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EX-31.2 - EX-31.2 - FRANKLIN FINANCIAL SERVICES CORP /PA/fraf-20160331xex31_2.htm
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EX-32.2 - EX-32.2 - FRANKLIN FINANCIAL SERVICES CORP /PA/fraf-20160331xex32_2.htm
EX-32.1 - EX-32.1 - FRANKLIN FINANCIAL SERVICES CORP /PA/fraf-20160331xex32_1.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2016

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from__________ to___________

Commission file number 0-12126

FRANKLIN FINANCIAL SERVICES CORPORATION

(Exact name of registrant as specified in its charter)



 

PENNSYLVANIA

25-1440803

(State or other jurisdiction of incorporation or organization) 

(I.R.S. Employer Identification No.)







 

20 South Main Street, Chambersburg

PA 17201-0819

(Address of principal executive offices)

(Zip Code)



(717) 264-6116

(Registrant's telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No



Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  No



Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.   See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer        Accelerated filer          Non-accelerated filer        Smaller reporting company 



Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act)  Yes  No



There were 4,286,271 outstanding shares of the Registrant’s common stock as of April 30, 2016.

 


 

INDEX



               



 

 

Part I - FINANCIAL INFORMATION

 



 

 

Item 1

Financial Statements

 



Consolidated Balance Sheets as of March  31, 2016 and December 31, 2015 (unaudited)

1



Consolidated Statements of Income for the Three Months ended March  31, 2016 

2



and 2015 (unaudited)

 



Consolidated Statements of Comprehensive Income for the Three Months ended

3



March  31, 2016 and 2015 (unaudited)

 



Consolidated Statements of Changes in Shareholders’ Equity for the Three Months

4



ended March 31, 2016 and 2015 (unaudited)

 



Consolidated Statements of Cash Flows for the Three Months ended March  31, 2016 

5



and 2015 (unaudited)

 



Notes to Consolidated Financial Statements (unaudited)

6



 

 

Item 2

Management’s Discussion and Analysis of Results of Operations and Financial Condition

27

Item 3

Quantitative and Qualitative Disclosures about Market Risk

50

Item 4

Controls and Procedures

50



 

 

Part II - OTHER INFORMATION 

 



 

 

Item 1

Legal Proceedings

51

Item 1A

Risk Factors

51

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

51

Item 3

Defaults Upon Senior Securities

51

Item 4

Mine Safety Disclosures

51

Item 5

Other Information

51

Item 6

Exhibits

51

SIGNATURE PAGE

52

EXHIBITS

 







 

 


 

Part I FINANCIAL INFORMATION

Item 1 Financial Statements



Consolidated Balance Sheets







 

 

 

 

 



 

 

 

 

(Dollars in thousands, except share and per share data)(unaudited)

March 31

 

December 31



2016

 

2015

Assets

 

 

 

 

 

Cash and due from banks

$

12,912 

 

$

20,664 

Interest-bearing deposits in other banks

 

46,215 

 

 

18,502 

Total cash and cash equivalents

 

59,127 

 

 

39,166 

Investment securities available for sale, at fair value

 

154,691 

 

 

159,473 

Restricted stock

 

439 

 

 

782 

Loans held for sale

 

559 

 

 

461 

Loans

 

802,568 

 

 

782,016 

Allowance for loan losses

 

(10,342)

 

 

(10,086)

Net Loans

 

792,226 

 

 

771,930 

Premises and equipment, net

 

14,592 

 

 

14,759 

Bank owned life insurance

 

22,063 

 

 

22,364 

Goodwill

 

9,016 

 

 

9,016 

Other real estate owned

 

6,331 

 

 

6,451 

Deferred tax asset, net

 

4,288 

 

 

4,758 

Other assets

 

6,604 

 

 

6,135 

Total assets

$

1,069,936 

 

$

1,035,295 



 

 

 

 

 

Liabilities

 

 

 

 

 

Deposits

 

 

 

 

 

Noninterest-bearing checking

$

159,829 

 

$

152,095 

Money management, savings and interest checking

 

707,596 

 

 

680,686 

Time

 

83,543 

 

 

85,731 

Total Deposits

 

950,968 

 

 

918,512 

Other liabilities

 

4,655 

 

 

5,407 

Total liabilities

 

955,623 

 

 

923,919 



 

 

 

 

 

Shareholders' equity

 

 

 

 

 

Common stock, $1 par value per share,15,000,000 shares authorized with

 

 

 

 

 

4,673,477 shares issued and 4,290,220 shares outstanding at March 31, 2016 and

 

 

 

 

 

4,659,319 shares issued and 4,275,879 shares outstanding at December 31, 2015

 

4,673 

 

 

4,659 

Capital stock without par value, 5,000,000 shares authorized with no

 

 

 

 

 

shares issued and outstanding

 

 -

 

 

 -

Additional paid-in capital

 

39,083 

 

 

38,778 

Retained earnings

 

80,430 

 

 

78,517 

Accumulated other comprehensive loss

 

(3,020)

 

 

(3,722)

Treasury stock, 383,257 shares at March 31, 2016 and 383,440 shares at

 

 

 

 

 

December 31, 2015, at cost

 

(6,853)

 

 

(6,856)

Total shareholders' equity

 

114,313 

 

 

111,376 

Total liabilities and shareholders' equity

$

1,069,936 

 

$

1,035,295 



 

 

 

 

 

The accompanying notes are an integral part of these unaudited financial statements.

 

 

 

 

 













1

 


 

Consolidated Statements of Income





 

 

 

 

 



For the Three Months Ended

(Dollars in thousands, except per share data) (unaudited)

March 31



2016

 

2015

Interest income

 

 

 

 

 

   Loans, including fees

$

8,088 

 

$

7,376 

Interest and dividends on investments:

 

 

 

 

 

Taxable interest

 

575 

 

 

636 

Tax exempt interest

 

367 

 

 

408 

Dividend income

 

 

 

51 

Deposits and obligations of other banks

 

62 

 

 

55 

Total interest income

 

9,098 

 

 

8,526 



 

 

 

 

 

Interest expense

 

 

 

 

 

Deposits

 

543 

 

 

641 

Short-term borrowings

 

 

 

 -

Total interest expense

 

545 

 

 

641 

Net interest income

 

8,553 

 

 

7,885 

Provision for loan losses

 

300 

 

 

325 

Net interest income after provision for loan losses

 

8,253 

 

 

7,560 



 

 

 

 

 

Noninterest income

 

 

 

 

 

Investment and trust services fees

 

1,253 

 

 

1,263 

Loan service charges

 

226 

 

 

182 

Deposit service charges and fees

 

578 

 

 

490 

Other service charges and fees

 

303 

 

 

296 

Debit card income

 

347 

 

 

318 

Increase in cash surrender value of life insurance

 

135 

 

 

139 

Net (loss) gain on sale of other real estate owned

 

(8)

 

 

32 

OTTI losses on debt securities

 

(20)

 

 

(20)

Gain on conversion of investment security

 

 -

 

 

728 

Securities gains

 

 

 

 -

Other

 

138 

 

 

224 

Total noninterest income

 

2,953 

 

 

3,652 



 

 

 

 

 

Noninterest expense

 

 

 

 

 

Salaries and employee benefits

 

4,370 

 

 

4,083 

Occupancy, net

 

600 

 

 

615 

Furniture and equipment

 

216 

 

 

231 

Advertising

 

282 

 

 

188 

Legal and professional

 

297 

 

 

296 

Data processing

 

497 

 

 

467 

Pennsylvania bank shares tax

 

237 

 

 

196 

Intangible amortization

 

 -

 

 

90 

FDIC insurance

 

157 

 

 

148 

ATM/debit card processing

 

228 

 

 

187 

Foreclosed real estate

 

63 

 

 

12 

Telecommunications

 

118 

 

 

117 

Other

 

730 

 

 

859 

Total noninterest expense

 

7,795 

 

 

7,489 

Income before federal income taxes

 

3,411 

 

 

3,723 

Federal income tax expense

 

685 

 

 

839 

Net income

$

2,726 

 

$

2,884 



 

 

 

 

 

Per share

 

 

 

 

 

Basic earnings per share

$

0.64 

 

$

0.68 

Diluted earnings per share

$

0.64 

 

$

0.68 

Cash dividends declared

$

0.19 

 

$

0.17 



 

 

 

 

 

The accompanying notes are an integral part of these unaudited financial statements.



2

 


 







Consolidated Statements of Comprehensive Income





 

 

 

 

 

 

 



 

For the Three Months Ended



 

March 31

 

(Dollars in thousands) (unaudited)

 

2016

 

2015

 

Net Income

 

$

2,726 

 

$

2,884 

 



 

 

 

 

 

 

 

Securities:

 

 

 

 

 

 

 

Unrealized gains arising during the period

 

 

1,045 

 

 

703 

 

Reclassification adjustment for losses (gains) included in net income (1)

 

 

19 

 

 

(708)

 

Net unrealized gains (losses)

 

 

1,064 

 

 

(5)

 

Tax effect

 

 

(362)

 

 

 

Net of tax amount

 

 

702 

 

 

(3)

 



 

 

 

 

 

 

 

Derivatives:

 

 

 

 

 

 

 

Unrealized losses arising during the period

 

 

 -

 

 

(1)

 

Reclassification adjustment for losses included in net income (2)

 

 

 -

 

 

96 

 

Net unrealized gains

 

 

 -

 

 

95 

 

Tax effect

 

 

 -

 

 

(33)

 

Net of tax amount

 

 

 -

 

 

62 

 



 

 

 

 

 

 

 

Total other comprehensive income

 

 

702 

 

 

59 

 

Total Comprehensive Income

 

$

3,428 

 

$

2,943 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 

Reclassification adjustment / Statement line item

 

Tax  expense (benefit)

(1) Securities / gain on conversion & securities (gains) losses, net

 

$

(6)

 

$

241 

 

(2) Derivatives / interest expense on deposits

 

 

 -

 

 

(33)

 



 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited financial statements.

 

 

 

 





3

 


 









Consolidated Statements of Changes in Shareholders' Equity

For the Three months March 31, 2016 and 2015:









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 



 

 

 

Additional

 

 

 

 

Other

 

 

 

 

 

 



Common

 

Paid-in

 

Retained

 

Comprehensive

 

Treasury

 

 

 

(Dollars in thousands, except per share data) (unaudited)

Stock

 

Capital

 

Earnings

 

Loss

 

Stock

 

Total

Balance at December 31, 2014

$

4,607 

 

$

37,504 

 

$

71,452 

 

$

(3,100)

 

$

(6,942)

 

$

103,521 

Net income

 

 -

 

 

 -

 

 

2,884 

 

 

 -

 

 

 -

 

 

2,884 

Other comprehensive income

 

 -

 

 

 -

 

 

 -

 

 

59 

 

 

 -

 

 

59 

Cash dividends declared, $.17 per share

 

 -

 

 

 -

 

 

(718)

 

 

 -

 

 

 -

 

 

(718)

Treasury shares issued under stock option plans, 205 shares

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 

 

Common stock issued under dividend reinvestment plan, 9,660 shares

 

 

 

203 

 

 

 -

 

 

 -

 

 

 -

 

 

212 

Balance at March 31, 2015

$

4,616 

 

$

37,707 

 

$

73,618 

 

$

(3,041)

 

$

(6,938)

 

$

105,962 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2015

$

4,659 

 

$

38,778 

 

$

78,517 

 

$

(3,722)

 

$

(6,856)

 

$

111,376 

Net income

 

 -

 

 

 -

 

 

2,726 

 

 

 -

 

 

 -

 

 

2,726 

Other comprehensive income

 

 -

 

 

 -

 

 

 -

 

 

702 

 

 

 -

 

 

702 

Cash dividends declared, $.19 per share

 

 -

 

 

 -

 

 

(813)

 

 

 -

 

 

 -

 

 

(813)

Treasury shares issued under stock option plans, 183 shares

 

 -

 

 

 

 

 -

 

 

 -

 

 

 

 

Common stock issued under dividend reinvestment plan, 14,158 shares

 

14 

 

 

290 

 

 

 -

 

 

 -

 

 

 -

 

 

304 

Stock option compensation expense

 

 -

 

 

14 

 

 

 -

 

 

 -

 

 

 -

 

 

14 

Balance at March 31, 2016

$

4,673 

 

$

39,083 

 

$

80,430 

 

$

(3,020)

 

$

(6,853)

 

$

114,313 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited financial statements.











4

 


 



Consolidated Statements of Cash Flows





 

 

 

 

 



 

 

 

 

 



Three Months Ended March 31



2016

 

2015

(Dollars in thousands) (unaudited)

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

Net income

$

2,726 

 

$

2,884 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

331 

 

 

339 

Net amortization of loans and investment securities

 

355 

 

 

377 

Amortization and net change in mortgage servicing rights valuation

 

14 

 

 

11 

Amortization of intangibles

 

 -

 

 

90 

Provision for loan losses

 

300 

 

 

325 

Gain on sales of securities

 

(1)

 

 

 -

Impairment write-down on securities recognized in earnings

 

20 

 

 

20 

Gain on conversion of investment security

 

 -

 

 

(728)

Loans originated for sale

 

(2,805)

 

 

(882)

Proceeds from sale of loans

 

2,707 

 

 

1,116 

Write-down of other real estate owned

 

46 

 

 

 -

Net loss (gain) on sale or disposal of other real estate/other repossessed assets

 

 

 

(32)

Increase in cash surrender value of life insurance

 

(135)

 

 

(139)

Stock option compensation

 

14 

 

 

 -

(Increase) decrease in other assets

 

(545)

 

 

198 

(Decrease) increase in other liabilities

 

(684)

 

 

278 

Net cash provided by operating activities

 

2,351 

 

 

3,857 



 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Proceeds from sales and calls of investment securities available for sale

 

615 

 

 

 -

Proceeds from maturities and pay-downs of securities available for sale

 

7,426 

 

 

6,399 

Purchase of investment securities available for sale

 

(2,637)

 

 

(11,146)

Net decrease in restricted stock

 

343 

 

 

 -

Net (increase) decrease in loans

 

(20,440)

 

 

2,982 

Capital expenditures

 

(150)

 

 

(120)

Proceeds from surrender of life insurance policy

 

436 

 

 

 -

Proceeds from sale of other real estate

 

66 

 

 

129 

Net cash used in investing activities

 

(14,341)

 

 

(1,756)



 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Net increase in demand deposits, interest-bearing checking, and savings accounts

 

34,644 

 

 

27,955 

Net decrease in time deposits

 

(2,188)

 

 

(3,741)

Net decrease in repurchase agreements

 

 -

 

 

(9,079)

Dividends paid

 

(813)

 

 

(718)

Cash received from option exercises

 

 

 

Common stock issued under dividend reinvestment plan

 

304 

 

 

212 

Net cash provided by financing activities

 

31,951 

 

 

14,633 



 

 

 

 

 

Increase in cash and cash equivalents

 

19,961 

 

 

16,734 

Cash and cash equivalents as of January 1

 

39,166 

 

 

48,593 

Cash and cash equivalents as of March 31

$

59,127 

 

$

65,327 



 

 

 

 

 

Supplemental Disclosures of Cash Flow Information

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

Interest on deposits and other borrowed funds

$

522 

 

$

611 

Income taxes

$

700 

 

$

262 



 

 

 

 

 

Noncash Activities

 

 

 

 

 

Loans transferred to Other Real Estate

$

 -

 

$

449 



 

 

 

 

 

The accompanying notes are an integral part of these unaudited financial statements.

 

 

 

 

 





5

 


 

FRANKLIN FINANCIAL SERVICES CORPORATION and SUBSIDIARIES

UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 1 - Basis of Presentation

The consolidated financial statements include the accounts of Franklin Financial Services Corporation (the Corporation), and its wholly-owned subsidiaries, Farmers and Merchants Trust Company of Chambersburg (the Bank) and Franklin Future Fund Inc.  Farmers and Merchants Trust Company of Chambersburg is a commercial bank that has one wholly-owned subsidiary, Franklin Financial Properties Corp.  Franklin Financial Properties Corp. holds real estate assets that are leased by the Bank. Franklin Future Fund Inc. is a non-bank investment company. The activities of non-bank entities are not significant to the consolidated totals.  All significant intercompany transactions and account balances have been eliminated.

In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the consolidated financial position, results of operations, and cash flows as of March  31, 2016, and for all other periods presented have been made.

Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted.  It is suggested that these consolidated financial statements be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation’s 2015 Annual Report on Form 10-K.  The consolidated results of operations for the period ended March 31, 2016 are not necessarily indicative of the operating results for the full year.  Management has evaluated subsequent events for potential recognition and/or disclosure through the date these consolidated financial statements were issued.

The consolidated balance sheet at December 31, 2015 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete consolidated financial statements.

For purposes of reporting cash flows, cash and cash equivalents include cash and due from banks, interest-bearing deposits in other banks and federal funds sold.  Generally, federal funds are purchased and sold for one-day periods. 

Earnings per share are computed based on the weighted average number of shares outstanding during each period end.  A reconciliation of the weighted average shares outstanding used to calculate basic earnings per share and diluted earnings per share follows:







 

 

 

 

 

 



For the Three Months Ended

 



March 31

 

(Dollars and shares in thousands, except per share data)

2016

 

2015

 

Weighted average shares outstanding (basic)

 

4,283 

 

 

4,223 

 

Impact of common stock equivalents

 

 

 

 

Weighted average shares outstanding (diluted)

 

4,285 

 

 

4,229 

 

Anti-dilutive options excluded from calculation

 

63 

 

 

29 

 

Net income

$

2,726 

 

$

2,884 

 

Basic earnings per share

$

0.64 

 

$

0.68 

 

Diluted earnings per share

$

0.64 

 

$

0.68 

 













Note 2. Recent Accounting Pronouncements

Revenue from Contracts with Customers (Topic 606). The amendments in this Update (ASU 2014-09) establish a comprehensive revenue recognition standard for virtually all industries under U.S. GAAP, including those that previously followed industry-specific guidance such as the real estate, construction and software industries. The revenue standard’s core principle is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. To accomplish this objective, the standard requires five basic steps: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The ASU is effective for public entities for annual periods beginning after December 15, 2016, including interim periods therein. Three basic transition methods are available – full retrospective, retrospective with certain practical expedients, and a cumulative effect approach. Under the

6

 


 

third alternative, an entity would apply the new revenue standard only to contracts that are incomplete under legacy U.S. GAAP at the date of initial application (e.g. January 1, 2017) and recognize the cumulative effect of the new standard as an adjustment to the opening balance of retained earnings. That is, prior years would not be restated and additional disclosures would be required to enable users of the financial statements to understand the impact of adopting the new standard in the current year compared to prior years that are presented under legacy U.S. GAAP. Early adoption is prohibited under U.S. GAAP. The Corporation does not believe ASU 2014-09 will have a material effect on its financial statements. 

Financial Instruments – Overall (Topic 825-10). In January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall (Topic 825-10): “Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 amends the guidance on the classification and measurement of financial instruments.  Some of the amendments in ASU 2016-01 include the following: 1) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; 2) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; 3) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; and 4) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value; among others.  For public business entities, the amendments of ASU 2016-01 are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  The Corporation does not believe ASU 2016-01 will have a material effect on its financial statements.

Leases (Topic 842). In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02, Leases.  From the lessee’s perspective, the new standard established a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months.  Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement for a lessees.  From the lessor’s perspective, the new standard requires a lessor to classify leases as either sales-type, finance or operating.  A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee.  If risks and rewards are conveyed without the transfer of control, the lease is treated as financing.  If the lessor doesn’t convey risks and rewards or control, an operating lease results.

The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.  A modified retrospective transition approach is required for lessors for sales-type, direct financing, and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.  The Corporation is currently evaluating the impact of the pending adoption of the new standard on its consolidated financial statements.



Note 3. Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive losses included in shareholders' equity are as follows:







 

 

 

 

 



 

 

 

 

 



March 31,

 

December 31,



2016

 

2015

(Dollars in thousands)

 

 

 

 

 

Net unrealized gains on securities

$

2,202 

 

$

1,138 

Tax effect

 

(749)

 

 

(387)

Net of tax amount

 

1,453 

 

 

751 



 

 

 

 

 

Accumulated pension adjustment

 

(6,777)

 

 

(6,777)

Tax effect

 

2,304 

 

 

2,304 

Net of tax amount

 

(4,473)

 

 

(4,473)



 

 

 

 

 

Total accumulated other comprehensive loss

$

(3,020)

 

$

(3,722)









7

 


 



Note 4. Guarantees

The Corporation does not issue any guarantees that would require liability recognition or disclosure, other than its standby letters of credit.  Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party.  Generally, all letters of credit, when issued, have expiration dates within one year.  The credit risk involved in issuing letters of credit is essentially the same as those that are involved in extending loan facilities to customers. The Bank generally holds collateral and/or personal guarantees supporting these commitments.  The Bank had $29.1 million and $25.9 million of standby letters of credit as of March  31, 2016 and December 31, 2015, respectively. Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payments required under the corresponding guarantees.  The amount of the liability as of March  31, 2016 and December 31, 2015 for guarantees under standby letters of credit issued was not material.



Note 5. Investments

The amortized cost and estimated fair value of investment securities available for sale as of March  31, 2016 and December 31, 2015 are as follows:







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

Gross

 

Gross

 

 

 



 

Amortized

 

unrealized

 

unrealized

 

Fair

March 31, 2016

 

cost

 

gains

 

losses

 

value

Equity securities

 

$

164 

 

$

72 

 

$

 -

 

$

236 

U.S. Government and Agency securities

 

 

13,362 

 

 

286 

 

 

(26)

 

 

13,622 

Municipal securities

 

 

65,022 

 

 

1,937 

 

 

(78)

 

 

66,881 

Trust preferred securities

 

 

5,964 

 

 

 -

 

 

(1,000)

 

 

4,964 

Agency mortgage-backed securities

 

 

66,679 

 

 

1,060 

 

 

(62)

 

 

67,677 

Private-label mortgage-backed securities

 

 

1,261 

 

 

20 

 

 

(5)

 

 

1,276 

Asset-backed securities

 

 

37 

 

 

 -

 

 

(2)

 

 

35 



 

$

152,489 

 

$

3,375 

 

$

(1,173)

 

$

154,691 









 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

Gross

 

Gross

 

 

 



 

Amortized

 

unrealized

 

unrealized

 

Fair

December 31, 2015

 

cost

 

gains

 

losses

 

value

Equity securities

 

$

164 

 

$

69 

 

$

 -

 

$

233 

U.S. Government and Agency securities

 

 

13,705 

 

 

164 

 

 

(33)

 

 

13,836 

Municipal securities

 

 

67,851 

 

 

1,555 

 

 

(218)

 

 

69,188 

Trust preferred securities

 

 

5,958 

 

 

 -

 

 

(669)

 

 

5,289 

Agency mortgage-backed securities

 

 

69,284 

 

 

621 

 

 

(386)

 

 

69,519 

Private-label mortgage-backed securities

 

 

1,335 

 

 

39 

 

 

(2)

 

 

1,372 

Asset-backed securities

 

 

38 

 

 

 -

 

 

(2)

 

 

36 



 

$

158,335 

 

$

2,448 

 

$

(1,310)

 

$

159,473 



At March 31, 2016 and December 31, 2015, the fair value of investment securities pledged to secure public funds, trust balances, deposit and other obligations totaled $69.8 million and $79.6 million, respectively.

8

 


 

The amortized cost and estimated fair value of debt securities at March  31, 2016, by contractual maturity are shown below. Actual maturities may differ from contractual maturities because of prepayment or call options embedded in the securities.



 

 

 

 

 



 

 

 

 

 



 

 

 

 



 

 

 

(Dollars in thousands)

Amortized cost

 

Fair value

Due in one year or less

$

1,673 

 

$

1,682 

Due after one year through five years

 

12,879 

 

 

13,215 

Due after five years through ten years

 

27,472 

 

 

28,425 

Due after ten years

 

42,361 

 

 

42,180 



 

84,385 

 

 

85,502 

Mortgage-backed securities

 

67,940 

 

 

68,953 



$

152,325 

 

$

154,455 



The composition of the net realized securities gains for the three months ended are as follows:





 

 

 

 

 

 



For the Three Months Ended

 



March 31

 

(Dollars in thousands)

2016

 

2015

 

Gross gains realized

$

 

$

 -

 

Gross losses realized

 

 -

 

 

 -

 

Conversion gain

 

 -

 

 

728 

 

Net gains realized

$

 

$

728 

 



 

 

 

 

 

 



The following table provides additional detail about trust preferred securities as of March  31, 2016:

Trust Preferred Securities





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deal Name

 

Maturity

 

Single Issuer or Pooled

 

Class

 

Amortized Cost

 

Fair Value

 

Gross Unrealized Gain (Loss)

 

Lowest Credit Rating Assigned



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BankAmerica Cap III

 

1/15/2027

 

Single

 

Preferred Stock

 

$

965 

 

$

772 

 

$

(193)

 

BB+

Wachovia Cap Trust II

 

1/15/2027

 

Single

 

Preferred Stock

 

 

278 

 

 

241 

 

 

(37)

 

BBB

Huntington Cap Trust

 

2/1/2027

 

Single

 

Preferred Stock

 

 

944 

 

 

803 

 

 

(141)

 

BB

Corestates Captl Tr II

 

2/15/2027

 

Single

 

Preferred Stock

 

 

940 

 

 

802 

 

 

(138)

 

BBB+

Huntington Cap Trust II

 

6/15/2028

 

Single

 

Preferred Stock

 

 

896 

 

 

776 

 

 

(120)

 

BB

Chase Cap VI JPM

 

8/1/2028

 

Single

 

Preferred Stock

 

 

965 

 

 

786 

 

 

(179)

 

BBB-

Fleet Cap Tr V

 

12/18/2028

 

Single

 

Preferred Stock

 

 

976 

 

 

784 

 

 

(192)

 

BB+



 

 

 

 

 

 

 

$

5,964 

 

$

4,964 

 

$

(1,000)

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



9

 


 

The following table provides additional detail about private label mortgage-backed securities as of March  31, 2016:

Private Label Mortgage Backed Securities





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

Gross 

 

 

 

 

 

 

 

Cumulative



 

Origination

 

Amortized

 

Fair

 

Unrealized

 

Collateral

 

Lowest Credit

 

Credit

 

OTTI

Description

 

Date

 

Cost

 

Value

 

Gain (Loss)

 

Type

 

Rating Assigned

 

Support %

 

Charges

MALT 2004-6 7A1

 

6/1/2004

 

$

334 

 

$

337 

 

$

 

ALT A

 

CCC

 

14.83 

 

$

 -

RALI 2005-QS2 A1

 

2/1/2005

 

 

195 

 

 

206 

 

 

11 

 

ALT A

 

CC

 

4.96 

 

 

10 

RALI 2006-QS4 A2

 

4/1/2006

 

 

442 

 

 

441 

 

 

(1)

 

ALT A

 

D

 

 -

 

 

323 

GSR 2006-5F 2A1

 

5/1/2006

 

 

57