Attached files
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EX-31.2 - EXHIBIT 31.2 - Poage Bankshares, Inc. | v423559_ex31-2.htm |
EX-32.1 - EXHIBIT 32.1 - Poage Bankshares, Inc. | v423559_ex32-1.htm |
EX-31.1 - EXHIBIT 31.1 - Poage Bankshares, Inc. | v423559_ex31-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 September 30, 2015
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For transition period from ______________________ to___________________
Commission File Number 001-35295
Poage Bankshares, Inc.
(Exact Name of Registrant as Specified in Charter)
Maryland | 45-3204393 | |
(State of Other Jurisdiction | (I.R.S Employer | |
Of Incorporation | Identification Number) |
1500 Carter Avenue, Ashland, KY 41101 | 41101 | |
(Address of Principal Executive Officer) | (Zip Code) |
606-324-7196
Registrant’s telephone number, including area code
Not Applicable
(Former name or former address, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or 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 | ¨ | Accelerated filer | ¨ |
Non-accelerated filer | ¨ | 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 ¨ No x
As of November 5, 2015, the number of shares of the Registrant’s common stock, par value $.01 per share, was 3,923,011
POAGE BANKSHARES, INC.
Form 10-Q Quarterly Report
Table of Contents
PART I. FINANCIAL INFORMATION | ||
ITEM 1. | CONSOLIDATED FINANCIAL STATEMENTS – POAGE BANKSHARES, INC. | 3 |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 35 |
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 46 |
ITEM 4. | CONTROLS AND PROCEDURES | 46 |
PART II. OTHER INFORMATION | ||
ITEM 1. | LEGAL PROCEEDINGS | 47 |
ITEM 1A. | RISK FACTORS | 47 |
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 47 |
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES | 48 |
ITEM 4. | MINE SAFETY DISCLOSURES | 48 |
ITEM 5. | OTHER INFORMATION | 48 |
ITEM 6. | EXHIBITS | 48 |
SIGNATURES | 49 |
2 |
POAGE BANKSHARES, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
September 30, | December 31, | |||||||
2015 | 2014 | |||||||
(in thousands) | ||||||||
ASSETS | ||||||||
Cash and due from financial institutions | $ | 15,542 | $ | 16,967 | ||||
Interest-bearing deposits in other financial institutions | 1,494 | - | ||||||
Securities available for sale | 65,571 | 65,262 | ||||||
Loans held for sale | 115 | 712 | ||||||
Loans, net of allowance of $2,013 and $1,911 | 310,643 | 302,012 | ||||||
Restricted stock, at cost | 3,276 | 2,921 | ||||||
Other real estate owned, net | 2,091 | 1,858 | ||||||
Premises and equipment, net | 10,802 | 9,257 | ||||||
Company owned life insurance | 6,896 | 6,760 | ||||||
Accrued interest receivable | 1,392 | 1,347 | ||||||
Goodwill | 1,277 | 1,082 | ||||||
Other intangible assets, net | 1,443 | 1,470 | ||||||
Deferred tax asset | 2,457 | 2,341 | ||||||
Other assets | 2,321 | 2,713 | ||||||
Total Assets | $ | 425,320 | $ | 414,702 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
Deposits | ||||||||
Non-interest bearing | $ | 46,856 | $ | 49,646 | ||||
Interest bearing | 288,536 | 273,492 | ||||||
Total deposits | 335,392 | 323,138 | ||||||
Federal Home Loan Bank advances | 12,403 | 17,952 | ||||||
Subordinated debenture | 2,745 | 2,697 | ||||||
Accrued interest payable | 155 | 47 | ||||||
Other liabilities | 3,788 | 2,717 | ||||||
Total liabilities | 354,483 | 346,551 | ||||||
Commitments and contingent liabilities | - | - | ||||||
Shareholders' equity | ||||||||
Common stock, $.01 par value, 30,000,000 shares authorized, 3,923,011 and 3,876,455 issued and outstanding at September 30, 2015 and December 31, 2014 respectively | 39 | 39 | ||||||
Additional paid-in-capital | 38,370 | 37,978 | ||||||
Retained earnings | 34,108 | 31,933 | ||||||
Unearned Employee Stock Ownership Plan (ESOP) shares | (2,158 | ) | (2,259 | ) | ||||
Accumulated other comprehensive income | 478 | 460 | ||||||
Total shareholders' equity | 70,837 | 68,151 | ||||||
Total liabilities and shareholders' equity | $ | 425,320 | $ | 414,702 |
See notes to unaudited consolidated financial statements.
3 |
POAGE BANKSHARES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Interest and dividend income | ||||||||||||||||
Loans, including fees | $ | 4,380 | $ | 4,233 | $ | 12,770 | $ | 11,077 | ||||||||
Taxable securities | 253 | 213 | 758 | 992 | ||||||||||||
Tax exempt securities | 104 | 120 | 311 | 391 | ||||||||||||
Federal funds sold and other | 35 | 38 | 102 | 98 | ||||||||||||
4,772 | 4,604 | 13,941 | 12,558 | |||||||||||||
Interest expense | ||||||||||||||||
Deposits | 454 | 461 | 1,351 | 1,258 | ||||||||||||
Federal Home Loan Bank advances and other | 93 | 134 | 298 | 345 | ||||||||||||
547 | 595 | 1,649 | 1,603 | |||||||||||||
Net interest income | 4,225 | 4,009 | 12,292 | 10,955 | ||||||||||||
Provision for loan losses | - | 27 | 485 | 27 | ||||||||||||
Net interest income after provision for loan losses | 4,225 | 3,982 | 11,807 | 10,928 | ||||||||||||
Non-interest income | ||||||||||||||||
Service charges on deposits | 529 | 507 | 1,461 | 1,235 | ||||||||||||
Other service charges | 13 | 11 | 35 | 23 | ||||||||||||
Gains on mortgage banking activity | 141 | 213 | 558 | 433 | ||||||||||||
Net gains on sales of securities | 12 | - | 12 | 294 | ||||||||||||
Income from company owned life insurance | 45 | 49 | 135 | 164 | ||||||||||||
Bargain purchase gain | 35 | - | 1,590 | - | ||||||||||||
Other | 5 | 6 | 51 | 13 | ||||||||||||
780 | 786 | 3,842 | 2,162 | |||||||||||||
Non-interest expense | ||||||||||||||||
Salaries and employee benefits | 1,905 | 1,933 | 5,682 | 5,460 | ||||||||||||
Occupancy and equipment | 457 | 450 | 1,248 | 1,225 | ||||||||||||
Data processing | 615 | 575 | 1,711 | 1,443 | ||||||||||||
Federal deposit insurance | 62 | 64 | 181 | 151 | ||||||||||||
Loan processing and collection | 69 | 71 | 230 | 192 | ||||||||||||
Foreclosed assets, net | 111 | 11 | 280 | 99 | ||||||||||||
Advertising | 42 | 57 | 126 | 153 | ||||||||||||
Professional fees | 238 | 208 | 676 | 1,060 | ||||||||||||
Other taxes | 217 | 59 | 400 | 176 | ||||||||||||
Director fees and expenses | 69 | 62 | 180 | 174 | ||||||||||||
Amortization of intangible assets | 93 | 15 | 253 | 89 | ||||||||||||
Early termination fee and conversion costs | 93 | - | 512 | 872 | ||||||||||||
Other | 330 | 91 | 826 | 680 | ||||||||||||
4,301 | 3,596 | 12,305 | 11,774 | |||||||||||||
Income before income taxes | 704 | 1,172 | 3,344 | 1,316 | ||||||||||||
Income tax expense | 174 | 289 | 512 | 347 | ||||||||||||
Net income | $ | 530 | $ | 883 | $ | 2,832 | $ | 969 | ||||||||
Basic and dilutive earnings per common share: | ||||||||||||||||
Net income, basic | $ | 0.14 | $ | 0.24 | $ | 0.78 | $ | 0.28 | ||||||||
Basic weighted average shares outstanding | 3,648,032 | 3,541,854 | 3,567,529 | 3,384,224 | ||||||||||||
Net income, dilutive | $ | 0.14 | $ | 0.24 | $ | 0.78 | $ | 0.28 | ||||||||
Dilutive weighted average shares outstanding | 3,648,032 | 3,541,854 | 3,567,529 | 3,384,224 | ||||||||||||
Dividend per share | $ | 0.06 | $ | 0.05 | $ | 0.17 | $ | 0.15 |
See notes to unaudited consolidated financial statements.
4 |
POAGE BANKSHARES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Net income | $ | 530 | $ | 883 | $ | 2,832 | $ | 969 | ||||||||
Other comprehensive income (loss): | ||||||||||||||||
Unrealized holding gains (losses) on available for sale securities | 367 | (170 | ) | 39 | 1,656 | |||||||||||
Reclassification adjustments for (gains) losses recognized in income | (12 | ) | - | (12 | ) | (294 | ) | |||||||||
Net unrealized holding gains (losses) on available for sale securities | 355 | (170 | ) | 27 | 1,362 | |||||||||||
Tax effect | (121 | ) | 58 | (9 | ) | (463 | ) | |||||||||
Other comprehensive income (loss): | 234 | (112 | ) | 18 | 899 | |||||||||||
Comprehensive income | $ | 764 | $ | 771 | $ | 2,850 | $ | 1,868 |
See notes to unaudited consolidated financial statements.
5 |
POAGE BANKSHARES, INC.
UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
Accumulated | ||||||||||||||||||||||||
Additional | Unearned | Other | Total | |||||||||||||||||||||
Common | Paid-In | Retained | ESOP | Comprehensive | Shareholders' | |||||||||||||||||||
Stock | Capital | Earnings | Shares | Income (Loss) | Equity | |||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Balances, January 1, 2015 | $ | 39 | $ | 37,978 | $ | 31,933 | $ | (2,259 | ) | $ | 460 | $ | 68,151 | |||||||||||
Net income | - | - | 2,832 | - | - | 2,832 | ||||||||||||||||||
Issuance of 166,221 common shares, net of issuance costs | 2 | 1,673 | - | - | - | 1,675 | ||||||||||||||||||
Stock repurchasing, 107,797 shares repurchased | (1 | ) | (1,629 | ) | - | - | - | (1,630 | ) | |||||||||||||||
Dividends paid ($0.17/share) | - | - | (657 | ) | - | - | (657 | ) | ||||||||||||||||
ESOP compensation earned | - | 54 | - | 101 | - | 155 | ||||||||||||||||||
Stock based compensation expense, net of 11,868 forfeited shares | (1 | ) | 294 | - | - | - | 293 | |||||||||||||||||
Change in other comprehensive income | - | - | - | - | 18 | 18 | ||||||||||||||||||
Balances, September 30, 2015 | $ | 39 | $ | 38,370 | $ | 34,108 | $ | (2,158 | ) | $ | 478 | $ | 70,837 |
See notes to unaudited consolidated financial statements.
6 |
POAGE BANKSHARES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended | ||||||||
September 30, | ||||||||
2015 | 2014 | |||||||
(in thousands) | ||||||||
CASH FLOW FROM OPERATING ACTIVITIES: | ||||||||
Net income | $ | 2,832 | $ | 969 | ||||
Adjustments to reconcile net income to net cash from operating activities: | ||||||||
Bargain purchase gain | (1,590 | ) | - | |||||
Depreciation | 532 | 396 | ||||||
Provision for loan losses | 485 | 27 | ||||||
ESOP compensation expense | 155 | 145 | ||||||
Stock based compensation expense | 293 | 399 | ||||||
Gain on sale of securities | (12 | ) | (294 | ) | ||||
Loss on sale of other real estate owned | 166 | 69 | ||||||
Gain on sale of repossessed assets | (1 | ) | - | |||||
Amortization of core deposit intangible | 253 | 89 | ||||||
Accretion of fair value adjustments related to loans | (901 | ) | (456 | ) | ||||
Accretion of fair value adjustments related to deposits | (54 | ) | (22 | ) | ||||
Amortization of fair value related to subordinated debenture | 48 | 32 | ||||||
Net amortization on securities | 390 | 506 | ||||||
Deferred income tax expense | 82 | 16 | ||||||
Net gain on mortgage banking activities | (558 | ) | (433 | ) | ||||
Origination of loans held for sale | (5,854 | ) | (5,844 | ) | ||||
Proceeds from loans held for sale | 7,009 | 6,022 | ||||||
Increase in cash value of life insurance | (136 | ) | (164 | ) | ||||
Change in asset and liabilities, net assets and liabilities acquired: | ||||||||
Accrued interest receivable | 12 | 158 | ||||||
Other assets | 411 | (175 | ) | |||||
Accrued interest payable | 86 | 161 | ||||||
Other liabilities | 856 | 859 | ||||||
Net cash from operating activities | 4,504 | 2,460 | ||||||
CASH FLOW FROM INVESTING ACTIVITIES: | ||||||||
Net increase in interest-bearing deposits with other institutions | (1,494 | ) | - | |||||
Securities available for sale: | ||||||||
Proceeds from sales | 2,017 | 19,721 | ||||||
Proceeds from calls | 1,010 | 10,536 | ||||||
Proceeds from maturities | 655 | 385 | ||||||
Purchases | (9,543 | ) | (1,379 | ) | ||||
Principal payments received | 5,201 | 4,424 | ||||||
Purchase of restricted stock | (56 | ) | - | |||||
Cash paid for acquisition, net of cash acquired | 2,355 | 1,445 | ||||||
Loan originations and principal payments on loans, net | 5,754 | (2,932 | ) | |||||
Proceeds from the sale of other real estate owned | 436 | 114 | ||||||
Proceeds from the sale of repossessed assets | 52 | - | ||||||
Purchase of properties and equipment | (744 | ) | (432 | ) | ||||
Net cash from (used in) investing activities | 5,643 | 31,882 | ||||||
CASH FLOW FROM FINANCING ACTIVITIES | ||||||||
Net change in deposits | (3,095 | ) | (8,278 | ) | ||||
Proceeds from Federal Home Loan Bank borrowings | 28,000 | 33,000 | ||||||
Payments on Federal Home Loan Bank borrowings | (35,865 | ) | (47,360 | ) | ||||
Cash dividend paid | (657 | ) | (556 | ) | ||||
Proceeds from issuance of common stock, net of costs | 1,675 | (212 | ) | |||||
Stock repurchases | (1,630 | ) | (331 | ) | ||||
Net cash used in financing activities | (11,572 | ) | (23,737 | ) | ||||
CHANGE IN CASH AND CASH EQUIVALENTS | (1,425 | ) | 10,605 | |||||
Cash and cash equivalents at beginning of period | 16,967 | 6,684 | ||||||
CASH AND CASH EQUIVALENTS AT END OF YEAR | $ | 15,542 | $ | 17,289 | ||||
Additional cash flows and supplementary information: | ||||||||
Cash paid during the year for: | ||||||||
Interest on deposits and advances | $ | 1,535 | $ | 1,442 | ||||
Income taxes | 350 | - | ||||||
Stock issued for consideration paid in acquisition, net of issuance costs | $ | - | $ | 7,836 | ||||
Real estate acquired in settlement of loans | $ | 1,335 | $ | 322 | ||||
Real estate transferred from premises and equipment | $ | - | $ | 863 | ||||
Loans provided for sales of real estate owned | $ | 500 | $ | - |
See notes to unaudited consolidated financial statements.
7 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements of Poage Bankshares, Inc. (the “Company”) and its wholly owned subsidiary Town Square Bank (which was formerly operated under the name “Home Federal Savings and Loan Association”) (the “Bank”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates used in the preparation of the financial statements are based on various factors including the current interest rate environment and the general strength of the local economy. Changes in the overall interest rate environment can significantly affect the Company’s net interest income and the value of its recorded assets and liabilities. Actual results could differ from those estimates used in the preparation of the financial statements.
In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the Company’s financial position as of September 30, 2015 and December 31, 2014 and the results of operations and cash flows for the interim periods ended September 30, 2015 and 2014. All interim amounts have not been audited, and the results of operations for the interim periods herein are not necessarily indicative of the results of operations to be expected for the year. These consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto filed as part of the Company’s 2014 Annual Report on Form 10-K filed with the Securities and Exchange Commission.
Effective May 31, 2015, the Company completed its previously reported acquisition of Commonwealth Bank, F.S.B., Mt. Sterling, Kentucky (“Commonwealth”), in a conversion merger transaction. As result of the conversion merger transaction, Commonwealth converted from a mutual to stock institution and merged with and into the Bank, with the Bank as the surviving institution, and the Company issued and sold 166,221 shares of common stock at a price of $12.73 per share to depositor and borrower members of Commonwealth in a subscription offering and to stockholders of the Company and members of the general public in a community offering. Gross offering proceeds totaled approximately $2.1 million. Commonwealth’s sole office, located in Mt. Sterling, Kentucky, has become a branch office of the Bank.
8 |
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Newly Issued Not Yet Effective Accounting Standards
In May 2014 the FASB amended existing guidance related to revenue from contracts with customers. This amendment supersedes and replaces nearly all existing revenue recognition guidance, including industry-specific guidance, establishes a new control-based revenue recognition model, changes the basis for deciding when revenue is recognized over time or at a point in time, provides new and more detailed guidance on specific topics and expands and improves disclosures about revenue. In addition, this amendment specifies the accounting for some costs to obtain or fulfill a contract with a customer.
These amendments are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is not permitted. The amendments should be applied retrospectively to all periods presented or retrospectively with the cumulative effect recognized at the date of initial application. The Company is currently evaluating the impact of this new accounting standard on the Company’s consolidated financial statements.
Adoptions of New Accounting Standards
In January 2014, the FASB amended existing guidance to clarify when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan should be derecognized and the real estate recognized. These amendments 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. Additional disclosures are required.
These amendments are effective for public business entities for annual periods and interim periods within those annual periods beginning after December 15, 2014. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
9 |
NOTE 3 - SECURITIES AVAILABLE FOR SALE
The amortized cost and fair value of securities available for sale at September 30, 2015 and December 31, 2014 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows (in thousands):
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
September 30, 2015 | ||||||||||||||||
States and political subdivisions | $ | 16,746 | $ | 540 | $ | (17 | ) | $ | 17,269 | |||||||
U.S. Government agencies and sponsored entities | 11,243 | 16 | (49 | ) | 11,210 | |||||||||||
Government sponsored entities residential mortgage-backed: | ||||||||||||||||
FHLMC | 12,079 | 176 | (4 | ) | 12,251 | |||||||||||
FNMA | 12,204 | 136 | (12 | ) | 12,328 | |||||||||||
Collateralized mortgage obligations | 7,203 | 14 | (64 | ) | 7,153 | |||||||||||
SBA loan pools | 5,372 | 8 | (20 | ) | 5,360 | |||||||||||
Total securities | $ | 64,847 | $ | 890 | $ | (166 | ) | $ | 65,571 |
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
December 31, 2014 | ||||||||||||||||
States and political subdivisions | $ | 17,121 | $ | 633 | $ | (8 | ) | $ | 17,746 | |||||||
U.S. Government agencies and sponsored entities | 14,247 | 6 | (267 | ) | 13,986 | |||||||||||
Government sponsored entities residential mortgage-backed: | ||||||||||||||||
FHLMC | 14,346 | 251 | (7 | ) | 14,590 | |||||||||||
FNMA | 14,207 | 177 | (9 | ) | 14,375 | |||||||||||
Collateralized mortgage obligations | 4,644 | - | (79 | ) | 4,565 | |||||||||||
Total securities | $ | 64,565 | $ | 1,067 | $ | (370 | ) | $ | 65,262 |
The proceeds from sales of securities and the associated gross gains and losses are listed below (in thousands):
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Proceeds | $ | 2,017 | $ | - | $ | 2,017 | $ | 19,721 | ||||||||
Gross gains | 14 | - | 14 | 372 | ||||||||||||
Gross losses | (2 | ) | - | (2 | ) | (78 | ) |
The tax provision related to these net realized gains was $4, $0, $4 and $100, respectively.
10 |
The amortized cost and fair value of the securities portfolio at September 30, 2015 are shown in the following table by expected maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately (in thousands):
September 30, | ||||||||
2015 | ||||||||
Amortized | Fair | |||||||
Cost | Value | |||||||
One to five years | $ | 11,880 | $ | 12,003 | ||||
Five to ten years | 13,358 | 13,590 | ||||||
Beyond ten years | 2,751 | 2,886 | ||||||
Mortgage-backed securities and collateralized mortgage obligations | 31,486 | 31,732 | ||||||
SBA loan pools | 5,372 | 5,360 | ||||||
Total | $ | 64,847 | $ | 65,571 |
11 |
The following table summarizes the securities with unrealized losses at September 30, 2015 and December 31, 2014, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands):
Less Than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
September 30, 2015 | ||||||||||||||||||||||||
States and political subdivisions | $ | 1,308 | $ | (16 | ) | $ | 289 | $ | (1 | ) | $ | 1,597 | $ | (17 | ) | |||||||||
U.S. Government agencies and sponsored entities | - | - | 8,701 | (49 | ) | 8,701 | (49 | ) | ||||||||||||||||
Government sponsored entities residential mortgage backed: | ||||||||||||||||||||||||
FHLMC | 1,496 | (4 | ) | - | - | 1,496 | (4 | ) | ||||||||||||||||
FNMA | 1,692 | (12 | ) | - | - | 1,692 | (12 | ) | ||||||||||||||||
Collateralized mortgage obligations | 2,680 | (13 | ) | 2,404 | (51 | ) | 5,084 | (64 | ) | |||||||||||||||
SBA loan pools | 3,839 | (20 | ) | - | - | 3,839 | (20 | ) | ||||||||||||||||
Total available-for-sale securities | $ | 11,015 | $ | (65 | ) | $ | 11,394 | $ | (101 | ) | $ | 22,409 | $ | (166 | ) | |||||||||
December 31, 2014 | ||||||||||||||||||||||||
States and political subdivisions | $ | 1,072 | $ | (8 | ) | $ | - | $ | - | $ | 1,072 | $ | (8 | ) | ||||||||||
U.S. Government agencies and sponsored entities | - | - | 12,482 | (267 | ) | 12,482 | (267 | ) | ||||||||||||||||
Government sponsored entities residential mortgage backed: | ||||||||||||||||||||||||
FHLMC | - | - | 1,131 | (7 | ) | 1,131 | (7 | ) | ||||||||||||||||
FNMA | 2,063 | (3 | ) | 946 | (6 | ) | 3,009 | (9 | ) | |||||||||||||||
Collateralized mortgage obligations | 1,652 | (13 | ) | 2,913 | (66 | ) | 4,565 | (79 | ) | |||||||||||||||
Total available-for-sale securities | $ | 4,787 | $ | (24 | ) | $ | 17,472 | $ | (346 | ) | $ | 22,259 | $ | (370 | ) |
Unrealized losses on bonds have not been recognized into income because the issuers of the bonds are of high credit quality, management does not intend to sell and it is not more likely than not that management would be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates. The fair value is expected to recover as the bonds approach maturity.
Management evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement, and 2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized through earnings.
12 |
NOTE 4 – LOANS
Loans at September 30, 2015 and December 31, 2014 were as follows (in thousands):
September 30 | December 31, | |||||||
2015 | 2014 | |||||||
Real estate: | ||||||||
One to four family | $ | 188,027 | $ | 179,480 | ||||
Multi-family | 4,669 | 5,916 | ||||||
Commercial Real Estate | 60,781 | 62,979 | ||||||
Construction and land | 3,717 | 5,142 | ||||||
257,194 | 253,517 | |||||||
Commercial and Industrial | 29,441 | 25,523 | ||||||
Consumer | ||||||||
Home equity loans and lines of credit | 8,453 | 7,973 | ||||||
Motor vehicle | 9,740 | 10,337 | ||||||
Other | 8,156 | 6,774 | ||||||
26,349 | 25,084 | |||||||
Total | 312,984 | 304,124 | ||||||
Less: Net deferred loan fees | 328 | 201 | ||||||
Allowance for loan losses | 2,013 | 1,911 | ||||||
$ | 310,643 | $ | 302,012 |
13 |
The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment based on impairment method as of September 30, 2015 and December 31, 2014. Accrued interest receivable and net deferred loan fees are not considered significant and therefore are not included in the loan balances presented in the table below (in thousands):
September 30, 2015
Allowance for Loan Losses | Loan Balances | |||||||||||||||||||||||||||||||
Individually | Purchased | Collectively | Individually | Purchased | Collectively | |||||||||||||||||||||||||||
Evaluated for | Credit-Impaired | Evaluated for | Evaluated for | Credit-Impaired | Evaluated for | |||||||||||||||||||||||||||
Loan Segment | Impairment | Loans | Impairment | Total | Impairment | Loans | Impairment | Total | ||||||||||||||||||||||||
Real estate | $ | 15 | $ | - | $ | 1,813 | $ | 1,828 | $ | 1,739 | $ | 3,417 | $ | 252,038 | $ | 257,194 | ||||||||||||||||
Commercial and industrial | - | - | 75 | $ | 75 | 504 | - | 28,937 | 29,441 | |||||||||||||||||||||||
Consumer | - | - | 89 | $ | 89 | 22 | 37 | 26,290 | 26,349 | |||||||||||||||||||||||
Unallocated | - | - | 21 | 21 | - | - | - | |||||||||||||||||||||||||
Total | $ | 15 | $ | - | $ | 1,998 | $ | 2,013 | $ | 2,265 | $ | 3,454 | $ | 307,265 | $ | 312,984 |
December 31, 2014
Allowance for Loan Losses | Loan Balances | |||||||||||||||||||||||||||||||
Individually | Purchased | Collectively | Individually | Purchased | Collectively | |||||||||||||||||||||||||||
Evaluated for | Credit-Impaired | Evaluated for | Evaluated for | Credit-Impaired | Evaluated for | |||||||||||||||||||||||||||
Loan Segment | Impairment | Loans | Impairment | Total | Impairment | Loans | Impairment | Total | ||||||||||||||||||||||||
Real estate | $ | - | $ | - | $ | 1,806 | $ | 1,806 | $ | 324 | $ | 3,633 | $ | 249,560 | $ | 253,517 | ||||||||||||||||
Commercial and industrial | - | - | 43 | 43 | 19 | 439 | 25,065 | 25,523 | ||||||||||||||||||||||||
Consumer | - | - | 62 | 62 | - | 10 | 25,074 | 25,084 | ||||||||||||||||||||||||
Unallocated | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Total | $ | - | $ | - | $ | 1,911 | $ | 1,911 | $ | 343 | $ | 4,082 | $ | 299,699 | $ | 304,124 |
There were $3.1 million and $4.7 million of purchased credit impaired loans at September 30, 2015 and 2014, respectively, which were acquired in a business combination completed March 18, 2014. There were $377,000 of purchased credit impaired loans at September 30, 2015 which were acquired in a business combination completed on May 31, 2015.
14 |
The following table presents information related to impaired loans by class of loans as of September 30, 2015 and December 31, 2014 (in thousands):
September 30, 2015 | December 31, 2014 | |||||||||||||||||||||||
Unpaid Principal Balance | Recorded Investment | Allowance for Loan Losses Allocated | Unpaid Principal Balance | Recorded Investment | Allowance for Loan Losses Allocated | |||||||||||||||||||
With no related allowance recorded: | ||||||||||||||||||||||||
Real Estate: | ||||||||||||||||||||||||
One to four family | $ | 1,546 | $ | 1,230 | $ | 125 | $ | 125 | ||||||||||||||||
Multi-family | ||||||||||||||||||||||||
Commercial Real Estate | 182 | 182 | 199 | 199 | ||||||||||||||||||||
Construction and land | ||||||||||||||||||||||||
Commercial and Industrial | 586 | 504 | 19 | 19 | ||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||
Home Equity and lines of credit | 22 | 22 | ||||||||||||||||||||||
Motor Vehicle | ||||||||||||||||||||||||
Other | ||||||||||||||||||||||||
Subtotal | $ | 2,336 | $ | 1,938 | - | $ | 343 | $ | 343 | - | ||||||||||||||
With an allowance recorded: | ||||||||||||||||||||||||
Real Estate: | ||||||||||||||||||||||||
One to four family | $ | 112 | $ | 112 | $ | 11 | $ | - | $ | - | $ | - | ||||||||||||
Multi-family | ||||||||||||||||||||||||
Commercial Real Estate | 215 | 215 | 4 | |||||||||||||||||||||
Construction and land | ||||||||||||||||||||||||
Commercial and Industrial | ||||||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||
Home Equity and lines of credit | ||||||||||||||||||||||||
Motor Vehicle | ||||||||||||||||||||||||
Other | ||||||||||||||||||||||||
Subtotal | $ | 327 | $ | 327 | $ | 15 | $ | - | $ | - | $ | - | ||||||||||||
Total | $ | 2,663 | $ | 2,265 | $ | 15 | $ | 343 | $ | 343 | $ | - |
15 |
The following table presents the average balance of loans individually evaluated for impairment and interest income recognized on these loans for the three and nine months ended September 30, 2015. Impaired loans averaged $227,000 for the three months ended September 30, 2014 and $152,000 for the nine months ended September 30, 2014. Interest income recognized on impaired loans for the three and nine months ended September 30, 2014 was immaterial. The table includes loans acquired with deteriorated credit quality that are still individually evaluated for impairment.
Three Months Ended September 30, 2015 | Average Recorded Investment | Interest Income Recognized | Cash Basis Interest Recognized | |||||||||
Real Estate: | ||||||||||||
One to four family | $ | 952 | $ | - | $ | - | ||||||
Multi-family | - | |||||||||||
Commercial Real Estate | 323 | |||||||||||
Construction and land | - | |||||||||||
Commercial and Industrial | 335 | |||||||||||
Consumer: | ||||||||||||
Home Equity and lines of credit | 7 | |||||||||||
Motor Vehicle | - | |||||||||||
Other | - | |||||||||||
Subtotal | $ | 1,617 | $ | - | $ | - |
Nine Months Ended September 30, 2015 | Average Recorded Investment | Interest Income Recognized | Cash Basis Interest Recognized | |||||||||
Real Estate: | ||||||||||||
One to four family | $ | 952 | $ | - | $ | - | ||||||
Multi-family | - | |||||||||||
Commercial Real Estate | 671 | |||||||||||
Construction and land | - | |||||||||||
Commercial and Industrial | 366 | 4 | 4 | |||||||||
Consumer: | ||||||||||||
Home Equity and lines of credit | 7 | |||||||||||
Motor Vehicle | - | |||||||||||
Other | - | |||||||||||
Total | $ | 1,996 | $ | 4 | $ | 4 |
The recorded investment in loans excludes accrued interest receivable and loan origination fees, net due to immateriality. For purposes of this disclosure, the unpaid balance is not reduced for partial charge-offs.
16 |
The following table sets forth an analysis of our allowance for loan losses for the three and nine months ended September 30, 2015 and 2014 (in thousands):
Three Months Ended | Commercial | |||||||||||||||||||
September 30, 2015 | Real Estate | and Industrial | Consumer | Unallocated | Total | |||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||
Beginning balance | $ | 1,900 | $ | 89 | $ | 84 | $ | - | $ | 2,073 | ||||||||||
Provision for loan losses | (38 | ) | (7 | ) | 24 | 21 | - | |||||||||||||
Loans charged-off | (52 | ) | (12 | ) | (49 | ) | - | (113 | ) | |||||||||||
Recoveries | 18 | 5 | 30 | 53 | ||||||||||||||||
Total ending allowance balance | $ | 1,828 | $ | 75 | $ | 89 | $ | 21 | $ | 2,013 |
Three Months Ended | Commercial | |||||||||||||||||||
September 30, 2014 | Real Estate | and Industrial | Consumer | Unallocated | Total | |||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||
Beginning balance | $ | 1,562 | $ | 14 | $ | 44 | $ | 137 | $ | 1,757 | ||||||||||
Provision for loan losses | 52 | (13 | ) | 1 | (13 | ) | 27 | |||||||||||||
Loans charged-off | - | - | (19 | ) | - | (19 | ) | |||||||||||||
Recoveries | 9 | 7 | 2 | - | 18 | |||||||||||||||
Total ending allowance balance | $ | 1,623 | $ | 8 | $ | 28 | $ | 124 | $ | 1,783 |
Nine Months Ended | Commercial | |||||||||||||||||||
September 30, 2015 | Real Estate | and Industrial | Consumer | Unallocated | Total | |||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||
Beginning balance | $ | 1,806 | $ | 43 | $ | 62 | $ | - | $ | 1,911 | ||||||||||
Provision for loan losses | 240 | 54 | 170 | 21 | 485 | |||||||||||||||
Loans charged-off | (370 | ) | (64 | ) | (195 | ) | - | (629 | ) | |||||||||||
Recoveries | 152 | 42 | 52 | - | 246 | |||||||||||||||
Total ending allowance balance | $ | 1,828 | $ | 75 | $ | 89 | $ | 21 | $ | 2,013 |
Nine Months Ended | Commercial | |||||||||||||||||||
September 30, 2014 | Real Estate | and Industrial | Consumer | Unallocated | Total | |||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||
Beginning balance | $ | 1,818 | $ | 8 | $ | 52 | $ | 30 | $ | 1,908 | ||||||||||
Provision for loan losses | (51 | ) | (17 | ) | 1 | 94 | 27 | |||||||||||||
Loans charged-off | (172 | ) | (8 | ) | (31 | ) | - | (211 | ) | |||||||||||
Recoveries | 28 | 25 | 6 | - | 59 | |||||||||||||||
Total ending allowance balance | $ | 1,623 | $ | 8 | $ | 28 | $ | 124 | $ | 1,783 |
17 |
Nonaccrual loans and loans past due 90 days still on accrual consist of smaller balance homogeneous loans that are collectively evaluated for impairment.
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 September 30, 2015 and December 31, 2014 (in thousands):
September 30, 2015 | December 31, 2014 | |||||||||||||||
Loans Past Due | Loans Past Due | |||||||||||||||
Over 90 Days | Over 90 Days | |||||||||||||||
Nonaccrual | Still Accruing | Nonaccrual | Still Accruing | |||||||||||||
Real estate: | ||||||||||||||||
One to four family | $ | 2,773 | $ | - | $ | 2,223 | $ | - | ||||||||
Multi-family | - | - | - | - | ||||||||||||
Commercial real estate | 398 | - | 578 | - | ||||||||||||
Construction and land | 32 | - | 103 | - | ||||||||||||
Commercial and industrial | 504 | - | 396 | - | ||||||||||||
Consumer: | ||||||||||||||||
Home equity loans and lines of credit | 34 | - | 1 | - | ||||||||||||
Motor vehicle | - | - | 21 | - | ||||||||||||
Other | 24 | 3 | 31 | - | ||||||||||||
Total | $ | 3,765 | $ | 3 | $ | 3,353 | $ | - |
18 |
The following table presents the aging of the recorded investment in past due loans as of September 30, 2015 and December 31, 2014 by class of loans. Non-accrual loans of $3.8 million as of September 30, 2015 and $3.4 million at December 31, 2014 are included in the tables below and have been categorized based on their payment status (in thousands):
30 - 59 | 60 - 89 | Greater than | Purchased | |||||||||||||||||||||||||
Days | Days | 89 Days | Total | Credit-Impaired | Loans Not | |||||||||||||||||||||||
Past Due | Past Due | Past Due | Past Due | Loans | Past Due | Total | ||||||||||||||||||||||
September 30, 2015 | ||||||||||||||||||||||||||||
Real estate: | ||||||||||||||||||||||||||||
One to four family | $ | 739 | $ | 239 | $ | 1,926 | $ | 2,904 | $ | 1,337 | $ | 183,786 | $ | 188,027 | ||||||||||||||
Multi-family | - | - | - | - | - | 4,669 | 4,669 | |||||||||||||||||||||
Commercial real estate | 210 | - | 215 | 425 | 1,817 | 58,539 | 60,781 | |||||||||||||||||||||
Construction and land | - | - | - | - | 263 | 3,454 | 3,717 | |||||||||||||||||||||
Commercial and industrial | - | - | 414 | 414 | - | 29,027 | 29,441 | |||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||||||
Home equity loans and lines of credit | 25 | 9 | 23 | 57 | - | 8,396 | 8,453 | |||||||||||||||||||||
Motor vehicle | 61 | - | - | 61 | 6 | 9,673 | 9,740 | |||||||||||||||||||||
Other | 10 | 21 | 10 | 41 | 31 | 8,084 | 8,156 | |||||||||||||||||||||
Total | $ | 1,045 | $ | 269 | $ | 2,588 | $ | 3,902 | $ | 3,454 | $ | 305,628 | $ | 312,984 |
30 - 59 | 60 - 89 | Greater than | Purchased | |||||||||||||||||||||||||
Days | Days | 89 Days | Total | Credit-Impaired | Loans Not | |||||||||||||||||||||||
Past Due | Past Due | Past Due | Past Due | Loans | Past Due | Total | ||||||||||||||||||||||
December 31, 2014 | ||||||||||||||||||||||||||||
Real estate: | ||||||||||||||||||||||||||||
One to four family | $ | 2,028 | $ | 488 | $ | 1,259 | $ | 3,775 | $ | 1,262 | $ | 174,443 | $ | 179,480 | ||||||||||||||
Multi-family | - | - | - | - | - | 5,916 | 5,916 | |||||||||||||||||||||
Commercial real estate | 1,102 | 124 | 38 | 1,264 | 2,031 | 59,684 | 62,979 | |||||||||||||||||||||
Construction and land | - | - | 103 | 103 | 340 | 4,699 | 5,142 | |||||||||||||||||||||
Commercial and industrial | 245 | 46 | 257 | 548 | 439 | 24,536 | 25,523 | |||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||||||
Home equity loans and lines of credit | 86 | 23 | - | 109 | 7 | 7,857 | 7,973 | |||||||||||||||||||||
Motor vehicle | 102 | 4 | 20 | 126 | - | 10,211 | 10,337 | |||||||||||||||||||||
Other | 33 | 20 | 16 | 69 | 3 | 6,702 | 6,774 | |||||||||||||||||||||
Total | $ | 3,596 | $ | 705 | $ | 1,693 | $ | 5,994 | $ | 4,082 | $ | 294,048 | $ | 304,124 |
19 |
Troubled Debt Restructurings:
The following table presents Troubled Debt Restructurings ("TDR") as of September 30, 2015 and December 31, 2014:
September 30, 2015 | TDR's on Non-accrual | Other TDR's | Total TDR's | |||||||||
Real Estate: | ||||||||||||
One to four family | $ | - | $ | 105 | $ | 105 | ||||||
Multi-family | ||||||||||||
Commercial real estate | 182 | 0 | 182 | |||||||||
Construction and land | ||||||||||||
Commercial and Industrial | 19 | 0 | 19 | |||||||||
Consumer: | ||||||||||||
Home equity loans and lines of credit | ||||||||||||
Motor Vehicle | ||||||||||||
Other | ||||||||||||
Total | 201 | 105 | 306 |
December 31, 2014 | TDR's on Non-accrual | Other TDR's | Total TDR's | |||||||||
Real Estate: | ||||||||||||
One to four family | $ | - | $ | - | $ | - | ||||||
Multi-family | ||||||||||||
Commercial real estate | 199 | - | 199 | |||||||||
Construction and land | ||||||||||||
Commercial and Industrial | 19 | - | 19 | |||||||||
Consumer: | ||||||||||||
Home equity loans and lines of credit | ||||||||||||
Motor Vehicle | ||||||||||||
Other | ||||||||||||
Total | 218 | - | 218 |
The following table presents TDR's that occurred during the nine months ended September 30, 2015 and September 30, 2014.
Nine months ended September 30, 2015 | Nine months ended September 30, 2014 | |||||||||||||||||||||||
Loan Class | Number of Loans | Pre-Modification Outstanding Recorded Investment | Post-Modification Outstanding Recorded Investment | Number of Loans | Pre-Modification Outstanding Recorded Investment | Post-Modification Outstanding Recorded Investment | ||||||||||||||||||
Real Estate: | ||||||||||||||||||||||||
One to four family | 1 | $ | 105 | $ | 105 | 0 | $ | - | $ | - | ||||||||||||||
Multi-family | ||||||||||||||||||||||||
Commercial real estate | 1 | 199 | 199 | |||||||||||||||||||||
Construction and land | ||||||||||||||||||||||||
Commercial and Industrial | 1 | 19 | 19 | |||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||
Home equity loans and lines of credit | ||||||||||||||||||||||||
Motor Vehicle | ||||||||||||||||||||||||
Other | ||||||||||||||||||||||||
Total | 1 | $ | 105 | $ | 105 | 2 | $ | 218 | $ | 218 |
The modification of the Residential real estate loan above occurred during the three months ended March 31, 2015. The modification of the Commercial real estate loan and Commercial and Industrial loan occurred during the three months ended March 31, 2014. The modifications did not include a permanent reduction of the recorded investment in the loans and did not increase the allowance for loan losses during the nine months ended September 30, 2015 and 2014.
20 |
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. This analysis includes all non-homogeneous loans, such as commercial and commercial real estate loans. The analysis for residential real estate and consumer loans primarily includes review of past due status. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk ratings:
Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.
Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.
Based on the most recent analysis performed, the risk category of loans by class of loans is as follows (in thousands):
Special | ||||||||||||||||||||
September 30, 2015 | Pass | Mention | Substandard | Doubtful | Not Rated | |||||||||||||||
One to four family | $ | 179,548 | $ | 2,595 | $ | 5,884 | $ | - | $ | - | ||||||||||
Multi family | 4,669 | - | - | - | - | |||||||||||||||
Commercial real estate | 58,633 | 108 | 2,040 | - | - | |||||||||||||||
Construction and land | 3,421 | - | 296 | . | . | |||||||||||||||
Commercial and industrial | 28,024 | 6 | 1,411 | - | - | |||||||||||||||
Home equity loans and lines of credit | 8,409 | 25 | 19 | - | - | |||||||||||||||
Motor vehicle | 9,704 | 7 | 29 | - | - | |||||||||||||||
Other | 8,079 | 29 | 48 | - | - | |||||||||||||||
Total | $ | 300,487 | $ | 2,770 | $ | 9,727 | $ | - | $ | - |
Special | ||||||||||||||||||||
December 31, 2014 | Pass | Mention | Substandard | Doubtful | Not Rated | |||||||||||||||
One to four family | $ | 171,324 | $ | 3,794 | $ | 4,362 | $ | - | $ | - | ||||||||||
Multi family | 5,916 | - | - | - | - | |||||||||||||||
Commercial real estate | 60,250 | 54 | 2,675 | - | - | |||||||||||||||
Construction and land | 4,402 | 52 | 688 | . | . | |||||||||||||||
Commercial and industrial | 22,162 | 2,332 | 1,029 | - | - | |||||||||||||||
Home equity loans and lines of credit | 7,935 | 30 | 8 | - | - | |||||||||||||||
Motor vehicle | 10,299 | 22 | 16 | - | - | |||||||||||||||
Other | 6,740 | - | 34 | - | - | |||||||||||||||
Total | $ | 289,028 | $ | 6,284 | $ | 8,812 | $ | - | $ | - |
21 |
The Company holds purchased loans without evidence of credit quality deterioration and purchased loans for which there was, at their acquisition date, evidence of deterioration of credit quality since their origination and it was probable that all contractually required payments would not be collected. A summary of non-impaired purchased loans and credit-impaired purchased loans with the carrying amount of those loans is as follows at (in thousands):
Purchased Loans as of September 30, 2015 | Non-impaired | Credit-impaired | ||||||
Purchased | Purchased | |||||||
(in thousands) | Loans | Loans | ||||||
Real estate mortgage loans: | ||||||||
Residential: | ||||||||
1-4 Family | $ | 40,913 | $ | 1,337 | ||||
Multi-family | 2,742 | - | ||||||
Commercial Real Estate | 27,207 | 1,817 | ||||||
Construction & Land | 1,086 | 263 | ||||||
Commercial non-mortgage loans | 7,742 | - | ||||||
Consumer loans | 3,696 | 37 | ||||||
Total loans | $ | 83,386 | $ | 3,454 |
Purchased Loans as of December 31, 2014 | Non-impaired | Credit-impaired | ||||||
Purchased | Purchased | |||||||
(in thousands) | Loans | Loans | ||||||
Real estate mortgage loans: | ||||||||
Residential: | ||||||||
1-4 Family | $ | 36,256 | $ | 1,262 | ||||
Multi-family | 3,237 | - | ||||||
Commercial Real Estate | 31,844 | 2,031 | ||||||
Construction & Land | 2,391 | 340 | ||||||
Commercial non-mortgage loans | 11,073 | 439 | ||||||
Consumer loans | 4,363 | 10 | ||||||
Total loans | $ | 89,164 | $ | 4,082 |
For the purchased loans disclosed above, the Company did not increase the allowance for loan losses for the three and nine months ended September 30, 2015 and 2014.
22 |
The following table presents the composition of the acquired loans at September 30, 2015 (in thousands):
As of September 30, 2015 | ||||||||||||
Contractual | Fair Value | |||||||||||
(in thousands) | Amount | Adjustments | Fair Value | |||||||||
Real estate mortgage loans: | ||||||||||||
Residential: | ||||||||||||
One to four family | $ | 43,170 | $ | (920 | ) | $ | 42,250 | |||||
Multi-family | 2,778 | (36 | ) | 2,742 | ||||||||
Commercial Real Estate | 29,976 | (952 | ) | 29,024 | ||||||||
Construction & Land | 1,369 | (20 | ) | 1,349 | ||||||||
Commercial and Industrial | 10,554 | (2,812 | ) | 7,742 | ||||||||
Consumer | ||||||||||||
Home equity loans and lines of credit | 1,706 | (23 | ) | 1,683 | ||||||||
Motor vehicle | 717 | (10 | ) | 707 | ||||||||
Other | 1,363 | (20 | ) | 1,343 | ||||||||
Total loans | $ | 91,633 | $ | (4,793 | ) | $ | 86,840 |
The following table presents the purchased loans that are included within the scope of ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality as of September 30, 2015. Loans purchased during the nine months ended September 30, 2015 of $426,000 are included in the contractually-required principal and interest payments with a fair value of $378,000 (in thousands).
September 30, 2015 | December 31, 2014 | |||||||
(in thousands) | ||||||||
Contractually-required principal and interest payments | $ | 7,079 | $ | 8,169 | ||||
Non-Accretable difference | (3,179 | ) | (3,462 | ) | ||||
Accretable yield | (446 | ) | (625 | ) | ||||
Fair value of loans | $ | 3,454 | $ | 4,082 |
The Company adjusted interest income to recognize $40,000, $189,000, $85,000 and $85,000 of accretable yield on credit-impaired purchased loans for the three and nine months ended September 30, 2015 and 2014, respectively.
23 |
NOTE 5: FEDERAL HOME LOAN BANK ADVANCES
Advances from the FHLB at September 30, 2015 and December 31, 2014 were as follows (in thousands):
September 30, | December 31, | |||||||
2015 | 2014 | |||||||
Maturities October 2015 through September 2025, fixed rate at rates from 0.36% to 6.86%, weighted average rate of 1.92% at September 30, 2015 and 1.55% at December 31, 2014 | $ | 12,403 | $ | 17,952 |
Payments contractually required over the next five years are as follows (in thousands):
September 30, | ||||
2016 | $ | 7,744 | ||
2017 | 1,972 | |||
2018 | 1,565 | |||
2019 | 632 | |||
2020 | 93 | |||
Thereafter | 397 | |||
Total | $ | 12,403 |
NOTE 6: FAIR VALUE
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (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 values:
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; or other inputs that are observable or can be corroborated by observable market data.
Level 3 – Significant unobservable inputs that reflect a company’s 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 for securities are determined by quoted market prices, if available (Level 1). If quoted market prices are not available, fair values are based on quoted market prices of similar securities (Level 2). This includes the use of “matrix pricing” used to value debt securities absent the exclusive use of quoted prices. For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows (Level 3).
Impaired Loans: The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available for similar loans and collateral underlying such loans. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted in accordance with the allowance policy.
Other Real Estate Owned : Nonrecurring adjustments to certain commercial and residential real estate properties classified as other real estate owned (OREO) are measured at the lower of carrying amount or fair value, less costs to sell. Fair values are generally based on third party appraisals of the property resulting in a Level 3 classification. In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized.
24 |
Assets and liabilities measured at fair value on a recurring basis are summarized below (in thousands):
Fair Value Measurements at | ||||||||||||||||
September 30, 2015 Using: | ||||||||||||||||
Significant | ||||||||||||||||
Quoted Prices in | Other | Significant | ||||||||||||||
Active Markets for | Observable | Unobservable | ||||||||||||||
Carrying | Identical Assets | Inputs | Inputs | |||||||||||||
Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Financial Assets | ||||||||||||||||
Securities: | ||||||||||||||||
States and political subdivisions | $ | 17,269 | $ | - | $ | 17,269 | $ | - | ||||||||
U.S. Government agencies and sponsored entities | 11,210 | - | 11,210 | - | ||||||||||||
Mortgage backed securities: residential | 24,579 | - | 24,579 | - | ||||||||||||
Collateralized mortgage obligations | 7,153 | - | 7,153 | - | ||||||||||||
SBA loan pools | 5,360 | - | 5,360 | - | ||||||||||||
Total securities | $ | 65,571 | $ | - | $ | 65,571 | $ | - |
Fair Value Measurements at | ||||||||||||||||
December 31, 2014 Using: | ||||||||||||||||
Significant | ||||||||||||||||
Quoted Prices in | Other | Significant | ||||||||||||||
Active Markets for | Observable | Unobservable | ||||||||||||||
Carrying | Identical Assets | Inputs | Inputs | |||||||||||||
Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Financial Assets | ||||||||||||||||
Securities: | ||||||||||||||||
States and political subdivisions | $ | 17,746 | $ | - | $ | 17,746 | $ | - | ||||||||
U.S. Government agencies and sponsored entities | 13,986 | - | 13,986 | - | ||||||||||||
Mortgage backed securities: residential | 28,965 | - | 28,965 | - | ||||||||||||
Collateralized mortgage obligations | 4,565 | - | 4,565 | - | ||||||||||||
Total securities | $ | 65,262 | $ | - | $ | 65,262 | $ | - |
For the periods ended September 30, 2015 and December 31, 2014, there were no transfers between Level 1 and Level 2.
25 |
Assets measured at fair value on a non-recurring basis are summarized below (in thousands):
Fair Value Measurements at | ||||||||||||||||
September 30, 2015 Using: | ||||||||||||||||
Significant | ||||||||||||||||
Quoted Prices in | Other | Significant | ||||||||||||||
Active Markets for | Observable | Unobservable | ||||||||||||||
Carrying | Identical Assets | Inputs | Inputs | |||||||||||||
Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Impaired loans | ||||||||||||||||
Commercial real estate, net | $ | 211 | $ | - | $ | - | $ | 211 | ||||||||
Residential real estate, net | 101 | - | - | 101 |
Fair Value Measurements at | ||||||||||||||||
December 31, 2014 Using: | ||||||||||||||||
Significant | ||||||||||||||||
Quoted Prices in | Other | Significant | ||||||||||||||
Active Markets for | Observable | Unobservable | ||||||||||||||
Carrying | Identical Assets | Inputs | Inputs | |||||||||||||
Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Other real estate owned | ||||||||||||||||
One to four family, net | $ | 72 | $ | - | $ | - | $ | 72 | ||||||||
Commercial real estate, net | 115 | - | - | 115 |
Commercial and residential real estate properties classified as OREO are measured at fair value, less costs to sell. Fair values are based on recent real estate appraisals. These appraisals may use a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Appraisals for real estate properties classified as other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Bank’s management. The appraisal values are discounted to allow for selling expenses and fees, and the discounts range from 5% to 10%.
At September 30, 2015, impaired loans recorded at fair value had a net carrying amount of $312,000 made up of outstanding balance of $327,000, net of a valuation allowance of $15,000. There were no impaired loans recorded at fair value at December 31, 2014 or September 30, 2014. There were no charge-offs for the three months ended September 30, 2015 and $200,000 for the nine months ended September 30, 2015. The charge-offs and change in specific reserve on impaired loans resulted in an increase to the provision for loan losses of $215,000 for the nine months ended September 30, 2015. There were no charge-offs for the three and nine months ended September 30, 2014.
At September 30, 2015, no OREO was recorded at fair value. There were write-downs of $95,400 for the three and nine months ended September 30, 2015. At December 31, 2014, OREO recorded at fair value had a net carrying amount of $187,000 made up of the outstanding balance of $244,000, net of a valuation allowance of $57,000. At September 30, 2014, OREO recorded at fair value had a net carrying amount of $192,000 made up of the outstanding balance of $261,000, net of a valuation allowance of $69,000, which resulted in no writedown for the three months ended September 30, 2014 and a write-down of $54,000 for the nine months ended September 30, 2014.
26 |
The carrying amounts and estimated fair values of financial instruments at September 30, 2015 and December 31, 2014 are as follows (in thousands):
Fair Value Measurements | ||||||||||||||||||||
Carrying | ||||||||||||||||||||
Value | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
September 30, 2015 | ||||||||||||||||||||
Financial assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 15,542 | $ | 15,542 | $ | - | $ | - | $ | 15,542 | ||||||||||
Interest-bearing deposits | 1,494 | 1,494 | 1,494 | |||||||||||||||||
Securities | 65,571 | - | 65,571 | - | 65,571 | |||||||||||||||
Restricted stock | 3,276 | N/A | N/A | N/A | N/A | |||||||||||||||
Loans held for sale | 115 | - | 115 | - | 115 | |||||||||||||||
Loans, net | 310,643 | - | - | 326,175 | 326,175 | |||||||||||||||
Accrued interest receivable | 1,392 | - | 366 | 1,026 | 1,392 | |||||||||||||||
Financial liabilities | ||||||||||||||||||||
Deposits | $ | 335,392 | $ | 175,583 | $ | 161,211 | $ | - | $ | 336,794 | ||||||||||
Federal Home Loan Bank advances | 12,403 | 5,793 | 6,772 | - | 12,565 | |||||||||||||||
Subordinated debenture | 2,745 | - | 2,745 | - | 2,745 | |||||||||||||||
Accrued interest payable | 155 | - | 155 | - | 155 |
Fair Value Measurements | ||||||||||||||||||||
Carrying | ||||||||||||||||||||
Value | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
December 31, 2014 | ||||||||||||||||||||
Financial assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 16,967 | $ | 16,967 | $ | - | $ | - | $ | 16,967 | ||||||||||
Securities | 65,262 | - | 65,262 | - | 65,262 | |||||||||||||||
Restricted stock | 2,921 | N/A | N/A | N/A | N/A | |||||||||||||||
Loans held for sale | 712 | - | 712 | - | 712 | |||||||||||||||
Loans, net | 302,012 | - | - | 316,493 | 316,493 | |||||||||||||||
Accrued interest receivable | 1,347 | - | 293 | 1,054 | 1,347 | |||||||||||||||
Financial liabilities | ||||||||||||||||||||
Deposits | $ | 323,138 | $ | 159,384 | $ | 165,190 | $ | - | $ | 324,574 | ||||||||||
Federal Home Loan Bank advances | 17,952 | 9,000 | 9,171 | - | 18,171 | |||||||||||||||
Subordinated debenture | 2,697 | - | 2,697 | - | 2,697 | |||||||||||||||
Accrued interest payable | 47 | - | 47 | - | 47 |
The methods and assumptions, not previously presented, used to estimate fair values are described as follows:
Cash and Cash Equivalents:
The carrying amounts of cash and short-term instruments approximate fair values and are classified as Level 1.
Restricted Stock:
It is not practical to determine the fair value of FHLB and Bankers Bank of Kentucky stock due to restrictions placed on its transferability.
27 |
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. 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.
Deposits:
The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are by definition equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in a Level 1 classification. The carrying amounts of variable rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date resulting in a Level 1 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.
Federal Home Loan Bank advances and subordinate debenture:
The fair values of the Company’s long-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.
Accrued Interest Receivable/Payable:
The carrying amounts of accrued interest approximate fair value and are classified by level consistent with the level of the related assets or liabilities.
NOTE 7 - ESOP PLAN
Employees participate in an Employee Stock Ownership Plan (“ESOP”). The ESOP borrowed from the Company to purchase 269,790 shares of the Company’s common stock at $10 per share. The Company makes discretionary contributions to the ESOP, and pays dividends on unallocated shares to the ESOP, and the ESOP uses funds it receives to repay the loan. When loan payments are made, ESOP shares are allocated to participants based on relative compensation and expense is recorded. Dividends on allocated shares increase participant accounts. Participants receive the shares at the end of employment.
There were no contributions to the ESOP for the three and nine months ended September 30, 2015 or 2014.
Shares held by the ESOP at September 30, 2015 and December 31, 2014 were as follows (dollars in thousands):
September 30, | December 31, | |||||||
2015 | 2014 | |||||||
Allocated to participants | 42,832 | 29,967 | ||||||
Released, but unallocated | - | - | ||||||
Unearned | 225,952 | 239,442 | ||||||
Total ESOP shares | 268,784 | 269,409 | ||||||
Fair value of unearned shares | $ | 3,502 | $ | 3,561 |
28 |
NOTE 8 – EARNINGS PER SHARE
The factors used in the earnings per share computation for the three and nine months ended September 30, 2015 and 2014, were as follows (dollar amounts in thousands, except per share data):
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Basic | ||||||||||||||||
Net income | $ | 530 | $ | 883 | $ | 2,832 | $ | 969 | ||||||||
Less: Earnings allocated to participating securities | 9 | 23 | 55 | 30 | ||||||||||||
Net income available to common shareholders | 521 | 860 | 2,777 | 939 | ||||||||||||
Weighted average common shares outstanding | 3,938,130 | 3,881,917 | 3,876,984 | 3,737,468 | ||||||||||||
Less: Average unallocated ESOP shares | 225,949 | 239,439 | 233,559 | 239,439 | ||||||||||||
Average participating shares | 64,149 | 100,624 | 75,896 | 113,805 | ||||||||||||
Average shares | 3,648,032 | 3,541,854 | 3,567,529 | 3,384,224 | ||||||||||||
Basic earnings per common share | $ | 0.14 | $ | 0.24 | $ | 0.78 | $ | 0.28 | ||||||||
Diluted | ||||||||||||||||
Net income available to common shareholders | $ | 521 | $ | 860 | $ | 2,777 | $ | 939 | ||||||||
Weighted average common shares outstanding for basic earnings per common share | 3,648,032 | 3,541,854 | 3,567,529 | 3,384,224 | ||||||||||||
Add: Dilutive effects of assumed exercises of stock options | - | - | - | - | ||||||||||||
Average shares and dilutive potential common shares | 3,648,032 | 3,541,854 | 3,567,529 | 3,384,224 | ||||||||||||
Diluted earnings per common share | $ | 0.14 | $ | 0.24 | $ | 0.78 | $ | 0.28 |
There were no potentially dilutive securities outstanding at September 30, 2015. Stock options of 234,650 and 299,500 shares of common stock were not considered in computing diluted earnings per common share for 2015 or 2014 because they were antidilutive.
NOTE 9 – STOCK BASED COMPENSATION
On January 8, 2013, the shareholders of Poage Bankshares, Inc. approved the Poage Bankshares, Inc. 2013 Equity Incentive Plan (the “Plan”) for employees and directors of the Company. The Plan authorizes the issuance of up to 472,132 shares of the Company’s common stock, with no more than 134,895 of shares as restricted stock awards and 337,237 as stock options, either incentive stock options or non-qualified stock options. The exercise price of options granted under the Plan may not be less than the fair market value on the date the stock option is granted. The compensation committee of the board of directors has sole discretion to determine the amount and to whom equity incentive awards are granted.
On April 16, 2013, the compensation committee of the board of directors approved the issuance of 134,895 shares of restricted stock to its directors and officers. In addition, on May 10, 2013, the compensation committee of the board of directors approved the issuance of 300,000 stock options to its directors and officers. An additional 20,000 stock option shares were issued on March 19, 2014 as a result of the acquisition of Town Square Financial Corporation by Poage Bankshares, Inc. An additional 5,000 stock option shares were issued on May 31, 2015 to employees. All stock options and restricted stock awards vest ratably over five years. Stock options expire ten years after issuance. Apart from the vesting schedule for both stock options and restricted stock, there are no performance-based conditions or any other material conditions applicable to the awards issued.
29 |
The following table summarizes stock option activity for the nine months ended September 30, 2015:
Weighted Average | ||||||||
Options | Exercise Price | |||||||
Outstanding - December 31, 2014 | 299,500 | $ | 14.94 | |||||
Granted | 5,000 | 15.44 | ||||||
Exercised and settled | (57,500 | ) | 15.00 | |||||
Forfeited | (12,350 | ) | 14.86 | |||||
Outstanding - September 30, 2015 | 234,650 | 14.94 | ||||||
Fully vested and exercisable at September 30, 2015 | 105,350 | |||||||
Fully vested and exercisable at December 31, 2014 | 65,500 | |||||||
Expected to vest in future periods | 129,300 |
The fair value for each option grant is estimated on the date of grant using the Black-Scholes-Merton option pricing model that uses the following assumptions. The Company uses the U.S. Treasury yield curve in effect at the time of the grant to determine the risk-free interest rate. The expected dividend yield is estimated using the projected annual dividend level and recent stock price of the Company’s common stock at the date of grant. Expected stock volatility is based on historical volatilities of the Company’s common stock. The expected term of the options is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable.
The weighted-average assumptions used in the Black-Scholes-Merton option pricing model to determine the fair value of options granted was as follows:
Nine months ended | ||||
September 30, 2015 | ||||
Risk-free interest rate | 1.86 | % | ||
Expected dividend yield | 1.55 | % | ||
Expected stock volatility | 12.94 | |||
Expected life (years) | 7 | |||
Weighted average fair value of options granted | $ | 2.01 |
30 |
Stock options are assumed to be earned ratably over their respective vesting periods and charged to compensation expense based upon their grant date fair value and the number of options assumed to be earned. 55,500 options vested during the nine months ended September 30, 2015. Stock-based compensation expense (benefit) for stock options included in salaries and benefits for the three and nine months ended September 30, 2015 was ($4,000) and $56,000, respectively. Stock-based compensation expense for stock options included in salaries and benefits for the three and nine months ended September 30, 2014 was $32,000 and $93,000 respectively. Total unrecognized compensation cost related to non-vested stock options was $329,000 at September 30, 2015 and $386,000 at December 31, 2014 and is expected to be recognized over a period of 4-5 years.
The following table summarizes non-vested restricted stock activity for the nine months ended September 30, 2015:
Balance - December 31, 2014 | 100,624 | |||
Granted | - | |||
Forfeited | (11,868 | ) | ||
Vested | (33,191 | ) | ||
Balance - September 30, 2015 | 55,565 |
The fair value of the restricted stock awards is amortized to compensation expense over the vesting period (generally five years) and is based on the market price of the Company’s common stock at the date of the grant multiplied by the number of shares granted that are expected to vest. Stock-based compensation expense for the restricted stock included in salaries and benefits for the three and nine months ended September 30, 2015 was $36,000 and $237,000, respectively. Stock-based compensation expense for the restricted stock included in salaries and benefits for the three and nine months ended September 30, 2014 was $101,000 and $305,000, respectively. Unrecognized compensation expense for non-vested restricted stock awards was $848,000 at September 30, 2015 and $1.3 million at December 31, 2014 and is expected to be recognized over a weighted-average period of 4-5 years.
NOTE 10 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table is changes in Accumulated Other Comprehensive Income (Loss) by component, net of tax for the three and nine months ended September 30, 2015 (in thousands).
Unrealized Gains and Losses on Available-for-Sale Securities | ||||||||||||||||
Three months ended | Three months ended | Nine months ended | Nine months ended | |||||||||||||
September 30, 2015 | September 30, 2014 | September 30, 2015 | September 30, 2014 | |||||||||||||
Beginning balance | $ | 244 | $ | 160 | $ | 460 | $ | (851 | ) | |||||||
Other comprehensive income (loss), net of tax before reclassification | 246 | (112 | ) | 30 | 1,093 | |||||||||||
Amounts reclassified from accumulated to other comprehensive income for gains on sale of securities, net of tax expense of $6, $0, $6 and $100 respectively. | (12 | ) | - | (12 | ) | (194 | ) | |||||||||
Net current period other comprehensive income (loss) | 234 | (112 | ) | 18 | 899 | |||||||||||
Ending Balance | $ | 478 | $ | 48 | $ | 478 | $ | 48 |
31 |
NOTE 11 – BUSINESS COMBINATION
Effective May 31, 2015, the Company completed its previously reported acquisition of Commonwealth Bank, F.S.B., Mt. Sterling, Kentucky (“Commonwealth”), in a conversion merger transaction. The Company’s primary reason for undertaking the conversion merger is to fill-in its existing footprint along the Interstate 64 corridor between its main office in Ashland, Kentucky (Boyd County) and its Nicholasville branch office (Jessamine County). Montgomery County, where Commonwealth Bank is located, lies in between Boyd, Greenup and Lawrence Counties (to the northeast of Montgomery County) and Jessamine County (to the southwest of Montgomery County). As result of the conversion merger transaction, Commonwealth converted from a mutual to stock institution and merged with and into the Bank, with the Bank as the surviving institution, and the Company issued and sold 166,221 shares of common stock at a price of $12.73 per share, which reflected a 15% discount on the 30 day average price as prescribed in the merger agreement. The shares were offered to depositor and borrower members of Commonwealth in a subscription offering and to stockholders of the Company and members of the general public in a community offering. Gross offering proceeds totaled approximately $2.1 million. Commonwealth’s sole office, located in Mt. Sterling, Kentucky, has become a branch office of the Bank.
Acquisition costs of $617,000 are included in the Company’s consolidated statement of operations for the nine months ended September 30, 2015. These costs include $418,000 in early termination fees primarily attributable to data processing and $199,000 in professional fees for attorneys, accountants and consultants. The Company has determined that the acquisition constitutes a business combination as defined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations. Accordingly, the assets acquired and liabilities assumed are presented at their estimated fair values as required by the accounting guidance. Fair values were determined based on the requirements of ASC Topic 820, Fair Value Measurements.
In many cases, the determination of these fair values required management to make estimates about discount rates, future expected cash flows, market conditions and other future events which are highly subjective in nature and are subject to change. The assets acquired and liabilities assumed in the transaction are presented at estimated fair value on the acquisition date. These fair value estimates are considered preliminary, and are subject to change as additional information relative to acquisition date fair values becomes available. Therefore, we have not yet completed our evaluation of fair values and are continuing to work to finalize these estimates.
The Company recorded the following assets and liabilities as of May 31, 2015. The discounts and premiums resulting from the fair value adjustments will be accreted and amortized over the anticipated lives of the underlying excess fair value of assets and liabilities. The excess fair value of assets acquired over liabilities assumed, resulted in an estimated $1.6 million bargain purchase gain. The bargain purchase gain estimate is preliminary pending valuation of consideration of the mutual conversion and finalizing fair value estimates. The bargain purchase gain is recorded in non-interest income in the Company’s consolidated statement of income for the three and nine months ended September 30, 2015.
(in thousands) | May 31, 2015 | |||
Recognized amounts of identifiable assets acquired and liabilities assumed | ||||
Fair value of assets acquired | ||||
Cash and due from banks | $ | 2,355 | ||
Restricted stock | 299 | |||
Loans | 14,856 | |||
Premises and equipment, net | 1,333 | |||
Accrued interest receivable | 57 | |||
Prepaid expenses and other assets | 17 | |||
Deferred federal income taxes | 402 | |||
Core deposit intangible | 227 | |||
Total assets acquired | $ | 19,546 | ||
Fair value of liabilities assumed | ||||
Deposits | 15,403 | |||
FHLB advances | 2,316 | |||
Accrued interest payable | 22 | |||
Other liabilities | 215 | |||
Total liabilities assumed | $ | 17,956 |
32 |
At the acquisition date, the Company recorded $14.4 million of loans without evidence of credit quality deterioration and $434,000 of purchased credit-impaired loans subject to nonaccretable difference of $106,000. The acquired loans were deemed impaired at the acquisition date if the Company did not expect to receive all contractually required cash flows due to concerns about credit quality. Fair values for loans were based on discounted cash flow methodology that considered factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan and whether or not the loan was amortizing, and a discount rate reflecting current market rates for new originations of comparable loans adjusted for the risk inherent in the cash flow estimates. Certain loans that were determined to be collateral dependent were valued based on the fair value of the underlying collateral. These estimates were based on the most recently available real estate appraisals with certain adjustments made based on the type of property, age of appraisal, current status of the property and other related factors to estimate the current value of the collateral (in thousands).
Non-impaired Purchased Loans | Credit-impaired Purchased Loans | |||||||
Real estate mortgage loans: | ||||||||
Residential: | ||||||||
1-4 Family | $ | 13,282 | $ | 411 | ||||
Nonresidential and land | 438 | - | ||||||
Consumer Loans | 702 | 23 | ||||||
Total Loans | $ | 14,422 | $ | 434 |
The composition of the acquired loans at May 31, 2015 follows (in thousands):
Contractual Amount | Fair Value Adjustments | Fair Value | ||||||||||
Real estate mortgage loans: | ||||||||||||
Residential: | ||||||||||||
1-4 Family | $ | 14,001 | $ | (308 | ) | $ | 13,693 | |||||
Nonresidential and land | 450 | (12 | ) | 438 | ||||||||
Consumer Loans | 731 | (6 | ) | 725 | ||||||||
Total Loans | $ | 15,182 | $ | (326 | ) | $ | 14,856 |
Loans purchased in the acquisition are accounted for using one of two following accounting standards:
· | ASC Topic 310-20 is used to value loans that have not demonstrated post origination credit quality deterioration and the acquirer expect to collect all contractually required payments from the borrower. For these loans, the difference between fair value of the loan at acquisition and the amortized cost of the loan would be amortized or accreted into income using the interest method. |
· | ASC Topic 310-30 is used to value loans with post origination credit quality deterioration. For these loans, it is probable the acquirer will be unable to collect all contractually required payments from the borrower. Under ASC 310-30, the expected cash flows that exceed the initial investment in the loan (fair value) represent the “accretable yield,” which is recognized as interest income on a level-yield basis over the expected cash flow periods of the loans. The excess of the loan’s contractual principal and interest over the expected cash flows is the nonaccretable difference. |
33 |
The following table presents the purchased loans that are included within the scope of ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality as of May 31, 2015 (in thousands):
Contractually-required principal and interest payments | $ | 551 | ||
Non-Accretable difference | (106 | ) | ||
Accretable yield | (11 | ) | ||
$ | 434 |
The following table presents pro forma information as if the acquisition had occurred January 1, 2014.
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(in thousands, except per share data) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Net Interest Income | $ | 4,225 | $ | 4,175 | $ | 12,568 | $ | 11,475 | ||||||||
Net Income before tax | $ | 725 | $ | 1,161 | $ | 2,247 | $ | 2,207 | ||||||||
Income tax expense | 247 | 395 | 764 | 210 | ||||||||||||
Net Income | $ | 479 | $ | 766 | $ | 1,483 | $ | 1,997 | ||||||||
Basic earnings per share | $ | 0.13 | $ | 0.20 | $ | 0.41 | $ | 0.55 | ||||||||
Diluted earnings per share | $ | 0.13 | $ | 0.20 | $ | 0.41 | $ | 0.55 |
To determine pro forma information, the Company adjusted its three and nine months ended September 30, 2015 and three and nine months ended September 30, 2014 historical results to include the historical results for Commonwealth for the period January 1, 2014 to May 31, 2015 and the three and nine months ended September 30, 2014.
The pro forma information includes adjustments for interest income on loans acquired, amortization of intangibles arising from the transaction, depreciation expense on property acquired, interest expense on deposits acquired, and the related income tax effects.
Expenses related to the acquisition including professional fees and integration costs are excluded from the period in which the amounts were recognized and included in earlier periods as if the acquisition occurred on January 1, 2014. During the three and nine months ended September 30, 2015 and 2014, acquisition related expenses amounted to $21,000, $810,000, $55,000 and $129,000, respectively.
The pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transactions been effected on the assumed dates.
34 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Critical Accounting Policies
There are no material changes to the critical accounting policies disclosed in the Annual Report on Form 10-K for Poage Bankshares, Inc. for the year ended December 31, 2014, as filed with the Securities and Exchange Commission.
Forward-Looking Statement s
This Quarterly Report contains forward-looking statements, which can be identified by the use of such words as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect,” “will,” “may,” and similar expressions. These forward-looking statements include, but are not limited to:
> | statements of our goals, intentions and expectations; | |
> | statements regarding our business plans and prospects and growth and operating strategies; | |
> | statements regarding the asset quality of our loan and investment portfolios; | |
> | estimates of our risks and future costs and benefits; | |
> | statements about the benefits of the acquisition of Town Square Financial Corporation and Town Square Bank and the acquisition of Commonwealth Bank FSB (“Commonwealth”), including future financial and operating results, cost savings, enhancements to revenue and accretion to reported earnings that may be realized from the acquisition; and | |
> | statements about the financial condition, results of operations and business of Poage Bankshares. |
These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic, and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this Quarterly Report.
The following factors, among others, could cause the actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:
Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.
> | our ability to manage our operations under the current adverse economic conditions (including real estate values, loan demand, inflation, commodity prices and unemployment levels) nationally and in our market area; |
> | adverse changes in the financial industry, securities, credit and national local real estate markets (including real estate values); |
> | significant increases in our loan losses, including as a result of our inability to resolve classified assets, and management’s assumptions in determining the adequacy of the allowance for loan losses; |
> | credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and in our allowance for loan losses and provision for loan losses; |
> | our ability to successfully enhance internal controls; |
> | our business may not be integrated successfully with the businesses of Town Square Financial Corporation and Commonwealth, or such integration may take longer to accomplish than expected; |
> | the growth opportunities and cost savings from the acquisitions of Town Square Financial Corporation and Commonwealth may not be fully realized or may take longer to realize than expected; |
> |
our ability to manage increased expenses following the acquisitions of Town Square Financial Corporation and Commonwealth, including salary and employee benefit expenses and occupation expenses; |
35 |
> | operating costs, customer losses and business disruption following the acquisitions of Town Square Financial Corporation and Commonwealth, including adverse effects of relationships with employees, may be greater than expected; |
> | competition among depository and other financial institutions; |
> | our success in increasing our originations of adjustable-rate mortgage loans; |
> | our success in increasing our commercial business and commercial real estate; |
> | our ability to improve our asset quality even as we increase our commercial business, commercial real estate and multi-family lending, including as a result of the acquisitions of Town Square Financial Corporation and Commonwealth; |
> | our ability to retain customers and name recognition in the communities we serve as a result of changing our name to “Town Square Bank”; |
> | our success in introducing new financial products; |
> | our ability to attract and maintain deposits, including depositors of the former Town Square Bank and former depositors of Commonwealth Bank; |
> | decreases in our asset quality; |
> | changes in interest rates generally, including changes in the relative differences between short term and long term interest rates and in deposit interest rates, that may affect our net interest margin and funding sources; |
> | fluctuations in the demand for loans, which may be affected by the number of unsold homes, land and other properties in our market areas and by declines in the value of real estate in our market area; |
> | changes in consumer spending, borrowing and savings habits; |
> | declines in the yield on our assets resulting from the current low interest rate environment; |
> | risks related to a high concentration of loans secured by real estate located in our market area; |
> | the results of examinations by our regulators, including the possibility that our regulators may, among other things, require us to increase our reserve for loan losses, write down assets, change our regulatory capital position, limit our ability to borrow funds or maintain or increase deposits, or prohibit us from paying dividends, which could adversely affect our dividends and earnings; |
> | changes in laws or government regulations or policies affecting financial institutions, including the Dodd-Frank Act and the JOBS Act, which could result in, among other things, increased deposit insurance premiums and assessments, capital requirements (particularly the new capital regulations), regulatory fees and compliance costs and the resources we have available to address such changes; |
> | changes in the level of government support of housing finance; |
> | our ability to enter new markets successfully and capitalize on growth opportunities |
> | changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board; |
> | changes in our organization, compensation and benefit plans and our ability to retain key members of our senior management team; |
> | loan delinquencies and changes in the underlying cash flows of our borrowers; |
> | the failure or security breaches of computer systems on which we depend; |
> | the ability of key third-party providers to perform their obligations to us; and |
> | changes in the financial condition or future prospects of issuers of securities that we own. |
36 |
Comparison of Financial Condition at September 30, 2015 and December 31, 2014
At September 30, 2015, the Company’s assets totaled $ 425.3 million, an increase of $10.6 million, or 2.6%, from $414.7 million at December 31, 2014. The increase was primarily attributed to the acquisition of Commonwealth, growth in deposit accounts resulting from the migration of customers from a competitor in the Louisa, Kentucky market following their acquisition and new accounts and increased balances for city governments in Flatwoods and Ashland, Kentucky, offset by a decrease in Federal Home Bank Advances. See Footnote 11 under “Item 1: Financial Information” for information on the Commonwealth acquisition.
Cash and Cash equivalents decreased by $1.5 million, or 8.4%, to $15.5 million at September 30, 2015 from $17.0 million at December 31, 2014. The decrease was attributable to the purchase of $9.5 million in available for sale securities, the purchase of $1.5 million in interest-bearing deposits from other institutions and decrease in outstanding FHLB advance balances of $5.5 million offset by the increase in deposits.
Interest-bearing deposits in other institutions increased $1.5 million, or 100%, to $1.5 million at September 30, 2015 from $0 at December 31, 2014.
Loans held for sale decreased $597,000, or 83.8%, to $115,000 at September 30, 2015 from $712,000 at December 31, 2014.
Loans receivable, net, increased $8.6 million, or 2.9%, to $310.6 million at September 30, 2015 from $302.0 million at December 31, 2014. The increase was primarily attributable to the acquisition of Commonwealth, offset by the decrease in lines of credit. Real estate secured loans increased $3.7 million, commercial loans increased $3.9 million and consumer loans increased $1.3 million during the nine month period ending September 30, 2015. Non-performing loans increased $412,000, or 12.3%, to $3.8 million at September 30, 2015 from $3.4 million at December 31, 2014. The loans acquired from Commonwealth consist primarily of smaller one to four family residential mortgages.
Securities available for sale increased by $309,000, or 0.5%, to $65.6 million at September 30, 2015 from $65.3 million at December 31, 2014. This increase is due to $9.3 million in purchases, offset by $9.0 million in sales, calls, regular maturities and principal payments.
Deposits increased $12.3 million, or 3.8%, to $335.4 million at September 30, 2015 from $323.1 million at December 31, 2014. The increase was primarily attributable to the Commonwealth acquisition and new accounts and increased balances for city governments in two markets we serve.
Federal Home Loan Bank advances decreased $5.6 million, or 30.9%, to $12.4 million at September 30, 2015 from $18.0 million at December 31, 2014. This decrease in borrowings was primarily due to regular principal payments and maturities offset by advances acquired as a result of the Commonwealth acquisition.
Other borrowings increased by $48,000 to $2.7 million at September 30, 2015 from $2.7 million at December 31, 2014 due to the amortization of the fair value related to the subordinated debenture assumed in conjunction with acquisition of Town Square Financial Corporation. In December 2006, Town Square Statutory Trust I, a trust formed by Town Square Financial Corporation, closed a pooled private offering of 4,124 trust preferred securities with a liquidation amount of $1,000 per security. The subordinated debt of $2.7 million is shown as a liability because the Company is not considered the primary beneficiary of the Trust. The investment in common stock of the trust is $124,000 and is included in other assets. The subordinated debt has a variable rate of interest equal to the three month London Interbank Offered Rate (LIBOR) plus 1.83%, which was 2.17% at September 30, 2015.
Total shareholders’ equity increased by $2.7 million, or 3.9%, to $70.8 million at September 30, 2015, compared to $68.2 million at December 31, 2014. The increase resulted from 166,221 shares issued, totaling $1.7 million, in the offering, completed in connection with the Commonwealth acquisition and net income of $2.8 million for the nine months ended September 30, 2015 and an increase in other comprehensive income of $18,000, offset by the repurchase of common stock totaling $1.6 million and the payment of cash dividends totaling $657,000.
37 |
Average Balance and Yields
The following tables set forth average balance sheets, average yields and costs, and certain other information at the dates and for the periods indicated. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the tables as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income. Interest income and rates exclude the effects of a tax equivalent adjustment to adjust tax exempt investment income on tax exempt investment securities to a fully taxable basis due to immateriality.
The average balance, interest and dividends paid and received, and yield/cost of assets and liabilities include assets and liabilities acquired through the Town Square and Commonwealth acquisitions. Because the Town Square acquisition was consummated on March 18, 2014, the information for the three and nine months ended September 30, 2015 and three months ended September 30, 2014 reflects the accretive benefits and costs from the transaction, but the information for the nine months ended September 30, 2014 only partially reflects the benefits and costs from the transactions. Because the Commonwealth acquisition was consummated on May 31, 2015, the information for the nine months ended September 30, 2015, only partially reflects the benefits and costs from the transaction.
For the Three Months Ended September 30, | ||||||||||||||||||||||||
2015 | 2014 | |||||||||||||||||||||||
Average Balance | Interest and Dividends | Yield/ Cost | Average Balance | Interest and Dividends | Yield/ Cost | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||
Loans | $ | 317,048 | $ | 4,380 | 5.48 | % | $ | 302,352 | $ | 4,233 | 5.55 | % | ||||||||||||
Investment securities | 66,606 | 357 | 2.13 | % | 69,166 | 333 | 1.91 | % | ||||||||||||||||
FHLB stock | 3,036 | 30 | 3.92 | % | 2,681 | 28 | 4.14 | % | ||||||||||||||||
Other interest-earning assets | 14,819 | 5 | 0.13 | % | 19,214 | 10 | 0.21 | % | ||||||||||||||||
Total interest-earning assets | 401,509 | 4,772 | 4.72 | % | 393,413 | 4,604 | 4.64 | % | ||||||||||||||||
Noninterest-earning assets | 29,216 | 26,611 | ||||||||||||||||||||||
Total assets | 430,725 | 420,024 | ||||||||||||||||||||||
Liabilities and equity: | ||||||||||||||||||||||||
Interest bearing liabilities: | ||||||||||||||||||||||||
Interest bearing deposits: | ||||||||||||||||||||||||
NOW, savings, money market, and other | 130,027 | 57 | 0.17 | % | 110,733 | 49 | 0.18 | % | ||||||||||||||||
Certificates of deposit | 160,168 | 397 | 0.98 | % | 167,397 | 412 | 0.98 | % | ||||||||||||||||
Total interest bearing deposits | 290,195 | 454 | 0.62 | % | 278,130 | 461 | 0.66 | % | ||||||||||||||||
FHLB advances | 13,692 | 55 | 1.59 | % | 26,756 | 80 | 1.19 | % | ||||||||||||||||
Subordinated Debenture | 2,735 | 38 | 5.51 | % | 2,649 | 54 | 8.09 | % | ||||||||||||||||
Total interest bearing liabilities | 306,622 | 547 | 0.71 | % | 307,535 | 595 | 0.77 | % | ||||||||||||||||
Non-interest bearing liabilities: | ||||||||||||||||||||||||
Non-interest bearing deposits | 48,677 | 43,150 | ||||||||||||||||||||||
Accrued interest payable | 231 | 337 | ||||||||||||||||||||||
Other liabilities | 4,090 | 2,298 | ||||||||||||||||||||||
Total non-interest bearing liabilities | 52,998 | 45,785 | ||||||||||||||||||||||
Total liabilities | 359,620 | 353,320 | ||||||||||||||||||||||
Total equity | 71,105 | 66,704 | ||||||||||||||||||||||
Total liabilities and equity | 430,725 | 420,024 | ||||||||||||||||||||||
Net interest income | 4,225 | 4,009 | ||||||||||||||||||||||
Interest rate spread | 4.01 | % | 3.88 | % | ||||||||||||||||||||
Net interest margin | 4.17 | % | 4.04 | % | ||||||||||||||||||||
Average interest-earning assets to average interest-bearing liabilities | 130.95 | % | 127.92 | % |
38 |
For the Nine Months Ended September 30, | ||||||||||||||||||||||||
2015 | 2014 | |||||||||||||||||||||||
Average Balance | Interest and Dividends | Yield/ Cost | Average Balance | Interest and Dividends | Yield/ Cost | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||
Loans | $ | 309,545 | $ | 12,770 | 5.52 | % | $ | 267,693 | $ | 11,077 | 5.53 | % | ||||||||||||
Investment securities | 67,672 | 1,069 | 2.11 | % | 79,803 | 1,383 | 2.32 | % | ||||||||||||||||
FHLB stock | 2,848 | 84 | 3.94 | % | 2,485 | 76 | 4.09 | % | ||||||||||||||||
Other interest-earning assets | 16,289 | 18 | 0.15 | % | 13,646 | 22 | 0.22 | % | ||||||||||||||||
Total interest-earning assets | 396,354 | 13,941 | 4.70 | % | 363,627 | 12,558 | 4.62 | % | ||||||||||||||||
Noninterest-earning assets | 27,269 | 24,585 | ||||||||||||||||||||||
Total assets | 423,623 | 388,212 | ||||||||||||||||||||||
Liabilities and equity: | ||||||||||||||||||||||||
Interest bearing liabilities: | ||||||||||||||||||||||||
Interest bearing deposits: | ||||||||||||||||||||||||
NOW, savings, money market, and other | 124,853 | 168 | 0.18 | % | 107,833 | 139 | 0.17 | % | ||||||||||||||||
Certificates of deposit | 160,216 | 1,183 | 0.99 | % | 149,392 | 1,119 | 1.00 | % | ||||||||||||||||
Total interest bearing deposits | 285,069 | 1,351 | 0.63 | % | 257,225 | 1,258 | 0.65 | % | ||||||||||||||||
FHLB advances | 15,461 | 184 | 1.59 | % | 28,357 | 267 | 1.26 | % | ||||||||||||||||
Subordinated Debenture | 2,719 | 114 | 5.61 | % | 1,901 | 78 | 5.49 | % | ||||||||||||||||
Total interest bearing liabilities | 303,249 | 1,649 | 0.73 | % | 287,483 | 1,603 | 0.75 | % | ||||||||||||||||
Non-interest bearing liabilities: | ||||||||||||||||||||||||
Non-interest bearing deposits | 46,782 | 34,332 | ||||||||||||||||||||||
Accrued interest payable | 186 | 213 | ||||||||||||||||||||||
Other liabilities | 4,259 | 2,700 | ||||||||||||||||||||||
Total non-interest bearing liabilities | 51,227 | 37,245 | ||||||||||||||||||||||
Total liabilities | 354,476 | 324,728 | ||||||||||||||||||||||
Total equity | 69,147 | 63,484 | ||||||||||||||||||||||
Total liabilities and equity | 423,623 | 388,212 | ||||||||||||||||||||||
Net interest income | 12,292 | 10,955 | ||||||||||||||||||||||
Interest rate spread | 3.98 | % | 3.87 | % | ||||||||||||||||||||
Net interest margin | 4.15 | % | 4.03 | % | ||||||||||||||||||||
Average interest-earning assets to average interest-bearing liabilities | 130.70 | % | 126.49 | % |
39 |
Liquidity and Capital Resources
Our primary sources of funds are deposits and the proceeds from principal and interest payments on loans and investment securities. We also utilize Federal Home Loan Bank advances. While maturities and scheduled amortization of loans and securities are predicable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. We generally manage the pricing of our deposits to be competitive within our market and to increase core deposit relationships.
Liquidity management is both a daily and long-term responsibility of management. We adjust our investments in liquid assets based upon management’s assessment of (i) expected loan demand, (ii) expected deposit flows, (iii) yields available on interest-earning deposits and investment securities, and (iv) the objectives of our asset/liability management program. Excess liquid assets are invested generally in interest-earning overnight deposits, federal funds sold, and short and intermediate-term investment securities. If we require funds beyond our ability to generate them internally we have additional borrowing capacity with the Federal Home Loan Bank of Cincinnati. At September 30, 2015, we had $12.4 million in advances from the Federal Home Loan Bank of Cincinnati and an additional borrowing capacity of $96.6 million.
Poage Bankshares, Inc. is a separate legal entity from Town Square Bank and must provide its own liquidity to pay dividends, repurchase stock and to fund other general corporate activities. Poage Bankshares, Inc.’s primary source of liquidity is dividend payments from Town Square Bank. The ability of Town Square Bank to pay dividends is subject to regulatory requirements. At September 30, 2015, Poage Bankshares, Inc. (on an unconsolidated basis) had liquid assets of $3.6 million.
The Bank is subject to various regulatory capital requirements administered by its primary federal regulator, the Office of the Comptroller of the Currency (“OCC”). Failure to meet the minimum regulatory capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that if undertaken, could have a direct material effect on the Bank and the consolidated financial statements. Under the regulatory capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines involving quantitative measures of the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices.
The Bank's capital amounts and classification under the prompt corrective action guidelines are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
On July 9, 2013, the Federal Reserve and the FDIC approved rules that implement the “Basel III” regulatory capital reforms, as well as certain changes required by the Dodd-Frank Act. The rules include a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets, which is in addition to the Tier 1 and Tier 2 risk-based capital requirements. The capital conservation buffer will be phased in over four years beginning on January 1, 2016, with a maximum buffer of 0.625% of risk-weighted assets for 2016, 1.25% for 2017, 1.875% for 2018, and 2.5% for 2019 and thereafter. Failure to maintain the required capital conservation buffer will result in limitations on capital distributions and on discretionary bonuses to executive officers. Based on the Company’s current capital composition and levels, management does not presently anticipate that the rules present a material risk to the Company’s financial condition or results of operations.
As of September 30, 2015, the capital of the Bank exceeded all required regulatory guidelines.
40 |
The following table reflects the Bank’s current regulatory capital levels in more detail, including comparisons to the regulatory minimums at September 30, 2015 and December 31, 2014 (in thousands).
To Be Well | ||||||||||||||||||||||||
Capitalized Under | ||||||||||||||||||||||||
For Capital Adequacy | Prompt Corrective | |||||||||||||||||||||||
Actual | Purposes | Action Regulations | ||||||||||||||||||||||
As of September 30, 2015: | Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||
Total Risk-Based Capital | ||||||||||||||||||||||||
(to Risk-weighted Assets) | $ | 66,662 | 23.79 | % | $ | 22,420 | 8.00 | % | $ | 28,025 | 10.00 | % | ||||||||||||
Tier I Capital | ||||||||||||||||||||||||
(to Risk-weighted Assets) | 64,613 | 23.06 | % | 16,815 | 6.00 | % | 22,420 | 8.00 | % | |||||||||||||||
Common Equity | ||||||||||||||||||||||||
(to Risk-weighted Assets) | 64,613 | 23.06 | % | 12,611 | 4.50 | % | 18,216 | 6.50 | % | |||||||||||||||
Tier I Capital | ||||||||||||||||||||||||
(to Adjusted Total Assets) | 64,613 | 23.06 | % | 17,128 | 4.00 | % | 21,410 | 5.00 | % |
To Be Well | ||||||||||||||||||||||||
Capitalized Under | ||||||||||||||||||||||||
For Capital Adequacy | Prompt Corrective | |||||||||||||||||||||||
Actual | Purposes | Action Regulations | ||||||||||||||||||||||
As of December 31, 2014: | Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||
Total Risk-Based Capital | ||||||||||||||||||||||||
(to Risk-weighted Assets) | $ | 64,002 | 24.34 | % | $ | 21,034 | 8.00 | % | $ | 26,293 | 10.00 | % | ||||||||||||
Tier I Capital | ||||||||||||||||||||||||
(to Risk-weighted Assets) | 62,068 | 23.61 | % | 10,517 | 4.00 | % | 15,776 | 6.00 | % | |||||||||||||||
Tier I Capital | ||||||||||||||||||||||||
(to Adjusted Total Assets) | 62,068 | 15.07 | % | 16,477 | 4.00 | % | 20,597 | 5.00 | % |
Off-Balance Sheet Arrangements. In the normal course of operations, we engage in a variety of financial transactions that, in accordance with U.S. generally accepted accounting principles, are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments and lines of credit. These arrangements are not expected to have a material impact on the Company’s financial condition or results of operations.
41 |
Comparison of Operating Results for the Three and Nine Months Ended September 30, 2015 and September 30, 2014
General. Net income decreased $353,000 to $530,000 for the three months ended September 30, 2015 from net income of $883,000 for the three months ended September 30, 2014. The decrease in net income is attributable to a decrease in non-interest income of $6,000 to $780,000 for the three months ended September 30, 2015 from $786,000 for the three months ending September 30, 2014 and an increase in non-interest expense of $705,000 to $4.3 million for the three months ended September 30, 2015 from $3.6 million for the three months ended September 30, 2014. The decrease was offset by an increase in interest income of $168,000 to $4.8 million for the three months ended September 30, 2015 from $4.6 million for the three months ended September 30, 2014 and a decrease in interest expense of $48,000 to $547,000 for the three months ended September 30, 2015 from $595,000 for the three months ended September 30, 2014. In addition, provision for loan losses decreased $27,000 to $0 for the three months ended September 30, 2015 from $27,000 in provision for the three months ended September 30, 2014 and federal income tax expense decreased $115,000 to $174,000 for the three months ending September 30, 2015 from $289,000 for the three months ended September 30, 2014.
Net income increased $1.9 million to $2.8 million for the nine months ended September 30, 2015 from net income of $969,000 for the nine months ended September 30, 2014. The increase in net income reflected a $1.6 million preliminary gain on the Commonwealth business combination for the nine month period ended September 30, 2015 with no such gain for the nine month period ending September 30, 2014. In addition, interest income increased $1.4 million to $13.9 million for the nine months ended September 30, 2015 from $12.5 million for the nine months ended September 30, 2014 and non-interest income increased $1.7 million to $3.8 million for the nine months ended September 30, 2015 from $2.2 million, The increase was offset by an increase in provision for loan losses of $458,000 to $485,000 for the nine months ended September 30, 2015 from $27,000 for the nine months ended September 30, 2014, an increase in non-interest interest expense of $531,000 to $12.3 million for the nine months ended September 30, 2015 from $11.8 million for the nine months ended September 30, 2014 and an increase in income tax expense of $165,000 to $512,000 for the nine months ended September 30, 2015 from $347,000 for the nine months ended September 30, 2014.
Interest Income. Interest income increased $168,000, or 3.6%, to $4.8 million for the three months ended September 30, 2015 from $4.6 million for the three months ended September 30, 2014. The average balance of interest-earning assets increased $8.1 million, or 2%, to $401.5 million from $393.4 million. The increase in primarily attributable to the acquisition of Commonwealth on May 31, 2015.
Interest income increased $1.4 million, or 11.0%, to $13.9 million for the nine months ended September 30, 2015 from $12.6 million for the nine months ended September 30, 2014. Because the Town Square Financial Corporation acquisition was consummated on March 18, 2014, the information for the nine months ended September 30, 2015 reflects the accretive benefits from the transaction, but the information for the nine months ended September 30, 2014 only partially reflects the benefits from the transactions. Because the Commonwealth acquisition was consummated on May 31, 2015, the information for the nine months ended September 30, 2014 does not reflect the accretive benefits from the transaction.
Interest income on loans increased $147,000, or 3.5%, to $4.4 million for the three months ended September 30, 2015 from $4.2 million for the three months ended September 30, 2014. The average yields on loans decreased 7 basis points to 5.48% for the three months ended September 30, 2015, compared to 5.55% for the three months ended September 30, 2014. The average balance of loans increased $14.7 million, or 4.9%, to $317.0 million for the three months ended September 30, 2015 from $302.4 million for the three months ended September 30, 2014. Interest income on investment securities increased $24,000, or 7.2%, to $357,000 for the three months ended September 30, 2015 from $333,000 for the three months ended September 30, 2014. The average yield on securities increased 22 basis points to 2.13% for the three months ended September 30, 2015, compared to 1.91% for the three months ended September 30, 2014. The average balance of investment securities decreased $2.6 million, or 3.7%, to $66.6 million for the three months ended September 30, 2015 from $69.2 million for the three months ended September 30, 2014.
Interest income on loans increased $1.7 million, or 15.3%, to $12.8 million for the nine months ended September 30, 2015 from $11.1 million for the nine months ended September 30, 2014. The average yields on loans decreased 1 basis point to 5.52% for the nine months ended September 30, 2015, compared to 5.53% for the nine months ended September 30, 2014. The average balance of loans increased $41.9 million, or 15.6%, to $309.5 million for the nine months ended September 30, 2015 from $267.7 million for the nine months ended September 30, 2014. The increase in interest income is attributable to the acquisition of Town Square Financial Corporation on March 18, 2014 and to a lesser extent the acquisition of Commonwealth on May 31, 2015. Interest income on investment securities decreased $314,000, or 22.7%, to $1.1 million for the nine months ended September 30, 2015 from $1.4 million for the nine months ended September 30, 2014. The average yield on securities decreased 21 basis points to 2.11% for the nine months ended September 30, 2015, compared to 2.32% for the nine months ended September 30, 2014. The average balance of investment securities decreased $12.1 million, or 15.2%, to $67.7 million for the nine months ended September 30, 2015 from $79.8 million for the nine months ended September 30, 2014 due to the sale of $19.7 million in investment securities during the nine months ended September 30, 2014.
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Interest Expense. Interest expense decreased $48,000, or 8.1%, to $547,000 for the three months ended September 30, 2015 from $595,000 for the three months ended September 30, 2014. Interest expense on interest bearing deposits decreased $7,000, or 1.5% to $454,000 for the three months ended September 30, 2015 from $461,000 for the three months ended September 30, 2014. The average balance of interest bearing deposits increased $12.1 million to $290.2 million for the three months ended September 30, 2015 from $278.1 million for the three months ended September 30, 2014, offset by a decrease of 4 basis points in the average interest rate paid on interest bearing deposits to 0.62% from 0.66% for the same periods. Interest expense on FHLB advances and subordinated debentures decreased $41,000, or 30.6%, to $93,000 for the three months ended September 30, 2015 from $134,000 for the three months ended September 30, 2014. The average balance on FHLB advances decreased $13.1 million to $13.7 million for the three months ended September 30, 2015 from $26.8 million for the three months ended September 30, 2014, offset by a 41 basis point increase in the average rate paid on the FHLB advances to 1.59% from 1.19% as short-term borrowings with lower interest rates matured. The average balance on subordinated debentures increased $86,000, or 3.2%, to $2.7 million for the three months ended September 30, 2015 from $2.6 million for the three months ended September 30, 2014 offset by a 257 basis points decrease in the average rate paid on the subordinated debentures to 5.51% from 8.09% resulting from the amortization of fair value recognized during the three months ended September 30, 2014.
Interest expense increased $46,000, or 2.9%, to $1.6 million for the nine months ended September 30, 2015 from $1.6 million for the nine months ended September 30, 2014. Interest expense on interest bearing deposits increased $93,000, or 7.4% to $1.4 million for the nine months ended September 30, 2015 from $1.3 million for the nine months ended September 30, 2014. The average balance of interest bearing deposits increased $27.8 million to $285.1 million for the nine months ended September 30, 2015 from $257.2 million for the nine months ended September 30, 2014, offset by a decrease of 2 basis points in the average interest rate paid on interest bearing deposits to 0.63% from 0.65% for the same periods. The increase in deposits is primarily attributable to the acquisition of Town Square Financial Corporation and deposit growth in the Louisa, Flatwoods and Ashland markets. Interest expense on FHLB advances and subordinated debentures decreased $47,000, or 13.6%, to $298,000 for the nine months ended September 30, 2015 from $345,000 for the nine months ended September 30, 2014. The average balance on FHLB advances decreased $12.9 million to $15.5 million for the nine months ended September 30, 2015 from $28.4 million for the nine months ended September 30, 2014, offset by a 33 basis points increase in the average rate paid on the FHLB advances to 1.59% from 1.26% as short-term borrowings with lower interest rates matured. The average balance on subordinated debentures increased $818,000, or 43.1%, to $2.7 million for the nine months ended September 30, 2015 from $1.9 million for the nine months ended September 30, 2014. The average rate paid on the subordinated debentures increased 12 basis points to 5.61% from 5.49% resulting from the amortization of fair value recognized during the nine months ended September 30, 2014.
Net Interest Income. Net interest income increased $216,000, or 5.4%, to $4.2 million for the three months ended September 30, 2015 from $4.0 million for the three months ended September 30, 2014. The increase in net interest income was due to an increase in our interest rate spread of 13 basis points to 4.01% from 3.88%, combined with an increase in the ratio of our average interest earning assets to average interest bearing liabilities to 130.95% from 127.92%. Our net interest margin increased 13 basis points to 4.17% from 4.04%. The interest rate spread and net interest margin for the three months ended September 30, 2015 increased due to the higher yields on assets combined with lower costs on deposits and other borrowings for the three months ended September 30, 2015 as compared the three months ended September 30, 2014. This increase is due in part to a $99,000 increase in income recognized from purchase discounts to $342,000 for the three months ended September 30, 2015 compared to $243,000 for the three months ended September 30, 2014.
Net interest income increased $1.3 million, or 12.2%, to $12.3 million for the nine months ended September 30, 2015 from $11.0 million for the nine months ended September 30, 2014. The increase in net interest income was due to an increase in our interest rate spread of 11 basis points to 3.98% from 3.87%, combined with an increase in the ratio of our average interest earning assets to average interest bearing liabilities to 130.70% from 126.49%. Our net interest margin increased 12 basis points to 4.15% from 3.03%. The increase in the interest rate spread and net interest margin for the nine months ended September 30, 2015 increased due to the higher yields on assets combined with lower costs on deposits and other borrowings for the nine months ended September 30, 2015 as compared to the nine month ended September 30, 2014. This increase is due in part to a $477,000 increase in income recognized from purchase discounts to $955,000 for the nine months ended September 30, 2015 compared to $478,000 for the nine months ended September 30, 2014.
Provision for Loan Losses. We recorded no provision for loan losses for the three months ended September 30, 2015 and $27,000 provision for loan losses for the three months ended September 30, 2014. The provisions for each period were based on management’s quarterly calculations and reflect the minimal levels of nonperforming loans and charge-offs, net of recoveries, during the periods. The decrease in the provision for three months ended September 30, 2015 is primarily attributable to lesser charge-offs, net of recoveries, on loans. Additionally, the substandard risk rating category remained stable during the past six months.
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We recorded $485,000 for the provision for loan losses for the nine months ended September 30, 2015 and $27,000 provision for loan losses for the nine months ended September 30, 2014. The provisions for each period were based on management’s quarterly calculations and reflect the minimal levels of nonperforming loans and charge-offs, net of recoveries, during the periods. The increase in the provision for nine months ended September 30, 2015 is primarily attributable to $218,000 in charge-offs, net of recoveries, for commercial and residential real estate, $22,000 in charge-offs, net of recoveries, for commercial and industrial and $143,000 in charge-offs, net of recoveries, on consumer loans. The bank’s overall asset quality indicates a stable trend, despite noted increases in the bank’s residential real estate delinquency and classified risk rating categories during the past twelve months.
Noninterest Income. Noninterest income decreased $6,000, or 0.8%, to $780,000 for the three months ended September 30, 2015 from $786,000 for the three months ended September 30, 2014. The decrease in noninterest income was primarily attributable to the decrease in mortgage banking activity of $72,000, or 33.8%, to $141,000 for the three months ending September 30, 2015, from $213,000 for the three months ended September 30, 2014, offset by an increase in bargain purchase gain of $35,000, related to the Commonwealth transaction, or 100%, to $35,000 for the three months ended September 30, 2015, an increase in service charges on deposits of $22,000, or 4.3%, to $529,000 for the three months ended September 30, 2015 from $507,000 for the three months ended September 30, 2014 and by the increase in net gains on sales of securities of $12,000, or 100.0%, to $12,000 for the three months ended September 30, 2015 from $0 for the three months ended September 30, 2014.
Noninterest income increased $1.7 million, or 77.7%, to $3.8 million for the nine months ended September 30, 2015 from $2.2 million for the nine months ended September 30, 2014. The increase in noninterest income was primarily attributable to the bargain purchase gain of $1.6 million on the acquisition of Commonwealth on May 31, 2015, an increase in service charges on deposits of $226,000, or 18.3%, to $1.5 million for the nine months ended September 30, 2015 from $1.2 million for the nine months ended September 30, 2014, and an increase in mortgage banking activities of $125,000, or 28.9%, to $558,000 for the nine months ended September 30, 2015 from $433,000 for the nine months ended September 30, 2014, offset by the decrease in net gains on sales of securities of $282,000, or 95.9%, to $12,000 for the three months ended September 30, 2015 from $294,000 for the three months ended September 30, 2014. The increase in service charges on deposits income reflects the monthly account service fees, overdraft charges and cardholder activity fees collected on deposit accounts attributable to the acquisition of Town Square Financial Corporation. The increase in mortgage banking services is attributable to the addition of two loan originators from the acquisition of Town Square Financial Corporation. Other income increased $38,000, or 292.3%, to $51,000 for the nine months ended September 30, 2015 from $13,000 for the nine months ended September 30, 2014 due to insurance claims received of $41,000 representing a reimbursement of $30,000 for a settlement related to Town Square Financial Corporation and a $10,000 claim for a bank vehicle totaled during icy weather.
Noninterest Expense. Noninterest expense increased $705,000, or 19.6%, to $4.3 million for the three months ended September 30, 2015 from $3.6 million for the three months ended September 30, 2014. This increase was due to the increase in other taxes of $158,000, or 267.8%, to $217,000 for the three months ended September 30, 2015 from $59,000 for the three months ended September 30, 2014 due to the assessment of tangible personal property taxes for the current and four previous years, the increase in foreclosed assets of $100,000, or 909.1%, to $111,000 for the three months ended September 30, 2015 from $11,000 for the three months ended September 30, 2014, the increase in early termination fees and conversion costs associated with the Commonwealth acquisition of $93,000 or 100.0%, to $93,000 for the three months ended September 30, 2015 from $0 for the three months ended September 30, 2014, the increase in amortization of intangible assets of $78,000, or 520.0% to $93,000 for the three months ended September 30, 2015 from $15,000 for the three months ended September 30, 2014, and the increase in data processing of $40,000, or 7.0%, to $615,000 for the three months ended September 30, 2015 from $575,000 for the three months ended September 30, 2014 due to the Commonwealth acquisition.
Noninterest expense increased $531,000, or 4.5%, to $12.3 million for the nine months ended September 30, 2015 from $11.8 million for the nine months ended September 30, 2014. This increase was due to the increase in salaries and employee benefits of $222,000, or 4.1%, to $5.7 million for the nine months ended September 30, 2015 from $5.5 million for the nine months ended September 30, 2014 attributable to incentive compensation, the increase in other taxes of $224,000, or 127.3%, to $400,000 for the nine months ended September 30, 2015 from $176,000 for the nine months ended September 30, 2014 due to the assessment of tangible personal property taxes for the current and four previous years, the increase in foreclosed assets of $181,000, or 182.8%, to $280,000 for the nine months ended September 30, 2015 from $99,000 for the nine months ended September 30, 2014, the increase in amortization of intangible assets of $164,000, or 184.3% to $253,000 for the nine months ended September 30, 2015 from $89,000 for the nine months ended September 30, 2014, and the increase in data processing of $268,000, or 18.6%, to $1.7 million for the nine months ended September 30, 2015 from $1.4 million for the nine months ended September 30, 2014 due to the acquisitions of Town Square Financial Corporation and Commonwealth, offset by a decrease in early termination fees and conversion costs of $445,000, or 51.0%, to $427,000 paid in the nine month period ending September 30, 2015 for the Commonwealth acquisition from $872,000 paid in the nine month period ended September 30, 2014 for the acquisition of Town Square Bank and a decrease in professional fees of $384,000, or 36.2%, to $676,000 for the nine months ended September 30, 2015 from $1.1 million for the nine months ended September 30, 2014 primarily attributable to the 2014 proxy contest.
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Income Tax Expense. The provision for income taxes decreased $115,000, or 39.8%, to $174,000 for the three months ended September 30, 2015 compared to a $289,000 tax expense for the three months ended September 30, 2014 due to lower pre-tax income. Our effective tax rate for the three months ended September 30, 2014 and 2015 was 24.7%.
The provision for income taxes was $512,000 for the nine months ended September 30, 2015 compared to $347,000 for the nine months ended September 30, 2014. The increase in the effective tax rate is due to an increase in pre-tax income, with non-taxable income comprising a smaller portion of the total. Our effective tax rate for the nine months ended September 30, 2015 was 29.2%, excluding the Bargain purchase gain on the Commonwealth acquisition. Our effective tax rate for the nine months ended 2014 was 26.4%.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Disclosures of quantitative and qualitative market risk are not required by smaller reporting companies, such as the Company.
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Securities and Exchange Act of 1934, as amended). Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.
During the quarter ended September 30, 2015, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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OTHER INFORMATION
The Company and its subsidiaries are subject to various legal actions that are considered ordinary routine litigation incidental to the business of the Company, and no claim for money damages exceeds ten percent of the Company’s consolidated assets. In the opinion of management, based on currently available information, the resolution of these legal actions is not expected to have a material adverse effect on the Company’s results of operations.
Disclosures of risk factors are not required by smaller reporting companies, such as the Company.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) | None. |
(b) | Not applicable. |
(c) | Issuer repurchases. The following table sets forth information in connection with repurchases of the Company’s common stock for the period July 1, 2015 through September 30, 2015. On June 29, 2015, the Board of Directors authorized the repurchase of up to 200,000 shares, approximately 5% of the shares currently outstanding, of Poage Bankshares common stock, of which 181,396 shares remained available for repurchase on September 30, 2015. All shares indicated below were purchased pursuant to this repurchase authorization. |
The Company’s stock repurchases pursuant to the repurchase programs are dependent on certain factors, including but not limited to, market conditions and prices, available funds and alternative uses of capital. The repurchase program may be carried out through open-market purchases, block trades, negotiated private transactions and pursuant to a trading plan adopted in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934. Any repurchased shares will be treated by the Company as authorized but unissued shares.
Shares | May Yet be | |||||||||||||||
Purchased | Purchased | |||||||||||||||
Total | as Part of | Under | ||||||||||||||
Number of | Average | Publicly | Publicly | |||||||||||||
Shares | Price Paid | Announced | Announced | |||||||||||||
Purchased | Per Share | Plan | Plan | |||||||||||||
July 1 - July 31, 2015 | 4,700 | $ | 15.65 | 4,700 | 195,300 | |||||||||||
August 1 - August 31, 2015 | 13,904 | 15.73 | 13,904 | 181,396 | ||||||||||||
September 1 - September 30, 2015 | - | - | - | 181,396 | ||||||||||||
Total | 18,604 | $ | 15.71 | 18,604 |
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
None.
Exhibit | ||
number | Description | |
3.1 | Articles of Incorporation of Poage Bankshares, Inc. (1) | |
3.2 | Bylaws of Poage Bankshares, Inc. (2) | |
31.1 | Certification of President, and Chief Executive Officer, Pursuant to Rule 13a-14(a) and Rule 15-d-14(a). | |
31.2 | Certification of Chief Financial Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a). | |
32.1 | Certification of President and Chief Executive Officer, and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101 | The following material from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, formatted in XBRL (Extensible Business Reporting Language): (i) Unaudited Consolidated Balance Sheets, (ii) Unaudited Consolidated Statements of Income, (iii) Unaudited Consolidated Statements of Comprehensive Income, (iv) Unaudited Consolidated Statement of Shareholders’ Equity, (v) Unaudited Consolidated Statements of Cash Flows, and (vi) Notes to the Consolidated Financial Statements. |
(1) Incorporated by reference to the Registration Statement on Form S-1 (File No. 333-172192, originally filed on February 11, 2011, and as subsequently amended)
(2) Incorporated by reference to the Current Report on Form 8-K (File No. 001 – 35295, filed on August 29, 2013)
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Poage Bankshares, Inc. | |
Date: November 13, 2015 | |
/s/ Bruce VanHorn | |
Bruce VanHorn | |
President & Chief Executive Officer | |
/s/ Jane Gilkerson | |
Jane Gilkerson | |
Chief Financial Officer |
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