Attached files
file | filename |
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EX-31.1 - EX-31.1 - Your Community Bankshares, Inc. | a15-15453_1ex31d1.htm |
EX-32.2 - EX-32.2 - Your Community Bankshares, Inc. | a15-15453_1ex32d2.htm |
EX-32.1 - EX-32.1 - Your Community Bankshares, Inc. | a15-15453_1ex32d1.htm |
EX-31.2 - EX-31.2 - Your Community Bankshares, Inc. | a15-15453_1ex31d2.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-25766
Your Community Bankshares, Inc.
(Exact name of registrant as specified in its charter)
Indiana |
|
35-1938254 |
(State or other jurisdiction of incorporation or |
|
(I.R.S. Employer Identification Number) |
101 W. Spring Street, New Albany, Indiana |
|
47150 |
(Address of principal executive offices) |
|
(Zip Code) |
Registrants telephone number, including area code 812-944-2224
Community Bank Shares of Indiana, Inc.
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§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). x Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check One):
Large Accelerated Filer o |
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Accelerated Filer x |
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|
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Non- Accelerated Filer o |
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Smaller Reporting Companyo |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. o Yes o No
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date: 5,405,079 shares of common stock were outstanding as of August 7, 2015.
YOUR COMMUNITY BANKSHARES, INC.
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Page |
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Item 1. |
Financial Statements |
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3 | |
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4 | |
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6 | |
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7 | |
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8 | |
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10 | |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
50 | |
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64 | ||
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67 | ||
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68 | ||
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68 | ||
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68 | ||
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68 | ||
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69 | |
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70 |
PART I - FINANCIAL INFORMATION
YOUR COMMUNITY BANKSHARES, INC.
(Unaudited)
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June 30, |
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December 31, |
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(In thousands, except share data) |
| ||||
ASSETS |
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|
|
|
| ||
Cash and due from financial institutions |
|
$ |
28,947 |
|
$ |
12,872 |
|
Interest-bearing deposits in other financial institutions |
|
32,383 |
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6,808 |
| ||
Deposit for partial redemption of acquirees preferred stock and unpaid dividend |
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11,341 |
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Securities available for sale |
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398,292 |
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202,177 |
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Loans held for sale |
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390 |
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Loans, net of allowance for loan losses of $8,045 and $6,465 |
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996,971 |
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597,110 |
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Federal Home Loan Bank and Federal Reserve stock |
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3,807 |
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4,964 |
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Accrued interest receivable |
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5,083 |
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3,152 |
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Premises and equipment, net |
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31,462 |
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18,124 |
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Premises and equipment held for sale |
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5,635 |
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Company owned life insurance |
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33,348 |
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22,058 |
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Goodwill |
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6,375 |
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Core deposit intangible |
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5,634 |
|
682 |
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Foreclosed and repossessed assets |
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8,354 |
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4,431 |
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Other assets |
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30,647 |
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5,027 |
| ||
Total Assets |
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$ |
1,587,328 |
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$ |
888,746 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Deposits |
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Non interest-bearing |
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$ |
292,179 |
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$ |
200,142 |
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Interest-bearing |
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1,014,357 |
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450,802 |
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Total deposits |
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1,306,536 |
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650,944 |
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Short-term borrowings |
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42,989 |
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45,818 |
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Subscription agreement proceeds in escrow |
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20,774 |
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Other borrowings |
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83,000 |
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67,000 |
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Accrued interest payable |
|
703 |
|
158 |
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Other liabilities |
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8,741 |
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4,504 |
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Total liabilities |
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1,441,969 |
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789,198 |
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Commitments and contingent liabilities |
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Shareholders equity |
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Preferred stock, without par value; 5,000,000 authorized; 28,000 shares issued and outstanding in 2015 and 2014; aggregate liquidation preference of $28,000 |
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28,000 |
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28,000 |
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Common stock, $.10 par value per share; 10,000,000 shares authorized; 5,776,244 and 3,863,937 shares issued in 2015 and 2014, respectively; 5,405,079 and 3,447,826 outstanding in 2015 and 2014, respectively |
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578 |
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386 |
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Additional paid-in capital |
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89,791 |
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44,421 |
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Retained earnings |
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33,228 |
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32,110 |
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Accumulated other comprehensive income |
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150 |
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1,809 |
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Treasury stock, at cost (2015- 371,165 shares, 2014- 416,111 shares) |
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(6,388 |
) |
(7,178 |
) | ||
Total shareholders equity |
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145,359 |
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99,548 |
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Total Liabilities and Shareholders Equity |
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$ |
1,587,328 |
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$ |
888,746 |
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See accompanying notes to consolidated financial statements.
PART I - FINANCIAL INFORMATION
YOUR COMMUNITY BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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Three Months Ended |
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Six Months Ended |
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2015 |
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2014 |
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2015 |
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2014 |
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(In thousands, except share data) |
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Interest and dividend income |
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Loans, including fees |
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$ |
12,787 |
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$ |
7,098 |
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$ |
25,310 |
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$ |
13,722 |
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Taxable securities |
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1,320 |
|
489 |
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2,660 |
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1,050 |
| ||||
Tax-exempt securities |
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881 |
|
751 |
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1,624 |
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1,488 |
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Federal Home Loan Bank and Federal Reserve dividends |
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69 |
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63 |
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164 |
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116 |
| ||||
Interest-bearing deposits in other financial institutions |
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49 |
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9 |
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104 |
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35 |
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Interest and dividend income |
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15,106 |
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8,410 |
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29,862 |
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16,411 |
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Interest expense |
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Deposits |
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580 |
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267 |
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1,154 |
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520 |
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Short-term borrowings |
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23 |
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23 |
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45 |
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53 |
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Other borrowings |
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589 |
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183 |
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1,265 |
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376 |
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Interest expense |
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1,192 |
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473 |
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2,464 |
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949 |
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Net interest income |
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13,914 |
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7,937 |
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27,398 |
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15,462 |
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Provision for loan losses |
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2,155 |
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190 |
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2,261 |
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472 |
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Net interest income after provision for loan losses |
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11,759 |
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7,747 |
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25,137 |
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14,990 |
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Non-interest income |
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Service charges on deposit accounts |
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1,669 |
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835 |
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3,060 |
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1,627 |
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Commission income |
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50 |
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48 |
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97 |
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96 |
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Net gain on sales of available for sale securities |
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1 |
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51 |
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296 |
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Mortgage banking income |
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74 |
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28 |
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191 |
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44 |
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Earnings on company owned life insurance |
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253 |
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168 |
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505 |
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332 |
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Interchange income |
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476 |
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330 |
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920 |
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600 |
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Other income |
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130 |
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130 |
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240 |
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222 |
| ||||
Non-interest income |
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2,652 |
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1,540 |
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5,064 |
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3,217 |
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Non-interest expense |
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Salaries and employee benefits |
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5,086 |
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3,366 |
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14,205 |
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6,733 |
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Occupancy |
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1,200 |
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549 |
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2,827 |
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1,249 |
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Equipment |
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472 |
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301 |
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1,053 |
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628 |
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Data processing |
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921 |
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663 |
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2,735 |
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1,329 |
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Marketing and advertising |
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142 |
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89 |
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352 |
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195 |
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Legal and professional service fees |
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853 |
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738 |
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2,411 |
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1,158 |
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FDIC insurance premiums |
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372 |
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129 |
|
645 |
|
293 |
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Foreclosed assets, net |
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(95 |
) |
53 |
|
249 |
|
191 |
| ||||
Other expense |
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1,524 |
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641 |
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3,922 |
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1,304 |
| ||||
Total non-interest expense |
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10,475 |
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6,529 |
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28,399 |
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13,080 |
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Income before income taxes |
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3,936 |
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2,758 |
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1,802 |
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5,127 |
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Income tax expense |
|
371 |
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610 |
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(827 |
) |
867 |
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Net income |
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3,565 |
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2,148 |
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2,629 |
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4,260 |
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Preferred stock dividend |
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(109 |
) |
(109 |
) |
(219 |
) |
(219 |
) | ||||
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Net income available to common shareholders |
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$ |
3,456 |
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$ |
2,039 |
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$ |
2,410 |
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$ |
4,041 |
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PART I - FINANCIAL INFORMATION
YOUR COMMUNITY BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
|
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Three Months Ended |
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Six Months Ended |
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2015 |
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2014 |
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2015 |
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2014 |
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(In thousands, except share data) |
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Earnings per common share: |
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Basic |
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$ |
0.64 |
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$ |
0.59 |
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$ |
0.45 |
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$ |
1.18 |
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Diluted |
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$ |
0.64 |
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$ |
0.59 |
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$ |
0.44 |
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$ |
1.17 |
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Dividends per common share |
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$ |
0.12 |
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$ |
0.12 |
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$ |
0.24 |
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$ |
0.24 |
|
See accompanying notes to consolidated financial statements.
PART I - FINANCIAL INFORMATION
YOUR COMMUNITY BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
2015 |
|
2014 |
|
2015 |
|
2014 |
| ||||
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(in thousands) |
| ||||||||||
Net income |
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$ |
3,565 |
|
$ |
2,148 |
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$ |
2,629 |
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$ |
4,260 |
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|
|
|
|
|
|
|
|
| ||||
Other comprehensive income (loss), net of tax |
|
|
|
|
|
|
|
|
| ||||
Unrealized gain on securities: |
|
|
|
|
|
|
|
|
| ||||
Unrealized gain (loss) arising during the period |
|
(5,500 |
) |
2,116 |
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(2,461 |
) |
4,045 |
| ||||
Reclassification adjustment for gains included in net income |
|
|
|
(1 |
) |
(51 |
) |
(296 |
) | ||||
Net unrealized gains (losses) |
|
(5,500 |
) |
2,115 |
|
(2,512 |
) |
3,749 |
| ||||
Tax effect |
|
1,871 |
|
(711 |
) |
855 |
|
(1,266 |
) | ||||
Net of tax |
|
(3,629 |
) |
1,404 |
|
(1,657 |
) |
2,483 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Defined benefit pension plans: |
|
|
|
|
|
|
|
|
| ||||
Net gain (loss) arising during the period |
|
(13 |
) |
16 |
|
(3 |
) |
6 |
| ||||
Tax effect |
|
4 |
|
(5 |
) |
1 |
|
(2 |
) | ||||
Net of tax |
|
(9 |
) |
11 |
|
(2 |
) |
4 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total other comprehensive income (loss) |
|
(3,638 |
) |
1,415 |
|
(1,659 |
) |
2,487 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Comprehensive income (loss) |
|
$ |
(73 |
) |
$ |
3,563 |
|
$ |
970 |
|
$ |
6,747 |
|
See accompanying notes to consolidated financial statements.
PART I - FINANCIAL INFORMATION
YOUR COMMUNITY BANKSHARES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
(Dollar amounts in thousands, except per share data)
(Unaudited)
|
|
Preferred |
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Common |
|
Additional |
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Retained |
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Accumulated |
|
Treasury |
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Total |
| |||||||
Balance, January 1, 2015 |
|
$ |
28,000 |
|
$ |
386 |
|
$ |
44,421 |
|
$ |
32,110 |
|
$ |
1,809 |
|
$ |
(7,178 |
) |
$ |
99,548 |
|
Net income |
|
|
|
|
|
|
|
2,629 |
|
|
|
|
|
2,629 |
| |||||||
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
(1,659 |
) |
|
|
(1,659 |
) | |||||||
Assumption of First Financial Service Corporations preferred stock |
|
12,309 |
|
|
|
|
|
|
|
|
|
|
|
12,309 |
| |||||||
Redemption of preferred stock |
|
(12,309 |
) |
|
|
|
|
|
|
|
|
|
|
(12,309 |
) | |||||||
Issuance of common shares for acquisition of First Financial Service Corporation |
|
|
|
80 |
|
21,446 |
|
|
|
|
|
|
|
21,526 |
| |||||||
Issuance of common shares |
|
|
|
112 |
|
23,656 |
|
|
|
|
|
|
|
23,768 |
| |||||||
Dividends declared on common stock ($0.24 per share) |
|
|
|
|
|
|
|
(1,292 |
) |
|
|
|
|
(1,292 |
) | |||||||
Dividends on preferred stock |
|
|
|
|
|
|
|
(219 |
) |
|
|
|
|
(219 |
) | |||||||
Issuance of treasury stock under dividend reinvestment plan |
|
|
|
|
|
37 |
|
|
|
|
|
63 |
|
100 |
| |||||||
Issuance of stock award shares |
|
|
|
|
|
(384 |
) |
|
|
|
|
273 |
|
(111 |
) | |||||||
Stock options exercised |
|
|
|
|
|
119 |
|
|
|
|
|
454 |
|
573 |
| |||||||
Stock award expense |
|
|
|
|
|
441 |
|
|
|
|
|
|
|
441 |
| |||||||
Tax benefit from vesting of stock award shares |
|
|
|
|
|
55 |
|
|
|
|
|
|
|
55 |
| |||||||
Balance, June 30, 2015 |
|
$ |
28,000 |
|
$ |
578 |
|
$ |
89,791 |
|
$ |
33,228 |
|
$ |
150 |
|
$ |
(6,388 |
) |
$ |
145,359 |
|
See accompanying notes to consolidated financial statements.
PART I - FINANCIAL INFORMATION
YOUR COMMUNITY BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Six Months Ended |
| ||||
|
|
2015 |
|
2014 |
| ||
|
|
(In thousands) |
| ||||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
| ||
Net income |
|
$ |
2,629 |
|
$ |
4,260 |
|
Adjustments to reconcile net income to net cash from operating activities: |
|
|
|
|
| ||
Provision for loan losses |
|
2,261 |
|
472 |
| ||
Depreciation and amortization |
|
(459 |
) |
945 |
| ||
Net amortization of securities |
|
1,002 |
|
240 |
| ||
Net gain on sales of available for sale securities |
|
(51 |
) |
(296 |
) | ||
Mortgage loans originated for sale |
|
(11,192 |
) |
(1,985 |
) | ||
Proceeds from mortgage loan sales |
|
12,767 |
|
1,847 |
| ||
Net gain on sales of mortgage loans |
|
(191 |
) |
(40 |
) | ||
Earnings on company owned life insurance |
|
(505 |
) |
(332 |
) | ||
Stock award compensation expense |
|
441 |
|
201 |
| ||
Net (gain) loss on disposition of premises and equipment |
|
(171 |
) |
3 |
| ||
Net (gain) loss on disposition of foreclosed and repossessed assets |
|
65 |
|
(53 |
) | ||
Net change in: |
|
|
|
|
| ||
Accrued interest receivable |
|
(292 |
) |
5 |
| ||
Accrued interest payable |
|
(360 |
) |
(19 |
) | ||
Other assets |
|
(1,345 |
) |
933 |
| ||
Other liabilities |
|
(4,841 |
) |
1,591 |
| ||
Net cash from operating activities |
|
(242 |
) |
7,772 |
| ||
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
| ||
Acquisition of First Financial Service Corporation, net |
|
12,979 |
|
|
| ||
Net change in interest-bearing deposits |
|
38,422 |
|
(7,831 |
) | ||
Available for sale securities: |
|
|
|
|
| ||
Sales |
|
38,877 |
|
32,757 |
| ||
Purchases |
|
(42,001 |
) |
(28,886 |
) | ||
Maturities, prepayments and calls |
|
27,126 |
|
7,230 |
| ||
Loan originations and payments, net |
|
(5,831 |
) |
(28,359 |
) | ||
Proceeds from the sale of foreclosed and repossessed assets |
|
8,754 |
|
1,289 |
| ||
Purchases of premises and equipment |
|
(930 |
) |
(536 |
) | ||
Proceeds from the sale of premises and equipment |
|
191 |
|
|
| ||
Additions to foreclosed and repossessed assets |
|
|
|
(37 |
) | ||
Redemption of Federal Reserve and FHLB Stock |
|
5,253 |
|
|
| ||
Purchase of Federal Reserve and FHLB stock |
|
(16 |
) |
(9 |
) | ||
Net cash from investing activities |
|
82,824 |
|
(24,382 |
) | ||
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
| ||
Net change in deposits |
|
(48,175 |
) |
39,990 |
| ||
Net change in short-term borrowings |
|
(2,829 |
) |
(8,263 |
) | ||
Proceeds from issuance of other borrowings |
|
|
|
110,000 |
| ||
Repayment of other borrowings |
|
(10,846 |
) |
(120,000 |
) | ||
Taxes paid on stock award shares for employees |
|
(111 |
) |
(267 |
) | ||
Proceeds from stock options exercised |
|
573 |
|
|
| ||
Issuance costs paid for common shares issued |
|
(1,263 |
) |
|
| ||
Redemption of acquired preferred shares and dividends |
|
(2,445 |
) |
|
| ||
Cash dividends paid on preferred shares |
|
(219 |
) |
(181 |
) | ||
Cash dividends paid on common shares |
|
(1,192 |
) |
(712 |
) | ||
Net cash from financing activities |
|
(66,507 |
) |
20,567 |
| ||
Net change in cash and due from financial institutions |
|
16,075 |
|
3,957 |
| ||
Cash and due from financial institutions at beginning of period |
|
12,872 |
|
15,393 |
| ||
Cash and due from financial institutions at end of period |
|
$ |
28,947 |
|
$ |
19,350 |
|
PART I - FINANCIAL INFORMATION
YOUR COMMUNITY BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Six Months Ended |
| ||||
|
|
2015 |
|
2014 |
| ||
|
|
(In thousands) |
| ||||
Supplemental cash flow information: |
|
|
|
|
| ||
Interest paid |
|
$ |
1,603 |
|
$ |
968 |
|
Income taxes paid, net of refunds |
|
|
|
345 |
| ||
|
|
|
|
|
| ||
Supplemental noncash disclosures: |
|
|
|
|
| ||
Transfer from loans to foreclosed and repossessed assets |
|
10,197 |
|
1,240 |
| ||
Issuance of treasury shares under dividend reinvestment plan |
|
63 |
|
80 |
| ||
Issuance of treasury shares for net settlement of stock options |
|
63 |
|
29 |
| ||
Sale and financing of foreclosed and repossessed assets |
|
683 |
|
|
| ||
Issuance of common shares |
|
25,031 |
|
|
| ||
Redemption of preferred shares and unpaid dividends of First Financial Service Corporation |
|
18,043 |
|
|
| ||
Declared, unpaid dividends on preferred stock |
|
110 |
|
110 |
| ||
See accompanying notes to consolidated financial statements.
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Presentation of Interim Information
Your Community Bankshares, Inc. (we, our, us, or the Company) is a bank holding company headquartered in New Albany, Indiana. Our wholly-owned banking subsidiaries are Your Community Bank (Your Community Bank or YCB), and The Scott County State Bank (Scott County State Bank). YCB and SCSB (YCB and SCSB are at times collectively referred to herein as the Banks) are state-chartered commercial banks headquartered in New Albany, Indiana and Scottsburg, Indiana, respectively, and are both regulated by the Indiana Department of Financial Institutions. Your Community Bank is also regulated by the Federal Deposit Insurance Corporation and (with respect to its Kentucky branches) the Kentucky Office of Financial Institutions. Scott County State Bank is also regulated by the Federal Reserve. The Company formed a captive insurance company in 2012, CBIN Insurance, Inc., which issues policies to the Companys subsidiaries to cover gaps in coverage and other risks not insured by its third-party provider.
Your Community Bank has three wholly-owned subsidiaries to manage its investment portfolio. CBSI Holdings, Inc. and CBSI Investments, Inc. are Nevada corporations which jointly own CBSI Investment Portfolio Management, LLC, a Nevada limited liability corporation which holds and manages investment securities previously owned by Your Community Bank.
In June 2004 and June 2006, we completed placements of floating rate subordinated debentures through two trusts that we formed, Community Bank Shares (IN) Statutory Trust I and Trust II (Trusts). Because the Trusts are not consolidated with us, our financial statements reflect the subordinated debt we issued to the Trusts.
To prepare financial statements in conformity with U.S. generally accepted accounting principles management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ.
In the opinion of management, the unaudited consolidated financial statements include all normal adjustments considered necessary to present fairly the financial position as of June 30, 2015, the results of operations for the three and six months ended June 30, 2015 and 2014, and cash flows for the six months ended June 30, 2015 and 2014. All of these adjustments are of a normal, recurring nature. Interim results are not necessarily indicative of results for a full year.
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions for Form 10-Q. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.
For further information, refer to the consolidated financial statements and footnotes included in our annual report on Form 10-K for the year ended December 31, 2014. The consolidated financial statements include our accounts and our subsidiaries accounts. All material intercompany balances and transactions have been eliminated in consolidation.
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. Acquisition
On January 1, 2015, the Company acquired First Financial Service Corporation (FFKY) and its wholly-owned subsidiary, First Federal Savings Bank of Elizabethtown (FFSB). FFKY was headquartered in Elizabethtown, Kentucky with $774.1 million in total assets and operated 17 financial centers. The acquisition expanded the Companys presence into central Kentucky with minimal overlap of its existing market footprint.
The total purchase price for FFKY was $21.9 million, consisting of $423,000 of cash and the issuance of 791,357 shares of the Companys common stock valued at $21.5 million. The acquisition was accounted for under the acquisition method of accounting. Accordingly, the Company recognized amounts for identifiable assets acquired and liabilities assumed at their estimated acquisition date fair values, while $3.0 million of transaction and integration costs associated with the acquisition were expensed as incurred. Based on the initial preliminary valuation of the fair value of tangible and intangible assets acquired and liabilities assumed, $7.5 million of the purchase price was allocated to goodwill which is not considered deductible for tax purposes.
During the quarter ended June 30, 2015, management obtained information regarding the initial valuations of certain assets which were adjusted to reflect the revised estimated fair value resulting in adjusted goodwill of $6.4 million. Based on managements preliminary valuation of the fair value of tangible and intangible assets acquired and liabilities assumed, which are based on assumptions that are subject to change, the purchase price for the FFKY acquisition is allocated as follows (in thousands):
|
|
As Previously |
|
Recast |
|
As Recast |
| |||
Cash and cash equivalents |
|
$ |
13,401 |
|
$ |
|
|
$ |
13,401 |
|
Interest-bearing deposits in other financial institutions |
|
63,997 |
|
|
|
63,997 |
| |||
Securities available for sale |
|
223,579 |
|
|
|
223,579 |
| |||
Loans held for sale |
|
1,774 |
|
|
|
1,774 |
| |||
Loans |
|
402,259 |
|
1,802 |
|
404,061 |
| |||
Federal Home Loan Bank Stock |
|
4,080 |
|
|
|
4,080 |
| |||
Accrued interest receivable |
|
1,639 |
|
|
|
1,639 |
| |||
Premises and equipment |
|
20,216 |
|
(500 |
) |
19,716 |
| |||
Company owned life insurance |
|
10,785 |
|
|
|
10,785 |
| |||
Foreclosed and repossessed assets |
|
3,228 |
|
127 |
|
3,355 |
| |||
Core deposit intangible |
|
5,667 |
|
|
|
5,667 |
| |||
Deferred tax assets |
|
15,290 |
|
(260 |
) |
15,030 |
| |||
Other assets |
|
7,786 |
|
|
|
7,786 |
| |||
Total assets acquired |
|
773,701 |
|
1,169 |
|
774,870 |
| |||
|
|
|
|
|
|
|
| |||
Deposits |
|
704,784 |
|
|
|
704,784 |
| |||
Other borrowings |
|
26,489 |
|
|
|
26,489 |
| |||
Accrued interest payable |
|
6,639 |
|
|
|
6,639 |
| |||
Other liabilities |
|
9,076 |
|
|
|
9,076 |
| |||
Total liabilities assumed |
|
746,988 |
|
|
|
746,988 |
| |||
|
|
|
|
|
|
|
| |||
Liquidation amount of preferred stock |
|
12,309 |
|
|
|
12,309 |
| |||
|
|
|
|
|
|
|
| |||
Total identifiable net assets |
|
14,404 |
|
1,169 |
|
15,573 |
| |||
|
|
|
|
|
|
|
| |||
Goodwill |
|
7,544 |
|
(1,169 |
) |
6,375 |
| |||
|
|
|
|
|
|
|
| |||
|
|
$ |
21,948 |
|
|
|
$ |
21,948 |
| |
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. Acquisition (Continued)
The following table presents unaudited pro-forma information below for the three and six month periods ended June 30, 2015 and 2014 and gives effect to the FFKY acquisition as if it had occurred on January 1, 2014. The pro-forma financial information is not necessarily indicative of the results of operations had the acquisition occurred as of that date. The 2015 pro-forma information was adjusted to exclude acquisition-related costs incurred during the period while 2014 was adjusted to include the costs. Additionally, adjustments were made for interest income on loans and securities, interest expense on deposits and other borrowings assumed, amortization of intangibles arising from the transaction, and the related income tax effects.
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
2015 |
|
2014 |
|
2015 |
|
2014 |
| ||||
|
|
(In thousands except per share amounts) |
| ||||||||||
|
|
|
|
|
|
|
|
|
| ||||
Net interest income |
|
$ |
13,620 |
|
$ |
14,506 |
|
$ |
26,907 |
|
$ |
28,689 |
|
|
|
|
|
|
|
|
|
|
| ||||
Net income |
|
$ |
3,482 |
|
$ |
650 |
|
$ |
4,772 |
|
$ |
902 |
|
|
|
|
|
|
|
|
|
|
| ||||
Net income available to common shareholders |
|
$ |
3,373 |
|
$ |
114 |
|
$ |
4,553 |
|
$ |
(197 |
) |
|
|
|
|
|
|
|
|
|
| ||||
Basic earnings per share |
|
$ |
0.63 |
|
$ |
0.02 |
|
$ |
0.85 |
|
$ |
(0.04 |
) |
|
|
|
|
|
|
|
|
|
| ||||
Diluted earnings per share |
|
$ |
0.62 |
|
$ |
0.02 |
|
$ |
0.84 |
|
$ |
(0.04 |
) |
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Securities
The fair value of available for sale securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income were as follows:
|
|
Amortized |
|
Gross |
|
Gross |
|
Fair |
| ||||
|
|
(In thousands) |
| ||||||||||
June 30, 2015: |
|
|
|
|
|
|
|
|
| ||||
Securities available for sale: |
|
|
|
|
|
|
|
|
| ||||
State and municipal |
|
$ |
112,340 |
|
$ |
3,993 |
|
$ |
(982 |
) |
$ |
115,351 |
|
Residential mortgage-backed agencies issued by U.S. Government sponsored entities |
|
246,598 |
|
607 |
|
(2,526 |
) |
244,679 |
| ||||
U.S. Government sponsored entities and agencies |
|
34,802 |
|
57 |
|
(216 |
) |
34,643 |
| ||||
Corporate |
|
3,359 |
|
14 |
|
|
|
3,373 |
| ||||
Mutual funds |
|
250 |
|
|
|
(4 |
) |
246 |
| ||||
Total securities available for sale |
|
$ |
397,349 |
|
$ |
4,671 |
|
$ |
(3,728 |
) |
$ |
398,292 |
|
|
|
|
|
|
|
|
|
|
| ||||
December 31, 2014: |
|
|
|
|
|
|
|
|
| ||||
Securities available for sale: |
|
|
|
|
|
|
|
|
| ||||
State and municipal |
|
$ |
80,623 |
|
$ |
5,002 |
|
$ |
(174 |
) |
$ |
85,451 |
|
Residential mortgage-backed agencies issued by U.S. Government sponsored entities |
|
108,377 |
|
690 |
|
(1,750 |
) |
107,317 |
| ||||
U.S. Government sponsored entities and agencies |
|
9,472 |
|
8 |
|
(319 |
) |
9,161 |
| ||||
Mutual funds |
|
250 |
|
|
|
(2 |
) |
248 |
| ||||
Total securities available for sale |
|
$ |
198,722 |
|
$ |
5,700 |
|
$ |
(2,245 |
) |
$ |
202,177 |
|
Sales of available for sale securities were as follows.
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
2015 |
|
2014 |
|
2015 |
|
2014 |
| ||||
|
|
(In thousands) |
| ||||||||||
Proceeds |
|
$ |
|
|
$ |
8,947 |
|
$ |
38,877 |
|
$ |
32,757 |
|
Gross gains |
|
|
|
44 |
|
366 |
|
339 |
| ||||
Gross losses |
|
|
|
(43 |
) |
(315 |
) |
(43 |
) | ||||
The tax provision applicable to these net realized gains amounted to $0 and $17,000 for the three and six months ended June 30, 2015, respectively, and $0 and $101,000 for the three and six months ended June 30, 2014, respectively.
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Securities (Continued)
The amortized cost and fair value of the contractual maturities of available for sale securities at June 30, 2015 were as follows. Mortgage-backed agencies and mutual funds which do not have a single maturity date are shown separately.
|
|
June 30, 2015 |
| ||||
|
|
Amortized Cost |
|
Fair Value |
| ||
|
|
(In thousands) |
| ||||
Within one year |
|
$ |
946 |
|
$ |
959 |
|
One to five years |
|
13,000 |
|
13,216 |
| ||
Five to ten years |
|
48,093 |
|
49,599 |
| ||
Beyond ten years |
|
88,462 |
|
89,593 |
| ||
Residential mortgage-backed securities issued by U.S. Government sponsored entities |
|
246,598 |
|
244,679 |
| ||
Mutual funds |
|
250 |
|
246 |
| ||
Total |
|
$ |
397,349 |
|
$ |
398,292 |
|
Securities with unrealized losses at June 30, 2015 and December 31, 2014, aggregated by investment category and length of time that individual securities have been in a continuous loss position are as follows:
|
|
Less than 12 Months |
|
12 Months or More |
|
Total |
| ||||||||||||
|
|
Fair |
|
Unrealized |
|
Fair |
|
Unrealized |
|
Fair |
|
Unrealized |
| ||||||
|
|
Value |
|
Loss |
|
Value |
|
Loss |
|
Value |
|
Loss |
| ||||||
|
|
(In thousands) |
| ||||||||||||||||
June 30, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
State and municipal |
|
$ |
37,778 |
|
$ |
(808 |
) |
$ |
2,912 |
|
$ |
(174 |
) |
$ |
40,690 |
|
$ |
(982 |
) |
Residential mortgage-backed securities issued by U.S. Government sponsored entities |
|
119,965 |
|
(957 |
) |
49,303 |
|
(1,569 |
) |
169,268 |
|
(2,526 |
) | ||||||
U.S. Government sponsored entities and agencies |
|
13,604 |
|
(44 |
) |
8,844 |
|
(172 |
) |
22,448 |
|
(216 |
) | ||||||
Mutual Funds |
|
246 |
|
(4 |
) |
|
|
|
|
246 |
|
(4 |
) | ||||||
Total temporarily impaired |
|
$ |
171,593 |
|
$ |
(1,813 |
) |
$ |
61,059 |
|
$ |
(1,915 |
) |
$ |
232,652 |
|
$ |
(3,728 |
) |
|
|
Less than 12 Months |
|
12 Months or More |
|
Total |
| ||||||||||||
|
|
Fair |
|
Unrealized |
|
Fair |
|
Unrealized |
|
Fair |
|
Unrealized |
| ||||||
|
|
Value |
|
Loss |
|
Value |
|
Loss |
|
Value |
|
Loss |
| ||||||
|
|
(In thousands) |
| ||||||||||||||||
December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
State and municipal |
|
$ |
1,715 |
|
$ |
(8 |
) |
$ |
6,786 |
|
$ |
(166 |
) |
$ |
8,501 |
|
$ |
(174 |
) |
Residential mortgaged-backed securities issued by U.S. Government sponsored agencies |
|
3,443 |
|
(20 |
) |
55,224 |
|
(1,730 |
) |
58,667 |
|
(1,750 |
) | ||||||
U.S. Government sponsored entities and agencies |
|
|
|
|
|
8,699 |
|
(319 |
) |
8,699 |
|
(319 |
) | ||||||
Mutual funds |
|
|
|
|
|
248 |
|
(2 |
) |
248 |
|
(2 |
) | ||||||
Total temporarily impaired |
|
$ |
5,158 |
|
$ |
(28 |
) |
$ |
70,957 |
|
$ |
(2,217 |
) |
$ |
76,115 |
|
$ |
(2,245 |
) |
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Securities (Continued)
Management evaluates securities for other-than-temporary impairment (OTTI) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. Investment securities are generally evaluated for OTTI under FASB ASC 320-10.
In determining OTTI under the FASB ASC 320-10 model, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.
As of June 30, 2015, the Companys security portfolio consisted of 297 securities, 159 of which were in an unrealized loss position. The unrealized losses are related to the Companys state and municipal, residential mortgage-backed securities issued by U.S. Government sponsored entities and agencies, and U.S. Government sponsored entities and agencies, as discussed below.
State and Municipal
At June 30, 2015 the Company had approximately $40.7 million of state and municipal securities with an unrealized loss of $982,000. Of the 268 state and municipal securities in the Companys portfolio, 266 had an investment grade rating as of June 30, 2015 while two were not rated. The decline in value in these securities is attributable to interest rate and liquidity, and not credit quality. All of the state and municipal securities in the Companys portfolio have a fair value as a percentage of amortized cost greater than 90%. The Company does not have the intent to sell its state and municipal securities and it is unlikely that we will be required to sell the securities before the anticipated recovery. The Company does not consider these securities to be other-than-temporarily impaired at June 30, 2015.
Residential mortgage-backed Securities issued by U.S. Government sponsored entities
At June 30, 2015, all of the mortgage-backed securities held by the Company were issued by U.S. government-sponsored entities, primarily Fannie Mae and Freddie Mac, institutions which the government has affirmed its commitment to support. Because the decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality, and because the Company does not have the intent to sell these mortgage-backed securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at June 30, 2015.
U.S. Government sponsored entities and agencies
At June 30, 2015, the unrealized losses in the Companys U.S. Government sponsored entities and agencies securities portfolio were attributed to changes in interest rates and liquidity, and not due to credit quality. Because the company does not have the intent to sell these securities and it is not likely that they will be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired as of June 30, 2015.
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Loans
Loans at June 30, 2015 and December 31, 2014 consisted of the following:
|
|
June 30, |
|
December 31, |
| ||
|
|
(In thousands) |
| ||||
Commercial |
|
$ |
168,370 |
|
$ |
123,727 |
|
Construction |
|
87,153 |
|
42,848 |
| ||
Commercial real estate: |
|
|
|
|
| ||
Owner occupied nonfarm/residential |
|
156,932 |
|
112,405 |
| ||
Other nonfarm/residential |
|
188,746 |
|
100,632 |
| ||
Residential real estate: |
|
|
|
|
| ||
Secured by first liens |
|
309,019 |
|
183,837 |
| ||
Home equity |
|
73,593 |
|
34,850 |
| ||
Consumer |
|
21,203 |
|
5,276 |
| ||
Subtotal |
|
1,005,016 |
|
603,575 |
| ||
Less: |
|
|
|
|
| ||
Allowance for loan losses |
|
(8,045 |
) |
(6,465 |
) | ||
Loans, net |
|
$ |
996,971 |
|
$ |
597,110 |
|
During 2015 and 2014, substantially all of the Companys residential and commercial real estate loans were pledged as collateral to the Federal Home Loan Bank to secure advances.
As discussed under Footnote 2 Acquisition, the above loan balances include loans purchased in the First Financial Service Corporation acquisition. The composition of loans acquired as of June 30, 2015 is as follows:
|
|
June 30, |
| |
|
|
(In thousands) |
| |
Commercial |
|
$ |
21,201 |
|
Construction |
|
33,681 |
| |
Commercial real estate: |
|
|
| |
Owner occupied nonfarm/residential |
|
42,765 |
| |
Other nonfarm/residential |
|
81,905 |
| |
Residential real estate: |
|
|
| |
Secured by first liens |
|
122,925 |
| |
Home equity |
|
38,574 |
| |
Consumer |
|
13,666 |
| |
Total Loans |
|
$ |
354,717 |
|
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Loans (Continued)
Purchased Credit Impaired Loans:
The Company has purchased loans, for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans is as follows:
|
|
June 30, |
|
December 31, |
| ||
|
|
(In thousands) |
| ||||
Commercial |
|
$ |
493 |
|
$ |
113 |
|
Construction |
|
7,106 |
|
35 |
| ||
Commercial Real Estate |
|
31,384 |
|
3,124 |
| ||
Residential Real Estate |
|
14,614 |
|
4,890 |
| ||
Consumer |
|
11 |
|
|
| ||
Carrying amount |
|
$ |
53,608 |
|
$ |
8,162 |
|
There was no associated allowance for loan losses as of June 30, 2015 or December 31, 2014 for purchased credit impaired loans.
Accretable yield, or income expected to be collected, is as follows:
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
| ||||||||
|
|
2015 |
|
2014 |
|
2015 |
|
2014 |
| ||||
|
|
(In thousands) |
| ||||||||||
Balance, beginning of period |
|
$ |
1,754 |
|
$ |
491 |
|
$ |
306 |
|
$ |
545 |
|
New loans purchased |
|
|
|
|
|
1,632 |
|
|
| ||||
Accretion of income |
|
(620 |
) |
(34 |
) |
(804 |
) |
(62 |
) | ||||
Reclassifications from nonaccretable difference |
|
315 |
|
419 |
|
315 |
|
419 |
| ||||
Disposals |
|
|
|
|
|
|
|
(26 |
) | ||||
Balance, end of period |
|
$ |
1,449 |
|
$ |
876 |
|
$ |
1,449 |
|
$ |
876 |
|
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Loans (Continued)
The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended June 30, 2015 and 2014 (in thousands):
Three Months Ended June 30, 2015:
|
|
Commercial |
|
Construction |
|
Commercial |
|
Residential |
|
Consumer |
|
Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Beginning balance |
|
$ |
1,219 |
|
$ |
2,182 |
|
$ |
1,468 |
|
$ |
2,162 |
|
$ |
89 |
|
$ |
7,120 |
|
Provision for loan losses |
|
2,386 |
|
(459 |
) |
(246 |
) |
459 |
|
15 |
|
2,155 |
| ||||||
Loans charged-off |
|
(1,786 |
) |
(32 |
) |
1 |
|
(105 |
) |
(78 |
) |
(2,000 |
) | ||||||
Recoveries |
|
22 |
|
521 |
|
61 |
|
51 |
|
115 |
|
770 |
| ||||||
Ending balance |
|
$ |
1,841 |
|
$ |
2,212 |
|
$ |
1,284 |
|
$ |
2,567 |
|
$ |
141 |
|
$ |
8,045 |
|
Three Months Ended June 30, 2014:
|
|
Commercial |
|
Construction |
|
Commercial |
|
Residential |
|
Consumer |
|
Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Beginning balance |
|
$ |
1,948 |
|
$ |
2,460 |
|
$ |
1,374 |
|
$ |
2,523 |
|
$ |
73 |
|
$ |
8,378 |
|
Provision for loan losses |
|
(227 |
) |
(19 |
) |
6 |
|
404 |
|
26 |
|
190 |
| ||||||
Loans charged-off |
|
|
|
|
|
(23 |
) |
(135 |
) |
(52 |
) |
(210 |
) | ||||||
Recoveries |
|
67 |
|
|
|
21 |
|
8 |
|
27 |
|
123 |
| ||||||
Ending balance |
|
$ |
1,788 |
|
$ |
2,441 |
|
$ |
1,378 |
|
$ |
2,800 |
|
$ |
74 |
|
$ |
8,481 |
|
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Loans (Continued)
The following table presents the activity in the allowance for loan losses by portfolio segment for the six months ended June 30, 2015 and 2014 (in thousands):
Six Months Ended June 30, 2015:
|
|
Commercial |
|
Construction |
|
Commercial |
|
Residential |
|
Consumer |
|
Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Beginning balance |
|
$ |
970 |
|
$ |
1,992 |
|
$ |
1,268 |
|
$ |
2,133 |
|
$ |
102 |
|
$ |
6,465 |
|
Provision for loan losses |
|
2,740 |
|
(269 |
) |
(832 |
) |
609 |
|
13 |
|
2,261 |
| ||||||
Loans charged-off |
|
(1,910 |
) |
(32 |
) |
(1 |
) |
(252 |
) |
(151 |
) |
(2,346 |
) | ||||||
Recoveries |
|
41 |
|
521 |
|
849 |
|
77 |
|
177 |
|
1,665 |
| ||||||
Ending balance |
|
$ |
1,841 |
|
$ |
2,212 |
|
$ |
1,284 |
|
$ |
2,567 |
|
$ |
141 |
|
$ |
8,045 |
|
Six Months Ended June 30, 2014:
|
|
Commercial |
|
Construction |
|
Commercial |
|
Residential |
|
Consumer |
|
Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Beginning balance |
|
$ |
1,757 |
|
$ |
2,210 |
|
$ |
1,565 |
|
$ |
2,383 |
|
$ |
94 |
|
$ |
8,009 |
|
Provision for loan losses |
|
(58 |
) |
164 |
|
(259 |
) |
587 |
|
38 |
|
472 |
| ||||||
Loans charged-off |
|
(1 |
) |
|
|
(23 |
) |
(186 |
) |
(111 |
) |
(321 |
) | ||||||
Recoveries |
|
90 |
|
67 |
|
95 |
|
16 |
|
53 |
|
321 |
| ||||||
Ending balance |
|
$ |
1,788 |
|
$ |
2,441 |
|
$ |
1,378 |
|
$ |
2,800 |
|
$ |
74 |
|
$ |
8,481 |
|
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Loans (Continued)
The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of June 30, 2015 and December 31, 2014 (in thousands):
June 30, 2015:
|
|
Commercial |
|
Construction |
|
Commercial |
|
Residential |
|
Consumer |
|
Total |
| ||||||
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ending allowance balance attributable to loans: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Individually evaluated for impairment |
|
$ |
158 |
|
$ |
801 |
|
$ |
69 |
|
$ |
1,000 |
|
$ |
9 |
|
$ |
2,037 |
|
Collectively evaluated for impairment |
|
1,683 |
|
1,411 |
|
1,215 |
|
1,567 |
|
132 |
|
6,008 |
| ||||||
Acquired with deteriorated credit quality |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total ending allowance balance |
|
$ |
1,841 |
|
$ |
2,212 |
|
$ |
1,284 |
|
$ |
2,567 |
|
$ |
141 |
|
$ |
8,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Loans individually evaluated for impairment |
|
$ |
2,419 |
|
$ |
5,323 |
|
$ |
1,772 |
|
$ |
5,650 |
|
$ |
10 |
|
$ |
15,174 |
|
Loans collectively evaluated for impairment |
|
165,458 |
|
74,724 |
|
312,522 |
|
362,348 |
|
21,182 |
|
936,234 |
| ||||||
Loans acquired with deteriorated credit quality |
|
493 |
|
7,106 |
|
31,384 |
|
14,614 |
|
11 |
|
53,608 |
| ||||||
Total ending loans balance |
|
$ |
168,370 |
|
$ |
87,153 |
|
$ |
345,678 |
|
$ |
382,612 |
|
$ |
21,203 |
|
$ |
1,005,016 |
|
December 31, 2014:
|
|
Commercial |
|
Construction |
|
Commercial |
|
Residential |
|
Consumer |
|
Total |
| ||||||
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ending allowance balance attributable to loans: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Individually evaluated for impairment |
|
$ |
65 |
|
$ |
790 |
|
$ |
72 |
|
$ |
736 |
|
$ |
9 |
|
$ |
1,672 |
|
Collectively evaluated for impairment |
|
905 |
|
1,202 |
|
1,196 |
|
1,397 |
|
93 |
|
4,793 |
| ||||||
Acquired with deteriorated credit quality |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total ending allowance balance |
|
$ |
970 |
|
$ |
1,992 |
|
$ |
1,268 |
|
$ |
2,133 |
|
$ |
102 |
|
$ |
6,465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Loans individually evaluated for impairment |
|
$ |
4,251 |
|
$ |
6,105 |
|
$ |
1,822 |
|
$ |
4,459 |
|
$ |
10 |
|
$ |
16,647 |
|
Loans collectively evaluated for impairment |
|
119,363 |
|
36,708 |
|
208,091 |
|
209,338 |
|
5,266 |
|
578,766 |
| ||||||
Loans acquired with deteriorated credit quality |
|
113 |
|
35 |
|
3,124 |
|
4,890 |
|
|
|
8,162 |
| ||||||
Total ending loans balance |
|
$ |
123,727 |
|
$ |
42,848 |
|
$ |
213,037 |
|
$ |
218,687 |
|
$ |
5,276 |
|
$ |
603,575 |
|
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Loans (Continued)
The following table presents information related to loans individually evaluated for impairment by class of loans as of and for the six month period ending June 30, 2015 (in thousands):
June 30, 2015:
|
|
Unpaid Principal |
|
Recorded |
|
Allowance for |
|
Average |
|
Interest Income |
| |||||
|
|
(In thousands) |
| |||||||||||||
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
| |||||
Commercial |
|
$ |
2,885 |
|
$ |
1,026 |
|
$ |
|
|
$ |
3,758 |
|
$ |
2 |
|
Construction |
|
2,420 |
|
1,646 |
|
|
|
3,150 |
|
16 |
| |||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
| |||||
Owner occupied nonfarm/nonresidential |
|
1,014 |
|
1,014 |
|
|
|
798 |
|
25 |
| |||||
Other nonfarm/nonresidential |
|
539 |
|
539 |
|
|
|
777 |
|
14 |
| |||||
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
| |||||
Secured by first liens |
|
2,010 |
|
1,907 |
|
|
|
2,085 |
|
6 |
| |||||
Home equity |
|
102 |
|
102 |
|
|
|
39 |
|
|
| |||||
Consumer |
|
1 |
|
1 |
|
|
|
1 |
|
|
| |||||
Total |
|
$ |
8,971 |
|
$ |
6,235 |
|
$ |
|
|
$ |
10,608 |
|
$ |
63 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
| |||||
Commercial |
|
$ |
1,393 |
|
$ |
1,393 |
|
$ |
158 |
|
$ |
533 |
|
$ |
|
|
Construction |
|
3,677 |
|
3,677 |
|
801 |
|
3,720 |
|
68 |
| |||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
| |||||
Owner occupied nonfarm/nonresidential |
|
219 |
|
219 |
|
69 |
|
207 |
|
4 |
| |||||
Other nonfarm/nonresidential |
|
|
|
|
|
|
|
|
|
|
| |||||
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
| |||||
Secured by first liens |
|
2,982 |
|
2,903 |
|
771 |
|
2,126 |
|
33 |
| |||||
Home equity |
|
738 |
|
738 |
|
229 |
|
738 |
|
16 |
| |||||
Consumer |
|
9 |
|
9 |
|
9 |
|
9 |
|
|
| |||||
Total |
|
$ |
9,018 |
|
$ |
8,939 |
|
$ |
2,037 |
|
$ |
7,333 |
|
$ |
121 |
|
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Loans (Continued)
The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2014:
December 31, 2014:
|
|
Unpaid Principal |
|
Recorded |
|
Allowance for |
| |||
|
|
(In thousands) |
| |||||||
With no related allowance recorded: |
|
|
|
|
|
|
| |||
Commercial |
|
$ |
4,409 |
|
$ |
4,138 |
|
$ |
|
|
Construction |
|
5,458 |
|
2,357 |
|
|
| |||
Commercial real estate: |
|
|
|
|
|
|
| |||
Owner occupied nonfarm/nonresidential |
|
742 |
|
742 |
|
|
| |||
Other nonfarm/nonresidential |
|
900 |
|
900 |
|
|
| |||
Residential real estate: |
|
|
|
|
|
|
| |||
Secured by first liens |
|
1,877 |
|
1,800 |
|
|
| |||
Home equity |
|
62 |
|
14 |
|
|
| |||
Consumer |
|
1 |
|
1 |
|
|
| |||
Total |
|
$ |
13,449 |
|
$ |
9,952 |
|
$ |
|
|
|
|
Unpaid Principal |
|
Recorded |
|
Allowance for |
| |||
|
|
(In thousands) |
| |||||||
With an allowance recorded: |
|
|
|
|
|
|
| |||
Commercial |
|
$ |
113 |
|
$ |
113 |
|
$ |
65 |
|
Construction |
|
3,748 |
|
3,748 |
|
790 |
| |||
Commercial real estate: |
|
|
|
|
|
|
| |||
Owner occupied nonfarm/nonresidential |
|
180 |
|
180 |
|
72 |
| |||
Other nonfarm/nonresidential |
|
|
|
|
|
|
| |||
Residential real estate: |
|
|
|
|
|
|
| |||
Secured by first liens |
|
1,983 |
|
1,905 |
|
519 |
| |||
Home equity |
|
740 |
|
740 |
|
217 |
| |||
Consumer |
|
9 |
|
9 |
|
9 |
| |||
Total |
|
$ |
6,773 |
|
$ |
6,695 |
|
$ |
1,672 |
|
The recorded investment in loans excludes accrued interest receivable and loan origination fees, net due to immateriality. For purposes of this disclosure, the unpaid principal balance is not reduced for net charge-offs.
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Loans (Continued)
The following table presents the information related to loans individually evaluated for impairment by class of loans for the three month period ending June 30, 2015:
|
|
Average |
|
Interest Income |
| ||
|
|
(In thousands) |
| ||||
With no related allowance recorded: |
|
|
|
|
| ||
Commercial |
|
$ |
3,567 |
|
$ |
|
|
Construction |
|
3,546 |
|
8 |
| ||
Commercial real estate: |
|
|
|
|
| ||
Owner occupied nonfarm/nonresidential |
|
826 |
|
15 |
| ||
Other nonfarm/nonresidential |
|
715 |
|
7 |
| ||
Residential real estate: |
|
|
|
|
| ||
Secured by first liens |
|
2,227 |
|
2 |
| ||
Home equity |
|
51 |
|
|
| ||
Consumer |
|
1 |
|
|
| ||
Total |
|
$ |
10,933 |
|
$ |
32 |
|
|
|
Average |
|
Interest Income |
| ||
|
|
(In thousands) |
| ||||
With an allowance recorded: |
|
|
|
|
| ||
Commercial |
|
$ |
744 |
|
$ |
|
|
Construction |
|
3,707 |
|
34 |
| ||
Commercial real estate: |
|
|
|
|
| ||
Owner occupied nonfarm/nonresidential |
|
220 |
|
2 |
| ||
Other nonfarm/nonresidential |
|
|
|
|
| ||
Residential real estate: |
|
|
|
|
| ||
Secured by first liens |
|
2,237 |
|
16 |
| ||
Home equity |
|
737 |
|
8 |
| ||
Consumer |
|
9 |
|
|
| ||
Total |
|
$ |
7,654 |
|
$ |
60 |
|
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Loans (Continued)
The following table presents information related to loans individually evaluated for impairment by class of loans for the three and six month periods ending June 30, 2014:
|
|
Three Months |
|
Six Months |
| ||||||||
|
|
Average |
|
Interest Income |
|
Average |
|
Interest Income |
| ||||
|
|
(In thousands) |
| ||||||||||
With no related allowance recorded: |
|
|
|
|
|
|
|
|
| ||||
Commercial |
|
$ |
1,255 |
|
$ |
23 |
|
$ |
1,350 |
|
$ |
23 |
|
Construction |
|
2,330 |
|
8 |
|
2,313 |
|
15 |
| ||||
Commercial real estate: |
|
|
|
|
|
|
|
|
| ||||
Owner occupied nonfarm/nonresidential |
|
859 |
|
12 |
|
807 |
|
24 |
| ||||
Other nonfarm/nonresidential |
|
1,442 |
|
2 |
|
1,354 |
|
5 |
| ||||
Residential real estate: |
|
|
|
|
|
|
|
|
| ||||
Secured by first liens |
|
2,456 |
|
3 |
|
2,457 |
|
6 |
| ||||
Home equity |
|
138 |
|
1 |
|
345 |
|
2 |
| ||||
Consumer |
|
4 |
|
|
|
11 |
|
|
| ||||
Total |
|
$ |
8,484 |
|
$ |
49 |
|
$ |
8,637 |
|
$ |
75 |
|
|
|
|
|
|
|
|
|
|
| ||||
With an allowance recorded: |
|
|
|
|
|
|
|
|
| ||||
Commercial |
|
$ |
3,013 |
|
$ |
1 |
|
$ |
2,991 |
|
$ |
1 |
|
Construction |
|
4,739 |
|
40 |
|
4,764 |
|
82 |
| ||||
Commercial real estate: |
|
|
|
|
|
|
|
|
| ||||
Owner occupied nonfarm/nonresidential |
|
184 |
|
2 |
|
186 |
|
4 |
| ||||
Other nonfarm/nonresidential |
|
|
|
|
|
|
|
|
| ||||
Residential real estate: |
|
|
|
|
|
|
|
|
| ||||
Secured by first liens |
|
2,140 |
|
20 |
|
2,018 |
|
32 |
| ||||
Home equity |
|
872 |
|
11 |
|
932 |
|
22 |
| ||||
Consumer |
|
24 |
|
|
|
29 |
|
|
| ||||
Total |
|
$ |
10,972 |
|
$ |
74 |
|
$ |
10,920 |
|
$ |
141 |
|
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Loans (Continued)
The following table presents the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of June 30, 2015 and December 31, 2014:
|
|
June 30, 2015 |
|
December 31, 2014 |
| ||||||||
|
|
Nonaccrual |
|
Loans Past |
|
Nonaccrual |
|
Loans Past |
| ||||
|
|
(In thousands) |
| ||||||||||
Commercial |
|
$ |
2,129 |
|
$ |
|
|
$ |
3,917 |
|
$ |
|
|
Construction |
|
2,951 |
|
|
|
2,045 |
|
|
| ||||
Commercial real estate: |
|
|
|
|
|
|
|
|
| ||||
Owner occupied nonfarm/nonresidential |
|
281 |
|
|
|
90 |
|
|
| ||||
Other nonfarm/nonresidential |
|
1,920 |
|
|
|
|
|
|
| ||||
Residential real estate: |
|
|
|
|
|
|
|
|
| ||||
Secured by first liens |
|
4,103 |
|
220 |
|
1,218 |
|
|
| ||||
Home equity |
|
662 |
|
|
|
184 |
|
|
| ||||
Consumer |
|
59 |
|
|
|
81 |
|
|
| ||||
Total |
|
$ |
12,105 |
|
$ |
220 |
|
$ |
7,535 |
|
$ |
|
|
Of the loans on non-accrual status as of June 30, 2015, $6.0 million were acquired from First Financial Service Corporation.
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Loans (Continued)
The following table presents the aging of the recorded investment in past due loans as of June 30, 2015 and December 31, 2014 by class of loans:
June 30, 2015:
|
|
30 59 |
|
60 89 |
|
Greater |
|
Total |
|
Loans |
|
Loans |
| ||||||
|
|
(In thousands) |
| ||||||||||||||||
Commercial |
|
$ |
378 |
|
$ |
|
|
$ |
2,129 |
|
$ |
2,507 |
|
$ |
165,863 |
|
$ |
|
|
Construction |
|
|
|
35 |
|
2,951 |
|
2,986 |
|
84,167 |
|
|
| ||||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Owner occupied nonfarm/nonresidential |
|
72 |
|
|
|
281 |
|
353 |
|
156,579 |
|
|
| ||||||
Other nonfarm/nonresidential |
|
175 |
|
|
|
1,920 |
|
2,095 |
|
186,651 |
|
|
| ||||||
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Secured by first liens |
|
1,253 |
|
1,031 |
|
4,182 |
|
6,466 |
|
302,553 |
|
220 |
| ||||||
Home equity |
|
622 |
|
119 |
|
662 |
|
1,403 |
|
72,190 |
|
|
| ||||||
Consumer |
|
213 |
|
52 |
|
60 |
|
325 |
|
20,878 |
|
|
| ||||||
Total |
|
$ |
2,713 |
|
$ |
1,237 |
|
$ |
12,185 |
|
$ |
16,135 |
|
$ |
988,881 |
|
$ |
220 |
|
Loans included in totals above acquired from First Financial Service Corporation |
|
$ |
870 |
|
$ |
560 |
|
$ |
6,114 |
|
$ |
7,544 |
|
$ |
347,173 |
|
$ |
|
|
December 31, 2014:
|
|
30 59 |
|
60 89 |
|
Greater |
|
Total |
|
Loans |
|
Loans |
| ||||||
|
|
(In thousands) |
| ||||||||||||||||
Commercial |
|
$ |
179 |
|
$ |
13 |
|
$ |
3,917 |
|
$ |
4,109 |
|
$ |
119,618 |
|
$ |
|
|
Construction |
|
62 |
|
|
|
2,045 |
|
2,107 |
|
40,741 |
|
|
| ||||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Owner occupied nonfarm/nonresidential |
|
|
|
|
|
90 |
|
90 |
|
112,315 |
|
|
| ||||||
Other nonfarm/nonresidential |
|
|
|
|
|
|
|
|
|
100,632 |
|
|
| ||||||
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Secured by first liens |
|
2,817 |
|
1,171 |
|
1,218 |
|
5,206 |
|
178,631 |
|
|
| ||||||
Home equity |
|
341 |
|
12 |
|
184 |
|
538 |
|
34,312 |
|
|
| ||||||
Consumer |
|
16 |
|
|
|
81 |
|
97 |
|
5,179 |
|
|
| ||||||
Total |
|
$ |
3,416 |
|
$ |
1,196 |
|
$ |
7,535 |
|
$ |
12,147 |
|
$ |
591,428 |
|
$ |
|
|
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Loans (Continued)
Troubled Debt Restructurings:
Troubled debt restructurings totaled $17.4 million and $11.9 million at June 30, 2015 and at December 31, 2014. Of the total TDRs outstanding at June 30, 2015, $7.2 million were acquired from First Financial Service Corporation that have been modified by the Company subsequent to acquisition. There were $2.6 million and $4.1 million TDRs on non-accrual as of June 30, 2015 and December 31, 2014. The Company did not have any commitments to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings as of June 30, 2015 and December 31, 2014.
The detail of outstanding TDRs by class and modification type as of June 30, 2015 and December 31, 2014 follows (in thousands):
June 30, 2015:
|
|
Recorded |
|
Allowance |
| ||
Commercial: |
|
|
|
|
| ||
Extended maturity |
|
$ |
2,134 |
|
$ |
47 |
|
Multiple modifications |
|
28 |
|
18 |
| ||
Construction: |
|
|
|
|
| ||
Interest rate reduction |
|
1,386 |
|
180 |
| ||
Extended maturity |
|
2,971 |
|
|
| ||
Interest only payments |
|
556 |
|
|
| ||
Multiple modifications |
|
2,522 |
|
405 |
| ||
Commercial real estate: |
|
|
|
|
| ||
Owner occupied nonfarm/nonresidential |
|
|
|
|
| ||
Extended maturity |
|
180 |
|
|
| ||
Interest only payments |
|
174 |
|
67 |
| ||
Other nonfarm/nonresidential |
|
|
|
|
| ||
Extended maturity |
|
3,269 |
|
|
| ||
Multiple modifications |
|
343 |
|
|
| ||
Residential real estate: |
|
|
|
|
| ||
Secured by first liens |
|
|
|
|
| ||
Interest rate reduction |
|
320 |
|
138 |
| ||
Extended maturity |
|
2,012 |
|
40 |
| ||
Multiple modifications |
|
859 |
|
91 |
| ||
Home equity |
|
|
|
|
| ||
Multiple modifications |
|
638 |
|
214 |
| ||
Total |
|
$ |
17,392 |
|
$ |
1,200 |
|
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Loans (Continued)
December 31, 2014:
|
|
Recorded |
|
Allowance |
| ||
|
|
(In thousands) |
| ||||
Commercial: |
|
|
|
|
| ||
Extended maturity |
|
$ |
3,902 |
|
$ |
|
|
Multiple modifications |
|
18 |
|
|
| ||
Construction: |
|
|
|
|
| ||
Interest rate reduction |
|
1,386 |
|
180 |
| ||
Extended maturity |
|
115 |
|
|
| ||
Interest only payments |
|
556 |
|
|
| ||
Multiple modifications |
|
2,559 |
|
393 |
| ||
Commercial real estate: |
|
|
|
|
| ||
Owner occupied nonfarm/nonresidential |
|
|
|
|
| ||
Interest only payments |
|
180 |
|
72 |
| ||
Other nonfarm/nonresidential |
|
|
|
|
| ||
Extended maturity |
|
551 |
|
|
| ||
Multiple modifications |
|
348 |
|
|
| ||
Residential real estate: |
|
|
|
|
| ||
Secured by first liens |
|
|
|
|
| ||
Interest rate reduction |
|
907 |
|
140 |
| ||
Extended maturity |
|
477 |
|
44 |
| ||
Multiple modifications |
|
250 |
|
30 |
| ||
Home equity |
|
|
|
|
| ||
Multiple modifications |
|
648 |
|
209 |
| ||
Total |
|
$ |
11,897 |
|
$ |
1,068 |
|
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Loans (Continued)
A loan is considered in payment default once it is 30 days contractually past due under the modified terms. The following table summarizes the Companys TDRs by class, modification type and performance as of June 30, 2015 and December 31, 2014 (in thousands):
June 30, 2015:
|
|
TDRs Greater than |
|
TDRs on |
|
Total TDRs |
|
Total TDRs |
| ||||
Commercial: |
|
|
|
|
|
|
|
|
| ||||
Extended maturity |
|
$ |
|
|
$ |
1,790 |
|
$ |
1,790 |
|
$ |
344 |
|
Multiple modifications |
|
|
|
|
|
|
|
28 |
| ||||
Construction: |
|
|
|
|
|
|
|
|
| ||||
Interest rate reduction |
|
|
|
|
|
|
|
1,386 |
| ||||
Extended maturity |
|
|
|
|
|
|
|
2,971 |
| ||||
Interest only payments |
|
|
|
556 |
|
556 |
|
|
| ||||
Multiple modifications |
|
|
|
|
|
|
|
2,522 |
| ||||
Commercial real estate: |
|
|
|
|
|
|
|
|
| ||||
Owner occupied nonfarm/nonresidential |
|
|
|
|
|
|
|
|
| ||||
Extended maturity |
|
|
|
|
|
|
|
180 |
| ||||
Interest only payments |
|
|
|
|
|
|
|
174 |
| ||||
Other nonfarm/nonresidential |
|
|
|
|
|
|
|
|
| ||||
Extended maturity |
|
|
|
|
|
|
|
3,269 |
| ||||
Multiple modifications |
|
|
|
|
|
|
|
343 |
| ||||
Residential: |
|
|
|
|
|
|
|
|
| ||||
Secured by first liens |
|
|
|
|
|
|
|
|
| ||||
Interest rate reduction |
|
|
|
|
|
|
|
320 |
| ||||
Extended maturity |
|
|
|
|
|
|
|
2,012 |
| ||||
Multiple modifications |
|
220 |
|
|
|
220 |
|
639 |
| ||||
Home equity |
|
|
|
|
|
|
|
|
| ||||
Multiple modifications |
|
|
|
|
|
|
|
638 |
| ||||
Total |
|
$ |
220 |
|
$ |
2,346 |
|
$ |
2,566 |
|
$ |
14,826 |
|
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Loans (Continued)
December 31, 2014:
|
|
TDRs Greater than |
|
TDRs on |
|
Total TDRs |
|
Total TDRs |
| ||||
|
|
(In thousands) |
| ||||||||||
Commercial: |
|
|
|
|
|
|
|
|
| ||||
Extended maturity |
|
$ |
|
|
$ |
3,558 |
|
$ |
3,558 |
|
$ |
344 |
|
Multiple modifications |
|
|
|
|
|
|
|
18 |
| ||||
Construction: |
|
|
|
|
|
|
|
|
| ||||
Interest rate reduction |
|
|
|
|
|
|
|
1,386 |
| ||||
Extended maturity |
|
|
|
|
|
|
|
115 |
| ||||
Interest only payments |
|
|
|
556 |
|
556 |
|
|
| ||||
Multiple modifications |
|
|
|
|
|
|
|
2,559 |
| ||||
Commercial real estate: |
|
|
|
|
|
|
|
|
| ||||
Owner occupied nonfarm/nonresidential |
|
|
|
|
|
|
|
|
| ||||
Interest only |
|
|
|
|
|
|
|
180 |
| ||||
Other nonfarm/nonresidential |
|
|
|
|
|
|
|
|
| ||||
Extended maturity |
|
|
|
|
|
|
|
551 |
| ||||
Multiple modifications |
|
|
|
|
|
|
|
348 |
| ||||
Residential: |
|
|
|
|
|
|
|
|
| ||||
Secured by first liens |
|
|
|
|
|
|
|
|
| ||||
Interest rate reduction |
|
583 |
|
|
|
583 |
|
324 |
| ||||
Extended maturity |
|
|
|
|
|
|
|
477 |
| ||||
Multiple modifications |
|
220 |
|
|
|
220 |
|
30 |
| ||||
Home equity |
|
|
|
|
|
|
|
|
| ||||
Multiple modifications |
|
|
|
|
|
|
|
648 |
| ||||
Total |
|
$ |
803 |
|
$ |
4,114 |
|
$ |
4,917 |
|
$ |
6,980 |
|
There were no trouble debt restructurings that defaulted within 12 months of modifications during the three and six months ended June 30, 2015 and June 30, 2014.
During the quarter and six months ended June 30, 2015, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or adjustment of scheduled loan payments from principal and interest to interest only.
In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the companys internal underwriting policy.
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Loans (Continued)
The following table presents loans by class modified as troubled debt restructurings that occurred during the three months ended June 30, 2015 and 2014 and their performance, by modification type (in thousands):
|
|
Number |
|
Pre- |
|
Post- |
|
TDRs |
|
TDRs Not |
|
June 30, 2015: |
|
|
|
|
|
|
|
|
|
|
|
Construction: |
|
|
|
|
|
|
|
|
|
|
|
Extended maturity |
|
4 |
|
2,866 |
|
2,866 |
|
2,971 |
|
|
|
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
Owner occupied nonfarm/nonresidential |
|
|
|
|
|
|
|
|
|
|
|
Extended maturity |
|
1 |
|
175 |
|
175 |
|
180 |
|
|
|
Other nonfarm/nonresidential |
|
|
|
|
|
|
|
|
|
|
|
Extended maturity |
|
3 |
|
2,840 |
|
2,840 |
|
2,731 |
|
|
|
Residential: |
|
|
|
|
|
|
|
|
|
|
|
Secured by first liens |
|
|
|
|
|
|
|
|
|
|
|
Extended maturity |
|
2 |
|
1,529 |
|
1,529 |
|
1,543 |
|
|
|
Multiple modifications |
|
1 |
|
615 |
|
615 |
|
611 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014: |
|
|
|
|
|
|
|
|
|
|
|
Residential: |
|
|
|
|
|
|
|
|
|
|
|
Secured by first liens |
|
|
|
|
|
|
|
|
|
|
|
Multiple modifications |
|
1 |
|
31 |
|
31 |
|
31 |
|
|
|
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Loans (Continued)
The following table presents loans by class modified as troubled debt restructurings that occurred during the six months ended June 30, 2015 and 2014 and their performance, by modification type (in thousands):
|
|
Number |
|
Pre- |
|
Post- |
|
TDRs |
|
TDRs Not |
| ||||
June 30, 2015: |
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial: |
|
|
|
|
|
|
|
|
|
|
| ||||
Interest only payments |
|
1 |
|
$ |
53 |
|
$ |
53 |
|
$ |
10 |
|
$ |
|
|
Construction: |
|
|
|
|
|
|
|
|
|
|
| ||||
Extended maturity |
|
4 |
|
2,866 |
|
2,866 |
|
2,971 |
|
|
| ||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
| ||||
Owner occupied nonfarm/nonresidential |
|
|
|
|
|
|
|
|
|
|
| ||||
Extended maturity |
|
1 |
|
175 |
|
175 |
|
180 |
|
|
| ||||
Other nonfarm/nonresidential |
|
|
|
|
|
|
|
|
|
|
| ||||
Extended maturity |
|
3 |
|
2,840 |
|
2,840 |
|
2,731 |
|
|
| ||||
Residential: |
|
|
|
|
|
|
|
|
|
|
| ||||
Secured by first liens |
|
|
|
|
|
|
|
|
|
|
| ||||
Extended maturity |
|
2 |
|
1,529 |
|
1,529 |
|
1,543 |
|
|
| ||||
Multiple modifications |
|
1 |
|
615 |
|
615 |
|
611 |
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
June 30, 2014: |
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial: |
|
|
|
|
|
|
|
|
|
|
| ||||
Interest only payments |
|
1 |
|
$ |
556 |
|
$ |
556 |
|
$ |
556 |
|
$ |
|
|
Residential: |
|
|
|
|
|
|
|
|
|
|
| ||||
Secured by first liens |
|
|
|
|
|
|
|
|
|
|
| ||||
Multiple modifications |
|
1 |
|
31 |
|
31 |
|
31 |
|
|
|
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Loans (Continued)
Credit Quality Indicators:
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. On a monthly basis, the Company reviews its loans that are risk rated Watch, Special Mention, Substandard, or Doubtful to determine they are properly classified. In addition, the Company reviews loans rated as a pass that have exhibited signs that may require a classification change, such as past due greater than 30 days and other relevant information including: loan officer recommendations, knowledge of specific borrower circumstances, and receipt of borrower financial statements. The Company uses the following definitions for risk ratings:
The Company uses the following definitions for its criticized loan risk ratings:
Watch. Loans classified as watch are not considered rated or classified for regulatory purposes, but are considered criticized assets which exhibit modest deterioration in financial performance or external threats.
Special Mention. Loans classified as special mention exhibit potential weaknesses that deserve managements close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan, or in the Companys credit position at some future date. Economic or market conditions exist which may affect the borrower more severely than other companies in its industry.
The Company uses the following definitions for its classified loan risk ratings:
Substandard. Loans classified as substandard are characterized by having well defined financial weakness. Substandard loans are usually evidenced by chronic or emerging past due performance and serious deficiencies in the primary source of repayment.
Doubtful. Loans classified as doubtful have a well-defined and documented financial weaknesses. They have all the weaknesses of a substandard loan with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable. Generally, loans classified as doubtful are on non-accrual.
Loans not meeting the criteria above that are listed as pass are included in groups of homogeneous loans. The risk category of loans by class of loans based on the most recent analysis performed as of June 30, 2015 and December 31, 2014 is as follows:
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Loans (Continued)
June 30, 2015:
|
|
Criticized |
|
Classified |
|
Pass |
|
Total |
| ||||
|
|
(In thousands) |
| ||||||||||
Commercial |
|
$ |
6,814 |
|
$ |
3,988 |
|
$ |
157,568 |
|
$ |
168,370 |
|
Construction |
|
3,137 |
|
12,399 |
|
71,617 |
|
87,153 |
| ||||
Commercial real estate: |
|
|
|
|
|
|
|
|
| ||||
Owner occupied nonfarm/residential |
|
4,685 |
|
8,673 |
|
143,574 |
|
156,932 |
| ||||
Other nonfarm/residential |
|
13,088 |
|
20,619 |
|
155,039 |
|
188,746 |
| ||||
Residential real estate: |
|
|
|
|
|
|
|
|
| ||||
Secured by first liens |
|
21,314 |
|
10,144 |
|
277,561 |
|
309,019 |
| ||||
Home equity |
|
514 |
|
2,194 |
|
70,885 |
|
73,593 |
| ||||
Consumer |
|
3 |
|
104 |
|
21,096 |
|
21,203 |
| ||||
Total |
|
$ |
49,555 |
|
$ |
58,121 |
|
$ |
897,340 |
|
$ |
1,005,016 |
|
|
|
|
|
|
|
|
|
|
| ||||
Loans included in totals above acquired First Financial Service Corporation |
|
$ |
4,989 |
|
$ |
42,203 |
|
$ |
307,525 |
|
$ |
354,717 |
|
December 31, 2014:
|
|
Criticized |
|
Classified |
|
Pass |
|
Total |
| ||||
|
|
(In thousands) |
| ||||||||||
Commercial |
|
$ |
6,394 |
|
$ |
3,930 |
|
$ |
113,403 |
|
$ |
123,727 |
|
Construction |
|
3,476 |
|
6,105 |
|
33,267 |
|
42,848 |
| ||||
Commercial real estate: |
|
|
|
|
|
|
|
|
| ||||
Owner occupied nonfarm/residential |
|
7,144 |
|
742 |
|
104,519 |
|
112,405 |
| ||||
Other nonfarm/residential |
|
9,583 |
|
551 |
|
90,498 |
|
100,632 |
| ||||
Residential real estate: |
|
|
|
|
|
|
|
|
| ||||
Secured by first liens |
|
16,590 |
|
3,502 |
|
163,745 |
|
183,837 |
| ||||
Home equity |
|
647 |
|
802 |
|
33,401 |
|
34,850 |
| ||||
Consumer |
|
2 |
|
107 |
|
5,167 |
|
5,276 |
| ||||
Total |
|
$ |
43,836 |
|
$ |
15,739 |
|
$ |
544,000 |
|
$ |
603,575 |
|
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Foreclosed and Repossessed Assets
The following table presents the major categories of foreclosed and repossessed assets Foreclosed and repossessed asset activity was as follows:
|
|
June 30, |
|
December 31, |
| ||
|
|
(In thousands) |
| ||||
Construction |
|
$ |
1,577 |
|
$ |
1,407 |
|
Commercial real estate: |
|
|
|
|
| ||
Owner occupied nonfarm/residential |
|
708 |
|
2,036 |
| ||
Other nonfarm/residential |
|
4,536 |
|
588 |
| ||
Residential real estate: |
|
|
|
|
| ||
Secured by first liens |
|
1,398 |
|
400 |
| ||
Consumer |
|
135 |
|
|
| ||
|
|
$ |
8,354 |
|
$ |
4,431 |
|
Foreclosed and repossessed asset activity was as follows for the three and six months ended June 30, 2015 and 2014:
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
2015 |
|
2014 |
|
2015 |
|
2014 |
| ||||
|
|
(In thousands) |
| ||||||||||
Balance as of January 1 |
|
$ |
15,818 |
|
$ |
6,334 |
|
$ |
4,431 |
|
$ |
5,988 |
|
Loans transferred to foreclosed and repossessed assets |
|
711 |
|
263 |
|
10,197 |
|
1,240 |
| ||||
Foreclosed and repossessed assets acquired from First Financial Service Corporation |
|
|
|
|
|
3,228 |
|
|
| ||||
Direct write-downs |
|
(12 |
) |
|
|
(75 |
) |
|
| ||||
Sales |
|
(8,163 |
) |
(568 |
) |
(9,427 |
) |
(1,199 |
) | ||||
Balance as of June 30 |
|
$ |
8,354 |
|
$ |
6,029 |
|
$ |
8,354 |
|
$ |
6,029 |
|
Expenses for the three and six months ended June 30, 2015 and 2014 related to foreclosed and repossessed assets include:
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
2015 |
|
2014 |
|
2015 |
|
2014 |
| ||||
|
|
(In thousands) |
| ||||||||||
Net gain on sales |
|
$ |
(21 |
) |
$ |
(68 |
) |
$ |
(10 |
) |
$ |
(53 |
) |
Direct write-downs |
|
12 |
|
|
|
75 |
|
|
| ||||
Operating expenses, net of rental income |
|
(86 |
) |
121 |
|
184 |
|
244 |
| ||||
|
|
$ |
(95 |
) |
$ |
53 |
|
$ |
249 |
|
$ |
191 |
|
The Company was in process of foreclosure of residential real estate loans with outstanding balances of $2.0 million and $805,000 as June 30, 2015 and December 31, 2014, respectively.
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. Deposits
Deposits at June 30, 2015 and December 31, 2014 consisted of the following:
|
|
June 30, |
|
December 31, |
| ||
|
|
(In thousands) |
| ||||
|
|
|
|
|
| ||
Demand (NOW) |
|
$ |
318,134 |
|
$ |
124,625 |
|
Money market accounts |
|
220,477 |
|
145,731 |
| ||
Savings |
|
136,400 |
|
49,088 |
| ||
Time deposits $250,000 and over |
|
47,906 |
|
26,018 |
| ||
Time deposits less than $250,000 |
|
291,440 |
|
105,340 |
| ||
Total interest bearing deposits |
|
1,014,357 |
|
450,802 |
| ||
Total non-interest bearing deposits |
|
292,179 |
|
200,142 |
| ||
Total deposits |
|
$ |
1,306,536 |
|
$ |
650,944 |
|
7. Earnings Per Common Share
Earnings per common share were computed as follows:
|
|
Three months ended |
|
Six months ended |
| ||||||||
|
|
2015 |
|
2014 |
|
2015 |
|
2014 |
| ||||
|
|
(In thousands, except for share and per share amounts) |
| ||||||||||
Basic: |
|
|
|
|
|
|
|
|
| ||||
Net income |
|
$ |
3,565 |
|
$ |
2,148 |
|
$ |
2,629 |
|
$ |
4,260 |
|
Preferred stock dividend |
|
(109 |
) |
(109 |
) |
(219 |
) |
(219 |
) | ||||
Net income available to common shareholders |
|
$ |
3,456 |
|
$ |
2,039 |
|
$ |
2,410 |
|
$ |
4,041 |
|
Average shares outstanding |
|
5,383,887 |
|
3,438,794 |
|
5,379,379 |
|
3,430,025 |
| ||||
Net income per common share, basic |
|
$ |
0.64 |
|
$ |
0.59 |
|
$ |
0.45 |
|
$ |
1.18 |
|
|
|
|
|
|
|
|
|
|
| ||||
Diluted: |
|
|
|
|
|
|
|
|
| ||||
Net income available to common shareholders |
|
$ |
3,456 |
|
$ |
2,039 |
|
$ |
2,410 |
|
$ |
4,041 |
|
Average shares: |
|
|
|
|
|
|
|
|
| ||||
Common shares outstanding for basic |
|
5,383,887 |
|
3,438,794 |
|
5,379,379 |
|
3,430,025 |
| ||||
Add: Dilutive effects of outstanding stock options |
|
18,357 |
|
16,669 |
|
18,048 |
|
26,129 |
| ||||
Add: Dilutive effects of outstanding stock awards |
|
35,358 |
|
12,961 |
|
29,082 |
|
5,134 |
| ||||
Average dilutive potential common shares |
|
5,437,602 |
|
3,468,424 |
|
5,426,509 |
|
3,461,288 |
| ||||
Net income per common share, diluted |
|
$ |
0.64 |
|
$ |
0.59 |
|
$ |
0.44 |
|
$ |
1.17 |
|
No stock options were excluded from the calculation of diluted net income per common share for the three months ended June 30, 2015 and 2014. Stock options for 0 and 54,000 shares of common stock were excluded from the calculation of diluted net income per common share for the six months ended June 30, 2015 and 2014, respectively, because their effect was antidilutive.
No restricted share awards were excluded from the calculation of diluted net income per common share for the three and six months ended June 30, 2015 and 2014.
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. Stock-Based Compensation Plans
Our stock award plan provides for the granting of both incentive and nonqualified stock options at exercise prices not less than the fair market value of the common stock on the date of grant and expiration dates of up to ten years. Terms of the options are determined by our Board of Directors at the date of grant and generally vest over periods of three to four years. Payment of the option price may be in cash or shares of common stock at fair market value on the exercise date at the election of the employee. Non-employee directors are eligible to receive only nonqualified stock options. We may grant stock options under the current plan for an additional 435,000 shares of common stock. The aggregate intrinsic value for options outstanding and exercisable at June 30, 2015 and December 31, 2014 was $399,000 and $518,000, respectively. There was no remaining compensation cost related to unvested options as of June 30, 2015 and December 31, 2014. The Company did not recognize expense for stock options for the three and six months ended June 30, 2015 and 2014, respectively. The Company has options vested and expected to vest of 77,000 with aggregate intrinsic value of $399,000 and a weighted average remaining contractual term of 1.5 years as of June 30, 2015. As of December 31, 2014, the Company had options vested and expected to vest of 123,500 which had an aggregate intrinsic value of $518,000 and a weighted average remaining contractual term of 1.4 years. During the six months ended June 30, 2015, no options were granted or forfeited, 7,700 options expired, and 38,800 stock options were exercised. The Company received proceeds of $591,000 for the exercise of 23,300 stock options while the remainder were exercised using the cashless option, with the Company issuing net shares to the option holders.
For the three and six months ended June 30, 2015, we recognized $239,000 and $441,000 in expense for restricted stock units, respectively. During the three months ended June 30, 2015, we granted 65,000 restricted stock units while 300 units were forfeited. During the six months ended June 30, 2015, 66,800 restricted stock units were granted while 300 units were forfeited. The restricted stock units granted during the three months and six months ended June 30, 2015 had an aggregate fair value of $1.8 million and $1.9 million, respectively. Of the total awards granted during the six months ended June 30, 2015, 19,300 of awards vest in 2015, 17,150 vest in 2016, 13,550 vest in 2017, and 16,800 vest in 2018. The fair value of the restricted stock awards was calculated based on the Companys stock price at the date of issuance. At June 30, 2015, there were 142,375 outstanding and unvested restricted stock units. For the three and six months ended June 30, 2014, we recognized $101,000 and $201,000 in expense for restricted stock awards, respectively.
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. Fair Value
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair value:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a companys own assumptions about the assumptions that market participants would use in pricing an asset or liability.
The Company used the following methods and significant assumptions to estimate fair value.
Securities: The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities relationship to other benchmark quoted securities (Level 2 inputs). In instances where broker quotes are used, these quotes are obtained from market makers or broker-dealers recognized to be market participants. These valuation methods are classified as Level 2 in the fair value hierarchy.
Impaired Loans: Impaired loans are evaluated at the time the loan is identified as impaired and are recorded at the lower of the carrying amount of the loan or the fair value of the underlying collateral. For collateral dependent loans, the fair value of real estate is primarily determined based on appraisals by qualified licensed appraisers. These appraisals may use a single valuation approach or a combination depending on the type of collateral including the comparable sales or income capitalization approach. The appraisals are discounted to reflect managements estimate of the fair value of the collateral given the current circumstances and condition of the collateral including the market for the particular collateral and managements experience with similar types of collateral. Impaired loans are evaluated quarterly for additional impairment. Fair value of impaired loans is classified as Level 3 in the fair value hierarchy.
Foreclosed and Repossessed Assets: Foreclosed and repossessed assets are initially recorded at fair value less estimated costs to sell when acquired. The fair value of foreclosed and repossessed assets is primarily determined based on appraisals by qualified appraisers whose qualifications have been reviewed by the Company. The appraisals are discounted to reflect managements estimate of the fair value of the collateral given the current circumstances of the collateral and reduced by managements estimate of costs to dispose of the asset. Also, management reviews the assumptions included the appraisals and makes adjustments where circumstances warrant such as recent experience with similar assets. Fair value of foreclosed and repossessed assets is classified as Level 3 in the fair value hierarchy.
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. Fair Value (Continued)
Assets measured at fair value on a recurring basis are summarized below:
|
|
|
|
Fair Value Measurements Using |
| ||||||||
|
|
Assets at Fair |
|
Quoted |
|
Significant |
|
Significant |
| ||||
|
|
|
|
(in thousands) |
| ||||||||
Assets (June 30, 2015): |
|
|
|
|
|
|
|
|
| ||||
Available for sale securities: |
|
|
|
|
|
|
|
|
| ||||
State and municipal |
|
$ |
115,351 |
|
$ |
|
|
115,351 |
|
$ |
|
| |
U.S. Government sponsored entities and agencies |
|
34,643 |
|
|
|
34,643 |
|
|
| ||||
Residential mortgage-backed securities issued by U.S. Government sponsored entities |
|
244,679 |
|
|
|
244,679 |
|
|
| ||||
Corporate |
|
3,373 |
|
|
|
3,373 |
|
|
| ||||
Mutual Funds |
|
246 |
|
|
|
246 |
|
|
| ||||
Total available for sale securities |
|
$ |
398,292 |
|
$ |
|
|
$ |
398,292 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Assets (December 31, 2014): |
|
|
|
|
|
|
|
|
| ||||
Available for sale securities: |
|
|
|
|
|
|
|
|
| ||||
State and municipal |
|
$ |
85,451 |
|
$ |
|
|
$ |
85,451 |
|
$ |
|
|
U.S. Government sponsored entities and agencies |
|
9,161 |
|
|
|
9,161 |
|
|
| ||||
Residential mortgage-backed securities issued by U.S. Government sponsored entities |
|
107,317 |
|
|
|
107,317 |
|
|
| ||||
Mutual Funds |
|
248 |
|
|
|
248 |
|
|
| ||||
Total available for sale securities |
|
$ |
202,177 |
|
$ |
|
|
$ |
202,177 |
|
$ |
|
|
There were no transfers between Level 1 and Level 2 during 2015 or 2014.
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. Fair Value (Continued)
Assets measured at fair value on a nonrecurring basis are summarized below.
|
|
|
|
Fair Value Measurements Using |
| ||||||||
|
|
Assets at |
|
Quoted |
|
Significant |
|
Significant |
| ||||
|
|
|
|
(in thousands) |
| ||||||||
Assets (June 30, 2015): |
|
|
|
|
|
|
|
|
| ||||
Impaired loans: |
|
|
|
|
|
|
|
|
| ||||
Commercial |
|
$ |
928 |
|
$ |
|
|
$ |
|
|
$ |
928 |
|
Construction |
|
1,382 |
|
|
|
|
|
1,382 |
| ||||
Commercial real estate: |
|
|
|
|
|
|
|
|
| ||||
Owner Occupied nonfarm/nonresidential |
|
192 |
|
|
|
|
|
192 |
| ||||
Residential real estate: |
|
|
|
|
|
|
|
|
| ||||
Secured by first liens |
|
2,087 |
|
|
|
|
|
2,087 |
| ||||
Home equity |
|
84 |
|
|
|
|
|
84 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Foreclosed and repossessed assets: |
|
|
|
|
|
|
|
|
| ||||
Commercial real estate: |
|
|
|
|
|
|
|
|
| ||||
Other nonfarm/nonresidential |
|
204 |
|
|
|
|
|
204 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Assets (December 31, 2014): |
|
|
|
|
|
|
|
|
| ||||
Impaired loans: |
|
|
|
|
|
|
|
|
| ||||
Commercial |
|
$ |
47 |
|
$ |
|
|
$ |
|
|
$ |
47 |
|
Construction |
|
1,426 |
|
|
|
|
|
1,426 |
| ||||
Commercial real estate: |
|
|
|
|
|
|
|
|
| ||||
Owner Occupied nonfarm/nonresidential |
|
108 |
|
|
|
|
|
108 |
| ||||
Residential real estate: |
|
|
|
|
|
|
|
|
| ||||
Secured by first liens |
|
1,338 |
|
|
|
|
|
1,338 |
| ||||
Home equity |
|
84 |
|
|
|
|
|
84 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Foreclosed and repossessed assets: |
|
|
|
|
|
|
|
|
| ||||
Construction |
|
1,407 |
|
|
|
|
|
1,407 |
| ||||
Commercial real estate: |
|
|
|
|
|
|
|
|
| ||||
Owner occupied nonfarm/nonresidential |
|
2,036 |
|
|
|
|
|
2,036 |
| ||||
Other nonfarm/nonresidential |
|
588 |
|
|
|
|
|
588 |
| ||||
Residential real estate: |
|
|
|
|
|
|
|
|
| ||||
Secured by first liens |
|
400 |
|
|
|
|
|
400 |
|
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. Fair Value (Continued)
The Company measures for impairment using the fair value of the collateral less costs to sell for collateral-dependent loans. The Companys collateral dependent impaired loans had a carrying value of $6.0 million as of June 30, 2015 with a valuation allowance of $1.4 million, resulting in provision for loan losses of $2.2 million for the three and six months ended June 30, 2015. The Company recorded $192,000 and $452,000 in provision for loan losses for collateral-dependent impaired loans for the three and six months ended June 30, 2014. Impaired loans totaled $15.0 million as of December 31, 2014, which included collateral dependent loans with a carrying value of $4.1 million and a valuation allowance of $1.1 million.
The Company evaluates the fair value of foreclosed and repossessed assets at the time they are transferred from loans and on a quarterly basis thereafter. During the three and six months ended June 30, 2015 the Company recognized charges to write down foreclosed and repossessed assets to their fair value of $12,000 and $75,000, respectively and did not write down foreclosed and repossessed assets for the three and six months ended June 30, 2014.
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. Fair Value (Continued)
The following table presents quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at June 30, 2015:
|
|
Fair Value |
|
Valuation |
|
Unobservable |
|
Range (Weighted |
| |
|
|
(in thousands) |
|
|
|
|
|
|
| |
June 30, 2015: |
|
|
|
|
|
|
|
|
| |
Impaired Loans: |
|
|
|
|
|
|
|
|
| |
Commercial |
|
$ |
928 |
|
Sales comparison approach |
|
Adjustments for differences between comparable sales |
|
28% |
|
Construction |
|
1,382 |
|
Sales comparison approach |
|
Adjustments for differences between comparable sales |
|
23%-55% (48%) |
| |
Commercial real estate |
|
192 |
|
Income capitalization approach |
|
Capitalization rate |
|
26% |
| |
Residential real estate |
|
2,171 |
|
Sales comparison approach |
|
Adjustments for differences between comparable sales |
|
14%-84% (33%) |
| |
Foreclosed and repossessed assets: |
|
|
|
|
|
|
|
|
| |
Commercial real estate |
|
$ |
204 |
|
Sales comparison approach |
|
Adjustments for differences between comparable sales |
|
30%-33% (33%) |
|
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. Fair Value (Continued)
|
|
Fair Value |
|
Valuation |
|
Unobservable |
|
Range - |
| |
|
|
(in thousands) |
|
|
|
|
|
|
| |
December 31, 2014: |
|
|
|
|
|
|
|
|
| |
Impaired Loans: |
|
|
|
|
|
|
|
|
| |
Commercial |
|
$ |
47 |
|
Sales comparison approach |
|
Adjustments for differences between comparable sales |
|
24%-28% (24%) |
|
Construction |
|
1,426 |
|
Sales comparison approach |
|
Adjustments for differences between comparable sales |
|
23%-55% (48%) |
| |
Commercial real estate |
|
108 |
|
Income capitalization approach |
|
Capitalization rate |
|
22% |
| |
Residential real estate |
|
1,422 |
|
Sales comparison approach |
|
Adjustments for differences between comparable sales |
|
14%-84% (24%) |
| |
|
|
|
|
|
|
|
|
|
| |
Foreclosed and repossessed assets: |
|
|
|
|
|
|
|
|
| |
Construction |
|
$ |
1,407 |
|
Income capitalization approach |
|
Capitalization rate |
|
9% |
|
|
|
|
|
Sales comparison approach |
|
Adjustments for differences between comparable sales |
|
15%-23% (22%) |
| |
Commercial real estate |
|
2,624 |
|
Income capitalization approach |
|
Capitalization rate |
|
4% |
| |
|
|
|
|
Sales comparison approach |
|
Adjustments for differences between comparable sales |
|
10%-52% (31%) |
| |
Residential real estate |
|
400 |
|
Sales comparison approach |
|
Adjustments for differences between comparable sales |
|
14%-60% (25%) |
|
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. Fair Value (Continued)
Fair value of Financial Instruments
Carrying amount and estimated fair values of financial instruments at June 30, 2015 and December 31, 2014 were as follows:
|
|
|
|
Fair Value Measurements Using |
| |||||||||||
|
|
Carrying |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| |||||
|
|
(in thousands) |
| |||||||||||||
June 30, 2015: |
|
|
|
|
|
|
|
|
|
|
| |||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and due from financial institutions |
|
$ |
28,947 |
|
$ |
28,947 |
|
$ |
|
|
$ |
|
|
$ |
28,947 |
|
Interest-bearing deposits in other financial institutions |
|
32,383 |
|
32,383 |
|
|
|
|
|
32,383 |
| |||||
Securities available for sale |
|
398,292 |
|
|
|
398,292 |
|
|
|
398,292 |
| |||||
Loans held for sale |
|
390 |
|
|
|
399 |
|
|
|
399 |
| |||||
Loans, net |
|
996,971 |
|
|
|
|
|
1,027,089 |
|
1,027,089 |
| |||||
Accrued interest receivable |
|
5,083 |
|
16 |
|
1,737 |
|
3,330 |
|
5,083 |
| |||||
Federal Home Loan Bank and Federal Reserve Stock |
|
3,807 |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Deposits |
|
1,306,536 |
|
|
|
1,323,485 |
|
|
|
1,323,485 |
| |||||
Short-term borrowings |
|
42,989 |
|
|
|
43,498 |
|
|
|
43,498 |
| |||||
Other borrowings |
|
83,000 |
|
|
|
53,261 |
|
23,993 |
|
77,254 |
| |||||
Accrued interest payable |
|
703 |
|
|
|
308 |
|
395 |
|
703 |
| |||||
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. Fair Value (Continued)
|
|
|
|
Fair Value Measurements Using |
| |||||||||||
|
|
Carrying |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| |||||
|
|
(in thousands) |
| |||||||||||||
December 31, 2014: |
|
|
|
|
|
|
|
|
|
|
| |||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and due from financial institutions |
|
$ |
12,872 |
|
$ |
12,872 |
|
$ |
|
|
$ |
|
|
$ |
12,872 |
|
Interest-bearing deposits in other financial institutions |
|
6,808 |
|
6,808 |
|
|
|
|
|
6,808 |
| |||||
Deposit for partial redemption of acquirees preferred stock and unpaid dividends |
|
11,341 |
|
11,341 |
|
|
|
|
|
11,341 |
| |||||
Securities available for sale |
|
202,177 |
|
|
|
202,177 |
|
|
|
202,177 |
| |||||
Loans, net |
|
597,110 |
|
|
|
|
|
606,554 |
|
606,554 |
| |||||
Accrued interest receivable |
|
3,152 |
|
|
|
1,016 |
|
2,136 |
|
3,152 |
| |||||
Federal Home Loan Bank and Federal Reserve Stock |
|
4,964 |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Deposits |
|
650,944 |
|
|
|
654,986 |
|
|
|
654,986 |
| |||||
Short-term borrowings |
|
45,818 |
|
|
|
45,744 |
|
|
|
45,744 |
| |||||
Other borrowings |
|
67,000 |
|
|
|
50,061 |
|
9,836 |
|
59,897 |
| |||||
Accrued interest payable |
|
158 |
|
|
|
140 |
|
18 |
|
158 |
| |||||
The methods and assumptions, not previously presented, used to estimate fair values are described as follows:
(a) Cash and Cash Equivalents
The carrying amounts of cash and short-term instruments approximate fair values and are classified as Level 1.
(b) FHLB and FRB Stock
It is not practical to determine the fair value of FHLB and FRB stock due to restrictions placed on transferability.
(c) Loans
Fair values of loans, excluding loans held for sale, are estimated as follows: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.
The fair value of loans held for sale is estimated based upon binding contracts and quotes from third party investors resulting in a Level 2 classification.
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. Fair Value (Continued)
(d) Deposits
The fair value disclosed for demand deposits are, by definition, equal to the amount payable on demand at the reporting date resulting in a Level 2 classification. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.
(e) Other Borrowings
The fair values of the Companys other borrowings are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification.
The fair values of the Companys Subordinated Debentures are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 3 classification.
(f) Short-Term Borrowings
The fair values of the Companys short-term borrowings are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification.
(g) Accrued Interest Receivable/Payable
The carrying amounts of accrued interest approximate fair value resulting in a Level 2 or Level 3 classification depending upon the classification of the associated asset or liability.
(h) Off-balance Sheet Instruments
Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties credit standing. The fair value of commitments is not material.
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10. Accumulated other comprehensive income (loss)
The changes in accumulated other comprehensive income (loss) by component, net of tax, is presented below for the three month periods ended June 30, 2015 and 2014 (in thousands):
|
|
Unrealized Gains and |
|
Defined Benefit |
|
Total |
| |||
June 30, 2015: |
|
|
|
|
|
|
| |||
Balance, beginning of period |
|
$ |
4,252 |
|
$ |
(464 |
) |
$ |
3,788 |
|
Other comprehensive loss before reclassifications |
|
(3,629 |
) |
(6 |
) |
(3,635 |
) | |||
Amounts reclassified from accumulated other comprehensive income |
|
|
|
(3 |
) |
(3 |
) | |||
Balance, end of period |
|
$ |
623 |
|
$ |
(473 |
) |
$ |
150 |
|
|
|
|
|
|
|
|
| |||
June 30, 2014: |
|
|
|
|
|
|
| |||
Balance, beginning of period |
|
$ |
(285 |
) |
$ |
(376 |
) |
$ |
(661 |
) |
Other comprehensive income (loss) before reclassifications |
|
1,405 |
|
25 |
|
1,430 |
| |||
Amounts reclassified from accumulated other comprehensive income |
|
(1 |
) |
(14 |
) |
(15 |
) | |||
Balance, end of period |
|
$ |
1,119 |
|
$ |
(365 |
) |
$ |
754 |
|
The changes in accumulated other comprehensive income (loss) by component, net of tax, is presented below for the six month periods ended June 30, 2015 and 2014 (in thousands):
|
|
Unrealized Gains and |
|
Defined Benefit |
|
Total |
| |||
June 30, 2015: |
|
|
|
|
|
|
| |||
Balance, beginning of period |
|
$ |
2,280 |
|
$ |
(471 |
) |
$ |
1,809 |
|
Other comprehensive income (loss) before reclassifications |
|
(1,623 |
) |
3 |
|
(1,620 |
) | |||
Amounts reclassified from accumulated other comprehensive income |
|
(34 |
) |
(5 |
) |
(39 |
) | |||
Balance, end of period |
|
$ |
623 |
|
$ |
(473 |
) |
$ |
150 |
|
|
|
|
|
|
|
|
| |||
June 30, 2014: |
|
|
|
|
|
|
| |||
Balance, beginning of period |
|
$ |
(1,364 |
) |
$ |
(369 |
) |
$ |
(1,733 |
) |
Other comprehensive income before reclassifications |
|
2,678 |
|
11 |
|
2,689 |
| |||
Amounts reclassified from accumulated other comprehensive income |
|
(195 |
) |
(7 |
) |
(202 |
) | |||
Balance, end of period |
|
$ |
1,119 |
|
$ |
(365 |
) |
$ |
754 |
|
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10. Accumulated other comprehensive income (loss)
The following is a detail of amounts reclassified out of each component of accumulated other comprehensive income (loss) for the three months ending June 30, 2015 and 2014:
June 30, 2015:
Details about Accumulated Other |
|
Amount Reclassified From |
|
Affected Line Item in the |
| |
|
|
(In Thousands) |
|
|
| |
|
|
|
|
|
| |
Amortization of defined benefit pension plan unrecognized loss |
|
$ |
4 |
|
Salaries and employee benefits |
|
|
|
(1 |
) |
Income tax expense |
| |
|
|
$ |
(3 |
) |
Net of tax |
|
|
|
|
|
|
| |
Total reclassifications for the period |
|
$ |
(3 |
) |
Net of tax |
|
June 30, 2014:
Details about Accumulated Other |
|
Amount Reclassified From |
|
Affected Line Item in the |
| |
|
|
(In Thousands) |
|
|
| |
Unrealized gains and losses on available-for-sale securities |
|
$ |
(1 |
) |
Net gain on sales of available-for-sale securities |
|
|
|
|
|
Income tax expense |
| |
|
|
$ |
(1 |
) |
Net of tax |
|
|
|
|
|
|
| |
Amortization of defined benefit pension plan unrecognized loss |
|
$ |
(21 |
) |
Salaries and employee benefits |
|
|
|
7 |
|
Income tax expense |
| |
|
|
$ |
(14 |
) |
Net of tax |
|
|
|
|
|
|
| |
Total reclassifications for the period |
|
$ |
(15 |
) |
Net of tax |
|
The following is a detail of amounts reclassified out of each component of accumulated other comprehensive income (loss) for the six months ending June 30, 2015 and 2014:
June 30, 2015:
Details about Accumulated Other |
|
Amount Reclassified From |
|
Affected Line Item in the |
| |
|
|
(In Thousands) |
|
|
| |
Unrealized gains and losses on available-for-sale securities |
|
$ |
(51 |
) |
Net gain on sales of available-for-sale securities |
|
|
|
17 |
|
Income tax expense |
| |
|
|
$ |
(34 |
) |
Net of tax |
|
|
|
|
|
|
| |
Amortization of defined benefit pension plan unrecognized loss |
|
$ |
(8 |
) |
Salaries and employee benefits |
|
|
|
3 |
|
Income tax expense |
| |
|
|
$ |
(5 |
) |
Net of tax |
|
|
|
|
|
|
| |
Total reclassifications for the period |
|
$ |
(39 |
) |
Net of tax |
|
YOUR COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10. Accumulated other comprehensive income (loss)
June 30, 2014:
Details about Accumulated Other |
|
Amount Reclassified From |
|
Affected Line Item in the |
| |
|
|
(In Thousands) |
|
|
| |
Unrealized gains and losses on available-for-sale securities |
|
$ |
(296 |
) |
Net gain on sales of available-for-sale securities |
|
|
|
101 |
|
Income tax expense |
| |
|
|
$ |
(195 |
) |
Net of tax |
|
|
|
|
|
|
| |
Amortization of defined benefit pension plan unrecognized loss |
|
$ |
(10 |
) |
Salaries and employee benefits |
|
|
|
3 |
|
Income tax expense |
| |
|
|
$ |
(7 |
) |
Net of tax |
|
|
|
|
|
|
| |
Total reclassifications for the period |
|
$ |
(202 |
) |
Net of tax |
|
11. Repurchase agreements
Repurchase agreements totaled $43.0 million as of June 30, 2015 and consisted entirely of overnight obligations. The Company pledged residential mortgage-backed agencies issued by U.S. Government sponsored entities with a carrying amount of $48.8 million to secure repurchase agreements as of June 30, 2015.
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOUR COMMUNITY BANKSHARES, INC.
Safe Harbor Statement for Forward-Looking Statements
This report may contain forward-looking statements within the meaning of the federal securities laws. These statements are not historical facts, but rather statements based on our current expectations regarding our business strategies and their intended results and our future performance. Forward-looking statements are preceded by terms such as expects, believes, anticipates, intends and similar expressions.
Forward-looking statements are not guarantees of future performance. Numerous risks and uncertainties could cause or contribute to our actual results, performance, and achievements to be materially different from those expressed or implied by the forward-looking statements. Factors that may cause or contribute to these differences include, without limitation, general economic conditions, including changes in market interest rates and changes in monetary and fiscal policies of the federal government; legislative and regulatory changes; competitive conditions in the banking markets served by our subsidiaries; the adequacy of the allowance for losses on loans and the level of future provisions for losses on loans; and other factors disclosed periodically in our filings with the Securities and Exchange Commission.
Because of the risks and uncertainties inherent in forward-looking statements, readers are cautioned not to place undue reliance on them, whether included in this report or made elsewhere from time to time by us or on our behalf. We assume no obligation to update any forward-looking statements.
Financial Condition
Total assets of the Company increased to $1.587 billion as of June 30, 2015 from $888.7 million as of December 31, 2014 due to the acquisition of First Financial Service Corporation (First Financial) on January 1, 2015. Most categories of assets were impacted by the acquisition, primarily net loans which increased to $997.0 million at June 30, 2015 from $597.1 million as of December 31, 2014 and securities available for sale which increased to $398.3 million from $202.2 million over the same periods. In connection with the acquisition, the Company recorded goodwill of $6.4 million after determining the fair value of assets acquired and liabilities assumed. The Company is still in the process of gathering information about the day one fair values of assets acquired and liabilities assumed which are subject to change during the measurement period. See footnote 2 to the Companys consolidated financial statements for further information on the acquisition of First Financial.
Net loans increased $399.9 million to $997.0 million as of June 30, 2015 from $597.1 million as of December 31, 2014. As previously discussed, the biggest driver of the increase was the acquisition of First Financial. The Company determined the fair value of loans acquired in the transaction was $404.2 million which included a non-accretable yield adjustment of $18.0 million on purchased credit impaired loans and an accretable yield adjustment of $6.1 million (see footnote 4 to the consolidated financial statements for more information on acquired loans).
Securities available for sale increased to $398.3 million at June 30, 2015 from $202.2 million as of December 31, 2014 due to the acquisition of investments with a fair value of $223.6 million and purchases of $42.0 million during 2015. During the six months ended June 30, 2015, the Company sold $38.9 million of securities primarily to conform the acquired portfolio to the Companys investment policy and overall strategic plan. The securities portfolio serves as a source of liquidity and earnings and plays an important part in the management of interest rate risk. The current strategy for the investment portfolio is to maintain an overall average repricing term between 3.0 and 3.5 years to limit exposure to rising interest rates.
Total deposits increased to $1.307 billion at June 30, 2015 from $650.9 million at December 31, 2014 as deposits with a fair value of $704.8 million were assumed in the First Financial transaction. Excluding the assumption of First Financials deposits, total deposits decreased by $48.2 million as the Company repriced the higher costing deposits assumed from First Financial resulting in deposit run-off.
Net Income Available to Common Shareholders. Net income available to common shareholders increased to $3.5 million for the three months ended June 30, 2015 from $2.0 million for the same period in 2014. Basic and diluted earnings per common share increased to $0.64 per share for the second quarter of 2015 as compared to $0.59 per common share for the second quarter of 2014. The increase in net income available to common shareholders was mostly attributable to the acquisition of First Financial in the first quarter which led to increases in net interest income of $6.0 million and non-interest income of $1.1 million, offset by increases in non-interest expense of $3.9 million and provision for loan losses of $2.0 million. The annualized return on average assets and average shareholders equity were 0.89% and 9.75% for the three months ended June 30, 2015, respectively, compared to 1.00% and 9.25% for the equivalent period in 2014.
Net income available to common shareholders for the six month period ended June 30, 2015 decreased to $2.4 million from $4.0 million in the equivalent period in 2014. Basic earnings per share was $0.45 and diluted earnings per common share was $0.44 in 2015, a decrease from basic and diluted earnings per share of $1.18 and $1.17, respectively, in 2014. The decrease in net income available to common shareholders was attributable to merger and integration charges of $3.8 million recognized in non-interest expense in the first quarter of 2015 associated with the First Financial transaction. In addition to the increase in non-interest expense to $28.4 million in 2015 from $13.1 million 2014, net income available to common shareholders declined due to an increase in provision for loan losses of $1.8 million to $2.3 million, offset by increases in net interest income of $11.9 million and non-interest income of $1.8 million. The annualized return on average assets and shareholders equity were 0.33% and 3.60% for the six months ended June 30, 2015, respectively, compared to 1.01% and 9.36% for the equivalent period in 2014.
Net interest income. Net interest income increased by $6.0 million to $13.9 million for the second quarter of 2015 compared to 2014, while the Companys net interest margin on a fully taxable equivalent basis decreased from 4.19% in 2014 to 4.04% in 2015. The growth in net interest income was due to average earning assets increasing to $1.441 billion in 2015 from $796.5 million as a result of the First Financial acquisition. The average balances for all earnings assets and interest-bearing liabilities increased, with the exception of short-term borrowings, from the same period in 2014. The yield on earning assets on a fully taxable equivalent basis declined to 4.37% in 2015 from 4.43% in 2014 due to a higher average balance in low earning interest-bearing deposits in other financial institutions. In anticipation of a reduction in time deposits assumed from First Financial due to rate reductions at maturity, the Company has maintained higher on balance sheet liquidity. Also impacting the yield on interest earning assets was accretion of $1.0 million on acquired loans in 2015 compared to $61,000 in 2014. The average balance of interest-bearing liabilities increased to $1.163 billion with an average cost of 0.41% in 2015 compared to $573.5 million and 0.33% in 2014. The increase in the average balance and cost between the periods was the assumption of First Financials liabilities which generally were higher costing compared to the legacy deposits of the Company. Offsetting the higher contractual rates of liabilities assumed was accretion of $573,000 recognized for time deposits and other borrowings.
Net interest income for the six months ended June 30, 2015 increased to $27.4 million from $15.5 million while the net interest margin on a fully taxable equivalent basis declined to 3.95% in 2015 from 4.14% in 2014. The increase in net interest income was due to the increase in average interest earning assets over the period as a result of the aforementioned First Financial acquisition. Average earning assets increased to $1.453 billion for the period ending June 30, 2015 with the majority of the increase in net loans to $997.2 million and securities available for sale to $394.4 million. The Companys yield on earning assets was lower period to period due to an increase in interest-bearing deposits in other financial institutions which had an average balance of $55.5 million yielding 0.38% in 2015 compared to an average balance of $13.3 million and average yield of 0.53% in 2014. Also impacting the yield was accretion recognized on loans of $1.6 million in 2015 compared to $106,000 in 2014. Average interest-bearing liabilities increased to $1.182 billion for the six months ended June 30, 2015 compared to $570.7 million in 2014 while the average cost increased to 0.42% from 0.34% over the respective periods. The increase in average balance and cost was the assumption of deposits from First Financial which had higher costs than the Companys legacy funding. The Companys cost of funds for 2015 was reduced due to accretion recognized during 2015 of $1.2 million, primarily on time deposits.
Average Balance Sheets. The following tables set forth certain information relating to our average balance sheets and reflect the average yields earned and rates paid. Such yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods presented. Average balances are computed on daily average balances. For analytical purposes, net interest margin and net interest spread are adjusted to a taxable equivalent adjustment basis to recognize the income tax savings on tax-exempt assets, such as state and municipal securities. A tax rate of 35% was used in adjusting interest on tax-exempt assets to a fully taxable equivalent (FTE) basis. Loans held for sale and loans no longer accruing interest are included in total loans.
|
|
Three Months Ended June 30, |
| ||||||||||||||
|
|
2015 |
|
2014 |
| ||||||||||||
|
|
Average |
|
Interest |
|
Average |
|
Average |
|
Interest |
|
Average |
| ||||
|
|
(In thousands) |
|
(In thousands) |
| ||||||||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest-bearing deposits with banks |
|
$ |
48,008 |
|
$ |
49 |
|
0.41 |
% |
$ |
13,433 |
|
$ |
9 |
|
0.26 |
% |
Taxable securities |
|
288,420 |
|
1,320 |
|
1.84 |
|
112,139 |
|
489 |
|
1.75 |
| ||||
Tax-exempt securities |
|
98,423 |
|
1,355 |
|
5.52 |
|
81,619 |
|
1,138 |
|
5.59 |
| ||||
Total loans and fees (1) (2) |
|
1,000,865 |
|
12,902 |
|
5.17 |
|
583,345 |
|
7,098 |
|
4.88 |
| ||||
FHLB and Federal Reserve stock |
|
4,860 |
|
69 |
|
5.69 |
|
5,962 |
|
63 |
|
4.24 |
| ||||
Total earning assets |
|
1,440,576 |
|
15,695 |
|
4.37 |
|
796,498 |
|
8,797 |
|
4.43 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Less: Allowance for loan losses |
|
(7,532 |
) |
|
|
|
|
(8,501 |
) |
|
|
|
| ||||
Non-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and due from banks |
|
35,902 |
|
|
|
|
|
16,788 |
|
|
|
|
| ||||
Bank premises and equipment, net |
|
37,778 |
|
|
|
|
|
18,376 |
|
|
|
|
| ||||
Other assets |
|
96,967 |
|
|
|
|
|
39,963 |
|
|
|
|
| ||||
Total assets |
|
$ |
1,603,691 |
|
|
|
|
|
$ |
863,124 |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Savings and other |
|
$ |
688,831 |
|
$ |
162 |
|
0.15 |
% |
$ |
329,190 |
|
$ |
162 |
|
0.20 |
% |
Time deposits |
|
352,394 |
|
105 |
|
0.36 |
|
144,331 |
|
105 |
|
0.29 |
| ||||
Short-term borrowings |
|
39,033 |
|
23 |
|
0.24 |
|
39,813 |
|
23 |
|
0.23 |
| ||||
Other borrowings |
|
83,170 |
|
82 |
|
2.84 |
|
60,187 |
|
183 |
|
1.22 |
| ||||
Total interest-bearing liabilities |
|
1,163,428 |
|
1,192 |
|
0.41 |
|
573,521 |
|
473 |
|
0.33 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Non-interest bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Non-interest demand deposits |
|
283,101 |
|
|
|
|
|
191,466 |
|
|
|
|
| ||||
Accrued interest payable and other liabilities |
|
10,453 |
|
|
|
|
|
4,968 |
|
|
|
|
| ||||
Stockholders equity |
|
146,709 |
|
|
|
|
|
93,169 |
|
|
|
|
| ||||
Total liabilities and stockholders equity |
|
$ |
1,603,691 |
|
|
|
|
|
$ |
863,124 |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net interest income (taxable equivalent basis) |
|
|
|
$ |
14,503 |
|
|
|
|
|
$ |
8,324 |
|
|
| ||
Less: taxable equivalent adjustment |
|
|
|
(589 |
) |
|
|
|
|
(387 |
) |
|
| ||||
Net interest income |
|
|
|
$ |
13,914 |
|
|
|
|
|
$ |
7,937 |
|
|
| ||
Net interest spread |
|
|
|
|
|
3.96 |
% |
|
|
|
|
4.10 |
% | ||||
Net interest margin |
|
|
|
|
|
4.04 |
|
|
|
|
|
4.19 |
|
(1) The amount of direct loan origination cost included in interest on loans was $75 and $99 for the three months ended June 30, 2015 and 2014.
(2) Calculations include non-accruing loans in the average loan amounts outstanding.
(3) The amount of accretion recorded for acquired loans included in interest income was $1,016 and $61 for the three months ended June 30, 2015 and 2014.
|
|
Six Months Ended June 30, |
| ||||||||||||||
|
|
2015 |
|
2014 |
| ||||||||||||
|
|
Average |
|
Interest |
|
Average |
|
Average |
|
Interest |
|
Average |
| ||||
|
|
(In thousands) |
|
(In thousands) |
| ||||||||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest-bearing deposits in other financial institutions |
|
$ |
55,508 |
|
$ |
104 |
|
0.38 |
% |
$ |
13,304 |
|
$ |
35 |
|
0.53 |
% |
Taxable securities |
|
303,474 |
|
2,660 |
|
1.77 |
|
116,686 |
|
1,050 |
|
1.81 |
| ||||
Tax-exempt securities |
|
90,862 |
|
2,498 |
|
5.54 |
|
80,301 |
|
2,254 |
|
5.66 |
| ||||
Total loans and fees (1) (2) |
|
997,221 |
|
25,527 |
|
5.16 |
|
574,042 |
|
13,722 |
|
4.82 |
| ||||
FHLB and Federal Reserve stock |
|
5,667 |
|
164 |
|
5.84 |
|
5,959 |
|
116 |
|
3.92 |
| ||||
Total earning assets |
|
1,452,732 |
|
30,953 |
|
4.30 |
|
790,292 |
|
17,177 |
|
4.38 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Less: Allowance for loan losses |
|
(7,187 |
) |
|
|
|
|
(8,491 |
) |
|
|
|
| ||||
Non-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and due from banks |
|
37,436 |
|
|
|
|
|
13,446 |
|
|
|
|
| ||||
Bank premises and equipment, net |
|
37,956 |
|
|
|
|
|
18,425 |
|
|
|
|
| ||||
Other assets |
|
99,279 |
|
|
|
|
|
40,701 |
|
|
|
|
| ||||
Total assets |
|
$ |
1,620,216 |
|
|
|
|
|
$ |
854,373 |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Savings and other |
|
$ |
692,940 |
|
$ |
530 |
|
0.15 |
% |
$ |
319,487 |
|
$ |
304 |
|
0.19 |
% |
Time deposits |
|
364,743 |
|
624 |
|
0.34 |
|
146,383 |
|
216 |
|
0.30 |
| ||||
Short-term borrowings |
|
38,645 |
|
45 |
|
0.23 |
|
42,586 |
|
53 |
|
0.25 |
| ||||
Other borrowings |
|
85,571 |
|
1,265 |
|
2.98 |
|
62,249 |
|
376 |
|
1.22 |
| ||||
Total interest-bearing liabilities |
|
1,181,899 |
|
2,464 |
|
0.42 |
|
570,705 |
|
949 |
|
0.34 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Non-interest bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Non-interest demand deposits |
|
281,499 |
|
|
|
|
|
187,298 |
|
|
|
|
| ||||
Accrued interest payable and other liabilities |
|
9,737 |
|
|
|
|
|
4,592 |
|
|
|
|
| ||||
Stockholders equity |
|
147,081 |
|
|
|
|
|
91,778 |
|
|
|
|
| ||||
Total liabilities and stockholders equity |
|
$ |
1,620,216 |
|
|
|
|
|
$ |
854,373 |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net interest income (taxable equivalent basis) |
|
|
|
$ |
28,489 |
|
|
|
|
|
$ |
16,228 |
|
|
| ||
Less: taxable equivalent adjustment |
|
|
|
(1,091 |
) |
|
|
|
|
(766 |
) |
|
| ||||
Net interest income |
|
|
|
$ |
27,398 |
|
|
|
|
|
$ |
15,462 |
|
|
| ||
Net interest spread |
|
|
|
|
|
3.88 |
% |
|
|
|
|
4.04 |
% | ||||
Net interest margin |
|
|
|
|
|
3.95 |
|
|
|
|
|
4.14 |
|
(1) The amount of direct loan origination cost included in interest on loans was $96 and $198 for the six months ended June 30, 2015 and 2014.
(2) Calculations include non-accruing loans in the average loan amounts outstanding.
(3) The amount of accretion recorded for acquired loans included in interest income was $1,617 and $106 for the six months ended June 30, 2015 and 2014.
Rate/Volume Analysis. The table below illustrates the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities affected our interest income and interest expense on a fully taxable equivalent basis during the periods indicated. Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in volume multiplied by prior rate), (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume), and (iii) the net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.
|
|
Three Months Ended June 30, 2015 |
|
Six Months Ended June 30, 2015 |
| ||||||||||||||
|
|
Total Net |
|
Volume |
|
Rate |
|
Total Net |
|
Volume |
|
Rate |
| ||||||
|
|
(In thousands) |
|
(In thousands) |
| ||||||||||||||
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest-bearing deposits in other financial institutions |
|
$ |
40 |
|
$ |
33 |
|
$ |
7 |
|
$ |
69 |
|
$ |
82 |
|
$ |
(13 |
) |
Taxable securities |
|
831 |
|
806 |
|
25 |
|
1,610 |
|
1,638 |
|
(28 |
) | ||||||
Tax-exempt securities |
|
217 |
|
232 |
|
(15 |
) |
244 |
|
291 |
|
(47 |
) | ||||||
Total loans and fees |
|
5,804 |
|
5,359 |
|
445 |
|
11,805 |
|
10,770 |
|
1,035 |
| ||||||
FHLB and Federal Reserve stock |
|
6 |
|
(13 |
) |
19 |
|
48 |
|
(6 |
) |
54 |
| ||||||
Total increase in interest income |
|
6,898 |
|
6,417 |
|
481 |
|
13,776 |
|
12,775 |
|
1,001 |
| ||||||
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Savings and other |
|
104 |
|
145 |
|
(41 |
) |
226 |
|
296 |
|
(70 |
) | ||||||
Time Deposits |
|
211 |
|
181 |
|
30 |
|
408 |
|
369 |
|
39 |
| ||||||
Short-term borrowings |
|
|
|
|
|
|
|
(8 |
) |
(5 |
) |
(3 |
) | ||||||
Other borrowings |
|
405 |
|
91 |
|
314 |
|
889 |
|
183 |
|
706 |
| ||||||
Total increase in interest expense |
|
720 |
|
417 |
|
303 |
|
1,515 |
|
843 |
|
672 |
| ||||||
Increase in net interest income |
|
$ |
6,178 |
|
$ |
6,000 |
|
$ |
178 |
|
$ |
12,261 |
|
$ |
11,932 |
|
$ |
329 |
|
Allowance and Provision for Loan Losses. Our financial performance depends on the quality of the loans we originate and managements ability to assess the degree of risk in existing loans when it determines the allowance for loan losses. An increase in loan charge-offs or non-performing loans or an inadequate allowance for loan losses could have an adverse effect on net income. The allowance is determined based on the application of loss estimates to graded loans by categories.
Summary of Loan Loss Experience:
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
2015 |
|
2014 |
|
2015 |
|
2014 |
| ||||
|
|
(In thousands) |
| ||||||||||
Activity for the period ended: |
|
|
|
|
|
|
|
|
| ||||
Beginning balance |
|
$ |
7,120 |
|
$ |
8,378 |
|
$ |
6,465 |
|
$ |
8,009 |
|
Charge-offs: |
|
|
|
|
|
|
|
|
| ||||
Residential real estate |
|
(71 |
) |
(93 |
) |
(204 |
) |
(144 |
) | ||||
Commercial real estate |
|
1 |
|
(23 |
) |
(1 |
) |
(23 |
) | ||||
Construction |
|
(32 |
) |
|
|
(32 |
) |
|
| ||||
Commercial business |
|
(1,786 |
) |
|
|
(1,910 |
) |
(1 |
) | ||||
Home equity |
|
(34 |
) |
(42 |
) |
(48 |
) |
(42 |
) | ||||
Consumer |
|
(78 |
) |
(52 |
) |
(151 |
) |
(111 |
) | ||||
Total |
|
(2,000 |
) |
(210 |
) |
(2,346 |
) |
(321 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Recoveries: |
|
|
|
|
|
|
|
|
| ||||
Residential real estate |
|
43 |
|
2 |
|
48 |
|
7 |
| ||||
Commercial real estate |
|
61 |
|
21 |
|
849 |
|
95 |
| ||||
Construction |
|
521 |
|
|
|
521 |
|
67 |
| ||||
Commercial business |
|
22 |
|
67 |
|
41 |
|
90 |
| ||||
Home equity |
|
8 |
|
6 |
|
29 |
|
9 |
| ||||
Consumer |
|
115 |
|
27 |
|
177 |
|
53 |
| ||||
Total |
|
770 |
|
123 |
|
1,665 |
|
321 |
| ||||
Net loan charge-offs |
|
(1,230 |
) |
(87 |
) |
(681 |
) |
|
| ||||
Provision for loan losses |
|
2,155 |
|
190 |
|
2,261 |
|
472 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Ending balance |
|
$ |
8,045 |
|
$ |
8,481 |
|
$ |
8,045 |
|
$ |
8,481 |
|
Provision for loan losses increased to $2.2 million and $2.3 million for the three and six months ending June 30, 2015 from $190,000 and $472,000 for the same periods in 2014. Net charge-offs for the three and six months ended June 30, 2015 were $1.2 million and $681,000 compared to $87,000 and $0 in 2014. Net-charge-offs for the six months ended June 30, 2015 increased from 2014 due to a $1.7 million charge-off for one credit relationship, or the full amount of allocated reserves during the second quarter of 2015. The Companys non-performing loans increased to $12.1 million as of June 30, 2015 from $7.8 million as of December 31, 2014 due primarily to the acquisition of loans acquired from First Financial which comprised $6.0 million of the total non-performing loans at June 30, 2015. The increase in the Companys provision for loan losses for the three and six months ended June 30, 2015 was due primarily to the allocation and charge-off of $1.7 million for one credit in the second quarter of 2015. The Company recognized the additional provision for the credit due to updated information obtained in the second quarter about the value of the collateral securing the loan and immediately charged-off the allocation as the loan is considered collateral dependent. Subsequent to the charge-off, the loan had a remaining carrying amount of $890,000 and was included in the Companys non-accrual loans as of June 30, 2015. Currently, the Company does not have an allocation for loan losses for this credit. Additionally, the provision for loan losses for the three and six months in 2015 was negatively impacted by the aforementioned $1.7 million charge-off. The Company allocates allowance for loan losses for loans collectively evaluated for impairment by using its average three year charge-off history, adjusted for certain qualitative factors. As the Companys charge-offs increase for a loan class, the amount allocated increases as well. The $1.7 million charge-off impacted the Companys allocation for commercial loans collectively evaluated for impairment only.
The Companys classified loans (substandard and doubtful) increased to $58.1 million as of June 30, 2015 from $15.7 million as of December 31, 2014 while criticized loans (watch and special mention) increased to $49.6 million from $43.8 million. The increase in both was due to the acquisition of loans from First Financial which accounted for $42.2 million of the Companys classified loans and $5.0 million of its criticized loans. As of June 30, 2015, the Company had $53.6 million in purchased credit impaired loans, the majority of which were acquired from First Financial (see footnote 2 to Companys consolidated financial statements for more information). Due to the aforementioned provision and charge-off activity, the allowance for loan losses as a percentage of loans decreased to 0.81% of loans as of June 30, 2015 from 1.07% at December 31, 2014. Excluding acquired loans, the Companys allowance as a percentage of loans was 1.29% at June 30, 2015.
Asset Quality. Loans, including impaired loans, are placed on non-accrual status when they become past due ninety days or more as to principal or interest, unless they are adequately secured and in the process of collection. When these loans are placed on non-accrual status, all unpaid accrued interest is reversed and the loans remain on non-accrual status until the loan becomes current or the loan is deemed uncollectible and is charged off. Impaired loans are those loans for which it is probable that all scheduled interest and principal payments will not be received based on the contractual terms of the loan agreement. A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans, for which the terms have been modified, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired. TDRs totaled $17.4 million at June 30, 2015 and $11.9 million December 31, 2014, while $2.3 million and $4.1 million were included in the Companys non-accrual loans as of the same dates, respectively.
The Companys non-performing assets as of June 30, 2015 and December 31, 2014 were as follows:
|
|
June 30, |
|
December 31, |
| ||
|
|
(In thousands) |
| ||||
|
|
|
|
|
| ||
Loans on non-accrual status |
|
$ |
12,105 |
|
$ |
7,535 |
|
Loans past due over 90 days still on accrual |
|
220 |
|
|
| ||
Total non-performing loans |
|
12,325 |
|
7,535 |
| ||
Foreclosed and repossessed assets |
|
8,354 |
|
4,431 |
| ||
Total non-performing assets |
|
$ |
20,679 |
|
$ |
11,966 |
|
|
|
|
|
|
| ||
Non-performing loans to total loans |
|
1.23 |
% |
1.25 |
% | ||
Non-performing assets to total loans |
|
22.06 |
|
1.98 |
| ||
Allowance as a percent of non-performing loans |
|
65.27 |
|
85.79 |
| ||
Allowance as a percent of total loans |
|
0.80 |
|
1.07 |
|
Included in the totals above for June 30, 2015 were non-accrual loans with a carrying amount of $6.0 million and foreclosed and repossessed assets of $4.7 million that were acquired from First Financial Service Corporation.
Non-interest income. Non-interest income increased to $2.7 million for the second quarter of 2015 from $1.5 million for the equivalent period in 2014. The increase was driven primarily by service charges on deposit accounts and interchange income as well as earnings on company owned life insurance. Service charges on deposit accounts increased to $1.7 million in 2015 from $835,000 in 2014 while interchange income increased to $476,000 from $330,000 over the respective periods. The increase in both categories was directly attributable to the assumed deposit accounts from First Financial and the corresponding interchange activity. Earnings on bank owned life insurance increased to $253,000 in 2015 from $168,000 in 2014 as the Company acquired $10.8 million in bank owned life insurance in connection with the First Financial acquisition.
Non-interest income increased by $1.8 million to $5.1 million for the six months ended June 30, 2015 from $3.2 million in 2014 due to increases in service charges on deposit accounts of $1.4 million, earnings on bank owned life insurance of $173,000, and interchange income of $320,000, offset by a decrease in net gains on sales of available for sale securities of $245,000. As previously discussed, the increase in service charges on deposit accounts and interchange income was driven by the assumption of deposits from First Financial and the corresponding increase in transaction volume driving interchange and service fee income. Earnings on bank owned life insurance were higher in 2015 due to the aforementioned acquisition of First Financials life insurance policies in the first quarter of 2015. Net gains on sales of securities declined to $51,000 for the first six months of 2015 compared to $296,000 in 2014 while sales of securities increased to $38.9 million from $32.8 million over the respective periods. Most of the securities sold were acquired from First Financial and were disposed shortly after acquisition resulting in minimal fluctuation between the acquisition date fair value and disposition. The Company sold securities to conform the merged portfolio to policy and investment strategy.
Non-interest expense. Non-interest expense increased to $10.5 million for the three months ended June 30, 2015 from $6.5 million in 2014 due to increases salaries and employee benefits, occupancy expenses, data processing, FDIC insurance premiums, and other expenses, offset by a decrease in foreclosed assets, net expense. Salaries and employee benefits was $5.1 million in 2015 compared to $3.4 million in 2014 and is attributable to an increase in employees associated with the acquisition of First Financial. Total full time equivalent employees increased to 329 as of June 30, 2015 from 198 at June 30, 2014 with corresponding increases in compensation, insurance expense, taxes, and other benefits. Occupancy expense was $1.2 million in 2015, an increase from $549,000 in 2014 as the number of branches operated by the Company increased to 41 as a result of the First Financial acquisition with corresponding increases to rent expense, depreciation, and utilities. Data processing expense was $921,000 for the second quarter of 2015 as compared to $663,000 in 2014 and was primarily driven by charges for core processing which is based, in part, on the number of loan and deposit accounts. FDIC insurance premiums were $372,000 in 2015, an increase from $129,000 in 2014 due to a larger assessment base from the First Financial acquisition. Other expenses were $1.5 million in 2015, an increase from $641,000 as the Company recognized increases advertising and marketing, other taxes and assessments, and amortization of core deposit intangibles. Other foreclosed assets, net was $(95,000) in 2015 compared to $53,000 in 2014 due to a decrease in expenses including property taxes and maintenance, an increase in rental income from foreclosed properties, and net gains recorded during the quarter.
Non-interest expense was $28.3 million for the six months ended June 30, 2015, an increase of $15.3 million from $13.1 million in 2014 as all categories were impacted by the acquisition of First Financial and the corresponding merger and integration charges. Salaries and employee benefits rose to $14.2 million for 2015 from $6.7 million in 2014 due to the increase in full time equivalent employees to 329 as of June 30, 2015 from 210 at December 31, 2014. Additionally, the Company incurred $2.1 million of expense in the first six months associated with severance and change in control payments. Occupancy expense was $2.8 million in 2015 compared to $1.3 million in 2014 as the Company acquired additional branches in the First Financial transaction and recognized $310,000 in merger and integration expenses in 2015. Data processing expense increased to $2.7 million for the first six months of 2015 from $1.3 million in 2014 as the Company converted core processing during the period as well as other redundant services. The Company recognized $746,000 in data processing merger and integration expenses including contract termination penalties during the period. Legal and professional service expenses were $2.4 million for 2015 compared to $1.2 million in 2014 as the Company incurred legal services associated with the merger and related filing requirements, valuation services, and consulting fees for integration in addition to $138,000 in contract termination charges. Other expenses increased to $3.9 million in 2015 from $1.3 million in 2014 as the Company incurred additional advertising and marketing expenses, fees and other tax assessments, charitable contributions, core deposit intangible amortization, and merger and integration expenses of $564,000 during the period.
Income tax expense. Income tax expense was $371,000 for the second quarter of 2015 compared to $610,000 for the equivalent period in 2014 while the effective tax rate was 9.42% and 22.12% for the respective periods. The reduction in income tax expense and effective rate in 2015 was due to $323,000 in non-deductible acquisition related expenses incurred in 2014 that were not repeated in 2015 and the recognition of $438,000 of tax credits acquired from First Financial in the second quarter of 2015.
Income tax benefit for the six months ended June 30, 2015 was $827,000 compared to income tax expense of $867,000 in 2014. The reduction in income tax expense was due to lower proportional growth in pre-tax income compared to tax preference items recognized during 2015. Pre-tax income was reduced due to $3.9 million in merger and integration charges during the period while the Companys tax preference items increased due to acquired tax credits of $438,000, an increase in bank owned life insurance earnings of $173,000, and tax exempt investment income of $136,000.
Liquidity and Capital Resources Liquidity levels are adjusted in order to meet funding needs for deposit outflows, repayment of borrowings, and loan commitments and to meet asset/liability objectives. Our primary sources of funds are customer deposits, customer repurchase agreements, proceeds from loan repayments, maturing securities and FHLB advances. While loan repayments and maturities are a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by market interest rates, general economic conditions and competition. At June 30, 2015, we had cash and interest-bearing deposits with banks of $61.3 million and securities available-for-sale with a fair value of $398.3 million. If we require funds beyond the funds we are able to generate internally, we have $150.0 million in additional aggregate borrowing capacity with the Federal Home Loan Bank of Indianapolis based on our current FHLB stock holdings, unused federal funds lines of credit with various nonaffiliated financial institutions of $31.5 million. Management believes the Companys liquidity sources are adequate to meet its operational needs.
The Banks are required to maintain specific amounts of capital pursuant to regulatory requirements. As of June 30, 2015, Your Community Bank and Scott County State Bank were each considered well capitalized under regulatory capital requirements and were in compliance with all regulatory capital requirements that were effective as of such date with capital ratios as follows:
June 30, 2015:
|
|
Tier 1 Capital |
|
Common |
|
Tier 1 Capital |
|
Total Capital |
|
Consolidated |
|
10.2 |
% |
9.5 |
% |
14.5 |
% |
15.3 |
% |
Your Community Bank |
|
10.4 |
% |
13.7 |
% |
13.7 |
% |
14.3 |
% |
Scott County State Bank |
|
10.2 |
% |
15.8 |
% |
15.8 |
% |
16.7 |
% |
|
|
|
|
|
|
|
|
|
|
Minimum for banks to be well capitalized under regulatory capital requirements: |
|
5.0 |
% |
6.5 |
% |
8.0 |
% |
10.0 |
% |
December 31, 2014:
|
|
Total |
|
Tier 1 |
|
Tier 1 |
|
Consolidated |
|
18.7 |
% |
17.7 |
% |
13.0 |
% |
Your Community Bank |
|
18.1 |
% |
17.1 |
% |
12.9 |
% |
Scott County State Bank |
|
17.3 |
% |
16.3 |
% |
9.9 |
% |
|
|
|
|
|
|
|
|
Minimum for banks to be well capitalized under regulatory capital requirements: |
|
10.0 |
% |
6.0 |
% |
5.0 |
% |
We have been repurchasing shares of our common stock since May 21, 1999. A net total of 371,165 shares at an aggregate cost of $6.4 million have been repurchased since that time under both the current and prior repurchase plans. Our Board of Directors authorized a share repurchase plan in June 2007 under which a maximum of $5.0 million of our common stock may be purchased. Through June 30, 2015, a total of $1.6 million had been expended to purchase 85,098 shares under the current repurchase plan. As a condition for participating in SBLF, the Company may only declare and pay a dividend on the common stock or other stock junior to the SBLF Preferred Stock, or repurchase shares of any such class or series of stock, if, after payment of such dividend, the dollar amount of the Companys Tier 1 Capital would be at least 90% of the Tier 1 Capital of the Company as of September 15, 2011, excluding any subsequent net charge-offs and any redemption of the SBLF Preferred Stock (the Tier 1 Dividend Threshold). Beginning on the first day of the eleventh dividend period, the amount of the Tier 1 Dividend Threshold will be reduced by 10% for each one percent increase in QSBL from the baseline level through the ninth dividend period. Under the terms of the SBLF Preferred Stock, no repurchases may be effected, and no dividends may be declared or paid on preferred shares ranking pari passu with the SBLF Preferred Stock, junior preferred shares, or other junior securities (including the common stock) during the current quarter and for the next three quarters following the failure to declare and pay dividends on the SBLF Preferred Stock, except that, in any such quarter in which the dividend is paid, dividend payments on shares ranking pari passu may be paid to the extent necessary to avoid any resulting material covenant breach.
During June 2004 and 2006, we completed placements of $7.0 million and $10.0 million floating rate subordinated debentures through Community Bank Shares (IN) Statutory Trust I and Trust II, (trusts we formed), respectively. These securities are reported as liabilities for financial reporting, but Tier 1 Capital for regulatory purposes. We used the proceeds for general business purposes and to support our future opportunities for growth. The Company assumed subordinated debentures of $13.7 million in its acquisition of First Financial, net of appropriate purchase accounting adjustments. In June 2008, First Financial completed the placement of $8.0 million subordinated debentures with a maturity date of June 24, 2038, callable at par in whole or in part on or after June 24, 2018, and which pay a fixed interest rate of 8.00% for thirty years. In March 2007, First Financial completed the placement of $10.0 million cumulative subordinated debentures at a 10-year fixed rate of 6.69% adjusting quarterly thereafter at LIBOR plus 160 basis points. These securities mature on March 22, 2037, and can be called at par in whole or in part on or after March 15, 2017.
Off Balance Sheet Arrangements and Contractual Obligations
The Company uses off balance sheet financial instruments, such as commitments to make loans, credit lines and letters of credit to meet customer financing needs. These agreements provide credit or support the credit of others and usually have expiration dates but may expire without being used. In addition to credit risk, the Company also has liquidity risk associated with these commitments as funding for these obligations could be required immediately. The contractual amount of these financial instruments with off balance sheet risk was as follows at June 30, 2015:
|
|
(In thousands) |
| |
Commitments to make loans |
|
$ |
42,549 |
|
Unused lines of credit |
|
236,969 |
| |
Standby letters of credit |
|
748 |
| |
Total |
|
$ |
280,266 |
|
Aggregate Contractual Obligations
As of June 30, 2015: |
|
Total |
|
Less than |
|
1-3 years |
|
3-5 years |
|
More than |
| |||||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
| |||||
Time deposits |
|
$ |
339,346 |
|
$ |
196,008 |
|
$ |
90,354 |
|
$ |
19,866 |
|
$ |
33,118 |
|
Short-term borrowings |
|
42,989 |
|
42,989 |
|
|
|
|
|
|
| |||||
Other borrowings |
|
83,000 |
|
22,315 |
|
25,136 |
|
3,940 |
|
31,609 |
| |||||
Defined benefit plan |
|
888 |
|
274 |
|
116 |
|
161 |
|
337 |
| |||||
Lease commitments |
|
7,403 |
|
1,228 |
|
1,718 |
|
1,093 |
|
3,364 |
| |||||
Total |
|
$ |
473,626 |
|
$ |
262,814 |
|
$ |
117,324 |
|
$ |
25,060 |
|
$ |
68,428 |
|
Time deposits represent certificates of deposit held by the Company.
Short-term borrowings consist of repurchase agreements of $43.0 million and note payable of $32,000. The note payable represents amounts due for the participation in construction of a low income housing development project and is payable on demand.
Other borrowings consist of FHLB advances of $42.3 million, subordinated debentures of $31.1 million, and a term loan of $9.5 million. FHLB advances represent the amounts that are due from the FHLB and consist of fixed rate advances. Subordinated debentures represent the scheduled maturities of subordinated debentures issued to trusts formed by the Company in connection with the issuance of trust preferred securities. The term loan represents the scheduled maturities of holding company debt.
The defined benefit plan represents expected benefit payments to be paid to participants.
Lease commitments represent the total minimum lease payments under noncancelable operating leases, before considering renewal options that generally are present.
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Asset/liability management is the process of balance sheet control designed to ensure safety and soundness and to maintain liquidity and regulatory capital standards while maintaining acceptable net interest income. Interest rate risk is the exposure to adverse changes in net interest income as a result of market fluctuations in interest rates. Management continually monitors interest rate and liquidity risk so that it can implement appropriate funding, investment, and other balance sheet strategies. Management considers market interest rate risk to be our most significant ongoing business risk consideration.
We currently contract with an independent third party consulting firm to measure our interest rate risk position. The consulting firm utilizes an earnings simulation model to analyze net interest income sensitivity. Current balance sheet amounts, current yields and costs, corresponding maturity and repricing amounts and rates, other relevant information, and certain assumptions made by management are combined with gradual movements in interest rates of 200 basis points up at December 31, 2014 and June 30, 2015 within the model to estimate their combined effects on net interest income over a one-year horizon. In 2008, the Federal Open Market Committee lowered its target for the federal funds rate to 0-25 bps. A majority of our loans are indexed to the prime rate, therefore, the Company has excluded an evaluation of the effect on net interest income assuming a decrease in interest rates as further reductions in the prime rate are extremely unlikely. We feel that using gradual interest rate movements within the model is more representative of future rate changes than instantaneous interest rate shocks. Growth in amounts are not projected for any balance sheet category when constructing the model because of the belief that projected growth can mask current interest rate risk imbalances over the projected horizon. We believe that the changes made to the models interest rate risk measurement process have improved the accuracy of results of the process, consequently giving better information on which to base asset and liability allocation decisions going forward.
Assumptions based on the historical behavior of our deposit rates and balances in relation to changes in interest rates are incorporated into the model. These assumptions are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. We continually monitor and update the assumptions as new information becomes available. Actual results will differ from the models simulated results due to timing, magnitude and frequency of interest rate changes, and actual variations from the managerial assumptions utilized under the model, as well as changes in market conditions and the application and timing of various management strategies.
The base scenario represents projected net interest income over a one year forecast horizon exclusive of interest rate changes to the simulation model. Given a gradual 200 basis point increase in the projected yield curve used in the simulation model (Up 200 Scenario), we estimated that as of June 30, 2015 our net interest income would increase by an estimated 0.7%, or $374,000, over the one year forecast horizon. As of December 31, 2014, in the Up 200 Scenario we estimated that net interest income would decrease $349,000, over a one year forecast horizon ending December 31, 2015.
The projected results are within our asset/liability management policy limits which states that the negative impact to net interest income should not exceed 7% in a 100 or 200 basis point increase or decrease in the projected yield curve over a one year forecast horizon. The forecast results are heavily dependent on the assumptions regarding changes in deposit rates; we can minimize the reduction in net interest income in a period of rising interest rates to the extent that we can curtail raising deposit rates during this period. We continue to explore transactions and strategies to both increase our net interest income and minimize our interest rate risk.
Our interest sensitivity profile at any point in time will be affected by a number of factors. These factors include the mix of interest sensitive assets and liabilities as well as their relative repricing schedules. It is also influenced by market interest rates, deposit growth, loan growth, and other factors. The tables below illustrate our estimated annualized earnings sensitivity profile based on the above referenced asset/liability model as of June 30, 2015 and December 31, 2014, respectively. The tables below are representative only and are not precise measurements of the effect of changing interest rates on our net interest income in the future.
The following table illustrates our estimated one year net interest income sensitivity profile based on the asset/liability model as of June 30, 2015 and ending on June 30, 2016:
|
|
Interest Rate Sensitivity as of June 30, 2015: |
| ||||
|
|
Base |
|
Gradual Increase in |
| ||
|
|
(In thousands) |
| ||||
Projected interest income: |
|
|
|
|
| ||
Loans |
|
$ |
50,007 |
|
$ |
52,125 |
|
Investments |
|
9,587 |
|
9,729 |
| ||
FHLB and FRB stock |
|
134 |
|
166 |
| ||
Interest-bearing deposits in other financial institutions |
|
79 |
|
314 |
| ||
Total interest Income |
|
59,807 |
|
62,334 |
| ||
|
|
|
|
|
| ||
Projected interest expense: |
|
|
|
|
| ||
Deposits |
|
2,341 |
|
3,754 |
| ||
Short-term borrowings |
|
96 |
|
565 |
| ||
Other borrowings |
|
3,085 |
|
3,556 |
| ||
Total interest expense |
|
5,522 |
|
7,675 |
| ||
Net interest income |
|
$ |
54,285 |
|
$ |
54,659 |
|
|
|
|
|
|
| ||
Change from base |
|
|
|
374 |
| ||
Percent change from base |
|
|
|
0.7 |
% |
The following table illustrates our estimated one year net interest income sensitivity profile based on the asset/liability model as of December 31, 2014 and ending December 31, 2015:
|
|
Interest Rate Sensitivity as of December 31, 2014 |
| ||||
|
|
Base |
|
Gradual Increase in |
| ||
|
|
(In thousands) |
| ||||
Projected interest income: |
|
|
|
|
| ||
Loans |
|
$ |
28,824 |
|
$ |
29,858 |
|
Investments |
|
5,249 |
|
5,319 |
| ||
FHLB and FRB stock |
|
161 |
|
161 |
| ||
Interest-bearing deposits in other financial institutions |
|
7 |
|
31 |
| ||
Total interest income |
|
34,241 |
|
35,369 |
| ||
|
|
|
|
|
| ||
Projected interest expense: |
|
|
|
|
| ||
Deposits |
|
891 |
|
1,660 |
| ||
Short-term borrowing |
|
96 |
|
596 |
| ||
Other borrowings |
|
1,330 |
|
1,538 |
| ||
Total interest expense |
|
2,317 |
|
3,794 |
| ||
Net interest income |
|
$ |
31,924 |
|
$ |
31,575 |
|
|
|
|
|
|
| ||
Change from base |
|
|
|
$ |
(349 |
) | |
% Change from base |
|
|
|
(1.1 |
)% |
CONTROLS AND PROCEDURES
With the participation of the Chief Executive Officer (the principal executive officer) and the Chief Financial Officer (the principal financial officer) of Your Community Bankshares, Inc. (YCBI), YCBIs management has evaluated the effectiveness of YCBIs disclosure controls and procedures (as defined in Rule 13a-15(c) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the quarterly period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, YCBIs Chief Executive Officer and Chief Financial Officer have concluded that YCBIs disclosure controls and procedures are effective as of the end of the quarterly period covered by this Quarterly Report on Form 10-Q to ensure that information required to be disclosed by YCBI in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by YCBI in the reports that it files or submits under the Exchange Act is accumulated and communicated to YCBIs management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There was no change in YCBIs internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the fiscal quarter ended June 30, 2015, that has materially affected, or is reasonably likely to materially affect, YCBIs internal control over financial reporting.
OTHER INFORMATION
There are various claims and lawsuits in which the Company or its subsidiaries are periodically involved, such as claims to enforce liens, foreclosure or condemnation proceedings on properties in which the Banks hold mortgages or security interests, claims involving the making and servicing of real property loans and other issues incidental to the Banks business. In the opinion of management, no material loss is expected from any such pending claims or lawsuits.
In addition to the information set forth in this report, you should carefully consider the risk factors disclosed in Item 1A of the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2014.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The Company did not purchase its common shares during the six months ended June 30, 2015.
The Board of Directors of the Company authorized a share repurchase plan in June 2007 under which a maximum of $5.0 million of the Companys common stock can be purchased. As of June 30, 2014, the Company could repurchase up to $3.4 million of the Companys common stock under the current repurchase plan. As a condition for participating in SBLF, the Company may only declare and pay a dividend on the common stock or other stock junior to the SBLF Preferred Stock, or repurchase shares of any such class or series of stock, if, after payment of such dividend, the dollar amount of the Companys Tier 1 Capital would be at least 90% of the Tier 1 Capital of the Company as of September 15, 2011, excluding any subsequent net charge-offs and any redemption of the SBLF Preferred Stock (the Tier 1 Dividend Threshold). Beginning on the first day of the eleventh dividend period, the amount of the Tier 1 Dividend Threshold will be reduced by 10% for each one percent increase in QSBL from the baseline level through the ninth dividend period. Under the terms of the SBLF Preferred Stock, no repurchases may be effected, and no dividends may be declared or paid on preferred shares ranking pari passu with the SBLF Preferred Stock, junior preferred shares, or other junior securities (including the common stock) during the current quarter and for the next three quarters following the failure to declare and pay dividends on the SBLF Preferred Stock, except that, in any such quarter in which the dividend is paid, dividend payments on shares ranking pari passu may be paid to the extent necessary to avoid any resulting material covenant breach.
Exhibits
The exhibits required by Item 601 of Regulation S-K are listed in the Exhibit Index of this Form 10-Q and are filed as a part of this report.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed by the undersigned thereunto duly authorized.
|
|
YOUR COMMUNITY BANKSHARES, INC. | ||
|
|
(Registrant) | ||
|
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Dated: |
August 10, 2015 |
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BY: |
/s/ James D. Rickard |
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James D. Rickard | |
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President and Chief Executive Officer | |
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(Principal Executive Officer) | |
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Dated: |
August 10, 2015 |
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BY: |
/s/ Paul. A. Chrisco |
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Paul A. Chrisco | |
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Executive Vice-President and Chief Financial Officer | |
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(Principal Financial Officer) |
YOUR COMMUNITY BANKSHARES, INC.
EXHIBIT INDEX
Exhibit No. |
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Description |
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31.1 |
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Certification of Principal Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act |
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31.2 |
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Certification of Principal Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act |
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32.1 |
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Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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32.2 |
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Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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101* |
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The following financial information from Community Bank Shares of Indiana, Inc. Quarterly Report on Form 10-Q for the period ended June 30, 2015, filed with the SEC on August 10, 2015, formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets at June 30, 2015 and December 31, 2014, (ii) Consolidated Statements of Income for the three and six months ended June 30, 2015 and June 30, 2014, (iii) Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2015 and June 30, 2014 (iv) Consolidated Statement of Stockholders Equity for the six months ended June 30, 2015, (v) Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and June 30, 2014 and (vi) Notes to Consolidated Financial Statements. |
*Pursuant to Rule 402 of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be filed for purposes of Sections 11 of the Securities Act of 1933 and Section 12 of the Exchange Act of 1934, or otherwise subject to the liability of those sections, and shall not be deemed part of a registration statement, prospectus or other document filed under the Securities Act of 1933 or the Exchange Act of 1934, except as shall be expressly set forth by specific reference in such filings.