UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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| |
ý☑ | Quarterly Report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 |
for the Quarterly Period Ended September 30, 2017.2019.
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o☐ | Transition report pursuant to Section 13 or 15 (d) of the Exchange Act |
For the Transition Period from to .
No. 0-17077
(Commission File Number)
PENNS WOODS BANCORP INC.INC.
(Exact name of Registrant as specified in its charter)
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| | |
PENNSYLVANIAPennsylvania | 300 Market Street, P.O. Box 967 | 23-2226454 |
(State or other jurisdiction of | Williamsport | (I.R.S. Employer Identification No.) |
incorporation or organization) | | Identification No.) |
|
| | |
300 Market Street, P.O. Box 967 Williamsport, Pennsylvania | | 17703-0967 |
| (Address of principal executive offices) | | (Zip Code) |
(570) (570) 322-1111
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Exchange Act:
|
| | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common stock, $8.33 par value | | PWOD | | The Nasdaq Global Select Market |
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 ýYes ☒ NO o☐
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ýYes ☒ NO o☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. or an emerging growth company. See the definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
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| | | |
Large accelerated filero | ☐ | Accelerated filerx | ☒ |
Non-accelerated filero | ☐ | | SmallSmaller reporting companyo
| ☒ |
| | Emerging growth companyo | ☐ |
If an emerging growth company, indicate by check mark if registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO ý
Yes ☐ No ☒
On November 1, 20172019 there were 4,688,7397,037,823 shares of the Registrant’s common stock outstanding.
PENNS WOODS BANCORP, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
PENNS WOODS BANCORP, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
| | | | September 30, | | December 31, | | September 30, | | December 31, |
(In Thousands, Except Share Data) | | 2017 | | 2016 | | 2019 | | 2018 |
ASSETS: | | |
| | |
| | |
| | |
|
Noninterest-bearing balances | | $ | 22,042 |
| | $ | 26,766 |
| | $ | 25,990 |
| | $ | 24,325 |
|
Interest-bearing balances in other financial institutions | | 5,705 |
| | 16,905 |
| | 31,351 |
| | 42,417 |
|
Total cash and cash equivalents | | 27,747 |
| | 43,671 |
| | 57,341 |
| | 66,742 |
|
| | | | | | | | |
Investment securities, available for sale, at fair value | | 132,313 |
| | 133,492 |
| |
Investment debt securities, available for sale, at fair value | | | 149,075 |
| | 134,285 |
|
Investment equity securities, at fair value | | | 1,820 |
|
| 1,776 |
|
Investment securities, trading | | 210 |
| | 58 |
| | 47 |
| | 36 |
|
Restricted investment in bank stock, at fair value | | | 13,502 |
| | 18,862 |
|
Loans held for sale | | 1,734 |
| | 1,953 |
| | 1,868 |
| | 2,929 |
|
Loans | | 1,189,714 |
| | 1,093,681 |
| | 1,364,984 |
| | 1,384,757 |
|
Allowance for loan losses | | (12,933 | ) | | (12,896 | ) | | (14,249 | ) | | (13,837 | ) |
Loans, net | | 1,176,781 |
| | 1,080,785 |
| | 1,350,735 |
| | 1,370,920 |
|
Premises and equipment, net | | 25,895 |
| | 24,275 |
| | 33,366 |
| | 27,580 |
|
Accrued interest receivable | | 4,289 |
| | 3,672 |
| | 5,267 |
| | 5,334 |
|
Bank-owned life insurance | | 27,827 |
| | 27,332 |
| | 29,107 |
| | 28,627 |
|
Goodwill | | 17,104 |
| | 17,104 |
| | 17,104 |
| | 17,104 |
|
Intangibles | | 1,543 |
| | 1,799 |
| | 960 |
| | 1,162 |
|
Operating lease right-of-use asset | | | 4,217 |
| | — |
|
Deferred tax asset | | 7,984 |
| | 8,397 |
| | 3,744 |
| | 5,154 |
|
Other assets | | 6,770 |
| | 6,052 |
| | 4,942 |
| | 4,260 |
|
TOTAL ASSETS | | $ | 1,430,197 |
| | $ | 1,348,590 |
| | $ | 1,673,095 |
| | $ | 1,684,771 |
|
| | | | | | | | |
LIABILITIES: | | |
| | |
| | |
| | |
|
Interest-bearing deposits | | $ | 843,166 |
| | $ | 791,937 |
| | $ | 1,005,078 |
| | $ | 899,089 |
|
Noninterest-bearing deposits | | 310,830 |
| | 303,277 |
| | 327,329 |
| | 320,814 |
|
Total deposits | | 1,153,996 |
| | 1,095,214 |
| | 1,332,407 |
| | 1,219,903 |
|
| | | | | | | | |
Short-term borrowings | | 41,596 |
| | 13,241 |
| | 5,987 |
| | 167,865 |
|
Long-term borrowings | | 80,998 |
| | 85,998 |
| | 162,290 |
| | 138,942 |
|
Accrued interest payable | | 483 |
| | 455 |
| | 1,666 |
| | 1,150 |
|
Operating lease liability | | | 4,228 |
| | — |
|
Other liabilities | | 13,455 |
| | 15,433 |
| | 11,456 |
| | 13,367 |
|
TOTAL LIABILITIES | | 1,290,528 |
| | 1,210,341 |
| | 1,518,034 |
| | 1,541,227 |
|
| | | | | | | | |
SHAREHOLDERS’ EQUITY: | | |
| | |
| | |
| | |
|
Preferred stock, no par value, 3,000,000 shares authorized; no shares issued | | — |
| | — |
| | — |
| | — |
|
Common stock, par value $8.33, 15,000,000 shares authorized; 5,008,720 and 5,007,109 shares issued; 4,688,570 and 4,734,657 outstanding | | 41,739 |
| | 41,726 |
| |
Common stock, par value $5.55, 22,500,000 shares authorized; 7,517,796 and 7,517,546 shares issued; 7,037,571 and 7,037,321 outstanding | | | 41,758 |
| | 41,763 |
|
Additional paid-in capital | | 50,142 |
| | 50,075 |
| | 51,290 |
| | 50,737 |
|
Retained earnings | | 64,033 |
| | 61,610 |
| | 76,009 |
| | 69,787 |
|
Accumulated other comprehensive loss: | | |
| | |
| |
Accumulated other comprehensive gain (loss): | | | |
| | |
|
Net unrealized gain (loss) on available for sale securities | | 73 |
| | (639 | ) | | 3,266 |
| | (1,360 | ) |
Defined benefit plan | | (4,203 | ) | | (4,289 | ) | | (5,165 | ) | | (5,276 | ) |
Treasury stock at cost, 320,150 and 272,452 shares | | (12,115 | ) | | (10,234 | ) | |
TOTAL SHAREHOLDERS’ EQUITY | | 139,669 |
| | 138,249 |
| |
Treasury stock at cost, 480,225 | | | (12,115 | ) | | (12,115 | ) |
TOTAL PENNS WOODS BANCORP, INC. SHAREHOLDERS' EQUITY | | | 155,043 |
| | 143,536 |
|
Non-controlling interest | | | 18 |
| | 8 |
|
TOTAL SHAREHOLDERS' EQUITY | | | 155,061 |
| | 143,544 |
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | | $ | 1,430,197 |
| | $ | 1,348,590 |
| | $ | 1,673,095 |
| | $ | 1,684,771 |
|
See accompanying notes to the unaudited consolidated financial statements.
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
(In Thousands, Except Per Share Data) | | 2017 | | 2016 | | 2017 | | 2016 | | 2019 | | 2018 | | 2019 | | 2018 |
INTEREST AND DIVIDEND INCOME: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Loans, including fees | | $ | 11,906 |
| | $ | 10,541 |
| | $ | 33,642 |
| | $ | 31,362 |
| | $ | 15,426 |
| | $ | 13,982 |
| | $ | 45,595 |
| | $ | 39,172 |
|
Investment securities: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Taxable | | 553 |
| | 601 |
| | 1,665 |
| | 1,825 |
| | 998 |
| | 713 |
| | 2,899 |
| | 1,898 |
|
Tax-exempt | | 319 |
| | 329 |
| | 940 |
| | 1,203 |
| | 167 |
| | 207 |
| | 520 |
| | 678 |
|
Dividend and other interest income | | 170 |
| | 189 |
| | 592 |
| | 666 |
| | 493 |
| | 296 |
| | 1,345 |
| | 762 |
|
TOTAL INTEREST AND DIVIDEND INCOME | | 12,948 |
| | 11,660 |
| | 36,839 |
| | 35,056 |
| | 17,084 |
| | 15,198 |
| | 50,359 |
| | 42,510 |
|
INTEREST EXPENSE: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Deposits | | 1,058 |
| | 909 |
| | 2,968 |
| | 2,624 |
| | 3,165 |
| | 1,659 |
| | 8,336 |
| | 4,371 |
|
Short-term borrowings | | 31 |
| | 7 |
| | 39 |
| | 41 |
| | 7 |
| | 528 |
| | 790 |
| | 1,004 |
|
Long-term borrowings | | 407 |
| | 497 |
| | 1,220 |
| | 1,481 |
| | 1,009 |
| | 756 |
| | 2,739 |
| | 2,024 |
|
TOTAL INTEREST EXPENSE | | 1,496 |
| | 1,413 |
| | 4,227 |
| | 4,146 |
| | 4,181 |
| | 2,943 |
| | 11,865 |
| | 7,399 |
|
NET INTEREST INCOME | | 11,452 |
| | 10,247 |
| | 32,612 |
| | 30,910 |
| | 12,903 |
| | 12,255 |
| | 38,494 |
| | 35,111 |
|
PROVISION FOR LOAN LOSSES | | 60 |
| | 258 |
| | 605 |
| | 866 |
| | 360 |
| | 480 |
| | 1,035 |
| | 975 |
|
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES | | 11,392 |
| | 9,989 |
| | 32,007 |
| | 30,044 |
| | 12,543 |
| | 11,775 |
| | 37,459 |
| | 34,136 |
|
NON-INTEREST INCOME: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Service charges | | 550 |
| | 585 |
| | 1,637 |
| | 1,678 |
| | 622 |
| | 645 |
| | 1,776 |
| | 1,788 |
|
Net securities gains, available for sale | | 302 |
| | 253 |
| | 487 |
| | 1,174 |
| |
Net securities (losses) gains, trading | | (4 | ) | | 8 |
| | (2 | ) | | 54 |
| |
Net debt securities gains (losses), available for sale | | | 189 |
| | (22 | ) | | 200 |
| | (17 | ) |
Net equity securities (losses) gains | | | (21 | ) | | (16 | ) | | 44 |
| | (44 | ) |
Net securities gains (losses), trading | | | 2 |
| | 14 |
| | 15 |
| | 12 |
|
Bank-owned life insurance | | 166 |
| | 172 |
| | 499 |
| | 516 |
| | 143 |
| | 165 |
| | 434 |
| | 496 |
|
Gain on sale of loans | | 455 |
| | 658 |
| | 1,316 |
| | 1,691 |
| | 583 |
| | 398 |
| | 1,246 |
| | 1,053 |
|
Insurance commissions | | 109 |
| | 198 |
| | 399 |
| | 604 |
| | 93 |
| | 85 |
| | 346 |
| | 266 |
|
Brokerage commissions | | 352 |
| | 290 |
| | 1,044 |
| | 817 |
| | 353 |
| | 340 |
| | 1,032 |
| | 1,013 |
|
Debit card fees | | 514 |
| | 690 |
| | 1,450 |
| | 1,413 |
| | 333 |
| | 359 |
| | 1,032 |
| | 1,065 |
|
Other | | 296 |
| | 228 |
| | 1,325 |
| | 1,310 |
| | 525 |
| | 621 |
| | 1,420 |
| | 1,400 |
|
TOTAL NON-INTEREST INCOME | | 2,740 |
| | 3,082 |
| | 8,155 |
| | 9,257 |
| | 2,822 |
| | 2,589 |
| | 7,545 |
| | 7,032 |
|
NON-INTEREST EXPENSE: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Salaries and employee benefits | | 4,738 |
| | 4,507 |
| | 14,116 |
| | 13,433 |
| | 5,488 |
| | 5,420 |
| | 16,512 |
| | 15,387 |
|
Occupancy | | 603 |
| | 544 |
| | 1,855 |
| | 1,630 |
| | 638 |
| | 640 |
| | 2,085 |
| | 2,080 |
|
Furniture and equipment | | 816 |
| | 662 |
| | 2,129 |
| | 2,042 |
| | 885 |
| | 780 |
| | 2,421 |
| | 2,328 |
|
Software amortization | | 235 |
| | 580 |
| | 750 |
| | 950 |
| | 234 |
| | 208 |
| | 629 |
| | 504 |
|
Pennsylvania shares tax | | 228 |
| | 220 |
| | 696 |
| | 698 |
| | 285 |
| | 278 |
| | 863 |
| | 833 |
|
Professional fees | | 560 |
| | 502 |
| | 1,816 |
| | 1,512 |
| | 585 |
| | 459 |
| | 1,834 |
| | 1,674 |
|
Federal Deposit Insurance Corporation deposit insurance | | 194 |
| | 202 |
| | 514 |
| | 670 |
| | — |
| | 237 |
| | 504 |
| | 639 |
|
Debit card expenses | | 168 |
| | 246 |
| | 478 |
| | 456 |
| |
Marketing | | 315 |
| | 173 |
| | 690 |
| | 568 |
| | 98 |
| | 245 |
| | 233 |
| | 764 |
|
Intangible amortization | | 81 |
| | 90 |
| | 256 |
| | 276 |
| | 62 |
| | 71 |
| | 202 |
| | 229 |
|
Other | | 1,628 |
| | 1,013 |
| | 4,314 |
| | 4,230 |
| | 1,266 |
| | 1,343 |
| | 4,131 |
| | 4,037 |
|
TOTAL NON-INTEREST EXPENSE | | 9,566 |
| | 8,739 |
| | 27,614 |
| | 26,465 |
| | 9,541 |
| | 9,681 |
| | 29,414 |
| | 28,475 |
|
INCOME BEFORE INCOME TAX PROVISION | | 4,566 |
| | 4,332 |
| | 12,548 |
| | 12,836 |
| | 5,824 |
| | 4,683 |
| | 15,590 |
| | 12,693 |
|
INCOME TAX PROVISION | | 1,282 |
| | 1,273 |
| | 3,491 |
| | 3,307 |
| | 1,170 |
| | 857 |
| | 2,741 |
| | 2,179 |
|
NET INCOME | | $ | 3,284 |
| | $ | 3,059 |
| | $ | 9,057 |
| | $ | 9,529 |
| |
EARNINGS PER SHARE - BASIC AND DILUTED | | $ | 0.70 |
| | $ | 0.65 |
| | $ | 1.92 |
| | $ | 2.01 |
| |
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED | | 4,688,222 |
| | 4,733,800 |
| | 4,711,282 |
| | 4,735,844 |
| |
CONSOLIDATED NET INCOME | | | $ | 4,654 |
| | $ | 3,826 |
| | $ | 12,849 |
| | $ | 10,514 |
|
Less: Net loss attributable to noncontrolling interest | | | 4 |
| | — |
| | 10 |
| | (1 | ) |
NET INCOME ATTRIBUTABLE TO PENNS WOODS BANCORP, INC. | | | $ | 4,650 |
| | $ | 3,826 |
| | $ | 12,839 |
| | $ | 10,515 |
|
EARNINGS PER SHARE - BASIC | | | $ | 0.66 |
| | $ | 0.54 |
| | $ | 1.82 |
| | $ | 1.49 |
|
EARNINGS PER SHARE - DILUTED | | | $ | 0.66 |
| | $ | 0.54 |
| | $ | 1.82 |
| | $ | 1.49 |
|
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC | | | 7,037,055 |
| | 7,035,840 |
| | 7,036,181 |
| | 7,034,940 |
|
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED | | | 7,037,055 |
| | 7,035,840 |
| | 7,036,181 |
| | 7,034,940 |
|
DIVIDENDS DECLARED PER SHARE | | $ | 0.47 |
| | $ | 0.47 |
| | $ | 1.41 |
| | $ | 1.41 |
| | $ | 0.31 |
| | $ | 0.31 |
| | $ | 0.94 |
| | $ | 0.94 |
|
See accompanying notes to the unaudited consolidated financial statements.
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
(In Thousands) | | 2017 | | 2016 | | 2017 | | 2016 | | 2019 | | 2018 | | 2019 | | 2018 |
Net Income | | $ | 3,284 |
| | $ | 3,059 |
| | $ | 9,057 |
| | $ | 9,529 |
| | $ | 4,650 |
| | $ | 3,826 |
| | $ | 12,839 |
| | $ | 10,515 |
|
Other comprehensive income (loss): | | |
| | |
| | |
| | |
| |
Other comprehensive income (loss) income: | | | |
| | |
| | |
| | |
|
Change in unrealized gain (loss) on available for sale securities | | 437 |
| | (276 | ) | | 1,565 |
| | 3,039 |
| | 1,261 |
| | (789 | ) | | 6,056 |
| | (2,641 | ) |
Tax effect | | (150 | ) | | 94 |
| | (532 | ) | | (1,032 | ) | | (265 | ) | | 166 |
| | (1,272 | ) | | 556 |
|
Net realized gain on available for sale securities included in net income | | (302 | ) | | (253 | ) | | (487 | ) | | (1,174 | ) | |
Net realized (gain) loss on available for sale securities included in net income | | | (189 | ) | | 22 |
| | (200 | ) | | 17 |
|
Tax effect | | 104 |
| | 86 |
| | 166 |
| | 398 |
| | 40 |
| | (5 | ) | | 42 |
| | (4 | ) |
Amortization of unrecognized pension loss | | 45 |
| | 39 |
| | 129 |
| | 117 |
| |
Amortization of unrecognized pension gain | | | 46 |
| | 41 |
| | 140 |
| | 125 |
|
Tax effect | | (15 | ) | | (13 | ) | | (43 | ) | | (40 | ) | | (9 | ) | | (8 | ) | | (29 | ) | | (25 | ) |
Total other comprehensive income (loss) | | 119 |
| | (323 | ) | | 798 |
| | 1,308 |
| |
Total other comprehensive gain (loss) income | | | 884 |
| | (573 | ) | | 4,737 |
| | (1,972 | ) |
Comprehensive income | | $ | 3,403 |
| | $ | 2,736 |
| | $ | 9,855 |
| | $ | 10,837 |
| | $ | 5,534 |
| | $ | 3,253 |
| | $ | 17,576 |
| | $ | 8,543 |
|
See accompanying notes to the unaudited consolidated financial statements.
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
(UNAUDITED)
Three months ended:
| | | | COMMON STOCK | | ADDITIONAL PAID-IN CAPITAL | | RETAINED EARNINGS | | ACCUMULATED OTHER COMPREHENSIVE LOSS | | TREASURY STOCK | | TOTAL SHAREHOLDERS’ EQUITY | | COMMON STOCK | | ADDITIONAL PAID-IN CAPITAL | | RETAINED EARNINGS | | ACCUMULATED OTHER COMPREHENSIVE LOSS | | TREASURY STOCK | | NON-CONTROLLING INTEREST | | TOTAL SHAREHOLDERS’ EQUITY |
(In Thousands, Except Per Share Data) | | SHARES | | AMOUNT | | | SHARES | | AMOUNT | |
Balance, December 31, 2015 | | 5,004,984 |
| | $ | 41,708 |
| | $ | 49,992 |
| | $ | 58,038 |
| | $ | (3,799 | ) | | $ | (9,660 | ) | | $ | 136,279 |
| |
Balance, June 30, 2019 | | | 7,519,344 |
| | $ | 41,773 |
| | $ | 51,067 |
| | $ | 73,565 |
| | $ | (2,783 | ) | | $ | (12,115 | ) | | $ | 14 |
| | $ | 151,521 |
|
Net income | | |
| | |
| | |
| | 9,529 |
| | |
| | |
| | 9,529 |
| | |
| | |
| | |
| | 4,650 |
| | |
| | |
| | 4 |
| | 4,654 |
|
Other comprehensive income | | |
| | |
| | |
| | |
| | 1,308 |
| | |
| | 1,308 |
| | | | | | | | | | 884 |
| | | | | | 884 |
|
Dividends declared, ($1.41 per share) | | |
| | |
| | |
| | (6,678 | ) | | |
| | |
| | (6,678 | ) | |
Stock-based compensation | | | | | | | 185 |
| | | | |
| | |
| | | | 185 |
|
Dividends declared ($0.31 per share) | | | |
| | |
| | |
| | (2,206 | ) | | |
| | |
| | | | (2,206 | ) |
Common shares issued for employee stock purchase plan | | 1,617 |
| | 13 |
| | 58 |
| | |
| | |
| | |
| | 71 |
| | 782 |
| | 4 |
| | 38 |
| | | | | | | | | | 42 |
|
Purchase of treasury stock (14,600 shares) | | | | | | | | | | | | (574 | ) | | (574 | ) | |
Balance, September 30, 2016 | | 5,006,601 |
| | $ | 41,721 |
| | $ | 50,050 |
| | $ | 60,889 |
| | $ | (2,491 | ) | | $ | (10,234 | ) | | $ | 139,935 |
| |
Stock split fractional shares | | | (2,330 | ) | | (19 | ) | |
|
| | |
| | | | | | | | (19 | ) |
Balance, September 30, 2019 | | | 7,517,796 |
| | $ | 41,758 |
| | $ | 51,290 |
| | $ | 76,009 |
| | $ | (1,899 | ) | | $ | (12,115 | ) | | $ | 18 |
| | $ | 155,061 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | COMMON STOCK | | ADDITIONAL PAID-IN CAPITAL | | RETAINED EARNINGS | | ACCUMULATED OTHER COMPREHENSIVE LOSS | | TREASURY STOCK | | TOTAL SHAREHOLDERS’ EQUITY |
(In Thousands, Except Per Share Data) | | SHARES | | AMOUNT | | | | | |
Balance, December 31, 2016 | | 5,007,109 |
| | $ | 41,726 |
| | $ | 50,075 |
| | $ | 61,610 |
| | $ | (4,928 | ) | | $ | (10,234 | ) | | $ | 138,249 |
|
Net income | | |
| | |
| | |
| | 9,057 |
| | |
| | |
| | 9,057 |
|
Other comprehensive income | | |
| | |
| | |
| | |
| | 798 |
| | |
| | 798 |
|
Dividends declared, ($1.41 per share) | | |
| | |
| | |
| | (6,634 | ) | | |
| | |
| | (6,634 | ) |
Common shares issued for employee stock purchase plan | | 1,611 |
| | 13 |
| | 67 |
| | |
| | |
| | |
| | 80 |
|
Purchase of treasury stock (47,698 shares) | | | | | | | | | | | | (1,881 | ) | | (1,881 | ) |
Balance, September 30, 2017 | | 5,008,720 |
| | $ | 41,739 |
| | $ | 50,142 |
| | $ | 64,033 |
| | $ | (4,130 | ) | | $ | (12,115 | ) | | $ | 139,669 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | COMMON STOCK | | ADDITIONAL PAID-IN CAPITAL | | RETAINED EARNINGS | | ACCUMULATED OTHER COMPREHENSIVE LOSS | | TREASURY STOCK | | NON-CONTROLLING INTEREST | | TOTAL SHAREHOLDERS’ EQUITY |
(In Thousands, Except Per Share Data) | | SHARES | | AMOUNT | | | | | | |
Balance, June 30, 2018 | | 7,515,803 |
| | $ | 41,753 |
| | $ | 50,225 |
| | $ | 66,181 |
| | $ | (6,910 | ) | | $ | (12,115 | ) | | $ | 1 |
| | $ | 139,135 |
|
Net income | | |
| | |
| | |
| | 3,826 |
| | |
| | |
| | — |
| | 3,826 |
|
Other comprehensive loss | | |
| | |
| | |
| | | | (573 | ) | | |
| | | | (573 | ) |
Stock-based compensation | | | | | | 333 |
| | | | | | | | | | 333 |
|
Dividends declared ($0.31 per share) | | |
| | |
| | |
| | (2,205 | ) | | |
| | |
| | | | (2,205 | ) |
Common shares issued for employee stock purchase plan | | 1,743 |
| | 4 |
| | 19 |
| | |
| | |
| | |
| | | | 23 |
|
Balance, September 30, 2018 | | 7,517,546 |
| | $ | 41,757 |
| | $ | 50,577 |
| | $ | 67,802 |
| | $ | (7,483 | ) | | $ | (12,115 | ) | | $ | 1 |
| | $ | 140,539 |
|
See accompanying notes to the unaudited consolidated financial statements.
Nine months ended:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | COMMON STOCK | | ADDITIONAL PAID-IN CAPITAL | | RETAINED EARNINGS | | ACCUMULATED OTHER COMPREHENSIVE LOSS | | TREASURY STOCK | | NON-CONTROLLING INTEREST | | TOTAL SHAREHOLDERS’ EQUITY |
(In Thousands, Except Per Share Data) | | SHARES | | AMOUNT | | | | | | |
Balance, December 31, 2018 | | 7,517,546 |
| | $ | 41,763 |
| | $ | 50,737 |
| | $ | 69,787 |
| | $ | (6,636 | ) | | $ | (12,115 | ) | | $ | 8 |
| | $ | 143,544 |
|
Net income | | |
| | |
| | |
| | 12,839 |
| | |
| | |
| | 10 |
| | 12,849 |
|
Other comprehensive income | | |
| | |
| | |
| | |
| | 4,737 |
| | |
| | | | 4,737 |
|
Stock-based compensation | | | | | | 498 |
| | | | | | | | | | 498 |
|
Dividends declared ($0.94 per share) | | |
| | |
| | |
| | (6,617 | ) | | |
| | |
| | | | (6,617 | ) |
Common shares issued for employee stock purchase plan | | 2,580 |
| | 14 |
| | 55 |
| | |
| | |
| | |
| | | | 69 |
|
Stock split fractional shares | | (2,330 | ) | | (19 | ) | | | | | | | |
|
| | | | (19 | ) |
Balance, September 30, 2019 | | 7,517,796 |
| | $ | 41,758 |
| | $ | 51,290 |
| | $ | 76,009 |
| | $ | (1,899 | ) | | $ | (12,115 | ) | | $ | 18 |
| | $ | 155,061 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | COMMON STOCK | | ADDITIONAL PAID-IN CAPITAL | | RETAINED EARNINGS | | ACCUMULATED OTHER COMPREHENSIVE LOSS | | TREASURY STOCK | | NON-CONTROLLING INTEREST | | TOTAL SHAREHOLDERS’ EQUITY |
(In Thousands, Except Per Share Data) | | SHARES | | AMOUNT | | | | | | |
Balance, December 31, 2017 | | 7,514,009 |
| | $ | 41,744 |
| | $ | 50,173 |
| | $ | 63,364 |
| | $ | (4,974 | ) | | $ | (12,115 | ) | | $ | 2 |
| | $ | 138,194 |
|
Net income | | |
| | |
| | |
| | 10,515 |
| | |
| | |
| | (1 | ) | | 10,514 |
|
Adoption of ASU 2016-01 | | | | | | | | 537 |
| | (537 | ) | | | | | | — |
|
Other comprehensive (loss) | | |
| | |
| | |
| | | | (1,972 | ) | | |
| | | | (1,972 | ) |
Stock-based compensation | | | | | | 345 |
| | | | | | | | | | 345 |
|
Dividends declared ($0.94 per share) | | |
| | |
| | |
| | (6,614 | ) | | |
| | |
| | | | (6,614 | ) |
Common shares issued for employee stock purchase plan | | 3,537 |
| | 13 |
| | 59 |
| | |
| | |
| | |
| | | | 72 |
|
Balance, September 30, 2018 | | 7,517,546 |
| | $ | 41,757 |
| | $ | 50,577 |
| | $ | 67,802 |
| | $ | (7,483 | ) | | $ | (12,115 | ) | | $ | 1 |
| | $ | 140,539 |
|
See accompanying notes to the unaudited consolidated financial statements.
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
| | | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
(In Thousands) | | 2017 | | 2016 | | 2019 | | 2018 |
OPERATING ACTIVITIES: | | |
| | |
| | |
| | |
|
Net Income | | $ | 9,057 |
| | $ | 9,529 |
| | $ | 12,849 |
| | $ | 10,514 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | |
| | |
| | |
| | |
|
Depreciation and amortization | | 1,979 |
| | 2,394 |
| | 1,904 |
| | 1,907 |
|
Amortization of intangible assets | | 256 |
| | 276 |
| | 202 |
| | 229 |
|
Provision for loan losses | | 605 |
| | 866 |
| | 1,035 |
| | 975 |
|
Accretion and amortization of investment security discounts and premiums | | 688 |
| | 657 |
| | 499 |
| | 591 |
|
Net securities gains, available for sale | | (487 | ) | | (1,174 | ) | |
Net securities (gains) losses, available for sale | | | (200 | ) | | 17 |
|
Originations of loans held for sale | | (41,503 | ) | | (50,824 | ) | | (41,601 | ) | | (39,979 | ) |
Proceeds of loans held for sale | | 43,038 |
| | 51,112 |
| | 43,908 |
| | 38,501 |
|
Gain on sale of loans | | (1,316 | ) | | (1,691 | ) | | (1,246 | ) | | (1,053 | ) |
Net equity securities (gains) losses | | | (44 | ) | | 44 |
|
Net securities gains, trading | | 2 |
| | (54 | ) | | (15 | ) | | (12 | ) |
Proceeds from the sale of trading securities | | 332 |
| | 3,723 |
| | 78 |
| | 466 |
|
Purchases of trading securities | | (486 | ) | | (3,596 | ) | | (74 | ) | | (309 | ) |
Earnings on bank-owned life insurance | | (499 | ) | | (516 | ) | | (434 | ) | | (496 | ) |
Decrease in deferred tax asset | | 46 |
| | 952 |
| |
Decrease (increase) in deferred tax asset | | | 180 |
| | (370 | ) |
Other, net | | (4,361 | ) | | 508 |
| | (1,268 | ) | | (952 | ) |
Net cash provided by operating activities | | 7,351 |
| | 12,162 |
| | 15,773 |
| | 10,073 |
|
INVESTING ACTIVITIES: | | |
| | |
| | |
| | |
|
Proceeds from sales of available for sale securities | | 15,443 |
| | 42,180 |
| | 16,289 |
| | 14,528 |
|
Proceeds from calls and maturities of available for sale securities | | 7,198 |
| | 19,267 |
| | 3,089 |
| | 6,160 |
|
Purchases of available for sale securities | | (18,434 | ) | | (24,040 | ) | | (28,611 | ) | | (45,473 | ) |
Net increase in loans | | (97,109 | ) | | (24,548 | ) | |
Net decrease (increase) in loans | | | 18,625 |
| | (123,857 | ) |
Acquisition of premises and equipment | | (2,849 | ) | | (2,347 | ) | | (1,798 | ) | | (1,374 | ) |
Proceeds from the sale of foreclosed assets | | 958 |
| | 486 |
| | 502 |
| | 253 |
|
Purchase of bank-owned life insurance | | (34 | ) | | (27 | ) | | (30 | ) | | (36 | ) |
Proceeds from redemption of regulatory stock | | 4,844 |
| | 2,644 |
| | 13,659 |
| | 12,073 |
|
Purchases of regulatory stock | | (6,994 | ) | | (2,569 | ) | | (8,299 | ) | | (16,575 | ) |
Net cash (used for) provided by investing activities | | (96,977 | ) | | 11,046 |
| |
Net cash provided (used) for investing activities | | | 13,426 |
| | (154,301 | ) |
FINANCING ACTIVITIES: | | |
| | |
| | |
| | |
|
Net increase in interest-bearing deposits | | 51,229 |
| | 40,901 |
| | 105,989 |
| | 54,362 |
|
Net increase in noninterest-bearing deposits | | 7,553 |
| | 15,516 |
| | 6,515 |
| | 9,795 |
|
Proceeds from long-term borrowings | | 30,000 |
| | — |
| | 50,000 |
| | 80,000 |
|
Repayment of long-term borrowings | | (35,000 | ) | | — |
| | (32,608 | ) | | (12,000 | ) |
Net increase (decrease) in short-term borrowings | | 28,355 |
| | (35,059 | ) | |
Net (decrease) increase in short-term borrowings | | | (161,878 | ) | | 63,717 |
|
Finance lease principal payments | | | (70 | ) | | — |
|
Dividends paid | | (6,634 | ) | | (6,678 | ) | | (6,617 | ) | | (6,614 | ) |
Issuance of common stock | | 80 |
| | 71 |
| | 69 |
| | 72 |
|
Purchases of treasury stock | | (1,881 | ) | | (574 | ) | |
Net cash provided by financing activities | | 73,702 |
| | 14,177 |
| |
Net cash (used) provided by financing activities | | | (38,600 | ) | | 189,332 |
|
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | | (15,924 | ) | | 37,385 |
| | (9,401 | ) | | 45,104 |
|
CASH AND CASH EQUIVALENTS, BEGINNING | | 43,671 |
| | 22,796 |
| | 66,742 |
| | 27,243 |
|
CASH AND CASH EQUIVALENTS, ENDING | | $ | 27,747 |
| | $ | 60,181 |
| | $ | 57,341 |
| | $ | 72,347 |
|
| | SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | | |
| | |
| | |
| | |
|
Interest paid | | $ | 4,199 |
| | $ | 4,091 |
| | $ | 11,349 |
| | $ | 6,850 |
|
Income taxes paid | | 3,950 |
| | 3,050 |
| | 3,125 |
| | 1,925 |
|
Non-cash investing and financing activities: | | | | | |
Right-of-use lease assets obtained in exchange for lessee finance lease liabilities | | | 6,026 |
| | — |
|
Right-of-use lease assets obtained in exchange for lessee operating lease liabilities | | | 4,298 |
| | — |
|
Transfer of loans to foreclosed real estate | | 508 |
| | 83 |
| | 525 |
| | 876 |
|
Transfer due to adoption of ASU 2016-01, equity securities fair value adjust, reclassification from AOCI to Retained Earnings, net of tax | | | — |
| | 537 |
|
See accompanying notes to the unaudited consolidated financial statements.
PENNS WOODS BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The consolidated financial statements include the accounts of Penns Woods Bancorp, Inc. (the “Company”) and its wholly-owned subsidiaries: Woods Investment Company, Inc., Woods Real Estate Development Company, Inc., Luzerne Bank, and Jersey Shore State Bank (Jersey Shore State Bank and Luzerne Bank are referred to together as the “Banks”) and Jersey Shore State Bank’s wholly-owned subsidiary, The M Group, Inc. D/B/A The Comprehensive Financial Group (“The M Group”). The Company also owns a controlling interest in United Insurance Solutions, LLC. All significant inter-company balances and transactions have been eliminated in the consolidation.
The interim financial statements are unaudited, but in the opinion of management reflect all adjustments necessary for the fair presentation of results for such periods. The results of operations for any interim period are not necessarily indicative of results for the full year. These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2018.
Newly Adopted Accounting Standards
In February 2016, the FASB issued the Leasing Standard, which is codified in ASC 842, Leases, and is intended to increase transparency and comparability among organizations and require lessees to record a right-of-use (ROU) asset and a liability representing the obligation to make lease payments for long-term leases. Accounting by lessors remains largely unchanged. The Company adopted the Standard on January 1, 2019, using the modified retrospective transition under the option to apply the Leasing Standard at its effective date without adjusting the prior period comparative financial statements. Among other things, these updates require lessees to recognize a lease liability, measured on a discounted basis, related to the lessee's obligation to make lease payments arising under a lease contract; and a right-of-use asset related to the lessee’s right to use, or control the use of, a specified asset for the lease term. On January 1, 2019, the Company recorded operating lease liabilities and ROU asset of $4.3 million and finance lease liabilities and ROU asset of $6.0 million upon adoption of the Standard. The balance sheet effects of the new lease accounting standard also impacted regulatory capital ratios, performance ratios and other measures which are dependent upon asset or liability balances. For additional information and required disclosures related to ASC 842, see Note 13, “Leases.”
The accounting policies followed in the presentation of interim financial results are the same as those followed on an annual basis. These policies are presented on pages 3941 through 4850 of the Form 10-K for the year ended December 31, 2016.2018.
In reference to the attached financial statements, all adjustments are of a normal recurring nature pursuant to Rule 10-01(b) (8) of Regulation S-X.
Note 2. Accumulated Other Comprehensive LossGain (loss)
The changes in accumulated other comprehensive lossgain (loss) by component shown net of tax and parenthesis indicating debits, as of September 30, 20172019 and 20162018 were as follows: | | | | Three Months Ended September 30, 2017 | | Three Months Ended September 30, 2016 | | Three Months Ended September 30, 2019 | | Three Months Ended September 30, 2018 |
(In Thousands) | | Net Unrealized Loss on Available for Sale Securities | | Defined Benefit Plan | | Total | | Net Unrealized Gain on Available for Sale Securities | | Defined Benefit Plan | | Total | | Net Unrealized Gain on Available for Sale Securities | | Defined Benefit Plan | | Total | | Net Unrealized Loss on Available for Sale Securities | | Defined Benefit Plan | | Total |
Beginning balance | | $ | (16 | ) | | $ | (4,233 | ) |
| $ | (4,249 | ) | | $ | 1,838 |
| | $ | (4,006 | ) | | $ | (2,168 | ) | | $ | 2,419 |
| | $ | (5,202 | ) | | $ | (2,783 | ) | | $ | (2,057 | ) | | $ | (4,853 | ) | | $ | (6,910 | ) |
Other comprehensive income (loss) before reclassifications | | 287 |
|
| — |
|
| 287 |
| | (182 | ) | | — |
| | (182 | ) | |
Amounts reclassified from accumulated other comprehensive loss | | (198 | ) |
| 30 |
|
| (168 | ) | | (167 | ) | | 26 |
| | (141 | ) | |
Net current-period other comprehensive income | | 89 |
|
| 30 |
|
| 119 |
| | (349 | ) | | 26 |
| | (323 | ) | |
Other comprehensive gain (loss) before reclassifications | | | 996 |
| | — |
| | 996 |
| | (623 | ) | | — |
| | (623 | ) |
Amounts reclassified from accumulated other comprehensive (loss) gain | | | (149 | ) | | 37 |
| | (112 | ) | | 17 |
| | 33 |
| | 50 |
|
Net current-period other comprehensive income (loss) | | | 847 |
| | 37 |
| | 884 |
| | (606 | ) | | 33 |
| | (573 | ) |
Ending balance | | $ | 73 |
|
| $ | (4,203 | ) |
| $ | (4,130 | ) | | $ | 1,489 |
| | $ | (3,980 | ) | | $ | (2,491 | ) | | $ | 3,266 |
| | $ | (5,165 | ) | | $ | (1,899 | ) | | $ | (2,663 | ) | | $ | (4,820 | ) | | $ | (7,483 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2017 | | Nine Months Ended September 30, 2016 |
(In Thousands) | | Net Unrealized Loss on Available for Sale Securities | | Defined Benefit Plan | | Total | | Net Unrealized Gain on Available for Sale Securities | | Defined Benefit Plan | | Total |
Beginning balance | | $ | (639 | ) | | $ | (4,289 | ) | | $ | (4,928 | ) | | $ | 258 |
| | $ | (4,057 | ) | | $ | (3,799 | ) |
Other comprehensive income before reclassifications | | 1,033 |
| | — |
| | 1,033 |
| | 2,007 |
| | — |
| | 2,007 |
|
Amounts reclassified from accumulated other comprehensive loss | | (321 | ) | | 86 |
| | (235 | ) | | (776 | ) | | 77 |
| | (699 | ) |
Net current-period other comprehensive income | | 712 |
| | 86 |
| | 798 |
| | 1,231 |
| | 77 |
| | 1,308 |
|
Ending balance | | $ | 73 |
| | $ | (4,203 | ) | | $ | (4,130 | ) | | $ | 1,489 |
| | $ | (3,980 | ) | | $ | (2,491 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2019 | | Nine Months Ended September 30, 2018 |
(In Thousands) | | Net Unrealized Gain (Loss) on Available for Sale Securities | | Defined Benefit Plan | | Total | | Net Unrealized Gain (Loss) on Available for Sale Securities | | Defined Benefit Plan | | Total |
Beginning balance | | $ | (1,360 | ) | | $ | (5,276 | ) | | $ | (6,636 | ) | | $ | (54 | ) | | $ | (4,920 | ) | | $ | (4,974 | ) |
Other comprehensive gain (loss) before reclassifications | | 4,784 |
| | — |
| | 4,784 |
| | (2,085 | ) | | — |
| | (2,085 | ) |
Amounts reclassified from accumulated other comprehensive (loss) gain | | (158 | ) | | 111 |
| | (47 | ) | | 13 |
| | 100 |
| | 113 |
|
Net current-period other comprehensive income (loss) | | 4,626 |
| | 111 |
| | 4,737 |
| | (2,072 | ) | | 100 |
| | (1,972 | ) |
Reclassification from adoption of 2016-01 | | — |
| | — |
| | — |
| | (537 | ) | | — |
| | (537 | ) |
Ending balance | | $ | 3,266 |
| | $ | (5,165 | ) | | $ | (1,899 | ) | | $ | (2,663 | ) | | $ | (4,820 | ) | | $ | (7,483 | ) |
The reclassifications out of accumulated other comprehensive loss shown, net of tax and parenthesis indicating debits to net income, as of September 30, 20172019 and 20162018 were as follows:
| | Details about Accumulated Other Comprehensive Loss Components | | Amount Reclassified from Accumulated Other Comprehensive Loss | | Affected Line Item in the Consolidated Statement of Income | | Amount Reclassified from Accumulated Other Comprehensive Loss | | Affected Line Item in the Consolidated Statement of Income |
| Three Months Ended September 30, 2017 | | Three Months Ended September 30, 2016 | | | Three Months Ended September 30, 2019 | | Three Months Ended September 30, 2018 | |
Net unrealized (loss) gain on available for sale securities | | $ | 302 |
| | $ | 253 |
| | Net securities (losses) gains, available for sale | | $ | 189 |
| | $ | (22 | ) | | Net debt securities gains (losses), available for sale |
Income tax effect | | (104 | ) | | (86 | ) | | Income tax provision | | (40 | ) | | 5 |
| | Income tax provision |
Total reclassifications for the period | | $ | 198 |
| | $ | 167 |
| | | $ | 149 |
| | $ | (17 | ) | |
| | | | | | | | | | |
Net unrecognized pension costs | | (45 | ) | | (39 | ) | | Salaries and employee benefits | | $ | (46 | ) | | $ | (41 | ) | | Salaries and employee benefits |
Income tax effect | | 15 |
| | 13 |
| | Income tax provision | | 9 |
| | 8 |
| | Income tax provision |
Total reclassifications for the period | | (30 | ) | | (26 | ) | | | $ | (37 | ) | | $ | (33 | ) | |
| | Details about Accumulated Other Comprehensive Loss Components | | Amount Reclassified from Accumulated Other Comprehensive Loss | | Affected Line Item in the Consolidated Statement of Income | | Amount Reclassified from Accumulated Other Comprehensive Loss | | Affected Line Item in the Consolidated Statement of Income |
| Nine months ended September 30, 2017 | | Nine months ended September 30, 2016 | | | Nine months ended September 30, 2019 | | Nine months ended September 30, 2018 | |
Net unrealized gain on available for sale securities | | $ | 487 |
| | $ | 1,174 |
| | Net securities gains, available for sale | |
Net unrealized (loss) gain on available for sale securities | | | $ | 200 |
| | $ | (17 | ) | | Net securities gains, available for sale |
Income tax effect | | (166 | ) | | (398 | ) | | Income tax provision | | (42 | ) | | 4 |
| | Income tax provision |
Total reclassifications for the period | | $ | 321 |
| | $ | 776 |
| | | $ | 158 |
| | $ | (13 | ) | |
| | | | | | | | | | |
Net unrecognized pension costs | | (129 | ) | | (117 | ) | | Salaries and employee benefits | | $ | (140 | ) | | $ | (125 | ) | | Salaries and employee benefits |
Income tax effect | | 43 |
| | 40 |
| | Income tax provision | | 29 |
| | 25 |
| | Income tax provision |
Total reclassifications for the period | | (86 | ) | | (77 | ) | | | $ | (111 | ) | | $ | (100 | ) | |
Note 3. Recent Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (a new revenue recognition standard). The Update’s core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this Update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. Subsequently, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606). The amendments in this Update defer the effective date of ASU 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. All other entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. Because the guidance does not apply to revenue associated with financial instruments, including loans and securities, we do not expect the new standard, or any of the amendments, to result in a material change from our current accounting for revenue because the majority of the Company's financial instruments are not within the scope of Topic 606. However, we do expect that the standard will result in new disclosure requirements, which are currently being evaluated.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This Update applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation, and disclosure of financial instruments. Among other things, this Update (a) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (g) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For all other entities, including not-for-profit entities and
employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. All entities that are not public business entities may adopt the amendments in this Update earlier as of the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. A short-term lease is defined as one in which (a) the lease term is 12 months or less and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise. For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020. The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently assessing the practical expedients it may elect at adoption, but does not anticipate the amendments will have a significant impact on the financial statements. Based on the Company’s preliminary analysis of its current portfolio, the impact to the Company’s balance sheet is estimated to result in less than a 1 percent increase in assets and liabilities. The Company also anticipates additional disclosures to be provided at adoption.
In March 2016, the FASB issued ASU 2016-04, Liabilities - Extinguishments of Liabilities (Subtopic 405-20). The standard provides that liabilities related to the sale of prepaid stored-value products within the scope of this Update are financial liabilities. The amendments in the Update provide a narrow-scope exception to the guidance in Subtopic 405-20 to require that breakage for those liabilities be accounted for consistent with the breakage guidance in Topic 606. The amendments in this Update are effective for public business entities, certain not-for-profit entities, and certain employee benefit plans for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Earlier application is permitted, including adoption in an interim period. This Update is not expected to have a significant impact on the Company’s financial statements.
In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606). The amendments in this Update affect entities with transactions included within the scope of Topic 606, which includes entities that enter into contracts with customers to transfer goods or services (that are an output of the entity’s ordinary activities) in exchange for consideration. The amendments in this Update do not change the core principle of the guidance in Topic 606; they simply clarify the implementation guidance on principal versus agent considerations. The amendments in this Update are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. The amendments in this Update affect the guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements of Update 2014-09. ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.
In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606). The amendments in this Update affect entities with transactions included within the scope of Topic 606, which includes entities that enter into contracts with customers to transfer goods or services in exchange for consideration. The amendments in this Update do not change the core principle for revenue recognition in Topic 606. Instead, the amendments provide (1) more detailed guidance in a few areas and (2) additional implementation guidance and examples based on feedback the FASB received from its stakeholders. The amendments are expected to reduce the degree of judgment necessary to comply with Topic 606, which the FASB expects will reduce the potential for diversity arising in practice and reduce the cost and complexity of applying the guidance. The amendments in this Update affect the guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements in Topic 606 (and any other Topic amended by Update 2014-09). ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.
In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606), which among other things clarifies the objective of the collectability criterion in Topic 606, as well as certain narrow aspects of Topic 606. The amendments in this Update affect the guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by Update 2014-09). ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year. This Update is not expected to have a significant impact on the Company’s financial statements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. On October 16, 2019, the FASB voted to defer the effective date for ASC 326, Financial Instruments - Credit Losses, for smaller reporting companies to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The final ASU is expected to be issued in mid-November. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective,
but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issues with the objective of reducing diversity in practice. Among these include recognizing cash payments for debt prepayment or debt extinguishment as cash outflows for financing activities; cash proceeds received from the settlement of insurance claims should be classified on the basis of the related insurance coverage; and cash proceeds received from the settlement of bank-owned life insurance policies should be classified as cash inflows from investing activities while the cash payments for premiums on bank-owned policies may be classified as cash outflows for investing activities, operating activities, or a combination of investing and operating activities. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s statement of cash flows.
In October 2016, the FASB issued ASU 2016-17, Consolidation (Topic 810), which amends the consolidation guidance on how a reporting entity that is the single decision maker of a VIE should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. The primary beneficiary of a VIE is the reporting entity that has a controlling financial interest in a VIE and, therefore, consolidates the VIE. A reporting entity has an indirect interest in a VIE if it has a direct interest in a related party that, in turn, has a direct interest in the VIE. Under the amendments, a single decision maker is not required to consider indirect interests held through related parties that are under common control with the single decision maker to be the equivalent of direct interests in their entirety. Instead, a single decision maker is required to include those interests on a proportionate basis consistent with indirect interests held through other related parties. The provisions in ASU 2016-17 are effective for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, the Update is effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the Update in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. This Update is not expected to have a significant impact on the Company’s financial statements.
In October 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230), which requires that a statement of cash flows explains the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in this Update should be applied using a retrospective transition method to each period presented. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s statement of cash flows.
In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. This Update, among others things, clarifies that guarantee fees within the scope of Topic 460, Guarantees, (other than product or service warranties) are not within the scope of Topic 606. The effective date and transition requirements for ASU 2016-20 are the same as the effective date and transition requirements for the new revenue recognition guidance. For public entities with a calendar year-end, the new guidance is effective in the quarter and year beginning January 1, 2018. For all other entities with a calendar year-end, the new guidance is effective in the year ending December 31, 2019, and interim periods in 2020. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805), Clarifying the Definition of a Business, which provides a more robust framework to use in determining when a set of assets and activities (collectively referred to as a “set”) is a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. Public business entities should apply the amendments in this Update to annual periods beginning after December 15, 2017, including interim periods within those periods. All other entities should apply the amendments to annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. The amendments in this Update should be applied prospectively on or after the effective date. This Update is not expected to have a significant impact on the Company’s financial statements.
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. A public business entity that is a U.S. Securities and Exchange Commission (“SEC”)(SEC) filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. A public business entity that is not an SEC filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2020. All other entities, including not-for-profit entities, that are adopting the amendments in this Update should do so for their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2021. On October 16, 2019, the FASB voted to defer the effective date for ASC 350, Intangibles - Goodwill and Other, for smaller reporting companies to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The final ASU is expected to be issued in mid-November. This Update is not expected to have a significant impact on the Company’s financial statements.
In February 2017,August 2018, the FASB issued ASU 2017-05, Other Income-Gains2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes the Disclosure Requirements for Fair Value Measurements. The Update removes the requirement to disclose the amount of and Losses fromreasons for transfers between Level I and Level II of the Derecognitionfair value hierarchy; the policy for timing of Nonfinancial Assets (Subtopic 610-20). The amendments in this Update clarify what constitutes a financial asset within the scope of Subtopic 610-20. The amendments also clarify that entities should identify each distinct nonfinancial asset or in substance nonfinancial asset that is promised to a counterparty and to derecognize each asset when the counterparty obtains control. There is also additional guidance provided for partial sales of a nonfinancial asset and when derecognition,transfers between levels; and the related gain or loss, should be recognized.valuation processes for Level III fair value measurements. The amendmentsUpdate requires disclosure of changes in this Update are effectiveunrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level III fair value measurements held at the same time asend of the amendments inreporting period and the range and weighted average of significant unobservable inputs used to develop Level III fair value measurements. This Update 2014-09. Therefore, for public entities, the amendments areis effective for annual reporting periods beginning after December 15, 2017, includingall entities for fiscal years, and interim reporting periods within that reporting period. For all other entities, the amendments in this Update are effective for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periodsthose fiscal years, beginning after December 15, 2019. This Update is not expected to have a significant impact on the Company’s financial statements, or the Company is currently evaluating the impact the adoption.statements.
In March 2017,August 2018, the FASB issued ASU 2017-07, Compensation-Retirement2018-14, Compensation - Retirement Benefits (Topic 715)715-20). This Update amends ASC 715 to add, remove and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The amendmentsUpdate eliminates the requirement to disclose the amounts in accumulated other comprehensive income expected to be recognized as part of net periodic benefit cost over the next year. The Update also removes the disclosure requirements for the effects of a one-percentage-point change on the assumed health care costs and the effect of this Update require that an employer report thechange in rates on service cost, component ininterest cost and the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost as defined in paragraphs 715-30-35-4 and 715-60-35-9 are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. The guidanceobligation for postretirement health care benefits. This Update is effective for public business entities for annual reporting periods beginningfiscal years ending after December 15, 2017,2020, and interim periods within that reporting period. For all other entities (including all nonprofit organizations “NPOs”), it is effective for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. This guidance is required tomust be applied on a retrospective basisbasis. For all other entities, this Update is effective for the presentation of the service cost component and the other components of net benefit cost and on a prospective basis for the capitalization of only the service cost component of net benefit cost.fiscal years ending after December 15, 2021. This Update is not expected to have a significant impact on the Company’s financial statements.
In March 2017,August 2018, the FASB issued ASU 2017-08, Receivables2018-15, Intangibles - Nonrefundable FeesGoodwill and Other Costs- Internal-Use Software (Subtopic 310-20)350-40). This Update addresses customers’ accounting for implementation costs incurred in a cloud computing arrangement that is a service contract and also adds certain disclosure requirements related to implementation costs incurred for internal-use software and cloud computing arrangements. The amendment aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This Update is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. The amendments in this Update shortencan be applied either retrospectively or prospectively to all implementation costs incurred after the amortization perioddate of adoption. On October 16, 2019, the FASB voted to defer the effective date for certain callable debt securities held atASC 350, Intangibles - Goodwill and Other, for smaller reporting companies to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The final ASU is expected to be issued in mid-November. This Update is not expected to have a premium. Specifically,significant impact on the Company’s financial statements.
In October 2018, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815). The amendments in this Update permit use of the Overnight Index Swap (OIS) rate based on the Secured Overnight Financing Rate (SOFR) as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815, in addition to the interest rates on direct Treasury obligations of the U.S. government, the London Interbank Offered Rate (LIBOR) swap rate, the OIS rate based on the Fed Funds Effective Rate, and the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Rate. For entities that have not already adopted
Update 2017-12, the amendments require the premiumin this Update are required to be amortizedadopted concurrently with the amendments in Update 2017-12. For public business entities that already have adopted the amendments in Update 2017-12, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities that already have adopted the amendments in Update 2017-12, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted in any interim period upon issuance of this Update if an entity already has adopted Update 2017-12. This Update is not expected to have a significant impact on the earliest call date. The amendments doCompany’s financial statements.
In November 2018, the FASB issued ASU 018-18, Collaborative Arrangements (Topic 808), which made the following targeted improvements to generally accepted accounting principles (GAAP) for collaborative arrangements (1) clarified that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account, (2) add unit-of-account guidance in Topic 808 to align with the guidance in Topic 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of Topic 606, and (3) require that in a transaction with a collaborative arrangement participant that is not require an accounting change for securities held atdirectly related to sales to third parties, presenting the transaction together with revenue recognized under Topic 606 is precluded if the collaborative arrangement participant is not a discount; the discount continues to be amortized to maturity.customer. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, beginning after December 15, 2018.years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. This Update is not expected to have a significant impact on the Company’s financial statements.
In March 2019, the FASB issued ASU 2019-01, Leases (Topic 842): Codification Improvements, which addressed issues lessors sometimes encounter. Specifically addressed in this Update were issues related to (1) determining the fair value of the underlying asset by the lessor that are not manufacturers or dealers (generally financial institutions and captive finance companies), and 2) lessors that are depository and lending institutions should classify principal and payments received under sales-type and direct financing leases within investing activities in the cash flow statement. The ASU also exempts both lessees and lessors from having to provide the interim disclosures required by ASC 250-10-50-3 in the fiscal year in which a company adopts the new leases standard. The amendments addressing the two lessor accounting issues are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other entities, the effective date is for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity should apply the amendments in this Update on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principle. This Update is not expected to have a significant impact on the Company’s financial statements.
In May 2017,April 2019, the FASB issued ASU 2017-09, Compensation2019-04, Codification Improvements to Topic 326, Financial Instruments - Stock Compensation (Topic 718), Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which affects any entity that changesa variety of topics in the terms or conditions of a share-based payment award. This Update amends the definition of modification by qualifying that modification accounting does not apply to changes to outstanding share-based payment awards that do not affect the total fair value, vesting requirements, or equity/liability classification of the awards. The amendments in this Update are effective for all entities for annual periods,Codification and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this Update should be applied prospectively to an award modified on or after the adoption date. This Update is not expected to have a significant impact on the Company’s financial statements.
In May 2017, the FASB issued ASU 2017-10, Service Concession Arrangements (Topic 853), which applies to the accounting by operatingall reporting entities for service concession arrangements within the scope of the affected accounting guidance. Topic 853. The 326, Financial Instruments - Credit Losses amendments in this Update clarify that the grantor (government), rather than the third-party drivers, is the customer of the operation services in all cases for service concession arrangements within the scope of Topic 853. For an entity that has not adopted Topic 606 before the issuance of this Update, the effective date and transition requirements for the amendments in this Update generally are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by ASU 2014-09, Revenue from Contracts with Customers (Topic 606)). ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, deferred the effective date of Update 2014-09 by one year. This Update is not expected to have a significant impact on the Company’s financial statements.
In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), and Derivative and Hedging (Topic 815). The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down-round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down-round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down-round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (“EPS”) in accordance with Topic 260 to recognize the effect of the down-round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down- round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt-Debt with Conversion and Other Options), including related EPS guidance (in
Topic 260). The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Accounting Standards Codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments in Part I of this Update are effectiveSEC registrants for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other public business entities, the effective date is for fiscal years beginning after December 15, 2020. Early adoption is permitted2020, and for all other entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as ofeffective date is for fiscal years beginning after December 15, 2021.On October 16, 2019, the FASB voted to defer the effective date for ASC 326, Financial Instruments - Credit Losses, for smaller reporting companies to fiscal years beginning of the fiscal year that includes that interim period. The amendments in Part I of this Update should be applied either retrospectively to outstanding financial instruments with a down-round feature by means of a cumulative-effect adjustment to the statement of financial position as of the beginning of the first fiscal yearafter December 15, 2022, and interim period(s) in which the pending content that links to this paragraphperiods within those fiscal years. The final ASU is effective or retrospectively to outstanding financial instruments with a down-round feature for each prior reporting period presented in accordance with the guidance on accounting changes in paragraphs 250-10-45-5 through 45-10. The amendments in Part II of this Update do not require any transition guidance because those amendments do not have an accounting effect. This Update is not expected to have a significant impact on the Company’s financial statements.
In August 2017, the FASBbe issued ASU 2017-12, in mid-November. Topic 815, Derivatives and Hedging (Topic 850), the objective of which is to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. In addition, the amendments in this Update make certain targeted improvements to simplify the application and disclosure of the hedge accounting guidance in current general accepted accounting principles. Forare effective for public business entities the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods beginning after December 15, 2020. Early applicationFor entities that have adopted the amendments in Update 2017- 12, the effective date is permitted in any period after issuance. For cash flow and net investment hedges existing at the date of adoption, an entity should apply a cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings as of the beginning of the fiscal year that an entity adoptsfirst annual period beginning after the amendments inissuance of this Update. The amended presentationTopic 825, Financial Instruments amendments are effective for fiscal years beginning after December 15, 2019, and disclosure guidance is required only prospectively.interim periods within fiscal years. This Update is not expected to have a significant impact on the Company’s financial statements.
In September 2017,May 2019, the FASB issued ASU 2017-13, Revenue Recognition (Topic 605)2019-05, Financial Instruments - Credit Losses, Topic 326, Revenue from Contracts with Customers (Topic 606), Leases (Topic 840),which allows entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost upon adoption of the new credit losses standard. To be eligible for the transition election, the existing financial asset must otherwise be both within the scope of the new credit losses standard and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant toeligible for the Staff Announcement atapplying the July 20, 2017 EITF Meetingfair value option in ASC 825-10.3. The election must be applied on an instrument-by-instrument basis and Rescission of Prior SEC Staff Announcements and Observer Comments. The SEC Observer said that the SEC staff wouldis not object ifavailable for either available-for-sale or held-to-maturity debt securities. For entities that are considered public businesselect the fair value option, the difference between the carrying amount and the fair value of the financial asset would be recognized through a cumulative-effect adjustment to opening retained earnings as of the date an entity adopted ASU 2016-13. Changes in fair value of that financial asset would subsequently be reported in current earnings. For entities only because their financial statements or financial information is required to be included in another entity’s SEC filing usethat have not yet adopted ASU 2016-13, the effective dates and transition requirements are the same as those in ASU 2016-13. For entities that have adopted ASU 2016-13, ASU 2019-05 is effective for privatefiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted once ASU 2016-13 has been adopted. On October 16, 2019, the
FASB voted to defer the effective date for ASC 326, Financial Instruments - Credit Losses, for smaller reporting companies when they adopt ASC 606, Revenue from Contracts with Customers,to fiscal years beginning after December 15, 2022, and ASC 842, Leases.interim periods within those fiscal years. The Update also supersedes certain SEC paragraphsfinal ASU is expected to be issued in the Codification related to previous SEC staff announcements and moves other paragraphs, upon adoption of ASC 606 or ASC 842.mid-November. This Update is not expected to have a significant impact on the Company’s financial statements.
In July 2019, the FASB issued ASU 2019-07, Codification Updates to SEC Sections, Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization, and Miscellaneous Updates. This ASU amends various SEC paragraphs pursuant to the issuance of SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization. Other miscellaneous updates to agree to the electronic Code of Federal Regulations also have been incorporated.
On September 30, 2019, the Company completed a three-for-two stock split (the “Stock Split”) of the Company’s common stock. As a result of the Stock Split, effective at 11:59 p.m. on September 30, 2019, each share of the Company’s common stock issued at that time was changed into one and one-half shares of the Company’s common stock with a stated par value of $5.55 per share. All share and per share amounts in this release, including in the accompanying financial statements and information, have been restated for all periods presented to give retroactive effect to the Stock Split.
Note 4. Per Share Data
There are no0 convertible securities which would affect the denominator in calculating basic and dilutive earnings per share. There were a total of 95,000635,550 stock options, with an average exercise price of $43.64,$29.30, outstanding on September 30, 2017. These2019. All options were excluded, on a weighted average basis, in the computation of diluted earnings per share for the three month and nine month period end due to the average market price of common shares of $43.53 being less than the exercise price of the options. There were a total of 31,000 stock options outstanding for the same period end in 2016 that had an average exercise price of $42.03 and were excluded from the computation of diluted earnings per share because the average market price of common shares was $41.10$28.44 for the period. Net income as presented on the consolidated statement of income will beis used as the numerator. The following table sets forth the composition of the weighted average common shares (denominator) used in the basic and dilutive earnings per share computation.
|
| | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
Weighted average common shares issued | | 7,517,280 |
| | 7,516,065 |
| | 7,516,406 |
| | 7,515,165 |
|
Weighted average treasury stock shares | | (480,225 | ) | | (480,225 | ) | | (480,225 | ) | | (480,225 | ) |
Weighted average common shares outstanding - basic and diluted | | 7,037,055 |
| | 7,035,840 |
| | 7,036,181 |
| | 7,034,940 |
|
|
| | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Weighted average common shares outstanding - basic | | 4,688,222 |
| | 5,006,252 |
| | 4,711,282 |
| | 5,005,707 |
|
Weighted average treasury stock shares | | (320,150 | ) | | (272,452 | ) | | (296,514 | ) | | (269,863 | ) |
Weighted average common shares outstanding - diluted | | 4,368,072 |
| | 4,733,800 |
| | 4,414,768 |
| | 4,735,844 |
|
Note 5. Investment Securities
The amortized cost, gross unrealized gains and losses, and fair values of our investment securities available for saleportfolio at September 30, 20172019 and December 31, 20162018 are as follows:
| | | | September 30, 2017 | | September 30, 2019 |
| | | | Gross | | Gross | | | | | | Gross | | Gross | | |
| | Amortized | | Unrealized | | Unrealized | | Fair | | Amortized | | Unrealized | | Unrealized | | Fair |
(In Thousands) | | Cost | | Gains | | Losses | | Value | | Cost | | Gains | | Losses | | Value |
Available for sale (AFS): | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Mortgage-backed securities | | $ | 4,544 |
| | $ | 79 |
| | $ | (93 | ) | | $ | 4,530 |
| | $ | 5,160 |
| | $ | 60 |
| | $ | (50 | ) | | $ | 5,170 |
|
State and political securities | | 61,868 |
| | 640 |
| | (181 | ) | | 62,327 |
| | 78,685 |
| | 4,194 |
| | (43 | ) | | 82,836 |
|
Other debt securities | | 52,954 |
| | 220 |
| | (1,201 | ) | | 51,973 |
| | 61,096 |
| | 441 |
| | (468 | ) | | 61,069 |
|
Total debt securities | | 119,366 |
| | 939 |
| | (1,475 | ) | | 118,830 |
| | $ | 144,941 |
| | $ | 4,695 |
| | $ | (561 | ) | | $ | 149,075 |
|
| | | | | | | | | |
Investment equity securities: | | | | | | | | | |
Financial institution equity securities | | 11,537 |
| | 687 |
| | — |
| | 12,224 |
| | $ | 328 |
| | $ | 225 |
| | $ | — |
| | $ | 553 |
|
Non-financial institution equity securities | | 1,300 |
| | — |
| | (41 | ) | | 1,259 |
| |
Total equity securities | | 12,837 |
| | 687 |
| | (41 | ) | | 13,483 |
| |
Total investment securities AFS | | $ | 132,203 |
| | $ | 1,626 |
| | $ | (1,516 | ) | | $ | 132,313 |
| |
Other equity securities | | | 1,300 |
| | — |
| | (33 | ) | | 1,267 |
|
Investment equity securities | | | $ | 1,628 |
| | $ | 225 |
| | $ | (33 | ) | | $ | 1,820 |
|
| | | | | | | | | |
Trading: | | | | | | | | | |
Other equity securities | | | $ | 50 |
| | $ | — |
| | $ | (3 | ) | | $ | 47 |
|
| | | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| | December 31, 2016 |
| | | | Gross | | Gross | | |
| | Amortized | | Unrealized | | Unrealized | | Fair |
(In Thousands) | | Cost | | Gains | | Losses | | Value |
Available for sale (AFS): | | |
| | |
| | |
| | |
|
Mortgage-backed securities | | $ | 9,295 |
| | $ | 182 |
| | $ | (164 | ) | | $ | 9,313 |
|
Asset-backed securities | | 109 |
| | — |
| | — |
| | 109 |
|
State and political securities | | 60,777 |
| | 666 |
| | (509 | ) | | 60,934 |
|
Other debt securities | | 53,046 |
| | 137 |
| | (2,065 | ) | | 51,118 |
|
Total debt securities | | 123,227 |
| | 985 |
| | (2,738 | ) | | 121,474 |
|
Financial institution equity securities | | 9,566 |
| | 969 |
| | — |
| | 10,535 |
|
Non-financial institution equity securities | | 1,667 |
| | — |
| | (184 | ) | | 1,483 |
|
Total equity securities | | 11,233 |
| | 969 |
| | (184 | ) | | 12,018 |
|
Total investment securities AFS | | $ | 134,460 |
| | $ | 1,954 |
| | $ | (2,922 | ) | | $ | 133,492 |
|
The amortized cost and fair values of trading investment securities at September 30, 2017 and December 31, 2016 are as follows:
|
| | | | | | | | | | | | | | | | |
| | September 30, 2017 |
| | | | Gross | | Gross | | |
| | Amortized | | Unrealized | | Unrealized | | Fair |
(In Thousands) | | Cost | | Gains | | Losses | | Value |
Trading: | | | | | | | | |
Financial institution equity securities | | $ | 61 |
| | $ | 3 |
| | $ | (1 | ) | | $ | 63 |
|
Non-financial institution equity securities | | 157 |
| | 4 |
| | (14 | ) | | 147 |
|
Total trading securities | | $ | 218 |
| | $ | 7 |
| | $ | (15 | ) | | $ | 210 |
|
|
| | | | | | | | | | | | | | | | |
| | December 31, 2018 |
| | | | Gross | | Gross | | |
| | Amortized | | Unrealized | | Unrealized | | Fair |
(In Thousands) | | Cost | | Gains | | Losses | | Value |
Available for sale (AFS): | | |
| | |
| | |
| | |
|
Mortgage-backed securities | | $ | 6,385 |
| | $ | 8 |
| | $ | (240 | ) | | $ | 6,153 |
|
State and political securities | | 79,358 |
| | 609 |
| | (426 | ) | | 79,541 |
|
Other debt securities | | 50,264 |
| | 17 |
| | (1,690 | ) | | 48,591 |
|
Total debt securities | | $ | 136,007 |
| | $ | 634 |
| | $ | (2,356 | ) | | $ | 134,285 |
|
| | | | | | | | |
Investment equity securities: | | | | | | | | |
Financial institution equity securities | | $ | 328 |
| | $ | 224 |
| | $ | — |
| | $ | 552 |
|
Other equity securities | | 1,300 |
| | — |
| | (76 | ) | | 1,224 |
|
Investment equity securities | | $ | 1,628 |
| | $ | 224 |
| | $ | (76 | ) | | $ | 1,776 |
|
| | | | | | | |
|
|
Trading: | | | | | | | | |
Other equity securities | | $ | 49 |
| | $ | — |
| | $ | (13 | ) | | $ | 36 |
|
| | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| | December 31, 2016 |
| | | | Gross | | Gross | | |
| | Amortized | | Unrealized | | Unrealized | | Fair |
(In Thousands) | | Cost | | Gains | | Losses | | Value |
Trading: | | | | | | | | |
Financial institution equity securities | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Non-financial institution equity securities | | 56 |
| | 2 |
| | — |
| | 58 |
|
Total trading securities | | $ | 56 |
| | $ | 2 |
| | $ | — |
| | $ | 58 |
|
Total net trading losses of $4,000 and $2,000 for the three and nine month periods ended September 30, 2017 compared to net trading gains of $8,000 and $54,000 for the three and nine month periods ended September 30, 2016 were included in the Consolidated Statement of Income.
The following tables show the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time, that the individual debt securities have been in a continuous unrealized loss position, at September 30, 20172019 and December 31, 2016.
2018.
| | | | September 30, 2017 | | September 30, 2019 |
| | Less than Twelve Months | | Twelve Months or Greater | | Total | | Less than Twelve Months | | Twelve Months or Greater | | Total |
| | | | Gross | | | | Gross | | | | Gross | | | | Gross | | | | Gross | | | | Gross |
| | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized |
(In Thousands) | | Value | | Losses | | Value | | Losses | | Value | | Losses | | Value | | Losses | | Value | | Losses | | Value | | Losses |
Available for sale (AFS): | | | | | | | | | | | | | | | | | | | | | | | | |
Mortgage-backed securities | | $ | 1,048 |
| | $ | (4 | ) | | $ | 2,302 |
| | $ | (89 | ) | | $ | 3,350 |
| | $ | (93 | ) | | $ | — |
| | $ | — |
| | $ | 2,125 |
| | $ | (50 | ) | | $ | 2,125 |
| | $ | (50 | ) |
State and political securities | | 13,651 |
| | (120 | ) | | 2,170 |
| | (61 | ) | | 15,821 |
| | (181 | ) | | — |
| | — |
| | 219 |
| | (43 | ) | | 219 |
| | (43 | ) |
Other debt securities | | 9,689 |
| | (145 | ) | | 22,733 |
| | (1,056 | ) | | 32,422 |
| | (1,201 | ) | | 13,664 |
| | (156 | ) | | 14,275 |
| | (312 | ) | | 27,939 |
| | (468 | ) |
Total debt securities | | 24,388 |
| | (269 | ) | | 27,205 |
| | (1,206 | ) | | 51,593 |
| | (1,475 | ) | | $ | 13,664 |
| | $ | (156 | ) | | $ | 16,619 |
| | $ | (405 | ) | | $ | 30,283 |
| | $ | (561 | ) |
Non-financial institution equity securities | | 1,259 |
| | (41 | ) | | — |
| | — |
| | 1,259 |
| | (41 | ) | |
Total equity securities | | 1,259 |
| | (41 | ) | | — |
| | — |
| | 1,259 |
| | (41 | ) | |
Total investment securities AFS | | $ | 25,647 |
| | $ | (310 | ) | | $ | 27,205 |
| | $ | (1,206 | ) | | $ | 52,852 |
| | $ | (1,516 | ) | |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2018 |
| | Less than Twelve Months | | Twelve Months or Greater | | Total |
| | | | Gross | | | | Gross | | | | Gross |
| | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized |
(In Thousands) | | Value | | Losses | | Value | | Losses | | Value | | Losses |
Available for sale (AFS): | | | | | | | | | | | | |
Mortgage-backed securities | | $ | 3,023 |
| | $ | (75 | ) | | $ | 2,930 |
| | $ | (165 | ) | | $ | 5,953 |
| | $ | (240 | ) |
State and political securities | | 14,819 |
| | (128 | ) | | 13,648 |
| | (298 | ) | | 28,467 |
| | (426 | ) |
Other debt securities | | 10,133 |
| | (153 | ) | | 34,776 |
| | (1,537 | ) | | 44,909 |
| | (1,690 | ) |
Total debt securities | | $ | 27,975 |
| | $ | (356 | ) | | $ | 51,354 |
| | $ | (2,000 | ) | | $ | 79,329 |
| | $ | (2,356 | ) |
| | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 |
| | Less than Twelve Months | | Twelve Months or Greater | | Total |
| | | | Gross | | | | Gross | | | | Gross |
| | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized |
(In Thousands) | | Value | | Losses | | Value | | Losses | | Value | | Losses |
Available for sale (AFS): | | | | | | | | | | | | |
Mortgage-backed securities | | $ | 3,572 |
| | $ | (106 | ) | | $ | 3,627 |
| | $ | (58 | ) | | $ | 7,199 |
| | $ | (164 | ) |
State and political securities | | 26,113 |
| | (509 | ) | | — |
| | — |
| | 26,113 |
| | (509 | ) |
Other debt securities | | 28,140 |
| | (1,179 | ) | | 12,240 |
| | (886 | ) | | 40,380 |
| | (2,065 | ) |
Total debt securities | | 57,825 |
| | (1,794 | ) | | 15,867 |
| | (944 | ) | | 73,692 |
| | (2,738 | ) |
Non-financial institution equity securities | | 727 |
| | (140 | ) | | 756 |
| | (44 | ) | | 1,483 |
| | (184 | ) |
Total equity securities | | 727 |
| | (140 | ) | | 756 |
| | (44 | ) | | 1,483 |
| | (184 | ) |
Total investment securities AFS | | $ | 58,552 |
| | $ | (1,934 | ) | | $ | 16,623 |
| | $ | (988 | ) | | $ | 75,175 |
| | $ | (2,922 | ) |
At September 30, 2017,2019, there were a total of 347 securities in a continuous unrealized loss position for less than twelve months and 2015 individual securities that were in a continuous unrealized loss position for twelve months or greater.
The Company reviews its position quarterly and has determined that, at September 30, 2017,2019, the declines outlined in the above table represent temporary declines and the Company does not intend to sell and does not believe it will be required to sell these securities before recovery of their cost basis, which may be at maturity. The Company has concluded that the unrealized losses
disclosed above are not other than temporary but are the result of interest rate changes, sector credit ratings changes, or company-specific ratings changes that are not expected to result in the non-collection of principal and interest during the period.
The amortized cost and fair value of debt securities at September 30, 2017,2019, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities since borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
| | | | | | | | |
(In Thousands) | | Amortized Cost | | Fair Value |
Due in one year or less | | $ | 4,812 |
| | $ | 4,823 |
|
Due after one year to five years | | 54,762 |
| | 54,755 |
|
Due after five years to ten years | | 66,277 |
| | 69,897 |
|
Due after ten years | | 19,090 |
| | 19,600 |
|
Total | | $ | 144,941 |
| | $ | 149,075 |
|
|
| | | | | | | | |
(In Thousands) | | Amortized Cost | | Fair Value |
Due in one year or less | | $ | 4,839 |
| | $ | 4,836 |
|
Due after one year to five years | | 45,064 |
| | 44,918 |
|
Due after five years to ten years | | 54,858 |
| | 54,301 |
|
Due after ten years | | 14,605 |
| | 14,775 |
|
Total | | $ | 119,366 |
| | $ | 118,830 |
|
Total gross proceeds from sales of debt securities available for sale for the three and nine months ended September 30, 20172019 were $6,478,000$8,157,000 and $15,443,000, a decrease$16,289,000, respectively, an increase from the 20162018 totals of $16,168,000$10,450,000 and $42,180,000.$14,528,000.
The following table represents gross realized gains and losses withinfrom the sales of debt securities available for sale portfolio:
sale:
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(In Thousands) | | 2019 | | 2018 | | 2019 | | 2018 |
Available for sale (AFS): | | | | | | | | |
Gross realized gains: | | |
| | |
| | |
| | |
|
Mortgage-backed securities | | $ | — |
| | $ | 22 |
| | $ | — |
| | $ | 27 |
|
State and political securities | | 190 |
| | — |
| | 204 |
| | 19 |
|
Other debt securities | | — |
| | 3 |
| | 4 |
| | 3 |
|
Total gross realized gains | | $ | 190 |
| | $ | 25 |
| | $ | 208 |
| | $ | 49 |
|
| | | | | | | | |
Gross realized losses: | | |
| | |
| | |
| | |
|
State and political securities | | $ | — |
| | $ | 47 |
| | $ | 3 |
| | $ | 56 |
|
Other debt securities | | — |
| | — |
| | 5 |
| | 10 |
|
Total gross realized losses | | $ | 1 |
| | $ | 47 |
| | $ | 8 |
| | $ | 66 |
|
| | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(In Thousands) | | 2017 | | 2016 | | 2017 | | 2016 |
Gross realized gains: | | |
| | |
| | |
| | |
|
U.S. Government and agency securities | | $ | — |
| | $ | 11 |
| | $ | — |
| | $ | 11 |
|
Mortgage-backed securities | | — |
| | 29 |
| | 69 |
| | 35 |
|
State and political securities | | 313 |
| | 146 |
| | 343 |
| | 784 |
|
Other debt securities | | 5 |
| | — |
| | 5 |
| | 258 |
|
Financial institution equity securities | | — |
| | 68 |
| | 288 |
| | 150 |
|
Non-financial institution equity securities | | — |
| | 73 |
| | — |
| | 217 |
|
Total gross realized gains | | $ | 318 |
| | $ | 327 |
| | $ | 705 |
| | $ | 1,455 |
|
| | | | | | | | |
Gross realized losses: | | |
| | |
| | |
| | |
|
U.S. Government and agency securities | | $ | — |
| | $ | 2 |
| | $ | — |
| | $ | 5 |
|
Mortgage-backed securities | | — |
| | — |
| | — |
| | — |
|
Asset-backed securities | | — |
| | — |
| | — |
| | — |
|
State and political securities | | 16 |
| | 1 |
| | 17 |
| | 1 |
|
Other debt securities | | — |
| | 26 |
| | 51 |
| | 189 |
|
Financial institution equity securities | | — |
| | — |
| | — |
| | — |
|
Non-financial institution equity securities | | — |
| | 45 |
| | 150 |
| | 86 |
|
Total gross realized losses | | $ | 16 |
| | $ | 74 |
| | $ | 218 |
| | $ | 281 |
|
The following table represents gross realized gains and losses within the trading portfolios:
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(In Thousands) | | 2017 | | 2016 | | 2017 | | 2016 |
Gross realized gains: | | |
| | |
| | |
| | |
|
Financial institution equity securities | | $ | 3 |
| | $ | — |
| | $ | 3 |
| | $ | 6 |
|
Non-financial institution equity securities | | 4 |
| | 8 |
| | 12 |
| | 76 |
|
Total gross realized gains | | $ | 7 |
| | $ | 8 |
| | $ | 15 |
| | $ | 82 |
|
| | | | | | | | |
Gross realized losses: | | |
| | |
| | |
| | |
|
Financial institution equity securities | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 12 |
|
Non-financial institution equity securities | | 11 |
| | — |
| | 17 |
| | 16 |
|
Total gross realized losses | | $ | 11 |
| | $ | — |
| | $ | 17 |
| | $ | 28 |
|
There were no0 impairment charges included in gross realized losses for the three and nine months ended September 30, 20172019 and 2016,2018, respectively.
Investment securities with a carrying value of approximately $98,157,000$78,445,000 and $95,199,000$73,327,000 at September 30, 20172019 and December 31, 2016,2018, respectively, were pledged to secure certain deposits, repurchase agreements, and for other purposes as required by law.
At September 30, 2019 and December 31, 2018, we had $1,820,000 and $1,776,000, respectively, in equity securities recorded at fair value. Prior to January 1, 2018, equity securities were stated at fair value with unrealized gains and losses reported as a separate component of AOCI, net of tax. The following is a summary of unrealized and realized gains and losses recognized in net income on equity securities during the three and nine months ended September 30, 2019 and 2018:
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(In Thousands) | | 2019 | | 2018 | | 2019 | | 2018 |
Net (losses) gains recognized in equity securities during the period | | $ | (21 | ) | | $ | (16 | ) | | $ | 44 |
| | $ | (44 | ) |
Less: Net gains realized on the sale of equity securities during the period | | — |
| | 5 |
| | — |
| | 13 |
|
Unrealized (losses) gains recognized in equity securities held at reporting date | | $ | (21 | ) | | $ | (21 | ) | | $ | 44 |
| | $ | (57 | ) |
| | | | | | | | |
Net gains and losses on trading account securities are as follows for the three and nine months ended September 30, 2019 and 2018:
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(In Thousands) | | 2019 | | 2018 | | 2019 | | 2018 |
Net gains on sale transactions | | $ | — |
| | $ | 9 |
| | $ | 8 |
| | $ | 17 |
|
Net mark-to-market gains (losses) | | 2 |
| | 5 |
| | 7 |
| | (5 | ) |
Net gain on trading account securities | | $ | 2 |
| | $ | 14 |
| | $ | 15 |
| | $ | 12 |
|
| | | | | | | | |
Note 6.Loans
Management segments the Banks' loan portfolio to a level that enables risk and performance monitoring according to similar risk characteristics. Loans are segmented based on the underlying collateral characteristics. Categories include commercial, financial, and agricultural, real estate, and installment loans to individuals.loans. Real estate loans are further segmented into three3 categories: residential, commercial, and construction.construction, while installment loans are classified as either consumer automobile loans or other installment loans.
The following table presents the related aging categories of loans, by segment, as of September 30, 20172019 and December 31, 2016:
2018:
| | | | September 30, 2017 | | September 30, 2019 |
| | | | Past Due | | Past Due 90 | | | | | | | | Past Due | | Past Due 90 | | | | |
| | | | 30 To 89 | | Days Or More | | Non- | | | | | | 30 To 89 | | Days Or More | | Non- | | |
(In Thousands) | | Current | | Days | | & Still Accruing | | Accrual | | Total | | Current | | Days | | & Still Accruing | | Accrual | | Total |
Commercial, financial, and agricultural | | $ | 174,993 |
| | $ | 6 |
| | $ | 53 |
| | $ | 247 |
| | $ | 175,299 |
| | $ | 168,218 |
| | $ | 153 |
| | $ | 25 |
| | $ | 5,146 |
| | $ | 173,542 |
|
Real estate mortgage: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Residential | | 572,303 |
| | 1,929 |
| | 26 |
| | 1,876 |
| | 576,134 |
| | 609,857 |
| | 3,227 |
| | 902 |
| | 3,960 |
| | 617,946 |
|
Commercial | | 316,493 |
| | 1,144 |
| | — |
| | 5,873 |
| | 323,510 |
| | 355,491 |
| | 1,961 |
| | 216 |
| | 6,686 |
| | 364,354 |
|
Construction | | 29,243 |
| | 9 |
| | 100 |
| | — |
| | 29,352 |
| | 39,362 |
| | — |
| | 132 |
| | 69 |
| | 39,563 |
|
Installment loans to individuals | | 85,872 |
| | 625 |
| | 82 |
| | 60 |
| | 86,639 |
| |
Consumer automobile loans | | | 144,472 |
| | 285 |
| | 29 |
| | 38 |
| | 144,824 |
|
Other consumer installment loans | | | 23,320 |
| | 493 |
| | — |
| | 5 |
| | 23,818 |
|
| | 1,178,904 |
| | $ | 3,713 |
| | $ | 261 |
| | $ | 8,056 |
| | 1,190,934 |
| | 1,340,720 |
| | $ | 6,119 |
| | $ | 1,304 |
| | $ | 15,904 |
| | 1,364,047 |
|
Net deferred loan fees and discounts | | (1,220 | ) | | |
| | |
| | |
| | (1,220 | ) | | 937 |
| | |
| | |
| | |
| | 937 |
|
Allowance for loan losses | | (12,933 | ) | | |
| | |
| | |
| | (12,933 | ) | | (14,249 | ) | | |
| | |
| | |
| | (14,249 | ) |
Loans, net | | $ | 1,164,751 |
| | |
| | |
| | |
| | $ | 1,176,781 |
| | $ | 1,327,408 |
| | |
| | |
| | |
| | $ | 1,350,735 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 2018 |
| | | | Past Due | | Past Due 90 | | | | |
| | | | 30 To 89 | | Days Or More | | Non- | | |
(In Thousands) | | Current | | Days | | & Still Accruing | | Accrual | | Total |
Commercial, financial, and agricultural | | $ | 182,651 |
| | $ | 616 |
| | $ | — |
| | $ | 5,294 |
| | $ | 188,561 |
|
Real estate mortgage: | | |
| | |
| | |
| | |
| | |
|
Residential | | 611,281 |
| | 7,688 |
| | 1,238 |
| | 2,172 |
| | 622,379 |
|
Commercial | | 361,624 |
| | 2,349 |
| | — |
| | 7,722 |
| | 371,695 |
|
Construction | | 43,144 |
| | 305 |
| | — |
| | 74 |
| | 43,523 |
|
Consumer automobile loans | | 132,713 |
| | 412 |
| | 27 |
| | 31 |
| | 133,183 |
|
Other consumer installment loans | | 23,902 |
| | 636 |
| | 9 |
| | 5 |
| | 24,552 |
|
| | 1,355,315 |
| | $ | 12,006 |
| | $ | 1,274 |
| | $ | 15,298 |
| | 1,383,893 |
|
Net deferred loan fees and discounts | | 864 |
| | |
| | |
| | |
| | 864 |
|
Allowance for loan losses | | (13,837 | ) | | |
| | |
| | |
| | (13,837 | ) |
Loans, net | | $ | 1,342,342 |
| | |
| | |
| | |
| | $ | 1,370,920 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 |
| | | | Past Due | | Past Due 90 | | | | |
| | | | 30 To 89 | | Days Or More | | Non- | | |
(In Thousands) | | Current | | Days | | & Still Accruing | | Accrual | | Total |
Commercial, financial, and agricultural | | $ | 145,179 |
| | $ | 785 |
| | $ | 14 |
| | $ | 132 |
| | $ | 146,110 |
|
Real estate mortgage: | | |
| | |
| | |
| | |
| | |
|
Residential | | 553,053 |
| | 9,112 |
| | 587 |
| | 1,988 |
| | 564,740 |
|
Commercial | | 296,537 |
| | 786 |
| | 268 |
| | 8,591 |
| | 306,182 |
|
Construction | | 33,879 |
| | 771 |
| | — |
| | — |
| | 34,650 |
|
Installment loans to individuals | | 43,008 |
| | 202 |
| | 1 |
| | 45 |
| | 43,256 |
|
| | 1,071,656 |
| | $ | 11,656 |
| | $ | 870 |
| | $ | 10,756 |
| | 1,094,938 |
|
Net deferred loan fees and discounts | | (1,257 | ) | | |
| | |
| | |
| | (1,257 | ) |
Allowance for loan losses | | (12,896 | ) | | |
| | |
| | |
| | (12,896 | ) |
Loans, net | | $ | 1,057,503 |
| | |
| | |
| | |
| | $ | 1,080,785 |
|
Purchased loans acquired are recorded at fair value on their purchase date without a carryover of the related allowance for loan losses.
The following table presents interest income the Banks would have recorded if interest had been recorded based on the original loan agreement terms and rate of interest for non-accrual loans and interest income recognized on a cash basis for non-accrual loans for the three and nine months ended September 30, 20172019 and 2016:
2018:
| | | | Three Months Ended September 30, | | Three Months Ended September 30, |
| | 2017 | | 2016 | | 2019 | | 2018 |
(In Thousands) | | Interest Income That Would Have Been Recorded Based on Original Term and Rate | | Interest Income Recorded on a Cash Basis | | Interest Income That Would Have Been Recorded Based on Original Term and Rate | | Interest Income Recorded on a Cash Basis | | Interest Income That Would Have Been Recorded Based on Original Term and Rate | | Interest Income Recorded on a Cash Basis | | Interest Income That Would Have Been Recorded Based on Original Term and Rate | | Interest Income Recorded on a Cash Basis |
Commercial, financial, and agricultural | | $ | 8 |
| | $ | 2 |
| | $ | 1 |
| | $ | — |
| | $ | 51 |
| | $ | 49 |
| | $ | 61 |
| | $ | 51 |
|
Real estate mortgage: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Residential | | 29 |
| | 30 |
| | 57 |
| | 68 |
| | 76 |
| | 76 |
| | 21 |
| | 31 |
|
Commercial | | 90 |
| | 23 |
| | 109 |
| | 90 |
| | 68 |
| | 30 |
| | 33 |
| | 4 |
|
Construction | | — |
| | — |
| |
|
| | — |
| | 1 |
| | 1 |
| | — |
| | — |
|
Installment | | 1 |
| | 1 |
| | — |
| | — |
| |
Consumer automobile loans | | | — |
| | — |
| | — |
| | — |
|
Other consumer installment loans | | | 1 |
| | 1 |
| | 2 |
| | 1 |
|
| | $ | 128 |
| | $ | 56 |
| | $ | 167 |
| | $ | 158 |
| | $ | 197 |
| | $ | 157 |
| | $ | 117 |
| | $ | 87 |
|
|
| | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2019 | | 2018 |
(In Thousands) | | Interest Income That Would Have Been Recorded Based on Original Term and Rate | | Interest Income Recorded on a Cash Basis | | Interest Income That Would Have Been Recorded Based on Original Term and Rate | | Interest Income Recorded on a Cash Basis |
Commercial, financial, and agricultural | | $ | 108 |
| | $ | 132 |
| | $ | 65 |
| | $ | 52 |
|
Real estate mortgage: | | |
| | |
| | |
| | |
|
Residential | | 142 |
| | 118 |
| | 89 |
| | 65 |
|
Commercial | | 233 |
| | 104 |
| | 171 |
| | 43 |
|
Construction | | 3 |
| | 3 |
| | — |
| | — |
|
Consumer automobile loans | | 3 |
| | 2 |
| | — |
| | — |
|
Other consumer installment loans | | 2 |
| | 1 |
| | 3 |
| | 2 |
|
| | $ | 491 |
| | $ | 360 |
| | $ | 328 |
| | $ | 162 |
|
|
| | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2017 | | 2016 |
(In Thousands) | | Interest Income That Would Have Been Recorded Based on Original Term and Rate | | Interest Income Recorded on a Cash Basis | | Interest Income That Would Have Been Recorded Based on Original Term and Rate | | Interest Income Recorded on a Cash Basis |
Commercial, financial, and agricultural | | $ | 21 |
| | $ | 8 |
| | $ | 5 |
| | $ | 1 |
|
Real estate mortgage: | | |
| | |
| | |
| | |
|
Residential | | 123 |
| | 81 |
| | 113 |
| | 95 |
|
Commercial | | 322 |
| | 42 |
| | 388 |
| | 170 |
|
Construction | | — |
| | — |
| | — |
| | — |
|
Installment | | 3 |
| | 2 |
| | — |
| | — |
|
| | $ | 469 |
| | $ | 133 |
| | $ | 506 |
| | $ | 266 |
|
Impaired Loans
Impaired loans are loans for which it is probable the Banks will not be able to collect all amounts due according to the contractual terms of the loan agreement. The Banks evaluate such loans for impairment individually and doesdo not aggregate loans by major
risk classifications. The definition of “impaired loans” is not the same as the definition of “non-accrual loans,” although the two categories overlap. The Banks may choose to place a loan on non-accrual status due to payment delinquency or uncertain collectability, while not classifying the loan as impaired. Factors considered by management in determining impairment include payment status and collateral value. The amount of impairment for these types of loans is determined by the difference between the present value of the expected cash flows related to the loan, using the original interest rate, and its recorded value, or as a practical expedient in the case of collateralized loans, the difference between the fair value of the collateral and the recorded amount of the loan. When foreclosure is probable, impairment is measured based on the fair value of the collateral.
Management evaluates individual loans in all of the commercial segments for possible impairment if the loan is greater than $100,000 and if the loan is either on non-accrual status or has a risk rating of substandard. Management may also elect to measure an individual loan for impairment if less than $100,000 on a case-by-case basis.
Mortgage loans on one-to-four family properties and all consumer loans are large groups of smaller-balance homogeneous loans and are measured for impairment collectively. Loans that experience insignificant payment delays, which are defined as 90 days or less, generally are not classified as impaired. Management determines the significance of payment delays on a case-by-case basis taking into consideration all circumstances surrounding the loan and the borrower including the length of the delay, the borrower’s prior payment record, and the amount of shortfall in relation to the principal and interest owed. Interest income for impaired loans is recorded consistent with the Banks' policy on non-accrual loans.
The following table presents the recorded investment, unpaid principal balance, and related allowance of impaired loans by segment as of September 30, 20172019 and December 31, 2016:
2018:
| | | | September 30, 2017 | | September 30, 2019 |
| | Recorded | | Unpaid Principal | | Related | | Recorded | | Unpaid Principal | | Related |
(In Thousands) | | Investment | | Balance | | Allowance | | Investment | | Balance | | Allowance |
With no related allowance recorded: | | |
| | |
| | |
| | |
| | |
| | |
|
Commercial, financial, and agricultural | | $ | 1,141 |
| | $ | 1,141 |
| | $ | — |
| | $ | 1,232 |
| | $ | 1,232 |
| | $ | — |
|
Real estate mortgage: | | |
| | |
| | |
| | |
| | |
| | |
|
Residential | | 1,775 |
| | 1,775 |
| | — |
| | 4,414 |
| | 4,414 |
| | — |
|
Commercial | | 2,222 |
| | 2,222 |
| | — |
| | 2,344 |
| | 2,344 |
| | — |
|
Construction | | | 69 |
| | 69 |
| | — |
|
Consumer automobile loans | | | — |
| | — |
| | — |
|
Installment loans to individuals | | — |
| | — |
| | — |
| | 5 |
| | 5 |
| | — |
|
| | 5,138 |
| | 5,138 |
| | — |
| | 8,064 |
| | 8,064 |
| | — |
|
With an allowance recorded: | | |
| | |
| | |
| | |
| | |
| | |
|
Commercial, financial, and agricultural | | 255 |
| | 255 |
| | 207 |
| | 3,987 |
| | 3,987 |
| | 569 |
|
Real estate mortgage: | | |
| | |
| | |
| | |
| | |
| | |
|
Residential | | 1,022 |
| | 1,070 |
| | 224 |
| | 1,556 |
| | 1,556 |
| | 203 |
|
Commercial | | 8,433 |
| | 8,529 |
| | 1,629 |
| | 6,417 |
| | 6,417 |
| | 1,430 |
|
Construction | | | — |
| | — |
| | — |
|
Consumer automobile loans | | | 38 |
| | 38 |
| | 10 |
|
Installment loans to individuals | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | 9,710 |
| | 9,854 |
| | 2,060 |
| | 11,998 |
| | 11,998 |
| | 2,212 |
|
Total: | | |
| | |
| | |
| | |
| | |
| | |
|
Commercial, financial, and agricultural | | 1,396 |
| | 1,396 |
| | 207 |
| | 5,219 |
| | 5,219 |
| | 569 |
|
Real estate mortgage: | | |
| | |
| | |
| | |
| | |
| | |
|
Residential | | 2,797 |
| | 2,845 |
| | 224 |
| | 5,970 |
| | 5,970 |
| | 203 |
|
Commercial | | 10,655 |
| | 10,751 |
| | 1,629 |
| | 8,761 |
| | 8,761 |
| | 1,430 |
|
Construction | | | 69 |
| | 69 |
| | — |
|
Consumer automobile loans | | | 38 |
| | 38 |
| | 10 |
|
Installment loans to individuals | | — |
| | — |
| | — |
| | 5 |
| | 5 |
| | — |
|
| | $ | 14,848 |
| | $ | 14,992 |
| | $ | 2,060 |
| | $ | 20,062 |
| | $ | 20,062 |
| | $ | 2,212 |
|
|
| | | | | | | | | | | | |
| | December 31, 2018 |
| | Recorded | | Unpaid Principal | | Related |
(In Thousands) | | Investment | | Balance | | Allowance |
With no related allowance recorded: | | |
| | |
| | |
|
Commercial, financial, and agricultural | | $ | 1,152 |
| | $ | 1,152 |
| | $ | — |
|
Real estate mortgage: | | |
| | |
| | |
|
Residential | | 2,619 |
| | 2,619 |
| | — |
|
Commercial | | 2,457 |
| | 2,457 |
| | — |
|
Construction | | 74 |
| | 74 |
| | — |
|
Consumer automobile loans | | 31 |
| | 31 |
| | — |
|
Installment loans to individuals | | — |
| | — |
| | — |
|
| | 6,333 |
| | 6,333 |
| | — |
|
With an allowance recorded: | | |
| | |
| | |
|
Commercial, financial, and agricultural | | 4,111 |
| | 4,111 |
| | 650 |
|
Real estate mortgage: | | |
| | |
| | |
|
Residential | | 1,591 |
| | 1,591 |
| | 168 |
|
Commercial | | 9,207 |
| | 9,207 |
| | 1,720 |
|
Construction | | — |
| | — |
| | — |
|
Consumer automobile loans | | — |
| | — |
| | — |
|
Installment loans to individuals | | 5 |
| | 5 |
| | 5 |
|
| | 14,914 |
| | 14,914 |
| | 2,543 |
|
Total: | | |
| | |
| | |
|
Commercial, financial, and agricultural | | 5,263 |
| | 5,263 |
| | 650 |
|
Real estate mortgage: | | |
| | |
| | |
|
Residential | | 4,210 |
| | 4,210 |
| | 168 |
|
Commercial | | 11,664 |
| | 11,664 |
| | 1,720 |
|
Construction | | 74 |
| | 74 |
| | — |
|
Consumer automobile loans | | 31 |
| | 31 |
| | — |
|
Installment loans to individuals | | 5 |
| | 5 |
| | 5 |
|
| | $ | 21,247 |
| | $ | 21,247 |
| | $ | 2,543 |
|
|
| | | | | | | | | | | | |
| | December 31, 2016 |
| | Recorded | | Unpaid Principal | | Related |
(In Thousands) | | Investment | | Balance | | Allowance |
With no related allowance recorded: | | |
| | |
| | |
|
Commercial, financial, and agricultural | | $ | 109 |
| | $ | 109 |
| | $ | — |
|
Real estate mortgage: | | |
| | |
| | |
|
Residential | | 1,584 |
| | 1,584 |
| | — |
|
Commercial | | 1,833 |
| | 1,833 |
| | — |
|
Installment loans to individuals | | — |
| | — |
| | — |
|
| | 3,526 |
| | 3,526 |
| | — |
|
With an allowance recorded: | | |
| | |
| | |
|
Commercial, financial, and agricultural | | 132 |
| | 132 |
| | 74 |
|
Real estate mortgage: | | |
| | |
| | |
|
Residential | | 1,893 |
| | 1,893 |
| | 437 |
|
Commercial | | 10,425 |
| | 10,520 |
| | 1,668 |
|
Installment loans to individuals | | — |
| | — |
| | — |
|
| | 12,450 |
| | 12,545 |
| | 2,179 |
|
Total: | | |
| | |
| | |
|
Commercial, financial, and agricultural | | 241 |
| | 241 |
| | 74 |
|
Real estate mortgage: | | |
| | |
| | |
|
Residential | | 3,477 |
| | 3,477 |
| | 437 |
|
Commercial | | 12,258 |
| | 12,353 |
| | 1,668 |
|
Installment loans to individuals | | — |
| | — |
| | — |
|
| | $ | 15,976 |
| | $ | 16,071 |
| | $ | 2,179 |
|
The following table presents the average recorded investment in impaired loans and related interest income recognized for the three and nine months ended for September 30, 20172019 and 2016:
2018:
| | | | Three Months Ended September 30, | | Three Months Ended September 30, |
| | 2017 | | 2016 | | 2019 | | 2018 |
(In Thousands) | | Average Investment in Impaired Loans | | Interest Income Recognized on an Accrual Basis on Impaired Loans | | Interest Income Recognized on a Cash Basis on Impaired Loans | | Average Investment in Impaired Loans | | Interest Income Recognized on an Accrual Basis on Impaired Loans | | Interest Income Recognized on a Cash Basis on Impaired Loans | | Average Investment in Impaired Loans | | Interest Income Recognized on an Accrual Basis on Impaired Loans | | Interest Income Recognized on a Cash Basis on Impaired Loans | | Average Investment in Impaired Loans | | Interest Income Recognized on an Accrual Basis on Impaired Loans | | Interest Income Recognized on a Cash Basis on Impaired Loans |
Commercial, financial, and agricultural | | $ | 394 |
| | $ | 17 |
| | $ | 1 |
| | $ | 346 |
| | $ | 4 |
| | $ | — |
| | $ | 5,236 |
| | $ | 1 |
| | $ | 49 |
| | $ | 1,154 |
| | $ | 18 |
| | $ | 51 |
|
Real estate mortgage: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Residential | | 3,199 |
| | 12 |
| | 34 |
| | 2,784 |
| | 23 |
| | 41 |
| | 5,006 |
| | 26 |
| | 76 |
| | 3,703 |
| | 40 |
| | 31 |
|
Commercial | | 12,885 |
| | 52 |
| | 23 |
| | 12,383 |
| | 83 |
| | 16 |
| | 9,037 |
| | 30 |
| | 31 |
| | 8,547 |
| | 97 |
| | 4 |
|
Construction | | — |
| | — |
| | — |
| | 67 |
| | — |
| | — |
| | 70 |
| | — |
| | 1 |
| | — |
| | — |
| | — |
|
Installment loans to individuals | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
Consumer automobile | | | 37 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Other consumer installment loans | | | 5 |
| | — |
| | — |
| | 20 |
| | 2 |
| | 1 |
|
| | $ | 16,478 |
| | $ | 81 |
| | $ | 58 |
| | $ | 15,580 |
| | $ | 110 |
| | $ | 57 |
| | $ | 19,391 |
| | $ | 57 |
| | $ | 157 |
| | $ | 13,424 |
| | $ | 157 |
| | $ | 87 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2019 | | 2018 |
(In Thousands) | | Average Investment in Impaired Loans | | Interest Income Recognized on an Accrual Basis on Impaired Loans | | Interest Income Recognized on a Cash Basis on Impaired Loans | | Average Investment in Impaired Loans | | Interest Income Recognized on an Accrual Basis on Impaired Loans | | Interest Income Recognized on a Cash Basis on Impaired Loans |
Commercial, financial, and agricultural | | $ | 5,269 |
| | $ | 3 |
| | $ | 131 |
| | $ | 1,206 |
| | $ | 52 |
| | $ | 52 |
|
Real estate mortgage: | | |
| | |
| | |
| | |
| | |
| | |
|
Residential | | 4,584 |
| | 81 |
| | 115 |
| | 3,901 |
| | 107 |
| | 65 |
|
Commercial | | 10,053 |
| | 91 |
| | 100 |
| | 8,988 |
| | 191 |
| | 43 |
|
Construction | | 72 |
| | — |
| | 3 |
| | — |
| | — |
| | — |
|
Consumer automobile | | 45 |
| | — |
| | 1 |
| | — |
| | — |
| | — |
|
Other consumer installment loans | | 11 |
| | — |
| | — |
| | 10 |
| | 3 |
| | 1 |
|
| | $ | 20,034 |
| | $ | 175 |
| | $ | 350 |
| | $ | 14,105 |
| | $ | 353 |
| | $ | 161 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2017 | | 2016 |
(In Thousands) | | Average Investment in Impaired Loans | | Interest Income Recognized on an Accrual Basis on Impaired Loans | | Interest Income Recognized on a Cash Basis on Impaired Loans | | Average Investment in Impaired Loans | | Interest Income Recognized on an Accrual Basis on Impaired Loans | | Interest Income Recognized on a Cash Basis on Impaired Loans |
Commercial, financial, and agricultural | | $ | 324 |
| | $ | 24 |
| | $ | 7 |
| | $ | 586 |
| | $ | 12 |
| | $ | 1 |
|
Real estate mortgage: | | |
| | |
| | |
| | |
| | |
| | |
|
Residential | | 3,212 |
| | 48 |
| | 80 |
| | 4,539 |
| | 67 |
| | 68 |
|
Commercial | | 12,635 |
| | 137 |
| | 42 |
| | 16,988 |
| | 247 |
| | 96 |
|
Construction | | — |
| | — |
| | — |
| | 208 |
| | — |
| | — |
|
Installment loans to individuals | | 8 |
| | — |
| | 2 |
| | — |
| | — |
| | — |
|
| | $ | 16,179 |
| | $ | 209 |
| | $ | 131 |
| | $ | 22,321 |
| | $ | 326 |
| | $ | 165 |
|
Currently, there is $10,000$2,000 committed to be advanced in connection with impaired loans.
Troubled Debt Restructurings
The loan portfolio also includes certain loans that have been modified in a Troubled Debt Restructuring (“TDR”), where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance, or other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months.
There were two5 loan modifications that were considered to be TDRs completed during the three and nine months ended September 30, 2017.2019. Loan modifications that are considered TDRs completed during the three and nine months ended September 30, 20162019 and 2018 were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, |
| | 2017 | | 2016 |
(In Thousands, Except Number of Contracts) | | Number of Contracts | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment | | Number of Contracts | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment |
Commercial, financial, and agricultural | | — |
| | $ | — |
| | $ | — |
| | — |
| | $ | — |
| | $ | — |
|
Real estate mortgage: | | |
| | |
| | |
| | | | | | |
Residential | | — |
| | — |
| | — |
| | 2 |
| | 580 |
| | 580 |
|
Commercial | | 2 |
| | 375 |
| | 375 |
| | — |
| | — |
| | — |
|
Construction | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | 2 |
| | $ | 375 |
| | $ | 375 |
| | 2 |
| | $ | 580 |
| | $ | 580 |
|
| | | | Nine Months Ended September 30, | | Three Months Ended September 30, |
| | 2017 | | 2016 | | 2019 | | 2018 |
(In Thousands, Except Number of Contracts) | | Number of Contracts | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment | | Number of Contracts | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment | | Number of Contracts | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment | | Number of Contracts | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment |
Commercial, financial, and agricultural | | — |
| | $ | — |
| | $ | — |
| | — |
| | $ | — |
| | $ | — |
| | — |
| | $ | — |
| | $ | — |
| | 1 |
| | $ | 1,028 |
| | $ | 1,028 |
|
Real estate mortgage: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | | | | |
Residential | | — |
| | — |
| | — |
| | 4 |
| | 922 |
| | 922 |
| | 1 |
| | 2,059 |
| | 2,059 |
| | — |
| | — |
| | — |
|
Commercial | | 2 |
| | 375 |
| | 375 |
| | 1 |
| | 838 |
| | 838 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Construction | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
| | 2 |
| | $ | 375 |
| | $ | 375 |
| | 5 |
| | $ | 1,760 |
| | $ | 1,760 |
| | 1 |
| | $ | 2,059 |
| | $ | 2,059 |
| | 1 |
| | $ | 1,028 |
| | $ | 1,028 |
|
| | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2019 | | 2018 |
(In Thousands, Except Number of Contracts) | | Number of Contracts | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment | | Number of Contracts | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment |
Commercial, financial, and agricultural | | 2 |
| | $ | 4,014 |
| | $ | 4,014 |
| | 1 |
| | $ | 1,028 |
| | $ | 1,028 |
|
Real estate mortgage: | | |
| | |
| | |
| | |
| | |
| | |
|
Residential | | 1 |
| | 2,059 |
| | 2,059 |
| | 3 |
| | 169 |
| | 169 |
|
Commercial | | 2 |
| | 2,862 |
| | 2,862 |
| | 1 |
| | 106 |
| | 106 |
|
| | 5 |
| | $ | 8,935 |
| | $ | 8,935 |
| | 5 |
| | $ | 1,303 |
| | $ | 1,303 |
|
There were no0 loan modifications considered to be TDRs made during the twelve months previous to September 30, 20172019 that defaulted during the nine months ended September 30, 2017.2019. There were fivewas 1 loan modificationsmodification considered TDRsto be a TDR made during the twelve months previous to September 30, 20162018 that defaulted during the nine months ended September 30, 2016. The2018. This defaulted loan typestype and recorded investments atinvestment as of September 30, 2016 are2018 is as follows: one commercial loan with a recorded investment of $103,000, one commercial real estate loan with a recorded investment of $239,000, and three residential real estate loan with a recorded investment of $173,000.$3,000.
Troubled debt restructurings amounted to $8,429,000$16,453,000 and $9,180,000$9,599,000 as of September 30, 20172019 and December 31, 2016.2018, respectively.
The amount of foreclosed residential real estate held at September 30, 20172019 and December 31, 2016,2018, totaled $458,000$731,690 and $839,000,$624,000, respectively. Consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process at September 30, 20172019 and December 31, 2016,2018, totaled $458,000$117,184 and $167,000, respectively.
Internal Risk Ratings
Management uses a ten point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first six6 categories are considered not criticized, and are aggregated as “Pass” rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The special mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a substandard classification. Loans in the substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. All loans greater than 90 days past due are evaluated for substandard classification. Loans in the doubtful category exhibit the same weaknesses found in the substandard loans, however, the weaknesses are more pronounced. Such loans are static and collection in full is improbable. However, these loans are not yet rated as loss because certain events may occur which would salvage the debt. Loans classified loss are considered uncollectible and charge-off is imminent.
To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Banks have a structured loan rating process with several layers of internal and external oversight. Generally, consumer and residential mortgage loans are included in the pass category unless a specific action, such as bankruptcy, repossession, or death occurs to raise awareness of a possible credit event. An external annual loan review of large commercial relationships is performed, as well as a sample of smaller transactions. Confirmation of the appropriate risk category is included in the review. Detailed reviews, including plans for resolution, are performed on loans classified as substandard, doubtful, or loss on a quarterly basis.
The following table presents the credit quality categories identified above as of September 30, 20172019 and December 31, 2016:
2018:
| | | | September 30, 2017 | | September 30, 2019 |
| | Commercial, Financial, and Agricultural | | Real Estate Mortgages | | Installment Loans to Individuals | | | | Commercial, Financial, and Agricultural | | Real Estate Mortgages | | Consumer automobile | | Other consumer installment loans | | |
(In Thousands) | | Residential | | Commercial | | Construction | | Totals | | Residential | | Commercial | | Construction | | Totals |
Pass | | $ | 170,812 |
| | $ | 572,591 |
| | $ | 300,679 |
| | $ | 29,202 |
| | $ | 86,639 |
| | $ | 1,159,923 |
| | $ | 163,531 |
| | $ | 613,577 |
| | $ | 349,910 |
| | $ | 39,424 |
| | $ | 144,824 |
| | $ | 23,818 |
| | $ | 1,335,084 |
|
Special Mention | | 775 |
| | 1,287 |
| | 8,522 |
| | — |
| | — |
| | 10,584 |
| | 3,344 |
| | 2,640 |
| | 5,687 |
| | — |
| | — |
| | — |
| | 11,671 |
|
Substandard | | 3,712 |
| | 2,256 |
| | 14,309 |
| | 150 |
| | — |
| | 20,427 |
| | 6,667 |
| | 1,729 |
| | 8,757 |
| | 139 |
| | — |
| | — |
| | 17,292 |
|
| | $ | 175,299 |
| | $ | 576,134 |
| | $ | 323,510 |
| | $ | 29,352 |
| | $ | 86,639 |
| | $ | 1,190,934 |
| | $ | 173,542 |
| | $ | 617,946 |
| | $ | 364,354 |
| | $ | 39,563 |
| | $ | 144,824 |
| | $ | 23,818 |
| | $ | 1,364,047 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 |
| | Commercial, Financial, and Agricultural | | Real Estate Mortgages | | Installment Loans to Individuals | | |
(In Thousands) | | | Residential | | Commercial | | Construction | | | Totals |
Pass | | $ | 140,497 |
| | $ | 561,440 |
| | $ | 277,916 |
| | $ | 34,493 |
| | $ | 43,256 |
| | $ | 1,057,602 |
|
Special Mention | | 2,943 |
| | 740 |
| | 11,143 |
| | — |
| | — |
| | 14,826 |
|
Substandard | | 2,670 |
| | 2,560 |
| | 17,123 |
| | 157 |
| | — |
| | 22,510 |
|
| | $ | 146,110 |
| | $ | 564,740 |
| | $ | 306,182 |
| | $ | 34,650 |
| | $ | 43,256 |
| | $ | 1,094,938 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2018 |
| | Commercial, Financial, and Agricultural | | Real Estate Mortgages | | Consumer automobile | | Other consumer installment loans | | |
(In Thousands) | | | Residential | | Commercial | | Construction | | | | Totals |
Pass | | $ | 179,840 |
| | $ | 619,800 |
| | $ | 351,703 |
| | $ | 43,523 |
| | $ | 133,183 |
| | $ | 24,552 |
| | $ | 1,352,601 |
|
Special Mention | | 3,426 |
| | 694 |
| | 6,587 |
| | — |
| | — |
| | — |
| | 10,707 |
|
Substandard | | 5,295 |
| | 1,885 |
| | 13,405 |
| | — |
| | — |
| | — |
| | 20,585 |
|
| | $ | 188,561 |
| | $ | 622,379 |
| | $ | 371,695 |
| | $ | 43,523 |
| | $ | 133,183 |
| | $ | 24,552 |
| | $ | 1,383,893 |
|
Allowance for Loan Losses
An allowance for loan losses (“ALL”) is maintained to absorb losses from the loan portfolio. The ALL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated future loss experience, and the amount of non-performing loans.
The Banks' methodology for determining the ALL is based on the requirements of ASC Section 310-10-35 for loans individually evaluated for impairment (previously discussed) and ASC Subtopic 450-20 for loans collectively evaluated for impairment, as well as the Interagency Policy Statements on the Allowance for Loan and Lease Losses and other bank regulatory guidance. The total of the two2 components represents the Banks' ALL.
Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate. Allowances are segmented based on collateral characteristics previously disclosed, and consistent with credit quality monitoring. Loans that are collectively evaluated for impairment are grouped into two2 classes for evaluation. A general allowance is determined for “Pass” rated credits, while a separate pool allowance is provided for “Criticized” rated credits that are not individually evaluated for impairment.
For the general allowances, historical loss trends are used in the estimation of losses in the current portfolio. These historical loss amounts are modified by other qualitative factors. A historical charge-off factor is calculated utilizing a twelve quarter moving average. However, management may adjust the moving average time frame by up to four quarters to adjust for variances in the economic cycle. Management has identified a number of additional qualitative factors which it uses to supplement the historical charge-off factor because these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience. The additional factors that are evaluated quarterly and updated using information obtained from internal, regulatory, and governmental sources are: national and local economic trends and conditions; levels of and trends in delinquency rates and non-accrual loans; trends in volumes and terms of loans; effects of changes in lending policies; experience, ability, and depth of lending staff; value of underlying collateral; and concentrations of credit from a loan type, industry and/or geographic standpoint.
Loans in the criticized pools, which possess certain qualities or characteristics that may lead to collection and loss issues, are closely monitored by management and subject to additional qualitative factors. Management also monitors industry loss factors by loan segment for applicable adjustments to actual loss experience.
Management reviews the loan portfolio on a quarterly basis in order to make appropriate and timely adjustments to the ALL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL.
Activity in the allowance is presented for the three and nine months ended September 30, 20172019 and 2016:2018:
| | | | Three Months Ended September 30, 2017 | | Three Months Ended September 30, 2019 |
| | Commercial, Financial, and Agricultural | | Real Estate Mortgages | | Installment Loans to Individuals | | | | | | Commercial, Financial, and Agricultural | | Real Estate Mortgages | | Consumer automobile | | Other consumer installment | | | | |
(In Thousands) | | Residential | | Commercial | | Construction | | Unallocated | | Totals | | Residential | | Commercial | | Construction | | Unallocated | | Totals |
Beginning Balance | | $ | 1,731 |
| | $ | 5,337 |
| | $ | 3,727 |
| | $ | 172 |
| | $ | 779 |
| | $ | 1,363 |
| | $ | 13,109 |
| | $ | 1,584 |
| | $ | 5,749 |
| | $ | 3,523 |
| | $ | 132 |
| | $ | 1,435 |
| | $ | 240 |
| | $ | 1,338 |
| | $ | 14,001 |
|
Charge-offs | | (68 | ) | | (155 | ) | | — |
| | — |
| | (55 | ) | | — |
| | (278 | ) | | — |
| | (114 | ) | | — |
| | — |
| | (34 | ) | | (73 | ) | | — |
| | (221 | ) |
Recoveries | | 6 |
| | 16 |
| | — |
| | 2 |
| | 18 |
| | — |
| | 42 |
| | 43 |
| | 2 |
| | — |
| | 2 |
| | 14 |
| | 48 |
| | — |
| | 109 |
|
Provision | | (81 | ) | | 232 |
| | 300 |
| | (26 | ) | | 144 |
| | (509 | ) | | 60 |
| | 159 |
| | 4 |
| | (12 | ) | | 22 |
| | (41 | ) | | 27 |
| | 201 |
| | 360 |
|
Ending Balance | | $ | 1,588 |
| | $ | 5,430 |
| | $ | 4,027 |
| | $ | 148 |
| | $ | 886 |
| | $ | 854 |
| | $ | 12,933 |
| | $ | 1,786 |
| | $ | 5,641 |
| | $ | 3,511 |
| | $ | 156 |
| | $ | 1,374 |
| | $ | 242 |
| | $ | 1,539 |
| | $ | 14,249 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2016 |
| | Commercial, Financial, and Agricultural | | Real Estate Mortgages | | Installment Loans to Individuals | | | | |
(In Thousands) | | | Residential | | Commercial | | Construction | | | Unallocated | | Totals |
Beginning Balance | | $ | 1,273 |
| | $ | 5,851 |
| | $ | 4,001 |
| | $ | 143 |
| | $ | 277 |
| | $ | 972 |
| | $ | 12,517 |
|
Charge-offs | | (18 | ) | | (4 | ) | | — |
| | — |
| | (67 | ) | | — |
| | (89 | ) |
Recoveries | | 4 |
| | 8 |
| | 3 |
| | 1 |
| | 16 |
| | — |
| | 32 |
|
Provision | | (9 | ) | | (550 | ) | | 642 |
| | (29 | ) | | 111 |
| | 93 |
| | 258 |
|
Ending Balance | | $ | 1,250 |
| | $ | 5,305 |
| | $ | 4,646 |
| | $ | 115 |
| | $ | 337 |
| | $ | 1,065 |
| | $ | 12,718 |
|
| | | | Nine Months Ended September 30, 2017 | | Three Months Ended September 30, 2018 |
| | Commercial, Financial, and Agricultural | | Real Estate Mortgages | | Installment Loans to Individuals | | | | | | Commercial, Financial, and Agricultural | | Real Estate Mortgages | | Consumer automobile | | Other consumer installment | | | | |
(In Thousands) | | Residential | | Commercial | | Construction | | Unallocated | | Totals | | Residential | | Commercial | | Construction | | Unallocated | | Totals |
Beginning Balance | | $ | 1,554 |
| | $ | 5,383 |
| | $ | 4,975 |
| | $ | 178 |
| | $ | 416 |
| | $ | 390 |
| | $ | 12,896 |
| | $ | 1,055 |
| | $ | 5,583 |
| | $ | 3,814 |
| | $ | 118 |
| | $ | 1,069 |
| | $ | 317 |
| | $ | 1,078 |
| | $ | 13,034 |
|
Charge-offs | | (81 | ) | | (540 | ) | | — |
| | — |
| | (186 | ) | | — |
| | (807 | ) | | (6 | ) | | (81 | ) | | — |
| | — |
| | (31 | ) | | (90 | ) | | — |
| | (208 | ) |
Recoveries | | 117 |
| | 51 |
| | 1 |
| | 7 |
| | 63 |
| | — |
| | 239 |
| | 5 |
| | — |
| | — |
| | 2 |
| | 9 |
| | 21 |
| | — |
| | 37 |
|
Provision | | (2 | ) | | 536 |
| | (949 | ) | | (37 | ) | | 593 |
| | 464 |
| | 605 |
| | 187 |
| | (161 | ) | | (370 | ) | | 11 |
| | 138 |
| | 28 |
| | 647 |
| | 480 |
|
Ending Balance | | $ | 1,588 |
| | $ | 5,430 |
| | $ | 4,027 |
| | $ | 148 |
| | $ | 886 |
| | $ | 854 |
| | $ | 12,933 |
| | $ | 1,241 |
| | $ | 5,341 |
| | $ | 3,444 |
| | $ | 131 |
| | $ | 1,185 |
| | $ | 276 |
| | $ | 1,725 |
| | $ | 13,343 |
|
| | | | Nine Months Ended September 30, 2016 | |
t | | | Nine Months Ended September 30, 2019 |
| | Commercial, Financial, and Agricultural | | Real Estate Mortgages | | Installment Loans to Individuals | | | | | | Commercial, Financial, and Agricultural | | Real Estate Mortgages | | Consumer automobile | | Other consumer installment | | | | |
(In Thousands) | | Residential | | Commercial | | Construction | | Unallocated | | Totals | | Residential | | Commercial | | Construction | | Unallocated | | Totals |
Beginning Balance | | $ | 1,532 |
| | $ | 5,116 |
| | $ | 4,217 |
| | $ | 160 |
| | $ | 243 |
| | $ | 776 |
| | $ | 12,044 |
| | $ | 1,680 |
| | $ | 5,616 |
| | $ | 4,047 |
| | $ | 143 |
| | $ | 1,328 |
| | $ | 259 |
| | $ | 764 |
| | $ | 13,837 |
|
Charge-offs | | (167 | ) | | (11 | ) | | — |
| | — |
| | (171 | ) | | — |
| | (349 | ) | | (80 | ) | | (251 | ) | | (150 | ) | | — |
| | (172 | ) | | (235 | ) | | — |
| | (888 | ) |
Recoveries | | 56 |
| | 14 |
| | 8 |
| | 6 |
| | 73 |
| | — |
| | 157 |
| | 84 |
| | 3 |
| | 1 |
| | 10 |
| | 74 |
| | 93 |
| | — |
| | 265 |
|
Provision | | (171 | ) | | 186 |
| | 421 |
| | (51 | ) | | 192 |
| | 289 |
| | 866 |
| | 102 |
| | 273 |
| | (387 | ) | | 3 |
| | 144 |
| | 125 |
| | 775 |
| | 1,035 |
|
Ending Balance | | $ | 1,250 |
| | $ | 5,305 |
| | $ | 4,646 |
| | $ | 115 |
| | $ | 337 |
| | $ | 1,065 |
| | $ | 12,718 |
| | $ | 1,786 |
| | $ | 5,641 |
| | $ | 3,511 |
| | $ | 156 |
| | $ | 1,374 |
| | $ | 242 |
| | $ | 1,539 |
| | $ | 14,249 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2018 |
| | Commercial, Financial, and Agricultural | | Real Estate Mortgages | | Consumer automobile | | Other consumer installment | | | | |
(In Thousands) | | | Residential | | Commercial | | Construction | | | | Unallocated | | Totals |
Beginning Balance | | $ | 1,177 |
| | $ | 5,679 |
| | $ | 4,277 |
| | $ | 155 |
| | $ | 804 |
| | $ | 271 |
| | $ | 495 |
| | $ | 12,858 |
|
Charge-offs | | (42 | ) | | (223 | ) | | (55 | ) | | — |
| | (83 | ) | | (208 | ) | | — |
| | (611 | ) |
Recoveries | | 20 |
| | 25 |
| | — |
| | 7 |
| | 12 |
| | 57 |
| | — |
| | 121 |
|
Provision | | 86 |
| | (140 | ) | | (778 | ) | | (31 | ) | | 452 |
| | 156 |
| | 1,230 |
| | 975 |
|
Ending Balance | | $ | 1,241 |
| | $ | 5,341 |
| | $ | 3,444 |
| | $ | 131 |
| | $ | 1,185 |
| | $ | 276 |
| | $ | 1,725 |
| | $ | 13,343 |
|
The shiftsshift in allocation of the loan provision is primarily due to an increasechanges in residential originations along with a tapering ofthe credit metrics within the commercial originations along withreal estate portfolio and growth within the increase in installment loan volume. Within installment loans to individuals is indirect auto lending that was started during 2016.consumer automobile segment.
The Company grants commercial, industrial, residential, and installment loans to customers primarily throughout north-east and central Pennsylvania. Although the Company has a diversified loan portfolio, a substantial portion of its debtors’ ability to honor their contracts is dependent on the economic conditions within this region.
The Company has a concentration of the following to gross loans at September 30, 20172019 and 2016:
2018:
|
| | | | | | |
| | September 30, |
| | 2019 | | 2018 |
Owners of residential rental properties | | 15.41 | % | | 14.72 | % |
Owners of commercial rental properties | | 12.19 | % | | 13.18 | % |
|
| | | | | | |
| | September 30, |
| | 2017 | | 2016 |
Owners of residential rental properties | | 15.34 | % | | 16.64 | % |
Owners of commercial rental properties | | 13.45 | % | | 14.11 | % |
The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment based on impairment method as of September 30, 20172019 and December 31, 2016:
2018:
| | | | September 30, 2017 | | September 30, 2019 |
| | Commercial, Financial, and Agricultural | | Real Estate Mortgages | | Installment Loans to Individuals | | Unallocated | | | | Commercial, Financial, and Agricultural | | Real Estate Mortgages | | Consumer Automobile | | Other consumer installment | | Unallocated | | |
(In Thousands) | | Residential | | Commercial | | Construction | | Totals | | Residential | | Commercial | | Construction | | Totals |
Allowance for Loan Losses: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | | |
| | |
| | |
|
Ending allowance balance attributable to loans: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | | |
| | |
| | |
|
Individually evaluated for impairment | | $ | 207 |
| | $ | 224 |
| | $ | 1,629 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2,060 |
| | $ | 569 |
| | $ | 203 |
| | $ | 1,430 |
| | $ | — |
| | $ | 10 |
| | $ | — |
| | $ | — |
| | $ | 2,212 |
|
Collectively evaluated for impairment | | 1,381 |
| | 5,206 |
| | 2,398 |
| | 148 |
| | 886 |
| | 854 |
| | 10,873 |
| | 1,217 |
| | 5,438 |
| | 2,081 |
| | 156 |
| | 1,364 |
| | 242 |
| | 1,539 |
| | 12,037 |
|
Total ending allowance balance | | $ | 1,588 |
| | $ | 5,430 |
| | $ | 4,027 |
| | $ | 148 |
| | $ | 886 |
| | $ | 854 |
| | $ | 12,933 |
| | $ | 1,786 |
| | $ | 5,641 |
| | $ | 3,511 |
| | $ | 156 |
| | $ | 1,374 |
| | $ | 242 |
| | $ | 1,539 |
| | $ | 14,249 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loans: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | | |
| | |
| | |
|
Individually evaluated for impairment | | $ | 1,396 |
| | $ | 2,797 |
| | $ | 10,655 |
| | $ | — |
| | $ | — |
| |
|
| | $ | 14,848 |
| | $ | 5,219 |
| | $ | 5,970 |
| | $ | 8,761 |
| | $ | 69 |
| | $ | 38 |
| | $ | 5 |
| |
|
| | $ | 20,062 |
|
Collectively evaluated for impairment | | 173,903 |
| | 573,337 |
| | 312,855 |
| | 29,352 |
| | 86,639 |
| |
|
| | 1,176,086 |
| | 168,323 |
| | 611,976 |
| | 355,593 |
| | 39,494 |
| | 144,786 |
| | 23,813 |
| |
|
| | 1,343,985 |
|
Total ending loans balance | | $ | 175,299 |
| | $ | 576,134 |
| | $ | 323,510 |
| | $ | 29,352 |
| | $ | 86,639 |
| |
|
| | $ | 1,190,934 |
| | $ | 173,542 |
| | $ | 617,946 |
| | $ | 364,354 |
| | $ | 39,563 |
| | $ | 144,824 |
| | $ | 23,818 |
| |
|
| | $ | 1,364,047 |
|
25 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2018 |
| | Commercial, Financial, and Agricultural | | Real Estate Mortgages | | Consumer Automobile | | Other consumer installment | | Unallocated | | |
(In Thousands) | | | Residential | | Commercial | | Construction | | | | | Totals |
Allowance for Loan Losses: | | |
| | |
| | |
| | |
| | | | |
| | |
| | |
|
Ending allowance balance attributable to loans: | | |
| | |
| | |
| | |
| | | | |
| | |
| | |
|
Individually evaluated for impairment | | $ | 650 |
| | $ | 168 |
| | $ | 1,720 |
| | $ | — |
| | $ | — |
| | $ | 5 |
| | $ | — |
| | $ | 2,543 |
|
Collectively evaluated for impairment | | 1,030 |
| | 5,448 |
| | 2,327 |
| | 143 |
| | 1,328 |
| | 254 |
| | 764 |
| | 11,294 |
|
Total ending allowance balance | | $ | 1,680 |
| | $ | 5,616 |
| | $ | 4,047 |
| | $ | 143 |
| | $ | 1,328 |
| | $ | 259 |
| | $ | 764 |
| | $ | 13,837 |
|
| | | | | | | | | | | | | | | | |
Loans: | | |
| | |
| | |
| | |
| | | | |
| | |
| | |
|
Individually evaluated for impairment | | $ | 5,263 |
| | $ | 4,210 |
| | $ | 11,664 |
| | $ | 74 |
| | $ | 31 |
| | $ | 5 |
| | |
| | $ | 21,247 |
|
Collectively evaluated for impairment | | 183,298 |
| | 618,169 |
| | 360,031 |
| | 43,449 |
| | 133,152 |
| | 24,547 |
| | |
| | 1,362,646 |
|
Total ending loans balance | | $ | 188,561 |
| | $ | 622,379 |
| | $ | 371,695 |
| | $ | 43,523 |
| | $ | 133,183 |
| | $ | 24,552 |
| | |
| | $ | 1,383,893 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 |
| | Commercial, Financial, and Agricultural | | Real Estate Mortgages | | Installment Loans to Individuals | | Unallocated | | |
(In Thousands) | | | Residential | | Commercial | | Construction | | | | Totals |
Allowance for Loan Losses: | | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Ending allowance balance attributable to loans: | | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Individually evaluated for impairment | | $ | 74 |
| | $ | 437 |
| | $ | 1,668 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2,179 |
|
Collectively evaluated for impairment | | 1,480 |
| | 4,946 |
| | 3,307 |
| | 178 |
| | 416 |
| | 390 |
| | 10,717 |
|
Total ending allowance balance | | $ | 1,554 |
| | $ | 5,383 |
| | $ | 4,975 |
| | $ | 178 |
| | $ | 416 |
| | $ | 390 |
| | $ | 12,896 |
|
| | | | | | | | | | | | | | |
Loans: | | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Individually evaluated for impairment | | $ | 241 |
| | $ | 3,477 |
| | $ | 12,258 |
| | $ | — |
| | $ | — |
| | |
| | $ | 15,976 |
|
Collectively evaluated for impairment | | 145,869 |
| | 561,263 |
| | 293,924 |
| | 34,650 |
| | 43,256 |
| | |
| | 1,078,962 |
|
Total ending loans balance | | $ | 146,110 |
| | $ | 564,740 |
| | $ | 306,182 |
| | $ | 34,650 |
| | $ | 43,256 |
| | |
| | $ | 1,094,938 |
|
Note 7. Net Periodic Benefit Cost-Defined Benefit Plans
For a detailed disclosure on the Company’s pension and employee benefits plans, please refer to Note 13 of the Company’s Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2016.2018.
The following sets forth the components of the net periodic benefit/cost of the domestic non-contributory defined benefit plan for the three and nine months ended September 30, 20172019 and 2016,2018, respectively:
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(In Thousands) | | 2019 | | 2018 | | 2019 | | 2018 |
Interest cost | | $ | 191 |
| | $ | 177 |
| | $ | 573 |
| | $ | 530 |
|
Expected return on plan assets | | (248 | ) | | (272 | ) | | (746 | ) | | (820 | ) |
Amortization of net loss | | 46 |
| | 41 |
| | 140 |
| | 125 |
|
Net periodic benefit | | $ | (11 | ) | | $ | (54 | ) | | $ | (33 | ) | | $ | (165 | ) |
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(In Thousands) | | 2017 | | 2016 | | 2017 | | 2016 |
Service cost | | $ | 41 |
| | $ | 17 |
| | $ | 124 |
| | $ | 51 |
|
Interest cost | | 188 |
| | 193 |
| | 566 |
| | 579 |
|
Expected return on plan assets | | (262 | ) | | (251 | ) | | (787 | ) | | (753 | ) |
Amortization of net loss | | 45 |
| | 39 |
| | 129 |
| | 117 |
|
Net periodic benefit cost | | $ | 12 |
| | $ | (2 | ) | | $ | 32 |
| | $ | (6 | ) |
Employer Contributions
The Company previously disclosed in its consolidated financial statements, included in the Annual Report on Form 10-K for the year ended December 31, 2016,2018, that it expected to contribute a minimum of $500,000 to its defined benefit plan in 2017.2019. As of September 30, 2017,2019, there were contributions of $500,000$750,000 made to the plan with additional contributions of at least $250,000 anticipated during the remainder of 2017.2019.
Note 8. Employee Stock Purchase Plan
The Company maintains an Employee Stock Purchase Plan (“Plan”). The Plan is intended to encourage employee participation in the ownership and economic progress of the Company. The Plan allows for up to 1,000,000 shares to be purchased by employees. The purchase price of the shares is 95% of market value with an employee eligible to purchase up to the lesser of 15% of base compensation or $12,000 in market value annually. During the nine months ended September 30, 20172019 and 2016,2018, there were 1,6112,580 and 1,6173,537 shares issued under the plan, respectively.
Note 9. Off BalanceOff-Balance Sheet Risk
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments are primarily comprised of commitments to extend credit, standby letters of credit, and credit exposure from the sale of assets with recourse. These instruments involve, to varying degrees, elements of credit, interest rate, or liquidity risk in excess of the amount recognized in the Consolidated Balance Sheet. The contract amounts of these instruments express the extent of involvement the Company has in particular classes of financial instruments.
The Company’s exposure to credit loss from nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual amount of these instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The Company may require collateral or other security to support financial instruments with off-balance sheet credit risk.
Financial instruments whose contract amounts represent credit risk are as follows at September 30, 20172019 and December 31, 2016:
2018:
|
| | | | | | | | |
(In Thousands) | | September 30, 2019 | | December 31, 2018 |
Commitments to extend credit | | $ | 160,342 |
| | $ | 166,417 |
|
Standby letters of credit | | 10,221 |
| | 10,566 |
|
Credit exposure from the sale of assets with recourse | | 6,585 |
| | 6,152 |
|
| | $ | 177,148 |
| | $ | 183,135 |
|
|
| | | | | | | | |
(In Thousands) | | September 30, 2017 | | December 31, 2016 |
Commitments to extend credit | | $ | 270,046 |
| | $ | 263,487 |
|
Standby letters of credit | | 9,923 |
| | 6,515 |
|
Credit exposure from the sale of assets with recourse | | 4,699 |
| | 6,341 |
|
| | $ | 284,668 |
| | $ | 276,343 |
|
Commitments to extend credit are legally binding agreements to lend to customers. Commitments generally have fixed expiration dates or other termination clauses and may require payment of fees. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future liquidity requirements. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company, on an extension of credit is based on management’s credit assessment of the counterparty.
Standby 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 coverage period. For secured letters of credit, the collateral is typically Bank deposit instruments or customer business assets.
Note 10. Fair Value Measurements
The following disclosures show the hierarchal disclosure framework associated with the level of pricing observations utilized in measuring assets and liabilities at fair value.
|
| | |
Level I: | | Quoted prices are available in active markets for identical assets or liabilities as of the reported date. |
| | |
Level II: | | Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed. |
| | |
Level III: | | Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation. |
This hierarchy requires the use of observable market data when available.
The following table presents the assets reported on the Consolidated Balance Sheet at their fair value on a recurring basis as of September 30, 20172019 and December 31, 2016,2018, by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
| | | | September 30, 2017 | | September 30, 2019 |
(In Thousands) | | Level I | | Level II | | Level III | | Total | | Level I | | Level II | | Level III | | Total |
Assets measured on a recurring basis: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Investment securities, available for sale: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Mortgage-backed securities | | $ | — |
| | $ | 4,530 |
| | $ | — |
| | $ | 4,530 |
| | $ | — |
| | $ | 5,170 |
| | $ | — |
| | $ | 5,170 |
|
State and political securities | | — |
| | 62,327 |
| | — |
| | 62,327 |
| | — |
| | 82,836 |
| | — |
| | 82,836 |
|
Other debt securities | | — |
| | 51,973 |
| | — |
| | 51,973 |
| | — |
| | 61,069 |
| | — |
| | 61,069 |
|
Investment equity securities: | | | | | | | | | |
Financial institution equity securities | | 12,224 |
| | — |
| | — |
| | 12,224 |
| | 553 |
| | — |
| | — |
| | 553 |
|
Non-financial institution equity securities | | 1,259 |
| | — |
| | — |
| | 1,259 |
| |
Other equity securities | | | 1,267 |
| | — |
| | — |
| | 1,267 |
|
Investment securities, trading: | | | | | | | | | | | | | | | | |
Financial institution equity securities | | 63 |
| | — |
| | — |
| | 63 |
| |
Non-financial institution equity securities | | 147 |
| | — |
| | — |
| | 147 |
| |
Other equity securities | | | 47 |
| | — |
| | — |
| | 47 |
|
|
| | | | | | | | | | | | | | | | |
| | December 31, 2018 |
(In Thousands) | | Level I | | Level II | | Level III | | Total |
Assets measured on a recurring basis: | | |
| | |
| | |
| | |
|
Investment securities, available for sale: | | |
| | |
| | |
| | |
|
Mortgage-backed securities | | $ | — |
| | $ | 6,153 |
| | $ | — |
| | $ | 6,153 |
|
State and political securities | | — |
| | 79,541 |
| | — |
| | 79,541 |
|
Other debt securities | | — |
| | 48,591 |
| | — |
| | 48,591 |
|
Financial institution equity securities | | 552 |
| | — |
| | — |
| | 552 |
|
Other equity securities | | 1,224 |
| | — |
| | — |
| | 1,224 |
|
Investment securities, trading: | | | | | | | | |
Other equity securities | | 36 |
| | — |
| | — |
| | 36 |
|
|
| | | | | | | | | | | | | | | | |
| | December 31, 2016 |
(In Thousands) | | Level I | | Level II | | Level III | | Total |
Assets measured on a recurring basis: | | |
| | |
| | |
| | |
|
Investment securities, available for sale: | | |
| | |
| | |
| | |
|
Mortgage-backed securities | | $ | — |
| | $ | 9,313 |
| | $ | — |
| | $ | 9,313 |
|
Asset-backed securities | | — |
| | 109 |
| | — |
| | 109 |
|
State and political securities | | — |
| | 60,934 |
| | — |
| | 60,934 |
|
Other debt securities | | — |
| | 51,118 |
| | — |
| | 51,118 |
|
Financial institution equity securities | | 10,535 |
| | — |
| | — |
| | 10,535 |
|
Non-financial institution equity securities | | 1,483 |
| | — |
| | — |
| | 1,483 |
|
Investment securities, trading: | | | | | | | | |
Non-financial institution equity securities | | 58 |
| | — |
| | — |
| | 58 |
|
The following table presents the assets reported on the Consolidated Balance Sheet at their fair value on a non-recurring basis as of September 30, 20172019 and December 31, 2016,2018, by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
| | | | September 30, 2017 | | September 30, 2019 |
(In Thousands) | | Level I | | Level II | | Level III | | Total | | Level I | | Level II | | Level III | | Total |
Assets measured on a non-recurring basis: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Impaired loans | | $ | — |
| | $ | — |
| | $ | 12,788 |
| | $ | 12,788 |
| | $ | — |
| | $ | — |
| | $ | 17,850 |
| | $ | 17,850 |
|
Other real estate owned | | — |
| | — |
| | 108 |
| | 108 |
| | — |
| | — |
| | 422 |
| | 422 |
|
|
| | | | | | | | | | | | | | | | |
| | December 31, 2018 |
(In Thousands) | | Level I | | Level II | | Level III | | Total |
Assets measured on a non-recurring basis: | | |
| | |
| | |
| | |
|
Impaired loans | | $ | — |
| | $ | — |
| | $ | 18,704 |
| | $ | 18,704 |
|
Other real estate owned | | — |
| | — |
| | 402 |
| | 402 |
|
|
| | | | | | | | | | | | | | | | |
| | December 31, 2016 |
(In Thousands) | | Level I | | Level II | | Level III | | Total |
Assets measured on a non-recurring basis: | | |
| | |
| | |
| | |
|
Impaired loans | | $ | — |
| | $ | — |
| | $ | 13,797 |
| | $ | 13,797 |
|
Other real estate owned | | — |
| | — |
| | 839 |
| | 839 |
|
The following tables present a listing of significant unobservable inputs used in the fair value measurement process for items valued utilizing level III techniques as of September 30, 20172019 and December 31, 2016:2018:
| | | | September 30, 2017 | | September 30, 2019 |
| | Quantitative Information About Level III Fair Value Measurements | | Quantitative Information About Level III Fair Value Measurements |
(In Thousands) | | Fair Value | | Valuation Technique(s) | | Unobservable Inputs | | Range | | Weighted Average | | Fair Value | | Valuation Technique(s) | | Unobservable Inputs | | Range | | Weighted Average |
Impaired loans | | $ | 5,753 |
| | Discounted cash flow | | Temporary reduction in payment amount | | 0 to (100)% | | (18)% | | $ | 13,278 |
| | Discounted cash flow | | Temporary reduction in payment amount | | 0% to (70)% | | (38)% |
| | 7,035 |
| | Appraisal of collateral (1) | | Appraisal adjustments (1) | | 0 to (20)% | | (16)% | | 4,572 |
| | Appraisal of collateral (1) | | Appraisal adjustments (1) | | 0 to (30)% | | (4)% |
Other real estate owned | | $ | 108 |
| | Appraisal of collateral (1) | | Appraisal adjustments (1) | | (20)% | | (20)% | | $ | 422 |
| | Appraisal of collateral (1) | | Appraisal adjustments (1) | | (20)% | | (20)% |
(1) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. | | | | December 31, 2016 | | December 31, 2018 |
| | Quantitative Information About Level III Fair Value Measurements | | Quantitative Information About Level III Fair Value Measurements |
(In Thousands) | | Fair Value | | Valuation Technique(s) | | Unobservable Inputs | | Range | | Weighted Average | | Fair Value | | Valuation Technique(s) | | Unobservable Inputs | | Range | | Weighted Average |
Impaired loans | | $ | 5,304 |
| | Discounted cash flow | | Temporary reduction in payment amount | | 0 to (70)% | | (20)% | | $ | 12,929 |
| | Discounted cash flow | | Temporary reduction in payment amount | | 7 to (70)% | | (6)% |
| | 8,493 |
| | Appraisal of collateral (1) | | Appraisal adjustments (1) | | 0 to (20)% | | (15)% | | 5,775 |
| | Appraisal of collateral (1) | | Appraisal adjustments (1) | | 0 to (90)% | | (20)% |
Other real estate owned | | $ | 839 |
| | Appraisal of collateral (1) | | Appraisal adjustments (1) | | (20)% | | (20)% | | $ | 402 |
| | Appraisal of collateral (1) | | Appraisal adjustments (1) | | (20)% | | (20)% |
(1) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.
The discounted cash flow valuation technique is utilized to determine the fair value of performing impaired loans, while non-performing impaired loans utilize the appraisal of collateral method.
The significant unobservable inputs used in the fair value measurement of the Company’s impaired loans using the discounted cash flow valuation technique include temporary changes in payment amounts and the probability of default. Significant increases (decreases) in payment amounts would result in significantly higher (lower) fair value measurements. The probability of default is 0% for impaired loans using the discounted cash flow valuation technique because all defaulted impaired loans are valued using the appraisal of collateral valuation technique.
The significant unobservable input used in the fair value measurement of the Company’s impaired loans using the appraisal of collateral valuation technique include appraisal adjustments, which are adjustments to appraisals by management for qualitative factors such as economic conditions and estimated liquidation expenses. The significant unobservable input used in the fair value measurement of the Company’s other real estate owned are the same inputs used to value impaired loans using the appraisal of collateral valuation technique.
Note 11. Fair Value of Financial Instruments
The Company is required to disclose fair values for its financial instruments. Fair values are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Also, it is the Company’s general practice and intention to hold most of its financial instruments to maturity and not to engage in trading or sales activities. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These fair values are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions can significantly affect the fair values.
Fair values have been determined by the Company using historical data and an estimation methodology suitable for each category of financial instruments. The Company’s fair values, methods, and assumptions are set forth below for the Company’s other financial instruments.
As certain assets and liabilities, such as deferred tax assets, premises and equipment, and many other operational elements of the Company, are not considered financial instruments but have value, this fair value of financial instruments would not represent the full market value of the Company.
The fair values of the Company’s financial instruments not recorded at fair value on a recurring or nonrecurring basis are as follows at September 30, 20172019 and December 31, 2016:2018:
|
| | | | | | | | | | | | | | | | | | | | |
| | Carrying | | Fair | | Fair Value Measurements at September 30, 2017 |
(In Thousands) | | Value | | Value | | Level I | | Level II | | Level III |
Financial assets: | | |
| | |
| | |
| | |
| | |
|
Cash and cash equivalents | | $ | 27,747 |
| | $ | 27,747 |
| | $ | 27,747 |
| | $ | — |
| | $ | — |
|
Investment securities: | | |
| | |
| | |
| | |
| | |
|
Available for sale | | 132,313 |
| | 132,313 |
| | 13,483 |
| | 118,830 |
| | — |
|
Trading | | 210 |
| | 210 |
| | 210 |
| | — |
| | — |
|
Loans held for sale | | 1,734 |
| | 1,734 |
| | 1,734 |
| | — |
| | — |
|
Loans, net | | 1,176,781 |
| | 1,210,822 |
| | — |
| | — |
| | 1,210,822 |
|
Bank-owned life insurance | | 27,827 |
| | 27,827 |
| | 27,827 |
| | — |
| | — |
|
Accrued interest receivable | | 4,289 |
| | 4,289 |
| | 4,289 |
| | — |
| | — |
|
| | | | | | | | | | |
Financial liabilities: | | |
| | |
| | |
| | |
| | |
|
Interest-bearing deposits | | $ | 843,166 |
| | $ | 845,103 |
| | $ | 637,841 |
| | $ | — |
| | $ | 207,262 |
|
Noninterest-bearing deposits | | 310,830 |
| | 310,830 |
| | 310,830 |
| | — |
| | — |
|
Short-term borrowings | | 41,596 |
| | 41,596 |
| | 41,596 |
| | — |
| | — |
|
Long-term borrowings | | 80,998 |
| | 80,787 |
| | — |
| | — |
| | 80,787 |
|
Accrued interest payable | | 483 |
| | 483 |
| | 483 |
| | — |
| | — |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | Carrying | | Fair | | Fair Value Measurements at September 30, 2019 |
(In Thousands) | | Value | | Value | | Level I | | Level II | | Level III |
Financial assets: | | |
| | |
| | |
| | |
| | |
|
Cash and cash equivalents (1) | | $ | 57,341 |
| | $ | 57,341 |
| | $ | 57,341 |
| | $ | — |
| | $ | — |
|
Restricted investment in bank stock (1) | | 13,502 |
| | 13,502 |
| | 13,502 |
| | — |
| | — |
|
Loans held for sale (1) | | 1,868 |
| | 1,868 |
| | 1,868 |
| | — |
| | — |
|
Loans, net | | 1,350,735 |
| | 1,354,257 |
| | — |
| | — |
| | 1,354,257 |
|
Bank-owned life insurance (1) | | 29,107 |
| | 29,107 |
| | 29,107 |
| | — |
| | — |
|
Accrued interest receivable (1) | | 5,267 |
| | 5,267 |
| | 5,267 |
| | — |
| | — |
|
| | | | | | | | | | |
Financial liabilities: | | |
| | |
| | |
| | |
| | |
|
Interest-bearing deposits | | $ | 1,005,078 |
| | $ | 1,028,938 |
| | $ | 653,123 |
| | $ | — |
| | $ | 375,815 |
|
Noninterest-bearing deposits (1) | | 327,329 |
| | 327,329 |
| | 327,329 |
| | — |
| | — |
|
Short-term borrowings (1) | | 5,987 |
| | 5,987 |
| | 5,987 |
| | — |
| | — |
|
Long-term borrowings | | 162,290 |
| | 164,534 |
| | — |
| | — |
| | 164,534 |
|
Accrued interest payable (1) | | 1,666 |
| | 1,666 |
| | 1,666 |
| | — |
| | — |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | Carrying | | Fair | | Fair Value Measurements at December 31, 2016 |
(In Thousands) | | Value | | Value | | Level I | | Level II | | Level III |
Financial assets: | | |
| | |
| | |
| | |
| | |
|
Cash and cash equivalents | | $ | 43,671 |
| | $ | 43,671 |
| | $ | 43,671 |
| | $ | — |
| | $ | — |
|
Investment securities: | | |
| | |
| | |
| | |
| | |
|
Available for sale | | 133,492 |
| | 133,492 |
| | 12,018 |
| | 121,474 |
| | — |
|
Trading | | 58 |
| | 58 |
| | 58 |
| | — |
| | — |
|
Loans held for sale | | 1,953 |
| | 1,953 |
| | 1,953 |
| | — |
| | — |
|
Loans, net | | 1,080,785 |
| | 1,088,122 |
| | — |
| | — |
| | 1,088,122 |
|
Bank-owned life insurance | | 27,332 |
| | 27,332 |
| | 27,332 |
| | — |
| | — |
|
Accrued interest receivable | | 3,672 |
| | 3,672 |
| | 3,672 |
| | — |
| | — |
|
| | | | | | | | | | |
Financial liabilities: | | |
| | |
| | |
| | |
| | |
|
Interest-bearing deposits | | $ | 791,937 |
| | $ | 789,401 |
| | $ | 571,768 |
| | $ | — |
| | $ | 217,633 |
|
Noninterest-bearing deposits | | 303,277 |
| | 303,277 |
| | 303,277 |
| | — |
| | — |
|
Short-term borrowings | | 13,241 |
| | 13,241 |
| | 13,241 |
| | — |
| | — |
|
Long-term borrowings | | 85,998 |
| | 86,353 |
| | — |
| | — |
| | 86,353 |
|
Accrued interest payable | | 455 |
| | 455 |
| | 455 |
| | — |
| | — |
|
Cash and Cash Equivalents, Loans Held for Sale, Accrued Interest Receivable, Short-term Borrowings, and Accrued Interest Payable:
(1) The fair valuefinancial instrument is equal tocarried at cost at September 30, 2019, which approximate the carrying value.
Investment Securities:
The fair value of investment securities available for sale and trading 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. Regulatory stocks’ fair value is equal to the carrying value.instruments
|
| | | | | | | | | | | | | | | | | | | | |
| | Carrying | | Fair | | Fair Value Measurements at December 31, 2018 |
(In Thousands) | | Value | | Value | | Level I | | Level II | | Level III |
Financial assets: | | |
| | |
| | |
| | |
| | |
|
Cash and cash equivalents (1) | | $ | 66,742 |
| | $ | 66,742 |
| | $ | 66,742 |
| | $ | — |
| | $ | — |
|
Restricted investment in bank stock (1) | | 18,862 |
| | 18,862 |
| | 18,862 |
| | — |
| | — |
|
Loans held for sale (1) | | 2,929 |
| | 2,929 |
| | 2,929 |
| | — |
| | — |
|
Loans, net | | 1,370,920 |
| | 1,381,581 |
| | — |
| | — |
| | 1,381,581 |
|
Bank-owned life insurance (1) | | 28,627 |
| | 28,627 |
| | 28,627 |
| | — |
| | — |
|
Accrued interest receivable (1) | | 5,334 |
| | 5,334 |
| | 5,334 |
| | — |
| | — |
|
| | | | | | | | | | |
Financial liabilities: | | |
| | |
| | |
| | |
| | |
|
Interest-bearing deposits | | $ | 899,089 |
| | $ | 882,108 |
| | $ | 612,478 |
| | $ | — |
| | $ | 269,630 |
|
Noninterest-bearing deposits (1) | | 320,814 |
| | 320,814 |
| | 320,814 |
| | — |
| | — |
|
Short-term borrowings (1) | | 167,865 |
| | 167,865 |
| | 167,865 |
| | — |
| | — |
|
Long-term borrowings | | 138,942 |
| | 137,773 |
| | — |
| | — |
| | 137,773 |
|
Accrued interest payable (1) | | 1,150 |
| | 1,150 |
| | 1,150 |
| | — |
| | — |
|
(1) The financial instrument is carried at cost at December 31, 2018, which approximate the fair value of the instruments
The methods and assumptions used by the Company in estimating fair values of financial instruments at September 30, 2019 is in accordance with ASC Topic 825, Financial Instruments, as amended by ASU 2016-01 which requires public entities to use exit pricing in the calculation of the above tables.
Loans:
Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial, financial, and agricultural, commercial real estate, residential real estate, construction real estate, and installment loans to individuals. Each loan category is further segmented into fixed and adjustable rate interest terms and by performing and nonperforming categories.
The fair value of performing loans is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan. The estimate of maturity is based on the Company’s historical experience with repayments for each loan classification, modified, as required, by an estimate of the effect of current economic and lending conditions.
Fair value for significant nonperforming loans is based on recent external appraisals. If appraisals are not available, estimated cash flows are discounted using a rate commensurate with the risk associated with the estimated cash flows. Assumptions regarding credit risk, cash flows, and discounted rates are judgmentally determined using available market information and specific borrower information.
Bank-Owned Life Insurance:
The fair value is equal to the cash surrender value of the life insurance policies.
Deposits:
The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, savings, NOW, and money market accounts, is equal to the amount payable on demand. The fair value of certificates of deposit is based on the discounted value of contractual cash flows.
The fair value estimates above do not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market, commonly referred to as the core deposit intangible.
Long Term Borrowings:
The fair value of long term borrowings is based on the discounted value of contractual cash flows.
Commitments to Extend Credit, Standby Letters of Credit, and Financial Guarantees Written:
There is no material difference between the notional amount and the estimated fair value of off-balance sheet items. The contractual amounts of unfunded commitments and letters of credit are presented in Note 9 (Off Balance(Off-Balance Sheet Risk).
Note 12. Stock Options
In 2014, the Company adopted the 2014 Equity Incentive Plan designed to help the Company attract, retain, and motivate employees and non-employee directors. Incentive stock options, non-qualified stock options, and restricted stock may be granted as part of the plan.
On August 27, 2015,As of January 1, 2019, the Company had a total of 395,550 stock options outstanding. During the period ended September 30, 2019, the Company issued 38,750240,000 stock options with a strike price of $42.03$28.01 to employees that have a five year vesting period andgroup of employees. The options granted in 2019 all expire ten years from the grant date. On March 24, 2017,Of the Company issued 70,000 stock options in total, to a group of employees, that have a strike price of $44.21. The options granted in 2017 all expire ten years from the grant date however, of the 70,000240,000 grants awarded 46,250in 2019, 120,900 of the options have a three year vesting periodvest in 3 years while the remaining 23,750119,100 options vest in five years.
|
| | | | | | | | | | | | | | | | | |
Stock Options Granted |
Date | | Shares | | Forfeited | | Outstanding | | Strike Price | | Vesting Period | | Expiration |
March 15, 2019 | | 120,900 |
| | — |
| | 120,900 |
| | $ | 28.01 |
| | 3 years | | 10 years |
March 15, 2019 | | 119,100 |
| | — |
| | 119,100 |
| | 28.01 |
| | 5 years | | 10 years |
August 24, 2018 | | 75,300 |
| | — |
| | 75,300 |
| | 30.67 |
| | 3 years | | 10 years |
August 24, 2018 | | 149,250 |
| | — |
| | 149,250 |
| | 30.67 |
| | 5 years | | 10 years |
January 5, 2018 | | 18,750 |
| | — |
| | 18,750 |
| | 30.07 |
| | 3 years | | 10 years |
January 5, 2018 | | 18,750 |
| | — |
| | 18,750 |
| | 30.07 |
| | 5 years | | 10 years |
March 24, 2017 | | 69,375 |
| | (6,750 | ) | | 62,625 |
| | 29.47 |
| | 3 years | | 10 years |
March 24, 2017 | | 35,625 |
| | — |
| | 35,625 |
| | 29.47 |
| | 5 years | | 10 years |
August 27, 2015 | | 58,125 |
| | (22,875 | ) | | 35,250 |
| | 28.02 |
| | 5 years | | 10 years |
|
| | | | | | | | | | | | | | | | | |
Stock Options Granted |
Date | | Shares | | Forfeited | | Outstanding | | Strike Price | | Vesting Period | | Expiration |
March 24, 2017 | | 46,250 |
| | — |
| | 46,250 |
| | $ | 44.21 |
| | 3 years | | 10 years |
March 24, 2017 | | 23,750 |
| | — |
| | 23,750 |
| | 44.21 |
| | 5 years | | 10 years |
August 27, 2015 | | 38,750 |
| | (13,750 | ) | | 25,000 |
| | 42.03 |
| | 5 years | | 10 years |
A summary of stock option activity is presented below:
|
| | | | | | | | | | | | | | |
| | September 30, 2019 | | September 30, 2018 |
| | Shares | | Weighted Average Exercise Price | | Shares | | Weighted Average Exercise Price |
Outstanding, beginning of year | | 395,550 |
| | $ | 30.08 |
| | 140,250 |
| | $ | 29.06 |
|
Granted | | 240,000 |
| | 28.01 |
| | 262,050 |
| | 30.58 |
|
Exercised | | — |
| | — |
| | — |
| | — |
|
Forfeited | | — |
| | — |
| | (6,750 | ) | | 28.51 |
|
Expired | | — |
| | — |
| | — |
| | — |
|
Outstanding, end of period | | 635,550 |
| | $ | 29.30 |
| | 395,550 |
| | $ | 30.07 |
|
| | | | | | | | |
Exercisable, end of period | | — |
| | $ | — |
| | — |
| | $ | — |
|
|
| | | | | | | | | | | | | | |
| | September 30, 2017 | | September 30, 2016 |
| | Shares | | Weighted Average Exercise Price | | Shares | | Weighted Average Exercise Price |
Outstanding, beginning of year | | 26,500 |
| | $ | 42.03 |
| | 34,750 |
| | $ | 42.03 |
|
Granted | | 70,000 |
| | 44.21 |
| | — |
| | — |
|
Exercised | | — |
| | — |
| | — |
| | — |
|
Forfeited | | (1,500 | ) | | 42.03 |
| | (3,750 | ) | | 42.03 |
|
Expired | | — |
| | — |
| | — |
| | — |
|
Outstanding, end of year | | 95,000 |
| | $ | 43.64 |
| | 31,000 |
| | $ | 42.03 |
|
| | | | | | | | |
Exercisable, end of year | | — |
| | $ | — |
| | — |
| | $ | — |
|
The estimated fair value of options, including the effect of estimated forfeitures, is recognized as expense on a straightline basis
over the options’ vesting periods while ensuring that the cumulative amount of compensation cost recognized at least equals the
value of the vested portion of the award at that date. The Company determines the fair value of options granted using the Black-Scholes option-pricing model. The risk-free interest rate is based on the United States Treasury bond with a similar term to the expected life of the options at the grant date. Expected volatility was estimated based on the adjusted historic volatility of the Company’s shares. The expected life was estimated to equal the contractual life of the options. The dividend yield rate was based upon recent historical dividends paid on shares.
Compensation expense for stock options is recognized using the fair value when the stock options are granted and is amortized over the options' vesting period. Compensation expense with a corresponding increase in contributed surplus, related to stock options was $8,000 $185,000 and $21,000 $498,000 for the three and nine month periodsmonths ended September 30, 20172019 compared to $6,000 $333,000 and $17,000 $345,000 for the same periods of 2016.2018. As of September 30, 2017, no2019, 0 stock options were exercisable and the weighted average years to expiration were 9was 8.69 years. The fair value of options granted during the three and nine month periods endingmonths ended September 30, 20172019 was approximately zero and $2,173,000 respectively$1,208,000 or zero and $31.04$5.03 per award. Total unrecognized compensation cost for non-vested shares, $99,000,options was $2,160,000 and will be recognized over their weighted average remaining vesting period of 3.561.68 years.
Note 13. Leases
The following table shows finance lease right of use assets and finance lease liabilities as of September 30, 2019:
|
| | | | | | |
(In Thousands) | | Statement of Financial Condition classification | | September 30, 2019 |
Finance lease right of use assets | | Premises and equipment, net | | $ | 5,805 |
|
Finance lease liabilities | | Long-term borrowings | | 5,956 |
|
The following table shows the components of finance and operating lease expense for the three and nine months ended September 30, 2019:
|
| | | | | | | | |
| | Three Months Ended September 30, | | Nine months ended September 30, |
(In Thousands) | | 2019 | | 2019 |
| | | | |
Finance Lease Cost: | | | | |
Amortization of right-of-use asset | | $ | 65 |
| | $ | 194 |
|
Interest expense | | 56 |
| | 168 |
|
Operating lease cost | | 99 |
| | 271 |
|
Variable lease cost | | 1 |
| | 3 |
|
Total Lease Cost | | $ | 221 |
| | $ | 636 |
|
Gross rental expense for the three and nine months ended September 30, 2018 was $137,000 and $392,000.
A maturity analysis of operating and finance lease liabilities and reconciliation of the undiscounted cash flows to the total operating lease liability is as follows:
|
| | | | | | | | |
(In Thousands) | | Operating | | Finance |
2019 | | $ | 90 |
| | $ | 108 |
|
2020 | | 370 |
| | 318 |
|
2021 | | 378 |
| | 320 |
|
2022 | | 385 |
| | 321 |
|
2023 | | 360 |
| | 322 |
|
2024 and thereafter | | 3,969 |
| | 8,494 |
|
Total undiscounted cash flows | | 5,552 |
| | 9,883 |
|
Discount on cash flows | | (1,324 | ) | | (3,927 | ) |
Total lease liability | | $ | 4,228 |
| | $ | 5,956 |
|
The following table shows the weighted average remaining lease term and weighted average discount rate for both operating and finance leases outstanding as of September 30, 2019.
|
| | | | | | |
| | Operating | | Finance |
Weighted-average term (years) | | 17.8 |
| | 27.5 |
|
Weighted-average discount rate | | 3.49 | % | | 3.73 | % |
Note 13.14. Reclassification of Comparative Amounts
Certain comparative amounts for the prior period have been reclassified to conform to current period presentations. Such reclassifications had no0 effect on net income or shareholders’ equity.
CAUTIONARY STATEMENT FOR PURPOSES OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Report contains certain “forward-looking statements” including statements concerning plans, objectives, future events or performance and assumptions and other statements which are other than statements of historical fact. The Company cautions readers that the following important factors, among others, may have affected and could in the future affect the Company’s actual results and could cause the Company’s actual results for subsequent periods to differ materially from those expressed in any forward-looking statement made by or on behalf of the Company herein: (i) the effect of changes in laws and regulations, including federal and state banking laws and regulations, with which the Company must comply, and the associated costs of compliance with such laws and regulations either currently or in the future as applicable; (ii) the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies as well as by the Financial Accounting Standards Board, or of changes in the Company’s organization, compensation and benefit plans; (iii) the effect on the Company’s competitive position within its market area of the increasing consolidation within the banking and financial services industries, including the increased competition from larger regional and out-of-state banking organizations as well as non-bank providers of various financial services; (iv) the effect of changes in interest rates; (v) the effect of changes in the business cycle and downturns in the local, regional or national economies; and (vi) the Risk Factors identified in Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 20162018 and in other filings made by the Company under the Securities Exchange Act of 1934.
You should not put undue reliance on any forward-looking statements. These statements speak only as of the date of this Quarterly Report on Form 10-Q, even if subsequently made available by the Company on its website or otherwise. The Company undertakes no obligation to update or revise these statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation
EARNINGS SUMMARY
Comparison of the Three and Nine Months Ended September 30, 20172019 and 20162018
Summary Results
Net income for the three and nine months ended September 30, 20172019 was $3,284,000$4,650,000 and $12,839,000 compared to $3,059,000$3,826,000 and $10,515,000 for the same period of 2016 as2018, including the effects of an increase in after-tax securities gains increased $25,000of $153,000 (from a loss of $19,000 to a gain of $172,000 to$134,000) for the three month periods and $244,000 (from a loss of $197,000).$39,000 to a gain of $205,000) for the nine month periods. Basic and diluted earnings per share for the three and nine months ended September 30, 20172019 were $0.66 and 2016 were $0.70$1.82 compared to $0.54 and $0.65, respectively.$1.49 for the corresponding periods of 2018. Return on average assets and return on average equity were 0.93%1.10% and 9.43%12.18% for the three months ended September 30, 20172019 compared to 0.91%0.96% and 8.69%10.94% for the corresponding period of 2016. Net income from core operations (“operating earnings”) was $3,087,000 for the three months ended September 30, 2017 compared to $2,887,000 for the same period of 2016. Basic and diluted operating earnings per share for the three months ended September 30, 2017 were $0.66 compared to $0.61 basic and diluted for the corresponding period of 2016. Impacting the level of operating earnings were several factors including the continued shift of earning assets from the investment portfolio to the loan portfolio as the balance sheet is actively managed to reduce market risk and interest rate risk in a rising rate environment. In addition, the effective tax rate has increased due to the conclusion of the ten year tax credit generation period of several low income elderly housing projects in our market footprint in which the company participates.
Net income for the nine months ended September 30, 2017 was $9,057,000 compared to $9,529,000 for the same period of 2016 as after-tax securities gains decreased $490,000 (from a gain of $810,000 to a gain of $320,000). Basic and diluted earnings per share for the nine months ended September 30, 2017 and 2016 were $1.92 and $2.01, respectively.2018. Return on average assets and return on average equity were 0.87%1.02% and 8.69%11.69% for the nine months ended September 30, 20172019, compared to 0.95%0.91% and 9.14%10.19% for the corresponding period of 2016.2018. Net income from core operations (“operatingcore earnings”) increased to $8,737,000was $4,516,000 and $12,634,000 for the three and nine months ended September 30, 20172019 compared to $8,719,000$3,845,000 and $10,554,000 for the same periodcorresponding periods of 2016.2018. Basic and diluted operatingadjusted earnings per share for the three and nine months ended September 30, 20172019 were $1.85$0.64 and $1.80 compared to $1.84$0.54 and $1.50 basic and diluted for the corresponding periodperiods of 2016.2018.
Management uses the non-GAAP measure of net income from core operations or operating earnings, in its analysis of the Company’s performance. This measure, as used by the Company, adjusts net income by excluding significant gains or losses that are unusual in nature. Because certain of these items and their impact on the Company’s performance are difficult to predict, management believes the presentation of financial measures excluding the impact of such items provides useful supplemental information in evaluating the operating results of the Company’s core businesses. For purposes of this Quarterly Report on Form 10-Q, net income from core operations or operating earnings, means net income adjusted to exclude after-tax net securities gains or losses and bank-owned life insurance gains on death benefit.losses. These disclosures should not be viewed as a substitute for net income determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.
Reconciliation of GAAP and Non-GAAP Financial Measures
| | (Dollars in Thousands, Except Per Share Data) | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2019 | | 2018 | | 2019 | | 2018 |
GAAP net income | | $ | 3,284 |
| | $ | 3,059 |
| | $ | 9,057 |
| | $ | 9,529 |
| | $ | 4,650 |
| | $ | 3,826 |
| | $ | 12,839 |
| | $ | 10,515 |
|
Less: net securities gains, net of tax | | 197 |
| | 172 |
| | 320 |
| | 810 |
| |
Non-GAAP operating earnings | | $ | 3,087 |
| | $ | 2,887 |
| | $ | 8,737 |
| | $ | 8,719 |
| |
Less: net securities gains (losses), net of tax | | | 134 |
| | (19 | ) | | 205 |
| | (39 | ) |
Non-GAAP core earnings | | | $ | 4,516 |
| | $ | 3,845 |
| | $ | 12,634 |
| | $ | 10,554 |
|
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2019 | | 2018 | | 2019 | | 2018 |
Return on average assets (ROA) | | 0.93 | % | | 0.91 | % | | 0.87 | % | | 0.95 | % | | 1.10 | % | | 0.96 | % | | 1.02 | % | | 0.91 | % |
Less: net securities gains, net of tax | | 0.05 | % | | 0.05 | % | | 0.03 | % | | 0.08 | % | | 0.03 | % | | — | % | | 0.01 | % | | — | % |
Non-GAAP operating ROA | | 0.88 | % | | 0.86 | % | | 0.84 | % | | 0.87 | % | |
Non-GAAP core ROA | | | 1.07 | % | | 0.96 | % | | 1.01 | % | | 0.91 | % |
|
| | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
Return on average equity (ROE) | | 12.18 | % | | 10.94 | % | | 11.69 | % | | 10.19 | % |
Less: net securities gains (losses), net of tax | | 0.36 | % | | (0.05 | )% | | 0.20 | % | | (0.04 | )% |
Non-GAAP core ROE | | 11.82 | % | | 10.99 | % | | 11.49 | % | | 10.23 | % |
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
Basic earnings per share (EPS) | | $ | 0.66 |
| | $ | 0.54 |
| | $ | 1.82 |
| | $ | 1.49 |
|
Less: net securities gains, net of tax | | 0.02 |
| | — |
| | 0.02 |
| | (0.01 | ) |
Non-GAAP core operating EPS | | $ | 0.64 |
| | $ | 0.54 |
| | $ | 1.80 |
| | $ | 1.50 |
|
|
| | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Return on average equity (ROE) | | 9.43 | % | | 8.69 | % | | 8.69 | % | | 9.14 | % |
Less: net securities gains, net of tax | | 0.56 | % | | 0.49 | % | | 0.31 | % | | 0.78 | % |
Non-GAAP operating ROE | | 8.87 | % | | 8.20 | % | | 8.38 | % | | 8.36 | % |
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
Diluted EPS | | $ | 0.66 |
| | $ | 0.54 |
| | $ | 1.82 |
| | $ | 1.49 |
|
Less: net securities gains (losses), net of tax | | 0.02 |
| | — |
| | 0.02 |
| | (0.01 | ) |
Non-GAAP diluted core EPS | | $ | 0.64 |
| | $ | 0.54 |
| | $ | 1.80 |
| | $ | 1.50 |
|
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Basic earnings per share (EPS) | | $ | 0.70 |
| | $ | 0.65 |
| | $ | 1.92 |
| | $ | 2.01 |
|
Less: net securities gains, net of tax | | 0.04 |
| | 0.04 |
| | 0.07 |
| | 0.17 |
|
Non-GAAP basic operating EPS | | $ | 0.66 |
| | $ | 0.61 |
| | $ | 1.85 |
| | $ | 1.84 |
|
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Dilutive EPS | | $ | 0.70 |
| | $ | 0.65 |
| | $ | 1.92 |
| | $ | 2.01 |
|
Less: net securities gains, net of tax | | 0.04 |
| | 0.04 |
| | 0.07 |
| | 0.17 |
|
Non-GAAP dilutive operating EPS | | $ | 0.66 |
| | $ | 0.61 |
| | $ | 1.85 |
| | $ | 1.84 |
|
Interest and Dividend Income
Interest and dividend income for the three and nine months ended September 30, 20172019 increased to $12,948,000$17,084,000 and $50,359,000 compared to $11,660,000$15,198,000 and $42,510,000 for the same periodperiods of 2016.2018. Loan portfolio income increased due to the impact of portfolio growth, primarilyincrease in home equity productsaverage rate paid on loans. Investment securities and indirect auto lending. The loan portfoliodividend income increase was offsetincreased by a decrease in investment portfolio interest due to a slight decline in$442,000 and $1,426,000 for the three and nine month periods ended September 30, 2019 as the average taxable equivalent yield as the duration inbalance of the investment portfolio continues to be shortened in order to reduce interest rateincreased by $24,398,000 and market risk in the future. This is being undertaken primarily through the sale of long-term municipal bonds that have a maturity date of 2025 or later and securities with a call date within the next five years.$25,380,000, respectively.
During the nine months ended September 30, 2017, interest and dividend income was $36,839,000, an increase of $1,783,000 over the same period of 2016. Interest income on the loan portfolio increased as the growth in the portfolio was countered by a 2 bp decline in average yield. The investment portfolio interest income decreased as the portfolio size was decreased in order to reduce interest rate and market risk, while the yield on the investment portfolio declined 27 bp.
Interest and dividend income composition for the three and nine months ended September 30, 20172019 and 20162018 was as follows:
| | | | Three Months Ended | | Three Months Ended |
| | September 30, 2017 | | September 30, 2016 | | Change | | September 30, 2019 | | September 30, 2018 | | Change |
(In Thousands) | | Amount | | % Total | | Amount | | % Total | | Amount | | % | | Amount | | % Total | | Amount | | % Total | | Amount | | % |
Loans including fees | | $ | 11,906 |
| | 91.95 | % | | $ | 10,541 |
| | 90.40 | % | | $ | 1,365 |
| | 12.95 |
| % | | $ | 15,426 |
| | 90.30 | % | | $ | 13,982 |
| | 92.00 | % | | $ | 1,444 |
| | 10.33 |
| % |
Investment securities: | | |
| | | | |
| | | | |
| | |
| | | |
| | | | |
| | | | |
| | |
| |
Taxable | | 553 |
| | 4.27 | | 601 |
| | 5.15 | | (48 | ) | | (7.99 | ) | | | 998 |
| | 5.84 | | 713 |
| | 4.69 | | 285 |
| | 39.97 |
| |
Tax-exempt | | 319 |
| | 2.46 | | 329 |
| | 2.82 | | (10 | ) | | (3.04 | ) | | | 167 |
| | 0.98 | | 207 |
| | 1.36 | | (40 | ) | | (19.32 | ) | |
Dividend and other interest income | | 170 |
| | 1.32 | | 189 |
| | 1.63 | | (19 | ) | | (10.05 | ) | | | 493 |
| | 2.88 | | 296 |
| | 1.95 | | 197 |
| | 66.55 |
| |
Total interest and dividend income | | $ | 12,948 |
| | 100.00 | % | | $ | 11,660 |
| | 100.00 | % | | $ | 1,288 |
| | 11.05 |
| % | | $ | 17,084 |
| | 100.00 | % | | $ | 15,198 |
| | 100.00 | % | | $ | 1,886 |
| | 12.41 |
| % |
| | | | Nine Months Ended | | | Nine Months Ended | |
| | September 30, 2017 | | September 30, 2016 | | Change | | | September 30, 2019 | | September 30, 2018 | | Change | |
(In Thousands) | | Amount | | % Total | | Amount | | % Total | | Amount | | % | | | Amount | | % Total | | Amount | | % Total | | Amount | | % | |
Loans including fees | | $ | 33,642 |
| | 91.32 | % | | $ | 31,362 |
| | 89.46 | % | | $ | 2,280 |
| | 7.27 |
| % | | $ | 45,595 |
| | 90.54 | % | | $ | 39,172 |
| | 92.15 | % | | $ | 6,423 |
| | 16.40 |
| % |
Investment securities: | | |
| | | | |
| | | | |
| | |
| | | |
| | | | |
| | | | |
| | |
| |
Taxable | | 1,665 |
| | 4.52 | | 1,825 |
| | 5.21 | | (160 | ) | | (8.77 | ) | | | 2,899 |
| | 5.76 | | 1,898 |
| | 4.46 | | 1,001 |
| | 52.74 |
| |
Tax-exempt | | 940 |
| | 2.55 | | 1,203 |
| | 3.43 | | (263 | ) | | (21.86 | ) | | | 520 |
| | 1.03 | | 678 |
| | 1.59 | | (158 | ) | | (23.30 | ) | |
Dividend and other interest income | | 592 |
| | 1.61 | | 666 |
| | 1.90 | | (74 | ) | | (11.11 | ) | | | 1,345 |
| | 2.67 | | 762 |
| | 1.80 | | 583 |
| | 76.51 |
| |
Total interest and dividend income | | $ | 36,839 |
| | 100.00 | % | | $ | 35,056 |
| | 100.00 | % | | $ | 1,783 |
| | 5.09 |
| % | | $ | 50,359 |
| | 100.00 | % | | $ | 42,510 |
| | 100.00 | % | | $ | 7,849 |
| | 18.46 |
| % |
Interest Expense
Interest expense for the three and nine months ended September 30, 20172019 increased $83,000$1,238,000 and $4,466,000 to $1,496,000$4,181,000 and $11,865,000, respectively, compared to $1,413,000$2,943,000 and $7,399,000 for the same periodperiods of 2016.2018. The increase in interest expense is the result of growth within the deposit portfolio and the lengtheninguse of the time deposit portfolio as part of a deposit acquisition strategy in select markets. In addition, short and long-term borrowings have been utilized to build balance sheet protection in a rising rate environment, offset by a decrease in long-term borrowing utilization.assist with the funding of the loan portfolio growth.
Interest expense for the nine months ended September 30, 2017 increased $81,000 from the same period
Interest expense composition for the three and nine months ended September 30, 20172019 and 20162018 was as follows:
| | | | Three Months Ended | | Three Months Ended |
| | September 30, 2017 | | September 30, 2016 | | Change | | September 30, 2019 | | September 30, 2018 | | Change |
(In Thousands) | | Amount | | % Total | | Amount | | % Total | | Amount | | % | | Amount | | % Total | | Amount | | % Total | | Amount | | % |
Deposits | | $ | 1,058 |
| | 70.72 | % | | $ | 909 |
| | 64.33 | % | | $ | 149 |
| | 16.39 |
| % | | $ | 3,165 |
| | 75.70 | % | | $ | 1,659 |
| | 56.37 | % | | $ | 1,506 |
| | 90.78 |
| % |
Short-term borrowings | | 31 |
| | 2.07 | | 7 |
| | 0.50 | | 24 |
| | 342.86 |
| | | 7 |
| | 0.17 | | 528 |
| | 17.94 | | (521 | ) | | (98.67 | ) | |
Long-term borrowings | | 407 |
| | 27.21 | | | 497 |
| | 35.17 | | | (90 | ) | | (18.11 | ) | | | 1,009 |
| | 24.13 | | | 756 |
| | 25.69 | | | 253 |
| | 33.47 |
| |
Total interest expense | | $ | 1,496 |
| | 100.00 | % | | $ | 1,413 |
| | 100.00 | % | | $ | 83 |
| | 5.87 |
| % | | $ | 4,181 |
| | 100.00 | % | | $ | 2,943 |
| | 100.00 | % | | $ | 1,238 |
| | 42.07 |
| % |
| | | | Nine Months Ended | | Nine Months Ended |
| | September 30, 2017 | | September 30, 2016 | | Change | | September 30, 2019 | | September 30, 2018 | | Change |
(In Thousands) | | Amount | | % Total | | Amount | | % Total | | Amount | | % | | Amount | | % Total | | Amount | | % Total | | Amount | | % |
Deposits | | $ | 2,968 |
| | 70.22 | % | | $ | 2,624 |
| | 63.29 | % | | $ | 344 |
| | 13.11 |
| % | | $ | 8,336 |
| | 70.26 | % | | $ | 4,371 |
| | 59.08 | % | | $ | 3,965 |
| | 90.71 |
| % |
Short-term borrowings | | 39 |
| | 0.92 | | 41 |
| | 0.99 | | (2 | ) | | (4.88 | ) | | | 790 |
| | 6.66 | | 1,004 |
| | 13.57 | | (214 | ) | | (21.31 | ) | |
Long-term borrowings | | 1,220 |
| | 28.86 | | | 1,481 |
| | 35.72 | | | (261 | ) | | (17.62 | ) | | | 2,739 |
| | 23.08 | | | 2,024 |
| | 27.36 | | | 715 |
| | 35.33 |
| |
Total interest expense | | $ | 4,227 |
| | 100.00 | % | | $ | 4,146 |
| | 100.00 | % | | $ | 81 |
| | 1.95 |
| % | | $ | 11,865 |
| | 100.00 | % | | $ | 7,399 |
| | 100.01 | % | | $ | 4,466 |
| | 60.36 |
| % |
Net Interest Margin
The net interest margin (“NIM”) for the three months ended September 30, 2017 was 3.57% compared to 3.37% for the corresponding period of 2016. The impact of the decreasing investment portfolio balance was offset by 9.68% growth in the balance of the average loan portfolio from September 30, 2016 to September 30, 2017. The primary funding for the loan growth was an increase in core deposits. These deposits represent a lower cost funding source than time deposits and comprise 81.94% of total deposits at September 30, 2017 compared to 79.60% at September 30, 2016. Limiting the positive impact on the net interest margin caused by the growth in core deposits was the lengthening of the time deposit portfolio.
The NIM for the nine months ended September 30, 20172019 was 3.47%3.32% and 3.34% compared to 3.45%3.30% and 3.31% for the same periodcorresponding periods of 2016.2018. The increase in the net interest margin was driven by an increase in the yield on earning assets of 29 and 37 basis points ("bps") for the three and nine month periods. The impact of the decreasing investment portfolio balanceincrease in yield on earning assets was partially offsetlimited by growththe increase in rate paid on interest-bearing liabilities of 36 bps and 41 bps for the three and nine month periods. The increase in the balance ofyield on earning assets was driven by an increase in the loan portfolio yield in conjunction with an increase in the average loan portfolio fromof $31,250,000 and $79,293,000, respectively. The loan growth for the three and nine month periods was primarily funded by an increase in average total interest-bearing deposits of $112,903,000 and $98,151,000, respectively. Noninterest-bearing deposits increased $14,218,000 to $327,329,000 at September 30, 20162019 compared to September 30, 2017. The rate on interest-bearing liabilities decreased slightly as the usage of borrowed funds declined.2018.
The following is a schedule of average balances and associated yields for the three and nine months ended September 30, 20172019 and 2016:
2018:
| | | | AVERAGE BALANCES AND INTEREST RATES | | AVERAGE BALANCES AND INTEREST RATES |
| | Three Months Ended September 30, 2017 | | Three Months Ended September 30, 2016 | | Three Months Ended September 30, 2019 | | Three Months Ended September 30, 2018 |
(In Thousands) | | Average Balance (1) | | Interest | | Average Rate | | Average Balance (1) | | Interest | | Average Rate | | Average Balance (1) | | Interest | | Average Rate | | Average Balance (1) | | Interest | | Average Rate |
Assets: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Tax-exempt loans (3) | | $ | 53,850 |
| | $ | 494 |
| | 3.64 | % | | $ | 45,715 |
| | $ | 452 |
| | 3.93 | % | | $ | 66,617 |
| | $ | 505 |
| | 3.04 | % | | $ | 75,182 |
| | $ | 559 |
| | 2.95 | % |
All other loans | | 1,105,615 |
| | 11,580 |
| | 4.16 | % | | 1,011,393 |
| | 10,243 |
| | 4.03 | % | | 1,317,964 |
| | 15,027 |
| | 4.57 | % | | 1,278,149 |
| | 13,541 |
| | 4.20 | % |
Total loans (2) | | 1,159,465 |
| | 12,074 |
| | 4.13 | % | | 1,057,108 |
| | 10,695 |
| | 4.02 | % | | 1,384,581 |
| | 15,532 |
| | 4.50 | % | | 1,353,331 |
| | 14,100 |
| | 4.13 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Taxable securities | | 83,106 |
| | 674 |
| | 3.24 | % | | 93,893 |
| | 725 |
| | 3.09 | % | | 137,394 |
| | 1,284 |
| | 3.79 | % | | 104,321 |
| | 991 |
| | 3.80 | % |
Tax-exempt securities (3) | | 53,320 |
| | 483 |
| | 3.62 | % | | 49,231 |
| | 498 |
| | 4.05 | % | | 25,769 |
| | 211 |
| | 3.32 | % | | 34,444 |
| | 262 |
| | 3.04 | % |
Total securities | | 136,426 |
| | 1,157 |
| | 3.39 | % | | 143,124 |
| | 1,223 |
| | 3.42 | % | | 163,163 |
| | 1,495 |
| | 3.72 | % | | 138,765 |
| | 1,253 |
| | 3.61 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Interest-bearing deposits | | 14,085 |
| | 49 |
| | 1.38 | % | | 48,125 |
| | 65 |
| | 0.54 | % | | 36,853 |
| | 207 |
| | 2.25 | % | | 3,403 |
| | 18 |
| | 2.10 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total interest-earning assets | | 1,309,976 |
| | 13,280 |
| | 4.02 | % | | 1,248,357 |
| | 11,983 |
| | 3.82 | % | | 1,584,597 |
| | 17,234 |
| | 4.37 | % | | 1,495,499 |
| | 15,371 |
| | 4.08 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other assets | | 101,035 |
| | |
| | |
| | 101,312 |
| | |
| | |
| | 101,318 |
| | |
| | |
| | 99,132 |
| | |
| | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 1,411,011 |
| | |
| | |
| | $ | 1,349,669 |
| | |
| | |
| | $ | 1,685,915 |
| | |
| | |
| | $ | 1,594,631 |
| | |
| | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities and shareholders’ equity: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Savings | | $ | 157,341 |
| | 15 |
| | 0.04 | % | | $ | 151,464 |
| | 15 |
| | 0.04 | % | | $ | 169,628 |
| | 66 |
| | 0.16 | % | | $ | 166,181 |
| | 17 |
| | 0.04 | % |
Super Now deposits | | 203,531 |
| | 140 |
| | 0.27 | % | | 184,440 |
| | 107 |
| | 0.23 | % | | 232,918 |
| | 481 |
| | 0.83 | % | | 225,677 |
| | 264 |
| | 0.46 | % |
Money market deposits | | 284,155 |
| | 267 |
| | 0.37 | % | | 245,643 |
| | 170 |
| | 0.28 | % | | 237,362 |
| | 581 |
| | 0.98 | % | | 241,977 |
| | 314 |
| | 0.51 | % |
Time deposits | | 206,563 |
| | 636 |
| | 1.22 | % | | 223,082 |
| | 617 |
| | 1.10 | % | | 370,229 |
| | 2,037 |
| | 2.21 | % | | 263,399 |
| | 1,064 |
| | 1.60 | % |
Total interest-bearing deposits | | 851,590 |
| | 1,058 |
| | 0.49 | % | | 804,629 |
| | 909 |
| | 0.45 | % | | 1,010,137 |
| | 3,165 |
| | 1.26 | % | | 897,234 |
| | 1,659 |
| | 0.73 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Short-term borrowings | | 19,127 |
| | 31 |
| | 0.64 | % | | 15,748 |
| | 7 |
| | 0.18 | % | | 7,990 |
| | 7 |
| | 0.35 | % | | 99,867 |
| | 528 |
| | 2.07 | % |
Long-term borrowings | | 81,107 |
| | 407 |
| | 1.96 | % | | 91,025 |
| | 497 |
| | 2.14 | % | | 169,017 |
| | 1,009 |
| | 2.26 | % | | 134,731 |
| | 756 |
| | 2.19 | % |
Total borrowings | | 100,234 |
| | 438 |
| | 1.71 | % | | 106,773 |
| | 504 |
| | 1.85 | % | | 177,007 |
| | 1,016 |
| | 2.18 | % | | 234,598 |
| | 1,284 |
| | 2.14 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total interest-bearing liabilities | | 951,824 |
| | 1,496 |
| | 0.62 | % | | 911,402 |
| | 1,413 |
| | 0.61 | % | | 1,187,144 |
| | 4,181 |
| | 1.39 | % | | 1,131,832 |
| | 2,943 |
| | 1.03 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Demand deposits | | 304,244 |
| | |
| | |
| | 281,586 |
| | |
| | |
| | 324,940 |
| | |
| | |
| | 305,707 |
| | |
| | |
|
Other liabilities | | 15,708 |
| | |
| | |
| | 15,916 |
| | |
| | |
| | 21,151 |
| | |
| | |
| | 17,156 |
| | |
| | |
|
Shareholders’ equity | | 139,235 |
| | |
| | |
| | 140,765 |
| | |
| | |
| | 152,680 |
| | |
| | |
| | 139,936 |
| | |
| | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Total liabilities and shareholders’ equity | | $ | 1,411,011 |
| | |
| | |
| | $ | 1,349,669 |
| | |
| | |
| | $ | 1,685,915 |
| | |
| | |
| | $ | 1,594,631 |
| | |
| | |
|
Interest rate spread | | |
| | |
| | 3.40 | % | | |
| | |
| | 3.21 | % | | |
| | |
| | 2.98 | % | | |
| | |
| | 3.05 | % |
Net interest income/margin | | |
| | $ | 11,784 |
| | 3.57 | % | | |
| | $ | 10,570 |
| | 3.37 | % | | |
| | $ | 13,053 |
| | 3.32 | % | | |
| | $ | 12,428 |
| | 3.30 | % |
1.Information on this table has been calculated using average daily balance sheets to obtain average balances.
2.Non-accrual loans have been included with loans for the purpose of analyzing net interest earnings.
3.Income and rates on a fully taxable equivalent basis include an adjustment for the difference between annual income from tax-exempt obligations and the taxable equivalent of such income at the standard 34% tax rate.rate of 21%.
| | | | AVERAGE BALANCES AND INTEREST RATES | | AVERAGE BALANCES AND INTEREST RATES |
| | Nine Months Ended September 30, 2017 | | Nine Months Ended September 30, 2016 | | Nine Months Ended September 30, 2019 | | Nine Months Ended September 30, 2018 |
(In Thousands) | | Average Balance (1) | | Interest | | Average Rate | | Average Balance (1) | | Interest | | Average Rate | | Average Balance (1) | | Interest | | Average Rate | | Average Balance (1) | | Interest | | Average Rate |
Assets: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Tax-exempt loans (3) | | $ | 46,752 |
| | $ | 1,315 |
| | 3.76 | % | | $ | 49,204 |
| | $ | 1,432 |
| | 3.89 | % | | $ | 69,973 |
| | $ | 1,592 |
| | 3.04 | % | | $ | 75,389 |
| | $ | 1,689 |
| | 2.99 | % |
All other loans | | 1,081,148 |
| | 32,774 |
| | 4.05 | % | | 999,685 |
| | 30,417 |
| | 4.06 | % | | 1,315,022 |
| | 44,337 |
| | 4.51 | % | | 1,230,313 |
| | 37,838 |
| | 4.11 | % |
Total loans (2) | | 1,127,900 |
| | 34,089 |
| | 4.04 | % | | 1,048,889 |
| | 31,849 |
| | 4.06 | % | | 1,384,995 |
| | 45,929 |
| | 4.43 | % | | 1,305,702 |
| | 39,527 |
| | 4.05 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Taxable securities | | 85,417 |
| | 2,039 |
| | 3.18 | % | | 95,652 |
| | 2,344 |
| | 3.27 | % | | 131,451 |
| | 3,934 |
| | 4.05 | % | | 93,944 |
| | 2,621 |
| | 3.72 | % |
Tax-exempt securities | | 50,972 |
| | 1,424 |
| | 3.72 | % | | 56,291 |
| | 1,823 |
| | 4.32 | % | | 26,813 |
| | 658 |
| | 3.32 | % | | 38,940 |
| | 858 |
| | 2.94 | % |
Total securities | | 136,389 |
| | 3,463 |
| | 3.39 | % | | 151,943 |
| | 4,167 |
| | 3.66 | % | | 158,264 |
| | 4,592 |
| | 3.92 | % | | 132,884 |
| | 3,479 |
| | 3.49 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Interest-bearing deposits | | 27,901 |
| | 218 |
| | 1.04 | % | | 38,411 |
| | 147 |
| | 0.51 | % | | 18,050 |
| | 310 |
| | 2.30 | % | | 2,872 |
| | 39 |
| | 1.82 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total interest-earning assets | | 1,292,190 |
| | 37,770 |
| | 3.91 | % | | 1,239,243 |
| | 36,163 |
| | 3.90 | % | | 1,561,309 |
| | 50,831 |
| | 4.36 | % | | 1,441,458 |
| | 43,045 |
| | 3.99 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other assets | | 102,181 |
| | |
| | |
| | 99,295 |
| | |
| | |
| | 109,278 |
| | |
| | |
| | 97,930 |
| | |
| | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 1,394,371 |
| | |
| | |
| | $ | 1,338,538 |
| | |
| | |
| | $ | 1,670,587 |
| | |
| | | | $ | 1,539,388 |
| | |
| | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities and shareholders’ equity: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
|
| |
|
| | |
| | |
|
Savings | | $ | 157,396 |
| | 45 |
| | 0.04 | % | | $ | 151,158 |
| | 43 |
| | 0.04 | % | | $ | 168,909 |
| | 147 |
| | 0.12 | % | | $ | 164,828 |
| | 49 |
| | 0.04 | % |
Super Now deposits | | 198,560 |
| | 377 |
| | 0.25 | % | | 190,190 |
| | 356 |
| | 0.25 | % | | 236,965 |
| | 1,313 |
| | 0.74 | % | | 229,159 |
| | 713 |
| | 0.42 | % |
Money market deposits | | 278,436 |
| | 713 |
| | 0.34 | % | | 234,918 |
| | 471 |
| | 0.27 | % | | 242,630 |
| | 1,649 |
| | 0.91 | % | | 240,751 |
| | 814 |
| | 0.45 | % |
Time deposits | | 207,331 |
| | 1,833 |
| | 1.18 | % | | 221,676 |
| | 1,754 |
| | 1.06 | % | | 335,456 |
| | 5,227 |
| | 2.08 | % | | 251,071 |
| | 2,795 |
| | 1.49 | % |
Total interest-bearing deposits | | 841,723 |
| | 2,968 |
| | 0.47 | % | | 797,942 |
| | 2,624 |
| | 0.44 | % | | 983,960 |
| | 8,336 |
| | 1.13 | % | | 885,809 |
| | 4,371 |
| | 0.66 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Short-term borrowings | | 13,714 |
| | 39 |
| | 0.26 | % | | 20,273 |
| | 41 |
| | 0.27 | % | | 45,046 |
| | 790 |
| | 2.34 | % | | 72,873 |
| | 1,004 |
| | 1.82 | % |
Long-term borrowings | | 79,881 |
| | 1,220 |
| | 2.01 | % | | 91,025 |
| | 1,481 |
| | 2.14 | % | | 153,684 |
| | 2,739 |
| | 2.24 | % | | 124,483 |
| | 2,024 |
| | 2.14 | % |
Total borrowings | | 93,595 |
| | 1,259 |
| | 1.76 | % | | 111,298 |
| | 1,522 |
| | 1.80 | % | | 198,730 |
| | 3,529 |
| | 2.26 | % | | 197,356 |
| | 3,028 |
| | 2.02 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total interest-bearing liabilities | | 935,318 |
| | 4,227 |
| | 0.60 | % | | 909,240 |
| | 4,146 |
| | 0.61 | % | | 1,182,690 |
| | 11,865 |
| | 1.32 | % | | 1,083,165 |
| | 7,399 |
| | 0.91 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Demand deposits | | 301,567 |
| | |
| | |
| | 274,488 |
| | |
| | |
| | 318,602 |
| | |
| | |
| | 300,604 |
| | |
| | |
|
Other liabilities | | 18,455 |
| | |
| | |
| | 15,775 |
| | |
| | |
| | 22,705 |
| | |
| | |
| | 18,070 |
| | |
| | |
|
Shareholders’ equity | | 139,031 |
| | |
| | |
| | 139,035 |
| | |
| | |
| | 146,590 |
| | |
| | |
| | 137,549 |
| | |
| | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Total liabilities and shareholders’ equity | | $ | 1,394,371 |
| | |
| | |
| | $ | 1,338,538 |
| | |
| | |
| | $ | 1,670,587 |
| | |
| | |
| | $ | 1,539,388 |
| | |
| | |
|
Interest rate spread | | |
| | |
| | 3.31 | % | | |
| | |
| | 3.29 | % | | |
| | |
| | 3.04 | % | | |
| | |
| | 3.08 | % |
Net interest income/margin | | |
| | $ | 33,543 |
| | 3.47 | % | | |
| | $ | 32,017 |
| | 3.45 | % | | |
| | $ | 38,966 |
| | 3.34 | % | | |
| | $ | 35,646 |
| | 3.31 | % |
The following table presents the adjustment to convert net interest income to net interest income on a fully taxable equivalent basis for the three and nine months ended September 30, 20172019 and 2016:
2018:
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
(In Thousands) | | 2017 | | 2016 | | 2017 | | 2016 | | 2019 | | 2018 | | 2019 | | 2018 |
Total interest income | | $ | 12,948 |
| | $ | 11,660 |
| | $ | 36,839 |
| | $ | 35,056 |
| | $ | 17,084 |
| | $ | 15,198 |
| | $ | 50,359 |
| | $ | 42,510 |
|
Total interest expense | | 1,496 |
| | 1,413 |
| | 4,227 |
| | 4,146 |
| | 4,181 |
| | 2,943 |
| | 11,865 |
| | 7,399 |
|
Net interest income | | 11,452 |
| | 10,247 |
| | 32,612 |
| | 30,910 |
| | 12,903 |
| | 12,255 |
| | 38,494 |
| | 35,111 |
|
Tax equivalent adjustment | | 332 |
| | 323 |
| | 931 |
| | 1,107 |
| | 150 |
| | 173 |
| | 472 |
| | 535 |
|
Net interest income (fully taxable equivalent) | | $ | 11,784 |
| | $ | 10,570 |
| | $ | 33,543 |
| | $ | 32,017 |
| | $ | 13,053 |
| | $ | 12,428 |
| | $ | 38,966 |
| | $ | 35,646 |
|
The following table sets forth the respective impact that both volume and rate changes have had on net interest income on a fully taxable equivalent basis for the three and nine months ended September 30, 20172019 and 2016:
2018:
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 vs. 2016 | | 2017 vs. 2016 | | 2019 vs. 2018 | | 2019 vs. 2018 |
| | Increase (Decrease) Due to | | Increase (Decrease) Due to | | Increase (Decrease) Due to | | Increase (Decrease) Due to |
(In Thousands) | | Volume | | Rate | | Net | | Volume | | Rate | | Net | | Volume | | Rate | | Net | | Volume | | Rate | | Net |
Interest income: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Tax-exempt loans | | $ | 76 |
| | $ | (34 | ) | | $ | 42 |
| | $ | (70 | ) | | $ | (47 | ) | | $ | (117 | ) | | $ | (69 | ) | | $ | 15 |
| | $ | (54 | ) | | $ | (109 | ) | | $ | 12 |
| | $ | (97 | ) |
All other loans | | 993 |
| | 344 |
| | 1,337 |
| | 2,384 |
| | (27 | ) | | 2,357 |
| | 388 |
| | 1,098 |
| | 1,486 |
| | 2,693 |
| | 3,806 |
| | 6,499 |
|
Taxable investment securities | | (86 | ) | | 35 |
| | (51 | ) | | (242 | ) | | (63 | ) | | (305 | ) | | 296 |
| | (3 | ) | | 293 |
| | 1,074 |
| | 239 |
| | 1,313 |
|
Tax-exempt investment securities | | 40 |
| | (55 | ) | | (15 | ) | | (163 | ) | | (236 | ) | | (399 | ) | | (73 | ) | | 22 |
| | (51 | ) | | (245 | ) | | 45 |
| | (200 | ) |
Interest bearing deposits | | (68 | ) | | 52 |
| | (16 | ) | | (27 | ) | | 98 |
| | 71 |
| | 188 |
| | 1 |
| | 189 |
| | 138 |
| | 133 |
| | 271 |
|
Total interest-earning assets | | 955 |
| | 342 |
| | 1,297 |
| | 1,882 |
| | (275 | ) | | 1,607 |
| | 730 |
| | 1,133 |
| | 1,863 |
| | 3,551 |
| | 4,235 |
| | 7,786 |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Interest expense: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Savings deposits | | — |
| | — |
| | — |
| | 2 |
| | — |
| | 2 |
| | — |
| | 49 |
| | 49 |
| | 1 |
| | 97 |
| | 98 |
|
Super Now deposits | | 12 |
| | 21 |
| | 33 |
| | 15 |
| | 6 |
| | 21 |
| | 8 |
| | 209 |
| | 217 |
| | 25 |
| | 575 |
| | 600 |
|
Money market deposits | | 31 |
| | 66 |
| | 97 |
| | 99 |
| | 143 |
| | 242 |
| | (6 | ) | | 273 |
| | 267 |
| | 6 |
| | 829 |
| | 835 |
|
Time deposits | | (47 | ) | | 66 |
| | 19 |
| | (68 | ) | | 147 |
| | 79 |
| | 503 |
| | 470 |
| | 973 |
| | 1,114 |
| | 1,318 |
| | 2,432 |
|
Short-term borrowings | | 2 |
| | 22 |
| | 24 |
| | (2 | ) | | — |
| | (2 | ) | | (274 | ) | | (247 | ) | | (521 | ) | | (338 | ) | | 124 |
| | (214 | ) |
Long-term borrowings | | (51 | ) | | (39 | ) | | (90 | ) | | (176 | ) | | (85 | ) | | (261 | ) | | 225 |
| | 28 |
| | 253 |
| | 599 |
| | 116 |
| | 715 |
|
Total interest-bearing liabilities | | (53 | ) | | 136 |
| | 83 |
| | (130 | ) | | 211 |
| | 81 |
| | 456 |
| | 782 |
| | 1,238 |
| | 1,407 |
| | 3,059 |
| | 4,466 |
|
Change in net interest income | | $ | 1,008 |
| | $ | 206 |
| | $ | 1,214 |
| | $ | 2,012 |
| | $ | (486 | ) | | $ | 1,526 |
| | $ | 274 |
| | $ | 351 |
| | $ | 625 |
| | $ | 2,144 |
| | $ | 1,176 |
| | $ | 3,320 |
|
Provision for Loan Losses
The provision for loan losses is based upon management’s quarterly review of the loan portfolio. The purpose of the review is to assess loan quality, identify impaired loans, analyze delinquencies, ascertain loan growth, evaluate potential charge-offs and recoveries, and assess general economic conditions in the markets served. An external independent loan review is also performed annually for the Banks. Management remains committed to an aggressive program of problem loan identification and resolution.
The allowance for loan losses is determined by applying loss factors to outstanding loans by type, excluding loans for which a specific allowance has been determined. Loss factors are based on management’s consideration of the nature of the portfolio segments, changes in mix and volume of the loan portfolio, and historical loan loss experience. In addition, management considers industry standards and trends with respect to non-performing loans and its knowledge and experience with specific lending segments.
Although management believes it uses the best information available to make such determinations and that the allowance for loan losses is adequate at September 30, 2017,2019, future adjustments could be necessary if circumstances or economic conditions differ substantially from the assumptions used in making the initial determinations. A downturn in the local economy, increased unemployment, and delays in receiving financial information from borrowers could result in increased levels of nonperforming assets, charge-offs, loan loss provisions, and reductions in income. Additionally, as an integral part of the examination process, bank regulatory agencies periodically review the Banks' loan loss allowance. The banking agencies could require the recognition of additions to the loan loss allowance based on their judgment of information available to them at the time of their examination.
When determining the appropriate allowance level, management has attributed the allowance for loan losses to various portfolio segments; however, the allowance is available for the entire portfolio as needed.
The allowance for loan losses increased slightly from $12,896,000$13,837,000 at December 31, 20162018 to $12,933,000$14,249,000 at September 30, 2017.2019. The slight increase in the allowance for loan losses was driven by growthan increase in the consumer automobile segment of the loan portfolio. In addition, the increase was limited due to the payoff of a large commercial loan that had a significant specific allocation within the allowance for loan losses. The majority of the loans charged-off during the nine month period had a specific allowance within the allowance for losses. At September 30, 20172019 and December 31, 2016,2018, the allowance for loan losses to total loans was 1.09%1.04% and 1.18%1.00%, respectively.
The provision for loan losses totaled $60,000$360,000 and $258,000$1,035,000 for the three and nine months ended September 30, 20172019 and 2016the respective amounts for the corresponding 2018 periods were $480,000 and $605,000 and $866,000 $975,000. The increase in the provision for loan losses
for the nine months ended September 30, 2017 and 2016, respectively.2019 compared to the corresponding 2018 period was due to the increase in impaired loans. The amount ofincrease in the provision for loan losses for the nine months ended September 30, 2019 compared to the same period of 2018 was primarily the result of loan growth offset by minimaldue to an increase in net charge-offs.
Nonperforming loans decreasedincreased to $8,317,000$17,208,000 at September 30, 20172019 from $11,530,000$8,739,000 at September 30, 2016.2018. The majority of nonperforming loans are centered on loans that are either in a secured position and have sureties with a strong underlying financial position or have a specific allocation for any impairment recorded within the allowance for loan losses. The ratio of nonperforming loans to total loans was 0.70%1.26% and 1.08%0.64% at September 30, 20172019 and 2016,2018, respectively, and the ratio of the allowance for loan losses to nonperforming loans was 155.50%82.80% and 110.30%152.68% at September 30, 20172019 and 2016,2018, respectively. Internal loan review and analysis coupled with changes in the loan growthportfolio composition dictated a provision for loan losses of $605,000$360,000 and $1,035,000 for the three and nine months ended September 30, 2017.2019.
The following is a table showing total nonperforming loans as of:
|
| | | | | | | | | | | | |
| | Total Nonperforming Loans |
(In Thousands) | | 90 Days Past Due |
| Non-accrual |
| Total |
September 30, 2017 | | $ | 261 |
| | $ | 8,056 |
| | $ | 8,317 |
|
June 30, 2017 | | 1,329 |
| | 11,169 |
| | 12,498 |
|
March 31, 2017 | | 141 |
| | 10,730 |
| | 10,871 |
|
December 31, 2016 | | 870 |
| | 10,756 |
| | 11,626 |
|
September 30, 2016 | | 114 |
| | 11,416 |
| | 11,530 |
|
|
| | | | | | | | | | | | |
| | Total Nonperforming Loans |
(In Thousands) | | 90 Days Past Due |
| Non-accrual |
| Total |
September 30, 2019 | | $ | 1,304 |
| | $ | 15,904 |
| | $ | 17,208 |
|
June 30, 2019 | | 1,245 |
| | 14,138 |
| | 15,383 |
|
March 31, 2019 | | 1,268 |
| | 14,526 |
| | 15,794 |
|
December 31, 2018 | | 1,274 |
| | 15,298 |
| | 16,572 |
|
September 30, 2018 | | 512 |
| | 8,227 |
| | 8,739 |
|
Non-interest Income
Total non-interest income for the three and nine months ended September 30, 20172019 compared to the same periodperiods in 2016 decreased $342,0002018 increased $233,000 and $513,000, respectively, to $2,740,000.$2,822,000 and $7,545,000. Excluding net securities gains, non-interest income for the three and nine months ended September 30, 2017 decreased $379,0002019 increased $39,000 and $205,000 compared to the same periodperiods in 2016. The decrease in gain on sale of loans was driven by a shift in product mix and decreased volume.2018. The changes in insurance andcommissions is primarily the result of continued growth in United Insurance Solutions, LLC. The increase in brokerage commissions are due to a change in the product mix of consumer purchases. Debit card fees decreased due to decreased usage of debit cards.The fluctuation in other income results primarily from increases in loans sold on the secondary market.
Total non-interest income for the nine months ended September 30, 2017 compared to the same period in 2016 decreased $1,102,000. Excluding net securities gains, non-interest income decreased $359,000 compared the 2016 period. The reasons noted for the three month period comparison also apply to the nine month period.
Non-interest income composition for the three and nine months ended September 30, 20172019 and 20162018 was as follows:
| | | | Three Months Ended | | Three Months Ended |
| | September 30, 2017 | | September 30, 2016 | | Change | | September 30, 2019 | | September 30, 2018 | | Change |
(In Thousands) | | Amount | | % Total | | Amount | | % Total | | Amount | | % | | Amount | | % Total | | Amount | | % Total | | Amount | | % |
Service charges | | $ | 550 |
| | 20.07 | % | | $ | 585 |
| | 18.98 | % | | $ | (35 | ) | | (5.98 | )% | | $ | 622 |
| | 22.04 | % | | $ | 645 |
| | 24.92 | % | | $ | (23 | ) | | (3.57 | )% |
Net securities gains, available for sale | | 302 |
| | 11.02 |
| | 253 |
| | 8.21 |
| | 49 |
| | 19.37 |
| |
Net securities (losses) gains, trading | | (4 | ) | | (0.15 | ) | | 8 |
| | 0.26 |
| | (12 | ) | | (150.00 | ) | |
Net debt securities gains (losses), available for sale | | | 189 |
| | 6.70 |
| | (22 | ) | | (0.85 | ) | | 211 |
| | 959.09 |
|
Net equity securities (losses) gains | | | (21 | ) | | (0.74 | ) | | (16 | ) | | (0.62 | ) | | (5 | ) | | (31.25 | ) |
Net securities gains (losses), trading | | | 2 |
| | 0.07 |
| | 14 |
| | 0.54 |
| | (12 | ) | | (85.71 | ) |
Bank-owned life insurance | | 166 |
| | 6.06 |
| | 172 |
| | 5.58 |
| | (6 | ) | | (3.49 | ) | | 143 |
| | 5.07 |
| | 165 |
| | 6.37 |
| | (22 | ) | | (13.33 | ) |
Gain on sale of loans | | 455 |
| | 16.61 |
| | 658 |
| | 21.35 |
| | (203 | ) | | (30.85 | ) | | 583 |
| | 20.66 |
| | 398 |
| | 15.37 |
| | 185 |
| | 46.48 |
|
Insurance commissions | | 109 |
| | 3.98 |
| | 198 |
| | 6.42 |
| | (89 | ) | | (44.95 | ) | | 93 |
| | 3.30 |
| | 85 |
| | 3.28 |
| | 8 |
| | 9.41 |
|
Brokerage commissions | | 352 |
| | 12.85 |
| | 290 |
| | 9.41 |
| | 62 |
| | 21.38 |
| | 353 |
| | 12.51 |
| | 340 |
| | 13.13 |
| | 13 |
| | 3.82 |
|
Debit card fees | | 514 |
| | 18.76 |
| | 690 |
| | 22.39 |
| | (176 | ) | | (25.51 | ) | | 333 |
| | 11.80 |
| | 359 |
| | 13.87 |
| | (26 | ) | | (7.24 | ) |
Other | | 296 |
| | 10.80 |
| | 228 |
| | 7.40 |
| | 68 |
| | 29.82 |
| | 525 |
| | 18.59 |
| | 621 |
| | 23.99 |
| | (96 | ) | | (15.46 | ) |
Total non-interest income | | $ | 2,740 |
| | 100.00 | % | | $ | 3,082 |
| | 100.00 | % | | $ | (342 | ) | | (11.10 | )% | | $ | 2,822 |
| | 100.00 | % | | $ | 2,589 |
| | 100.00 | % | | $ | 233 |
| | 9.00 | % |
| | | | Nine Months Ended | | Nine Months Ended |
| | September 30, 2017 | | September 30, 2016 | | Change | | September 30, 2019 | | September 30, 2018 | | Change |
(In Thousands) | | Amount | | % Total | | Amount | | % Total | | Amount | | % | | Amount | | % Total | | Amount | | % Total | | Amount | | % |
Service charges | | $ | 1,637 |
| | 20.07 | % | | $ | 1,678 |
| | 18.13 | % | | $ | (41 | ) | | (2.44 | )% | | $ | 1,776 |
| | 23.54 | % | | $ | 1,788 |
| | 25.43 | % | | $ | (12 | ) | | (0.67 | )% |
Net securities gains, available for sale | | 487 |
| | 5.97 |
| | 1,174 |
| | 12.68 |
| | (687 | ) | | (58.52 | ) | |
Net securities (losses) gains, trading | | (2 | ) | | (0.02 | ) | | 54 |
| | 0.58 |
| | (56 | ) | | (103.70 | ) | |
Net debt securities gains (losses), available for sale | | | 200 |
| | 2.65 |
| | (17 | ) | | (0.24 | ) | | 217 |
| | 1,276.47 |
|
Net equity securities gains (losses) | | | 44 |
| | 0.58 |
| | (44 | ) | | (0.63 | ) | | 88 |
| | 200.00 |
|
Net securities gains (losses), trading | | | 15 |
| | 0.20 |
| | 12 |
| | 0.17 |
| | 3 |
| | 25.00 |
|
Bank-owned life insurance | | 499 |
| | 6.12 |
| | 516 |
| | 5.57 |
| | (17 | ) | | (3.29 | ) | | 434 |
| | 5.75 |
| | 496 |
| | 7.05 |
| | (62 | ) | | (12.50 | ) |
Gain on sale of loans | | 1,316 |
| | 16.14 |
| | 1,691 |
| | 18.27 |
| | (375 | ) | | (22.18 | ) | | 1,246 |
| | 16.51 |
| | 1,053 |
| | 14.97 |
| | 193 |
| | 18.33 |
|
Insurance commissions | | 399 |
| | 4.89 |
| | 604 |
| | 6.52 |
| | (205 | ) | | (33.94 | ) | | 346 |
| | 4.59 |
| | 266 |
| | 3.78 |
| | 80 |
| | 30.08 |
|
Brokerage commissions | | 1,044 |
| | 12.80 |
| | 817 |
| | 8.83 |
| | 227 |
| | 27.78 |
| | 1,032 |
| | 13.68 |
| | 1,013 |
| | 14.41 |
| | 19 |
| | 1.88 |
|
Debit card fees | | 1,450 |
| | 17.78 |
| | 1,413 |
| | 15.26 |
| | 37 |
| | 2.62 |
| | 1,032 |
| | 13.68 |
| | 1,065 |
| | 15.15 |
| | (33 | ) | | (3.10 | ) |
Other | | 1,325 |
| | 16.25 |
| | 1,310 |
| | 14.16 |
| | 15 |
| | 1.15 |
| | 1,420 |
| | 18.82 |
| | 1,400 |
| | 19.91 |
| | 20 |
| | 1.43 |
|
Total non-interest income | | $ | 8,155 |
| | 100.00 | % | | $ | 9,257 |
| | 100.00 | % | | $ | (1,102 | ) | | (11.90 | )% | | $ | 7,545 |
| | 100.00 | % | | $ | 7,032 |
| | 100.00 | % | | $ | 513 |
| | 7.30 | % |
Non-interest Expense
Total non-interest expense increased $827,000$140,000 and $939,000 for the three and nine months ended September 30, 20172019 compared to the same period of 2016.2018. The increase in salaries and employee benefits is primarily attributable to routine wage increases coupled with an increase in the costnumber of health insurance. Occupancy expenseemployees. Furniture and equipment expenses have increased as maintenance costs have increased and older equipment has been replaced. Software amortization increased due to various maintenance projects to refresh facilities. Furniture and equipment expense increased as an acquired building was outfitted. Software amortization decreased as the number of vendors utilized is consolidated.updating software programs that require new licensing fee structures. Marketing expenses increaseddecreased as targeted marketing was increasedhas replaced mass marketing. The fluctuation in professional fees consists primarily of an increase in legal fees. The decrease in deposit insurance reflects the FDIC assessment credit recorded in the localities were branches will be opened in the next several months. Other non-interest expenses increased primarily due to legal expenses and a reduction in the amortizationthird quarter of investment in limited partnerships as several of the partnerships have reached the end of their tax credit generating life and have been fully amortized.2019.
Total non-interest expense for the nine months ended September 30, 2017 compared to the same period in 2016 increased $1,149,000. The reasons noted for the three month period comparison also apply to the nine month period.
Non-interest expense composition for the three and nine months ended September 30, 20172019 and 20162018 was as follows:
| | | | Three Months Ended | | Three Months Ended |
| | September 30, 2017 | | September 30, 2016 | | Change | | September 30, 2019 | | September 30, 2018 | | Change |
(In Thousands) | | Amount | | % Total | | Amount | | % Total | | Amount | | % | | Amount | | % Total | | Amount | | % Total | | Amount | | % |
Salaries and employee benefits | | $ | 4,738 |
| | 49.53 | % | | $ | 4,507 |
| | 51.57 | % | | $ | 231 |
| | 5.13 | % | | $ | 5,488 |
| | 57.52 | % | | $ | 5,420 |
| | 55.99 | % | | $ | 68 |
| | 1.25 | % |
Occupancy | | 603 |
| | 6.30 |
| | 544 |
| | 6.22 |
| | 59 |
| | 10.85 |
| | 638 |
| | 6.69 |
| | 640 |
| | 6.61 |
| | (2 | ) | | (0.31 | ) |
Furniture and equipment | | 816 |
| | 8.53 |
| | 662 |
| | 7.58 |
| | 154 |
| | 23.26 |
| | 885 |
| | 9.28 |
| | 780 |
| | 8.06 |
| | 105 |
| | 13.46 |
|
Software amortization | | 235 |
| | 2.46 |
| | 580 |
| | 6.64 |
| | (345 | ) | | (59.48 | ) | | 234 |
| | 2.45 |
| | 208 |
| | 2.15 |
| | 26 |
| | 12.50 |
|
Pennsylvania shares tax | | 228 |
| | 2.38 |
| | 220 |
| | 2.52 |
| | 8 |
| | 3.64 |
| | 285 |
| | 2.99 |
| | 278 |
| | 2.87 |
| | 7 |
| | 2.52 |
|
Professional fees | | 560 |
| | 5.85 |
| | 502 |
| | 5.74 |
| | 58 |
| | 11.55 |
| | 585 |
| | 6.13 |
| | 459 |
| | 4.74 |
| | 126 |
| | 27.45 |
|
Federal Deposit Insurance Corporation deposit insurance | | 194 |
| | 2.03 |
| | 202 |
| | 2.31 |
| | (8 | ) | | (3.96 | ) | | — |
| | — |
| | 237 |
| | 2.45 |
| | (237 | ) | | (100.00 | ) |
Debit card expenses | | 168 |
| | 1.76 |
| | 246 |
| | 2.81 |
| | (78 | ) | | (31.71 | ) | |
Marketing | | 315 |
| | 3.29 |
| | 173 |
| | 1.98 |
| | 142 |
| | 82.08 |
| | 98 |
| | 1.03 |
| | 245 |
| | 2.53 |
| | (147 | ) | | (60.00 | ) |
Intangible amortization | | 81 |
| | 0.85 |
| | 90 |
| | 1.03 |
| | (9 | ) | | (10.00 | ) | | 62 |
| | 0.65 |
| | 71 |
| | 0.73 |
| | (9 | ) | | (12.68 | ) |
Other | | 1,628 |
| | 17.02 |
| | 1,013 |
| | 11.60 |
| | 615 |
| | 60.71 |
| | 1,266 |
| | 13.26 |
| | 1,343 |
| | 13.87 |
| | (77 | ) | | (5.73 | ) |
Total non-interest expense | | $ | 9,566 |
| | 100.00 | % | | $ | 8,739 |
| | 100.00 | % | | $ | 827 |
| | 9.46 | % | | $ | 9,541 |
| | 100.00 | % | | $ | 9,681 |
| | 100.00 | % | | $ | (140 | ) | | (1.45 | )% |
| | | | Nine Months Ended | | Nine Months Ended |
| | September 30, 2017 | | September 30, 2016 | | Change | | September 30, 2019 | | September 30, 2018 | | Change |
(In Thousands) | | Amount | | % Total | | Amount | | % Total | | Amount | | % | | Amount | | % Total | | Amount | | % Total | | Amount | | % |
Salaries and employee benefits | | $ | 14,116 |
| | 51.11 | % | | $ | 13,433 |
| | 50.76 | % | | $ | 683 |
| | 5.08 | % | | $ | 16,512 |
| | 56.14 | % | | $ | 15,387 |
| | 54.04 | % | | $ | 1,125 |
| | 7.31 | % |
Occupancy | | 1,855 |
| | 6.72 |
| | 1,630 |
| | 6.16 |
| | 225 |
| | 13.80 |
| | 2,085 |
| | 7.09 |
| | 2,080 |
| | 7.30 |
| | 5 |
| | 0.24 |
|
Furniture and equipment | | 2,129 |
| | 7.71 |
| | 2,042 |
| | 7.72 |
| | 87 |
| | 4.26 |
| | 2,421 |
| | 8.23 |
| | 2,328 |
| | 8.18 |
| | 93 |
| | 3.99 |
|
Software amortization | | 750 |
| | 2.72 |
| | 950 |
| | 3.59 |
| | (200 | ) | | (21.05 | ) | | 629 |
| | 2.14 |
| | 504 |
| | 1.77 |
| | 125 |
| | 24.80 |
|
Pennsylvania shares tax | | 696 |
| | 2.52 |
| | 698 |
| | 2.64 |
| | (2 | ) | | (0.29 | ) | | 863 |
| | 2.93 |
| | 833 |
| | 2.93 |
| | 30 |
| | 3.60 |
|
Professional fees | | 1,816 |
| | 6.58 |
| | 1,512 |
| | 5.71 |
| | 304 |
| | 20.11 |
| | 1,834 |
| | 6.24 |
| | 1,674 |
| | 5.88 |
| | 160 |
| | 9.56 |
|
Federal Deposit Insurance Corporation deposit insurance | | 514 |
| | 1.86 |
| | 670 |
| | 2.53 |
| | (156 | ) | | (23.28 | ) | | 504 |
| | 1.71 |
| | 639 |
| | 2.24 |
| | (135 | ) | | (21.13 | ) |
Debit card expenses | | 478 |
| | 1.73 |
| | 456 |
| | 1.72 |
| | 22 |
| | 4.82 |
| |
Marketing | | 690 |
| | 2.50 |
| | 568 |
| | 2.15 |
| | 122 |
| | 21.48 |
| | 233 |
| | 0.79 |
| | 764 |
| | 2.68 |
| | (531 | ) | | (69.50 | ) |
Intangible amortization | | 256 |
| | 0.93 |
| | 276 |
| | 1.04 |
| | (20 | ) | | (7.25 | ) | | 202 |
| | 0.69 |
| | 229 |
| | 0.80 |
| | (27 | ) | | (11.79 | ) |
Other | | 4,314 |
| | 15.62 |
| | 4,230 |
| | 15.98 |
| | 84 |
| | 1.99 |
| | 4,131 |
| | 14.04 |
| | 4,037 |
| | 14.18 |
| | 94 |
| | 2.33 |
|
Total non-interest expense | | $ | 27,614 |
| | 100.00 | % | | $ | 26,465 |
| | 100.00 | % | | $ | 1,149 |
| | 4.34 | % | | $ | 29,414 |
| | 100.00 | % | | $ | 28,475 |
| | 100.00 | % | | $ | 939 |
| | 3.30 | % |
Provision for Income Taxes
Income taxes increased $9,000$313,000 and $184,000$562,000 for the three and nine months ended September 30, 20172019 compared to the same periods of 2016.2018. The effective tax rate for the three and nine months ended September 30, 20172019 was 29.39%20.09% and 25.76%17.58%, respectively, compared to 2.15%18.30% and 20.58%17.17% for the same periods of 2016. The primary cause of the increase in tax expense for the three and nine months ended September 30, 2017 compared to 2016 is the impact of a reduction of tax-exempt interest income within the investment portfolio as the portfolio was strategically reduced and a reduction in the amount of federal tax credits recognized from low income elderly housing partnerships. Excluding the impact of securities gains and losses, the effective tax rate for the three and nine months ended September 30, 2017 was 27.66% and 27.57% compared to 29.08% and 24.89% for the same periods of 2016.2018. The Company currently is in a deferred tax asset position. Management has reviewed the deferred tax asset and has determined that the asset will be utilized within the appropriate carry forward period and therefore does not require a valuation allowance. The decrease in deposit insurance reflects the FDIC assessment credit awards recorded in the third quarter of 2019.
ASSET/LIABILITY MANAGEMENT
Cash and Cash Equivalents
Cash and cash equivalents decreased $15,924,000$9,401,000 from $43,671,000$66,742,000 at December 31, 20162018 to $27,747,000$57,341,000 at September 30, 20172019, primarily as a result of the following activities during the nine months ended September 30, 2017.2019.
Loans Held for Sale
Activity regarding loans held for sale resulted in sales proceeds leadingtrailing loan originations, less $1,316,000$1,246,000 in realized gains, by $219,000$1,061,000 for the nine months ended September 30, 2017.2019.
Loans
Gross loans increased $96,033,000decreased $19,773,000 since December 31, 20162018 due primarily to an increasea decrease across all three real estate mortgage categories. The decrease in installment loans to individuals. Thethe real estate mortgage portfolio was partially offset by the growth in installment loans was driven bythe consumer automobile indirect lending. Loan growth has also picked up in our commercial, financial, and agricultural loan products.segment.
The allocation of the loan portfolio, by category, as of September 30, 20172019 and December 31, 20162018 is presented below:
| | | | September 30, 2017 | | December 31, 2016 | | Change | | September 30, 2019 | | December 31, 2018 | | Change |
(In Thousands) | | Amount | | % Total | | Amount | | % Total | | Amount | | % | | Amount | | % Total | | Amount | | % Total | | Amount | | % |
Commercial, financial, and agricultural | | $ | 175,299 |
| | 14.73 | % | | $ | 146,110 |
| | 13.36 | % | | $ | 29,189 |
| | 19.98 | % | | $ | 173,542 |
| | 12.71 | % | | $ | 188,561 |
| | 13.62 | % | | $ | (15,019 | ) | | (7.97 | )% |
Real estate mortgage: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Residential | | 576,134 |
| | 48.43 |
| | 564,740 |
| | 51.63 |
| | 11,394 |
| | 2.02 | % | | 617,946 |
| | 45.27 |
| | 622,379 |
| | 44.94 |
| | (4,433 | ) | | (0.71 | )% |
Commercial | | 323,510 |
| | 27.19 |
| | 306,182 |
| | 27.99 |
| | 17,328 |
| | 5.66 | % | | 364,354 |
| | 26.69 |
| | 371,695 |
| | 26.84 |
| | (7,341 | ) | | (1.98 | )% |
Construction | | 29,352 |
| | 2.47 |
| | 34,650 |
| | 3.17 |
| | (5,298 | ) | | (15.29 | )% | | 39,563 |
| | 2.90 |
| | 43,523 |
| | 3.14 |
| | (3,960 | ) | | (9.10 | )% |
Installment loans to individuals | | 86,639 |
| | 7.28 |
| | 43,256 |
| | 3.96 |
| | 43,383 |
| | 100.29 | % | |
Consumer automobile loans | | | 144,824 |
| | 10.61 |
| | 133,183 |
| | 9.63 |
| | 11,641 |
| | 8.74 | % |
Other consumer installment loans | | | 23,818 |
| | 1.74 |
| | 24,552 |
| | 1.77 |
| | (734 | ) | | (2.99 | )% |
Net deferred loan fees and discounts | | (1,220 | ) | | (0.10 | ) | | (1,257 | ) | | (0.11 | ) | | 37 |
| | (2.94 | )% | | 937 |
| | 0.08 |
| | 864 |
| | 0.06 |
| | 73 |
| | 8.45 | % |
Gross loans | | $ | 1,189,714 |
| | 100.00 | % | | $ | 1,093,681 |
| | 100.00 | % | | $ | 96,033 |
| | 8.78 | % | | $ | 1,364,984 |
| | 100.00 | % | | $ | 1,384,757 |
| | 100.00 | % | | $ | (19,773 | ) | | (1.43 | )% |
The following table shows the amount of accrual and non-accrual TDRs at September 30, 20172019 and December 31, 2016:
2018:
| | | | September 30, 2017 | | December 31, 2016 | | September 30, 2019 | | December 31, 2018 |
(In Thousands) | | Accrual | | Non-accrual | | Total | | Accrual | | Non-accrual | | Total | | Accrual | | Non-accrual | | Total | | Accrual | | Non-accrual | | Total |
Commercial, financial, and agricultural | | $ | 22 |
| | $ | 120 |
| | $ | 142 |
| | $ | 109 |
| | $ | 132 |
| | $ | 241 |
| | $ | — |
| | $ | 5,099 |
| | $ | 5,099 |
| | $ | — |
| | $ | 1,127 |
| | $ | 1,127 |
|
Real estate mortgage: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Residential | | 1,199 |
| | 341 |
| | 1,540 |
| | 1,491 |
| | 541 |
| | 2,032 |
| | 2,083 |
| | 2,213 |
| | 4,296 |
| | 2,225 |
| | 159 |
| | 2,384 |
|
Commercial | | 4,495 |
| | 2,252 |
| | 6,747 |
| | 4,723 |
| | 2,184 |
| | 6,907 |
| | 2,169 |
| | 4,889 |
| | 7,058 |
| | 3,959 |
| | 2,129 |
| | 6,088 |
|
| | $ | 5,716 |
| | $ | 2,713 |
| | $ | 8,429 |
| | $ | 6,323 |
| | $ | 2,857 |
| | $ | 9,180 |
| | $ | 4,252 |
| | $ | 12,201 |
| | $ | 16,453 |
| | $ | 6,184 |
| | $ | 3,415 |
| | $ | 9,599 |
|
Investments
The fair value of the investment debt securities portfolio at September 30, 2017 decreased $1,027,0002019 increased $14,790,000 since December 31, 20162018 while the amortized cost of the portfolio decreased $2,095,000.increased $8,934,000. The growth in the investment portfolio has occurred within the municipal segment as bonds with a final maturity of ten to fifteen years have been purchased. The portfolio continues to be actively managed in order to reduce interest rate and market risk. This is being undertaken primarily through the sale of long-term municipal bonds that have a maturity date of 2025 or later and securities with a call date within the next five years. The proceeds of the bond sales are being deployed into loans and intermediate term corporate bonds and short and intermediate term municipal bonds. The strategy to sell a portion of the long-term bond portfolio does negatively impact current earnings, but this action plays a key role in our long-term asset liability management strategy as the balance sheet is shortened in anticipation of a steadily rising rate environment. The unrealized losses within the debt securities portfolio are the result of market activity, not credit issues/ratings, as approximately 87.34%77.84% of the debt securities portfolio on an amortized cost basis is currently rated A or higher by either S&P or Moody’s.
The Company considers various factors, which include examples from applicable accounting guidance, when analyzing the available for sale portfolio for possible other than temporary impairment. The Company primarily considers the following factors in its analysis: length of time and severity of the fair value being less than carrying value; reduction of dividend paid (equities); continued payment of dividend/interest, credit rating, and financial condition of an issuer; intent and ability to hold until anticipated recovery (which may be maturity); and general outlook for the economy, specific industry, and entity in question.
The bond portion of the portfolio review is conducted with emphases on several factors. Continued payment of principal and interest is given primary importance with credit rating and financial condition of the issuer following as the next most important. Credit ratings were reviewed with the ratings of the bonds being satisfactory. Bonds that were not currently rated were discussed with a third party and/or underwent an internal financial review. The Company also monitors whether each of the investments incurred a decline in fair value from carrying value of at least 20% for twelve consecutive months or a similar decline of at least 50% for three consecutive months. Each bond is reviewed to determine whether it is a general obligation bond, which is backed by the credit and taxing power of the issuing jurisdiction, or a revenue bond, which is only payable from specified revenues. Based on the review undertaken by the Company, the Company determined that the decline in value of the various bond holdings were temporary and were the result of the general market downturns and interest rate/yield curve changes, not credit issues. The fact that almost all of such bonds are general obligation bonds further solidified the Company’s determination that the decline in the value of these bond holdings is temporary.
The fair value of the equity portfolio continues to fluctuate as the economic and political environment continues to impact stock pricing. The amortized cost of the available for sale equity securities portfolio has increased $1,604,000 to $12,837,000remained flat at $1,628,000 for September 30, 2017 from $11,233,000 at2019 and December 31, 20162018 while the fair value increased $1,465,000$44,000 over the same time period.
The equity portion
The distribution of credit ratings by amortized cost and fair values for the debt security portfolio at September 30, 20172019 follows:
| | | | A- to AAA | | B- to BBB+ | | Not Rated | | Total | | A- to AAA | | B- to BBB+ | | Not Rated | | Total |
(In Thousands) | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
Available for sale (AFS): | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Mortgage-backed securities | | $ | 4,544 |
| | $ | 4,530 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 4,544 |
| | $ | 4,530 |
| | $ | 5,160 |
| | $ | 5,170 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 5,160 |
| | $ | 5,170 |
|
State and political securities | | 61,293 |
| | 61,751 |
| | — |
| | — |
| | 575 |
| | 576 |
| | 61,868 |
| | 62,327 |
| | 76,948 |
| | 81,079 |
| | 1,667 |
| | 1,687 |
| | 70 |
| | 70 |
| | 78,685 |
| | 82,836 |
|
Other debt securities | | 38,422 |
| | 37,917 |
| | 13,478 |
| | 13,059 |
| | 1,054 |
| | 997 |
| | 52,954 |
| | 51,973 |
| | 30,714 |
| | 30,439 |
| | 22,139 |
| | 22,376 |
| | 8,243 |
| | 8,254 |
| | 61,096 |
| | 61,069 |
|
Total debt securities AFS | | $ | 104,259 |
| | $ | 104,198 |
| | $ | 13,478 |
| | $ | 13,059 |
| | $ | 1,629 |
| | $ | 1,573 |
| | $ | 119,366 |
| | $ | 118,830 |
| | $ | 112,822 |
| | $ | 116,688 |
| | $ | 23,806 |
| | $ | 24,063 |
| | $ | 8,313 |
| | $ | 8,324 |
| | $ | 144,941 |
| | $ | 149,075 |
|
Financing Activities
Deposits
Total deposits increased $58,782,000$112,504,000 from December 31, 20162018 to September 30, 2017. The growth was led by an increase in money market and NOW deposit accounts from December 31, 2016 to September 30, 2017 of $29,407,000 and $29,091,000, respectively.2019. The increase in core deposits (deposits less time deposits) has provided relationship driven funding for the loan and investment portfolios. While deposit gathering efforts have centered on core deposits, the lengtheninggrowth of the time deposit portfolio is moving forward as partthe result of the strategy to build balance sheet protectiontargeted marketing efforts in a rising rate environment.select markets. The increase in deposits is the result of our focus on building relationships, not by offering market leading rates.
Deposit balances and their changes for the periods being discussed follow:
| | | | September 30, 2017 | | December 31, 2016 | | Change | | September 30, 2019 | | December 31, 2018 | | Change |
(In Thousands) | | Amount | | % Total | | Amount | | % Total | | Amount | | % | | Amount | | % Total | | Amount | | % Total | | Amount | | % |
Demand deposits | | $ | 310,830 |
| | 26.94 | % | | $ | 303,277 |
| | 27.69 | % | | $ | 7,553 |
| | 2.49 | % | | $ | 327,329 |
| | 24.57 | % | | $ | 320,814 |
| | 26.30 | % | | $ | 6,515 |
| | 2.03 | % |
NOW accounts | | 203,744 |
| | 17.66 |
| | 174,653 |
| | 15.95 |
| | 29,091 |
| | 16.66 |
| | 219,466 |
| | 16.47 |
| | 207,819 |
| | 17.04 |
| | 11,647 |
| | 5.60 |
|
Money market deposits | | 274,528 |
| | 23.79 |
| | 245,121 |
| | 22.38 |
| | 29,407 |
| | 12.00 |
| | 239,926 |
| | 18.01 |
| | 238,596 |
| | 19.56 |
| | 1,330 |
| | 0.56 |
|
Savings deposits | | 156,437 |
| | 13.56 |
| | 153,788 |
| | 14.04 |
| | 2,649 |
| | 1.72 |
| | 171,370 |
| | 12.86 |
| | 166,063 |
| | 13.61 |
| | 5,307 |
| | 3.20 |
|
Time deposits | | 208,457 |
| | 18.05 |
| | 218,375 |
| | 19.94 |
| | (9,918 | ) | | (4.54 | ) | | 374,316 |
| | 28.09 |
| | 286,611 |
| | 23.49 |
| | 87,705 |
| | 30.60 |
|
Total deposits | | $ | 1,153,996 |
| | 100.00 | % | | $ | 1,095,214 |
| | 100.00 | % | | $ | 58,782 |
| | 5.37 | % | | $ | 1,332,407 |
| | 100.00 | % | | $ | 1,219,903 |
| | 100.00 | % | | $ | 112,504 |
| | 9.22 | % |
Borrowed Funds
Total borrowed funds decreased 23.53%45.15%, or $23,355,000,$138,530,000, to $122,594,000$168,277,000 at September 30, 20172019 compared to $99,239,000$306,807,000 at December 31, 2016.2018. The reductiondecrease in long-term borrowings wastotal borrowing occurred due to the result of a maturity. The increase in short-term borrowed funds supplemented depositstrong growth in thedeposits as a funding ofsource as the loan portfolio growth with overnightremained flat. The long-term borrowings fromoriginating during the FHLB being the primary sourcenine months ended September 30, 2019 have a blended interest rate of short-term borrowings. The decline in securities sold under agreement to repurchase is due to the phasing out of a product the bank offers.2.32% and mature by 2024.
| | | | September 30, 2017 | | December 31, 2016 | | Change | | September 30, 2019 | | December 31, 2018 | | Change |
(In Thousands) | | Amount | | % Total | | Amount | | % Total | | Amount | | % | | Amount | | % Total | | Amount | | % Total | | Amount | | % |
Short-term borrowings: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
FHLB repurchase agreements | | $ | 32,434 |
| | 26.46 | % | | $ | — |
| | — | % | | $ | 32,434 |
| | — | % | | $ | — |
| | — | % | | $ | 162,203 |
| | 52.87 | % | | $ | (162,203 | ) | | (100.00 | )% |
Securities sold under agreement to repurchase | | 9,162 |
| | 7.47 |
| | 13,241 |
| | 13.34 |
| | (4,079 | ) | | (30.81 | ) | | 5,987 |
| | 3.56 |
| | 5,662 |
| | 1.85 |
| | 325 |
| | 5.74 |
|
Total short-term borrowings | | 41,596 |
| | 33.93 |
| | 13,241 |
| | 13.34 |
| | 28,355 |
| | 214.15 |
| | 5,987 |
| | 3.56 |
| | 167,865 |
| | 54.72 |
| | (161,878 | ) | | (96.43 | ) |
Long-term borrowings: | | | | | | | | | | | | | | | | | | | | | | | | |
Long-term FHLB borrowings | | 80,625 |
| | 65.77 |
| | 85,625 |
| | 86.28 |
| | (5,000 | ) | | (5.84 | ) | | 156,334 |
| | 92.90 |
| | 138,625 |
| | 45.18 |
| | 17,709 |
| | 12.77 |
|
Long-term finance lease | | | 5,956 |
| | 3.54 |
| | — |
| | — |
| | 5,956 |
| | n/a |
|
Long-term capital lease | | 373 |
| | 0.30 |
| | 373 |
| | 0.38 |
| | — |
| | — |
| | — |
| | — |
| | 317 |
| | 0.10 |
| | (317 | ) | | (100.00 | ) |
Total long-term borrowings | | 80,998 |
| | 66.07 |
| | 85,998 |
| | 86.66 |
| | (5,000 | ) | | (5.81 | ) | | 162,290 |
| | 96.44 |
| | 138,942 |
| | 45.28 |
| | 23,348 |
| | 16.80 |
|
Total borrowed funds | | $ | 122,594 |
| | 100.00 | % | | $ | 99,239 |
| | 100.00 | % | | $ | 23,355 |
| | 23.53 | % | | $ | 168,277 |
| | 100.00 | % | | $ | 306,807 |
| | 100.00 | % | | $ | (138,530 | ) | | (45.15 | )% |
Short-Term Borrowings
The following table provides further information in regards to secured borrowings that have been accounted for as repurchase agreements.
| | | | Remaining Contractual Maturity Overnight and Continuous | | Remaining Contractual Maturity Overnight and Continuous |
(In Thousands) | | September 30, 2017 | | December 31, 2016 | | September 30, 2019 | | December 31, 2018 |
Mortgage-backed and state and political securities pledged, fair value | | $ | 13,884 |
| | $ | 15,574 |
| |
Investment debt securities pledged, fair value | | | $ | 7,408 |
| | $ | 8,380 |
|
Repurchase agreements | | 9,162 |
| | 13,241 |
| | 5,987 |
| | 5,662 |
|
Capital
The adequacy of the Company��sCompany’s capital is reviewed on an ongoing basis with reference to the size, composition, and quality of the Company’s resources and regulatory guidelines. Management seeks to maintain a level of capital sufficient to support existing assets and anticipated asset growth, maintain favorable access to capital markets, and preserve high quality credit ratings.
Bank holding companies are required to comply with the Federal Reserve Board’s risk-based capital guidelines. The risk-based capital rules are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies and to minimize disincentives for holding liquid assets. Specifically, each is required to maintain certain minimum dollar amounts and ratios of common equity tier I risk-based, tier I risk-based, total risk-based, and tier I leverage capital. In addition to the capital requirements, the Federal Deposit Insurance Corporation Improvements Act (FDICIA)("FDICIA") established five capital categories for banks ranging from “well capitalized” to “critically undercapitalized.”undercapitalized” for purposes of the FDIC's prompt corrective action rules. To be classified as “well capitalized”, under the prompt corrective action rules, common equity tier I risk-based, tier I risked-based, total risk-based, and tier I leverage capital ratios must be at least 6.5%, 8%, 10%, and 5%, respectively.
The Company'sUnder existing capital ratios as of September 30, 2017 and December 31, 2016 were as follows:
|
| | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
(In Thousands) | | Amount | | Ratio | | Amount | | Ratio |
Common Equity Tier I Capital (to Risk-weighted Assets) | | |
| | |
| | |
| | |
|
Actual | | $ | 126,491 |
| | 11.781 | % | | $ | 125,804 |
| | 12.620 | % |
For Capital Adequacy Purposes | | 48,316 |
| | 4.500 |
| | 44,849 |
| | 4.500 |
|
Minimum To Maintain Capital Conservation Buffer At Reporting Date | | 61,737 |
| | 5.750 |
| | 51,078 |
| | 5.125 |
|
To Be Well Capitalized | | 69,790 |
| | 6.500 |
| | 64,782 |
| | 6.500 |
|
Total Capital (to Risk-weighted Assets) | | |
| | |
| | |
| | |
|
Actual | | $ | 128,801 |
| | 11.996 | % | | $ | 133,393 |
| | 13.380 | % |
For Capital Adequacy Purposes | | 85,896 |
| | 8.000 |
| | 79,732 |
| | 8.000 |
|
Minimum To Maintain Capital Conservation Buffer At Reporting Date | | 99,317 |
| | 9.250 |
| | 85,961 |
| | 8.625 |
|
To Be Well Capitalized | | 107,370 |
| | 10.000 |
| | 99,665 |
| | 10.000 |
|
Tier I Capital (to Risk-weighted Assets) | | |
| | |
| | |
| | |
|
Actual | | $ | 126,491 |
| | 11.781 | % | | $ | 125,804 |
| | 12.620 | % |
For Capital Adequacy Purposes | | 64,421 |
| | 6.000 |
| | 59,799 |
| | 6.000 |
|
Minimum To Maintain Capital Conservation Buffer At Reporting Date | | 77,842 |
| | 7.250 |
| | 66,028 |
| | 6.625 |
|
To Be Well Capitalized | | 85,895 |
| | 8.000 |
| | 79,732 |
| | 8.000 |
|
Tier I Capital (to Average Assets) | | |
| | |
| | |
| | |
|
Actual | | $ | 126,491 |
| | 9.074 | % | | $ | 125,804 |
| | 9.432 | % |
For Capital Adequacy Purposes | | 55,760 |
| | 4.000 |
| | 53,352 |
| | 4.000 |
|
To Be Well Capitalized | | 69,700 |
| | 5.000 |
| | 66,691 |
| | 5.000 |
|
Jersey Shore State Bank's capital ratios as of September 30, 2017 and December 31, 2016 were as follows:
|
| | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
(In Thousands) | | Amount | | Ratio | | Amount | | Ratio |
Common Equity Tier I Capital (to Risk-weighted Assets) | | |
| | |
| | |
| | |
|
Actual | | $ | 88,724 |
| | 10.603 | % | | $ | 86,397 |
| | 11.136 | % |
For Capital Adequacy Purposes | | 37,655 |
| | 4.500 |
| | 34,914 |
| | 4.500 |
|
Minimum To Maintain Capital Conservation Buffer At Reporting Date | | 48,115 |
| | 5.750 |
| | 39,763 |
| | 5.125 |
|
To Be Well Capitalized | | 54,391 |
| | 6.500 |
| | 50,431 |
| | 6.500 |
|
Total Capital (to Risk-weighted Assets) | | |
| | |
| | |
| | |
|
Actual | | $ | 89,351 |
| | 10.678 | % | | $ | 90,992 |
| | 11.728 | % |
For Capital Adequacy Purposes | | 66,942 |
| | 8.000 |
| | 62,069 |
| | 8.000 |
|
Minimum To Maintain Capital Conservation Buffer At Reporting Date | | 77,402 |
| | 9.250 |
| | 66,918 |
| | 8.625 |
|
To Be Well Capitalized | | 83,678 |
| | 10.000 |
| | 77,587 |
| | 10.000 |
|
Tier I Capital (to Risk-weighted Assets) | | - |
| | |
| | |
| | |
|
Actual | | $ | 88,724 |
| | 10.603 | % | | $ | 86,397 |
| | 11.136 | % |
For Capital Adequacy Purposes | | 50,207 |
| | 6.000 |
| | 46,552 |
| | 6.000 |
|
Minimum To Maintain Capital Conservation Buffer At Reporting Date | | 60,667 |
| | 7.250 |
| | 51,401 |
| | 6.625 |
|
To Be Well Capitalized | | 66,943 |
| | 8.000 |
| | 62,069 |
| | 8.000 |
|
Tier I Capital (to Average Assets) | | |
| | |
| | |
| | |
|
Actual | | $ | 88,724 |
| | 8.556 | % | | $ | 86,397 |
| | 8.894 | % |
For Capital Adequacy Purposes | | 41,479 |
| | 4.000 |
| | 38,856 |
| | 4.000 |
|
To Be Well Capitalized | | 51,849 |
| | 5.000 |
| | 48,570 |
| | 5.000 |
|
Luzerne Bank's capital ratios as of September 30, 2017 and December 31, 2016 were as follows:
|
| | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
(In Thousands) | | Amount | | Ratio | | Amount | | Ratio |
Common Equity Tier I Capital (to Risk-weighted Assets) | | |
| | |
| | |
| | |
|
Actual | | $ | 31,619 |
| | 9.916 | % | | $ | 31,102 |
| | 10.165 | % |
For Capital Adequacy Purposes | | 14,349 |
| | 4.500 |
| | 13,769 |
| | 4.500 |
|
Minimum To Maintain Capital Conservation Buffer At Reporting Date | | 18,335 |
| | 5.750 |
| | 15,682 |
| | 5.125 |
|
To Be Well Capitalized | | 20,726 |
| | 6.500 |
| | 19,889 |
| | 6.500 |
|
Total Capital (to Risk-weighted Assets) | | |
| | |
| | |
| | |
|
Actual | | $ | 33,011 |
| | 10.353 | % | | $ | 33,589 |
| | 10.977 | % |
For Capital Adequacy Purposes | | 25,508 |
| | 8.000 |
| | 24,479 |
| | 8.000 |
|
Minimum To Maintain Capital Conservation Buffer At Reporting Date | | 29,494 |
| | 9.250 |
| | 26,391 |
| | 8.625 |
|
To Be Well Capitalized | | 31,885 |
| | 10.000 |
| | 30,599 |
| | 10.000 |
|
Tier I Capital (to Risk-weighted Assets) | | |
| | |
| | |
| | |
|
Actual | | $ | 31,619 |
| | 9.916 | % | | $ | 31,102 |
| | 10.165 | % |
For Capital Adequacy Purposes | | 19,132 |
| | 6.000 |
| | 18,359 |
| | 6.000 |
|
Minimum To Maintain Capital Conservation Buffer At Reporting Date | | 23,118 |
| | 7.250 |
| | 20,272 |
| | 6.625 |
|
To Be Well Capitalized | | 25,509 |
| | 8.000 |
| | 24,479 |
| | 8.000 |
|
Tier I Capital (to Average Assets) | | |
| | |
| | |
| | |
|
Actual | | $ | 31,619 |
| | 8.703 | % | | $ | 31,102 |
| | 8.535 | % |
For Capital Adequacy Purposes | | 14,532 |
| | 4.000 |
| | 14,576 |
| | 4.000 |
|
To Be Well Capitalized | | 18,166 |
| | 5.000 |
| | 18,220 |
| | 5.000 |
|
In July 2013,rules, the federal bank regulatory agencies adopted revisions to the agencies’ capital adequacy guidelines and prompt corrective action rules, which were designed to enhance such requirements and implement the revised standards of the Basel Committee on Banking Supervision, commonly referred to as Basel III. The July 2013 final rules generally implement higher minimum capital requirements, add a new common equity tier 1 capital requirement, and establish criteria that instruments must meet to be considered common equity tier 1 capital, additional tier 1 capital or tier 2 capital. The new minimum capital to risk-adjusted assets requirements for banking organizations, are a common equity tier 1 capital ratio of 4.5% (6.5% to be considered “well capitalized”) and, a tier 1 capital ratio of 6.0%, increased from 4.0% (and increased from 6.0% to 8.0% (8.0% to be considered “well capitalized”); the, and total capital ratio remains atof 8.0% under the new rules (10.0% to be considered “well capitalized”). Under the newexisting 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 1 capital above its minimum risk-based capital requirements in an amount greater than 2.5% of total risk-weighted assets. The new minimum capital requirements were effective beginning on January 1, 2015. The capital contribution buffer requirements phasephased in over a three-year period beginning January 1, 2016.
The CompanyCompany's capital ratios as of September 30, 2019 and the Banks will continue to analyze these new rulesDecember 31, 2018 were as follows:
|
| | | | | | | | | | | | | | |
| | September 30, 2019 | | December 31, 2018 |
(In Thousands) | | Amount | | Ratio | | Amount | | Ratio |
Common Equity Tier I Capital (to Risk-weighted Assets) | | |
| | |
| | |
| | |
|
Actual | | $ | 139,484 |
| | 10.660 | % | | $ | 132,543 |
| | 10.178 | % |
For Capital Adequacy Purposes | | 58,882 |
| | 4.500 |
| | 58,601 |
| | 4.500 |
|
Minimum To Maintain Capital Conservation Buffer At Reporting Date | | 91,594 |
| | 7.000 |
| | 83,018 |
| | 6.375 |
|
To Be Well Capitalized | | 85,051 |
| | 6.500 |
| | 84,646 |
| | 6.500 |
|
Total Capital (to Risk-weighted Assets) | | |
| | |
| | |
| | |
|
Actual | | $ | 151,103 |
| | 11.548 | % | | $ | 142,876 |
| | 10.972 | % |
For Capital Adequacy Purposes | | 104,678 |
| | 8.000 |
| | 104,175 |
| | 8.000 |
|
Minimum To Maintain Capital Conservation Buffer At Reporting Date | | 137,390 |
| | 10.500 |
| | 128,591 |
| | 9.875 |
|
To Be Well Capitalized | | 130,848 |
| | 10.000 |
| | 130,219 |
| | 10.000 |
|
Tier I Capital (to Risk-weighted Assets) | | |
| | |
| | |
| | |
|
Actual | | $ | 139,484 |
| | 10.660 | % | | $ | 132,543 |
| | 10.178 | % |
For Capital Adequacy Purposes | | 78,509 |
| | 6.000 |
| | 78,135 |
| | 6.000 |
|
Minimum To Maintain Capital Conservation Buffer At Reporting Date | | 111,221 |
| | 8.500 |
| | 102,552 |
| | 7.875 |
|
To Be Well Capitalized | | 104,678 |
| | 8.000 |
| | 104,180 |
| | 8.000 |
|
Tier I Capital (to Average Assets) | | |
| | |
| | |
| | |
|
Actual | | $ | 139,484 |
| | 8.457 | % | | $ | 132,543 |
| | 8.176 | % |
For Capital Adequacy Purposes | | 65,973 |
| | 4.000 |
| | 64,845 |
| | 4.000 |
|
To Be Well Capitalized | | 82,467 |
| | 5.000 |
| | 81,056 |
| | 5.000 |
|
Jersey Shore State Bank's capital ratios as of September 30, 2019 and their effects on the business, operationsDecember 31, 2018 were as follows:
|
| | | | | | | | | | | | | | |
| | September 30, 2019 | | December 31, 2018 |
(In Thousands) | | Amount | | Ratio | | Amount | | Ratio |
Common Equity Tier I Capital (to Risk-weighted Assets) | | |
| | |
| | |
| | |
|
Actual | | $ | 98,790 |
| | 10.365 | % | | $ | 94,105 |
| | 9.879 | % |
For Capital Adequacy Purposes | | 42,890 |
| | 4.500 |
| | 42,866 |
| | 4.500 |
|
Minimum To Maintain Capital Conservation Buffer At Reporting Date | | 66,718 |
| | 7.000 |
| | 60,727 |
| | 6.375 |
|
To Be Well Capitalized | | 61,952 |
| | 6.500 |
| | 61,917 |
| | 6.500 |
|
Total Capital (to Risk-weighted Assets) | | |
| | |
| | |
| | |
|
Actual | | $ | 107,921 |
| | 11.323 | % | | $ | 102,534 |
| | 10.764 | % |
For Capital Adequacy Purposes | | 76,249 |
| | 8.000 |
| | 76,205 |
| | 8.000 |
|
Minimum To Maintain Capital Conservation Buffer At Reporting Date | | 100,077 |
| | 10.500 |
| | 94,066 |
| | 9.875 |
|
To Be Well Capitalized | | 95,311 |
| | 10.000 |
| | 95,256 |
| | 10.000 |
|
Tier I Capital (to Risk-weighted Assets) | | - |
| | |
| | |
| | |
|
Actual | | $ | 98,790 |
| | 10.364 | % | | $ | 94,105 |
| | 9.879 | % |
For Capital Adequacy Purposes | | 57,192 |
| | 6.000 |
| | 57,155 |
| | 6.000 |
|
Minimum To Maintain Capital Conservation Buffer At Reporting Date | | 81,022 |
| | 8.500 |
| | 75,015 |
| | 7.875 |
|
To Be Well Capitalized | | 76,256 |
| | 8.000 |
| | 76,206 |
| | 8.000 |
|
Tier I Capital (to Average Assets) | | |
| | |
| | |
| | |
|
Actual | | $ | 98,790 |
| | 8.062 | % | | $ | 94,105 |
| | 7.724 | % |
For Capital Adequacy Purposes | | 49,015 |
| | 4.000 |
| | 48,734 |
| | 4.000 |
|
To Be Well Capitalized | | 61,269 |
| | 5.000 |
| | 60,917 |
| | 5.000 |
|
Luzerne Bank's capital ratios as of September 30, 2019 and capital levels of the Company and the Banks.December 31, 2018 were as follows:
|
| | | | | | | | | | | | | | |
| | September 30, 2019 | | December 31, 2018 |
(In Thousands) | | Amount | | Ratio | | Amount | | Ratio |
Common Equity Tier I Capital (to Risk-weighted Assets) | | |
| | |
| | |
| | |
|
Actual | | $ | 37,930 |
| | 10.472 | % | | $ | 35,378 |
| | 10.061 | % |
For Capital Adequacy Purposes | | 16,299 |
| | 4.500 |
| | 15,824 |
| | 4.500 |
|
Minimum To Maintain Capital Conservation Buffer At Reporting Date | | 25,354 |
| | 7.000 |
| | 22,417 |
| | 6.375 |
|
To Be Well Capitalized | | 23,543 |
| | 6.500 |
| | 22,856 |
| | 6.500 |
|
Total Capital (to Risk-weighted Assets) | | |
| | |
| | |
| | |
|
Actual | | $ | 40,419 |
| | 11.159 | % | | $ | 37,283 |
| | 10.603 | % |
For Capital Adequacy Purposes | | 28,977 |
| | 8.000 |
| | 28,130 |
| | 8.000 |
|
Minimum To Maintain Capital Conservation Buffer At Reporting Date | | 38,032 |
| | 10.500 |
| | 34,723 |
| | 9.875 |
|
To Be Well Capitalized | | 36,221 |
| | 10.000 |
| | 35,163 |
| | 10.000 |
|
Tier I Capital (to Risk-weighted Assets) | | |
| | |
| | |
| | |
|
Actual | | $ | 37,930 |
| | 10.472 | % | | $ | 35,378 |
| | 10.061 | % |
For Capital Adequacy Purposes | | 21,732 |
| | 6.000 |
| | 21,098 |
| | 6.000 |
|
Minimum To Maintain Capital Conservation Buffer At Reporting Date | | 30,787 |
| | 8.500 |
| | 27,691 |
| | 7.875 |
|
To Be Well Capitalized | | 28,976 |
| | 8.000 |
| | 28,131 |
| | 8.000 |
|
Tier I Capital (to Average Assets) | | |
| | |
| | |
| | |
|
Actual | | $ | 37,930 |
| | 8.545 | % | | $ | 35,378 |
| | 8.655 | % |
For Capital Adequacy Purposes | | 17,755 |
| | 4.000 |
| | 16,350 |
| | 4.000 |
|
To Be Well Capitalized | | 22,194 |
| | 5.000 |
| | 20,438 |
| | 5.000 |
|
Liquidity; Interest Rate Sensitivity and Market Risk
The asset/liability committee addresses the liquidity needs of the Company to ensure that sufficient funds are available to meet credit demands and deposit withdrawals as well as to the placement of available funds in the investment portfolio. In assessing liquidity requirements, equal consideration is given to the current position as well as the future outlook.
The following liquidity measures are monitored for compliance and were within the limits cited, except for net loans to total deposits, at September 30, 2017:2019:
1. Net Loans to Total Assets, 85% maximum
2.Net Loans to Total Deposits, 100% maximum
3.Cumulative 90 day Maturity GAP %, +/- 20% maximum
4.Cumulative 1 Year Maturity GAP %, +/- 25% maximum
Fundamental objectives of the Company’s asset/liability management process are to maintain adequate liquidity while minimizing interest rate risk. The maintenance of adequate liquidity provides the Company with the ability to meet its financial obligations to depositors, loan customers, and shareholders. Additionally, it provides funds for normal operating expenditures and business opportunities as they arise. The objective of interest rate sensitivity management is to increase net interest income by managing interest sensitive assets and liabilities in such a way that they can be repriced in response to changes in market interest rates.
The Banks, like other financial institutions, must have sufficient funds available to meet liquidity needs for deposit withdrawals, loan commitments and originations, and expenses. In order to control cash flow, the Banks estimate future cash flows from deposits, loan payments, and investment security payments. The primary sources of funds are deposits, principal and interest payments on loans and investment securities, FHLB borrowings, and brokered deposits. Management believes the Banks have adequate resources to meet their normal funding requirements.
Management monitors the Company’s liquidity on both a long and short-term basis, thereby providing management necessary information to react to current balance sheet trends. Cash flow needs are assessed and sources of funds are determined. Funding strategies consider both customer needs and economical cost. Both short and long-term funding needs are addressed by maturities and sales of available for sale and trading investment securities, loan repayments and maturities, and liquidating money market investments such as federal funds sold. The use of these resources, in conjunction with access to credit, provides core funding to satisfy depositor, borrower, and creditor needs.
Management monitors and determines the desirable level of liquidity. Consideration is given to loan demand, investment opportunities, deposit pricing and growth potential, as well as the current cost of borrowing funds. The Company has a total current maximum borrowing capacity at the FHLB of $438,674,000.$596,002,000. In addition to this credit arrangement, the Company has additional lines of credit with correspondent banks of $52,000,000.$57,000,000. Management believes it has sufficient liquidity to satisfy estimated short-term and long-term funding needs. FHLB borrowings totaled $113,059,000$156,334,000 as of September 30, 2017.2019.
Interest rate sensitivity, which is closely related to liquidity management, is a function of the repricing characteristics of the Company’s portfolio of assets and liabilities. Asset/liability management strives to match maturities and rates between loan and investment security assets with the deposit liabilities and borrowings that fund them. Successful asset/liability management results in a balance sheet structure which can cope effectively with market rate fluctuations. The matching process by segments both assets and liabilities into future time periods (usually 12 months, or less) based upon when repricing can be effected. Repriceable assets are subtracted from repriceable liabilities for a specific time period to determine the “gap”, or difference. Once known, the gap is managed based on predictions about future market interest rates. Intentional mismatching, or gapping, can enhance net interest income if market rates move as predicted. However, if market rates behave in a manner contrary to predictions, net interest income will suffer. Gaps, therefore, contain an element of risk and must be prudently managed. In addition to gap management, the Company has an asset/liability management policy which incorporates a market value at risk calculation which is used to determine the effects of interest rate movements on shareholders’ equity and a simulation analysis to monitor the effects of interest rate changes on the Company’s consolidated balance sheet.
The Company currently maintains a GAPgap position of being asset sensitive. The Company has strategically taken this position as it has decreased the duration of the earning asset portfolio by adding quality short and intermediate term loans such as home equity loans and the selling of long-term municipal bonds. Lengthening of the liability portfolio is being undertaken to build protection in a rising rate environment.
A market value at risk calculation is utilized to monitor the effects of interest rate changes on the Company’s balance sheet and more specifically shareholders’ equity. The Company does not manage the balance sheet structure in order to maintain compliance with this calculation. The calculation serves as a guideline with greater emphasesemphasis placed on interest rate sensitivity. Changes to calculation results from period to period are reviewed as changes in results could be a signal of future events. As of the most recent analysis, the results of the market value at risk calculation were within established guidelines due to the strategic direction being taken.
Interest Rate Sensitivity
In this analysis the Company examines the result of a 100, 200, 300, and 400 basis point change in market interest rates and the effect on net interest income. It is assumed that the change is instantaneous and that all rates move in a parallel manner. Assumptions are also made concerning prepayment speeds on mortgage loans and mortgage securities.
The following is a rate shock forecast for the twelve month period ending September 30, 20182020 assuming a static balance sheet as of September 30, 2017.
2019.
| | | | Parallel Rate Shock in Basis Points | | Parallel Rate Shock in Basis Points |
(In Thousands) | | -200 | | -100 | | Static | | +100 | | +200 | | +300 | | +400 | | -200 | | -100 | | Static | | +100 | | +200 | | +300 | | +400 |
Net interest income | | $ | 41,960 |
| | $ | 44,460 |
| | $ | 46,574 |
| | $ | 48,284 |
| | $ | 49,787 |
| | $ | 51,179 |
| | $ | 52,592 |
| | $ | 46,276 |
| | $ | 49,824 |
| | $ | 53,043 |
| | $ | 55,678 |
| | $ | 58,184 |
| | $ | 60,545 |
| | $ | 62,896 |
|
Change from static | | (4,614 | ) | | (2,114 | ) | | — |
| | 1,710 |
| | 3,213 |
| | 4,605 |
| | 6,018 |
| | (6,767 | ) | | (3,219 | ) | | — |
| | 2,635 |
| | 5,141 |
| | 7,502 |
| | 9,853 |
|
Percent change from static | | -9.91 | % | | -4.54 | % | | — |
| | 3.67 | % | | 6.90 | % | | 9.89 | % | | 12.92 | % | | -12.76 | % | | -6.07 | % | | — |
| | 4.97 | % | | 9.69 | % | | 14.14 | % | | 18.58 | % |
The model utilized to create the report presented above makes various estimates at each level of interest rate change regarding cash flow from principal repayment on loans and mortgage-backed securities and/or call activity on investment securities. Actual results could differ significantly from these estimates which would result in significant differences in the calculated projected change. In addition, the limits stated above do not necessarily represent the level of change under which management would undertake specific measures to realign its portfolio in order to reduce the projected level of change. Generally, management believes the Company is well positioned to respond expeditiously when the market interest rate outlook changes.
Inflation
The asset and liability structure of a financial institution is primarily monetary in nature. Therefore, interest rates rather than inflation have a more significant impact on the Company’s performance. Interest rates are not always affected in the same direction or magnitude as prices of other goods and services, but are reflective of fiscal policy initiatives or economic factors which are not measured by a price index.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk for the Company is comprised primarily of interest rate risk exposure and liquidity risk. Interest rate risk and liquidity risk management is performed at both the level of the Company and the Banks. The Company’s interest rate sensitivity is monitored by management through selected interest rate risk measures produced by an independent third party. There have been no substantial changes in the Company’s gap analysis or simulation analysis compared to the information provided in the Annual Report on Form 10-K for the period ended December 31, 2016.2018. Additional information and details are provided in the “Liquidity, Interest Rate Sensitivity, and Market Risk” section of “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Generally, management believes the Company is well positioned to respond in a timely manner when the market interest rate outlook changes.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
An analysis was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2017.2019.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended September 30, 2017,2019 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Part II. OTHER INFORMATION
Item 1.Legal Proceedings
None.
Item 1A. Risk Factors
There are no material changes to the risk factors set forth in Part I, Item 1A, “Risk Factors,” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2018. Please refer to that section for disclosures regarding the risks and uncertainties related to the Company’s business.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides certain information with respect to the Company's repurchase of common stock during the quarter ended September 30, 2017.2019.
|
| | | | | | | | | | | | |
Period | | Total Number of Shares (or Units) Purchased | | Average Price Paid per Share (or Units) Purchased | | Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs |
Month #1 (July 1 - July 31, 2017)2019) | | — |
| | — |
| | — |
| | 342,446513,669 |
|
Month #2 (August 1 - August 31, 2017)2019) | | — |
| | — |
| | — |
| | 342,446513,669 |
|
Month #3 (September 1 - September 30, 2017)2019) | | — |
| | — |
| | — |
| | 342,446513,669 |
|
On April 24, 2017,29, 2019, the Board of Directors extended the previously approved authorization to repurchase up to 482,000723,000 shares, or approximately 10%, of the outstanding shares of the Company for an additional year to April 30, 2018.2020. As of September 30, 20172019 there have been 91,856209,331 shares repurchased under this plan.
Item 3.Defaults Upon Senior Securities
None.
Item 4.Mine Safety Disclosures
Not applicable.
Item 5.Other Information
None.
Item 6.Exhibits
|
| | |
| | Articles of Incorporation of the Registrant, as presently in effect (incorporated by reference to Exhibit 3(i) of the Registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2012).effect. |
| | Bylaws of the Registrant (incorporated by reference to Exhibit 3(ii) of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011). |
| | Employment Agreement, dated October 30, 2017, by and between Penns Woods Bancorp, Inc. and Brian L. Knepp (incorporated by reference to Exhibit 10 (i) of the Registrant's Current Report on Form 8-K filed on November 2, 2017). |
| | Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Executive Officer. |
| | Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Financial Officer. |
| | Section 1350 Certification of Chief Executive Officer. |
| | Section 1350 Certification of Chief Financial Officer. |
101 | | Interactive data file containing the following financial statements formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheet at September 30, 20172019 and December 31, 2016;2018; (ii) the Consolidated Statement of Income for the three and nine months ended September 30, 20172019 and 2016;2018; (iii) Consolidated Statement of Comprehensive Income for the three and nine months ended September 30, 20172019 and 2016;2018; (iv) the Consolidated Statement of Shareholders’ Equity for the three and nine months ended September 30, 20172019 and 2016;2018; (v) the Consolidated Statement of Cash Flows for the nine months ended September 30, 20172019 and 2016;2018 and (vi) the Notes to Consolidated Financial Statements. As provided in Rule 406T of Regulation S-T, this interactive data file shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, and shall not be deemed “filed” or part of any registration statement or prospectus for purposes of Section 11 or 12 under the Securities Act of 1933, or otherwise subject to liability under those sections. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
| | |
| | PENNS WOODS BANCORP, INC. |
| | (Registrant) |
| | |
Date: | November 8, 20172019 | /s/ Richard A. Grafmyre |
| | Richard A. Grafmyre, Chief Executive Officer |
| | (Principal Executive Officer) |
| | |
| | |
Date: | November 8, 20172019 | /s/ Brian L. Knepp |
| | Brian L. Knepp, President and Chief Financial Officer |
| | (Principal Financial Officer and Principal Accounting |
| | Officer) |
EXHIBIT INDEX
|
| | |
Exhibit 3(i) | | Articles of Incorporation of the Registrant, as presently in effect. |
Exhibit 3(ii) | | Bylaws of the Registrant (incorporated by reference to Exhibit 3(ii) of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011). |
Exhibit 31(i) | | Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Executive Officer |
Exhibit 31(ii) | | Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Financial Officer |
Exhibit 32(i) | | Section 1350 Certification of Chief Executive Officer |
Exhibit 32(ii) | | Section 1350 Certification of Chief Financial Officer |
Exhibit 101 | | Interactive data file containing the following financial statements formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheet at September 30, 20172019 and December 31, 2016;2018; (ii) the Consolidated Statement of Income for the three and nine months ended September 30, 20172019 and 2016;2018; (iii) Consolidated Statement of Comprehensive Income for the three and nine months ended September 30, 20172019 and 2016;2018; (iv) the Consolidated Statement of Shareholders’ Equity for the three and nine months ended September 30, 20172019 and 2016;2018; (v) the Consolidated Statement of Cash Flows for the nine months ended September 30, 20172019 and 2016;2018 and (vi) the Notes to Consolidated Financial Statements. As provided in Rule 406T of Regulation S-T, this interactive data file shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, and shall not be deemed “filed” or part of any registration statement or prospectus for purposes of Section 11 or 12 under the Securities Act of 1933, or otherwise subject to liability under those sections. |