Attached files
file | filename |
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EX-31.1 - EX-31.1 - ENB Financial Corp | ex31-1.htm |
EX-32.1 - EX-32.1 - ENB Financial Corp | ex32-1.htm |
EX-32.2 - EX-32.2 - ENB Financial Corp | ex32-2.htm |
EX-31.2 - EX-31.2 - ENB Financial Corp | ex31-2.htm |
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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 _________________________
ENB Financial Corp
(Exact name of registrant as specified in its charter)
Pennsylvania | 000-53297 | 51-0661129 | ||
(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No) | ||
31 E. Main St., Ephrata, PA | 17522-0457 | |||
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code (717) 733-4181
Former name, former address, and former fiscal year, if changed since last report Not Applicable
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)
Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See 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 | Accelerated filer o |
Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of August 7, 2015, the registrant had 2,854,302 shares of $0.20 (par) Common Stock outstanding.
ENB FINANCIAL CORP
June 30, 2015
2
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
June 30, | December 31, | June 30, | ||||||||||
2015 | 2014 | 2014 | ||||||||||
$ | $ | $ | ||||||||||
ASSETS | ||||||||||||
Cash and due from banks | 12,497 | 16,727 | 14,663 | |||||||||
Interest-bearing deposits in other banks | 24,469 | 26,685 | 30,358 | |||||||||
Total cash and cash equivalents | 36,966 | 43,412 | 45,021 | |||||||||
Securities available for sale (at fair value) | 296,059 | 295,822 | 307,797 | |||||||||
Loans held for sale | 1,294 | 506 | 108 | |||||||||
Loans (net of unearned income) | 484,803 | 471,168 | 448,150 | |||||||||
Less: Allowance for loan losses | 7,249 | 7,141 | 6,968 | |||||||||
Net loans | 477,554 | 464,027 | 441,182 | |||||||||
Premises and equipment | 22,045 | 22,447 | 22,606 | |||||||||
Regulatory stock | 4,037 | 3,227 | 4,034 | |||||||||
Bank owned life insurance | 23,449 | 20,603 | 20,239 | |||||||||
Other assets | 8,284 | 7,164 | 9,475 | |||||||||
Total assets | 869,688 | 857,208 | 850,462 | |||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||
Liabilities: | ||||||||||||
Deposits: | ||||||||||||
Noninterest-bearing | 207,826 | 210,444 | 183,149 | |||||||||
Interest-bearing | 494,724 | 489,207 | 500,552 | |||||||||
Total deposits | 702,550 | 699,651 | 683,701 | |||||||||
Short-term borrowings | 4,930 | — | 5,410 | |||||||||
Long-term debt | 67,094 | 62,300 | 69,150 | |||||||||
Other liabilities | 2,408 | 2,490 | 2,586 | |||||||||
Total liabilities | 776,982 | 764,441 | 760,847 | |||||||||
Stockholders' equity: | ||||||||||||
Common stock, par value $0.20; | ||||||||||||
Shares: Authorized 12,000,000 | ||||||||||||
Issued 2,869,557 and Outstanding 2,853,869 | ||||||||||||
(Issued 2,869,557 and Outstanding 2,856,836 as of 12/31/14) | ||||||||||||
(Issued 2,869,557 and Outstanding 2,856,993 as of 6/30/14) | 574 | 574 | 574 | |||||||||
Capital surplus | 4,388 | 4,375 | 4,361 | |||||||||
Retained earnings | 88,721 | 87,200 | 85,229 | |||||||||
Accumulated other comprehensive income (loss), net of tax | (481 | ) | 1,002 | (189 | ) | |||||||
Less: Treasury stock cost on 15,688 shares (12,721 shares | ||||||||||||
as of 12/31/14 and 12,564 shares as of 6/30/14) | (496 | ) | (384 | ) | (360 | ) | ||||||
Total stockholders' equity | 92,706 | 92,767 | 89,615 | |||||||||
Total liabilities and stockholders' equity | 869,688 | 857,208 | 850,462 |
See Notes to the Unaudited Consolidated Interim Financial Statements
3
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Three Months ended June 30, | Six Months ended June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Interest and dividend income: | ||||||||||||||||
Interest and fees on loans | 5,026 | 4,817 | 9,975 | 9,596 | ||||||||||||
Interest on securities available for sale | ||||||||||||||||
Taxable | 804 | 1,063 | 1,804 | 2,222 | ||||||||||||
Tax-exempt | 805 | 849 | 1,571 | 1,720 | ||||||||||||
Interest on deposits at other banks | 19 | 19 | 33 | 27 | ||||||||||||
Dividend income | 64 | 77 | 207 | 132 | ||||||||||||
Total interest and dividend income | 6,718 | 6,825 | 13,590 | 13,697 | ||||||||||||
Interest expense: | ||||||||||||||||
Interest on deposits | 610 | 777 | 1,284 | 1,566 | ||||||||||||
Interest on borrowings | 341 | 440 | 681 | 868 | ||||||||||||
Total interest expense | 951 | 1,217 | 1,965 | 2,434 | ||||||||||||
Net interest income | 5,767 | 5,608 | 11,625 | 11,263 | ||||||||||||
Provision (credit) for loan losses | 100 | (100 | ) | 300 | (300 | ) | ||||||||||
Net interest income after provision (credit) for loan losses | 5,667 | 5,708 | 11,325 | 11,563 | ||||||||||||
Other income: | ||||||||||||||||
Trust and investment services income | 316 | 285 | 671 | 650 | ||||||||||||
Service fees | 485 | 424 | 886 | 814 | ||||||||||||
Commissions | 503 | 494 | 968 | 960 | ||||||||||||
Gains on securities transactions, net | 600 | 582 | 1,161 | 1,267 | ||||||||||||
Impairment losses on securities: | ||||||||||||||||
Impairment gains on investment securities | — | — | — | 15 | ||||||||||||
Non-credit related losses on securities not expected | ||||||||||||||||
to be sold in other comprehensive income before tax | — | — | — | (37 | ) | |||||||||||
Net impairment losses on investment securities | — | — | — | (22 | ) | |||||||||||
Gains on sale of mortgages | 236 | 92 | 389 | 130 | ||||||||||||
Earnings on bank-owned life insurance | 174 | 159 | 334 | 314 | ||||||||||||
Other income | 80 | 132 | 186 | 235 | ||||||||||||
Total other income | 2,394 | 2,168 | 4,595 | 4,348 | ||||||||||||
Operating expenses: | ||||||||||||||||
Salaries and employee benefits | 3,674 | 3,481 | 7,376 | 6,911 | ||||||||||||
Occupancy | 524 | 459 | 1,078 | 975 | ||||||||||||
Equipment | 298 | 268 | 566 | 528 | ||||||||||||
Advertising & marketing | 161 | 125 | 317 | 255 | ||||||||||||
Computer software & data processing | 384 | 396 | 758 | 795 | ||||||||||||
Shares tax | 195 | 183 | 391 | 366 | ||||||||||||
Professional services | 437 | 353 | 754 | 680 | ||||||||||||
Other expense | 514 | 524 | 1,097 | 1,077 | ||||||||||||
Total operating expenses | 6,187 | 5,789 | 12,337 | 11,587 | ||||||||||||
Income before income taxes | 1,874 | 2,087 | 3,583 | 4,324 | ||||||||||||
Provision for federal income taxes | 278 | 347 | 521 | 746 | ||||||||||||
Net income | 1,596 | 1,740 | 3,062 | 3,578 | ||||||||||||
Earnings per share of common stock | 0.56 | 0.61 | 1.07 | 1.25 | ||||||||||||
Cash dividends paid per share | 0.27 | 0.27 | 0.54 | 0.53 | ||||||||||||
Weighted average shares outstanding | 2,852,353 | 2,854,878 | 2,854,804 | 2,854,498 |
See Notes to the Unaudited Consolidated Interim Financial Statements
4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS)
Three Months ended June 30, | Six Months ended June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Net income | 1,596 | 1,740 | 3,062 | 3,578 | ||||||||||||
Other comprehensive income, net of tax: | ||||||||||||||||
Net change in unrealized gains: | ||||||||||||||||
Other-than-temporarily impaired securities available for sale: | ||||||||||||||||
Gains arising during the period | — | — | — | 15 | ||||||||||||
Income tax effect | — | — | — | (5 | ) | |||||||||||
— | — | — | 10 | |||||||||||||
Losses recognized in earnings | — | — | — | 22 | ||||||||||||
Income tax effect | — | — | — | (7 | ) | |||||||||||
— | — | — | 15 | |||||||||||||
Unrealized holding gains on other-than-temporarily impaired | ||||||||||||||||
securities available for sale, net of tax | — | — | — | 25 | ||||||||||||
Securities available for sale not other-than-temporarily impaired: | ||||||||||||||||
Unrealized gains (losses) arising during the period | (3,403 | ) | 2,972 | (1,086 | ) | 6,912 | ||||||||||
Income tax effect | 1,157 | (1,010 | ) | 369 | (2,350 | ) | ||||||||||
(2,246 | ) | 1,962 | (717 | ) | 4,562 | |||||||||||
Gains recognized in earnings | (600 | ) | (582 | ) | (1,161 | ) | (1,267 | ) | ||||||||
Income tax effect | 204 | 198 | 395 | 431 | ||||||||||||
(396 | ) | (384 | ) | (766 | ) | (836 | ) | |||||||||
Unrealized holding gains (losses) on securities available for sale not | ||||||||||||||||
other-than-temporarily impaired, net of tax | (2,642 | ) | 1,578 | (1,483 | ) | 3,726 | ||||||||||
Other comprehensive income (loss), net of tax | (2,642 | ) | 1,578 | (1,483 | ) | 3,751 | ||||||||||
Comprehensive Income (Loss) | (1,046 | ) | 3,318 | 1,579 | 7,329 |
See Notes to the Unaudited Consolidated Interim Financial Statements
5
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
Six Months Ended June 30, | ||||||||
2015 | 2014 | |||||||
$ | $ | |||||||
Cash flows from operating activities: | ||||||||
Net income | 3,062 | 3,578 | ||||||
Adjustments to reconcile net income to net cash | ||||||||
provided by operating activities: | ||||||||
Net amortization of securities premiums and discounts and loan fees | 2,844 | 2,268 | ||||||
Increase in interest receivable | (15 | ) | (161 | ) | ||||
Decrease in interest payable | (64 | ) | (14 | ) | ||||
Provision (credit) for loan losses | 300 | (300 | ) | |||||
Gains on securities transactions, net | (1,161 | ) | (1,267 | ) | ||||
Impairment losses on securities | — | 22 | ||||||
Gains on sale of mortgages | (389 | ) | (130 | ) | ||||
Loans originated for sale | (12,961 | ) | (4,266 | ) | ||||
Proceeds from sales of loans | 12,562 | 4,347 | ||||||
Earnings on bank-owned life insurance | (334 | ) | (314 | ) | ||||
(Gain)/Loss on sale of other real estate owned | 20 | (9 | ) | |||||
Depreciation of premises and equipment and amortization of software | 765 | 719 | ||||||
Deferred income tax | (50 | ) | 309 | |||||
Other assets and other liabilities, net | (220 | ) | (2,127 | ) | ||||
Net cash provided by operating activities | 4,359 | 2,655 | ||||||
Cash flows from investing activities: | ||||||||
Securities available for sale: | ||||||||
Proceeds from maturities, calls, and repayments | 31,750 | 14,613 | ||||||
Proceeds from sales | 76,539 | 69,513 | ||||||
Purchases | (112,363 | ) | (86,877 | ) | ||||
Proceeds from sale of other real estate owned | 122 | 48 | ||||||
Purchase of regulatory bank stock | (942 | ) | (685 | ) | ||||
Redemptions of regulatory bank stock | 132 | 311 | ||||||
Purchase of bank-owned life insurance | (2,512 | ) | (14 | ) | ||||
Net increase in loans | (14,059 | ) | (9,995 | ) | ||||
Purchases of premises and equipment | (316 | ) | (261 | ) | ||||
Purchase of computer software | (139 | ) | (109 | ) | ||||
Net cash used for investing activities | (21,788 | ) | (13,456 | ) | ||||
Cash flows from financing activities: | ||||||||
Net increase in demand, NOW, and savings accounts | 10,953 | 27,329 | ||||||
Net decrease in time deposits | (8,054 | ) | (254 | ) | ||||
Net increase in short-term borrowings | 4,930 | 1,510 | ||||||
Proceeds from long-term debt | 12,794 | 9,150 | ||||||
Repayments of long-term debt | (8,000 | ) | (5,000 | ) | ||||
Dividends paid | (1,541 | ) | (1,514 | ) | ||||
Treasury stock sold | 257 | 239 | ||||||
Treasury stock purchased | (356 | ) | (215 | ) | ||||
Net cash provided by financing activities | 10,983 | 31,245 | ||||||
Increase (decrease) in cash and cash equivalents | (6,446 | ) | 20,444 | |||||
Cash and cash equivalents at beginning of period | 43,412 | 24,577 | ||||||
Cash and cash equivalents at end of period | 36,966 | 45,021 | ||||||
Supplemental disclosures of cash flow information: | ||||||||
Interest paid | 2,029 | 2,448 | ||||||
Income taxes paid | 445 | 250 | ||||||
Supplemental disclosure of non-cash investing and financing activities: | ||||||||
Net transfer of other real estate owned from loans | 137 | 56 | ||||||
Fair value adjustments for securities available for sale | (2,249 | ) | 5,683 |
See Notes to the Unaudited Consolidated Interim Financial Statements
6
1. | Basis of Presentation |
The accompanying unaudited consolidated interim financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and to general practices within the banking industry. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all significant adjustments considered necessary for fair presentation have been included. Certain items previously reported have been reclassified to conform to the current period’s reporting format. Such reclassifications did not affect net income or stockholders’ equity.
ENB Financial Corp (“the Corporation”) is the bank holding company for its wholly-owned subsidiary Ephrata National Bank (the “Bank”). This Form 10-Q, for the second quarter of 2015, is reporting on the results of operations and financial condition of ENB Financial Corp.
Operating results for the three and six months ended June 30, 2015, are not necessarily indicative of the results that may be expected for the year ended December 31, 2015. For further information, refer to the consolidated financial statements and footnotes thereto included in ENB Financial Corp’s Annual Report on Form 10-K for the year ended December 31, 2014.
2. | Securities Available for Sale |
The amortized cost and fair value of securities held at June 30, 2015 and December 31, 2014, are as follows:
Gross | Gross | |||||||||||||||
(DOLLARS IN THOUSANDS) | Amortized | Unrealized | Unrealized | Fair | ||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
$ | $ | $ | $ | |||||||||||||
June 30, 2015 | ||||||||||||||||
U.S. government agencies | 34,568 | 5 | (306 | ) | 34,267 | |||||||||||
U.S. agency mortgage-backed securities | 39,263 | 119 | (323 | ) | 39,059 | |||||||||||
U.S. agency collateralized mortgage obligations | 60,728 | 341 | (669 | ) | 60,400 | |||||||||||
Corporate bonds | 60,684 | 77 | (452 | ) | 60,309 | |||||||||||
Obligations of states and political subdivisions | 96,028 | 1,637 | (1,188 | ) | 96,477 | |||||||||||
Total debt securities | 291,271 | 2,179 | (2,938 | ) | 290,512 | |||||||||||
Marketable equity securities | 5,517 | 34 | (4 | ) | 5,547 | |||||||||||
Total securities available for sale | 296,788 | 2,213 | (2,942 | ) | 296,059 | |||||||||||
December 31, 2014 | ||||||||||||||||
U.S. government agencies | 46,577 | 110 | (528 | ) | 46,159 | |||||||||||
U.S. agency mortgage-backed securities | 37,946 | 138 | (134 | ) | 37,950 | |||||||||||
U.S. agency collateralized mortgage obligations | 48,690 | 55 | (679 | ) | 48,066 | |||||||||||
Corporate bonds | 65,274 | 145 | (311 | ) | 65,108 | |||||||||||
Obligations of states and political subdivisions | 90,628 | 2,961 | (258 | ) | 93,331 | |||||||||||
Total debt securities | 289,115 | 3,409 | (1,910 | ) | 290,614 | |||||||||||
Marketable equity securities | 5,189 | 19 | — | 5,208 | ||||||||||||
Total securities available for sale | 294,304 | 3,428 | (1,910 | ) | 295,822 |
7
The amortized cost and fair value of debt securities available for sale at June 30, 2015, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities due to certain call or prepayment provisions.
CONTRACTUAL MATURITY OF DEBT SECURITIES | ||||||||
(DOLLARS IN THOUSANDS) | ||||||||
Amortized | ||||||||
Cost | Fair Value | |||||||
$ | $ | |||||||
Due in one year or less | 21,498 | 21,431 | ||||||
Due after one year through five years | 105,917 | 105,402 | ||||||
Due after five years through ten years | 73,700 | 73,439 | ||||||
Due after ten years | 90,156 | 90,240 | ||||||
Total debt securities | 291,271 | 290,512 |
Securities available for sale with a par value of $73,680,000 and $75,013,000 at June 30, 2015, and December 31, 2014, respectively, were pledged or restricted for public funds, borrowings, or other purposes as required by law. The fair value of these pledged securities was $78,488,000 at June 30, 2015, and $78,269,000 at December 31, 2014.
Proceeds from active sales of securities available for sale, along with the associated gross realized gains and gross realized losses, are shown below. Realized gains and losses are computed on the basis of specific identification.
PROCEEDS FROM SALES OF SECURITIES AVAILABLE FOR SALE | ||||||||||||||||
(DOLLARS IN THOUSANDS) | ||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Proceeds from sales | 36,304 | 28,253 | 76,539 | 69,513 | ||||||||||||
Gross realized gains | 644 | 777 | 1,253 | 1,751 | ||||||||||||
Gross realized losses | 44 | 195 | 92 | 484 |
SUMMARY OF GAINS AND LOSSES ON SECURITIES AVAILABLE FOR SALE | ||||||||||||||||
(DOLLARS IN THOUSANDS) | ||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Gross realized gains | 644 | 777 | 1,253 | 1,751 | ||||||||||||
Gross realized losses | 44 | 195 | 92 | 484 | ||||||||||||
Impairment on securities | — | — | — | 22 | ||||||||||||
Total gross realized losses | 44 | 195 | 92 | 506 | ||||||||||||
Net gains on securities | 600 | 582 | 1,161 | 1,245 |
The bottom portion of the above table shows the net gains on security transactions, including any impairment taken on securities held by the Corporation. The net gain or loss from security transactions is also reflected on the Corporation’s Consolidated Statements of Income and Consolidated Statements of Cash Flows.
8
Management evaluates all of the Corporation’s securities for other than temporary impairment (OTTI) on a periodic basis. Prior to June 30, 2014, the Corporation had a small number of private collateralized mortgage obligations (PCMOs) of which all but one had impairment recorded at some point in the past. During the second quarter of 2014, the three PCMOs remaining in the Corporation’s securities portfolio were sold. No other securities in the portfolio had other-than-temporary impairment recorded in 2014 or 2015.
Information pertaining to securities with gross 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 follows:
TEMPORARY IMPAIRMENTS OF SECURITIES
(DOLLARS IN THOUSANDS)
Less than 12 months | More than 12 months | Total | ||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||
As of June 30, 2015 | ||||||||||||||||||||||||
U.S. government agencies | 18,060 | (196 | ) | 3,905 | (110 | ) | 21,965 | (306 | ) | |||||||||||||||
U.S. agency mortgage-backed securities | 17,914 | (216 | ) | 2,683 | (107 | ) | 20,597 | (323 | ) | |||||||||||||||
U.S. agency collateralized mortgage obligations | 22,198 | (458 | ) | 8,935 | (211 | ) | 31,133 | (669 | ) | |||||||||||||||
Corporate bonds | 35,675 | (424 | ) | 3,181 | (28 | ) | 38,856 | (452 | ) | |||||||||||||||
Obligations of states & political subdivisions | 34,360 | (934 | ) | 8,499 | (254 | ) | 42,859 | (1,188 | ) | |||||||||||||||
Total debt securities | 128,207 | (2,228 | ) | 27,203 | (710 | ) | 155,410 | (2,938 | ) | |||||||||||||||
Marketable equity securities | 107 | (4 | ) | — | — | 107 | (4 | ) | ||||||||||||||||
Total temporarily impaired securities | 128,314 | (2,232 | ) | 27,203 | (710 | ) | 155,517 | (2,942 | ) | |||||||||||||||
As of December 31, 2014 | ||||||||||||||||||||||||
U.S. government agencies | 9,676 | (30 | ) | 19,689 | (498 | ) | 29,365 | (528 | ) | |||||||||||||||
U.S. agency mortgage-backed securities | 7,412 | (18 | ) | 5,412 | (116 | ) | 12,824 | (134 | ) | |||||||||||||||
U.S. agency collateralized mortgage obligations | 25,314 | (403 | ) | 11,222 | (276 | ) | 36,536 | (679 | ) | |||||||||||||||
Corporate bonds | 33,413 | (227 | ) | 9,855 | (84 | ) | 43,268 | (311 | ) | |||||||||||||||
Obligations of states & political subdivisions | 2,710 | (29 | ) | 16,720 | (229 | ) | 19,430 | (258 | ) | |||||||||||||||
Total temporarily impaired securities | 78,525 | (707 | ) | 62,898 | (1,203 | ) | 141,423 | (1,910 | ) |
In the debt security portfolio there were 122 positions that were carrying unrealized losses as of June 30, 2015. In the equity security portfolio there were three positions that were carrying unrealized losses as of June 30, 2015. There were no instruments considered to be other-than-temporarily impaired at June 30, 2015.
The Corporation evaluates both equity and fixed maturity positions for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic and market concerns warrant such evaluation. U.S. generally accepted accounting principles provide for the bifurcation of OTTI into two categories: (a) the amount of the total OTTI related to a decrease in cash flows expected to be collected from the debt security (the credit loss), which is recognized in earnings, and (b) the amount of total OTTI related to all other factors, which is recognized, net of taxes, as a component of accumulated other comprehensive income. This accounting treatment was only applicable to two of the Corporation’s PCMOs in the first quarter of 2014, but both of those securities were sold in the second quarter of 2014, resulting in no further impairment charges.
The prior impairment on the PCMOs was a result of a deterioration of expected cash flows on those securities due to higher projected credit losses than the amount of credit protection carried by those securities. Specifically, the foreclosure and severity rates had been running at levels where expected principal losses were in excess of the remaining credit protection on those instruments. The projected principal losses were based on prepayment speeds that were equal to or slower than the actual last twelve-month prepayment speeds the particular securities had experienced. Every quarter prior to the second quarter of 2014, management evaluated third-party reporting that showed projected principal losses based on various prepayment speed and severity rate scenarios. Based on the assumption that all loans over 60 days delinquent would default and at a severity rate equal to or above that previously experienced, and based on historical and expected prepayment speeds, management determined that it was appropriate to take an additional $22,000 of impairment on one PCMO in the first quarter of 2014. Because all of the remaining PCMOs were sold in the second quarter of 2014, no further impairment was recorded on these bonds in 2014 and future impairment analysis will cease for this segment since it was completely sold off.
9
The following tables reflect the amortized cost, market value, and unrealized loss as of June 30, 2014, on the PCMO securities held which had impairment taken in the year. There were no impairment charges in 2015 since all of the PCMO securities were sold during 2014. In 2014, there was one PCMO that had impairment taken during the first quarter prior to the sale of the remaining PCMO portfolio. The values shown below are after the Corporation recorded year-to-date impairment charges of $22,000 through June 30, 2014. The $22,000 was deemed to be a credit loss and was the amount that management expected the principal losses would be by the time the securities matured. Because all of the remaining PCMO securities were sold during the second quarter of 2014, there are no temporary market value losses remaining at June 30, 2015.
SECURITY IMPAIRMENT CHARGES
(DOLLARS IN THOUSANDS)
As of June 30, 2014 | ||||||||||||||||
Book | Market | Unrealized | Impairment | |||||||||||||
Value | Value | Loss | Charge | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Impaired private collateralized mortgage obligations | — | — | — | (22 | ) |
The following table provides a cumulative roll forward of credit losses recognized in earnings for debt securities held:
CREDIT LOSSES RECOGNIZED IN EARNINGS ON DEBT SECURITIES
(DOLLARS IN THOUSANDS)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Beginning balance | — | 1,170 | — | 1,148 | ||||||||||||
Credit losses on debt securities for which other-than- | ||||||||||||||||
temporary impairment has not been previously recognized | — | — | — | — | ||||||||||||
Additional credit losses on debt securities for which other- | ||||||||||||||||
than-temporary impairment was previously recognized | — | — | — | 22 | ||||||||||||
Sale of debt securities with previously recognized impairment | — | (1,170 | ) | — | (1,170 | ) | ||||||||||
Ending balance | — | — | — | — |
With the sale of the remaining PCMO portfolio during the second quarter of 2014, there are no remaining impairment balances as of June 30, 2015.
10
3. | Loans and Allowance for Loan Losses |
The following table presents the Corporation’s loan portfolio by category of loans as of June 30, 2015, and December 31, 2014:
LOAN PORTFOLIO
(DOLLARS IN THOUSANDS)
June 30, | December 31, | |||||||
2015 | 2014 | |||||||
$ | $ | |||||||
Commercial real estate | ||||||||
Commercial mortgages | 95,009 | 95,914 | ||||||
Agriculture mortgages | 150,380 | 140,322 | ||||||
Construction | 7,823 | 7,387 | ||||||
Total commercial real estate | 253,212 | 243,623 | ||||||
Consumer real estate (a) | ||||||||
1-4 family residential mortgages | 122,642 | 123,395 | ||||||
Home equity loans | 12,007 | 12,563 | ||||||
Home equity lines of credit | 30,482 | 27,308 | ||||||
Total consumer real estate | 165,131 | 163,266 | ||||||
Commercial and industrial | ||||||||
Commercial and industrial | 33,046 | 31,998 | ||||||
Tax-free loans | 12,843 | 11,806 | ||||||
Agriculture loans | 16,455 | 16,496 | ||||||
Total commercial and industrial | 62,344 | 60,300 | ||||||
Consumer | 3,606 | 3,517 | ||||||
Gross loans prior to deferred fees | 484,293 | 470,706 | ||||||
Less: | ||||||||
Deferred loan costs, net | (510 | ) | (462 | ) | ||||
Allowance for loan losses | 7,249 | 7,141 | ||||||
Total net loans | 477,554 | 464,027 |
(a) | Real estate loans serviced for others, which are not included in the Consolidated Balance Sheets, totaled $26,631,000 and $16,670,000 as of June 30, 2015, and December 31, 2014, respectively. |
The Corporation grades commercial credits differently than consumer credits. The following tables represent all of the Corporation’s commercial credit exposures by internally assigned grades as of June 30, 2015 and December 31, 2014. The grading analysis estimates the capability of the borrower to repay the contractual obligations under the loan agreements as scheduled. The Corporation's internal commercial credit risk grading system is based on experiences with similarly graded loans.
The Corporation's internally assigned grades for commercial credits are as follows:
· | Pass – loans which are protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral. |
· | Special Mention – loans where a potential weakness or risk exists, which could cause a more serious problem if not corrected. |
· | Substandard – loans that have a well-defined weakness based on objective evidence and characterized by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected. |
11
· | Doubtful – loans classified as doubtful have all the weaknesses inherent in a substandard asset. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances. |
· | Loss – loans classified as a loss are considered uncollectible, or of such value that continuance as an asset is not warranted. |
COMMERCIAL CREDIT EXPOSURE
CREDIT RISK PROFILE BY INTERNALLY ASSIGNED GRADE
(DOLLARS IN THOUSANDS)
June 30, 2015 | Commercial Mortgages | Agriculture Mortgages | Construction | Commercial and Industrial | Tax-free Loans | Agriculture Loans | Total | |||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
Grade: | ||||||||||||||||||||||||||||
Pass | 88,461 | 147,490 | 6,535 | 32,117 | 10,396 | 16,271 | 301,270 | |||||||||||||||||||||
Special Mention | 908 | 858 | — | 56 | 2,447 | 27 | 4,296 | |||||||||||||||||||||
Substandard | 5,640 | 2,032 | 1,288 | 873 | — | 157 | 9,990 | |||||||||||||||||||||
Doubtful | — | — | — | — | — | — | — | |||||||||||||||||||||
Loss | — | — | — | — | — | — | — | |||||||||||||||||||||
Total | 95,009 | 150,380 | 7,823 | 33,046 | 12,843 | 16,455 | 315,556 | |||||||||||||||||||||
December 31, 2014 | Commercial Mortgages | Agriculture Mortgages | Construction | Commercial and Industrial | Tax-free Loans | Agriculture Loans | Total | |||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
Grade: | ||||||||||||||||||||||||||||
Pass | 82,478 | 135,298 | 5,350 | 31,006 | 11,806 | 16,255 | 282,193 | |||||||||||||||||||||
Special Mention | 2,649 | 3,237 | — | 29 | — | 29 | 5,944 | |||||||||||||||||||||
Substandard | 10,787 | 1,787 | 2,037 | 963 | — | 212 | 15,786 | |||||||||||||||||||||
Doubtful | — | — | — | — | — | — | — | |||||||||||||||||||||
Loss | — | — | — | — | — | — | — | |||||||||||||||||||||
Total | 95,914 | 140,322 | 7,387 | 31,998 | 11,806 | 16,496 | 303,923 |
12
For consumer loans, the Corporation evaluates credit quality based on whether the loan is considered performing or non-performing. Non-performing loans consist of those loans greater than 90 days delinquent and nonaccrual loans. The following tables present the balances of consumer loans by classes of the loan portfolio based on payment performance as of June 30, 2015 and December 31, 2014:
CONSUMER CREDIT EXPOSURE
CREDIT RISK PROFILE BY PAYMENT PERFORMANCE
(DOLLARS IN THOUSANDS)
June 30, 2015 | 1-4 Family Residential Mortgages | Home Equity Loans | Home Equity Lines of Credit | Consumer | Total | |||||||||||||||
Payment performance: | $ | $ | $ | $ | $ | |||||||||||||||
Performing | 122,255 | 12,007 | 30,482 | 3,603 | 168,347 | |||||||||||||||
Non-performing | 387 | — | — | 3 | 390 | |||||||||||||||
Total | 122,642 | 12,007 | 30,482 | 3,606 | 168,737 | |||||||||||||||
December 31, 2014 | 1-4 Family Residential Mortgages | Home Equity Loans | Home Equity Lines of Credit | Consumer | Total | |||||||||||||||
Payment performance: | $ | $ | $ | $ | $ | |||||||||||||||
Performing | 123,023 | 12,551 | 27,308 | 3,517 | 166,399 | |||||||||||||||
Non-performing | 372 | 12 | — | — | 384 | |||||||||||||||
Total | 123,395 | 12,563 | 27,308 | 3,517 | 166,783 |
13
The following tables present an age analysis of the Corporation’s past due loans, segregated by loan portfolio class, as of June 30, 2015 and December 31, 2014:
AGING OF LOANS RECEIVABLE
(DOLLARS IN THOUSANDS)
Loans | ||||||||||||||||||||||||||||
Greater | Receivable > | |||||||||||||||||||||||||||
30-59 Days | 60-89 Days | than 90 | Total Past | Total Loans | 90 Days and | |||||||||||||||||||||||
June 30, 2015 | Past Due | Past Due | Days | Due | Current | Receivable | Accruing | |||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
Commercial real estate | ||||||||||||||||||||||||||||
Commercial mortgages | 130 | 181 | — | 311 | 94,698 | 95,009 | — | |||||||||||||||||||||
Agriculture mortgages | — | — | — | — | 150,380 | 150,380 | — | |||||||||||||||||||||
Construction | — | — | — | — | 7,823 | 7,823 | — | |||||||||||||||||||||
Consumer real estate | ||||||||||||||||||||||||||||
1-4 family residential mortgages | 817 | 33 | 387 | 1,237 | 121,405 | 122,642 | 387 | |||||||||||||||||||||
Home equity loans | 46 | — | — | 46 | 11,961 | 12,007 | — | |||||||||||||||||||||
Home equity lines of credit | — | — | — | — | 30,482 | 30,482 | — | |||||||||||||||||||||
Commercial and industrial | ||||||||||||||||||||||||||||
Commercial and industrial | 18 | — | 56 | 74 | 32,972 | 33,046 | — | |||||||||||||||||||||
Tax-free loans | — | — | — | — | 12,843 | 12,843 | — | |||||||||||||||||||||
Agriculture loans | — | — | — | — | 16,455 | 16,455 | — | |||||||||||||||||||||
Consumer | 12 | 17 | 3 | 32 | 3,574 | 3,606 | 3 | |||||||||||||||||||||
Total | 1,023 | 231 | 446 | 1,700 | 482,593 | 484,293 | 390 |
Loans | ||||||||||||||||||||||||||||
Greater | Receivable > | |||||||||||||||||||||||||||
30-59 Days | 60-89 Days | than 90 | Total Past | Total Loans | 90 Days and | |||||||||||||||||||||||
December 31, 2014 | Past Due | Past Due | Days | Due | Current | Receivable | Accruing | |||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
Commercial real estate | ||||||||||||||||||||||||||||
Commercial mortgages | — | 189 | 266 | 455 | 95,459 | 95,914 | — | |||||||||||||||||||||
Agriculture mortgages | — | — | — | — | 140,322 | 140,322 | — | |||||||||||||||||||||
Construction | — | — | — | — | 7,387 | 7,387 | — | |||||||||||||||||||||
Consumer real estate | ||||||||||||||||||||||||||||
1-4 family residential mortgages | 665 | 349 | 372 | 1,386 | 122,009 | 123,395 | 372 | |||||||||||||||||||||
Home equity loans | 78 | 14 | 12 | 104 | 12,459 | 12,563 | 12 | |||||||||||||||||||||
Home equity lines of credit | 13 | — | — | 13 | 27,295 | 27,308 | — | |||||||||||||||||||||
Commercial and industrial | ||||||||||||||||||||||||||||
Commercial and industrial | 21 | 73 | — | 94 | 31,904 | 31,998 | — | |||||||||||||||||||||
Tax-free loans | — | — | — | — | 11,806 | 11,806 | — | |||||||||||||||||||||
Agriculture loans | — | — | — | — | 16,496 | 16,496 | — | |||||||||||||||||||||
Consumer | 23 | 1 | — | 24 | 3,493 | 3,517 | — | |||||||||||||||||||||
Total | 800 | 626 | 650 | 2,076 | 468,630 | 470,706 | 384 |
14
The following table presents nonaccrual loans by classes of the loan portfolio as of June 30, 2015 and December 31, 2014:
NONACCRUAL LOANS BY LOAN CLASS
(DOLLARS IN THOUSANDS)
June 30, | December 31, | |||||||
2015 | 2014 | |||||||
$ | $ | |||||||
Commercial real estate | ||||||||
Commercial mortgages | 465 | 894 | ||||||
Agriculture mortgages | — | — | ||||||
Construction | — | — | ||||||
Consumer real estate | ||||||||
1-4 family residential mortgages | — | — | ||||||
Home equity loans | — | — | ||||||
Home equity lines of credit | — | — | ||||||
Commercial and industrial | ||||||||
Commercial and industrial | 56 | 73 | ||||||
Tax-free loans | — | — | ||||||
Agriculture loans | — | — | ||||||
Consumer | — | — | ||||||
Total | 521 | 967 |
As of June 30, 2015 and December 31, 2014, all of the Corporation’s commercial loans on nonaccrual status were also considered impaired. Information with respect to impaired loans for the three and six months ended June 30, 2015 and June 30, 2014, is as follows:
IMPAIRED LOANS
(DOLLARS IN THOUSANDS)
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Average recorded balance of impaired loans | 1,920 | 2,580 | 2,043 | 2,617 | ||||||||||||
Interest income recognized on impaired loans | 21 | 27 | 45 | 55 |
Interest income on impaired loans would have increased by approximately $6,000 and $13,000 for the three and six months ended June 30, 2015, compared to $10,000 and $22,000 for the three and six months ended June 30, 2014, had these loans performed in accordance with their original terms.
During the six months ended June 30, 2015 and 2014, there were no loan modifications made that would cause a loan to be considered a troubled debt restructuring (TDR). A TDR is a loan where management has granted a concession to the borrower from the original terms. A concession is generally defined as more favorable payment or credit terms granted to a borrower in an effort to improve the likelihood of the lender collecting principal in its entirety. Concessions usually are in the form of interest only for a period of time, or a lower interest rate offered in an effort to enable the borrower to continue to make normally scheduled payments.
15
The following tables summarize information in regards to impaired loans by loan portfolio class as of June 30, 2015, December 31, 2014, and June 30, 2014:
IMPAIRED LOAN ANALYSIS
(DOLLARS IN THOUSANDS)
June 30, 2015 | Recorded Investment | Unpaid Principal Balance | Related Allowance | Average Recorded Investment | Interest Income Recognized | |||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||
With no related allowance recorded: | ||||||||||||||||||||
Commercial real estate | ||||||||||||||||||||
Commercial mortgages | 465 | 1,038 | — | 607 | — | |||||||||||||||
Agriculture mortgages | 1,360 | 1,360 | — | 1,375 | 43 | |||||||||||||||
Construction | — | — | — | — | — | |||||||||||||||
Total commercial real estate | 1,825 | 2,398 | — | 1,982 | 43 | |||||||||||||||
Commercial and industrial | ||||||||||||||||||||
Commercial and industrial | 56 | 62 | — | 61 | 2 | |||||||||||||||
Tax-free loans | — | — | — | — | — | |||||||||||||||
Agriculture loans | — | — | — | — | — | |||||||||||||||
Total commercial and industrial | 56 | 62 | — | 61 | 2 | |||||||||||||||
Total with no related allowance | 1,881 | 2,460 | — | 2,043 | 45 | |||||||||||||||
With an allowance recorded: | ||||||||||||||||||||
Commercial real estate | ||||||||||||||||||||
Commercial mortgages | — | — | — | — | — | |||||||||||||||
Agriculture mortgages | — | — | — | — | — | |||||||||||||||
Construction | — | — | — | — | — | |||||||||||||||
Total commercial real estate | — | — | — | — | — | |||||||||||||||
Commercial and industrial | ||||||||||||||||||||
Commercial and industrial | — | — | — | — | — | |||||||||||||||
Tax-free loans | — | — | — | — | — | |||||||||||||||
Agriculture loans | — | — | — | — | — | |||||||||||||||
Total commercial and industrial | — | — | — | — | — | |||||||||||||||
Total with a related allowance | — | — | — | — | — | |||||||||||||||
Total by loan class: | ||||||||||||||||||||
Commercial real estate | ||||||||||||||||||||
Commercial mortgages | 465 | 1,038 | — | 607 | — | |||||||||||||||
Agriculture mortgages | 1,360 | 1,360 | — | 1,375 | 43 | |||||||||||||||
Construction | — | — | — | — | — | |||||||||||||||
Total commercial real estate | 1,825 | 2,398 | — | 1,982 | 43 | |||||||||||||||
Commercial and industrial | ||||||||||||||||||||
Commercial and industrial | 56 | 62 | — | 61 | 2 | |||||||||||||||
Tax-free loans | — | — | — | — | — | |||||||||||||||
Agriculture loans | — | — | — | — | — | |||||||||||||||
Total commercial and industrial | 56 | 62 | — | 61 | 2 | |||||||||||||||
Total | 1,881 | 2,460 | — | 2,043 | 45 |
16
IMPAIRED LOAN ANALYSIS
(DOLLARS IN THOUSANDS)
December 31, 2014 | Recorded Investment | Unpaid Principal Balance | Related Allowance | Average Recorded Investment | Interest Income Recognized | |||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||
With no related allowance recorded: | ||||||||||||||||||||
Commercial real estate | ||||||||||||||||||||
Commercial mortgages | 745 | 931 | — | 931 | — | |||||||||||||||
Agriculture mortgages | 1,391 | 1,391 | — | 1,539 | 104 | |||||||||||||||
Construction | — | — | — | — | — | |||||||||||||||
Total commercial real estate | 2,136 | 2,322 | — | 2,470 | 104 | |||||||||||||||
Commercial and industrial | ||||||||||||||||||||
Commercial and industrial | 73 | 73 | — | 86 | 6 | |||||||||||||||
Tax-free loans | — | — | — | — | — | |||||||||||||||
Agriculture loans | — | — | — | — | — | |||||||||||||||
Total commercial and industrial | 73 | 73 | — | 86 | 6 | |||||||||||||||
Total with no related allowance | 2,209 | 2,395 | — | 2,556 | 110 | |||||||||||||||
With an allowance recorded: | ||||||||||||||||||||
Commercial real estate | ||||||||||||||||||||
Commercial mortgages | 149 | 264 | 1 | 68 | — | |||||||||||||||
Agriculture mortgages | — | — | — | — | — | |||||||||||||||
Construction | — | — | — | — | — | |||||||||||||||
Total commercial real estate | 149 | 264 | 1 | 68 | — | |||||||||||||||
Commercial and industrial | ||||||||||||||||||||
Commercial and industrial | — | — | — | — | — | |||||||||||||||
Tax-free loans | — | — | — | — | — | |||||||||||||||
Agriculture loans | — | — | — | — | — | |||||||||||||||
Total commercial and industrial | — | — | — | — | — | |||||||||||||||
Total with a related allowance | 149 | 264 | 1 | 68 | — | |||||||||||||||
Total by loan class: | ||||||||||||||||||||
Commercial real estate | ||||||||||||||||||||
Commercial mortgages | 894 | 1,195 | 1 | 999 | — | |||||||||||||||
Agriculture mortgages | 1,391 | 1,391 | — | 1,539 | 104 | |||||||||||||||
Construction | — | — | — | — | — | |||||||||||||||
Total commercial real estate | 2,285 | 2,586 | 1 | 2,538 | 104 | |||||||||||||||
Commercial and industrial | ||||||||||||||||||||
Commercial and industrial | 73 | 73 | — | 86 | 6 | |||||||||||||||
Tax-free loans | — | — | — | — | — | |||||||||||||||
Agriculture loans | — | — | — | — | — | |||||||||||||||
Total commercial and industrial | 73 | 73 | — | 86 | 6 | |||||||||||||||
Total | 2,358 | 2,659 | 1 | 2,624 | 110 |
17
IMPAIRED LOAN ANALYSIS
(DOLLARS IN THOUSANDS)
June 30, 2014 | Recorded Investment | Unpaid Principal Balance | Related Allowance | Average Recorded Investment | Interest Income Recognized | |||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||
With no related allowance recorded: | ||||||||||||||||||||
Commercial real estate | ||||||||||||||||||||
Commercial mortgages | 888 | 985 | — | 940 | — | |||||||||||||||
Agriculture mortgages | 1,569 | 1,569 | — | 1,580 | 55 | |||||||||||||||
Construction | — | — | — | — | — | |||||||||||||||
Total commercial real estate | 2,457 | 2,554 | — | 2,520 | 55 | |||||||||||||||
Commercial and industrial | ||||||||||||||||||||
Commercial and industrial | 81 | 81 | — | 97 | — | |||||||||||||||
Tax-free loans | — | — | — | — | — | |||||||||||||||
Agriculture loans | — | — | — | — | — | |||||||||||||||
Total commercial and industrial | 81 | 81 | — | 97 | — | |||||||||||||||
Total with no related allowance | 2,538 | 2,635 | — | 2,617 | 55 | |||||||||||||||
With an allowance recorded: | ||||||||||||||||||||
Commercial real estate | ||||||||||||||||||||
Commercial mortgages | — | — | — | — | — | |||||||||||||||
Agriculture mortgages | — | — | — | — | — | |||||||||||||||
Construction | — | — | — | — | — | |||||||||||||||
Total commercial real estate | — | — | — | — | — | |||||||||||||||
Commercial and industrial | ||||||||||||||||||||
Commercial and industrial | — | — | — | — | — | |||||||||||||||
Tax-free loans | — | — | — | — | — | |||||||||||||||
Agriculture loans | — | — | — | — | — | |||||||||||||||
Total commercial and industrial | — | — | — | — | — | |||||||||||||||
Total with a related allowance | — | — | — | — | — | |||||||||||||||
Total by loan class: | ||||||||||||||||||||
Commercial real estate | ||||||||||||||||||||
Commercial mortgages | 888 | 985 | — | 940 | — | |||||||||||||||
Agriculture mortgages | 1,569 | 1,569 | — | 1,580 | 55 | |||||||||||||||
Construction | — | — | — | — | — | |||||||||||||||
Total commercial real estate | 2,457 | 2,554 | — | 2,520 | 55 | |||||||||||||||
Commercial and industrial | ||||||||||||||||||||
Commercial and industrial | 81 | 81 | — | 97 | — | |||||||||||||||
Tax-free loans | — | — | — | — | — | |||||||||||||||
Agriculture loans | — | — | — | — | — | |||||||||||||||
Total commercial and industrial | 81 | 81 | — | 97 | — | |||||||||||||||
Total | 2,538 | 2,635 | — | 2,617 | 55 |
18
The following table details activity in the allowance for loan losses by portfolio segment for the six months ended June 30, 2015:
ALLOWANCE FOR CREDIT LOSSES
(DOLLARS IN THOUSANDS)
Commercial Real Estate | Consumer Real Estate | Commercial and Industrial | Consumer | Unallocated | Total | |||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||
Allowance for credit losses: | ||||||||||||||||||||||||
Beginning balance - December 31, 2014 | 3,834 | 1,367 | 1,301 | 66 | 573 | 7,141 | ||||||||||||||||||
Charge-offs | (272 | ) | — | — | (1 | ) | — | (273 | ) | |||||||||||||||
Recoveries | 2 | — | 70 | — | — | 72 | ||||||||||||||||||
Provision | 623 | (283 | ) | (147 | ) | (11 | ) | 18 | 200 | |||||||||||||||
Balance - March 31, 2015 | 4,187 | 1,084 | 1,224 | 54 | 591 | 7,140 | ||||||||||||||||||
Charge-offs | — | — | (2 | ) | (3 | ) | — | (5 | ) | |||||||||||||||
Recoveries | 1 | — | 11 | 2 | — | 14 | ||||||||||||||||||
Provision | (29 | ) | (20 | ) | 157 | 22 | (30 | ) | 100 | |||||||||||||||
Ending Balance - June 30, 2015 | 4,159 | 1,064 | 1,390 | 75 | 561 | 7,249 |
During the six months ended June 30, 2015, provision expense was recorded for the commercial real estate segment with minimal provisions or credit provisions recorded in all other loan categories. There were $272,000 of commercial real estate loan charge-offs during the first quarter of 2015, which increased the historical loss rates and ultimately resulted in a higher required reserve amount for the commercial real estate category. Qualitative factors have been shifting, with more factors declining than increasing. The consumer real estate area had declines in five of nine qualitative factors resulting in a lower required provision. To a lesser degree, the historic loss experience on commercial and industrial loans has been very favorable with more recoveries than charge-offs and two qualitative factors were reduced, resulting in a lower required provision. The consumer loan area saw three qualitative factors reduced with one increased, resulting in a lower required provision on a much smaller loan amount. The higher commercial real estate loan charge-offs and loan growth during the first quarter of 2015 overshadowed the reduction in provisions in the other areas, resulting in a higher total provision required through June 30, 2015.
19
The following table details activity in the allowance for loan losses by portfolio segment for the six months ended June 30, 2014:
ALLOWANCE FOR CREDIT LOSSES
(DOLLARS IN THOUSANDS)
Commercial Real Estate | Consumer Real Estate | Commercial and Industrial | Consumer | Unallocated | Total | |||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||
Allowance for credit losses: | ||||||||||||||||||||||||
Beginning balance - December 31, 2013 | 3,657 | 1,346 | 1,416 | 102 | 698 | 7,219 | ||||||||||||||||||
Charge-offs | — | — | — | (15 | ) | — | (15 | ) | ||||||||||||||||
Recoveries | 4 | 5 | 43 | — | — | 52 | ||||||||||||||||||
Provision | (150 | ) | 51 | (117 | ) | 17 | (1 | ) | (200 | )(1) | ||||||||||||||
Balance - March 31, 2014 | 3,511 | 1,402 | 1,342 | 104 | 697 | 7,056 | ||||||||||||||||||
Charge-offs | — | — | — | — | — | — | ||||||||||||||||||
Recoveries | 3 | — | 9 | — | — | 12 | ||||||||||||||||||
Provision | (106 | ) | 44 | 12 | (24 | ) | (26 | ) | (100 | )(1) | ||||||||||||||
Ending Balance - June 30, 2014 | 3,408 | 1,446 | 1,363 | 80 | 671 | 6,968 |
(1) | The Corporation recognized a $200,000 credit provision in the first quarter of 2014 and a $100,000 credit provision in the second quarter of 2014 as a result of lower levels of substandard loans, and continued low levels of total classified loans, impaired loans, non-accrual loans, recoveries in excess of charge-offs, continuing declines in historic loss ratio, and improving qualitative factors. |
During the six months ended June 30, 2014, credit provisions were recorded for the commercial real estate, commercial and industrial, and consumer loan categories while there was provision expense required for the consumer real estate loan category. There had been no commercial loan charge-offs during the past year, which reduced the historical loss rates and ultimately resulted in a lower required reserve amount for the commercial loan categories. Qualitative factors have been shifting, with some increasing and some decreasing, but overall, qualitative factors across the board have been declining. Conversely, factors in the allowance calculation related to consumer real estate were increased in the first half of 2014 as a result of the mortgage initiative and focus on increasing volume in this area.
20
The following tables present the balance in the allowance for credit losses and the recorded investment in loans receivable by portfolio segment based on impairment method as of June 30, 2015 and December 31, 2014:
ALLOWANCE FOR CREDIT LOSSES AND RECORDED INVESTMENT IN LOANS RECEIVABLE
(DOLLARS IN THOUSANDS)
As of June 30, 2015: | Commercial Real Estate | Consumer Real Estate | Commercial and Industrial | Consumer | Unallocated | Total | ||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||
Allowance for credit losses: | ||||||||||||||||||||||||
Ending balance: individually evaluated | ||||||||||||||||||||||||
for impairment | — | — | — | — | — | — | ||||||||||||||||||
Ending balance: collectively evaluated | ||||||||||||||||||||||||
for impairment | 4,159 | 1,064 | 1,390 | 75 | 561 | 7,249 | ||||||||||||||||||
Loans receivable: | ||||||||||||||||||||||||
Ending balance | 253,212 | 165,131 | 62,344 | 3,606 | 484,293 | |||||||||||||||||||
Ending balance: individually evaluated | ||||||||||||||||||||||||
for impairment | 1,825 | — | 56 | — | 1,881 | |||||||||||||||||||
Ending balance: collectively evaluated | ||||||||||||||||||||||||
for impairment | 251,387 | 165,131 | 62,288 | 3,606 | 482,412 |
As of December 31, 2014: | Commercial Real Estate | Consumer Real Estate | Commercial and Industrial | Consumer | Unallocated | Total | ||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||
Allowance for credit losses: | ||||||||||||||||||||||||
Ending balance: individually evaluated | ||||||||||||||||||||||||
for impairment | 1 | — | — | — | — | 1 | ||||||||||||||||||
Ending balance: collectively evaluated | ||||||||||||||||||||||||
for impairment | 3,833 | 1,367 | 1,301 | 66 | 573 | 7,140 | ||||||||||||||||||
Loans receivable: | ||||||||||||||||||||||||
Ending balance | 243,623 | 163,266 | 60,300 | 3,517 | 470,706 | |||||||||||||||||||
Ending balance: individually evaluated | ||||||||||||||||||||||||
for impairment | 2,285 | — | 73 | — | 2,358 | |||||||||||||||||||
Ending balance: collectively evaluated | ||||||||||||||||||||||||
for impairment | 241,338 | 163,266 | 60,227 | 3,517 | 468,348 |
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4. Fair Value Presentation
U.S. generally accepted accounting principles establish a hierarchal disclosure framework associated with the level of observable pricing utilized in measuring assets and liabilities at fair value. The three broad levels defined by the hierarchy are as follows:
Level I: | Quoted prices are available in active markets for identical assets or liabilities as of the reported date. |
Level II: | Pricing inputs are other than the quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently and items that are fair-valued using other financial instruments, the parameters of which can be directly observed. |
Level III: | Assets and liabilities that have little to no observable pricing as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation. |
The following tables present the assets reported on the consolidated balance sheets at their fair value as of June 30, 2015, and December 31, 2014, by level within the fair value hierarchy. As required by U.S. generally accepted accounting principles, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
Fair Value Measurements:
ASSETS MEASURED ON A RECURRING BASIS
(DOLLARS IN THOUSANDS)
June 30, 2015 | ||||||||||||||||
Level I | Level II | Level III | Total | |||||||||||||
$ | $ | $ | $ | |||||||||||||
U.S. government agencies | — | 34,267 | — | 34,267 | ||||||||||||
U.S. agency mortgage-backed securities | — | 39,059 | — | 39,059 | ||||||||||||
U.S. agency collateralized mortgage obligations | — | 60,400 | — | 60,400 | ||||||||||||
Corporate bonds | — | 60,309 | — | 60,309 | ||||||||||||
Obligations of states & political subdivisions | — | 96,477 | — | 96,477 | ||||||||||||
Marketable equity securities | 5,547 | — | — | 5,547 | ||||||||||||
Total securities | 5,547 | 290,512 | — | 296,059 |
On June 30, 2015, the Corporation held no securities valued using level III inputs. All of the Corporation’s debt instruments were valued using level II inputs, where quoted prices are available and observable, but not necessarily quotes on identical securities traded in active markets on a daily basis. The Corporation’s CRA fund investments and bank stocks are fair valued utilizing level I inputs because the funds have their own quoted prices in an active market. As of June 30, 2015, the CRA fund investments had a $5,000,000 book and fair market value and the bank stock portfolio had a book value of $517,000, and fair market value of $547,000.
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Fair Value Measurements:
ASSETS MEASURED ON A RECURRING BASIS
(DOLLARS IN THOUSANDS)
December 31, 2014 | ||||||||||||||||
Level I | Level II | Level III | Total | |||||||||||||
$ | $ | $ | $ | |||||||||||||
U.S. government agencies | — | 46,159 | — | 46,159 | ||||||||||||
U.S. agency mortgage-backed securities | — | 37,950 | — | 37,950 | ||||||||||||
U.S. agency collateralized mortgage obligations | — | 48,066 | — | 48,066 | ||||||||||||
Corporate bonds | — | 65,108 | — | 65,108 | ||||||||||||
Obligations of states & political subdivisions | — | 93,331 | — | 93,331 | ||||||||||||
Marketable equity securities | 5,208 | — | — | 5,208 | ||||||||||||
Total securities | 5,208 | 290,614 | — | 295,822 |
On December 31, 2014, the Corporation held no securities valued using level III inputs. All of the Corporation’s debt instruments were valued using level II inputs, where quoted prices are available and observable but not necessarily quotes on identical securities traded in active markets on a daily basis. As of December 31, 2014, the Corporation’s CRA fund investments had a book and fair market value of $5,000,000 and the bank stock portfolio had a book value of $189,000 and a market value of $208,000 utilizing level I pricing.
Financial instruments are considered level III when their values are determined using pricing models, discounted cash flow methodologies, or similar techniques, and at least one significant model assumption or input is unobservable. In addition to these unobservable inputs, the valuation models for level III financial instruments typically also rely on a number of inputs that are readily observable either directly or indirectly. Level III financial instruments also include those for which the determination of fair value requires significant management judgment or estimation. There were no level III securities as of June 30, 2015 or December 31, 2014.
The following tables present the assets measured on a nonrecurring basis on the Consolidated Balance Sheets at their fair value as of June 30, 2015 and December 31, 2014, by level within the fair value hierarchy:
ASSETS MEASURED ON A NONRECURRING BASIS
(Dollars in Thousands)
June 30, 2015 | ||||||||||||||||
Level I $ | Level II $ | Level III $ | Total $ | |||||||||||||
Assets: | ||||||||||||||||
Impaired Loans | — | — | 1,881 | 1,881 | ||||||||||||
OREO | — | — | 64 | 64 | ||||||||||||
Total | — | — | 1,945 | 1,945 |
December 31, 2014 | ||||||||||||||||
Level I $ | Level II $ | Level III $ | Total $ | |||||||||||||
Assets: | ||||||||||||||||
Impaired Loans | — | — | 2,357 | 2,357 | ||||||||||||
OREO | — | — | 69 | 69 | ||||||||||||
Total | — | — | 2,426 | 2,426 |
The Corporation had a total of $1,881,000 of impaired loans as of June 30, 2015, with no specific allocation against these loans and $2,358,000 of impaired loans as of December 31, 2014, with $1,000 of specifically allocated allowance against these loans. The value of impaired loans is generally determined through independent appraisals of the underlying collateral.
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Other real estate owned (OREO) is measured at fair value, less estimated costs to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management. The Corporation’s OREO balance consisted of one residential property that was classified as OREO as of June 30, 2015, and a different residential property that was classified as OREO as of December 31, 2014, and sold prior to June 30, 2015. Management has estimated the current value of the OREO property held at June 30, 2015, at $64,000 utilizing level III pricing. Income and expenses from operations and changes in valuation allowance are included in the net expenses from OREO.
The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis for which the Corporation has utilized level III inputs to determine fair value:
QUANTITATIVE INFORMATION ABOUT LEVEL III FAIR VALUE MEASUREMENTS
(DOLLARS IN THOUSANDS)
June 30, 2015 | ||||||||||
Fair Value | Valuation | Unobservable | Range | |||||||
Estimate | Techniques | Input | (Weighted Avg) | |||||||
Impaired loans | 1,881 | Appraisal of | Appraisal | -20% (-20%) | ||||||
collateral (1) | adjustments (2) | |||||||||
Liquidation | -10% (-10%) | |||||||||
expenses (2) | ||||||||||
OREO | 64 | Appraisal of | Appraisal | |||||||
collateral (1),(3) | adjustments (2) | -40% (-40%) | ||||||||
Liquidation | ||||||||||
expenses (2) | -1% (-1%) |
December 31, 2014 | ||||||||||
Fair Value | Valuation | Unobservable | Range | |||||||
Estimate | Techniques | Input | (Weighted Avg) | |||||||
Impaired loans | 2,357 | Appraisal of | Appraisal | -20% (-20%) | ||||||
collateral (1) | adjustments (2) | |||||||||
Liquidation | -10% (-10%) | |||||||||
expenses (2) | ||||||||||
OREO | 69 | Appraisal of | Appraisal | |||||||
collateral (1),(3) | adjustments (2) | -40% (-40%) | ||||||||
Liquidation | ||||||||||
expenses (2) | -1% (-1%) |
(1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level III inputs which are not identifiable.
(2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.
(3) Includes qualitative adjustments by management and estimated liquidation expenses.
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Interim Disclosures about Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
Cash and Cash Equivalents
For these short-term instruments, the carrying amount is a reasonable estimate of fair value.
Securities Available for Sale
Management utilizes quoted market pricing for the fair value of the Corporation's securities that are available for sale, if available. If a quoted market rate is not available, fair value is estimated using quoted market prices for similar securities.
Regulatory Stock
Regulatory stock is valued at a stable dollar price, which is the price used to purchase or liquidate shares; therefore, the carrying amount is a reasonable estimate of fair value.
Loans Held for Sale
Loans held for sale are individual loans for which the Corporation has a firm sales commitment; therefore, the carrying value is a reasonable estimate of the fair value.
Loans
The fair value of fixed and variable rate loans is estimated by discounting back the scheduled future cash flows of the particular loan product, using the market interest rates of comparable loan products in the Corporation’s greater market area, with the same general structure, comparable credit ratings, and for the same remaining maturities.
Accrued Interest Receivable
The carrying amount of accrued interest receivable is a reasonable estimate of fair value.
Bank Owned Life Insurance
Fair value is equal to the cash surrender value of the life insurance policies.
Deposits
The fair value of non-interest bearing demand deposit accounts and interest bearing demand, savings, and money market deposit accounts is based on the amount payable on demand at the reporting date. The fair value of fixed-maturity time deposits is estimated by discounting back the expected cash flows of the time deposit using market interest rates from the Corporation’s greater market area currently offered for similar time deposits with similar remaining maturities.
Borrowings
The fair value of a term borrowing is estimated by comparing the rate currently offered for the same type of borrowing instrument with a matching remaining term.
Accrued Interest Payable
The carrying amount of accrued interest payable is a reasonable estimate of fair value.
Firm Commitments to Extend Credit, Lines of Credit, and Open Letters of Credit
These financial instruments are generally not subject to sale and estimated fair values are not readily available. The carrying value, represented by the net deferred fee arising from the unrecognized commitment or letter of credit, and the fair value, determined by discounting the remaining contractual fee over the term of the commitment, using fees currently charged to enter into similar agreements with similar credit risk, is not considered material for disclosure purposes. The contractual amounts of unfunded commitments are presented in Note 6.
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Fair Value of Financial Instruments
The carrying amounts and estimated fair values of the Corporation's financial instruments at June 30, 2015 and December 31, 2014, are summarized as follows:
FAIR VALUE OF FINANCIAL INSTRUMENTS
(DOLLARS IN THOUSANDS)
June 30, 2015 | ||||||||||||||||||||
Quoted Prices in | ||||||||||||||||||||
Active Markets | Significant Other | Significant | ||||||||||||||||||
for Identical | Observable | Unobservable | ||||||||||||||||||
Carrying | Assets | Inputs | Inputs | |||||||||||||||||
Amount | Fair Value | (Level 1) | (Level II) | (Level III) | ||||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||
Financial Assets: | ||||||||||||||||||||
Cash and cash equivalents | 36,966 | 36,966 | 36,966 | — | — | |||||||||||||||
Securities available for sale | 296,059 | 296,059 | 5,547 | 290,512 | — | |||||||||||||||
Regulatory stock | 4,037 | 4,037 | 4,037 | — | — | |||||||||||||||
Loans held for sale | 1,294 | 1,294 | 1,294 | — | — | |||||||||||||||
Loans, net of allowance | 477,554 | 482,248 | — | — | 482,248 | |||||||||||||||
Accrued interest receivable | 3,721 | 3,721 | 3,721 | — | — | |||||||||||||||
Bank owned life insurance | 23,449 | 23,449 | 23,449 | — | — | |||||||||||||||
Financial Liabilities: | ||||||||||||||||||||
Demand deposits | 207,826 | 207,826 | 207,826 | — | — | |||||||||||||||
Interest-bearing demand deposits | 10,446 | 10,446 | 10,446 | — | — | |||||||||||||||
NOW accounts | 80,571 | 80,571 | 80,571 | — | — | |||||||||||||||
Money market deposit accounts | 67,843 | 67,843 | 67,843 | — | — | |||||||||||||||
Savings accounts | 142,350 | 142,350 | 142,350 | — | — | |||||||||||||||
Time deposits | 193,514 | 194,695 | — | — | 194,695 | |||||||||||||||
Total deposits | 702,550 | 703,731 | 509,036 | — | 194,695 | |||||||||||||||
Short-term borrowings | 4,930 | 4,930 | 4,930 | — | — | |||||||||||||||
Long-term debt | 67,094 | 67,671 | — | — | 67,671 | |||||||||||||||
Accrued interest payable | 522 | 522 | 522 | — | — |
26
FAIR VALUE OF FINANCIAL INSTRUMENTS
(DOLLARS IN THOUSANDS)
December 31, 2014 | ||||||||||||||||||||
Quoted Prices in | ||||||||||||||||||||
Active Markets | Significant Other | Significant | ||||||||||||||||||
for Identical | Observable | Unobservable | ||||||||||||||||||
Carrying | Assets | Inputs | Inputs | |||||||||||||||||
Amount | Fair Value | (Level 1) | (Level II) | (Level III) | ||||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||
Financial Assets: | ||||||||||||||||||||
Cash and cash equivalents | 43,412 | 43,412 | 43,412 | — | — | |||||||||||||||
Securities available for sale | 295,822 | 295,822 | 5,208 | 290,614 | — | |||||||||||||||
Regulatory stock | 3,227 | 3,227 | 3,227 | — | — | |||||||||||||||
Loans held for sale | 506 | 506 | 506 | — | — | |||||||||||||||
Loans, net of allowance | 464,027 | 463,197 | — | — | 463,197 | |||||||||||||||
Accrued interest receivable | 3,706 | 3,706 | 3,706 | — | — | |||||||||||||||
Bank owned life insurance | 20,603 | 20,603 | 20,603 | — | — | |||||||||||||||
Financial Liabilities: | ||||||||||||||||||||
Demand deposits | 210,444 | 210,444 | 210,444 | — | — | |||||||||||||||
Interest-bearing demand deposits | 14,039 | 14,039 | 14,039 | — | — | |||||||||||||||
NOW accounts | 72,951 | 72,951 | 72,951 | — | — | |||||||||||||||
Money market deposit accounts | 69,442 | 69,442 | 69,442 | — | — | |||||||||||||||
Savings accounts | 131,206 | 131,206 | 131,206 | — | — | |||||||||||||||
Time deposits | 201,569 | 203,787 | — | — | 203,787 | |||||||||||||||
Total deposits | 699,651 | 701,869 | 498,082 | — | 203,787 | |||||||||||||||
Long-term debt | 62,300 | 63,058 | — | — | 63,058 | |||||||||||||||
Accrued interest payable | 586 | 586 | 586 | — | — |
6. | Commitments and Contingent Liabilities |
In order to meet the financing needs of its customers in the normal course of business, the Corporation makes various commitments that are not reflected in the accompanying consolidated financial statements. These commitments include firm commitments to extend credit, unused lines of credit, and open letters of credit. As of June 30, 2015, firm loan commitments were $33.9 million, unused lines of credit were $155.1 million, and open letters of credit were $10.9 million. The total of these commitments was $199.9 million, which represents the Corporation’s exposure to credit loss in the event of nonperformance by its customers with respect to these financial instruments. The actual credit losses that may arise from these commitments are expected to compare favorably with the Corporation’s loan loss experience on its loan portfolio taken as a whole. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for balance sheet financial instruments.
27
7. | Accumulated Other Comprehensive Income (Loss) |
The activity in accumulated other comprehensive income (loss) for the three and six months ended June 30, 2015 and 2014 is as follows:
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (1) (2)
(DOLLARS IN THOUSANDS)
Unrealized | ||||
Gains (Losses) | ||||
on Securities | ||||
Available-for-Sale | ||||
$ | ||||
Balance at December 31, 2014 | 1,002 | |||
Other comprehensive income before reclassifications | 1,529 | |||
Amount reclassified from accumulated other comprehensive income | (370 | ) | ||
Period change | 1,159 | |||
Balance at March 31, 2015 | 2,161 | |||
Other comprehensive loss before reclassifications | (2,246 | ) | ||
Amount reclassified from accumulated other comprehensive loss | (396 | ) | ||
Period change | (2,642 | ) | ||
Balance at June 30, 2015 | (481 | ) | ||
Balance at December 31, 2013 | (3,940 | ) | ||
Other comprehensive income before reclassifications | 2,610 | |||
Amount reclassified from accumulated other comprehensive income | (437 | ) | ||
Period change | 2,173 | |||
Balance at March 31, 2014 | (1,767 | ) | ||
Other comprehensive income before reclassifications | 1,962 | |||
Amount reclassified from accumulated other comprehensive income | (384 | ) | ||
Period change | 1,578 | |||
Balance at June 30, 2014 | (189 | ) |
(1) | All amounts are net of tax. Related income tax expense or benefit is calculated using a Federal income tax rate of 34%. |
(2) | Amounts in parentheses indicate debits. |
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DETAILS ABOUT ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) COMPONENTS (1)
(DOLLARS IN THOUSANDS)
Amount Reclassified from | ||||||||||
Accumulated Other Comprehensive | ||||||||||
Income (Loss) | ||||||||||
For the Three Months | ||||||||||
Ended June 30, | ||||||||||
2015 | 2014 | Affected Line Item in the | ||||||||
$ | $ | Statements of Income | ||||||||
Securities available-for-sale: | ||||||||||
Net securities gains reclassified into earnings | 600 | 582 | Gains on securities transactions, net | |||||||
Related income tax expense | (204 | ) | (198 | ) | Provision for federal income taxes | |||||
Net effect on accumulated other comprehensive | ||||||||||
income for the period | 396 | 384 |
(1) Amounts in parentheses indicate debits.
DETAILS ABOUT ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) COMPONENTS (1)
(DOLLARS IN THOUSANDS)
Amount Reclassified from | ||||||||||
Accumulated Other Comprehensive | ||||||||||
Income (Loss) | ||||||||||
For the Six Months | ||||||||||
Ended June 30, | ||||||||||
2015 | 2014 | Affected Line Item in the | ||||||||
$ | $ | Statements of Income | ||||||||
Securities available-for-sale: | ||||||||||
Net securities gains reclassified into earnings | 1,161 | 1,267 | Gains on securities transactions, net | |||||||
Related income tax expense | (395 | ) | (431 | ) | Provision for federal income taxes | |||||
Net effect on accumulated other comprehensive | ||||||||||
income for the period | 766 | 836 | ||||||||
Net impairment losses reclassified into earnings | — | (22 | ) | Net impairment losses on investment securities | ||||||
Related income tax expense | — | 7 | Provision for federal income taxes | |||||||
Net effect on accumulated other comprehensive | ||||||||||
income for the period | — | (15 | ) | |||||||
Total reclassifications for the period | 766 | 821 |
(1) Amounts in parentheses indicate debits.
8. Recently Issued Accounting Standards
In January 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-01, Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects. The amendments in this Update permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit). The amendments in this Update should be applied retrospectively to all periods presented. A reporting entity that uses the effective yield method to account for its investments in qualified affordable housing projects before the date of adoption may continue to apply the effective yield method for those preexisting investments. The amendments in this Update are effective for public business entities for annual periods and interim reporting periods within those annual periods, beginning after December 15, 2014. Early adoption is permitted. This Update did not have a significant impact on the Corporation’s financial statements.
29
In January 2014, the FASB issued ASU 2014-04, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The amendments in this Update clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in this Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. An entity can elect to adopt the amendments in this Update using either a modified retrospective transition method or a prospective transition method. This Update did not have a significant impact on the Corporation’s financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (a new revenue recognition standard). The Update’s core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This Update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Corporation is evaluating the effect of adopting this new accounting Update.
In June 2014, the FASB issued ASU 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. The amendments in this Update change the accounting for repurchase-to-maturity transactions to secured borrowing accounting. For repurchase financing arrangements, the amendments require separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty, which will result in secured borrowing accounting for the repurchase agreement. The amendments also require enhanced disclosures. The accounting changes in this Update are effective for the first interim or annual period beginning after December 15, 2014. An entity is required to present changes in accounting for transactions outstanding on the effective date as a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. Earlier application is prohibited. The disclosure for certain transactions accounted for as a sale is required to be presented for interim and annual periods beginning after December 15, 2014, and the disclosure for repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions accounted for as secured borrowings is required to be presented for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. The disclosures are not required to be presented for comparative periods before the effective date. This Update did not have a significant impact on the Corporation’s financial statements.
In June 2014, the FASB issued ASU 2014-12, Compensation-Stock Compensation (Topic 718): Accounting for Share-Based Payments when the Terms of an Award Provide that a Performance Target Could Be Achieved After the Requisite Service Period. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The amendments in this Update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. Entities may apply the amendments in this Update either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying this Update as of the beginning of the earliest annual period presented in the financial statements should be recognized as an adjustment to the opening retained earnings balance at that date. Additionally, if retrospective transition is adopted, an entity may use hindsight in measuring and recognizing the compensation cost. This Update is not expected to have a significant impact on the Corporation’s financial statements.
In August 2014, the FASB issued ASU 2014-14, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40). The amendments in this Update require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met: (1) the loan has a government guarantee that is not separable from the loan before foreclosure, (2) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim, and (3) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The amendments in this Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. This Update did not have a significant impact on the Corporation’s financial statements.
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In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements -Going Concern (Subtopic 205-40). The amendments in this Update provide guidance in accounting principles generally accepted in the United States of America about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. This Update is not expected to have a significant impact on the Corporation’s financial statements.
In November 2014, the FASB issued ASU 2014-16, Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity (a consensus of the FASB Emerging Issues Task Force). This ASU clarifies how current U.S. GAAP should be interpreted in subjectively evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Public business entities are required to implement the new requirements in fiscal years and interim periods within those fiscal years beginning after December 15, 2015. This Update is not expected to have a significant impact on the Corporation’s financial statements.
In November 2014, the FASB issued ASU 2014-17, Business Combinations (Topic 805): Pushdown Accounting. The amendments in this Update apply to the separate financial statements of an acquired entity and its subsidiaries that are a business or nonprofit activity (either public or nonpublic) upon the occurrence of an event in which an acquirer (an individual or an entity) obtains control of the acquired entity. An acquired entity may elect the option to apply pushdown accounting in the reporting period in which the change-in-control event occurs. If pushdown accounting is not applied in the reporting period in which the change-in-control event occurs, an acquired entity will have the option to elect to apply pushdown accounting in a subsequent reporting period to the acquired entity's most recent change-in-control event. The amendments in this Update are effective on November 18, 2014. After the effective date, an acquired entity can make an election to apply the guidance to future change-in-control events or to its most recent change-in-control event. This Update is not expected to have a significant impact on the Corporation’s financial statements.
In January 2015, the FASB issued ASU 2015-01, Income Statement –Extraordinary and Unusual Items, as part of its initiative to reduce complexity in accounting standards. This Update eliminates from GAAP the concept of extraordinary items. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. This Update is not expected to have a significant impact on the Corporation’s financial statements.
In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810). The amendments in this Update affect reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. Specifically, the amendments (1) Modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities; (2) Eliminate the presumption that a general partner should consolidate a limited partnership; (3) Affect the consolidation analysis