ITEM 1. FINANCIAL STATEMENTS
POAGE BANKSHARES, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands except per share
data)
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and due from financial institutions
|
|
$
|
11,642
|
|
|
$
|
23,876
|
|
Interest-bearing deposits in other financial institutions
|
|
|
1,992
|
|
|
|
1,992
|
|
Securities available for sale
|
|
|
66,675
|
|
|
|
63,975
|
|
Loans held for sale
|
|
|
345
|
|
|
|
367
|
|
Loans, net of allowance of $2,135 and $1,858
|
|
|
324,888
|
|
|
|
314,143
|
|
Restricted stock, at cost
|
|
|
3,276
|
|
|
|
3,276
|
|
Other real estate owned, net
|
|
|
1,648
|
|
|
|
1,306
|
|
Premises and equipment, net
|
|
|
11,456
|
|
|
|
11,514
|
|
Company owned life insurance
|
|
|
6,986
|
|
|
|
6,941
|
|
Accrued interest receivable
|
|
|
1,463
|
|
|
|
1,340
|
|
Goodwill
|
|
|
1,277
|
|
|
|
1,277
|
|
Other intangible assets, net
|
|
|
1,266
|
|
|
|
1,353
|
|
Deferred tax asset
|
|
|
1,344
|
|
|
|
1,617
|
|
Other assets
|
|
|
1,871
|
|
|
|
2,111
|
|
Total assets
|
|
$
|
436,129
|
|
|
$
|
435,088
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
Non-interest bearing
|
|
$
|
48,411
|
|
|
$
|
49,222
|
|
Interest bearing
|
|
|
296,399
|
|
|
|
293,908
|
|
Total deposits
|
|
|
344,810
|
|
|
|
343,130
|
|
Federal Home Loan Bank advances
|
|
|
15,036
|
|
|
|
15,803
|
|
Subordinated debenture
|
|
|
2,777
|
|
|
|
2,761
|
|
Accrued interest payable
|
|
|
68
|
|
|
|
38
|
|
Other liabilities
|
|
|
2,697
|
|
|
|
2,115
|
|
Total liabilities
|
|
|
365,388
|
|
|
|
363,847
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingent liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value, 30,000,000 shares authorized, 3,823,451 and 3,894,282 issued and outstanding at March 31, 2016 and December 31, 2015, respectively
|
|
|
38
|
|
|
|
39
|
|
Additional paid-in-capital
|
|
|
37,612
|
|
|
|
38,673
|
|
Retained earnings
|
|
|
34,539
|
|
|
|
34,270
|
|
Unearned Employee Stock Ownership Plan (ESOP) shares
|
|
|
(2,091
|
)
|
|
|
(2,125
|
)
|
Accumulated other comprehensive income
|
|
|
643
|
|
|
|
384
|
|
Total shareholders' equity
|
|
|
70,741
|
|
|
|
71,241
|
|
Total liabilities and shareholders' equity
|
|
$
|
436,129
|
|
|
$
|
435,088
|
|
See notes to unaudited consolidated financial
statements.
POAGE BANKSHARES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(Dollar amounts in thousands except per share
data)
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Interest and dividend income
|
|
|
|
|
|
|
|
|
Loans, including fees
|
|
$
|
4,318
|
|
|
$
|
4,210
|
|
Taxable securities
|
|
|
256
|
|
|
|
261
|
|
Tax exempt securities
|
|
|
110
|
|
|
|
102
|
|
Federal funds sold and other
|
|
|
50
|
|
|
|
33
|
|
|
|
|
4,734
|
|
|
|
4,606
|
|
Interest expense
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
472
|
|
|
|
447
|
|
Federal Home Loan Bank advances and other
|
|
|
91
|
|
|
|
103
|
|
|
|
|
563
|
|
|
|
550
|
|
Net interest income
|
|
|
4,171
|
|
|
|
4,056
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
375
|
|
|
|
91
|
|
Net interest income after provision for loan losses
|
|
|
3,796
|
|
|
|
3,965
|
|
|
|
|
|
|
|
|
|
|
Non-interest income
|
|
|
|
|
|
|
|
|
Service charges on deposits
|
|
|
494
|
|
|
|
441
|
|
Other service charges
|
|
|
13
|
|
|
|
10
|
|
Loan servicing fees
|
|
|
66
|
|
|
|
91
|
|
Gains on mortgage banking activity
|
|
|
42
|
|
|
|
68
|
|
Income from company owned life insurance
|
|
|
45
|
|
|
|
45
|
|
Gain on insurance settlement/claims
|
|
|
-
|
|
|
|
41
|
|
Other
|
|
|
6
|
|
|
|
4
|
|
|
|
|
666
|
|
|
|
700
|
|
Non-interest expense
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
1,878
|
|
|
|
1,843
|
|
Occupancy and equipment
|
|
|
361
|
|
|
|
397
|
|
Data processing
|
|
|
707
|
|
|
|
549
|
|
Federal deposit insurance
|
|
|
64
|
|
|
|
64
|
|
Loan processing and collection
|
|
|
75
|
|
|
|
71
|
|
Foreclosed assets, net
|
|
|
54
|
|
|
|
106
|
|
Advertising
|
|
|
48
|
|
|
|
38
|
|
Professional fees
|
|
|
121
|
|
|
|
187
|
|
Other taxes
|
|
|
108
|
|
|
|
95
|
|
Director fees and expenses
|
|
|
57
|
|
|
|
54
|
|
Amortization of intangible assets
|
|
|
87
|
|
|
|
81
|
|
Other
|
|
|
226
|
|
|
|
270
|
|
|
|
|
3,786
|
|
|
|
3,755
|
|
Income before income taxes
|
|
|
676
|
|
|
|
910
|
|
Income tax expense
|
|
|
177
|
|
|
|
324
|
|
Net income
|
|
$
|
499
|
|
|
$
|
586
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.14
|
|
|
$
|
0.16
|
|
Dilutive
|
|
|
0.14
|
|
|
|
0.16
|
|
Dividend per share
|
|
$
|
0.06
|
|
|
$
|
0.05
|
|
See notes to unaudited consolidated financial
statements.
POAGE BANKSHARES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
(Dollar amounts in thousands except per share
data)
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
499
|
|
|
$
|
586
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
Unrealized holding gains on available for sale securities
|
|
|
392
|
|
|
|
233
|
|
Reclassification adjustments for (gains) losses recognized in income
|
|
|
-
|
|
|
|
-
|
|
Net unrealized holding gains on available for sale securities
|
|
|
392
|
|
|
|
233
|
|
Tax effect
|
|
|
(133
|
)
|
|
|
(79
|
)
|
Other comprehensive income
|
|
|
259
|
|
|
|
154
|
|
Comprehensive income
|
|
$
|
758
|
|
|
$
|
740
|
|
See notes to unaudited consolidated financial
statements.
POAGE BANKSHARES, INC.
UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS’
EQUITY
(Dollar amounts in thousands except per share
data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Unearned
|
|
|
Other
|
|
|
Total
|
|
|
|
Common
|
|
|
Paid-In
|
|
|
Retained
|
|
|
ESOP
|
|
|
Comprehensive
|
|
|
Shareholders'
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Shares
|
|
|
Income
|
|
|
Equity
|
|
Balances, January 1, 2016
|
|
$
|
39
|
|
|
$
|
38,673
|
|
|
$
|
34,270
|
|
|
$
|
(2,125
|
)
|
|
$
|
384
|
|
|
$
|
71,241
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
499
|
|
|
|
-
|
|
|
|
-
|
|
|
|
499
|
|
Stock repurchasing, 70,831 shares repurchased
|
|
|
(1
|
)
|
|
|
(1,233
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,234
|
)
|
Dividends paid ($0.06/share)
|
|
|
-
|
|
|
|
-
|
|
|
|
(230
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(230
|
)
|
ESOP compensation earned
|
|
|
-
|
|
|
|
24
|
|
|
|
-
|
|
|
|
34
|
|
|
|
-
|
|
|
|
58
|
|
Stock based compensation expense
|
|
|
-
|
|
|
|
148
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
148
|
|
Change in other comprehensive income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
259
|
|
|
|
259
|
|
Balances, March 31, 2016
|
|
$
|
38
|
|
|
$
|
37,612
|
|
|
$
|
34,539
|
|
|
$
|
(2,091
|
)
|
|
$
|
643
|
|
|
$
|
70,741
|
|
See notes to unaudited consolidated financial
statements.
POAGE BANKSHARES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH
FLOWS
(Dollar amounts in thousands except per share
data)
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
CASH FLOW FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
499
|
|
|
$
|
586
|
|
Adjustments to reconcile net income to net cash from operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
183
|
|
|
|
150
|
|
Provision for loan losses
|
|
|
375
|
|
|
|
91
|
|
ESOP compensation expense
|
|
|
58
|
|
|
|
51
|
|
Stock based compensation expense
|
|
|
148
|
|
|
|
130
|
|
Gain on sale of premises and equipment
|
|
|
(92
|
)
|
|
|
-
|
|
Loss on sale of other real estate owned
|
|
|
8
|
|
|
|
51
|
|
Gain on sale of repossessed assets
|
|
|
-
|
|
|
|
(1
|
)
|
Amortization of core deposit intangible
|
|
|
87
|
|
|
|
81
|
|
Accretion of fair value adjustments related to loans
|
|
|
(222
|
)
|
|
|
(339
|
)
|
Accretion of fair value adjustments related to deposits
|
|
|
(16
|
)
|
|
|
(16
|
)
|
Amortization of fair value related to subordinated debenture
|
|
|
16
|
|
|
|
16
|
|
Net amortization on securities
|
|
|
98
|
|
|
|
116
|
|
Deferred income tax expense (benefit)
|
|
|
140
|
|
|
|
(69
|
)
|
Net gain on mortgage banking activities
|
|
|
(42
|
)
|
|
|
(68
|
)
|
Origination of loans held for sale
|
|
|
(1,472
|
)
|
|
|
(2,078
|
)
|
Proceeds from loans held for sale
|
|
|
1,536
|
|
|
|
2,268
|
|
Increase in cash value of life insurance
|
|
|
(45
|
)
|
|
|
(45
|
)
|
Change in asset and liabilities, net assets and liabilities acquired:
|
|
|
|
|
|
|
|
|
Accrued interest receivable
|
|
|
(123
|
)
|
|
|
(67
|
)
|
Other assets
|
|
|
272
|
|
|
|
920
|
|
Accrued interest payable
|
|
|
30
|
|
|
|
42
|
|
Other liabilities
|
|
|
588
|
|
|
|
844
|
|
Net cash from operating activities
|
|
|
2,026
|
|
|
|
2,663
|
|
|
|
|
|
|
|
|
|
|
CASH FLOW FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
Proceeds from calls
|
|
|
-
|
|
|
|
1,000
|
|
Proceeds from maturities
|
|
|
-
|
|
|
|
405
|
|
Purchases
|
|
|
(4,046
|
)
|
|
|
(7,632
|
)
|
Principal payments received
|
|
|
1,640
|
|
|
|
1,540
|
|
Loan originations and principal payments on loans, net
|
|
|
(11,355
|
)
|
|
|
1,916
|
|
Proceeds from the sale of other real estate owned
|
|
|
69
|
|
|
|
108
|
|
Proceeds from the sale of repossessed assets
|
|
|
-
|
|
|
|
34
|
|
Purchase of properties and equipment
|
|
|
(33
|
)
|
|
|
(407
|
)
|
Net cash from investing activities
|
|
|
(13,725
|
)
|
|
|
(3,036
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOW FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net change in deposits
|
|
|
1,696
|
|
|
|
3,308
|
|
Proceeds from Federal Home Loan Bank borrowings
|
|
|
21,000
|
|
|
|
14,000
|
|
Payments on Federal Home Loan Bank borrowings
|
|
|
(21,767
|
)
|
|
|
(15,779
|
)
|
Cash dividend paid
|
|
|
(230
|
)
|
|
|
(193
|
)
|
Stock repurchases
|
|
|
(1,234
|
)
|
|
|
(1,234
|
)
|
Net cash from financing activities
|
|
|
(535
|
)
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
CHANGE IN CASH AND CASH EQUIVALENTS
|
|
|
(12,234
|
)
|
|
|
(271
|
)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
23,876
|
|
|
|
16,967
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF YEAR
|
|
$
|
11,642
|
|
|
$
|
16,696
|
|
|
|
|
|
|
|
|
|
|
Additional cash flows and supplementary information:
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
Interest on deposits and advances
|
|
$
|
533
|
|
|
$
|
508
|
|
Real estate acquired in settlement of loans
|
|
$
|
425
|
|
|
$
|
-
|
|
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 March 31, 2016 and December 31, 2015 and the results of operations and cash flows
for the interim periods ended March 31, 2016 and 2015. 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 2015 Annual Report on Form 10-K filed with the Securities and Exchange Commission.
NOTE 2 - SECURITIES AVAILABLE FOR SALE
The amortized cost and fair value of securities
available for sale at March 31, 2016 and December 31, 2015 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
|
|
March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and political subdivisions
|
|
$
|
18,879
|
|
|
$
|
627
|
|
|
$
|
(17
|
)
|
|
$
|
19,489
|
|
U.S. Government agencies and sponsored entities
|
|
|
9,750
|
|
|
|
9
|
|
|
|
(4
|
)
|
|
|
9,755
|
|
Government sponsored entities residential mortgage-backed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC
|
|
|
11,958
|
|
|
|
219
|
|
|
|
-
|
|
|
|
12,177
|
|
FNMA
|
|
|
11,136
|
|
|
|
138
|
|
|
|
(6
|
)
|
|
|
11,268
|
|
Collateralized mortgage obligations
|
|
|
7,130
|
|
|
|
9
|
|
|
|
(52
|
)
|
|
|
7,087
|
|
SBA loan pools
|
|
|
6,848
|
|
|
|
54
|
|
|
|
(3
|
)
|
|
|
6,899
|
|
Total securities
|
|
$
|
65,701
|
|
|
$
|
1,056
|
|
|
$
|
(82
|
)
|
|
$
|
66,675
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and political subdivisions
|
|
$
|
17,398
|
|
|
$
|
567
|
|
|
$
|
(5
|
)
|
|
$
|
17,960
|
|
U.S. Government agencies and sponsored entities
|
|
|
9,750
|
|
|
|
-
|
|
|
|
(112
|
)
|
|
|
9,638
|
|
Government sponsored entities residential mortgage-backed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC
|
|
|
11,499
|
|
|
|
156
|
|
|
|
(11
|
)
|
|
|
11,644
|
|
FNMA
|
|
|
11,657
|
|
|
|
91
|
|
|
|
(21
|
)
|
|
|
11,727
|
|
Collateralized mortgage obligations
|
|
|
7,720
|
|
|
|
-
|
|
|
|
(86
|
)
|
|
|
7,634
|
|
SBA loan pools
|
|
|
5,370
|
|
|
|
17
|
|
|
|
(15
|
)
|
|
|
5,372
|
|
Total securities
|
|
$
|
63,394
|
|
|
$
|
831
|
|
|
$
|
(250
|
)
|
|
$
|
63,975
|
|
There were no sales of securities for the three months ended March
31, 2016 and March 31, 2015.
The amortized cost and fair value of the securities
portfolio at March 31, 2016 are shown in the following table by contractual 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):
|
|
March 31,
|
|
|
|
2016
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
|
|
|
|
|
|
Within one year
|
|
$
|
141
|
|
|
$
|
141
|
|
One to five years
|
|
|
17,038
|
|
|
|
17,181
|
|
Five to ten years
|
|
|
7,434
|
|
|
|
7,855
|
|
Beyond ten years
|
|
|
4,016
|
|
|
|
4,067
|
|
Mortgage-backed securities and collateralized mortgage obligations
|
|
|
30,224
|
|
|
|
30,532
|
|
SBA loan pools
|
|
|
6,848
|
|
|
|
6,899
|
|
Total
|
|
$
|
65,701
|
|
|
$
|
66,675
|
|
The following table summarizes the securities
with unrealized losses at March 31, 2016 and December 31, 2015, 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
|
|
March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and political subdivisions
|
|
$
|
1,722
|
|
|
$
|
(17
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,722
|
|
|
$
|
(17
|
)
|
U.S. Government agencies and sponsored entities
|
|
|
3,000
|
|
|
|
-
|
|
|
|
2,496
|
|
|
|
(4
|
)
|
|
|
5,496
|
|
|
|
(4
|
)
|
Government sponsored entities residential mortgage backed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA
|
|
|
1,545
|
|
|
|
(6
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,545
|
|
|
|
(6
|
)
|
Collateralized mortgage obligations
|
|
|
2,574
|
|
|
|
(16
|
)
|
|
|
2,673
|
|
|
|
(36
|
)
|
|
|
5,247
|
|
|
|
(52
|
)
|
SBA loan pools
|
|
|
1,830
|
|
|
|
(3
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,830
|
|
|
|
(3
|
)
|
Total available-for-sale securities
|
|
$
|
10,671
|
|
|
$
|
(42
|
)
|
|
$
|
5,169
|
|
|
$
|
(40
|
)
|
|
$
|
15,840
|
|
|
$
|
(82
|
)
|
|
|
Less Than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and political subdivisions
|
|
$
|
1,357
|
|
|
$
|
(5
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,357
|
|
|
$
|
(5
|
)
|
U.S. Government agencies and sponsored entities
|
|
|
4,212
|
|
|
|
(39
|
)
|
|
|
5,426
|
|
|
|
(73
|
)
|
|
|
9,638
|
|
|
|
(112
|
)
|
Government sponsored entities residential mortgage backed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC
|
|
|
1,429
|
|
|
|
(11
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,429
|
|
|
|
(11
|
)
|
FNMA
|
|
|
2,529
|
|
|
|
(21
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
2,529
|
|
|
|
(21
|
)
|
Collateralized mortgage obligations
|
|
|
5,387
|
|
|
|
(35
|
)
|
|
|
2,247
|
|
|
|
(51
|
)
|
|
|
7,634
|
|
|
|
(86
|
)
|
SBA loan pools
|
|
|
1,845
|
|
|
|
(15
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,845
|
|
|
|
(15
|
)
|
Total available-for-sale securities
|
|
$
|
16,759
|
|
|
$
|
(126
|
)
|
|
$
|
7,673
|
|
|
$
|
(124
|
)
|
|
$
|
24,432
|
|
|
$
|
(250
|
)
|
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 3 – LOANS
Loans at March 31, 2016 and December 31, 2015
were as follows (in thousands):
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Real estate:
|
|
|
|
|
|
|
|
|
One to four family
|
|
$
|
189,848
|
|
|
$
|
184,613
|
|
Multi-family
|
|
|
4,470
|
|
|
|
4,521
|
|
Commercial real estate
|
|
|
62,242
|
|
|
|
62,726
|
|
Construction and land
|
|
|
13,596
|
|
|
|
6,282
|
|
|
|
|
270,156
|
|
|
|
258,142
|
|
|
|
|
|
|
|
|
|
|
Commercial and Industrial
|
|
|
30,371
|
|
|
|
31,841
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
Home equity loans and lines of credit
|
|
|
8,723
|
|
|
|
8,287
|
|
Motor vehicle
|
|
|
10,901
|
|
|
|
10,735
|
|
Other
|
|
|
7,261
|
|
|
|
7,347
|
|
|
|
|
26,885
|
|
|
|
26,369
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
327,412
|
|
|
|
316,352
|
|
Less: Net deferred loan fees
|
|
|
389
|
|
|
|
351
|
|
Allowance for loan losses
|
|
|
2,135
|
|
|
|
1,858
|
|
|
|
$
|
324,888
|
|
|
$
|
314,143
|
|
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 March
31, 2016 and December 31, 2015. 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):
March 31, 2016
|
|
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
|
|
$
|
41
|
|
|
$
|
-
|
|
|
$
|
1,863
|
|
|
$
|
1,904
|
|
|
$
|
1,361
|
|
|
$
|
2,237
|
|
|
$
|
266,558
|
|
|
$
|
270,156
|
|
Commercial and industrial
|
|
|
-
|
|
|
|
-
|
|
|
|
93
|
|
|
$
|
93
|
|
|
|
161
|
|
|
|
-
|
|
|
|
30,210
|
|
|
|
30,371
|
|
Consumer
|
|
|
13
|
|
|
|
-
|
|
|
|
125
|
|
|
$
|
138
|
|
|
|
23
|
|
|
|
7
|
|
|
|
26,855
|
|
|
|
26,885
|
|
Unallocated
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
54
|
|
|
$
|
-
|
|
|
$
|
2,081
|
|
|
$
|
2,135
|
|
|
$
|
1,545
|
|
|
$
|
2,244
|
|
|
$
|
323,623
|
|
|
$
|
327,412
|
|
December 31, 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
|
|
$
|
2
|
|
|
$
|
-
|
|
|
$
|
1,674
|
|
|
$
|
1,676
|
|
|
$
|
1,497
|
|
|
$
|
2,624
|
|
|
$
|
254,021
|
|
|
$
|
258,142
|
|
Commercial and industrial
|
|
|
-
|
|
|
|
-
|
|
|
|
77
|
|
|
|
77
|
|
|
|
449
|
|
|
|
-
|
|
|
|
31,392
|
|
|
|
31,841
|
|
Consumer
|
|
|
13
|
|
|
|
-
|
|
|
|
92
|
|
|
|
105
|
|
|
|
23
|
|
|
|
16
|
|
|
|
26,330
|
|
|
|
26,369
|
|
Unallocated
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
15
|
|
|
$
|
-
|
|
|
$
|
1,843
|
|
|
$
|
1,858
|
|
|
$
|
1,969
|
|
|
$
|
2,640
|
|
|
$
|
311,743
|
|
|
$
|
316,352
|
|
The following table presents information related to impaired loans
by class of loans as of March 31, 2016 and December 31, 2015 (in thousands):
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
Allowance
|
|
|
|
|
|
|
|
|
Allowance
|
|
|
|
Unpaid
|
|
|
|
|
|
for Loan
|
|
|
Unpaid
|
|
|
|
|
|
for Loan
|
|
|
|
Principal
|
|
|
Recorded
|
|
|
Losses
|
|
|
Principal
|
|
|
Recorded
|
|
|
Losses
|
|
|
|
Balance
|
|
|
Investment
|
|
|
Allocated
|
|
|
Balance
|
|
|
Investment
|
|
|
Allocated
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One to four family
|
|
$
|
725
|
|
|
$
|
706
|
|
|
$
|
-
|
|
|
$
|
1,416
|
|
|
$
|
1,100
|
|
|
$
|
-
|
|
Multi-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial real estate
|
|
|
448
|
|
|
|
448
|
|
|
|
-
|
|
|
|
183
|
|
|
|
183
|
|
|
|
-
|
|
Construction and land
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial and Industrial
|
|
|
273
|
|
|
|
161
|
|
|
|
-
|
|
|
|
582
|
|
|
|
449
|
|
|
|
-
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity and lines of credit
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Motor Vehicle
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Subtotal
|
|
$
|
1,446
|
|
|
$
|
1,315
|
|
|
$
|
-
|
|
|
$
|
2,181
|
|
|
$
|
1,732
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One to four family
|
|
$
|
207
|
|
|
$
|
207
|
|
|
$
|
41
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Multi-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial real estate
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
214
|
|
|
|
214
|
|
|
|
2
|
|
Construction and land
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial and Industrial
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity and lines of credit
|
|
|
23
|
|
|
|
23
|
|
|
|
13
|
|
|
|
23
|
|
|
|
23
|
|
|
|
13
|
|
Motor Vehicle
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Subtotal
|
|
|
230
|
|
|
|
230
|
|
|
|
54
|
|
|
|
237
|
|
|
|
237
|
|
|
|
15
|
|
Total
|
|
$
|
1,676
|
|
|
$
|
1,545
|
|
|
$
|
54
|
|
|
$
|
2,418
|
|
|
$
|
1,969
|
|
|
$
|
15
|
|
For the purpose of this disclosure, the unpaid balance is not reduced
for partial charge-offs.
The following table
presents the average balance of loans individually evaluated for impairment and interest income recognized on these loans for the
three months ended March 31, 2016. Impaired loans averaged $834,000 for the three months ended March 31, 2015. Interest income
recognized on impaired loans for the three months ended March 31, 2015 was immaterial. The table includes loans acquired with deteriorated
credit quality that are still individually evaluated for impairment.
|
|
Average
|
|
|
Interest
|
|
|
Cash Basis
|
|
Three months ended
|
|
Recorded
|
|
|
Income
|
|
|
Interest
|
|
March 31, 2016
|
|
Investment
|
|
|
Recognized
|
|
|
Recognized
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
One to four family
|
|
$
|
913
|
|
|
$
|
2
|
|
|
$
|
-
|
|
Multi-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial real estate
|
|
|
448
|
|
|
|
-
|
|
|
|
-
|
|
Construction and land
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial and Industrial
|
|
|
161
|
|
|
|
-
|
|
|
|
-
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity and lines of credit
|
|
|
23
|
|
|
|
-
|
|
|
|
-
|
|
Motor Vehicle
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
1,545
|
|
|
$
|
2
|
|
|
$
|
-
|
|
|
|
Average
|
|
|
Interest
|
|
|
Cash Basis
|
|
Three months ended
|
|
Recorded
|
|
|
Income
|
|
|
Interest
|
|
March 31, 2015
|
|
Investment
|
|
|
Recognized
|
|
|
Recognized
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
One to four family
|
|
$
|
506
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Multi-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial real estate
|
|
|
751
|
|
|
|
-
|
|
|
|
-
|
|
Construction and land
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial and Industrial
|
|
|
244
|
|
|
|
-
|
|
|
|
-
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity and lines of credit
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Motor Vehicle
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
1,501
|
|
|
$
|
-
|
|
|
$
|
-
|
|
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 months ended March 31, 2016 and 2015 (in thousands):
Three months ended
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
Real Estate
|
|
|
and Industrial
|
|
|
Consumer
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
1,676
|
|
|
$
|
77
|
|
|
$
|
105
|
|
|
$
|
-
|
|
|
$
|
1,858
|
|
Provision for loan losses
|
|
|
298
|
|
|
|
11
|
|
|
|
66
|
|
|
|
-
|
|
|
|
375
|
|
Loans charged-off
|
|
|
(73
|
)
|
|
|
-
|
|
|
|
(70
|
)
|
|
|
-
|
|
|
|
(143
|
)
|
Recoveries
|
|
|
3
|
|
|
|
5
|
|
|
|
37
|
|
|
|
-
|
|
|
|
45
|
|
Total ending allowance balance
|
|
$
|
1,904
|
|
|
$
|
93
|
|
|
$
|
138
|
|
|
$
|
-
|
|
|
$
|
2,135
|
|
Three months ended
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
March 31, 2015
|
|
Real Estate
|
|
|
and Industrial
|
|
|
Consumer
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
1,806
|
|
|
$
|
43
|
|
|
$
|
62
|
|
|
$
|
-
|
|
|
$
|
1,911
|
|
Provision for loan losses
|
|
|
(1
|
)
|
|
|
54
|
|
|
|
38
|
|
|
|
-
|
|
|
|
91
|
|
Loans charged-off
|
|
|
(52
|
)
|
|
|
(52
|
)
|
|
|
(47
|
)
|
|
|
-
|
|
|
|
(151
|
)
|
Recoveries
|
|
|
125
|
|
|
|
27
|
|
|
|
10
|
|
|
|
-
|
|
|
|
162
|
|
Total ending allowance balance
|
|
$
|
1,878
|
|
|
$
|
72
|
|
|
$
|
63
|
|
|
$
|
-
|
|
|
$
|
2,013
|
|
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 March 31, 2016 and December 31, 2015 (in
thousands):
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
Loans Past Due
|
|
|
|
|
|
Loans Past Due
|
|
|
|
|
|
|
Over 90 Days
|
|
|
|
|
|
Over 90 Days
|
|
|
|
Nonaccrual
|
|
|
Still Accruing
|
|
|
Nonaccrual
|
|
|
Still Accruing
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One to four family
|
|
$
|
2,890
|
|
|
$
|
-
|
|
|
$
|
2,967
|
|
|
$
|
-
|
|
Multi-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial real estate
|
|
|
779
|
|
|
|
-
|
|
|
|
773
|
|
|
|
-
|
|
Construction and land
|
|
|
-
|
|
|
|
-
|
|
|
|
259
|
|
|
|
-
|
|
Commercial and industrial
|
|
|
163
|
|
|
|
-
|
|
|
|
449
|
|
|
|
-
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans and lines of credit
|
|
|
23
|
|
|
|
-
|
|
|
|
23
|
|
|
|
-
|
|
Motor vehicle
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
8
|
|
|
|
-
|
|
|
|
31
|
|
|
|
-
|
|
Total
|
|
$
|
3,863
|
|
|
$
|
-
|
|
|
$
|
4,502
|
|
|
$
|
-
|
|
The following table presents the aging
of the recorded investment in past due loans as of March 31, 2016 and December 31, 2015 by class of loans. As of March 31,
2016, consumer residential properties in process of foreclosure was $682,000. Non-accrual loans of $3.8 million as of March
31, 2016 and $4.5 million at December 31, 2015 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
|
|
March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One to four family
|
|
$
|
600
|
|
|
$
|
636
|
|
|
$
|
1,087
|
|
|
$
|
2,323
|
|
|
$
|
1,329
|
|
|
$
|
186,196
|
|
|
$
|
189,848
|
|
Multi-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,470
|
|
|
|
4,470
|
|
Commercial real estate
|
|
|
-
|
|
|
|
18
|
|
|
|
209
|
|
|
|
227
|
|
|
|
908
|
|
|
|
61,107
|
|
|
|
62,242
|
|
Construction and land
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,596
|
|
|
|
13,596
|
|
Commercial and industrial
|
|
|
94
|
|
|
|
3
|
|
|
|
153
|
|
|
|
250
|
|
|
|
-
|
|
|
|
30,121
|
|
|
|
30,371
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans and lines of credit
|
|
|
123
|
|
|
|
-
|
|
|
|
23
|
|
|
|
146
|
|
|
|
-
|
|
|
|
8,577
|
|
|
|
8,723
|
|
Motor vehicle
|
|
|
17
|
|
|
|
2
|
|
|
|
-
|
|
|
|
19
|
|
|
|
2
|
|
|
|
10,880
|
|
|
|
10,901
|
|
Other
|
|
|
1
|
|
|
|
3
|
|
|
|
-
|
|
|
|
4
|
|
|
|
5
|
|
|
|
7,252
|
|
|
|
7,261
|
|
Total
|
|
$
|
835
|
|
|
$
|
662
|
|
|
$
|
1,472
|
|
|
$
|
2,969
|
|
|
$
|
2,244
|
|
|
$
|
322,199
|
|
|
$
|
327,412
|
|
|
|
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, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One to four family
|
|
$
|
1,152
|
|
|
$
|
35
|
|
|
$
|
1,226
|
|
|
$
|
2,413
|
|
|
$
|
1,305
|
|
|
$
|
180,895
|
|
|
$
|
184,613
|
|
Multi-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,521
|
|
|
|
4,521
|
|
Commercial real estate
|
|
|
44
|
|
|
|
-
|
|
|
|
214
|
|
|
|
258
|
|
|
|
1,061
|
|
|
|
61,407
|
|
|
|
62,726
|
|
Construction and land
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
258
|
|
|
|
6,024
|
|
|
|
6,282
|
|
Commercial and industrial
|
|
|
3
|
|
|
|
19
|
|
|
|
362
|
|
|
|
384
|
|
|
|
-
|
|
|
|
31,457
|
|
|
|
31,841
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans and lines of credit
|
|
|
-
|
|
|
|
-
|
|
|
|
23
|
|
|
|
23
|
|
|
|
-
|
|
|
|
8,264
|
|
|
|
8,287
|
|
Motor vehicle
|
|
|
21
|
|
|
|
1
|
|
|
|
-
|
|
|
|
22
|
|
|
|
4
|
|
|
|
10,709
|
|
|
|
10,735
|
|
Other
|
|
|
25
|
|
|
|
2
|
|
|
|
1
|
|
|
|
28
|
|
|
|
12
|
|
|
|
7,307
|
|
|
|
7,347
|
|
Total
|
|
$
|
1,245
|
|
|
$
|
57
|
|
|
$
|
1,826
|
|
|
$
|
3,128
|
|
|
$
|
2,640
|
|
|
$
|
310,584
|
|
|
$
|
316,352
|
|
Troubled Debt Restructurings
:
As of March 31, 2016, the Company has a
recorded investment in three TDRs which totaled $306,000. There were $307,000 at December 31, 2015. A less than market rate and
extended term was granted as concessions for both TDRs. No additional charge-off or provision has been made for the loan relationships.
No additional commitments to lend have been made to the borrower.
March 31, 2016
|
|
TDRs on
Non-accrual
|
|
|
Other TDRs
|
|
|
Total TDRs
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
One to four family
|
|
$
|
-
|
|
|
$
|
105
|
|
|
$
|
105
|
|
Multi-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial real estate
|
|
|
182
|
|
|
|
-
|
|
|
|
182
|
|
Construction and land
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial and Industrial
|
|
|
19
|
|
|
|
-
|
|
|
|
19
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans and lines of credit
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Motor Vehicle
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
201
|
|
|
$
|
105
|
|
|
$
|
306
|
|
December 31, 2015
|
|
TDRs on
Non-accrual
|
|
|
Other TDRs
|
|
|
Total TDRs
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
One to four family
|
|
$
|
-
|
|
|
$
|
105
|
|
|
$
|
105
|
|
Multi-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial real estate
|
|
|
183
|
|
|
|
-
|
|
|
|
183
|
|
Construction and land
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial and Industrial
|
|
|
19
|
|
|
|
-
|
|
|
|
19
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans and lines of credit
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Motor Vehicle
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
202
|
|
|
$
|
105
|
|
|
$
|
307
|
|
There were no TDR's that occurred during the three months ended
March 31, 2016 and one TDR that occurred during the three months ended March 31, 2015.
The modification of the Residential real estate loan above occurred
during the three months ended March 31, 2015. The modification did not include a permanent reduction of the recorded investment
in the loans and did not increase the allowance for loan losses during the three months ended March 31, 2016 and 2015. There were
no TDR’s that subsequently defaulted during the three months ended March 31, 2016 and 2015.
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.
Loss.
Loans classified as
loss are considered uncollectable and of such little value that continuing to carry them as an asset is not feasible. Loans
will be classified as a loss when it is not practical or desirable to defer writing off or reserving all or a portion of a basically
worthless asset, even though partial recovery may be possible at some time in the future.
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):
|
|
|
|
|
Special
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
Pass
|
|
|
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Loss
|
|
|
Total
|
|
One to four family
|
|
$
|
182,430
|
|
|
$
|
2,465
|
|
|
$
|
4,953
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
189,848
|
|
Multi family
|
|
|
4,470
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,470
|
|
Commercial real estate
|
|
|
59,924
|
|
|
|
289
|
|
|
|
2,029
|
|
|
|
-
|
|
|
|
-
|
|
|
|
62,242
|
|
Construction and land
|
|
|
13,596
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,596
|
|
Commercial and industrial
|
|
|
29,011
|
|
|
|
311
|
|
|
|
1,049
|
|
|
|
-
|
|
|
|
-
|
|
|
|
30,371
|
|
Home equity loans and lines of credit
|
|
|
8,575
|
|
|
|
-
|
|
|
|
148
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,723
|
|
Motor vehicle
|
|
|
10,869
|
|
|
|
8
|
|
|
|
24
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,901
|
|
Other
|
|
|
7,246
|
|
|
|
5
|
|
|
|
10
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,261
|
|
Total
|
|
$
|
316,121
|
|
|
$
|
3,078
|
|
|
$
|
8,213
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
327,412
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Pass
|
|
|
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Loss
|
|
|
Total
|
|
One to four family
|
|
$
|
176,824
|
|
|
$
|
2,716
|
|
|
$
|
5,073
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
184,613
|
|
Multi family
|
|
|
4,521
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,521
|
|
Commercial real estate
|
|
|
60,544
|
|
|
|
107
|
|
|
|
2,075
|
|
|
|
-
|
|
|
|
-
|
|
|
|
62,726
|
|
Construction and land
|
|
|
6,023
|
|
|
|
0
|
|
|
|
259
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,282
|
|
Commercial and industrial
|
|
|
30,551
|
|
|
|
5
|
|
|
|
1,285
|
|
|
|
-
|
|
|
|
-
|
|
|
|
31,841
|
|
Home equity loans and lines of credit
|
|
|
8,262
|
|
|
|
0
|
|
|
|
25
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,287
|
|
Motor vehicle
|
|
|
10,703
|
|
|
|
0
|
|
|
|
32
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,735
|
|
Other
|
|
|
7,306
|
|
|
|
8
|
|
|
|
33
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,347
|
|
Total
|
|
$
|
304,734
|
|
|
$
|
2,836
|
|
|
$
|
8,782
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
316,352
|
|
There were $2.0 million and $2.3 million purchased credit impaired
(“PCI”) loans included in substandard disclosure above at March 31, 2016 and December 31, 2015, respectively.
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 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 (in
thousands):
Purchased Loans as of March 31, 2016
|
|
Non-impaired
|
|
|
Credit-impaired
|
|
|
|
Purchased
|
|
|
Purchased
|
|
(in thousands)
|
|
Loans
|
|
|
Loans
|
|
Real estate:
|
|
|
|
|
|
|
|
|
One to four family
|
|
$
|
36,594
|
|
|
$
|
1,329
|
|
Commercial real estate
|
|
|
27,877
|
|
|
|
908
|
|
Construction and land
|
|
|
1,031
|
|
|
|
-
|
|
Commercial and Industrial
|
|
|
4,748
|
|
|
|
-
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
Home equity loans and lines of credit
|
|
|
1,555
|
|
|
|
-
|
|
Motor vehicle
|
|
|
466
|
|
|
|
2
|
|
Other
|
|
|
982
|
|
|
|
5
|
|
Total loans
|
|
$
|
73,253
|
|
|
$
|
2,244
|
|
Purchased Loans as of December 31, 2015
|
|
Non-impaired
|
|
|
Credit-impaired
|
|
|
|
Purchased
|
|
|
Purchased
|
|
(in thousands)
|
|
Loans
|
|
|
Loans
|
|
Real estate:
|
|
|
|
|
|
|
|
|
One to four family
|
|
$
|
37,557
|
|
|
$
|
1,305
|
|
Commercial real estate
|
|
|
28,322
|
|
|
|
1,061
|
|
Construction and land
|
|
|
1,058
|
|
|
|
258
|
|
Commercial and Industrial
|
|
|
7,122
|
|
|
|
-
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
Home equity loans and lines of credit
|
|
|
1,660
|
|
|
|
-
|
|
Motor vehicle
|
|
|
605
|
|
|
|
4
|
|
Other
|
|
|
1,107
|
|
|
|
12
|
|
Total loans
|
|
$
|
77,431
|
|
|
$
|
2,640
|
|
For the purchased loans disclosed above, the Company did not increase
the allowance for loan losses for the three months ended March 31, 2016 and March 31, 2015.
The following table presents the composition
of the acquired loans at March 31, 2016.
As of March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
|
|
|
Fair Value
|
|
|
|
|
(in thousands)
|
|
Amount
|
|
|
Adjustments
|
|
|
Fair Value
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
One to four family
|
|
$
|
38,702
|
|
|
$
|
(779
|
)
|
|
$
|
37,923
|
|
Commercial Real Estate
|
|
|
29,321
|
|
|
|
(536
|
)
|
|
|
28,785
|
|
Construction and land
|
|
|
1,043
|
|
|
|
(12
|
)
|
|
|
1,031
|
|
Commercial and Industrial
|
|
|
4,825
|
|
|
|
(77
|
)
|
|
|
4,748
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans and lines of credit
|
|
|
1,573
|
|
|
|
(18
|
)
|
|
|
1,555
|
|
Motor vehicle
|
|
|
475
|
|
|
|
(7
|
)
|
|
|
468
|
|
Other
|
|
|
1,003
|
|
|
|
(16
|
)
|
|
|
987
|
|
Total loans
|
|
$
|
76,942
|
|
|
$
|
(1,445
|
)
|
|
$
|
75,497
|
|
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 March 31, 2016.
(in thousands)
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
Carrying Amount
|
|
$
|
2,244
|
|
|
$
|
2,640
|
|
Non-Accretable difference
|
|
|
328
|
|
|
|
349
|
|
Accretable yield
|
|
|
225
|
|
|
|
292
|
|
Contractually-required principal and interest payments
|
|
$
|
2,797
|
|
|
$
|
3,281
|
|
The Company adjusted interest income to recognize $67,000 and $110,000
of accretable yield on credit-impaired purchased loans for the three months ended March 31, 2016 and 2015, respectively.
(in thousands)
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
One to four family
|
|
$
|
1,329
|
|
|
$
|
1,305
|
|
Commercial real estate
|
|
|
908
|
|
|
|
1,061
|
|
Construction and land
|
|
|
-
|
|
|
|
258
|
|
Commercial and industrial
|
|
|
-
|
|
|
|
-
|
|
Consumer:
|
|
|
|
|
|
|
|
|
Home equity loans and lines of credit
|
|
|
-
|
|
|
|
-
|
|
Motor vehicle
|
|
|
2
|
|
|
|
4
|
|
Other
|
|
|
5
|
|
|
|
12
|
|
Outstanding Balance
|
|
$
|
2,244
|
|
|
$
|
2,640
|
|
|
|
|
|
|
|
|
|
|
Carrying amount, net of allowance of $0, and $0
|
|
$
|
2,244
|
|
|
$
|
2,640
|
|
Accretable yield, or income expected to be collected, is as
follows (in thousands):
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Balance at January 1,
|
|
$
|
292
|
|
|
$
|
625
|
|
New Loans Purchased
|
|
|
-
|
|
|
|
-
|
|
Accretion of income
|
|
|
(67
|
)
|
|
|
(110
|
)
|
Reclassifications from nonaccretable difference
|
|
|
-
|
|
|
|
-
|
|
Disposals
|
|
|
-
|
|
|
|
-
|
|
Balance at March 31,
|
|
$
|
225
|
|
|
$
|
515
|
|
NOTE 4 – FEDERAL HOME LOAN BANK ADVANCES
Advances from the FHLB at March 31, 2016 and December 31, 2015 were
as follows (in thousands):
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
Maturities April 2016 through January 2029, fixed rate at rates from 0.45% to 6.86%, weighted average rate of 1.45% at March 31, 2016 and 1.52% at December 31, 2015
|
|
$
|
15,036
|
|
|
$
|
15,803
|
|
Payments contractually required over the next five years are as
follows (in thousands):
March 31,
|
|
|
|
2017
|
|
$
|
11,368
|
|
2018
|
|
|
1,794
|
|
2019
|
|
|
1,209
|
|
2020
|
|
|
223
|
|
2021
|
|
|
88
|
|
Thereafter
|
|
|
354
|
|
Total
|
|
$
|
15,036
|
|
NOTE 5 – 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
|
|
|
|
March 31, 2016 Using:
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Significant
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets for
|
|
|
Other Observable
|
|
|
Unobservable
|
|
|
|
Carrying
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and political subdivisions
|
|
$
|
19,489
|
|
|
$
|
-
|
|
|
$
|
19,489
|
|
|
$
|
-
|
|
U.S. Government agencies and sponsored entities
|
|
|
9,755
|
|
|
|
-
|
|
|
|
9,755
|
|
|
|
-
|
|
Mortgage backed securities: residential
|
|
|
23,445
|
|
|
|
-
|
|
|
|
23,445
|
|
|
|
-
|
|
Collateralized mortgage obligations
|
|
|
7,087
|
|
|
|
-
|
|
|
|
7,087
|
|
|
|
-
|
|
SBA loan pools
|
|
|
6,899
|
|
|
|
-
|
|
|
|
6,899
|
|
|
|
-
|
|
Total securities
|
|
$
|
66,675
|
|
|
$
|
-
|
|
|
$
|
66,675
|
|
|
$
|
-
|
|
|
|
Fair Value Measurements at
|
|
|
|
December 31, 2015 Using:
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Significant
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets for
|
|
|
Other Observable
|
|
|
Unobservable
|
|
|
|
Carrying
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and political subdivisions
|
|
$
|
17,960
|
|
|
$
|
-
|
|
|
$
|
17,960
|
|
|
$
|
-
|
|
U.S. Government agencies and sponsored entities
|
|
|
9,638
|
|
|
|
-
|
|
|
|
9,638
|
|
|
|
-
|
|
Mortgage backed securities: residential
|
|
|
23,371
|
|
|
|
-
|
|
|
|
23,371
|
|
|
|
-
|
|
Collateralized mortgage obligations
|
|
|
7,634
|
|
|
|
-
|
|
|
|
7,634
|
|
|
|
-
|
|
SBA loan pools
|
|
|
5,372
|
|
|
|
-
|
|
|
|
5,372
|
|
|
|
-
|
|
Total securities
|
|
$
|
63,975
|
|
|
$
|
-
|
|
|
$
|
63,975
|
|
|
$
|
-
|
|
For the periods ended March 31, 2016 and December 31, 2015, 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
|
|
|
|
March 31, 2016 Using:
|
|
|
|
|
|
|
Quoted Prices in
|
|
Significant
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets for
|
|
Other Observable
|
|
|
Unobservable
|
|
|
|
Carrying
|
|
|
Identical Assets
|
|
Inputs
|
|
|
Inputs
|
|
|
|
Value
|
|
|
(Level 1)
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity line of credit, net
|
|
$
|
10
|
|
|
$
|
-
|
|
$
|
-
|
|
|
$
|
10
|
|
Residential real estate, net
|
|
|
166
|
|
|
-
|
|
|
-
|
|
|
|
166
|
|
|
|
Fair Value Measurements at
|
|
|
|
December 31, 2015 Using:
|
|
|
|
|
|
|
Quoted Prices in
|
|
Significant
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets for
|
|
Other Observable
|
|
|
Unobservable
|
|
|
|
Carrying
|
|
|
Identical Assets
|
|
Inputs
|
|
|
Inputs
|
|
|
|
Value
|
|
|
(Level 1)
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Impaired loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate, net
|
|
$
|
212
|
|
|
$
|
-
|
|
$
|
-
|
|
|
$
|
212
|
|
Home equity line of credit, net
|
|
|
10
|
|
|
-
|
|
|
-
|
|
|
|
10
|
|
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 March 31, 2016, impaired loans recorded at fair value had a net
carrying amount of $176,000 equal to the outstanding balance of $230,000, net of a valuation allowance of $54,000. There were no
charge-offs for the three months ended March 31, 2016. At December 31, 2015, impaired loans recorded at fair value had a net carrying
amount of $222,000 equal to the outstanding balance of $237,000, net of a valuation allowance of $15,000. There were charge-offs
for the year ended December 31, 2015 in the amount of $252,000. At March 31, 2015, impaired loans recorded at fair value had a
net carrying amount of $680,000 equal to the outstanding balance of $750,000, net of a valuation allowance of $70,000. There were
no charge-offs for the three months ended March 31, 2015.
At March 31, 2016 and December 31, 2015 no OREO was recorded at
fair value. At March 31, 2015, 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. There were no write-downs for the three months ended March 31, 2016 and March
31, 2015.
The carrying amounts and estimated fair values of financial instruments
at March 31, 2016 and December 31, 2015 are as follows (in thousands):
|
|
|
|
|
Fair Value Measurements
|
|
|
|
Carrying
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
11,643
|
|
|
$
|
11,643
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
11,643
|
|
Interest-bearing deposits
|
|
|
1,992
|
|
|
|
1,992
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,992
|
|
Securities
|
|
|
66,675
|
|
|
|
-
|
|
|
|
66,675
|
|
|
|
-
|
|
|
|
66,675
|
|
Restricted stock
|
|
|
3,276
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Loans held for sale
|
|
|
345
|
|
|
|
-
|
|
|
|
345
|
|
|
|
-
|
|
|
|
345
|
|
Loans, net
|
|
|
324,888
|
|
|
|
-
|
|
|
|
-
|
|
|
|
359,925
|
|
|
|
359,925
|
|
Accrued interest receivable
|
|
|
1,463
|
|
|
|
-
|
|
|
|
369
|
|
|
|
1,094
|
|
|
|
1,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
344,810
|
|
|
$
|
184,962
|
|
|
$
|
161,392
|
|
|
$
|
-
|
|
|
$
|
346,354
|
|
Federal Home Loan Bank advances
|
|
|
15,036
|
|
|
|
9,003
|
|
|
|
6,060
|
|
|
|
-
|
|
|
|
15,063
|
|
Subordinated debenture
|
|
|
2,777
|
|
|
|
-
|
|
|
|
2,993
|
|
|
|
-
|
|
|
|
2,993
|
|
Accrued interest payable
|
|
|
68
|
|
|
|
-
|
|
|
|
68
|
|
|
|
-
|
|
|
|
68
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
|
Carrying
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
23,876
|
|
|
$
|
23,876
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
23,876
|
|
Interest bearing deposits
|
|
|
1,992
|
|
|
|
1,992
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,992
|
|
Securities
|
|
|
63,975
|
|
|
|
-
|
|
|
|
63,975
|
|
|
|
-
|
|
|
|
63,975
|
|
Restricted stock
|
|
|
3,276
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Loans held for sale
|
|
|
367
|
|
|
|
-
|
|
|
|
367
|
|
|
|
-
|
|
|
|
367
|
|
Loans, net
|
|
|
314,143
|
|
|
|
-
|
|
|
|
-
|
|
|
|
356,337
|
|
|
|
356,337
|
|
Accrued interest receivable
|
|
|
1,340
|
|
|
|
-
|
|
|
|
294
|
|
|
|
1,046
|
|
|
|
1,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
343,130
|
|
|
$
|
184,284
|
|
|
$
|
158,328
|
|
|
$
|
-
|
|
|
$
|
342,612
|
|
Federal Home Loan Bank advances
|
|
|
15,803
|
|
|
|
9,770
|
|
|
|
10,943
|
|
|
|
-
|
|
|
|
20,713
|
|
Subordinated debenture
|
|
|
2,761
|
|
|
|
-
|
|
|
|
2,761
|
|
|
|
-
|
|
|
|
2,761
|
|
Accrued interest payable
|
|
|
38
|
|
|
|
-
|
|
|
|
38
|
|
|
|
-
|
|
|
|
38
|
|
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 6 - 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 three months ended March 31, 2016 or 2015.
Shares held by the ESOP at March 31, 2016 and December 31, 2015
were as follows (dollars in thousands):
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Allocated to participants
|
|
|
42,832
|
|
|
|
42,832
|
|
Committed to be released
|
|
|
16,862
|
|
|
|
-
|
|
Unearned
|
|
|
209,091
|
|
|
|
225,953
|
|
Total ESOP shares
|
|
|
268,785
|
|
|
|
268,785
|
|
|
|
|
|
|
|
|
|
|
Fair value of unearned shares
|
|
$
|
3,469
|
|
|
$
|
3,864
|
|
NOTE 7 – EARNINGS PER SHARE
The factors used in the earnings per share
computation for the three months ended March 31, 2016 and 2015, were as follows (dollar amounts in thousands, except per share
data):
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Basic
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
499
|
|
|
$
|
586
|
|
Less: Earnings allocated to participating securities
|
|
|
12
|
|
|
|
14
|
|
Net income available to common shareholders
|
|
$
|
487
|
|
|
$
|
572
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
3,847,409
|
|
|
|
3,848,948
|
|
Less: Average unallocated ESOP shares
|
|
|
211,302
|
|
|
|
239,439
|
|
Average participating shares
|
|
|
50,976
|
|
|
|
91,589
|
|
Average shares
|
|
|
3,585,131
|
|
|
|
3,517,920
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
0.14
|
|
|
$
|
0.16
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
487
|
|
|
$
|
572
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding for basic earnings per common share
|
|
|
3,585,131
|
|
|
|
3,517,920
|
|
Add: Dilutive effects of assumed exercises of stock options
|
|
|
17,091
|
|
|
|
-
|
|
Average shares and dilutive potential common shares
|
|
|
3,602,222
|
|
|
|
3,517,920
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
$
|
0.14
|
|
|
$
|
0.16
|
|
Stock options of 205,500 shares of common stock were considered
in computing diluted earnings per common share at March 31, 2016. No stock options were excluded from the calculation of diluted
earnings per common share for March 31, 2016. Stock options of 295,500 shares of common stock were not considered in computing
diluted earnings per common share for March 31, 2015 because they were antidilutive.
NOTE 8 – 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 three
months ended March 31, 2016:
|
|
|
|
|
Weighted
Average
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
|
|
|
|
|
|
Outstanding - December 31, 2015
|
|
|
205,500
|
|
|
$
|
14.93
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised and settled
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Outstanding - March 31, 2016
|
|
|
205,500
|
|
|
$
|
14.93
|
|
|
|
|
|
|
|
|
|
|
Fully vested and exercisable at March 31, 2016
|
|
|
87,400
|
|
|
|
|
|
Fully vested and exercisable at December 31, 2015
|
|
|
76,200
|
|
|
|
|
|
Expected to vest in future periods
|
|
|
118,100
|
|
|
|
|
|
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. During the three months ended March 31, 2016, 11,200 options vested. Stock-based compensation
expense for stock options included in salaries and benefits for the three months ended March 31, 2016 and 2015 was $31,000 and
$30,000, respectively. Total unrecognized compensation cost related to non-vested stock options was $177,000 at March 31, 2016
and $208,000 at December 31, 2015 and is expected to be recognized over a period of 4 – 4.5 years.
The following table summarizes non-vested restricted stock activity
for the three months ended March 31, 2016:
Balance - December 31, 2015
|
|
|
53,947
|
|
Granted
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
Vested
|
|
|
(4,991
|
)
|
Balance - March 31, 2016
|
|
|
48,956
|
|
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 months ended March 31, 2016 and 2015 was $117,000
and $100,000, respectively. Unrecognized compensation expense for non-vested restricted stock awards was $505,000 at March 31,
2016 and $623,000 at December 31, 2015 and is expected to be recognized over a weighted-average period of 3 years.
NOTE 9 – ACCUMULATED OTHER COMPREHENSIVE INCOME
The following table is changes in Accumulated Other Comprehensive
Income by component, net of tax for the three months ended March 31, 2016 and March 31, 2015 (in thousands):
|
|
Unrealized Gains and Losses on Available-for-Sale
Securities
|
|
|
|
Three months ended
|
|
|
Three months ended
|
|
|
|
March 31, 2016
|
|
|
March 31, 2015
|
|
Beginning balance
|
|
$
|
384
|
|
|
$
|
460
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, net of tax before reclassification
|
|
|
259
|
|
|
|
154
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated to other comprehensive income for gains on sale of securities, net of tax expense of $0 and $0 respectively.
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net current period other comprehensive income
|
|
|
259
|
|
|
|
154
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
643
|
|
|
$
|
614
|
|
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, 2015,
as filed with the Securities and Exchange Commission.
Forward-Looking Statement
s
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 FSB (“Commonwealth”), 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. Except as may be required by law, we do not
take any obligation to update any forward-looking statements after the date of this Quarterly Report on form 10-Q. You should not
place undue reliance on such forward-looking statements.
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:
|
>
|
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 combined successfully with the
businesses of Town Square Financial Corporation and Commonwealth, or such combinations may take longer to accomplish than expected;
|
|
>
|
the growth opportunities and cost savings from the acquisitions
of Town Square Financial Corporation and Commonwealth 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, 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, 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 loans;
|
|
>
|
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;
|
|
>
|
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 March 31, 2016 and December
31, 2015
At March 31, 2016, the Company’s assets
totaled $436.1 million, an increase of $1.0 million, or 0.2%, from $435.1 million at December 31, 2015. The increase was attributed
to growth in real estate loans during the quarter funded by growth in interest bearing deposits.
Cash and Cash equivalents decreased by $12.3
million, or 51.2%, to $11.6 million at March 31, 2016 from $23.9 million at December 31, 2015. The decrease was attributable to
loan growth of $11.1 million, the purchase of $4.0 million in available for sale securities, and a decrease in outstanding FHLB
advances of $767,000, offset by principal payments on securities of $1.6 million and an increase in deposits of $1.7 million.
Loans held for sale decreased $22,000, or 6.0%,
to $345,000 at March 31, 2016 from $367,000 at December 31, 2015 due to the decrease in mortgage banking activity.
Loans, net, increased $11.1 million, or 3.4%,
to $324.9 million at March 31, 2016 from $314.1 million at December 31, 2015. The increase was primarily attributable to an increase
in construction loans and one-to four-family mortgage loans, offset by the decrease in commercial and industrial loans. Real estate
secured loans increased $12.0 million, commercial loans decreased $1.5 million and consumer loans increased $516,000 during the
three month period ending March 31, 2016. Non-performing loans decreased $639,000, or 14.2%, to $3.9 million at March 31, 2016
from $4.5 million at December 31, 2015.
Securities available for sale increased by
$2.7 million, or 4.2%, to $66.7 million at March 31, 2016 from $64.0 million at December 31, 2015. This increase is primarily due
to $4.0 million in purchases, offset by $1.6 million in principal payments.
Deposits increased $1.7 million, or 0.5%, to
$344.8 million at March 31, 2016 from $343.1 million at December 31, 2015. The increase was attributable to the accounts and normal
fluctuation in customer balances.
Federal Home Loan Bank advances decreased $767,000,
or 4.9%, to $15.0 million at March 31, 2016 from $15.8 million at December 31, 2015. This decrease in borrowings was primarily
due to regular principal payments and maturities.
Other borrowings increased by $16,000, or 0.6%,
to $2.8 million at March 31, 2016 from $2.8 million at December 31, 2015 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 $2.8 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 2.46% at March 31, 2016.
Total shareholders’ equity decreased
by $500,000, or 0.7%, to $70.7 million at March 31, 2016 from $71.2 million at December 31, 2015. The decrease resulted from the
repurchase of common stock totaling $1.2 million and the payment of cash dividends totaling $230,000, offset by an increase in
accumulated other comprehensive income by $259,000 and net income of $499,000.
Average Balance and Yields
The following table sets 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 (dollars in thousands).
|
|
For the Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Average
|
|
|
Interest and
|
|
|
|
|
|
Average
|
|
|
Interest and
|
|
|
|
|
|
|
Balance
|
|
|
Dividends
|
|
|
Yield/ Cost
|
|
|
Balance
|
|
|
Dividends
|
|
|
Yield/ Cost
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
320,160
|
|
|
$
|
4,318
|
|
|
|
5.42
|
%
|
|
$
|
302,024
|
|
|
$
|
4,210
|
|
|
|
5.58
|
%
|
Investment securities
|
|
|
65,043
|
|
|
|
366
|
|
|
|
2.26
|
%
|
|
|
67,018
|
|
|
|
363
|
|
|
|
2.17
|
%
|
FHLB stock
|
|
|
3,036
|
|
|
|
30
|
|
|
|
3.97
|
%
|
|
|
2,681
|
|
|
|
27
|
|
|
|
4.03
|
%
|
Other interest-earning assets
|
|
|
14,687
|
|
|
|
20
|
|
|
|
0.55
|
%
|
|
|
16,066
|
|
|
|
6
|
|
|
|
0.15
|
%
|
Total interest-earning assets
|
|
|
402,926
|
|
|
|
4,734
|
|
|
|
4.73
|
%
|
|
|
387,789
|
|
|
|
4,606
|
|
|
|
4.75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-earning assets
|
|
|
27,014
|
|
|
|
|
|
|
|
|
|
|
|
26,365
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
429,940
|
|
|
|
|
|
|
|
|
|
|
|
414,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW, savings, money market, and other
|
|
|
136,028
|
|
|
|
60
|
|
|
|
0.18
|
%
|
|
|
118,053
|
|
|
|
57
|
|
|
|
0.19
|
%
|
Certificates of deposit
|
|
|
159,632
|
|
|
|
412
|
|
|
|
1.04
|
%
|
|
|
161,047
|
|
|
|
390
|
|
|
|
0.97
|
%
|
Total interest bearing deposits
|
|
|
295,660
|
|
|
|
472
|
|
|
|
0.64
|
%
|
|
|
279,100
|
|
|
|
447
|
|
|
|
0.64
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB advances
|
|
|
10,974
|
|
|
|
51
|
|
|
|
1.87
|
%
|
|
|
17,074
|
|
|
|
67
|
|
|
|
1.57
|
%
|
Subordinated debenture
|
|
|
2,768
|
|
|
|
40
|
|
|
|
5.81
|
%
|
|
|
2,708
|
|
|
|
36
|
|
|
|
5.32
|
%
|
Total borrowings
|
|
|
13,742
|
|
|
|
91
|
|
|
|
2.66
|
%
|
|
|
19,782
|
|
|
|
103
|
|
|
|
2.11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities
|
|
|
309,402
|
|
|
|
563
|
|
|
|
0.73
|
%
|
|
|
298,882
|
|
|
|
550
|
|
|
|
0.74
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing deposits
|
|
|
47,581
|
|
|
|
|
|
|
|
|
|
|
|
45,070
|
|
|
|
|
|
|
|
|
|
Accrued interest payable
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
|
150
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
2,253
|
|
|
|
|
|
|
|
|
|
|
|
1,986
|
|
|
|
|
|
|
|
|
|
Total non-interest bearing liabilities
|
|
|
49,950
|
|
|
|
|
|
|
|
|
|
|
|
47,206
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
359,352
|
|
|
|
|
|
|
|
|
|
|
|
346,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
70,588
|
|
|
|
|
|
|
|
|
|
|
|
68,066
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
|
429,940
|
|
|
|
|
|
|
|
|
|
|
|
414,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
|
4,171
|
|
|
|
|
|
|
|
|
|
|
|
4,056
|
|
|
|
|
|
Interest rate spread
|
|
|
|
|
|
|
|
|
|
|
3.99
|
%
|
|
|
|
|
|
|
|
|
|
|
4.01
|
%
|
Net interest margin
|
|
|
|
|
|
|
|
|
|
|
4.16
|
%
|
|
|
|
|
|
|
|
|
|
|
4.18
|
%
|
Average interest-earning assets to average interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
130.23
|
%
|
|
|
|
|
|
|
|
|
|
|
129.75
|
%
|
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 March 31, 2016,
we had $15.0 million in advances from the Federal Home Loan Bank of Cincinnati and an additional borrowing capacity of $93.6 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 March 31, 2016, Poage Bankshares, Inc. (on an unconsolidated
basis) had liquid assets of $742,000.
Federal regulations require FDIC-insured depository
institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier
1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets of 8%, and a 4% Tier 1 capital to total assets
leverage ratio. The existing capital requirements were effective January 1, 2015 and are the result of a final rule implementing
regulatory amendments based on recommendations of the Basel Committee on Banking Supervision and certain requirements of the Dodd-Frank
Act.
For purposes of the regulatory capital requirements,
common equity Tier 1 capital is generally defined as common shareholders’ equity and retained earnings. Tier 1 capital
is generally defined as common equity Tier 1 and additional Tier 1 capital. Additional Tier 1 capital includes certain noncumulative
perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries. Total capital
includes Tier 1 capital (common equity Tier 1 capital plus additional Tier 1 capital) and Tier 2 capital. Tier 2 capital is comprised
of capital instruments and related surplus, meeting specified requirements, and may include cumulative preferred stock and long-term
perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated debt. Also included
in Tier 2 capital is the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets and, for institutions
that made such an election regarding the treatment of Accumulated Other Comprehensive Income (“AOCI”), up to 45% of
net unrealized gains on available-for-sale equity securities with readily determinable fair market values. Institutions that have
not exercised the AOCI opt-out have AOCI incorporated into common equity Tier 1 capital (including unrealized gains and losses
on available-for-sale-securities). We have exercised the AOCI opt-out. Calculation of all types of regulatory capital is subject
to deductions and adjustments specified in the regulations.
In determining the amount of risk-weighted
assets for purposes of calculating risk-based capital ratios, all assets, including certain off-balance sheet assets (e.g., recourse
obligations, direct credit substitutes, residual interests) are multiplied by a risk weight factor assigned by the regulations
based on the risks believed inherent in the type of asset. Higher levels of capital are required for asset categories believed
to present greater risk. For example, a risk weight of 0% is assigned to cash and U.S. government securities, a risk weight of
50% is generally assigned to prudently underwritten first lien one- to four-family residential mortgages, a risk weight of 100%
is assigned to commercial and consumer loans, a risk weight of 150% is assigned to certain past due loans and a risk weight of
between 0% to 600% is assigned to permissible equity interests, depending on certain specified factors.
In addition to establishing the
minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments
to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common
equity Tier 1 capital to risk-weighted asset above the amount necessary to meet its minimum risk-based capital requirements.
The capital conservation buffer requirement is being phased in beginning January 1, 2016 at 0.625% of risk-weighted assets
and increasing each year until fully implemented at 2.5% on January 1, 2019. When fully implemented, the capital
conservation buffer will be 2.50% of risk weighted assets over and above the regulatory minimum capital ratios for Common
Equity Tier 1 Capital (CET1) to risk weighted assets, Tier 1 Capital to risk weighted assets, and Total Capital to risk
weighted assets. The consequences of not meeting the capital conservation buffer thresholds include restrictions on the
payment of dividends, restrictions on the payment of discretionary bonuses, and restrictions on the repurchasing of common
shares by the Company. At March 31, 2016, the actual capital conservation buffer for Town Square Bank was 15.86% compared to
the capital conservation buffer requirement of 0.625%.
In assessing an institution’s capital
adequacy, the OCC takes into consideration, not only these numeric factors, but qualitative factors as well, and has the authority
to establish higher capital requirements for individual institutions when deemed necessary.
As of March 31, 2016, the capital of the Town Square Bank exceeded
all required regulatory guidelines.
The following table reflects the Bank’s
current regulatory capital levels in more detail, including comparisons to the regulatory minimums at March 31, 2016 and December
31, 2015 (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized Under
|
|
|
|
|
|
|
|
|
|
For Capital Adequacy
|
|
|
Prompt Corrective
|
|
|
|
Actual
|
|
|
Purposes
|
|
|
Action Regulations
|
|
As of March 31, 2016
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
Total Risk-Based Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to Risk-weighted Assets)
|
|
$
|
68,594
|
|
|
|
23.86
|
%
|
|
$
|
22,996
|
|
|
|
8.00
|
%
|
|
$
|
28,744
|
|
|
|
10.00
|
%
|
Tier I Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to Risk-weighted Assets)
|
|
|
66,427
|
|
|
|
23.11
|
%
|
|
|
17,247
|
|
|
|
6.00
|
%
|
|
|
22,996
|
|
|
|
8.00
|
%
|
Common Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to Risk-weighted Assets)
|
|
|
66,427
|
|
|
|
23.11
|
%
|
|
|
12,935
|
|
|
|
4.50
|
%
|
|
|
18,684
|
|
|
|
6.50
|
%
|
Tier I Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to Adjusted Total Assets)
|
|
|
66,427
|
|
|
|
15.51
|
%
|
|
|
17,131
|
|
|
|
4.00
|
%
|
|
|
21,414
|
|
|
|
5.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized Under
|
|
|
|
|
|
|
|
|
|
For Capital Adequacy
|
|
|
Prompt Corrective
|
|
|
|
Actual
|
|
|
Purposes
|
|
|
Action Regulations
|
|
As of December 31, 2015
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
Total Risk-Based Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to Risk-weighted Assets)
|
|
$
|
67,705
|
|
|
|
24.36
|
%
|
|
$
|
22,237
|
|
|
|
8.00
|
%
|
|
$
|
27,796
|
|
|
|
10.00
|
%
|
Tier I Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to Risk-weighted Assets)
|
|
|
65,816
|
|
|
|
23.68
|
%
|
|
|
16,678
|
|
|
|
6.00
|
%
|
|
|
22,237
|
|
|
|
8.00
|
%
|
Common Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to Risk-weighted Assets)
|
|
|
65,816
|
|
|
|
23.68
|
%
|
|
|
12,508
|
|
|
|
4.50
|
%
|
|
|
18,067
|
|
|
|
6.50
|
%
|
Tier I Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to Adjusted Total Assets)
|
|
|
65,816
|
|
|
|
15.31
|
%
|
|
|
17,190
|
|
|
|
4.00
|
%
|
|
|
21,488
|
|
|
|
5.00
|
%
|
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 Months Ended March
31, 2016 and March 31, 2015
General.
Net income decreased
$87,000 to $499,000 for the three months ended March 31, 2016 from net income of $586,000 for the three months ended March 31,
2015. The decrease in net income is attributable to a decrease in non-interest income of $34,000, to $666,000 for the three months
ended March 31, 2016 compared to $700,000 for the three months ended March 31, 2015, an increase in provision for loan losses of
$284,000 to $375,000 for the three months ended March 31, 2016 compared to $91,000 for the three months ending March 31, 2015,
and an increase in interest expense of $13,000 to $563,000 for the three months ended March 31, 2016 compared to $550,000 for the
three months ended March 31, 2015, offset by an increase in interest income of $128,000 to $4.7 million for the three months ended
March 31, 2016 compared to from $4.6 million for the three months ended March 31, 2015. In addition, tax expense decreased $147,000
to $177,000 for the three months ended March 31, 2016 from $324,000 for the three months ended March 31, 2015.
Interest Income.
Interest income
increased $128,000, or 2.8%, to $4.7 million for the three months ended March 31, 2016 from $4.6 million for the three months ended
March 31, 2015. The average balance of interest-earning assets increased $15.1 million, or 2.5%, to $402.9 million from $387.8
million. The increase in primarily attributable to the acquisition of Commonwealth on May 31, 2015.
Interest income on loans increased $108,000,
or 2.6%, to $4.3 million for the three months ended March 31, 2016 from $4.2 million for the three months ended March 31, 2015.
The average yields on loans decreased 16 basis points to 5.42% for the three months ended March 31, 2016, compared to 5.58% for
the three months ended March 31, 2015. The average balance of loans increased $18.1 million, or 6.0%, to $320.2 million for the
three months ended March 31, 2016 from $302.0 million for the three months ended March 31, 2015. Interest income on investment
securities increased $3,000, or 0.8%, to $366,000 for the three months ended March 31, 2016 from $363,000 for the three months
ended March 31, 2015. The average yield on securities increased 9 basis points to 2.26% for the three months ended March 31, 2016,
compared to 2.17% for the three months ended March 31, 2015. The average balance of investment securities decreased $2.0 million,
or 2.9%, to $65.0 million for the three months ended March 31, 2016 from $67.0 million for the three months ended March 31, 2015.
Interest income on other interest-earning assets increased $14,000, or 233.3%, to $20,000 for the three months ended March 31,
2016 from $6,000 for the three months ended March 2015. The average yield on other interest-earning assets increased 40 basis points
to 0.55% for the three months ended March 31, 2016 compared to 0.15% for the three months ended March 31, 2016. The average balance
of other interest earning assets decreased $1.4 million, or 8.6%, to $14.7 million for the three months ended March 31, 2016 from
$16.1 million for the three months ended March 31, 2015. The increase in other interest-earning assets is attributable to $2.0
million in interest bearing deposits with other financial institutions.
Interest Expense.
Interest expense
increased $13,000, or 2.4%, to $563,000 for the three months ended March 31, 2016 from $550,000 for the three months ended March
31, 2015. Interest expense on interest bearing deposits increased $25,000, or 5.6% to $472,000 for the three months ended March
31, 2016 from $447,000 for the three months ended March 31, 2015. The average balance of interest bearing deposits increased $16.6
million to $295.7 million for the three months ended March 31, 2016 from $279.1 million for the three months ended March 31, 2015,
while the average interest rate paid on interest bearing deposits was 0.64% for both periods.
Interest expense on FHLB advances and subordinated
debentures decreased $12,000, or 11.7%, to $91,000 for the three months ended March 31, 2016 from $103,000 for the three months
ended March 31, 2015. The average balance on FHLB advances decreased $6.1 million to $11.0 million for the three months ended March
31, 2016 from $17.1 million for the three months ended March 31, 2015, offset by a 30 basis point increase in the average rate
paid on the FHLB advances to 1.87% from 1.57% as short-term borrowings with lower interest rates matured. The average balance on
subordinated debentures increased $60,000, or 2.2%, to $2.8 million for the three months ended March 31, 2016 from $2.7 million
for the three months ended March 31, 2015. The average interest rate paid on subordinated debentures increased 49 basis points
to 5.81% for the three months ended March 31, 2016 from 5.32% for the three months ended March 31, 2015.
Net Interest Income
. Net interest
income increased $115,000, or 2.8%, to $4.2 million for the three months ended March 31, 2016 from $4.1 million for the three months
ended March 31, 2015. Net interest income increased due to an increase in the ratio of average interest earning assets to average
interest bearing liabilities to 130.23% for the three months ended March 31, 2016 from 129.75% for the three months ended March
31, 2015. However, the interest rate spread and interest margin decreased 2 basis points to 3.99% and 4.16% for the three months
ended March 31, 2016 from 4.01% and 4.18% for the three months ended March 31, 2015, respectively.
The interest rate spread and net
interest margin for the three months ended March 31, 2016 decreased due to the lower yields on assets for the three months
ended March 31, 2016 as compared the three months ended March 31, 2015. Income recognized from purchase discounts
attributable to the Town Square acquisition decreased $117,000 to $222,000 for the three months ended March 31, 2016 compared
to $339,000 for the three months ended March 31, 2015.
Provision for Loan Losses.
We
recorded $375,000 in provision for loan losses for the three months ended March 31, 2016 and $91,000 provision for loan losses
for the three months ended March 31, 2015. 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 March 31, 2016 is primarily attributable to loan growth, charge-offs and newly down-graded one-to
four- family mortgage loans.
Noninterest Income.
Noninterest
income decreased $34,000, or 4.9%, to $666,000 for the three months ended March 31, 2016 from $700,000 for the three months ended
March 31, 2015. The decrease in noninterest income was primarily attributable to the decrease in mortgage banking activity of $26,000,
or 38.2%, to $42,000 for the three months ending March 31, 2016 from $68,000 for the three months ended March 31, 2015, a decrease
in loan servicing fees of $25,000, or 27.5%, to $66,000 for the three months ended March 31, 2016 from $91,000 for the three months
ended March 31, 2015 and a decrease in gains on insurance settlement/claims of $41,000, or $100%, to $0 for the three months ended
March 31, 2016 primarily due to 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 for the three months ended March 31, 2015. The decrease is offset by
an increase in service charges on deposits of $53,000, or 12.0%, to $494,000 for the three months ended March 31, 2016 from $441,000
for the three months ended March 31, 2015.
Noninterest Expense.
Noninterest expense increased
$31,000, or 0.8%, to $3.8 million for the three months ended March 31, 2016 from $3.8 million for the three months ended March
31, 2015. This increase was largely due to the increase in data processing of $158,000, or 28.8%, to $707,000 for the three months
ended March 31, 2016 from $549,000 for the three months ended March 31, 2015 due to the Commonwealth acquisition in May 2015 and
preparation to re-open the Midtown branch located on Martin Luther King Boulevard in Ashland, Kentucky in the second quarter of
2016. Due to Midtown’s close proximity to the main office, the branch was closed in July 2014 following the acquisition of
Town Square Financial in an effort to reduce the number of facilities. However, after terminating our lease in December 2015 on
a building used for loan operations, management and the board of directors chose to utilize the previously closed branch for office
space and offer retail banking services.
Salaries and employee benefits increased $35,000,
or 1.9%, to $1.9 million for the three months ended March 31, 2016 from $1.8 million for the three months ended March 31, 2015
due to the increase in the number of employees due to the Commonwealth acquisition. The increase in non-interest expense is offset
by a decrease in professional fees of $66,000, or 35.3%, to $121,000 for the three months ended March 31, 2016 from $187,000 for
the three months ended March 31, 2015 primarily attributable to the Commonwealth acquisition, a decrease in occupancy expense
of $36,000, or 9.1%, to $361,000 for the three months ended March 31, 2016 from $397,000 for the three months ended March 31, 2015
primarily attributable to a $92,000 gain on the sale of a piece of unimproved land owned by the bank and a decrease in foreclosed
assets of $52,000, or 49.1%, to $54,000 for the three months ended March 31, 2016 from $106,000 for the three months ended March
31, 2015.
Income Tax Expense.
The provision
for income taxes decreased $147,000, or 45.4%, to $177,000 for the three months ended March 31, 2016 compared to a $324,000 tax
expense for the three months ended March 31, 2015 due to lower pre-tax income. Our effective tax rate for the three months ended
March 31, 2016 was 26.2%.