UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly
Period ended June 30, 2015
¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For transition period from ______________________
to___________________
Commission File Number 001-35295
Poage Bankshares, Inc.
(Exact Name of Registrant as Specified
in Charter)
Maryland |
|
45-3204393 |
(State of Other Jurisdiction |
|
(I.R.S Employer |
Of Incorporation |
|
Identification Number) |
1500 Carter Avenue, Ashland, KY 41101 |
|
41101 |
(Address of Principal Executive Officer) |
|
(Zip Code) |
606-324-7196
Registrant’s telephone number,
including area code
Not Applicable
(Former name or former address, if changed
since last report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes x
No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes x
No ¨
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated filer |
¨ |
Accelerated filer |
¨ |
|
|
|
|
Non-accelerated filer |
¨ |
Smaller reporting company |
x |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨
No x
As of August 13, 2015, the number of shares
of the Registrant’s common stock, par value $.01 per share, was 3,948,244.
POAGE BANKSHARES, INC.
Form 10-Q Quarterly Report
Table of Contents
PART I
ITEM 1. FINANCIAL STATEMENTS
POAGE BANKSHARES, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
| |
June 30, | | |
December 31, | |
| |
2015 | | |
2014 | |
| |
(in thousands) | |
ASSETS | |
| | | |
| | |
Cash and due from financial institutions | |
$ | 15,812 | | |
$ | 16,967 | |
Securities available for sale | |
| 67,862 | | |
| 65,262 | |
Loans held for sale | |
| - | | |
| 712 | |
Loans, net of allowance of $2,073 and $1,911 | |
| 317,487 | | |
| 302,012 | |
Restricted stock, at cost | |
| 3,276 | | |
| 2,921 | |
Other real estate owned, net | |
| 1,459 | | |
| 1,858 | |
Premises and equipment, net | |
| 10,789 | | |
| 9,257 | |
Company owned life insurance | |
| 6,850 | | |
| 6,760 | |
Accrued interest receivable | |
| 1,366 | | |
| 1,347 | |
Goodwill | |
| 1,277 | | |
| 1,082 | |
Other intangible assets, net | |
| 1,536 | | |
| 1,470 | |
Deferred tax asset | |
| 2,590 | | |
| 2,341 | |
Other assets | |
| 2,141 | | |
| 2,713 | |
Total Assets | |
$ | 432,445 | | |
$ | 414,702 | |
| |
| | | |
| | |
LIABILITIES AND SHAREHOLDERS' EQUITY | |
| | | |
| | |
Deposits | |
| | | |
| | |
Non-interest bearing | |
$ | 50,198 | | |
$ | 49,646 | |
Interest bearing | |
| 290,218 | | |
| 273,492 | |
Total deposits | |
| 340,416 | | |
| 323,138 | |
Federal Home Loan Bank advances | |
| 14,948 | | |
| 17,952 | |
Subordinated debenture | |
| 2,729 | | |
| 2,697 | |
Accrued interest payable | |
| 123 | | |
| 47 | |
Other liabilities | |
| 3,711 | | |
| 2,717 | |
Total liabilities | |
| 361,927 | | |
| 346,551 | |
| |
| | | |
| | |
Commitments and contingent liabilities | |
| - | | |
| - | |
| |
| | | |
| | |
Shareholders' equity | |
| | | |
| | |
Common stock, $.01 par value, 30,000,000 shares authorized, 3,952,944 and 3,876,455 issued and outstanding at June 30, 2015 and December 31, 2014 respectively | |
| 40 | | |
| 39 | |
Additional paid-in-capital | |
| 38,611 | | |
| 37,978 | |
Retained earnings | |
| 33,815 | | |
| 31,933 | |
Unearned Employee Stock Ownership Plan (ESOP) shares | |
| (2,192 | ) | |
| (2,259 | ) |
Accumulated other comprehensive income | |
| 244 | | |
| 460 | |
Total shareholders' equity | |
| 70,518 | | |
| 68,151 | |
Total liabilities and shareholders' equity | |
$ | 432,445 | | |
$ | 414,702 | |
See notes to unaudited consolidated financial
statements.
POAGE BANKSHARES,
INC.
UNAUDITED CONSOLIDATED
STATEMENTS OF INCOME
| |
Three months ended | | |
Six months ended | |
| |
June 30, | | |
June 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
(in thousands) | | |
(in thousands) | |
Interest and dividend income | |
| | | |
| | | |
| | | |
| | |
Loans, including fees | |
$ | 4,180 | | |
$ | 4,275 | | |
$ | 8,389 | | |
$ | 6,844 | |
Taxable securities | |
| 243 | | |
| 388 | | |
| 504 | | |
| 780 | |
Tax exempt securities | |
| 105 | | |
| 146 | | |
| 207 | | |
| 271 | |
Federal funds sold and other | |
| 36 | | |
| 34 | | |
| 70 | | |
| 60 | |
| |
| 4,564 | | |
| 4,843 | | |
| 9,170 | | |
| 7,955 | |
Interest expense | |
| | | |
| | | |
| | | |
| | |
Deposits | |
| 450 | | |
| 439 | | |
| 897 | | |
| 797 | |
Federal Home Loan Bank advances and other | |
| 102 | | |
| 114 | | |
| 205 | | |
| 211 | |
| |
| 552 | | |
| 553 | | |
| 1,102 | | |
| 1,008 | |
| |
| | | |
| | | |
| | | |
| | |
Net interest income | |
| 4,012 | | |
| 4,290 | | |
| 8,068 | | |
| 6,947 | |
| |
| | | |
| | | |
| | | |
| | |
Provision for loan losses | |
| 394 | | |
| - | | |
| 485 | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
Net interest income after provision for loan losses | |
| 3,618 | | |
| 4,290 | | |
| 7,583 | | |
| 6,947 | |
| |
| | | |
| | | |
| | | |
| | |
Non-interest income | |
| | | |
| | | |
| | | |
| | |
Service charges on deposits | |
| 491 | | |
| 489 | | |
| 932 | | |
| 727 | |
Other service charges | |
| 11 | | |
| 7 | | |
| 21 | | |
| 13 | |
Gains on mortgage banking activity | |
| 257 | | |
| 126 | | |
| 416 | | |
| 220 | |
Net gains on sales of securities | |
| - | | |
| 294 | | |
| - | | |
| 294 | |
Income from company owned life insurance | |
| 45 | | |
| 49 | | |
| 90 | | |
| 116 | |
Bargain purchase gain | |
| 1,555 | | |
| - | | |
| 1,555 | | |
| - | |
Other | |
| 2 | | |
| 5 | | |
| 47 | | |
| 8 | |
| |
| 2,361 | | |
| 970 | | |
| 3,061 | | |
| 1,378 | |
Non-interest expense | |
| | | |
| | | |
| | | |
| | |
Salaries and employee benefits | |
| 1,870 | | |
| 2,172 | | |
| 3,713 | | |
| 3,447 | |
Occupancy and equipment | |
| 394 | | |
| 476 | | |
| 791 | | |
| 778 | |
Data processing | |
| 548 | | |
| 507 | | |
| 1,097 | | |
| 867 | |
Federal deposit insurance | |
| 55 | | |
| 58 | | |
| 120 | | |
| 87 | |
Loan processing and collection | |
| 90 | | |
| 92 | | |
| 161 | | |
| 121 | |
Foreclosed assets, net | |
| 63 | | |
| 58 | | |
| 169 | | |
| 87 | |
Advertising | |
| 42 | | |
| 51 | | |
| 80 | | |
| 91 | |
Professional fees | |
| 251 | | |
| 413 | | |
| 437 | | |
| 784 | |
Other taxes | |
| 87 | | |
| 58 | | |
| 182 | | |
| 117 | |
Director fees and expenses | |
| 57 | | |
| 55 | | |
| 110 | | |
| 112 | |
Amortization of intangible assets | |
| 80 | | |
| 74 | | |
| 161 | | |
| 74 | |
Early termination fee and conversion costs | |
| 418 | | |
| 53 | | |
| 418 | | |
| 872 | |
Other | |
| 294 | | |
| 470 | | |
| 565 | | |
| 744 | |
| |
| 4,249 | | |
| 4,537 | | |
| 8,004 | | |
| 8,181 | |
| |
| | | |
| | | |
| | | |
| | |
Income before income taxes | |
| 1,730 | | |
| 723 | | |
| 2,640 | | |
| 144 | |
| |
| | | |
| | | |
| | | |
| | |
Income tax expense | |
| 14 | | |
| 212 | | |
| 338 | | |
| 58 | |
| |
| | | |
| | | |
| | | |
| | |
Net income | |
| 1,716 | | |
| 511 | | |
| 2,302 | | |
| 86 | |
| |
| | | |
| | | |
| | | |
| | |
Basic and dilutive earnings per common share: | |
| | | |
| | | |
| | | |
| | |
Net income, basic | |
$ | 0.48 | | |
$ | 0.14 | | |
$ | 0.64 | | |
$ | 0.03 | |
Basic weighted average shares outstanding | |
| 3,535,210 | | |
| 3,551,976 | | |
| 3,526,613 | | |
| 3,304,102 | |
| |
| | | |
| | | |
| | | |
| | |
Net income, dilutive | |
$ | 0.48 | | |
$ | 0.14 | | |
$ | 0.64 | | |
$ | 0.03 | |
Diluted weighted average shares outstanding | |
| 3,535,210 | | |
| 3,551,976 | | |
| 3,526,613 | | |
| 3,304,102 | |
| |
| | | |
| | | |
| | | |
| | |
Dividend per share | |
$ | 0.06 | | |
$ | 0.05 | | |
$ | 0.11 | | |
$ | 0.10 | |
See notes to unaudited consolidated financial
statements.
POAGE BANKSHARES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
| |
Three months ended | | |
Six months ended | |
| |
June 30, | | |
June 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
| | |
| | |
| | |
| |
Net income | |
$ | 1,716 | | |
$ | 511 | | |
$ | 2,302 | | |
$ | 86 | |
| |
| | | |
| | | |
| | | |
| | |
Other comprehensive income (loss): | |
| | | |
| | | |
| | | |
| | |
Unrealized holding gains (losses) on available for sale securities | |
| (561 | ) | |
| 1,068 | | |
| (327 | ) | |
| 1,825 | |
Reclassification adjustments for (gains) losses recognized in income | |
| - | | |
| (294 | ) | |
| - | | |
| (294 | ) |
Net unrealized holding gains (losses) on available for sale securities | |
| (561 | ) | |
| 774 | | |
| (327 | ) | |
| 1,531 | |
Tax effect | |
| 191 | | |
| (263 | ) | |
| 111 | | |
| (520 | ) |
Other comprehensive income (loss): | |
| (370 | ) | |
| 511 | | |
| (216 | ) | |
| 1,011 | |
| |
| | | |
| | | |
| | | |
| | |
Comprehensive income | |
$ | 1,346 | | |
$ | 1,022 | | |
$ | 2,086 | | |
$ | 1,097 | |
See notes to unaudited consolidated financial
statements.
POAGE BANKSHARES, INC.
UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS’
EQUITY
| |
| | |
| | |
| | |
| | |
Accumulated | | |
| |
| |
| | |
Additional | | |
| | |
Unearned | | |
Other | | |
Total | |
| |
Common | | |
Paid-In | | |
Retained | | |
ESOP | | |
Comprehensive | | |
Shareholders' | |
| |
Stock | | |
Capital | | |
Earnings | | |
Shares | | |
Income (Loss) | | |
Equity | |
| |
(in thousands) | |
Balances, January 1, 2015 | |
$ | 39 | | |
$ | 37,978 | | |
$ | 31,933 | | |
$ | (2,259 | ) | |
$ | 460 | | |
$ | 68,151 | |
Net income | |
| - | | |
| - | | |
| 2,302 | | |
| - | | |
| - | | |
| 2,302 | |
Issuance of 166,221 common shares, net of issuance costs | |
| 2 | | |
| 1,673 | | |
| - | | |
| - | | |
| - | | |
| 1,675 | |
Stock repurchasing, 89,193 shares repurchased | |
| (1 | ) | |
| (1,338 | ) | |
| - | | |
| - | | |
| - | | |
| (1,339 | ) |
Dividends paid ($0.11/share) | |
| - | | |
| - | | |
| (420 | ) | |
| - | | |
| - | | |
| (420 | ) |
ESOP compensation earned | |
| - | | |
| 36 | | |
| - | | |
| 67 | | |
| - | | |
| 103 | |
Stock based compensation expense, net of 539 forfeited shares | |
| - | | |
| 262 | | |
| - | | |
| - | | |
| - | | |
| 262 | |
Other comprehensive income (loss) | |
| - | | |
| - | | |
| - | | |
| - | | |
| (216 | ) | |
| (216 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balances, June 30, 2015 | |
$ | 40 | | |
$ | 38,611 | | |
$ | 33,815 | | |
$ | (2,192 | ) | |
$ | 244 | | |
$ | 70,518 | |
See notes to unaudited consolidated financial
statements.
POAGE BANKSHARES,
INC.
UNAUDITED CONSOLIDATED STATEMENTS OF
CASH FLOWS
| |
Six months ended | |
| |
June 30, | |
| |
2015 | | |
2014 | |
| |
(in thousands) | |
CASH FLOW FROM OPERATING ACTIVITIES: | |
| | | |
| | |
Net income | |
$ | 2,302 | | |
$ | 86 | |
Adjustments to reconcile net income (loss) to net cash from operating activities: | |
| | | |
| | |
Bargain purchase gain | |
| (1,555 | ) | |
| - | |
Depreciation | |
| 335 | | |
| 268 | |
Provision for loan losses | |
| 485 | | |
| - | |
ESOP compensation expense | |
| 103 | | |
| 95 | |
Stock based compensation expense | |
| 262 | | |
| 265 | |
Gain on sale of securities | |
| - | | |
| (294 | ) |
Loss on sale of other real estate owned | |
| 84 | | |
| 65 | |
Gain on sale of repossessed assets | |
| (1 | ) | |
| - | |
Amortization of core deposit intangible | |
| 161 | | |
| 74 | |
Accretion of fair value adjustments related to loans | |
| (581 | ) | |
| (214 | ) |
Accretion of fair value adjustments related to deposits | |
| (33 | ) | |
| (21 | ) |
Amortization of fair value related to subordinated debenture | |
| 32 | | |
| - | |
Net amortization on securities | |
| 265 | | |
| 700 | |
Deferred income tax benefit | |
| (9 | ) | |
| (75 | ) |
Net gain on mortgage banking activities | |
| (416 | ) | |
| (220 | ) |
Origination of loans held for sale | |
| (2,642 | ) | |
| (3,061 | ) |
Proceeds from loans held for sale | |
| 3,770 | | |
| 3,427 | |
Increase in cash value of life insurance | |
| (90 | ) | |
| (115 | ) |
Change in asset and liabilities, net assets and liabilities acquired: | |
| | | |
| | |
Accrued interest receivable | |
| 38 | | |
| 185 | |
Other assets | |
| 591 | | |
| 43 | |
Accrued interest payable | |
| 61 | | |
| 116 | |
Other liabilities | |
| 772 | | |
| 351 | |
Net cash from operating activities | |
| 3,934 | | |
| 1,675 | |
| |
| | | |
| | |
CASH FLOW FROM INVESTING ACTIVITIES: | |
| | | |
| | |
Securities available for sale: | |
| | | |
| | |
Proceeds from sales | |
| - | | |
| 19,721 | |
Proceeds from calls | |
| 1,000 | | |
| 7,265 | |
Proceeds from maturities | |
| 405 | | |
| 120 | |
Purchases | |
| (8,030 | ) | |
| - | |
Principal payments received | |
| 3,433 | | |
| 2,814 | |
Purchase of FHLB stock | |
| (56 | ) | |
| - | |
Cash paid for acquisition, net of cash acquired | |
| 2,355 | | |
| 1,445 | |
Loan originations and principal payments on loans, net | |
| (574 | ) | |
| (5,755 | ) |
Proceeds from the sale of other real estate owned | |
| 353 | | |
| - | |
Proceeds from the sale of repossessed assets | |
| 55 | | |
| - | |
Purchase of properties and equipment | |
| (534 | ) | |
| (202 | ) |
Net cash from (used in) investing activities | |
| (1,593 | ) | |
| 25,408 | |
| |
| | | |
| | |
CASH FLOW FROM FINANCING ACTIVITIES | |
| | | |
| | |
Net change in deposits | |
| 1,908 | | |
| (1,389 | ) |
Proceeds from Federal Home Loan Bank borrowings | |
| 23,000 | | |
| 26,000 | |
Payments on Federal Home Loan Bank borrowings | |
| (28,320 | ) | |
| (28,362 | ) |
Cash dividend paid | |
| (420 | ) | |
| (363 | ) |
Proceeds from issuance of common stock, net of costs | |
| 1,675 | | |
| - | |
Stock repurchases | |
| (1,339 | ) | |
| (331 | ) |
Net cash used in financing activities | |
| (3,496 | ) | |
| (4,445 | ) |
| |
| | | |
| | |
CHANGE IN CASH AND CASH EQUIVALENTS | |
| (1,155 | ) | |
| 22,638 | |
| |
| | | |
| | |
Cash and cash equivalents at beginning of year | |
| 16,967 | | |
| 6,684 | |
| |
| | | |
| | |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | |
$ | 15,812 | | |
$ | 29,322 | |
| |
| | | |
| | |
Additional cash flows and supplementary information: | |
| | | |
| | |
Cash paid during the year for: | |
| | | |
| | |
Interest on deposits and advances | |
$ | 1,026 | | |
$ | 892 | |
Income taxes | |
| 350 | | |
| - | |
Stock issued for consideration paid in acquisition, net of issuance costs | |
$ | - | | |
$ | 7,836 | |
Real estate acquired in settlement of loans | |
$ | 38 | | |
$ | 292 | |
See notes to unaudited consolidated financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
The accompanying unaudited
consolidated financial statements of Poage Bankshares, Inc. (the “Company”) and its wholly owned subsidiary Town
Square Bank (which was formerly operated under the name “Home Federal Savings and Loan Association”) (the
“Bank”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”)
for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly,
certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have
been condensed or omitted pursuant to such rules and regulations.
The preparation of financial statements
in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Estimates used in the preparation of the financial statements are based on various
factors including the current interest rate environment and the general strength of the local economy. Changes in the overall
interest rate environment can significantly affect the Company’s net interest income and the value of its recorded assets
and liabilities. Actual results could differ from those estimates used in the preparation of the financial statements.
In the opinion of management, the accompanying
unaudited financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly
the Company’s financial position as of June 30, 2015 and December 31, 2014 and the results of operations and cash flows for
the interim periods ended June 30, 2015 and 2014. All interim amounts have not been audited, and the results of operations for
the interim periods herein are not necessarily indicative of the results of operations to be expected for the year. These consolidated
financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes
thereto filed as part of the Company’s 2014 Annual Report on Form 10-K filed with the Securities and Exchange Commission.
Effective May 31, 2015, the Company
completed its previously reported acquisition of Commonwealth Bank, F.S.B., Mt. Sterling,
Kentucky (“Commonwealth”), in a conversion merger transaction. As result of the conversion merger
transaction, Commonwealth converted from a mutual to stock institution and merged with and into
the Bank, with
the Bank as the
surviving institution, and the Company
issued and sold 166,221 shares of common stock at a price of $12.73 per share to depositor
and borrower members of Commonwealth in a subscription offering and to stockholders of the Company
and members of the general
public in a community offering. Gross offering proceeds totaled approximately $2.1 million. As a result of
the stock offering, the Company
had approximately 3,952,944 shares of common stock outstanding as of the close of business on May
31, 2015. Commonwealth’s sole office, located in Mt. Sterling, Kentucky, has become a branch office of
the Bank.
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Newly Issued Not
Yet Effective Accounting Standards
In May 2014 the FASB amended existing guidance
related to revenue from contracts with customers. This amendment supersedes and replaces nearly all existing revenue recognition
guidance, including industry-specific guidance, establishes a new control-based revenue recognition model, changes the basis for
deciding when revenue is recognized over time or at a point in time, provides new and more detailed guidance on specific topics
and expands and improves disclosures about revenue. In addition, this amendment specifies the accounting for some costs to obtain
or fulfill a contract with a customer.
These amendments are effective for annual
reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application
is not permitted. The amendments should be applied retrospectively to all periods
presented or retrospectively with the cumulative effect recognized at the date of initial application. The Company is currently
evaluating the impact of this new accounting standard on the consolidated financial statements.
Adoptions of New
Accounting Standards
In January 2014, the FASB amended existing
guidance to clarify when a creditor should be considered to have received physical possession of residential real estate property
collateralizing a consumer mortgage loan such that the loan should be derecognized and the real estate recognized. These amendments
clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession
of residential real estate property collateralizing a consumer mortgage loan, upon either: (1) the creditor obtaining legal title
to the residential real estate property upon completion of a foreclosure, or (2) the borrower conveying all interest in the residential
real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar
legal agreement. Additional disclosures are required.
These amendments are effective for public
business entities for annual periods and interim periods within those annual periods beginning after December 15, 2014. The adoption
of this guidance did not have a material impact on the Company’s consolidated financial statements.
NOTE 3 - SECURITIES AVAILABLE FOR SALE
The amortized cost and fair value of securities
available for sale at June 30, 2015 and December 31, 2014 and the corresponding amounts of gross unrealized gains and losses recognized
in accumulated other comprehensive income (loss) were as follows (in thousands):
| |
| | |
Gross | | |
Gross | | |
| |
| |
Amortized | | |
Unrealized | | |
Unrealized | | |
Fair | |
| |
Cost | | |
Gains | | |
Losses | | |
Value | |
June 30, 2015 | |
| | | |
| | | |
| | | |
| | |
States and political subdivisions | |
$ | 17,041 | | |
$ | 482 | | |
$ | (18 | ) | |
$ | 17,505 | |
U.S. Government agencies and sponsored entities | |
| 13,248 | | |
| 13 | | |
| (205 | ) | |
| 13,056 | |
Government sponsored entities residential mortgage-backed: | |
| | | |
| | | |
| | | |
| | |
FHLMC | |
| 12,827 | | |
| 132 | | |
| (15 | ) | |
| 12,944 | |
FNMA | |
| 12,867 | | |
| 103 | | |
| (28 | ) | |
| 12,942 | |
Collateralized mortgage obligations | |
| 7,597 | | |
| 13 | | |
| (66 | ) | |
| 7,544 | |
SBA loan pools | |
| 3,912 | | |
| - | | |
| (41 | ) | |
| 3,871 | |
Total securities | |
$ | 67,492 | | |
$ | 743 | | |
$ | (373 | ) | |
$ | 67,862 | |
| |
| | |
Gross | | |
Gross | | |
| |
| |
Amortized | | |
Unrealized | | |
Unrealized | | |
Fair | |
| |
Cost | | |
Gains | | |
Losses | | |
Value | |
December 31, 2014 | |
| | | |
| | | |
| | | |
| | |
States and political subdivisions | |
$ | 17,121 | | |
$ | 633 | | |
$ | (8 | ) | |
$ | 17,746 | |
U.S. Government agencies and sponsored entities | |
| 14,247 | | |
| 6 | | |
| (267 | ) | |
| 13,986 | |
Government sponsored entities residential mortgage-backed: | |
| | | |
| | | |
| | | |
| | |
FHLMC | |
| 14,346 | | |
| 251 | | |
| (7 | ) | |
| 14,590 | |
FNMA | |
| 14,207 | | |
| 177 | | |
| (9 | ) | |
| 14,375 | |
Collateralized mortgage obligations | |
| 4,644 | | |
| - | | |
| (79 | ) | |
| 4,565 | |
Total securities | |
$ | 64,565 | | |
$ | 1,067 | | |
$ | (370 | ) | |
$ | 65,262 | |
The proceeds from sales of securities and the associated
gross gains and losses are listed below (in thousands):
| |
Three months ended | | |
Six months ended | |
| |
June 30, | | |
June 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
Proceeds | |
$ | - | | |
$ | 19,721 | | |
$ | - | | |
$ | 19,721 | |
Gross gains | |
| - | | |
| 372 | | |
| - | | |
| 372 | |
Gross losses | |
| - | | |
| (78 | ) | |
| - | | |
| (78 | ) |
The amortized cost and fair value of the
securities portfolio at June 30, 2015 are shown in the following table by expected maturity. Expected maturities may differ from
contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.
Securities not due at a single maturity date are shown separately (in thousands):
| |
June 30, | |
| |
2015 | |
| |
Amortized | | |
Fair | |
| |
Cost | | |
Value | |
| |
| |
Within one year | |
$ | 250 | | |
$ | 251 | |
One to five years | |
| 12,829 | | |
| 12,870 | |
Five to ten years | |
| 14,444 | | |
| 14,566 | |
Beyond ten years | |
| 2,766 | | |
| 2,874 | |
Mortgage-backed securities and collateralized mortgage obligations | |
| 33,291 | | |
| 33,430 | |
SBA loan pools | |
| 3,912 | | |
| 3,871 | |
Total | |
$ | 67,492 | | |
$ | 67,862 | |
The following table summarizes the securities
with unrealized losses at June 30, 2015 and December 31, 2014, aggregated by major security type and length of time in a continuous
unrealized loss position (in thousands):
| |
Less Than 12 Months | | |
12 Months or Longer | | |
Total | |
| |
Fair | | |
Unrealized | | |
Fair | | |
Unrealized | | |
Fair | | |
Unrealized | |
| |
Value | | |
Losses | | |
Value | | |
Losses | | |
Value | | |
Losses | |
June 30, 2015 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
States and political subdivisions | |
$ | 814 | | |
$ | (17 | ) | |
$ | 628 | | |
$ | (1 | ) | |
$ | 1,442 | | |
$ | (18 | ) |
U.S. Government agencies and sponsored entities | |
| 2,985 | | |
| (15 | ) | |
| 8,560 | | |
| (190 | ) | |
| 11,545 | | |
| (205 | ) |
Government sponsored entities residential mortgage backed: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
FHLMC | |
| 1,561 | | |
| (15 | ) | |
| - | | |
| - | | |
| 1,561 | | |
| (15 | ) |
FNMA | |
| 2,739 | | |
| (28 | ) | |
| - | | |
| - | | |
| 2,739 | | |
| (28 | ) |
Collateralized mortgage obligations | |
| 2,879 | | |
| (17 | ) | |
| 2,571 | | |
| (49 | ) | |
| 5,450 | | |
| (66 | ) |
SBA loan pools | |
| 3,871 | | |
| (41 | ) | |
| - | | |
| - | | |
| 3,871 | | |
| (41 | ) |
Total available-for-sale securities | |
$ | 14,849 | | |
$ | (133 | ) | |
$ | 11,759 | | |
$ | (240 | ) | |
$ | 26,608 | | |
$ | (373 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
December 31, 2014 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
States and political subdivisions | |
$ | 1,072 | | |
$ | (8 | ) | |
$ | - | | |
$ | - | | |
$ | 1,072 | | |
$ | (8 | ) |
U.S. Government agencies and sponsored entities | |
| - | | |
| - | | |
| 12,482 | | |
| (267 | ) | |
| 12,482 | | |
| (267 | ) |
Government sponsored entities residential mortgage backed: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
FHLMC | |
| - | | |
| - | | |
| 1,131 | | |
| (7 | ) | |
| 1,131 | | |
| (7 | ) |
FNMA | |
| 2,063 | | |
| (3 | ) | |
| 946 | | |
| (6 | ) | |
| 3,009 | | |
| (9 | ) |
Collateralized mortgage obligations | |
| 1,652 | | |
| (13 | ) | |
| 2,913 | | |
| (66 | ) | |
| 4,565 | | |
| (79 | ) |
Total available-for-sale securities | |
$ | 4,787 | | |
$ | (24 | ) | |
$ | 17,472 | | |
$ | (346 | ) | |
$ | 22,259 | | |
$ | (370 | ) |
Unrealized losses on bonds have not been
recognized into income because the issuers of the bonds are of high credit quality, management does not intend to sell and it is
not more likely than not that management would be required to sell the securities prior to their anticipated recovery, and the
decline in fair value is largely due to changes in interest rates. The fair value is expected to recover as the bonds approach
maturity.
Management evaluates securities for other-than-temporary
impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic or market conditions warrant such
an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized
loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or
it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized
cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost
and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria,
the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the
income statement, and 2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss
is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.
For equity securities, the entire amount of impairment is recognized through earnings.
NOTE 4 – LOANS
Loans at June 30, 2015 and December 31,
2014 were as follows (in thousands):
| |
June 30 | | |
December 31, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Real estate: | |
| | | |
| | |
One to four family | |
$ | 189,537 | | |
$ | 179,480 | |
Multi-family | |
| 5,407 | | |
| 5,916 | |
Commercial Real Estate | |
| 62,681 | | |
| 62,979 | |
Construction and land | |
| 3,708 | | |
| 5,142 | |
| |
| 261,333 | | |
| 253,517 | |
| |
| | | |
| | |
Commercial and Industrial | |
| 32,418 | | |
| 25,523 | |
| |
| | | |
| | |
Consumer | |
| | | |
| | |
Home equity loans and lines of credit | |
| 8,300 | | |
| 7,973 | |
Motor vehicle | |
| 9,321 | | |
| 10,337 | |
Other | |
| 8,481 | | |
| 6,774 | |
| |
| 26,102 | | |
| 25,084 | |
| |
| | | |
| | |
Total | |
| 319,853 | | |
| 304,124 | |
Less: Net deferred loan fees | |
| 293 | | |
| 201 | |
Allowance for loan losses | |
| 2,073 | | |
| 1,911 | |
| |
| | | |
| | |
| |
$ | 317,487 | | |
$ | 302,012 | |
The following tables present the balance
in the allowance for loan losses and the recorded investment in loans by portfolio segment based on impairment method as of June
30, 2015 and December 31, 2014. Accrued interest receivable and net deferred loan fees are not considered significant and therefore
are not included in the loan balances presented in the table below (in thousands):
June 30, 2015 | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| |
Allowance for Loan Losses | | |
Loan Balances | |
| |
Individually | | |
Purchased | | |
Collectively | | |
| | |
Individually | | |
Purchased | | |
Collectively | | |
| |
| |
Evaluated for | | |
Credit-Impaired | | |
Evaluated for | | |
| | |
Evaluated for | | |
Credit-Impaired | | |
Evaluated for | | |
| |
Loan Segment | |
Impairment | | |
Loans | | |
Impairment | | |
Total | | |
Impairment | | |
Loans | | |
Impairment | | |
Total | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Real estate | |
$ | 23 | | |
$ | - | | |
$ | 1,877 | | |
$ | 1,900 | | |
$ | 1,881 | | |
$ | 3,318 | | |
$ | 256,134 | | |
$ | 261,333 | |
Commercial and industrial | |
| 2 | | |
| - | | |
| 87 | | |
| 89 | | |
| 239 | | |
| 425 | | |
| 31,754 | | |
| 32,418 | |
Consumer | |
| - | | |
| - | | |
| 84 | | |
| 84 | | |
| - | | |
| 30 | | |
| 26,072 | | |
| 26,102 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total | |
$ | 25 | | |
$ | - | | |
$ | 2,048 | | |
$ | 2,073 | | |
$ | 2,120 | | |
$ | 3,773 | | |
$ | 313,960 | | |
$ | 319,853 | |
December 31, 2014 | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| |
Allowance for Loan Losses | | |
Loan Balances | |
| |
Individually | | |
Purchased | | |
Collectively | | |
| | |
Individually | | |
Purchased | | |
Collectively | | |
| |
| |
Evaluated for | | |
Credit-Impaired | | |
Evaluated for | | |
| | |
Evaluated for | | |
Credit-Impaired | | |
Evaluated for | | |
| |
Loan Segment | |
Impairment | | |
Loans | | |
Impairment | | |
Total | | |
Impairment | | |
Loans | | |
Impairment | | |
Total | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Real estate | |
$ | - | | |
$ | - | | |
$ | 1,806 | | |
$ | 1,806 | | |
$ | 324 | | |
$ | 3,633 | | |
$ | 249,560 | | |
$ | 253,517 | |
Commercial and industrial | |
| - | | |
| - | | |
| 43 | | |
| 43 | | |
| 19 | | |
| 439 | | |
| 25,065 | | |
| 25,523 | |
Consumer | |
| - | | |
| - | | |
| 62 | | |
| 62 | | |
| - | | |
| 10 | | |
| 25,074 | | |
| 25,084 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total | |
$ | - | | |
$ | - | | |
$ | 1,911 | | |
$ | 1,911 | | |
$ | 343 | | |
$ | 4,082 | | |
$ | 299,699 | | |
$ | 304,124 | |
The following table presents information related to impaired
loans by class of loans as of June 30, 2015 and December 31, 2014.
| |
Unpaid
Principal
Balance | | |
Recorded
Investment | | |
Allowance
for Loan
Losses
Allocated | | |
Average
Recorded
Investment | | |
Interest
Income
Recognized | | |
Cash Basis
Interest
Recognized | |
June 30, 2015 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
With no related allowance recorded: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial | |
$ | 275 | | |
$ | 193 | | |
$ | - | | |
$ | 106 | | |
$ | - | | |
$ | - | |
Commercial real estate: | |
| | | |
| | | |
| - | | |
| | | |
| | | |
| | |
Construction | |
| - | | |
| - | | |
| - | | |
| | | |
| - | | |
| - | |
Other | |
| 425 | | |
| 399 | | |
| - | | |
| 299 | | |
| - | | |
| - | |
Residential real estate: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Nontraditional | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Other | |
| 1,202 | | |
| 886 | | |
| - | | |
| 506 | | |
| - | | |
| - | |
Subtotal | |
$ | 1,902 | | |
$ | 1,478 | | |
| - | | |
$ | 911 | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
With an allowance recorded: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial | |
$ | 46 | | |
$ | 46 | | |
$ | 2 | | |
$ | 23 | | |
$ | - | | |
$ | - | |
Commercial real estate: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Construction | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Other | |
| 596 | | |
| 596 | | |
| 23 | | |
| 298 | | |
| - | | |
| - | |
Residential real estate: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Nontraditional | |
| - | | |
| - | | |
| - | | |
| | | |
| - | | |
| - | |
Other | |
| - | | |
| - | | |
| - | | |
| | | |
| - | | |
| - | |
Subtotal | |
| 642 | | |
| 642 | | |
| 25 | | |
| 321 | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total | |
$ | 2,544 | | |
$ | 2,120 | | |
$ | 25 | | |
$ | 1,232 | | |
$ | - | | |
$ | - | |
| |
Unpaid
Principal Balance | | |
Recorded Investment | | |
Allowance
for Loan
Losses
Allocated | | |
Average Recorded Investment | | |
Interest Income Recognized | | |
Cash Basis Interest Recognized | |
December 31, 2014 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
With no related allowance recorded: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial | |
$ | 19 | | |
$ | 19 | | |
$ | - | | |
$ | 5 | | |
$ | - | | |
$ | - | |
Commercial real estate: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Construction | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Other | |
| 199 | | |
| 199 | | |
| - | | |
| 50 | | |
| - | | |
| - | |
Residential real estate: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Nontraditional | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Other | |
| 125 | | |
| 125 | | |
| - | | |
| 31 | | |
| - | | |
| - | |
Subtotal | |
| 343 | | |
| 343 | | |
| - | | |
| 86 | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
With an allowance recorded: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Commercial real estate: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Construction | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Other | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Residential real estate: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Nontraditional | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Other | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Subtotal | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Total | |
$ | 343 | | |
$ | 343 | | |
$ | - | | |
$ | 86 | | |
$ | - | | |
$ | - | |
The recorded investment in loans excludes accrued interest receivable
and loan origination fees, net due to immateriality. For purposes of this disclosure, the unpaid balance is not reduced for partial
charge-offs.
The following table sets forth an analysis of our allowance
for loan losses for the three and six months ended June 30, 2015 and 2014 (in thousands):
Three Months Ended | |
| | |
Commercial | | |
| | |
| | |
| |
June 30, 2015 | |
Real Estate | | |
and Industrial | | |
Consumer | | |
Unallocated | | |
Total | |
| |
| | |
| | |
| | |
| | |
| |
Allowance for loan losses: | |
| | | |
| | | |
| | | |
| | | |
| | |
Beginning balance | |
$ | 1,878 | | |
$ | 72 | | |
$ | 63 | | |
$ | - | | |
$ | 2,013 | |
Provision for loan losses | |
| 279 | | |
| 7 | | |
| 108 | | |
| - | | |
| 394 | |
Loans charged-off | |
| (266 | ) | |
| - | | |
| (99 | ) | |
| - | | |
| (365 | ) |
Recoveries | |
| 9 | | |
| 10 | | |
| 12 | | |
| - | | |
| 31 | |
Total ending allowance balance | |
$ | 1,900 | | |
$ | 89 | | |
$ | 84 | | |
$ | - | | |
$ | 2,073 | |
Three Months Ended | |
| | |
Commercial | | |
| | |
| | |
| |
June 30, 2014 | |
Real Estate | | |
and Industrial | | |
Consumer | | |
Unallocated | | |
Total | |
| |
| | |
| | |
| | |
| | |
| |
Allowance for loan losses: | |
| | | |
| | | |
| | | |
| | | |
| | |
Beginning balance | |
$ | 1,767 | | |
$ | 11 | | |
$ | 41 | | |
$ | 48 | | |
$ | 1,867 | |
Provision for loan losses | |
| (109 | ) | |
| 4 | | |
| 16 | | |
| 89 | | |
| - | |
Loans charged-off | |
| (116 | ) | |
| (8 | ) | |
| (7 | ) | |
| - | | |
| (131 | ) |
Recoveries | |
| 17 | | |
| - | | |
| 4 | | |
| - | | |
| 21 | |
Total ending allowance balance | |
$ | 1,559 | | |
$ | 7 | | |
$ | 54 | | |
$ | 137 | | |
$ | 1,757 | |
Six Months Ended | |
| | |
Commercial | | |
| | |
| | |
| |
June 30, 2015 | |
Real Estate | | |
and Industrial | | |
Consumer | | |
Unallocated | | |
Total | |
| |
| | |
| | |
| | |
| | |
| |
Allowance for loan losses: | |
| | | |
| | | |
| | | |
| | | |
| | |
Beginning balance | |
$ | 1,806 | | |
$ | 43 | | |
$ | 62 | | |
$ | - | | |
$ | 1,911 | |
Provision for loan losses | |
| 278 | | |
| 61 | | |
| 146 | | |
| - | | |
| 485 | |
Loans charged-off | |
| (318 | ) | |
| (52 | ) | |
| (146 | ) | |
| - | | |
| (516 | ) |
Recoveries | |
| 134 | | |
| 37 | | |
| 22 | | |
| - | | |
| 193 | |
Total ending allowance balance | |
$ | 1,900 | | |
$ | 89 | | |
$ | 84 | | |
$ | - | | |
$ | 2,073 | |
Six Months Ended | |
| | |
Commercial | | |
| | |
| | |
| |
June 30, 2014 | |
Real Estate | | |
and Industrial | | |
Consumer | | |
Unallocated | | |
Total | |
| |
| | |
| | |
| | |
| | |
| |
Allowance for loan losses: | |
| | | |
| | | |
| | | |
| | | |
| | |
Beginning balance | |
$ | 1,818 | | |
$ | 8 | | |
$ | 52 | | |
$ | 30 | | |
$ | 1,908 | |
Provision for loan losses | |
| (106 | ) | |
| (11 | ) | |
| 10 | | |
| 107 | | |
| - | |
Loans charged-off | |
| (172 | ) | |
| (8 | ) | |
| (12 | ) | |
| - | | |
| (192 | ) |
Recoveries | |
| 19 | | |
| 18 | | |
| 4 | | |
| - | | |
| 41 | |
Total ending allowance balance | |
$ | 1,559 | | |
$ | 7 | | |
$ | 54 | | |
$ | 137 | | |
$ | 1,757 | |
There were $3.6 million and $5.4 million
of purchased credit impaired loans which were acquired in a business combination completed on March 18, 2014 at June 30, 2015
and 2014, respectively. There were $94,000 of purchased credit impaired loans which were acquired in a business combination completed
on May 31, 2015 at June 30, 2015. Impaired loans averaged $1.2 million and $0 for the six months ended June 30, 2015 and 2014,
respectively.
Nonaccrual loans and loans past due 90 days still on accrual
consist of smaller balance homogeneous loans that are collectively evaluated for impairment.
The following table presents the recorded
investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of June 30, 2015 and December 31,
2014 (in thousands):
| |
June 30, 2015 | | |
December 31, 2014 | |
| |
| | |
Loans Past Due | | |
| | |
Loans Past Due | |
| |
| | |
Over 90 Days | | |
| | |
Over 90 Days | |
| |
Nonaccrual | | |
Still Accruing | | |
Nonaccrual | | |
Still Accruing | |
Real estate: | |
| | | |
| | | |
| | | |
| | |
One to four family | |
$ | 2,687 | | |
$ | - | | |
$ | 2,223 | | |
$ | - | |
Multi-family | |
| - | | |
| - | | |
| - | | |
| - | |
Commercial real estate | |
| 931 | | |
| - | | |
| 578 | | |
| - | |
Construction and land | |
| 46 | | |
| - | | |
| 103 | | |
| - | |
Commercial and industrial | |
| 303 | | |
| - | | |
| 396 | | |
| - | |
Consumer: | |
| | | |
| | | |
| | | |
| | |
Home equity loans and lines of credit | |
| 23 | | |
| - | | |
| 1 | | |
| - | |
Motor vehicle | |
| 8 | | |
| - | | |
| 21 | | |
| - | |
Other | |
| 27 | | |
| - | | |
| 31 | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
Total | |
$ | 4,025 | | |
$ | - | | |
$ | 3,353 | | |
$ | - | |
The following table presents the aging
of the recorded investment in past due loans as of June 30, 2015 and December 31, 2014 by class of loans. Non-accrual loans of
$4.0 million as of June 30, 2015 and $3.4 million at December 31, 2014 are included in the tables below and have been categorized
based on their payment status (in thousands).
| |
30 - 59 | | |
60 - 89 | | |
Greater than | | |
| | |
Purchased | | |
| | |
| |
| |
Days | | |
Days | | |
89 Days | | |
Total | | |
Credit-Impaired | | |
Loans Not | | |
| |
| |
Past Due | | |
Past Due | | |
Past Due | | |
Past Due | | |
Loans | | |
Past Due | | |
Total | |
June 30, 2015 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Real estate: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
One to four family | |
$ | 1,151 | | |
$ | 511 | | |
$ | 1,706 | | |
$ | 3,368 | | |
$ | 1,233 | | |
$ | 184,936 | | |
$ | 189,537 | |
Multi-family | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 5,407 | | |
| 5,407 | |
Commercial real estate | |
| 216 | | |
| - | | |
| 732 | | |
| 948 | | |
| 1,818 | | |
| 59,915 | | |
| 62,681 | |
Construction and land | |
| - | | |
| - | | |
| 13 | | |
| 13 | | |
| 267 | | |
| 3,428 | | |
| 3,708 | |
Commercial and industrial | |
| 253 | | |
| 1 | | |
| 209 | | |
| 463 | | |
| 425 | | |
| 31,530 | | |
| 32,418 | |
Consumer: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Home equity loans and lines of credit | |
| - | | |
| 12 | | |
| 23 | | |
| 35 | | |
| 6 | | |
| 8,259 | | |
| 8,300 | |
Motor vehicle | |
| 6 | | |
| - | | |
| 8 | | |
| 14 | | |
| - | | |
| 9,307 | | |
| 9,321 | |
Other | |
| 2 | | |
| - | | |
| - | | |
| 2 | | |
| 24 | | |
| 8,455 | | |
| 8,481 | |
Total | |
$ | 1,628 | | |
$ | 524 | | |
$ | 2,691 | | |
$ | 4,843 | | |
$ | 3,773 | | |
$ | 311,237 | | |
$ | 319,853 | |
| |
30 - 59 | | |
60 - 89 | | |
Greater than | | |
| | |
Purchased | | |
| | |
| |
| |
Days | | |
Days | | |
89 Days | | |
Total | | |
Credit-Impaired | | |
Loans Not | | |
| |
| |
Past Due | | |
Past Due | | |
Past Due | | |
Past Due | | |
Loans | | |
Past Due | | |
Total | |
December 31, 2014 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Real estate: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
One to four family | |
$ | 2,028 | | |
$ | 488 | | |
$ | 1,259 | | |
$ | 3,775 | | |
$ | 1,262 | | |
$ | 174,443 | | |
$ | 179,480 | |
Multi-family | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 5,916 | | |
| 5,916 | |
Commercial real estate | |
| 1,102 | | |
| 124 | | |
| 38 | | |
| 1,264 | | |
| 2,031 | | |
| 59,684 | | |
| 62,979 | |
Construction and land | |
| - | | |
| - | | |
| 103 | | |
| 103 | | |
| 340 | | |
| 4,699 | | |
| 5,142 | |
Commercial and industrial | |
| 245 | | |
| 46 | | |
| 257 | | |
| 548 | | |
| 439 | | |
| 24,536 | | |
| 25,523 | |
Consumer: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Home equity loans and lines of credit | |
| 86 | | |
| 23 | | |
| - | | |
| 109 | | |
| 7 | | |
| 7,857 | | |
| 7,973 | |
Motor vehicle | |
| 102 | | |
| 4 | | |
| 20 | | |
| 126 | | |
| - | | |
| 10,211 | | |
| 10,337 | |
Other | |
| 33 | | |
| 20 | | |
| 16 | | |
| 69 | | |
| 3 | | |
| 6,702 | | |
| 6,774 | |
Total | |
$ | 3,596 | | |
$ | 705 | | |
$ | 1,693 | | |
$ | 5,994 | | |
$ | 4,082 | | |
$ | 294,048 | | |
$ | 304,124 | |
Troubled Debt Restructurings:
The Company had a recorded investment in four troubled debt restructurings which totaled $332,000 and
two troubled debt restructurings which totaled $218,000, at June 30, 2015 and December 31, 2014, respectively. A less than market
rate and extended term was granted as concessions for these troubled debt restructurings. No additional charge-off or provision
has been made for the loan relationships. No additional commitments to lend have been made to the borrower.
The modification of the terms of such loans performed during
the six and twelve month periods of June 30, 2015 and December 31, 2014, included a permanent reduction of the recorded investment
in the loans. There were no interest rate concessions or term extensions during the six months ended June 30, 2015. The modification
of the commercial real estate performed during the year ended December 31, 2014 included an extension of the maturity date at a
stated rate of interest lower than the current market rate.
CREDIT QUALITY INDICATORS:
The Company categorizes loans into risk categories
based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical
payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes
loans individually by classifying the loans as to credit risk. This analysis includes all non-homogeneous loans, such as commercial
and commercial real estate loans. The analysis for residential real estate and consumer loans primarily includes review of past
due status. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk ratings:
Special Mention. Loans classified
as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential
weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at
some future date.
Substandard. Loans classified
as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged,
if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized
by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful. Loans classified
as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses
make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and
improbable.
Loans not meeting the criteria above that are analyzed individually
as part of the above described process are considered to be pass rated loans.
Based on the most recent analysis performed, the risk category of
loans by class of loans is as follows (in thousands):
| |
Pass | | |
Special Mention | | |
Substandard | | |
Doubtful | | |
Not Rated | |
| |
| | |
| | |
| | |
| | |
| |
June 30, 2015 | |
| | |
| | |
| | |
| | |
| |
One to four family | |
$ | 181,162 | | |
$ | 3,144 | | |
$ | 5,231 | | |
$ | - | | |
$ | - | |
Multi family | |
| 5,407 | | |
| - | | |
| - | | |
| - | | |
| - | |
Commercial real estate | |
| 60,006 | | |
| 160 | | |
| 2,515 | | |
| - | | |
| - | |
Construction and land | |
| 3,012 | | |
| - | | |
| 696 | | |
| - | | |
| - | |
Commercial and industrial | |
| 30,248 | | |
| 1,461 | | |
| 709 | | |
| - | | |
| - | |
Home equity loans and lines of credit | |
| 8,255 | | |
| - | | |
| 45 | | |
| - | | |
| - | |
Motor vehicle | |
| 9,271 | | |
| 11 | | |
| 39 | | |
| - | | |
| - | |
Other | |
| 8,420 | | |
| 8 | | |
| 53 | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Total | |
$ | 305,781 | | |
$ | 4,784 | | |
$ | 9,288 | | |
$ | - | | |
$ | - | |
| |
Pass | | |
Special Mention | | |
Substandard | | |
Doubtful | | |
Not Rated | |
| |
| | |
| | |
| | |
| | |
| |
December 31, 2014 | |
| | |
| | |
| | |
| | |
| |
One to four family | |
$ | 171,324 | | |
$ | 3,794 | | |
$ | 4,362 | | |
$ | - | | |
$ | - | |
Multi family | |
| 5,916 | | |
| - | | |
| - | | |
| - | | |
| - | |
Commercial real estate | |
| 60,250 | | |
| 54 | | |
| 2,675 | | |
| - | | |
| - | |
Construction and land | |
| 4,402 | | |
| 52 | | |
| 688 | | |
| - | | |
| - | |
Commercial and industrial | |
| 22,162 | | |
| 2,332 | | |
| 1,029 | | |
| - | | |
| - | |
Home equity loans and lines of credit | |
| 7,935 | | |
| 30 | | |
| 8 | | |
| - | | |
| - | |
Motor vehicle | |
| 10,299 | | |
| 22 | | |
| 16 | | |
| - | | |
| - | |
Other | |
| 6,740 | | |
| - | | |
| 34 | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Total | |
$ | 289,028 | | |
$ | 6,284 | | |
$ | 8,812 | | |
$ | - | | |
$ | - | |
The Company holds purchased loans without evidence
of credit quality deterioration and purchased loans for which there was, at their acquisition date, evidence of deterioration of
credit quality since their origination and it was probable, at acquisition, that all contractually required payments would not
be collected. A summary of non-impaired purchased loans and credit-impaired purchased loans with the carrying amount of those loans
is as follows at:
June 30, 2015 | |
Non-impaired | | |
Credit-impaired | |
| |
Purchased | | |
Purchased | |
(in thousands) | |
Loans | | |
Loans | |
Real estate mortgage loans: | |
| | | |
| | |
Residential: | |
| | | |
| | |
1-4 Family | |
$ | 43,704 | | |
$ | 1,233 | |
Multi-family | |
| 2,775 | | |
| - | |
Construction & Land | |
| 1,343 | | |
| 267 | |
Farm | |
| 5,753 | | |
| 18 | |
Nonresidential | |
| 24,396 | | |
| 1,800 | |
Commercial non-mortgage loans | |
| 9,171 | | |
| 425 | |
Consumer loans | |
| 4,280 | | |
| 30 | |
Total loans | |
$ | 91,422 | | |
$ | 3,773 | |
December 31, 2014 | |
Non-impaired | | |
Credit-impaired | |
| |
Purchased | | |
Purchased | |
(in thousands) | |
Loans | | |
Loans | |
Real estate mortgage loans: | |
| | | |
| | |
Residential: | |
| | | |
| | |
1-4 Family | |
$ | 36,256 | | |
$ | 1,300 | |
Multi-family | |
| 3,237 | | |
| - | |
Construction & Land | |
| 2,391 | | |
| 340 | |
Farm | |
| 6,299 | | |
| 23 | |
Nonresidential | |
| 25,545 | | |
| 1,970 | |
Commercial non-mortgage loans | |
| 11,073 | | |
| 439 | |
Consumer loans | |
| 4,363 | | |
| 10 | |
| |
| | | |
| | |
Total loans | |
$ | 89,164 | | |
$ | 4,082 | |
For those purchased loans disclosed above,
the Company did not increase the allowance for loan losses for the six months ended June 30, 2015.
The following table presents the composition
of the acquired loans at June 30, 2015:
| |
Contractual | | |
Unaccreted | | |
Amortized | |
(in thousands) | |
Amount | | |
Discount | | |
Book Value | |
Real estate mortgage loans: | |
| | | |
| | | |
| | |
Residential: | |
| | | |
| | | |
| | |
1-4 Family | |
$ | 46,144 | | |
$ | (1,207 | ) | |
$ | 44,937 | |
Multi-family | |
| 2,818 | | |
| (42 | ) | |
| 2,776 | |
Construction & Land | |
| 1,634 | | |
| (23 | ) | |
| 1,611 | |
Farm | |
| 5,892 | | |
| (121 | ) | |
| 5,771 | |
Nonresidential | |
| 27,136 | | |
| (940 | ) | |
| 26,196 | |
Commercial non-mortgage loans | |
| 12,490 | | |
| (2,895 | ) | |
| 9,595 | |
Consumer loans | |
| 4,378 | | |
| (69 | ) | |
| 4,309 | |
Total loans | |
$ | 100,492 | | |
$ | (5,297 | ) | |
$ | 95,195 | |
The following table presents the purchased
loans that are included within the scope of ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality
as of June 30, 2015. Loans purchased during the six months ended June 30, 2015 of $164,000 are included in the contractually-required principal and interest payments with a fair value of $94,000.
(in thousands) | |
| |
| |
| |
Contractually-required principal and interest payments | |
$ | 7,686 | |
Non-Accretable difference | |
| (3,431 | ) |
Accretable yield | |
| (482 | ) |
Fair value of loans | |
$ | 3,773 | |
The Company
adjust interest income to recognize $38,000, $149,000, $85,000 and $85,000 of accretable yield on credit-impaired purchased
loans for the three and six months ended June 30, 2015 and 2014, respectively.
NOTE 5: FEDERAL HOME LOAN BANK ADVANCES
Advances from the FHLB at June 30, 2015 and December 31, 2014 were
as follows (in thousands):
| |
June 30, | | |
December 31, | |
| |
2015 | | |
2014 | |
| |
| | | |
| | |
Maturities July 2015 through June 2025, fixed rate at rates from 0.17% to 6.70%, weighted average rate of 1.59% at June 30, 2015 and 1.55% at December 31, 2014 | |
$ | 14,948 | | |
$ | 17,952 | |
Payments contractually required over the next five years are as
follows (in thousands):
June 30, | |
| |
2016 | |
$ | 9,887 | |
2017 | |
| 2,013 | |
2018 | |
| 1,629 | |
2019 | |
| 915 | |
2020 | |
| 95 | |
Thereafter | |
| 409 | |
Total | |
$ | 14,948 | |
NOTE 6: FAIR VALUE
Fair value is the exchange price that would
be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset
or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that
may be used to measure fair values:
Level 1 – Quoted prices (unadjusted)
for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2 – Significant other observable
inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not
active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 – Significant unobservable inputs
that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or
liability.
The Company used the following methods and
significant assumptions to estimate fair value:
Securities: The fair values for securities
are determined by quoted market prices, if available (Level 1). If quoted market prices are not available, fair values are based
on quoted market prices of similar securities (Level 2). This includes the use of “matrix pricing” used to value debt
securities absent the exclusive use of quoted prices. For securities where quoted prices or market prices of similar securities
are not available, fair values are calculated using discounted cash flows (Level 3).
Impaired Loans: The fair value of impaired
loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. Adjustments
are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales
and income data available for similar loans and collateral underlying such loans. Non-real estate collateral may be valued using
an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s
historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge
of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a
quarterly basis for additional impairment and adjusted in accordance with the allowance policy.
Other Real Estate Owned : Nonrecurring
adjustments to certain commercial and residential real estate properties classified as other real estate owned (OREO) are measured
at the lower of carrying amount or fair value, less costs to sell. Fair values are generally based on third party appraisals of
the property resulting in a Level 3 classification. In cases where the carrying amount exceeds the fair value, less costs to sell,
an impairment loss is recognized.
Assets and liabilities measured at fair
value on a recurring basis are summarized below (in thousands):
| |
Fair Value Measurements at | |
| |
June 30, 2015 Using: | |
| |
| | |
| | |
Significant | | |
| |
| |
| | |
Quoted Prices in | | |
Other | | |
Significant | |
| |
| | |
Active Markets for | | |
Observable | | |
Unobservable | |
| |
Carrying | | |
Identical Assets | | |
Inputs | | |
Inputs | |
| |
Value | | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | |
| |
| | |
| | |
| | |
| |
Financial Assets | |
| | | |
| | | |
| | | |
| | |
Securities: | |
| | | |
| | | |
| | | |
| | |
States and political subdivisions | |
$ | 17,505 | | |
$ | - | | |
$ | 17,505 | | |
$ | - | |
U.S. Government agencies and sponsored entities | |
| 13,056 | | |
| - | | |
| 13,056 | | |
| - | |
Mortgage backed securities: residential | |
| 25,886 | | |
| - | | |
| 25,886 | | |
| - | |
Collateralized mortgage obligations | |
| 7,544 | | |
| - | | |
| 7,544 | | |
| - | |
SBA loan pools | |
| 3,871 | | |
| - | | |
| 3,871 | | |
| - | |
Total securities | |
$ | 67,862 | | |
$ | - | | |
$ | 67,862 | | |
$ | - | |
| |
Fair Value Measurements at | |
| |
December 31, 2014 Using: | |
| |
| | |
| | |
Significant | | |
| |
| |
| | |
Quoted Prices in | | |
Other | | |
Significant | |
| |
| | |
Active Markets for | | |
Observable | | |
Unobservable | |
| |
Carrying | | |
Identical Assets | | |
Inputs | | |
Inputs | |
| |
Value | | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | |
| |
| | |
| | |
| | |
| |
Financial Assets | |
| | | |
| | | |
| | | |
| | |
Securities: | |
| | | |
| | | |
| | | |
| | |
States and political subdivisions | |
$ | 17,746 | | |
$ | - | | |
$ | 17,746 | | |
$ | - | |
U.S. Government agencies and sponsored entities | |
| 13,986 | | |
| - | | |
| 13,986 | | |
| - | |
Mortgage backed securities: residential | |
| 28,965 | | |
| - | | |
| 28,965 | | |
| - | |
Collateralized mortgage obligations | |
| 4,565 | | |
| - | | |
| 4,565 | | |
| - | |
Total securities | |
$ | 65,262 | | |
$ | - | | |
$ | 65,262 | | |
$ | - | |
For the periods ended June 30, 2015 and December 31, 2014, there
were no transfers between Level 1 and Level 2.
Assets measured at fair value on a non-recurring
basis are summarized below (in thousands):
| |
Fair Value Measurements at | |
| |
June 30, 2015 Using: | |
| |
| | |
| | |
Significant | | |
| |
| |
| | |
Quoted Prices in | | |
Other | | |
Significant | |
| |
| | |
Active Markets for | | |
Observable | | |
Unobservable | |
| |
Carrying | | |
Identical Assets | | |
Inputs | | |
Inputs | |
| |
Value | | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | |
| |
| | |
| | |
| | |
| |
Impaired loans | |
| | | |
| | | |
| | | |
| | |
Commercial, net | |
$ | 44 | | |
$ | - | | |
$ | - | | |
$ | 44 | |
Commercial real estate, net | |
| 573 | | |
| - | | |
| - | | |
| 573 | |
| |
| | | |
| | | |
| | | |
| | |
Other real estate owned | |
| | | |
| | | |
| | | |
| | |
Commercial real estate, net | |
$ | 115 | | |
$ | - | | |
$ | - | | |
$ | 115 | |
| |
Fair Value Measurements at | |
| |
December 31, 2014 Using: | |
| |
| | |
| | |
Significant | | |
| |
| |
| | |
Quoted Prices in | | |
Other | | |
Significant | |
| |
| | |
Active Markets for | | |
Observable | | |
Unobservable | |
| |
Carrying | | |
Identical Assets | | |
Inputs | | |
Inputs | |
| |
Value | | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | |
| |
| | |
| | |
| | |
| |
Other real estate owned | |
| | | |
| | | |
| | | |
| | |
One to four family, net | |
$ | 72 | | |
$ | - | | |
$ | - | | |
$ | 72 | |
Commercial real estate, net | |
| 115 | | |
| - | | |
| - | | |
| 115 | |
Commercial and residential real estate properties
classified as OREO are measured at fair value, less costs to sell. Fair values are based on recent real estate appraisals. These
appraisals may use a single valuation approach or a combination of approaches including comparable sales and the income approach.
Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable
sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the
inputs for determining fair value. Appraisals for real estate properties classified as other real estate owned are performed by
certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose
qualifications and licenses have been reviewed and verified by the Bank’s management. The appraisal values are discounted
to allow for selling expenses and fees, and the discounts range from 5% to 10%.
At June 30, 2015, impaired loans
recorded at fair value had a net carrying amount of $617,000 made up of outstanding balance of $642,000, net of a valuation
allowance of $25,000. There were no impaired loans recorded at fair value at December 31, 2014 or June 30, 2014. There were
write-downs of $200,000 for three and six months ended June 30, 2015. There were no write-downs for the three and six
months ended June 30, 2014.
At June 30, 2015, OREO recorded at
fair value had a net carrying amount of $115,000 made up of the outstanding balance of $167,000, net of a valuation allowance
of $52,000. There were no write-downs for the three and six months ended June 30, 2015. At December 31, 2014, OREO recorded
at fair value had a net carrying amount of $187,000 made up of the outstanding balance of $244,000, net of a valuation
allowance of $57,000. At June 30, 2014, OREO recorded at fair value had a net carrying amount of $311,000 made up of the
outstanding balance of $454,000, net of a valuation allowance of $143,000, which resulted in a write-down of $54,000 for the
six months ended June 30, 2014.
The carrying amounts and estimated fair values of financial instruments
at June 30, 2015 and December 31, 2014 are as follows (in thousands):
| |
| | |
Fair Value Measurements | |
| |
Carrying | | |
| | |
| | |
| | |
| |
June 30, 2015 | |
Value | | |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
Financial assets | |
| | | |
| | | |
| | | |
| | | |
| | |
Cash and cash equivalents | |
$ | 15,812 | | |
$ | 15,812 | | |
$ | - | | |
$ | - | | |
$ | 15,812 | |
Securities | |
| 67,862 | | |
| - | | |
| 67,862 | | |
| - | | |
| 67,862 | |
Restricted stock | |
| 3,276 | | |
| N/A | | |
| N/A | | |
| N/A | | |
| N/A | |
Loans held for sale | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Loans, net | |
| 317,487 | | |
| - | | |
| - | | |
| 333,361 | | |
| 333,361 | |
Accrued interest receivable | |
| 1,366 | | |
| - | | |
| 313 | | |
| 1,053 | | |
| 1,366 | |
Financial liabilities | |
| | | |
| | | |
| | | |
| | | |
| | |
Deposits | |
$ | 340,416 | | |
$ | 182,104 | | |
$ | 157,312 | | |
$ | - | | |
$ | 339,416 | |
Federal Home Loan Bank advances | |
| 14,948 | | |
| 6,000 | | |
| 9,167 | | |
| - | | |
| 15,167 | |
Subordinated debenture | |
| 2,729 | | |
| - | | |
| 2,729 | | |
| - | | |
| 2,729 | |
Accrued interest payable | |
| 123 | | |
| - | | |
| 123 | | |
| - | | |
| 123 | |
| |
| | | |
| Fair Value Measurements | | |
| |
| Carrying | | |
| | | |
| | | |
| | | |
| | |
December 31, 2014 | |
| Value | | |
| Level 1 | | |
| Level 2 | | |
| Level 3 | | |
| Total | |
Financial assets | |
| | | |
| | | |
| | | |
| | | |
| | |
Cash and cash equivalents | |
$ | 16,967 | | |
$ | 16,967 | | |
$ | - | | |
$ | - | | |
$ | 16,967 | |
Securities | |
| 65,262 | | |
| - | | |
| 65,262 | | |
| - | | |
| 65,262 | |
Restricted stock | |
| 2,921 | | |
| N/A | | |
| N/A | | |
| N/A | | |
| N/A | |
Loans held for sale | |
| 712 | | |
| - | | |
| 712 | | |
| - | | |
| 712 | |
Loans, net | |
| 302,012 | | |
| - | | |
| - | | |
| 316,493 | | |
| 316,493 | |
Accrued interest receivable | |
| 1,347 | | |
| - | | |
| 293 | | |
| 1,054 | | |
| 1,347 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Financial liabilities | |
| | | |
| | | |
| | | |
| | | |
| | |
Deposits | |
$ | 323,138 | | |
$ | 159,384 | | |
$ | 165,190 | | |
$ | - | | |
$ | 324,574 | |
Federal Home Loan Bank advances | |
| 17,952 | | |
| 9,000 | | |
| 9,171 | | |
| - | | |
| 18,171 | |
Subordinated debenture | |
| 2,697 | | |
| - | | |
| 2,697 | | |
| - | | |
| 2,697 | |
Accrued interest payable | |
| 47 | | |
| - | | |
| 47 | | |
| - | | |
| 47 | |
The methods and assumptions, not previously presented, used to estimate
fair values are described as follows:
Cash and Cash Equivalents:
The carrying amounts of cash and short-term instruments approximate
fair values and are classified as Level 1.
Restricted Stock:
It is not practical to determine the fair value of FHLB and Bankers
Bank of Kentucky stock due to restrictions placed on its transferability.
Loans:
Fair values of loans, excluding loans held
for sale, are estimated as follows: For variable rate loans that reprice frequently and with no significant change in credit risk,
fair values are based on carrying values resulting in a Level 3 classification. Fair values for other loans are estimated using
discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar
credit quality resulting in a Level 3 classification. The methods utilized to estimate the fair value of loans do not necessarily
represent an exit price.
The fair value of loans held for sale is estimated
based upon binding contracts and quotes from third party investors resulting in a Level 2 classification.
Deposits:
The fair values disclosed for demand deposits
(e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are by definition equal
to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in a Level 1 classification. The
carrying amounts of variable rate, fixed-term money market accounts and certificates of deposit approximate their fair values at
the reporting date resulting in a Level 1 classification. Fair values for fixed rate certificates of deposit are estimated using
a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated
expected monthly maturities on time deposits resulting in a Level 2 classification.
Federal Home Loan Bank advances and subordinate debenture:
The fair values of the Company’s long-term
borrowings are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing
arrangements resulting in a Level 2 classification.
Accrued Interest Receivable/Payable:
The carrying amounts of accrued interest approximate
fair value and are classified by level consistent with the level of the related assets or liabilities.
NOTE 7 - ESOP PLAN
Employees participate in an Employee Stock
Ownership Plan (“ESOP”). The ESOP borrowed from the Company to purchase 269,790 shares of the Company’s common stock
at $10 per share. The Company makes discretionary contributions to the ESOP, and pays dividends on unallocated shares to the ESOP,
and the ESOP uses funds it receives to repay the loan. When loan payments are made, ESOP shares are allocated to participants based
on relative compensation and expense is recorded. Dividends on allocated shares increase participant accounts. Participants receive
the shares at the end of employment.
There were no contributions to the ESOP for
the six months ended June 30, 2015 or 2014.
Shares held by the ESOP at June 30, 2015 and December 31, 2014 were
as follows (dollars in thousands):
| |
June 30, | | |
December 31, | |
| |
2015 | | |
2014 | |
Allocated to participants | |
$ | 43,457 | | |
$ | 29,967 | |
Released, but unallocated | |
| - | | |
| - | |
Unearned | |
| 225,952 | | |
| 239,442 | |
| |
| | | |
| | |
Total ESOP shares | |
| 269,409 | | |
| 269,409 | |
| |
| | | |
| | |
Fair value of unearned shares | |
$ | 3,464 | | |
$ | 3,561 | |
NOTE 8 – EARNINGS PER SHARE
The factors used in the earnings per share
computation for the three and six months ended June 30, 2015 and 2014, were as follows (in thousands):
| |
Three months ended | | |
Six months ended | |
| |
June 30, | | |
June 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
Basic | |
| | |
| | |
| | |
| |
Net income | |
$ | 1,716 | | |
$ | 511 | | |
$ | 2,302 | | |
$ | 86 | |
Less: Net income attributable to participating securities | |
| 32 | | |
| 18 | | |
| 49 | | |
| 3 | |
Net income available to common shareholders | |
| 1,684 | | |
| 493 | | |
| 2,253 | | |
| 83 | |
| |
| | | |
| | | |
| | | |
| | |
Weighted average common shares outstanding | |
| 3,842,894 | | |
| 3,897,688 | | |
| 3,845,905 | | |
| 3,664,046 | |
Less: Average unallocated ESOP shares | |
| (235,436 | ) | |
| (239,439 | ) | |
| (237,427 | ) | |
| (239,439 | ) |
Average participating shares | |
| (72,248 | ) | |
| (106,273 | ) | |
| (81,865 | ) | |
| (120,505 | ) |
Weighted average common shares outstanding for basic earnings per common share | |
| 3,535,210 | | |
| 3,551,976 | | |
| 3,526,613 | | |
| 3,304,102 | |
| |
| | | |
| | | |
| | | |
| | |
Basic earnings per common share | |
$ | 0.48 | | |
$ | 0.14 | | |
$ | 0.64 | | |
$ | 0.03 | |
| |
| | | |
| | | |
| | | |
| | |
Diluted | |
| | | |
| | | |
| | | |
| | |
Net income available to common shareholders | |
$ | 1,684 | | |
$ | 493 | | |
$ | 2,253 | | |
$ | 83 | |
| |
| | | |
| | | |
| | | |
| | |
Weighted average common shares outstanding for basic earnings per common share | |
| 3,535,210 | | |
| 3,551,976 | | |
| 3,526,613 | | |
| 3,304,102 | |
Add dilutive effects of potential additional common stock | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
Average shares and dilutive potential common shares | |
| 3,535,210 | | |
| 3,551,976 | | |
| 3,526,613 | | |
| 3,304,102 | |
| |
| | | |
| | | |
| | | |
| | |
Earnings per common share assuming dilution | |
$ | 0.48 | | |
$ | 0.14 | | |
$ | 0.64 | | |
$ | 0.03 | |
There were no potentially dilutive securities outstanding
at June 30, 2015. Stock options of 295,000 and 320,000 shares of common stock were not considered in computing diluted
earnings per common share for 2015 or 2014 because they were antidilutive.
NOTE 9 – STOCK BASED COMPENSATION
On January 8, 2013, the shareholders of Poage
Bankshares, Inc. approved the Poage Bankshares, Inc. 2013 Equity Incentive Plan (the “Plan”) for employees and directors
of the Company. The Plan authorizes the issuance of up to 472,132 shares of the Company’s common stock, with no more than
134,895 of shares as restricted stock awards and 337,237 as stock options, either incentive stock options or non-qualified stock
options. The exercise price of options granted under the Plan may not be less than the fair market value on the date the stock
option is granted. The compensation committee of the board of directors has sole discretion to determine the amount and to whom
equity incentive awards are granted.
On April 16, 2013, the
compensation committee of the board of directors approved the issuance of 134,895 shares of restricted stock to its directors
and officers. In addition, on May 10, 2013, the compensation committee of the board of directors approved the issuance of
300,000 stock options to its directors and officers. An additional 20,000 stock option shares were issued on March 19, 2014
as a result of the acquisition of Town Square Financial Corporation by Poage Bankshares, Inc. An additional 5,000 stock
option shares were issued on May 31, 2015 to employees. All stock options and restricted stock awards vest ratably over five
years. Stock options expire ten years after issuance. Apart from the vesting schedule for both stock options and restricted
stock, there are no performance-based conditions or any other material conditions applicable to the awards issued.
The following table summarizes stock option activity for the six
months ended June 30, 2015:
| |
| | |
Weighted Average | |
| |
Options | | |
Exercise Price | |
| |
| | | |
| | |
Outstanding - December 31, 2014 | |
| 299,500 | | |
$ | 14.94 | |
Granted | |
| 5,000 | | |
| 15.44 | |
Exercised | |
| - | | |
| - | |
Forfeited | |
| (5,000 | ) | |
| 14.86 | |
Outstanding - June 30, 2015 | |
| 299,500 | | |
$ | 14.95 | |
Fully vested and exercisable at June 30, 2015 | |
| 121,000 | | |
| | |
Expected to vest in future periods | |
| 178,500 | | |
| | |
The fair value for each option grant is estimated
on the date of grant using the Black-Scholes-Merton option pricing model that uses the following assumptions. The Company uses
the U.S. Treasury yield curve in effect at the time of the grant to determine the risk-free interest rate. The expected dividend
yield is estimated using the projected annual dividend level and recent stock price of the Company’s common stock at the
date of grant. Expected stock volatility is based on historical volatilities of the Company’s common stock. The expected
term of the options is based on historical data and represents the period of time that options granted are expected to be outstanding,
which takes into account that the options are not transferable.
The weighted-average assumptions used in the
Black-Scholes-Merton option pricing model to determine the fair value of options granted was as follows:
| |
Six months ended | |
| |
June 30, 2015 | |
| |
| | |
Risk-free interest rate | |
| 1.86 | % |
Expected dividend yield | |
| 1.55 | % |
Expected stock volatility | |
| 12.94 | |
Expected life (years) | |
| 7 | |
Weighted average fair value of options granted | |
$ | 2.01 | |
Stock options are assumed to be earned ratably
over their respective vesting periods and charged to compensation expense based upon their grant date fair value and the number
of options assumed to be earned. 55,500 options vested during the six months ended June 30, 2015. Stock-based compensation expense
for stock options included in salaries and benefits for the three and six months ended June 30, 2015 was $31,000 and $61,000, respectively.
Stock-based compensation expense for stock options included in salaries and benefits for the three and six months ended June 30,
2014 was $32,000 and $61,000 respectively. Total unrecognized compensation cost related to non-vested stock options was $325,000
at June 30, 2015 and $386,000 at December 31, 2014 and is expected to be recognized over a period of 4-5 years.
The following table summarizes non-vested restricted stock activity
for the six months ended June 30, 2015:
Balance - December 31, 2014 | |
| 100,624 | |
Granted | |
| - | |
Forfeited | |
| (539 | ) |
Vested | |
| (31,573 | ) |
Balance - June 30, 2015 | |
| 68,512 | |
The fair value of the restricted
stock awards is amortized to compensation expense over the vesting period (generally five years) and is based on the market
price of the Company’s common stock at the date of the grant multiplied by the number of shares granted that are
expected to vest. Stock-based compensation expense for the restricted stock included in salaries and benefits for the three
and six months ended June 30, 2015 was $101,000 and $201,000, respectively. Stock-based compensation expense for the
restricted stock included in salaries and benefits for the three and six months ended June 30, 2014 was $102,000 and
$204,000, respectively. Unrecognized compensation expense for non-vested restricted stock awards was $1.1 million at June 30,
2015 and $1.3 million at December 31, 2014 and is expected to be recognized over a weighted-average period of 4-5 years.
NOTE 10 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table is changes in Accumulated Other Comprehensive
Income (Loss) by component, net of tax for the three and six months ended June 30, 2015.
| |
Unrealized Gains and Losses on Available-for-Sale Securities | |
(in thousands) | |
Three months ended | | |
Three months ended | | |
Six months ended | | |
Six months ended | |
| |
June 30, 2015 | | |
June 30, 2014 | | |
June 30, 2015 | | |
June 30, 2014 | |
Beginning balance | |
$ | 614 | | |
$ | (351 | ) | |
$ | 460 | | |
$ | (851 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other comprehensive income (loss), net of tax before reclassification | |
| (370 | ) | |
| 705 | | |
| (216 | ) | |
| 1,205 | |
| |
| | | |
| | | |
| | | |
| | |
Amounts reclassified from accumulated to other comprehensive income for gains on sale of securities, net of tax expense of $0, $100, $0 and $100 respectively. | |
| - | | |
| (194 | ) | |
| - | | |
| (194 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net current period other comprehensive income (loss) | |
| (370 | ) | |
| 511 | | |
| (216 | ) | |
| 1,011 | |
| |
| | | |
| | | |
| | | |
| | |
Ending Balance | |
$ | 244 | | |
$ | 160 | | |
$ | 244 | | |
$ | 160 | |
NOTE 11 – BUSINESS COMBINATION
Effective May 31, 2015, the
Company completed its previously reported acquisition of Commonwealth Bank, F.S.B., Mt. Sterling,
Kentucky (“Commonwealth”), in a conversion merger transaction. The Company’s primary reason for undertaking
the conversion merger is to fill-in its existing footprint along the Interstate 64 corridor between its main office in
Ashland, Kentucky (Boyd County) and its Nicholasville branch office (Jessamine County). Montgomery County, where Commonwealth
Bank is located, lies in between Boyd, Greenup and Lawrence Counties (to the northeast of Montgomery County) and Jessamine
County (to the southwest of Montgomery County). As result of the conversion merger transaction, Commonwealth converted from a mutual to stock institution
and merged with and into the Bank, with the Bank as the surviving institution, and the Company issued and sold 166,221 shares of
common stock at a price of $12.73 per share, which reflected a 15% discount on the 30 day average price as prescribed in the merger
agreement. The shares were offered to depositor and borrower members of Commonwealth in a subscription offering and to stockholders
of the Company and members of the general public in a community offering. Gross offering proceeds totaled approximately $2.1
million. As a
result of the stock offering, the Company had approximately 3,952,944 shares of common stock outstanding as of the close of
business on May 31, 2015. Commonwealth’s sole office, located in Mt. Sterling, Kentucky, has become a branch
office of the Bank.
Acquisition costs of $617,000 are
included in the Company’s consolidated statement of operations for the six months ended June 30, 2015. These
costs include $418,000 in early termination fees and $199,000 in professional fees for attorneys, accountants and
consultants. The Company has determined that the acquisition constitutes a business combination as defined by the Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business
Combinations. Accordingly, the assets acquired and liabilities assumed are presented at their estimated fair values
as required by the accounting guidance. Fair values were determined based on the requirements of ASC Topic 820, Fair Value
Measurements.
In many cases, the determination of these
fair values required management to make estimates about discount rates, future expected cash flows, market conditions and
other future events which are highly subjective in nature and are subject to change. The assets acquired and liabilities
assumed in the transaction are presented at estimated fair value on the acquisition date. These fair value estimates are
considered preliminary, and are subject to change as additional information relative to acquisition date fair values becomes
available. Given the short period of time between the closing date and the Form 10-Q filing date, we have not yet
completed our evaluation of fair values. We continue to work to finalize these estimates.
The Company recorded the following assets
and liabilities as of May 31, 2015. The discounts and premiums resulting from the fair value adjustments will be accreted and
amortized over the anticipated lives of the underlying excess fair value of assets and liabilities. The excess fair value of assets acquired over liabilities assumed, resulted in an estimated $1.6 million bargain
purchase gain. The bargain purchase gain is recorded in non-interest income in the Company’s consolidated statement of
income for the three and six months ended June 30, 2015.
| |
| |
(in thousands) | |
May 31, 2015 | |
Recognized amounts of identifiable assets acquired and liabilities assumed |
Fair value of assets acquired | |
| |
Cash and due from banks | |
$ | 2,355 | |
Restricted stock | |
| 299 | |
Loans | |
| 14,898 | |
Premises and equipment, net | |
| 1,333 | |
Accrued interest receivable | |
| 57 | |
Prepaid expenses and other assets | |
| 17 | |
Deferred federal income taxes | |
| 325 | |
Core deposit intangible | |
| 227 | |
Total assets acquired | |
$ | 19,511 | |
| |
| | |
Fair value of liabilities assumed | |
| | |
Deposits | |
| 15,403 | |
FHLB advances | |
| 2,316 | |
Accrued interest payable | |
| 22 | |
Other liabilities | |
| 215 | |
Total liabilities assumed | |
$ | 17,956 | |
At the acquisition date, the Company recorded
$14.6 million of loans without evidence of credit quality deterioration and $95,000 of purchased credit-impaired loans subject
to nonaccretable difference of $64,000. The acquired loans were deemed impaired at the acquisition date if the Company did not
expect to receive all contractually required cash flows due to concerns about credit quality. Fair values for loans were based
on discounted cash flow methodology that considered factors including the type of loan and related collateral, classification status,
fixed or variable interest rate, term of loan and whether or not the loan was amortizing, and a discount rate reflecting current
market rates for new originations of comparable loans adjusted for the risk inherent in the cash flow estimates. Certain loans
that were determined to be collateral dependent were valued based on the fair value of the underlying collateral. These estimates
were based on the most recently available real estate appraisals with certain adjustments made based on the type of property, age
of appraisal, current status of the property and other related factors to estimate the current value of the collateral.
| |
Non-impaired
Purchased Loans | | |
Credit-impaired
Purchased Loans | |
Real estate mortgage loans: | |
| | | |
| | |
Residential: | |
| | | |
| | |
1-4 Family | |
$ | 13,663 | | |
$ | 72 | |
Nonresidential and land | |
| 438 | | |
| - | |
Consumer Loans | |
| 702 | | |
| 23 | |
Total Loans | |
$ | 14,803 | | |
$ | 95 | |
The composition of the acquired loans at May
31, 2015 follows:
| |
Contractual
Amount | | |
Fair Value
Adjustments | | |
Fair Value | |
Real estate mortgage loans: | |
| | |
| | |
| |
Residential: | |
| | | |
| | | |
| | |
1-4 Family | |
$ | 13,892 | | |
$ | (266 | ) | |
$ | 13,626 | |
Nonresidential and land | |
| 450 | | |
| (12 | ) | |
| 438 | |
Consumer Loans | |
| 841 | | |
| (7 | ) | |
| 834 | |
Total Loans | |
$ | 15,183 | | |
$ | (285 | ) | |
$ | 14,898 | |
Loans purchased in the acquisition are
accounted for using one of two following accounting standards:
| · | ASC Topic 310-20 is used to value loans that have not demonstrated
post origination credit quality deterioration and the acquirer expect to collect all contractually required payments from the borrower.
For these loans, the difference between fair value of the loan at acquisition and the amortized cost of the loan would be amortized
or accreted into income using the interest method. |
| · | ASC Topic 310-30 is used to value loans with post origination credit
quality deterioration. For these loans, it is probable the acquirer will be unable to collect all contractually required payments
from the borrower. Under ASC 310-30, the expected cash flows that exceed the initial investment in the loan (fair value) represent
the “accretable yield,” which is recognized as interest income on a level-yield basis over the expected cash flow periods
of the loans. The excess of the loan’s contractual principal and interest over the expected cash flows is the nonaccretable
difference. |
The following table presents the purchased loans that are included
within the scope of ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality as of May 31,
2015.
Contractually-required principal and interest payments | |
$ | 165 | |
Non-Accretable difference | |
| (64 | ) |
Accretable yield | |
| (6 | ) |
| |
| | |
| |
$ | 95 | |
The following table presents pro forma information as if the acquisition
had occurred January 1, 2014.
| |
Three months ended | | |
Six months ended | |
| |
June 30, | | |
June 30, | |
(in thousands, except per share data) | |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
| | |
| | |
| | |
| |
Net Interest Income | |
$ | 4,122 | | |
$ | 4,473 | | |
$ | 8,343 | | |
$ | 7,300 | |
| |
| | | |
| | | |
| | | |
| | |
Net Income before tax | |
$ | 2,172 | | |
$ | 728 | | |
$ | 3,015 | | |
$ | (530 | ) |
Income tax expense | |
| 230 | | |
| 227 | | |
| 573 | | |
| (140 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net Income | |
$ | 1,942 | | |
$ | 501 | | |
$ | 2,442 | | |
$ | (390 | ) |
| |
| | | |
| | | |
| | | |
| | |
Basic earnings per share | |
$ | 0.52 | | |
$ | 0.13 | | |
$ | 0.65 | | |
$ | 0.11 | |
Diluted earnings per share | |
$ | 0.52 | | |
$ | 0.13 | | |
$ | 0.65 | | |
$ | 0.11 | |
To determine pro forma information,
the Company adjusted its three and six months ended June 30, 2015 and three and six months ended June 30, 2014 historical results
to include the historical results for Commonwealth for the period January 1, 2014 to May 31, 2015 and the three and six months
ended June 30, 2014.
The pro forma information includes adjustments
for interest income on loans acquired, amortization of intangibles arising from the transaction, depreciation expense on property
acquired, interest expense on deposits acquired, and the related income tax effects.
Expenses related to the
acquisition including professional fees and integration costs are excluded from the period in which the amounts were
recognized and included in earlier periods as if the acquisition occurred on January 1, 2014. During the three and six months
ended June 30, 2015 and 2014, acquisition related expenses amounted to $634,000, $789,000, $65,000 and $74,000,
respectively.
The pro forma financial information is not
necessarily indicative of the results of operations that would have occurred had the transactions been effected on the assumed
dates.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Critical Accounting Policies
There are no material changes to the critical
accounting policies disclosed in the Annual Report on Form 10-K for Poage Bankshares, Inc. for the year ended December 31, 2014,
as filed with the Securities and Exchange Commission.
Forward-Looking
Statements
This Quarterly Report contains forward-looking
statements, which can be identified by the use of such words as “estimate,” “project,” “believe,”
“intend,” “anticipate,” “plan,” “seek,” “expect,” “will,”
“may,” and similar expressions. These forward-looking statements include, but are not limited to:
| > | statements of our goals, intentions and expectations; |
| > | statements regarding our business plans and prospects and
growth and operating strategies; |
| > | statements regarding the asset quality of our loan and
investment portfolios; |
| > | estimates
of our risks and future costs and benefits; |
| > | statements
about the benefits of the acquisition of Town Square Financial Corporation and Town Square Bank and the acquisition of Commonwealth
Bank, including future financial and operating results, cost savings, enhancements to revenue and accretion to reported earnings
that may be realized from the acquisition; and |
| > | statements
about the financial condition, results of operations and business of Poage Bankshares. |
These forward-looking statements are based
on our current beliefs and expectations and are inherently subject to significant business, economic, and competitive uncertainties
and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions
with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any
obligation to update any forward-looking statements after the date of this Quarterly Report.
The following factors, among others, could
cause the actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking
statements:
Because of these and a wide variety of other
uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.
| > | our ability to manage our operations under the current
adverse economic conditions (including real estate values, loan demand, inflation, commodity prices and unemployment levels) nationally
and in our market area; |
| > | adverse changes in the financial industry, securities,
credit and national local real estate markets (including real estate values); |
| > | significant increases in our loan losses, including as
a result of our inability to resolve classified assets, and management’s assumptions in determining the adequacy of the
allowance for loan losses; |
| > | credit risks of lending activities, including changes in
the level and trend of loan delinquencies and write-offs and in our allowance for loan losses and provision for loan losses; |
| > | our ability to successfully enhance internal controls; |
| > | our business may not be integrated successfully with the businesses of Town Square Financial
Corporation and Commonwealth Bank, or such integration may take longer to accomplish than expected; |
| > | the growth opportunities and cost savings from the acquisitions
of Town Square Financial Corporation and Commonwealth Bank may not be fully realized or may take longer to realize than expected; |
| > | our ability to manage increased expenses following the
acquisitions of Town Square Financial Corporation and Commonwealth Bank, including salary and employee benefit expenses and occupation
expenses; |
| > | operating costs, customer losses and business disruption
following the acquisitions of Town Square Financial Corporation and Commonwealth Bank, including adverse effects of relationships
with employees, may be greater than expected; |
| > | competition among depository and other financial institutions; |
| > | our success in increasing our originations of adjustable-rate
mortgage loans; |
| > | our success in increasing our commercial business and commercial
real estate; |
| > | our ability to improve our asset quality even as we increase
our commercial business, commercial real estate and multi-family lending, including as a result of the acquisitions of Town Square
Financial Corporation and Commonwealth Bank; |
| > | our ability to retain customers and name recognition in
the communities we serve as a result of changing our name to “Town Square Bank”; |
| > | our success in introducing new financial products; |
| > | our ability to attract and maintain deposits, including
depositors of the former Town Square Bank and former depositors of Commonwealth Bank; |
| > | decreases in our asset quality; |
| > | changes in interest rates generally, including changes
in the relative differences between short term and long term interest rates and in deposit interest rates, that may affect our
net interest margin and funding sources; |
| > | fluctuations in the demand for loans, which may be affected
by the number of unsold homes, land and other properties in our market areas and by declines in the value of real estate in our
market area; |
| > | changes in consumer spending, borrowing and savings habits; |
| > | declines in the yield on our assets resulting from the
current low interest rate environment; |
| > | risks related to a high concentration of loans secured
by real estate located in our market area; |
| > | the results of examinations by our regulators, including
the possibility that our regulators may, among other things, require us to increase our reserve for loan losses, write down assets,
change our regulatory capital position, limit our ability to borrow funds or maintain or increase deposits, or prohibit us from
paying dividends, which could adversely affect our dividends and earnings; |
| > | changes in laws or government regulations or policies affecting
financial institutions, including the Dodd-Frank Act and the JOBS Act, which could result in, among other things, increased deposit
insurance premiums and assessments, capital requirements (particularly the new capital regulations), regulatory fees and compliance
costs and the resources we have available to address such changes; |
| > | changes in the level of government support of housing finance; |
| > | our ability to enter new markets successfully and capitalize
on growth opportunities |
| > | changes in accounting policies and practices, as may be
adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and
the Public Company Accounting Oversight Board; |
| > | changes in our organization, compensation and benefit plans
and our ability to retain key members of our senior management team; |
| > | loan delinquencies and changes in the underlying cash flows
of our borrowers; |
| > | the failure or security breaches of computer systems on
which we depend; |
| > | the ability of key third-party providers to perform their
obligations to us; and |
| > | changes in the financial condition or future prospects
of issuers of securities that we own. |
Comparison of Financial Condition at June 30, 2015 and December
31, 2014
At June
30, 2015, the Company’s assets totaled $ 432.4 million, an increase of $17.7 million, or 4.3%, from $414.7
million at December 31, 2014. The increase was primarily attributed to the acquisition of Commonwealth, growth in deposit
accounts resulting from the migration of customers from a competitor in the Louisa, Kentucky market following their
acquisition and new accounts and increased balances for city governments in Flatwoods and Ashland, Kentucky. See Footnote 11 under “Item 1: Financial
Information” for information on the Commonwealth acquisition.
Cash and Cash equivalents decreased by $1.2
million, or 6.8%, to $15.8 million at June 30, 2015 from $17.0 million at December 31, 2014. The decrease was attributable to the
purchase of $8.0 million in available for sale securities and decrease in outstanding FHLB advance balances of $3.0 million offset
by the increase in deposits.
Loans held for sale decreased $712,000, or
100%, to $0 at June 30, 2015 from $712,000 at December 31, 2014.
Loans receivable, net, increased $15.5
million, or 5.1%, to $317.5 million at June 30, 2015 from $302.0 million at December 31, 2014. The increase was primarily
attributable to the acquisition of Commonwealth. Real estate secured loans increased $7.8 million, commercial loans increased
$6.9 million and consumer loans increased $1.0 million during the six month period ending June 30, 2015. Non-performing
loans increased $672,000, or 20.0%, to $4.0 million at June 30, 2015 from $3.4 million at December 31, 2014. The loans
acquired from Commonwealth consist primarily of smaller one to four family residential mortgages.
Securities available for sale increased by
$2.6 million, or 4.0%, to $67.9 million at June 30, 2015 from $65.3 million at December 31, 2014. This increase is due to $8.0
million in purchases, offset by $5.4 million in calls, regular maturities and principal payments.
Deposits increased $17.3 million, or 5.3%,
to $340.4 million at June 30, 2015 from $323.1 million at December 31, 2014. The increase was primarily attributable to the Commonwealth
acquisition and new accounts and increased balances for city governments in two markets we serve.
Federal Home Loan Bank advances decreased $3.0
million, or 16.7%, to $14.9 million at June 30, 2015 from $17.9 million at December 31, 2014. This decrease in borrowings was primarily
due to regular principal payments and maturities offset by advances as a result of the Commonwealth acquisition.
Other borrowings increased by $32,000 to $2.7
million at June 30, 2015 from $2.7 million at December 31, 2014 due to the amortization of the fair value related to the subordinated
debenture assumed in conjunction with acquisition of Town Square Financial Corporation. In December 2006, Town Square Statutory
Trust I, a trust formed by Town Square Financial Corporation, closed a pooled private offering of 4,124 trust preferred securities
with a liquidation amount of $1,000 per security. The subordinated debt of $2.7 million is shown as a liability because the Company
is not considered the primary beneficiary of the Trust. The investment in common stock of the trust is $124,000 and is included
in other assets. The subordinated debt has a variable rate of interest equal to the three month London Interbank Offered Rate (LIBOR)
plus 1.83%, which was 2.11% at June 30, 2015.
Total shareholders’ equity increased
by $2.4 million, or 3.5%, to $70.5 million at June 30, 2015, compared to $68.2 million at December 31, 2014. The increase resulted
primarily from shares issued in the offering, completed in connection with the Commonwealth acquisition and net income of $2.3
million for the six months ended June 30, 2015, offset by the repurchase of common stock totaling $1.3 million, the payment of
a cash dividends totaling $420,000 and a decrease in other comprehensive income of $216,000.
Average Balance and Yields
The following tables set forth average balance
sheets, average yields and costs, and certain other information at the dates and for the periods indicated. All average balances
are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in
the tables as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums
that are amortized or accreted to interest income. Interest income and rates exclude the effects of a tax equivalent adjustment
to adjust tax exempt investment income on tax exempt investment securities to a fully taxable basis due to immateriality.
The average balance, interest and
dividends paid and received, and yield/cost of assets and liabilities include assets and liabilities acquired through the
Town Square and Commonwealth acquisitions. Because the Town Square acquisition was consummated on March 18, 2014, the
information for the three and six months ended June 30, 2015 and three months ended June 30, 2014 reflects the accretive
benefits and costs from the transaction, but the information for the six months ended June 30, 2014 only partially reflects
the benefits and costs from the transactions. Because the Commonwealth acquisition was consummated on May 31, 2015, the
information for the three months ended June 30, 2015, only partially reflects the benefits and costs from the
transaction.
| |
For the Three Months Ended June 30, | |
| |
2015 | | |
2014 | |
| |
Average
Balance | | |
Interest and Dividends | | |
Yield/ Cost | | |
Average Balance | | |
Interest and Dividends | | |
Yield/ Cost | |
| |
(Dollars in thousands) | |
Assets: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest-earning assets: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Loans | |
$ | 309,397 | | |
$ | 4,180 | | |
| 5.40 | % | |
$ | 304,264 | | |
$ | 4,275 | | |
| 5.62 | % |
Investment securities | |
| 69,400 | | |
| 348 | | |
| 2.01 | % | |
| 87,234 | | |
| 534 | | |
| 2.45 | % |
FHLB stock | |
| 2,823 | | |
| 27 | | |
| 3.83 | % | |
| 2,681 | | |
| 27 | | |
| 4.03 | % |
Other interest-earning assets | |
| 17,736 | | |
| 9 | | |
| 0.20 | % | |
| 13,251 | | |
| 7 | | |
| 0.21 | % |
Total interest-earning assets | |
| 399,356 | | |
| 4,564 | | |
| 4.57 | % | |
| 407,430 | | |
| 4,843 | | |
| 4.75 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Noninterest-earning assets | |
| 26,293 | | |
| | | |
| | | |
| 26,476 | | |
| | | |
| | |
Total assets | |
| 425,649 | | |
| | | |
| | | |
| 433,906 | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Liabilities and equity: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest bearing liabilities: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest bearing deposits: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
NOW, savings, money market, and other | |
| 126,326 | | |
| 55 | | |
| 0.17 | % | |
| 123,754 | | |
| 52 | | |
| 0.17 | % |
Certificates of deposit | |
| 159,441 | | |
| 395 | | |
| 0.99 | % | |
| 165,651 | | |
| 387 | | |
| 0.93 | % |
Total interest bearing deposits | |
| 285,767 | | |
| 450 | | |
| 0.63 | % | |
| 289,405 | | |
| 439 | | |
| 0.61 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
FHLB advances | |
| 15,663 | | |
| 64 | | |
| 1.63 | % | |
| 33,958 | | |
| 92 | | |
| 1.08 | % |
Subordinated Debenture | |
| 2,720 | | |
| 38 | | |
| 5.59 | % | |
| 2,665 | | |
| 22 | | |
| 3.30 | % |
Total interest bearing liabilities | |
| 304,150 | | |
| 552 | | |
| 0.73 | % | |
| 326,028 | | |
| 553 | | |
| 0.68 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Non-interest bearing liabilities: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Non-interest bearing deposits | |
| 47,878 | | |
| | | |
| | | |
| 38,723 | | |
| | | |
| | |
Accrued interest payable | |
| 185 | | |
| | | |
| | | |
| 157 | | |
| | | |
| | |
Other liabilities | |
| 5,193 | | |
| | | |
| | | |
| 3,080 | | |
| | | |
| | |
Total non-interest bearing liabilities | |
| 53,256 | | |
| | | |
| | | |
| 41,960 | | |
| | | |
| | |
Total liabilities | |
| 357,406 | | |
| | | |
| | | |
| 367,988 | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total equity | |
| 68,243 | | |
| | | |
| | | |
| 65,918 | | |
| | | |
| | |
Total liabilities and equity | |
| 425,649 | | |
| | | |
| | | |
| 433,906 | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net interest income | |
| | | |
| 4,012 | | |
| | | |
| | | |
| 4,290 | | |
| | |
Interest rate spread | |
| | | |
| | | |
| 3.84 | % | |
| | | |
| | | |
| 4.08 | % |
Net interest margin | |
| | | |
| | | |
| 4.02 | % | |
| | | |
| | | |
| 4.21 | % |
Average interest-earning assets to average interest-bearing liabilities | |
| | | |
| 131.30 | % | |
| | | |
| | | |
| 124.97 | % | |
| | |
| |
For the Six Months Ended June 30, | |
| |
2015 | | |
2014 | |
| |
Average
Balance | | |
Interest and
Dividends | | |
Yield/
Cost | | |
Average
Balance | | |
Interest and
Dividends | | |
Yield/
Cost | |
| |
(Dollars in thousands) | |
Assets: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest-earning assets: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Loans | |
$ | 305,732 | | |
$ | 8,389 | | |
| 5.49 | % | |
$ | 250,364 | | |
$ | 6,844 | | |
| 5.47 | % |
Investment securities | |
| 68,213 | | |
| 711 | | |
| 2.08 | % | |
| 85,122 | | |
| 1,051 | | |
| 2.47 | % |
FHLB stock | |
| 2,752 | | |
| 54 | | |
| 3.92 | % | |
| 2,387 | | |
| 49 | | |
| 4.11 | % |
Other interest-earning assets | |
| 17,036 | | |
| 16 | | |
| 0.19 | % | |
| 11,857 | | |
| 11 | | |
| 0.19 | % |
Total interest-earning assets | |
| 393,733 | | |
| 9,170 | | |
| 4.66 | % | |
| 349,730 | | |
| 7,955 | | |
| 4.55 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Noninterest-earning assets | |
| 26,216 | | |
| | | |
| | | |
| 23,571 | | |
| | | |
| | |
Total assets | |
| 419,949 | | |
| | | |
| | | |
| 373,301 | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Liabilities and equity: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest bearing liabilities: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest bearing deposits: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
NOW, savings, money market, and other | |
| 122,223 | | |
| 111 | | |
| 0.18 | % | |
| 112,024 | | |
| 90 | | |
| 0.16 | % |
Certificates of deposit | |
| 160,240 | | |
| 786 | | |
| 0.98 | % | |
| 140,389 | | |
| 707 | | |
| 1.01 | % |
Total interest bearing deposits | |
| 282,463 | | |
| 897 | | |
| 0.64 | % | |
| 252,413 | | |
| 797 | | |
| 0.63 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
FHLB advances | |
| 16,361 | | |
| 130 | | |
| 1.59 | % | |
| 29,175 | | |
| 186 | | |
| 1.28 | % |
Subordinated Debenture | |
| 2,712 | | |
| 75 | | |
| 5.53 | % | |
| 1,510 | | |
| 25 | | |
| 3.31 | % |
Total interest bearing liabilities | |
| 301,536 | | |
| 1,102 | | |
| 0.73 | % | |
| 283,098 | | |
| 1,008 | | |
| 0.71 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Non-interest bearing liabilities: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Non-interest bearing deposits | |
| 45,819 | | |
| | | |
| | | |
| 25,192 | | |
| | | |
| | |
Accrued interest payable | |
| 164 | | |
| | | |
| | | |
| 151 | | |
| | | |
| | |
Other liabilities | |
| 4,279 | | |
| | | |
| | | |
| 2,903 | | |
| | | |
| | |
Total non-interest bearing liabilities | |
| 50,262 | | |
| | | |
| | | |
| 28,246 | | |
| | | |
| | |
Total liabilities | |
| 351,798 | | |
| | | |
| | | |
| 311,344 | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total equity | |
| 68,151 | | |
| | | |
| | | |
| 61,958 | | |
| | | |
| | |
Total liabilities and equity | |
| 419,949 | | |
| | | |
| | | |
| 373,302 | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net interest income | |
| | | |
| 8,068 | | |
| | | |
| | | |
| 6,947 | | |
| | |
Interest rate spread | |
| | | |
| | | |
| 3.93 | % | |
| | | |
| | | |
| 3.84 | % |
Net interest margin | |
| | | |
| | | |
| 4.10 | % | |
| | | |
| | | |
| 3.97 | % |
Average interest-earning assets to average interest-bearing liabilities | |
| | | |
| 130.58 | % | |
| | | |
| | | |
| 123.54 | % | |
| | |
Liquidity and Capital Resources
Our primary sources of funds are deposits and
the proceeds from principal and interest payments on loans and investment securities. We also utilize Federal Home Loan Bank advances.
While maturities and scheduled amortization of loans and securities are predicable sources of funds, deposit flows and mortgage
prepayments are greatly influenced by general interest rates, economic conditions and competition. We generally manage the pricing
of our deposits to be competitive within our market and to increase core deposit relationships.
Liquidity management is both a daily and long-term
responsibility of management. We adjust our investments in liquid assets based upon management’s assessment of (i) expected
loan demand, (ii) expected deposit flows, (iii) yields available on interest-earning deposits and investment securities, and (iv)
the objectives of our asset/liability management program. Excess liquid assets are invested generally in interest-earning overnight
deposits, federal funds sold, and short and intermediate-term investment securities. If we require funds beyond our ability to
generate them internally we have additional borrowing capacity with the Federal Home Loan Bank of Cincinnati. At June 30, 2015,
we had $14.9 million in advances from the Federal Home Loan Bank of Cincinnati and an additional borrowing capacity of $87.0 million.
Poage Bankshares, Inc. is a separate legal entity from Town
Square Bank and must provide its own liquidity to pay dividends, repurchase stock and to fund other general corporate activities.
Poage Bankshares, Inc.’s primary source of liquidity is dividend payments from Town Square Bank. The ability of Town Square
Bank to pay dividends is subject to regulatory requirements. At June 30, 2015, Poage Bankshares, Inc. (on an unconsolidated basis)
had liquid assets of $5.2 million.
The Bank is subject to various regulatory capital
requirements administered by its primary federal regulator, the Office of the Comptroller of the Currency (“OCC”).
Failure to meet the minimum regulatory capital requirements can initiate certain mandatory and possible additional discretionary
actions by regulators that if undertaken, could have a direct material effect on the Bank and the consolidated financial statements.
Under the regulatory capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet
specific capital guidelines involving quantitative measures of the Bank's assets, liabilities, and certain off-balance-sheet items
as calculated under regulatory accounting practices.
The Bank's capital amounts and classification
under the prompt corrective action guidelines are also subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
On July 9, 2013, the Federal Reserve and the
FDIC approved rules that implement the “Basel III” regulatory capital reforms, as well as certain changes required
by the Dodd-Frank Act. The rules include a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted
assets, which is in addition to the Tier 1 and Tier 2 risk-based capital requirements. The capital conservation buffer
will be phased in over four years beginning on January 1, 2016, with a maximum buffer of 0.625% of risk-weighted assets for 2016,
1.25% for 2017, 1.875% for 2018, and 2.5% for 2019 and thereafter. Failure to maintain the required capital conservation
buffer will result in limitations on capital distributions and on discretionary bonuses to executive officers. Based
on the Company’s current capital composition and levels, management does not presently anticipate that the rules present
a material risk to the Company’s financial condition or results of operations.
As of June 30, 2015, the capital of the Bank exceeded all required
regulatory guidelines.
The following table reflects the
current regulatory capital levels in more detail, including comparisons to the regulatory minimums at June 30, 2015 and
December 31, 2014. December 31, 2014 ratios and requirements are being presented based on current
regulatory requirements rather than those in effect at December 31, 2014.
| |
Actual | | |
Required | | |
Excess | |
| |
Amount | | |
Ratio | | |
Amount | | |
Ratio | | |
Amount | | |
Ratio | |
As of June 30, 2015: | |
| | |
| | |
| | |
| | |
| | |
| |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Risk-based capital: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common equity tier 1 capital | |
$ | 63,026 | | |
| 22.22 | % | |
$ | 12,763 | | |
| 4.50 | % | |
$ | 50,263 | | |
| 17.72 | % |
Tier 1 capital | |
| 63,026 | | |
| 22.22 | % | |
| 17,018 | | |
| 6.00 | % | |
| 46,008 | | |
| 16.22 | % |
Total capital | |
| 65,124 | | |
| 22.96 | % | |
| 22,690 | | |
| 8.00 | % | |
| 42,434 | | |
| 14.96 | % |
Tier 1 leverage ratio | |
| 63,026 | | |
| 14.90 | % | |
| 16,924 | | |
| 4.00 | % | |
| 46,102 | | |
| 10.90 | % |
| |
Actual | | |
Required | | |
Excess | |
| |
Amount | | |
Ratio | | |
Amount | | |
Ratio | | |
Amount | | |
Ratio | |
As of December 31, 2014: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Risk-based capital: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common equity tier 1 capital | |
$ | 62,068 | | |
| 23.61 | % | |
$ | 11,832 | | |
| 4.50 | % | |
$ | 50,236 | | |
| 19.11 | % |
Tier 1 capital | |
| 62,068 | | |
| 23.61 | % | |
| 10,057 | | |
| 4.00 | % | |
| 46,292 | | |
| 17.61 | % |
Total capital | |
| 64,002 | | |
| 24.34 | % | |
| 21,034 | | |
| 8.00 | % | |
| 42,968 | | |
| 16.34 | % |
Tier 1 leverage ratio | |
| 62,068 | | |
| 15.07 | % | |
| 16,477 | | |
| 4.00 | % | |
| 45,591 | | |
| 11.07 | % |
Off-Balance Sheet Arrangements.
In the normal course of operations, we engage in a variety of financial transactions that, in accordance with U.S. generally accepted
accounting principles, are not recorded in our financial statements. These transactions involve, to varying degrees, elements of
credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding
and take the form of loan commitments and lines of credit. These arrangements are not expected to have a material impact on the
Company’s financial condition or results of operations.
Comparison of Operating Results for the Three and Six Months
Ended June 30, 2015 and June 30, 2014
General. Net income increased
$1.2 million to $1.7 million for the three months ended June 30, 2015 from net income of $511,000 for the three months ended June
30, 2014. The increase in net income reflected a gain on the Commonwealth business combination of $1.6 million for the three month
period ending June 30, 2015 with no such gain for the three month period ending June 30, 2014, a decrease in non-interest expense
of $288,000 to $4.2 million for the three months ended June 30, 2015 from $4.5 million for the three months ending June 30, 2014,
and a decrease in federal income tax expense of $198,000 to $14,000 for the three months ending June 30, 2015 from $212,000 for
the 3 months ending June 30, 2014, offset by a decrease in net interest income of $278,000 to $4.0 million for the three months
ended June 30, 2015 from $4.3 million for the three months ended June 30, 2014, a decrease in non-interest income of $164,000 to
$806,000 for the three months ended June 30, 2015 from $970,000, for the three months ended June 30, 2014, an increase in provision
for loan losses of $394,000 to $394,000 for the three months ended June 30, 2015 from no provision for the three months ended June
30, 2014.
Net income increased $2.2 million to
$2.3 million for the six months ended June 30, 2015 from net income of $86,000 for the six months ended June 30, 2014. The
increase in net income reflected a $1.6 million gain on the Commonwealth business combination for the six month period ending
June 30, 2015 with no such gain for the six month period ending June 30, 2014, an increase in net interest income of $1.1
million to $8.1 million for the six months ended June 30, 2015 from $6.9 million for the six months ended June 30, 2014, an
increase in non-interest income of $128,000 to $1.5 million for the six months ended June 30, 2015 from $1.4 million, a
decrease in non-interest interest expense of $177,000 to $8.0 million for the six months ended June 30, 2015, from $8.2
million for the six months ended June 30, 2014, offset by an increase in provision for loan losses of $485,000 to $485,000
for the six months ended June 30, 2015 from no provision for the six months ended June 30, 2014 and an increase in income tax
expense of $280,000 to $338,000 for the six months ended June 30, 2015 from $58,000 for the six months ended June 30,
2014.
Interest Income. Interest income
decreased $279,000, or 5.8%, to $4.6 million for the three months ended June 30, 2015 from $4.8 million for the three months ended
June 30, 2014. The average balance of interest-earning assets decreased $8.1 million, or 2%, from $407.4 million to $399.3
million. Because the Commonwealth acquisition was consummated on May 31, 2015, the information for the three months ended June
30, 2015 and 2014 does not reflect the accretive benefits from the transaction.
Interest income increased $1.2 million, or
15.3%, to $9.2 million for the six months ended June 30, 2015 from $8.0 million for the six months ended June 30, 2014. Because
the Town Square Financial Corporation acquisition was consummated on March 18, 2014, the information for the six months ended June
30, 2015 reflects the accretive benefits from the transaction, but the information for the six months ended June 30, 2014 only
partially reflects the benefits from the transactions.
Interest income on loans decreased $95,000,
or 2.2%, to $4.2 million for the three months ended June 30, 2015 from $4.3 million for the three months ended June 30, 2014. The
average yields on loans decreased 22 basis points to 5.40% for the three months ended June 30, 2015, compared to 5.62% for the
three months ended June 30, 2014. The average balance of loans increased $5.1 million, or 1.7%, to $309.4 million for the three
months ended June 30, 2015 from $304.3 million for the three months ended June 30, 2014. Interest income on investment securities
decreased $186,000, or 34.8%, to $348,000 for the three months ended June 30, 2015 from $534,000 for the three months ended June
30, 2014. The average yield on securities decreased 44 basis points to 2.01% for the three months ended June 30, 2015, compared
to 2.45% for the three months ended June 30, 2014. The average balance of investment securities decreased $17.8 million, or 20.4%,
to $69.4 million for the three months ended June 30, 2015 from $87.2 million for the three months ended June 30, 2014 due to the
sale of $19.7 million in investment securities during the three months ended June 30, 2014.
Interest income on loans increased $1.5 million,
or 22.6%, to $8.4 million for the six months ended June 30, 2015 from $6.8 million for the six months ended June 30, 2014. The
average yields on loans increased 2 basis points to 5.49% for the six months ended June 30, 2015, compared to 5.47% for the six
months ended June 30, 2014. The average balance of loans increased $55.4 million, or 22.1%, to $305.7 million for the six months
ended June 30, 2015 from $250.4 million for the six months ended June 30, 2014. The increase in interest income is attributable
to the acquisition of Town Square Financial Corporation on March 18, 2014. Interest income on investment securities decreased $340,000,
or 32.4%, to 711,000 for the six months ended June 30, 2015 from $1.1 million for the six months ended June 30, 2014. The average
yield on securities decreased 39 basis points to 2.08% for the six months ended June 30, 2015, compared to 2.47% for the six months
ended June 30, 2014. The average balance of investment securities decreased $16.9 million, or 19.9%, to $68.2 million for the six
months ended June 30, 2015 from $85.1 million for the six months ended June 30, 2014 due to the sale of $19.7 million in investment
securities during the six months ended June 30, 2014.
Interest Expense. Interest expense
decreased $1,000, or 0.2%, to $552,000 for the three months ended June 30, 2015 from $553,000 for the three months ended June 30,
2014. The decrease reflected a decrease of $3.6 million, or 1.2%, in the average balance of interest bearing deposits to $285.8
million for the three months ended June 30, 2015 from $289.4 million for the three months ended June 30, 2014, offset by an increase
of 2 basis points in the average interest rate paid on interest bearing deposits to 0.63% from 0.61% for the same periods. Interest
expense on Federal Home Loan Bank advances and subordinated debentures decreased $12,000, or 10.5%, to $102,000 for the three months
ended June 30, 2015 from $114,000 for the three months ended June 30, 2014. This decrease was the result of an $18.3 million decrease
in the average balance of Federal Home Loan Bank advances, offset by an 55 basis point increase in the average rate paid on these
Federal Home Loan Bank advances to 1.63% from 1.08% as short-term borrowings with lower interest rates matured and a 229 basis
point increase in the average rate paid on subordinated debentures to 5.59% from 3.30% resulting from the amortization of fair
value.
Interest expense on certificates of deposit
increased $79,000, or 11.2%, to $786,000 for the six months ended June 30, 2015 from $707,000 for the six months ended June 30,
2014. The average balance on certificates increased to $160.2 million from $140.4 million, and the average rate paid on certificates
of deposits decreased to 0.98% for the six months ended June 30, 2015 from 1.01% for the six months ended June 30, 2014. Interest
expense on money market deposits, savings, and NOW and demand deposits increased $21,000, or 23.3%, to $111,000 for the six months
ended June 30, 2015 from $90,000 for the six months ended June 30, 2014. The increase was due to an increase in the average balance
on money market deposits, savings, and NOW and demand deposits to $122.2 million from $112.0 million for the same periods. The
increase in deposits is primarily attributable to the acquisition of Town Square Financial Corporation and deposit growth in the
Louisa, Flatwoods and Ashland markets.
Net Interest Income. Net interest income decreased
$278,000, or 6.47%, to $4.0 million for the three months ended June 30, 2015 from $4.3 million for the three months ended June
30, 2014. The decrease in net interest income was due to a decrease in our interest rate spread to 3.84% from 4.08%, offset with
an increase in the ratio of our average interest earning assets to average interest bearing liabilities to 131.30% from 124.97%.
Our net interest margin decreased to 4.02% from 4.21%. The decrease in the interest rate spread and net interest margin for the
three months ended June 30, 2015 decreased due to the lower yields on loans combined with higher costs on deposits and other borrowings
the three months ended June 30, 2015 as compared the three month period ending June 30, 2014.
Net interest income increased $1.1 million,
or 15.9%, to $8.1 million for the six months ended June 30, 2015 from $6.9 million for the six months ended June 30, 2014. The
increase in net interest income was due to an increase in our interest rate spread to 3.93% from 3.84%, combined with an increase
in the ratio of our average interest earning assets to average interest bearing liabilities to 130.58% from 123.54%. Our net interest
margin increased to 4.10% from 3.97%. The increase in the interest rate spread and net interest margin for the six months ended
June 30, 2015 increased due to the higher yields on loans assumed in the acquisition of Town Square Financial Corporation.
Provision for Loan Losses.
We recorded $394,000 for the provision for loan losses for the three months ended June 30, 2015 and no provision for loan
losses for the three months ended June 30, 2014. The provisions for each period were based on management’s quarterly
calculations and reflect the minimal levels of nonperforming loans and charge-offs, net of recoveries, during the periods.
The increase in the provision for three months ended June 30, 2015 is primarily attributable to $257,000 in charge-offs, net
of recoveries, for commercial and residential real estate and $87,000 in charge-offs, net of recoveries, on consumer loans.
Although most of the non-owner occupied investment real estate loans, originated in the regular course of business, are
performing, evidence of weakened or inadequate cash flow continues to exist and a few of the larger relationships have
evidenced further deterioration.
We recorded $485,000 for the provision
for loan losses for the six months ended June 30, 2015 and no provision for loan losses for the six months ended June 30,
2014. The provisions for each period were based on management’s quarterly calculations and reflect the minimal levels
of nonperforming loans and charge-offs, net of recoveries, during the periods. The increase in the provision for six months
ended June 30, 2015 is primarily attributable to $184,000 in charge-offs, net of recoveries, for commercial and residential
real estate, $15,000 in charge-offs, net of recoveries, for commercial and industrial and $124,000 in charge-offs, net of
recoveries, on consumer loans. Although most of the non-owner occupied investment real estate loans, originated in the
regular course of business, are performing, evidence of weakened or inadequate cash flow continues to exist and a few of the
larger relationships have evidenced further deterioration.
Noninterest Income. Noninterest
income increased $1.4 million, or 143.4%, to $2.4 million for the three months ended June 30, 2015 from $970,000 for the three
months ended June 30, 2014. The increase in noninterest income was primarily attributable to the bargain purchase gain of $1.6
million on the acquisition of Commonwealth on May 31, 2015 and the increase in gains on mortgage banking activity of $131,000,
to $257,000 or 104.0%, for the three months ending June 30, 2015, from $126,000 for the three months ended June 30, 2014, offset
by the decrease in net gains on sales of securities of $294,000, or 100.0%, to $0 for the three months ended June 30, 2015 from
$294,000 for the three months ended June 30, 2014.
Noninterest income increased $1.7 million,
or 122.1%, to $3.1 million for the six months ended June 30, 2015 from $1.4 million for the six months ended June 30, 2014. The
increase in noninterest income was primarily attributable to the bargain purchase gain of $1.6 million on the acquisition of Commonwealth
on May 31, 2015, an increase in service charges on deposits of $205,000, or 28.2%, to $932,000 for the six months ended June 30,
2015 from $727,000 for the six months ended June 30, 2014, and an increase in mortgage banking activities of $196,000, or 89.1%,
to $416,000 for the six months ended June 30, 2015 from $220,000 for the six months ended June 30, 2014, offset by the decrease
in net gains on sales of securities of $294,000, or 100.0%, to $0 for the three months ended June 30, 2015 from $294,000 for the
three months ended June 30, 2014. The increase in service charges on deposits income reflects the monthly account service fees,
overdraft charges and cardholder activity fees collected on deposit accounts attributable to the acquisition of Town Square Financial
Corporation. The increase in mortgage banking services is attributable to the addition of two loan originators from the acquisition
of Town Square Financial Corporation. Other income increased $39,000, or 487.5%, for the six months ended June 30, 2015 from $8,000
for the six months ended June 30, 2014 due to insurance claims received of $41,000 representing a reimbursement of $30,000 for
a settlement related to Town Square Financial Corporation and a $10,000 claim for a bank vehicle totaled during icy weather.
Noninterest Expense. Noninterest
expense decreased $288,000, or 6.3%, to $4.2 million for the three months ended June 30, 2015 from $4.5 million for the three months
ended June 30, 2014. This decrease was due largely to a decrease in salaries and employee benefits of $302,000 or 13.9%, to $1.9
million from $2.2 million, a decrease professional fees of $162,000 or 39.2%, to $251,000 from $413,000, offset by an increase
in early termination fees and conversion costs associated with the Commonwealth acquisition of $365,000 or 688.7%, to $418,000
from $53,000.
Noninterest expense decreased $177,000, or
2.2%, to $8.0 million for the six months ended June 30, 2015 from $8.2 million for the six months ended June 30, 2014. This decrease
was due largely to a decrease in data processing early termination fees and conversion costs of $454,000, or 52.1%, associated
with the acquisition of Town Square Financial which resulted in a termination fee of $877,000 paid in the six month period ending
June 30, 2014 and Commonwealth acquisition which resulted in $418,000 early termination fees paid in the six month period ending
June 30, 2015. Professional fees decreased $347,000 or 44.3% to $437,000 from $784,000 primarily due to lower costs associated
with the Commonwealth acquisition as compared to the Town Square Financial acquisition.
These decreases were offset by increases
in employee costs of $266,000 or 7.7% to $3.7 million from $3.4 million, data processing costs increased $230,000 or 26.5%,
to $1.1 million from $867,000, increased foreclosed asset related costs of $82,000, or 94.3%, to $169,000 from $87,000,
Kentucky state taxes increased $65,000 or 55.6% to $182,000 from $117,000, increased amortization expense of intangible
assets associated with the Town Square Financial acquisition of $87,000 or 117.6% to $161,000 from $74,000, for the six
months ended June 30, 2015 as compared to the six months ended June 30, 2014.
Income Tax Expense.
The provision for income taxes was $14,000 for the three months ended June 30, 2015 compared to a $212,000 tax expense for
the three months ended June 30, 2014. Our effective tax rate, excluding bargain purchase gain, for the three months ended
June 30, 2015 was 8%, which is attributable to an $88,000 increase in non-taxable income from the previous quarter. Our
effective tax rate for the three months ended June 30, 2014 was 29.3%.
The provision for income taxes
was $338,000 for the six months ended June 30, 2015 compared to $58,000 for the six months ended June 30, 2014. Our effective
tax rate for the six months ended June 30, 2015 was 31.2%, excluding Bargain Purchase Gain. Our effective tax rate for the
six months ended 2014 was 40.3% as a result of non-deductible acquisition costs related to the acquisition of Town Square
Financial Corporation.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Disclosures of quantitative and qualitative
market risk are not required by smaller reporting companies, such as the Company.
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by the
report, an evaluation was performed under the supervision and with the participation of the Company’s management, including
the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s
disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Securities and Exchange Act
of 1934, as amended). Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief
Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.
During the quarter ended June 30, 2015, there
were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably
likely to materially affect, the Company’s internal control over financial reporting.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and its subsidiaries are subject
to various legal actions that are considered ordinary routine litigation incidental to the business of the Company, and no claim
for money damages exceeds ten percent of the Company’s consolidated assets. In the opinion of management, based on currently
available information, the resolution of these legal actions is not expected to have a material adverse effect on the Company’s
results of operations.
ITEM 1A. RISK FACTORS
Disclosures of risk factors are not required by smaller reporting
companies, such as the Company.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE
OF PROCEEDS
| (c) | Issuer repurchases. The following table sets
forth information in connection with repurchases of the Company’s common stock for the period April 1, 2015 through June
30, 2015. On May 30, 2014, the Board of Directors authorized the repurchase of up to 195,244 shares of Poage Bankshares common
stock, of which 91,392 shares remained available for repurchase on June 28, 2015. All shares indicated below were purchased pursuant
to this repurchase authorization. |
On June 29, 2015, the Board of Directors terminated the May 30,
2014 stock repurchase program and authorized a new stock repurchase program. The new repurchase program authorizes the repurchase
of up to 200,000 shares, which represents approximately 5% of the shares currently outstanding. The new repurchase program
was effective upon adoption.
The Company’s stock repurchases
pursuant to the repurchase programs are dependent on certain factors, including but not limited to, market conditions and prices,
available funds and alternative uses of capital. The repurchase program may be carried out through open-market purchases, block
trades, negotiated private transactions and pursuant to a trading plan adopted in accordance with Rule 10b5-1 under the Securities
Exchange Act of 1934. Any repurchased shares will be treated by the Company as authorized but unissued shares.
| |
| | |
| | |
Shares | | |
May Yet be | |
| |
| | |
| | |
Purchased | | |
Purchased | |
| |
Total | | |
| | |
as Part of | | |
Under | |
| |
Number of | | |
Average | | |
Publicly | | |
Publicly | |
| |
Shares | | |
Price Paid | | |
Announced | | |
Announced | |
| |
Purchased | | |
Per Share | | |
Plan | | |
Plan | |
| |
| | | |
| | | |
| | | |
| | |
April 1 - April 30, 2015 | |
| 2,029 | | |
| 15.50 | | |
| 2,029 | | |
| 91,392 | |
May 1 - May 31, 2015 | |
| - | | |
| - | | |
| - | | |
| 91,392 | |
June 1 - June 30, 2015 | |
| - | | |
| - | | |
| - | | |
| 200,000 | |
Total | |
| 2,029 | | |
$ | 15.50 | | |
| 2,029 | | |
| | |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
Exhibit |
|
|
number |
|
Description |
|
|
|
31.1 |
|
Certification of President, and Chief Executive Officer, Pursuant to Rule 13a-14(a) and Rule 15-d-14(a). |
|
|
|
31.2 |
|
Certification of Chief Financial Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a). |
|
|
|
32.1 |
|
Certification of
President and Chief Executive Officer, and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
101 |
|
The following material from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, formatted in XBRL (Extensible Business Reporting Language): (i) Unaudited Consolidated Balance Sheets, (ii) Unaudited Consolidated Statements of Operations, (iii) Unaudited Consolidated Statements of Comprehensive Income, (iv) Unaudited Consolidated Statement of Shareholders’ Equity, (v) Unaudited Consolidated Statements of Cash Flows, and (vi) Notes to the Consolidated Financial Statements. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
Poage Bankshares, Inc. |
Date: August 14, 2015 |
|
|
|
|
/s/ R. E. Coffman, Jr. |
|
R. E. Coffman, Jr. |
|
President & Chief Executive Officer |
|
|
|
/s/ Jane Gilkerson |
|
Jane Gilkerson |
|
Chief Financial Officer |
Exhibit 31.1
CERTIFICATION
I, R. E. Coffman, Jr., certify that:
1) I have reviewed this report on Form 10-Q of Poage Bankshares,
Inc.;
2) Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial statements,
and other financial information included in this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4) The registrant’s other certifying
officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
a) designed such disclosure controls and procedures,
or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
b) designed such internal control over financial
reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s
disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the
registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter
that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5) The registrant’s other certifying
officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material
weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect
the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that
involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 14, 2015
/s/ R. E. Coffman, Jr. |
|
R. E. Coffman, Jr. |
|
President and Chief Executive Officer |
|
Exhibit 31.2
CERTIFICATION
I, Jane Gilkerson, certify that:
1) I have reviewed this report on Form 10-Q
of Poage Bankshares, Inc.;
2) Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial statements,
and other financial information included in this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4) The registrant’s other certifying
officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act rules 13a-15(f) and 15d-15(f))
for the registrant and have:
a) designed such disclosure controls and procedures,
or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
b) designed such internal control over financial
reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s
disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the
registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter
that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5) The registrant’s other certifying
officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material
weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect
the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that
involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 14, 2015
/s/ Jane Gilkerson |
|
Jane Gilkerson |
|
Chief Financial Officer |
|
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of
Poage Bankshares, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2015 as filed with the Securities
and Exchange Commission (the “Report”), the undersigned, R. E. Coffman, Jr., President and Chief Executive Officer
of the Company, and Jane Gilkerson, Chief Financial Officer of the Company, each certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to best of his or her knowledge:
(1) The Report fully complies with the requirements
of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in this Report
fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ R. E. Coffman, Jr. |
|
August 14, 2015 |
R. E. Coffman, Jr. |
|
Date |
President and Chief Executive Officer |
|
|
|
|
|
/s/ Jane Gilkerson |
|
August 14, 2015 |
Jane Gilkerson |
|
Date |
Chief Financial Officer |
|
|
A signed original of this written statement
required by Section 906 has been provided to Poage Bankshares, Inc. and will be retained by Poage Bankshares, Inc. and furnished
to the Securities and Exchange Commission or its staff upon request.
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