condition and results of operations.
Note 2. Earnings Per Share
There are no convertible securities which would affect the numerator in calculating basic and diluted earnings per share; therefore, net income as presented on the Consolidated Statement of Income is used as the numerator.
The following table sets forth the composition of the weighted-average common shares (denominator) used in the basic and diluted earnings per share computation.
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
|||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Weighted-Average Common Shares Outstanding | 4,363,346 | 4,363,346 | 4,363,346 | 4,363,346 | ||||||||||||
Average Treasury Stock Shares | (282,329 | ) | (291,884 | ) | (282,329 | ) | (291,884 | ) | ||||||||
Weighted-Average Common Shares and Common Stock Equivalents Used to Calculate Basic Earnings Per Share | 4,081,017 | 4,071,462 | 4,081,017 | 4,071,462 | ||||||||||||
Additional Common Stock Equivalents (Restricted Stock) Used to Calculate Diluted Earnings Per Share | 6,320 | - | 3,713 | - | ||||||||||||
Weighted-Average Common Shares and Common Stock Equivalents Used to Calculate Diluted Earnings Per Share | 4,087,337 | 4,071,462 | 4,084,730 | 4,071,462 | ||||||||||||
Earnings per share: | ||||||||||||||||
Basic | $ | 0.38 | $ | 0.52 | $ | 1.36 | $ | 1.64 | ||||||||
Diluted | $ | 0.38 | $ | 0.52 | $ | 1.36 | $ | 1.64 |
8 |
|
Note 3. Investment Securities
The following table presents the amortized cost and fair value of investment securities available-for-sale at the dates indicated:
(Dollars in thousands) | ||||||||||||||||
September 30, 2016 | ||||||||||||||||
Amortized
Cost |
Gross
Unrealized Gains |
Gross
Unrealized Losses |
Fair
Value |
|||||||||||||
U.S. Government Agencies | $ | 53,745 | $ | 187 | $ | (55 | ) | $ | 53,877 | |||||||
Obligations of States and Political Subdivisions | 37,527 | 700 | (24 | ) | 38,203 | |||||||||||
Mortgage-Backed Securities - Government-Sponsored Enterprises | 2,783 | 71 | - | 2,854 | ||||||||||||
Equity Securities - Mutual Funds | 500 | 21 | - | 521 | ||||||||||||
Equity Securities - Other | 959 | 62 | (3 | ) | 1,018 | |||||||||||
Total | $ | 95,514 | $ | 1,041 | $ | (82 | ) | $ | 96,473 |
December 31, 2015 | ||||||||||||||||
Amortized
Cost |
Gross
Unrealized Gains |
Gross
Unrealized Losses |
Fair
Value |
|||||||||||||
U.S. Government Agencies | $ | 51,151 | $ | 147 | $ | (110 | ) | $ | 51,188 | |||||||
Obligations of States and Political Subdivisions | 39,351 | 760 | (37 | ) | 40,074 | |||||||||||
Mortgage-Backed Securities - Government-Sponsored Enterprises | 3,390 | 13 | - | 3,403 | ||||||||||||
Equity Securities - Mutual Funds | 500 | 13 | - | 513 | ||||||||||||
Equity Securities - Other | 600 | 85 | - | 685 | ||||||||||||
Total | $ | 94,992 | $ | 1,018 | $ | (147 | ) | $ | 95,863 |
The following tables show the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position at the dates indicated:
(Dollars in thousands) | ||||||||||||||||||||||||||||||||||||
September 30, 2016 | ||||||||||||||||||||||||||||||||||||
Less than 12 months | 12 Months or Greater | Total | ||||||||||||||||||||||||||||||||||
Number
of Securities |
Fair
Value |
Gross
Unrealized Losses |
Number
of Securities |
Fair
Value |
Gross
Unrealized Losses |
Number
of Securities |
Fair
Value |
Gross
Unrealized Losses |
||||||||||||||||||||||||||||
U.S. Government Agencies | 9 | $ | 25,367 | $ | (55 | ) | - | $ | - | $ | - | 9 | $ | 25,367 | $ | (55 | ) | |||||||||||||||||||
Obligations of States and Political Subdivisions | 9 | 4,160 | (23 | ) | 1 | 262 | (1 | ) | 10 | 4,422 | (24 | ) | ||||||||||||||||||||||||
Equity Securities - Other | 3 | 249 | (3 | ) | - | - | - | 3 | 249 | (3 | ) | |||||||||||||||||||||||||
Total | 21 | $ | 29,776 | $ | (81 | ) | 1 | $ | 262 | $ | (1 | ) | 22 | $ | 30,038 | $ | (82 | ) |
9 |
|
December 31, 2015 | ||||||||||||||||||||||||||||||||||||
Less than 12 months | 12 Months or Greater | Total | ||||||||||||||||||||||||||||||||||
Number
of Securities |
Fair
Value |
Gross
Unrealized Losses |
Number
of Securities |
Fair
Value |
Gross
Unrealized Losses |
Number
of Securities |
Fair
Value |
Gross
Unrealized Losses |
||||||||||||||||||||||||||||
U.S. Government Agencies | 6 | $ | 14,928 | $ | (110 | ) | - | $ | - | $ | - | 6 | $ | 14,928 | $ | (110 | ) | |||||||||||||||||||
Obligations of States and Political Subdivisions | 11 | 5,333 | (25 | ) | 8 | 4,549 | (12 | ) | 19 | 9,882 | (37 | ) | ||||||||||||||||||||||||
Total | 17 | $ | 20,261 | $ | (135 | ) | 8 | $ | 4,549 | $ | (12 | ) | 25 | $ | 24,810 | $ | (147 | ) |
For debt securities, the Company does not believe any individual unrealized loss as of September 30, 2016 and December 31, 2015 represents an other-than-temporary impairment. The Company performs a review of the entire securities portfolio on a quarterly basis to identify securities that may indicate an other-than-temporary impairment. The Company’s management considers the length of time and the extent to which the fair value has been less than cost, and the financial condition of the issuer. The securities that are temporarily impaired at September 30, 2016 and December 31, 2015 relate principally to changes in interest rates subsequent to the acquisition of the specific securities. The Company does not intend to sell or it is not more likely than not that it will be required to sell any of the securities in an unrealized loss position before recovery of its amortized cost or maturity of the security.
The following table presents the scheduled maturities of investment securities as of the date indicated:
(Dollars in thousands) | ||||||||
September 30, 2016 | ||||||||
Available-for-Sale | ||||||||
Amortized
Cost |
Fair
Value |
|||||||
Due in One Year or Less | $ | 4,294 | $ | 4,331 | ||||
Due after One Year through Five Years | 14,721 | 14,957 | ||||||
Due after Five Years through Ten Years | 71,951 | 72,491 | ||||||
Due after Ten Years | 4,548 | 4,694 | ||||||
Total | $ | 95,514 | $ | 96,473 |
Equity Securities – Mutual Funds and Equity Securities – Other do not have a scheduled maturity date, but have been included in the Due After Ten Years category.
10 |
|
Note 4. Loans and Related Allowance for Loan Loss
The Company’s loan portfolio is made up of four classifications: real estate loans, commercial and industrial loans, consumer loans and other loans. These segments are further segregated between loans accounted for under the amortized cost method (“Originated Loans”) and acquired loans that were originally recorded at fair value with no carryover of the related pre-merger allowance for loan losses (“Loans Acquired at Fair Value”). The following table presents the major classifications of loans as of the dates indicated.
(Dollars in thousands) | ||||||||||||||||
September 30, 2016 | December 31, 2015 | |||||||||||||||
Amount | Percent | Amount | Percent | |||||||||||||
Originated Loans | ||||||||||||||||
Real Estate: | ||||||||||||||||
Residential | $ | 179,415 | 35.1 | % | $ | 170,169 | 35.2 | % | ||||||||
Commercial | 137,048 | 26.9 | 127,614 | 26.4 | ||||||||||||
Construction | 9,685 | 1.9 | 17,343 | 3.6 | ||||||||||||
Commercial and Industrial | 66,039 | 12.9 | 60,487 | 12.5 | ||||||||||||
Consumer | 112,810 | 22.1 | 103,605 | 21.4 | ||||||||||||
Other | 5,459 | 1.1 | 4,592 | 0.9 | ||||||||||||
Total Originated Loans | 510,456 | 100.0 | % | 483,810 | 100.0 | % | ||||||||||
Allowance for Loan Losses | (7,328 | ) | (6,490 | ) | ||||||||||||
Loans, Net | $ | 503,128 | $ | 477,320 | ||||||||||||
Loans Acquired at Fair Value | ||||||||||||||||
Real Estate: | ||||||||||||||||
Residential | $ | 89,987 | 53.3 | % | $ | 103,058 | 51.7 | % | ||||||||
Commercial | 67,254 | 39.8 | 75,406 | 37.8 | ||||||||||||
Construction | 166 | 0.1 | 3,870 | 1.9 | ||||||||||||
Commercial and Industrial | 11,333 | 6.7 | 16,660 | 8.3 | ||||||||||||
Consumer | 198 | 0.1 | 550 | 0.3 | ||||||||||||
Total Loans Acquired at Fair Value | 168,938 | 100.0 | % | 199,544 | 100.0 | % | ||||||||||
Allowance for Loan Losses | (138 | ) | - | |||||||||||||
Loans, Net | $ | 168,800 | $ | 199,544 | ||||||||||||
Total Loans | ||||||||||||||||
Real Estate: | ||||||||||||||||
Residential | $ | 269,402 | 39.7 | % | $ | 273,227 | 40.0 | % | ||||||||
Commercial | 204,302 | 30.1 | 203,020 | 29.7 | ||||||||||||
Construction | 9,851 | 1.4 | 21,213 | 3.1 | ||||||||||||
Commercial and Industrial | 77,372 | 11.4 | 77,147 | 11.3 | ||||||||||||
Consumer | 113,008 | 16.6 | 104,155 | 15.2 | ||||||||||||
Other | 5,459 | 0.8 | 4,592 | 0.7 | ||||||||||||
Total Loans | 679,394 | 100.0 | % | 683,354 | 100.0 | % | ||||||||||
Allowance for Loan Losses | (7,466 | ) | (6,490 | ) | ||||||||||||
Loans, Net | $ | 671,928 | $ | 676,864 |
Total unamortized net deferred loan fees were $783,000 and $705,000 at September 30, 2016 and December 31, 2015, respectively.
Real estate loans serviced for others, which are not included in the Consolidated Statement of Financial Condition, totaled $84.2 million and $73.1 million at September 30, 2016 and December 31, 2015, respectively.
11 |
|
The following table presents loans summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk rating system as of the dates indicated. At September 30, 2016 and December 31, 2015, there were no loans in the criticized category of Loss within the internal risk rating system.
(Dollars in thousands) | ||||||||||||||||||||
September 30, 2016 | ||||||||||||||||||||
Pass |
Special
Mention |
Substandard | Doubtful | Total | ||||||||||||||||
Originated Loans | ||||||||||||||||||||
Real Estate: | ||||||||||||||||||||
Residential | $ | 178,134 | $ | 861 | $ | 420 | $ | - | $ | 179,415 | ||||||||||
Commercial | 118,005 | 13,995 | 4,108 | 940 | 137,048 | |||||||||||||||
Construction | 8,894 | 684 | - | 107 | 9,685 | |||||||||||||||
Commercial and Industrial | 60,078 | 3,834 | 2,127 | - | 66,039 | |||||||||||||||
Consumer | 112,755 | - | 55 | - | 112,810 | |||||||||||||||
Other | 5,459 | - | - | - | 5,459 | |||||||||||||||
Total Originated Loans | $ | 483,325 | $ | 19,374 | $ | 6,710 | $ | 1,047 | $ | 510,456 | ||||||||||
Loans Acquired at Fair Value | ||||||||||||||||||||
Real Estate: | ||||||||||||||||||||
Residential | $ | 87,410 | $ | - | $ | 2,577 | $ | - | $ | 89,987 | ||||||||||
Commercial | 62,828 | 1,476 | 2,950 | - | 67,254 | |||||||||||||||
Construction | 166 | - | - | - | 166 | |||||||||||||||
Commercial and Industrial | 10,661 | 44 | 500 | 128 | 11,333 | |||||||||||||||
Consumer | 198 | - | - | - | 198 | |||||||||||||||
Total Loans Acquired at Fair Value | $ | 161,263 | $ | 1,520 | $ | 6,027 | $ | 128 | $ | 168,938 | ||||||||||
Total Loans | ||||||||||||||||||||
Real Estate: | ||||||||||||||||||||
Residential | $ | 265,544 | $ | 861 | $ | 2,997 | $ | - | $ | 269,402 | ||||||||||
Commercial | 180,833 | 15,471 | 7,058 | 940 | 204,302 | |||||||||||||||
Construction | 9,060 | 684 | - | 107 | 9,851 | |||||||||||||||
Commercial and Industrial | 70,739 | 3,878 | 2,627 | 128 | 77,372 | |||||||||||||||
Consumer | 112,953 | - | 55 | - | 113,008 | |||||||||||||||
Other | 5,459 | - | - | - | 5,459 | |||||||||||||||
Total Loans | $ | 644,588 | $ | 20,894 | $ | 12,737 | $ | 1,175 | $ | 679,394 |
12 |
|
December 31, 2015 | ||||||||||||||||||||
Pass |
Special
Mention |
Substandard | Doubtful | Total | ||||||||||||||||
Originated Loans | ||||||||||||||||||||
Real Estate: | ||||||||||||||||||||
Residential | $ | 169,233 | $ | 249 | $ | 682 | $ | 5 | $ | 170,169 | ||||||||||
Commercial | 113,087 | 6,870 | 6,565 | 1,092 | 127,614 | |||||||||||||||
Construction | 16,384 | 729 | - | 230 | 17,343 | |||||||||||||||
Commercial and Industrial | 57,586 | 2,145 | 756 | - | 60,487 | |||||||||||||||
Consumer | 103,591 | - | 14 | - | 103,605 | |||||||||||||||
Other | 4,592 | - | - | - | 4,592 | |||||||||||||||
Total Originated Loans | $ | 464,473 | $ | 9,993 | $ | 8,017 | $ | 1,327 | $ | 483,810 | ||||||||||
Loans Acquired at Fair Value | ||||||||||||||||||||
Real Estate: | ||||||||||||||||||||
Residential | $ | 100,633 | $ | - | $ | 2,425 | $ | - | $ | 103,058 | ||||||||||
Commercial | 69,539 | 2,252 | 3,615 | - | 75,406 | |||||||||||||||
Construction | 3,870 | - | - | - | 3,870 | |||||||||||||||
Commercial and Industrial | 15,601 | 996 | 63 | - | 16,660 | |||||||||||||||
Consumer | 550 | - | - | - | 550 | |||||||||||||||
Total Loans Acquired at Fair Value | $ | 190,193 | $ | 3,248 | $ | 6,103 | $ | - | $ | 199,544 | ||||||||||
Total Loans | ||||||||||||||||||||
Real Estate: | ||||||||||||||||||||
Residential | $ | 269,866 | $ | 249 | $ | 3,107 | $ | 5 | $ | 273,227 | ||||||||||
Commercial | 182,626 | 9,122 | 10,180 | 1,092 | 203,020 | |||||||||||||||
Construction | 20,254 | 729 | - | 230 | 21,213 | |||||||||||||||
Commercial and Industrial | 73,187 | 3,141 | 819 | - | 77,147 | |||||||||||||||
Consumer | 104,141 | - | 14 | - | 104,155 | |||||||||||||||
Other | 4,592 | - | - | - | 4,592 | |||||||||||||||
Total Loans | $ | 654,666 | $ | 13,241 | $ | 14,120 | $ | 1,327 | $ | 683,354 |
13 |
|
The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of the dates indicated.
(Dollars in thousands) | ||||||||||||||||||||||||||||
September 30, 2016 | ||||||||||||||||||||||||||||
Loans
Current |
30-59
Days Past Due |
60-89
Days Past Due |
90 Days
Or More Past Due |
Total
Past Due |
Non-
Accrual |
Total
Loans |
||||||||||||||||||||||
Originated Loans | ||||||||||||||||||||||||||||
Real Estate: | ||||||||||||||||||||||||||||
Residential | $ | 178,819 | $ | 173 | $ | - | $ | - | $ | 173 | $ | 423 | $ | 179,415 | ||||||||||||||
Commercial | 136,875 | 99 | - | - | 99 | 74 | 137,048 | |||||||||||||||||||||
Construction | 9,578 | - | - | - | - | 107 | 9,685 | |||||||||||||||||||||
Commercial and Industrial | 65,590 | 50 | 391 | - | 441 | 8 | 66,039 | |||||||||||||||||||||
Consumer | 111,431 | 1,132 | 105 | 87 | 1,324 | 55 | 112,810 | |||||||||||||||||||||
Other | 5,459 | - | - | - | - | - | 5,459 | |||||||||||||||||||||
Total Originated Loans | $ | 507,752 | $ | 1,454 | $ | 496 | $ | 87 | $ | 2,037 | $ | 667 | $ | 510,456 | ||||||||||||||
Loans Acquired at Fair Value | ||||||||||||||||||||||||||||
Real Estate: | ||||||||||||||||||||||||||||
Residential | $ | 88,242 | $ | - | $ | - | $ | 76 | $ | 76 | $ | 1,669 | $ | 89,987 | ||||||||||||||
Commercial | 66,246 | - | - | - | - | 1,008 | 67,254 | |||||||||||||||||||||
Construction | 166 | - | - | - | - | - | 166 | |||||||||||||||||||||
Commercial and Industrial | 11,333 | - | - | - | - | - | 11,333 | |||||||||||||||||||||
Consumer | 198 | - | - | - | - | - | 198 | |||||||||||||||||||||
Total Loans Acquired at Fair Value | $ | 166,185 | $ | - | $ | - | $ | 76 | $ | 76 | $ | 2,677 | $ | 168,938 | ||||||||||||||
Total Loans | ||||||||||||||||||||||||||||
Real Estate: | ||||||||||||||||||||||||||||
Residential | $ | 267,061 | $ | 173 | $ | - | $ | 76 | $ | 249 | $ | 2,092 | $ | 269,402 | ||||||||||||||
Commercial | 203,121 | 99 | - | - | 99 | 1,082 | 204,302 | |||||||||||||||||||||
Construction | 9,744 | - | - | - | - | 107 | 9,851 | |||||||||||||||||||||
Commercial and Industrial | 76,923 | 50 | 391 | - | 441 | 8 | 77,372 | |||||||||||||||||||||
Consumer | 111,629 | 1,132 | 105 | 87 | 1,324 | 55 | 113,008 | |||||||||||||||||||||
Other | 5,459 | - | - | - | - | - | 5,459 | |||||||||||||||||||||
Total Loans | $ | 673,937 | $ | 1,454 | $ | 496 | $ | 163 | $ | 2,113 | $ | 3,344 | $ | 679,394 |
14 |
|
December 31, 2015 | ||||||||||||||||||||||||||||
Loans
Current |
30-59
Days Past Due |
60-89
Days Past Due |
90 Days
Or More Past Due |
Total
Past Due |
Non-
Accrual |
Total
Loans |
||||||||||||||||||||||
Originated Loans | ||||||||||||||||||||||||||||
Real Estate: | ||||||||||||||||||||||||||||
Residential | $ | 168,786 | $ | 563 | $ | 133 | $ | - | $ | 696 | $ | 687 | $ | 170,169 | ||||||||||||||
Commercial | 124,037 | 114 | - | - | 114 | 3,463 | 127,614 | |||||||||||||||||||||
Construction | 17,113 | - | - | - | - | 230 | 17,343 | |||||||||||||||||||||
Commercial and Industrial | 60,442 | 45 | - | - | 45 | - | 60,487 | |||||||||||||||||||||
Consumer | 102,629 | 923 | 39 | - | 962 | 14 | 103,605 | |||||||||||||||||||||
Other | 4,592 | - | - | - | - | - | 4,592 | |||||||||||||||||||||
Total Originated Loans | $ | 477,599 | $ | 1,645 | $ | 172 | $ | - | $ | 1,817 | $ | 4,394 | $ | 483,810 | ||||||||||||||
Loans Acquired at Fair Value | ||||||||||||||||||||||||||||
Real Estate: | ||||||||||||||||||||||||||||
Residential | $ | 99,794 | $ | 1,308 | $ | 263 | $ | 193 | $ | 1,764 | $ | 1,500 | $ | 103,058 | ||||||||||||||
Commercial | 73,988 | 1,019 | - | - | 1,019 | 399 | 75,406 | |||||||||||||||||||||
Construction | 3,870 | - | - | - | - | - | 3,870 | |||||||||||||||||||||
Commercial and Industrial | 16,450 | 38 | 130 | - | 168 | 42 | 16,660 | |||||||||||||||||||||
Consumer | 542 | 8 | - | - | 8 | - | 550 | |||||||||||||||||||||
Total Loans Acquired at Fair Value | $ | 194,644 | $ | 2,373 | $ | 393 | $ | 193 | $ | 2,959 | $ | 1,941 | $ | 199,544 | ||||||||||||||
Total Loans | ||||||||||||||||||||||||||||
Real Estate: | ||||||||||||||||||||||||||||
Residential | $ | 268,580 | $ | 1,871 | $ | 396 | $ | 193 | $ | 2,460 | $ | 2,187 | $ | 273,227 | ||||||||||||||
Commercial | 198,025 | 1,133 | - | - | 1,133 | 3,862 | 203,020 | |||||||||||||||||||||
Construction | 20,983 | - | - | - | - | 230 | 21,213 | |||||||||||||||||||||
Commercial and Industrial | 76,892 | 83 | 130 | - | 213 | 42 | 77,147 | |||||||||||||||||||||
Consumer | 103,171 | 931 | 39 | - | 970 | 14 | 104,155 | |||||||||||||||||||||
Other | 4,592 | - | - | - | - | - | 4,592 | |||||||||||||||||||||
Total Loans | $ | 672,243 | $ | 4,018 | $ | 565 | $ | 193 | $ | 4,776 | $ | 6,335 | $ | 683,354 |
15 |
|
The following table sets forth the amounts and categories of our nonperforming assets at the dates indicated. Included in nonperforming loans and assets are troubled debt restructurings (“TDRs”), which are loans whose contractual terms have been restructured in a manner which grants a concession to a borrower experiencing financial difficulties. Nonaccrual TDRs are included in their specific loan category in the nonaccrual loans section.
(Dollars in Thousands) | ||||||||
September 30,
2016 |
December 31,
2015 |
|||||||
Nonaccrual Loans: | ||||||||
Real Estate: | ||||||||
Residential | $ | 2,092 | $ | 2,187 | ||||
Commercial | 1,082 | 3,862 | ||||||
Construction | 107 | 230 | ||||||
Commercial and Industrial | 8 | 42 | ||||||
Consumer | 55 | 14 | ||||||
Total Nonaccrual Loans | 3,344 | 6,335 | ||||||
Accruing Loans Past Due 90 Days or More: | ||||||||
Real Estate: | ||||||||
Residential | 76 | 193 | ||||||
Consumer | 87 | - | ||||||
Total Accruing Loans 90 Days or More Past Due | 163 | 193 | ||||||
Total Nonaccrual Loans and Accruing Loans 90 Days or More Past Due | 3,507 | 6,528 | ||||||
Troubled Debt Restructurings, Accruing: | ||||||||
Originated Loans: | ||||||||
Real Estate - Commercial | 1,340 | 1,375 | ||||||
Commercial and Industrial | 6 | 7 | ||||||
Other | 5 | - | ||||||
Total Originated Loans | 1,351 | 1,382 | ||||||
Loans Acquired at Fair Value: | ||||||||
Real Estate - Residential | 1,311 | 1,296 | ||||||
Real Estate - Commercial | 678 | 1,488 | ||||||
Commercial and Industrial | 465 | - | ||||||
Total Loans Acquired at Fair Value | 2,454 | 2,784 | ||||||
Total Troubled Debt Restructurings, Accruing | 3,805 | 4,166 | ||||||
Total Nonperforming Loans | 7,312 | 10,694 | ||||||
Real Estate Owned: | ||||||||
Residential | 191 | 138 | ||||||
Commercial | 297 | 174 | ||||||
Total Real Estate Owned | 488 | 312 | ||||||
Total Nonperforming Assets | $ | 7,800 | $ | 11,006 | ||||
Nonperforming Loans to Total Loans | 1.08 | % | 1.56 | % | ||||
Nonperforming Assets to Total Assets | 0.94 | 1.32 |
The recorded investment of residential real estate loans for which formal foreclosure proceedings were in process according to local requirements of the applicable jurisdiction was $1.8 million and $3.8 million at September 30, 2016 and December 31, 2015, respectively.
TDRs typically are the result of our loss mitigation activities whereby concessions are granted to minimize loss and avoid foreclosure or repossession of collateral. The concessions granted for the TDRs in our portfolio primarily consist of, but are not limited to, modification of payment or other terms, temporary rate modification and extension of maturity date. Loans classified as TDRs consisted of 15 loans totaling $3.8 million and 13 loans totaling $4.2 million at September 30, 2016 and December 31, 2015, respectively. Originated loans classified as TDRs consisted of 5 loans totaling $1.4 million and 4 loans totaling $1.4 million at September 30, 2016 and December 31, 2015, respectively. Loans acquired at fair value as TDRs consisted of 10 loans totaling $2.5 million and 9 loans totaling $2.8 million at September 30, 2016 and December 31, 2015, respectively.
16 |
|
During the nine months ended September 30, 2016, one commercial loan previously identified as an acquired loan at fair value TDR paid off, an originated consumer loan modified terms in a new TDR transaction, and one commercial and one residential real estate loan that were acquired at fair value modified terms into new TDR transactions. During the nine months ended September 30, 2015, one commercial loan previously identified as an originated TDR and two other commercial loans were consolidated into one loan in a new TDR transaction. In addition, two commercial loans previously identified as originated TDRs were refinanced in new TDR transactions. During the three and nine months ended September 30, 2015, one commercial loan TDR acquired at fair value paid off. No TDRs have subsequently defaulted during the three or nine months ended September 30, 2016 and 2015, respectively.
The following table presents information at the time of modification related to loans modified as TDRs during the periods indicated. No loans were modified in a TDR during the three months ended September 30, 2016 and September 30, 2015.
(Dollars in thousands) | ||||||||||||||||
Nine Months Ended September 30, 2016 | ||||||||||||||||
Number
of Contracts |
Pre-
Modification Outstanding Recorded Investment |
Post-
Modification Outstanding Recorded Investment |
Related
Allowance |
|||||||||||||
Originated Loans | ||||||||||||||||
Other | 1 | $ | 7 | $ | 7 | $ | - | |||||||||
Total | 1 | $ | 7 | $ | 7 | $ | - | |||||||||
Loans Acquired at Fair Value | ||||||||||||||||
Real Estate | ||||||||||||||||
Residential | 1 | $ | 37 | $ | 45 | $ | - | |||||||||
Commercial | 1 | 539 | 539 | - | ||||||||||||
Total | 2 | $ | 576 | $ | 584 | $ | - |
Nine Months Ended September 30, 2015 | ||||||||||||||||
Number
of Contracts |
Pre-
Modification Outstanding Recorded Investment |
Post-
Modification Outstanding Recorded Investment |
Related
Allowance |
|||||||||||||
Originated Loans | ||||||||||||||||
Real Estate | ||||||||||||||||
Commercial | 2 | $ | 912 | $ | 1,135 | $ | 108 | |||||||||
Total | 2 | $ | 912 | $ | 1,135 | $ | 108 |
17 |
|
The following table presents a summary of the loans considered to be impaired as of the dates indicated.
(Dollars in thousands) | ||||||||||||||||||||
September 30, 2016 | ||||||||||||||||||||
Recorded
Investment |
Related
Allowance |
Unpaid
Principal Balance |
Average
Recorded Investment |
Interest
Income Recognized |
||||||||||||||||
With No Related Allowance Recorded: | ||||||||||||||||||||
Originated Loans | ||||||||||||||||||||
Real Estate: | ||||||||||||||||||||
Commercial | $ | 4,182 | $ | - | $ | 4,182 | $ | 4,322 | $ | 144 | ||||||||||
Construction | 107 | - | 107 | 179 | - | |||||||||||||||
Commercial and Industrial | 581 | - | 581 | 573 | 20 | |||||||||||||||
Other | 5 | - | 5 | 6 | - | |||||||||||||||
Total With No Related Allowance Recorded | $ | 4,875 | $ | - | $ | 4,875 | $ | 5,080 | $ | 164 | ||||||||||
Loans Acquired at Fair Value | ||||||||||||||||||||
Real Estate: | ||||||||||||||||||||
Residential | $ | 1,311 | $ | - | $ | 1,311 | $ | 1,325 | $ | 52 | ||||||||||
Commercial | 3,273 | - | 3,300 | 3,431 | 105 | |||||||||||||||
Commercial and Industrial | 500 | - | 500 | 570 | 16 | |||||||||||||||
Total With No Related Allowance Recorded | $ | 5,084 | $ | - | $ | 5,111 | $ | 5,326 | $ | 173 | ||||||||||
Total Loans | ||||||||||||||||||||
Real Estate: | ||||||||||||||||||||
Residential | $ | 1,311 | $ | - | $ | 1,311 | $ | 1,325 | $ | 52 | ||||||||||
Commercial | 7,455 | - | 7,482 | 7,753 | 249 | |||||||||||||||
Construction | 107 | - | 107 | 179 | - | |||||||||||||||
Commercial and Industrial | 1,081 | - | 1,081 | 1,143 | 36 | |||||||||||||||
Other | 5 | - | 5 | 6 | - | |||||||||||||||
Total With No Related Allowance Recorded | $ | 9,959 | $ | - | $ | 9,986 | $ | 10,406 | $ | 337 | ||||||||||
With A Related Allowance Recorded: | ||||||||||||||||||||
Originated Loans | ||||||||||||||||||||
Real Estate: | ||||||||||||||||||||
Commercial | $ | 1,265 | $ | 385 | $ | 1,265 | $ | 1,284 | $ | 50 | ||||||||||
Commercial and Industrial | 1,553 | 701 | 1,553 | 1,547 | 43 | |||||||||||||||
Total With A Related Allowance Recorded | $ | 2,818 | $ | 1,086 | $ | 2,818 | $ | 2,831 | $ | 93 | ||||||||||
Loans Acquired at Fair Value | ||||||||||||||||||||
Real Estate: | ||||||||||||||||||||
Commercial | $ | 355 | $ | 122 | $ | 437 | $ | 372 | $ | - | ||||||||||
Commercial and Industrial | 128 | 39 | 128 | 146 | 5 | |||||||||||||||
Total With A Related Allowance Recorded | $ | 483 | $ | 161 | $ | 565 | $ | 518 | $ | 5 | ||||||||||
Total Loans | ||||||||||||||||||||
Real Estate: | ||||||||||||||||||||
Commercial | $ | 1,620 | $ | 507 | $ | 1,702 | $ | 1,656 | $ | 50 | ||||||||||
Commercial and Industrial | 1,681 | 740 | 1,681 | 1,693 | 48 | |||||||||||||||
Total With A Related Allowance Recorded | $ | 3,301 | $ | 1,247 | $ | 3,383 | $ | 3,349 | $ | 98 |
18 |
|
September 30, 2016 (cont.) | ||||||||||||||||||||
Recorded
Investment |
Related
Allowance |
Unpaid
Principal Balance |
Average
Recorded Investment |
Interest
Income Recognized |
||||||||||||||||
Total Impaired Loans: | ||||||||||||||||||||
Originated Loans | ||||||||||||||||||||
Real Estate: | ||||||||||||||||||||
Commercial | $ | 5,447 | $ | 385 | $ | 5,447 | $ | 5,606 | $ | 194 | ||||||||||
Construction | 107 | - | 107 | 179 | - | |||||||||||||||
Commercial and Industrial | 2,134 | 701 | 2,134 | 2,120 | 63 | |||||||||||||||
Other | 5 | - | 5 | 6 | - | |||||||||||||||
Total Impaired Loans | $ | 7,693 | $ | 1,086 | $ | 7,693 | $ | 7,911 | $ | 257 | ||||||||||
Loans Acquired at Fair Value | ||||||||||||||||||||
Real Estate: | ||||||||||||||||||||
Residential | $ | 1,311 | $ | - | $ | 1,311 | $ | 1,325 | $ | 52 | ||||||||||
Commercial | 3,628 | 122 | 3,737 | 3,803 | 105 | |||||||||||||||
Construction | - | - | - | - | - | |||||||||||||||
Commercial and Industrial | 628 | 39 | 628 | 716 | 21 | |||||||||||||||
Other | - | - | - | - | - | |||||||||||||||
Total Impaired Loans | $ | 5,567 | $ | 161 | $ | 5,676 | $ | 5,844 | $ | 178 | ||||||||||
Total Loans | ||||||||||||||||||||
Real Estate: | ||||||||||||||||||||
Residential | $ | 1,311 | $ | - | $ | 1,311 | $ | 1,325 | $ | 52 | ||||||||||
Commercial | 9,075 | 507 | 9,184 | 9,409 | 299 | |||||||||||||||
Construction | 107 | - | 107 | 179 | - | |||||||||||||||
Commercial and Industrial | 2,762 | 740 | 2,762 | 2,836 | 84 | |||||||||||||||
Other | 5 | - | 5 | 6 | - | |||||||||||||||
Total Impaired Loans | $ | 13,260 | $ | 1,247 | $ | 13,369 | $ | 13,755 | $ | 435 |
19 |
|
December 31, 2015 | ||||||||||||||||||||
Recorded
Investment |
Related
Allowance |
Unpaid
Principal Balance |
Average
Recorded Investment |
Interest
Income Recognized |
||||||||||||||||
With No Related Allowance Recorded: | ||||||||||||||||||||
Originated Loans | ||||||||||||||||||||
Real Estate: | ||||||||||||||||||||
Residential | $ | 5 | $ | - | $ | 17 | $ | 6 | $ | - | ||||||||||
Commercial | 6,636 | - | 6,636 | 7,095 | 232 | |||||||||||||||
Construction | 229 | - | 230 | 292 | - | |||||||||||||||
Commercial and Industrial | 627 | - | 627 | 756 | 35 | |||||||||||||||
Total With No Related Allowance Recorded | $ | 7,497 | $ | - | $ | 7,510 | $ | 8,149 | $ | 267 | ||||||||||
Loans Acquired at Fair Value | ||||||||||||||||||||
Real Estate: | ||||||||||||||||||||
Residential | $ | 1,296 | $ | - | $ | 1,296 | $ | 1,315 | $ | 67 | ||||||||||
Commercial | 4,188 | - | 4,263 | 4,449 | 214 | |||||||||||||||
Commercial and Industrial | 63 | - | 63 | 79 | 3 | |||||||||||||||
Total With No Related Allowance Recorded | $ | 5,547 | $ | - | $ | 5,622 | $ | 5,843 | $ | 284 | ||||||||||
Total Loans | ||||||||||||||||||||
Real Estate: | ||||||||||||||||||||
Residential | $ | 1,301 | $ | - | $ | 1,313 | $ | 1,321 | $ | 67 | ||||||||||
Commercial | 10,824 | - | 10,899 | 11,544 | 446 | |||||||||||||||
Construction | 229 | - | 230 | 292 | - | |||||||||||||||
Commercial and Industrial | 690 | - | 690 | 835 | 38 | |||||||||||||||
Total With No Related Allowance Recorded | $ | 13,044 | $ | - | $ | 13,132 | $ | 13,992 | $ | 551 | ||||||||||
With A Related Allowance Recorded: | ||||||||||||||||||||
Originated Loans | ||||||||||||||||||||
Real Estate: | ||||||||||||||||||||
Commercial | $ | 1,436 | $ | 408 | $ | 1,441 | $ | 1,457 | $ | 37 | ||||||||||
Commercial and Industrial | 136 | 9 | 137 | 128 | 5 | |||||||||||||||
Total With A Related Allowance Recorded | $ | 1,572 | $ | 417 | $ | 1,578 | $ | 1,585 | $ | 42 | ||||||||||
Total Impaired Loans | ||||||||||||||||||||
Originated Loans | ||||||||||||||||||||
Real Estate: | ||||||||||||||||||||
Residential | $ | 5 | $ | - | $ | 17 | $ | 6 | $ | - | ||||||||||
Commercial | 8,072 | 408 | 8,077 | 8,552 | 269 | |||||||||||||||
Construction | 229 | - | 230 | 292 | - | |||||||||||||||
Commercial and Industrial | 763 | 9 | 764 | 884 | 40 | |||||||||||||||
Total Impaired Loans | $ | 9,069 | $ | 417 | $ | 9,088 | $ | 9,734 | $ | 309 | ||||||||||
Loans Acquired at Fair Value | ||||||||||||||||||||
Real Estate: | ||||||||||||||||||||
Residential | $ | 1,296 | $ | - | $ | 1,296 | $ | 1,315 | $ | 67 | ||||||||||
Commercial | 4,188 | - | 4,263 | 4,449 | 214 | |||||||||||||||
Commercial and Industrial | 63 | - | 63 | 79 | 3 | |||||||||||||||
Total Impaired Loans | $ | 5,547 | $ | - | $ | 5,622 | $ | 5,843 | $ | 284 | ||||||||||
Total Loans | ||||||||||||||||||||
Real Estate: | ||||||||||||||||||||
Residential | $ | 1,301 | $ | - | $ | 1,313 | $ | 1,321 | $ | 67 | ||||||||||
Commercial | 12,260 | 408 | 12,340 | 13,001 | 483 | |||||||||||||||
Construction | 229 | - | 230 | 292 | - | |||||||||||||||
Commercial and Industrial | 826 | 9 | 827 | 963 | 43 | |||||||||||||||
Total Impaired Loans | $ | 14,616 | $ | 417 | $ | 14,710 | $ | 15,577 | $ | 593 |
20 |
|
The following table presents the activity in the allowance for loan losses summarized by major classifications and segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for potential impairment for the periods indicated.
(Dollars in thousands) | ||||||||||||||||||||||||||||||||
September 30, 2016 | ||||||||||||||||||||||||||||||||
Real
Estate Residential |
Real
Estate Commercial |
Real
Estate Construction |
Commercial
and Industrial |
Consumer | Other | Unallocated | Total | |||||||||||||||||||||||||
Originated Loans | ||||||||||||||||||||||||||||||||
June 30, 2016 | $ | 1,110 | $ | 1,956 | $ | 82 | $ | 1,468 | $ | 2,143 | $ | 1 | $ | 295 | 7,055 | |||||||||||||||||
Charge-offs | (4 | ) | (11 | ) | - | - | (166 | ) | (17 | ) | - | (198 | ) | |||||||||||||||||||
Recoveries | 4 | - | - | - | 21 | 5 | - | 30 | ||||||||||||||||||||||||
Provision | (38 | ) | 77 | (20 | ) | 50 | 360 | 12 | - | 441 | ||||||||||||||||||||||
September 30, 2016 | $ | 1,072 | $ | 2,022 | $ | 62 | $ | 1,518 | $ | 2,358 | $ | 1 | $ | 295 | $ | 7,328 | ||||||||||||||||
Loans Acquired at Fair Value | ||||||||||||||||||||||||||||||||
June 30, 2016 | $ | - | $ | 11 | $ | - | $ | 115 | $ | - | $ | - | $ | 10 | $ | 136 | ||||||||||||||||
Charge-offs | (8 | ) | - | - | - | - | (2 | ) | - | (10 | ) | |||||||||||||||||||||
Recoveries | 2 | - | - | - | 1 | - | - | 3 | ||||||||||||||||||||||||
Provision | 6 | (11 | ) | - | 20 | (1 | ) | 2 | (7 | ) | 9 | |||||||||||||||||||||
September 30, 2016 | $ | - | $ | - | $ | - | $ | 135 | $ | - | $ | - | $ | 3 | $ | 138 | ||||||||||||||||
Total Allowance for Loan Losses | ||||||||||||||||||||||||||||||||
June 30, 2016 | $ | 1,110 | $ | 1,967 | $ | 82 | $ | 1,583 | $ | 2,143 | $ | 1 | $ | 305 | $ | 7,191 | ||||||||||||||||
Charge-offs | (12 | ) | (11 | ) | - | - | (166 | ) | (19 | ) | - | (208 | ) | |||||||||||||||||||
Recoveries | 6 | - | - | - | 22 | 5 | - | 33 | ||||||||||||||||||||||||
Provision | (32 | ) | 66 | (20 | ) | 70 | 359 | 14 | (7 | ) | 450 | |||||||||||||||||||||
September 30, 2016 | $ | 1,072 | $ | 2,022 | $ | 62 | $ | 1,653 | $ | 2,358 | $ | 1 | $ | 298 | $ | 7,466 | ||||||||||||||||
Originated Loans | ||||||||||||||||||||||||||||||||
December 31, 2015 | $ | 1,623 | $ | 2,045 | $ | 137 | $ | 784 | $ | 1,887 | $ | - | $ | 14 | 6,490 | |||||||||||||||||
Charge-offs | (24 | ) | (11 | ) | - | - | (476 | ) | (43 | ) | - | (554 | ) | |||||||||||||||||||
Recoveries | 8 | - | - | - | 102 | 16 | - | 126 | ||||||||||||||||||||||||
Provision | (535 | ) | (12 | ) | (75 | ) | 734 | 845 | 28 | 281 | 1,266 | |||||||||||||||||||||
September 30, 2016 | $ | 1,072 | $ | 2,022 | $ | 62 | $ | 1,518 | $ | 2,358 | $ | 1 | $ | 295 | $ | 7,328 | ||||||||||||||||
Loans Acquired at Fair Value | ||||||||||||||||||||||||||||||||
December 31, 2015 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||
Charge-offs | (24 | ) | (180 | ) | - | - | (7 | ) | - | - | (211 | ) | ||||||||||||||||||||
Recoveries | 7 | 2 | - | - | 6 | - | - | 15 | ||||||||||||||||||||||||
Provision | 17 | 178 | - | 135 | 1 | - | 3 | 334 | ||||||||||||||||||||||||
September 30, 2016 | $ | - | $ | - | $ | - | $ | 135 | $ | - | $ | - | $ | 3 | $ | 138 | ||||||||||||||||
Total Allowance for Loan Losses | ||||||||||||||||||||||||||||||||
December 31, 2015 | $ | 1,623 | $ | 2,045 | $ | 137 | $ | 784 | $ | 1,887 | $ | - | $ | 14 | $ | 6,490 | ||||||||||||||||
Charge-offs | (48 | ) | (191 | ) | - | - | (483 | ) | (43 | ) | - | (765 | ) | |||||||||||||||||||
Recoveries | 15 | 2 | - | - | 108 | 16 | - | 141 | ||||||||||||||||||||||||
Provision | (518 | ) | 166 | (75 | ) | 869 | 846 | 28 | 284 | 1,600 | ||||||||||||||||||||||
September 30, 2016 | $ | 1,072 | $ | 2,022 | $ | 62 | $ | 1,653 | $ | 2,358 | $ | 1 | $ | 298 | $ | 7,466 |
21 |
|
September 30, 2016 (cont.) | ||||||||||||||||||||||||||||||||
Real
Estate Residential |
Real
Estate Commercial |
Real
Estate Construction |
Commercial
and Industrial |
Consumer | Other | Unallocated | Total | |||||||||||||||||||||||||
Originated Loans | ||||||||||||||||||||||||||||||||
Individually Evaluated for Impairment | $ | - | $ | 385 | $ | - | $ | 701 | $ | - | $ | - | $ | - | $ | 1,086 | ||||||||||||||||
Collectively Evaluated for Potential Impairment | $ | 1,072 | $ | 1,637 | $ | 62 | $ | 817 | $ | 2,358 | $ | 1 | $ | 295 | $ | 6,242 | ||||||||||||||||
Loans Acquired at Fair Value | ||||||||||||||||||||||||||||||||
Individually Evaluated for Impairment | $ | - | $ | 122 | $ | - | $ | 39 | $ | - | $ | - | $ | - | $ | 161 | ||||||||||||||||
Collectively Evaluated for Potential Impairment | $ | - | $ | (122 | ) | $ | - | $ | 96 | $ | - | $ | - | $ | 3 | $ | (23 | ) | ||||||||||||||
Total Allowance for Loan Losses | ||||||||||||||||||||||||||||||||
Individually Evaluated for Impairment | $ | - | $ | 507 | $ | - | $ | 740 | $ | - | $ | - | $ | - | $ | 1,247 | ||||||||||||||||
Collectively Evaluated for Potential Impairment | $ | 1,072 | $ | 1,515 | $ | 62 | $ | 913 | $ | 2,358 | $ | 1 | $ | 298 | $ | 6,219 |
September 30, 2015 | ||||||||||||||||||||||||||||||||
Real
Estate Residential |
Real
Estate Commercial |
Real
Estate Construction |
Commercial
and Industrial |
Consumer | Other | Unallocated | Total | |||||||||||||||||||||||||
Originated Loans | ||||||||||||||||||||||||||||||||
June 30, 2015 | $ | 1,667 | $ | 1,746 | $ | 87 | $ | 917 | $ | 1,338 | $ | - | $ | (69 | ) | $ | 5,686 | |||||||||||||||
Charge-offs | (28 | ) | - | - | - | (114 | ) | - | - | (142 | ) | |||||||||||||||||||||
Recoveries | 4 | 1 | - | - | 39 | - | - | 44 | ||||||||||||||||||||||||
Provision | (87 | ) | 135 | 28 | (94 | ) | 241 | - | 77 | 300 | ||||||||||||||||||||||
September 30, 2015 | $ | 1,556 | $ | 1,882 | $ | 115 | $ | 823 | $ | 1,504 | $ | - | $ | 8 | $ | 5,888 | ||||||||||||||||
December 31, 2014 | $ | 2,690 | $ | 582 | $ | 122 | $ | 684 | $ | 1,015 | $ | - | $ | 102 | $ | 5,195 | ||||||||||||||||
Charge-offs | (139 | ) | (18 | ) | - | - | (230 | ) | - | - | (387 | ) | ||||||||||||||||||||
Recoveries | 9 | 4 | - | 10 | 82 | - | - | 105 | ||||||||||||||||||||||||
Provision | (1,004 | ) | 1,314 | (7 | ) | 129 | 637 | - | (94 | ) | 975 | |||||||||||||||||||||
September 30, 2015 | $ | 1,556 | $ | 1,882 | $ | 115 | $ | 823 | $ | 1,504 | $ | - | $ | 8 | $ | 5,888 | ||||||||||||||||
Originated Loans | ||||||||||||||||||||||||||||||||
Individually Evaluated for Impairment | $ | - | $ | 405 | $ | - | $ | 135 | $ | - | $ | - | $ | - | $ | 540 | ||||||||||||||||
Collectively Evaluated for Potential Impairment | $ | 1,556 | $ | 1,477 | $ | 115 | $ | 688 | $ | 1,504 | $ | - | $ | 8 | $ | 5,348 |
December 31, 2015 | ||||||||||||||||||||||||||||||||
Originated Loans |
Real
Estate Residential |
Real
Estate Commercial |
Real
Estate Construction |
Commercial
and Industrial |
Consumer | Other | Unallocated | Total | ||||||||||||||||||||||||
Individually Evaluated for Impairment | $ | - | $ | 408 | $ | - | $ | 9 | $ | - | $ | - | $ | - | $ | 417 | ||||||||||||||||
Collectively Evaluated for Potential Impairment | $ | 1,623 | $ | 1,637 | $ | 137 | $ | 775 | $ | 1,887 | $ | - | $ | 14 | $ | 6,073 |
The following table presents changes in the accretable discount on the loans acquired at fair value for the dates indicated.
Accretable
Discount |
||||
Balance at December 31, 2015 | $ | 3,302 | ||
Accretable Yield | (860 | ) | ||
Nonaccretable Discount | (225 | ) | ||
Balance at September 30, 2016 | $ | 2,217 |
22 |
|
The following table presents the major classifications of loans summarized by individually evaluated for impairment and collectively evaluated for potential impairment as of the dates indicated.
(Dollars in thousands) | ||||||||||||||||||||||||||||
September 30, 2016 | ||||||||||||||||||||||||||||
Real
Estate Residential |
Real
Estate Commercial |
Real
Estate Construction |
Commercial
and Industrial |
Consumer | Other | Total | ||||||||||||||||||||||
Originated Loans | ||||||||||||||||||||||||||||
Individually Evaluated for Impairment | $ | - | $ | 5,447 | $ | 107 | $ | 2,134 | $ | - | $ | 5 | $ | 7,693 | ||||||||||||||
Collectively Evaluated for Potential Impairment | 179,415 | 131,601 | 9,578 | 63,905 | 112,810 | 5,454 | 502,763 | |||||||||||||||||||||
$ | 179,415 | $ | 137,048 | $ | 9,685 | $ | 66,039 | $ | 112,810 | $ | 5,459 | $ | 510,456 | |||||||||||||||
Loans Acquired at Fair Value | ||||||||||||||||||||||||||||
Individually Evaluated for Impairment | $ | 1,311 | $ | 3,628 | $ | - | $ | 628 | $ | - | $ | - | $ | 5,567 | ||||||||||||||
Collectively Evaluated for Potential Impairment | 88,676 | 63,626 | 166 | 10,705 | 198 | - | 163,371 | |||||||||||||||||||||
$ | 89,987 | $ | 67,254 | $ | 166 | $ | 11,333 | $ | 198 | $ | - | $ | 168,938 | |||||||||||||||
Total Loans | ||||||||||||||||||||||||||||
Individually Evaluated for Impairment | $ | 1,311 | $ | 9,075 | $ | 107 | $ | 2,762 | $ | - | $ | 5 | $ | 13,260 | ||||||||||||||
Collectively Evaluated for Potential Impairment | 268,091 | 195,227 | 9,744 | 74,610 | 113,008 | 5,454 | 666,134 | |||||||||||||||||||||
$ | 269,402 | $ | 204,302 | $ | 9,851 | $ | 77,372 | $ | 113,008 | $ | 5,459 | $ | 679,394 |
December 31, 2015 | ||||||||||||||||||||||||||||
Real
Estate Residential |
Real
Estate Commercial |
Real
Estate Construction |
Commercial
and Industrial |
Consumer | Other | Total | ||||||||||||||||||||||
Originated Loans | ||||||||||||||||||||||||||||
Individually Evaluated for Impairment | $ | 5 | $ | 8,072 | $ | 229 | $ | 763 | $ | - | $ | - | $ | 9,069 | ||||||||||||||
Collectively Evaluated for Potential Impairment | 170,164 | 119,542 | 17,114 | 59,724 | 103,605 | 4,592 | 474,741 | |||||||||||||||||||||
$ | 170,169 | $ | 127,614 | $ | 17,343 | $ | 60,487 | $ | 103,605 | $ | 4,592 | $ | 483,810 | |||||||||||||||
Loans Acquired at Fair Value | ||||||||||||||||||||||||||||
Individually Evaluated for Impairment | $ | 1,296 | $ | 4,188 | $ | - | $ | 63 | $ | - | $ | - | $ | 5,547 | ||||||||||||||
Collectively Evaluated for Potential Impairment | 101,762 | 71,218 | 3,870 | 16,597 | 550 | - | 193,997 | |||||||||||||||||||||
$ | 103,058 | $ | 75,406 | $ | 3,870 | $ | 16,660 | $ | 550 | $ | - | $ | 199,544 | |||||||||||||||
Total Loans | ||||||||||||||||||||||||||||
Individually Evaluated for Impairment | $ | 1,301 | $ | 12,260 | $ | 229 | $ | 826 | $ | - | $ | - | $ | 14,616 | ||||||||||||||
Collectively Evaluated for Potential Impairment | 271,926 | 190,760 | 20,984 | 76,321 | 104,155 | 4,592 | 668,738 | |||||||||||||||||||||
$ | 273,227 | $ | 203,020 | $ | 21,213 | $ | 77,147 | $ | 104,155 | $ | 4,592 | $ | 683,354 |
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Note 5. Deposits
The following table shows the maturities of time deposits for the next five years and beyond at the date indicated (dollars in thousands).
Maturity Period: |
September 30,
2016 |
|||
One Year or Less | $ | 52,191 | ||
Over One Through Two Years | 25,566 | |||
Over Two Through Three Years | 19,997 | |||
Over Three Through Four Years | 18,476 | |||
Over Four Through Five Years | 12,785 | |||
Over Five Years | 9,182 | |||
Total | $ | 138,197 |
The balance in time deposits that meet or exceed the FDIC insurance limit of $250,000 totaled $30.8 million and $33.1 million as of September 30, 2016 and December 31, 2015, respectively.
Note 6. Short-Term Borrowings
The following table sets forth the components of short-term borrowings as of the dates indicated.
(Dollars in thousands) | ||||||||||||||||
September 30, 2016 | December 31, 2015 | |||||||||||||||
Amount |
Weighted
Average Rate |
Amount |
Weighted
Average Rate |
|||||||||||||
Short-term Borrowings | ||||||||||||||||
Federal Funds Purchased: | ||||||||||||||||
Balance at Period End | $ | 1,400 | 0.70 | % | $ | - | - | % | ||||||||
Average Balance Outstanding During the Period | 394 | 0.68 | 485 | 0.41 | ||||||||||||
Maximum Amount Outstanding at any Month End | 6,000 | 5,900 | ||||||||||||||
FHLB Borrowings: | ||||||||||||||||
Balance at Period End | 2,120 | 0.57 | 9,360 | 0.51 | ||||||||||||
Average Balance Outstanding During the Period | 802 | 0.50 | 7,347 | 0.37 | ||||||||||||
Maximum Amount Outstanding at any Month End | 6,160 | 30,950 | ||||||||||||||
Securities Sold Under Agreements to Repurchase: | ||||||||||||||||
Balance at Period End | 30,095 | 0.24 | 23,088 | 0.18 | ||||||||||||
Average Balance Outstanding During the Period | 25,338 | 0.25 | 23,303 | 0.24 | ||||||||||||
Maximum Amount Outstanding at any Month End | 30,095 | 27,908 | ||||||||||||||
Securities Collaterizing the Agreements at Period-End: | ||||||||||||||||
Carrying Value | 33,794 | 26,033 | ||||||||||||||
Market Value | 33,815 | 26,063 |
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Note 7. Other Borrowed Funds
Other borrowed funds consist of fixed rate advances from the Federal Home Loan Bank of Pittsburgh (“FHLB”). The following table sets forth the scheduled maturities of other borrowed funds at the dates indicated.
(Dollars in thousands) | ||||||||||||||||
September 30, 2016 | December 31, 2015 | |||||||||||||||
Amount |
Weighted
Average Rate |
Amount |
Weighted
Average Rate |
|||||||||||||
Due in One Year | $ | 3,500 | 0.94 | % | $ | - | - | % | ||||||||
Due After One Year to Two Years | 3,500 | 1.35 | 3,500 | 0.94 | ||||||||||||
Due After Two Years to Three Years | 4,000 | 1.67 | 4,500 | 1.41 | ||||||||||||
Due After Three Years to Four Years | 6,000 | 1.88 | 6,000 | 1.78 | ||||||||||||
Due After Four Years to Five Years | 5,000 | 2.09 | 6,000 | 1.97 | ||||||||||||
Due After Five Years | 6,000 | 2.32 | 8,000 | 2.27 | ||||||||||||
Total | $ | 28,000 | 1.80 | $ | 28,000 | 1.80 |
As of September 30, 2016, the Company maintained a credit arrangement with a maximum borrowing limit of approximately $287.7 million with the FHLB. This arrangement is subject to annual renewal, incurs no service charge, and is secured by a blanket security agreement on outstanding residential mortgage loans and the Company’s investment in FHLB stock. Under this arrangement the Company had available a variable rate Line of Credit in the amount of $148.5 million and $150.0 million as of September 30, 2016 and December 31, 2015, respectively.
The Company maintains a Borrower-In-Custody of Collateral line of credit agreement with the Federal Reserve Bank for $86.1 million that requires quarterly certification of collateral, is subject to annual renewal, incurs no service charge and is secured by commercial and consumer indirect auto loans. The Company also maintains multiple line of credit arrangements with various banks totaling $40.0 million. As of September 30, 2016 and December 31, 2015, no draws had been taken on these facilities.
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Note 8. Commitments and Contingent Liabilities
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business primarily to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby and performance letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Statement of Financial Condition. The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.
The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby and performance letters of credit written is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.
Commitments and conditional obligations are evaluated the same as on-balance-sheet instruments but do not have a corresponding reserve recorded. The Company’s opinion on not implementing a corresponding reserve for off-balance-sheet instruments is supported by historical factors of no losses recorded due to these items. The Company is continually evaluating these items for credit quality and any future need for the corresponding reserve.
The following table presents the unused and available credit balances of financial instruments whose contracts represent credit risk at the dates indicated.
(Dollars in thousands) | ||||||||
September 30,
2016 |
December 31,
2015 |
|||||||
Standby Letters of Credit | $ | 10,949 | $ | 18,316 | ||||
Performance Letters of Credit | 2,359 | 1,358 | ||||||
Construction Mortgages | 19,023 | 21,144 | ||||||
Personal Lines of Credit | 5,959 | 5,810 | ||||||
Overdraft Protection Lines | 5,735 | 6,051 | ||||||
Home Equity Lines of Credit | 14,434 | 14,491 | ||||||
Commercial Lines of Credit | 54,743 | 45,584 | ||||||
$ | 113,202 | $ | 112,754 |
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Because many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties.
Performance letters of credit represent conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These instruments are issued primarily to support bid or performance-related contracts. The coverage period for these instruments is typically a one-year period with an annual renewal option subject to prior approval by management. Fees earned from the issuance of these letters are recognized upon expiration of the letter. For secured letters of credit, the collateral is typically Company deposit instruments or customer business assets.
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Note 9. Fair Value Disclosure
FASB ASC 820 “Fair Value Measurement” defines fair value and provides the framework for measuring fair value and required disclosures about fair value measurements. Fair value is defined as the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability at the transaction date. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used in valuation methods to determine fair value.
The three levels of fair value hierarchy are as follows:
Level I – | Fair value is based on unadjusted quoted prices in active markets that are accessible to the Company for identical assets. These generally provide the most reliable evidence and are used to measure fair value whenever available. | |
Level II – | Fair value is based on significant inputs, other than Level I inputs, that are observable either directly or indirectly for substantially the full term of the asset through corroboration with observable market data. Level II inputs include quoted market prices in active markets for similar assets, quoted market prices in markets that are not active for identical or similar assets, and other observable inputs. | |
Level III – | Fair value would be based on significant unobservable inputs. Examples of valuation methodologies that would result in Level III classification include option pricing models, discounted cash flows, and other similar techniques. |
This hierarchy requires the use of observable market data when available. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement.
The following table presents the financial assets measured at fair value on a recurring basis and reported on the Consolidated Statement of Financial Condition as of the dates indicated, by level within the fair value hierarchy. The majority of the Company’s securities are included in Level II of the fair value hierarchy. Fair values for Level II securities were primarily determined by a third party pricing service using both quoted prices for similar assets, when available, and model-based valuation techniques that derive fair value based on market-corroborated data, such as instruments with similar prepayment speeds and default interest rates. The standard inputs that are normally used include benchmark yields of like securities, reportable trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications.
(Dollars in thousands) | ||||||||||
Fair Value
Hierarchy |
September 30,
2016 |
December 31,
2015 |
||||||||
Available for Sales Securities: | ||||||||||
U.S. Government Agencies | Level II | $ | 53,877 | $ | 51,188 | |||||
Obligations of States and Political Subdivisions | Level II | 38,203 | 40,074 | |||||||
Mortgage-Backed Securities - Government-Sponsored Enterprises | Level II | 2,854 | 3,403 | |||||||
Equity Securities - Mutual Funds | Level I | 521 | 513 | |||||||
Equity Securities - Other | Level I | 1,018 | 685 | |||||||
Total Available for Sale Securities | $ | 96,473 | $ | 95,863 |
The following table presents the financial assets measured at fair value on a nonrecurring basis on the Consolidated Statement of Financial Condition as of the dates indicated by level within the fair value hierarchy. The table also presents the significant unobservable inputs used in the fair value measurements. Impaired loans that are collateral dependent are written down to fair value through the establishment of specific reserves. Techniques used to value the collateral that secure the impaired loans include quoted market prices for identical assets classified as Level I inputs or observable inputs, employed by certified appraisers, for similar assets classified as Level II inputs. In cases where valuation techniques included inputs that are unobservable and are based on estimates and assumptions developed by management based on the best information available under each circumstance, the asset valuation is classified as Level III inputs.
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(Dollars in thousands) | |||||||||||||||||||
Fair Value at | Significant | ||||||||||||||||||
Financial Asset |
Fair Value
Hierarchy |
September 30,
2016 |
December 31,
2015 |
Valuation
Techniques |
Significant
Unobservable Inputs |
Unobservable
Input Value |
|||||||||||||
Impaired Loans | Level III | $ | 2,054 | $ | 1,155 | Market Comparable Properties | Marketability Discount | 10% | to | 30% | (1) | ||||||||
OREO | Level III | 238 | 111 | Market Comparable Properties | Marketability Discount | 10% | to | 50% | (1) |
(1) Range includes discounts taken since appraisal and estimated values.
Impaired loans are evaluated when a loan is identified as impaired and valued at the lower of cost or fair value at that time. Fair value is measured based on the value of the collateral securing these loans and is classified as Level III in the fair value hierarchy. At September 30, 2016 and December 31, 2015, the fair value of impaired loans consists of the loan balances of $3.3 million and $1.6 million, respectively, less their specific valuation allowances of $1.2 million and $417,000, respectively.
Other real estate owned (OREO) properties are evaluated at the time of acquisition and recorded at fair value, less estimated selling costs. After acquisition, other real estate owned is recorded at the lower of cost or fair value, less estimated selling costs. The fair value of an other real estate owned property is determined from a qualified independent appraisal and is classified as Level III in the fair value hierarchy. In the three months ended September 30, 2016, one commercial real estate loan and one mortgage real estate loan moved into OREO. In the nine months ended September 30, 2016, two commercial real estate properties for $3.2 million were foreclosed on, moved into OREO, evaluated for fair value and recorded a first quarter gain on the valuation adjustment on foreclosed real estate for approximately $566,000. This recognized gain on the valuation adjustment was supported by independent appraisals of the two properties. One property was subject to a tentative sales agreement with a current customer which closed in the second quarter. The other property was transferred into premises and equipment of the Company due to the location and the Company’s need of a new location for company headquarters. At December 31, 2015, two residential real estate loans for $111,000 were moved into OREO and at September 30, 2016, one has since been sold at a loss of approximately $5,000.
Financial instruments are defined as cash, evidence of an ownership in an entity, or a contract which creates an obligation or right to receive or deliver cash or another financial instrument from/to a second entity on potentially favorable or unfavorable terms.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. If no readily available market exists, the fair value estimates for financial instruments should be based upon management’s judgment regarding current economic conditions, interest rate risk, expected cash flows, future estimated losses and other factors, as determined through various option pricing formulas or simulation modeling. As many of these assumptions result from judgments made by management based upon estimates which are inherently uncertain, the resulting estimated fair values may not be indicative of the amount realizable in the sale of a particular financial instrument. In addition, changes in the assumptions on which the estimated fair values are based may have significant impact on the resulting estimated fair values.
As certain assets such as deferred tax assets and premises and equipment are not considered financial instruments, the estimated fair value of financial instruments would not represent the full value of the Company.
The Company employs simulation modeling in determining the estimated fair value of financial instruments for which quoted market prices are not available, based upon the following assumptions:
Cash and Due From Banks, Restricted Stock, Bank-Owned Life Insurance, Accrued Interest Receivable, Short-Term Borrowings, and Accrued Interest Payable
The fair value is equal to the current carrying value.
Investment Securities
The fair value of investment securities is equal to the available quoted market price. If no quoted market price is available, fair value is estimated using the quoted market price for similar securities or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted prices.
Loans Receivable
For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Fair values for certain mortgage loans and other consumer loans are based on quoted market prices of similar loans sold in conjunction with securitization transactions, adjusted for differences in loan characteristics. Fair values for other loans are estimated using discounted cash flow analyses, using market interest rates for comparable loans. Fair values for nonperforming loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.
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Deposit Liabilities
The fair values disclosed for demand deposits, are, by definition, equal to the amount payable on demand at the reporting date. The carrying amounts of variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies market interest rates on comparable instruments to a schedule of aggregated expected monthly maturities on time deposits.
Borrowed Funds
Fair values of borrowed funds are estimated using discounted cash flow analyses based on current market rates for similar types of borrowing arrangements.
Commitments to Extend Credit
These financial instruments are generally not subject to sale and estimated fair values are not readily available. The carrying value, represented by the net deferred fee arising from the unrecognized commitment or letter of credit, and the fair value determined by discounting the remaining contractual fee over the term of the commitment using fees currently charged to enter into similar agreements with similar credit risk, are not considered material for disclosure. The contractual amounts of unfunded commitments and letters of credit are presented in Note 8.
The following table presents the estimated fair values of the Company’s financial instruments at the dates indicated.
(Dollars in thousands) | ||||||||||||||||||
September 30, 2016 | December 31, 2015 | |||||||||||||||||
Fair Value
Heirarchy |
Carrying
Value |
Fair
Value |
Carrying
Value |
Fair
Value |
||||||||||||||
Financial Assets: | ||||||||||||||||||
Cash and Due From Banks: | ||||||||||||||||||
Interest Bearing | Level I | $ | 2,420 | $ | 2,420 | $ | 2,316 | $ | 2,316 | |||||||||
Non-Interest Bearing | Level I | 12,524 | 12,524 | 9,024 | 9,024 | |||||||||||||
Investment Securities: | ||||||||||||||||||
Available for Sale | See Above | 96,473 | 96,473 | 95,863 | 95,863 | |||||||||||||
Loans, Net | Level III | 671,928 | 688,653 | 676,864 | 692,373 | |||||||||||||
Restricted Stock | Level II | 3,702 | 3,702 | 3,824 | 3,824 | |||||||||||||
Bank-Owned Life Insurance | Level II | 18,571 | 18,571 | 18,209 | 18,209 | |||||||||||||
Accrued Interest Receivable | Level II | 2,222 | 2,222 | 2,419 | 2,419 | |||||||||||||
Financial Liabilities: | ||||||||||||||||||
Deposits | Level II | 678,348 | 675,557 | 679,299 | 678,921 | |||||||||||||
Short-term Borrowings | Level II | 33,615 | 33,615 | 32,448 | 32,448 | |||||||||||||
Other Borrowed Funds | Level II | 28,000 | 28,564 | 28,000 | 27,830 | |||||||||||||
Accrued Interest Payable | Level II | 296 | 296 | 305 | 305 |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This discussion should be read in conjunction with the unaudited consolidated financial statements, notes and tables included in this report. For further information, refer to the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.
Forward-Looking Statements
This report contains certain “forward-looking statements” within the meaning of the federal securities laws. These statements are not historical facts, but rather statements based on the Company’s current expectations regarding its business strategies, intended results and future performance. Forward-looking statements are preceded by terms such as “expects,” “believes,” “anticipates,” “intends” and similar expressions. Management’s ability to predict results or the effect of future plans or strategies is inherently uncertain. Factors which could affect actual results include, but are not limited to, the following:
· | General and local economic conditions; |
· | Changes in interest rates, deposit flows, demand for loans, real estate values and competition; |
· | Competitive products and pricing; |
· | The ability of our customers to make scheduled loan payments; |
· | Loan delinquency rates; |
· | Our ability to manage the risks involved in our business; |
· | Our ability to integrate the operations of businesses we acquire; |
· | Inflation, market and monetary fluctuations; |
· | Our ability to control costs and expenses; and |
· | Changes in federal and state legislation and regulation (i.e. the effect of new capital standards imposed by banking regulators and the implementation of the Dodd-Frank Act). |
The Company assumes no obligation to update any forward-looking statements except as may be required by applicable law or regulation.
General
CB Financial Services, Inc. (“CB Financial”) is a bank holding company established in 2006. CB Financial’s business activity is conducted through its wholly owned banking subsidiary Community Bank (“the Bank”). CB Financial and the Bank are collectively referred to as the “Company.” All significant intercompany transactions have been eliminated.
The Bank is a Pennsylvania-chartered commercial bank headquartered in Carmichaels, Pennsylvania. The Bank operates from 16 offices in Greene, Allegheny, Washington, Fayette and Westmoreland Counties in southwestern Pennsylvania. The Bank is a community-oriented institution offering residential and commercial real estate loans, commercial and industrial loans, and consumer loans as well as a variety of deposit products for individuals and businesses in its market area. Property and casualty, commercial liability, surety and other insurance products are offered through Exchange Underwriters, Inc the Bank’s wholly-owned subsidiary that is a full-service, independent insurance agency.
On October 31, 2014, the Company completed its merger with FedFirst Financial Corporation (“FedFirst” or the “merger”), the holding company for First Federal Savings Bank, a community bank based in Monessen, Pennsylvania. The merger resulted in the addition of five branches and expanded the Company’s reach into Fayette and Westmoreland counties in southwestern Pennsylvania.
The Bank’s website address is www.communitybank.tv. Information on the website is not and should not be considered a part of this Form 10-Q.
Overview
The following discussion and analysis is presented to assist in the understanding and evaluation of our consolidated financial condition and results of operations. It is intended to complement the unaudited consolidated financial statements and notes thereto appearing elsewhere in this Form 10-Q and should be read in conjunction therewith. The detailed discussion focuses on our consolidated financial condition as of September 30, 2016 compared to the financial condition as of December 31, 2015 and the consolidated results of operations for the three and nine months ended September 30, 2016 and 2015.
Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. Our results of operations also are affected by our provisions for loan losses, noninterest income and noninterest expense. Noninterest income consists primarily of fees and service charges on deposit accounts, fees and charges on loans, insurance commissions, income from bank-owned life insurance and other income. Noninterest expense consists primarily of expenses related to salaries and employee benefits, occupancy and equipment, contracted services, legal fees, other real estate owned, advertising and promotion, stationery and supplies, deposit and general insurance and other expenses.
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Financial institutions like us, in general, are significantly affected by economic conditions, competition, and the monetary and fiscal policies of the federal government. Lending activities are influenced by the demand for and supply of housing, competition among lenders, interest rate conditions, and funds availability. Our operations and lending are principally concentrated in the southwestern Pennsylvania market area.
Statement of Financial Condition Analysis
Assets. Total assets increased $2.9 million, or 0.3%, to $833.6 million at September 30, 2016 compared to $830.7 million at December 31, 2015.
Investment securities classified as available-for-sale increased $610,000, or 0.6%, to $96.5 million at September 30, 2016 compared to $95.9 million at December 31, 2015. This increase was primarily the result of new security purchases to replace calls and maturities of U.S. government agencies and obligations of states and political subdivisions. These security activities were mainly funded by calls, maturities and loan portfolio payoffs.
Loans, net, decreased $4.9 million, or 0.7%, to $671.9 million at September 30, 2016 compared to $676.9 million at December 31, 2015. This was primarily due to net paydowns of $11.4 million on construction loans and $3.8 million on residential mortgage loans, partially offset by increases of $8.9 million in consumer loans (mainly indirect auto loans) and $1.3 million in commercial real estate loans. The net loan payoffs were utilized to fund loan originations, deposit runoff and security purchases during the current period.
Premises and equipment, net, increased $2.8 million, or 27.6%, to $13.1 million at September 30, 2016 compared to $10.3 million at December 31, 2015. This was mainly due to an other real estate owned property being reclassified into fixed assets in process during the first quarter for future use in Bank operations.
Liabilities. Total liabilities decreased $308,000, or 0.04%, to $743.5 million at September 30, 2016 compared to $743.8 million at December 31, 2015.
Total deposits decreased $951,000, or 0.1%, to $678.3 million at September 30, 2016 compared to $679.3 million at December 31, 2015. There were decreases of $7.5 million in time deposits, $1.7 in brokered deposits and $152,000 in NOW accounts, partially offset by increases of $6.1 million in money market accounts, $1.8 million in demand deposits and $422,000 in savings accounts. The decrease in deposit balances is partly attributable to maturing time deposits seeking a higher renewal rate outside of the Bank due to competition in the prevailing low interest rate environment and a decline in oil and gas industry-related deposits. Due to the low interest rate environment, the Bank has been selective on offering promotional interest rates and has concentrated its efforts on increasing noninterest-bearing accounts by building strong customer relationships. To stimulate deposit growth and keep maturing certificates from leaving the Bank, the Chairman’s Challenge promotional deposit program was started in the current period. In addition, school district and municipal deposits increased $9.5 million due to annual property taxes being remitted to the taxing authorities.
Short-term borrowings increased $1.2, or 3.6%, to $33.6 million at September 30, 2016 compared to $32.4 million at December 31, 2015. Other borrowed funds remained constant at $28.0 million at September 30, 2016 and December 31, 2015. At September 30, 2016, short-term borrowings were comprised of $30.1 million of securities sold under agreements to repurchase compared to $23.1 million at December 31, 2015. The increase is related to business deposit customers whose funds, above designated target balances, are transferred into an overnight interest-earning investment account by purchasing securities from the Bank’s investment portfolio under an agreement to repurchase. In addition, other short-term borrowings decreased by $5.9 million, to $3.5 million at September 30, 2016 compared to $9.4 million at December 31, 2015. In the prior year, a portion of FHLB short-term borrowings were replaced with $28.0 million in long-term borrowings with laddered maturities designed to mitigate the Company’s interest rate risk in the event of rising interest rates. Funds generated from security maturities and calls and loans sales in the current period were utilized for loan funding and liquidity needs. As a result of prior year activity, the weighted average interest rate on long-term borrowings remained constant at 1.80%.
Stockholders’ Equity. Stockholders’ equity increased $3.2 million, or 3.7%, to $90.1 million at September 30, 2016 compared to $86.9 million at December 31, 2015. During the period, net income was $5.6 million and the Company paid $2.7 million in dividends to stockholders.
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Results of Operations for the Three Months Ended September 30, 2016 and 2015
Overview. Net income decreased $553,000, to $1.6 million, for the three months ended September 30, 2016 compared to $2.1 million for the three months ended September 30, 2015. The quarterly results were largely impacted by a decrease of $850,000 in pre-tax income, primarily related to a decrease in net interest income and increases in non-interest expense.
Net Interest Income. Net interest income decreased $311,000, or 4.3%, to $7.0 million for the three months ended September 30, 2016 compared to $7.3 million for the three months ended September 30, 2015.
Interest and dividend income decreased $262,000, or 3.3%, to $7.7 million for the three months ended September 30, 2016 compared to $7.9 million for the three months ended September 30, 2015. Interest income on loans decreased $297,000 despite an increase in average loans outstanding of $9.4 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015. The increase in average loans was due to loan originations within the indirect and commercial loan portfolios, partially offset by decreases in installment and mortgage loans mainly due to loan payoffs. Even with the increase in average loans, there was a decrease of 23 basis points in yield on the loan portfolio. This is the direct result of a historically low interest rate environment that drives an extremely competitive interest rate market. Attributing to the yield decline this quarter was the accretion on the acquired loan portfolio credit mark. The impact as of the three months ended September 30, 2016 was 5 basis points compared to 22 basis points for the three months ended September 30, 2015. The remaining credit mark balance for acquired loans was $2.2 million as of September 30, 2016. Interest income on securities exempt from federal tax decreased $17,000 due to deploying proceeds from security calls and maturities into purchasing securities exempt from federal tax and satisfying liquidity needs in the current period. There was a decrease of $3.4 million in the average balance on securities exempt from federal tax, yet there was an increase of 7 basis points in yield as a result of purchasing securities with slightly higher yields. Despite a decrease of $3.7 million in the average balance, interest income on taxable securities increased $50,000 due to an increase of 51 basis points in yield from new purchases and from higher yields on the remaining securities in the portfolio. In addition, calls on discounted agency securities resulted in accelerated discount accretion recognition into income in the current period.
Interest expense increased $49,000, or 7.4%, to $708,000 for the three months ended September 30, 2016 compared to $659,000 for the three months ended September 30, 2015. Interest expense on other borrowed funds increased $63,000 primarily due to an increase in long-term borrowings resulting from the Bank laddering $13.0 million of FHLB borrowings in late 2015 to mitigate the Company’s interest rate risk in the event of rising interest rates. Interest expense on deposits decreased $20,000 due to a decrease in average interest-bearing deposits of $19.6 million primarily due to time deposit and money market accounts rate shopping in the current low interest rate market. Even though there were decreases in the average deposit balances, the average cost of interest-bearing deposits increased 1 basis point collectively. This was primarily related to the Bank’s recently announced promotional deposit program, the Chairman’s Challenge, which mainly increased new growth and retained maturing certificates of deposit by 6 basis points to the promotional rate of 1.25% for a 25-month certificate of deposit.
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Average Balances and Yields . The following table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting average yields and costs. Average balances are derived from daily balances over the periods indicated. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. Tax-equivalent yield adjustments have been made for tax exempt loan and securities income utilizing a marginal federal tax rate of 34%. As such, amounts will not agree to income as reported in the consolidated financial statements. Average balances for loans are net of the allowance for loan losses, but include non-accrual loans. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented and are expressed in annualized rates.
(Dollars in thousands) (Unaudited) | |||||||||||||||||||||||||||
Three Months Ended September 30, | |||||||||||||||||||||||||||
2016 | 2015 | ||||||||||||||||||||||||||
Interest | Interest | ||||||||||||||||||||||||||
Average | and | Yield/ | Average | and | Yield/ | ||||||||||||||||||||||
Balance | Dividends | Cost (1) | Balance | Dividends | Cost (1) | ||||||||||||||||||||||
Assets: | |||||||||||||||||||||||||||
Interest-Earning Assets: | |||||||||||||||||||||||||||
Loans, Net | $ | 671,346 | $ | 7,120 | 4.22 | % | $ | 661,977 | $ | 7,418 | 4.45 | % | |||||||||||||||
Investment Securities | |||||||||||||||||||||||||||
Taxable | 51,460 | 287 | 2.23 | 55,136 | 237 | 1.72 | |||||||||||||||||||||
Exempt From Federal Tax | 39,428 | 388 | 3.94 | 42,795 | 414 | 3.87 | |||||||||||||||||||||
Other Interest-Earning Assets | 9,296 | 43 | 1.84 | 11,744 | 41 | 1.39 | |||||||||||||||||||||
Total Interest-Earning Assets | 771,530 | 7,838 | 4.04 | 771,652 | 8,110 | 4.17 | |||||||||||||||||||||
Noninterest-Earning Assets | 54,484 | 55,394 | |||||||||||||||||||||||||
Total Assets | $ | 826,014 | $ | 827,046 | |||||||||||||||||||||||
Liabilities and | |||||||||||||||||||||||||||
Stockholders' equity: | |||||||||||||||||||||||||||
Interest-Bearing Liabilities: | |||||||||||||||||||||||||||
Interest-Bearing Demand Deposits | $ | 112,679 | 49 | 0.17 | % | $ | 103,917 | 41 | 0.16 | % | |||||||||||||||||
Savings | 121,439 | 56 | 0.18 | 123,727 | 57 | 0.18 | |||||||||||||||||||||
Money Market | 138,033 | 87 | 0.25 | 146,702 | 87 | 0.24 | |||||||||||||||||||||
Time Deposits | 136,258 | 365 | 1.07 | 153,698 | 392 | 1.01 | |||||||||||||||||||||
Total Interest-Bearing Deposits | 508,409 | 557 | 0.44 | 528,044 | 577 | 0.43 | |||||||||||||||||||||
Borrowings | 57,791 | 151 | 1.04 | 44,647 | 82 | 0.73 | |||||||||||||||||||||
Total Interest-Bearing Liabilities | 566,200 | 708 | 0.50 | 572,691 | 659 | 0.46 | |||||||||||||||||||||
Noninterest-Bearing Demand Deposits | 165,422 | 163,182 | |||||||||||||||||||||||||
Other Liabilities | 4,199 | 5,415 | |||||||||||||||||||||||||
Total Liabilities | 735,821 | 741,288 | |||||||||||||||||||||||||
Stockholders' Equity | 90,193 | 85,758 | |||||||||||||||||||||||||
Total Liabilities and | |||||||||||||||||||||||||||
Stockholders' Equity | $ | 826,014 | $ | 827,046 | |||||||||||||||||||||||
Net Interest Income | $ | 7,130 | $ | 7,451 | |||||||||||||||||||||||
Net Interest Rate Spread (2) | 3.54 | % | 3.71 | % | |||||||||||||||||||||||
Net Interest-Earning Assets (3) | $ | 205,330 | $ | 198,961 | |||||||||||||||||||||||
Net Interest Margin (4) | 3.68 | 3.83 | |||||||||||||||||||||||||
Return on Average Assets | 0.76 | 1.02 | |||||||||||||||||||||||||
Return on Average Equity | 6.94 | 9.84 | |||||||||||||||||||||||||
Average Equity to Average Assets | 10.92 | 10.37 | |||||||||||||||||||||||||
Average Interest-Earning Assets to | |||||||||||||||||||||||||||
Average Interest-Bearing Liabilities | 136.26 | 134.74 |
(1) | Annualized. |
(2) | Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities. |
(3) | Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities. |
(4) | Net interest margin represents net interest income divided by average total interest-earning assets. Interest income and yields are on a fully tax equivalent basis utilizing a marginal tax rate of 34%. |
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Rate/Volume Analysis . The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. Tax-equivalent yield adjustments have been made for tax exempt loan and securities income utilizing a marginal federal tax rate of 34%. The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume. The total column represents the sum of the prior columns.
(Dollars in thousands) | ||||||||||||
Three Months Ended September 30, 2016 | ||||||||||||
Compared To | ||||||||||||
Three Months Ended September 30, 2015 | ||||||||||||
Increase (Decrease) Due to | ||||||||||||
Volume | Rate | Total | ||||||||||
Interest and Dividend Income: | ||||||||||||
Loans, net | $ | 89 | $ | (387 | ) | $ | (298 | ) | ||||
Investment Securities: | ||||||||||||
Taxable | (16 | ) | 66 | 50 | ||||||||
Exempt From Federal Tax | (33 | ) | 7 | (26 | ) | |||||||
Other Interest-Earning Assets | (9 | ) | 11 | 2 | ||||||||
Total Interest-Earning Assets | 31 | (303 | ) | (272 | ) | |||||||
Interest Expense: | ||||||||||||
Deposits | (33 | ) | 13 | (20 | ) | |||||||
Borrowings | 28 | 41 | 69 | |||||||||
Total Interest-Bearing Liabilities | (5 | ) | 54 | 49 | ||||||||
Change in Net Interest Income | $ | 36 | $ | (357 | ) | $ | (321 | ) |
Provision for Loan Losses. The provision for loan losses was $450,000 for the three months ended September 30, 2016 compared to $300,000 for the three months ended September 30, 2015. Net charge-offs for the three months ended September 30, 2016 were $175,000, which included $166,000 of charge-offs on automobile loans, compared to $98,000 of net charge-offs for the three months ended September 30, 2015. Management analyzes the loan portfolio on a quarterly basis to determine the adequacy of the allowance for loan losses and the need for additional provisions for loan losses. It was determined that an increase in the current quarter provision was necessary for the three months ended September 30, 2016 compared to the three months ended September 30, 2015. This was due to an increase of $6.3 million in special mention loans for the above mentioned time period. Loan growth of $3.3 million in indirect auto loans and the $80,000 increase in quarterly auto loan net charge-offs as compared to the prior quarter were the contributing factors in recording the additional provision.
Noninterest Income . Noninterest income decreased $84,000, or 4.4% to $1.8 million for the three months ended September 30, 2016 compared to $1.9 million for the three months ended September 30, 2015, primarily due to a decrease of $96,000 in insurance commissions from Exchange Underwriters due to a decline in commercial commission and fee income received in the current period. Other commissions decreased $30,000 due to the prior period recognition of a state mutual thrift tax refund from the merger with FedFirst Financial Corporation (the “merger”). Other miscellaneous income decreased $15,000 primarily due to a rise in amortization on mortgage servicing rights related to loans sold to the FHLB as part of the Mortgage Partnership Finance® (“MPF®”) program. The MPF® program enables member financial institutions to offer competitive interest rates for fixed-rate mortgage loans without assuming any of the interest rate risk associated with a long-term asset. Service fees on deposit accounts decreased $13,000 primarily due to a decrease in check card fees from deposit accounts compared to the prior period. There was an increase in the net gains on the sales of residential mortgage loans of $44,000. The increase in gains was primarily due to an increase in the number of loans originated and subsequently sold to the FHLB as part of the MPF® program. In addition, net gains on the sales of investments increased $22,000 due to the sale of equity securities. These sales were transacted to recognize capital gains that will be offset by a capital loss carry forward deferred tax asset that was acquired in the merger.
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Noninterest Expense. Noninterest expense increased $305,000, or 5.2%, to $6.2 million for the three months ended September 30, 2016 compared to $5.9 million for the three months ended September 30, 2015. Salaries and employee benefits increased $160,000 primarily due to additional employees, normal salary increases and employee stock options and restricted stock awards expense. This increase was partially offset by decreases in retirement and incentive compensation. Occupancy and equipment increased $116,000 and $52,000, respectively, primarily due accelerated depreciation taken on leasehold improvements in the Bank’s current operation center that will not transfer over to the new Ralph J. Sommers Jr. Operations Center (“Operations Center”) currently under construction for the Bank. Other increases for occupancy were related to repairs and maintenance, real estate taxes and property insurance. Equipment expense increases were mainly due to maintenance contracts from our core processing vendor and final copier/printer invoices from a discontinued contract. Other noninterest expense increased $54,000 primarily due to current period expenses related to non-employee stock options and restricted stock awards, and an increase in telephone expense. Legal and professional fees increased $22,000 mainly due to legal fees associated with problem loan relationships, partially offset by decreases in consultation and audit fees. Advertising decreased $44,000 related to the termination of a cooperative marketing agreement at Exchange Underwriters, partially offset by advertising initiatives to promote the Bank. Other real estate owned expense decreased $28,000 primarily due to income from the sales of other real estate owned properties in the current period. PA shares tax, which is calculated based on the Bank’s stockholders’ equity, decreased $27,000 due to the reversal of an anticipated rate increase by the Commonwealth of Pennsylvania. As of July 1, 2016, the PA shares tax rate of 0.95% has been ratified by the state legislature, becoming effective for tax years starting January 1, 2017.
Income Tax Expense. Income taxes decreased $297,000 to $607,000 for the three months ended September 30, 2016 compared to $904,000 for the three months ended September 30, 2015. The effective tax rate for the three months ended September 30, 2016 was 27.8% compared to 29.8% for the three months ended September 30, 2015. The decrease in income taxes was due to a decrease of $850,000 in pre-tax income. The decrease in the effective tax rate was related to the decrease in tax exempt income not being proportionate to the decline in pre-tax income in the current period.
Results of Operations for the Nine Months Ended September 30, 2016 and 2015
Overview. Net income decreased $1.1 million, to $5.6 million, for the nine months ended September 30, 2016 compared to $6.7 million for the nine months ended September 30, 2015.
Net Interest Income. Net interest income decreased $368,000 , or 1.7%, to $21.6 million for the nine months ended September 30, 2016 compared to $22.0 million for the nine months ended September 30, 2015.
Interest and dividend income decreased $304,000, or 1.3%, to $23.8 million for the nine months ended September 30, 2016 compared to $24.1 million for the nine months ended September 30, 2015. Interest income on loans decreased $343,000 despite an increase in average loans outstanding of $795,000. The slight increase in average loans was due to loan originations within the indirect and commercial loan portfolios, partially offset by decreases in installment and mortgage loans mainly due to loan payoffs. Even with the increase in average loans, there was a decrease of 8 basis points in yield on the loan portfolio. This is the direct result of a historically low interest rate environment that drives an extremely competitive interest rate market. Attributing to the yield decline was the accretion on the acquired loan portfolio credit mark. The impact as of the nine months ended September 30, 2016 was 17 basis points and remained constant at 17 basis points for the nine months ended September 30, 2015. Other interest and dividend income decreased $118,000 primarily due to a decrease in FHLB stock dividends which included the payment of a special dividend in the first quarter of 2015 of $56,000. As a result of receiving no special dividend in the current period and a decrease in short-term borrowings compared to the prior period, the Bank was required to hold less FHLB stock. Interest income on securities exempt from federal tax decreased $61,000 due to deploying proceeds from security calls and maturities into loan funding, purchasing securities exempt from federal tax and satisfying liquidity needs in the current period. There was a decrease of $3.3 million in the average balance on securities exempt from federal tax, yet there was an increase of 3 basis points in yield as a result of purchasing securities with higher yields. Despite a decrease of $3.4 million in average balance, interest income on taxable securities increased $214,000 due to an increase of 63 basis points in yield from new purchases and from higher yields on the remaining securities in the portfolio. In addition, calls on discounted agency securities resulted in accelerated discount accretion recognition into income in the current period.
Interest expense increased $64,000, or 3.1%, to $2.1 million for the nine months ended September 30, 2016 compared to $2.0 million for the nine months ended September 30, 2015. Interest expense on other borrowed funds increased $165,000 due to an increase in long-term borrowings. This was primarily due to the Bank laddering $15.0 million in short-term borrowings in the first quarter of 2015 and $13.0 million in short-term borrowings in late 2015 into a series of long-term FHLB borrowings to mitigate the Company’s interest rate risk in the event of rising interest rates. Interest expense on deposits decreased $91,000 due to a decrease in average interest-bearing deposits of $12.2 million primarily due to time deposit and money market accounts rate shopping in the current low interest rate market. The average cost of interest-bearing deposits decreased 1 basis point, primarily related to the repricing of maturing certificates of deposit to lower rates. This decrease was partially offset by an increase of $26,000 for interest-bearing demand deposit interest expense. In addition, short-term borrowings decreased $11,000 in the current period due to the laddering of FHLB long-term borrowings.
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Average Balances and Yields . The following table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting average yields and costs. Average balances are derived from daily balances over the periods indicated. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. Tax-equivalent yield adjustments have been made for tax exempt loan and securities income utilizing a marginal federal tax rate of 34%. Average balances for loans are net of the allowance for loan losses, but include non-accrual loans. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented and are expressed in annualized rates.
(Dollars in thousands) (Unaudited) | ||||||||||||||||||||||||
Nine Months Ended September 30, | ||||||||||||||||||||||||
2016 | 2015 | |||||||||||||||||||||||
Interest | Interest | |||||||||||||||||||||||
Average | and | Yield/ | Average | and | Yield/ | |||||||||||||||||||
(Dollars in thousands) | Balance | Dividends | Cost (1) | Balance | Dividends | Cost (1) | ||||||||||||||||||
Assets: | ||||||||||||||||||||||||
Interest-Earning Assets: | ||||||||||||||||||||||||
Loans, Net | $ | 673,451 | $ | 21,998 | 4.36 | % | $ | 672,656 | $ | 22,335 | 4.44 | % | ||||||||||||
Investment Securities | ||||||||||||||||||||||||
Taxable | 53,580 | 918 | 2.28 | 57,025 | 704 | 1.65 | ||||||||||||||||||
Exempt From Federal Tax | 38,902 | 1,172 | 4.02 | 42,217 | 1,264 | 3.99 | ||||||||||||||||||
Other Interest-Earning Assets | 11,533 | 138 | 1.60 | 13,216 | 252 | 2.55 | ||||||||||||||||||
Total Interest-Earning Assets | 777,466 | 24,226 | 4.16 | 785,114 | 24,555 | 4.18 | ||||||||||||||||||
Noninterest-Earning Assets | 53,806 | 55,774 | ||||||||||||||||||||||
Total Assets | $ | 831,272 | $ | 840,888 | ||||||||||||||||||||
Liabilities and | ||||||||||||||||||||||||
Stockholders' equity: | ||||||||||||||||||||||||
Interest-Bearing Liabilities: | ||||||||||||||||||||||||
Interest-Bearing Demand Deposits | $ | 114,959 | 147 | 0.17 | % | $ | 101,673 | 121 | 0.16 | % | ||||||||||||||
Savings | 123,079 | 169 | 0.18 | 122,995 | 166 | 0.18 | ||||||||||||||||||
Money Market | 142,820 | 268 | 0.25 | 154,441 | 268 | 0.23 | ||||||||||||||||||
Time Deposits | 138,917 | 1,094 | 1.05 | 152,867 | 1,214 | 1.06 | ||||||||||||||||||
Total Interest-Bearing Deposits | 519,775 | 1,678 | 0.43 | 531,976 | 1,769 | 0.44 | ||||||||||||||||||
Borrowings | 54,533 | 435 | 1.07 | 53,789 | 280 | 0.70 | ||||||||||||||||||
Total Interest-Bearing Liabilities | 574,308 | 2,113 | 0.49 | 585,765 | 2,049 | 0.47 | ||||||||||||||||||
Noninterest-Bearing Demand Deposits | 163,815 | 164,663 | ||||||||||||||||||||||
Other Liabilities | 4,086 | 5,972 | ||||||||||||||||||||||
Total Liabilities | 742,209 | 756,400 | ||||||||||||||||||||||
Stockholders' Equity | 89,063 | 84,488 | ||||||||||||||||||||||
Total Liabilities and | ||||||||||||||||||||||||
Stockholders' Equity | $ | 831,272 | $ | 840,888 | ||||||||||||||||||||
Net interest income | $ | 22,113 | $ | 22,506 | ||||||||||||||||||||
Net Interest Rate Spread (2) | 3.67 | % | 3.71 | % | ||||||||||||||||||||
Net Interest-Earning Assets (3) | $ | 203,158 | $ | 199,349 | ||||||||||||||||||||
Net Interest Margin (4) | 3.80 | 3.83 | ||||||||||||||||||||||
Return on Average Assets | 0.89 | 1.06 | ||||||||||||||||||||||
Return on Average Equity | 8.33 | 10.54 | ||||||||||||||||||||||
Average Equity to Average Assets | 10.71 | 10.05 | ||||||||||||||||||||||
Average Interest-Earning Assets to | ||||||||||||||||||||||||
Average Interest-Bearing Liabilities | 135.37 | 134.03 |
(1) | Annualized. |
(2) | Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities. |
(3) | Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities. |
(4) | Net interest margin represents net interest income divided by average total interest-earning assets. Interest income and yields are on a fully tax equivalent basis utilizing a marginal tax rate of 34%. |
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Rate/Volume Analysis . The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume. The total column represents the sum of the prior columns.
(Dollars in thousands) | ||||||||||||
Nine Months Ended September 30, 2016 | ||||||||||||
Compared To | ||||||||||||
Nine Months Ended September 30, 2015 | ||||||||||||
Increase (Decrease) Due to | ||||||||||||
(Dollars in thousands) | Volume | Rate | Total | |||||||||
Interest and Dividend Income: | ||||||||||||
Loans, net | $ | 66 | $ | (403 | ) | $ | (337 | ) | ||||
Investment Securities: | ||||||||||||
Taxable | (41 | ) | 255 | 214 | ||||||||
Exempt From Federal Tax | (101 | ) | 9 | (92 | ) | |||||||
Other Interest-Earning Assets | (29 | ) | (85 | ) | (114 | ) | ||||||
Total Interest-Earning Assets | (105 | ) | (224 | ) | (329 | ) | ||||||
Interest Expense: | ||||||||||||
Deposits | (51 | ) | (40 | ) | (91 | ) | ||||||
Borrowings | 4 | 151 | 155 | |||||||||
Total Interest-Bearing Liabilities | (47 | ) | 111 | 64 | ||||||||
Change in Net Interest Income | $ | (58 | ) | $ | (335 | ) | $ | (393 | ) |
Provision for Loan Losses. The provision for loan losses was $1.6 million for the nine months ended September 30, 2016 compared to $975,000 provision for loan losses in the nine months ended September 30, 2015. Net charge-offs for the nine months ended September 30, 2016 were $624,000, which included $476,000 of charge-offs on automobile loans, compared to net charge-offs of $282,000 for the nine months ended September 30, 2015. Management analyzes the loan portfolio on a quarterly basis to determine the adequacy of the allowance for loan losses and the need for additional provisions for loan losses and determined the additional current provision was necessary for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015. This was due to an increase of $7.7 million in special mention loans year-to-date as compared to the prior year-to-date. Loan growth of $14.0 million in indirect auto loans and approximately a $228,000 increase in auto loan net charge-offs as compared to the prior year-to-date were the contributing factors in recording the additional provision. In addition, as the acquired loan portfolio has loan payoffs, paydowns and the credit mark is being accreted; the need for additional provision is required based on our loan loss analysis. The current year-to-date provision for loan losses recorded for the acquired portfolio is $334,000 as compared to none for the prior year-to-date.
Noninterest Income . Noninterest income remained constant at $5.5 million for the nine months ended September 30, 2016 and September 30, 2015. There was a $349,000 decrease in insurance commissions from Exchange Underwriters due to a decline in commercial commission and fee income and reduced contingency fees received in the current period. Contingency fees were $161,000 for the nine months ended September 30, 2016 compared to $340,000 for the nine months ended September 30, 2015. Contingency fees are commissions that are contingent upon several factors including, but not limited to, eligible written premiums, earned premiums, incurred losses and stop loss charges. Other commissions decreased $38,000 primarily due to the prior period recognition of a state mutual thrift tax refund from the merger. Service fees on deposit accounts decreased $23,000 primarily due to a decrease in check card fees from deposit accounts acquired in the merger recognized in the prior period. This was offset by an increase in the net gains on sales of residential mortgage loans of $311,000. The increase in gains was primarily due to an increase in the number of loans originated and subsequently sold to the FHLB as part of the MPF® programs. In addition, net gains on the sales of investments increased $80,000 due to the sale of equity securities. These sales were transacted to recognize capital gains that will be offset by a capital loss carry forward deferred tax asset that was acquired in the merger. Other miscellaneous income increased $11,000 primarily due to an increase in the servicing income received from mortgage loans sold to the FHLB as part of the MPF® program, partially offset by an increase in amortization on mortgage servicing rights related to loans sold to the FHLB.
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Noninterest Expense. Noninterest expense increased $625,000, or 3.6%, to $17.8 million for the nine months ended September 30, 2016 compared to $17.1 million for the nine months ended September 30, 2015. Salaries and employee benefits increased $479,000, primarily due to additional employees, normal salary increases and employee stock options and restricted stock awards expense. Other noninterest expense increased $305,000 primarily due to an increase in various miscellaneous expenses, such as non-employee stock options and restricted stock awards, supplies, telephone, other losses attributable to debit card fraud losses and dues and subscriptions. Occupancy and equipment increased $130,000 and $102,000, respectively, primarily due accelerated depreciation taken on leasehold improvements in the Bank’s current operation center that will not transfer over to the new Operations Center currently under construction for the Bank. Other increases for occupancy were related to real estate taxes and property insurance mainly from the other real estate owned property reclassified into fixed assets in process during the first quarter. This property will undergo an extensive renovation and will subsequently be placed into Bank operations within our Southwestern Pennsylvania market. Equipment expense increases were mainly due to maintenance contracts from our core processing vendor and final copier/printer invoices from a discontinued contract. In addition, equipment depreciation increased due to fixed asset acquisitions placed into service, primarily for the Uniontown Business Center that was opened during the second quarter. PA shares tax, which is calculated based on the Bank’s stockholders’ equity, increased $30,000 due to the net income impact on stockholders’ equity. Other real estate owned income was $531,000 in the current period compared to $210,000 in the prior period resulting in a decrease of $321,000 in expense. This change is primarily due to the $566,000 pre-tax gain recognized due to the foreclosure procedures on two commercial real estate loans that moved into other real estate owned properties in the first quarter of 2016. Advertising decreased $136,000 related to the termination of a cooperative marketing agreement at Exchange Underwriters, partially offset by advertising initiatives to promote the Bank.
Income Tax Expense. Income taxes decreased $513,000 to $2.3 million for the nine months ended September 30, 2016 compared to $2.8 million for the nine months ended September 30, 2015. The effective tax rate for the nine months ended September 30, 2016 was 28.9% compared to 29.4% for the nine months ended September 30, 2015. The decrease in income taxes was due to a decrease of $1.6 million in pre-tax income. The decrease in the effective tax rate was related to the decrease in tax exempt income not being proportionate to the decline in pre-tax income in the current period.
Off-Balance Sheet Arrangements.
Other than loan commitments and standby and performance letters of credit, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a significant current or future effect on our financial condition, revenues, expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to investors. Refer to Note 8 in the Notes to Consolidated Financial Statements for a summary of commitments outstanding as of September 30, 2016.
Liquidity and Capital Management
Liquidity. Liquidity is the ability to meet current and future financial obligations of a short-term nature. The Company’s primary sources of funds consist of deposit inflows, loan repayments and maturities, calls and sales of securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.
The Company regularly adjusts its investments in liquid assets based upon its assessment of expected loan demand, expected deposit flows, yields available on interest-earning deposits and securities, and the objectives of its asset/liability management program. Excess liquid assets are invested generally in interest-earning deposits with other banks and short- and intermediate-term securities. The Company believes that it had sufficient liquidity at September 30, 2016 to satisfy its short- and long-term liquidity needs at that date.
The Company’s most liquid assets are cash and due from banks, which totaled $14.9 million at September 30, 2016. The levels of these assets depend on our operating, financing, lending and investing activities during any given period. Unpledged securities, which provide an additional source of liquidity, totaled $3.6 million at September 30, 2016. In addition, at September 30, 2016, the Company had the ability to borrow up to $287.7 million from the FHLB of Pittsburgh, of which $30.1 million was outstanding and $9.9 million was utilized toward a standby letter of credit. The Company also has the ability to borrow up to $86.1 million from the Federal Reserve Bank through its Borrower-In-Custody line of credit agreement and $40.0 million from multiple line of credit arrangements with various banks, none of which were outstanding.
At September 30, 2016, time deposits due within one year of that date totaled $52.2 million, or 37.8% of total time deposits. If these time deposits do not remain with the Company, the Company will be required to seek other sources of funds. Depending on market conditions, the Company may be required to pay higher rates on such deposits or other borrowings than it currently pays on these certificates of deposit. The Company believes, however, based on past experience that a significant portion of its certificates of deposit will remain with it, either as certificates of deposit or as other deposit products. The Company has the ability to attract and retain deposits by adjusting the interest rates offered.
CB Financial is a separate legal entity from the Bank and must provide for its own liquidity to pay any dividends to its shareholders and for other corporate purposes. Its primary source of liquidity is dividend payments it receives from the Bank. The Bank’s ability to pay dividends to CB Financial is subject to regulatory limitations. At September 30, 2016, CB Financial (on an unconsolidated, stand-alone basis) had liquid assets of $1.2 million.
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We are committed to maintaining a strong liquidity position; therefore, we monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. The marginal cost of new funding, however, whether from deposits or borrowings from the Federal Home Loan Bank, will be carefully considered as we monitor our liquidity needs. Therefore, in order to minimize our cost of funds, we may consider additional borrowings from the Federal Home Loan Bank in the future.
Capital Management. The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, each must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
Under the Regulatory Capital Rules, in order to avoid limitations on capital distributions (including dividend payments and certain discretionary bonus payments to executive officers), a banking organization must hold a capital conservation buffer comprised of common equity Tier I capital above its minimum risk-based capital requirements in an amount greater than 2.5% of total risk-weighted assets. The capital conservation buffer, which is composed of common equity Tier I capital, began on January 1, 2016 at the 0.625% level and will be phased in over a three year period (increasing by that amount on each January 1, until it reaches 2.5% on January 1, 2019).
At September 30, 2016 and December 31, 2015, the Company was categorized as well capitalized under the regulatory framework for prompt corrective action. The following table presents the Bank’s regulatory capital amounts and ratios, as well as the minimum amounts and ratios required to be well capitalized as of the dates indicated.
(Dollars in thousands) | ||||||||||||||||
September 30, 2016 | December 31, 2015 | |||||||||||||||
Amount | Ratio | Amount | Ratio | |||||||||||||
Common Equity Tier 1 (to risk weighted assets) | ||||||||||||||||
Actual | $ | 80,740 | 13.26 | % | $ | 78,702 | 12.83 | % | ||||||||
For Capital Adequacy Purposes | 27,392 | 4.50 | 27,597 | 4.50 | ||||||||||||
To Be Well Capitalized | 39,566 | 6.50 | 39,862 | 6.50 | ||||||||||||
Tier 1 Capital (to risk weighted assets) | ||||||||||||||||
Actual | 80,740 | 13.26 | 78,702 | 12.83 | ||||||||||||
For Capital Adequacy Purposes | 36,522 | 6.00 | 36,795 | 6.00 | ||||||||||||
To Be Well Capitalized | 48,696 | 8.00 | 49,060 | 8.00 | ||||||||||||
Total Capital (to risk weighted assets) | ||||||||||||||||
Actual | 88,215 | 14.49 | 85,192 | 13.89 | ||||||||||||
For Capital Adequacy Purposes | 48,696 | 8.00 | 49,060 | 8.00 | ||||||||||||
To Be Well Capitalized | 60,870 | 10.00 | 61,326 | 10.00 | ||||||||||||
Tier 1 Leverage (to adjusted total assets) | ||||||||||||||||
Actual | 80,740 | 9.87 | 78,702 | 9.60 | ||||||||||||
For Capital Adequacy Purposes | 32,737 | 4.00 | 32,777 | 4.00 | ||||||||||||
To Be Well Capitalized | 40,921 | 5.00 | 40,972 | 5.00 |
Item 3. Quantitative and Qualitative Disclosure about Market Risk.
The Company believes that as of September 30, 2016, there was no material change in the quantitative and qualitative disclosure about market risk data as of December 31, 2015, as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.
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Item 4. Controls and Procedures.
CB Financial’s management, including CB Financial’s principal executive officer and principal financial officer, have evaluated the effectiveness of CB Financial’s “disclosure controls and procedures” as such term is defined in Rule 13a-15(c) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, CB Financial’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that CB Financial files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to CB Financial’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosures.
There have been no changes in CB Financial’s internal control over financial reporting during the quarter ended September 30, 2016, that has materially affected, or is reasonably likely to materially affect, CB Financial’s internal control over financial reporting.
Periodically, there have been various claims and lawsuits against us, such as claims to enforce liens, claims seeking damages for improper collection procedures or misrepresentations, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business. We are not a party to any other pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.
In addition to the other information set forth in this report, you should carefully consider the factors discussed in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2015, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially affect our business, financial condition and/or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
None.
31.1 | Rule 13a-14(a) / 15d-14(a) Certification (President and Chief Executive Officer) |
31.2 | Rule 13a-14(a) / 15d-14(a) Certification (Chief Financial Officer) |
32.1 | Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted to Section 906 of the Sarbanes-Oxley Act of 2002 |
32.2 | Chief Financial Officer Certification pursuant to 18 U.S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
101.0 | The following materials for the quarter ended September 30, 2016, formatted in XBRL (Extensible Business Reporting Language); (i) the Consolidated Statement of Financial Condition, (ii) the Consolidated Statement of Operations, (iii) the Consolidated Statement of Comprehensive Income, (iv) the Consolidated Statement of Stockholders’ Equity, (v) the Consolidated Statement of Cash Flows and (vi) the Notes to the Unaudited Consolidated Financial Statements |
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Pursuant to the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CB FINANCIAL SERVICES, INC. | ||
(Registrant) | ||
Date: November 7, 2016 | /s/ Barron P. McCune, Jr. | |
Barron P. McCune, Jr. | ||
President and Chief Executive Officer | ||
Date: November 7, 2016 | /s/ Kevin D. Lemley | |
Kevin D. Lemley | ||
Executive Vice President and Chief Financial Officer | ||
(Principal Financial Officer and Chief Accounting Officer) |
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