Company Quick10K Filing
Northwest Indiana Bancorp
Price44.50 EPS3
Shares3 P/E16
MCap154 P/FCF14
Net Debt-72 EBIT18
TEV82 TEV/EBIT5
TTM 2019-09-30, in MM, except price, ratios
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NWIN 10Q Quarterly Report

Note 1 - Basis of Presentation
Note 2 - Use of Estimates
Note 3 - Acquisition Activity
Note 4 - Securities
Note 5 - Loans Receivable
Note 6 - Foreclosed Real Estate
Note 7 - Intangibles and Acquisition Related Accounting
Note 8 - Concentrations of Credit Risk
Note 9 - Earnings per Share
Note 10 - Stock Based Compensation
Note 11 - Change in Accounting Principles
Note 12 - Upcoming Accounting Standards
Note 13 - Derivative Financial Instruments
Note 14 - Fair Value
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 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ex_183230.htm
EX-31.2 ex_183225.htm
EX-32.1 ex_183224.htm

Northwest Indiana Bancorp Earnings 2020-03-31

Balance SheetIncome StatementCash Flow

10-Q 1 nwin20200331_10q.htm FORM 10-Q nwin20200331_10q.htm
 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

 

(Mark One)

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

   

 

For the quarterly period ended March 31, 2020 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: 0-26128

 

NorthWest Indiana Bancorp

(Exact name of registrant as specified in its charter)

 

Indiana

35-1927981

(State or other jurisdiction of incorporation 

(I.R.S. Employer Identification Number)

or organization) 

 

 

9204 Columbia Avenue

 

      Munster, Indiana      

46321

(Address of principal executive offices)

(ZIP code)

 

                         N/A                              

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

 

 

Securities registered pursuant to Section 12(b) of the Act: None.

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

N/A

N/A

N/A

 

 

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 every Interactive Data File required to be submitted 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 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 ☐

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 ☒

 

There were 3,463,136 shares of the registrant’s Common Stock, without par value, outstanding at May 5, 2020.

 

 

 

 

NorthWest Indiana Bancorp

 Index

 

 

Page 

Number

PART I. Financial Information

 

 

 

Item 1. Unaudited Financial Statements and Notes

1

 

 

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

24

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

38

 

 

Item 4. Controls and Procedures

38

 

 

PART II. Other Information

39

 

 

SIGNATURES

40

 

 

EXHIBITS

 

31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

 

31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

 

32.1 Section 1350 Certifications

 

101 XBRL Interactive Data File

 

 

 

 

 

 

NorthWest Indiana Bancorp

Consolidated Balance Sheets

 

   

March 31,

         

(Dollars in thousands)

 

2020

   

December 31,

 
   

(unaudited)

   

2019

 

ASSETS

               
                 

Cash and non-interest bearing deposits in other financial institutions

  $ 26,155     $ 20,964  

Interest bearing deposits in other financial institutions

    15,119       10,750  

Federal funds sold

    872       15,544  
                 

Total cash and cash equivalents

    42,146       47,258  
                 

Certificates of deposit in other financial institutions

    1,741       2,170  
                 

Securities available-for-sale

    293,387       277,219  

Loans held-for-sale

    5,375       6,091  

Loans receivable

    918,962       906,869  

Less: allowance for loan losses

    (9,511 )     (8,999 )

Net loans receivable

    909,451       897,870  

Federal Home Loan Bank stock

    3,912       3,912  

Accrued interest receivable

    4,114       4,029  

Premises and equipment

    28,927       29,407  

Foreclosed real estate

    1,032       1,083  

Cash value of bank owned life insurance

    30,186       30,017  

Goodwill

    11,109       11,109  

Other assets

    18,547       18,557  
                 

Total assets

  $ 1,349,927     $ 1,328,722  
                 

LIABILITIES AND STOCKHOLDERS' EQUITY

               
                 

Deposits:

               

Non-interest bearing

  $ 185,219     $ 172,094  

Interest bearing

    976,423       982,276  

Total

    1,161,642       1,154,370  

Repurchase agreements

    12,991       11,499  

Borrowed funds

    14,000       14,000  

Accrued expenses and other liabilities

    20,639       14,750  
                 

Total liabilities

    1,209,272       1,194,619  
                 

Stockholders' Equity:

               

Preferred stock, no par or stated value; 10,000,000 shares authorized, none outstanding

    -       -  

Common stock, no par or stated value; 10,000,000 shares authorized; shares issued and outstanding: March 31, 2020 - 3,463,136 December 31, 2019 - 3,451,797

    -          

Additional paid-in capital

    29,666       29,657  

Accumulated other comprehensive income/(loss)

    8,686       4,261  

Retained earnings

    102,303       100,185  
                 

Total stockholders' equity

    140,655       134,103  
                 

Total liabilities and stockholders' equity

  $ 1,349,927     $ 1,328,722  

 

See accompanying notes to consolidated financial statements.

 

1

 

NorthWest Indiana Bancorp

Consolidated Statements of Income

(unaudited)

 

 

   

Three Months Ended

 

(Dollars in thousands)

 

March 31,

 
   

2020

   

2019

 

Interest income:

               

Loans receivable

               

Real estate loans

  $ 9,357     $ 8,748  

Commercial loans

    1,485       1,684  

Consumer loans

    187       111  

Total loan interest

    11,029       10,543  

Securities

    1,705       1,801  

Other interest earning assets

    135       143  
                 

Total interest income

    12,869       12,487  
                 

Interest expense:

               

Deposits

    2,064       1,672  

Repurchase agreements

    40       49  

Borrowed funds

    94       166  
                 

Total interest expense

    2,198       1,887  
                 

Net interest income

    10,671       10,600  

Provision for loan losses

    514       317  
                 

Net interest income after provision for loan losses

    10,157       10,283  
                 

Noninterest income:

               

Fees and service charges

  $ 1,049     $ 1,162  

Gain on sale of loans held-for-sale, net

    635       242  

Wealth management operations

    554       500  

Gain on sale of securities, net

    510       352  

Increase in cash value of bank owned life insurance

    169       163  

Gain on sale of foreclosed real estate, net

    60       27  

Other

    569       124  

Total noninterest income

  $ 3,546     $ 2,570  
                 

Noninterest expense:

               

Compensation and benefits

  $ 5,217     $ 4,676  

Occupancy and equipment

    1,409       1,123  

Data processing

    556       703  

Marketing

    208       263  

Federal deposit insurance premiums

    196       91  

Other

    2,413       3,435  

Total noninterest expense

  $ 9,999     $ 10,291  
                 

Income before income tax expenses

    3,704       2,562  

Income tax expenses

    512       340  

Net income

  $ 3,192     $ 2,222  
                 

Earnings per common share:

               

Basic

  $ 0.92     $ 0.66  

Diluted

  $ 0.92     $ 0.66  
                 

Dividends declared per common share

  $ 0.31     $ 0.30  

 

See accompanying notes to consolidated financial statements.

 

2

 

NorthWest Indiana Bancorp

Consolidated Statements of Comprehensive Income

(unaudited)

 

 

   

Three Months Ended

 

(Dollars in thousands)

 

March 31,

 
   

2020

   

2019

 
                 

Net income

  $ 3,192     $ 2,222  
                 

Net change in net unrealized gains and losses on securities available-for-sale:

               

Unrealized gains arising during the period

    6,112       4,183  

Less: reclassification adjustment for gains included in net income

    (510 )     (352 )

Net securities gain/(loss) during the period

    5,602       3,831  

Tax effect

    (1,177 )     (798 )

Net of tax amount

    4,425       3,033  
                 

Other comprehensive income/(loss), net of tax

    4,425       3,033  
                 

Comprehensive income/(loss), net of tax

  $ 7,617     $ 5,255  

 

See accompanying notes to consolidated financial statements.

 

3

 

NorthWest Indiana Bancorp

Consolidated Statements of Changes in Stockholders' Equity

(unaudited)

 

 

                   

Accumulated

                 
           

Additional

   

Other

                 
   

Common

   

Paid-in

   

Comprehensive

   

Retained

   

Total

 

(Dollars in thousands, except per share data)

 

Stock

   

Capital

   

(Loss)/Income

   

Earnings

   

Equity

 
                                         

Balance at January 1, 2019

  $ -     $ 11,927     $ (2,796 )   $ 92,333     $ 101,464  
                                         

Comprehensive income:

                                       

Net income

    -       -       -       2,222       2,222  

Net unrealized loss on securities available-for- sale, net of reclassification and tax effects

    -       -       3,033       -       3,033  

Comprehensive income

                                    5,255  

Stock-based compensation expense

    -       71       -       -       71  

Issuance of 416,478 shares at $42.00 per share, for acquisition of AJS Bancorp, Inc.

            17,492                       17,492  

Cash dividends, $0.30 per share

    -       -       -       (1,035 )     (1,035 )
                                         

Balance at March 31, 2019

  $ -     $ 29,490     $ 237     $ 93,520     $ 123,247  
                                         

Balance at January 1, 2020

  $ -     $ 29,657     $ 4,261     $ 100,185     $ 134,103  
                                         

Comprehensive income:

                                       

Net income

    -       -       -       3,192       3,192  

Net unrealized gain on securities available-for- sale, net of reclassification and tax effects

    -       -       4,425       -       4,425  

Comprehensive income

                                    7,617  

Net surrender value of 1,904 restricted stock awards

            (85 )                     (85 )

Stock-based compensation expense

    -       94       -       -       94  

Cash dividends, $0.31 per share

    -       -       -       (1,074 )     (1,074 )
                                         

Balance at March 31, 2020

  $ -     $ 29,666     $ 8,686     $ 102,303     $ 140,655  

 

See accompanying notes to consolidated financial statements.

 

4

 

NorthWest Indiana Bancorp

Consolidated Statements of Cash Flows

(unaudited)

 

 

   

Three Months Ended

 

(Dollars in thousands)

 

March 31,

 
   

2020

   

2019

 

CASH FLOWS FROM OPERATING ACTIVITIES:

               

Net income

  $ 3,192     $ 2,222  

Adjustments to reconcile net income to net cash provided by/(used in) operating activities:

               

Origination of loans for sale

    (24,870 )     (9,760 )

Sale of loans originated for sale

    26,197       9,883  

Depreciation and amortization, net of accretion

    1,039       731  

Amortization of mortgage servicing rights

    12       17  

Stock based compensation expense

    94       71  

Net surrender value of restricted stock awards

    (85 )     -  

Gain on sale of securities, net

    (510 )     (352 )

Gain on sale of loans held-for-sale, net

    (635 )     (242 )

Gain on sale of foreclosed real estate, net

    (60 )     (27 )

Provision for loan losses

    514       317  

Net change in:

               

Interest receivable

    (85 )     (430 )

Other assets

    (1,155 )     (50 )

Accrued expenses and other liabilities

    5,885       (964 )

Total adjustments

    6,341       (806 )

Net cash - operating activities

    9,533       1,416  
                 

CASH FLOWS FROM INVESTING ACTIVITIES:

               

Net proceeds from maturities and (purchases) of certificates of deposits in other financial institutions..

    429       (191 )

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

    16,671       5,704  

Proceeds from sales of securities available-for-sale

    17,886       13,518  

Purchase of securities available-for-sale

    (44,972 )     (21,424 )

Net change in loans receivable

    (12,118 )     (12,985 )

Purchase of premises and equipment, net

    (200 )     (44 )

Proceeds from sale of foreclosed real estate, net

    134       439  

Cash and cash equivalents from acquisition activity, net

    -       52,560  

Change in cash value of bank owned life insurance

    (169 )     (163 )

Net cash - investing activities

    (22,339 )     37,414  
                 

CASH FLOWS FROM FINANCING ACTIVITIES:

               

Net change in deposits

    7,272       27,641  

Proceeds from FHLB advances

    -       -  

Repayment of FHLB advances

    -       (23,000 )

Change in other borrowed funds

    1,492       1,063  

Dividends paid

    (1,070 )     (909 )

Net cash - financing activities

    7,694       4,795  

Net change in cash and cash equivalents

    (5,112 )     43,625  

Cash and cash equivalents at beginning of period

    47,258       17,139  

Cash and cash equivalents at end of period

  $ 42,146     $ 60,764  
                 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

               

Cash paid during the period for:

               

Interest

  $ 2,283     $ 1,907  

Income taxes

    -       -  

Acquisition activity:

               

Fair value of assets acquired, including cash and cash equivalents

  $ -     $ 172,925  

Value of goodwill and other intangible assets

    -       5,491  

Fair value of liabilities assumed

    -       145,546  

Cash paid for acquisition

    -       15,378  

Issuance of common stock for acquisition

    -       17,492  

Noncash activities:

               

Transfers from loans to foreclosed real estate

  $ 23     $ 193  

 

See accompanying notes to consolidated financial statements.

  

5

 

NorthWest Indiana Bancorp

Notes to Consolidated Financial Statements

(unaudited)

 

 

Note 1 - Basis of Presentation

The consolidated financial statements include the accounts of NorthWest Indiana Bancorp (the “Bancorp” or “NWIN”), its wholly-owned subsidiaries NWIN Risk Management, Inc. (a captive insurance subsidiary) and Peoples Bank SB (the “Bank”), and the Bank’s wholly-owned subsidiaries, Peoples Service Corporation, NWIN, LLC, NWIN Funding, Incorporated, and Columbia Development Company, LLC. The Bancorp’s business activities include being a holding company for the Bank as well as a holding company for NWIN Risk Management, Inc. The Bancorp’s earnings are primarily dependent upon the earnings of the Bank. The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures required by U.S. generally accepted accounting principles for complete presentation of consolidated financial statements. In the opinion of management, the consolidated financial statements contain all adjustments necessary to present fairly the consolidated balance sheets of the Bancorp as of March 31, 2020 and December 31, 2019, and the consolidated statements of income, comprehensive income, changes in stockholders’ equity, and consolidated statements of cash flows for the three months ended March 31, 2020 and 2019. The income reported for the three month period ended March 31, 2020 is not necessarily indicative of the results to be expected for the full year.

 

 

Note 2 - Use of Estimates

Preparing financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period, as well as the disclosures provided. Actual results could differ from those estimates. Estimates associated with the allowance for loan losses, fair values of foreclosed real estate, investment securities, deferred tax assets, goodwill, and the status of contingencies are particularly susceptible to material change in the near term.

 

In December 2019, a novel coronavirus (COVID-19) was reported in China, and, in March 2020, the World Health Organization declared it a pandemic. The outbreak of COVID-19 has adversely impacted a broad range of industries in which the Bancorp’s customers operate and could impair their ability to fulfill their financial obligations to the Bancorp.  The World Health Organization has declared COVID-19 to be a global pandemic indicating that almost all public commerce and related business activities must be, to varying degrees, curtailed with the goal of decreasing the rate of new infections. The spread of the outbreak has caused significant disruptions in the U.S. economy and has disrupted banking and other financial activity in the areas in which the Bancorp operates.

   

Currently, the Bancorp does not expect COVID-19 to affect its ability to account timely for the assets on its balance sheet; however, this could change in future periods. While certain valuation assumptions and judgments will change to account for pandemic-related circumstances such as widening credit spreads, the Bancorp does not anticipate significant changes in methodology used to determine the fair value of assets measured in accordance with GAAP.

    

The Bancorp is working with customers directly affected by COVID-19.  The Bancorp is prepared to offer short-term assistance in accordance with regulator guidelines.  As a result of the current economic environment caused by the COVID-19 virus, the Bancorp is engaging in more frequent communication with borrowers to better understand their situation and the challenges faced, allowing it to respond proactively as needs and issues arise. Should economic conditions worsen, the Bancorp could experience further increases in its required allowance for loan loss and record additional provision for loan loss expense. It is possible that the Bancorp’s asset quality measures could worsen at future measurement periods if the effects of COVID-19 are prolonged.

   

In addition, COVID-19 could cause a further and sustained decline in the Bancorp’s stock price or the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause us to perform a goodwill and intangible asset impairment tests and result in an impairment charge being recorded for that period. In the event that the Bancorp concludes that all or a portion of its goodwill or intangible assets are impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory capital.

 

6

 

 

Note 3 - Acquisition Activity

On January 24, 2019, the Bancorp completed its previously announced acquisition of AJS Bancorp, Inc., a Maryland corporation (“AJSB”), pursuant to an Agreement and Plan of Merger dated July 30, 2018 between the Bancorp and AJSB (the “AJSB Merger Agreement”). Pursuant to the terms of the AJSB Merger Agreement, AJSB merged with and into NWIN, with NWIN as the surviving corporation. Simultaneously with the AJSB Merger, A.J. Smith Federal Savings Bank, a federally chartered savings bank and wholly-owned subsidiary of AJSB, merged with and into Peoples Bank SB, with Peoples Bank as the surviving bank.

 

In connection with the AJSB Merger, each AJSB stockholder holding 100 or more shares of AJSB common stock received fixed consideration of (i) 0.2030 shares of NWIN common stock, and (ii) $7.20 per share in cash for each outstanding share of AJSB’s common stock. Stockholders holding less than 100 shares of AJSB common stock received $16.00 in cash and no stock consideration for each outstanding share of AJSB common stock. Any fractional shares of NWIN common stock that an AJSB stockholder would have otherwise received in the AJSB Merger were cashed out in the amount of such fraction multiplied by $43.01.

 

The Bancorp issued 416,478 shares of Bancorp common stock to the former AJSB stockholders, and paid cash consideration of approximately $15.7 million. Based upon the closing price of NWIN’s common stock on January 23, 2019, the transaction had an implied valuation of approximately $33.2 million, which includes unallocated shares held by the AJSB Employee Stock Ownership Plan (“ESOP”), some of which were cancelled in connection with the closing to satisfy the ESOP’s outstanding loan balance. Acquisition costs incurred in 2019 related to the AJSB Merger were approximately $2.1 million. The acquisition further expanded the Bank’s banking center network in Cook County, Illinois, expanding the Bank’s full-service retail banking network to 22 banking centers.

 

Under the acquisition method of accounting, the total purchase price is allocated to net tangible and intangible assets based on their current estimated fair values on the date of the acquisition. Based on the valuations of the fair value of tangible and intangible assets acquired and liabilities assumed, the final purchase price for the AJSB acquisition is allocated as follows:

 

ASSETS

       

Cash and due from banks

  $ 68,303  

Investment securities, available for sale

    3,432  
         

Commercial

    712  

Residential mortgage

    85,635  

Multifamily

    1,442  

Consumer

    57  

Total Loans

    87,846  
         

Premises and equipment, net

    3,542  

FHLB stock

    512  

Goodwill

    2,939  

Core deposit intangible

    2,917  

Interest receivable

    351  

Other assets

    8,939  

Total assets purchased

  $ 178,781  

Common shares issued

    17,492  

Cash paid

    15,743  

Total purchase price

    33,235  
         

LIABILITIES

       

Deposits

       

Non-interest bearing

  $ 24,502  

NOW accounts

    10,712  

Savings and money market

    68,875  

Certificates of deposits

    40,137  

Total Deposits

    144,226  
         

Interest payable

    50  

Other liabilities

    1,270  
         

Total liabilities assumed

  $ 145,546  

 

7

 

 

Note 4 - Securities

The estimated fair value of available-for-sale securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income were as follows:

 

   

(Dollars in thousands)

 
           

Gross

   

Gross

   

Estimated

 
   

Cost

   

Unrealized

   

Unrealized

   

Fair

 
   

Basis

   

Gains

   

Losses

   

Value

 

March 31, 2020

                               

Money market fund

  $ 16,553     $ -     $ -     $ 16,553  

Collateralized mortgage obligations and residential mortgage-backed securities

    152,859       6,142       (63 )     158,938  

Municipal securities

    110,790       6,359       (26 )     117,123  

Collateralized debt obligations

    2,197       -       (1,424 )     773  

Total securities available-for-sale

  $ 282,399     $ 12,501     $ (1,513 )   $ 293,387  

 

 

   

(Dollars in thousands)

 
           

Gross

   

Gross

   

Estimated

 
   

Cost

   

Unrealized

   

Unrealized

   

Fair

 
   

Basis

   

Gains

   

Losses

   

Value

 

December 31, 2019

                               

Money market fund

  $ 9,670     $ -     $ -     $ 9,670  

U.S. government sponsored entities

    12,994       64       -       13,058  

Collateralized mortgage obligations and residential mortgage-backed securities

    149,339       1,745       (96 )     150,988  

Municipal securities

    97,628       4,844       (45 )     102,427  

Collateralized debt obligations

    2,202       -       (1,126 )     1,076  

Total securities available-for-sale

  $ 271,833     $ 6,653     $ (1,267 )   $ 277,219  

 

The estimated fair value of available-for-sale debt securities at March 31, 2020, by contractual maturity, were as follows. Securities not due at a single maturity date, primarily collateralized mortgage obligations and residential mortgage-backed securities, are shown separately.

 

   

(Dollars in thousands)

 
   

Available-for-sale

 
   

Estimated

         
   

Fair

   

Tax-Equivalent

 

March 31, 2020

 

Value

   

Yield (%)

 

Due in one year or less

  $ 16,903       6.17  

Due from one to five years

    3,122       4.79  
                 

Due from five to ten years

    4,554       4.39  

Due over ten years

    109,870       3.93  

Collateralized mortgage obligations and residential mortgage-backed securities

    158,938       2.25  

Total

  $ 293,387       3.17  

 

Sales of available-for-sale securities were as follows for the three months ended:

 

   

(Dollars in thousands)

 
   

March 31,

   

March 31,

 
   

2020

   

2019

 
                 

Proceeds

  $ 17,886     $ 13,518  

Gross gains

    513       356  

Gross losses

    (3 )     (4 )

 

Accumulated other comprehensive income/(loss) balances, net of tax, related to available-for-sale securities, were as follows:

 

   

(Dollars in thousands)

 
   

Unrealized
gain/(loss)

 

Ending balance, December 31, 2019

  $ 4,261  

Current period change

    4,425  

Ending balance, March 31, 2020

  $ 8,686  

 

Securities with carrying values of approximately $54.5 million and $65.5 million were pledged as of March 31, 2020, and December 31, 2019, respectively, as collateral for repurchase agreements, public funds, and for other purposes as permitted or required by law.

 

8

 

Securities with gross unrealized losses at March 31, 2020, and December 31, 2019, not recognized in income are as follows:

 

   

(Dollars in thousands)

 
   

Less than 12 months

   

12 months or longer

   

Total

 
   

Estimated

           

Estimated

           

Estimated

         
   

Fair

   

Unrealized

   

Fair

   

Unrealized

   

Fair

   

Unrealized

 
   

Value

   

Losses

   

Value

   

Losses

   

Value

   

Losses

 

March 31, 2020

                                               

Collateralized mortgage obligations and residential mortgage-backed securities

    2,480       (63 )     -       -       2,480       (63 )

Municipal securities

    3,578       (26 )     -       -       3,578       (26 )

Collateralized debt obligations

    -       -       773       (1,424 )     773       (1,424 )

Total temporarily impaired

  $ 6,058     $ (89 )   $ 773     $ (1,424 )   $ 6,831     $ (1,513 )

Number of securities

            5               2               7  

 

 

   

(Dollars in thousands)

 
   

Less than 12 months

   

12 months or longer

   

Total

 
   

Estimated

           

Estimated

           

Estimated

         
   

Fair

   

Unrealized

   

Fair

   

Unrealized

   

Fair

   

Unrealized

 
   

Value

   

Losses

   

Value

   

Losses

   

Value

   

Losses

 

December 31, 2019

                                               

U.S. government sponsored entities

  $ -     $ -     $ -     $ -     $ -     $ -  

Collateralized mortgage obligations and residential mortgage-backed securities

    8,859       (31 )     15,065       (65 )     23,924       (96 )

Municipal securities

    4,367       (45 )     -       -       4,367       (45 )

Collateralized debt obligations

    -       -       1,076       (1,126 )     1,076       (1,126 )

Total temporarily impaired

  $ 13,226     $ (76 )   $ 16,141     $ (1,191 )   $ 29,367     $ (1,267 )

Number of securities

            11               17               28  

 

Unrealized losses on securities have not been recognized into income because the securities are of high credit quality or have undisrupted cash flows. Management has the intent and ability to hold those securities for the foreseeable future, and the decline in fair value is largely due to changes in interest rates and volatility in securities markets. The fair values are expected to recover as the securities approach maturity.

 

 

Note 5 - Loans Receivable

 

Loans receivable are summarized below:

 

(Dollars in thousands)

               
   

March 31, 2020

   

December 31, 2019

 

Loans secured by real estate:

               

Residential real estate

  $ 303,872     $ 299,569  

Home equity

    48,690       49,118  

Commercial real estate

    280,018       283,108  

Construction and land development

    95,696       87,710  

Multifamily

    51,897       51,286  

Farmland

    224       227  

Total loans secured by real estate

    780,397       771,018  

Commercial business

    105,337       103,222  

Consumer

    600       627  

Manufactured homes

    14,093       13,285  

Government

    14,944       15,804  

Subtotal

    915,371       903,956  

Less:

               

Net deferred loan origination fees

    3,314       2,934  

Undisbursed loan funds

    277       (21 )

Loans receivable

  $ 918,962     $ 906,869  

 

9

 

(Dollars in thousands)

 

Beginning Banlance

   

Charge-offs

   

Recoveries

   

Provisions

   

Ending Balance

 
                                         

The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the three months ended March 31, 2020:

 
                                         

Allowance for loan losses:

                                       

Residential real estate

  $ 1,812     $ -     $ 6     $ 10     $ 1,828  

Home equity

    223       -       -       23       246  

Commercial real estate

    3,773       -       -       (80 )     3,693  

Construction and land development

    1,098       -       -       125       1,223  

Multifamily

    529       -       -       33       562  

Farmland

    -       -       -       -       -  

Commercial business

    1,504       -       1       396       1,901  

Consumer

    43       (12 )     3       8       42  

Manufactured homes

    -       -       -       -       -  

Government

    17       -       -       (1 )     16  

Total

  $ 8,999     $ (12 )   $ 10     $ 514     $ 9,511  
                                         

The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the three months ended March 31, 2019:

 
                                         

Allowance for loan losses:

                                       

Residential real estate

  $ 1,715     $ (48 )   $ 14     $ (1 )   $ 1,680  

Home equity

    202       -       -       (8 )     194  

Commercial real estate

    3,335       -       -       150       3,485  

Construction and land development

    756       -       -       21       777  

Multifamily

    472       -       -       (38 )     434  

Farmland

    -       -       -       -       -  

Commercial business

    1,362       -       6       23       1,391  

Consumer

    82       (18 )     3       187       254  

Manufactured homes

    -       -       -       -       -  

Government

    38       -       -       (17 )     21  

Total

  $ 7,962     $ (66 )   $ 23     $ 317     $ 8,236  

 

A deferred cost reserve is maintained for the portfolio of manufactured home loans that have been purchased. This reserve is available for use for manufactured home loan nonperformance and costs associated with nonperformance. If the segment performs in line with expectation, the deferred cost reserve is paid as an origination cost to the third party originator of the loan. The unamortized balance of the deferred cost reserve totaled $2.1 million and $1.9 million as of March 31, 2020 and December 31, 2019, respectively, and is included in net deferred loan origination costs.

 

10

 

The Bancorp's impairment analysis is summarized below:

                                         
   

Ending Balances

 
                                                 

(Dollars in thousands)

 

Individually evaluated for impairment reserves

   

Collectively evaluated for impairment reserves

   

Loan receivables

   

Loan individually

evaluated for

impairment

   

Purchased credit impaired loans individually evaluated for impairment

   

Collectively evaluated for impairment

 
                                                 

The Bancorp's allowance for loan losses impairment evaluation and loan receivables are summarized below at March 31, 2020:

                                                 

Residential real estate

  $ 5     $ 1,823     $ 303,935     $ 668     $ 1,487     $ 301,780  

Home equity

    4       242       48,750       214       145       48,391  

Commercial real estate

    3       3,690       280,018       1,023       488       278,507  

Construction and land development

    -       1,223       95,696       -       -       95,696  

Multifamily

    -       562       51,897       119       663       51,115  

Farmland

    -       -       224       -       -       224  

Commercial business

    365       1,536       105,188       1,190       1,154       102,844  

Consumer

    -       42       600       -       -       600  

Manufactured homes

    -       -       17,710       -       -       17,710  

Government

    -       16       14,944       -       -       14,944  

Total

  $ 377     $ 9,134     $ 918,962     $ 3,214     $ 3,937     $ 911,811  
                                                 
                                                 

The Bancorp's allowance for loan losses impairment evaluation and loan receivables are summarized below at December 31, 2019:

                                                 

Residential real estate

  $ 10     $ 1,802     $ 299,333     $ 642     $ 1,581     $ 297,110  

Home equity

    4       219       49,181       221       216       48,744  

Commercial real estate

    -       3,773       283,108       1,078       487       281,543  

Construction and land development

    -       1,098       87,710       -       -       87,710  

Multifamily

    -       529       51,286       129       673       50,484  

Farmland

    -       -       227       -       -       227  

Commercial business

    152       1,352       103,088       1,041       1,150       100,897  

Consumer

    -       43       627       -       -       627  

Manufactured homes

    -       -       16,505       -       -       16,505  

Government

    -       17       15,804       -       -       15,804  

Total

  $ 166     $ 8,833     $ 906,869     $ 3,111     $ 4,107     $ 899,651  

 

The Bancorp's credit quality indicators are summarized below at March 31, 2020 and December 31, 2019:

 

   

Credit Exposure - Credit Risk Portfolio By Creditworthiness Category

         
   

March 31, 2020

         

(Dollars in thousands)

  2     3     4     5     6     7     8          
                                                                 

Loan Segment

 

Moderate

   

Above average

acceptable

   

Acceptable

   

Marginally acceptable

   

Pass/monitor

   

Special mention

   

Substandard

   

Total

 

Residential real estate

  $ 1,111     $ 122,215     $ 107,271     $ 13,578     $ 51,427     $ 3,820     $ 4,513     $ 303,935  

Home equity

    153       6,781       39,489       259       825       739       504       48,750  

Commercial real estate

    -       2,312       72,707       139,436       54,255       7,770       3,538       280,018  

Construction and land development...

    -       1,002       28,731       51,273       14,690       -       -       95,696  

Multifamily

    -       888       17,661       27,661       4,904       -       783       51,897  

Farmland

    -       -       -       -       224       -       -       224  

Commercial business

    8,319       16,659       18,039       39,222       19,916       1,818       1,215       105,188  

Consumer

    103       2       495       -       -       -       -       600  

Manufactured homes

    3,617       2,253       10,832       182       826       -       -       17,710  

Government

    -       1,775       10,759       2,410       -       -       -       14,944  

Total

  $ 13,303     $ 153,887     $ 305,984     $ 274,021     $ 147,067     $ 14,147     $ 10,553     $ 918,962  

 

11

 

   

December 31, 2019

         

(Dollars in thousands)

  2     3     4     5     6     7     8          
                                                                 

Loan Segment

 

Moderate

   

Above average

acceptable

   

Acceptable

   

Marginally acceptable

   

Pass/monitor

   

Special mention

   

Substandard

   

Total

 

Residential real estate

  $ 827     $ 119,138     $ 104,153     $ 13,463     $ 53,058     $ 4,203     $ 4,491     $ 299,333  

Home equity

    100       6,536       40,027       264       934       813       507       49,181  

Commercial real estate

    -       2,030       82,158       135,058       56,917       5,380       1,565       283,108  

Construction and land development

    -       719       26,900       45,751       14,340       -       -       87,710  

Multifamily

    -       903       18,107       26,800       4,674       -       802       51,286  

Farmland

    -       -       -       -       227       -       -       227  

Commercial business

    8,312       13,158       19,638       39,016       20,009       2,228       727       103,088  

Consumer

    90       -       537       -       -       -       -       627  

Manufactured homes

    3,221       2,413       9,825       184       862       -       -       16,505  

Government

    -       1,889       11,505       2,410       -       -       -       15,804  

Total

  $ 12,550     $ 146,786     $ 312,850     $ 262,946     $ 151,021     $ 12,624     $ 8,092     $ 906,869  

 

The Bancorp has established a standard loan grading system to assist management, lenders and review personnel in their analysis and supervision of the loan portfolio. The use and application of these grades by the Bancorp is uniform and conforms to regulatory definitions. The loan grading system is as follows:

 

1 – Minimal Risk

Borrower demonstrates exceptional credit fundamentals, including stable and predictable profit margins, strong liquidity and a conservative balance sheet with superior asset quality. Excellent cash flow coverage of existing and projected debt service. Historic and projected performance indicates borrower is able to meet obligations under almost any economic circumstances.

 

2 – Moderate risk

Borrower consistently internally generates sufficient cash flow to fund debt service, working assets, and some capital expenditures. Risk of default considered low.

 

3 – Above average acceptable risk

Borrower generates sufficient cash flow to fund debt service and some working assets and/or capital expansion needs. Profitability and key balance sheet ratios are at or slightly above peers. Current trends are positive or stable. Earnings may be level or trending down slightly or be erratic; however, positive strengths are offsetting. Risk of default is reasonable but may warrant collateral protection.

 

4 – Acceptable risk

Borrower generates sufficient cash flow to fund debt service, but most working asset and all capital expansion needs are provided from external sources. Profitability ratios and key balance sheet ratios are usually close to peers but one or more ratios (e.g. leverage) may be higher than peer. Earnings may be trending down over the last three years. Borrower may be able to obtain similar financing from other banks with comparable or less favorable terms. Risk of default is acceptable but requires collateral protection.

 

5 – Marginally acceptable risk

Borrower may exhibit excessive growth, declining earnings, strained cash flow, increasing leverage and/or weakening market position that indicate above average risk. Limited additional debt capacity, modest coverage, and average or below average asset quality, margins and market share. Interim losses and/or adverse trends may occur, but not to the level that would affect the Bank’s position. The potential for default is higher than normal but considered marginally acceptable based on prospects for improving financial performance and the strength of the collateral.

 

6 – Pass/monitor

The borrower has significant weaknesses resulting from performance trends or management concerns. The financial condition of the company has taken a negative turn and may be temporarily strained. Cash flow may be weak but cash reserves remain adequate to meet debt service. Management weaknesses are evident. Borrowers in this category will warrant more than the normal level of supervision and more frequent reporting.

 

7 – Special mention (watch)

Special mention credits are considered bankable assets with no apparent loss of principal or interest envisioned but requiring a high level of management attention. Assets in this category are currently protected but are potentially weak. These borrowers are subject to economic, industry, or management factors having an adverse impact upon their prospects for orderly service of debt. The perceived risk in continued lending is considered to have increased beyond the level where such loans would normally be granted. These assets constitute an undue and unwarranted credit risk, but not to the point of justifying a classification of Substandard.

 

8 – Substandard

This classification consists of loans which are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged. Financial statements normally reveal some or all of the following: poor trends, lack of earnings and cash flow, excessive debt, lack of liquidity, and the absence of creditor protection. Loans are still considered collectible, but due to increased risks and defined weaknesses of the credit, some loss could be incurred in collection if the deficiencies are not corrected.

 

Performing loans are loans that are paying as agreed and are approximately less than ninety days past due on payments of interest and principal.

 

12

 

During the first three months of 2020, one commercial real estate loan totaling $149 thousand and one residential loan totaling $53 thousand was renewed as a troubled debt restructuring. One commercial business trouble debt restructuring loan totaling $312 thousand has subsequently defaulted during the periods presented. All of the loans classified as troubled debt restructurings are also considered impaired. The valuation basis for the Bancorp’s troubled debt restructurings is based on the present value of cash flows, unless consistent cash flows are not present, then the fair value of the collateral securing the loan is the basis for valuation.

 

The Bancorp's individually evaluated impaired loans are summarized below:

                 
                                         
                           

For the three months ended

 
   

As of March 31, 2020

   

March 31, 2020

 

(Dollars in thousands)

 

 

Recorded Investment

   

Unpaid Principal

Balance

   

Related

Allowance

   

Average Recorded

Investment

   

Interest Income Recognized

 

With no related allowance recorded:

                                       

Residential real estate

  $ 2,103     $ 3,488     $ -     $ 2,122     $ 24  

Home equity

    351       371       -       390       5  

Commercial real estate

    1,493       2,084       -       1,520       13  

Construction and land development

    -       -       -       -       -  

Multifamily

    782       864       -       792       7  

Farmland

    -       -       -       -       -  

Commercial business

    1,486       1,560       -       1,650       17  

Consumer

    -       -       -       -       -  

Manufactured homes