UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

þ

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

For the quarterly period ended September 30, 2017

or

¨

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              0-23433              

WAYNE SAVINGS BANCSHARES, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware		31-1557791
State or Other Jurisdiction of Incorporation or Organization		I.R.S. Employer Identification No.
151 North Market Street Wooster, Ohio 44691		44691
Address of Principal Executive Offices		Zip Code

330-264-5767

Registrant’s Telephone Number, Including Area Code

 

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 þ   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 þ   No ¨

 

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

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨  (Do not check if a smaller reporting company)	Smaller reporting company þ
Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ¨

 

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

 

As of October 31, 2017, the latest practicable date, 2,781,839 shares of the registrant’s common stock, $.10 par value, were issued and outstanding.

Wayne Savings Bancshares, Inc.

Index

 

			Page
PART I - FINANCIAL INFORMATION
	Item 1	Condensed Consolidated Balance Sheets	2
		Condensed Consolidated Statements of Income and Comprehensive Income	3
		Condensed Consolidated Statements of Cash Flows	4
		Notes to Condensed Consolidated Financial Statements	6
	Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
	Item 3	Quantitative and Qualitative Disclosures About Market Risk	49
	Item 4	Controls and Procedures	49
PART II - OTHER INFORMATION
	Item 1	Legal Proceedings	50
	Item 1A	Risk Factors	50
	Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	50
	Item 3	Defaults Upon Senior Securities	50
	Item 4	Mine Safety Disclosures	50
	Item 5	Other Information	51
	Item 6	Exhibits	51
SIGNATURES			52

 

 

Wayne Savings Bancshares, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share data)

 

		September 30, 2017				December 31, 2016
		(Unaudited)
Assets
Cash and due from banks		$	2,829			$	10,138
Interest-bearing deposits			4,133				6,618
Cash and cash equivalents			6,962				16,756
Available-for-sale securities			58,556				70,709
Held-to-maturity securities			11,749				9,559
Loans, net of allowance for loan losses of $3,250 and $3,040           at September 30, 2017 and December 31, 2016, respectively			343,872				332,283
Premises and equipment			6,163				6,420
Federal Home Loan Bank stock			4,226				4,226
Foreclosed assets held for sale, net			75				2
Accrued interest receivable			1,361				1,146
Bank-owned life insurance			10,029				9,827
Goodwill			1,719				1,719
Prepaid federal income taxes			—				264
Other assets			1,545				1,880
Total assets		$	446,257			$	454,791
Liabilities and Stockholders’ Equity
Liabilities
Deposits
Demand		$	113,178			$	111,213
Savings and money market			143,925				141,029
Time			113,292				131,491
Total deposits			370,395				383,733
Other short-term borrowings			7,148				7,246
Federal Home Loan Bank advances			22,300				18,000
Accrued federal income taxes			101				—
Deferred federal income taxes			39				184
Interest payable and other liabilities			3,676				4,600
Total liabilities			403,659				413,763
Commitments and Contingencies			—				—
Stockholders’ Equity
Preferred stock, 500,000 shares of $.10 par value authorized; no shares issued			—				—
Common stock, $.10 par value; authorized 9,000,000 shares;           3,978,731 shares issued			398				398
Additional paid-in capital			36,079				36,041
Retained earnings			23,760				22,317
Shares acquired by ESOP			(223	)			(273	)
Accumulated other comprehensive loss			(480	)			(519	)
Treasury stock, at cost: Common: 1,196,892 shares at           September 30, 2017 and December 31, 2016.			(16,936	)			(16,936	)
Total stockholders’ equity			42,598				41,028
Total liabilities and stockholders’ equity		$	446,257			$	454,791

 

 

Wayne Savings Bancshares, Inc.

Condensed Consolidated Statements of Income and Comprehensive Income

For the three and nine months ended September 30, 2017 and 2016

(In thousands, except per share data)

(Unaudited)

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2017				2016				2017				2016
Interest and Dividend Income
Loans		$	3,641			$	3,375			$	10,646			$	9,753
Securities			452				516				1,406				1,712
Dividends on Federal Home Loan Bank           stock and other			61				62				174				155
Total interest and dividend income			4,154				3,953				12,226				11,620
Interest Expense
Deposits			419				464				1,301				1,332
Other short-term borrowings			3				3				8				7
Federal Home Loan Bank advances			69				67				189				206
Total interest expense			491				534				1,498				1,545
Net Interest Income			3,663				3,419				10,728				10,075
Provision for Loan Losses			99				208				209				152
Net Interest Income After Provision      for Loan Losses			3,564				3,211				10,519				9,923
Noninterest Income
Deposit service charges			163				161				466				443
Gain on loan sales			70				82				241				203
Gain (loss) on sale of foreclosed assets           held for sale			5				(1	)			5				(6	)
Earnings on bank-owned life insurance			76				75				225				223
Interchange fees			114				101				332				300
Other operating			126				104				412				361
Total noninterest income			554				522				1,681				1,524
Noninterest Expense
Salaries and employee benefits			1,531				1,779				4,781				5,227
Net occupancy and equipment expense			601				545				1,654				1,581
Federal deposit insurance premiums			38				61				126				201
Franchise taxes			90				89				275				266
Advertising and marketing			68				74				200				216
Legal			98				27				445				117
Audit and accounting			106				87				322				252
Stockholder expense			25				31				287				89
Other			364				330				1,091				927
Total noninterest expense			2,921				3,023				9,181				8,876
Income Before Federal Income Taxes			1,197				710				3,019				2,571
Provision for Federal Income Taxes			342				160				832				640
Net Income		$	855			$	550			$	2,187			$	1,931
Other comprehensive income (loss):
Unrealized gains (losses) on available-for-sale      securities			(127	)			(272	)			103				367
Unrecognized loss on split-dollar life insurance      policy			—				—				(29	)			—
Tax (expense) benefit			43				92				(35	)			(125	)
Other comprehensive income (loss)			(84	)			(180	)			39				242
Total comprehensive income		$	771			$	370			$	2,226			$	2,173
Basic and Diluted Earnings Per Share		$	0.31			$	0.20			$	0.79			$	0.70
Dividends Per Share		$	0.09			$	0.09			$	0.27			$	0.27

Wayne Savings Bancshares, Inc.

Condensed Consolidated Statements of Cash Flows

For the nine months ended September 30, 2017 and 2016

(In thousands)

(Unaudited)

 

		Nine Months Ended September 30,
		2017				2016
Operating Activities
Net income		$	2,187			$	1,931
Items not requiring (providing) cash
Depreciation and amortization			514				496
Provision for loan losses			209				152
Amortization of premiums and discounts on securities			639				909
Amortization of mortgage servicing rights			29				31
Amortization of deferred loan origination fees			(50	)			(85	)
Increase in value of bank-owned life insurance			(202	)			(204	)
Amortization expense of stock benefit plan			89				68
Provision for impairment on foreclosed assets held for sale			12				24
(Gain) loss on sale of foreclosed assets held for sale			(5	)			6
Net gain on sale of loans			(241	)			(203	)
Proceeds from sale of loans in the secondary market			8,498				5,322
Origination of loans for sale in the secondary market			(8,257	)			(5,119	)
Deferred income taxes			(180	)			(196	)
Changes in
Accrued interest receivable			(215	)			(202	)
Other assets			570				(23	)
Interest payable and other liabilities			(299	)			(312	)
Net cash provided by operating activities			3,298				2,595
Investing Activities
Purchase of available-for-sale securities			—				(3,475	)
Purchase of  held-to-maturity securities			(2,273	)			(895	)
Proceeds from maturities and paydowns of available-for-sale securities			11,662				17,551
Proceeds from maturities and paydowns of held-to-maturity securities			38				381
Net change in loans			(12,035	)			(28,442	)
Purchase of premises and equipment			(258	)			(401	)
Proceeds from the sale of premises and equipment			1				—
Proceeds from the sale of foreclosed assets			206				87
Net cash used in investing activities		$	(2,659	)		$	(15,194	)

Wayne Savings Bancshares, Inc.

Condensed Consolidated Statements of Cash Flows (continued)

For the nine months ended September 30, 2017 and 2016

(In thousands)

(Unaudited)

 

		Nine Months Ended September 30,
		2017				2016
Financing Activities
Net change in deposits		$	(13,338	)		$	14,106
Net change in other short-term borrowings			(98	)			417
Proceeds from Federal Home Loan Bank advances			41,450				14,875
Repayments of Federal Home Loan Bank advances			(37,150	)			(17,875	)
Advances by borrowers for taxes and insurance			(553	)			(474	)
Dividends on common stock			(744	)			(742	)
Net cash  provided by (used in) financing activities			(10,433	)			10,307
Change in Cash and Cash Equivalents			(9,794	)			(2,292	)
Cash and Cash Equivalents, Beginning of period			16,756				11,156
Cash and Cash Equivalents, End of period		$	6,962			$	8,864
Supplemental Cash Flows Information
Interest paid on deposits and borrowings		$	1,494			$	1,552
Federal income taxes paid		$	575			$	400
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Transfers from loans to foreclosed assets held for sale		$	287			$	106
Recognition of mortgage servicing rights		$	124			$	77
Dividends payable		$	250			$	250

 

 

Note 1:

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements as of September 30, 2017 and for the three and nine months ended September 30, 2017 and 2016, were prepared in accordance with instructions for Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America. Accordingly, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto of Wayne Savings Bancshares, Inc. (the “Company”) included in the Annual Report on Form 10-K for the year ended December 31, 2016. Reference is made to the accounting policies of the Company described in the Notes to the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K.

In the opinion of management, all adjustments (consisting only of normal recurring adjustments) which are necessary for a fair presentation of the unaudited financial statements have been included. The results of operations for the three and nine months ended September 30, 2017, are not necessarily indicative of the results which may be expected for the full year. The condensed consolidated balance sheet of the Company as of December 31, 2016 has been derived from the consolidated balance sheet of the Company as of that date.

Use of Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Note 2:

Subsequent event

On October 27, 2017, Wayne Savings Bancshares, Inc. (the "Company") notified the NASDAQ Stock Market of its intent to file a Notification of Removal from Listing and/or Registration Under Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), with the Securities and Exchange Commission (the “SEC”) on or about November 7, 2017 to effect the voluntary delisting of its common stock from NASDAQ. The Company expects the delisting will be effective on or about November 17, 2017. The Company also announced its intention to terminate the registration of its common stock under Section 12(g) of the Exchange Act and to suspend its periodic reporting obligations with the SEC. The Company expects that its common stock will be quoted on the OTCQX Market beginning on or about November 20, 2017.

 

Note 3:

Principles of Consolidation

The accompanying condensed consolidated financial statements include Wayne Savings Bancshares, Inc. and the Company’s wholly-owned subsidiary, Wayne Savings Community Bank (“Wayne Savings” or the “Bank”).

Wayne Savings has eleven full-service offices in Wayne, Holmes, Ashland, Medina and Stark counties. All significant intercompany transactions and balances have been eliminated in the consolidation.

Note 4:

Securities

The amortized cost and fair values, together with gross unrealized gains and losses, of securities are as follows:

 

		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
		(In thousands)
Available-for-sale securities
September 30, 2017:
U.S. government agencies		$	8			$	—			$	—			$	8
Mortgage-backed securities of           government sponsored entities			47,184				349				345				47,188
State and political subdivisions			11,099				309				48				11,360
Totals		$	58,291			$	658			$	393			$	58,556

 

		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
Available-for-sale securities		(In thousands)
December 31, 2016:
U.S. government agencies		$	11			$	—			$	—			$	11
Mortgage-backed securities of           government sponsored entities			58,797				399				582				58,614
Private-label collateralized mortgage           obligations			41				—				1				40
State and political subdivisions			11,698				402				56				12,044
Totals		$	70,547			$	801			$	639			$	70,709

 

		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
		(In thousands)
Held-to-maturity Securities:
September 30, 2017:
U.S. government agencies		$	15			$	—			$	—			$	15
Mortgage-backed securities of           government sponsored entities			670				3				2				671
State and political subdivisions			11,064				108				64				11,108
Totals		$	11,749			$	111			$	66			$	11,794

 

		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
Held-to-maturity Securities:		(In thousands)
December 31, 2016:
U.S. government agencies		$	21			$	—			$	—			$	21
Mortgage-backed securities of           government sponsored entities			704				7				—				711
State and political subdivisions			8,834				12				239				8,607
Totals		$	9,559			$	19			$	239			$	9,339

 

Amortized cost and fair value of available-for-sale securities and held-to-maturity securities at September 30, 2017 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

		Available-for-sale								Held-to-maturity
		Amortized Cost				Fair Value				Amortized Cost				Fair Value
		(In thousands)
One to five years		$	5,216			$	5,367			$	2,058			$	2,085
Five to ten years			4,547				4,633				3,340				3,318
After ten years			1,344				1,368				5,681				5,720
			11,107				11,368				11,079				11,123
Mortgage-backed securities of      government sponsored entities			47,184				47,188				670				671
Totals		$	58,291			$	58,556			$	11,749			$	11,794

 

The carrying value of securities pledged as collateral to secure public deposits and for other purposes was $37.6 million at September 30, 2017, compared to $43.7 million at December 31, 2016.

Certain investments in debt securities are reported in the financial statements at an amount less than their historical cost. The total fair value of these investments at September 30, 2017 and December 31, 2016 was $36.1 million and $49.8 million, which represented approximately 51% and 62%, respectively, of the Company’s total aggregate fair value of the available-for-sale and held-to-maturity investment portfolios. These decreases resulted primarily from changes in market interest rates.

Based on an evaluation of available evidence, including recent changes in market interest rates, credit rating information and information obtained from regulatory filings, management believes the decreases in fair value for these securities are temporary at September 30, 2017.

Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified.

The following table shows the gross unrealized losses and fair value of the Company’s temporarily impaired investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.

 

 

		September 30, 2017
		Less than 12 Months								More than 12 Months								Total
		Fair Value				Unrealized Losses				Fair Value				Unrealized Losses				Fair Value				Unrealized Losses
		(In thousands)
Mortgage-backed securities of      government sponsored entities		$	14,503			$	111			$	15,777			$	236			$	30,280			$	347
State and political subdivisions			3,360				40				2,463				72				5,823				112
Total temporarily impaired      securities		$	17,863			$	151			$	18,240			$	308			$	36,103			$	459

 

		December 31, 2016
		Less than 12 Months								More than 12 Months								Total
		Fair Value				Unrealized Losses				Fair Value				Unrealized Losses				Fair Value				Unrealized Losses
		(In thousands)
Mortgage-backed securities of      government sponsored entities		$	32,810			$	409			$	7,978			$	173			$	40,788			$	582
Private-label collateralized      mortgage obligations			—				—				40				1				40				1
State and political subdivisions			8,087				204				929				91				9,016				295
Total temporarily impaired      securities		$	40,897			$	613			$	8,947			$	265			$	49,844			$	878

 

 

Note 5:

Credit Quality of Loans and the Allowance for Loan Losses

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoffs are reported at their outstanding principal balances adjusted for unearned income, charge-offs, the allowance for loan losses, any unamortized deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans.

For loans amortized at cost, interest income is accrued based on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, as well as premiums and discounts, are deferred and amortized as a level yield adjustment over the term of the loan.

 

The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days past due unless the credit is well secured and in process of collection. Past due status is determined based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current for a period of six months and future payments are reasonably assured.

Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income. Loan losses are charged against the allowance when management believes the collectibility of a loan balance is in question. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. While management uses the best information available to make such evaluations, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluations.

The allowance consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers nonclassified loans and is based on historical charge-off experience and expected loss given default derived from the Company’s internal risk rating process. Other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by using the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent. Large groups of smaller balance homogenous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential loans for impairment measurements, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower.

 

The risk characteristics of each portfolio segment are as follows:

One-to-four Family Residential Real Estate Loans

For residential mortgage loans that are secured by one-to-four family residences and are generally owner occupied, the Company generally establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. Home equity loans are typically secured by a subordinate interest in one-to-four family residences. Repayment can also be impacted by changes in property values on residential properties. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

All Other Mortgage Loans

All other mortgage loans consist of residential construction loans, nonresidential real estate loans, land loans and multi-family real estate loans.

Residential construction loan proceeds are disbursed in increments as construction progresses and as inspections warrant. Construction loans are typically structured as permanent one-to-four family loans originated by the Company with a 12-month construction phase. Accordingly, upon completion of the construction phase, there is no change in interest rate or term to maturity of the original construction loan, nor is a new permanent loan originated. These loans are generally owner occupied and the Company generally establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded.

Nonresidential real estate loans are negotiated on a case-by-case basis. Loans secured by nonresidential real estate generally involve a greater degree of risk than one-to-four family residential mortgage loans and carry larger loan balances. This increased credit risk is a result of several factors, including the concentration of principal in a limited number of loans and borrowers, the effects of general economic conditions on income-producing properties, and the increased difficulty of evaluating and monitoring these types of loans. Furthermore, the repayment of loans secured by nonresidential real estate is typically dependent upon the successful operation of the related real estate project. If the cash flow from the project is reduced, the borrower’s ability to repay the loan may be impaired.

The Company also originates a limited number of land loans secured by individual improved and unimproved lots for future residential construction. In addition, the Company originates loans to commercial customers with land held as the collateral.

Multi-family real estate loans generally involve a greater degree of credit risk than one-to-four family residential mortgage loans and carry larger loan balances. This increased credit risk is a result of several factors, including the concentration of principal in a limited number of loans and borrowers, the effects of general economic conditions on income-producing properties, and the increased difficulty of evaluating and monitoring these types of loans. Furthermore, the repayment of loans secured by multi-family real estate is typically dependent upon the successful operation of the related real estate property. If the cash flow from the project is reduced, the borrower’s ability to repay the loan may be impaired.

Commercial Business Loans

Commercial business loans carry a higher degree of risk than one-to-four family residential loans. Such lending typically involves large loan balances concentrated in a single borrower or groups of related borrowers for rental or business properties. In addition, the payment experience on loans secured by income-producing properties is typically dependent on the success of the operation of the related project and thus is typically affected by adverse conditions in the real estate market and in the economy. The Company originates commercial loans generally in the $50,000 to $1,000,000 range with the majority of these loans being under $500,000. Commercial loans are generally underwritten based on the borrower’s ability to pay and assets such as buildings, land and equipment are taken as additional loan collateral. Each loan is evaluated for a level of risk and assigned a rating from “1” (the highest quality rating) to “7” (the lowest quality rating).

Consumer Loans

Consumer loans entail greater credit risk than residential mortgage loans, particularly in the case of consumer loans that are unsecured or secured by assets that depreciate rapidly, such as automobiles, mobile homes, boats, and recreational vehicles. In such cases, repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan and the remaining deficiency often does not warrant further substantial collection efforts against the borrower. In particular, amounts realizable on the sale of repossessed automobiles may be significantly reduced based upon the condition of the automobiles and the lack of demand for used automobiles.

The following presents by portfolio segment the activity in the allowance for loan losses for the three and nine months ended September 30, 2017 and 2016:

 

Three months ended September 30, 2017		One-to-four family residential				All other mortgage loans				Commercial business loans				Consumer loans				Total
		(In thousands)
Beginning balance		$	1,362			$	1,095			$	695			$	5			$	3,157
Provision (Credit)           charged to expense			(111	)			203				—				7				99
Losses charged off			(7	)			—				—				—				(7	)
Recoveries			1				—				—				—				1
Ending balance		$	1,245			$	1,298			$	695			$	12			$	3,250

 

Three months ended September 30, 2016		One-to-four family residential				All other mortgage loans				Commercial business loans				Consumer loans				Total
		(In thousands)
Beginning balance		$	1,582			$	957			$	234			$	3			$	2,776
Provision (Credit)           charged to expense			(105	)			238				75				—				208
Losses charged off			—				(78	)			—				—				(78	)
Recoveries			—				—				1				—				1
Ending balance		$	1,477			$	1,117			$	310			$	3			$	2,907

 

 

Nine months ended September 30, 2017		One-to-four family residential				All other mortgage loans				Commercial business loans				Consumer loans				Total
		(In thousands)
Beginning balance		$	1,479			$	1,108			$	447			$	6			$	3,040
Provision (Credit)           charged to expense			(234	)			190				247				6				209
Losses charged off			(30	)			—				—				—				(30	)
Recoveries			30				—				1				—				31
Ending balance		$	1,245			$	1,298			$	695			$	12			$	3,250

 

Nine months ended September 30, 2016		One-to-four family residential				All other mortgage loans				Commercial business loans				Consumer loans				Total
		(In thousands)
Beginning balance		$	1,346			$	1,210			$	279			$	2			$	2,837
Provision (Credit)           charged to expense			130				(10	)			30				2				152
Losses charged off			—				(83	)			—				(1	)			(84	)
Recoveries			1				—				1				—				2
Ending balance		$	1,477			$	1,117			$	310			$	3			$	2,907

 

The following tables present the balance in the allowance for loan losses and the recorded investment in loans based on the portfolio segment and impairment method as of September 30, 2017 and December 31, 2016:

 

September 30, 2017		One-to-four family residential				All other mortgage loans				Commercial business loans				Consumer loans				Total
Allowance Balances:		(In thousands)
Ending balance:
Individually evaluated           for impairment		$	143			$	159			$	434			$	5			$	741
Collectively evaluated           for impairment			1,102				1,139				261				7				2,509
Total allowance for      loan losses		$	1,245			$	1,298			$	695			$	12			$	3,250
Loan Balances:
Ending balance:
Individually evaluated           for impairment		$	1,330			$	1,123			$	525			$	5			$	2,983
Collectively evaluated           for impairment			190,763				135,090				25,461				2,143				353,457
Total balance		$	192,093			$	136,213			$	25,986			$	2,148			$	356,440

 

 

December 31, 2016		One-to-four family residential				All other mortgage loans				Commercial business loans				Consumer loans				Total
Allowance Balances:		(In thousands)
Ending balance:
Individually evaluated           for impairment		$	323			$	151			$	184			$	—			$	658
Collectively evaluated           for impairment			1,156				957				263				6				2,382
Total allowance for loan      losses		$	1,479			$	1,108			$	447			$	6			$	3,040
Loan Balances:
Ending balance:
Individually evaluated           for impairment		$	1,527			$	1,067			$	547			$	—			$	3,141
Collectively evaluated           for impairment			191,897				120,890				22,668				2,193				337,648
Total balance		$	193,424			$	121,957			$	23,215			$	2,193			$	340,789

 

Total loans in the above tables do not include deferred loan origination fees of $725,000 and $747,000 or loans in process of $8.6 million and $4.7 million, respectively, for September 30, 2017 and December 31, 2016.

The following tables present the credit risk profile of the Bank’s loan portfolio based on rating category and payment activity as of September 30, 2017 and December 31, 2016:

September 30, 2017		One-to-four family residential				All other mortgage loans				Commercial business loans				Consumer loans
		(In thousands)
Rating *
Pass (Risk 1-4)		$	188,779			$	131,592			$	25,311			$	2,142
Special Mention (Risk 5)			—				2,232				32				—
Substandard (Risk 6)			3,314				2,389				643				6
Total		$	192,093			$	136,213			$	25,986			$	2,148

 

December 31, 2016		One-to-four family residential				All other mortgage loans				Commercial business loans				Consumer loans
		(In thousands)
Rating *
Pass (Risk 1-4)		$	189,975			$	119,503			$	22,427			$	2,193
Special Mention (Risk 5)			—				—				—				—
Substandard (Risk 6)			3,449				2,454				788				—
Total		$	193,424			$	121,957			$	23,215			$	2,193

 

There were no loans classified as Doubtful (Risk 7) at either September 30, 2017 or at December 31, 2016.

Ratings are generally assigned to consumer and residential mortgage loans on a “pass” or “fail” basis, where “fail” results in a substandard classification. Commercial loans, both secured by real estate or other assets or unsecured, are analyzed in accordance with an analytical matrix codified in the Bank’s loan policy that produces a risk rating as described below.

Risk 1 is unquestioned credit quality for any credit product. Loans are secured by cash and near cash collateral with immediate access to proceeds.

 

Risk 2 is very low risk with strong credit and repayment sources. Borrower is well capitalized in a stable industry, financial ratios exceed peers and financial trends are positive.

 

Risk 3 is very favorable risk with highly adequate credit strength and repayment sources. Borrower has good overall financial condition and adequate capitalization.

 

Risk 4 is acceptable, average risk with adequate credit strength and repayment sources. Collateral positions must be within Bank policies.

 

Risk 5 or “Special Mention,” also known as “watch,” has potential weakness that deserves Management’s close attention. This risk includes loans where the borrower has developed financial uncertainties or the borrower is resolving the financial uncertainties. Bank credits have been secured or negotiations will be ongoing to secure further collateral.

 

Risk 6 or “Substandard” loans are inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged. This risk category contains loans that exhibit a weakening of the borrower’s credit strength with limited credit access and all nonperforming loans.

 

Risk 7 or “Doubtful” loans are significantly under protected by the current net worth and paying capacity of the borrower or of the collateral pledged. This risk category contains loans that are likely to experience a loss of some magnitude, but where the amount of the expected loss is not known with enough certainty to allow for an accurate calculation of a loss amount for charge-off. This category is considered to be temporary until a charge-off amount can be reasonably determined.

The following tables present the Bank’s loan portfolio aging analysis for September 30, 2017 and December 31, 2016:

 

September 30, 2017		30-59 Days Past Due				60-89 Days Past Due				Greater Than 90 Days				Total Past Due				Current				Total Loans Receivable
		(In thousands)
One-to-four family      residential loans		$	56			$	284			$	237			$	577			$	191,516			$	192,093
All other mortgage      loans			183				—				63				246				135,967				136,213
Commercial business      loans			14				50				517				581				25,405				25,986
Consumer loans			5				—				1				6				2,142				2,148
Total		$	258			$	334			$	818			$	1,410			$	355,030			$	356,440

 

December 31, 2016		30-59 Days Past Due				60-89 Days Past Due				Greater Than 90 Days				Total Past Due				Current				Total Loans Receivable
		(In thousands)
One-to-four family      residential loans		$	442			$	419			$	959			$	1,820			$	191,604			$	193,424
All other mortgage      loans			—				—				63				63				121,894				121,957
Commercial business      loans			15				—				23				38				23,177				23,215
Consumer loans			8				—				—				8				2,185				2,193
Total		$	465			$	419			$	1,045			$	1,929			$	338,860			$	340,789

 

Nonaccrual loans were comprised of the following at:

Non-accrual loans		September 30, 2017				December 31, 2016
		(In thousands)
One-to-four family residential loans		$	1,127			$	1,473
All other mortgage  loans			824				62
Commercial business loans			518				23
Consumer loans			1				—
Total		$	2,470			$	1,558

 

 

A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it is probable the Bank will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming commercial loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection. Information with respect to the Company’s impaired loans at September 30, 2017 and December 31, 2016 in combination with activity for the three and nine months ended September 30, 2017 and 2016 is presented below:

 

		As of September 30, 2017												Three months ended September 30, 2017								Nine months ended September 30, 2017
		Recorded Balance				Unpaid Principal Balance				Specific Allowance				Average Investment in Impaired Loans				Interest Income Recognized				Average Investment in Impaired Loans				Interest Income Recognized
		(In thousands)
Loans without a      specific      valuation      allowance
One-to-four      family      residential      loans		$	1,122			$	1,136			$	—			$	1,130			$	10			$	1,146			$	29
All other      mortgage loans			213				213				—				216				4				220				13
Commercial      business loans			—				—				—				—				—				—				—
Consumer loans			—				—				—				—				—				—				—
Loans with a      specific      valuation      allowance
One-to-four      family      residential      loans			208				208				143				273				—				333				—
All other      mortgage loans			910				910				159				875				14				857				42
Commercial      business loans			525				525				434				542				7				551				21
Consumer loans			5				5				5				3				—				2				—
Total:
One-to-four      family      residential      loans		$	1,330			$	1,344			$	143			$	1,403			$	10				1,479			$	29
All other      mortgage loans			1,123				1,123				159				1,091				18				1,077				55
Commercial      business loans			525				525				434				542				7				551				21
Consumer loans			5				5				5				3				—				2				—
		$	2,983			$	2,997			$	741			$	3,039			$	35			$	3,109			$	105

		As of December 31, 2016												Three months ended September 30, 2016								Nine months ended September 30, 2016
		Recorded Balance				Unpaid Principal Balance				Specific Allowance				Average Investment in Impaired Loans				Interest Income Recognized				Average Investment in Impaired Loans				Interest Income Recognized
		(In thousands)
Loans without a      specific      valuation      allowance
One-to-four family      residential loans		$	1,121			$	1,189			$	—			$	1,024			$	10			$	1,044			$	30
All other mortgage      loans			226				226				—				1,045				17				782				52
Commercial      business loans			—				—				—				—				—				—				—
Loans with a      specific      valuation      allowance
One-to-four family      residential loans			406				406				323				652				—				911				—
All other mortgage      loans			841				841				151				159				—				390				—
Commercial      business loans			547				547				184				49				1				40				1
Total:
One-to-four family      residential loans		$	1,527			$	1,595			$	323			$	1,676			$	10			$	1,955			$	30
All other mortgage      loans			1,067				1,067				151				1,204				17				1,172				52
Commercial      business loans			547				547				184				49				1				40				1
		$	3,141			$	3,209			$	658			$	2,929			$	28			$	3,167			$	56

 

The interest income recognized in the above tables reflects interest income recognized and is not materially different from the cash basis method.

All TDR classifications are due to concessions being granted to borrowers experiencing financial difficulties. Concessions to borrowers can include exceptions to loan policy including high loan-to-value ratios, no private mortgage insurance (“PMI”) and high debt-to-income ratios, as well as term and rate exceptions. There were two TDR classifications of $134,000 that occurred in the 2017 year-to-date period. One of these borrowers received a rate concession, while the second borrower was advanced additional funds. There were $412,000 of TDR classifications that occurred in the 2016 year-to-date period and included the renewal of an interest-only loan as the customer repayments had not been in accordance with the original loan terms. The remaining loans that were classified as TDR’s during the 2016 year-to-date period were to the same borrower and were on a nonaccrual status. Each TDR has been individually evaluated for impairment with the appropriate specific valuation allowance included in the allowance for loan losses calculation. There were no TDR classifications which defaulted during the three and nine months ended September 30, 2017 and 2016. The Company considers TDRs that become 90 days or more past due under modified terms as subsequently defaulted.

		Quarter-to-Date												Year-to-Date
Troubled Debt Restructurings		Number of loans				Pre- modification Recorded Principal Balance				Post- modification Recorded Principal Balance				Number of loans				Pre- modification Recorded Principal Balance				Post- modification Recorded Principal Balance
						(dollars in thousands)												(dollars in thousands)
September 30, 2017
One-to-four family      residential loans			—			$	—			$	—				2			$	134			$	134
September 30, 2016
One-to-four family      residential loans			—			$	—			$	—				8			$	412			$	412

 

Foreclosed assets held for sale include those properties that the Bank has obtained legal title to through a formal foreclosure process or the borrower conveying all interest in the property to the Bank through the completion of a deed in lieu of foreclosure or similar legal agreement. The following table presents the balance of mortgage loans collateralized by residential real estate properties held as foreclosed assets at September 30, 2017 and December 31, 2016.

 

		September 30, 2017				December 31, 2016
		Recorded Investment
		(In thousands)
One-to-four family residential loans		$	75			$	2

 

Banks foreclose on certain properties in the normal course of business when it is more probable than not that the loan balance will not be recovered through scheduled payments. Foreclosure is usually a last resort and begins after all other collection efforts have been exhausted. The following table presents the balance of those mortgage loans collateralized by residential real estate properties that are in the formal process of foreclosure at September 30, 2017 and December 31, 2016.

 

		September 30, 2017				December 31, 2016
		Recorded Investment
		(In thousands)
One-to-four family residential loans		$	143			$	97

Note 6: Goodwill

The following table presents the balance of goodwill at September 30, 2017 and December 31, 2016:

		September 30, 2017				December 31, 2016
		(In thousands)
Goodwill		$	1,719			$	1,719

 

The Company is required to annually test goodwill for impairment or more frequently if impairment indicators exist. The Company’s testing of goodwill at November 30, 2016 indicated there was no impairment in the carrying value of the related asset. There have been no indicators of impairment during 2017.

Note 7:

Repurchase Agreements

Repurchase agreements are offered by the Bank to commercial business customers to provide them with an opportunity to earn a return on their excess cash balances. These repurchase agreements are considered secured borrowings and are reported in other short-term borrowings. On a daily basis the Bank transfers securities to these customers in exchange for their cash and subsequently agrees to repurchase those same securities the next business day. In the event the Bank is unable to repurchase the securities from the customer, the customer will then have a claim against those securities.

The following table presents the fair value and type of securities pledged as collateral in exchange for these short-term borrowings at September 30, 2017 and December 31, 2016.

		September 30, 2017				December 31, 2016
		(In thousands)
Repurchase Agreements
Mortgage-backed securities of government      sponsored entities		$	7,148			$	7,246
Gross amount of recognized liabilities for      repurchase agreements in other short-term      borrowings		$	7,148			$	7,246

 

The contractual maturities of the repurchase agreements is overnight and continuous for both September 30, 2017 and December 31, 2016.

Note 8:

Earnings Per Share

Basic earnings per common share is computed based upon the weighted-average number of common shares outstanding during the period, less shares in the Company’s Employee Stock Ownership Plan (“ESOP”) that are unallocated and not committed to be released. There were no dilutive shares at September 30, 2017 or September 30, 2016.

The computations are as follows:

		Three months ended September 30,								Nine months ended September 30,
		2017				2016				2017				2016
Net income (in thousands)		$	855			$	550			$	2,187			$	1,931
Weighted-average common      shares outstanding			2,754,573				2,747,567				2,754,573				2,747,567
Net income per share		$	0.31			$	0.20			$	0.79			$	0.70

 

Note 9:

Regulatory Matters

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory–and possibly additional discretionary–actions by regulators that, if undertaken, could have a direct material effect on the Company’s and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and the Bank’s capital classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Furthermore the Bank’s regulators could require adjustments to regulatory capital not reflected in these financial statements.

The Bank must give notice to, or under certain conditions specified by regulation, apply to, the Federal Reserve Bank of Cleveland prior to declaring a dividend to the Company. Under existing regulatory guidance, a dividend is generally permissible without regulatory approval if the institution is considered to be “well capitalized” and the dividend does not exceed current year-to-date net income plus the change in retained earnings for the previous two calendar years. An Ohio-chartered savings association must seek advance approval of the Superintendent of the Ohio Division of Financial Institutions before declaring a dividend that would exceed the total of the savings association’s net profits for that year combined with its retained net profits of the preceding two years, less any required transfers to surplus.

 

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the following table) of Tier 1 capital to average assets, of Tier 1 common equity capital to risk-weighted assets, of Tier 1 capital to risk-weighted assets, and of total risk-based capital to risk-weighted assets, all as defined in the regulations. Management believes, as of September 30, 2017, that the Bank met all capital adequacy requirements to which it is subject.

As of September 30, 2017, based on the computations for the call report the Bank is classified as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain capital ratios as set forth in the table below. There are no conditions or events since September 30, 2017, that management believes have changed the Bank’s capital classification.

The Bank’s actual capital amounts and ratios as of September 30, 2017 and December 31, 2016 are presented in the following table.

		Actual								For Capital Adequacy Purposes								To Be Well Capitalized Under Prompt Corrective Action Provisions
		Amount				Ratio				Amount				Ratio				Amount				Ratio
As of September 30, 2017
Tier 1 capital to average assets		$	39,967				9.0%			$	17,740				4.0%			$	22,174				5.0%
Tier 1 common equity capital to risk-      weighted assets			39,967				12.9%				13,918				4.5%				20,104				6.5%
Tier 1 capital to risk-weighted assets			39,967				12.9%				18,558				6.0%				24,744				8.0%
Total risk-based capital to risk-      weighted assets			43,221				14.0%				24,744				8.0%				30,929				10.0%
As of December 31, 2016
Tier 1 capital to average assets		$	38,133				8.5%			$	17,850				4.0%			$	22,313				5.0%
Tier 1 common equity capital to risk-      weighted assets			38,133				13.0%				13,159				4.5%				19,007				6.5%
Tier 1 capital to risk-weighted assets			38,133				13.0%				17,545				6.0%				23,393				8.0%
Total risk-based capital to risk-      weighted assets			41,176				14.1%				23,393				8.0%				29,241				10.0%

Effective January 1, 2015, new regulatory capital requirements commonly referred to as “Basel III” were implemented and are reflected in the capital table above. Management opted out of the accumulated other comprehensive income treatment under the new requirements, and as such unrealized gains and losses from available-for-sale securities will continue to be excluded from Bank regulatory capital.

Implementation of the deductions and other adjustments to Common Equity Tier 1 (CET1) began on January 1, 2015, and will phase in over a four-year period (beginning at 40% on January 1, 2015, with an additional 20% per year thereafter).  Under the new rule, in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, a banking organization must hold a capital conservation buffer composed of CET1 capital above its minimum risk-based capital requirements.  The implementation of the capital conservation buffer began on January 1, 2016, at the 0.625% level and will phase in over a four-year period (increasing by that amount on each subsequent January 1 until it reaches 2.5% on January 1, 2019). The above capital ratio requirements table excludes the capital conservation buffer.

Note 10:

Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive income (loss), included in stockholders’ equity, are as follows:

		Gross Unrealized Gains on Available-for- Sale Securities				Net Unrealized Loss for Unfunded Status of Split-Dollar Life Insurance Plan Liability (tax-free)				Gross Unrealized Loss for Unfunded Status of Defined Benefit Plan				Tax Effect				Total Accumulated Other Comprehensive Income (Loss)
		(In thousands)
September 30, 2017		$	265			$	(160	)		$	(750	)		$	165			$	(480	)
December 31, 2016		$	162			$	(131	)		$	(750	)		$	200			$	(519	)

There were no amounts reclassified out of accumulated other comprehensive income (loss) during the

three and nine months ended September 30, 2017 or 2016.

 

Note 11:

Fair Value Measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value:

	Level 1	Quoted prices in active markets for identical assets or liabilities
	Level 2	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 for substantially the full term of the assets or liabilities
	Level 3	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

Recurring Measurements

Following is a description of the valuation methodologies used for assets measured at fair value on a recurring basis and recognized in the Company’s consolidated balance sheets, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Available-for-sale Securities

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using quoted prices of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based or independently sourced market parameters, including, but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections and cash flows. Such securities are classified in Level 2 of the valuation hierarchy.

The following table presents the fair value measurements of assets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2017 and December 31, 2016:

						Fair Value Measurement Using
		Fair Value				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
		(In thousands)
September 30, 2017
U.S. government agencies		$	8			$	—			$	8			$	—
Mortgage-backed securities           of government sponsored           entities			47,188				—				47,188				—
State and political           subdivisions			11,360				—				11,360				—

 

						Fair Value Measurement Using
		Fair Value				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
		(In thousands)
December 31, 2016
U.S. government agencies		$	11			$	—			$	11			$	—
Mortgage-backed securities           of government sponsored           entities			58,614				—				58,614				—
Private-label collateralized           mortgage obligations			40				—				40				—
State and political           subdivisions			12,044				—				12,044				—

  

Nonrecurring Measurements

Certain assets may be required to be measured at fair value on a nonrecurring basis in periods subsequent to their initial recognition. These assets are not measured at fair value on an ongoing basis; however, they are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment.

Collateral-dependent Impaired Loans, Net of ALLL

The estimated fair value of collateral-dependent impaired loans is based on the appraised fair value of the collateral, less estimated cost to sell. Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy.

The Company considers the appraisal or evaluation as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value. Appraisals of the collateral underlying collateral-dependent loans are obtained when the loan is determined to be collateral-dependent and subsequently as deemed necessary by the office of the Chief Financial Officer. Appraisals are reviewed for accuracy and consistency by the Credit Analyst. Appraisers are selected from the list of approved appraisers maintained by management. The appraised values are reduced by discounts to consider lack of marketability and estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral. These discounts and estimates are developed by the office of the Chief Financial Officer by comparison to historical results.

Foreclosed Assets Held for Sale

Foreclosed assets held for sale are carried at the lower of fair value at acquisition date or current estimated fair value, less estimated cost to sell when the real estate is acquired. Estimated fair value of real estate is based on appraisals or evaluations. Foreclosed assets held for sale are classified within Level 3 of the fair value hierarchy.

Appraisals of real estate are obtained when the real estate is acquired and subsequently as deemed necessary by the Chief Financial Officer. Appraisals are reviewed internally for accuracy and consistency in accordance with regulatory requirements. Appraisers are selected from the list of approved appraisers maintained by management.

The following table presents the fair value measurements of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2017 and December 31, 2016.

						Fair Value Measurement Using
		Fair Value				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
		(In thousands)
September 30, 2017
Collateral-dependent           impaired loans		$	94			$	—			$	—			$	94
Foreclosed assets			27				—				—				27
December 31, 2016
Collateral-dependent           impaired loans		$	1,053			$	—			$	—			$	1,053
Foreclosed assets			2				—				—				2

 

Unobservable (Level 3) Inputs

The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements in thousands.

Fair Value

Valuation Technique

Unobservable Inputs

Weighted Average

September 30, 2017

Collateral-dependent         impaired loans

$

94

Market comparable properties

Discounts

27%

Foreclosed assets

27

Expected selling price

Selling Costs

N/A

December 31, 2016

Collateral-dependent         impaired loans

$

1,053

Market comparable properties and specialized equipment discounts

Discounts

25%

Foreclosed assets

2

Expected selling price

Selling Costs

10%

 

There were changes in the inputs or methodologies used to determine fair value at September 30, 2017 as compared to December 31, 2016 as the commercial customer is in the process of liquidating its collateral.

The following table presents estimated fair values of the Company’s financial instruments not carried at fair value. The fair values of certain of these instruments were calculated by discounting expected cash flows, which involves significant judgments by management and uncertainties. Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Because no market exists for certain of these financial instruments and because management does not intend to sell these financial instruments, the Company does not know whether the fair values shown below represent values at which the respective financial instruments could be sold individually or in the aggregate.

						Fair Value Measurements Using
		Carrying Amount				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
		(In thousands)
September 30, 2017
Financial assets
Cash and cash equivalents		$	6,962			$	6,962			$	—			$	—
Held-to-maturity securities			11,749				—				11,794				—
Loans, net of allowance for           loan losses			343,872				—				—				356,698
Federal Home Loan Bank           stock			4,226				—				4,226				—
Interest receivable			1,361				—				1,361				—
Financial liabilities
Deposits			370,395				257,103				112,755				—
Other short-term borrowings			7,148				—				7,148				—
Federal Home Loan Bank           advances			22,300				—				22,258				—
Advances from borrowers           for taxes and insurance			753				—				753				—
Interest payable			33				—				33				—

 

 

						Fair Value Measurements Using
		Carrying Amount				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
		(In thousands)
December 31, 2016
Financial assets
Cash and cash  equivalents		$	16,756			$	16,756			$	—			$	—
Held-to-maturity securities			9,559				—				9,339
Loans, net of allowance for           loan losses			332,283				—				—				341,999
Federal Home Loan Bank           stock			4,226				—				4,226				—
Interest receivable			1,146				—				1,146				—
Financial liabilities
Deposits			383,733				252,242				130,770				—
Other short-term borrowings			7,246				—				7,246				—
Federal Home Loan Bank           advances			18,000				—				17,938				—
Advances from borrowers           for taxes and insurance			1,306				—				1,306				—
Interest payable			29				—				29				—

 

The following methods and assumptions were used to estimate the fair value of each class of financial instruments.

Cash and Cash Equivalents, Interest Receivable and Federal Home Loan Bank Stock

The carrying amount approximates fair value.

Held-to-maturity Securities

The fair value of held-to-maturity securities was estimated by using pricing models that contain market pricing and information, quoted prices of securities with similar characteristics or discounted cash flows that use credit-adjusted discount rates.

 

Loans, net of allowance for loan losses

The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with similar characteristics were aggregated for purposes of the calculations.

Deposits

Deposits include savings accounts, checking accounts and certain money market deposits. The carrying amount approximates fair value. The fair value of fixed-maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities.

Interest Payable, Other Short-Term Borrowings and Advances From Borrowers for Taxes and Insurance

The carrying amount approximates fair value.

Federal Home Loan Bank Advances

Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt.

Commitments to Originate Loans, Letters of Credit and Lines of Credit

The fair value of commitments to originate loans is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair values of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date. Fair values of commitments were not material at September 30, 2017 and December 31, 2016.

Note 12:

Recent Accounting Developments

FASB ASU 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, was issued in August 2014. The amendments in this update provide guidance in Generally Accepted Accounting Principles (GAAP) about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The amendments in this update were effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application was permitted. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

FASB ASU 2015-10, Technical Corrections and Improvements was issued in September, 2015. The amendments in this Update represent changes to clarify the Codification, correct unintended application of guidance, or make minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to entities. The amendments in this

Update that require transition guidance are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. All other amendments will be effective upon the issuance of this update. The adoption of the amendments that required transition guidance did not have a material impact on the Company’s consolidated financial statements. The adoption of the other amendments in this update did not have a material impact on the Company’s consolidated financial statements.

FASB ASU 2016-01, Financial Instruments–Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities was issued in January 2016. The amendments in this Update make targeted improvements to generally accepted accounting principles, and address certain aspects of recognition, measurement, presentation, and disclosure of financial statements. The amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Except as specifically stated, early adoption of the amendments in this Update is not permitted. This standard is not expected to have a material impact on the Company’s consolidated financial statements.

FASB ASU 2016-04, Liabilities-Extinguishments of Liabilities (Subtopic 405-20), was issued in March 2016. The amendments in this Update apply to entities that offer certain prepaid stored-value products, including prepaid gift cards, prepaid telecommunication cards, and travelers checks. The amendments in this Update contain specific guidance for the derecognition of pre-paid stored value product liabilities and are an improvement to GAAP because they specify how pre-paid stored-value product liabilities within the Update’s scope should be derecognized. The amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Earlier application is permitted, including adoption in an interim period. This standard is not expected to have a material impact on the Company’s consolidated financial statements, because the Company does not currently have any liabilities related to stored value cards.

FASB ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, was issued in September 2016. The main objective of this Update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this Update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments in this Update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal year. Early adoption of the amendments in this Update are allowed for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. An entity will apply the amendments in this Update through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach). A prospective transition approach is required for debt securities for which an other-than-temporary impairment had been recognized before the effective date. The effect of a prospective transition approach is to maintain the same amortized cost basis before and after the effective date of this Update. The Company is studying the implications of this update, including following evolving regulatory and industry guidance, and gathering additional detailed historical data. The effect of this Update on the Company’s financial statements is not known at this time.

FASB ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments, was issued in August 2016. The amendments in this Update provide guidance on how certain

 

cash receipts and cash payments are presented and classified in the statement of cash flows. This Update addresses eight specific cash flow issues with the objective of reducing the diversity in practice. The amendments in this Update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes the interim period. An entity that elects early adoption must adopt all the amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. The amendments in this Update are not expected to have a material impact on the Company’s consolidated financial statements, because the Company has limited exposure to those cash flow items included in the Update.

FASB ASU 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash, was issued in November 2016. The amendments in this Update require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The amendments in this Update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes the interim period. The amendments in this Update are not expected to have a material impact on the Company’s consolidated financial statements. The cash flow presentation will be expanded to include the activity related to restricted cash, or required cash reserve balances upon adoption.

FASB ASU 2016-19, Technical Corrections and Improvements, was issued in December 2016. The amendments in this Update cover a wide range of topics in the Accounting Standards Codification. The amendments generally fall into one of several categories including, amendments related to differences between original guidance and the Accounting Standards Codification, guidance clarification and reference corrections, simplification, or minor improvements. Most of the amendments in this Update do not require transition guidance and are effective upon issuance of this Update. The amendments in this Update are not expected to have a material impact on the Company’s consolidated financial statements, because the Company has limited exposure and disclosures relating to those items included in this Update.

FASB ASU 2017-01, Business Combinations, (Topic 805), Clarifying the Definition of a Business, was issued in January 2017. The amendments in this Update clarify the definition of a business, with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments in this Update should be applied to annual periods beginning after December 15, 2017, including interim periods within those periods. The amendments in this Update should be applied prospectively on or after the effective date. The amendments in this Update are not expected to have a material impact on the Company’s consolidated financial statements, because the Company historically has experienced minimal acquisitions or disposals, if any.

FASB ASU 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments – Equity Method and Joint Ventures (Topic 323), Amendments to SEC paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings, was issued in January 2017. The amendments in this Update provide guidance on the disclosures required regarding the reporting and financial statement impact of recently issued but not yet adopted standards. The Changes and Corrections in this Update are effective upon release. The amendments in this update will require the Company to provide increased disclosure with respect to adopting current and future accounting Updates.

FASB ASU 2017-04, Intangibles-Goodwill and Other (Topic 350) Simplifying the Test for Goodwill Impairment, was issued in January 2017. The amendments in this Update modify the concept of impairment from the condition that exists when the carrying amount of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value. The amendments in this Update should be adopted for the annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment performed on testing dates after January 1, 2017. The amendments in this Update are not expected to have a material impact on the Company’s consolidated financial statements.

FASB ASU 2017-07, Compensation – Retirement Benefits (Topic 715), Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-retirement Benefit Cost, was issued in March 2017. The amendments in this Update require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered to the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. The amendments in this Update also allow for the service cost component to be eligible for capitalization when applicable. The amendments in this Update are effective for annual periods after December 31, 2017, including interim periods within those annual periods. Early adoption is permitted and should be made within the first interim period that financial statements are issued. The amendments in this Update should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic post-retirement benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic post-retirement benefit in assets. The amendments in this Update are not expected to have a material impact on the Company’s consolidated financial statements.

FASB ASU 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20) Premium Amortization on Purchased Callable Debt Securities, was issued in March 2017. The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium. The amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity should apply the amendments in this Update on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principle. The amendments in this Update are expected to have a negative impact on earnings during the shortened amortization period if the bond is not called. However, if the bond is not called, earnings should improve past the call date. If the bond is called as scheduled, the Updates in this amendment will not have a material impact on the Company’s consolidated financial statements.

FASB ASU 2017-9 Compensation - Stock Compensation (Topic 718), Scope of Modification Accounting, was issued in May 2017. The amendments in this Update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for reporting periods for which financial statements have not yet been issued. The amendments in this Update should be applied prospectively to an award modified on or after the adoption date. The amendments in this Update are not expected to impact the Company’s consolidated financial statements, as the Company does not currently have any outstanding share-based payment awards.

Strategic Initiatives

 

The Company’s ongoing strategic planning process includes several initiatives to improve the returns to shareholders over a foreseeable time horizon through the following activities:

·

A strategic focus on providing enhanced customer service and community relationships. Continued staff behavior development training in an effort to create increased conversations relating to the Bank’s core products resulting in additional growth.

·

The Company changed its charter from an Ohio-chartered savings and loan association to an Ohio-chartered commercial bank. This allows the continued growth of commercial business relationships to increase higher yielding, shorter duration assets, while also acquiring commercial deposits to reduce the necessary funding costs to carry these assets.

 

·

Modifying the branch structure from a transaction-oriented thrift culture to a relationship-oriented commercial bank culture through appropriate staffing and training. Management also continues to develop products and services which create market appeal while satisfying our customer demands in the marketplace.

 

Critical Accounting Policies

 

Critical Accounting Policies – The Company’s critical accounting policy relates to the allowance for loan losses. The Company has established a systematic method of periodically reviewing the credit quality of the loan portfolio in order to establish a sufficient allowance for loan losses. The allowance for loan losses is based on management’s current judgments about the credit quality of individual loans and segments of the loan portfolio. The allowance for loan losses is established through a provision and considers all known internal and external factors that affect loan repayment as of the reporting date. Such evaluation, which includes a review of all loans on which full repayment may not be reasonably assured, considers among other matters, the estimated net realizable value or the fair value of the underlying collateral, economic conditions, historical loan loss experience, management’s knowledge of inherent risks in the portfolio that are probable and reasonably estimable and other factors, including those required by regulation that warrant recognition in providing an appropriate loan loss allowance. Management has discussed the development and selection of this critical accounting policy with the audit committee of the Board of Directors.

 

Discussion of Financial Condition Changes from December 31, 2016 to September 30, 2017

 

At September 30, 2017, the Company had total assets of $446.3 million, a decrease of $8.5 million, from total assets at December 31, 2016. The decrease in total assets includes a $9.8 million decrease in cash and cash equivalents, and a $10.0 million decrease in securities balances, partially offset by an $11.6 million increase in net loans compared to December 31, 2016.

Total securities decreased $10.0 million to $70.3 million at September 30, 2017, compared to December 31, 2016. The decrease in securities is primarily due to investing the principal and interest cash flows received from securities into higher yielding loans. The decrease included principal repayments of $11.7 million, and amortization of premiums of $639,000, partially offset by purchases totaling $2.3 million and a $103,000 increase in unrealized gains on available-for-sale securities during the nine months ended September 30, 2017.

Net loans receivable increased $11.6 million at September 30, 2017 compared to December 31, 2016. The Bank originated $64.2 million of loans, received payments of $43.9 million, and sold $8.3 million of fixed-rate residential mortgage loans into the secondary market. The increase in net loan balances is mainly due to new origination in excess of principal reductions during the current year period.

 

The allowance for loan losses totaled $3.3 million at September 30, 2017, compared to $3.0 million at December 31, 2016. The increase was substantially due to a provision for loan losses expense of $209,000 and net loan recoveries of $1,000. Total impaired loans were $3.0 million, or 0.86% of total loans at September 30, 2017, compared to impaired loans of $3.1 million, or 0.94% at December 31, 2016.

Management continues to focus on risk selection and the returns generated in return for risks taken in making its lending and investment decisions. Key areas of risk reviewed for each potential loan origination and securities purchase include credit, interest rate and liquidity risk. Interest rate risk arises mainly from longer term fixed-rate loans. Credit risk arises mainly from loan structure and underwriting conditions. The effects of additional loan portfolio risks generated by competitive pressures in the Company’s market area are evaluated relative to the projected returns to ensure acceptable financial performance over a long-term horizon. As part of an overall strategy to manage liquidity and interest rate risk, management continues to execute a strategy of immediately selling certain newly originated fixed-rate residential mortgage loans into the secondary market to limit the interest rate risk exposure on the balance sheet and to utilize the secondary market as a backup source of liquidity. Loans sold into the secondary market are sold with representations and warranties. In the event that those representations and warranties are violated, repurchase of loans may be required. No repurchases have been required in recent periods and management believes that the bank is in full compliance with applicable selling and servicing guides. Similarly, in order to further limit the overall interest rate risk on the balance sheet, the Company focuses on the origination of shorter-term and adjustable-rate secured commercial loans and limits the retention of long-term fixed-rate residential mortgages. These strategies have the effect of generating lower loan yields in the short term due to the loans being priced off the lower yield short end of the yield curve. The principal source of liquidity is the Bank’s investment securities portfolio. To the extent that loan demand is insufficient in any given period, investments in the securities portfolio are made to provide cash flows to fund loan demand in future periods (a source of liquidity), while also limiting the interest rate risk exposure of the Company. As loan volume increases relative to investment volume, risk-based capital ratios will likely decline, because loans generally require a higher allocation of risk-based capital compared to investments. As demonstrated by quarterly balance sheet presentations, and as a result of general economic and competitive conditions, loan demand and originations are volatile on a sequential quarter basis, which in turn results in volatility in quarterly investment securities balances. The longer term trend and strategic direction is for an increase in higher yielding loan balances relative to lower yielding investment securities balances.

The following table sets forth certain information regarding the Company’s loan portfolio for the dates indicated.

		September 30, 2017								December 31, 2016
		Balance				Percent of total loans				Balance				Percent of total loans
		(Dollars in thousands)
Mortgage loans:
One-to-four family residential(1)		$	192,093				53.89%			$	193,424				56.76%
Residential construction loans			7,521				2.11%				2,744				0.81%
Multi-family residential			12,399				3.48%				11,425				3.35%
Nonresidential real estate/land(2)			116,293				32.63%				107,788				31.63%
Total mortgage loans			328,306				92.11%				315,381				92.55%
Other loans:
Consumer loans(3)			2,148				0.60%				2,193				0.64%
Commercial business loans			25,986				7.29%				23,215				6.81%
Total other loans			28,134				7.89%				25,408				7.45%
Total loans before net items			356,440				100.00%				340,789				100.00%
Less:
Loans in process			8,593								4,719
Deferred loan origination fees			725								747
Allowance for loan losses			3,250								3,040
Total loans receivable, net		$	343,872							$	332,283

(1)

Includes equity loans collateralized by second mortgages in the aggregate amount of $16.5 million at September 30, 2017 and $15.8 million at December 31, 2016. Such loans are secured by one-to-four family residential properties and are underwritten to conform with bank loan policies.

(2)

Includes commercial loans secured by residential real estate of $35.9 million at September 30, 2017 and $33.0 million at December 31, 2016, and land loans of $5.7 million at September 30, 2017 and $4.9 million at December 31, 2016.

(3)

Includes second mortgage loans of $171,000 at September 30, 2017 and $217,000 at December 31, 2016.

 

Foreclosed assets held for sale totaled $75,000 at September 30, 2017, compared to $2,000 at December 31, 2016. The increase in foreclosed assets during the current year was due to additions of properties totaling $287,000, partially offset by a provision of $12,000, and sales totaling $206,000 that resulted in a $5,000 net gain. During the prior year period there were additions of properties totaling $106,000, partially offset by a provision of $24,000, and sales totaling $87,000 that resulted in a net loss of $6,000.

Goodwill of $1.7 million is carried on the Company’s balance sheet as a result of the acquisition of Stebbins Bancshares in September 2004. In accordance with FASB ASC 350, this goodwill is tested for impairment on at least an annual basis. Management evaluated the goodwill using an analysis of required measures of value, including the current stock price as an indicator of minority interest value, change of control multiples as a measure of controlling interest value and discounted cash flow analysis as a measure of going concern value and applied a weighting based on appraisal standards to arrive at a valuation conclusion that indicated no impairment at November 30, 2016. Management believes that there were no interim impairment indicators that would require another evaluation at September 30, 2017.

Deposits totaled $370.4 million at September 30, 2017, a decrease of $13.3 million from $383.7 million at December 31, 2016. This decrease includes an $18.2 million decrease in time deposits, partially offset by a $2.0 million increase in demand deposits and a $2.9 million increase in savings and money market balances. The Bank has begun offering a consumer high-interest checking account to enhance growth of demand deposits during the fourth quarter of 2017. The Company continues to monitor deposit activity closely to respond to changes in customer preference for types of deposits and competitive pressure.

 

Other short-term borrowings, which consist solely of repurchase agreements with commercial customers of the Bank, decreased to $7.1 million at September 30, 2017 from $7.2 million at December 31, 2016. The decrease was due to a decrease in excess funds held by those commercial customers holding repurchase agreements. These customer repurchase agreements are offered by the Bank in order to retain commercial customer funds and to afford those commercial customers the opportunity to earn a return on a short-term secured transaction. Average balances are shown in the tables below and reflect no significant variation during the periods. The weighted-average interest rate paid on these borrowings was 0.15% at both September 30, 2017 and December 31, 2016.

Advances from the Federal Home Loan Bank (FHLB) totaled $22.3 million at September 30, 2017, an increase of $4.3 million from $18.0 million at December 31, 2016. This increase includes $7.3 million of short-term borrowings, partially offset by the scheduled maturity, and repayment, of a $3.0 million fixed-rate advance borrowing during the nine months ended September 30, 2017. The Company uses advances and borrowings from the FHLB for both short-term cash management purposes and to extend the term to maturity of liabilities for interest rate risk management purposes. The cost of longer term liabilities purchased from the FHLB is generally less expensive than obtaining a similar term to maturity through retail certificates of deposit. Repricing risk associated with advances is mitigated through the laddering of advance maturities over time. The weighted-average cost of FHLB advances was 1.35% at September 30, 2017 compared to 1.32% at December 31, 2016.

 

Stockholders’ equity increased by $1.6 million during the period ended September 30, 2017. This increase was due to net income of $2.2 million, and a $68,000 increase in unrealized gains on available-for-sale securities, partially offset by $744,000 in shareholder dividends, and a $29,000 increase in the unrecognized net loss arising from the cost of post-retirement split dollar life insurance coverage as part of the Company’s bank-owned life insurance plan.

On September 22, 2016, the Company announced that its Board of Directors adopted a new stock repurchase program. Under the new stock repurchase program, the Company is authorized to repurchase up to 69,546 shares, or 2.5%, of its issued and outstanding shares of common stock. No shares were purchased during the nine month period ended September 30, 2017.

 

Comparison of Operating Results for the Three Months Ended September 30, 2017 and 2016

General

Net income for the three months ended September 30, 2017, totaled $855,000, an increase of $305,000, compared to $550,000 for the three month period ended September 30, 2016. The increase in net income was primarily due to an increase in both net interest income and noninterest income, and decreases in both the provision for loan losses and noninterest expense, partially offset by an increase in the provision for federal income taxes.

Average Balance Sheet

 

The following table sets forth certain information relating to the Company’s average balance sheet and reflects the average yield on assets and average cost of liabilities for the periods indicated. Such yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods presented.

 

		For the three months ended September 30,
		2017												2016
		Average Balance				Interest				Average Rate				Average Balance				Interest				Average Rate
		(Dollars in thousands)
Interest-earning assets:
Loans receivable, net(1)		$	340,756			$	3,641				4.27%			$	318,055			$	3,375				4.24%
Investment securities(2)			72,363				452				2.50%				93,293				516				2.21%
Interest-earning deposits(3)			9,148				61				2.67%				12,296				62				2.02%
Total interest-earning assets			422,267				4,154				3.93%				423,644				3,953				3.73%
Noninterest-earning assets			23,615												24,096
Total assets		$	445,882											$	447,740
Interest-bearing liabilities:
Deposits		$	373,103			$	419				0.45%			$	376,034			$	464				0.49%
Other short-term borrowings			6,631				3				0.18%				5,898				3				0.20%
Borrowings			19,998				69				1.38%				20,304				67				1.32%
Total interest-bearing liabilities			399,732				491				0.49%				402,236				534				0.53%
Noninterest-bearing  liabilities			3,727												4,048
Total liabilities			403,459												406,284
Stockholders’ equity			42,423												41,456
Total liabilities and stockholders’ equity		$	445,882											$	447,740
Net interest income						$	3,663											$	3,419
Interest rate spread(4)											3.44%												3.20%
Net yield on interest-earning assets(5)											3.47%												3.23%
Ratio of average interest-earning assets to            average interest-bearing liabilities											105.64%												105.32%

 

(1)	Includes nonaccrual loan balances.

(2)	Includes mortgage-backed securities both designated as available-for-sale and held-to-maturity.

(3)	Includes interest-bearing deposits in other financial institutions and Federal Home Loan Bank stock.

(4)	Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.

(5)	Net yield on interest-earning assets represents net interest income as a percentage of average interest-earning assets.

Interest Income

 

Interest income increased $201,000, and totaled $4.2 million for the three month period ended September 30, 2017, compared to $4.0 million for the three month period ended September 30, 2016. The increase was primarily due to an increase in the weighted-average yield, partially offset by a decrease in the average balance of interest-earning assets. The weighted-average yield was 3.93% for the three months ended September 30, 2017, and increased by 20 basis points compared to 3.73% for the three months ended September 30, 2016. The average balance of interest-earning assets decreased by $1.3 million and totaled $422.3 million for the 2017 period compared to $423.6 million in the 2016 period.

Interest income on loans was $3.6 million for the three month period ended September 30, 2017, and increased $266,000 compared to the three month period ended September 30, 2016. The increase was primarily due to an increase in both the average balance of loans and the weighted-average yield. The average balance of loans increased by $22.7 million from $318.1 million in the 2016 period to $340.8 million for the 2017 period. The weighted-average yield was 4.27% for the three months ended September 30, 2017, and increased by 3 basis points compared to 4.24% for the three months ended September 30, 2016.

Interest income on securities decreased $64,000 during the three months ended September 30, 2017, compared to the same period in 2016. This decrease was due to a decrease in the average balance of investment securities, partially offset by an increase in the weighted-average rate. The average balance of investment securities decreased $20.9 million from $93.3 million in the 2016 period to $72.4 million in the 2017 period due to investing excess cash into the loan portfolio. The weighted-average rate increased 29 basis points from 2.21% in the 2016 period to 2.50% for the 2017 period due to a decrease in premium amortization compared to the prior year period.

Dividends on Federal Home Loan Bank stock and other income totaled $61,000 for the three month period ended September 30, 2017, and decreased $1,000 compared to the same period in 2016. The decrease was due to a $3.1 million decrease in the average balance outstanding, substantially offset by a 65 basis point increase in the weighted-average rate from 2.02% in the 2016 period to 2.67% in the 2017 period.

 

Interest Expense

Interest expense totaled $491,000 for the three month period ended September 30, 2017, a decrease of $43,000 compared to the three month period ended September 30, 2016. This decrease was due to a decrease in both the average balance of total interest-bearing liabilities and the weighted-average cost of funds. The average balance of total interest-bearing liabilities decreased $2.5 million and totaled $399.7 million at September 30, 2017, and the weighted-average cost of funds decreased 4 basis points, from 0.53% in the 2016 period to 0.49% in the 2017 period.

Interest expense on deposits for the three month period ended September 30, 2017 totaled $419,000, a decrease of $45,000 compared to same period in the previous year. The decrease was due to decreases in both the weighted-average cost and the average balance of deposits. The weighted average cost of deposits decreased 4 basis point from 0.49% in the 2016 period to 0.45% in the 2017 period. The average balance of deposits decreased $2.9 million from $376.0 million during the 2016 period to $373.1 million in the 2017 period. The decrease in the average balance was due to a $18.0 million decrease in certificates of deposits, partially offset by a $6.5 million increase in demand deposits and an $8.6 million increase in savings and money market balances. The increase in the demand and savings and money market balances is due to the Company’s focus on growing lower-cost deposits while allowing the higher-cost certificates to mature.

Interest expense on other short-term borrowings totaled $3,000 for both of the three month periods ended September 30, 2017 and 2016. The average balance of short-term borrowings increased $733,000 compared to the prior year period. The weighted-average cost of short-term borrowings decreased 2 basis points from 0.20% in the 2016 period to 0.18% in the 2017 period.

Interest expense on Federal Home Loan Bank advances totaled $69,000 for the three month period ended September 30, 2017, an increase of $2,000 from $67,000 in the 2016 period. The increase was primarily due to a 6 basis point increase in the weighted-average cost from 1.32% in the 2016 period to 1.38% in the 2017 period, partially offset by a $306,000 decrease in the average balance outstanding from $20.3 million in the 2016 period to $20.0 million in the 2017 period. The decrease in the average balance was due to the scheduled maturities of fixed-rate term advances, while the increase in the weighted-average cost was due to the scheduled maturity of lower rate advances.

Net Interest Income

Net interest income totaled $3.7 million for the three months ended September 30, 2017, and increased $244,000 compared to the three month period ended September 30, 2016. The increase in net interest income was primarily due to a favorable shift in the composition of earning assets compared to the prior year quarter, and an increase in the net interest spread. The change in the composition of earning assets included a $22.7 million increase in the average balance of higher yielding loans, substantially offset by a $24.1 million decline in lower yielding investments and interest-bearing deposits compared to the prior year quarter, resulting in a 20 basis point increase in the yield on earning assets. This increase was also due to a 24 basis point increase in the net interest spread from 3.20% at September 30, 2016 to 3.44% at September 30, 2017. The increase in the net interest spread is a result of yields on interest-earning assets increasing, while the rate paid on interest-bearing liabilities decreased from the prior year quarter.

Provision for Loan Losses

Management recorded a $99,000 provision for loan losses for the three month period ended September 30, 2017, a decrease of $109,000 compared to a $208,000 provision for the three month period ended September 30, 2016. The decrease was primarily due to a decrease in historical net charge-offs which impacted the loss history, and a decrease in current net charge-offs from $77,000 in the 2016 quarter, to $6,000 in the 2017 quarter, partially offset by higher loan balances and increased specific reserves compared to the same quarter last year.

Noninterest Income

Noninterest income totaled $554,000 for the three month period ended September 30, 2017, and increased $32,000, from $522,000 for the same period in 2016. The increase was primarily due to a $22,000 increase in other operating income due to an increase in interchange income compared to the prior year quarter.

Noninterest Expense

Noninterest expense totaled $2.9 million for three-month period ended September 30, 2017, a decrease of $102,000 from $3.0 million for the three months ended September 30, 2016. This decrease was primarily due to a $248,000 decrease in salaries and employee benefits, and a $23,000 decrease in federal deposit insurance premiums, partially offset by a $56,000 increase in net occupancy and equipment expense, a $71,000 increase in legal expense and a $34,000 increase in other operating expense compared to the prior year quarter. The decrease in salaries and employee benefits was due to decreased compensation attributable to staff reductions, a decline in healthcare costs due to a change in providers, and a decrease in pension costs due to scheduled retirements in 2016. The decrease in the federal deposit insurance premiums is due to a lower assessment rate compared to the prior year quarter. The increase in net occupancy and equipment was due to increases in noncapital furniture and fixture expense, data line expense, as the data line speed for operational efficiency, and increased ATM expense. These increases were partially offset by a decline in building repairs and maintenance expense compared to the prior year quarter. The increase in legal expense was primarily due to increased costs related to problem loans and the conversion from a savings and loan to a commercial bank compared to the prior year quarter. The increase in other operating expense includes an increase in professional services, and loan origination expenses, partially offset by a decline in both check write-offs and foreclosure expenses compared to the prior year quarter

Federal Income Taxes

Federal income tax expense totaled $342,000 for the three month period ended September 30, 2017, an increase of $182,000 compared to $160,000 for the three month period ended September 30, 2016. The increase was primarily due to a $487,000 increase in pretax income compared to the prior year period, and an increase in the effective tax rate. The effective tax rate in the current year quarter was 28.6% compared to 22.5% for the prior year quarter. The effective rate is below the statutory rate of 34% due to certain income items that are not subject to tax.

Comparison of Operating Results for the Nine Months Ended September 30, 2017 and 2016

General

Net income for the nine months ended September 30, 2017, totaled $2.2 million, an increase of $256,000, compared to $1.9 million for the nine month period ended September 30, 2016. The increase in net income was due to increases in both the net interest income and noninterest income, partially offset by increases in the provision for loan losses, noninterest expenses, and the provision for federal income taxes compared to the prior year period.

Net income for the nine months ended September 30, 2017 was negatively impacted by a proxy contest for the election of directors at the annual shareholders meeting held on May 25, 2017. The proxy contest resulted in increased legal and stockholder expense compared to the prior year period of $420,000. Excluding these incremental expenses, the Company’s net income would have been $2.5 million for the nine months ended September 30, 2017. The adjusted return on average equity would have been 7.84% and return on assets would have been 0.74% for the nine months ended September 30, 2017.

 

Average Balance Sheet

 

The following table sets forth certain information relating to the Company’s average balance sheet and reflects the average yield on assets and average cost of liabilities for the periods indicated. Such yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods presented.

 

		For the nine months ended September 30,
		2017												2016
		Average Balance				Interest				Average Rate				Average Balance				Interest				Average Rate
		(Dollars in thousands)
Interest-earning assets:
Loans receivable, net(1)		$	336,758			$	10,646				4.22%			$	308,744			$	9,753				4.21%
Investment securities(2)			75,971				1,406				2.47%				97,161				1,712				2.35%
Interest-earning deposits(3)			9,867				174				2.35%				12,539				155				1.65%
Total interest-earning assets			422,596				12,226				3.86%				418,444				11,620				3.70%
Noninterest-earning assets			23,647												24,157
Total assets		$	446,243											$	442,601
Interest-bearing liabilities:
Deposits		$	374,770			$	1,301				0.46%			$	370,678			$	1,332				0.48%
Other short-term borrowings			6,922				8				0.15%				5,798				7				0.16%
Borrowings			18,735				189				1.35%				20,982				206				1.31%
Total interest-bearing liabilities			400,427				1,498				0.50%				397,458				1,545				0.52%
Noninterest bearing  liabilities			3,934												4,188
Total liabilities			404,361												401,646
Stockholders’ equity			41,882												40,955
Total liabilities and stockholders’ equity		$	446,243											$	442,601
Net interest income						$	10,728											$	10,075
Interest rate spread(4)											3.36%												3.18%
Net yield on interest-earning assets(5)											3.38%												3.21%
Ratio of average interest-earning assets           to average  interest-bearing liabilities											105.54%												105.28%

 

(1)	Includes nonaccrual loan balances.

(2)	Includes mortgage-backed securities both designated as available-for-sale and held-to-maturity.

(3)	Includes interest-bearing deposits in other financial institutions and Federal Home Loan Bank stock.

(4)	Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.

(5)	Net yield on interest-earning assets represents net interest income as a percentage of average interest-earning assets.

Interest Income

Interest income increased $606,000, and totaled $12.2 million for the nine month period ended September 30, 2017, compared to $11.6 million for the nine month period ended September 30, 2016. The increase was due to both an increase in the average balance of interest-earning assets and the weighted-average yield. The average balance of interest-earning assets increased by $4.2 million and totaled $422.6 million for the 2017 period compared to $418.4 million in the 2016 period. The weighted-average yield was 3.86% for the nine months ended September 30, 2017, and increased by 16 basis points compared to 3.70% for the nine months ended September 30, 2016.

Interest income on loans was $10.6 million for the nine month period ended September 30, 2017, and increased $893,000 compared to the nine month period ended September 30, 2016. The increase was primarily due to an increase in the average balance of loans, and to a lesser extent an increase in the weighted-average yield. The average balance of loans increased by $28.1 million from $308.7 million in the 2016 period to $336.8 million for the 2017 period. The weighted-average yield was 4.22% for the nine months ended September 30, 2017, and increased by 1 basis point compared to 4.21% for the nine months ended September 30, 2016.

Interest income on securities decreased $306,000 during the nine months ended September 30, 2017, compared to the same period in 2016. This decrease was due to a decrease in the average balance of investment securities, partially offset by an increase in the weighted-average rate. The average balance of investment securities decreased $21.2 million from $97.2 million in the 2016 period to $76.0 million in the 2017 period, while the weighted-average rate increased 12 basis points from 2.35% in the 2016 period to 2.47% for the 2017 period. The decrease in the average balance was due to investing excess cash into the loan portfolio, while the increase in yield was primarily due to a decrease in premium amortization compared to the prior year period.

Dividends on Federal Home Loan Bank stock and other income totaled $174,000 for the nine month period ended September 30, 2017, an increase of $19,000 compared to the same period in 2016. The increase was due to a 70 basis point increase in the weighted-average rate from 1.65% in the 2016 period to 2.35% in the 2017 period, partially offset by a $2.7 million decrease in the average balance outstanding.

Interest Expense

Interest expense totaled $1.5 million for both nine month periods ended September 30, 2017 and September 30, 2016. The weighted-average cost of interest-bearing liabilities declined by 2 basis points, partially offset by an increase, and change in the composition, of the average balance of total interest-bearing liabilities. The weighted-average cost of interest-bearing liabilities was 0.50% at September 30, 2017 compared to 0.52% at September 30, 2016. The average balance of total interest-bearing liabilities increased $2.9 million from $397.5 million in the 2016 period to $400.4 million in the 2017 period. The increase in the average balance of interest-bearing liabilities included a $15.1

million increase in lower-cost demand, and savings and money market balances, partially offset by an $11.0 million decrease in higher-cost certificate of deposit balances.

Interest expense on deposits for the nine month period ended September 30, 2017 totaled $1.3 million, a decrease of $31,000 compared to the same period in the previous year. This decrease was primarily due to a decrease in the weighted-average cost, partially offset by an increase in the average balance. The weighted-average cost of deposits was 0.46% for the nine months ended September 30, 2017, and decreased 2 basis points from the same period one year ago. The average balance at September 30, 2017 totaled $374.8 million, and increased $4.1 million from $370.7 million at September 30, 2016. The increase in the average balance was due to a $6.5 million increase in demand deposits, and an $8.6 million increase in savings and money market balances, partially offset by an $11.0 million decrease in certificates of deposits. The increase in the demand and savings and money market balances is due to the Company’s focus on growing lower-cost deposits while allowing the higher-cost certificates to mature, which allowed deposits to grow without a corresponding increase in the cost.

Interest expense on other short-term borrowings totaled $8,000 for the nine month period ended September 30, 2017, and increased $1,000 from the same period in the previous year. The average balance of short-term borrowings increased $1.1 million compared to the prior year peiord, while the weighted-average cost of short-term borrowings was 0.15% for the nine month periods ended September 30, 2017, and decreased one basis point from the same period in 2016.

Interest expense on Federal Home Loan Bank advances totaled $189,000 for the nine month period ended September 30, 2017, a decrease of $17,000 from $206,000 in the 2016 period. The decrease was primarily due to a $2.3 million decrease in the average balance outstanding from $21.0 million in the 2016 period to $18.7 million in the 2017 period, partially offset by a 4 basis point increase in the weighted-average cost from 1.31% in the 2016 period to 1.35% in the 2017 period. The decrease in the average balance was due to the scheduled maturities of fixed-rate term advances, while the increase in the weighted-average cost was due to the scheduled maturity of lower rate advances.

Net Interest Income

Net interest income totaled $10.7 million for the nine months ended September 30, 2017, and increased $653,000 compared to the nine month period ended September 30, 2016. The increase in net interest income was primarily due to a $4.2 million increase in the average balance of interest-earning assets and a favorable shift in the composition of earning assets compared to the prior year period. The increase in the average balance of earning assets was substantially due to a $28.0 million increase in the average balance of higher yielding loans, partially offset by a $23.8 million decrease in lower yielding investments and interest-bearing deposits compared to the prior year period. This increase was also due to an 18 basis point increase in the net interest spread from 3.18% at September 30, 2016 to 3.36% at September 30, 2017. The increase in the net interest spread is a result of yields on interest-earning assets increasing, while the rate paid on interest-bearing liabilities decreased.

Provision for Loan Losses

Management recorded a $209,000 provision for loan losses for the nine month period ended September 30, 2017, compared to $152,000 for the nine month period ended September 30, 2016. The increase is primarily due to increases in loan balances and loans requiring additional specific reserves compared to the prior year period.

Noninterest Income

Noninterest income increased $157,000 for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. The increase was primarily due to a $38,000 increase in gain on sale of residential mortgage loans, a $32,000 increase in interchange fees, and a $51,000 increase in other operating income. The increase in gain on sale of residential mortgage loans was primarily due to an increase in loans sold, from $5.1 million in the 2016 period, to $8.3 million in the 2017 period. The increase in interchange fees is due to earning higher fees as a result of converting to Mastercard from VISA and interchange fees on business cards that were implemented in 2017. The increase in other operating income includes a $10,000 increase in sold loan servicing fees, and a $34,000 increase in non-deposit investment fees earned during the period.

Noninterest Expense

Noninterest expense totaled $9.2 million for the nine month period ended September 30, 2017, an increase of $305,000, compared to $8.9 million for the nine months ended September 30, 2016. The proxy contest costs, as previously discussed, totaled $420,000 of which is included in both legal expense and shareholder stock-related expense. The remaining increases include a $73,000 increase in net occupancy expense, a $70,000 increase in audit and accounting expense, a $123,000 increase in legal expense other than proxy contest costs, and a $164,000 increase in other expense, partially offset by a $446,000 decrease in salaries and employee benefits, and a $75,000 decrease in federal deposit insurance premiums. The increase in net occupancy expense was due to increases in furniture and fixture expense, data processing expense and depreciation expense, partially offset by a decrease in building repairs and maintenance expense compared to the prior year period. The increase in audit and accounting expense is due to an increase in the expense related to timing of the expenses and increased internal audit. The increase in legal expense was primarily related to the conversion from a savings and loan charter to a commercial bank charter. The increase in other noninterest expense was due to an increase in internet banking expense, professional services, several check loss incidents, and an increase in loan origination expenses. The decrease in salaries and employee benefits was due to decreased compensation attributable to staff reductions, a decline in healthcare costs due to a change in providers, a decrease in pension costs due to scheduled retirements in 2016, and an increase in deferred loan costs. These decreases were partially offset by an increase in education and training costs to facilitate the strategic initiative of enhanced customer service, an increase in ESOP expense, and an increase in post-retirement benefit costs compared to the prior year. The decrease in the federal deposit insurance premiums is due to a lower assessment rate compared to the prior year period.

Federal Income Taxes

Federal income tax expense totaled $832,000 for the nine month period ended September 30, 2017, an increase of $192,000 compared to $640,000 for the nine month period ended September 30, 2016. The increase was primarily due to a $448,000 increase in pretax income compared to the prior year period, and an increase in the effective tax rate. The effective tax rate in the current year quarter was 27.6% compared to 24.9% for the prior year period. The effective rate is below the statutory rate of 34% due to certain income items that are not subject to tax.

 

 

Forward-Looking Statements

This document contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect” and similar expressions. These forward-looking statements include statements of goals, intentions and expectations, statements regarding prospects and business strategy, statements regarding asset quality and market risk, and estimates of future costs, benefits and results.

These forward-looking statements are subject to significant risks, assumptions and uncertainties, including, among other things, the following: (1) general economic conditions, (2) competitive pressure among financial services companies, (3) changes in interest rates, (4) deposit flows, (5) loan demand, (6) changes in legislation or regulation, (7) changes in accounting principles, policies and guidelines, (8) litigation liabilities, including costs, expenses, settlements and judgments, and (9) other economic, competitive, governmental, regulatory and technological factors affecting our operations, pricing, products and services.

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. We have no obligation to update or revise any forward-looking statements to reflect any changed assumptions, any unanticipated events or any changes in the future.

ITEM 3

Quantitative and Qualitative Disclosures About Market Risk

Management believes there has been no material change in the Company’s market risk since the Company’s Form 10-K was filed with the Securities and Exchange Commission for the year ended December 31, 2016.

ITEM 4

Controls and Procedures

(a)       Evaluation of disclosure controls and procedures.

Under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer, the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective in timely alerting them to the material information relating to the Company (or our consolidated subsidiaries) required to be included in the Company’s periodic SEC filings.

(b)       Changes in internal controls.

There has been no change made in the Company’s internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 1.

Legal Proceedings

Not applicable.

 

ITEM 1A.

Risk Factors

There have been no material changes in the risk factors set forth in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

 

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

(a)

Not applicable.

(b)

Not applicable.

	(c)	The following table sets forth certain information regarding repurchases by the Company for the quarter ended September 30, 2017.

Months ended		Total number of shares purchased				Average price paid per share				Total number of shares purchased as part of the announced plan				Maximum number of shares which may still be purchased as part of the announced plan
July 31, 2017			—			$	—				—				69,546
August 31, 2017			—				—				—				69,546
September 30, 2017			—				—				—				69,546
Total			—			$	—				—				69,546

 

 

Notes to the Table:

On September 22, 2016, the Company announced the authorization by the Board of Directors of a new program for the repurchase of up to 69,546 shares, or 2.5%, of the Company’s outstanding shares of common stock.

 

ITEM 3.

Defaults Upon Senior Securities

Not applicable.

 

ITEM 4.

Mine Safety Disclosures

 

Not applicable.

ITEM 5.

Other Information

Not applicable.

 

ITEM 6.

Exhibits

 

Exhibit
Number	Description
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
32	Written Statement of Chief Executive Officer and Chief Financial Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
101	Interactive financial data (XBRL)

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

Date:	November 3, 2017		By:	/s/James R. VanSickle
				James R. VanSickle
				President and Chief Executive Officer
Date:	November 3, 2017		By:	/s/Myron Swartzentruber
				Myron Swartzentruber
				Senior Vice President and
				Chief Financial Officer