Company Quick10K Filing
Farmers Capital Bank
Price53.55 EPS2
Shares8 P/E26
MCap403 P/FCF14
Net Debt-93 EBIT31
TEV310 TEV/EBIT10
TTM 2018-06-30, in MM, except price, ratios
10-Q 2018-06-30 Filed 2018-08-06
10-Q 2018-03-31 Filed 2018-05-07
10-K 2017-12-31 Filed 2018-03-12
10-Q 2017-09-30 Filed 2017-11-07
10-Q 2017-06-30 Filed 2017-08-07
10-Q 2017-03-31 Filed 2017-05-08
10-K 2016-12-31 Filed 2017-03-10
10-Q 2016-09-30 Filed 2016-11-08
10-Q 2016-06-30 Filed 2016-08-08
10-Q 2016-03-31 Filed 2016-05-09
10-K 2015-12-31 Filed 2016-03-11
10-Q 2015-09-30 Filed 2015-11-06
10-Q 2015-06-30 Filed 2015-08-07
10-Q 2015-03-31 Filed 2015-05-07
10-K 2014-12-31 Filed 2015-03-12
10-Q 2014-09-30 Filed 2014-11-07
10-Q 2014-06-30 Filed 2014-08-07
10-Q 2014-03-31 Filed 2014-05-08
10-K 2013-12-31 Filed 2014-03-07
10-Q 2013-09-30 Filed 2013-11-06
10-Q 2013-06-30 Filed 2013-08-08
10-Q 2013-03-31 Filed 2013-05-08
10-K 2012-12-31 Filed 2013-03-08
10-Q 2012-09-30 Filed 2012-11-08
10-Q 2012-06-30 Filed 2012-08-08
10-Q 2012-03-31 Filed 2012-05-09
10-K 2011-12-31 Filed 2012-03-07
10-Q 2011-09-30 Filed 2011-11-07
10-Q 2011-06-30 Filed 2011-08-08
10-Q 2011-03-31 Filed 2011-05-06
10-K 2010-12-31 Filed 2011-03-11
10-Q 2010-09-30 Filed 2010-11-03
10-Q 2010-06-30 Filed 2010-08-06
10-Q 2010-03-31 Filed 2010-05-07
10-K 2009-12-31 Filed 2010-03-15
8-K 2018-08-20
8-K 2018-07-23
8-K 2018-07-18
8-K 2018-07-18
8-K 2018-07-10
8-K 2018-05-24
8-K 2018-05-08
8-K 2018-04-23
8-K 2018-04-19
8-K 2018-04-18
8-K 2018-01-22
8-K 2018-01-17

FFKT 10Q Quarterly Report

Part I - Financial Information
Item 1. Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 ex_119411.htm
EX-31.2 ex_119412.htm
EX-32 ex_119413.htm

Farmers Capital Bank Earnings 2018-06-30

Balance SheetIncome StatementCash Flow

10-Q 1 ffkt20180630_10q.htm FORM 10-Q ffkt20180630_10q.htm
 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT

Pursuant to Section 13 OR 15(d) of

The Securities Exchange Act of 1934

 

For the quarterly period ended June 30, 2018

 

Farmers Capital Bank Corporation

(Exact name of registrant as specified in its charter)

 

Kentucky

 

000-14412

 

61-1017851

(State or other jurisdiction of incorporation or organization)

 

(Commission 

File Number)

 

(IRS Employer 

Identification No.)

 

P.O. Box 309

202 West Main St.

Frankfort, KY

 

40601

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code – (502) 227-1668

 

Not Applicable

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

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

 

Yes   ☒     No  ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

Yes  ☒     No  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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  ☐
   
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 Exchange Act).

 

Yes  ☐    No  ☒

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Common stock, par value $0.125 per share

7,521,430 shares outstanding at August 1, 2018

 

1

 
 

 

TABLE OF CONTENTS

 

 

PART I – FINANCIAL INFORMATION

 
   

Item 1. Condensed Consolidated Financial Statements

 

Unaudited Condensed Consolidated Balance Sheets

3

Unaudited Condensed Consolidated Statements of Income

4

Unaudited Condensed Consolidated Statements of Comprehensive Income

5

Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity

6

Unaudited Condensed Consolidated Statements of Cash Flows

7

Notes to Unaudited Condensed Consolidated Financial Statements

9

   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

35

   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

52

   

Item 4. Controls and Procedures

53

   

PART II - OTHER INFORMATION

 
   

Item 1. Legal Proceedings

53

   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

53

   

Item 6. Exhibits

54

   

SIGNATURES

56

 

2

 
 

 

PART I – FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

Unaudited Condensed Consolidated Balance Sheets

   

June 30,

   

December 31,

 

(In thousands, except share and per share data)

 

2018

   

2017

 

Assets

               

Cash and cash equivalents:

               

Cash and due from banks

  $ 23,922     $ 25,581  

Interest bearing deposits in other banks

    31,303       58,154  

Money market mutual funds

    38,021       36,673  

Total cash and cash equivalents

    93,246       120,408  

Investment securities:

               

Available for sale, amortized cost of $391,093 (2018) and $427,831 (2017)

    379,979       423,318  

Equity investments, amortized cost of $1,581 (2018) and $864 (2017)

    1,573       935  

Held to maturity, fair value of $2,868 (2018) and $3,478 (2017)

    2,837       3,364  

Total investment securities

    384,389       427,617  

Loans, net of unearned income

    1,064,215       1,035,263  

Allowance for loan losses

    (10,001 )     (9,783 )

Loans, net

    1,054,214       1,025,480  

Premises and equipment, net

    31,434       30,928  

Company-owned life insurance

    30,944       30,817  

Other real estate owned

    4,031       5,489  

Other assets

    33,704       33,133  

Total assets

  $ 1,631,962     $ 1,673,872  

Liabilities

               

Deposits:

               

Noninterest bearing

  $ 357,657     $ 361,855  

Interest bearing

    977,130       1,018,048  

Total deposits

    1,334,787       1,379,903  

Securities sold under agreements to repurchase

    33,532       34,252  

Federal Home Loan Bank advances

    3,392       3,479  

Subordinated notes payable to unconsolidated trusts

    33,506       33,506  

Dividends payable, common stock

    940       939  

Other liabilities

    27,913       28,440  

Total liabilities

    1,434,070       1,480,519  

Shareholders’ Equity

               

Common stock, par value $.125 per share; 14,608,000 shares authorized; 7,521,101 and 7,517,446 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively

    940       940  

Capital surplus

    52,348       52,201  

Retained earnings

    153,442       143,778  

Accumulated other comprehensive loss

    (8,838 )     (3,566 )

Total shareholders’ equity

    197,892       193,353  

Total liabilities and shareholders’ equity

  $ 1,631,962     $ 1,673,872  

See accompanying notes to unaudited condensed consolidated financial statements.

 

3

 
 

 

Unaudited Condensed Consolidated Statements of Income

   

Three Months Ended

   

Six Months Ended

 
   

June 30,

   

June 30,

 

(In thousands, except per share data)

 

2018

   

2017

   

2018

   

2017

 

Interest Income

                               

Interest and fees on loans

  $ 13,038     $ 12,106     $ 25,507     $ 23,828  

Interest on investment securities:

                               

Taxable

    2,023       1,984       4,048       3,884  

Nontaxable

    449       579       924       1,170  

Interest on deposits in other banks

    280       128       549       270  

Interest on federal funds sold and money market mutual funds

    142       33       248       57  

Total interest income

    15,932       14,830       31,276       29,209  

Interest Expense

                               

Interest on deposits

    614       523       1,200       1,056  

Interest on securities sold under agreements to repurchase

    20       16       39       41  

Interest on Federal Home Loan Bank advances

    27       129       55       289  

Interest on subordinated notes payable to unconsolidated trusts

    305       213       559       411  

Total interest expense

    966       881       1,853       1,797  

Net interest income

    14,966       13,949       29,423       27,412  

Provision for loan losses

    127       (499 )     (134 )     81  

Net interest income after provision for loan losses

    14,839       14,448       29,557       27,331  

Noninterest Income

                               

Service charges and fees on deposits

    1,897       2,012       3,809       3,970  

Allotment processing fees

    677       651       1,397       1,366  

Other service charges, commissions, and fees

    1,490       1,328       2,862       2,700  

Trust income

    695       626       1,484       1,330  

Net loss on sales of available for sale investment securities

    -       (1 )     -       (10 )

Net realized gain on sales of equity investment securities

    808       -       808       -  

Gains on sale of mortgage loans, net

    104       189       199       343  

Income from company-owned life insurance

    213       221       506       456  

Other

    89       76       109       198  

Total noninterest income

    5,973       5,102       11,174       10,353  

Noninterest Expense

                               

Salaries and employee benefits

    7,410       7,475       14,900       15,335  

Occupancy expenses, net

    1,177       1,135       2,431       2,349  

Equipment expenses

    678       599       1,279       1,152  

Data processing and communication expenses

    1,055       1,093       2,138       2,386  

Bank franchise tax

    525       609       1,025       1,166  

Deposit insurance expense

    116       130       242       267  

Other real estate expenses, net

    522       326       639       400  

Other

    2,179       1,979       4,126       3,820  

Total noninterest expense

    13,662       13,346       26,780       26,875  

Income before income taxes

    7,150       6,204       13,951       10,809  

Income tax expense

    1,303       1,722       2,463       2,998  

Net income

  $ 5,847     $ 4,482     $ 11,488     $ 7,811  

Per Common Share

                               

Net income – basic and diluted

  $ .78     $ .60     $ 1.53     $ 1.04  

Cash dividends declared

    .125       .10       .25       .20  

Weighted Average Common Shares Outstanding

                               

Basic and diluted

    7,520       7,512       7,519       7,511  

See accompanying notes to unaudited condensed consolidated financial statements.

 

4

 
 

 

Unaudited Condensed Consolidated Statements of Comprehensive Income

   

Three Months Ended

   

Six Months Ended

 
   

June 30,

   

June 30,

 

(In thousands)

 

2018

   

2017

   

2018

   

2017

 

Net Income

  $ 5,847     $ 4,482     $ 11,488     $ 7,811  

Other comprehensive (loss) income:

                               

Unrealized holding (loss) gain on available for sale securities arising during the period, net of tax of $(294), $716, $(1,387) and $1,226, respectively

    (1,112 )     1,329       (5,214 )     2,277  
                                 

Reclassification adjustment for net realized loss included in net income, net of tax of $-, $-, $- and $(3), respectively

    -       1       -       7  
                                 

Change in unfunded portion of postretirement benefit obligation, net of tax of $-, $5, $- and $36, respectively

    (1 )     9       (2 )     68  
                                 

Other comprehensive (loss) income

    (1,113 )     1,339       (5,216 )     2,352  

Comprehensive income

  $ 4,734     $ 5,821     $ 6,272     $ 10,163  

See accompanying notes to unaudited condensed consolidated financial statements.

 

5

 
 

 

Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity

(In thousands, except per share data)

                                 

Accumulated

         
                                   

Other

   

Total

 

Six months ended

 

Common Stock

   

Capital

   

Retained

   

Comprehensive

   

Shareholders’

 

June 30, 2018 and 2017

 

Shares

   

Amount

   

Surplus

   

Earnings

   

(Loss) Income

   

Equity

 

Balance at January 1, 2018

    7,517     $ 940     $ 52,201     $ 143,778     $ (3,566 )   $ 193,353  

Net income

    -       -       -       11,488       -       11,488  

Other comprehensive loss

    -       -       -       -       (5,216 )     (5,216 )

Adoption of Accounting Standards Update 2016-01

    -       -       -       56       (56 )     -  

Cash dividends declared – common, $.25 per share

    -       -       -       (1,880 )     -       (1,880 )

Shares issued under director compensation plan

    1       -       36       -       -       36  

Shares issued pursuant to employee stock purchase plan

    3       -       95       -       -       95  

Expense related to employee stock purchase plan

    -       -       16       -       -       16  

Balance at June 30, 2018

    7,521     $ 940     $ 52,348     $ 153,442     $ (8,838 )   $ 197,892  
                                                 
                                                 

Balance at January 1, 2017

    7,509     $ 939     $ 51,885     $ 134,650     $ (3,408 )   $ 184,066  

Net income

    -       -       -       7,811       -       7,811  

Other comprehensive income

    -       -       -       -       2,352       2,352  

Cash dividends declared – common, $.20 per share

    -       -       -       (1,502 )     -       (1,502 )

Shares issued under director compensation plan

    1       -       46       -       -       46  

Shares issued pursuant to employee stock purchase plan

    3       -       87       -       -       87  

Expense related to employee stock purchase plan

    -       -       16       -       -       16  

Balance at June 30, 2017

    7,513     $ 939     $ 52,034     $ 140,959     $ (1,056 )   $ 192,876  

See accompanying notes to unaudited condensed consolidated financial statements.

 

6

 
 

 

Unaudited Condensed Consolidated Statements of Cash Flows

Six months ended June 30, (In thousands)

 

2018

   

2017

 

Cash Flows from Operating Activities

               

Net income

  $ 11,488     $ 7,811  

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

               

Depreciation and amortization

    1,654       1,740  

Net premium amortization of investment securities:

               

Available for sale

    1,199       1,694  

Held to maturity

    27       27  

Provision for loan losses

    (134 )     81  

Deferred income tax (benefit) expense

    (16 )     18  

Noncash employee stock purchase plan expense

    16       16  

Noncash director fee compensation

    36       46  

Mortgage loans originated for sale

    (5,475 )     (12,088 )

Proceeds from sale of mortgage loans

    5,604       13,793  

Gain on sale of mortgage loans, net

    (199 )     (343 )

(Gain) loss on disposal of premises and equipment, net

    (19 )     50  

Net loss on sale and write downs of other real estate

    571       278  

Net loss on sales of available for sale investment securities

    -       10  

Net realized gain on sales of equity investment securities

    (808 )     -  

Unrealized loss on equity investment securities

    79       -  

Curtailment gain on postretirement benefits plan liability

    -       (351 )

Increase in cash surrender value of company-owned life insurance

    (426 )     (437 )

Death benefits in excess of cash surrender value on company-owned life insurance

    (67 )     -  

Decrease in accrued interest receivable

    138       312  

Decrease in other assets

    1,360       1,816  

Increase (decrease) in accrued interest payable

    135       (42 )

Decrease in other liabilities

    (664 )     (1,049 )

Net cash provided by operating activities

    14,499       13,382  

Cash Flows from Investing Activities

               

Proceeds from maturities and calls investment securities:

               

Available for sale

    37,833       60,210  

Held to maturity

    500       -  

Purchase of available for sale investment securities

    (2,621 )     (41,274 )

Purchase of equity investment securities

    (717 )     (12 )

Proceeds from cancelation of cost method investment securities

    239       666  

Purchase of cost method investment securities

    -       (4,236 )

Loans originated for investment greater than principal collected, net

    (29,921 )     (16,711 )

Purchase of loans held for investment

    (1,206 )     (1,804 )

Principal collected on purchased loans

    2,681       1,329  

Proceeds from death benefits of company-owned life insurance

    366       -  

Purchase of premises and equipment

    (2,072 )     (1,462 )

Proceeds from sale of other real estate

    929       1,761  

Proceeds from disposal of premises and equipment

    35       -  

Net cash provided by (used in) investing activities

    6,046       (1,533 )

Cash Flows from Financing Activities

               

Net decrease in deposits

    (45,116 )     (17,069 )

Net decrease in short-term securities sold under agreements to repurchase

    (468 )     (3,548 )

Proceeds from long-term securities sold under agreements to repurchase

    2       5  

Repayments of long-term securities sold under agreements to repurchase

    (254 )     (258 )

Repayments of Federal Home Loan Bank advances

    (87 )     (5,084 )

Dividends paid, common stock

    (1,879 )     (1,502 )

Shares issued under employee stock purchase plan

    95       87  

Net cash used in financing activities

    (47,707 )     (27,369 )

Net decrease in cash and cash equivalents

    (27,162 )     (15,520 )

Cash and cash equivalents at beginning of year

    120,408       113,534  

Cash and cash equivalents at end of period

  $ 93,246     $ 98,014  

 

7

 

 

Unaudited Condensed Consolidated Statements of Cash Flows—(Continued)

Six months ended June 30, (In thousands)

 

2018

   

2017

 

Supplemental Disclosures

               

Cash paid during the period for:

               

Interest

  $ 1,718     $ 1,839  

Income Taxes

    2,150       1,835  

Transfers from loans to other real estate

    -       339  

Sale and financing of other real estate

    84       2,792  

Cash dividends payable, common

    940       751  

See accompanying notes to unaudited condensed consolidated financial statements.

 

8

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

1. Basis of Presentation and Nature of Operations

 

The condensed consolidated financial statements include the accounts of Farmers Capital Bank Corporation (the “Company” or “Parent Company”), a financial holding company, and its wholly owned subsidiaries. The Company has one bank subsidiary, United Bank & Capital Trust Company (“United Bank”), and one nonbank subsidiary, FFKT Insurance Services, Inc. (“FFKT Insurance”).

 

FFKT Insurance is a captive insurance company that provides property and casualty coverage to the Parent Company and its subsidiaries for risk management purposes or where insurance may not be available or economically feasible. The Company has two subsidiaries organized as Delaware statutory trusts that are not consolidated into its financial statements. These trusts were formed for the purpose of issuing trust preferred securities.

 

United Bank’s significant subsidiaries include EG Properties, Inc. and Farmers Capital Insurance Corporation (“Farmers Insurance”). EG Properties, Inc. is involved in real estate management and liquidation for certain repossessed properties of United Bank. Farmers Insurance is an insurance agency in Frankfort, KY.

 

The Company provides financial services at its 34 locations in 21 communities throughout Central and Northern Kentucky to individual, business, agricultural, governmental, and educational customers. Its primary deposit products are checking, savings, and term certificate accounts. Its primary lending products are residential mortgage, commercial lending, and consumer installment loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets, and commercial and residential real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. Other services include, but are not limited to, cash management services, issuing letters of credit, safe deposit box rental, and providing funds transfer services. Other financial instruments, which could potentially represent concentrations of credit risk, include deposit accounts in other financial institutions and federal funds sold.

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) 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. Estimates used in the preparation of the condensed financial statements are based on various factors including the current interest rate environment and the general strength of the local and state economy. Changes in the overall interest rate environment can significantly affect the Company’s net interest income and the value of its recorded assets and liabilities. Actual results could differ from those estimates used in the preparation of the condensed financial statements. The allowance for loan losses, carrying value of other real estate owned, actuarial assumptions used to calculate postretirement benefits, and the fair values of financial instruments are estimates that are particularly subject to change.

 

The consolidated balance sheet as of December 31, 2017 has been derived from the audited financial statements of the Company as of that date. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended December 31, 2017 included in the Company’s annual report on Form 10-K. The accompanying condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and do not include all of the information and the footnotes required by U.S. GAAP for complete statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of such condensed financial statements, have been included. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. All significant intercompany transactions and balances are eliminated in consolidation.

 

 

2. Reclassifications

 

Certain reclassifications have been made to the condensed consolidated financial statements of prior periods to conform to the current period presentation. These reclassifications do not affect net income or total shareholders’ equity as previously reported.

 

9

 

 

 

3. Accumulated Other Comprehensive (Loss) Income

 

The following table presents changes in accumulated other comprehensive (loss) income (“AOCI”) by component, net of tax, for the periods indicated. The table for the six-month period comparison includes a $56 thousand cumulative-effect adjustment from AOCI to retained earnings related to the adoption of Accounting Standards Update (“ASU”) 2016-01 effective January 1, 2018. ASU 2016-01 requires changes in the fair value of the Company’s equity investments to be recognized through net income. Prior to 2018, changes in the fair value of equity securities were recognized through AOCI. Additional information related to the adoption of ASU 2016-01 can be found in Note 4 and Note 7.

 

Three Months Ended June 30,

 

2018

   

2017

 

(In thousands)

 

Unrealized

Gains

(Losses) on

Available

for Sale

Investment

Securities

   

Postretirement

Benefit

Obligation

   

Total

   

Unrealized

Gains

(Losses) on

Available

for Sale

Investment

Securities

   

Postretirement

Benefit

Obligation

   

Total

 

Beginning balance

  $ (7,668 )   $ (57 )   $ (7,725 )   $ (2,409 )   $ 14     $ (2,395 )

Other comprehensive (loss) income before reclassifications

    (1,112 )     -       (1,112 )     1,329       8       1,337  

Amounts reclassified from accumulated other comprehensive income

    -       (1 )     (1 )     1       1       2  

Net current-period other comprehensive (loss) income

    (1,112 )     (1 )     (1,113 )     1,330       9       1,339  

Ending balance

  $ (8,780 )   $ (58 )   $ (8,838 )   $ (1,079 )   $ 23     $ (1,056 )

 

Six Months Ended June 30,

 

2018

   

2017

 

(In thousands)

 

Unrealized

Gains

(Losses) on

Available

for Sale

Investment

Securities

   

Postretirement

Benefit

Obligation

   

Total

   

Unrealized

Gains

(Losses) on

Available

for Sale

Investment

Securities

   

Postretirement

Benefit

Obligation

   

Total

 

Beginning balance

  $ (3,510 )   $ (56 )   $ (3,566 )   $ (3,363 )   $ (45 )   $ (3,408 )

Other comprehensive (loss) income before reclassifications

    (5,214 )     -       (5,214 )     2,277       17       2,294  

Amounts reclassified from accumulated other comprehensive income

    -       (2 )     (2 )     7       51       58  

Net current-period other comprehensive (loss) income

    (5,214 )     (2 )     (5,216 )     2,284       68       2,352  

Adoption of Accounting Standards Update 2016-01

    (56 )     -       (56 )     -       -       -  

Ending balance

  $ (8,780 )   $ (58 )   $ (8,838 )   $ (1,079 )   $ 23     $ (1,056 )

 

10

 

 

The following table presents amounts reclassified out of accumulated other comprehensive income by component for the periods indicated. Line items in the statement of income affected by the reclassification are also presented.

 

   

Amount Reclassified from Accumulated Other

Comprehensive Income

   

Affected Line Item in the

Statement Where Net Income is

Presented

   

Three Months Ended June 30,

   

Six Months Ended June 30,

     

(In thousands)

 

2018

   

2017

   

2018

   

2017

     

Unrealized gains (losses) on available for sale investment securities

  $ -     $ (1 )   $ -     $ (10 )  

Net loss on sales of available for sale investment securities

      -       -       -       3    

Income tax expense

    $ -     $ (1 )   $ -     $ (7 )  

Net of tax

                                     

Amortization related to postretirement benefits

                                   

Prior service costs

  $ -     $ -     $ -     $ (75 )  

Salaries and employee benefits

Actuarial gains (losses)

    1       (2 )     2       (3 )  

Other noninterest expense

      1       (2 )     2       (78 )  

Total before tax

      -       1       -       27    

Income tax expense

    $ 1     $ (1 )   $ 2     $ (51 )  

Net of tax

                                     

Total reclassifications for the period

  $ 1     $ (2 )   $ 2     $ (58 )  

Net of tax

 

 

4. Accounting Policy

 

Loans and Interest Income

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their unpaid principal amount outstanding adjusted for any charge-offs, deferred fees or costs on originated loans, and unamortized premiums and discounts on purchased loans. Interest income on loans is recognized using the interest method based on loan principal amounts outstanding during the period. Interest income also includes amortization and accretion of any premiums or discounts over the expected life of acquired loans at the time of purchase or business acquisition. Loan origination fees, net of certain direct origination costs, are deferred and amortized as yield adjustments over the contractual term of the loans.

 

The Company disaggregates certain disclosure information related to loans, the related allowance for loan losses, and credit quality measures by either portfolio segment or by loan class. The Company segregates its loan portfolio segments based on similar risk characteristics as follows: real estate loans, commercial loans, and consumer loans. Portfolio segments are further disaggregated into classes for certain required disclosures as follows:

 

Portfolio Segment

Class

   

Real estate loans

Real estate mortgage – construction and land development

Real estate mortgage – residential

Real estate mortgage – farmland and other commercial enterprises

Commercial loans

Commercial and industrial

Depository institutions

Agriculture production and other loans to farmers

States and political subdivisions

Other

Consumer loans

Secured

Unsecured

 

11

 

 

The Company has a loan policy in place that is amended and approved from time to time as needed to reflect current economic conditions and product offerings in its markets. The policy establishes written procedures concerning areas such as the lending authorities of loan officers, committee review and approval of certain credit requests, underwriting criteria, policy exceptions, appraisal requirements, and loan review. Credit is extended to borrowers based primarily on their ability to repay as demonstrated by income and cash flow analysis.

 

Loans secured by real estate make up the largest segment of the Company’s loan portfolio. If a borrower fails to repay a loan secured by real estate, the Company may liquidate the collateral in order to satisfy the amount owed. Determining the value of real estate is a key component to the lending process for real estate backed loans. If the fair value of real estate (less estimated cost to sell) securing a collateral dependent loan declines below the outstanding loan amount, the Company will write down the carrying value of the loan and thereby incur a loss. The Company uses independent third party state certified or licensed appraisers in accordance with its loan policy to mitigate risk when underwriting real estate loans. Cash flow analysis of the borrower, loan to value limits as adopted by loan policy, and other customary underwriting standards are also in place which are designed to maximize credit quality and mitigate risks associated with real estate lending.

 

Commercial loans are made to businesses and are secured mainly by assets such as inventory, accounts receivable, machinery, fixtures and equipment, or other business assets. Commercial lending involves significant risk, as loan repayments are more dependent on the successful operation or management of the business and its cash flows. Consumer lending includes loans to individuals mainly for personal autos, boats, or a variety of other personal uses and may be secured or unsecured. Loan repayment associated with consumer loans is highly dependent upon the borrower’s continuing financial stability, which is heavily influenced by local unemployment rates. The Company mitigates its risk exposure to each of its loan segments by analyzing the borrower’s repayment capacity, imposing restrictions on the amount it will loan compared to estimated collateral values, limiting the payback periods, and following other customary underwriting practices as adopted in its loan policy.

 

The accrual of interest on loans is discontinued when it is determined that the collection of interest or principal is doubtful, or when a default of interest or principal has existed for 90 days or more, unless such loan is well secured and in the process of collection. Past due status is based on the contractual terms of the loan. Interest accrued but not received for a loan placed on nonaccrual status is reversed against interest income. Cash payments received on nonaccrual loans generally are applied to principal until qualifying for return to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. The Company’s policy for placing a loan on nonaccrual status or subsequently returning a loan to accrual status does not differ based on its portfolio class or segment.

 

Commercial and real estate loans delinquent in excess of 120 days and consumer loans delinquent in excess of 180 days are charged off, unless the collateral securing the debt is of such value that any loss appears to be unlikely. In all cases, loans are charged off at an earlier date if classified as loss under the Company’s loan grading process or as a result of regulatory examination. The Company’s charge-off policy for impaired loans does not differ from the charge-off policy for loans outside the definition of impaired.

 

Provision and Allowance for Loan Losses

The provision for loan losses represents charges or credits made to earnings to maintain an allowance for loan losses at a level considered adequate to provide for probable incurred credit losses at the balance sheet date. The allowance for loan losses is a valuation allowance increased by the provision for loan losses and decreased by net charge-offs. Loan losses are charged against the allowance when management believes the uncollectibility of a loan is confirmed. Subsequent recoveries, if any, are credited to the allowance.

 

The Company estimates the adequacy of the allowance using a risk-rated methodology which is based on the Company’s past loan loss experience, known and inherent risks in the loan portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral securing loans, composition of the loan portfolio, current economic conditions, and other relevant factors. This evaluation is inherently subjective as it requires significant judgment and the use of estimates that may be susceptible to change.

 

The allowance for loan losses consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers non-impaired loans and is based on historical loss experience adjusted for current risk factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off. Actual loan losses could differ significantly from the amounts estimated by management.

 

12

 

 

The general portion of the Company’s loan portfolio is segregated into portfolio segments having similar risk characteristics identified as follows: real estate loans, commercial loans, and consumer loans. Each of these portfolio segments is assigned a loss percentage based on their respective twelve quarter rolling historical loss rates, adjusted for the qualitative risk factors summarized below.

 

The qualitative risk factors used in the methodology are consistent with the guidance in the most recent Interagency Policy Statement on the Allowance for Loan Losses issued. Each factor is supported by a detailed analysis and is both measurable and supportable. Some factors include a minimum allocation in instances where loss levels are extremely low and it is determined to be prudent from a safety and soundness perspective. Qualitative risk factors that are used in the methodology include the following for each loan portfolio segment:

 

 

Delinquency trends

 

Trends in net charge-offs

 

Trends in loan volume

 

Lending philosophy risk

 

Management experience risk

 

Concentration of credit risk

 

Economic conditions risk

 

A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired. 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.

 

The Company accounts for impaired loans in accordance with Accounting Standards Codification (“ASC”) Topic 310, “Receivables. ASC Topic 310 requires that impaired loans be measured at the present value of expected future cash flows, discounted at the loan’s effective interest rate, at the loan’s observable market price, or at the fair value of the collateral if the loan is collateral dependent. Impaired loans may also be classified as nonaccrual. In many circumstances, however, the Company continues to accrue interest on an impaired loan. Cash receipts on accruing impaired loans are applied to the recorded investment in the loan, including any accrued interest receivable. Cash payments received on nonaccrual impaired loans generally are applied to principal until qualifying for return to accrual status. Loans that are part of a large group of smaller-balance homogeneous loans, such as residential mortgage, consumer, and smaller-balance commercial loans, are collectively evaluated for impairment. Troubled debt restructurings are measured at the present value of estimated future cash flows using the loan’s effective interest rate at inception, or at the fair value of collateral. The Company determines the amount of reserve for troubled debt restructurings that subsequently default in accordance with its accounting policy for the allowance for loan losses.

 

Adoption of New Accounting Standards

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), and subsequently issued several amendments to the standard during 2015, 2016, and 2017. The primary principle of ASU No. 2014-09 is that entities should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

 

The majority of the Company’s revenues earned are excluded from the scope of the new standard. Revenue streams within the scope of this ASU include services charges and fees on deposits, allotment processing fees, trust income, and certain components of other service charges, commission, and fees. The Company has analyzed each revenue stream under Topic 606 and determined that there were no material changes to existing recognition practices. The Company adopted ASU No. 2014-09 effective January 1, 2018 using a modified retrospective approach and no cumulative-effect adjustment was recorded. Additional disclosures required by the new standard are included in Note 5.

 

13

 

 

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities and, in February 2018, issued an amendment for technical corrections and improvements related to this ASU. The amendments in this ASU require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). In addition, this ASU eliminates the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. Public business entities are required to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. For public business entities, the amendments in this ASU were effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The amendments should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the year of adoption. The amendments related to equity securities without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist as of the date of adoption. The Company adopted ASU No. 2016-01 effective January 1, 2018, recorded a cumulative-effect adjustment of $56 thousand, and began using the exit price notion rather than entrance price to determine the fair value for disclosure purposes. For equity securities without a readily determinable fair value, the Company elected the practical expedient and recorded them at cost adjusted for impairment (if any), plus or minus changes resulting from observable price changes in orderly transactions. Additional information related to the cumulative-effect adjustment can be found in Note 3 and Note 7. Fair value disclosures can be found in Note 13.

 

In March 2017, the FASB issued ASU No. 2017-07, “Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which requires that employers offering benefit plans accounted for under Topic 715 report the service cost component in the same line item or items as other compensation costs arising from services rendered by 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. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. The Company retrospectively adopted ASU 2017-07 effective January 1, 2018, which did not have a material impact on its consolidated financial position, results of operations, or cash flows upon adoption. For prior periods, the interest cost, recognized actuarial loss, and recognized curtailment gain have been reclassified from salaries and employee benefits to other noninterest expense.

 

In February 2018, the FASB issued ASU No. 2018-02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which allows entities to reclassify the stranded tax effects caused by the Tax Cuts and Jobs Act (“Tax Act”), which was enacted in December 2017, from accumulated other comprehensive income (“AOCI”) to retained earnings. This ASU is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. The Company early adopted this standard, resulting in the reclassification of $633 thousand from AOCI to retained earnings for the year ended December 31, 2017. There was no impact on total equity.

 

Recently Issued Accounting Standards

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” to improve financial reporting about leasing transactions. This ASU will require organizations that lease assets (“lessees”) to recognize a lease liability and a right-of-use asset on its balance sheet for all leases with terms of more than twelve months. A lease liability is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis and a right-of-use asset represents the lessee’s right to use, or control use of, a specified asset for the lease term. The amendments in this ASU simplify the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. This ASU leaves the accounting for the organizations that own the assets leased to the lessee (“lessor”) largely unchanged except for targeted improvements to align it with the lessee accounting model and Topic 606, Revenue from Contracts with Customers.

 

14

 

 

For public companies, ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The Company has identified a project team and is in the process of reviewing its leases and assessing the impact of ASU No. 2016-02 on its consolidated financial position, results of operations, and cash flows.

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The ASU requires enhanced disclosures, including qualitative and quantitative requirements, which provide additional information about the amounts recorded in the financial statements. Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration.

 

ASU No. 2016-13 is effective for the Company in annual and interim reporting periods beginning after December 15, 2019. Although early adoption is permitted for fiscal years beginning after December 15, 2018, the Company does not plan to early adopt. The Company has been preserving certain historical loan information from its core processing system in anticipation of adopting the standard. The Company has identified a project team to assess the impact of this ASU on its consolidated financial position, results of operations, and cash flows. The project team has developed a timeline for implementing the standard, has begun working with a third party software solution provider, and has identified an independent third party for validation of the impending changes to the Company’s credit loss methodologies and processes. The team continues to assess the impact of the standard; however, the Company expects adopting this ASU will result in an increase in its allowance for loan losses. The amount of the increase in the allowance for loan losses upon adoption will be dependent upon the characteristics of the portfolio at the adoption date, as well as macroeconomic conditions and forecasts at that date. A cumulative effect adjustment will be made to retained earnings for the impact of the standard at the beginning of the period the standard is adopted.

 

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

 

15

 

 

 

5. Revenue From Contracts With Customers

 

The Company records revenue from contracts with customers in accordance with ASC Topic 606, “Revenue from Contracts with Customers.” ASC Topic 606 requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized when, or as, the Company satisfies a performance obligation. Primarily all of the Company’s revenue from contracts with customers in the scope of ASC Topic 606 is recognized within noninterest income. Net gains or losses on the sale of other real estate owned (“OREO”) are included in net other real estate expenses. The following table presents the Company’s sources of noninterest income for the three and six months ended June 30, 2018 and 2017. Amounts in the table are within the scope of ASC Topic 606 unless otherwise noted.

 

   

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 

(In thousands)

 

2018

   

2017

   

2018

   

2017

 

Service charges and fees on deposits

                               

Overdraft fees

  $ 968     $ 969     $ 1,924     $ 1,896  

Dormant account fees

    574       659       1,167       1,324  

Service charges on checking and savings accounts

    304       328       618       638  

Other

    51       56       100       112  

Allotment processing fees

    677       651       1,397       1,366  

Other service charges, commissions, and fees

                               

Interchange fees

    917       808       1,744       1,589  

Other1

    573       520       1,118       1,111  

Trust income

    695       626       1,484       1,330  

Net loss on sales of available for sale investment securities2

    -       (1 )     -       (10 )

Net gain on sales of equity investment securities2

    808       -       808       -  

Gain on sale of mortgage loans, net2

    104       189       199       343  

Income from company-owned life insurance2

    213       221       506       456  

Other

    89       76       109       198  

Total noninterest income

  $ 5,973     $ 5,102     $ 11,174     $ 10,353  

1Includes fees totaling $147 thousand and $139 thousand for the three months ended June 30, 2018 and 2017, respectively, and $289 thousand and $272 thousand for the six months ended June 30, 2018 and 2017, respectively, which are primarily servicing fees on loans originated for sale on the secondary market and are not within the scope of ASC Topic 606.

2Not within the scope of ASC Topic 606.

 

Net other real estate expenses include a net loss on the sale of OREO of $33 thousand and $43 thousand for the three months ended June 30, 2018 and 2017, respectively, and a net loss of $76 thousand and a net gain of $72 thousand for the six months ended June 30, 2018 and 2017, respectively.

 

A description of the Company’s revenue-generating activities accounted for under Topic 606 follows.

 

Service charges and fees on deposits consist primarily of overdraft fees, dormant account fees, and service charges on checking and savings accounts. Overdraft fees are recognized at the time an account is overdrawn. Dormant account fees are recognized when an account is inactive for 365 days. The majority of service charges on checking and savings accounts are for account maintenance services performed and recognized in the same calendar month. Other fees are primarily for transaction-based services completed at the request of the customer and recognized at the time the transaction is executed. These transaction-based services include foreign ATM usage and stop payments services. All service charges and fees on deposits are withdrawn from the customer’s account balance.

 

Allotment processing fees relate to the Company’s bill payment and electronic funds transfer (“EFT”) services provided under the name of FirstNet. The Company processes payments by individual customers to unaffiliated third party lenders on bi-weekly and monthly schedules. Other EFT services are available to customers upon request. The Company does not provide credit to individuals under the program. Fees are primarily withdrawn from the customer’s account and recognized at the time the transaction is executed.

 

16

 

 

Other service charges, commissions, and fees include interchange fees earned primarily from debit card holder transactions conducted through the VISA payment network and other networks. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are received and recognized daily, concurrent with the transaction processing services provided to the cardholder.

 

Trust income is earned from living trusts and investment management agency accounts, estate planning and estate settlement, custody accounts, individual retirement accounts, and other related services. These fees are primarily earned and accrued over the period of time the Company provides the contracted services and are generally assessed based on tiered scale of the market value of the assets of the accounts. Fees for other services, including the preparation of fiduciary income tax returns, are recognized when the services are rendered. Fees are generally paid out of the assets held in the customer’s account.

 

 

6. Net Income Per Common Share

 

Basic net income per common share is determined by dividing net income by the weighted average total number of common shares issued and outstanding. There were no dilutive instruments at June 30, 2018 and 2017.

 

Net income per common share computations were as follows for the periods indicated:

 

   

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 

(In thousands, except per share data)

 

2018

   

2017

   

2018

   

2017

 
                                 

Net income, basic and diluted

  $ 5,847     $ 4,482     $ 11,488     $ 7,811  
                                 
                                 

Average common shares issued and outstanding, basic and diluted

    7,520       7,512       7,519       7,511  
                                 

Net income per common share, basic and diluted

  $ .78     $ .60     $ 1.53     $ 1.04  

 

 

7. Investment Securities

 

Equity Securities

 

Equity securities consist of money market mutual funds classified as cash and cash equivalents on the balance sheet and mutual funds and equity securities in the investment portfolio of the Company’s captive insurance subsidiary. Money market mutual funds were $38.0 million and $36.7 million at June 30, 2018 and December 31, 2017, respectively. The Company held $1.6 million and $935 thousand in mutual funds and equity securities recorded at fair value at June 30, 2018 and December 31, 2017, respectively.

 

Effective January 1, 2018, the Company adopted ASU 2016-01, which requires the Company to recognize changes in the fair value of its equity securities through net income. Prior to 2018, changes in the fair value of equity securities were recognized through AOCI. At December 31, 2017, unrealized gains, net of tax, of $56 thousand were recognized in AOCI. At the beginning of 2018, the Company made a cumulative-effect adjustment to reclassify those gains out of AOCI and into retained earnings. During the three and six months ended June 30, 2018, the Company recognized unrealized losses of $24 thousand and $79 thousand, respectively, on the equity securities held at June 30, 2018, which was recorded in other noninterest income. Net realized gain on sales of equity securities during 2018 consist of a realized gain of $808 thousand related to the sale of 7,672 shares of Visa Class B stock held at a no cost basis and no realized losses. The Company holds no additional shares of the VISA Class B stock.

 

17

 

 

Debt Securities

 

The Company’s debt securities are classified as available for sale or held to maturity. The following tables summarize the amortized costs and estimated fair value of the Company’s debt securities at June 30, 2018 and December 31, 2017.

 

June 30, 2018 (In thousands)

 

Amortized
Cost

   

Gross

Unrealized
Gains

   

Gross

Unrealized
Losses

   

Estimated
Fair Value

 

Available For Sale

                               

Obligations of U.S. government-sponsored entities

  $ 34,676     $ 5     $ 857     $ 33,824  

Obligations of states and political subdivisions

    105,616       263       2,450       103,429  

Mortgage-backed securities – residential

    178,426       242       5,830       172,838  

Mortgage-backed securities – commercial

    49,387       -       2,478       46,909  

Asset-backed securities

    15,493       32       26       15,499  

Corporate debt securities

    7,495       22       37       7,480  

Total securities – available for sale

  $ 391,093     $ 564     $ 11,678     $ 379,979  

Held To Maturity

                               

Obligations of states and political subdivisions

  $ 2,837     $ 31     $ -     $ 2,868  

 

 

December 31, 2017 (In thousands)

 

Amortized
Cost

   

Gross

Unrealized
Gains

   

Gross

Unrealized
Losses

   

Estimated
Fair Value

 

Available For Sale

                               

Obligations of U.S. government-sponsored entities

  $ 43,601     $ 44     $ 437     $ 43,208  

Obligations of states and political subdivisions

    114,960       562       1,273       114,249  

Mortgage-backed securities – residential

    195,605       523       2,735       193,393  

Mortgage-backed securities – commercial

    50,518       42       1,208       49,352  

Asset-backed securities

    15,569       9       4       15,574  

Corporate debt securities

    7,578       1       37       7,542  

Total securities – available for sale

  $ 427,831     $ 1,181     $ 5,694     $ 423,318  

Held To Maturity

                               

Obligations of states and political subdivisions

  $ 3,364     $ 114     $ -     $ 3,478  

 

 

Debt securities with a carrying value of $207 million and $214 million at June 30, 2018 and December 31, 2017, respectively, were pledged to secure public and trust deposits, repurchase agreements, and for other purposes.

 

The amortized cost and estimated fair value of the debt securities portfolio at June 30, 2018, by contractual maturity, are detailed below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities are stated separately due to the nature of payment and prepayment characteristics of these securities, as principal is not due at a single date.

 

   

Available For Sale

   

Held To Maturity

 
   

Amortized

   

Estimated

   

Amortized

   

Estimated

 

June 30, 2018 (In thousands)

 

Cost

   

Fair Value

   

Cost

   

Fair Value

 

Due in one year or less

  $ 19,847     $ 19,828     $ -     $ -  

Due after one year through five years

    53,443       52,717       -       -  

Due after five years through ten years

    51,363       49,493       732       748  

Due after ten years

    38,627       38,194       2,105       2,120  

Mortgage-backed securities

    227,813       219,747       -       -  

Total

  $ 391,093     $ 379,979     $ 2,837     $ 2,868  

 

18

 

 

Gross realized gains and losses on the sale of available for sale debt securities are presented in the table below for the periods indicated.

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30,

   

June 30,

 

(In thousands)

 

2018

   

2017

   

2018

   

2017

 
                                 

Gross realized gains

  $ -     $ -     $ -     $ -  

Gross realized losses

    -       1       -       10  

Net realized loss

  $ -     $ (1 )   $ -     $ (10 )

 

 

Debt securities with unrealized losses at June 30, 2018 and December 31, 2017 not recognized in income are presented in the tables below. The tables segregate debt securities that have been in a continuous unrealized loss position for less than twelve months from those that have been in a continuous unrealized loss position for twelve months or more. The tables also include the fair value of the related securities.

 

   

Less than 12 Months

   

12 Months or More

   

Total

 

 

June 30, 2018 (In thousands)

 

Fair

Value

   

Unrealized

Losses

   

Fair

Value

   

Unrealized

Losses

   

Fair

Value

   

Unrealized

Losses

 

Obligations of U.S. government-sponsored entities

  $ 10,175     $ 282     $ 22,987     $ 575     $ 33,162     $ 857  

Obligations of states and political subdivisions

    50,261       1,051       33,147       1,399       83,408       2,450  

Mortgage-backed securities – residential

    74,287       2,010       90,087       3,820       164,374       5,830  

Mortgage-backed securities – commercial

    14,509       611       32,400       1,867       46,909       2,478  

Asset-backed securities

    3,729       26       -       -       3,729       26  

Corporate debt securities

    3,102       34       248       3       3,350       37  

Total

  $ 156,063     $ 4,014     $ 178,869     $ 7,664     $ 334,932     $ 11,678  

 

 

   

Less than 12 Months

   

12 Months or More

   

Total

 

 

December 31, 2017 (In thousands)

 

Fair

Value

   

Unrealized

Losses

   

Fair

Value

   

Unrealized

Losses

   

Fair

Value

   

Unrealized

Losses

 

Obligations of U.S. government-sponsored entities

  $ 11,544     $ 43     $ 25,298     $ 394     $ 36,842     $ 437  

Obligations of states and political subdivisions

    40,402       413       33,965       860       74,367       1,273  

Mortgage-backed securities – residential

    77,312       481       99,986       2,254       177,298       2,735  

Mortgage-backed securities – commercial

    7,758       62       34,139       1,146       41,897       1,208  

Asset-backed securities

    1,166       4       -       -       1,166       4  

Corporate debt securities

    7,251       36       200       1       7,451       37  

Total

  $ 145,433     $ 1,039     $ 193,588     $ 4,655     $ 339,021     $ 5,694  

 

Unrealized losses included in the tables above have not been recognized in income since they have been identified as temporary. The Company evaluates debt securities for other-than-temporary impairment (“OTTI”) at least quarterly, and more frequently when economic or market conditions warrant. Many factors are considered, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was effected by macroeconomic conditions, and (4) whether the Company has the intent to sell the security or more likely than not will be required to sell the security before its anticipated recovery. The assessment of whether an OTTI charge exists involves a high degree of subjectivity and judgment and is based on the information available to the Company at a point in time.

 

19

 

 

The Company attributes the unrealized losses in its debt securities portfolio to changes in market interest rates and volatility. Debt securities with unrealized losses at June 30, 2018 and December 31, 2017 are performing according to their contractual terms, and the Company does not expect to incur a loss on these securities unless they are sold prior to maturity. The Company does not have the intent to sell these securities nor does it believe it is likely that it will be required to sell these securities prior to their anticipated recovery. The Company does not consider any of the securities to be impaired due to reasons of credit quality or other factors.

 

 

8. Loans and Allowance for Loan Losses

 

Major classifications of loans outstanding are summarized as follows:

 

(In thousands)

 

June 30,
2018

   

December 31,
2017

 
                 

Real Estate

               

Real estate mortgage – construction and land development

  $ 128,183     $ 129,181  

Real estate mortgage – residential

    350,778       355,304  

Real estate mortgage – farmland and other commercial enterprises

    457,014       432,321  

Commercial

               

Commercial and industrial

    87,224       63,417  

States and political subdivisions

    17,686       27,209  

Other

    16,068       19,916  

Consumer

               

Secured

    4,215       4,853  

Unsecured

    3,047       3,062  

Total loans

    1,064,215       1,035,263  

Less unearned income

    -       -  

Total loans, net of unearned income

  $ 1,064,215     $ 1,035,263  

 

20

 

 

Activity in the allowance for loan losses by portfolio segment was as follows for the periods indicated:

 

(In thousands)

 

Real Estate

   

Commercial

   

Consumer

   

Total