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 SeptemberJune 30, 2017.
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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.
(Exact name of Registrant as specified in its charter)
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| | | | | | | |
PENNSYLVANIAPennsylvania | | 23-2226454 |
(State or other jurisdiction of | | (I.R.S. Employer |
incorporation or organization) | | Identification No.) |
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| | |
300 Market Street, P.O. Box 967 Williamsport, Pennsylvania | | 17703-096723-2226454 |
(State or other jurisdiction of | Williamsport | (I.R.S. Employer Identification No.) |
incorporation or organization) | Pennsylvania | 17703-0967 |
| (Address of principal executive offices) | | (Zip Code) |
(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, $5.55 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 | ☒ | Small Smaller 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 NovemberAugust 1, 20172023 there were 4,688,7397,066,486 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)
| | | | | | | | | | | | | | |
| | June 30, | | December 31, |
(In Thousands, Except Share And Per Share Data) | | 2023 | | 2022 |
ASSETS: | | | | |
Noninterest-bearing balances | | $ | 32,265 | | | $ | 27,390 | |
Interest-bearing balances in other financial institutions | | 12,596 | | | 12,943 | |
| | | | |
Total cash and cash equivalents | | 44,861 | | | 40,333 | |
| | | | |
Investment debt securities, available for sale, at fair value | | 186,626 | | | 193,673 | |
Investment equity securities, at fair value | | 1,143 | | | 1,142 | |
| | | | |
Restricted investment in bank stock | | 24,438 | | | 19,171 | |
Loans held for sale | | 3,049 | | | 3,298 | |
Loans | | 1,769,403 | | | 1,639,731 | |
Allowance for credit losses | | (11,592) | | | (15,637) | |
Loans, net | | 1,757,811 | | | 1,624,094 | |
Premises and equipment, net | | 31,180 | | | 31,844 | |
Accrued interest receivable | | 9,498 | | | 9,481 | |
Bank-owned life insurance | | 33,524 | | | 34,452 | |
Investment in limited partnerships | | 8,402 | | | 8,656 | |
Goodwill | | 16,450 | | | 16,450 | |
Intangibles | | 260 | | | 327 | |
Operating lease right-of-use asset | | 2,586 | | | 2,651 | |
Deferred tax asset | | 6,332 | | | 6,868 | |
Other assets | | 9,159 | | | 7,640 | |
TOTAL ASSETS | | $ | 2,135,319 | | | $ | 2,000,080 | |
| | | | |
LIABILITIES: | | | | |
Interest-bearing deposits | | $ | 1,077,820 | | | $ | 1,037,397 | |
Noninterest-bearing deposits | | 475,937 | | | 519,063 | |
Total deposits | | 1,553,757 | | | 1,556,460 | |
| | | | |
Short-term borrowings | | 180,410 | | | 153,349 | |
Long-term borrowings | | 202,692 | | | 102,783 | |
Accrued interest payable | | 2,129 | | | 603 | |
Operating lease liability | | 2,642 | | | 2,708 | |
Other liabilities | | 19,287 | | | 16,512 | |
TOTAL LIABILITIES | | 1,960,917 | | | 1,832,415 | |
| | | | |
SHAREHOLDERS’ EQUITY: | | | | |
Preferred stock, no par value, 3,000,000 shares authorized; no shares issued | | — | | | — | |
Common stock, par value $5.55, 22,500,000 shares authorized; 7,573,713 and 7,566,810 shares issued; 7,063,488 and 7,056,585 outstanding | | 42,077 | | | 42,039 | |
Additional paid-in capital | | 54,869 | | | 54,252 | |
Retained earnings | | 104,104 | | | 98,147 | |
Accumulated other comprehensive loss: | | | | |
Net unrealized loss on available for sale securities | | (9,753) | | | (9,819) | |
Defined benefit plan | | (4,080) | | | (4,139) | |
Treasury stock at cost, 510,225 shares | | (12,815) | | | (12,815) | |
| | | | |
| | | | |
TOTAL SHAREHOLDERS' EQUITY | | 174,402 | | | 167,665 | |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | | $ | 2,135,319 | | | $ | 2,000,080 | |
See accompanying notes to the unaudited consolidated financial statements.
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| | | | | | | | |
| | September 30, | | December 31, |
(In Thousands, Except Share Data) | | 2017 | | 2016 |
ASSETS: | | |
| | |
|
Noninterest-bearing balances | | $ | 22,042 |
| | $ | 26,766 |
|
Interest-bearing balances in other financial institutions | | 5,705 |
| | 16,905 |
|
Total cash and cash equivalents | | 27,747 |
| | 43,671 |
|
| | | | |
Investment securities, available for sale, at fair value | | 132,313 |
| | 133,492 |
|
Investment securities, trading | | 210 |
| | 58 |
|
Loans held for sale | | 1,734 |
| | 1,953 |
|
Loans | | 1,189,714 |
| | 1,093,681 |
|
Allowance for loan losses | | (12,933 | ) | | (12,896 | ) |
Loans, net | | 1,176,781 |
| | 1,080,785 |
|
Premises and equipment, net | | 25,895 |
| | 24,275 |
|
Accrued interest receivable | | 4,289 |
| | 3,672 |
|
Bank-owned life insurance | | 27,827 |
| | 27,332 |
|
Goodwill | | 17,104 |
| | 17,104 |
|
Intangibles | | 1,543 |
| | 1,799 |
|
Deferred tax asset | | 7,984 |
| | 8,397 |
|
Other assets | | 6,770 |
| | 6,052 |
|
TOTAL ASSETS | | $ | 1,430,197 |
| | $ | 1,348,590 |
|
| | | | |
LIABILITIES: | | |
| | |
|
Interest-bearing deposits | | $ | 843,166 |
| | $ | 791,937 |
|
Noninterest-bearing deposits | | 310,830 |
| | 303,277 |
|
Total deposits | | 1,153,996 |
| | 1,095,214 |
|
| | | | |
Short-term borrowings | | 41,596 |
| | 13,241 |
|
Long-term borrowings | | 80,998 |
| | 85,998 |
|
Accrued interest payable | | 483 |
| | 455 |
|
Other liabilities | | 13,455 |
| | 15,433 |
|
TOTAL LIABILITIES | | 1,290,528 |
| | 1,210,341 |
|
| | | | |
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 |
|
Additional paid-in capital | | 50,142 |
| | 50,075 |
|
Retained earnings | | 64,033 |
| | 61,610 |
|
Accumulated other comprehensive loss: | | |
| | |
|
Net unrealized gain (loss) on available for sale securities | | 73 |
| | (639 | ) |
Defined benefit plan | | (4,203 | ) | | (4,289 | ) |
Treasury stock at cost, 320,150 and 272,452 shares | | (12,115 | ) | | (10,234 | ) |
TOTAL SHAREHOLDERS’ EQUITY | | 139,669 |
| | 138,249 |
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | | $ | 1,430,197 |
| | $ | 1,348,590 |
|
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
(In Thousands, Except Share And Per Share Data) | | 2023 | | 2022 | | 2023 | | 2022 |
INTEREST AND DIVIDEND INCOME: | | | | | | | | |
Loans, including fees | | $ | 19,846 | | | $ | 13,620 | | | $ | 37,851 | | | $ | 26,658 | |
Investment securities: | | | | | | | | |
Taxable | | 1,287 | | | 864 | | | 2,505 | | | 1,601 | |
Tax-exempt | | 118 | | | 194 | | | 296 | | | 358 | |
Dividend and other interest income | | 642 | | | 506 | | | 1,105 | | | 842 | |
TOTAL INTEREST AND DIVIDEND INCOME | | 21,893 | | | 15,184 | | | 41,757 | | | 29,459 | |
INTEREST EXPENSE: | | | | | | | | |
Deposits | | 4,851 | | | 710 | | | 8,223 | | | 1,498 | |
Short-term borrowings | | 2,232 | | | 2 | | | 3,672 | | | 3 | |
Long-term borrowings | | 1,424 | | | 625 | | | 2,178 | | | 1,258 | |
TOTAL INTEREST EXPENSE | | 8,507 | | | 1,337 | | | 14,073 | | | 2,759 | |
NET INTEREST INCOME | | 13,386 | | | 13,847 | | | 27,684 | | | 26,700 | |
(Recovery) provision losses on loans | | (614) | | | 330 | | | (605) | | | 480 | |
(Recovery) provision for off balance sheet credit exposures | | (566) | | | — | | | (504) | | | — | |
TOTAL (RECOVERY) PROVISION FOR CREDIT LOSSES | | (1,180) | | | 330 | | | (1,109) | | | 480 | |
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES | | 14,566 | | | 13,517 | | | 28,793 | | | 26,220 | |
NON-INTEREST INCOME: | | | | | | | | |
Service charges | | 516 | | | 509 | | | 1,012 | | | 1,004 | |
Net debt securities losses, available for sale | | (19) | | | (10) | | | (80) | | | (12) | |
Net equity securities (losses) gains | | (20) | | | (44) | | | 1 | | | (103) | |
| | | | | | | | |
Bank-owned life insurance | | 166 | | | 161 | | | 722 | | | 331 | |
Gain on sale of loans | | 244 | | | 266 | | | 475 | | | 611 | |
Insurance commissions | | 115 | | | 107 | | | 280 | | | 277 | |
Brokerage commissions | | 141 | | | 158 | | | 306 | | | 358 | |
Loan broker commissions | | 317 | | | 371 | | | 487 | | | 912 | |
Debit card income | | 340 | | | 391 | | | 675 | | | 736 | |
Other | | 222 | | | 228 | | | 401 | | | 435 | |
TOTAL NON-INTEREST INCOME | | 2,022 | | | 2,137 | | | 4,279 | | | 4,549 | |
NON-INTEREST EXPENSE: | | | | | | | | |
Salaries and employee benefits | | 6,312 | | | 6,141 | | | 12,488 | | | 12,405 | |
Occupancy | | 772 | | | 740 | | | 1,638 | | | 1,650 | |
Furniture and equipment | | 790 | | | 746 | | | 1,636 | | | 1,638 | |
Software amortization | | 173 | | | 219 | | | 356 | | | 472 | |
Pennsylvania shares tax | | 279 | | | 396 | | | 527 | | | 785 | |
Professional fees | | 906 | | | 582 | | | 1,594 | | | 1,120 | |
Federal Deposit Insurance Corporation deposit insurance | | 452 | | | 228 | | | 697 | | | 430 | |
| | | | | | | | |
Marketing | | 272 | | | 220 | | | 427 | | | 284 | |
Intangible amortization | | 32 | | | 41 | | | 67 | | | 85 | |
Other | | 1,441 | | | 1,107 | | | 2,897 | | | 2,558 | |
TOTAL NON-INTEREST EXPENSE | | 11,429 | | | 10,420 | | | 22,327 | | | 21,427 | |
INCOME BEFORE INCOME TAX PROVISION | | 5,159 | | | 5,234 | | | 10,745 | | | 9,342 | |
INCOME TAX PROVISION | | 988 | | | 1,003 | | | 1,916 | | | 1,679 | |
| | | | | | | | |
| | | | | | | | |
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS' | | $ | 4,171 | | | $ | 4,231 | | | $ | 8,829 | | | $ | 7,663 | |
EARNINGS PER SHARE - BASIC | | $ | 0.59 | | | $ | 0.60 | | | $ | 1.25 | | | $ | 1.08 | |
EARNINGS PER SHARE - DILUTED | | $ | 0.59 | | | $ | 0.60 | | | $ | 1.25 | | | $ | 1.08 | |
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC | | 7,062,018 | | | 7,059,045 | | | 7,060,218 | | | 7,065,772 | |
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED | | 7,062,018 | | | 7,059,045 | | | 7,060,218 | | | 7,065,772 | |
| | | | | | | | |
See accompanying notes to the unaudited consolidated financial statements.
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
(In Thousands) | | 2023 | | 2022 | | 2023 | | 2022 |
Net Income | | $ | 4,171 | | | $ | 4,231 | | | $ | 8,829 | | | $ | 7,663 | |
Other comprehensive (loss) income: | | | | | | | | |
Net unrealized (loss) gain on available for sale securities | | (2,329) | | | (3,995) | | | 4 | | | (10,892) | |
Tax effect | | 489 | | | 839 | | | (1) | | | 2,287 | |
Net realized loss on available for sale securities included in net income | | 19 | | | 10 | | | 80 | | | 12 | |
Tax effect | | (4) | | | (2) | | | (17) | | | (2) | |
Amortization of unrecognized pension loss | | 37 | | | 18 | | | 74 | | | 35 | |
Tax effect | | (7) | | | (4) | | | (15) | | | (8) | |
Total other comprehensive (loss) income | | (1,795) | | | (3,134) | | | 125 | | | (8,568) | |
Comprehensive income (loss) | | $ | 2,376 | | | $ | 1,097 | | | $ | 8,954 | | | $ | (905) | |
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, |
(In Thousands, Except Per Share Data) | | 2017 | | 2016 | | 2017 | | 2016 |
INTEREST AND DIVIDEND INCOME: | | |
| | |
| | |
| | |
|
Loans, including fees | | $ | 11,906 |
| | $ | 10,541 |
| | $ | 33,642 |
| | $ | 31,362 |
|
Investment securities: | | |
| | |
| | |
| | |
|
Taxable | | 553 |
| | 601 |
| | 1,665 |
| | 1,825 |
|
Tax-exempt | | 319 |
| | 329 |
| | 940 |
| | 1,203 |
|
Dividend and other interest income | | 170 |
| | 189 |
| | 592 |
| | 666 |
|
TOTAL INTEREST AND DIVIDEND INCOME | | 12,948 |
| | 11,660 |
| | 36,839 |
| | 35,056 |
|
INTEREST EXPENSE: | | |
| | |
| | |
| | |
|
Deposits | | 1,058 |
| | 909 |
| | 2,968 |
| | 2,624 |
|
Short-term borrowings | | 31 |
| | 7 |
| | 39 |
| | 41 |
|
Long-term borrowings | | 407 |
| | 497 |
| | 1,220 |
| | 1,481 |
|
TOTAL INTEREST EXPENSE | | 1,496 |
| | 1,413 |
| | 4,227 |
| | 4,146 |
|
NET INTEREST INCOME | | 11,452 |
| | 10,247 |
| | 32,612 |
| | 30,910 |
|
PROVISION FOR LOAN LOSSES | | 60 |
| | 258 |
| | 605 |
| | 866 |
|
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES | | 11,392 |
| | 9,989 |
| | 32,007 |
| | 30,044 |
|
NON-INTEREST INCOME: | | |
| | |
| | |
| | |
|
Service charges | | 550 |
| | 585 |
| | 1,637 |
| | 1,678 |
|
Net securities gains, available for sale | | 302 |
| | 253 |
| | 487 |
| | 1,174 |
|
Net securities (losses) gains, trading | | (4 | ) | | 8 |
| | (2 | ) | | 54 |
|
Bank-owned life insurance | | 166 |
| | 172 |
| | 499 |
| | 516 |
|
Gain on sale of loans | | 455 |
| | 658 |
| | 1,316 |
| | 1,691 |
|
Insurance commissions | | 109 |
| | 198 |
| | 399 |
| | 604 |
|
Brokerage commissions | | 352 |
| | 290 |
| | 1,044 |
| | 817 |
|
Debit card fees | | 514 |
| | 690 |
| | 1,450 |
| | 1,413 |
|
Other | | 296 |
| | 228 |
| | 1,325 |
| | 1,310 |
|
TOTAL NON-INTEREST INCOME | | 2,740 |
| | 3,082 |
| | 8,155 |
| | 9,257 |
|
NON-INTEREST EXPENSE: | | |
| | |
| | |
| | |
|
Salaries and employee benefits | | 4,738 |
| | 4,507 |
| | 14,116 |
| | 13,433 |
|
Occupancy | | 603 |
| | 544 |
| | 1,855 |
| | 1,630 |
|
Furniture and equipment | | 816 |
| | 662 |
| | 2,129 |
| | 2,042 |
|
Software amortization | | 235 |
| | 580 |
| | 750 |
| | 950 |
|
Pennsylvania shares tax | | 228 |
| | 220 |
| | 696 |
| | 698 |
|
Professional fees | | 560 |
| | 502 |
| | 1,816 |
| | 1,512 |
|
Federal Deposit Insurance Corporation deposit insurance | | 194 |
| | 202 |
| | 514 |
| | 670 |
|
Debit card expenses | | 168 |
| | 246 |
| | 478 |
| | 456 |
|
Marketing | | 315 |
| | 173 |
| | 690 |
| | 568 |
|
Intangible amortization | | 81 |
| | 90 |
| | 256 |
| | 276 |
|
Other | | 1,628 |
| | 1,013 |
| | 4,314 |
| | 4,230 |
|
TOTAL NON-INTEREST EXPENSE | | 9,566 |
| | 8,739 |
| | 27,614 |
| | 26,465 |
|
INCOME BEFORE INCOME TAX PROVISION | | 4,566 |
| | 4,332 |
| | 12,548 |
| | 12,836 |
|
INCOME TAX PROVISION | | 1,282 |
| | 1,273 |
| | 3,491 |
| | 3,307 |
|
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 |
|
DIVIDENDS DECLARED PER SHARE | | $ | 0.47 |
| | $ | 0.47 |
| | $ | 1.41 |
| | $ | 1.41 |
|
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, |
(In Thousands) | | 2017 | | 2016 | | 2017 | | 2016 |
Net Income | | $ | 3,284 |
| | $ | 3,059 |
| | $ | 9,057 |
| | $ | 9,529 |
|
Other comprehensive income (loss): | | |
| | |
| | |
| | |
|
Change in unrealized gain (loss) on available for sale securities | | 437 |
| | (276 | ) | | 1,565 |
| | 3,039 |
|
Tax effect | | (150 | ) | | 94 |
| | (532 | ) | | (1,032 | ) |
Net realized gain on available for sale securities included in net income | | (302 | ) | | (253 | ) | | (487 | ) | | (1,174 | ) |
Tax effect | | 104 |
| | 86 |
| | 166 |
| | 398 |
|
Amortization of unrecognized pension loss | | 45 |
| | 39 |
| | 129 |
| | 117 |
|
Tax effect | | (15 | ) | | (13 | ) | | (43 | ) | | (40 | ) |
Total other comprehensive income (loss) | | 119 |
| | (323 | ) | | 798 |
| | 1,308 |
|
Comprehensive income | | $ | 3,403 |
| | $ | 2,736 |
| | $ | 9,855 |
| | $ | 10,837 |
|
See accompanying notes to the unaudited consolidated financial statements.
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
(UNAUDITED)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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, 2015 | | 5,004,984 |
| | $ | 41,708 |
| | $ | 49,992 |
| | $ | 58,038 |
| | $ | (3,799 | ) | | $ | (9,660 | ) | | $ | 136,279 |
|
Net income | | |
| | |
| | |
| | 9,529 |
| | |
| | |
| | 9,529 |
|
Other comprehensive income | | |
| | |
| | |
| | |
| | 1,308 |
| | |
| | 1,308 |
|
Dividends declared, ($1.41 per share) | | |
| | |
| | |
| | (6,678 | ) | | |
| | |
| | (6,678 | ) |
Common shares issued for employee stock purchase plan | | 1,617 |
| | 13 |
| | 58 |
| | |
| | |
| | |
| | 71 |
|
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 |
|
Three months ended: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | COMMON STOCK | | ADDITIONAL PAID-IN CAPITAL | | RETAINED EARNINGS | | ACCUMULATED OTHER COMPREHENSIVE LOSS | | TREASURY STOCK | | | | TOTAL SHAREHOLDERS’ EQUITY |
(In Thousands, Except Share And Per Share Data) | | SHARES | | AMOUNT | | | | | | |
Balance, March 31, 2023 | | 7,570,086 | | | $ | 42,057 | | | $ | 54,572 | | | $ | 102,194 | | | $ | (12,038) | | | $ | (12,815) | | | | | $ | 173,970 | |
| | | | | | | | | | | | | | | | |
Net income | | | | | | | | 4,171 | | | | | | | | | 4,171 | |
Other comprehensive loss | | | | | | | | | | (1,795) | | | | | | | (1,795) | |
Stock-based compensation | | | | | | 233 | | | | | | | | | | | 233 | |
| | | | | | | | | | | | | | | | |
Dividends declared ($0.32 per share) | | | | | | | | (2,261) | | | | | | | | | (2,261) | |
Common shares issued for employee stock purchase plan | | 830 | | | 4 | | | 14 | | | | | | | | | | | 18 | |
Director Compensation Plan | | 2,797 | | | 16 | | | 50 | | | | | | | | | | | 66 | |
| | | | | | | | | | | | | | | | |
Balance, June 30, 2023 | | 7,573,713 | | | $ | 42,077 | | | $ | 54,869 | | | $ | 104,104 | | | $ | (13,833) | | | $ | (12,815) | | | | | $ | 174,402 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | | | | TOTAL SHAREHOLDERS’ EQUITY |
(In Thousands, Except Share And Per Share Data) | | SHARES | | AMOUNT | | | | | | |
Balance, March 31, 2022 | | 7,554,567 | | | $ | 41,969 | | | $ | 54,191 | | | $ | 90,928 | | | $ | (6,546) | | | $ | (12,115) | | | | | $ | 168,427 | |
Net income | | | | | | | | 4,231 | | | | | | | | | 4,231 | |
| | | | | | | | | | | | | | | | |
Other comprehensive loss | | | | | | | | | | (3,134) | | | | | | | (3,134) | |
Stock-based compensation | | | | | | 453 | | | | | | | | | | | 453 | |
Cash settlement of options | | | | | | (1,074) | | | | | | | | | | | (1,074) | |
Dividends declared ($0.32 per share) | | | | | | | | (2,256) | | | | | | | | | (2,256) | |
Common shares issued for employee stock purchase plan | | 1,023 | | | 6 | | | 17 | | | | | | | | | | | 23 | |
Director Compensation Plan | | 3,575 | | | 20 | | | 64 | | | | | | | | | | | 84 | |
| | | | | | | | | | | | | | | | |
Purchase of treasury stock (30,000 shares) | | | | | | | | | | | | (700) | | | | | (700) | |
Balance, June 30, 2022 | | 7,559,165 | | | $ | 41,995 | | | $ | 53,651 | | | $ | 92,903 | | | $ | (9,680) | | | $ | (12,815) | | | | | $ | 166,054 | |
See accompanying notes to the unaudited consolidated financial statements.
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
(UNAUDITED)
Six months ended:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | COMMON STOCK | | ADDITIONAL PAID-IN CAPITAL | | RETAINED EARNINGS | | ACCUMULATED OTHER COMPREHENSIVE LOSS | | TREASURY STOCK | | | | TOTAL SHAREHOLDERS’ EQUITY |
(In Thousands, Except Share And Per Share Data) | | SHARES | | AMOUNT | | | | | | |
Balance, December 31, 2022 | | 7,566,810 | | | $ | 42,039 | | | $ | 54,252 | | | $ | 98,147 | | | $ | (13,958) | | | $ | (12,815) | | | | | $ | 167,665 | |
Cumulative effect of adoption of ASU 2016-13 | | | | | | | | 1,647 | | | | | | | | | 1,647 | |
Net income | | | | | | | | 8,829 | | | | | | | | | 8,829 | |
| | | | | | | | | | | | | | | | |
Other comprehensive income | | | | | | | | | | 125 | | | | | | | 125 | |
Stock-based compensation | | | | | | 486 | | | | | | | | | | | 486 | |
| | | | | | | | | | | | | | | | |
Dividends declared ($0.64 per share) | | | | | | | | (4,519) | | | | | | | | | (4,519) | |
Common shares issued for employee stock purchase plan | | 1,684 | | | 9 | | | 30 | | | | | | | | | | | 39 | |
Director Compensation Plan | | 5,219 | | | 29 | | | 101 | | | | | | | | | | 130 | |
| | | | | | | | | | | | | | | | |
Balance, June 30, 2023 | | 7,573,713 | | | $ | 42,077 | | | $ | 54,869 | | | $ | 104,104 | | | $ | (13,833) | | | $ | (12,815) | | | | | $ | 174,402 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | COMMON STOCK | | ADDITIONAL PAID-IN CAPITAL | | RETAINED EARNINGS | | ACCUMULATED OTHER COMPREHENSIVE LOSS | | TREASURY STOCK | | | | TOTAL SHAREHOLDERS’ EQUITY |
(In Thousands, Except Share And Per Share Data) | | SHARES | | AMOUNT | | | | | | |
Balance, December 31, 2021 | | 7,550,272 | | | $ | 41,945 | | | $ | 53,795 | | | $ | 89,761 | | | $ | (1,112) | | | $ | (12,115) | | | | | $ | 172,274 | |
Net income | | | | | | | | 7,663 | | | | | | | | | 7,663 | |
| | | | | | | | | | | | | | | | |
Other comprehensive loss | | | | | | | | | | (8,568) | | | | | | | (8,568) | |
Stock-based compensation | | | | | | 768 | | | | | | | | | | | 768 | |
Cash settlement of options | | | | | | (1,074) | | | | | | | | | | | (1,074) | |
Dividends declared ($0.64 per share) | | | | | | | | (4,521) | | | | | | | | | (4,521) | |
Common shares issued for employee stock purchase plan | | 1,903 | | | 11 | | | 33 | | | | | | | | | | | 44 | |
Director Compensation Plan | | 6,990 | | | 39 | | | 129 | | | | | | | | | | | 168 | |
Purchase of treasury stock ( shares) | | | | | | | | | | | | (700) | | | | | (700) | |
| | | | | | | | | | | | | | | | |
Balance, June 30, 2022 | | 7,559,165 | | | $ | 41,995 | | | $ | 53,651 | | | $ | 92,903 | | | $ | (9,680) | | | $ | (12,815) | | | | | $ | 166,054 | |
See accompanying notes to the unaudited consolidated financial statements.
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
| | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
(In Thousands) | | 2023 | | 2022 |
OPERATING ACTIVITIES: | | | | |
Net Income | | $ | 8,829 | | | $ | 7,663 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
Depreciation and amortization | | 1,608 | | | 1,833 | |
Write down of leasehold improvements | | — | | | 254 | |
Amortization of intangible assets | | 67 | | | 85 | |
(Recovery) provision for credit losses | | (1,109) | | | 480 | |
Stock based compensation | | 486 | | | 768 | |
Accretion and amortization of investment security discounts and premiums | | 281 | | | 655 | |
Net securities losses, available for sale | | 80 | | | 12 | |
Originations of loans held for sale | | (16,843) | | | (21,248) | |
Proceeds of loans held for sale | | 17,567 | | | 21,727 | |
Gain on sale of loans | | (475) | | | (611) | |
Net equity securities (gains) losses | | (1) | | | 103 | |
| | | | |
| | | | |
Security trades payable | | 520 | | | 896 | |
Earnings on bank-owned life insurance | | (722) | | | (331) | |
Decrease (increase) in deferred tax asset | | 518 | | | (458) | |
| | | | |
Other, net | | 4,199 | | | (1,453) | |
Net cash provided by operating activities | | 15,005 | | | 10,375 | |
INVESTING ACTIVITIES: | | | | |
Proceeds from sales of available for sale securities | | 22,725 | | | — | |
Proceeds from calls and maturities of available for sale securities | | 8,429 | | | 7,500 | |
Purchases of available for sale securities | | (24,384) | | | (43,812) | |
Net increase in loans | | (133,213) | | | (97,345) | |
Acquisition of premises and equipment | | (334) | | | (157) | |
Proceeds from the sale of premises and equipment | | — | | | 137 | |
Proceeds from the sale of foreclosed assets | | — | | | 46 | |
Purchase of bank-owned life insurance | | (6) | | | (18) | |
Proceeds from bank-owned life insurance death benefit | | 1,656 | | | 2 | |
Investment in limited partnership | | — | | | (554) | |
Proceeds from redemption of regulatory stock | | 18,783 | | | 4,385 | |
Purchases of regulatory stock | | (24,050) | | | (3,312) | |
Net cash used for investing activities | | (130,394) | | | (133,128) | |
FINANCING ACTIVITIES: | | | | |
Net increase (decrease) in interest-bearing deposits | | 40,423 | | | (61,664) | |
Net (decrease) increase in noninterest-bearing deposits | | (43,126) | | | 29,928 | |
Proceeds from long-term borrowings | | 110,000 | | | — | |
Repayment of long-term borrowings | | (10,000) | | | (13,000) | |
Net increase (decrease) in short-term borrowings | | 27,061 | | | (283) | |
Finance lease principal payments | | (91) | | | (89) | |
Dividends paid | | (4,519) | | | (4,521) | |
| | | | |
Issuance of common stock | | 169 | | | 212 | |
Purchases of treasury stock | | — | | | (700) | |
Net cash provided by (used for) financing activities | | 119,917 | | | (50,117) | |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | 4,528 | | | (172,870) | |
CASH AND CASH EQUIVALENTS, BEGINNING | | 40,333 | | | 263,862 | |
CASH AND CASH EQUIVALENTS, ENDING | | $ | 44,861 | | | $ | 90,992 | |
|
| | | | | | | | |
| | Nine Months Ended September 30, |
(In Thousands) | | 2017 | | 2016 |
OPERATING ACTIVITIES: | | |
| | |
|
Net Income | | $ | 9,057 |
| | $ | 9,529 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | |
| | |
|
Depreciation and amortization | | 1,979 |
| | 2,394 |
|
Amortization of intangible assets | | 256 |
| | 276 |
|
Provision for loan losses | | 605 |
| | 866 |
|
Accretion and amortization of investment security discounts and premiums | | 688 |
| | 657 |
|
Net securities gains, available for sale | | (487 | ) | | (1,174 | ) |
Originations of loans held for sale | | (41,503 | ) | | (50,824 | ) |
Proceeds of loans held for sale | | 43,038 |
| | 51,112 |
|
Gain on sale of loans | | (1,316 | ) | | (1,691 | ) |
Net securities gains, trading | | 2 |
| | (54 | ) |
Proceeds from the sale of trading securities | | 332 |
| | 3,723 |
|
Purchases of trading securities | | (486 | ) | | (3,596 | ) |
Earnings on bank-owned life insurance | | (499 | ) | | (516 | ) |
Decrease in deferred tax asset | | 46 |
| | 952 |
|
Other, net | | (4,361 | ) | | 508 |
|
Net cash provided by operating activities | | 7,351 |
| | 12,162 |
|
INVESTING ACTIVITIES: | | |
| | |
|
Proceeds from sales of available for sale securities | | 15,443 |
| | 42,180 |
|
Proceeds from calls and maturities of available for sale securities | | 7,198 |
| | 19,267 |
|
Purchases of available for sale securities | | (18,434 | ) | | (24,040 | ) |
Net increase in loans | | (97,109 | ) | | (24,548 | ) |
Acquisition of premises and equipment | | (2,849 | ) | | (2,347 | ) |
Proceeds from the sale of foreclosed assets | | 958 |
| | 486 |
|
Purchase of bank-owned life insurance | | (34 | ) | | (27 | ) |
Proceeds from redemption of regulatory stock | | 4,844 |
| | 2,644 |
|
Purchases of regulatory stock | | (6,994 | ) | | (2,569 | ) |
Net cash (used for) provided by investing activities | | (96,977 | ) | | 11,046 |
|
FINANCING ACTIVITIES: | | |
| | |
|
Net increase in interest-bearing deposits | | 51,229 |
| | 40,901 |
|
Net increase in noninterest-bearing deposits | | 7,553 |
| | 15,516 |
|
Proceeds from long-term borrowings | | 30,000 |
| | — |
|
Repayment of long-term borrowings | | (35,000 | ) | | — |
|
Net increase (decrease) in short-term borrowings | | 28,355 |
| | (35,059 | ) |
Dividends paid | | (6,634 | ) | | (6,678 | ) |
Issuance of common stock | | 80 |
| | 71 |
|
Purchases of treasury stock | | (1,881 | ) | | (574 | ) |
Net cash provided by financing activities | | 73,702 |
| | 14,177 |
|
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | | (15,924 | ) | | 37,385 |
|
CASH AND CASH EQUIVALENTS, BEGINNING | | 43,671 |
| | 22,796 |
|
CASH AND CASH EQUIVALENTS, ENDING | | $ | 27,747 |
| | $ | 60,181 |
|
| | | | | | | | | | | | | | |
| | |
| | | | |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | | | | |
Interest paid | | $ | 12,547 | | | $ | 2,958 | |
| | | | |
Income taxes paid | | 2,048 | | | 1,121 | |
Non-cash investing and financing activities: | | | | |
| | | | |
| | | | |
Transfer of loans to foreclosed real estate | | — | | | 97 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
|
| | | | | | | | |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | | |
| | |
|
Interest paid | | $ | 4,199 |
| | $ | 4,091 |
|
Income taxes paid | | 3,950 |
| | 3,050 |
|
Transfer of loans to foreclosed real estate | | 508 |
| | 83 |
|
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., United Insurance Solutions, LLC., 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”). 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, 2016.2022.
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 39 through 48 of the Form 10-K for the year ended December 31, 2016.
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.
CECL Adoption and Updated Significant Accounting Policy
On January 1, 2023, the Company adopted ASU 2016-13, Financial Instruments - Credit Losses (ASC Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology, and is referred to as CECL. The measurement of expected credit losses under CECL is applicable to financial assets measured at amortized cost, including loans and HTM debt securities. It also applies to off-balance sheet (“OBS”) credit exposures (loan commitments, standby letters of credit, financial guarantees, and other similar instruments.
The Company adopted CECL using the modified retrospective method for all financial assets measured at amortized cost, net of investments in leases and OBS credit exposures. Results for reporting periods beginning after January 1, 2023 are presented under CECL, while prior period results are reported in accordance with the previously applicable incurred loss methodology. The Company recorded an overall decrease of $3,789,000 to the Allowance for Credit Losses (“ACL”) on January 1, 2023 as a result of the adoption of CECL with an associated increase to retained earnings of $2,993,000 and decrease to deferred tax assets of $796,000. The Company also recorded a liability of $1,703,000 for OBS credit exposures that resulted in a decrease to retained earnings of $1,346,000 and an increase to deferred tax assets of $357,000.
Allowance for Credit Losses: The discussion that follows describes the methodology for determining the ACL under the CECL model that was adopted effective January 1, 2023. The allowance methodology for prior periods is disclosed in the Company’s 2022 Annual Report on Form 10-K.
The Company has elected to exclude accrued interest receivable from the measurement of its ACL. When a loan is placed on non-accrual status, any outstanding accrued interest is reversed against interest income.
Loans: The ACL for loans is an estimate of the expected losses to be realized over the life of the loans in the portfolio. The ACL is determined for two distinct categories of loans: 1) loans evaluated collectively for expected credit losses and 2) loans evaluated individually for expected credit losses. The ACL also includes certain qualitative adjustments to the CECL model.
Loans Evaluated Collectively: Management believes that internal credit ratings are the most relevant credit quality indicator for these types of loans, however; the Company does not assign internal credit ratings to smaller balance, homogeneous loans, such as home equity, residential mortgage, and consumer automobile loans. For these loans, the most relevant credit quality indicator is delinquency status and management evaluates credit quality based on the aging status of the loan. In order to determine the ACL:
Loans aggregated into pools based on similar risk characteristics.
The probability of default "PD" and loss given default rate "LGD" CECL model components are determined based on loss estimates driven by historical experience at the input level.
The PD model component uses "through the economic cycle transition" matrices based on the Company's historical loan and transaction data across each pool of loans.
The LGD model component calculates a lifetime LGD estimate across each pool of loans utilizing a nonparametric loss curve modeling approach.
Reasonable and supportable forecasts are incorporated into the PD model component.
Cash flow assumptions are established for each loan using maturity date, amortization schedule and interest rate.
A constant prepayment rate is calculated for each loan pool in the CECL model.
Loans Evaluated Individually: Loans evaluated individually for expected credit losses include loans determined to be collateral-dependant.
Loans evaluated individually may have specific allocations assigned. For loans measured using the fair value of collateral, if the analysis determines that sufficient collateral value would be available for repayment of the debt, then no allocations would be assigned to those loans. Collateral could be in the form of real estate or business assets, such as accounts receivable or inventory, in the case of commercial and industrial loans.
For loans secured by real estate, estimated fair values are determined through appraisals performed by third-party appraisers or third party evaluations for commercial real estate loans and our internal appraisal department for 1-4 family real estate secured loans, discounted to arrive at expected net sale proceeds. For collateral dependent loans, estimated real estate fair values are also net of estimated selling costs. When a real estate secured loan is impaired, a decision is made regarding whether an updated appraisal of the real estate is necessary. This decision is based on various considerations, including: the age of the most recent appraisal; the loan-to-value ratio based on the original appraisal; the condition of the property; the Company’s experience and knowledge of the real estate market; the purpose of the loan; market factors; payment status; the strength of any guarantors; and the existence and age of other indications of value such as broker price opinions, among others. The Company generally obtains updated evaluations for collateral dependent loans secured predominantly by real estate every 12 months.
When updated evaluations are not obtained for loans secured by real estate, fair values are estimated based on the original appraisal values, as long as the original appraisal indicated an acceptable loan-to-value position and there has not been a significant deterioration in the collateral value since the original appraisal was performed.
Management regularly reviews loans in the portfolio to assess credit quality indicators and to determine appropriate loan classification. For commercial loans, commercial mortgages and construction loans to commercial borrowers, an internal credit rating process is used. The Company believes that internal credit ratings are the most relevant credit quality indicator for these types of loans. The migration of loans through the various internal credit rating categories is a significant component of the ACL methodology for these loans, which bases the PD on this migration. Assigning credit ratings involves judgment. Credit ratings may be changed based on ongoing monitoring procedures, or if specific loan review assessments identify a deterioration or an improvement in the loan.
The following is a summary of the Company's internal credit rating categories:
| | | | | |
| |
• | Pass: These loans do not currently pose undue credit risk and can range from the highest to average quality, depending on the degree of potential risk. |
| | | | | |
• | Special Mention: These loans have a heightened credit risk, but not to the point of justifying a classification of Substandard. Loans in this category are currently acceptable, but are nevertheless potentially weak. |
| | | | | |
• | Substandard or Lower: There exists a well-defined weakness or weaknesses that jeopardize the normal repayment of the debt. |
The allocation of the ACL is reviewed to evaluate its appropriateness in relation to the overall risk profile of the loan portfolio. The Company considers risk factors such as: local and national economic conditions; trends in delinquencies and non-accrual loans; the diversity of borrower industry types; and the composition of the portfolio by loan type.
Qualitative and Other Adjustments to ACL: In addition to the quantitative credit loss estimates for loans evaluated collectively, qualitative factors that may not be fully captured in the quantitative results are also evaluated. These include changes in lending policy, volume of the portfolio, economy conditions, credit concentrations, level of problem loans, loan review, collateral value, and experience of credit staff. Qualitative adjustments are judgmental and are based on Management’s knowledge of the portfolio and the markets in which the Company operates. Qualitative adjustments are evaluated and approved on a quarterly basis.
OBS Credit Exposures:The ACL for OBS credit exposures is recorded in other liabilities on the consolidated balance sheet. This ACL represents management’s estimate of expected losses in its unfunded loan commitments and other OBS credit exposures, such as letters of credit and credit recourse on sold residential mortgage loans. The ACL specific to unfunded commitments is determined by estimating future draws and applying the expected loss rates on those draws. Future draws are based on historical averages of utilization rates (i.e., the likelihood of draws taken). The ACL for OBS credit exposures is increased or decreased by charges or reductions to expense, through the provision for credit losses.
The impact from the adoption of CECL is shown below:
| | | | | | | | | | | | | | | | | | | | |
| | January 1, 2023 |
(In Thousands) | | Pre-adoption | | Adoption impact | | As Reported |
Assets | | | | | | |
ACL on loans | | | | | | |
Commercial, financial, and agricultural | | $ | 1,914 | | | $ | 2,656 | | | $ | 4,570 | |
Real estate mortgage: | | | | | | |
Residential | | 5,061 | | | (3,893) | | | 1,168 | |
Commercial | | 6,110 | | | (2,660) | | | 3,450 | |
Construction | | 188 | | | (96) | | | 92 | |
Consumer automobile loans | | 1,617 | | | 240 | | | 1,857 | |
Other consumer installment loans | | 109 | | | 602 | | | 711 | |
Unallocated | | 638 | | | (638) | | | — | |
| | | | | | |
Liabilities | | | | | | |
ACL for unfunded commitments | | 143 | | | 1,703 | | | 1,846 | |
| | $ | 15,780 | | | $ | (2,086) | | | $ | 13,694 | |
Note 2. Accumulated Other Comprehensive Loss
The changes in accumulated other comprehensive loss by component shown net of tax and parenthesis indicating debits, as of SeptemberJune 30, 20172023 and 20162022 were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2023 | | Three Months Ended June 30, 2022 |
(In Thousands) | | Net Unrealized (Loss) Gain on Available for Sale Securities | | Defined Benefit Plan | | Total | | Net Unrealized Gain (Loss) on Available for Sale Securities | | Defined Benefit Plan | | Total |
Beginning balance | | $ | (7,928) | | | $ | (4,110) | | | $ | (12,038) | | | $ | (3,074) | | | $ | (3,472) | | | $ | (6,546) | |
Other comprehensive loss before reclassifications | | (1,840) | | | — | | | (1,840) | | | (3,156) | | | — | | | (3,156) | |
Amounts reclassified from accumulated other comprehensive loss | | 15 | | | 30 | | | 45 | | | 8 | | | 14 | | | 22 | |
Net current-period other comprehensive (loss) income | | (1,825) | | | 30 | | | (1,795) | | | (3,148) | | | 14 | | | (3,134) | |
| | | | | | | | | | | | |
Ending balance | | $ | (9,753) | | | $ | (4,080) | | | $ | (13,833) | | | $ | (6,222) | | | $ | (3,458) | | | $ | (9,680) | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2017 | | Three 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 | | $ | (16 | ) | | $ | (4,233 | ) |
| $ | (4,249 | ) | | $ | 1,838 |
| | $ | (4,006 | ) | | $ | (2,168 | ) |
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 | ) |
Ending balance | | $ | 73 |
|
| $ | (4,203 | ) |
| $ | (4,130 | ) | | $ | 1,489 |
| | $ | (3,980 | ) | | $ | (2,491 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2023 | | Six Months Ended June 30, 2022 |
(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 | | $ | (9,819) | | | $ | (4,139) | | | $ | (13,958) | | | $ | 2,373 | | | $ | (3,485) | | | $ | (1,112) | |
Other comprehensive income (loss) before reclassifications | | 3 | | | — | | | 3 | | | (8,605) | | | — | | | (8,605) | |
Amounts reclassified from accumulated other comprehensive gain | | 63 | | | 59 | | | 122 | | | 10 | | | 27 | | | 37 | |
Net current-period other comprehensive income (loss) | | 66 | | | 59 | | | 125 | | | (8,595) | | | 27 | | | (8,568) | |
| | | | | | | | | | | | |
Ending balance | | $ | (9,753) | | | $ | (4,080) | | | $ | (13,833) | | | $ | (6,222) | | | $ | (3,458) | | | $ | (9,680) | |
The reclassifications out of accumulated other comprehensive loss shown, net of tax and parenthesis indicating debits to net income, as of SeptemberJune 30, 20172023 and 20162022 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 |
| Three Months Ended June 30, 2023 | | Three Months Ended June 30, 2022 | |
Net unrealized loss on available for sale securities | | $ | (19) | | | $ | (10) | | | Net debt securities (losses) gains, available for sale |
Income tax effect | | 4 | | | 2 | | | Income tax provision |
Total reclassifications for the period | | $ | (15) | | | $ | (8) | | | |
| | | | | | |
Net unrecognized pension costs | | $ | (37) | | | $ | (18) | | | Other non-interest expense |
Income tax effect | | 7 | | | 4 | | | Income tax provision |
Total reclassifications for the period | | $ | (30) | | | $ | (14) | | | |
| | Details about Accumulated Other Comprehensive Loss Components | | Amount Reclassified from Accumulated Other Comprehensive Loss | | Affected Line Item in the Consolidated Statement of Income | Details about Accumulated Other Comprehensive Loss Components | | 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 | | | Six months ended June 30, 2023 | | Six months ended June 30, 2022 | |
Net unrealized (loss) gain on available for sale securities | | $ | 302 |
| | $ | 253 |
| | Net securities (losses) gains, available for sale | |
Net unrealized losses on available for sale securities | | Net unrealized losses on available for sale securities | | $ | (80) | | | $ | (12) | | | Net debt securities losses, available for sale |
Income tax effect | | (104 | ) | | (86 | ) | | Income tax provision | Income tax effect | | 17 | | | 2 | | | Income tax provision |
Total reclassifications for the period | | $ | 198 |
| | $ | 167 |
| | Total reclassifications for the period | | $ | (63) | | | $ | (10) | | |
| | | | | | | | | | |
Net unrecognized pension costs | | (45 | ) | | (39 | ) | | Salaries and employee benefits | Net unrecognized pension costs | | $ | (74) | | | $ | (35) | | | Other non-interest expense |
Income tax effect | | 15 |
| | 13 |
| | Income tax provision | Income tax effect | | 15 | | | 8 | | | Income tax provision |
Total reclassifications for the period | | (30 | ) | | (26 | ) | | Total reclassifications for the period | | $ | (59) | | | $ | (27) | | |
|
| | | | | | | | | | |
Details about Accumulated Other Comprehensive Loss Components | | 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 | |
Net unrealized gain on available for sale securities | | $ | 487 |
| | $ | 1,174 |
| | Net securities gains, available for sale |
Income tax effect | | (166 | ) | | (398 | ) | | Income tax provision |
Total reclassifications for the period | | $ | 321 |
| | $ | 776 |
| | |
| | | | | | |
Net unrecognized pension costs | | (129 | ) | | (117 | ) | | Salaries and employee benefits |
Income tax effect | | 43 |
| | 40 |
| | Income tax provision |
Total reclassifications for the period | | (86 | ) | | (77 | ) | | |
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 FASBFinancial Accounting Standards Board (“FASB”) issued ASUAccounting Standards Update (“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 andstandard, along with several other financial instruments held by financial institutions and other organizations. The underlying premise ofsubsequent codification updates, replaces the Update isincurred loss impairment methodology in current GAAP with a methodology that financial assets measured at amortized cost should be presented at the net amountreflects 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.asset and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The income statement willamendments in this update require a financial asset (or a group of financial assets) measured at amortized cost basis to be effected forpresented at the measurement of credit losses for newly recognized financial assets, as well as thenet amount expected increases or decreases ofto be collected. The new current 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 requirementsmodel (“CECL”) 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. We expect to recognize a one-time cumulative effect adjustmentapply to the allowance for loan losses, available-for-sale and held-to-maturity debt securities, purchased financial assets with credit deterioration and certain off-balance sheet credit exposures.
Management has completed its implementation plan, segmentation and testing, and model validation. The implementation plan included drafting of additional controls and policies to govern data uploads to its third-party vendor, balancing and reconciling, testing and auditing of inputs, and review and decision-making surrounding segmentation, methodologies, qualitative factor adjustments, and reasonable and supportable forecasts and reversion techniques. Parallel runs were processed during 2022 and the results were consistent with management's expectations. The implementation plan is currently going through the Company's control structure and internal control testing is being performed.
As a result of adopting this standard, the Company recorded a decrease in its allowance effective January 1, 2023, of $2,086,000. As a result, the Company recorded a decrease in its loan allowance as of January 1, 2023, of $3,789,000; as well as
an increase in its allowance for off-balance sheet credit exposures of $1,703,000. These estimates are subject to further refinements based on ongoing evaluations of our model, methodologies, and judgments, as well as prevailing economic conditions and forecasts 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.adoption date. 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 Update2016-13 is not expected to have a significant impact on our regulatory capital ratios.
At adoption, 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.2023.
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 unitsunit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. A public business entity thatThe Update is a U.S. Securitieseffective for smaller reporting companies and Exchange Commission (“SEC”) filer should adopt the amendments in this Updateall other entities 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 any2022, and interim goodwill impairment tests inperiods within those 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.years. This Update is not expected to have a significant impact on the Company’s financial statements.
In February 2017,January 2020, the FASB issued ASU 2017-05, Other Income-Gains2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, March 2020, to provide temporary optional expedients and Lossesexceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as the Derecognition of Nonfinancial Assets (Subtopic 610-20). Secured Overnight Financing Rate. Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls “reference rate reform” if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Also, entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform if certain criteria are met, and can make a one-time election to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform. The amendments in this Update clarify what constitutesASU are effective for all entities upon issuance through December 31, 2022. It is too early to predict whether 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,new rate index replacement and the adoption of the ASU will have a material impact on the Company’s financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. This ASU removes from U.S. GAAP the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. As a result, entities will not separately present in equity an embedded conversion feature in such debt. Instead, they will account for a convertible debt instrument wholly as debt, and for convertible preferred stock wholly as preferred stock (i.e., as a single unit of account), unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC 815 or (2) a convertible debt instrument was issued at a substantial premium. This ASU requires entities to provide expanded disclosures about the terms and features of convertible instruments, how the instruments have been reported in the entity’s financial statements, and information about events, conditions, and circumstances that can affect how to assess the amount or timing of an entity’s future cash flows related gain or loss, should be recognized.to those instruments. The amendments in this Update are effective at the same time as the amendments in Update 2014-09. Therefore, for public entities, the amendmentsASU are effective for annualpublic business entities that are not smaller reporting periodscompanies, for fiscal years beginning after December 15, 2017, including2021, and interim reporting periods within that reporting period.those fiscal years. For all other entities, the amendments in this Update areASU is effective for annual reporting periodsfiscal years beginning after December 15, 2018,2023, and interim reporting periods within annual reporting periodsthose fiscal years. The guidance may be early adopted for fiscal years beginning after December 15, 2019.2020, and interim periods within those fiscal years. 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 2017,2022, the FASB issued ASU 2017-07, Compensation-Retirement Benefits (Topic 715)2022-02, Financial Instruments - Credit Losses (ASC 326): Troubled Debt Restructurings (TDRs) and Vintage Disclosures. The guidance amends ASC 326 to eliminate the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancing and restructuring activities by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying TDR recognition and measurement guidance, creditors will determine whether a modification results in a new loan or continuation of existing loan. These amendments in this Updateare intended to enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. Additionally, the amendments to ASC 326 require that an employer reportentity disclose current-period gross writeoffs by year of origination within the servicevintage disclosures, which requires that an entity disclose the amortized cost component in the same line item or items as other compensation costs arising from services renderedbasis of financing receivables by the pertinent employees during the period. The other componentscredit quality indicator and class 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 subtotalfinancing receivable by year 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.origination. The guidance is effectiveonly for public business entities for annual reporting periods beginning after December 15, 2017, 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 to be applied on a retrospective basis 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. This Update is not expected to have a significant impact on the Company’s financial statements.
In March 2017, the FASB issued ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20). The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. For public business entities,adopted the amendments in this Update are effective2016-13 for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities,2022. This Update did not have a significant impact on the Company’s financial statements.
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820) – Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. This amendment clarifies the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security. It also introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. The amendments are effective 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, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718), which affects any entity that changes 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, 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 operating entities for service concession arrangements within the scope of Topic 853. The 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,2023, 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 effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.years. Early adoption is permitted for all entities, includingpermitted. The amendments will be applied prospectively, with any adjustments from the adoption in an interim period. If an entity early adoptsof the amendments recognized in an interim period, any adjustments should be reflected asearnings and disclosed on the date of the 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 year and interim period(s) in which the pending content that links to this paragraph 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.adoption. This Update is not expected to have a significant impact on the Company’s financial statements.
In August 2017,March 2023, the FASB issued ASU 2017-12, Derivatives2023-02, Investments – Equity Method and HedgingJoint Ventures (Topic 850),323): Accounting for Investments in Tax Credit Structures Using the objective of which isProportional Amortization Method. ASU 2023-02 permits reporting entities to improve the financial reporting of hedging relationshipselect 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 disclosureaccount for their tax equity investments, regardless of the hedge accounting guidance in current general accepted accounting principles. For public business entities,tax credit program from which the amendments in this Updateincome tax credits are received, using the proportional amortization method if certain conditions are met. ASU 2023-02 is effective for fiscal years, and interim periods within those 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 application 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 adopts the amendments in this Update. The amended presentation and disclosure guidance is required only prospectively.2023. This Update is not expected to have a significant impact on the Company’s financial statements.
In September 2017, the FASB issued ASU 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments. The SEC Observer said that the SEC staff would not object if entities that are considered public business entities only because their financial statements or financial information is required to be included in another entity’s SEC filing use the effective dates for private companies when they adopt ASC 606, Revenue from Contracts with Customers, and ASC 842, Leases. The Update also supersedes certain SEC paragraphs in the Codification related to previous SEC staff announcements and moves other paragraphs, upon adoption of ASC 606 or ASC 842. This Update is not expected to have a significant impact on the Company’s financial statements.
Note 4. Per Share Data
There are no convertible securities which would affect the denominator in calculating basic and dilutive earnings per share. There were a total of 95,0001,003,000 stock options, with an average exercise price of $43.64,$25.56, outstanding on SeptemberJune 30, 2017.2023. These options were excluded, on a weighted average basis, in the computation of diluted earnings per share for the period due to the average market price of common shares of $43.53$25.10 for the period being less than the exercise price of the options.strike price. There were a total of 31,000919,250 stock options, outstanding for the same period end in 2016 that hadwith an average exercise price of $42.03 and$25.36 that were excluded, fromon a weighted average basis, in the computation of diluted earnings per share becausefor the period due to the average market price of common shares was $41.10of $23.78 being less than the strike price for the period. Net income as presented on the consolidated statement of income will be 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.period ending June 30, 2022.
|
| | | | | | | | | | | | |
| | 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 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
Weighted average common shares issued | | 7,572,243 | | | 7,557,402 | | | 7,570,443 | | | 7,555,113 | |
Weighted average treasury stock shares | | (510,225) | | | (498,357) | | | (510,225) | | | (489,341) | |
Weighted average common shares outstanding - basic and diluted | | 7,062,018 | | | 7,059,045 | | | 7,060,218 | | | 7,065,772 | |
| | | | | | | | |
| | | | | | | | |
Note 5. Investment Securities
The amortized cost, gross unrealized gains and losses, and fair values of our investment securities available for saleportfolio at SeptemberJune 30, 20172023 and December 31, 20162022 are as follows:
| | | | September 30, 2017 | | | June 30, 2023 |
| | | | Gross | | Gross | | | | | | | Gross | | Gross | | |
| | Amortized | | Unrealized | | Unrealized | | Fair | | | Amortized | | Unrealized | | Unrealized | | Fair |
(In Thousands) | | Cost | | Gains | | Losses | | Value | (In Thousands) | | Cost | | Gains | | Losses | | Value |
Available for sale (AFS): | | |
| | |
| | |
| | |
| Available for sale (AFS): | | | | | | | | |
U.S. Government and agency securities | | U.S. Government and agency securities | | $ | 4,001 | | | $ | — | | | $ | (116) | | | $ | 3,885 | |
Mortgage-backed securities | | $ | 4,544 |
| | $ | 79 |
| | $ | (93 | ) | | $ | 4,530 |
| Mortgage-backed securities | | 9,710 | | | — | | | (380) | | | 9,330 | |
| State and political securities | | 61,868 |
| | 640 |
| | (181 | ) | | 62,327 |
| State and political securities | | 135,251 | | | 22 | | | (7,794) | | | 127,479 | |
Other debt securities | | 52,954 |
| | 220 |
| | (1,201 | ) | | 51,973 |
| Other debt securities | | 50,009 | | | — | | | (4,077) | | | 45,932 | |
Total debt securities | | 119,366 |
| | 939 |
| | (1,475 | ) | | 118,830 |
| Total debt securities | | $ | 198,971 | | | $ | 22 | | | $ | (12,367) | | | $ | 186,626 | |
Financial institution equity securities | | 11,537 |
| | 687 |
| | — |
| | 12,224 |
| |
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 |
| |
| Investment equity securities: | | Investment equity securities: | |
| Equity securities | | Equity securities | | $ | 1,350 | | | $ | — | | | $ | (207) | | | $ | 1,143 | |
| | |
|
| | | | | | | | | | | | | | | | |
| | 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, 2022 |
| | | | Gross | | Gross | | |
| | Amortized | | Unrealized | | Unrealized | | Fair |
(In Thousands) | | Cost | | Gains | | Losses | | Value |
Available for sale (AFS): | | | | | | | | |
U.S. Government and agency securities | | $ | 3,002 | | | $ | — | | | $ | (106) | | | $ | 2,896 | |
Mortgage-backed securities | | 1,496 | | | — | | | (214) | | | 1,282 | |
| | | | | | | | |
State and political securities | | 151,426 | | | 157 | | | (8,774) | | | 142,809 | |
Other debt securities | | 50,178 | | | 58 | | | (3,550) | | | 46,686 | |
Total debt securities | | $ | 206,102 | | | $ | 215 | | | $ | (12,644) | | | $ | 193,673 | |
| | | | | | | | |
Investment equity securities: | | | | | | | | |
| | | | | | | | |
Equity securities | | $ | 1,350 | | | $ | — | | | $ | (208) | | | $ | 1,142 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| | 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 SeptemberJune 30, 20172023 and December 31, 2016.2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2023 |
| | 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): | | | | | | | | | | | | |
U.S. Government and agency securities | | $ | 2,940 | | | $ | (58) | | | $ | 945 | | | $ | (58) | | | $ | 3,885 | | | $ | (116) | |
Mortgage-backed securities | | 8,057 | | | (173) | | | 1,264 | | | (207) | | | 9,321 | | | (380) | |
| | | | | | | | | | | | |
State and political securities | | 43,028 | | | (1,456) | | | 81,127 | | | (6,338) | | | 124,155 | | | (7,794) | |
Other debt securities | | 5,363 | | | (267) | | | 40,569 | | | (3,810) | | | 45,932 | | | (4,077) | |
Total debt securities | | $ | 59,388 | | | $ | (1,954) | | | $ | 123,905 | | | $ | (10,413) | | | $ | 183,293 | | | $ | (12,367) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 |
| | 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 | | $ | 1,048 |
| | $ | (4 | ) | | $ | 2,302 |
| | $ | (89 | ) | | $ | 3,350 |
| | $ | (93 | ) |
State and political securities | | 13,651 |
| | (120 | ) | | 2,170 |
| | (61 | ) | | 15,821 |
| | (181 | ) |
Other debt securities | | 9,689 |
| | (145 | ) | | 22,733 |
| | (1,056 | ) | | 32,422 |
| | (1,201 | ) |
Total debt securities | | 24,388 |
| | (269 | ) | | 27,205 |
| | (1,206 | ) | | 51,593 |
| | (1,475 | ) |
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, 2016 | | | December 31, 2022 |
| | 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 | (In Thousands) | | Value | | Losses | | Value | | Losses | | Value | | Losses |
Available for sale (AFS): | | | | | | | | | | | | | Available for sale (AFS): | | | | | | | | | | | | |
U.S. Government and agency securities | | U.S. Government and agency securities | | $ | 2,896 | | | $ | (106) | | | $ | — | | | $ | — | | | $ | 2,896 | | | $ | (106) | |
Mortgage-backed securities | | $ | 3,572 |
| | $ | (106 | ) | | $ | 3,627 |
| | $ | (58 | ) | | $ | 7,199 |
| | $ | (164 | ) | Mortgage-backed securities | | — | | | — | | | 1,282 | | | (214) | | | 1,282 | | | (214) | |
| State and political securities | | 26,113 |
| | (509 | ) | | — |
| | — |
| | 26,113 |
| | (509 | ) | State and political securities | | 95,444 | | | (4,797) | | | 36,283 | | | (3,977) | | | 131,727 | | | (8,774) | |
Other debt securities | | 28,140 |
| | (1,179 | ) | | 12,240 |
| | (886 | ) | | 40,380 |
| | (2,065 | ) | Other debt securities | | 16,896 | | | (664) | | | 25,144 | | | (2,886) | | | 42,040 | | | (3,550) | |
Total debt securities | | 57,825 |
| | (1,794 | ) | | 15,867 |
| | (944 | ) | | 73,692 |
| | (2,738 | ) | Total debt securities | | $ | 115,236 | | | $ | (5,567) | | | $ | 62,709 | | | $ | (7,077) | | | $ | 177,945 | | | $ | (12,644) | |
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 SeptemberJune 30, 2017,2023, there were a total of 3462 securities in a continuous unrealized loss position for less than twelve months and 20171 individual securities that were in a continuous unrealized loss position for twelve months or greater. No credit losses occurred for the period ended June 30, 2023.
The Company reviews its position quarterly and has determined that, at SeptemberJune 30, 2017,2023, the declines outlined in the above table represent temporary non-credit 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 temporarycredit-related 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 SeptemberJune 30, 2017,2023, 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 | | $ | 32,438 | | | $ | 31,949 | |
Due after one year to five years | | 96,817 | | | 90,609 | |
Due after five years to ten years | | 62,073 | | | 56,741 | |
Due after ten years | | 7,643 | | | 7,327 | |
Total | | $ | 198,971 | | | $ | 186,626 | |
|
| | | | | | | | |
(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 ninesix months ended SeptemberJune 30, 2017 were $6,478,000 and $15,443,000, a decrease from2023 was $22,725,000, compared to $0 for the 2016 totals of $16,168,000 and $42,180,000.corresponding 2022 period.
The following table represents gross realized gains and losses withinfrom the sales of debt securities available for sale portfolio:sale:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
(In Thousands) | | 2023 | | 2022 | | 2023 | | 2022 |
Available for sale (AFS): | | | | | | | | |
Gross realized gains: | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
State and political securities | | $ | 91 | | | $ | 13 | | | $ | 145 | | | $ | 14 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Gross realized losses: | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
State and political securities | | $ | (110) | | | $ | (23) | | | $ | (225) | | | $ | (26) | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| | 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 no impairment charges included in gross realized losses for the three and nine months ended September 30, 2017 and 2016, respectively.
Investment securities with a carrying value of approximately $98,157,000$100,631,000 and $95,199,000$154,946,000 at SeptemberJune 30, 20172023 and December 31, 2016,2022, respectively, were pledged to secure certain deposits, repurchase agreements, and for other purposes as required by law.
At June 30, 2023 and December 31, 2022, we had $1,143,000 and $1,142,000, respectively, in equity securities recorded at fair value. The following is a summary of unrealized and realized gains and losses recognized in net income on equity securities during the three and six months ended June 30, 2023 and 2022: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
(In Thousands) | | 2023 | | 2022 | | 2023 | | 2022 |
Net (losses) gains recognized in equity securities during the period | | $ | (20) | | | $ | (44) | | | $ | 1 | | | $ | (103) | |
Less: Net gains realized on the sale of equity securities during the period | | — | | | — | | | — | | | — | |
Unrealized (losses) gains recognized in equity securities held at reporting date | | $ | (20) | | | $ | (44) | | | $ | 1 | | | $ | (103) | |
| | | | | | | | |
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 three 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,class, as of SeptemberJune 30, 20172023 and December 31, 2016:2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2023 |
| | Past Due | | | | | | Past Due 90 |
| | 30 To 89 | | | | | | Days Or More |
(In Thousands) | | Days | | Current | | Total | | & Still Accruing |
Commercial, financial, and agricultural | | $ | 270 | | | $ | 207,871 | | | $ | 208,174 | | | $ | 33 | |
Real estate mortgage: | | | | | | | | |
Residential | | 2,578 | | | 740,186 | | | 743,705 | | | 941 | |
Commercial | | 2,513 | | | 515,200 | | | 517,713 | | | — | |
Construction | | 15 | | | 53,471 | | | 53,486 | | | — | |
Consumer automobile loans | | 1,832 | | | 232,985 | | | 234,956 | | | 139 | |
Other consumer installment loans | | 126 | | | 9,988 | | | 10,121 | | | 7 | |
| | $ | 7,334 | | | $ | 1,759,701 | | | 1,768,155 | | | $ | 1,120 | |
Net deferred loan fees and discounts | | | | | | 1,248 | | | |
Allowance for credit losses | | | | | | (11,592) | | | |
Loans, net | | | | | | $ | 1,757,811 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 |
| | Past Due | | Past Due 90 | | | | | | |
| | 30 To 89 | | Days Or More | | Non- | | | | |
(In Thousands) | | Days | | & Still Accruing | | Accrual | | Current | | Total |
Commercial, financial, and agricultural | | $ | 94 | | | $ | — | | | $ | 432 | | | $ | 189,935 | | | $ | 190,461 | |
Real estate mortgage: | | | | | | | | | | |
Residential | | 5,472 | | | 1,120 | | | 524 | | | 701,093 | | | 708,209 | |
Commercial | | 2,564 | | | 60 | | | 2,659 | | | 495,349 | | | 500,632 | |
Construction | | 511 | | | — | | | — | | | 42,797 | | | 43,308 | |
Consumer automobile loans | | 2,089 | | | 80 | | | — | | | 183,943 | | | 186,112 | |
Other consumer installment loans | | 152 | | | 15 | | | — | | | 10,194 | | | 10,361 | |
| | $ | 10,882 | | | $ | 1,275 | | | $ | 3,615 | | | $ | 1,623,311 | | | 1,639,083 | |
Net deferred loan fees and discounts | | | | | | | | | | 648 | |
Allowance for loan losses | | | | | | | | | | (15,637) | |
Loans, net | | | | | | | | | | $ | 1,624,094 | |
|
| | | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 |
| | | | Past Due | | Past Due 90 | | | | |
| | | | 30 To 89 | | Days Or More | | Non- | | |
(In Thousands) | | Current | | Days | | & Still Accruing | | Accrual | | Total |
Commercial, financial, and agricultural | | $ | 174,993 |
| | $ | 6 |
| | $ | 53 |
| | $ | 247 |
| | $ | 175,299 |
|
Real estate mortgage: | | |
| | |
| | |
| | |
| | |
|
Residential | | 572,303 |
| | 1,929 |
| | 26 |
| | 1,876 |
| | 576,134 |
|
Commercial | | 316,493 |
| | 1,144 |
| | — |
| | 5,873 |
| | 323,510 |
|
Construction | | 29,243 |
| | 9 |
| | 100 |
| | — |
| | 29,352 |
|
Installment loans to individuals | | 85,872 |
| | 625 |
| | 82 |
| | 60 |
| | 86,639 |
|
| | 1,178,904 |
| | $ | 3,713 |
| | $ | 261 |
| | $ | 8,056 |
| | 1,190,934 |
|
Net deferred loan fees and discounts | | (1,220 | ) | | |
| | |
| | |
| | (1,220 | ) |
Allowance for loan losses | | (12,933 | ) | | |
| | |
| | |
| | (12,933 | ) |
Loans, net | | $ | 1,164,751 |
| | |
| | |
| | |
| | $ | 1,176,781 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | 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 carryoverevaluated collectively and individually for expected credit losses. The ACL related to loans represents an estimate of expected credit losses over the expected life of the related allowanceloans as of the balance sheet date and is recorded as a reduction to net loans. The ACL for off balance sheet credit exposure includes estimated losses on unfunded loan losses.commitments, letters of credit and other off balance sheet credit exposures and is recorded in other liabilities. The total ACL is increased by charges to expense, through the provision for credit losses, and decreased by charge-offs, net of recoveries.
The following table presents interest income the Banks would have recorded if interest had been recorded based oncomponents of the original loan agreement terms and rateACL as 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 SeptemberJune 30, 2017 and 2016:2023:
| | | | | | | | | | |
| | June 30, | | |
(In Thousands) | | 2023 | | |
ACL - loans | | $ | 11,592 | | | |
ACL - off balance sheet credit exposure | | 1,199 | | | |
Total ACL | | $ | 12,791 | | | |
|
| | | | | | | | | | | | | | | | |
| | Three 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 | | $ | 8 |
| | $ | 2 |
| | $ | 1 |
| | $ | — |
|
Real estate mortgage: | | |
| | |
| | |
| | |
|
Residential | | 29 |
| | 30 |
| | 57 |
| | 68 |
|
Commercial | | 90 |
| | 23 |
| | 109 |
| | 90 |
|
Construction | | — |
| | — |
| |
|
| | — |
|
Installment | | 1 |
| | 1 |
| | — |
| | — |
|
| | $ | 128 |
| | $ | 56 |
| | $ | 167 |
| | $ | 158 |
|
|
| | | | | | | | | | | | | | | | |
| | 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 |
|
ImpairedNon-accrual Loans
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2023 | | | | | | December 31, 2022 |
| | Non-accrual Loans | | | | | | |
(In Thousands) | | With a Related ACL | | Without a Related ACL | | Total | | | | | | Total Non-accrual loans |
Commercial, financial, and agricultural | | $ | — | | | $ | 422 | | | $ | 422 | | | | | | | $ | 432 | |
Real estate mortgage: | | | | | | | | | | | | |
Residential | | 26 | | | 272 | | | 298 | | | | | | | 524 | |
Commercial | | 975 | | | 1,461 | | | 2,436 | | | | | | | 2,659 | |
Construction | | — | | | — | | | — | | | | | | | — | |
Consumer automobile | | — | | | — | | | — | | | | | | | — | |
Other consumer installment loans | | — | | | — | | | — | | | | | | | — | |
| | $ | 1,001 | | | $ | 2,155 | | | $ | 3,156 | | | | | | | $ | 3,615 | |
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 does 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
Total interest income recorded 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.at June 30, 2023 totaled $66,000.
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, 2017 and December 31, 2016:2022: | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 |
| | Recorded | | Unpaid Principal | | Related |
(In Thousands) | | Investment | | Balance | | Allowance |
With no related allowance recorded: | | | | | | |
Commercial, financial, and agricultural | | $ | 295 | | | $ | 295 | | | $ | — | |
Real estate mortgage: | | | | | | |
Residential | | 3,388 | | | 3,388 | | | — | |
Commercial | | 2,588 | | | 2,588 | | | — | |
Construction | | — | | | — | | | — | |
Consumer automobile loans | | — | | | — | | | — | |
Installment loans to individuals | | — | | | — | | | — | |
| | 6,271 | | | 6,271 | | | — | |
With an allowance recorded: | | | | | | |
Commercial, financial, and agricultural | | 403 | | | 403 | | | 4 | |
Real estate mortgage: | | | | | | |
Residential | | 933 | | | 933 | | | 111 | |
Commercial | | 3,607 | | | 3,607 | | | 827 | |
Construction | | — | | | — | | | — | |
Consumer automobile loans | | — | | | — | | | — | |
Installment loans to individuals | | 19 | | | — | | | 19 | |
| | 4,962 | | | 4,943 | | | 961 | |
Total: | | | | | | |
Commercial, financial, and agricultural | | 698 | | | 698 | | | 4 | |
Real estate mortgage: | | | | | | |
Residential | | 4,321 | | | 4,321 | | | 111 | |
Commercial | | 6,195 | | | 6,195 | | | 827 | |
Construction | | — | | | — | | | — | |
Consumer automobile loans | | — | | | — | | | — | |
Installment loans to individuals | | 19 | | | — | | | 19 | |
| | $ | 11,233 | | | $ | 11,214 | | | $ | 961 | |
|
| | | | | | | | | | | | |
| | September 30, 2017 |
| | Recorded | | Unpaid Principal | | Related |
(In Thousands) | | Investment | | Balance | | Allowance |
With no related allowance recorded: | | |
| | |
| | |
|
Commercial, financial, and agricultural | | $ | 1,141 |
| | $ | 1,141 |
| | $ | — |
|
Real estate mortgage: | | |
| | |
| | |
|
Residential | | 1,775 |
| | 1,775 |
| | — |
|
Commercial | | 2,222 |
| | 2,222 |
| | — |
|
Installment loans to individuals | | — |
| | — |
| | — |
|
| | 5,138 |
| | 5,138 |
| | — |
|
With an allowance recorded: | | |
| | |
| | |
|
Commercial, financial, and agricultural | | 255 |
| | 255 |
| | 207 |
|
Real estate mortgage: | | |
| | |
| | |
|
Residential | | 1,022 |
| | 1,070 |
| | 224 |
|
Commercial | | 8,433 |
| | 8,529 |
| | 1,629 |
|
Installment loans to individuals | | — |
| | — |
| | — |
|
| | 9,710 |
| | 9,854 |
| | 2,060 |
|
Total: | | |
| | |
| | |
|
Commercial, financial, and agricultural | | 1,396 |
| | 1,396 |
| | 207 |
|
Real estate mortgage: | | |
| | |
| | |
|
Residential | | 2,797 |
| | 2,845 |
| | 224 |
|
Commercial | | 10,655 |
| | 10,751 |
| | 1,629 |
|
Installment loans to individuals | | — |
| | — |
| | — |
|
| | $ | 14,848 |
| | $ | 14,992 |
| | $ | 2,060 |
|
The following table presents outstanding loan balances of collateral-dependent loans by class as of June 30, 2023: | (In Thousands) | | (In Thousands) | | Real estate | | Other* | | Unsecured** | | Total |
| Real estate mortgage: | | Real estate mortgage: | | | | | | | | |
Residential | | Residential | | $ | 244 | | | $ | — | | | $ | — | | | $ | 244 | |
Commercial | | Commercial | | 95 | | | 1,225 | | | 332 | | | 1,652 | |
| | | | December 31, 2016 | |
Total | | Total | | $ | 339 | | | $ | 1,225 | | | $ | 332 | | | $ | 1,896 | |
| | 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 |
| |
* 90% of loan balances guaranteed by USDA remaining 10% is unsecured
** Loan considered unsecured due to lien position on property
The following table presents the average recorded investment in impaired loans and related interest income recognized for the three and ninesix months ended for SeptemberJune 30, 20172022: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Three Months Ended June 30, |
| | | | 2022 |
(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 |
Commercial, financial, and agricultural | | | | | | | | $ | 758 | | | $ | 5 | | | $ | — | |
Real estate mortgage: | | | | | | | | | | | | |
Residential | | | | | | | | 4,773 | | | 48 | | | — | |
Commercial | | | | | | | | 7,446 | | | 49 | | | — | |
Construction | | | | | | | | 32 | | | — | | | — | |
Consumer automobile | | | | | | | | 7 | | | 1 | | | — | |
Other consumer installment loans | | | | | | | | 19 | | | — | | | — | |
| | | | | | | | $ | 13,035 | | | $ | 103 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Six Months Ended June 30, |
| | | | 2022 |
(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 |
Commercial, financial, and agricultural | | | | | | | | $ | 801 | | | $ | 10 | | | $ | — | |
Real estate mortgage: | | | | | | | | | | | | |
Residential | | | | | | | | 4,866 | | | 94 | | | — | |
Commercial | | | | | | | | 7,605 | | | 101 | | | — | |
Construction | | | | | | | | 56 | | | 1 | | | — | |
Consumer automobile | | | | | | | | 5 | | | 1 | | | — | |
Other consumer installment loans | | | | | | | | 19 | | | — | | | — | |
| | | | | | | | $ | 13,352 | | | $ | 207 | | | $ | — | |
Loan Modifications
On January 1, 2023, the Corporation adopted ASU 2022-02. Loan modifications reported below do not include modifications with insignificant payment delays. ASU 2022-02 lists the following factors when considering if the loan modification has insignificant payment delays: (1) the amount of the restructured payments subject to the delay is insignificant relative to the unpaid principal or collateral value of the debt and 2016:will result in an insignificant shortfall in the contractual amount due, and (2) the delay in timing of the restructured payment period is insignificant relative to the frequency of payments due under the debt, the debt’s original contractual maturity or the debt’s original expected duration.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three 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 | | $ | 394 |
| | $ | 17 |
| | $ | 1 |
| | $ | 346 |
| | $ | 4 |
| | $ | — |
|
Real estate mortgage: | | |
| | |
| | |
| | |
| | |
| | |
|
Residential | | 3,199 |
| | 12 |
| | 34 |
| | 2,784 |
| | 23 |
| | 41 |
|
Commercial | | 12,885 |
| | 52 |
| | 23 |
| | 12,383 |
| | 83 |
| | 16 |
|
Construction | | — |
| | — |
| | — |
| | 67 |
| | — |
| | — |
|
Installment loans to individuals | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | $ | 16,478 |
| | $ | 81 |
| | $ | 58 |
| | $ | 15,580 |
| | $ | 110 |
| | $ | 57 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 committed to be advanced in connection with impaired loans.
Troubled Debt Restructurings
The loan portfolio alsoACL incorporates an estimate of lifetime expected credit losses and is recorded upon asset origination or acquisition. The starting point for the estimate of the ACL is historical loss information, which includes certain loans that have been modified in a Troubled Debt Restructuring (“TDR”), where economic concessions have been grantedlosses from modifications of receivables to borrowers who have experienced or are expectedexperiencing financial difficulty. The Corporation uses a probability of default/loss given default model to experiencedetermine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulties. These concessions typically result from loss mitigation activities and could include reductions indifficulty is made on the interest rate, payment extensions, forgivenessdate 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.modification.
There were twono loan modifications that were considered TDRs completed during the three and ninesix months ended SeptemberJune 30, 2017. Loan modifications that are considered TDRs completed during the three and nine months ended September 30, 2016 were as follows:2023.
|
| | | | | | | | | | | | | | | | | | | | | | |
| | 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, |
| | 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 | | — |
| | — |
| | — |
| | 4 |
| | 922 |
| | 922 |
|
Commercial | | 2 |
| | 375 |
| | 375 |
| | 1 |
| | 838 |
| | 838 |
|
Construction | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | 2 |
| | $ | 375 |
| | $ | 375 |
| | 5 |
| | $ | 1,760 |
| | $ | 1,760 |
|
There were no loan modifications considered to be TDRs completed during the three and six months ended June 30, 2022.
There were no loan modifications made during the twelve months prior to June 30, 2023 that defaulted during the six months ended June 30, 2023. There were no loan modifications considered to be a TDR made during the twelve months previous to SeptemberJune 30, 20172022 that defaulted during the ninesix months ended September 30, 2017. There were five loanJune 31, 2022.
Loans considered modifications considered TDRs made during the twelve months previous to September 30, 2016 that defaulted during the nine months ended September 30, 2016. The defaulted loan types and recorded investments at September 30, 2016 are 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.
Troubled debt restructurings amounted to $8,429,000$7,087,000 and $9,180,000$7,468,000 as of SeptemberJune 30, 20172023 and December 31, 2016.2022, respectively.
The amount of foreclosed residential real estate held at SeptemberJune 30, 20172023 and December 31, 2016,2022, totaled $458,000$2,112,000 and $839,000,$950,000, respectively. Consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process at SeptemberJune 30, 20172023 and December 31, 2016,2022, totaled $458,000$456,000 and $167,000,$890,000, respectively.
Internal RiskCredit Ratings
Management uses a ten point internal riskcredit rating system to monitor the credit quality of the overall loan portfolio. The first six 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,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 as loss are considered uncollectible and charge-off is imminent.
To help ensure that riskcredit 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 annualsemi-annual loan review of large commercial relationships is performed, as well as a sample of smaller transactions. ConfirmationThe 2023 loan review will evaluate 55% of the appropriate risk category is included in the review.Banks' average outstanding commercial portfolio which can consist of outstanding loans, commercial real estate mortgages and outstanding commitments. 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 SeptemberJune 30, 20172023 and December 31, 2016:2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2023 |
(In Thousands) | | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Revolving Loans | | Revolving Loans Converted to Term | | Total |
Commercial, financial, and agricultural | | | | | | | | | | | | | | | | | | |
Pass | | $ | 22,833 | | | $ | 57,575 | | | $ | 43,386 | | | $ | 34,212 | | | $ | 7,664 | | | $ | 10,040 | | | $ | 31,205 | | | $ | 126 | | | $ | 207,041 | |
Special Mention | | — | | | — | | | — | | | — | | | — | | | 58 | | | — | | | — | | | 58 | |
Substandard or Lower | | — | | | — | | | — | | | — | | | — | | | 5 | | | 399 | | | 671 | | | 1,075 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | $ | 22,833 | | | $ | 57,575 | | | $ | 43,386 | | | $ | 34,212 | | | $ | 7,664 | | | $ | 10,103 | | | $ | 31,604 | | | $ | 797 | | | $ | 208,174 | |
| | | | | | | | | | | | | | | | | | |
Current period gross write offs | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | |
Real estate mortgage: | | | | | | | | | | | | | | | | | | |
Residential | | | | | | | | | | | | | | | | | | |
Pass | | $ | 72,751 | | | $ | 219,710 | | | $ | 122,575 | | | $ | 72,789 | | | $ | 47,250 | | | $ | 38,553 | | | $ | 49,094 | | | $ | 118,722 | | | $ | 741,444 | |
Special Mention | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard or Lower | | — | | | — | | | — | | | — | | | — | | | 2,186 | | | — | | | 75 | | | 2,261 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | $ | 72,751 | | | $ | 219,710 | | | $ | 122,575 | | | $ | 72,789 | | | $ | 47,250 | | | $ | 40,739 | | | $ | 49,094 | | | $ | 118,797 | | | $ | 743,705 | |
| | | | | | | | | | | | | | | | | | |
Current period gross write offs | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 9 | | | $ | 72 | | | $ | — | | | $ | 81 | |
| | | | | | | | | | | | | | | | | | |
Commercial | | | | | | | | | | | | | | | | | | |
Pass | | $ | 29,431 | | | $ | 102,217 | | | $ | 137,700 | | | $ | 52,157 | | | $ | 26,535 | | | $ | 153,447 | | | $ | 8,465 | | | $ | 620 | | | $ | 510,572 | |
Special Mention | | — | | | — | | | 178 | | | — | | | — | | | 48 | | | — | | | — | | | 226 | |
Substandard or Lower | | — | | | — | | | — | | | — | | | 63 | | | 6,815 | | | — | | | 37 | | | 6,915 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | $ | 29,431 | | | $ | 102,217 | | | $ | 137,878 | | | $ | 52,157 | | | $ | 26,598 | | | $ | 160,310 | | | $ | 8,465 | | | $ | 657 | | | $ | 517,713 | |
| | | | | | | | | | | | | | | | | | |
Current period gross write offs | | $ | 136 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 3 | | | $ | — | | | $ | — | | | $ | 139 | |
| | | | | | | | | | | | | | | | | | |
Construction | | | | | | | | | | | | | | | | | | |
Pass | | $ | 15,104 | | | $ | 16,649 | | | $ | 14,778 | | | $ | 1,450 | | | $ | 598 | | | $ | 4,547 | | | $ | 267 | | | $ | — | | | $ | 53,393 | |
Special Mention | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard or Lower | | — | | | — | | | — | | | — | | | — | | | 93 | | | — | | | — | | | 93 |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | $ | 15,104 | | | $ | 16,649 | | | $ | 14,778 | | | $ | 1,450 | | | $ | 598 | | | $ | 4,640 | | | $ | 267 | | | $ | — | | | $ | 53,486 | |
| | | | | | | | | | | | | | | | | | |
Current period gross write offs | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | |
Consumer Automobile | | | | | | | | | | | | | | | | | | |
Pass | | $ | 80,745 | | | $ | 92,319 | | | $ | 24,538 | | | $ | 20,011 | | | $ | 10,391 | | | $ | 6,952 | | | $ | — | | | $ | — | | | $ | 234,956 | |
Special Mention | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard or Lower | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | $ | 80,745 | | | $ | 92,319 | | | $ | 24,538 | | | $ | 20,011 | | | $ | 10,391 | | | $ | 6,952 | | | $ | — | | | $ | — | | | $ | 234,956 | |
| | | | | | | | | | | | | | | | | | |
Current period gross write offs | | $ | 58 | | | $ | 125 | | | $ | 65 | | | $ | 76 | | | $ | — | | | $ | 6 | | | $ | — | | | $ | — | | | $ | 330 | |
| | | | | | | | | | | | | | | | | | |
Installment loans to individuals | | | | | | | | | | | | | | | | | | |
Pass | | $ | 1,677 | | | $ | 2,707 | | | $ | 1,460 | | | $ | 623 | | | $ | 465 | | | $ | 3,143 | | | $ | — | | | $ | 46 | | | $ | 10,121 | |
Special Mention | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard or Lower | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | $ | 1,677 | | | $ | 2,707 | | | $ | 1,460 | | | $ | 623 | | | $ | 465 | | | $ | 3,143 | | | $ | — | | | $ | 46 | | | $ | 10,121 | |
| | | | | | | | | | | | | | | | | | |
Current period gross write offs | | $ | 108 | | | $ | 5 | | | $ | 21 | | | $ | — | | | $ | 3 | | | $ | 6 | | | $ | 13 | | | $ | 11 | | | $ | 167 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 |
| | Commercial, Financial, and Agricultural | | Real Estate Mortgages | | Installment Loans to Individuals | | |
(In Thousands) | | | Residential | | Commercial | | Construction | | | Totals |
Pass | | $ | 170,812 |
| | $ | 572,591 |
| | $ | 300,679 |
| | $ | 29,202 |
| | $ | 86,639 |
| | $ | 1,159,923 |
|
Special Mention | | 775 |
| | 1,287 |
| | 8,522 |
| | — |
| | — |
| | 10,584 |
|
Substandard | | 3,712 |
| | 2,256 |
| | 14,309 |
| | 150 |
| | — |
| | 20,427 |
|
| | $ | 175,299 |
| | $ | 576,134 |
| | $ | 323,510 |
| | $ | 29,352 |
| | $ | 86,639 |
| | $ | 1,190,934 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 |
|
The information presented in the table above is not required for periods prior to the adoption of CECL. The following table presents the most comparable required information for the prior period, internal credit ratings for the report loan segments as of December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 |
| | Commercial, Financial, and Agricultural | | Real Estate Mortgages | | Consumer automobile | | Other consumer installment loans | | |
(In Thousands) | | | Residential | | Commercial | | Construction | | | | Totals |
Pass | | $ | 184,783 | | | $ | 705,515 | | | $ | 488,993 | | | $ | 43,209 | | | $ | 186,112 | | | $ | 10,361 | | | $ | 1,618,973 | |
Special Mention | | 125 | | | 266 | | | 4,526 | | | — | | | — | | | — | | | 4,917 | |
Substandard | | 5,553 | | | 2,428 | | | 7,113 | | | 99 | | | — | | | — | | | 15,193 | |
| | $ | 190,461 | | | $ | 708,209 | | | $ | 500,632 | | | $ | 43,308 | | | $ | 186,112 | | | $ | 10,361 | | | $ | 1,639,083 | |
Allowance for LoanCredit Losses
An allowanceMaintaining an appropriate Allowance for loan losses (“ALL”Credit Losses ("ACL") is maintaineddependent on various factors, including the ability to absorb losses fromidentify potential problem loans in a timely manner. For commercial construction, residential construction, commercial and industrial, and commercial real estate, an internal credit rating process is used. Management believes that internal credit ratings are the most relevant credit quality indicator for these types of loans. The migration of loans through the various internal credit rating categories is a significant component of the ACL methodology for these loans, which bases the probability of default on this migration. Assigning credit ratings involves judgment. The Company's loan portfolio. The ALL isreview process provide a separate assessment of credit rating accuracy. Credit ratings may be changed based on management’s continuing evaluation of the risk characteristics andongoing monitoring procedures performed by loan officers or credit qualityadministration staff or if specific loan review assessments identify a deterioration or an improvement in the loans.
Management considers the performance of the loan portfolio assessment of current economic conditions, diversification and size ofits impact on the portfolio, adequacy of collateral, pastACL. The Company does not assign internal Credit ratings to smaller balance, homogeneous loans, such as home equity, residential mortgage, and anticipated future loss experience,consumer automobile loans. For these loans, the most relevant credit quality indicator is delinquency status and the amount of non-performing loans.
The Banks' methodology for determining the ALL ismanagement evaluates credit quality 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 totalaging status of the two components represents the Banks' ALL.loan.
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 two 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, historicalHistorical 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 incharge-off and recovery data over the economic cycle.past ten years. 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.ACL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL.ACL.
Activity in the allowance is presented for the three and ninesix months ended SeptemberJune 30, 20172023 and 2016:2022:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2017 |
| | Commercial, Financial, and Agricultural | | Real Estate Mortgages | | Installment Loans to Individuals | | | | |
(In Thousands) | | | Residential | | Commercial | | Construction | | | Unallocated | | Totals |
Beginning Balance | | $ | 1,731 |
| | $ | 5,337 |
| | $ | 3,727 |
| | $ | 172 |
| | $ | 779 |
| | $ | 1,363 |
| | $ | 13,109 |
|
Charge-offs | | (68 | ) | | (155 | ) | | — |
| | — |
| | (55 | ) | | — |
| | (278 | ) |
Recoveries | | 6 |
| | 16 |
| | — |
| | 2 |
| | 18 |
| | — |
| | 42 |
|
Provision | | (81 | ) | | 232 |
| | 300 |
| | (26 | ) | | 144 |
| | (509 | ) | | 60 |
|
Ending Balance | | $ | 1,588 |
| | $ | 5,430 |
| | $ | 4,027 |
| | $ | 148 |
| | $ | 886 |
| | $ | 854 |
| | $ | 12,933 |
|
| | | | Three Months Ended September 30, 2016 | | | Three Months Ended June 30, 2023 |
| | 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 | (In Thousands) | | Residential | | Commercial | | Construction | | Unallocated | | Totals |
Beginning Balance | | $ | 1,273 |
| | $ | 5,851 |
| | $ | 4,001 |
| | $ | 143 |
| | $ | 277 |
| | $ | 972 |
| | $ | 12,517 |
| Beginning Balance | | $ | 3,862 | | | $ | 1,412 | | | $ | 3,481 | | | $ | 184 | | | $ | 2,113 | | | $ | 682 | | | $ | — | | | $ | 11,734 | |
Charge-offs | | (18 | ) | | (4 | ) | | — |
| | — |
| | (67 | ) | | — |
| | (89 | ) | Charge-offs | | — | | | (3) | | | (136) | | | — | | | (237) | | | (79) | | | — | | | (455) | |
Recoveries | | 4 |
| | 8 |
| | 3 |
| | 1 |
| | 16 |
| | — |
| | 32 |
| Recoveries | | 856 | | | 1 | | | 22 | | | — | | | 27 | | | 21 | | | — | | | 927 | |
Provision | | (9 | ) | | (550 | ) | | 642 |
| | (29 | ) | | 111 |
| | 93 |
| | 258 |
| Provision | | (1,699) | | | (332) | | | 824 | | | (6) | | | 543 | | | 56 | | | — | | | (614) | |
Ending Balance | | $ | 1,250 |
| | $ | 5,305 |
| | $ | 4,646 |
| | $ | 115 |
| | $ | 337 |
| | $ | 1,065 |
| | $ | 12,718 |
| Ending Balance | | $ | 3,019 | | | $ | 1,078 | | | $ | 4,191 | | | $ | 178 | | | $ | 2,446 | | | $ | 680 | | | $ | — | | | $ | 11,592 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2022 |
| | Commercial, Financial, and Agricultural | | Real Estate Mortgages | | Consumer automobile | | Other consumer installment | | | | |
(In Thousands) | | | Residential | | Commercial | | Construction | | | | Unallocated | | Totals |
Beginning Balance | | $ | 1,936 | | | $ | 4,801 | | | $ | 5,215 | | | $ | 197 | | | $ | 1,376 | | | $ | 114 | | | $ | 384 | | | $ | 14,023 | |
Charge-offs | | — | | | (15) | | | — | | | — | | | (48) | | | (43) | | | — | | | (106) | |
Recoveries | | 41 | | | 42 | | | 1 | | | 28 | | | 13 | | | 21 | | | — | | | 146 | |
Provision | | 131 | | | (10) | | | 179 | | | (26) | | | (34) | | | 18 | | | 72 | | | 330 | |
Ending Balance | | $ | 2,108 | | | $ | 4,818 | | | $ | 5,395 | | | $ | 199 | | | $ | 1,307 | | | $ | 110 | | | $ | 456 | | | $ | 14,393 | |
Table of Contents | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
t | | Six Months Ended June 30, 2023 |
| | Commercial, Financial, and Agricultural | | Real Estate Mortgages | | Consumer automobile | | Other consumer installment | | | | |
(In Thousands) | | | Residential | | Commercial | | Construction | | | | Unallocated | | Totals |
Beginning Balance | | $ | 1,914 | | | $ | 5,061 | | | $ | 6,110 | | | $ | 188 | | | $ | 1,617 | | | $ | 109 | | | $ | 638 | | | $ | 15,637 | |
Impact of adopting ASC 326 | | 2,656 | | | (3,893) | | | (2,660) | | | (96) | | | 240 | | | 602 | | | (638) | | | (3,789) | |
Charge-offs | | — | | | (81) | | | (139) | | | — | | | (330) | | | (167) | | | — | | | (717) | |
Recoveries | | 961 | | | 3 | | | 25 | | | — | | | 39 | | | 38 | | | — | | | 1,066 | |
Provision | | (2,512) | | | (12) | | | 855 | | | 86 | | | 880 | | | 98 | | | — | | | (605) | |
Ending Balance | | $ | 3,019 | | | $ | 1,078 | | | $ | 4,191 | | | $ | 178 | | | $ | 2,446 | | | $ | 680 | | | $ | — | | | $ | 11,592 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2022 |
| | Commercial, Financial, and Agricultural | | Real Estate Mortgages | | Consumer automobile | | Other consumer installment | | | | |
(In Thousands) | | | Residential | | Commercial | | Construction | | | | Unallocated | | Totals |
Beginning Balance | | $ | 1,946 | | | $ | 4,701 | | | $ | 5,336 | | | $ | 179 | | | $ | 1,411 | | | $ | 111 | | | $ | 492 | | | $ | 14,176 | |
Charge-offs | | — | | | (15) | | | (155) | | | — | | | (177) | | | (103) | | | — | | | (450) | |
Recoveries | | 45 | | | 45 | | | 2 | | | 28 | | | 22 | | | 45 | | | — | | | 187 | |
Provision | | 117 | | | 87 | | | 212 | | | (8) | | | 51 | | | 57 | | | (36) | | | 480 | |
Ending Balance | | $ | 2,108 | | | $ | 4,818 | | | $ | 5,395 | | | $ | 199 | | | $ | 1,307 | | | $ | 110 | | | $ | 456 | | | $ | 14,393 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2017 |
| | Commercial, Financial, and Agricultural | | Real Estate Mortgages | | Installment Loans to Individuals | | | | |
(In Thousands) | | | Residential | | Commercial | | Construction | | | Unallocated | | Totals |
Beginning Balance | | $ | 1,554 |
| | $ | 5,383 |
| | $ | 4,975 |
| | $ | 178 |
| | $ | 416 |
| | $ | 390 |
| | $ | 12,896 |
|
Charge-offs | | (81 | ) | | (540 | ) | | — |
| | — |
| | (186 | ) | | — |
| | (807 | ) |
Recoveries | | 117 |
| | 51 |
| | 1 |
| | 7 |
| | 63 |
| | — |
| | 239 |
|
Provision | | (2 | ) | | 536 |
| | (949 | ) | | (37 | ) | | 593 |
| | 464 |
| | 605 |
|
Ending Balance | | $ | 1,588 |
| | $ | 5,430 |
| | $ | 4,027 |
| | $ | 148 |
| | $ | 886 |
| | $ | 854 |
| | $ | 12,933 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine 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 | | $ | 1,532 |
| | $ | 5,116 |
| | $ | 4,217 |
| | $ | 160 |
| | $ | 243 |
| | $ | 776 |
| | $ | 12,044 |
|
Charge-offs | | (167 | ) | | (11 | ) | | — |
| | — |
| | (171 | ) | | — |
| | (349 | ) |
Recoveries | | 56 |
| | 14 |
| | 8 |
| | 6 |
| | 73 |
| | — |
| | 157 |
|
Provision | | (171 | ) | | 186 |
| | 421 |
| | (51 | ) | | 192 |
| | 289 |
| | 866 |
|
Ending Balance | | $ | 1,250 |
| | $ | 5,305 |
| | $ | 4,646 |
| | $ | 115 |
| | $ | 337 |
| | $ | 1,065 |
| | $ | 12,718 |
|
The shiftsshift in allocation and the changes in the provision for credit losses are primarily due to changes in the credit metrics within the loan portfolio coupled with the adoption of CECL on January 1, 2023. The increase in provision for the three and six month periods ended June 30, 2023 for consumer auto was loan volume driven. The decrease in provision for the three and six month periods ended June 30, 2023 for commercial, financial, and agricultural was the result of improving credit metrics coupled with a large recovery during the three month period ended June 30, 2023 which effected the historical loss rate calculations. The increase in provision for the three and six month periods ended June 30, 2023 for commercial real estate was primarily the result of growth within this segment of the loan provision is due to an increase in residential originations along with a tapering of commercial originations along with the increase in installment loan volume. Within installment loans to individuals is indirect auto lending that was started during 2016.portfolio.
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 SeptemberJune 30, 20172023 and 2016:2022:
| | | | | | | | | | | | | | |
| | June 30, |
| | 2023 | | 2022 |
Owners of residential rental properties | | 18.79 | % | | 19.65 | % |
Owners of commercial rental properties | | 14.80 | % | | 16.11 | % |
|
| | | | | | |
| | 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, 2017 and December 31, 2016:2022: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 |
| | 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 | | $ | 4 | | | $ | 111 | | | $ | 827 | | | $ | — | | | $ | — | | | $ | 19 | | | $ | — | | | $ | 961 | |
Collectively evaluated for impairment | | 1,910 | | | 4,950 | | | 5,283 | | | 188 | | | 1,617 | | | 90 | | | 638 | | | 14,676 | |
Total ending allowance balance | | $ | 1,914 | | | $ | 5,061 | | | $ | 6,110 | | | $ | 188 | | | $ | 1,617 | | | $ | 109 | | | $ | 638 | | | $ | 15,637 | |
| | | | | | | | | | | | | | | | |
Loans: | | | | | | | | | | | | | | | | |
Individually evaluated for impairment | | $ | 698 | | | $ | 4,321 | | | $ | 6,195 | | | $ | — | | | $ | — | | | $ | 19 | | | | | $ | 11,233 | |
| | | | | | | | | | | | | | | | |
Collectively evaluated for impairment | | 189,763 | | | 703,888 | | | 494,437 | | | 43,308 | | | 186,112 | | | 10,342 | | | | | 1,627,850 | |
Total ending loans balance | | $ | 190,461 | | | $ | 708,209 | | | $ | 500,632 | | | $ | 43,308 | | | $ | 186,112 | | | $ | 10,361 | | | | | $ | 1,639,083 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 |
| | 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 | | $ | 207 |
| | $ | 224 |
| | $ | 1,629 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2,060 |
|
Collectively evaluated for impairment | | 1,381 |
| | 5,206 |
| | 2,398 |
| | 148 |
| | 886 |
| | 854 |
| | 10,873 |
|
Total ending allowance balance | | $ | 1,588 |
| | $ | 5,430 |
| | $ | 4,027 |
| | $ | 148 |
| | $ | 886 |
| | $ | 854 |
| | $ | 12,933 |
|
| | | | | | | | | | | | | | |
Loans: | | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Individually evaluated for impairment | | $ | 1,396 |
| | $ | 2,797 |
| | $ | 10,655 |
| | $ | — |
| | $ | — |
| |
|
| | $ | 14,848 |
|
Collectively evaluated for impairment | | 173,903 |
| | 573,337 |
| | 312,855 |
| | 29,352 |
| | 86,639 |
| |
|
| | 1,176,086 |
|
Total ending loans balance | | $ | 175,299 |
| | $ | 576,134 |
| | $ | 323,510 |
| | $ | 29,352 |
| | $ | 86,639 |
| |
|
| | $ | 1,190,934 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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, 2016.2022.
The following sets forth the components of the net periodic benefit/costexpense/(gain) of the domestic non-contributory defined benefit plan for the three and ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, respectively:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
(In Thousands) | | 2023 | | 2022 | | 2023 | | 2022 |
| | | | | | | | |
Interest cost | | $ | 198 | | | $ | 138 | | | $ | 396 | | | $ | 276 | |
Expected return on plan assets | | (326) | | | (413) | | | (652) | | | (825) | |
| | | | | | | | |
| | | | | | | | |
Amortization of net loss | | 37 | | | 18 | | | 74 | | | 35 | |
Net periodic benefit | | $ | (91) | | | $ | (257) | | | $ | (182) | | | $ | (514) | |
|
| | | | | | | | | | | | | | | | |
| | 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, 2016,2022, that it expecteddoes not expect to contribute a minimum of $500,000 to its defined benefit plan in 2017.2023. As of SeptemberJune 30, 2017,2023, there were no contributions of $500,000 made to the plan with additional contributionspension plan.
Note 8. Employee Stock Purchase PlanPlans
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 1,000,0001,500,000 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 ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, there were 1,6111,684 and 1,6171,903 shares issued under the plan, respectively.Plan, respectively, for total proceeds of $39,000 and $44,000.
The Company maintains the 2020 Non-Employee Director Compensation Plan ("Director Plan"). Under this Director Plan, non-employee directors who have not attained specified stock ownership levels are required to receive a portion of their annual compensation in the form of common stock (currently 50% of total annual compensation), with the ability to elect to receive up to 100% of annual compensation in the form of common stock by making a written election prior to the calendar year to which the compensation relates. The Director Plan allows for up to 100,000 shares to be issued. As of June 30, 2023, the Company has issued a total of 39,850 shares of common stock to non-employee directors under the Director Plan in lieu of otherwise payable cash compensation with 5,219 and 6,990 shares issued, respectively, with an associated expense of $130,000 and $168,000 during the three months ended June 30, 2023 and 2022.
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 SeptemberJune 30, 20172023 and December 31, 2016:2022:
| | | | | | | | | | | | | | |
(In Thousands) | | June 30, 2023 | | December 31, 2022 |
Commitments to extend credit | | $ | 159,795 | | | $ | 169,365 | |
Standby letters of credit | | 9,750 | | | 9,915 | |
Credit exposure from the sale of assets with recourse | | 7,358 | | | 7,358 | |
| | $ | 176,903 | | | $ | 186,638 | |
Allowance for credit losses | | $ | 1,199 | | | $ | 143 | |
|
| | | | | | | | |
(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 SeptemberJune 30, 20172023 and December 31, 2016,2022, 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2023 |
(In Thousands) | | Level I | | Level II | | Level III | | Total |
Assets measured on a recurring basis: | | | | | | | | |
Investment securities, available for sale: | | | | | | | | |
U.S. Government and agency securities | | $ | — | | | $ | 3,885 | | | $ | — | | | $ | 3,885 | |
Mortgage-backed securities | | — | | | 9,330 | | | — | | | 9,330 | |
| | | | | | | | |
State and political securities | | — | | | 127,479 | | | — | | | 127,479 | |
Other debt securities | | — | | | 45,932 | | | — | | | 45,932 | |
Investment equity securities: | | | | | | | | |
| | | | | | | | |
Equity securities | | 1,143 | | | — | | | — | | | 1,143 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| | September 30, 2017 |
(In Thousands) | | 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 |
|
State and political securities | | — |
| | 62,327 |
| | — |
| | 62,327 |
|
Other debt securities | | — |
| | 51,973 |
| | — |
| | 51,973 |
|
Financial institution equity securities | | 12,224 |
| | — |
| | — |
| | 12,224 |
|
Non-financial institution equity securities | | 1,259 |
| | — |
| | — |
| | 1,259 |
|
Investment securities, trading: | | | | | | | | |
Financial institution equity securities | | 63 |
| | — |
| | — |
| | 63 |
|
Non-financial institution equity securities | | 147 |
| | — |
| | — |
| | 147 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 |
(In Thousands) | | Level I | | Level II | | Level III | | Total |
Assets measured on a recurring basis: | | | | | | | | |
Investment securities, available for sale: | | | | | | | | |
U.S. Government and agency securities | | $ | — | | | $ | 2,896 | | | $ | — | | | $ | 2,896 | |
Mortgage-backed securities | | — | | | 1,282 | | | — | | | 1,282 | |
| | | | | | | | |
State and political securities | | — | | | 142,809 | | | — | | | 142,809 | |
Other debt securities | | — | | | 46,686 | | | — | | | 46,686 | |
Investment equity securities: | | | | | | | | |
| | | | | | | | |
Equity securities | | 1,142 | | | — | | | — | | | 1,142 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| | 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 SeptemberJune 30, 20172023 and December 31, 2016,2022, 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 | | | June 30, 2023 |
(In Thousands) | | Level I | | Level II | | Level III | | Total | (In Thousands) | | Level I | | Level II | | Level III | | Total |
Assets measured on a non-recurring basis: | | |
| | |
| | |
| | |
| Assets measured on a non-recurring basis: | | | | | | | | |
Impaired loans | | $ | — |
| | $ | — |
| | $ | 12,788 |
| | $ | 12,788 |
| |
Collateral dependent loans | | Collateral dependent loans | | $ | — | | | $ | — | | | $ | 1,564 | | | $ | 1,564 | |
Other real estate owned | | — |
| | — |
| | 108 |
| | 108 |
| Other real estate owned | | — | | | — | | | 83 | | | 83 | |
|
|
| | | | | | | | | | | | | | | | |
| | 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 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 |
(In Thousands) | | Level I | | Level II | | Level III | | Total |
Assets measured on a non-recurring basis: | | | | | | | | |
Impaired loans | | $ | — | | | $ | — | | | $ | 1,923 | | | $ | 1,923 | |
Other real estate owned | | — | | | — | | | 83 | | | 83 | |
| | | | | | | | |
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 SeptemberJune 30, 20172023 and December 31, 2016:2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2023 |
| | Quantitative Information About Level III Fair Value Measurements |
(In Thousands) | | Fair Value | | Valuation Technique(s) | | Unobservable Inputs | | Range | | Weighted Average |
| | | | | | | | | | |
Collateral dependent loans | | $ | 1,564 | | | Appraisal of collateral (1) | | Appraisal adjustments (1) | | (10)% to (24)% | | (22)% |
Other real estate owned | | $ | 83 | | | Appraisal of collateral (1) | | Appraisal adjustments (1) | | (20)% | | (20)% |
|
| | | | | | | | | | | | |
| | September 30, 2017 |
| | Quantitative Information About Level III Fair Value Measurements |
(In Thousands) | | 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)% |
| | 7,035 |
| | Appraisal of collateral (1) | | Appraisal adjustments (1) | | 0 to (20)% | | (16)% |
Other real estate owned | | $ | 108 |
| | 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, 2022 |
| | Quantitative Information About Level III Fair Value Measurements |
(In Thousands) | | Fair Value | | Valuation Technique(s) | | Unobservable Inputs | | Range | | Weighted Average |
| | | | | | | | | | |
Impaired loans | | $ | 1,923 | | | Appraisal of collateral (1) | | Appraisal adjustments (1) | | 0% to (34)% | | (14)% |
Other real estate owned | | $ | 83 | | | Appraisal of collateral (1) | | Appraisal adjustments (1) | | (20)% | | (20)% |
|
| | | | | | | | | | | | |
| | December 31, 2016 |
| | Quantitative Information About Level III Fair Value Measurements |
(In Thousands) | | 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)% |
| | 8,493 |
| | Appraisal of collateral (1) | | Appraisal adjustments (1) | | 0 to (20)% | | (15)% |
Other real estate owned | | $ | 839 |
| | 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 SeptemberJune 30, 20172023 and December 31, 2016:2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Carrying | | Fair | | Fair Value Measurements at June 30, 2023 |
(In Thousands) | | Value | | Value | | Level I | | Level II | | Level III |
Financial assets: | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Loans held for sale (1) | | $ | 3,049 | | | $ | 3,049 | | | $ | 3,049 | | | $ | — | | | $ | — | |
Loans, net | | 1,757,811 | | | 1,723,329 | | | — | | | — | | | 1,723,329 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Financial liabilities: | | | | | | | | | | |
| | | | | | | | | | |
Time deposits & brokered deposits | | 313,402 | | | 307,435 | | | — | | | — | | | 307,435 | |
Short-term borrowings | | 180,410 | | | 180,410 | | | 180,410 | | | — | | | — | |
Long-term borrowings | | 202,692 | | | 198,834 | | | — | | | — | | | 198,834 | |
| | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | |
| | 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 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, June 30, 2023 which approximate the carrying value.
Investment Securities:
The fair value of investment securities available for sale and tradingthe instruments
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Carrying | | Fair | | Fair Value Measurements at December 31, 2022 |
(In Thousands) | | Value | | Value | | Level I | | Level II | | Level III |
Financial assets: | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Loans held for sale (1) | | $ | 3,298 | | | $ | 3,298 | | | $ | 3,298 | | | $ | — | | | $ | — | |
Loans, net | | 1,624,094 | | | 1,594,073 | | | — | | | — | | | 1,594,073 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Financial liabilities: | | | | | | | | | | |
| | | | | | | | | | |
Time deposits & brokered deposits | | 146,282 | | | 137,559 | | | — | | | — | | | 137,559 | |
Short-term borrowings | | 153,349 | | | 153,349 | | | 153,349 | | | — | | | — | |
Long-term borrowings | | 102,783 | | | 99,118 | | | — | | | — | | | 99,118 | |
| | | | | | | | | | |
(1) The financial instrument is equal tocarried at cost at, December 31, 2022 which approximate 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.
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 loansthe instruments
The methods and assumptions used by the Company in estimating fair values of financial instruments is calculatedin accordance with ASC Topic 825, Financial Instruments, as amended by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherentASU 2016-01 which requires public entities to use exit pricing 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 estimatecalculation of the effect of current economic and lending conditions.above tables.
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 Sheet Risk).
Note 12. Stock Options
In 2014,2020, the Company adopted the 2020 Equity Incentive Plan which replaced the 2014 Equity Incentive Plan that did not have any remaining shares available for issuance. The plans are designed to help the Company attract, retain, and motivate employees and non-employee directors. Incentive stock options, non-qualified stock options, and restricted stock, restricted stock units, and other equity-based awards may be granted as part of the plan.
On August 27, 2015,As of January 1, 2023, the Company had a total of 914,000 stock options outstanding. During the six months ended as of June 30, 2023, the Company issued 38,75089,000 stock options with a strike price of $42.03$27.77 to employees that have a five year vesting period andgroup of employees. The options granted in 2023 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 70,00089,000 grants awarded 46,250in 2023, 59,500 of the options have avest in three year vesting periodyears while the 29,500 remaining 23,750 options vest in five 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 |
Stock options outstanding as of June 30, 2023 are presented below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock Options Granted |
Date | | Shares | | Forfeited | | Cash Settlement | | Outstanding | | Strike Price | | Vesting Period | | Expiration |
| | | | | | | | | | | | | | |
January 20, 2023 | | 59,500 | | | — | | | — | | | 59,500 | | | $ | 27.77 | | | 3 years | | 10 years |
January 20, 2023 | | 29,500 | | | — | | | — | | | 29,500 | | | 27.77 | | | 5 years | | 10 years |
January 18, 2022 | | 156,000 | | | — | | | — | | | 156,000 | | | 24.10 | | | 3 years | | 10 years |
January 18, 2022 | | 78,000 | | | — | | | — | | | 78,000 | | | 24.10 | | | 5 years | | 10 years |
April 9, 2021 | | 156,500 | | | — | | | — | | | 156,500 | | | 24.23 | | | 3 years | | 10 years |
April 9, 2021 | | 78,000 | | | — | | | — | | | 78,000 | | | 24.23 | | | 5 years | | 10 years |
March 11, 2020 | | 119,300 | | | — | | | — | | | 119,300 | | | 25.34 | | | 3 years | | 10 years |
March 11, 2020 | | 119,200 | | | — | | | — | | | 119,200 | | | 25.34 | | | 5 years | | 10 years |
March 15, 2019 | | 120,900 | | | (18,300) | | | — | | | 102,600 | | | 28.01 | | | 3 years | | 10 years |
March 15, 2019 | | 119,100 | | | (17,700) | | | — | | | 101,400 | | | 28.01 | | | 5 years | | 10 years |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
August 27, 2015 | | 58,125 | | | (26,250) | | | (28,875) | | | 3,000 | | | 28.02 | | | 5 years | | 10 years |
A summary of stock option activity is presented below:
| | | | | | | | | | | | | | | | | | |
| | June 30, 2023 | | |
| | Shares | | Weighted Average Exercise Price | | | | |
Outstanding, beginning of year | | 914,000 | | | $ | 25.34 | | | | | |
Granted | | 89,000 | | | 27.77 | | | | | |
| | | | | | | | |
Forfeited | | — | | | — | | | | | |
Expired | | — | | | — | | | | | |
Outstanding, end of period | | 1,003,000 | | | $ | 25.56 | | | | | |
| | | | | | | | |
Exercisable, end of period | | 224,900 | | | $ | 26.59 | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
|
| | | | | | | | | | | | | | |
| | 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 straightlinestraight line 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 stock options grantedis estimated using the Black-Scholes option-pricingoption pricing model. The risk-free interest ratefollowing is based on the United States Treasury bond with a similar term to the expected lifesummary of the assumptions used in this model for stock options atgranted for 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.six months ended June 30, 2023:
| | | | | | | | | | | | | | |
| | Six months ended June 30, | | | | | | |
| | 2023 | | | | |
Risk-free interest rate | | 3.76 | % | | | | | | |
Expected volatility | | 31 | % | | | | | | |
Expected Annual dividend | | $ | 1.28 | | | | | | | |
Expected life | | 6.84 years | | | | | | |
Weighted average grant date fair value per option | | $ | 6.11 | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
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$233,000 and $21,000$486,000 for the three and nine month periodssix months ended SeptemberJune 30, 20172023 compared to $6,000$453,000 and $17,000$768,000 for the same periods of 2016.2022. As of SeptemberJune 30, 2017, no2023, a total of 224,900 stock options were exercisable and the weighted average years to expiration were 9of these options was 6.19 years. The fair value of options granted during the three and nine month periods ending September 30, 2017 was approximately zero and $2,173,000 respectively or zero and $31.04 per award. Total unrecognized compensation cost for non-vested shares, $99,000,options was $1,673,000 and will be recognized over their weighted average remaining vesting period of 3.561.15 years.
Note 13. Reclassification of Comparative Amounts
Certain comparative amounts for the prior period have been reclassified to conform to current period presentations. Such reclassifications had no effect on net income or shareholders’ equity.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 effects of external events, including natural disasters, national or global health emergencies, and events of armed conflict in other countries; or (vi) the effect of changes in the business cycle and downturns in the local, regional or national economies;economies, including the effects of inflation,; and (vi)(vii) the Risk Factors identified in Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 20162022 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 OperationOperations
EARNINGS SUMMARY
Comparison of the Three and NineSix Months Ended SeptemberJune 30, 20172023 and 20162022
Summary Results
Net income for the three and six months ended SeptemberJune 30, 20172023 was $3,284,000$4.2 million and $8.8 million, compared to $3,059,000$4.2 million and $7.7 million for the same periodperiods of 2016 as2022. Results for the three and six months ended June 30, 2023 compared to 2022 were impacted by a decrease in after-tax securities gains increased $25,000losses of $12,000 (from a gainloss of $172,000$43,000 to a loss of $197,000).$31,000) for the three month period and a decrease in after-tax securities losses of $29,000 (from a loss of $91,000 to a loss of $62,000) for the six month period. In addition, bank-owned life insurance income increased due to a gain on death benefit of $380,000 during the six months ended June 30, 2023, while an after-tax loss of $201,000 related to a branch closure negatively impacted the six months ended June 30, 2022. The provision for credit losses decreased $1.5 million and $1.6 million for the three and six months ended June 30, 2023 due primarily to a recovery for credit losses for the three and six months end June 30, 2023 of $1.2 million and $1.1 million, respectively, relating to a commercial loan compared to a provision of $330,000 and $480,000 for the 2022 periods. The decrease in the provision for credit losses also resulted from improving loan portfolio credit metrics and a minimal level of loan charge-offs.Basic and diluted earnings per share for the three and six months ended June 30, 2023 were $0.59 and $1.25. Basic and diluted earnings per share for the three and six months ended SeptemberJune 30, 20172022 were $0.60 and 2016 were $0.70 and $0.65, respectively. Return$1.08. Annualized return on average assets andwas 0.80% for three months ended June 30, 2023, compared to 0.88% for the corresponding period of 2022. Annualized return on average assets was 0.86% for the six months ended June 30, 2023, compared to 0.80% for the corresponding period of 2022.Annualized return on average equity were 0.93% and 9.43%was 9.53% for the three months ended SeptemberJune 30, 20172023, compared to 0.91% and 8.69%10.15% for the corresponding period of 2016.2022. Annualized return on average equity was 10.37% for the six months ended June 30, 2023, compared to 9.20% for the corresponding period of 2022. Net income from core operations (“operatingcore earnings”), which is a non-generally accepted accounting principles (GAAP) measure of net income excluding net securities gains or losses, was $3,087,000$4.2 million and $8.9 million for the three and six months ended SeptemberJune 30, 20172023 compared to $2,887,000$4.3 million and $7.8 million for the same periodperiods of 2016. Basic and diluted operating2022. Core earnings per share for the three and six months ended SeptemberJune 30, 2017 were $0.662023 was $0.60 and $1.26 basic and diluted, compared to $0.61 and $1.10 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 dilutedcore earnings per share for the nine months ended September 30, 2017 and 2016 were $1.92 and $2.01, respectively. Return on average assets and return on average equity were 0.87% and 8.69% for the nine months ended September 30, 2017 compared to 0.95% and 9.14% for the corresponding periodsame periods of 2016. Net income from core operations (“operating earnings”) increased to $8,737,000 for the nine months ended September 30, 2017 compared to $8,719,000 for the same period of 2016. Basic and diluted operating earnings per share for the nine months ended September 30, 2017 were $1.85 compared to $1.84 basic and diluted for the corresponding period of 2016.2022.
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, | (Dollars in Thousands, Except Per Share Data) | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2017 | | 2016 | | 2017 | | 2016 | | | 2023 | | 2022 | | 2023 | | 2022 |
GAAP net income | | $ | 3,284 |
| | $ | 3,059 |
| | $ | 9,057 |
| | $ | 9,529 |
| GAAP net income | | $ | 4,171 | | | $ | 4,231 | | | $ | 8,829 | | | $ | 7,663 | |
Less: net securities gains, net of tax | | 197 |
| | 172 |
| | 320 |
| | 810 |
| |
Non-GAAP operating earnings | | $ | 3,087 |
| | $ | 2,887 |
| | $ | 8,737 |
| | $ | 8,719 |
| |
Net securities losses, net of tax | | Net securities losses, net of tax | | 31 | | | 43 | | | 62 | | | 91 | |
Non-GAAP core earnings | | Non-GAAP core earnings | | $ | 4,202 | | | $ | 4,274 | | | $ | 8,891 | | | $ | 7,754 | |
|
| | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Return on average assets (ROA) | | 0.93 | % | | 0.91 | % | | 0.87 | % | | 0.95 | % |
Less: net securities gains, net of tax | | 0.05 | % | | 0.05 | % | | 0.03 | % | | 0.08 | % |
Non-GAAP operating ROA | | 0.88 | % | | 0.86 | % | | 0.84 | % | | 0.87 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
GAAP Return on average assets (ROA) | | 0.80 | % | | 0.88 | % | | 0.86 | % | | 0.80 | % |
Net securities losses, net of tax | | — | % | | 0.01 | % | 8 | — | % | | 0.01 | % |
Non-GAAP core ROA | | 0.80 | % | | 0.89 | % | | 0.86 | % | | 0.81 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
GAAP Return on average equity (ROE) | | 9.53 | % | | 10.15 | % | | 10.37 | % | | 9.20 | % |
Net securities losses, net of tax | | 0.07 | % | | 0.10 | % | | 0.07 | % | | 0.11 | % |
Non-GAAP core ROE | . | 9.60 | % | | 10.25 | % | | 10.44 | % | | 9.31 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
GAAP Basic earnings per share (EPS) | | $ | 0.59 | | | $ | 0.60 | | | $ | 1.25 | | | $ | 1.08 | |
Net securities losses, net of tax | | 0.01 | | | 0.01 | | | 0.01 | | | 0.02 | |
Non-GAAP core operating EPS | | $ | 0.60 | | | $ | 0.61 | | | $ | 1.26 | | | $ | 1.10 | |
|
| | | | | | | | | | | | |
| | 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 June 30, | | Six Months Ended June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
GAAP Diluted EPS | | $ | 0.59 | | | $ | 0.60 | | | $ | 1.25 | | | $ | 1.08 | |
Net securities losses, net of tax | | 0.01 | | | 0.01 | | | 0.01 | | | 0.02 | |
Non-GAAP diluted core EPS | | $ | 0.60 | | | $ | 0.61 | | | $ | 1.26 | | | $ | 1.10 | |
|
| | | | | | | | | | | | | | | | |
| | 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 six months ended SeptemberJune 30, 20172023 increased to $12,948,000$6,709,000 and $12,298,00 compared to $11,660,000 for the same periodperiods of 2016. Loan portfolio income increased due to the impact of portfolio growth, primarily2022. The increase in home equity products and indirect auto lending. The loan portfolio income increase was offset by a decrease in investment portfolio interest due to a slight declinean increase in the average taxable equivalent yield asloan portfolio balance coupled with an increase in average rate earned on the durationportfolio. Investment securities income has been impacted primarily by an increase in the investmentaverage rate earned on the portfolio continuesas lower yielding legacy investments matured. The increase in dividend and other interest income is due primarily to be shortened in order to reduce interest rate 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.
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 incomein dividends received 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.FHLB restricted stock.
Interest and dividend income composition for the three and ninesix months ended SeptemberJune 30, 20172023 and 20162022 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | June 30, 2023 | | June 30, 2022 | | Change |
(In Thousands) | | Amount | | % Total | | Amount | | % Total | | Amount | | % |
Loans including fees | | $ | 19,846 | | | 90.65 | | % | | $ | 13,620 | | | 89.70 | | % | | $ | 6,226 | | | 45.71 | | % |
Investment securities: | | | | | | | | | | | | | | | |
Taxable | | 1,287 | | | 5.88 | | | | 864 | | | 5.69 | | | | 423 | | | 48.96 | | |
Tax-exempt | | 118 | | | 0.54 | | | | 194 | | | 1.28 | | | | (76) | | | (39.18) | | |
Dividend and other interest income | | 642 | | | 2.93 | | | | 506 | | | 3.33 | | | | 136 | | | 26.88 | | |
Total interest and dividend income | | $ | 21,893 | | | 100.00 | | % | | $ | 15,184 | | | 100.00 | | % | | $ | 6,709 | | | 44.18 | | % |
| | | | Three Months Ended | | | Six Months Ended | |
| | September 30, 2017 | | September 30, 2016 | | Change | | | June 30, 2023 | | June 30, 2022 | | Change | |
(In Thousands) | | Amount | | % Total | | Amount | | % Total | | Amount | | % | (In Thousands) | | Amount | | % Total | | Amount | | % Total | | Amount | | % | |
Loans including fees | | $ | 11,906 |
| | 91.95 | % | | $ | 10,541 |
| | 90.40 | % | | $ | 1,365 |
| | 12.95 |
| % | Loans including fees | | $ | 37,851 | | | 90.65 | | % | | $ | 26,658 | | | 90.49 | | % | | $ | 11,193 | | | 41.99 | | % |
Investment securities: | | |
| | | | |
| | | | |
| | |
| | Investment securities: | | | | | | | | | | | | | |
Taxable | | 553 |
| | 4.27 | | 601 |
| | 5.15 | | (48 | ) | | (7.99 | ) | | Taxable | | 2,505 | | | 6.00 | | | 1,601 | | | 5.43 | | | 904 | | | 56.46 | | |
Tax-exempt | | 319 |
| | 2.46 | | 329 |
| | 2.82 | | (10 | ) | | (3.04 | ) | | Tax-exempt | | 296 | | | 0.71 | | | 358 | | | 1.22 | | | (62) | | | (17.32) | | |
Dividend and other interest income | | 170 |
| | 1.32 | | 189 |
| | 1.63 | | (19 | ) | | (10.05 | ) | | Dividend and other interest income | | 1,105 | | | 2.64 | | | 842 | | | 2.86 | | | 263 | | | 31.24 | | |
Total interest and dividend income | | $ | 12,948 |
| | 100.00 | % | | $ | 11,660 |
| | 100.00 | % | | $ | 1,288 |
| | 11.05 |
| % | Total interest and dividend income | | $ | 41,757 | | | 100.00 | | % | | $ | 29,459 | | | 100.00 | | % | | $ | 12,298 | | | 41.75 | | % |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended | |
| | September 30, 2017 | | September 30, 2016 | | Change | |
(In Thousands) | | Amount | | % Total | | Amount | | % Total | | Amount | | % | |
Loans including fees | | $ | 33,642 |
| | 91.32 | % | | $ | 31,362 |
| | 89.46 | % | | $ | 2,280 |
| | 7.27 |
| % |
Investment securities: | | |
| | | | | |
| | | | | |
| | |
| |
Taxable | | 1,665 |
| | 4.52 | | | 1,825 |
| | 5.21 | | | (160 | ) | | (8.77 | ) | |
Tax-exempt | | 940 |
| | 2.55 | | | 1,203 |
| | 3.43 | | | (263 | ) | | (21.86 | ) | |
Dividend and other interest income | | 592 |
| | 1.61 | | | 666 |
| | 1.90 | | | (74 | ) | | (11.11 | ) | |
Total interest and dividend income | | $ | 36,839 |
| | 100.00 | % | | $ | 35,056 |
| | 100.00 | % | | $ | 1,783 |
| | 5.09 |
| % |
Interest Expense
Interest expense for the three and six months ended SeptemberJune 30, 20172023 increased $83,000 to $1,496,000$7,170,000 and $11,314,000 compared to $1,413,000the same periods of 2022. Interest-bearing deposit interest expense increased significantly due a time deposit gathering campaign that generated funding for the same period of 2016. The increase in interest expense is the result of growth withinloan portfolio. In addition, competition for deposits along with the deposit portfolio and the lengtheningimpact of the time deposit portfolio as part of a strategy to build balance sheet protection in a rising rate environment offset bycontributed to the increase in deposit interest expense. Brokered deposits have also been utilized as a decreasefunding source to supplement in market deposit gathering efforts. Short and long-term borrowing utilization.interest expenses increased as borrowings were utilized to fund a portion of the growth in the loan portfolio.
Interest expense for the nine months ended September 30, 2017 increased $81,000 from the same period of 2016. The reasons noted for the three month period comparison also apply to the nine month period.
Interest expense composition for the three and ninesix months ended SeptemberJune 30, 20172023 and 20162022 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | June 30, 2023 | | June 30, 2022 | | Change |
(In Thousands) | | Amount | | % Total | | Amount | | % Total | | Amount | | % |
Deposits | | $ | 4,851 | | | 57.02 | | % | | $ | 710 | | | 53.10 | | % | | $ | 4,141 | | | 583.24 | | % |
Short-term borrowings | | 2,232 | | | 26.24 | | | | 2 | | | 0.15 | | | | 2,230 | | | n/m | |
Long-term borrowings | | 1,424 | | | 16.74 | | | | 625 | | | 46.75 | | | | 799 | | | 127.84 | | |
Total interest expense | | $ | 8,507 | | | 100.00 | | % | | $ | 1,337 | | | 100.00 | | % | | $ | 7,170 | | | 536.28 | | % |
| | | | Three Months Ended | | | Six Months Ended |
| | September 30, 2017 | | September 30, 2016 | | Change | | | June 30, 2023 | | June 30, 2022 | | Change |
(In Thousands) | | Amount | | % Total | | Amount | | % Total | | Amount | | % | (In Thousands) | | Amount | | % Total | | Amount | | % Total | | Amount | | % |
Deposits | | $ | 1,058 |
| | 70.72 | % | | $ | 909 |
| | 64.33 | % | | $ | 149 |
| | 16.39 |
| % | Deposits | | $ | 8,223 | | | 58.43 | | % | | $ | 1,498 | | | 54.30 | | % | | $ | 6,725 | | | 448.93 | | % |
Short-term borrowings | | 31 |
| | 2.07 | | 7 |
| | 0.50 | | 24 |
| | 342.86 |
| | Short-term borrowings | | 3,672 | | | 26.09 | | | 3 | | | 0.11 | | | 3,669 | | | n/m | |
Long-term borrowings | | 407 |
| | 27.21 | | | 497 |
| | 35.17 | | | (90 | ) | | (18.11 | ) | | Long-term borrowings | | 2,178 | | | 15.48 | | | 1,258 | | | 45.59 | | | 920 | | | 73.13 | | |
Total interest expense | | $ | 1,496 |
| | 100.00 | % | | $ | 1,413 |
| | 100.00 | % | | $ | 83 |
| | 5.87 |
| % | Total interest expense | | $ | 14,073 | | | 100.00 | | % | | $ | 2,759 | | | 100.00 | | % | | $ | 11,314 | | | 410.08 | | % |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended |
| | September 30, 2017 | | September 30, 2016 | | Change |
(In Thousands) | | Amount | | % Total | | Amount | | % Total | | Amount | | % |
Deposits | | $ | 2,968 |
| | 70.22 | % | | $ | 2,624 |
| | 63.29 | % | | $ | 344 |
| | 13.11 |
| % |
Short-term borrowings | | 39 |
| | 0.92 | | | 41 |
| | 0.99 | | | (2 | ) | | (4.88 | ) | |
Long-term borrowings | | 1,220 |
| | 28.86 | | | 1,481 |
| | 35.72 | | | (261 | ) | | (17.62 | ) | |
Total interest expense | | $ | 4,227 |
| | 100.00 | % | | $ | 4,146 |
| | 100.00 | % | | $ | 81 |
| | 1.95 |
| % |
Net Interest Margin
The net interest margin (“NIM”) for the three and six months ended SeptemberJune 30, 20172023 was 3.57%2.77% and 2.92%, compared to 3.37%3.12% and 3.03% for the corresponding periodperiods of 2016.2022. The impact of the decreasing investment portfolio balance was offset by 9.68% growthdecrease 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 causedfor the three and six month periods was driven by an increase in the rate paid on interest-bearing liabilities of 198 and 161 basis points ("bps"), respectively. The FOMC rate increases during 2022 and 2023 contributed to the increases in rate paid on interest-bearing liabilities as the rate paid on short-term borrowings increased 513 bps and 498 bps for the three and six month periods ended June 30, 2023 compared to the same periods of 2022. Short-term borrowings increased in volume and rate paid as this funding source was utilized to provide funding for the growth in corethe loan portfolio, resulting in an increase of $2,230,000 and $3,669,000 in expense for the three and six month periods ended June 30, 2023 compared to the same periods of 2022. The rate paid on interest-bearing deposits wasincreased 158 and 127 bps for the lengtheningthree and six month periods ended June 30, 2023 compared to the corresponding periods of 2022 due to the FOMC rate actions and an increase in competition for deposits. The rates paid on time deposits significantly contributed to the increase in funding costs as rates paid for the three and six month periods ended June 30, 2023 compared to the same periods of 2022 increased 266 bps and 211 bps, respectively, as deposit gathering campaigns initiated in the latter part of 2022 continued throughout 2023. In addition, brokered deposit have been utilized to assist with the funding of the loan portfolio growth and contributed to the increase in time deposit funding costs. Partially offsetting the increase in funding cost was an increases in the yield on interest-earning assets and growth in the average balance of the earning asset portfolio.
The NIMaverage loan portfolio balance increased $291,207,000 and $278,882,000 for the nine months ended September 30, 2017 was 3.47% compared to 3.45%three and six month periods, respectively, as the average yield on the portfolio increased 81 and 71 bps for the same periodperiods resulting in loan interest income on a fully taxable equivalent basis increasing $6,254,000 and $11,250,000. The three and six month periods ended June 30, 2023 were impacted by an increase of 2016. The impact of the decreasing investment portfolio balance was partially offset by growth109 and 99 bps in the balance ofyield earned on the average loansecurities portfolio from September 30, 2016 to September 30, 2017. The rate on interest-bearing liabilities decreased slightly as legacy securities matured with the usage of borrowed funds declined.reinvested at higher rates.
The following is a schedule of average balances and associated yields for the three and ninesix months ended SeptemberJune 30, 20172023 and 2016:
|
| | | | | | | | | | | | | | | | | | | | | | |
| | AVERAGE BALANCES AND INTEREST RATES |
| | Three Months Ended September 30, 2017 | | Three Months Ended September 30, 2016 |
(In Thousands) | | 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 | % |
All other loans | | 1,105,615 |
| | 11,580 |
| | 4.16 | % | | 1,011,393 |
| | 10,243 |
| | 4.03 | % |
Total loans (2) | | 1,159,465 |
| | 12,074 |
| | 4.13 | % | | 1,057,108 |
| | 10,695 |
| | 4.02 | % |
| | | | | | | | | | | | |
Taxable securities | | 83,106 |
| | 674 |
| | 3.24 | % | | 93,893 |
| | 725 |
| | 3.09 | % |
Tax-exempt securities (3) | | 53,320 |
| | 483 |
| | 3.62 | % | | 49,231 |
| | 498 |
| | 4.05 | % |
Total securities | | 136,426 |
| | 1,157 |
| | 3.39 | % | | 143,124 |
| | 1,223 |
| | 3.42 | % |
| | | | | | | | | | | | |
Interest-bearing deposits | | 14,085 |
| | 49 |
| | 1.38 | % | | 48,125 |
| | 65 |
| | 0.54 | % |
| | | | | | | | | | | | |
Total interest-earning assets | | 1,309,976 |
| | 13,280 |
| | 4.02 | % | | 1,248,357 |
| | 11,983 |
| | 3.82 | % |
| | | | | | | | | | | | |
Other assets | | 101,035 |
| | |
| | |
| | 101,312 |
| | |
| | |
|
| | | | | | | | | | | | |
Total assets | | $ | 1,411,011 |
| | |
| | |
| | $ | 1,349,669 |
| | |
| | |
|
| | | | | | | | | | | | |
Liabilities and shareholders’ equity: | | |
| | |
| | |
| | |
| | |
| | |
|
Savings | | $ | 157,341 |
| | 15 |
| | 0.04 | % | | $ | 151,464 |
| | 15 |
| | 0.04 | % |
Super Now deposits | | 203,531 |
| | 140 |
| | 0.27 | % | | 184,440 |
| | 107 |
| | 0.23 | % |
Money market deposits | | 284,155 |
| | 267 |
| | 0.37 | % | | 245,643 |
| | 170 |
| | 0.28 | % |
Time deposits | | 206,563 |
| | 636 |
| | 1.22 | % | | 223,082 |
| | 617 |
| | 1.10 | % |
Total interest-bearing deposits | | 851,590 |
| | 1,058 |
| | 0.49 | % | | 804,629 |
| | 909 |
| | 0.45 | % |
| | | | | | | | | | | | |
Short-term borrowings | | 19,127 |
| | 31 |
| | 0.64 | % | | 15,748 |
| | 7 |
| | 0.18 | % |
Long-term borrowings | | 81,107 |
| | 407 |
| | 1.96 | % | | 91,025 |
| | 497 |
| | 2.14 | % |
Total borrowings | | 100,234 |
| | 438 |
| | 1.71 | % | | 106,773 |
| | 504 |
| | 1.85 | % |
| | | | | | | | | | | | |
Total interest-bearing liabilities | | 951,824 |
| | 1,496 |
| | 0.62 | % | | 911,402 |
| | 1,413 |
| | 0.61 | % |
| | | | | | | | | | | | |
Demand deposits | | 304,244 |
| | |
| | |
| | 281,586 |
| | |
| | |
|
Other liabilities | | 15,708 |
| | |
| | |
| | 15,916 |
| | |
| | |
|
Shareholders’ equity | | 139,235 |
| | |
| | |
| | 140,765 |
| | |
| | |
|
| | | | | | | | | | | | |
Total liabilities and shareholders’ equity | | $ | 1,411,011 |
| | |
| | |
| | $ | 1,349,669 |
| | |
| | |
|
Interest rate spread | | |
| | |
| | 3.40 | % | | |
| | |
| | 3.21 | % |
Net interest income/margin | | |
| | $ | 11,784 |
| | 3.57 | % | | |
| | $ | 10,570 |
| | 3.37 | % |
2022: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | AVERAGE BALANCES AND INTEREST RATES |
| | Three Months Ended June 30, 2023 | | Three Months Ended June 30, 2022 |
(In Thousands) | | Average Balance (1) | | Interest | | Average Rate | | Average Balance (1) | | Interest | | Average Rate |
Assets: | | | | | | | | | | | | |
Tax-exempt loans (3) | | $ | 66,613 | | | $ | 461 | | | 2.78 | % | | $ | 52,886 | | | $ | 331 | | | 2.51 | % |
All other loans | | 1,672,111 | | | 19,482 | | | 4.67 | % | | 1,394,631 | | | 13,358 | | | 3.84 | % |
Total loans (2) | | 1,738,724 | | | 19,943 | | | 4.60 | % | | 1,447,517 | | | 13,689 | | | 3.79 | % |
| | | | | | | | | | | | |
Federal funds sold | | — | | | — | | | n/a | | 48,352 | | | 154 | | | 1.28 | % |
| | | | | | | | | | | | |
Taxable securities | | 190,862 | | | 1,807 | | | 3.84 | % | | 154,484 | | | 1,048 | | | 2.75 | % |
Tax-exempt securities (3) | | 23,310 | | | 150 | | | 2.61 | % | | 45,824 | | | 245 | | | 2.17 | % |
Total securities | | 214,172 | | | 1,957 | | | 3.71 | % | | 200,308 | | | 1,293 | | | 2.62 | % |
| | | | | | | | | | | | |
Interest-bearing balances in other financial institutions | | 9,961 | | | 122 | | | 4.91 | % | | 102,172 | | | 168 | | | 0.66 | % |
| | | | | | | | | | | | |
Total interest-earning assets | | 1,962,857 | | | 22,022 | | | 4.50 | % | | 1,798,349 | | | 15,304 | | | 3.42 | % |
| | | | | | | | | | | | |
Other assets | | 133,239 | | | | | | | 131,117 | | | | | |
| | | | | | | | | | | | |
Total assets | | $ | 2,096,096 | | | | | | | $ | 1,929,466 | | | | | |
| | | | | | | | | | | | |
Liabilities and shareholders’ equity: | | | | | | | | | | | | |
Savings | | $ | 232,889 | | | 155 | | | 0.27 | % | | $ | 248,063 | | | 24 | | | 0.04 | % |
Super Now deposits | | 271,438 | | | 913 | | | 1.35 | % | | 388,002 | | | 239 | | | 0.25 | % |
Money market deposits | | 293,682 | | | 1,665 | | | 2.27 | % | | 304,636 | | | 210 | | | 0.28 | % |
Time deposits | | 261,947 | | | 2,118 | | | 3.24 | % | | 164,301 | | | 237 | | | 0.58 | % |
Total interest-bearing deposits | | 1,059,956 | | | 4,851 | | | 1.84 | % | | 1,105,002 | | | 710 | | | 0.26 | % |
| | | | | | | | | | | | |
Short-term borrowings | | 169,723 | | | 2,232 | | | 5.27 | % | | 5,636 | | | 2 | | | 0.14 | % |
Long-term borrowings | | 182,719 | | | 1,424 | | | 3.13 | % | | 112,901 | | | 625 | | | 2.22 | % |
Total borrowings | | 352,442 | | | 3,656 | | | 4.16 | % | | 118,537 | | | 627 | | | 2.12 | % |
| | | | | | | | | | | | |
Total interest-bearing liabilities | | 1,412,398 | | | 8,507 | | | 2.42 | % | | 1,223,539 | | | 1,337 | | | 0.44 | % |
| | | | | | | | | | | | |
Demand deposits | | 484,607 | | | | | | | 518,467 | | | | | |
Other liabilities | | 24,059 | | | | | | | 20,708 | | | | | |
Shareholders’ equity | | 175,032 | | | | | | | 166,752 | | | | | |
| | | | | | | | | | | | |
Total liabilities and shareholders’ equity | | $ | 2,096,096 | | | | | | | $ | 1,929,466 | | | | | |
Interest rate spread (3) | | | | | | 2.08 | % | | | | | | 2.98 | % |
Net interest income/margin (3) | | | | $ | 13,515 | | | 2.77 | % | | | | $ | 13,967 | | | 3.12 | % |
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% and are reconciled to the equivalent GAAP
measure below the tables.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | AVERAGE BALANCES AND INTEREST RATES |
| | Six Months Ended June 30, 2023 | | Six Months Ended June 30, 2022 |
(In Thousands) | | Average Balance (1) | | Interest | | Average Rate | | Average Balance (1) | | Interest | | Average Rate |
Assets: | | | | | | | | | | | | |
Tax-exempt loans (3) | | $ | 65,669 | | | $ | 909 | | | 2.79 | % | | $ | 50,775 | | | $ | 639 | | | 2.54 | % |
All other loans | | 1,636,798 | | | 37,133 | | | 4.57 | % | | 1,372,810 | | | 26,153 | | | 3.84 | % |
Total loans (2) | | 1,702,467 | | | 38,042 | | | 4.51 | % | | 1,423,585 | | | 26,792 | | | 3.80 | % |
| | | | | | | | | | | | |
Federal funds sold | | — | | | — | | | n/a | | 49,171 | | | 247 | | | 1.01 | % |
| | | | | | | | | | | | |
Taxable securities | | 186,168 | | | 3,386 | | | 3.67 | % | | 149,489 | | | 1,968 | | | 2.67 | % |
Tax-exempt securities (3) | | 28,409 | | | 375 | | | 2.66 | % | | 43,416 | | | 453 | | | 2.12 | % |
Total securities | | 214,577 | | | 3,761 | | | 3.53 | % | | 192,905 | | | 2,421 | | | 2.54 | % |
| | | | | | | | | | | | |
Interest-bearing balances in other financial institutions | | 9,985 | | | 224 | | | 4.52 | % | | 129,704 | | | 228 | | | 0.35 | % |
| | | | | | | | | | | | |
Total interest-earning assets | | 1,927,029 | | | 42,027 | | | 4.20 | % | | 1,795,365 | | | 29,688 | | | 3.34 | % |
| | | | | | | | | | | | |
Other assets | | 132,561 | | | | | | | 128,624 | | | | | |
| | | | | | | | | | | | |
Total assets | | $ | 2,059,590 | | | | | | | $ | 1,923,989 | | | | | |
| | | | | | | | | | | | |
Liabilities and shareholders’ equity: | | | | | | | | | | | | |
Savings | | $ | 238,067 | | | 275 | | | 0.23 | % | | $ | 244,528 | | | 46 | | | 0.04 | % |
Super Now deposits | | 318,669 | | | 1,852 | | | 1.17 | % | | 379,496 | | | 434 | | | 0.23 | % |
Money market deposits | | 291,719 | | | 2,945 | | | 2.04 | % | | 301,744 | | | 396 | | | 0.26 | % |
Time deposits | | 225,414 | | | 3,151 | | | 2.82 | % | | 177,487 | | | 622 | | | 0.71 | % |
Total interest-bearing deposits | | 1,073,869 | | | 8,223 | | | 1.54 | % | | 1,103,255 | | | 1,498 | | | 0.27 | % |
| | | | | | | | | | | | |
Short-term borrowings | | 145,871 | | | 3,672 | | | 5.09 | % | | 5,416 | | | 3 | | | 0.11 | % |
Long-term borrowings | | 151,169 | | | 2,178 | | | 2.91 | % | | 114,077 | | | 1,258 | | | 2.23 | % |
Total borrowings | | 297,040 | | | 5,850 | | | 3.98 | % | | 119,493 | | | 1,261 | | | 2.13 | % |
| | | | | | | | | | | | |
Total interest-bearing liabilities | | 1,370,909 | | | 14,073 | | | 2.07 | % | | 1,222,748 | | | 2,759 | | | 0.46 | % |
| | | | | | | | | | | | |
Demand deposits | | 491,356 | | | | | | | 512,441 | | | | | |
Other liabilities | | 27,050 | | | | | | | 22,184 | | | | | |
Shareholders’ equity | | 170,275 | | | | | | | 166,616 | | | | | |
| | | | | | | | | | | | |
Total liabilities and shareholders’ equity | | $ | 2,059,590 | | | | | | | $ | 1,923,989 | | | | | |
Interest rate spread (3) | | | | | | 2.13 | % | | | | | | 2.88 | % |
Net interest income/margin (3) | | | | $ | 27,954 | | | 2.92 | % | | | | $ | 26,929 | | | 3.03 | % |
1. Information on this table has been calculated using average daily balance sheets to obtain average balances. |
| | | | | | | | | | | | | | | | | | | | | | |
| | AVERAGE BALANCES AND INTEREST RATES |
| | Nine Months Ended September 30, 2017 | | Nine Months Ended September 30, 2016 |
(In Thousands) | | 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 | % |
All other loans | | 1,081,148 |
| | 32,774 |
| | 4.05 | % | | 999,685 |
| | 30,417 |
| | 4.06 | % |
Total loans (2) | | 1,127,900 |
| | 34,089 |
| | 4.04 | % | | 1,048,889 |
| | 31,849 |
| | 4.06 | % |
| | | | | | | | | | | | |
Taxable securities | | 85,417 |
| | 2,039 |
| | 3.18 | % | | 95,652 |
| | 2,344 |
| | 3.27 | % |
Tax-exempt securities | | 50,972 |
| | 1,424 |
| | 3.72 | % | | 56,291 |
| | 1,823 |
| | 4.32 | % |
Total securities | | 136,389 |
| | 3,463 |
| | 3.39 | % | | 151,943 |
| | 4,167 |
| | 3.66 | % |
| | | | | | | | | | | | |
Interest-bearing deposits | | 27,901 |
| | 218 |
| | 1.04 | % | | 38,411 |
| | 147 |
| | 0.51 | % |
| | | | | | | | | | | | |
Total interest-earning assets | | 1,292,190 |
| | 37,770 |
| | 3.91 | % | | 1,239,243 |
| | 36,163 |
| | 3.90 | % |
| | | | | | | | | | | | |
Other assets | | 102,181 |
| | |
| | |
| | 99,295 |
| | |
| | |
|
| | | | | | | | | | | | |
Total assets | | $ | 1,394,371 |
| | |
| | |
| | $ | 1,338,538 |
| | |
| | |
|
| | | | | | | | | | | | |
Liabilities and shareholders’ equity: | | |
| | |
| | |
| | |
| | |
| | |
|
Savings | | $ | 157,396 |
| | 45 |
| | 0.04 | % | | $ | 151,158 |
| | 43 |
| | 0.04 | % |
Super Now deposits | | 198,560 |
| | 377 |
| | 0.25 | % | | 190,190 |
| | 356 |
| | 0.25 | % |
Money market deposits | | 278,436 |
| | 713 |
| | 0.34 | % | | 234,918 |
| | 471 |
| | 0.27 | % |
Time deposits | | 207,331 |
| | 1,833 |
| | 1.18 | % | | 221,676 |
| | 1,754 |
| | 1.06 | % |
Total interest-bearing deposits | | 841,723 |
| | 2,968 |
| | 0.47 | % | | 797,942 |
| | 2,624 |
| | 0.44 | % |
| | | | | | | | | | | | |
Short-term borrowings | | 13,714 |
| | 39 |
| | 0.26 | % | | 20,273 |
| | 41 |
| | 0.27 | % |
Long-term borrowings | | 79,881 |
| | 1,220 |
| | 2.01 | % | | 91,025 |
| | 1,481 |
| | 2.14 | % |
Total borrowings | | 93,595 |
| | 1,259 |
| | 1.76 | % | | 111,298 |
| | 1,522 |
| | 1.80 | % |
| | | | | | | | | | | | |
Total interest-bearing liabilities | | 935,318 |
| | 4,227 |
| | 0.60 | % | | 909,240 |
| | 4,146 |
| | 0.61 | % |
| | | | | | | | | | | | |
Demand deposits | | 301,567 |
| | |
| | |
| | 274,488 |
| | |
| | |
|
Other liabilities | | 18,455 |
| | |
| | |
| | 15,775 |
| | |
| | |
|
Shareholders’ equity | | 139,031 |
| | |
| | |
| | 139,035 |
| | |
| | |
|
| | | | | | | | | | | | |
Total liabilities and shareholders’ equity | | $ | 1,394,371 |
| | |
| | |
| | $ | 1,338,538 |
| | |
| | |
|
Interest rate spread | | |
| | |
| | 3.31 | % | | |
| | |
| | 3.29 | % |
Net interest income/margin | | |
| | $ | 33,543 |
| | 3.47 | % | | |
| | $ | 32,017 |
| | 3.45 | % |
2. Non-accrual loans have been included with loans for the purpose of analyzing net interest earnings.
3. Income and rates on 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 tax rate of 21% and are reconciled to the equivalent GAAP
measure below the tables.
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 ninesix months ended SeptemberJune 30, 20172023 and 2016:2022:
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
(In Thousands) | | 2017 | | 2016 | | 2017 | | 2016 | (In Thousands) | | 2023 | | 2022 | | 2023 | | 2022 |
Total interest income | | $ | 12,948 |
| | $ | 11,660 |
| | $ | 36,839 |
| | $ | 35,056 |
| Total interest income | | $ | 21,893 | | | $ | 15,184 | | | $ | 41,757 | | | $ | 29,459 | |
Total interest expense | | 1,496 |
| | 1,413 |
| | 4,227 |
| | 4,146 |
| Total interest expense | | 8,507 | | | 1,337 | | | 14,073 | | | 2,759 | |
Net interest income | | 11,452 |
| | 10,247 |
| | 32,612 |
| | 30,910 |
| |
Net interest income (GAAP) | | Net interest income (GAAP) | | 13,386 | | | 13,847 | | | 27,684 | | | 26,700 | |
Tax equivalent adjustment | | 332 |
| | 323 |
| | 931 |
| | 1,107 |
| Tax equivalent adjustment | | 129 | | | 120 | | | 270 | | | 229 | |
Net interest income (fully taxable equivalent) | | $ | 11,784 |
| | $ | 10,570 |
| | $ | 33,543 |
| | $ | 32,017 |
| |
Net interest income (fully taxable equivalent) (NON-GAAP) | | Net interest income (fully taxable equivalent) (NON-GAAP) | | $ | 13,515 | | | $ | 13,967 | | | $ | 27,954 | | | $ | 26,929 | |
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 ninesix months ended SeptemberJune 30, 20172023 and 2016:2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six months ended June 30, |
| | 2023 vs. 2022 | | 2023 vs. 2022 |
| | Increase (Decrease) Due to | | Increase (Decrease) Due to |
(In Thousands) | | Volume | | Rate | | Net | | Volume | | Rate | | Net |
Interest income: | | | | | | | | | | | | |
Tax-exempt loans | | $ | 92 | | | $ | 38 | | | $ | 130 | | | $ | 202 | | | $ | 68 | | | $ | 270 | |
All other loans | | 2,935 | | | 3,189 | | | 6,124 | | | 5,521 | | | 5,459 | | | 10,980 | |
Federal funds sold | | (154) | | | — | | | (154) | | | (247) | | | — | | | (247) | |
Taxable investment securities | | 283 | | | 476 | | | 759 | | | 562 | | | 856 | | | 1,418 | |
Tax-exempt investment securities | | (138) | | | 43 | | | (95) | | | (179) | | | 101 | | | (78) | |
Interest bearing deposits | | (272) | | | 226 | | | (46) | | | (1,497) | | | 1,493 | | | (4) | |
Total interest-earning assets | | 2,746 | | | 3,972 | | | 6,718 | | | 4,362 | | | 7,977 | | | 12,339 | |
| | | | | | | | | | | | |
Interest expense: | | | | | | | | | | | | |
Savings deposits | | (2) | | | 133 | | | 131 | | | (1) | | | 230 | | | 229 | |
Super Now deposits | | (93) | | | 767 | | | 674 | | | (80) | | | 1,498 | | | 1,418 | |
Money market deposits | | (8) | | | 1,463 | | | 1,455 | | | (13) | | | 2,562 | | | 2,549 | |
Time deposits | | 216 | | | 1,665 | | | 1,881 | | | 211 | | | 2,318 | | | 2,529 | |
Short-term borrowings | | 985 | | | 1,245 | | | 2,230 | | | 1,339 | | | 2,330 | | | 3,669 | |
Long-term borrowings | | 480 | | | 319 | | | 799 | | | 474 | | | 446 | | | 920 | |
Total interest-bearing liabilities | | 1,578 | | | 5,592 | | | 7,170 | | | 1,930 | | | 9,384 | | | 11,314 | |
Change in net interest income | | $ | 1,168 | | | $ | (1,620) | | | $ | (452) | | | $ | 2,432 | | | $ | (1,407) | | | $ | 1,025 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 vs. 2016 | | 2017 vs. 2016 |
| | Increase (Decrease) Due to | | Increase (Decrease) Due to |
(In Thousands) | | Volume | | Rate | | Net | | Volume | | Rate | | Net |
Interest income: | | |
| | |
| | |
| | |
| | |
| | |
|
Tax-exempt loans | | $ | 76 |
| | $ | (34 | ) | | $ | 42 |
| | $ | (70 | ) | | $ | (47 | ) | | $ | (117 | ) |
All other loans | | 993 |
| | 344 |
| | 1,337 |
| | 2,384 |
| | (27 | ) | | 2,357 |
|
Taxable investment securities | | (86 | ) | | 35 |
| | (51 | ) | | (242 | ) | | (63 | ) | | (305 | ) |
Tax-exempt investment securities | | 40 |
| | (55 | ) | | (15 | ) | | (163 | ) | | (236 | ) | | (399 | ) |
Interest bearing deposits | | (68 | ) | | 52 |
| | (16 | ) | | (27 | ) | | 98 |
| | 71 |
|
Total interest-earning assets | | 955 |
| | 342 |
| | 1,297 |
| | 1,882 |
| | (275 | ) | | 1,607 |
|
| | | | | | | | | | | | |
Interest expense: | | |
| | |
| | |
| | |
| | |
| | |
|
Savings deposits | | — |
| | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
Super Now deposits | | 12 |
| | 21 |
| | 33 |
| | 15 |
| | 6 |
| | 21 |
|
Money market deposits | | 31 |
| | 66 |
| | 97 |
| | 99 |
| | 143 |
| | 242 |
|
Time deposits | | (47 | ) | | 66 |
| | 19 |
| | (68 | ) | | 147 |
| | 79 |
|
Short-term borrowings | | 2 |
| | 22 |
| | 24 |
| | (2 | ) | | — |
| | (2 | ) |
Long-term borrowings | | (51 | ) | | (39 | ) | | (90 | ) | | (176 | ) | | (85 | ) | | (261 | ) |
Total interest-bearing liabilities | | (53 | ) | | 136 |
| | 83 |
| | (130 | ) | | 211 |
| | 81 |
|
Change in net interest income | | $ | 1,008 |
| | $ | 206 |
| | $ | 1,214 |
| | $ | 2,012 |
| | $ | (486 | ) | | $ | 1,526 |
|
Provision for LoanCredit Losses
The provision for loancredit 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 loancredit losses is determined by applying loss factors to outstanding loans by type, excluding loans for. A historical charge-off factor is calculated utilizing the charge-off and recovery data over the past ten years. Management has identified a number of additional qualitative factors which a specific allowance has been determined. Lossit uses to supplement the historical charge-off factor because these factors are based on management’s consideration oflikely to cause estimated credit losses associated with the nature of the portfolio segments, changes in mix and volume of theexisting loan portfolio, andpools to differ from 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 loancredit losses is adequate at SeptemberJune 30, 2017,2023, 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 loancredit losses to various portfolio segments; however, the allowance is available for the entire portfolio as needed.
The allowance for loancredit losses increaseddecreased from $12,896,000$15,637,000 at December 31, 20162022 to $12,933,000$11,592,000 at SeptemberJune 30, 2017.2023. The increasedecrease in allowance was primarily due to the adoption of CECL on January 1, 2023 coupled with net recoveries of $349,000 for the six months ended June 30 ,2023. At June 30, 2023 and December 31, 2022, the allowance for loan losses was driven by growth in 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 had a specific allowance within the allowance for losses. At September 30, 2017 and December 31, 2016, the allowance for loancredit losses to total loans was 1.09%0.66% and 1.18%0.95%, respectively.
The three and six months ended June 30, 2023 had a recovery for credit losses of $1,180,000 and $1,109,000, respectively, compared to a provision for loancredit losses totaled $60,000of $330,000 and $258,000$480,000 for the three months ended September 30, 2017 and 2016 and $605,000 and $866,000 for the nine months ended September 30 2017 and 2016, respectively.corresponding 2022 periods. The amount ofdecrease in the provision for loancredit losses was primarily the result of loan growthimproving credit metrics and the adoption of CECL offset by minimal net charge-offs.loan portfolio growth.
Nonperforming loans decreased to $8,317,000$4,276,000 at SeptemberJune 30, 20172023 from $11,530,000$4,890,000 at September 30, 2016.December 31, 2022. The majority of nonperforming loans are centered oninvolve loans that are either in a secured position and have sureties with a strong underlying financial position or have been classified as impaired and have a specific allocation for any impairment recorded within the allowance for loancredit losses. The ratio of nonperformingnon-performing loans to total loans was 0.70%ratio decreased to 0.24% at June 30, 2023 from 0.34% at June 30, 2022 and 1.08%as non-performing loans have decreased to $4,276,000 from $5,100,000 at SeptemberJune 30, 2017 and 2016, respectively, and2022. Net loan recoveries of $349,000 for the ratio ofsix months ended June 30, 2023 impacted the allowance for loancredit losses, which was 0.66% of total loans at June 30 2023 compared to nonperforming loans was 155.50% and 110.30%0.97% at SeptemberJune 30, 2017 and 2016, respectively. Internal loan review and analysis coupled with loan growth dictated a provision for loan losses of $605,000 for the nine months ended September 30, 2017. 2022.
The following is a table showing total nonperforming loans as of:
| | | | | | | | | | | | | | | | | | | | |
| | Total Nonperforming Loans |
(In Thousands) | | 90 Days Past Due | | Non-accrual | | Total |
June 30, 2023 | | $ | 1,120 | | | $ | 3,156 | | | $ | 4,276 | |
March 31, 2023 | | 1,215 | | | 3,551 | | | 4,766 | |
December 31, 2022 | | 1,275 | | | 3,615 | | | 4,890 | |
September 30, 2022 | | 1,161 | | | 4,582 | | | 5,743 | |
June 30, 2022 | | 421 | | | 4,679 | | | 5,100 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Additional allowance for credit losses and net (charge-offs) recoveries information is presented by loan portfolio segment in the tables below. The six months ending June 30, 2023 was impacted by the CECL adoption reclassification entry disclosed in Note 6. Loans.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2023 |
| | Amount of Allowance for Credit Losses Allocated | | Total loans | | Allowance for Credit Losses to Total Loans Ratio | | Net (Charge-Offs) Recoveries | | Average Loans | | Ratio of Net (Charge-Offs) Recoveries to Average Loans |
| | | | | | |
| | | | | | |
(In Thousands) | | | | | | |
| | | | | | | | | | | | |
Commercial, financial, and agricultural | | $ | 3,019 | | $ | 208,174 | | | 1.45 | % | | $ | 961 | | | $ | 199,448 | | | 0.48 | % |
Real estate mortgage: | | | | | | | | | | | | |
Residential | | 1,078 | | 743,705 | | | 0.14 | % | | (78) | | | 724,170 | | | (0.01) | % |
Commercial | | 4,191 | | 517,713 | | | 0.81 | % | | (114) | | | 509,033 | | | (0.02) | % |
Construction | | 178 | | 53,486 | | | 0.33 | % | | — | | | 46,540 | | | — | % |
Consumer automobiles | | 2,446 | | 234,956 | | | 1.04 | % | | (291) | | | 213,039 | | | (0.14) | % |
Other consumer installment loans | | 680 | | 10,121 | | | 6.72 | % | | (129) | | | 10,237 | | | (1.26) | % |
| | | | | | | | | | | | |
| | $ | 11,592 | | $ | 1,768,155 | | | 0.66 | % | | $ | 349 | | | $ | 1,702,467 | | | 0.02 | % |
| | | | | | | | | | | | |
Total non-accrual loans outstanding | | $ | 3,156 | | | | | | | | | | |
Non-accrual loans to total loans outstanding | | 0.18 | % | | | | | | | | | | |
Allowance for credit losses to non-accrual loans | | 367.30 | % | | | | | | | | | | |
|
| | | | | | | | | | | | |
| | 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 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 |
| | Amount of Allowance for Loan Losses Allocated | | Total loans | | Allowance for Loan Losses to Total Loans Ratio | | Net (Charge-Offs) Recoveries | | Average Loans | | Ratio of Net (Charge-Offs) Recoveries to Average Loans |
| | | | | | |
| | | | | | |
(In Thousands) | | | | | | |
| | | | | | | | | | | | |
Commercial, financial, and agricultural | | $ | 1,914 | | $ | 190,461 | | | 1.00 | % | | $ | 165 | | | $ | 173,433 | | | 0.10 | % |
Real estate mortgage: | | | | | | | | | | | | |
Residential | | 5,061 | | 708,209 | | | 0.71 | % | | 26 | | | 649,989 | | | — | % |
Commercial | | 6,110 | | 500,632 | | | 1.22 | % | | (150) | | | 466,526 | | | (0.03) | % |
Construction | | 188 | | 43,308 | | | 0.43 | % | | 29 | | | 44,968 | | | 0.06 | % |
Consumer automobiles | | 1,617 | | 186,112 | | | 0.87 | % | | (328) | | | 150,261 | | | (0.22) | % |
Other consumer installment loans | | 109 | | 10,361 | | | 1.05 | % | | (191) | | | 9,737 | | | (1.96) | % |
Unallocated | | 638 | | | | | | | | | | |
| | $ | 15,637 | | $ | 1,639,083 | | | 0.95 | % | | $ | (449) | | | $ | 1,494,914 | | | (0.03) | % |
| | | | | | | | | | | | |
Total non-accrual loans outstanding | | $ | 3,615 | | | | | | | | | | |
Non-accrual loans to total loans outstanding | | 0.22 | % | | | | | | | | | | |
Allowance for loan losses to non-accrual loans | | 432.56 | % | | | | | | | | | | |
Non-interest Income
Total non-interest income for the three and six months ended SeptemberJune 30, 20172023 compared to the same periodperiods in 20162022 decreased $342,000 to $2,740,000.$115,000 and $270,000. Excluding net securities gains,losses, non-interest income for the three and six months ended SeptemberJune 30, 20172023 decreased $379,000$130,000 and $306,000 compared to the same periodperiods in 2016. The decrease in gain2022. Gain on sale of loans was driven byand loan broker commissions decreased as the volume of loan sales has declined as a shiftreduction in product mixhousing inventory and decreased volume. The changes inhigher rates has reduced mortgage activity. Bank-owned life insurance and brokerage commissions areincreased due to a change ingain on death benefit of $380,000 recognized during the product mixfirst quarter of consumer purchases.2023. Debit card fees decreasedincome declined due to decreased usage of debit cards.volume.
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 ninesix months ended SeptemberJune 30, 20172023 and 20162022 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | June 30, 2023 | | June 30, 2022 | | Change |
(In Thousands) | | Amount | | % Total | | Amount | | % Total | | Amount | | % |
Service charges | | $ | 516 | | | 25.52 | % | | $ | 509 | | | 23.82 | % | | $ | 7 | | | 1.38 | % |
Net debt securities losses, available for sale | | (19) | | | (0.94) | | | (10) | | | (0.47) | | | (9) | | | (90.00) | |
Net equity securities losses | | (20) | | | (0.99) | | | (44) | | | (2.06) | | | 24 | | | 54.55 | |
| | | | | | | | | | | | |
Bank-owned life insurance | | 166 | | | 8.21 | | | 161 | | | 7.53 | | | 5 | | | 3.11 | |
Gain on sale of loans | | 244 | | | 12.07 | | | 266 | | | 12.45 | | | (22) | | | (8.27) | |
Insurance commissions | | 115 | | | 5.69 | | | 107 | | | 5.01 | | | 8 | | | 7.48 | |
Brokerage commissions | | 141 | | | 6.97 | | | 158 | | | 7.39 | | | (17) | | | (10.76) | |
Loan broker commissions | | 317 | | | 15.68 | | | 371 | | | 17.36 | | | (54) | | | (14.56) | |
Debit card income | | 340 | | | 16.82 | | | 391 | | | 18.30 | | | (51) | | | (13.04) | |
Other | | 222 | | | 10.97 | | | 228 | | | 10.66 | | | (6) | | | (2.63) | |
Total non-interest income | | $ | 2,022 | | | 100.00 | % | | $ | 2,137 | | | 100.00 | % | | $ | (115) | | | (5.38) | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | September 30, 2017 | | September 30, 2016 | | Change |
(In Thousands) | | Amount | | % Total | | Amount | | % Total | | Amount | | % |
Service charges | | $ | 550 |
| | 20.07 | % | | $ | 585 |
| | 18.98 | % | | $ | (35 | ) | | (5.98 | )% |
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 | ) |
Bank-owned life insurance | | 166 |
| | 6.06 |
| | 172 |
| | 5.58 |
| | (6 | ) | | (3.49 | ) |
Gain on sale of loans | | 455 |
| | 16.61 |
| | 658 |
| | 21.35 |
| | (203 | ) | | (30.85 | ) |
Insurance commissions | | 109 |
| | 3.98 |
| | 198 |
| | 6.42 |
| | (89 | ) | | (44.95 | ) |
Brokerage commissions | | 352 |
| | 12.85 |
| | 290 |
| | 9.41 |
| | 62 |
| | 21.38 |
|
Debit card fees | | 514 |
| | 18.76 |
| | 690 |
| | 22.39 |
| | (176 | ) | | (25.51 | ) |
Other | | 296 |
| | 10.80 |
| | 228 |
| | 7.40 |
| | 68 |
| | 29.82 |
|
Total non-interest income | | $ | 2,740 |
| | 100.00 | % | | $ | 3,082 |
| | 100.00 | % | | $ | (342 | ) | | (11.10 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended |
| | June 30, 2023 | | June 30, 2022 | | Change |
(In Thousands) | | Amount | | % Total | | Amount | | % Total | | Amount | | % |
Service charges | | $ | 1,012 | | | 23.65 | % | | $ | 1,004 | | | 22.07 | % | | $ | 8 | | | 0.80 | % |
Net debt securities losses, available for sale | | (80) | | | (1.87) | | | (12) | | | (0.26) | | | (68) | | | (566.67) | |
Net equity securities (losses) gains | | 1 | | | 0.02 | | | (103) | | | (2.26) | | | 104 | | | 100.97 | |
| | | | | | | | | | | | |
Bank-owned life insurance | | 722 | | | 16.87 | | | 331 | | | 7.28 | | | 391 | | | 118.13 | |
Gain on sale of loans | | 475 | | | 11.10 | | | 611 | | | 13.43 | | | (136) | | | (22.26) | |
Insurance commissions | | 280 | | | 6.54 | | | 277 | | | 6.09 | | | 3 | | | 1.08 | |
Brokerage commissions | | 306 | | | 7.15 | | | 358 | | | 7.87 | | | (52) | | | (14.53) | |
Loan broker commissions | | 487 | | | 11.38 | | | 912 | | | 20.05 | | | (425) | | | (46.60) | |
Debit card income | | 675 | | | 15.77 | | | 736 | | | 16.18 | | | (61) | | | (8.29) | |
Other | | 401 | | | 9.39 | | | 435 | | | 9.55 | | | (34) | | | (7.82) | |
Total non-interest income | | $ | 4,279 | | | 100.00 | % | | $ | 4,549 | | | 100.00 | % | | $ | (270) | | | (5.94) | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended |
| | September 30, 2017 | | September 30, 2016 | | Change |
(In Thousands) | | Amount | | % Total | | Amount | | % Total | | Amount | | % |
Service charges | | $ | 1,637 |
| | 20.07 | % | | $ | 1,678 |
| | 18.13 | % | | $ | (41 | ) | | (2.44 | )% |
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 | ) |
Bank-owned life insurance | | 499 |
| | 6.12 |
| | 516 |
| | 5.57 |
| | (17 | ) | | (3.29 | ) |
Gain on sale of loans | | 1,316 |
| | 16.14 |
| | 1,691 |
| | 18.27 |
| | (375 | ) | | (22.18 | ) |
Insurance commissions | | 399 |
| | 4.89 |
| | 604 |
| | 6.52 |
| | (205 | ) | | (33.94 | ) |
Brokerage commissions | | 1,044 |
| | 12.80 |
| | 817 |
| | 8.83 |
| | 227 |
| | 27.78 |
|
Debit card fees | | 1,450 |
| | 17.78 |
| | 1,413 |
| | 15.26 |
| | 37 |
| | 2.62 |
|
Other | | 1,325 |
| | 16.25 |
| | 1,310 |
| | 14.16 |
| | 15 |
| | 1.15 |
|
Total non-interest income | | $ | 8,155 |
| | 100.00 | % | | $ | 9,257 |
| | 100.00 | % | | $ | (1,102 | ) | | (11.90 | )% |
Non-interest Expense
Total non-interest expense increased $827,000$1,009,000 and $900,000 for the three and six months ended SeptemberJune 30, 20172023 compared to the same periodperiods of 2016.2022. The increase in salaries and employee benefits is primarily attributable to the current employment environment and routine annual wage increases coupled with an increase in the cost of health insurance. Occupancy expense increased due to various maintenance projects to refresh facilities.increases. Furniture and equipment expenseexpenses in addition to occupancy expenses have remained stable as increased maintenance costs have been offset by a decrease in the level of depreciation. Software amortization decreases are due to changes in software licensing costs. Marketing costs increased as an acquired buildinga time deposit gathering campaign was outfitted. Software amortizationinitiated during the latter part of 2022 and throughout 2023. Pennsylvania shares tax decreased as the number of vendors utilized is consolidated. Marketing expenses increased as targeted marketing was increasedtax credits were purchased and charitable contributions were made to organizations that resulted in the localities were branches will be opened in the next several months. Other non-interest expensesobtainment of tax credits. Professional fees increased primarily due to legal expenses and a reductionfees. FDIC insurance expense increased due an increase in the amortization 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.assessment rate.
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 ninesix months ended SeptemberJune 30, 20172023 and 20162022 was as follows:
| | | | Three Months Ended | | | Three Months Ended |
| | September 30, 2017 | | September 30, 2016 | | Change | | | June 30, 2023 | | June 30, 2022 | | Change |
(In Thousands) | | Amount | | % Total | | Amount | | % Total | | Amount | | % | (In Thousands) | | Amount | | % Total | | Amount | | % Total | | Amount | | % |
Salaries and employee benefits | | $ | 4,738 |
| | 49.53 | % | | $ | 4,507 |
| | 51.57 | % | | $ | 231 |
| | 5.13 | % | Salaries and employee benefits | | $ | 6,312 | | | 55.23 | % | | $ | 6,141 | | | 58.93 | % | | $ | 171 | | | 2.78 | % |
Occupancy | | 603 |
| | 6.30 |
| | 544 |
| | 6.22 |
| | 59 |
| | 10.85 |
| Occupancy | | 772 | | | 6.75 | | | 740 | | | 7.10 | | | 32 | | | 4.32 | |
Furniture and equipment | | 816 |
| | 8.53 |
| | 662 |
| | 7.58 |
| | 154 |
| | 23.26 |
| Furniture and equipment | | 790 | | | 6.91 | | | 746 | | | 7.16 | | | 44 | | | 5.90 | |
Software amortization | | 235 |
| | 2.46 |
| | 580 |
| | 6.64 |
| | (345 | ) | | (59.48 | ) | Software amortization | | 173 | | | 1.51 | | | 219 | | | 2.10 | | | (46) | | | (21.00) | |
Pennsylvania shares tax | | 228 |
| | 2.38 |
| | 220 |
| | 2.52 |
| | 8 |
| | 3.64 |
| Pennsylvania shares tax | | 279 | | | 2.44 | | | 396 | | | 3.80 | | | (117) | | | (29.55) | |
Professional fees | | 560 |
| | 5.85 |
| | 502 |
| | 5.74 |
| | 58 |
| | 11.55 |
| Professional fees | | 906 | | | 7.93 | | | 582 | | | 5.59 | | | 324 | | | 55.67 | |
Federal Deposit Insurance Corporation deposit insurance | | 194 |
| | 2.03 |
| | 202 |
| | 2.31 |
| | (8 | ) | | (3.96 | ) | Federal Deposit Insurance Corporation deposit insurance | | 452 | | | 3.95 | | | 228 | | | 2.19 | | | 224 | | | 98.25 | |
Debit card expenses | | 168 |
| | 1.76 |
| | 246 |
| | 2.81 |
| | (78 | ) | | (31.71 | ) | |
| Marketing | | 315 |
| | 3.29 |
| | 173 |
| | 1.98 |
| | 142 |
| | 82.08 |
| Marketing | | 272 | | | 2.38 | | | 220 | | | 2.11 | | | 52 | | | 23.64 | |
Intangible amortization | | 81 |
| | 0.85 |
| | 90 |
| | 1.03 |
| | (9 | ) | | (10.00 | ) | Intangible amortization | | 32 | | | 0.28 | | | 41 | | | 0.39 | | | (9) | | | (21.95) | |
Other | | 1,628 |
| | 17.02 |
| | 1,013 |
| | 11.60 |
| | 615 |
| | 60.71 |
| Other | | 1,441 | | | 12.62 | | | 1,107 | | | 10.63 | | | 334 | | | 30.17 | |
Total non-interest expense | | $ | 9,566 |
| | 100.00 | % | | $ | 8,739 |
| | 100.00 | % | | $ | 827 |
| | 9.46 | % | Total non-interest expense | | $ | 11,429 | | | 100.00 | % | | $ | 10,420 | | | 100.00 | % | | $ | 1,009 | | | 9.68 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended |
| | June 30, 2023 | | June 30, 2022 | | Change |
(In Thousands) | | Amount | | % Total | | Amount | | % Total | | Amount | | % |
Salaries and employee benefits | | $ | 12,488 | | | 55.93 | % | | $ | 12,405 | | | 57.89 | % | | $ | 83 | | | 0.67 | % |
Occupancy | | 1,638 | | | 7.34 | | | 1,650 | | | 7.70 | | | (12) | | | (0.73) | |
Furniture and equipment | | 1,636 | | | 7.33 | | | 1,638 | | | 7.64 | | | (2) | | | (0.12) | |
Software amortization | | 356 | | | 1.59 | | | 472 | | | 2.20 | | | (116) | | | (24.58) | |
Pennsylvania shares tax | | 527 | | | 2.36 | | | 785 | | | 3.66 | | | (258) | | | (32.87) | |
Professional fees | | 1,594 | | | 7.14 | | | 1,120 | | | 5.23 | | | 474 | | | 42.32 | |
Federal Deposit Insurance Corporation deposit insurance | | 697 | | | 3.12 | | | 430 | | | 2.01 | | | 267 | | | 62.09 | |
| | | | | | | | | | | | |
Marketing | | 427 | | | 1.91 | | | 284 | | | 1.33 | | | 143 | | | 50.35 | |
Intangible amortization | | 67 | | | 0.30 | | | 85 | | | 0.40 | | | (18) | | | (21.18) | |
Other | | 2,897 | | | 12.98 | | | 2,558 | | | 11.94 | | | 339 | | | 13.25 | |
Total non-interest expense | | $ | 22,327 | | | 100.00 | % | | $ | 21,427 | | | 100.00 | % | | $ | 900 | | | 4.20 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended |
| | September 30, 2017 | | September 30, 2016 | | Change |
(In Thousands) | | Amount | | % Total | | Amount | | % Total | | Amount | | % |
Salaries and employee benefits | | $ | 14,116 |
| | 51.11 | % | | $ | 13,433 |
| | 50.76 | % | | $ | 683 |
| | 5.08 | % |
Occupancy | | 1,855 |
| | 6.72 |
| | 1,630 |
| | 6.16 |
| | 225 |
| | 13.80 |
|
Furniture and equipment | | 2,129 |
| | 7.71 |
| | 2,042 |
| | 7.72 |
| | 87 |
| | 4.26 |
|
Software amortization | | 750 |
| | 2.72 |
| | 950 |
| | 3.59 |
| | (200 | ) | | (21.05 | ) |
Pennsylvania shares tax | | 696 |
| | 2.52 |
| | 698 |
| | 2.64 |
| | (2 | ) | | (0.29 | ) |
Professional fees | | 1,816 |
| | 6.58 |
| | 1,512 |
| | 5.71 |
| | 304 |
| | 20.11 |
|
Federal Deposit Insurance Corporation deposit insurance | | 514 |
| | 1.86 |
| | 670 |
| | 2.53 |
| | (156 | ) | | (23.28 | ) |
Debit card expenses | | 478 |
| | 1.73 |
| | 456 |
| | 1.72 |
| | 22 |
| | 4.82 |
|
Marketing | | 690 |
| | 2.50 |
| | 568 |
| | 2.15 |
| | 122 |
| | 21.48 |
|
Intangible amortization | | 256 |
| | 0.93 |
| | 276 |
| | 1.04 |
| | (20 | ) | | (7.25 | ) |
Other | | 4,314 |
| | 15.62 |
| | 4,230 |
| | 15.98 |
| | 84 |
| | 1.99 |
|
Total non-interest expense | | $ | 27,614 |
| | 100.00 | % | | $ | 26,465 |
| | 100.00 | % | | $ | 1,149 |
| | 4.34 | % |
Provision for Income Taxes
Income taxes decreased $15,000 and increased $9,000 and $184,000$237,000 for the three and ninesix months ended SeptemberJune 30, 20172023 compared to the same periods of 2016.2022. The effective tax rate for the three and ninesix months ended SeptemberJune 30, 20172023 was 29.39%19.15% and 25.76%17.83% compared to 2.15%19.16% and 20.58%17.97% 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 2016.2022. The Company currently is in a deferred tax asset position. Management has reviewedA valuation allowance was established on the deferred tax asset and has determined that$1,810,000 of capital loss carryforwards as of December 31, 2022, which remained unchanged during the asset will be utilized within the appropriate carry forward period and therefore does not require a valuation allowance.second quarter of 2023.
ASSET/LIABILITY MANAGEMENT
Cash and Cash Equivalents
Cash and cash equivalents decreased $15,924,000increased $4,528,000 from $43,671,000$40,333,000 at December 31, 20162022 to $27,747,000$44,861,000 at SeptemberJune 30, 20172023, primarily as a result of the following activitiesactivity during the ninesix months ended SeptemberJune 30, 2017.2023.
Loans Held for Sale
Activity regarding loans held for sale resulted in sales proceeds leadingbeing greater than loan originations, less $1,316,000$475,000 in realized gains, by $219,000$249,000 for the ninesix months ended SeptemberJune 30, 2017.2023.
Loans
Gross loans increased $96,033,000$129,672,000 since December 31, 20162022 due primarily to an increase in installment loansboth residential and commercial real estate mortgage categories in addition to individuals. The growth in installment loans was driven byconsumer automobile indirect lending. Loan growth has also picked up in our commercial, financial, and agricultural loan products.loans.
The allocation of the loan portfolio, by category, as of SeptemberJune 30, 20172023 and December 31, 20162022 is presented below:
| | | | September 30, 2017 | | December 31, 2016 | | Change | | | June 30, 2023 | | December 31, 2022 | | Change |
(In Thousands) | | Amount | | % Total | | Amount | | % Total | | Amount | | % | (In Thousands) | | Amount | | % Total | | Amount | | % Total | | Amount | | % |
Commercial, financial, and agricultural | | $ | 175,299 |
| | 14.73 | % | | $ | 146,110 |
| | 13.36 | % | | $ | 29,189 |
| | 19.98 | % | Commercial, financial, and agricultural | | $ | 208,174 | | | 11.77 | % | | $ | 190,461 | | | 11.62 | % | | $ | 17,713 | | | 9.30 | % |
Real estate mortgage: | | |
| | |
| | |
| | |
| | |
| | |
| Real estate mortgage: | | | | | | | | | | | | |
Residential | | 576,134 |
| | 48.43 |
| | 564,740 |
| | 51.63 |
| | 11,394 |
| | 2.02 | % | Residential | | 743,705 | | | 42.03 | | | 708,209 | | | 43.19 | | | 35,496 | | | 5.01 | % |
Commercial | | 323,510 |
| | 27.19 |
| | 306,182 |
| | 27.99 |
| | 17,328 |
| | 5.66 | % | Commercial | | 517,713 | | | 29.26 | | | 500,632 | | | 30.53 | | | 17,081 | | | 3.41 | % |
Construction | | 29,352 |
| | 2.47 |
| | 34,650 |
| | 3.17 |
| | (5,298 | ) | | (15.29 | )% | Construction | | 53,486 | | | 3.02 | | | 43,308 | | | 2.64 | | | 10,178 | | | 23.50 | % |
Installment loans to individuals | | 86,639 |
| | 7.28 |
| | 43,256 |
| | 3.96 |
| | 43,383 |
| | 100.29 | % | |
Consumer automobile loans | | Consumer automobile loans | | 234,956 | | | 13.28 | | | 186,112 | | | 11.35 | | | 48,844 | | | 26.24 | % |
Other consumer installment loans | | Other consumer installment loans | | 10,121 | | | 0.57 | | | 10,361 | | | 0.63 | | | (240) | | | (2.32) | % |
Net deferred loan fees and discounts | | (1,220 | ) | | (0.10 | ) | | (1,257 | ) | | (0.11 | ) | | 37 |
| | (2.94 | )% | Net deferred loan fees and discounts | | 1,248 | | | 0.07 | | | 648 | | | 0.04 | | | 600 | | | 92.59 | % |
Gross loans | | $ | 1,189,714 |
| | 100.00 | % | | $ | 1,093,681 |
| | 100.00 | % | | $ | 96,033 |
| | 8.78 | % | Gross loans | | $ | 1,769,403 | | | 100.00 | % | | $ | 1,639,731 | | | 100.00 | % | | $ | 129,672 | | | 7.91 | % |
The following table shows the amount of accrual and non-accrual TDRs at September 30, 2017 and December 31, 2016:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
(In Thousands) | | Accrual | | Non-accrual | | Total | | Accrual | | Non-accrual | | Total |
Commercial, financial, and agricultural | | $ | 22 |
| | $ | 120 |
| | $ | 142 |
| | $ | 109 |
| | $ | 132 |
| | $ | 241 |
|
Real estate mortgage: | | |
| | |
| | |
| | |
| | |
| | |
|
Residential | | 1,199 |
| | 341 |
| | 1,540 |
| | 1,491 |
| | 541 |
| | 2,032 |
|
Commercial | | 4,495 |
| | 2,252 |
| | 6,747 |
| | 4,723 |
| | 2,184 |
| | 6,907 |
|
| | $ | 5,716 |
| | $ | 2,713 |
| | $ | 8,429 |
| | $ | 6,323 |
| | $ | 2,857 |
| | $ | 9,180 |
|
Investments
The fair value of the investment debt securities portfolio at SeptemberJune 30, 20172023 decreased $1,027,000$7,047,000 since December 31, 20162022, while the amortized cost of the portfolio decreased $2,095,000.$7,131,000. The decrease in the investment portfolio amortized value occurred within the state and political segment of the portfolio as principal cash flow was partially reinvested with the majority of the cash flow funding loan portfolio growth. The mortgage-backed segment increased as bonds were purchased to provide future cash flow. The other debt segment balances remained constant and consists primarily of corporate bonds. 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%84.02% 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 September$1,350,000 for June 30, 2017 from $11,233,000 at2023 and December 31, 20162022 while the fair value increased $1,465,000$1,000 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 SeptemberJune 30, 20172023 follows:
| | | | A- to AAA | | B- to BBB+ | | Not Rated | | Total | | | A- to AAA | | B- to BBB+ | | C- to CCC+ | | Not Rated | | Total |
(In Thousands) | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value | (In Thousands) | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
Available for sale (AFS): | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Available for sale (AFS): | | | | | | | | | | | | | | | | | | | | |
U.S. Government and agency securities | | U.S. Government and agency securities | | $ | 1,503 | | $ | 1,467 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 2,498 | | $ | 2,418 | | $ | 4,001 | | $ | 3,885 |
Mortgage-backed securities | | $ | 4,544 |
| | $ | 4,530 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 4,544 |
| | $ | 4,530 |
| Mortgage-backed securities | | 9,710 | 7 | | 9,330 | | — | | — | | — | | — | | — | | — | | 9,710 | | 9,330 |
| State and political securities | | 61,293 |
| | 61,751 |
| | — |
| | — |
| | 575 |
| | 576 |
| | 61,868 |
| | 62,327 |
| State and political securities | | 131,164 | | 123,481 | | — | | — | | — | | — | | 4,087 | | 3,998 | | 135,251 | | 127,479 |
Other debt securities | | 38,422 |
| | 37,917 |
| | 13,478 |
| | 13,059 |
| | 1,054 |
| | 997 |
| | 52,954 |
| | 51,973 |
| Other debt securities | | 24,808 | | 23,051 | | 6,328 | | 5,585 | | — | | — | | 18,873 | | 17,296 | | 50,009 | | 45,932 |
Total debt securities AFS | | $ | 104,259 |
| | $ | 104,198 |
| | $ | 13,478 |
| | $ | 13,059 |
| | $ | 1,629 |
| | $ | 1,573 |
| | $ | 119,366 |
| | $ | 118,830 |
| Total debt securities AFS | | $ | 167,185 | | $ | 157,329 | | $ | 6,328 | | $ | 5,585 | | $ | — | | $ | — | | $ | 25,458 | | $ | 23,712 | | $ | 198,971 | | $ | 186,626 |
|
Financing Activities
Deposits
Total deposits increased $58,782,000decreased $2,703,000 from December 31, 20162022 to SeptemberJune 30, 2017. The growth was led2023. Time deposits increased $88,275,000 over this period to a total of $226,224,000 as deposit gathering efforts focused on time deposits as customers sought a higher return on their deposit balances. Brokered deposits increased by $78,845,000 as usage provides an increase in money marketalternative to FHLB borrowings and NOW deposit accounts from December 31, 2016 to September 30, 2017 of $29,407,000 and $29,091,000, respectively. The increase in coresupplemented funding loan portfolio growth. Core deposits (deposits less time deposits) has provided relationship driven funding for the loandeclined as deposit balances flowed from noninterest-bearing and investment portfolios. While deposit gathering efforts have centered on core deposits, the lengthening of thelower rate products into higher rate products such as time deposit portfolio is moving forward as partaccounts. Emphasis has been on increasing the utilization of electronic (internet and mobile) deposit banking among our customers. Utilization of internet and mobile banking products has increased due to these efforts coupled with a change in consumer behavior over the strategy to build balance sheet protection in a rising rate environment. The increase in deposits is the result of our focus on building relationships, not by offering market leading rates. past several years.
Deposit balances and their changes for the periods being discussed follow:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2023 | | December 31, 2022 | | Change | | | | | | |
(In Thousands) | | Amount | | % Total | | Amount | | % Total | | Amount | | % | | | | | | |
Demand deposits | | $ | 475,937 | | | 30.63 | % | | $ | 519,063 | | | 33.35 | % | | $ | (43,126) | | | (8.31) | % | | | | | | |
NOW accounts | | 238,353 | | | 15.34 | | | 372,574 | | | 23.94 | | | (134,221) | | | (36.03) | | | | | | | |
Money market deposits | | 296,957 | | | 19.11 | | | 270,589 | | | 17.38 | | | 26,368 | | | 9.74 | | | | | | | |
Savings deposits | | 229,108 | | | 14.75 | | | 247,952 | | | 15.93 | | | (18,844) | | | (7.60) | | | | | | | |
Time deposits | | 226,224 | | | 14.56 | | | 137,949 | | | 8.86 | | | 88,275 | | | 63.99 | | | | | | | |
Brokered deposits | | 87,178 | | | 5.61 | | | 8,333 | | | 0.54 | | | 78,845 | | | 5.07 | | | | | | | |
Total deposits | | $ | 1,553,757 | | | 100.00 | % | | $ | 1,556,460 | | | 100.00 | % | | $ | (2,703) | | | (0.17) | % | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 | | Change |
(In Thousands) | | Amount | | % Total | | Amount | | % Total | | Amount | | % |
Demand deposits | | $ | 310,830 |
| | 26.94 | % | | $ | 303,277 |
| | 27.69 | % | | $ | 7,553 |
| | 2.49 | % |
NOW accounts | | 203,744 |
| | 17.66 |
| | 174,653 |
| | 15.95 |
| | 29,091 |
| | 16.66 |
|
Money market deposits | | 274,528 |
| | 23.79 |
| | 245,121 |
| | 22.38 |
| | 29,407 |
| | 12.00 |
|
Savings deposits | | 156,437 |
| | 13.56 |
| | 153,788 |
| | 14.04 |
| | 2,649 |
| | 1.72 |
|
Time deposits | | 208,457 |
| | 18.05 |
| | 218,375 |
| | 19.94 |
| | (9,918 | ) | | (4.54 | ) |
Total deposits | | $ | 1,153,996 |
| | 100.00 | % | | $ | 1,095,214 |
| | 100.00 | % | | $ | 58,782 |
| | 5.37 | % |
As of June 30, 2023 and December 31, 2022 the Company had $450,127,000 and $617,515,000, respectively, in uninsured deposits. Included in the total uninsured deposits is a concentration of public funds which were collateralized by the Banks in the amount of $89,929,000 and $180,252,000 at June 30, 2023 and December 31, 2022, respectively. Total uninsured deposits less collateralized public funds was $360,198,000 at June 30, 2023 and $437,263,000 at December 31, 2022.
Borrowed Funds
Total borrowed funds decreased 23.53%increased 49.57%, or $23,355,000,$126,970,000, to $122,594,000$383,102,000 at SeptemberJune 30, 20172023 compared to $99,239,000$256,132,000 at December 31, 2016. The reduction in long-term borrowings was the result of a maturity.2022. The increase in short-term borrowed funds supplemented deposit growthlong term borrowings occurred as fixed rate borrowings were initiated to lock in interest rates and to reduce the usage of FHLB overnight borrowings. Short term FHLB borrowings were utilized to provide short term funding offor the loan portfolio growth with overnight borrowings from the FHLB being the primary source of short-term borrowings. The decline in securitiesgrowth. Securities sold under agreementagreements to repurchase is due to the phasing outhave decreased as customers balances have decreased.
| | | | September 30, 2017 | | December 31, 2016 | | Change | | | June 30, 2023 | | December 31, 2022 | | Change |
(In Thousands) | | Amount | | % Total | | Amount | | % Total | | Amount | | % | (In Thousands) | | Amount | | % Total | | Amount | | % Total | | Amount | | % |
Short-term borrowings: | | |
| | |
| | |
| | |
| | |
| | |
| Short-term borrowings: | | | | | | | | | | | | |
FHLB repurchase agreements | | $ | 32,434 |
| | 26.46 | % | | $ | — |
| | — | % | | $ | 32,434 |
| | — | % | FHLB repurchase agreements | | $ | 125,621 | | | 32.79 | % | | $ | 148,195 | | | 57.86 | % | | $ | (22,574) | | | (15.23) | |
Short-term FHLB borrowings | | Short-term FHLB borrowings | | 50,000 | | | 13.05 | | | — | | | — | | | 50,000 | | | n/a |
Securities sold under agreement to repurchase | | 9,162 |
| | 7.47 |
| | 13,241 |
| | 13.34 |
| | (4,079 | ) | | (30.81 | ) | Securities sold under agreement to repurchase | | 4,789 | | | 1.25 | | | 5,154 | | | 2.01 | | | (365) | | | (7.08) | |
Total short-term borrowings | | 41,596 |
| | 33.93 |
| | 13,241 |
| | 13.34 |
| | 28,355 |
| | 214.15 |
| Total short-term borrowings | | 180,410 | | | 47.09 | | | 153,349 | | | 59.87 | | | 27,061 | | | 17.65 | |
Long-term borrowings: | | | | | | | | | | | | | Long-term borrowings: | | | | | | | | | | | | |
Long-term FHLB borrowings | | 80,625 |
| | 65.77 |
| | 85,625 |
| | 86.28 |
| | (5,000 | ) | | (5.84 | ) | Long-term FHLB borrowings | | 195,000 | | | 50.89 | | | 95,000 | | | 37.09 | | | 100,000 | | | 105.26 | |
Long-term capital lease | | 373 |
| | 0.30 |
| | 373 |
| | 0.38 |
| | — |
| | — |
| |
Long-term finance lease | | Long-term finance lease | | 7,692 | | | 2.01 | | | 7,783 | | | 3.04 | | | (91) | | | (1.17) | |
| Total long-term borrowings | | 80,998 |
| | 66.07 |
| | 85,998 |
| | 86.66 |
| | (5,000 | ) | | (5.81 | ) | Total long-term borrowings | | 202,692 | | | 52.91 | | | 102,783 | | | 40.13 | | | 99,909 | | | 97.20 | |
Total borrowed funds | | $ | 122,594 |
| | 100.00 | % | | $ | 99,239 |
| | 100.00 | % | | $ | 23,355 |
| | 23.53 | % | Total borrowed funds | | $ | 383,102 | | | 100.00 | % | | $ | 256,132 | | | 100.00 | % | | $ | 126,970 | | | 49.57 | % |
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 |
(In Thousands) | | June 30, 2023 | | December 31, 2022 |
Investment debt securities pledged, fair value | | $ | 7,285 | | | $ | 7,165 | |
Repurchase agreements | | 4,789 | | | 5,154 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
|
| | | | | | | | |
| | Remaining Contractual Maturity Overnight and Continuous |
(In Thousands) | | September 30, 2017 | | December 31, 2016 |
Mortgage-backed and state and political securities pledged, fair value | | $ | 13,884 |
| | $ | 15,574 |
|
Repurchase agreements | | 9,162 |
| | 13,241 |
|
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 companiesBanking institutions are generally required to comply with the Federal Reserve Board’s risk-based capital guidelines.guidelines set by bank regulatory agencies. 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 minimumCompany's capital requirementsratios as of June 30, 2023 and December 31, 2022 were effective beginning on January 1, 2015. Theas follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2023 | | December 31, 2022 |
(In Thousands) | | Amount | | Ratio | | Amount | | Ratio |
Common Equity Tier I Capital (to Risk-weighted Assets) | | | | | | | | |
Actual | | $ | 172,025 | | | 9.695 | % | | $ | 165,346 | | | 9.973 | % |
For Capital Adequacy Purposes | | 79,847 | | | 4.500 | | | 74,607 | | | 4.500 | |
Minimum To Maintain Capital Conservation Buffer At Reporting Date | | 124,206 | | | 7.000 | | | 116,056 | | | 7.000 | |
To Be Well Capitalized | | 115,334 | | | 6.500 | | | 107,766 | | | 6.500 | |
Total Capital (to Risk-weighted Assets) | | | | | | | | |
Actual | | $ | 184,983 | | | 10.425 | % | | $ | 181,127 | | | 10.925 | % |
For Capital Adequacy Purposes | | 141,953 | | | 8.000 | | | 132,633 | | | 8.000 | |
Minimum To Maintain Capital Conservation Buffer At Reporting Date | | 186,314 | | | 10.500 | | | 174,081 | | | 10.500 | |
To Be Well Capitalized | | 177,442 | | | 10.000 | | | 165,791 | | | 10.000 | |
Tier I Capital (to Risk-weighted Assets) | | | | | | | | |
Actual | | $ | 172,025 | | | 9.695 | % | | $ | 165,346 | | | 9.973 | % |
For Capital Adequacy Purposes | | 106,462 | | | 6.000 | | | 99,476 | | | 6.000 | |
Minimum To Maintain Capital Conservation Buffer At Reporting Date | | 150,821 | | | 8.500 | | | 140,925 | | | 8.500 | |
To Be Well Capitalized | | 141,949 | | | 8.000 | | | 132,635 | | | 8.000 | |
Tier I Capital (to Average Assets) | | | | | | | | |
Actual | | $ | 172,025 | | | 8.332 | % | | $ | 165,346 | | | 8.636 | % |
For Capital Adequacy Purposes | | 82,585 | | | 4.000 | | | 76,585 | | | 4.000 | |
To Be Well Capitalized | | 103,232 | | | 5.000 | | | 95,731 | | | 5.000 | |
Jersey Shore State Bank's capital contribution buffer requirements phase in over a three-year period beginning January 1, 2016. The Companyratios as of June 30, 2023 and the Banks will continue to analyze these new rulesDecember 31, 2022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2023 | | December 31, 2022 |
(In Thousands) | | Amount | | Ratio | | Amount | | Ratio |
Common Equity Tier I Capital (to Risk-weighted Assets) | | | | | | | | |
Actual | | $ | 124,177 | | | 9.516 | % | | $ | 119,783 | | | 9.781 | % |
For Capital Adequacy Purposes | | 58,722 | | | 4.500 | | | 55,109 | | | 4.500 | |
Minimum To Maintain Capital Conservation Buffer At Reporting Date | | 91,345 | | | 7.000 | | | 85,725 | | | 7.000 | |
To Be Well Capitalized | | 84,820 | | | 6.500 | | | 79,602 | | | 6.500 | |
Total Capital (to Risk-weighted Assets) | | | | | | | | |
Actual | | $ | 134,791 | | | 10.330 | % | | $ | 131,379 | | | 10.728 | % |
For Capital Adequacy Purposes | | 104,388 | | | 8.000 | | | 97,971 | | | 8.000 | |
Minimum To Maintain Capital Conservation Buffer At Reporting Date | | 137,009 | | | 10.500 | | | 128,587 | | | 10.500 | |
To Be Well Capitalized | | 130,485 | | | 10.000 | | | 122,464 | | | 10.000 | |
Tier I Capital (to Risk-weighted Assets) | | - | | | | - | | |
Actual | | $ | 124,177 | | | 9.516 | % | | $ | 119,783 | | | 9.781 | % |
For Capital Adequacy Purposes | | 78,296 | | | 6.000 | | | 73,479 | | | 6.000 | |
Minimum To Maintain Capital Conservation Buffer At Reporting Date | | 110,919 | | | 8.500 | | | 104,095 | | | 8.500 | |
To Be Well Capitalized | | 104,394 | | | 8.000 | | | 97,972 | | | 8.000 | |
Tier I Capital (to Average Assets) | | | | | | | | |
Actual | | $ | 124,177 | | | 8.155 | % | | $ | 119,783 | | | 8.383 | % |
For Capital Adequacy Purposes | | 60,908 | | | 4.000 | | | 57,155 | | | 4.000 | |
To Be Well Capitalized | | 76,135 | | | 5.000 | | | 71,444 | | | 5.000 | |
Luzerne Bank's capital ratios as of June 30, 2023 and their effects on the business, operations and capital levels of the Company and the Banks.December 31, 2022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2023 | | December 31, 2022 |
(In Thousands) | | Amount | | Ratio | | Amount | | Ratio |
Common Equity Tier I Capital (to Risk-weighted Assets) | | | | | | | | |
Actual | | $ | 46,679 | | | 9.810 | % | | $ | 43,364 | | | 9.877 | % |
For Capital Adequacy Purposes | | 21,412 | | | 4.500 | | | 19,757 | | | 4.500 | |
Minimum To Maintain Capital Conservation Buffer At Reporting Date | | 33,308 | | | 7.000 | | | 30,733 | | | 7.000 | |
To Be Well Capitalized | | 30,929 | | | 6.500 | | | 28,538 | | | 6.500 | |
Total Capital (to Risk-weighted Assets) | | | | | | | | |
Actual | | $ | 49,023 | | | 10.303 | % | | $ | 47,549 | | | 10.830 | % |
For Capital Adequacy Purposes | | 38,065 | | | 8.000 | | | 35,124 | | | 8.000 | |
Minimum To Maintain Capital Conservation Buffer At Reporting Date | | 49,960 | | | 10.500 | | | 46,100 | | | 10.500 | |
To Be Well Capitalized | | 47,581 | | | 10.000 | | | 43,905 | | | 10.000 | |
Tier I Capital (to Risk-weighted Assets) | | | | | | | | |
Actual | | $ | 46,679 | | | 9.810 | % | | $ | 43,364 | | | 9.877 | % |
For Capital Adequacy Purposes | | 28,550 | | | 6.000 | | | 26,342 | | | 6.000 | |
Minimum To Maintain Capital Conservation Buffer At Reporting Date | | 40,446 | | | 8.500 | | | 37,318 | | | 8.500 | |
To Be Well Capitalized | | 38,066 | | | 8.000 | | | 35,123 | | | 8.000 | |
Tier I Capital (to Average Assets) | | | | | | | | |
Actual | | $ | 46,679 | | | 8.215 | % | | $ | 43,364 | | | 8.260 | % |
For Capital Adequacy Purposes | | 22,729 | | | 4.000 | | | 21,000 | | | 4.000 | |
To Be Well Capitalized | | 28,411 | | | 5.000 | | | 26,249 | | | 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 forwith the exception of net loans to total deposits that was 113%, at SeptemberJune 30, 2017:2023:
1. Net Loans to Total Assets, 85% maximum
2.Net Loans to Total Deposits, 100% maximum
3.Cumulative 90 day Maturity GAP %, +/- 20%15% maximum
4.Cumulative 1 Year Maturity GAP %, +/- 25%20% 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.$812,216,000. In addition to this credit arrangement, the Company has additional lines of credit with correspondent banks of $52,000,000.$100,000,000. Management believes it has sufficient liquidity to satisfy estimated short-term and long-term funding needs. FHLB borrowings totaled $113,059,000$370,622,000 as of SeptemberJune 30, 2017.2023.
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 previously decreased the duration of the earning asset portfolio by adding quality short and intermediate term loans such as home equity loans andloans. The Company has added certain longer-term earning assets due to the selling of long-term municipal bonds.significant increase in interest rates. Lengthening of the liability portfolio, is beingprimarily time deposits, has been undertaken to build protection in aduring the current 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 SeptemberJune 30, 20182024 assuming a static balance sheet as of SeptemberJune 30, 2017.2023.
| | | | Parallel Rate Shock in Basis Points | | | Parallel Rate Shock in Basis Points |
(In Thousands) | | -200 | | -100 | | Static | | +100 | | +200 | | +300 | | +400 | (In Thousands) | | -300 | | -200 | | -100 | | Static | | +100 | | +200 | | +300 | | +400 |
Net interest income | | $ | 41,960 |
| | $ | 44,460 |
| | $ | 46,574 |
| | $ | 48,284 |
| | $ | 49,787 |
| | $ | 51,179 |
| | $ | 52,592 |
| Net interest income | | $ | 58,497 | | | $ | 60,617 | | | $ | 62,366 | | | $ | 63,802 | | | $ | 64,790 | | | $ | 65,720 | | | $ | 66,634 | | | $ | 67,518 | |
Change from static | | (4,614 | ) | | (2,114 | ) | | — |
| | 1,710 |
| | 3,213 |
| | 4,605 |
| | 6,018 |
| Change from static | | (5,305) | | | (3,185) | | | (1,436) | | | — | | | 988 | | | 1,918 | | | 2,832 | | | 3,716 | |
Percent change from static | | -9.91 | % | | -4.54 | % | | — |
| | 3.67 | % | | 6.90 | % | | 9.89 | % | | 12.92 | % | Percent change from static | | -8.31 | % | | -4.99 | % | | -2.25 | % | | — | | | 1.55 | % | | 3.01 | % | | 4.44 | % | | 5.82 | % |
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
Substantially all of the Company's assets and liabilities relate to banking activities and are monetary. The assetconsolidated financial statements and liability structurerelated financial data are presented following GAAP. GAAP currently requires the Company to measure the financial position and results of a financial institutionoperations in terms of historical dollars, except for securities available for sale, impaired loans, and other real estate loans that are measured at fair value. Changes in the value of money due to rising inflation can cause purchasing power loss.
Management's opinion is primarily monetarythat movements in nature. Therefore, interest rates ratheraffect the financial condition and results of operations to a greater degree than changes in the rate of inflation. It should be noted that interest rates and inflation have a more significant impactdo affect each other but do not always move in correlation with each other. The Company's ability to match the interest sensitivity of its financial assets to the interest sensitivity of its liabilities in its asset/liability management may tend to minimize the effect of changes in interest rates on the Company’sCompany'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, 2016.2022. 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.”Operations” of that document.
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 SeptemberJune 30, 2017.2023.
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 SeptemberJune 30, 2017,2023 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 theCertain risk factors are 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. Please refer to that section2022, as supplemented by the Company's Quarterly Report on Form 10-Q for disclosures regarding the risks and uncertainties related to the Company’s business.quarter ended March 31, 2023.
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 SeptemberJune 30, 2017.
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
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(April 1 - July 31, 2017)April 30, 2023) | | — |
| | —$ | — | | — | — | | 342,446 | 324,000 | |
Month #2 (August(May 1 - AugustMay 31, 2017)2023) | | — |
| | — |
| | — |
| | 342,446353,000 |
|
Month #3 (September(June 1 - SeptemberJune 30, 2017)2023) | | — |
| | — |
| | — |
| | 342,446353,000 |
|
On April 24, 2017, the Board of Directors extended the previously approved authorization to repurchase up to 482,000 shares, or approximately 10%, of the outstanding shares of the Company for an additional year to April 30, 2018. As of September 30, 2017 there have been 91,856 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
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| | | | | | | | |
| | Articles of Incorporation of the Registrant as presently in effect (incorporated by reference to Exhibit 3(i) of the Registrant’s QuarterlyRegistrant's Annual Report on Form 10-Q10-K for the periodyear ended MarchDecember 31, 2012)2022). | |
| | Bylaws of the Registrant (incorporated by reference to Exhibit 3(ii) of the Registrant’sRegistrant's Annual Report on Form 10-K for the year ended December 31, 2011)2020). | |
| | 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 SeptemberJune 30, 20172023 and December 31, 2016;2022; (ii) the Consolidated Statement of Income for the three and ninesix months ended SeptemberJune 30, 20172023 and 2016;2022; (iii) Consolidated Statement of Comprehensive Income for the three and ninesix months ended SeptemberJune 30, 20172023 and 2016;2022; (iv) the Consolidated Statement of Shareholders’ Equity for the ninethree and six months ended SeptemberJune 30, 20172023 and 2016;2022; (v) the Consolidated Statement of Cash Flows for the ninesix months ended SeptemberJune 30, 20172023 and 2016;2022 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. | |
104 | | Cover page interactive data file (formatted as inline XBRL and contained in Exhibit 101). | |
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.
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| | | | | | | |
| | PENNS WOODS BANCORP, INC. |
| | (Registrant) |
| | |
Date: | November 8, 2017August 11, 2023 | /s/ Richard A. Grafmyre |
| | Richard A. Grafmyre, Chief Executive Officer |
| | (Principal Executive Officer) |
| | |
| | |
Date: | November 8, 2017August 11, 2023 | /s/ Brian L. Knepp |
| | Brian L. Knepp, President and Chief Financial Officer |
| | (Principal Financial Officer and Principal Accounting |
| | Officer) |
EXHIBIT INDEX
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| | |
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, 2017 and December 31, 2016; (ii) the Consolidated Statement of Income for the three and nine months ended September 30, 2017 and 2016; (iii) Consolidated Statement of Comprehensive Income for the three and nine months ended September 30, 2017 and 2016; (iv) the Consolidated Statement of Shareholders’ Equity for the nine months ended September 30, 2017 and 2016; (v) the Consolidated Statement of Cash Flows for the nine months ended September 30, 2017 and 2016; 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.
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